<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended DECEMBER 31,1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 (I.R.S. Employer
incorporation or organization) Identification number)
400 MYSTIC AVENUE, MEDFORD, MA 02155
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (781) 391-4000
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $1.00 PAR VALUE
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant as of February 29, 2000:
$4,762,714
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of February 29,2000:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,516,500 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,161,900 SHARES
i
<PAGE> 2
CENTURY BANCORP INC.
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I
------
<S> <C> <C>
ITEM 1 BUSINESS 1-15
ITEM 2 PROPERTIES 16
ITEM 3 LEGAL PROCEEDINGS 16
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
PART II
-------
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 16-17
ITEM 6 SELECTED FINANCIAL DATA 17
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 17
ITEM 7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 17
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 17
PART III
--------
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 43-45
ITEM 11 EXECUTIVE COMPENSATION AND OTHER INFORMATION 45-49
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 50
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 51
PART IV
-------
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 51
SIGNATURES 52
----------
</TABLE>
ii
<PAGE> 3
PART I
ITEM 1. BUSINESS
THE COMPANY
Century Bancorp, Inc. (together with its bank subsidiary, unless the context
otherwise requires, the "Company"), is a Massachusetts state chartered bank
holding company headquartered in Medford, Massachusetts. The Company is a
Massachusetts corporation formed in 1972 and has one banking subsidiary (the
"Bank"): Century Bank and Trust Company formed in 1969. The Company had total
assets of $925.5 million on December 31, 1999. The Company presently operates 16
banking offices in 15 cities and towns in Massachusetts ranging from Braintree
to Peabody. The Banks' customers consist primarily of small and medium-sized
businesses and retail customers in these communities and surrounding areas, as
well as local governments throughout Massachusetts.
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 paid by the Company to the shareholders of
Haymarket was $21.1 million in cash and the transaction was accounted for using
the purchase method of accounting. The results of operations include the effect
of the Haymarket acquisition for the 203 day period beginning June 12, 1998.
In May 1998, the Company, through its newly formed subsidiary, Century Bancorp
Capital Trust, issued 2,875,000 shares of Cumulative Trust Preferred Securities
with a liquidation value of $10 per share. These securities pay dividends at an
annualized rate of 8.30%. The Company is using the proceeds for general business
purposes.
The Company offers a wide range of services to commercial enterprises, state and
local governments and agencies, and individuals. It makes commercial loans, real
estate and construction loans, consumer loans, and accepts savings, time, and
demand deposits. In addition, the Company offers to its corporate customers
automated lock box collection services, cash management services and account
reconciliation services, and actively promotes the marketing of these services
to the municipal market.
The Company emphasizes service to small and medium-sized businesses and retail
customers in its market area. It provides business and consumer deposit services
and makes commercial loans, real estate and construction loans and consumer
loans. The Company provides full service brokerage services through Century
Financial Services, in conjunction with Commonwealth Equities.
The Company is a provider of financial services including cash management,
transaction processing, short term financing and intermediate term leasing to
municipalities in Massachusetts. The Company has deposit relationships with
approximately 30% of the 351 cities and towns in Massachusetts.
-1-
<PAGE> 4
The following table sets forth the distribution of the Company's average assets,
liabilities and stockholders' equity, and average rates earned or paid on a
fully taxable equivalent basis for each of the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
---- ----
Average Interest Rate Average Interest Rate
Balance Income (1) Earned (1) Balance Income (1) Earned (1)
------- ---------- ---------- ------- ---------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans(2) $ 405,794 $ 35,720 8.80% $ 358,498 $ 33,461 $9.33%
Securities available-for-sale:
Taxable 229,015 13,441 5.87% 138,104 8,314 6.02%
Tax-exempt 724 34 4.70% 808 47 5.82%
Securities held-to-maturity:
Taxable 157,696 9,261 5.87% 137,238 8,610 6.27%
Tax-exempt 10 1 10.00% 21 3 14.29%
Federal funds sold 7,786 385 4.94% 28,241 1,516 5.37%
Interest bearing deposits
in other banks 67 3 4.48% 571 44 7.71%
--------- --------- ------ --------- --------- -----
Total interest-earning assets 801,092 58,845 7.35% 663,481 51,995 7.84%
---------- ------ ---------- -----
Non interest-earning assets 65,903 61,421
Allowance for loan losses (6,494) (5,452)
--------- ---------
Total assets $ 860,501 $ 719,450
========= =========
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997
----
Average Interest Rate
Balance Income (1) Earned (1)
------- ---------- ----------
(Dollars In Thousands)
<S> <C> <C> <C>
Assets
Interest-earning assets:
Loans(2) $304,147 $28,479 9.36%
Securities available-for-sale:
Taxable 82,069 5,054 6.16%
Tax-exempt 1,327 80 6.03%
Securities held-to-maturity:
Taxable 109,458 7,047 6.44%
Tax-exempt 33 3 9.09%
Federal funds sold 12,864 706 5.49%
Interest bearing deposits
in other banks 36 1 2.78%
---------- ----------
Total interest-earning assets 509,934 41,370 8.11%
---------- ----------
Non interest-earning assets 61,305
Allowance for loan losses (4,412)
----------
Total assets $566,827
==========
</TABLE>
- -------------------------------------------------------------------------------
(1) On a fully taxable equivalent basis calculated using a federal tax rate of
35%.
(2) Nonaccrual loans are included in average amounts outstanding.
-2-
<PAGE> 5
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
---- ----
Average Interest Income Rate Earned Average Interest Income Rate Earned
Balance /Expense (1) /Paid (1) Balance /Expense (1) /Paid (1)
------- ------------ --------- ------- ------------ ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Liabilities and Stockholders'
Equity
Interest-bearing deposits:
NOW accounts $116,753 $ 2,541 2.18% $110,066 $ 2,745 2.49%
Savings accounts 58,733 1,283 2.18% 56,802 1,422 2.50%
Money market accounts 82,292 2,149 2.61% 77,930 2,255 2.89%
Time deposits 228,157 11,326 4.96% 213,861 11,445 5.35%
------- ------- -------- --------
Total interest-bearing
deposits 485,935 17,299 3.56% 458,659 17,867 3.90%
Securities sold under
agreements to repurchase 48,782 1,863 3.82% 36,953 1,574 4.26%
Other borrowed funds and Long Term Debt 114,593 7,122 6.22% 38,293 2,574 6.72%
------- ------- -------- --------
Total interest-bearing
liabilities 649,310 26,284 4.05% 533,905 22,015 4.12%
------- -------- -------- ----------
Non interest-bearing
liabilities
Demand deposits 138,493 119,802
Other liabilities 11,088 8,204
------- --------
Total liabilities 798,891 661,911
Stockholders' equity 61,610 57,539
------- --------
Total liabilities &
stockholders' equity $860,501 $719,450
========
Net interest income(1) $32,561 $ 29,980
======= ========
Net interest spread 3.30% 3.72%
======= =========
Net yield on earnings assets 4.07% 4.52%
======= =========
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997
----
Average Interest Income Rate Earned
Balance /Expense (1) /Paid (1)
------- ------------ ---------
(Dollars In Thousands)
<S> <C> <C> <C>
Liabilities and Stockholders'
Equity
Interest-bearing deposits:
NOW accounts $ 91,938 $ 2,561 2.79%
Savings accounts 55,911 1,433 2.56%
Money market accounts 66,936 1,888 2.82%
Time deposits 155,607 8,474 5.45%
----------- -----------
Total interest-bearing
deposits 370,392 14,356 3.88%
Securities sold under
agreements to repurchase 24,994 1,075 4.30%
Other borrowed funds and Long Term Debt 7,908 491 6.21%
----------- ------------
Total interest-bearing
liabilities 403,294 15,922 3.95%
------------ -----------
Non interest-bearing
liabilities
Demand deposits 105,417
Other liabilities 7,787
-----------
Total liabilities 516,498
Stockholders' equity 50,329
-----------
Total liabilities &
stockholders' equity $ 566,827
===========
Net interest income(1) $ 25,448
===========
Net interest spread 4.16%
============
Net yield on earnings assets 4.99%
============
</TABLE>
- -------------------------------------------------------------------------------
(1) On a fully taxable equivalent basis calculated using a federal tax rate of
35%.
-3-
<PAGE> 6
The following table summarizes the year-to-year changes in the Company's net
interest income resulting from fluctuations in interest rates and volume changes
in earning assets and interest bearing liabilities. Changes due to rate are
computed by multiplying the change in rate by the prior year's volume. Changes
due to volume are computed by multiplying the change in volume by the prior
year's rate. Changes in volume and rate that cannot be separately identified
have been allocated in proportion to the relationship of the absolute dollar
amounts of each change.
Net interest income improved in 1999. Interest income was affected positively by
higher loan volume, primarily as a result of the Haymarket acquisition. Much of
the Company's earning assets were repriced to improve their respective returns.
Interest expense rose primarily because of a higher level of borrowed funds.
Interest income on securities increased primarily because of volume.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 Compared with 1998 1998 Compared with 1997
Increase/(Decrease) Increase/(Decrease)
Due to Change in Due to Change in
---------------- ----------------
Total Total
Average Average Increase Average Average Increase
Balance Rate (Decrease) Balance Rate (Decrease)
------- ---- ---------- ------- ---- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 4,239 $ (1,980) $ 2,259 $ 5,073 $ (91) $ 4,982
Securities available-for-sale:
Taxable 5,341 (214) 5,127 3,376 (116) 3,260
Tax-exempt (5) (8) (13) (30) (3) (33)
Securities held-to-maturity:
Taxable 1,226 (575) 651 1,747 (183) 1,564
Tax-exempt (1) (1) (2) (1) 1 (0)
Federal funds sold (1,020) (111) (1,131) 826 (16) 810
Interest-bearing deposits
in other banks (28) (13) (41) 40 2 42
-------- -------- -------- -------- -------- --------
Total interest income 9,752 (2,902) 6,850 11,031 (406) 10,625
-------- -------- -------- -------- -------- --------
Interest expense:
Deposits:
NOW accounts 160 (364) (204) 470 (286) 184
Savings accounts 47 (186) (139) 23 (34) (11)
Money market accounts 122 (228) (106) 19 348 367
Time deposits 738 (857) (119) 2,980 (9) 2,971
-------- -------- -------- -------- -------- --------
Total interest-bearing
deposits 1,067 (1,635) (568) 3,492 19 3,511
Securities sold under
agreements to repurchase 464 (175) 289 509 (10) 499
Other borrowed funds
and long term debt 4,756 (208) 4,548 2,040 43 2,083
-------- -------- -------- -------- -------- --------
Total interest expense 6,288 (2,019) 4,269 6,041 52 6,093
-------- -------- -------- -------- -------- --------
Change in net interest income $ 3,464 $ (883) $ 2,581 $ 4,990 $ 505 $ 4,532
======== ======== ======== ======== ======== ========
</TABLE>
-4-
<PAGE> 7
LENDING ACTIVITIES
The following summary shows the composition of the loan portfolio at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997
---- ---- ----
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Construction and land development $ 21,682 5.1% $ 21,691 5.5% $ 7,549 2.4%
Commercial and industrial 77,166 18.3 64,822 16.4 50,560 16.0
Industrial revenue bonds 190 0.0 1,034 0.2 2,693 0.9
Commercial real estate 209,332 49.5 187,285 47.3 140,270 44.3
Residential real estate 82,968 19.6 87,518 22.1 76,385 24.1
Consumer 11,678 2.8 14,355 3.6 19,254 6.1
Home equity 19,227 4.5 18,839 4.8 19,031 6.0
Overdrafts 482 0.1 359 0.1 648 0.2
-------- ----- -------- ----- -------- -----
Loans(net of unearned
discount) $422,725 100.0% $395,903 100.0% $316,390 100.0%
======== ===== ======== ===== ======== =====
<CAPTION>
December 31,
------------
1996 1995
---- ----
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Construction and land development $ 3,576 1.2% $ 1,444 0.5%
Commercial and industrial 41,006 14.2 37,811 13.2
Industrial revenue bonds 3,030 1.1 3,362 1.2
Commercial real estate 133,757 46.4 130,173 45.6
Residential real estate 76,638 26.6 82,132 28.8
Consumer 12,749 4.4 9,243 3.2
Home equity 17,330 6.0 21,130 7.4
Overdrafts 194 0.1 143 0.1
-------- ----- -------- -----
Loans(net of unearned
discount) $288,280 100.0% $285,438 100.0%
======== ===== ======== =====
</TABLE>
-5-
<PAGE> 8
The following table summarizes the remaining maturity distribution of certain
components of the Company's loan portfolio at December 31, 1999. The table
excludes loans secured by one-to-four family residential real estate and loans
for household family and other personal expenditures. Maturities are presented
as if scheduled principal amortization payments are due on the last contractual
payment date.
<TABLE>
<CAPTION>
Remaining Maturities of Selected Loans at December 31, 1999
-----------------------------------------------------------
One Year One to Five Over
or Less Years Five Years Total
------- ----- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C>
Construction and land development $ 18,311 $ 2,870 $ 500 $ 21,682
Commercial and industrial 50,900 23,114 3,156 77,167
Industrial revenue bonds 190 0 0 190
Commercial real estate 65,339 133,674 10,320 209,332
-------- -------- -------- --------
Total $134,740 $159,657 $ 13,974 $308,371
======== ======== ======== ========
</TABLE>
The following table indicates the rate variability of the above loans due after
one year.
<TABLE>
<CAPTION>
December 31, 1999
-----------------
One to Five Over
Years Five Years Total
----- ---------- -----
(In Thousands)
<S> <C> <C> <C>
Predetermined interest rates $132,434 $ 11,668 $144,102
Floating or adjustable interest rates 27,223 2,306 29,530
-------- -------- --------
Total $159,657 $ 13,974 $173,631
======== ======== ========
</TABLE>
Individual loan officers have designated lending authorities established by the
Board of Directors, with larger loans requiring a second approval. The Bank has
an Executive Committee of its Board of Directors which meets monthly and reviews
all credits above a specified size. In addition, the Company has an Executive
Management Committee which meets monthly and monitors the Company's lending
policies and practices. The members of the Executive Management Committee are:
Marshall M. Sloane, Chairman, President and CEO; Jonathan G. Sloane, Executive
Vice President; Paul V. Cusick, Jr., Vice President and Treasurer; all of the
Company, and David B. Woonton, Paul A. Evangelista and William J. Sloboda, all
Executive Vice Presidents of the Bank.
The Company's commercial and industrial (C&I) loan customers represent various
small and middle market established businesses involved in manufacturing,
distribution, retailing and services. Most clients are privately owned with
markets that range from local to national in scope. Many of the loans to this
segment are secured by liens on corporate assets and the personal guarantees of
the principals. The Bank has placed greater emphasis on building its C&I base in
the future. The regional economic strength or weakness impacts on the relative
risks in this loan category. There is little concentration to any one business
sector and loan risks are generally diversified among many borrowers.
Commercial real estate loans are extended to finance various manufacturing,
warehouse, light industrial, office, retail and residential properties in the
Banks's market area which generally includes Eastern Massachusetts and Southern
New Hampshire. Loans are normally extended in amounts up to a maximum of 80% of
appraised value and normally for terms between three to five years. Amortization
schedules are long-term and thus a balloon payment is due at maturity. Under
most circumstances, the Bank will offer to re-write or otherwise extend the loan
at prevailing interest rates. During recent years, the Bank has emphasized
non-residential type owner-occupied properties. This compliments the above C&I
emphasis placed on the operating business entities and will be continued. The
regional economic environment impacts on the risk to both non-residential and
residential mortgages. This environment has improved over the recent period.
Together the above factors have stabilized many sections of the regional market.
-6-
<PAGE> 9
Residential real estate (1-4 family) includes two categories of loans.
Approximately $15 million of loans are classified as "Commercial and Industrial"
type loans secured by 1-4 family real estate. Primarily, these are small
businesses with modest capital or shorter operating histories where the
collateral mitigates some risk. The collateral position notwithstanding, this
category of loans shares similar risk characteristics as the C&I loans. The
balance of loans in this category are mostly 1-4 family residential properties
located in the Bank's market area. General underwriting criteria are largely the
same as those used by Fannie Mae but normally only one or three year adjustable
interest rates are used. The Bank utilizes mortgage insurance to provide lower
down payment products and has provided a "First Time Homebuyer" product to
encourage new home ownership. Residential real estate loan volume has declined
but nonetheless remains a core consumer product. The economic environment
impacts the risks associated with this category. In the recent period, the
environment has improved, and the market has generally been stable. Declining
interest rates could negatively impact the interest rate risk on adjustable
interest rate loans as they are repriced in the future.
