1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
--------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
Commission file number 0-15752
CENTURY BANCORP, INC.
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF MASSACHUSETTS 04-2498617
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
400 MYSTIC AVENUE, MEDFORD, MA 02155
(Address of principal executive offices) (Zip Code)
(781)391-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 31, 1999:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,643,397 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,178,770 SHARES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: MAY 07, 1999 CENTURY BANCORP, INC.
- ---------------------------------- ----------------------------------
(Registrant)
/s/ Paul V. Cusick, Jr. /s/ Kenneth A. Samuelian
- ---------------------------------- ----------------------------------
PAUL V. CUSICK, JR. KENNETH A. SAMUELIAN
VICE PRESIDENT AND TREASURER VICE PRESIDENT AND CONTROLLER,
(PRINCIPAL FINANCIAL OFFICER) CENTURY BANK & TRUST COMPANY
(CHIEF ACCOUNTING OFFICER)
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Century Bancorp, Inc.
Page
Index Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets:
March 31, 1999 and December 31, 1998. 3
Consolidated Statements of Income:
Three (3) Months Ended March 31,
1999 and 1998. 4
Consolidated Statements of Changes in Stockholders
Equity: Three (3) Months Ended March 31,
1999 and 1998. 5
Consolidated Statements of Cash Flows:
Three (3) Months Ended March 31,
1999 and 1998. 6
Notes to Consolidated Financial
Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 11
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 12
Part II. Other Information
Item 1 through Item 6 13
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PART I - Item 1
Century Bancorp, Inc. - Consolidated Balance Sheets (unaudited)
(000's) Mar 31, Dec 31,
Assets 1999 1998
--------- ---------
Cash and due from banks $ 45,139 $ 34,518
Federal funds sold and interest-bearing deposits in other banks 348 26,501
--------- ---------
Total cash and cash equivalents 45,487 61,019
--------- ---------
Securities available-for-sale, amortized cost $224,135 and
$210,290, respectively 222,630 210,157
Securities held-to-maturity, market value $160,595 and
$160,109, respectively 161,888 159,875
Loans, net of unearned discount:
Commercial & industrial 68,174 64,822
Construction & land development 25,479 21,691
Commercial real estate 191,962 187,285
Industrial revenue bonds 330 1,034
Residential real estate 85,386 87,518
Consumer 12,939 14,355
Home equity 19,020 18,839
Overdrafts 293 359
--------- ---------
Total loans, net of unearned discount 403,583 395,903
Less allowance for loan losses (6,173) (6,022)
--------- ---------
Net loans 397,410 389,881
Bank premises and equipment, net 10,399 10,543
Accrued interest receivable 7,136 6,518
Other assets 15,982 15,333
--------- ---------
Total assets $ 860,932 $ 853,326
========= =========
Liabilities
Deposits:
Demand deposits $ 123,190 $ 163,241
Savings and NOW deposits 167,058 153,207
Money market accounts 81,613 84,848
Time deposits 230,355 242,129
--------- ---------
Total deposits 602,216 643,425
Securities sold under agreements to repurchase 42,460 57,690
Federal Home Loan Bank (FHLB) borrowings and other borrowed funds 116,601 34,846
Other liabilities 8,933 27,564
Long term debt 28,750 28,750
--------- ---------
Total liabilities 798,960 792,275
Stockholders' equity
Class A common stock, $1.00 par value per share; 3,678 3,673
authorized 10,000,000 shares; issued 3,678,397
Class B common stock, $1.00 par value per share; 2,227 2,227
authorized 5,000,000 shares; issued 2,226,320
Additional paid-in capital 10,978 10,965
Retained earnings 46,331 44,451
Treasury stock, Class A, 35,000 shares (223) (136)
Treasury stock, Class B, 47,550 shares (41) (41)
--------- ---------
62,950 61,139
Accumulated other comprehensive income (loss) (978) (88)
--------- ---------
Total stockholders' equity 61,972 61,051
--------- ---------
Total liabilities and stockholders' equity $ 860,932 $ 853,326
========= =========
See accompanying Notes to Consolidated Financial Statements 3 of 13
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Century Bancorp, Inc. - Consolidated Statements of Income (unaudited)
- --------------------------------------------------------------------------------
(000's except share data) Three months ended March 31,
1999 1998
---------- ----------
Interest income
Loans $ 8,648 $ 7,306
Securities held-to-maturity 2,325 1,810
Securities available-for-sale 3,014 1,457
Federal funds sold and interest-bearing
deposits in other banks 163 361
---------- ----------
