<PAGE> 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 JUNE 30, 1998
------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number 0-15752
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CENTURY BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF MASSACHUSETTS 04-2498617
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 MYSTIC AVENUE, MEDFORD, MA 02155
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(Address of principal executive offices) (Zip Code)
(781)391-4000
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(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 June 30, 1998:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,566,897 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,250,770 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: AUGUST 14, 1998 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:
June 30, 1998 and December 31, 1997. 3
Consolidated Statements of Income:
Three (3) Months Ended June 30, 1998
and 1997; and Six (6) Months Ended
June 30, 1998 and 1997. 4
Consolidated Changes in Stockholders
Equity: Six (6) Months Ended June
30, 1998 and 1997. 5
Consolidated Statements of Cash Flows:
Six (6) Months Ended June 30, 1998
and 1997. 6
Notes to Consolidated Financial
Statements 7-13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 13-15
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 16
PART II. OTHER INFORMATION
Item 1 through Item 6 16
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PART I - Item 1
<TABLE>
<CAPTION>
Century Bancorp, Inc. - Consolidated Balance Sheets (unaudited)
- ----------------------------------------------------------------------------------------------
(000's) Jun 30, Dec 31,
Assets 1998 1997
- ------ -------- --------
<S> <C> <C>
Cash and due from banks $ 32,812 $ 46,868
Federal funds sold and interest-bearing
deposits in other banks 8,607 51,024
-------- --------
Total cash and cash equivalents 41,419 97,892
-------- --------
Securities available-for-sale, amortized
cost $185,491 and $89,004, respectively 185,481 89,190
Securities held-to-maturity, market value
$121,406 and $109,454, respectively 121,315 109,239
Loans, net of unearned discount:
Commercial & industrial 57,225 50,560
Construction & land development 19,563 7,549
Commercial real estate 183,790 140,270
Industrial revenue bonds 2,530 2,693
Residential real estate 92,006 76,160
Residential real estate held-for-sale 0 225
Consumer 17,839 19,254
Home equity 20,337 19,031
Overdrafts 533 648
-------- --------
Total loans, net of unearned discount 393,823 316,390
Less allowance for loan losses (6,019) (4,446)
-------- --------
Net loans 387,804 311,944
Bank premises and equipment, net 10,278 8,718
Accrued interest receivable 6,988 4,334
Other assets 14,011 9,808
-------- --------
Total assets $767,296 $631,125
======== ========
Liabilities
- -----------
Deposits:
Demand deposits $114,261 $123,301
Savings and NOW deposits 158,385 149,808
Money market accounts 81,247 71,061
Time deposits 267,197 171,279
-------- --------
Total deposits 621,090 515,449
Securities sold under agreements to repurchase 34,230 32,850
Federal Home Loan Bank (FHLB) borrowings and
other borrowed funds 4,801 13,474
Other liabilities 21,179 15,495
Long term debt 28,750 0
-------- --------
Total liabilities 710,050 577,268
Stockholders' equity
- --------------------
Class A common stock, $1.00 par value per share; 3,597 3,541
authorized 10,000,000 shares; issued 3,596,897
Class B common stock, $1.00 par value per share; 2,298 2,327
authorized 5,000,000 shares; issued 2,298,320
Additional paid-in capital 10,953 10,877
Retained earnings 40,581 37,180
Treasury stock, Class A, 30,000 shares (136) (136)
Treasury stock, Class B, 47,550 shares (41) (41)
-------- --------
Realized stockholders' equity 57,252 53,748
Accumulated other comprehensive (loss) income (6) 109
-------- --------
Total stockholders' equity 57,246 53,857
-------- --------
Total liabilities and stockholders' equity $767,296 $631,125
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE> 4
Century Bancorp, Inc. - Consolidated Statements of Income (unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(000's except share data) Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income
Loans $ 7,811 $ 7,112 $ 15,117 $ 13,777
Securities held-to-maturity 1,896 1,802 3,706 3,615
Securities available-for-sale 1,663 1,300 3,120 2,543
Federal funds sold and interest-bearing deposits
in other banks 720 118 1,081 293
---------- ---------- ---------- ----------
Total interest income 12,090 10,332 23,024 20,228
Interest expense
Savings and NOW deposits 1,144 1,062 2,193 2,007