Home equity loans are extended as both first and second mortgages on owner
occupied residential properties in the Bank's market area. Loans are
underwritten to a maximum loan to property value of 75%.
The Bank intends to maintain a market for construction loans, principally for
smaller local residential projects or an owner occupied commercial project.
Independent appraisals of the project and the estimated costs are obtained and
funds are advanced over the life of the project as inspections of completed work
warrant. Individual consumer residential home construction loans are also
extended on a similar basis.
Bank officers evaluate the feasibility of construction projects, based on
independent appraisals of the project, architects or engineers evaluations of
the cost of construction, and other relevant data. At December 31, 1999, the
Company was obligated to advance a total of $10.8 million to complete projects
under construction.
At December 31, 1999, approximately 49.5% of the Company's loan portfolio
consisted of commercial real estate loans. Construction loans had increased to
5.1% of the Company's outstanding loans.
At December 31, 1999, the Company's residential mortgage loans amounted to $83.0
million. The Company's consumer loan portfolio amounted to $30.9 million at
December 31, 1999, primarily consisting of home equity loans of $19.2 million
and personal lines of credit, motor vehicle loans and other installment loans of
$11.7 million.
-7-
<PAGE> 10
NONPERFORMING ASSETS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans are placed on nonaccrual status when any payment of principal and/or
interest is 90 days or more past due, unless the collateral is sufficient to
cover both principal and interest and the loan is in the process of collection.
The Company monitors closely the performance of its loan portfolio. In addition
to internal loan review, the Company has contracted with an independent
organization to review the Company's commercial and commercial real estate loan
portfolios. This independent review was performed in each of the past five
years. The status of delinquent loans, as well as situations identified as
potential problems, are reviewed on a regular basis by senior management and
monthly by the Board of Directors of the Bank.
The following table summarizes the Company's nonperforming assets at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual $4,621 $1,281 $1,705 $2,140 $3,751
Loans not included above
which are nonperforming
troubled debt restructurings -0- -0- -0- -0- 1,457
Other real estate owned, net -0- -0- -0- 182 845
------ ------ ------ ------ ------
Total nonperforming assets $4,621 $1,281 $1,705 $2,322 $6,053
====== ====== ====== ====== ======
Percentage of nonperforming
assets to total loans and
other related assets 1.09% 0.32% 0.54% 0.81% 2.12%
====== ====== ====== ====== ======
</TABLE>
The higher level of nonperforming assets for 1999, reflects the deterioration of
one borrower's credit quality, with whom the Company has a total relationship of
$4.1 million. Management placed this credit to nonaccrual status during the
fourth quarter of 1999.
The lower level of nonperforming assets in 1998 resulted from a reduction in new
additions to nonperforming assets during the year combined with an improvement
in the resolution of nonperforming assets including payments on nonperforming
loans and sales of other real estate owned (OREO).
In addition to the above, the Company is monitoring closely $9.7 million of
loans for which management has concerns regarding the ability of the borrowers
to perform. The majority of the loans are secured by real estate properties
experiencing higher than expected vacancies and lower than expected rental
revenue. While the properties are considered to have adequate value to cover the
loan balances at December 31, 1999, such values can fluctuate with changes in
the economy and the real estate market.
There were no impaired loans with specific reserves at December 31, 1999 and
1998 because, in the opinion of management, none required a specific reserve.
All impaired loans have been measured using the fair value of the collateral
method.
The following table summarizes the Company's loans past due 90 days or more and
still accruing and impaired loans at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or
more and still accruing $ 188 $ 698 $ 7 $ 192 $ 87
Impaired loans $6,019 $2,992 $3,515 $3,055 $3,356
</TABLE>
-8-
<PAGE> 11
The Company maintains an allowance for loan losses in an amount determined by
management on the basis of the character of the loans, loan performance, the
financial condition of borrowers, the value of collateral securing loans and
other relevant factors. The following table summarizes the changes in the
Company's allowance for loan losses for the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Year end loans outstanding
(net of unearned discount) $ 422,724 $ 395,903 $ 316,390 $ 288,280 $ 285,438
========= ========= ========= ========= =========
Average loans outstanding
(net of unearned discount) $ 405,794 $ 358,498 $ 304,147 $ 281,943 $ 279,555
========= ========= ========= ========= =========
Balance of allowance for
loan losses at
beginning of year $ 6,022 $ 4,446 $ 4,179 $ 4,193 $ 4,239
--------- --------- --------- --------- ---------
Loans charged-off:
Commercial 81 316 25 2 2
Construction and land development 0 0 0 0 0
Commercial real estate 61 21 48 380 1,144
Residential real estate 14 0 363 801 551
Consumer 315 506 253 120 131
--------- --------- --------- --------- ---------
Total loans charged-off 471 843 689 1,303 1,828
--------- --------- --------- --------- ---------
Recoveries of loans previously
charged-off:
Commercial 197 21 76 78 39
Real estate 393 367 162 163 134
Consumer 30 37 58 28 49
--------- --------- --------- --------- ---------
Total recoveries of loans
previously charged-off 620 425 296 269 222
--------- --------- --------- --------- ---------
Net loan recoveries charged-off (149) 418 393 1,034 1,606
--------- --------- --------- --------- ---------
Additions to allowance charged to
operating expense 1,475 800 660 1,020 1,560
Acquired allowance 0 1,194 -- -- --
--------- --------- --------- --------- ---------
Balance at end of year $ 7,646 $ 6,022 $ 4,446 $ 4,179 $ 4,193
========= ========= ========= ========= =========
Ratio of net charge-offs during
the year to average loans
outstanding (0.04%) 0.12% .13% .37% .57%
========= ========= ========= ========= =========
Ratio of allowance for
loan losses to loans
outstanding 1.81% 1.52% 1.41% 1.45% 1.47%
========= ========= ========= ========= =========
</TABLE>
The provision for 1999 remains above historical levels. The increase for 1999,
reflects increased provisions associated with the deterioration of one
borrower's credit quality with whom the Company has a total relationship of $4.1
million. Management placed this credit to nonaccrual status during the fourth
quarter of 1999. These provisions are the result of management's evaluation of
the quality of the loan portfolio considering such factors as loan status,
collateral values, financial condition of the borrower, the state of the economy
and other relevant information. At December 31, 1999 nonperforming assets were
$4.6 million or 1.09% of loans and related assets.
While the Company expects a similar level of charge-offs in future periods, the
pace of the charge-offs depends on many factors including the national and
regional economy. Cyclical lagging factors may result in charge-offs being
higher than historical levels.
-9-
<PAGE> 12
The allowance for loan losses is an estimate of the amount needed for an
adequate reserve to absorb losses in the existing loan portfolio. This amount is
determined by an evaluation of the loan portfolio including input from an
independent organization engaged to review selected larger loans, a review of
loan loss experience and current economic conditions. At December 31, the
allowance was comprised of the following components.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Percent of Percent of Percent of
loans in loans in loans in
each category each category each category
Balance at end of to total to total to total
period applicable to Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ -----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Construction and land development $ 441 5.1% $ 361 5.5% $ 14 2.4%
Commercial and industrial 2,846 18.3 912 16.4 71 16.0
Industrial revenue bonds 1 0.0 6 0.2 17 0.9
Commercial real estate 2,951 49.5 2,737 47.3 2,138 44.3
Residential real estate 867 19.6 1,296 22.1 846 24.1
Consumer 325 2.8 508 3.6 402 6.1
Home equity 209 4.5 197 4.8 214 6.0
Overdrafts 6 0.1 5 0.1 9 0.2
------ ----- ------ ----- ------ -----
$7,646 100.0% $6,022 100.0% $4,446 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
1996 1995
---- ----
Percent of Percent of
loans in loans in
each category each category
Balance at end of to total to total
period applicable to Amount loans Amount loans
------ ----- ------ -----
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Construction and land development $ 48 1.2% $ 21 0.5%
Commercial and industrial 660 14.2 595 13.2
Industrial revenue bonds 17 1.1 23 1.2
Commercial real estate 2,201 46.4 2,095 45.6
Residential real estate 830 26.6 1,031 28.8
Consumer 233 4.4 228 3.2
Home equity 187 6.0 198 7.4
Overdrafts 3 0.1 2 0.1
------ ----- ------ -----
$4,179 100.0% $4,193 100.0%
====== ===== ====== =====
</TABLE>
Investment Activities
The following table sets forth certain information regarding the Company's
investment portfolio. Dollar amounts reflect carrying values. At December 31,
1999, the market value of securities available-for-sale was $255.0 million
compared to the amortized cost of $263.7 million for such securities. At
December 31, 1999, the market value of securities held-to-maturity was $146.6
million, compared to the amortized cost of $152.6 million of such securities.
<TABLE>
<CAPTION>
Securities available-for-sale Securities held-to-maturity
December 31, December 31,
-------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of
period applicable to
U.S. Government and Agencies $238,778 $202,925 $ 84,763 $127,719 $159,789 $107,117
Obligations of states and political
subdivision 250 0 750 0 11 22
Other 15,947 7,232 3,677 24,880 75 2,100
-------- -------- -------- -------- -------- --------
$254,975 $210,157 $ 89,190 $152,599 $159,875 $109,239
======== ======== ======== ======== ======== ========
</TABLE>
-10-
<PAGE> 13
The following table sets forth the maturities of the Company's investment
securities on the basis of their carrying values at December 31, 1999 and the
weighted average yields of securities, which are based on amortized cost,
calculated on a fully taxable equivalent basis.
<TABLE>
<CAPTION>
Securities Available-for-Sale
---------------------------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S Government and
Agencies $ 5,158 6.20% $195,402 5.89% $ 10,596 6.34% $ 27,623 6.30% $238,779 5.96%
Obligations of states
and political
subdivisions 250 3.38% 0 0.00% 0 0.00% 0 0.00% 250 3.38%
Other 0 0.00% 500 6.96% 0 0.00% 15,446 6.55% 15,946 6.56%
-------- -------- -------- -------- --------
$ 5,408 6.07% $195,902 5.89% $ 10,596 6.34% $ 43,069 6.39% $254,975 6.00%
======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
<TABLE>
<CAPTION>
Securities Held-To-Maturity
---------------------------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S Government and
Agencies $ 1,850 6.16% $66,975 5.92% $ 13,999 5.96% $ 44,895 6.58% $127,719 6.16%
Obligations of states
and political
subdivisions 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Other 25 4.00% 25 5.50% 0 0.00% 24,830 6.50% 24,880 6.50%
-------- ------- -------- -------- --------
$ 1,875 6.13% $67,000 5.92% $ 13,999 5.96% $ 69,725 6.55% $152,599 6.21%
======== ==== ======= ==== ======== ==== ======== ==== ======== ====
</TABLE>
-11-
<PAGE> 14
Obligations of states and political subdivisions consist primarily of
obligations of the Commonwealth of Massachusetts and its subdivisions having
other relationships with the Company. The Company regularly bids on tax
anticipation notes and other short-term instruments of municipalities who have
other depository relationships with it. The Company also writes equipment leases
to finance acquisition of computers, fire trucks, snow plows and other equipment
used by municipalities.
DEPOSITS
The Company offers savings accounts, NOW accounts, demand deposits, certificates
of deposit and money market accounts. The Company offers cash management
accounts which provide either automatic transfer of funds above a specified
level from the customer's checking account to a money market account or
short-term borrowings. Also, an account reconciliation service is offered
whereby the Company provides a computerized report balancing the customer's
checking account.
Interest rates on deposits are set bi-monthly by the Bank's rate-setting
committee, based on factors including loan demand, maturities and a review of
competing interest rates offered. Interest rate policies are reviewed
periodically by the Executive Management Committee.
The following table shows the average amount of, and average interest rate paid
on, various categories of deposits during the years indicated.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------
(Dollars In Thousands)
Average Average Average
Interest Interest Interest
Average Rate Average Rate Average Rate
Amount Paid Amount Paid Amount Paid
-------- ---- ------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
NOW accounts $116,753 2.18% $110,066 2.49% $ 91,938 2.79%
Savings accounts 58,733 2.18% 56,802 2.50% 55,911 2.56%
Money market accounts 82,292 2.61% 77,930 2.89% 66,936 2.82%
Time deposits of $100,000 or more 64,699 5.05% 60,895 5.37% 35,939 5.14%
Other time deposits 163,459 4.93% 152,966 5.34% 119,668 5.54%
-------- ------- --------
Total interest-bearing deposits 485,936 3.56% 458,659 3.90% 370,392 3.88%
Non interest-bearing demand deposits 138,492 119,802 105,417
-------- ------- --------
Total average deposits $624,428 2.77% $578,46 3.09% $475,809 3.02%
======== ====== ======== ======= ======== ======
</TABLE>
Total deposits at December 31, 1999, amounted to $644 million, including $122
million of time deposits of $100,000 or more. Traditionally, the Company
experiences a decline in deposits during the first and third quarters of each
year because of the deposit cycles of certain of its customers, notably
municipalities.
The Company's time certificates of deposit in amounts of $100,000 or more at
December 31, 1999 mature as follows.
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Three months or less $86,707
Three through six months 19,049
Six through twelve months 12,842
Over twelve months 3,071
--------
$121,769
========
</TABLE>
-12-
<PAGE> 15
BORROWED FUNDS AND LONG TERM DEBT
The Company sells securities under repurchase agreements and enters into other
borrowings to obtain funds to support asset growth. Pertinent data relating to
borrowed funds and long term debt is presented below.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Securities sold under agreements to repurchase:
Amount outstanding at year end $ 59,480 $ 57,690 $ 32,850
Weighted average interest rate
at end of year 3.68% 3.53% 4.49%
Maximum amount outstanding at
any month end during year $ 59,480 $ 57,690 $ 39,060
Daily average amount outstanding
during year $ 48,782 $ 36,953 $ 24,994
Weighted average interest rate
during year 3.82% 4.26% 4.30%
Other borrowed funds and long term debt:
Amount outstanding at year end $146,344 $ 63,596 $ 13,474
Weighted average interest rate
at end of year 6.08% 6.65% 6.96%
Maximum amount outstanding at
any month end during year $159,545 $ 79,377 $ 36,609
Daily average amount outstanding
during year $114,593 $ 38,293 $ 7,908
Weighted average interest rate
during year 6.21% 6.72% 6.21%
</TABLE>
Securities sold under agreements to repurchase are primarily over-night demand
obligations and are collateralized by U.S. Government and Agency securities. The
main reasons for the increase in other borrowed funds and long term debt were
leveraged balance sheet transactions and increased borrowings for potential Year
2000 issues.
OTHER SERVICES
In addition to fees derived from traditional banking activities such as loan
origination fees, the Company derives revenues from its automated lock box
collection system and full service securities brokerage offered through
Commonwealth Equity Services, Inc., an unaffiliated registered securities
broker-dealer and investment adviser.
Under the lock-box program, which is not tied to extensions of credit by the
Company, the Company's customer arranges for payments of its accounts receivable
to be made directly to the Company. The Company records on its computer the
amounts paid to its customers, deposits the funds to the customer's account with
the Company and provides computerized records of the amounts received to the
Company's customers. Typical customers for the lock box service are
municipalities who use it to automate tax collections, cable TV companies, and
other commercial enterprises.
Through Commonwealth Equity Services, Inc., the Bank provides full service
securities brokerage services. Registered representatives employed by the Bank
offer investment advice, execute transactions and assist customers in financial
and retirement planning. Commonwealth Equity Services, Inc., provides research
to and supervises representatives in exchange for payment by the Bank for a
fixed fee and a share in the commission revenues.
-13-
<PAGE> 16
EMPLOYEES
As of December 31, 1999, the Company had 216 full-time and 72 part-time
employees. The Company's employees are not represented by any collective
bargaining unit. The Company believes that its employee relations are good.
