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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, 1998
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number. 0-15752
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CENTURY BANCORP, INC.
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(Exact name of registrant as specified in its charter)
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COMMONWEALTH OF MASSACHUSETTS 04-2498617
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
400 MYSTIC AVENUE, MEDFORD, MA 02155
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(Address of principal executive offices) (Zip Code)
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(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
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 31, 1998:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,539,897 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,253,770 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 15, 1998 CENTURY BANCORP, INC.
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(Registrant)
/s/ Paul V. Cusick, Jr. /s/ Kenneth A. Samuelian
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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.
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Index Number
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets:
March 31, 1998 and December 31, 1997. 3
Consolidated Statements of Income:
Three (3) Months Ended March 31, 1998
and 1997. 4
Consolidated Changes in Stockholders
Equity: Three (3) Months Ended March 31,
1998 and 1997. 5
Consolidated Statements of Cash Flows:
Three (3) Months Ended March 31, 1998
and 1997. 6
Notes to Consolidated Financial
Statements 7 - 12
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 15
Part II. OTHER INFORMATION
Item 1 through Item 6 16
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PART 1 - Item 1
Century Bancorp, Inc. - Consolidated Balance Sheets (unaudited)
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(000's) Mar 31, Dec 31,
Assets 1998 1997
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Cash and due from banks $ 31,305 $ 46,868
Federal funds sold and interest-bearing deposits in other banks 7,022 51,024
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Total cash and cash equivalents 38,327 97,892
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Securities available-for-sale, amortized cost $93,745 and
$89,004, respectively 93,701 89,190
Securities held-to-maturity, market value $118,630 and
$109,454, respectively 118,804 109,239
Loans, net of unearned discount:
Commercial & industrial 54,402 50,560
Construction & land development 10,616 7,549
Commercial real estate 140,084 140,270
Industrial revenue bonds 2,606 2,693
Residential real estate 73,134 76,160
Residential real estate held-for-sale 330 225
Consumer 18,563 19,254
Home equity 19,282 19,031
Overdrafts 379 648
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Total loans, net of unearned discount 319,396 316,390
Less allowance for loan losses (4,674) (4,446)
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Net loans 314,722 311,944
Bank premises and equipment, net 8,828 8,718
Accrued interest receivable 4,588 4,334
Other assets 10,323 9,808
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Total assets $589,293 $631,125
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Liabilities
- -----------
Deposits:
Demand deposits $107,657 $123,301
Savings and NOW deposits 150,191 149,808
Money market accounts 67,079 71,061
Time deposits 165,926 171,279
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Total deposits 490,853 515,449
Securities sold under agreements to repurchase 31,230 32,850
Federal Home Loan Bank (FHLB) borrowings and other borrowed funds 3,141 13,474
Other liabilities 8,725 15,495
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Total liabilities 533,949 577,268
Stockholders' equity
Class A common stock, $1.00 par value per share; 3,570 3,541
authorized 10,000,000 shares; issued 3,569,897
Class B common stock, $1.00 par value per share; 2,301 2,327
authorized 5,000,000 shares; issued 2,301,320
Additional paid-in capital 10,886 10,877
Retained earnings 38,790 37,180
Treasury stock, Class A, 30,000 shares (136) (136)
Treasury stock, Class B, 47,550 shares (41) (41)
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Realized stockholders' equity 55,370 53,748
Accumulated other comprehensive income (loss) (26) 109
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Total stockholders' equity 55,344 53,857
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Total liabilities and stockholders' equity $589,293 $631,125
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Century Bancorp, Inc. - Consolidated Statements of Income (unaudited)
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(000's except share data) Three months ended March 31,
1998 1997
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Interest income
Loans $ 7,306 $ 6,665
Securities held-to-maturity 1,810 1,813
Securities available-for-sale 1,457 1,243
Federal funds sold and interest-bearing deposits in other banks 361 175
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Total interest income 10,934 9,896