Money market accounts 510 485 1,003 969
Time deposits 2,665 2,094 4,812 4,224
Securities sold under agreements to repurchase 365 213 685 413
FHLB borrowings and other borrowed funds 355 138 426 224
---------- ---------- ---------- ----------
Total interest expense 5,039 3,992 9,119 7,837
---------- ---------- ---------- ----------
Net interest income 7,051 6,340 13,905 12,391
Provision for loan losses 185 135 350 390
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 6,866 6,205 13,555 12,001
Other operating income
Service charges on deposit accounts 440 438 881 849
Lockbox fees 472 414 854 723
Brokerage commissions 316 267 601 561
Gain on sales of loans 17 30 39 51
Other income 122 106 239 215
---------- ---------- ---------- ----------
Total other operating income 1,367 1,255 2,614 2,399
---------- ---------- ---------- ----------
Operating expenses
Salaries and employee benefits 3,294 3,022 6,531 6,035
Occupancy 303 315 648 634
Equipment 322 282 638 555
Other 1,196 1,044 2,370 2,070
---------- ---------- ---------- ----------
Total operating expenses 5,115 4,663 10,187 9,294
---------- ---------- ---------- ----------
Income before income taxes 3,118 2,797 5,982 5,106
Provision for income taxes 1,133 1,133 2,195 2,067
---------- ---------- ---------- ----------
Net income $ 1,985 $ 1,664 $ 3,787 $ 3,039
========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------
Share data:
Weighted average number of shares outstanding, basic 5,809,420 5,769,282 5,800,838 5,765,302
Weighted average number of shares outstanding, diluted 5,851,732 5,834,441 5,843,056 5,830,537
Net income per share, basic $ 0.34 $ 0.29 $ 0.65 $ 0.53
Net income per share, diluted $ 0.34 $ 0.29 $ 0.65 $ 0.52
Cash dividends declared:
Class A common stock $ 0.0500 $ 0.0500 $ 0.1000 $ 0.1000
Class B common stock $ 0.0070 $ 0.0070 $ 0.0140 $ 0.0140
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<TABLE>
<CAPTION>
Century Bancorp, Inc. - Consolidated Statement of Changes in Stockholders' Equity (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Class A Class B Additional Treasury Treasury Other Total
Common Common Paid-In Retained Stock Stock Comprehensive Stockholders'
Six months ended June 30, Stock Stock Capital Earnings Class A Class B Income (Loss) Equity
-----------------------------------------------------------------------------------------------
(000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
- ----
Balance at December 31, 1996 $3,488 $2,348 $10,786 $31,117 $(136) $ (41) $ (73) $47,489
Net income -- -- -- 3,040 -- -- -- 3,040
Other comprehensive
income, net of tax:
Decrease in unrealized
gain on securities
available-for-sale -- -- -- -- -- -- (15) (15)
-------
Comprehensive income 3,025
Conversion of Class B
common stock to Class A
common stock, 7,700 shares 8 (8) -- -- -- -- -- --
Stock options
exercised, 19,300 shares 19 -- 54 -- -- -- -- 73
Cash dividends, Class A common
stock, $.050 per share,
per quarter -- -- -- (347) -- -- -- (347)
Cash dividends, Class B common
stock, $.0070 per share,
per quarter -- -- -- (32) -- -- -- (32)
--------------------------------------------------------------------------------------------
Balance at June 30, 1997 $3,515 $2,340 $10,840 $33,778 $(136) $ (41) $ (88) $50,208
============================================================================================
1998
- ----
Balance at December 31, 1997 $3,541 $2,327 $10,877 $37,180 $(136) $ (41) $ 109 $53,857
Net income -- -- -- 3,787 -- -- -- 3,787
Other comprehensive income,
net of tax:
Decrease in unrealized gain
on securities available-
for-sale -- -- -- -- -- -- (115) (115)
-------
Comprehensive income 3,672
Conversion of Class B common
stock to Class A common
stock, 28,200 shares 29 (29) -- -- -- -- -- --
Stock options exercised,
27,250 shares 27 -- 76 -- -- -- -- 103
Cash dividends, Class A common
stock, $.050 per share -- -- -- (354) -- -- -- (354)
Cash dividends, Class B common
stock, $.0070 per share -- -- -- (32) -- -- -- (32)
--------------------------------------------------------------------------------------------
Balance at June 30, 1998 $3,597 $2,298 $10,953 $40,581 $(136) $ (41) $ (6) $57,246
============================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<TABLE>
<CAPTION>
Century Bancorp, Inc. - Consolidated Statements of Cash Flows (unaudited) 1998 1997
- ---------------------------------------------------------------------------------------------------------
For the six months ended
June 30,
(000's)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,787 $ 3,039
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 350 390