FINANCIAL SERVICES MODERNIZATION
On November 12, 1999, President Clinton signed into law The Gramm-Leach-Bliley
Act ("Gramm-Leach") which significantly altered banking laws in the United
States. Gramm Leach enables combinations among banks, securities firms and
insurance companies beginning March 11, 2000. As a result of Gramm Leach, many
of the depression-era laws which restricted these affiliations and other
activities which may be engaged in by banks and bank holding companies, were
repealed. Under Gramm-Leach, bank holding companies are permitted to offer their
customers virtually any type of financial service that is financial in nature or
incidental thereto, including banking, securities underwriting, insurance (both
underwriting and agency) and merchant banking.
In order to engage in these new financial activities, a bank holding company
must qualify and register with the Federal Reserve Board as a "financial holding
company" by demonstrating that each of its bank subsidiaries is "well
capitalized," "well managed," and has at least a "satisfactory" rating under the
Community Reinvestment Act of 1977 ("CRA").
These new financial activities authorized by Gramm-Leach may also be engaged in
by a "financial subsidiary" of a national or state bank, except for insurance or
annuity underwriting, insurance company portfolio investments, real estate
investment and development and merchant banking, which must be conducted in a
financial holding company. In order for the new financial activities to be
engaged in by a financial subsidiary of a national or state bank, Gramm-Leach
requires each of the parent bank (and its sister-bank affiliates) to be well
capitalized and well managed; the aggregate consolidated assets of all of that
bank's financial subsidiaries may not exceed the lesser of 45% of its
consolidated total assets or $50 billion; the bank must have at least a
satisfactory CRA rating; and, if that bank is one of the 100 largest banks, it
must meet certain financial rating or other comparable requirements.
Gramm-Leach establishes a system of functional regulation, under which the
federal banking agencies will regulate the banking activities of financial
holding companies and banks' financial subsidiaries, the U.S. Securities and
Exchange Commission will regulate their securities activities and state
insurance regulators will regulate their insurance activities. Gramm-Leach also
provides new protections against the transfer and use by financial institutions
of consumers' nonpublic, personal information.
HOLDING COMPANY REGULATION
The Company is a bank holding company as defined by the Bank Holding Company Act
of 1956, as amended (the "Holding Company Act") and is registered as such with
the Board of Governors of the Federal Reserve System (the "FRB"), which is
responsible for administration of the Holding Company Act. Although the Company
may meet the qualifications for electing to become a financial holding company
under Gramm-Leach, the Company has elected to retain its pre-Gramm-Leach status
for the present time under the Holding Company Act. As required by the Holding
Company Act, the Company files with the FRB an annual report regarding its
financial condition and operations, management and intercompany relationships of
the Company and the Bank. It is also subject to examination by the FRB and must
obtain FRB approval before (i) acquiring direct or indirect ownership or
control of more than 5% of the voting stock of any bank, unless it already owns
or controls a majority of the voting stock of that bank, (ii) acquiring all or
substantially all of the assets of a bank, except through a subsidiary which is
a bank, or (iii) merging or consolidating with any other bank holding company. A
bank holding company must also give the FRB prior written notice before
purchasing or redeeming its equity securities if the gross consideration for the
purchase or redemption, when aggregated with the net consideration paid by the
company for all such purchases or redemptions during the preceding 12 months, is
equal to 10% or more of the Company's consolidated net worth.
The Holding Company Act prohibits a bank holding company, with certain
exceptions, from (i) acquiring direct or indirect ownership or control of any
voting shares of any company which is not a bank or a bank holding company, or
(ii) engaging in any activity other than managing or controlling banks, or
furnishing services to or performing services for its subsidiaries. A bank
holding company may own, however, shares of a company engaged in activities
which the FRB has determined are so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
-14-
<PAGE> 17
The Company and its subsidiaries are examined by federal and state regulators.
The FRB has responsibility for holding company activities and performed a review
in 1999.
CAPITAL RATIOS
The regulatory standard for capital adequacy assigns risk factors to asset
categories and certain off-balance sheet commitments. The fully-phased in 1992
standard requires a tier-1 capital to risk assets ratio of 4.00% and a total
capital to risk assets ratio of 8.00%. At December 31, 1999, the Company's
ratios were 16.49% and 19.09%, respectively. The Bank also exceeded these
risk-weighted capital measures at December 31, 1999. In addition to these risk
based capital requirements, federal banking regulators have leverage guidelines.
The minimum leverage requirement is 4% as measured by the ratio of core capital,
net of intangible assets, to total assets. At December 31, 1999 the Company's
ratio was 9.36%. The Bank also exceeded the leverage requirement at December 31,
1999.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
On December 19, 1991, the FDIC Improvement Act of 1991 (the "1991 Act") was
enacted. This legislation sought to recapitalize the Bank Insurance Fund of the
FDIC ("BIF"), which had been severely depleted as a result of the larger members
of failed banks. The recapitalization continues to be funded through, among
other things, increased deposit insurance assessments payable by BIF-insured
institutions, which increases the cost of doing business by all BIF-insured
institutions, including the Bank. The 1991 Act also provides for, among other
things: enhanced federal supervision of depository institutions, including
greater authority for the appointment of a conservator or receiver for
undercapitalized institutions; the establishment of risk-based deposit insurance
premiums; a requirement that the federal banking agencies amend their risk-based
capital requirements to include components for interest-rate risk, concentration
of credit risk, and the risk of nontraditional activities; expanded authority
for cross-industry mergers and acquisitions; mandated consumer protection
disclosures with respect to deposit accounts; and imposed restrictions on the
activities of state-chartered banks, including the Bank.
Provisions of the 1991 Act relating to the activities of state-chartered banks
significantly impact the way the Company conducts its business. In this regard,
the 1991 Act provides that insured state banks, such as the Bank, may not engage
as principal in any activity that is not permissible for a national bank, unless
the FDIC has determined that the activity would pose no significant risk to the
BIF and the state bank is in compliance with applicable capital standards.
Activities of subsidiaries of insured state banks are similarly restricted to
those activities permissible for subsidiaries of national banks, unless the FDIC
has determined that the activity would pose no significant risk to the BIF and
the state bank is in compliance with applicable capital standards.
INTERSTATE BANKING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as
amended (the "Interstate Banking Act") generally permits bank holding companies
to acquire banks in any state, and preempts all state laws restricting the
ownership by a bank holding company of banks in more than one state. The
Interstate Banking Act also permits a bank to merge with an out-of-state bank
and convert any offices into branches of the resulting bank if both states have
not opted out of interstate branching; permits a bank to acquire branches from
an out-of-state bank if the law of the state where the branches are located
permits the interstate branch acquisition; and operated de novo interstate
branches whenever the host state opts-in to de novo branching. Bank holding
companies and banks seeking to engage in transactions authorized by the
Interstate Banking Act must be adequately capitalized and managed.
COMPETITION
The Company experiences substantial competition in attracting deposits and
making loans from commercial banks, thrift institutions and other enterprises
such as insurance companies and mutual funds. These competitors include several
major commercial banks whose greater resources may afford them a competitive
advantage by enabling them to maintain numerous branch offices and mount
extensive advertising campaigns.
-15-
<PAGE> 18
ITEM 2. PROPERTIES
The Company owns its main banking office, headquarters, and operations center in
Medford, and 11 of the 15 other facilities in which its branch offices are
located. The remaining offices are occupied under leases expiring on various
dates from 2000 to 2026.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various claims and lawsuits
arising in the course of their normal business activities. Although the ultimate
outcome of these suits cannot be ascertained at this time, it is the opinion of
management that none of these matters, when resolved, will have a material
adverse effect on the Company's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Security Holders during the fourth
quarter of the fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Class A Common Stock of the Company is traded on the
NASDAQ National Market system. The price range of the
Company's Class A common stock since January 1, 1999 is shown
on page 18.
The shares of Class A Common Stock are not entitled to vote in
the election of Company Directors but, in limited
circumstances, are entitled to vote as a class on certain
extraordinary transactions, including any merger or
consolidation (other than one in which the Company is the
surviving corporation or one which by law may be approved by
the directors without any stockholder vote) or the sale,
lease, or exchange of all or substantially all of the property
and assets of the Company. Since the vote of a majority of the
shares of Class B Common Stock, voting as a class, is required
to approve certain extraordinary corporate transactions, the
holders of Class B Common Stock have power to prevent any
takeover of the Company not approved by them.
(b) Approximate number of equity security holders as of
December 31, 1999.
<TABLE>
<CAPTION>
Approximate Number
Title of Class of Record Holders
-------------- -----------------
<S> <C>
Class A Common Stock 332
Class B Common Stock 64
</TABLE>
(c) Under the Company's Articles of Organization, the holders of
the Class A Common Stock are entitled to receive dividends per
share equal to at least 200% of that paid, if any, from time
to time on each share of Class B Common Stock (cont.)
-16-
<PAGE> 19
The following table shows the dividends paid by the Company
on the Class A and Class B Common Stock for the periods
indicated.
<TABLE>
<CAPTION>
Dividends Per Share
Class A Class B
---------- ----------
<S> <C> <C>
1997
First quarter $ .050 $ .0070
Second quarter .050 .0070
Third quarter .050 .0070
Fourth quarter .050 .0070
1998
First quarter $ .050 $ .0070
Second quarter .050 .0070
Third quarter .050 .0070
Fourth quarter .060 .0170
1999
First quarter $ .060 $ .0170
Second quarter .080 .0370
Third quarter .080 .0370
Fourth quarter .080 .0370
</TABLE>
As a bank holding company, the Company's ability to pay
dividends is dependent in part upon the dividend payments it
receives from the Bank, which are subject to certain
restrictions on the payment of dividends. A Massachusetts
trust company may pay dividends out of net profits from time
to time, provided that either (i) the trust company's capital
stock and surplus account equal an aggregate of at least 10%
of its deposit liabilities, or (ii) the amount of its surplus
account is equal to at least the amount of its capital
account.
ITEM 6. SELECTED FINANCIAL DATA
The information required herein is shown on page 18 and 19.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The information required herein is shown on pages 20 through
23.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required herein is shown on page 22 and 23.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required herein is shown on pages 24 through
42.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
-17-
<PAGE> 20
Financial Highlights
<TABLE>
<CAPTION>
(dollars in thousands, except share data) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR-END
Total assets $ 925,533 $ 853,326 $ 631,125
Total loans 422,725 395,903 316,390
Total deposits 643,673 643,425 515,449
Total stockholders' equity 60,296 61,051 53,857
YEARLY AVERAGES
Total assets $ 860,501 $ 719,450 $ 566,827
Total earning assets 801,092 663,481 509,934
Total securities available-for-sale 229,739 138,912 83,396
Total securities held-to-maturity 157,706 137,259 109,491
Total loans 405,794 358,498 304,147
Total deposits 624,428 578,461 475,809
Total borrowed funds 134,625 56,079 32,902
Total stockholders' equity 61,610 57,539 50,329
EARNINGS
Net income $ 9,105 $ 8,105 $ 6,823
Net interest income, taxable equivalent 32,561 29,980 25,448
Other operating income 5,603 5,230 4,994
Operating expenses 22,655 21,326 18,600
PERFORMANCE MEASURES
Earnings per share, basic $ 1.57 $ 1.40 $ 1.18
Earnings per share, diluted $ 1.56 $ 1.39 $ 1.17
Return on average stockholders' equity 14.78% 14.09% 13.56%
Book value per share at December 31 $ 10.63 $ 10.49 $ 9.30
Return on average assets 1.06% 1.13% 1.20%
Common Share Data
Average shares outstanding, basic 5,791,858 5,806,445 5,772,135
Average shares outstanding, diluted 5,818,633 5,847,444 5,830,910
Shares outstanding at year-end 5,670,600 5,822,167 5,790,417
</TABLE>
<TABLE>
<CAPTION>
PER SHARE DATA
1999, Quarter Ended December 31, September 30, June 30, March 31,
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Market price range (Class A)
High $ 18.00 $ 19.438 $ 20.00 $19.625
Low 16.00 17.75 16.75 17.125
Dividends Class A 0.08 0.08 0.08 0.06
Dividends Class B 0.037 0.037 0.037 0.017
</TABLE>
<TABLE>
<CAPTION>
1998, Quarter Ended December 31, September 30, June 30, March 31,
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Market price range (Class A)
High $ 20.50 $ 21.75 $ 22.75 $ 23.75
Low 15.00 16.00 20.00 17.875
Dividends Class A 0.06 0.05 0.05 0.05
Dividends Class B 0.017 0.007 0.007 0.007
</TABLE>
-18-
<PAGE> 21
Financial Highlights
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands except share data)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Interest income $ 58,819 $ 51,878 $ 41,216 $ 38,777 $ 35,988
Interest expense 26,284 22,015 15,922 15,805 14,686
----------------------------------------------------------------------------
Net interest income 32,535 29,863 25,294 22,972 21,302
Provision for loan losses 1,475 800 660 1,020 1,560
----------------------------------------------------------------------------
Net interest income after
provision for loan losses 31,060 29,063 24,634 21,952 19,742
Other operating income 5,603 5,230 4,994 4,761 4,722
Operating expenses 22,655 21,326 18,600 17,874 18,224
----------------------------------------------------------------------------
Income before income taxes 14,008 12,967 11,028 8,839 6,240
Provision for income taxes 4,903 4,862 4,205 3,405 1,666
----------------------------------------------------------------------------
Net income $ 9,105 $ 8,105 $ 6,823 $ 5,434 $ 4,574
============================================================================
Average shares outstanding, basic 5,791,858 5,806,445 5,772,135 5,736,230 5,722,646
Average shares outstanding, diluted 5,818,633 5,847,444 5,830,910 5,818,942 5,831,042
Earnings per share:
Basic $ 1.57 $ 1.40 $ 1.18 $ 0.95 $ 0.80
Diluted $ 1.56 $ 1.39 $ 1.17 $ 0.93 $ 0.78
Dividend payout ratio 15.0% 10.3% 11.1% 10.9% 9.6%
AT YEAR-END
Assets $ 925,533 $ 853,326 $ 631,125 $ 560,857 $ 531,928
Loans 422,725 395,903 316,390 288,280 285,438
Deposits 643,673 643,425 515,449 476,135 458,615
Stockholders' equity 60,296 61,051 53,857 47,489 42,935
Book value per share $ 10.63 $ 10.49 $ 9.30 $ 8.25 $ 7.50
SELECTED FINANCIAL PERCENTAGES
Return on average assets 1.06% 1.13% 1.20% 1.01% 0.92%
Return on average stockholders' equity 14.78% 14.09% 13.56% 12.13% 11.33%
Net yield on average earning assets,
taxable equivalent 4.07% 4.52% 4.99% 4.79% 4.86%
Net (recoveries) charge-offs as a percent of
average loans (0.04%) 0.12% 0.13% 0.37% 0.57%
Average stockholders' equity to
average assets 7.16% 7.99% 8.88% 8.29% 8.17%
</TABLE>
-19-
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
OVERVIEW
Century Bancorp, Inc. (the "Company") had net income of $9,105,000 for the year
ended December 31, 1999, compared with net income of $8,105,000 for year ended
December 31, 1998 and net income of $6,823,000 for the year ended December 31,
1997. Basic earnings per share were $1.57 in 1999 compared to $1.40 in 1998 and
$1.18 in 1997. Diluted earnings per share were $1.56 in 1999 compared to $1.39
in 1998 and $1.17 in 1997.
Total assets were $925,533,000 at December 31, 1999, an increase of 8.5% from
total assets of $853,326,000 on December 31, 1998, which, in turn, were 35.2%
higher than total assets of $631,125,000 on December 31, 1997.
On December 31, 1999, stockholders' equity totaled $60,296,000 compared with
$61,051,000 on December 31, 1998, and $53,857,000 on December 31, 1997. Book
value increased to $10.63 at December 31, 1999 from $10.49 on December 31, 1998,
which had increased from $9.30 on December 31, 1997.
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 paid by the Company to the shareholders of
Haymarket was $21.1 million in cash and the transaction was accounted for using
the purchase method of accounting. The results of operations include the effect
of the Haymarket acquisition for the 203-day period beginning June 12, 1998.
In May 1998 the company, through its newly formed subsidiary, Century Bancorp
Capital Trust, issued 2,875,000 shares of Cumulative Trust Preferred Securities
with a liquidation value of $10 per share. These securities pay dividends at an
annualized rate of 8.30%. The Company is using the proceeds for general business
purposes.