Interest expense
Savings and NOW deposits 1,049 945
Money market accounts 493 484
Time deposits 2,147 2,130
Securities sold under agreements to repurchase 320 201
FHLB borrowings and other borrowed funds 71 85
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Total interest expense 4,080 3,845
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Net interest income 6,854 6,051
Provision for loan losses 165 255
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Net interest income after provision
for loan losses 6,689 5,796
Other operating income
Service charges on deposit accounts 441 411
Lockbox fees 382 309
Brokerage commissions 285 294
Gain on sales of loans 22 21
Other income 117 109
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Total other operating income 1,247 1,144
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Operating expenses
Salaries and employee benefits 3,237 3,013
Occupancy 345 319
Equipment 316 273
Other 1,174 1,025
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Total operating expenses 5,072 4,630
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Income before income taxes 2,864 2,310
Provision for income taxes 1,062 934
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Net income $ 1,802 $ 1,376
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Share data:
Weighted average number of shares outstanding, basic 5,792,160 5,761,278
Weighted average number of shares outstanding, diluted 5,853,993 5,835,391
Net income per share, basic $0.31 $0.24
Net income per share, diluted $0.31 $0.24
Cash dividends declared:
Class A common stock $0.0500 $0.0500
Class B common stock $0.0070 $0.0070
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Century Bancorp, Inc. - Consolidated Statements of Changes in Stockholders' Equity (unaudited)
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Accumulated
Class A Class B Additional Treasury Treasury Other Total
Common Common Paid-In Retained Stock Stock Comprehensive Stockholders'
Three months ended March 31, Stock Stock Capital Earnings Class A Class B Income (Loss) Equity
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(000's)
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1997
Balance at December 31, 1996 $3,488 $ 2,348 $10,786 $ 31,117 ($136) ($41) ($ 73) $ 47,489
Net income -- -- -- 1,376 -- -- -- 1,376
Other comprehensive income, net of tax:
Decrease in unrealized gain on
securities available-for-sale -- -- -- -- -- -- (329) (329)
--------
Comprehensive income 1,047
Conversion of Class B common stock to
Class A common stock, 7,700 shares 8 (8) -- -- -- -- -- --
Stock options exercised, 7,000 shares 7 -- 20 -- -- -- -- 27
Cash dividends, Class A common stock,
$.050 per share -- -- -- (173) -- -- -- (173)
Cash dividends, Class B common stock,
$.0070 per share -- -- -- (16) -- -- -- (16)
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Balance at March 31, 1997 $3,503 $ 2,340 $10,806 $ 32,304 ($136) ($41) ($402) $ 48,374
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1998
Balance at December 31, 1997 $3,541 $ 2,327 $10,877 $ 37,180 ($136) ($41) $ 109 $ 53,857
Net income -- -- -- 1,802 -- -- -- 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 26 (26) -- -- -- -- -- --
Stock options exercised, 3,250 shares 3 -- 9 -- -- -- -- 12
Cash dividends, Class A common stock,
$.050 per share -- -- -- (176) -- -- -- (176)
Cash dividends, Class B common stock,
$.0070 per share -- -- -- (16) -- -- -- (16)
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Balance at March 31, 1998 $3,570 $ 2,301 $10,886 $ 38,790 ($136) ($41) ($ 26) $ 55,344
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Century Bancorp, Inc. - Consolidated Statements of Cash Flows (unaudited) 1998 1997
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For the three months ended
March 31,
(000's)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,802 $ 1,376
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 165 255
Deferred income taxes (195) (110)
Net depreciation and amortization 133 147
Increase in accrued interest receivable (254) (591)
Increase in other assets (146) (265)
Loans originated for sale (1,283) (1,006)
Proceeds from sales of loans 1,449 1,410
Gain on sales of loans (22) (21)
Loss on sales of real estate owned 0 4
(Decrease) increase in other liabilities (6,770) 354
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Net cash (used in) provided by operating activities (5,121) 1,553
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale 16,500 9,250
Purchase of securities available-for-sale (21,198) (11,299)
Proceeds from maturities of securities held-to-maturity 26,500 1,500
Purchase of securities held-to-maturity (35,987) (6,925)
Net increase in loans (3,114) (9,254)
Proceeds from sales of real estate owned 0 180
Capital expenditures (416) (532)
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Net cash used in investing activities (17,715) (17,080)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits (5,353) (12,419)
Net decrease in demand, savings, money market and NOW deposits (19,243) (12,513)
Net proceeds from the issuance of common stock 12 27
Cash Dividends (192) (189)
Net (decrease) increase in securities sold under agreements to repurchase (1,620) 2,190