Total interest income 14,150 10,934
Interest expense
Savings and NOW deposits 926 1,049
Money market accounts 571 493
Time deposits 2,927 2,147
Securities sold under agreements to repurchase 414 320
FHLB borrowings and other borrowed funds 1,374 71
---------- ----------
Total interest expense 6,212 4,080
---------- ----------
Net interest income 7,938 6,854
Provision for loan losses 225 165
---------- ----------
Net interest income after provision
for loan losses 7,713 6,689
Other operating income
Service charges on deposit accounts 425 441
Lockbox fees 391 382
Brokerage commissions 350 285
Gain on sales of loans 0 22
Other income 132 117
---------- ----------
Total other operating income 1,298 1,247
---------- ----------
Operating expenses
Salaries and employee benefits 3,515 3,237
Occupancy 398 345
Equipment 335 316
Other 1,352 1,174
---------- ----------
Total operating expenses 5,600 5,072
---------- ----------
Income before income taxes 3,411 2,864
Provision for income taxes 1,275 1,062
---------- ----------
Net income $ 2,136 $ 1,802
========== ==========
Share data:
Weighted average number of shares outstanding, basic 5,825,528 5,792,160
Weighted average number of shares outstanding, diluted 5,858,711 5,853,993
Net income per share, basic $ 0.37 $ 0.31
Net income per share, diluted $ 0.36 $ 0.31
Cash dividends declared:
Class A common stock $ 0.0600 $ 0.0500
Class B common stock $ 0.0170 $ 0.0070
See accompanying Notes to Consolidated Financial Statements.
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Century Bancorp, Inc. - Consolidated Statement of Changes in Stockholders'
Equity (unaudited)
- --------------------------------------------------------------------------------
Class A Class B Additional Treasury
Common Common Paid-In Retained Stock
Three months ended March 31, 1998 Stock Stock Capital Earnings Class A
----------------------------------------------------------------------
(000's)
Balance at December 31, 1997 $ 3,541 $ 2,327 $ 10,877 $ 37,180 ($ 136)
Net income -- -- -- 1,802 --
Other comprehensive income, net of tax:
Decrease in unrealized gain on
securities available-for-sale -- -- -- -- --
Comprehensive income
Conversion of Class B common stock to
Class A common stock, 25,200 shares 26 (26) -- -- --
Stock options exercised, 3,250 shares 3 -- 9 -- --
Cash dividends, Class A common stock,
$.050 per share, per quarter -- -- -- (176) --
Cash dividends, Class B common stock,
$.0070 per share, per quarter -- -- -- (16) --
-------- -------- -------- -------- --------
Balance at March 31, 1998 $ 3,570 $ 2,301 $ 10,886 $ 38,790 ($ 136)
======== ======== ======== ======== ========
1999
Balance at December 31, 1998 $ 3,673 $ 2,227 $ 10,965 $ 44,451 ($ 136)
Net income -- -- -- 2,136 --
Other comprehensive income, net of tax:
Increase in unrealized loss on
securities available-for-sale -- -- -- -- --
Comprehensive income
Stock options exercised, 5,000 shares 5 -- 13 -- --
Treasury stock repurchase -- -- -- -- (87)
Cash dividends, Class A common stock,
$.060 per share, per quarter -- -- -- (219) --
Cash dividends, Class B common stock,
$.0170 per share, per quarter -- -- -- (37) --
-------- -------- -------- -------- --------
Balance at March 31, 1999 $ 3,678 $ 2,227 $ 10,978 $ 46,331 ($ 223)
======== ======== ======== ======== ========
Accumulated
Treasury Other Total
Stock Comprehensive Stockholders'
Three months ended March 31, Class B Income (Loss) Equity
-------------------------------------------
1998
Balance at December 31, 1997 ($ 41) $ 109 $ 53,857
Net income -- -- 1,802
Other comprehensive income, net of tax:
Decrease in unrealized gain on
securities available-for-sale -- (135) (135)
--------
Comprehensive income 1,667
Conversion of Class B common stock to
Class A common stock, 25,200 shares -- -- --
Stock options exercised, 3,250 shares -- -- 12
Cash dividends, Class A common stock,
$.050 per share, per quarter -- -- (176)
Cash dividends, Class B common stock,
$.0070 per share, per quarter -- -- (16)
-------- -------- --------
Balance at March 31, 1998 ($ 41) ($ 26) $ 55,344
========
1999
Balance at December 31, 1998 ($ 41) ($ 88) $ 61,051
Net income -- -- 2,136
Other comprehensive income, net of tax:
Increase in unrealized loss on
securities available-for-sale -- (890) (890)
--------
Comprehensive income 1,246
Stock options exercised, 5,000 shares -- -- 18
Treasury stock repurchase -- -- (87)
Cash dividends, Class A common stock,
$.060 per share, per quarter -- -- (219)
Cash dividends, Class B common stock,
$.0170 per share, per quarter -- -- (37)
-------- -------- --------
Balance at March 31, 1999 ($ 41) ($ 978) $ 61,972
========
See accompanying Notes to Consolidated Financial Statements.