YEAR 2000
The Company has completed its assessment of Year 2000 issues and, to date, is
not aware of any negative impacts from its own core processing system, third
party vendors or major borrowing customers. The Company has developed a plan,
budget, and testing strategy and will continue to monitor potential impacts from
this issue. 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's cost of Year 2000 remediation, which includes its cost of
converting to its new core processing system, has approached $2.0 million. The
Company's cost does not include internal costs. In most instances, upgrades to
computer hardware and software have been 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 Company 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. The Bank is not aware of any negative impacts from this
issue. Borrowers that could have experienced a significant disruption in their
business due to a Year 2000 failure were identified. Management has received
responses from this identified group and will continue to follow-up throughout
the year. Large deposit customers associated with lockbox services were
identified and assessed. These customers will continue to be monitored for Year
2000 compliance.
RESULTS OF OPERATIONS
The Company's operating results depend primarily on net interest income and fees
received for providing services. Net interest income on a fully taxable
equivalent basis increased 8.6% in 1999 to $32,561,000 compared with $29,980,000
in 1998. Interest income was affected positively by the acquisition of
Haymarket, core balance sheet growth and leveraged balance sheet transactions.
Net interest income is affected by the level of interest rates, the ability of
the Company's earning assets and deposits to adjust to changes in interest rates
and the mix of the Company's earning assets and deposits. The net yield on
earning assets on a fully taxable equivalent basis decreased to 4.07% in 1999
from 4.52% in 1998, which had decreased from 4.99% in 1997. The decrease was
mainly attributable to leveraged balance sheet transactions and pricing
competition in loans.
-20-
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Average earning assets were $801,092,000 in 1999, an increase of $137,611,000 or
20.7% from the average in 1998, which was 30.1% higher than the average in 1997.
Total average securities, including securities available for sale and securities
held to maturity, increased 40.3% to $387,445,000. The increase in securities
volume was mainly attributable to both the acquisition of Haymarket and
leveraged balance sheet transactions. Haymarket securities and leveraged balance
sheet transactions contributed approximately $29,000,000 and $77,000,000 to the
Bank's year-to-date average, respectively. This increase in securities volume
resulted in higher securities income, which increased 34.0% to $22,725,000.
Total average loans increased 13.2% to $405,794,000 after increasing $54,351,000
in 1998. Total loans increased primarily as a result of both the Haymarket
acquisition and internal loan growth. The Haymarket acquisition contributed
approximately $32,000,000 to average loan growth. The increase in loan volume
offset by pricing competition resulted in higher loan income, which increased by
6.8% or $2,259,000 to $35,620,000. Total loan income was $28,353,000 in 1997.
The Company's sources of funds include deposits and borrowed funds. On average,
deposits showed an increase of 7.9% in 1999 after increasing by 21.6% in 1998.
Deposits increased in 1999 primarily as a result of internal deposit growth.
Borrowed funds increased by 140.1% in 1999 following an increase of 70.4% in
1998. The majority of the Company's borrowed funds are borrowings from the
Federal Home Loan Bank (FHLB) and retail repurchase agreements. FHLB borrowings
contributed approximately $67,000,000 to the Bank's increased year-to-date
average, most of which was used as part of a leveraged balance sheet
transaction. Interest expense totaled $26,284,000 in 1999, an increase of
$4,269,000 or 19.4% from 1998 when interest expense increased 38.3% from 1997.
This increase in interest expense is due primarily to leveraged balance sheet
transactions.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $1,475,000 in 1999 compared with $800,000 in
1998 and $660,000 in 1997. The increase for 1999, reflects increased provisions
associated with the deterioration with one borrower's credit quality whose total
relationship amounted to $4.1 million. Management placed this credit to
nonaccrual loans during the fourth quarter of 1999. These provisions are the
result of management's evaluation of the quality of the loan portfolio
considering such factors as loan status, collateral values, financial condition
of the borrower, the state of the economy and other relevant information.
The allowance for loan losses was $7,646,000 at December 31, 1999 compared with
$6,022,000 at December 31, 1998 and $4,446,000 at December 31, 1997. Expressed
as a percentage of outstanding loans at year-end, the allowance was 1.81% in
1999, 1.52% in 1998 and 1.41% in 1997. The increased ratio, for 1999, reflects
increased provisions associated with the previously mentioned deterioration with
one borrower's credit quality whose total relationship amounted to $4.1 million.
Management believes that the allowance for loan losses is adequate. Management
uses available information to provide for losses but recognizes that changes in
economic conditions may result in additional losses and additional loss
provisions. Also, the allowance is reviewed in conjunction with regulatory
examinations. These reviews may require the Company to make additional
provisions to the allowance based on judgements made by the regulators.
The Company experienced net recoveries in 1999 with net recoveries as a percent
of average loans outstanding at 0.04%. The comparable net charge-offs figures
for 1998 and 1997 were 0.12% and 0.13%, respectively. Non-performing loans,
which include all non-accruing loans and certain restructured, accruing loans,
totaled $4,621,000 on December 31, 1999, compared with $1,281,000 on December
31, 1998.
OTHER OPERATING INCOME
The Company continued to experience good results in its fee-based services in
1999. These fee-based services include deposit related services, lock box
processing, and securities brokerage services.
Total other operating income in 1999 was $5,603,000, an increase of $373,000 or
7.1% compared to 1998. This increase followed an increase of $236,000 or 4.9% in
1998, compared to 1997. Service charge income, which continues to be the largest
area of other operating income with $1,811,000 in 1999, saw an increase of
$11,000 in 1999. Lock box revenues totaled $1,736,000 up $76,000 in 1999,
primarily as a result of an increase in the lock box customer base. Brokerage
commissions increased to $1,460,000 in 1999 from $1,130,000 in 1998, which saw a
slight decrease of $41,000 from 1997.
-21-
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
OPERATING EXPENSES
Total operating expenses were $22,655,000 in 1999 compared to $21,326,000 in
1998 and $18,600,000 in 1997.
Salaries and employee benefits expenses increased by $875,000 or 6.5% in 1999
after increasing 10.8% in 1998. Nearly all of the increase, for 1999 and 1998,
was in the salaries category and was caused by an increase in the wage base,
increased accruals for incentive compensation, and personnel costs associated
with the acquisition of Haymarket.
Occupancy expense increased by $83,000 or 5.7% in 1999. This followed an
increase of $182,000 or 14.3% in 1998. Nearly all of the increase, for 1999 and
1998, was because of the acquisition of Haymarket properties and the assumption
of Haymarket leases. Equipment expense increased by $41,000 in 1999. Equipment
expense increased by $158,000 in 1998 primarily because of increased equipment
depreciation associated with the purchase of Haymarket.
Other operating expenses increased by $330,000 in 1999, which followed a
$1,072,000 increase in 1998. In 1999 decreases in professional services were
more than offset by full year costs associated with purchase of Haymarket,
amortization of costs associated with the Trust Preferred Offering and
amortization of costs associated with the new core processing system. In 1998
increases were primarily the result of costs associated with the purchase of
Haymarket, amortization costs associated with the Trust Preferred Offering,
expenses relating to increased professional fees for certain strategic
initiatives and amortization costs associated with the new core processing
system.
PROVISION FOR INCOME TAXES
Income tax expense was $4,903,000 in 1999, $4,862,000 in 1998 and $4,205,000 in
1997. The effective tax rate was 35.0% in 1999, 37.5% in 1998 and 38.1% in 1997.
The Company is continuing to realize savings in this area as a result of
strategic tax savings initiatives.
MARKET RISK AND ASSET LIABILITY MANAGEMENT
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending and deposit taking activities. To that end, management actively
monitors and manages its interest rate risk exposure.
The Company's profitability is affected by fluctuations in interest rates. A
sudden and substantial increase in interest rates may adversely impact the
Company's earnings to the extent that the interest rates borne by assets and
liabilities do not change at the same speed, to the same extent, or on the same
basis. The Company monitors the impact of changes in interest on its net
interest income using several tools. One measure of the Company's exposures to
differential changes in interest rates between assets and liabilities is an
interest rate risk management test. This test measures the impact on net
interest income of an immediate change in interest rates in 100 basis point
increments.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Change in Interest Rates (in Basis Points) Percentage Change in Net Interest Income (1)
---------------------------------------------------------------------------------------------
<S> <C>
+200 1.7%
+100 0.8%
-100 (0.9%)
-200 (1.8%)
</TABLE>
(1) The percentage change in this column represents net interest income for 12
months in a stable interest rate environment versus the Net Interest Income in
the various rate scenarios.
The Company's primary objective in managing interest rate risk is to minimize
the adverse impact of changes in interest rates on the Company's net interest
income and capital, while structuring the Company's asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability structure to control interest rate risk.
-22-
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
LIQUIDITY
Liquidity is provided by maintaining an adequate level of liquid assets that
include cash and due from banks, federal funds sold and other temporary
investments. Liquid assets totaled $66,528,000 on December 31, 1999 compared
with $61,019,000 on December 31, 1998 and $97,892,000 on December 31, 1997. In
each of the three years deposit activity has generally been adequate to support
asset activity.
The source of funds for dividends paid by the Company is dividends received from
the Bank. The Company and the Bank are regulated enterprises and their abilities
to pay dividends are subject to regulatory review and restriction. Certain
regulatory and statutory restrictions exist regarding dividends, loans and
advances from the Bank to the Company. Generally, the Bank has the ability to
pay dividends to the Company subject to minimum regulatory capital requirements.
CAPITAL ADEQUACY
Total stockholders' equity was $60,296,000 at December 31, 1999, compared with
$61,051,000 at December 31, 1998 and $53,857,000 at December 31, 1997. The
decrease in 1999 was due to an increase in net unrealized losses on securities
available-for-sale and treasury stock repurchases which were offset by retained
earnings less dividends paid. The increase in 1998 was primarily the result of
retained earnings less dividends paid. Also, there was a $71,000 increase in
1999, a $120,000 increase in 1998 and a $123,000 increase in 1997 from the
execution of certain stock options.
Federal banking regulators have issued risk-based capital guidelines, which
assign risk factors to asset categories and off-balance sheet items. The current
guidelines require a Tier I capital-to-risk assets ratio of 4.00% and a total
capital-to-risk assets ratio of 8.00%. The Company and the Bank exceeded these
requirements with a Tier I capital-to-risk assets ratio of 16.49% and 11.36%,
respectively, and total capital-to-risk assets ratio of 19.09% and 12.61%,
respectively at December 31, 1999. Additionally, federal banking regulators have
issued leverage ratio guidelines, which supplement the risk-based capital
guidelines. The minimum leverage ratio requirement applicable to the Company is
4.00% and at December 31, 1999, the Company and the Bank exceeded this
requirement with leverage ratios of 9.36% and 6.44%, respectively.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities." 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. The statement requires an entity to record all derivatives, at fair
value, as either assets or liabilities on the balance sheet. The change in a
derivative's fair value is to be recorded either in current period earnings or
other comprehensive income depending on whether the derivative qualifies for
hedge accounting and the hedge classification. SFAS 133 is effective for all
fiscal years beginning after June 15, 1999. In June 1999 the FASB issued SFAS
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133." SFAS 137 delays for one year the
effective date of SFAS 133, but permits early adoption. The Bank is not planning
on adopting the statement early. This statement is not expected to have a
material impact on the Bank.
-23-
<PAGE> 26
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------------------------
(dollars in thousands except share data)
<S> <C> <C>
ASSETS
Cash and due from banks (note 2) $ 34,512 $ 34,518
Federal funds sold and interest-bearing deposits in other banks 32,016 26,501
------------------------
Total cash and cash equivalents 66,528 61,019
Securities available-for-sale, amortized cost $263,690 in 1999
and $210,290 in 1998 (note 3) 254,975 210,157
Securities held-to-maturity, market value $146,603 in 1999
and $160,109 in 1998 (notes 4 and 9) 152,599 159,875
Loans, net (note 5) 422,725 395,903
Less: allowance for loan losses (note 6) 7,646 6,022
------------------------
Net loans 415,079 389,881
Bank premises and equipment (note 7) 9,473 9,646
Accrued interest receivable 6,624 6,518
Other assets (note 12) 20,255 16,230
------------------------
Total assets $ 925,533 $ 853,326
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 143,280 $ 163,241
Savings and NOW deposits 152,089 153,207
Money market accounts 77,729 84,848
Time deposits (note 8) 270,575 242,129
------------------------
Total deposits 643,673 643,425
Securities sold under agreements to repurchase (note 9) 59,480 57,690
Other borrowed funds (note 10) 117,594 34,846
Other liabilities 15,740 27,564
Long term debt (note 10) 28,750 28,750
------------------------
Total liabilities 865,237 792,275
Commitments and contingencies (notes 7, 14 and 15)
Stockholders' equity (note 11):
Common stock, Class A,
$1.00 par value per share; authorized 10,000,000 shares;
issued 3,721,850 shares in 1999 and 3,673,397 in 1998 3,722 3,673
Common stock, Class B,
$1.00 par value per share; authorized 5,000,000 shares;
issued 2,196,900 shares in 1999 and 2,226,320 in 1998 2,197 2,227
Additional paid-in-capital 11,017 10,965
Retained earnings 52,188 44,451
Treasury stock, Class A, 200,600 shares in 1999 and 30,000 shares
in 1998, at cost (3,122) (136)
Treasury stock, Class B, 47,550 shares in 1999 and 1998, at cost (41) (41)
------------------------
65,961 61,139
Accumulated other comprehensive loss, net of taxes (note 3) (5,665) (88)
------------------------
Total stockholders' equity 60,296 61,051
------------------------
Total liabilities and stockholders' equity $ 925,533 $ 853,326
========================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-24-
<PAGE> 27
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands except share data)
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 35,620 $ 33,361 $ 28,353
Securities held-to-maturity 9,262 8,612 7,049
Securities available-for-sale 13,463 8,345 5,107
Federal funds sold and interest-bearing deposits in other banks 474 1,560 707
----------------------------------------
Total interest income 58,819 51,878 41,216
INTEREST EXPENSE
Savings and NOW deposits 3,824 4,167 3,994
Money market accounts 2,149 2,255 1,888
Time deposits (note 8) 11,326 11,445 8,474
Securities sold under agreements to repurchase 1,863 1,574 1,075
Other borrowed funds and long term debt 7,122 2,574 491
----------------------------------------
Total interest expense 26,284 22,015 15,922
----------------------------------------
Net interest income 32,535 29,863 25,294
Provision for loan losses (note 6) 1,475 800 660
----------------------------------------
Net interest income after provision for loan losses 31,060 29,063 24,634
OTHER OPERATING INCOME
Service charges on deposit accounts 1,811 1,800 1,791
Lockbox fees 1,736 1,660 1,467
Brokerage commissions 1,460 1,130 1,171
Other income 596 640 565
----------------------------------------
Total other operating income 5,603 5,230 4,994
OPERATING EXPENSES
Salaries and employee benefits (note 13) 14,307 13,432 12,120
Occupancy 1,537 1,454 1,272
Equipment 1,339 1,298 1,140
Other (note 16) 5,472 5,142 4,068
----------------------------------------
Total operating expenses 22,655 21,326 18,600
----------------------------------------
Income before income taxes 14,008 12,967 11,028
Provision for income taxes (note 12) 4,903 4,862 4,205
----------------------------------------
NET INCOME $ 9,105 $ 8,105 $ 6,823
========================================
SHARE DATA (NOTE 11)
Weighted average number of shares outstanding, basic 5,791,858 5,806,445 5,772,135
Weighted average number of shares outstanding, diluted 5,818,633 5,847,444 5,830,910
Net income per share, basic $ 1.57 $ 1.40 $ 1.18
Net income per share, diluted $ 1.56 $ 1.39 $ 1.17
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-25-
<PAGE> 28
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Class A Class B Additional Treasury Treasury