Deferred income taxes (223) (214)
Net depreciation and amortization 335 294
Increase in accrued interest receivable (1,976) (120)
Increase in other assets (603) (223)
Loans originated for sale (2,532) (3,538)
Proceeds from sales of loans 3,048 3,529
Gain on sales of loans (46) (51)
Loss on sales of real estate owned 0 4
Increase in other liabilities 5,077 234
-------- --------
Net cash provided by operating activities 7,217 3,344
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale 34,013 13,056
Purchase of securities available-for-sale (76,585) (17,000)
Proceeds from maturities of securities held-to-maturity 35,000 7,502
Purchase of securities held-to-maturity (46,980) (8,925)
Net cash paid for acquired institution (5,786) 0
Net increase in loans (3,004) (24,473)
Proceeds from sales of real estate owned 0 316
Capital expenditures (882) (846)
-------- --------
Net cash used in investing activities (64,224) (30,370)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits (6,635) (17,454)
Net decrease in demand, savings, money market and NOW deposits (14,005) (1,899)
Net proceeds from the issuance of common stock 103 73
Cash Dividends (386) (379)
Net increase in securities sold under agreements to repurchase 1,380 2,480
Net (decrease) increase in FHLB borrowings and other borrowed funds (8,673) 24,256
Issuance of long term debt 28,750 0
-------- --------
Net cash provided by financing activities 534 7,077
-------- --------
Net decrease in cash and cash equivalents (56,473) (19,949)
Cash and cash equivalents at beginning of year 97,892 67,681
-------- --------
Cash and cash equivalents at end of period $ 41,419 $ 47,732
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 9,003 $ 7,442
Income taxes 2,530 2,327
Noncash transactions:
Property acquired through foreclosure $ 130 $ 196
Change in unrealized losses on securities available-for-sale,
net of taxes $ (115) $ (15)
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE> 7
Century Bancorp Inc.
Notes to Consolidated Financial Statements
BASIS OF In the opinion of management, the accompanying unaudited
PRESENTATION 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 June 30, 1998, 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.
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.
RECENT ACCOUNTING DEVELOPMENTS
In June 1997, FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income, which is
defined as all changes to equity except investments by and
distributions to shareholders. Net income is a component of
comprehensive income, with all other components referred to in
the aggregate as other comprehensive income. The Bank has
adopted SFAS No. 130 effective for January 1, 1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information,"
which establishes standards for reporting information about
operating segments. An operating segment is defined as a
component of a business for which separate financial
information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate
resources and evaluate performance. This statement requires a
company to disclose certain income statement and balance sheet
information by operating
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segment, as well as provide a reconciliation of operating
segment information to the company's consolidated balances.
The Company has determined that the adoption of this statement
did not have a significant impact on its consolidated
financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement
Benefits--an amendment of FASB Statements No. 87, 88, and
106." This Statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit
obligations and fair values of plan assets that will
facilitate financial analysis, and eliminates certain
disclosures that are no longer as useful as they were when
FASB Statements No. 87, "Employers' Accounting for Pensions,"
No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," were issued. The
Statement suggests combined formats for presentation of
pension and other postretirement benefit disclosures. This
statement is effective for 1998 annual financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which amends
FASB Statements No. 52, 80, 105, and 107, as well as,
nullifies or modifies the consensuses reached in a number of
issues addressed by the Emerging Issues Task Force. This
statement establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position
and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c ) a
hedge of the foreign currency exposure of a net investment in
a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated
forecasted transaction.