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Century Bancorp, Inc. - Consolidated Statements of Cash Flows (unaudited)
- --------------------------------------------------------------------------------
1999 1998
For the three months ended
March 31,
(000's)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,136 $ 1,802
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 225 165
Deferred income taxes (178) (195)
Net depreciation and amortization 485 133
Increase in accrued interest receivable (618) (254)
Increase in other assets (195) (146)
Loans originated for sale 0 (1,283)
Proceeds from sales of loans 0 1,449
Gain on sales of loans 0 (22)
Decrease in other liabilities (639) (6,770)
-------- --------
Net cash provided by (used in) operating activities 1,216 (5,121)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale 35,620 16,500
Purchase of securities available-for-sale (49,424) (21,198)
Proceeds from maturities of securities held-to-maturity 32,577 26,500
Purchase of securities held-to-maturity (34,739) (35,987)
Decrease in payable for investments purchased (17,992) 0
Net increase in loans (7,685) (3,114)
Capital expenditures (206) (416)
-------- --------
Net cash used in investing activities (41,849) (17,715)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits (11,664) (5,353)
Net decrease in demand, savings, money market and NOW deposits (29,435) (19,243)
Net proceeds from the issuance of common stock 18 12
Treasury Stock repurchase (87) 0
Cash Dividends (256) (192)
Net decrease in securities sold under agreements to repurchase (15,230) (1,620)
Net increase(decrease) in FHLB borrowings and other borrowed funds 81,755 (10,333)
-------- --------
Net cash provided by (used in) financing activities 25,101 (36,729)
-------- --------
Net decrease in cash and cash equivalents (15,532) (59,565)
Cash and cash equivalents at beginning of year 61,019 97,892
-------- --------
Cash and cash equivalents at end of period $ 45,487 $ 38,327
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,553 $ 4,982
Income taxes 1,592 332
Noncash transactions:
Property acquired through foreclosure $ 0 $ 130
Change in unrealized losses on securities available-for-sale, net of taxes ($ 890) ($ 135)
See accompanying Notes to Consolidated Financial Statements.
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Century Bancorp Inc.
Notes to Consolidated Financial Statements
BASIS OF PRESENTATION In the opinion of management, the accompanying
unaudited interim consolidated financial statements
reflect all adjustments, consisting of normal
recurring adjustments, which are necessary to present
a fair statement of the results for the interim
period presented of Century Bancorp, Inc. (the
"Company") and its wholly owned subsidiary, Century
Bank and Trust Company (the "Bank"). The results of
operations for the interim period ended March 31,
1999, are not necessarily indicative of results for
the entire year. It is suggested that these
statements be read in conjunction with the
consolidated financial statements and the notes
thereto included in the Company's Annual Report on
form 10K for year ended December 31, 1998.
The financial statements have been prepared in
conformity with generally accepted accounting
principles and to general practices within the
banking industry. In preparing the financial
statements, management is required to make estimates
and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period.
Actual results could differ from those estimates.