Common Common Paid-In Retained Stock Stock
Stock Stock Capital Earnings Class A Class B
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands except share data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 3,488 $ 2,348 $ 10,786 $ 31,117 $ (136) $ (41)
Net income -- -- -- 6,823 -- --
Other comprehensive income, net of tax:
Increase in unrealized gains on
securities available-for-sale,
net of $129 in taxes -- -- -- -- -- --
Comprehensive income
Conversion of Class B common
stock to Class A common
stock, 21,200 shares 21 (21) -- -- -- --
Stock options exercised,
31,950 shares 32 -- 91 -- -- --
Cash dividends, Class A common
stock $0.20 per share -- -- -- (696) -- --
Cash dividends, Class B common
stock $0.028 per share -- -- -- (64) -- --
--------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 3,541 2,327 10,877 37,180 (136) (41)
Net income -- -- -- 8,105 -- --
Other comprehensive income, net of tax:
Increase in unrealized losses on
securities available-for-sale,
net of $102 in taxes -- -- -- -- -- --
Comprehensive income
Conversion of Class B common
stock to Class A common
stock, 100,200 shares 100 (100) -- -- -- --
Stock options exercised,
31,750 shares 32 -- 88 -- -- --
Cash dividends, Class A common
stock $0.21 per share -- -- -- (749) -- --
Cash dividends, Class B common
stock $0.038 per share -- -- -- (85) -- --
--------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 3,673 2,227 10,965 44,451 (136) (41)
Net income -- -- -- 9,105 -- --
Other comprehensive income, net of tax:
Increase in unrealized losses on
securities available-for-sale,
net of $3,005 in taxes -- -- -- -- -- --
Comprehensive income
Conversion of Class B common
stock to Class A common
stock, 29,420 shares 29 (29) -- -- -- --
Stock options exercised,
19,033 shares 19 -- 52 -- -- --
Treasury stock repurchases,
170,600 shares -- -- -- -- (2,986) --
Cash dividends, Class A common
stock $0.30 per share -- -- -- (1,093) -- --
Cash dividends, Class B common
stock $0.128 per share -- -- -- (276) -- --
--------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ 3,722 $ 2,197 $ 11,017 $ 52,188 $ (3,122) $ (41)
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders'
Income(Loss) Equity
- --------------------------------------------------------------------------
(dollars in thousands except share data)
<S> <C> <C>
BALANCE, DECEMBER 31, 1996 $ (73) $ 47,489
Net income -- 6,823
Other comprehensive income, net of tax:
Increase in unrealized gains on
securities available-for-sale,
net of $129 in taxes 182 182
--------
Comprehensive income 7,005
Conversion of Class B common
stock to Class A common
stock, 21,200 shares -- --
Stock options exercised,
31,950 shares -- 123
Cash dividends, Class A common
stock $0.20 per share -- (696)
Cash dividends, Class B common
stock $0.028 per share -- (64)
------------------------
BALANCE, DECEMBER 31, 1997 109 53,857
Net income -- 8,105
Other comprehensive income, net of tax:
Increase in unrealized losses on
securities available-for-sale,
net of $102 in taxes (197) (197)
--------
Comprehensive income 7,908
Conversion of Class B common
stock to Class A common
stock, 100,200 shares -- --
Stock options exercised,
31,750 shares -- 120
Cash dividends, Class A common
stock $0.21 per share -- (749)
Cash dividends, Class B common
stock $0.038 per share -- (85)
------------------------
BALANCE, DECEMBER 31, 1998 (88) 61,051
Net income -- 9,105
Other comprehensive income, net of tax:
Increase in unrealized losses on
securities available-for-sale,
net of $3,005 in taxes (5,577) (5,577)
--------
Comprehensive income 3,528
Conversion of Class B common
stock to Class A common
stock, 29,420 shares -- --
Stock options exercised,
19,033 shares -- 71
Treasury stock repurchases,
170,600 shares -- (2,986)
Cash dividends, Class A common
stock $0.30 per share -- (1,093)
Cash dividends, Class B common
stock $0.128 per share -- (276)
------------------------
BALANCE, DECEMBER 31, 1999 $ (5,665) $ 60,296
========================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-26-
<PAGE> 29
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,105 $ 8,105 $ 6,823
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,475 800 660
Deferred income taxes (1,269) (434) (710)
Net depreciation and amortization 2,225 1,389 586
Increase in accrued interest receivable (106) (1,506) (51)
Increase in other assets (728) (3,101) (1,818)
Loans originated for sale -- (2,532) (9,442)
Proceeds from sales of loans 153 3,179 10,507
Gain on sales of loans (2) (48) (137)
(Gain) loss on sales of other real estate owned -- (7) 1
(Decrease) increase in other liabilities (6,331) (31) 8,405
-------------------------------------
Net cash provided by operating activities 4,522 5,814 14,824
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale 61,312 111,641 30,235
Purchase of securities available-for-sale (114,711) (179,295) (37,934)
Proceeds from maturities of securities held-to-maturity 58,425 89,659 39,013
Purchase of securities held-to-maturity (51,730) (140,304) (40,418)
(Decrease) increase in payable for investments purchased (5,493) 11,493 --
Net cash paid for acquired institution -- (5,786) --
Net increase in loans (26,545) (5,521) (29,400)
Proceeds from sales of real estate owned -- 137 566
Capital expenditures (994) (874) (1,533)
-------------------------------------
Net cash used in investing activities (79,736) (118,850) (39,471)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time deposit accounts 28,667 (31,483) 6,412
Net (decrease) increase in demand, savings,
money market and NOW deposits (28,198) 33,398 32,902
Net proceeds from the issuance of common stock 71 120 123
Treasury stock repurchases (2,986) -- --
Cash dividends (1,369) (834) (760)
Net increase in securities sold
under agreements to repurchase 1,790 24,840 15,060
Net increase in FHLB borrowings and other borrowed funds 82,748 21,372 1,121
Issuance of long term debt -- 28,750 --
-------------------------------------
Net cash provided by financing activities 80,723 76,163 54,858
-------------------------------------
Net increase (decrease) in cash and cash equivalents 5,509 (36,873) 30,211
Cash and cash equivalents at beginning of year 61,019 97,892 67,681
-------------------------------------
Cash and cash equivalents at end of year $ 66,528 $ 61,019 $ 97,892
=====================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 25,566 $ 24,047 $ 14,800
Income taxes 6,911 3,963 4,784
Noncash transactions:
Property acquired through foreclosure $ -- $ 130 $ 385
Change in unrealized (losses) gains
on securities available-for-sale, net of taxes $ (5,577) $ (197) $ 182
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-27-
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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 regulation by applicable state and federal banking agencies,
including the Federal Reserve Board, the Office of the Comptroller of the
Currency (the "Comptroller"), the Federal Deposit Insurance Corporation (the
"FDIC") and the Commonwealth of Massachusetts Commissioner 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 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. The Company has one reportable operating segment under FASB 131.
BASIS OF FINANCIAL STATEMENT PRESENTATION
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.
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 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.
-28-
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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.
The Bank recognizes the rights to service mortgage loans for others as an asset,
including rights acquired through both purchases and originations. Capitalized
mortgage servicing rights are amortized over the period of estimated net
servicing income and are periodically evaluated for impairment based on their
fair value.
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.
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 provide for 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 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.
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 deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
-29-
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CASH AND DUE FROM BANKS
The Company is required to maintain a portion of its cash and due from banks as
a reserve balance under the Federal Reserve Act. Such reserve is calculated
based upon deposit levels and amounted to $41,000 at December 31, 1999 and $0 at
December 31, 1998.
3. SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
DECEMBER 31, 1999 December 31, 1998
------------------------------------------------- ------------------------------------------------
GROSS GROSS ESTIMATED Gross Gross Estimated
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market
COST GAINS LOSSES VALUE Cost Gains Losses Value
- --------------------------------------------------------------------------------- ------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and Agencies $247,289 $ 10 $ 8,521 $238,778 $202,903 $ 343 $ 323 $202,923
Obligations of states
and political subdivisions 250 -- -- 250 -- -- -- --
FHLB Stock 13,084 -- -- 13,084 4,415 -- -- 4,415
Other 3,067 14 218 2,863 2,972 18 171 2,819
----------------------------------------------- -----------------------------------------------
$263,690 $ 24 $ 8,739 $254,975 $210,290 $ 361 $ 494 $210,157
=============================================== ===============================================
</TABLE>
Included in U.S. Government and Agency securities are securities pledged to
secure public deposits and repurchase agreements amounting to $141,679,000 at
December 31, 1999 and $53,972,000 at December 31, 1998.
The following tables show the maturity distribution of the Company's securities
available-for-sale at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------------
OBLIGATIONS
U.S. OF STATES ESTIMATED
GOVERNMENT AND POLITICAL MARKET
AND AGENCIES SUBDIVISIONS OTHER TOTAL VALUE
- --------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Within one year $ 5,170 $ 250 $ -- $ 5,420 $ 5,408
After one but within five years 201,757 -- 500 202,257 195,902
After five but within ten years 10,998 -- -- 10,998 10,596
More than ten years 29,363 -- -- 29,363 27,623
Non-maturing -- -- 15,652 15,652 15,446
----------------------------------------------------------------
$247,288 $ 250 $ 16,152 $263,690 $254,975
================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31,1998
--------------------------------------------------------------
Obligations
U.S. of States Estimated
Government and Political Market
and Agencies Subdivisions Other Total Value
- ------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Within one year $ 20,445 $ -- $ -- $ 20,445 $ 20,525
After one but within five years 138,475 -- 100 138,575 138,585
After five but within ten years 42,984 -- 256 43,240 43,188
More than ten years 999 -- 49 1,048 1,050
Non-maturing -- -- 6,982 6,982 6,809
------------------------------------------------------------
$202,903 $ -- $ 7,387 $210,290 $210,157
============================================================
</TABLE>
The weighed average remaining life of investment securities available-for-sale
at December 31, 1999 and 1998 was 4.7 years and 4.0 years, respectively.
Included in the weighted average remaining life calculation at December 31, 1999
were $132.5 million of U.S. Agency obligations that are callable at the
discretion of the issuer. These call dates were not utilized in computing the
weighted average remaining life.
4. SECURITIES HELD-TO-MATURITY
<TABLE>
<CAPTION>
DECEMBER 31, 1999 December 31, 1998
----------------------------------------------- ------------------------------------------------
GROSS GROSS ESTIMATED Gross Gross Estimated
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market
COST GAINS LOSSES VALUE Cost Gains Losses Value
- -------------------------------------------------------------------------------- ------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and Agencies $127,719 $ -- $ 5,036 $122,683 $142,447 $ 607 $ 275 $142,779
Obligations of states
and political subdivisions -- -- -- -- 11 -- --
11
Other 24,880 -- 960 23,920 17,417 -- 98 17,319
----------------------------------------------- -----------------------------------------------
$152,599 $ -- $ 5,996 $146,603 $159,875 $ 607 $ 373 $160,109
=============================================== ===============================================
</TABLE>
Included in U.S. Government and Agency securities are securities pledged to
secure public deposits and repurchase agreements amounting to $1,999,000 at
December 31, 1999 and $11,676,000 at December 31, 1998.
-30-
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables show the maturity distribution of the Company's securities
held-to-maturity at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------
OBLIGATIONS
U.S. OF STATES ESTIMATED
GOVERNMENT AND POLITICAL MARKET
AND AGENCIES SUBDIVISIONS OTHER TOTAL VALUE
- ------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Within one year $ 1,850 $ -- $ 25 $ 1,875 $ 1,874
After one but within five years 66,975 -- 25 67,000 65,172
After five but within ten years 13,999 -- -- 13,999 13,253
More than ten years 44,895 -- 24,830 69,725 66,304
Non-maturing -- -- -- -- --
------------------------------------------------------------
$127,719 $ -- $ 24,880 $152,599 $146,603
============================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------
Obligations
U.S. of States Estimated
Government and Political Market
and Agencies Subdivisions Other Total Value
- -------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Within one year $ 2,006 $ 11 $ 25 $ 2,042 $ 2,050
After one but within five years 83,822 -- 25 83,847 84,142
After five but within ten years 19,996 -- 25 20,021 20,014
More than ten years 36,623 -- 17,342 53,965 53,903
Non-maturing -- -- -- -- --
------------------------------------------------------------
$142,447 $ 11 $ 17,417 $159,875 $160,109
============================================================
</TABLE>
The weighted average remaining life of investment securities held-to-maturity at
December 31, 1999 and 1998 was 7.2 years and 11.1 years, respectively. Included
in the weighted average remaining life calculation at December 31, 1999 were
$48.0 million of U.S. agency obligations that are callable at the discretion of
the issuer. These call dates were not utilized in computing the weighted average
remaining life.
5. LOANS
The Company's lending activities are conducted principally in Massachusetts. The
Company grants single and multi-family residential loans, commercial and
commercial real estate loans, and a variety of consumer loans. To a lesser
extent, the Company grants loans for the construction of residential homes,
multi-family properties, commercial real estate properties, and land
development. Most loans granted by the Company are secured by real estate
collateral. The ability and willingness of commercial real estate, commercial,
construction, residential and consumer loan borrowers to honor their repayment
commitments is generally dependent on the health of the real estate market in
the borrowers' geographic areas and the general economy.
The composition of the loan portfolio at December 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Construction and land development $ 21,682 $ 21,691
Commercial and industrial 77,166 64,822
Industrial revenue bonds 190 1,034
Commercial real estate 209,332 187,285
Residential real estate 82,968 87,518
Consumer 11,678 14,355
Home equity 19,227 18,839
Overdrafts 482 359
-------------------------
$422,725 $395,903
=========================
</TABLE>
At December 31, 1999 and 1998, loans were carried net of discounts of $2,042,000
and $2,399,000, respectively. Included in these amounts at December 31, 1999 and
1998, residential real estate loans were carried net of discounts of $2,021,000
and $2,375,000, respectively, associated with the acquisition of those loans.
The composition of non-accrual loans and impaired loans and troubled debt
restructuring agreements is as follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Loans on non-accrual $4,621 $1,281
Impaired loans on non-accrual included above $4,378 1,131
Total recorded investment in impaired loans $6,019 $2,992
Average recorded value of impaired loans $3,806 $3,048
Loans 90 days past due and still accruing $ 188 $ 698
Interest income on non-accrual loans according to
their original terms $ 463 $ 166
Interest income on non-accrual loans
actually recorded $ 331 $ 27
Interest income recognized on impaired loans $ 458 $ 142
</TABLE>
-31-
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The composition of impaired loans at December 31, is as follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Residential real estate:
1 to 4 family $ 341 $ 330
Multi-family 702 729
Construction and land development -- --
Commercial real estate 950 1,662
Commercial and industrial 4,026 271
----------------------
Total $6,019 $2,992
Specific valuation allowance -- --
----------------------
Total impaired loans $6,019 $2,992
======================
</TABLE>
There were no impaired loans with specific reserves at December 31, 1999 and
1998 and in the opinion of management, none of the above listed impaired loans
required a specific reserve. All of the impaired loans listed above have been
measured using the fair value of the collateral method.
The Company was servicing mortgage loans sold to others without recourse of
approximately $13,111,000 at December 31, 1999 and $16,123,000 at December 31,
1998. Additionally, the Company was servicing mortgage loans sold to others with
limited recourse. The outstanding balance of these loans with limited recourse
was approximately $490,000 at December 31, 1999 and $501,000 at December 31,
1998.
Directors and officers of the Company and their associates are customers of, and
have other transactions with, the Company in the normal course of business. All
loans and commitments included in such transactions were made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and do not involve more
than normal risk of collection or present other unfavorable features.
The following table shows the aggregate amount of loans to directors and
officers of the Company and their associates during 1999.