Under this Statement, an entity that elects to apply hedge
accounting is required to establish at the inception of the
hedge the method it will use for assessing the effectiveness
of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods
must be consistent with the entity's approach to managing
risk.
The Statement is effective for the year 2000 financial
statements.
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The consolidated financial statements include the accounts of
Century Bancorp, Inc. (the "Company") and its wholly-owned
subsidiary, Century
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Bank and Trust Company (the "Bank"). The Company provides a
full range of banking services to individual, 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 Office of the
Comptroller of the Currency (the "Comptroller") and the
Federal Deposit Insurance Corporation (the "FDIC").
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 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.
INVESTMENT SECURITIES
Debt securities that the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity
and reported at amortized cost; debt and equity securities
that are bought and held principally for the purpose of
selling are classified as trading and reported at fair value,
with unrealized gains and losses included in earnings; and
debt and equity securities not classified as either
held-to-maturity or trading are classified as
available-for-sale and reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a
separate component of stockholders' equity, net of estimated
related income taxes. The Company has no securities held for
trading.
Premiums and discounts on investment securities are amortized
or accreted into income by use of the level-yield method. If a
decline in fair value below the amortized cost basis of an
investment is judged to be other than temporary, the cost
basis of the investment is written down to fair value. The
amount of the writedown is included as a charge to earnings.
Gains and losses on the sale of investment securities are
recognized at the time of sale on a specific identification
basis.
LOANS
Interest on loans is recognized based on the daily principal
amount outstanding. Accrual of interest is discontinued when
loans become 90 days delinquent unless the collateral is
sufficient to cover both principal and interest and the loan
is in the process of collection. Loans, including impaired
loans, on which the accrual of interest has been discontinued
are designated non-accrual loans. When a loan is placed on
non-accrual, all income which has been accrued but remains
unpaid is reversed against
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current period income and all amortization of deferred loan
fees is discontinued. Non-accrual loans may be returned to an
accrual status when principal and interest payments are not
delinquent and the risk characteristics of the loan have
improved to the extent that there no longer exists a concern
as to the collectibility of principal and income. Income
received on non-accrual loans is either recorded in income or
applied to the principal balance of the loan depending on
management's evaluation as to the collectibility of principal.
Loans held for sale are carried at the lower of aggregate cost
or market value. Gain or loss on sales of loans is recognized
at the time of sale when the sales proceeds exceed or are less
than the Bank's investment in the loans. Additionally, gains
and losses are recognized when the average interest rate on
the loans sold, adjusted for normal servicing fee, differs
from the agreed yield to the buyer. The resulting excess
service fee receivables, if any, are amortized using the
interest method over the estimated life of the loans, adjusted
for estimated prepayments.
Discounts and premiums on loans purchased from failed
financial institutions that represent market yield adjustments
are accreted or amortized to interest income over the
estimated lives of the loans using the level-yield method.
Loan origination fees and related direct incremental loan
origination costs are offset and the resulting net amount is
deferred and amortized over the life of the related loans
using the level-yield method.
The Bank accounts for impaired loans, except those loans that
are accounted for at fair value or at lower of cost or fair
value, at the present value of the expected future cash flows
discounted at the loan's effective interest rate. This method
applies to all loans, uncollateralized as well as
collateralized, except large groups of smaller-balance
homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value and leases
and debt securities. Management considers the payment status,
net worth and earnings potential of the borrower, and the
value and cash flow of the collateral as factors to determine
if a loan will be paid in accordance with its contractual
terms. Management does not set any minimum delay of payments
as a factor in reviewing for impaired classification. Impaired
loans are charged-off when management believes that the
collectibility of the loan's principal is remote. In addition,
criteria for classification of a loan as in-substance
foreclosure has been modified so that such classification need
be made only when a lender is in possession of the collateral.