Material estimates that are susceptible to change in
the near-term relate to the allowance for losses on
loans. Management believes that the allowance for
losses on loans is adequate based on independent
appraisals and review of other factors associated
with the assets. While management uses available
information to recognize losses on loans, future
additions to the allowance for loans may be necessary
based on changes in economic conditions. In addition,
regulatory agencies periodically review the Company's
allowance for losses on loans. Such agencies may
require the Company to recognize additions to the
allowance for loans based on their judgements about
information available to them at the time of their
examination.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the
accounts of the Company and its wholly-owned
subsidiary, the Bank. The Company provides a full
range of banking services to consumer, business and
municipal customers in Massachusetts. As a bank
holding company, the Company is subject to the
regulation and supervision of the Federal Reserve
Board. The Bank, a state chartered financial
institution, is subject to supervision and regulation
by applicable state and federal banking agencies,
including the Federal Reserve Board, the Federal
Deposit Insurance Corporation (the "FDIC"), and the
Massachusetts Division of Banks.
The Bank is also subject to various requirements and
restrictions under federal and state law, including
requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that
may be granted and the interest that may be charged
thereon, and limitations on the types of investments
that may be made and the types of services that
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may be offered. Various consumer laws and regulations
also affect the operations of the Bank. In addition
to the impact of regulation, commercial banks are
affected significantly by the actions of the Federal
Reserve Board as it attempts to control the money
supply and credit availability in order to influence
the economy. All aspects of the Company's business
are highly competitive. The Company faces aggressive
competition from other lending institutions and from
numerous other providers of financial services.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW For the quarter ended and year-to-date ended
March 31, 1999.
Earnings for the first quarter ended March 31, 1999
were $2.1 million, an increase of 18.5% when compared
with the first quarter 1998 earnings of $1.8 million.
Diluted earnings per share for the first quarter 1999
were $0.36 versus $0.31 for the first quarter of
1998. The increase was mainly attributable to the
purchase of Haymarket.
YEAR 2000 The Company has completed its assessment of Year 2000
issues and developed a plan, budget, and testing
strategy for mission-critical systems. The Company
relies on its recently converted new core processing
system for critical data warehousing and transaction
processing. Other, less critical, systems are
supported by purchased applications software. The
Company is continually evaluating mission-critical
vendor plans and monitoring project milestones. The
Company has tested its key transaction processing
system and has substantially completed testing its
core processing system and most other applications.
The vendor has disclosed that its core processing
system is Year 2000 compliant. There can be no
guarantee that the systems of other companies, or
third party vendors on which the Company's systems
rely, will be remedied on a timely basis. Therefore,
the Company could be negatively impacted to the
extent other entities not affiliated with the Company
are unsuccessful in properly addressing their
respective Year 2000 compliance responsibilities.
Specific factors that might cause such material
differences include, but are not limited to, the
availability and cost of personnel trained in this
area and the ability to locate and correct all
relevant computer codes.
The Company will continue to utilize both internal
and external resources to update, or replace, develop
and test all software information systems for Year
2000 modification. The Company's cost of Year 2000
remediation, which includes its cost of converting to
its new core processing system, is expected to
approach $1.8 - $2.0 million, of which approximately
$1.5 million has been incurred. The Company expects
that the majority of the costs yet to be incurred
will be to replace or update existing hardware and
software on non-mission critical items, which will be
capitalized and amortized in accordance with the
Company's existing accounting policy. In most
instances, upgrades to computer hardware and software
are being made to improve the capacity and
performance of the systems as well as to achieve Year
2000 compliance. Maintenance and modification costs
will be expensed as incurred.
The costs of the project and the date on which the
Bank plans to complete Year 2000 testing are based on
management's best estimates, which were derived
utilizing numerous assumptions of future events
including the continued availability of certain
resources, third party modification plans and other
factors.
The Bank has also assessed the impact of the Year
2000 issue on its major borrowing customers.
Borrowers that could experience a significant
disruption in their business due to a Year 2000
failure have been
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Management's Discussion and Analysis of Financial
Condition and Results of Operation (con't.)
identified. Management has received responses from
this identified group, with a small number requiring
further follow-up. Management has substantially
completed this assessment. Large deposit customers
associated with lockbox services have been identified
and assessed. These customers will continue to be
monitored for Year 2000 compliance.
A contingency plan is being completed for high risk
assessed systems. This plan will cover preparing
business resumption and liquidity needs in the event
of possible Year 2000 disruptions. The Bank's
contingency plan is expected to be in place by the
second quarter of 1999.
FINANCIAL CONDITION
Loans On March 31, 1999 total loans outstanding, net of
unearned discount, were $403.6 million, an increase
of 1.9% from the total on December 31, 1998. At March
31, 1999 commercial real estate loans accounted for
47.6% and residential real estate loans accounted for
21.2% of total loans. Construction loans increased to
$25.5 million at March 31, 1999 from $21.7 million at
the end of the previous quarter.