<TABLE>
<CAPTION>
Balance at REPAYMENTS BALANCE AT
December 31, 1998 ADDITIONS AND DELETIONS DECEMBER 31, 1999
- --------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
$ 1,265 $ 1,167 $ 395 $ 2,037
-----------------------------------------------------------
</TABLE>
6. ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 6,022 $ 4,446 $ 4,179
Acquired allowance -- 1,194 --
Provision charged to operating expense 1,475 800 660
Loans charged-off (470) (843) (689)
Loan recoveries 619 425 296
---------------------------------
Balance at end of year $ 7,646 $ 6,022 $ 4,446
=================================
</TABLE>
7. BANK PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, 1999 1998
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Land $ 1,839 $ 1,839
Bank premises 7,540 6,533
Furniture and equipment 11,144 11,188
Leasehold improvements 1,888 1,888
------------------------
22,411 21,448
Accumulated depreciation and amortization (12,938) (11,802)
------------------------
$ 9,473 $ 9,646
========================
</TABLE>
The Company and its subsidiaries are obligated under a number of noncancelable
operating leases for premises and equipment expiring in various years through
the year 2026. Total lease expense approximated $148,000, $111,000 and $85,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
-32-
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
Future minimum rental commitments for noncancelable operating leases with
initial or remaining terms of one year or more at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
Year Amount
- ------------------------------------------------------------------------------
(in thousands)
<S> <C>
2000 $ 126
2001 89
2002 82
2003 82
2004 82
Thereafter 523
------------------------------
$ 984
==============================
</TABLE>
8. DEPOSITS
Time deposits as of December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Three months or less $127,752 $ 78,845
Three months through twelve months 111,283 121,732
Over twelve months 31,540 41,552
-------------------------
$270,575 $242,129
=========================
</TABLE>
Time deposits in denominations of $100,000 or more totaled $121,769,000 and
$71,832,000 at December 31, 1999 and 1998, respectively. Interest expense
associated with deposits in denominations of $100,000 or more was $3,497,000,
$3,547,000 and $2,251,000 for the years ended 1999, 1998 and 1997, respectively.
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Average rate at December 31, 3.68% 3.53% 4.49%
Average balance outstanding during the year $48,782 $36,953 $24,994
Average rate during the year 3.82% 4.26% 4.30%
Maximum amount outstanding at any month-end $59,480 $57,690 $39,060
Amount outstanding at December 31, $59,480 $57,690 $32,850
</TABLE>
Amounts outstanding at December 31, 1999, 1998 and 1997 carried maturity dates
of the next business day. U.S. Government and Agency securities with a total
book value of $62,121,000, $57,654,000 and $32,776,000 were pledged as
collateral and held by custodians to secure the agreements at December 31, 1999,
1998 and 1997, respectively. The approximate market value of the collateral at
those dates was $59,486,000, $57,626,000 and $32,814,000, respectively.
10. OTHER BORROWED FUNDS AND LONG TERM DEBT
<TABLE>
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Treasury tax and loan note $ 2,023 $ 1,235
Federal Home Loan Bank-IDEAL Advance -- 5,000
Federal Home Loan Bank-Advances 114,375 27,415
Other 1,196 1,196
-------------------------
$117,594 $ 34,846
=========================
</TABLE>
The Bank serves as a Treasury Tax and Loan depository under a note option with
the Federal Reserve Bank of Boston. This open-ended interest bearing borrowing
carries an interest rate equal to the daily Federal funds rate less 0.25%. The
Bank borrowed $1,500,000 from the Federal Home Loan Bank in July 1996. The
borrowing bears interest at a fixed rate of 7.20%, has a remaining principal
balance of $1,375,000 and matures on July 24, 2006. In addition, the bank
borrowed ten short-term loans with the Federal Home Loan Bank. These loans total
$60,000,000, bear a weighted average interest rate of 5.60% and mature on or
before March 22, 2000. Also, the bank borrowed five long-term loans with the
Federal Home Loan Bank. These loans total $53,000,000, bear a weighted average
interest rate of 5.27% and mature between July 30, 2008 and February 18, 2009.
In May 1998 the Company, through its newly formed subsidiary, Century Bancorp
Capital Trust, issued 2,875,000 shares of Cumulative Trust Preferred Securities
with a liquidation value of $10 per share. These securities pay dividends at an
annualized rate of 8.30% and mature on June 30, 2029. The Company is using the
proceeds primarily for general business purposes.
-33-
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
11. STOCKHOLDERS' EQUITY
DIVIDENDS
Holders of the Class A common stock may not vote in the election of directors,
but may vote as a class to approve certain extraordinary corporate transactions.
Class A common stockholders are entitled to receive dividends per share equal to
at least 200% per share of that paid, if any, on each share of Class B common
stock. Class A common stock is publicly traded. Class B common stock is not
publicly traded, however, it can be converted on a share for share basis to
Class A common stock at any time. Dividend payments by the Company are dependent
in part on the dividends it receives from its bank subsidiary, which are subject
to certain regulatory restrictions.
EARNINGS PER SHARE (EPS)
Diluted EPS includes the dilutive effect of common stock equivalents; basic EPS
excludes all common stock equivalents. The only common stock equivalents for the
Company are the stock options discussed below. The dilutive effect of these
stock options for 1999, 1998 and 1997 was an increase of 26,775, 40,999 and
58,775 shares, respectively.
STOCK OPTION PLAN
The common stockholders of the Company approved a stock option plan (the "Option
Plan") that provides for granting of options for not more than 150,000 shares of
Class A common stock. Under the Option Plan, all officers and key employees of
the Company are eligible to receive non-qualified and incentive stock options to
purchase shares of Class A common stock. The Option Plan is administered by the
Compensation Committee whose members are ineligible to participate in the Option
Plan. Based on management's recommendations, the Committee submits its
recommendations to the Board of Directors as to persons to whom options are to
be granted, the number of shares granted to each, the option price (which may
not be less than 85% of the fair market value for non-qualified stock options,
or the fair market value for incentive stock options, of the shares on the date
of grant) and the time period over which the options are exercisable (no more
than ten years from the date of grant). Options exercisable at December 31, 1999
totaled 27,750 with a weighted average option price of $3.75.
Information with regard to the stock option plan is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Option Shares Option Price Per Share
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996 110,483 3.78
Granted -- --
Exercised (31,950) 3.84
Cancelled -- --
- ----------------------------------------------------------------------------------------
Outstanding at December 31, 1997 78,533 3.75
Granted -- --
Exercised (31,750) 3.75
Cancelled -- --
- ----------------------------------------------------------------------------------------
Outstanding at December 31, 1998 46,783 3.75
Granted -- --
Exercised (19,033) 3.75
Cancelled -- --
- ----------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1999 27,750 $ 3.75
========================================================================================
</TABLE>
A summary of options by maturity is as follows:
<TABLE>
<CAPTION>
Expiring During the Number of Weighted average
Year Ended December 31, Shares Option Price Per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
2000 27,750 $ 3.75
================================================================================
</TABLE>
The Company measures compensation cost for stock-based compensation plans using
the intrinsic value based method prescribed by Accounting Principles Board
Opinion No. 25. The Company granted no stock options during 1999, 1998 or 1997
and, therefore, no disclosures of proforma net income and earnings per share as
if the fair value method had been applied are required. The new disclosures will
be provided when additional stock options are granted.
-34-
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
CAPITAL AND OTHER REGULATORY REQUIREMENTS
The Bank is subject to various regulatory requirements administered by federal
banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory- and possibly additional discretionary-actions by regulators
that, if undertaken, could have a direct material affect on the Company's
financial statements. Under capital adequacy guidelines and regulatory framework
for prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk
weighted assets (as defined), and Tier I capital (as defined) to average assets
(as defined). Management believes, as of December 31, 1999 that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes would cause a change in the Bank's categorization.
The Bank's actual capital amounts and ratios are presented in the following
table.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
- ----------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total capital (to risk-weighted assets) $63,962 12.61% $ 40,581 8.00% $ 50,726 10.00%
Tier I capital (to risk-weighted assets) 57,605 11.36% 20,291 4.00% 30,436 6.00%
Tier I capital (to 4th qtr. average assets) 57,605 6.44% 35,785 4.00% 44,731 5.00%
As of December 31, 1998:
Total capital (to risk-weighted assets) $54,777 11.87% $ 36,922 8.00% $ 46,153 10.00%
Tier I capital (to risk-weighted assets) 49,005 10.62% 18,461 4.00% 27,692 6.00%
Tier I capital (to 4th qtr. average assets) 49,005 6.08% 32,254 4.00% 40,318 5.00%
</TABLE>
12. INCOME TAXES
The current and deferred components of income tax expense for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current expense:
Federal $ 5,883 $ 4,884 $ 3,824
State 289 349 1,091
---------------------------------------
Total current expense 6,172 5,233 4,915
---------------------------------------
Deferred expense:
Federal (1,269) (1,001) (541)
State 0 630 (169)
---------------------------------------
Total deferred expense (1,269) (371) (710)
---------------------------------------
Provision for income taxes $ 4,903 $ 4,862 $ 4,205
=======================================
</TABLE>
Income tax accounts included in other assets and other liabilities at December
31 are as follows:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Currently payable $ (373) $(1,112)
Deferred income tax asset, net 6,108 1,834
--------------------------
$ 5,735 $ 722
==========================
</TABLE>
-35-
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
Income tax expense for the years presented is different from the amounts
computed by applying the statutory Federal income tax rate of 35% for 1999 and
34% for 1998 and 1997 to income before Federal income taxes. The following
tabulation reconciles Federal income tax expense based on statutory rates to the
actual income tax expense for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Federal income tax expense
at statutory rates $ 4,903 $ 4,409 $ 3,750
State income taxes, net of Federal
income tax benefit 188 646 608
Effect of tax-exempt interest (17) (77) (102)
Other (171) (116) (51)
-----------------------------------
$ 4,903 $ 4,862 $ 4,205
-----------------------------------
Effective Tax Rate 35.0% 37.5% 38.1%
</TABLE>
Management believes that it is more likely than not that the net deferred income
tax asset of $6,108,000 at December 31, 1999 will be realized. The federal tax
portion of $6,108,000 of the deferred tax asset is supported by the availability
of federal income taxes paid in prior carryback years.
The following table sets forth the Company's gross deferred income tax assets
and gross deferred income tax liabilities at December 31:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred income tax assets:
Allowance for loan losses $ 2,602 $ 1,578
Deferred compensation 1,678 1,554
Unrealized loss on securities available-for-sale 3,050 45
Acquisition premium 240 114
Capital loss carryforward 79 79
Investments writedown 64 62
Deferred origination fees -- 47
Other 62 --
--------------------
Gross deferred income tax asset 7,775 3,479
Valuation allowance (79) (79)
--------------------
Net deferred income tax asset 7,696 3,400
Deferred income tax liabilities:
Purchase accounting (270) (276)
Depreciation (188) (186)
Limited partnerships (1,106) (1,099)
Other (24) (5)
--------------------
Deferred income tax asset, net $ 6,108 $ 1,834
====================
</TABLE>
13. EMPLOYEE BENEFITS
The Company has a qualified Defined Benefit Pension Plan (the "Plan"), which is
offered to all employees reaching minimum age and service requirements. A
decrease in the discount rate and a stable work force in 1999 resulted in an
increase in pension cost.
The Company has a Supplemental Insurance/Retirement Plan(the "Supplemental
Plan"), which is limited to certain officers and employees of the Company. The
Supplemental Plan is voluntary and participants are required to contribute to
its cost. Under the Supplemental Plan, each participant will receive a
retirement benefit based on compensation and length of service. Individual life
insurance policies, which are owned by the Company, are purchased covering the
lives of each participant.
-36-
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Defined Benefit Pension Plan Supplemental Insurance/Retirement Plan
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 7,952 $ 6,319 $ 5,557 $ 4,260
Service cost 495 413 63 107
Interest cost 497 442 347 298
Plan amendments -- -- 440 --
Actuarial (gain)/loss (1,158) 917 (124) 902
Benefits paid (158) (139) (11) (10)
----------------------------------------------------------------------
Benefit obligation at end of year $ 7,628 $ 7,952 $ 6,272 $ 5,557
----------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 4,875 $ 4,171
Actual return of plan assets 308 268
Employer contributions 600 575
Benefits paid (158) (139)
----------------------------------------------------------------------
Fair value of plan assets at end of year $ 5,625 $ 4,875
----------------------------------------------------------------------
Funded status $(2,003) $(3,077) $(6,272) $(5,557)
Unrecognized transition obligation (2) (2) (206) (309)
Unrecognized prior service cost (523) (622) 446 955
Unrecognized net actuarial loss (794) (1,941) (1,714) (1,929)
----------------------------------------------------------------------
Accrued benefit cost $ (684) $ (512) $(4,798) $(4,274)
----------------------------------------------------------------------
Weighted-average assumptions as of December 31:
Discount rate 7.25% 6.25% 7.25% 6.25%
Expected return on plan assets 8.00% 8.00% N/A N/A
Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
Components of net periodic benefit cost:
Service cost $ 495 $ 413 $ 63 $ 107
Interest cost 497 442 347 298
Expected return on plan assets (396) (328) 0 --
Amortization of unrecognized
transition obligation 1 1 103 103
Recognized prior service cost 99 99 (68) (68)
Recognized net losses 76 24 91 54
----------------------------------------------------------------------
Net periodic cost $ 772 $ 651 $ 536 $ 494
======================================================================
</TABLE>
The Company offers a 401(k) defined contribution plan for all employees reaching
minimum age and service requirements. The plan is voluntary and, as of January
1, 1999, employee contributions are matched by the Company at a rate of 25% for
the first 4% of compensation contributed by each employee. The Company's match
totaled $67,000 for 1998 and $61,000 for 1999. Administrative costs associated
with the plan are absorbed by the Company.
The Company does not offer any post retirement programs other than pensions.
14. COMMITMENTS AND CONTINGENCIES
A number of legal claims against the Bank arising in the normal course of
business were outstanding at December 31, 1999. Management, after reviewing
these claims with legal counsel, is of the opinion that their resolution will
not have a material adverse affect on the Company's consolidated financial
position.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments primarily include commitments to originate and sell loans,
standby letters of credit, unused lines of credit and unadvanced portions of
construction loans. The instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in these
particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for loan commitments and standby letters
of credit is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
-37-
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments with off-balance sheet risk at December 31 are as follows:
<TABLE>
<CAPTION>
Contract or Notional Amount 1999 1998
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Financial instruments whose contract amount
represents credit risk:
Commitments to originate 1-4 family mortgages $ 3,056 $ 1,146
Standby letters of credit 1,169 1,935
Unused lines of credit 86,015 73,926
Unadvanced portions of construction loans 10,838 1,308
</TABLE>
Commitments to originate loans, unadvanced portions of construction loans and
unused lines of credit are generally agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
In addition to general commitments, the Company originates 1-4 family mortgages
for sale in the secondary markets. These loans are sold with and without
recourse and no loan is originated without its sale having been pre-arranged.
The Company was servicing mortgage loans sold to others with a maximum recourse
provision of 10% of the outstanding balance of approximately $490,000 at
December 31, 1999 and $501,000 at December 31, 1998.
16. OTHER OPERATING EXPENSES
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Marketing $ 947 $1,079 $1,024
Supplies 479 488 441
Telephone 240 267 227
Postage and delivery 470 459 465
Legal and audit 462 381 330
Insurance 179 172 187
FDIC assessment 82 70 57
Core deposit intangible amortization 200 200 200
Goodwill amortization 327 171 --
Other 2,086 1,855 1,137
----------------------------------
$5,472 $5,142 $4,068
==================================
</TABLE>
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
fair values of its financial instruments.
Excluded from this disclosure are certain financial instruments for which it is
not practical to estimate their value and all nonfinancial instruments.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate the fair values of these assets
because of the short-term nature of these financial instruments.
Securities held-to-maturity and securities available-for-sale: The fair value of
these securities, excluding certain state and municipal securities whose fair
value is estimated at book value because they are not readily marketable, is
estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair value
of other loans is estimated using discounted cash flow analysis, based on
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. Incremental credit risk for non-performing loans has
been considered.
-38-
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accrued interest receivable and payable: The carrying amounts for accrued
interest receivable and payable approximate fair values because of the
short-term nature of these financial instruments.
Deposits: The fair value of deposits with no stated maturity, such as
noninterest bearing demand deposits, savings, N.O.W. and money market accounts,
is equal to the amount payable on demand as of the balance sheet date. The fair
value of certificates of deposit is based on the discounted value of contractual
cash flows. The discount rate used is estimated based on the rates currently
offered for deposits of similar remaining maturities.
Repurchase agreements and other borrowed funds: The carrying amounts reported in
the balance sheet for repurchase agreements approximate the fair values of those
liabilities because of the short-term nature of these financial instruments. The
fair value of other borrowed funds is based on the discounted value of
contractual cash flows. The discount rate used is estimated based on the rates
currently offered for other borrowed funds of similar remaining maturities.