The Bank measures the impairment of troubled debt
restructurings using the pre-modification rate of interest.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's
evaluation of the quality of the loan portfolio and is used to
absorb losses resulting from loans which ultimately prove
uncollectible. In determining the level of the allowance,
periodic evaluations are made of the loan portfolio which take
into account such factors as the character of the loans, loan
status, financial posture of the borrowers, value of
collateral securing the loans and other relevant information
sufficient to reach an informed judgement. The allowance is
increased by provisions charged to income and reduced by loan
charge-offs, net of recoveries.
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<PAGE> 11
While management uses available information in establishing
the allowance for loan losses, future adjustments to the
allowance may be necessary if economic conditions differ
substantially from the assumptions used in making the
evaluations. Loans are charged off in whole or in part when,
in management's opinion, collectibility is not probable.
Management believes that the allowance for loan losses is
adequate. In addition, various regulatory agencies, as part of
their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the
Company to recognize additions to the allowance based on their
judgements about information available to them at the time of
their examination.
OTHER REAL ESTATE OWNED
Other real estate owned ("OREO") includes real estate acquired
by foreclosure and real estate substantively repossessed. Real
estate acquired by foreclosure is comprised of properties
acquired through foreclosure proceedings or acceptance of a
deed in lieu of foreclosure. Real estate substantively
repossessed includes only those loans for which the Company
has taken possession of the collateral, but has not completed
legal foreclosure proceedings. Both in-substance foreclosures
and real estate formally acquired in settlement of loans are
recorded at the lower of the carrying value of the loan or the
fair value of the property constructively or actually
received. Loan losses from the acquisition of such properties
are charged against the allowance for loan losses. After
foreclosure, if the fair value of an asset minus its estimated
cost to sell is less than the carrying value of the asset,
such amount is recognized as a valuation allowance. If the
fair value of an asset less its estimated cost to sell
subsequently increases so that the resulting amount is more
than the asset's current carrying value, the valuation
allowance is reversed by the amount of the increase. Increases
or decreases in the valuation allowance are charged or
credited to income. Gains upon disposition of OREO are
reflected in the statement of income as realized. Realized
losses are charged to the valuation allowance.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is
computed using the straight-line method over the estimated
useful lives of the assets or the terms of leases, if shorter.
It is general practice to charge the cost of maintenance and
repairs to operations when incurred; major expenditures for
improvements are capitalized and depreciated.
INCOME TAXES
The Company uses the asset and liability method of accounting
for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to
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apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. Under
this method, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
RECENT DEVELOPMENTS
On June 11, 1998 The Company acquired Haymarket Co-operative
Bank ("Haymarket"), headquartered in Boston, Massachusetts and
merged Haymarket into the Bank. The purchase price was $21.1
million and was accounted for using the purchase method of
accounting. The results of operations include the effect of
the purchase for the 19 day period beginning June 12, 1998. In
connection with the acquisition, the fair value of the assets
acquired and liabilities assumed were as follows.
<TABLE>
<CAPTION>
June 11, 1998
-------------
(in thousands)
<S> <C>
Assets acquired:
Cash and due from banks $ 4,035
Federal funds sold and interest-bearing
deposits in other banks 11,300
Securities available-for-sale 53,845
Net loans 73,584
Accrued interest receivable 678
Premises and equipment 1,262
Other assets 84
--------
Total assets acquired 144,788
Liabilities assumed:
Deposit accounts 126,281
Accrued expenses and other liabilities 607
--------
Total liabilities assumed 126,888
--------
Assets in excess of liabilities 17,900
Cash paid to Haymarket shareholders 21,121
--------
Goodwill $ 3,221
========
</TABLE>
The following condensed consolidated pro-forma results of the
Company were prepared as if the acquisition had taken place on
January 1 of the respective year. The pro-forma results are
not necessarily indicative of the actual results of operations
had the Company's acquisition of Haymarket actually occurred
on January 1 of the respective year.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------
1998 1997 1998 1997
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net interest income $7,988 $7,555 $15,778 $14,821
Net income 2,160 1,949 4,136 3,610
Basic earnings per share $ 0.37 $ 0.34 $ 0.71 $ 0.63
Diluted earnings per share $ 0.37 $ 0.34 $ 0.71 $ 0.62
</TABLE>
12 of 16
<PAGE> 13
In May 1998, the Company, through Century Bancorp Capital
Trust, issued 2,875,000 shares of Cumulative Trust Preferred
Securities with a liquidation value of $10 per share. These
securities will pay dividends at an annualized rate of 8.30%.