Allowance for Loan Losses
The allowance for loan losses was 1.53% of total
loans on March 31, 1999 compared with 1.52% on
December 31, 1998. Net charge-offs for the three
month period ended March 31, 1999, were $74 thousand,
compared with net recoveries of $63 thousand for the
same period in 1998. The allowance for loan losses is
based on management's overview of the quality of the
loan portfolio, previous loan loss experience and
current economic conditions.
As of March 31, 1999, loans on non-accrual status
totaled $1.9 million or .46% of loans; loans past due
90 days or more totaled $460 thousand.
Securities Held-to-Maturity
The securities held-to-maturity portfolio totaled
$161.9 million on March 31, 1999, an increase of 1.3%
from the total on December 31, 1998. The portfolio is
concentrated in United States Treasury and Agency
securities and an estimated weighted average maturity
of 6.3 years.
Securities Available-for-Sale
The securities available-for-sale portfolio totaled
$222.6 million at March 31, 1999, an increase of 5.9%
from December 31, 1998. The portfolio is concentrated
in United States Treasury and Agency securities and
an estimated weighted average maturity of 7.2 years.
Total securities available-for-sale increased
primarily as a result of leveraged balance sheet
transactions.
Deposits and Borrowed Funds
On March 31, 1999 deposits totaled $602.2 million,
representing a 6.4%
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Management's Discussion and Analysis of Financial
Condition and Results of Operation (con't.)
decrease in total deposits from December 31, 1998.
Total deposits decreased primarily as a result of the
cyclical municipal deposit trends. Borrowed funds
totaled $159.1 million compared to $92.5 million at
December 31, 1998. The majority of the increase was
an increase in borrowings from the Federal Home Loan
Bank which were primarily used for leveraged balance
sheet transactions.
RESULTS OF OPERATIONS
Net Interest Income
For the three month period ended March 31, 1999 net
interest income totaled $7.9 million, an increase of
15.8% from the comparable period in 1998. Interest
income was primarily affected positively by the
acquisition of Haymarket. The net yield on average
earning assets on a fully taxable equivalent basis
decreased to 4.11% in the first three months of 1999
from 5.01% during the same period in 1998.
Provision for Loan Losses
For the three month period ended March 31, 1999 the
loan loss provision totaled $225 thousand compared to
$165 thousand for the same period in 1998.
Loan loss provision increased due to growth in the
loan portfolio. The Company's loan loss allowance as
a percentage of total loans outstanding has increased
from 1.46% at March 31, 1998 to 1.53% at March 31,
1999, respectively.
Non-Interest Income and Expense
Other operating income for the quarter ended March
31, 1999 was $1.3 million consistent with the first
quarter of 1998.Lockbox fees increased 2.4% due to an
increase in lockbox volume relating to customers
added during the period.
During the first quarter 1999, operating expenses
increased by $528 thousand to $5.6 million or 10.4%
from the same quarter last year. The first quarter
increase reflects expenses associated with the
Haymarket acquisition. Approximately half of the
increase was in salaries and employee benefits with
the remaining half in all other expenses.
Income Taxes
For the first quarter of 1999, the Company's income
taxes totaled $1.3 million on pretax income of $3.4
million for an effective tax rate of 37.4%. For last
year's corresponding quarter, the Company's income
taxes totaled $1.1 million on pretax income of $2.9
million for an effective rate of 37.1%.
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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
The response is incorporated herein by reference from
the discussion under the subcaption "Market Risk and
Asset Liability Management" of the caption
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" on pages 9 and
10 of the Annual Report which is incorporated herein
by reference.
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PART II - OTHER INFORMATION
Item 1 Legal proceedings - The Company is not engaged in any
legal proceedings of a material nature at the present
time. From time to time, the Company is party to
routing legal proceedings within the normal course of
business. Such routine legal proceedings, in the
aggregate, are believed by management to be
immaterial to the Company's financial condition and
results of operation.
Item 2 Change in securities - Not applicable
Item 3 Defaults upon senior securities - Not applicable
Item 4 Submission of matters to a vote - Not applicable
Item 5 Other information - Not applicable
Item 6 Exhibits and reports on form 8-K - Not applicable
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