Off-balance sheet instruments: The fair values of the Company's unused lines of
credit, commitments to originate and sell loans and standby letters of credit
are estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing. The fair value of the Company's commitments to
sell mortgage loans approximates the estimated cost to terminate or otherwise
settle the obligations with the counterparties. Therefore, at December 31, 1999
and 1998, there was no fair value adjustment.
The carrying amounts and fair values of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------
CARRYING Carrying
AMOUNTS FAIR VALUE Amounts Fair Value
- ---------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 66,528 $ 66,528 $ 61,019 $ 61,019
Securities available-for-sale 254,975 254,975 210,157 210,157
Investment securities held-to-maturity 152,599 146,603 159,875 160,109
Net loans 415,079 419,095 389,881 395,751
Accrued interest receivable 6,624 6,624 6,518 6,518
Financial liabilities:
Deposits 643,673 643,799 643,425 644,885
Repurchase agreements
and other borrowed funds 177,074 175,057 92,536 92,536
Accrued interest payable 2,332 2,332 1,612 1,612
</TABLE>
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the type of financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Bank's entire holdings of a particular financial
instrument. Because no active market exists for some of the Bank's financial
instruments, fair value estimates are based on judgements regarding future
expected loss experience, cash flows, current economic conditions, risk
characteristics and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgement and therefore cannot
be determined with precision. Changes in assumptions and changes in the loan,
debt and interest rate markets could significantly affect the estimates.
Further, the income tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on the fair value
estimates and have not been considered.
18. QUARTERLY RESULT OF OPERATIONS
<TABLE>
<CAPTION>
1999 Quarters FOURTH THIRD SECOND FIRST
- -------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $ 15,404 $ 14,682 $ 14,583 $ 14,150
Interest expense 7,063 6,528 6,481 6,212
----------------------------------------------------------------
Net interest income 8,341 8,154 8,102 7,938
Provision for loan losses 800 225 225 225
----------------------------------------------------------------
Net interest income after provision
for loan losses 7,541 7,929 7,877 7,713
Other operating income 1,366 1,407 1,532 1,298
Operating expenses 5,693 5,613 5,749 5,600
----------------------------------------------------------------
Income before income taxes 3,214 3,723 3,660 3,411
Provision for income taxes 978 1,275 1,375 1,275
----------------------------------------------------------------
Net income $ 2,236 $ 2,448 $ 2,285 $ 2,136
================================================================
Share Data
Average shares outstanding, basic 5,724,416 5,804,096 5,814,533 5,825,528
Average shares outstanding, diluted 5,746,282 5,827,577 5,842,324 5,858,711
Earnings per share, basic $ 0.39 $ 0.42 $ 0.39 $ 0.37
Earnings per share, diluted $ 0.39 $ 0.42 $ 0.39 $ 0.36
</TABLE>
-39-
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1998 Quarters Fourth Third Second First
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands, except per share data)
Interest income $ 14,451 $ 14,403 $ 12,090 $ 10,934
Interest expense 6,301 6,595 5,039 4,080
-----------------------------------------------------
Net interest income 8,150 7,808 7,051 6,854
Provision for loan losses 225 225 185 165
-----------------------------------------------------
Net interest income after provision
for loan losses 7,925 7,583 6,866 6,689
Other operating income 1,365 1,251 1,367 1,247
Operating expenses 5,667 5,472 5,115 5,072
-----------------------------------------------------
Income before income taxes 3,623 3,362 3,118 2,864
Provision for income taxes 1,394 1,273 1,133 1,062
-----------------------------------------------------
Net income $ 2,229 $ 2,089 $ 1,985 $ 1,802
=====================================================
Share Data
Average shares outstanding, basic 5,818,156 5,817,667 5,809,420 5,792,160
Average shares outstanding, diluted 5,855,477 5,858,784 5,851,732 5,853,993
Earnings per share, basic $ 0.38 $ 0.36 $ 0.34 $ 0.31
Earnings per share, diluted $ 0.38 $ 0.36 $ 0.34 $ 0.31
=====================================================
</TABLE>
19. PARENT COMPANY FINANCIAL STATEMENTS
The balance sheets of Century Bancorp, Inc. ("Parent Company") as of December
31, 1999 and 1998 and the statements of income and cash flows for each of the
years in the three-year period ended December 31, 1999 are presented below. The
statements of changes in stockholders' equity are identical to the consolidated
statements of changes in stockholders' equity and are therefore not presented
here.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Assets:
Cash $32,404 $35,162
Investment in subsidiary, at equity 55,910 53,383
Other assets 1,425 1,672
---------------------------
Total assets 89,739 90,217
---------------------------
Liabilities and Stockholders' Equity:
Liabilities $ 693 $ 416
Long term debt 28,750 28,750
Stockholders' equity 60,296 61,051
---------------------------
Total liabilities and stockholders' equity $89,739 $90,217
===========================
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Income:
Dividends from subsidiary $ 1,678 $ 1,435 $ 1,702
Interest income from deposits in bank 1,714 1,159 289
Other income 86 12 12
----------------------------------------
Total income 3,478 2,606 2,003
Interest expense 2,460 1,485 --
Operating expenses 390 212 73
----------------------------------------
Income before income taxes and equity in
undistributed income of subsidiary 628 909 1,930
Provision for income taxes (373) (167) 112
----------------------------------------
Income before equity in undistributed
income of subsidiary 1,001 1,076 1,818
Equity in undistributed income of subsidiary 8,104 7,029 5,005
----------------------------------------
Net income $ 9,105 $ 8,105 $ 6,823
========================================
</TABLE>
-40-
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Cash flows from operating activities:
Net income $ 9,105 $ 8,105 $6,823
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed income of subsidiary (8,104) (7,029) (5,005)
Depreciation and amortization 234 138 6
Decrease (increase) in other assets 14 (1,728) (2)
Increase in liabilities 277 38 8
---------------------------------------
Net cash provided by (used in)
operating activities 1,526 (476) 1,830
---------------------------------------
Cash flows from financing activities:
Stock options exercised 71 120 123
Cash dividends paid (1,369) (834) (760)
Treasury stock repurchases (2,986) -- --
Issuance of long term debt -- 28,750 --
---------------------------------------
Net cash (used in) provided by
financing activities (4,284) 28,036 (637)
---------------------------------------
Net (decrease) increase in cash (2,758) 27,560 1,193
Cash at beginning of year 35,162 7,602 6,409
---------------------------------------
Cash at end of year $32,404 $35,162 $7,602
=======================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ -- $ 25 $ 111
</TABLE>
20. ACQUISITION
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 203 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
- --------------------------------------------------------------
<S> <C>
(in thousands)
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 53,473
Net loans 73,823
Accrued interest receivable 678
Premises and equipment 1,649
Other Assets 84
--------
Total assets acquired 145,042
Liabilities assumed:
Deposit accounts 126,572
Accrued expenses and other liabilities 1,045
--------
Total liabilities assumed 127,617
--------
Assets in excess of liabilities 17,425
Cash paid to Haymarket shareholders 21,121
--------
Goodwill $ 3,696
--------
</TABLE>
Goodwill is included as a component of other assets.
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>
1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Net interest income $31,736 $30,336
Net income 8,453 7,964
Basic earnings per share $ 1.46 $ 1.38
Diluted earnings per share $ 1.45 $ 1.37
</TABLE>
-41-
<PAGE> 44
Independent Auditors' Report
KPMG LLP
Certified Public Accountants
99 High Street
Boston, Massachusetts 02110
THE BOARD OF DIRECTORS
CENTURY BANCORP, INC.:
We have audited the accompanying consolidated balance sheets of Century Bancorp,
Inc. and subsidiary (the Company) as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Century Bancorp,
Inc. and subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
January 7, 2000
-42-
<PAGE> 45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of the Company and their ages as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
George R. Baldwin 56 Director, Century Bancorp, Inc., and Century Bank and Trust Co.,
Roger S. Berkowitz 47 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Karl E. Case, Ph. D. 53 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Henry L. Foster, D.V.M. 74 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Marshall I. Goldman, Ph. D. 69 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Russell B. Higley, Esquire 60 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Jonathan B. Kay 40 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Donald H. Lang 59 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Fraser Lemley 59 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Joseph P. Mercurio 51 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Joseph J. Senna, Esquire 60 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Barry R. Sloane 44 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Jonathan G. Sloane 41 Director and Executive Vice President, Century Bancorp, Inc.; President
and COO, Century Bank and Trust Company
Marshall M. Sloane 73 Chairman, President and CEO, Century Bancorp, Inc., Chairman and
CEO, Century Bank and Trust Company
Stephanie Sonnabend 46 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
George F. Swansburg 57 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Jon Westling 57 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
</TABLE>
-43-
<PAGE> 46
Mr. Baldwin became a director of the Company in 1996. He has been a Director of
Century Bank and Trust Company since 1995. Mr. Baldwin is President and CEO of
Baldwin & Co.
Mr. Berkowitz became a director of the Company in 1996. He was elected a
director of Century Bank/Suffolk in 1986 and has been a director of Century Bank
and Trust Company since the banks merged in 1992. Mr. Berkowitz is President of
Legal SeaFoods, Inc.
Dr. Case became a director of the Company in 1996. Dr. Case has been a director
of Century Bank and Trust Company since 1995. He is a Professor of Economics at
Wellesley College and a Visiting Scholar at the Federal Reserve Bank of Boston.
Dr. Foster has been a director of the Company since its organization in 1972. He
was a founding director of Century Bank and Trust Company in 1969. He was
founder of Charles River Laboratories, Inc. in 1948 and is currently Chairman
Emeritus.
Dr. Goldman has been a director of the Company since its organization in 1972.
He was also a founding director of Century Bank and Trust Company in 1969. He
has been a Professor of Economics at Wellesley College since 1958 and Associate
Director of the Davis Center for Russian Studies at Harvard University since
1975.
Mr. Higley became a director of the Company in 1996. He has been a director of
Century Bank and Trust Company since 1986. Mr. Higley is an attorney.
Mr. Kay became a director of the Company in 1997. He was also elected a director
of Century Bank and Trust Company in 1997. Mr. Kay is President of The Kay
Companies.
Mr. Lang became a director of the Company and Century Bank and Trust Company in
September of 1999. In 1980 he was elected Executive Vice President of Century
Bank and Trust Company. He is now retired.
Mr. Lemley became a director of the Company in 1996. He has been a director of
Century Bank and Trust Company since 1988. Mr. Lemley is Chairman of the Board
and CEO of Sentry Ford, Inc., Sentry Lincoln-Mercury, Inc., and Sentry South
Lincoln-Mercury, Inc.
Mr. Mercurio became a director of the Company in 1991. He has been a director of
Century Bank and Trust Company since 1995. He is an Executive Vice President of
Boston University.
Mr. Senna became a director of the Company in 1986. He has been a director of
Century Bank and Trust Company since 1979. Mr. Senna is an attorney.
Mr. Barry R. Sloane became a director of the Company in 1997. He was also
elected a director of Century Bank and Trust Company in 1997. Mr. Sloane is Vice
President of The Citibank Private Bank.
Mr. Jonathan G. Sloane became a director of the Company in 1986. He was elected
President and director of Century Bank/Suffolk in 1983. In 1992 he was elected
Executive Vice President of Century Bank and Trust Company and in 1995 promoted
to Senior Executive Vice President. Mr. Sloane is currently Executive Vice
President of Century Bancorp Inc. and President and COO of Century Bank and
Trust Company.
Mr. Marshall M. Sloane is the founder of the Company and has been Chairman,
President and CEO since its organization in 1972. He founded Century Bank and
Trust Company in 1969 and is currently its Chairman and CEO.
Ms. Sonnabend became a director of the Company in 1997. She has been a director
of Century Bank and Trust Company since 1997. Ms. Sonnabend is President of
Sonesta International Hotels Corporation.
Mr. Swansburg became a director of the Company in 1986 and was elected Executive
Vice President in 1995. He was President of Century North Shore Bank and Trust
Company. In 1992 he was elected President and COO of Century Bank and Trust
Company. He is now retired.
Mr. Westling became a director of the Company in 1996. He has been a director of
Century Bank and Trust Company since 1995. Mr. Westling is President of Boston
University.
All of the Company's directors are elected annually and hold office until their
successors are duly elected and qualified. There are no family relationships
between any of the directors or executive officers, except that Barry R. Sloane
and Jonathan G. Sloane are the sons of Marshall M. Sloane and Jonathan B. Kay is
the son-in-law of Marshall M. Sloane.
-44-
<PAGE> 47
The Company has Compensation and Audit Committees. The Compensation Committee is
a committee of the Board of Directors composed of Joseph P. Mercurio as
Chairman, Fraser Lemley and Roger S. Berkowitz. It reviews the salaries of the
Company's officers and administers the Company's Supplemental Executive
Insurance/Retirement Income Plan, Incentive Compensation Plan and Stock Option
Plan.
The Audit Committee is composed of Joseph Senna, Chairman and George Baldwin,
Russell B. Higley and Jon Westling. It meets with KPMG LLP, independent
certified public accountants, in connection with the annual audit of the
Company's financial statements and reviews the findings and recommendations of
the FRB, FDIC and Massachusetts Bank Commissioner's staff in connection with
their examinations and the internal audit reports and procedures for the Company
and its subsidiary.
Directors not employed by the Company receive $100 per Board meeting attended
and $200 per committee meeting attended.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive officers are elected annually by the Board prior to the Annual Meeting
of Shareholders to serve for a one year term and until their successors are
elected and qualified. The following table sets forth the name of each executive
officer of the Company and the principal positions and offices he holds with the
Company. Unless otherwise noted, each of these officers has served as an
executive officer of the Company or its principal subsidiary for at least five
years.
<TABLE>
<S> <C>
Marshall M. Sloane Chairman, President and CEO; Chairman and CEO, Century Bank
and Trust Company. Mr. Sloane is 73 years of age.
Jonathan G. Sloane Director and Executive Vice President; Director, President and COO,
Century Bank and Trust Company. Mr. Sloane is 41 years of age.
Paul V. Cusick, Jr. Vice President and Treasurer; Executive Vice President, Chief
Financial Officer and Treasurer, Century Bank and Trust Company.
Mr. Cusick is 55 years of age.
Paul A. Evangelista Executive Vice President, Century Bank and Trust Company
with responsibility for retail, cash management and fee income.
Mr. Evangelista is 36 years of age.
Kenneth M. Johnson President, Century Financial Services, Inc. Mr. Johnson is 39
years of age.
William J. Sloboda Executive Vice President, Century Bank and Trust Company with
responsibility for operations. Mr. Sloboda is 57 years of age.
David B. Woonton Executive Vice President, Century Bank and Trust
Company with responsibility for lending. Mr. Woonton
is 44 years of age.
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions on compensation of the Company's executives are generally made by the
Compensation Committee of the Board of Directors. Each member of the
Compensation Committee is a non-employee director. The goal of the Committee is
to provide competitive levels of compensation in order to attract and retain
qualified executive personnel. The Compensation Committee believes that the
actions of each executive officer have the potential to affect the short and
long term profitability of the Company. Accordingly, the Compensation Committee
places considerable importance on the design and administration of the executive
compensation program.
The Company has an executive compensation program that is driven by the overall
performance of the Company, the increase in shareholder value, the performance
of the business unit directly affected by the executive and by the performance
of the individual executive. The three primary components of the executive
compensation program are base salary, cash incentive plan and stock based
incentive plans.
-45-
<PAGE> 48
BASE SALARY
Base salary levels are set so that the Company has the management talent to meet
the challenges in the financial services industry. Several factors are included
in setting base salaries including the responsibilities of the executive
officer, the scope of the executive's position, individual performance and
salary levels at peer banks. Historically, the Company's executive compensation
practices have been designed to provide total compensation in the middle range
of compensation levels at similar banking institutions. Salary increases for the
senior management group have averaged 3% to 6% during the last several years.
CASH INCENTIVE PLANS
The Company has a cash incentive compensation plan which provides for the award
of bonuses up to a percentage of base salary to officers of the Company or its
subsidiaries. Recipients of incentive compensation are selected by the
Compensation Committee, upon the recommendation of management, as eligible to
participate in the plan. Awards are based upon the attainments of established
objectives including profitability, expense control, sales volume and overall
job performance. No bonuses are paid unless actual earnings are at least 90% of
budgeted net income. Upon recommendation of the Compensation Committee, the
Board of Directors determines the amounts, if any, to be awarded. Earned bonuses
for 1999, 1998 and 1997 are shown in the Summary Compensation Table.