The Company is using the proceeds primarily for general
business purposes.
==============================================================
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW For the quarter ended and year-to-date ended June 30, 1998.
Earnings for the second quarter ended June 30, 1998 were $2.0
million, an increase of 19.3% when compared with the second
quarter 1997 earnings of $1.7 million. Diluted earnings per
share for the second quarter 1998 were $0.34 versus $0.29 for
the second quarter of 1997.
For the six months ending June 30, 1998, earnings were $3,787
thousand an increase of 24.6% when compared with the same
period last year earnings of $3,039 thousand. Diluted earnings
per share were $.65 for the first six months of 1997 compared
with $.52 for the first six months of 1997.
The Company has completed a comprehensive review of its
computer systems to identify the systems that could be
affected by the "Year 2000" issue and has developed an
implementation plan to resolve the issue. The implementation
plan includes obtaining representations from software vendors
for compliance with the Year 2000 processing and developing a
strategy to test Year 2000 compliance.
The Company's previously planned conversion to a new core
processing system is scheduled to be completed during the
third quarter of 1998. The vendor has represented that its
system is Year 2000 compliant and testing will begin after the
conversion is complete. Testing of other critical systems will
begin during the fourth quarter of 1998. The cost associated
with the "Year 2000" issue is not expected to have a material
impact on the Financial Statements.
FINANCIAL CONDITION
LOANS On June 30, 1998 total loans outstanding, net of unearned
discount, were $387.8 million, an increase of 24.5% from the
total on December 31, 1997. At June 30, 1998 commercial real
estate loans accounted for 46.7% and residential real estate
loans and real estate loans held-for-sale accounted for 28.5%
of total loans. Construction loans increased to $19.6 million
at June 30, 1998 from $10.6 million at the end of the previous
quarter. Total loans increased primarily as a result of the
acquisition of Haymarket.
13 of 16
<PAGE> 14
Managements Discussion and Analysis of Financial Condition and
Results of Operation (con't.)
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was 1.53% of total loans on June
30, 1998 compared with 1.41% on December 31, 1997. Net
recoveries for the six month period ended June 30, 1998, were
$29 thousand, compared with net charge-offs of $131 thousand
for the same period in 1997. 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 June 30, 1998, loans on non-accrual status totaled $1.8
million or .46% of loans; loans past due 90 days or more
totaled $168 thousand; restructured performing loans totaled
$1.0 million.
SECURITIES HELD-TO-MATURITY
The securities held-to-maturity portfolio totaled $121.3
million on June 30, 1998, an increase of 11.1% from the total
on December 31, 1997. The portfolio is concentrated in United
States Treasury and Agency securities and had a weighted
average maturity of 3.8 years.
SECURITIES AVAILABLE-FOR-SALE
The securities available-for-sale portfolio totaled $185.5
million at June 30, 1998, an increase of 107.9 % from December
31, 1997. The portfolio is concentrated in United States
Treasury and Agency securities and had a weighted average
maturity of 2.9 years. Total securities available-for-sale
increased primarily as a result of the acquisition of
Haymarket.
OTHER ASSETS
On June 30 1998 other real estate owned totaled $130 thousand
compared to $0 at December 31, 1997.
DEPOSITS AND BORROWED FUNDS
On June 30, 1998 deposits totaled $621.1 million, representing
a 20.5% increase in total deposits from December 31, 1997.
Borrowed funds totaled $39.0 million compared to $46.3 million
at December 31, 1997. The majority of the decrease was a
decrease in borrowings from the Federal Home Loan Bank,
partially offset by an increase in securities sold under
agreements to repurchase. Total deposits increased primarily
as a result of the acquisition of Haymarket.