Net (decrease) increase in FHLB borrowings and other borrowed funds (10,333) 9,121
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Net cash used in financing activities (36,729) (13,783)
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Net decrease in cash and cash equivalents (59,565) (29,310)
Cash and cash equivalents at beginning of year 97,892 67,681
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Cash and cash equivalents at end of period $ 38,327 $ 38,371
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $4,982 $3,708
Income taxes 332 602
Noncash transactions:
Property acquired through foreclosure $130 $136
Change in unrealized losses on securities available-for-sale, net of taxes ($135) ($329)
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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, 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
As of January 1, 1997, the Bank adopted Financial
Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities." This
statement provides accounting and reporting standards
for transfers and servicing of financial assets and
extinguishment of liabilities based on consistent
application of a financial-components approach that
focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are
secured borrowings. Under the financial-components
approach, after a transfer of financial assets, an
entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and
derecognizes financial assets it no longer controls and
liabilities that have been extinguished. The
financial-components approach focuses on assets and
liabilities that exist after the transfer. Many of these
assets and liabilities are components of financial
assets that existed prior to the transfer. If a transfer
does not meet the criteria for a sale, the transfer is
accounted for as a secured borrowing with pledge of
collateral. SFAS No. 127, "Deferral of the effective
Date of Certain Provisions of SFAS No. 125," requires
the deferral of
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implementation as it relates to repurchase agreements,
dollar-rolls, securities lending and similar
transactions until after December 31, 1997. Earlier or
retroactive applications of this statement is not
permitted. The adoption of these statements did not have
a material impact on its consolidated financial
statements.
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 the current quarter.
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 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the
accounts of Century Bancorp, Inc. (the "Company") and
its wholly-owned subsidiary, Century 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
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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 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
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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.
While management uses available information in
establishing the allowance for loan losses, future
adjustments to the allowance may be
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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 apply to taxable income in the years
in which temporary differences are expected to be
recovered or settled. Under this method, the effect on
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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
In December 1997, the Company announced an agreement to
acquire Haymarket Co-operative Bank ("Haymarket") and
merge Haymarket into the Bank. This acquisition is
expected to be completed during the second quarter of
1998. Haymarket operates two banking offices and is
headquartered in Boston, Massachusetts. Haymarket is
engaged principally in the business of attracting
deposits from the general public and investing those
deposits in residential real estate, consumer and small
business loans.
Total assets of Haymarket were approximately $142
million at December 31, 1997. Under the terms of the
agreement, the Bank will pay approximately $20 million
in cash for Haymarket. The transaction will be accounted
for using the purchase method of accounting.
In April 1998, the Company filed a registration
statement with the Securities and Exchange Commission
for a trust preferred stock offering that will raise
approximately $25 million of capital. The Company will
use the proceeds primarily for general business
purposes.
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ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW For the quarter ended and year-to-date ended March 31,
1998. Earnings for the first quarter ended March 31,
1998 were $1.8 million, an increase of 31.0% when
compared with the first quarter 1997 earnings of $1.4
million. Earnings per share for the first quarter 1998
were $0.31 versus $0.24 for the first quarter of 1997.
FINANCIAL CONDITION
LOANS On March 31, 1998 total loans outstanding, net of
unearned discount, were $319.4 million, an increase of
1.0% from the total on December 31, 1997. At March 31,
1998 commercial real estate loans accounted for 43.9%
and residential real estate loans and real estate loans
held-for-sale accounted for 23.0% of total loans.