STOCK INCENTIVE PLANS
One of the Compensation Committee's priorities is for executives to be
significant shareholders so that the interest of the executives are aligned with
the shareholders and decisions are made as owners of the Company. On March 10,
1987, the stockholders approved a Stock Option Plan (the "Option Plan") that the
Board of Directors adopted on February 24, 1987, that provides for grants of
options to purchase no more than 150,000 shares of Class A Common Stock. Options
may be granted, in the discretion of the Board of Directors, to officers and
other key employees of the Company. Options granted under the Option Plan may be
either incentive stock options as defined in the Internal Revenue Code or
non-qualified stock options. The Option Plan is administrated by the
Compensation Committee (whose members are ineligible to participate in the
Option Plan) which makes recommendations, based upon management's
recommendations, to the Board of Directors as to persons to whom options are to
be granted, the number of shares to be optioned to each, the option price (which
may not be less than 85% of the fair market value for non-qualified stock
options, or the fair market value for incentive stock options, of the shares on
the date of grant) and the time periods during which options are exercisable (no
more than ten years from the date of grants). In the event of a reorganization,
as defined in the Option Plan, the Board of Directors may terminate the exercise
period by giving 30 days notice to all participants, during which time all
outstanding options may be exercised. Options for 146,500 shares were granted in
1994.
EXECUTIVE BENEFITS
The Company's executive compensation package includes a special benefits
component in addition to base salary and cash and stock incentive plans. These
special benefits are viewed as less important than the above. Where such
benefits are provided, they are intended to support other business purposes
including facilitating business development efforts.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Marshall Sloane is eligible to participate in the same executive
compensation plans available to other executive officers described above. The
1999 cash compensation for Mr. Sloane was $719,400 of which $520,000 was base
salary.
CONCLUSION
The Compensation Committee believes that the executive compensation package will
motivate the management team to produce the results the Company has historically
achieved.
-46-
<PAGE> 49
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
[CHART]
Value of $100 Invested on December 31, 1994 at:
<TABLE>
<CAPTION>
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Century 128.21 168.39 232.38 239.73 217.12
Nasdaq Banks 148.93 196.62 329.22 326.09 314.24
Nasdaq U.S. 141.44 173.92 213.38 299.95 543.09
</TABLE>
* Assumes that the value of the investment in the Company's Common Stock and
each index was $100 on December 31, 1994 and that all dividends were
reinvested.
-47-
<PAGE> 50
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for fiscal years ending December 31, 1997, 1998 and
1999, the cash compensation paid by the Company and its subsidiaries, as well as
certain other compensation paid, accrued or granted for those years to the five
most highly compensated executive officers of the Company.
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY COMPENSATION TABLE
====================================================================================================================================
Long-Term Compensation
Annual Compensation
Awards Payouts
==================================================================================================================
Restricted Securities
Name Stock Underlying LTIP All Other
and Salary Bonus(1) Other Awards Options/ Payouts Compensation
Principal Position Year ($) ($) ($) ($) SARs (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marshall M. Sloane 1999 520,000 242,200 0 0 0 0 0
Chairman, President and CEO, 1998 464,500 199,400 0 0 0 0 0
Century Bancorp, Inc. 1997 438,200 139,000 0 0 0 0 0
Chairman and CEO, Century Bank
and Trust Company
- ------------------------------------------------------------------------------------------------------------------------------------
Jonathan G. Sloane 1999 250,000 96,900 0 0 0 0 0
Executive Vice President Century 1998 200,000 79,760 0 0 0 0 0
Bancorp, Inc. 1997 154,000 40,905 0 0 0 0 0
President and COO, Century Bank
and Trust Company
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth M. Johnson 1999 240,454 0 0 0 0 0 0
President 1998 202,947 0 0 0 0 0 0
Century Financial Services, Inc. 1997 218,827 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Paul V. Cusick, Jr. 1999 160,000 60,600 0 0 0 0 0
Executive Vice President 1998 129,500 49,850 0 0 0 0 0
Century Bank and Trust Company 1997 124,500 29,870 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
William J. Sloboda 1999 152,400 60,600 0 0 0 0 0
Executive Vice President 1998 152,400 30,000 0 0 0 0 0
Century Bank and Trust Company 1997 147,900 36,827 0 0 0 0 0
====================================================================================================================================
</TABLE>
(1) Bonus amounts are based on performance for the years shown.
STOCK OPTION PLAN
The Company has granted incentive stock options to purchase 126,500 shares of
Class A Common Stock, at 100% of the January 19, 1994 closing price of $3.75 per
share, to 18 officers and employees. The Company also granted incentive stock
options to purchase 20,000 shares of Class A Common Stock at $4.125 to Marshall
M. Sloane. Options granted to the officers listed below are as follows.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL NUMBER OF SHARES
- ------------------ ----------------
<S> <C>
Marshall M. Sloane 20,000
Donald H. Lang 15,000
Jonathan G. Sloane 16,000
William J. Sloboda 16,000
</TABLE>
Options for the eighteen participants have six year terms and become exercisable
in increments of 33.3% of the shares covered thereby per year, commencing in
January of 1995. Mr. Sloane's options have five year terms.
-48-
<PAGE> 51
SUPPLEMENTAL EXECUTIVE INSURANCE/RETIREMENT INCOME PLAN
Executive officers of the Company or its subsidiaries who have at least one year
of service may participate in the Supplemental Executive Insurance/Retirement
Income Plan (the "Supplemental Plan").
The Company maintains split dollar life insurance policies for participants, in
addition to the group term life insurance, which provides life insurance equal
to twice the individual's salary with a maximum of $200,000, which they receive
under a policy the Company maintains for its employees generally. The split
dollar insurance provides death benefits if the participant dies while in the
employ of the Company, equal to $2,600,000, $1,250,000, $800,000, $762,000 for
Messrs. Marshall M. Sloane, Jonathan G. Sloane, Cusick and Sloboda.
Premiums paid by the Company in 1999 amounted to $87,800, $63,500, $27,200,
$28,400, for policies on the lives of Messrs. Marshall M. Sloane, Jonathan G.
Sloane, Cusick, and Sloboda. The policies are on an "insurance bonus" basis,
which means that the Company pays the full amount of all premiums on the
policies but an amount equal to the one-year term cost of the insurance is
treated for tax purposes as a bonus to the insured. The Company is the owner of
these policies and each participating employee has received an assignment of a
portion of each policy's proceeds. Upon the death of a participant, the Company
will receive benefits equal to the difference between the death benefits payable
to the named beneficiary under the Supplemental Plan and the face amount of the
policy (less any policy loans then in force).
A participant in the Supplemental Plan is also entitled to retirement benefits.
Participants, upon retirement at age 65, after a specified number of years of
service, are entitled to receive for life, with ten years certain, 75% of their
highest 60 months compensation for certain executives, or 66% of such
compensation if the participants are Senior Officers (as determined by the
Compensation Committee), less the primary social security benefits and the
benefit received from the defined benefit retirement plan. If a participant
retires or terminates employment prior to age 65 such person is entitled to a
reduced benefit. Five years of service are required for any benefits to become
vested. Thereafter benefits vest incrementally.
The following table illustrates representative annual retirement benefits at
various compensation levels for executive management employees under the
Supplemental Plan who retire at age 65 and with 15 years of service, without
reflecting the required offset of benefits from social security and the defined
benefit retirement plan.
<TABLE>
<CAPTION>
Five Year
Average Compensation Annual Benefit
-------------------- --------------
<S> <C>
$ 100,000 $ 75,000
150,000 112,500
200,000 150,000
250,000 187,500
300,000 225,000
400,000 300,000
</TABLE>
As of January 1, 1999, Messrs. Marshall M. Sloane, Jonathan G. Sloane, Cusick,
and Sloboda were 100%, 100%, 70%, and 100%, vested, respectively, under the
Supplemental Plan.
-49-
<PAGE> 52
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the number and
percentage of shares of Class A and Class B Common Stock beneficially owned as
of December 31, 1999 (i) by each person known by the Company to own beneficially
more than 5% of the Company's outstanding shares of Class A or Class B Common
Stock (ii) by each of the Company's directors and certain officers; and (iii) by
all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF BENEFICIAL
OWNER & ADDRESS OR NUMBER CLASS A % A CLASS B % B
OF PERSONS IN GROUP OWNED OWNED OWNED OWNED
<S> <C> <C> <C> <C>
Charles J. Moore (i) 288,100 7.74%
The Banc Funds
208 South LaSalle Street
Chicago, IL 60604
Credit Suisse (i) 223,255 6.00%
153 East 53rd Street
New York, New York 10022
Marshall M. Sloane (i)(ii) 16,284(1) 0.44% 1,700,630(2) 79.91%
400 Mystic Ave.
Medford, MA 02155
George R. Baldwin (ii) 6,688 0.18%
Roger S. Berkowitz (ii) 1,309 0.04%
Karl E. Case (ii) 655 0.02%
Paul V. Cusick, Jr. (ii) 13,200 0.35%
Henry L. Foster, D.V.M. (ii) 18,712 0.50% 1,000 0.05%
Marshall I. Goldman (ii) 577(3) 0.02% 30,000(4) 1.41%
Russell B. Higley, Esquire (ii) 4,787 0.13%
Jonathan B. Kay (ii) 3,790(7) 0.10% 60,000(6) 2.82%
Donald H. Lang (ii) 13,600 0.37%
Fraser Lemley (ii) 4,996(9) 0.13%
Joseph P. Mercurio (ii) 2,067 0.06%
Joseph J. Senna (ii) 45,173(5) 1.21%
Barry R. Sloane (ii) 890(10) 0.02%
Jonathan G. Sloane (ii) 760(8) 0.02% 60,000 2.82%
William J. Sloboda (ii) 11,509 0.31% 500 0.02%
Stephanie Sonnabend (ii) 446 0.01%
George F. Swansburg (ii) 30,040 0.81%
Jon Westling (ii) 716 0.02%
David B. Woonton 0 0.00%
All directors and officers as a group
(20 in number) (iii) 176,199 4.74% 1,852,130 87.03%
</TABLE>
(1) Includes 2,500 shares owned by Mrs. Sloane and also includes 13,416
shares held in trust for Mr. Sloane's grandchildren.
(2) Includes 1,500 shares owned by Mrs. Sloane, and does not include
120,000 shares owned by Mr. Sloane's children. Mr. Sloane disclaims
beneficial ownership of such 120,000 shares.
(3) Does not include 9,000 shares held of record by Mr. Goldman's children;
Mr. Goldman disclaims beneficial ownership of such shares.
(4) Does not include 9,000 shares held of record by Mr. Goldman's children;
Mr. Goldman disclaims beneficial ownership of such shares.
(5) Includes 34,800 shares owned by Mrs. Senna.
(6) Entire 60,000 shares are owned by Mrs. Kay, Marshall Sloane's daughter.
(7) Includes 20 shares owned by Mrs. Kay.
(8) Includes 20 shares owned by Mrs. Debra Sloane and includes 320 shares
owned by Mr. Jonathan Sloane's children.
(9) Includes 500 shares owned by Mrs. Lemley.
(10) Includes 20 shares owned by son and 10 shares owned by partner Candace
Lapidus.
-50-
<PAGE> 53
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's Executive Officers and
Directors, and any persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership of securities with the SEC and NASDAQ. Executive Officers, Directors,
and greater than 10% stockholders (of which, to the Company's knowledge, there
currently are none) are required by SEC regulation to furnish the Company's with
copies of all Section 16(a) forms they file. Based solely on a review of the
copies of such reports received by it or written representations from certain
reporting persons that no other reports were required, the corporation believes
that, during 1999, all Section 16(a) filing requirements applicable to its
Executive Officers and Directors were complied with, except that reports on
initial holdings and subsequent purchases by one director were filed late.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements.
The following financial statements of the company and its
subsidiaries are presented in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income -- Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity
-Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows-Years Ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules are omitted because either the required
information is shown in the financial statements or notes
incorporated by reference, or they are not applicable, or the
data is not significant.
(3) Exhibits
Those exhibits required by Item 601 of Regulation S-K and by
paragraph (c) below previously filed.
(b) Reports on Form 8K.
There were no items reported on Form 8K during the last quarter of
the period covered by this Form.
(c) Exhibits required by Item 601 of Regulation S-K.
Required exhibits previously filed
(d) Financial Statement required by Regulation S-X.
Schedules to Consolidated Financial Statements required by
Regulation S-X are not required under the related instructions or
are inapplicable, and therefore have been omitted.
-51-
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on this 14th day of March
2000.
Century Bancorp, Inc.
/s/ Marshall M. Sloane
-----------------------------------------
By: Marshall M. Sloane, Chairman,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated and on the date indicated.
<TABLE>
<S> <C>
/s/ George R. Baldwin
- ------------------------------------ --------------------------------------------------
George R. Baldwin, Director Barry R. Sloane, Director
- ------------------------------------ --------------------------------------------------
Roger S. Berkowitz, Director Stephanie Sonnabend, Director
/s/ Karl E. Case
- ------------------------------------ --------------------------------------------------
Karl E. Case, Ph.D., Director George F. Swansburg, Director
/s/ Henry L. Foster /s/ Jon Westling
- ------------------------------------ --------------------------------------------------
Henry L. Foster, D.V.M., Director Jon Westling, Director
/s/ Marshall I. Goldman /s/ Marshall M. Sloane
- ------------------------------------ --------------------------------------------------
Marshall I. Goldman, Ph.D., Director Marshall M. Sloane, Chairman, President and
Chief Executive Officer
/s/ Russell B. Higley /s/ Jonathan G. Sloane
- ------------------------------------ --------------------------------------------------
Russell B. Higley, Esquire, Director Jonathan G. Sloane, Director and
Executive Vice President
/s/ Jonathan B. Kay /s/ Paul V. Cusick, Jr.
- ------------------------------------ --------------------------------------------------
Jonathan B. Kay, Director Paul V. Cusick, Jr., Vice President and Treasurer,
Principal Financial Officer
/s/ Donald H. Lang /s/ Kenneth A. Samuelian
- ------------------------------------ --------------------------------------------------
Donald H. Lang, Director Kenneth A. Samuelian, Vice President, Controller and
Compliance Officer, Century Bank and Trust Company,
Principal Accounting Officer
/s/ Fraser Lemley
- ------------------------------------
Fraser Lemley, Director
/s/ Joseph P. Mercurio
- ------------------------------------
Joseph P. Mercurio, Director
/s/ Joseph J. Senna
- ------------------------------------
Joseph J. Senna, Esquire, Director
</TABLE>
-52-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 34,512
<INT-BEARING-DEPOSITS> 16
<FED-FUNDS-SOLD> 32,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 254,975
<INVESTMENTS-CARRYING> 152,599
<INVESTMENTS-MARKET> 146,603
<LOANS> 422,725
<ALLOWANCE> 7,646
<TOTAL-ASSETS> 925,533
<DEPOSITS> 643,673
<SHORT-TERM> 119,480
<LIABILITIES-OTHER> 73,334
<LONG-TERM> 28,750
0
0
<COMMON> 5,919
<OTHER-SE> 54,377
<TOTAL-LIABILITIES-AND-EQUITY> 925,533
<INTEREST-LOAN> 35,620
<INTEREST-INVEST> 22,725
<INTEREST-OTHER> 474
<INTEREST-TOTAL> 58,819
<INTEREST-DEPOSIT> 17,299
<INTEREST-EXPENSE> 26,284
<INTEREST-INCOME-NET> 32,535
<LOAN-LOSSES> 1,475
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 22,655
<INCOME-PRETAX> 14,008
<INCOME-PRE-EXTRAORDINARY> 9,105
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,105
<EPS-BASIC> 1.57
<EPS-DILUTED> 1.56
<YIELD-ACTUAL> 4.07
<LOANS-NON> 4,621
<LOANS-PAST> 188
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,617
<ALLOWANCE-OPEN> 6,022
<CHARGE-OFFS> 470
<RECOVERIES> 619
<ALLOWANCE-CLOSE> 7,646
<ALLOWANCE-DOMESTIC> 7,646
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