RESULTS OF OPERATIONS
NET INTEREST INCOME
For the three month period ended June 30, 1998 net interest
income totaled $7.1 million, an increase of 11.2% from the
comparable period in 1997. For the six month period ended June
30, 1998 net interest income
14 of 16
<PAGE> 15
Managements Discussion and Analysis of Financial Condition and
Results of Operation (con't.)
totaled $13.9 million, an increase of 12.2% from the
comparable period in 1997. Interest income was affected
positively by improvements in the interest earned in most
categories of earning assets. This, in addition to a higher
level of non-interest bearing transaction accounts, on
average, and a continued low level of market deposit rates,
compared to historical levels, has combined to improve the
performance of the Company's balance sheet. The net yield on
average earning assets on a fully taxable equivalent basis
decreased to 4.82% in the first half of 1998 from 4.98% during
the same period in 1997.
PROVISION FOR LOAN LOSSES
Loan loss provision for the six months ended June 30, 1998 was
$350 thousand compared with $390 thousand for the same period
in 1997. Loan loss provision decreased because of continued
improvement in the Company's loan portfolio. The lower
provision reflects the Company's recent charge-off and
recovery experience as well as the overall continued
improvement in the measured quality of the loan portfolio.
Despite the decrease in provision for loan losses and an
increase in total loans outstanding from June 30, 1997 to June
30, 1998, the Company's loan loss allowance as a percentage of
total loans outstanding has increased from 1.42% to 1.53%,
respectively.
NON-INTEREST INCOME AND EXPENSE
Other operating income for the quarter ended June 30, 1998 was
$1.4 million, compared to $1.3 million for the second quarter
of 1997. Service charges on deposit accounts, gains on sales
of loans, other income, and brokerage commissions showed
modest increases. Lockbox fees increased 14.0% due to an
increase in lockbox volume relating to new customers.
During the second quarter 1998, operating expenses increased
by $452 thousand or 9.7% from the same quarter last year.
Approximately half of the increase was in salaries and
employee benefits with the remaining half in all other
expenses. The Company has incurred expenses relating to
increased professional fees for certain strategic initiatives.
INCOME TAXES
For the second quarter of 1998, the Company's income taxes
totaled $1,133 thousand on pretax income of $3,118 thousand
for an effective tax rate of 36.3%. For last year's
corresponding quarter, the Company's income taxes totaled
$1,133 thousand on pretax income of $2,797 thousand for an
effective rate of 40.5%. The Company has begun to realize
savings in this area as the result of strategic tax savings
initiatives.
==============================================================
15 of 16
<PAGE> 16
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The response is incorporated herein by reference from the
discussion under the subcaption "Interest Rate Sensitivity" of
the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" on pages 7 through 10 of
the Annual Report which is incorporated herein by reference.
==============================================================
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
16 of 16
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000812348
<NAME> CENTURY BANCORP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 32,812
<INT-BEARING-DEPOSITS> 2,607
<FED-FUNDS-SOLD> 6,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 185,481
<INVESTMENTS-CARRYING> 121,315
<INVESTMENTS-MARKET> 121,406
<LOANS> 393,823
<ALLOWANCE> 6,019
<TOTAL-ASSETS> 767,296
<DEPOSITS> 621,090
<SHORT-TERM> 39,031
<LIABILITIES-OTHER> 21,179
<LONG-TERM> 28,750
0
0
<COMMON> 5,895
<OTHER-SE> 51,351
<TOTAL-LIABILITIES-AND-EQUITY> 767,296
<INTEREST-LOAN> 15,117
<INTEREST-INVEST> 6,826
<INTEREST-OTHER> 1,081
<INTEREST-TOTAL> 23,024
<INTEREST-DEPOSIT> 8,008
<INTEREST-EXPENSE> 9,119
<INTEREST-INCOME-NET> 13,905
<LOAN-LOSSES> 350
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,187
<INCOME-PRETAX> 5,982
<INCOME-PRE-EXTRAORDINARY> 5,982
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,787
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
<YIELD-ACTUAL> 4.82
<LOANS-NON> 1,824
<LOANS-PAST> 168
<LOANS-TROUBLED> 1,018
<LOANS-PROBLEM> 6,453
<ALLOWANCE-OPEN> 4,446
<CHARGE-OFFS> 233
<RECOVERIES> 204
<ALLOWANCE-CLOSE> 6,019
<ALLOWANCE-DOMESTIC> 6,019
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