Construction loans increased to $10.6 million at March
31, 1998 from $7.5 million at the end of the previous
quarter.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was 1.46% of total loans
on March 31, 1998 compared with 1.41% on December 31,
1997. Net recoveries for the three month period ended
March 31, 1998, were $63 thousand, compared with net
charge-offs of $86 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 March 31, 1998, loans on non-accrual status
totaled $1.5 million or .48% of loans; loans past due 90
days or more totaled $130 thousand; restructured
performing loans totaled $1.0 million.
SECURITIES HELD-TO-MATURITY
The securities held-to-maturity portfolio totaled $118.8
million on March 31, 1998, an increase of 8.8% 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 4.0
years.
SECURITIES AVAILABLE-FOR-SALE
The securities available-for-sale portfolio totaled
$93.7 million at March 31, 1998, an increase of 5.1 %
from December 31, 1997. The portfolio is concentrated in
United States Treasury and Agency securities and had a
weighted average maturity of 2.5 years.
OTHER ASSETS
On March 31 1998 other real estate owned totaled $130
thousand compared to $0 at December 31, 1997.
13 of 16
<PAGE> 14
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (con't.)
DEPOSITS AND BORROWED FUNDS
On March 31, 1998 deposits totaled $490.9 million,
representing a 4.8% decrease in total deposits from
December 31, 1997. Borrowed funds totaled $34.4 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.
RESULTS OF OPERATIONS
NET INTEREST INCOME
For the three month period ended March 31, 1998 net
interest income totaled $6.9 million, an increase of
13.3% 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 increased to 5.07% in the first quarter
of 1998 from 4.90% during the same period in 1997.
PROVISION FOR LOAN LOSSES
Loan loss provision for the three months ended March 31,
1998 was $165 thousand compared with $255 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 March 31, 1997 to March 31, 1998, the
Company's loan loss allowance as a percentage of total
loans outstanding has increased from 1.41% to 1.46%,
respectively.
NON-INTEREST INCOME AND EXPENSE
Other operating income for the quarter ended March 31,
1998 was $1.2 million, compared to $1.1 million for the
first quarter of 1997. Service charges on deposit
accounts, gains on sales of loans and other income
showed modest increases while brokerage commissions
showed a modest decrease. Lockbox fees increased 26.6%
due to an increase in lockbox volume relating to new
customers.
During the first quarter 1998, operating expenses
increased by $442 thousand or 9.5% from the same quarter
last year. Approximately half of
14 of 16
<PAGE> 15
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (con't.)
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 first quarter of 1998, the Company's income
taxes totaled $1,062 thousand on pretax income of $2,864
thousand for an effective tax rate of 37.1%. For last
year's corresponding quarter, the Company's income taxes
totaled $934 thousand on pretax income of $2,310
thousand for an effective rate of 40.4%. The Company has
begun to realize savings in this area as the result of
strategic tax savings initiatives.
========================================================
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.
15 of 16
<PAGE> 16
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 routine
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 - There was an annual
meeting of the stockholders of the Company on April 14,
1998. The stockholders voted to elect the following
individuals as directors of the Company for the ensuing
year: George R. Baldwin; Roger S. Berkowitz; Karl E.
Case, Ph.D.; Henry L. Foster, D.V.M.; Marshall I.
Goldman, Ph.D.; Russell B. Higley, Esq.; Jonathan B.
Kay; Fraser Lemley; Joseph P. Mercurio; Joseph J. Senna,
Esq.; Barry R. Sloane; Jonathan G. Sloane; Marshall M.
Sloane; Stephanie Sonnabend; George F. Swansburg; and
Jon Westling.
In addition, the stockholders of the Company voted to
confirm KPMG Peat Marwick LLP as external auditors for
the ensuing year.
Item 5 Other information - Not applicable
Item 6 Exhibits and reports on form 8-K - Not applicable
16 of 16
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