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EXCEL - IDEA: XBRL DOCUMENT - CENTURY BANCORP INC | Financial_Report.xls |
EX-32.1 - EX-32.1 - CENTURY BANCORP INC | b87824exv32w1.htm |
EX-32.2 - EX-32.2 - CENTURY BANCORP INC | b87824exv32w2.htm |
EX-31.2 - EX-31.2 - CENTURY BANCORP INC | b87824exv31w2.htm |
EX-31.1 - EX-31.1 - CENTURY BANCORP INC | b87824exv31w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011.
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 0-15752
CENTURY BANCORP, INC.
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF MASSACHUSETTS | 04-2498617 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
400 MYSTIC AVENUE, MEDFORD, MA | 02155 | |
(Address of principal executive offices) | (Zip Code) |
(781) 391-4000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. (See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act). (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Yes o No þ
As of October 31, 2011, the Registrant had outstanding:
Class A Common Stock, $1.00 par value 3,546,217 Shares
Class B Common Stock, $1.00 par value 1,994,380 Shares
Class B Common Stock, $1.00 par value 1,994,380 Shares
Century Bancorp, Inc.
Page | ||||||||
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3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
8-27 | ||||||||
27-38 | ||||||||
38 | ||||||||
38 | ||||||||
38-39 | ||||||||
39 | ||||||||
39 | ||||||||
39 | ||||||||
39 | ||||||||
39 | ||||||||
40 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
Page 2 of 40
Table of Contents
Forward Looking Statements
Except for the historical information contained herein, this Quarterly
Report on Form 10-Q may contain forward-looking statements within the
meaning of Section 27A of
the Securities Act of 1933 as amended and Section 21E of the Securities
Exchange Act of 1934 as amended. Investors are cautioned that
forward-looking statements are
inherently uncertain. Actual performance and results of operations may
differ materially from those projected or suggested in the forward-looking
statements due to
certain risks and uncertainties, including, without limitation, (i) the fact
that the Companys success is dependent to a significant extent upon general
economic
conditions in New England, (ii) the fact that the Companys earnings depend
to a great extent upon the level of net interest income (the difference
between interest income
earned on loans and investments and the interest expense paid on deposits
and other borrowings) generated by the Bank and thus the Banks results of
operations may be adversely affected by increases or decreases in interest
rates, (iii) the fact that the
banking business is highly competitive and the profitability of the Company
depends upon the Banks ability to attract loans and deposits within its
market area, where the Bank competes with a variety of traditional banking
and other institutions such as credit unions and finance companies, and (iv)
the fact that a significant portion of the Companys loan portfolio is
comprised of commercial loans, exposing the Company to the risks inherent in
loans based upon analyses of credit risk, the value of underlying
collateral, including real estate, and other more intangible factors, which
are considered in making commercial loans. Accordingly, the Companys
profitability may be negatively impacted by errors in risk analyses, and by
loan defaults, and the ability of certain borrowers to repay such loans may
be adversely affected by any downturn in general economic conditions. These
factors, as well as general economic and market
conditions, may materially and adversely affect the market price of shares
of the Companys common stock. Because of these and other factors, past
financial
performance should not be considered an indicator of future performance.
The forward-looking statements contained herein represent the Companys
judgment as of
the date of this Form 10-Q, and the Company cautions readers not to place
undue reliance on such statements.
Page 3 of 40
Table of Contents
PART I
Item 1
Century Bancorp, Inc.
Consolidated Balance Sheets
(unaudited)
(In thousands, except share data)
(In thousands, except share data)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Cash and due from banks |
$ | 39,904 | $ | 37,215 | ||||
Federal funds sold and interest-bearing deposits in other banks |
143,318 | 151,337 | ||||||
Total cash and cash equivalents |
183,222 | 188,552 | ||||||
Short-term investments |
19,369 | 113,918 | ||||||
Securities available-for-sale, amortized cost $1,264,031 and
$903,556, respectively |
1,281,275 | 909,391 | ||||||
Securities held-to-maturity, fair value $139,777 and
$233,524, respectively |
134,189 | 230,116 | ||||||
Federal Home Loan Bank of Boston stock, at cost |
15,531 | 15,531 | ||||||
Loans, net: |
||||||||
Commercial and industrial |
84,765 | 90,654 | ||||||
Construction and land development |
54,498 | 53,583 | ||||||
Commercial real estate |
458,858 | 433,337 | ||||||
Residential real estate |
235,636 | 207,787 | ||||||
Home equity |
111,131 | 114,209 | ||||||
Consumer and other |
6,419 | 6,594 | ||||||
Total loans, net |
951,307 | 906,164 | ||||||
Less: allowance for loan losses |
16,002 | 14,053 | ||||||
Net loans |
935,305 | 892,111 | ||||||
Bank premises and equipment |
21,971 | 21,228 | ||||||
Accrued interest receivable |
5,993 | 6,601 | ||||||
Goodwill |
2,714 | 2,714 | ||||||
Core deposit intangible |
217 | 508 | ||||||
Other assets |
64,126 | 61,014 | ||||||
Total assets |
$ | 2,663,912 | $ | 2,441,684 | ||||
Liabilities |
||||||||
Deposits: |
||||||||
Demand deposits |
$ | 345,180 | $ | 322,002 | ||||
Savings and NOW deposits |
691,103 | 649,402 | ||||||
Money market accounts |
569,410 | 513,359 | ||||||
Time deposits |
499,716 | 417,260 | ||||||
Total deposits |
2,105,409 | 1,902,023 | ||||||
Securities sold under agreements to repurchase |
133,030 | 108,550 | ||||||
Other borrowed funds |
193,143 | 222,118 | ||||||
Subordinated debentures |
36,083 | 36,083 | ||||||
Other liabilities |
33,186 | 27,885 | ||||||
Total liabilities |
2,500,851 | 2,296,659 | ||||||
Stockholders Equity |
||||||||
Preferred stock $1.00 par value; 100,000 shares authorized; no shares issued
and outstanding |
| | ||||||
Class A common stock, $1.00 par value per share; authorized
10,000,000 shares; issued 3,546,217 shares and 3,528,867 shares, respectively |
3,547 | 3,529 | ||||||
Class B common stock, $1.00 par value per share; authorized
5,000,000 shares; issued 1,994,380 and 2,011,380 shares, respectively |
1,994 | 2,011 | ||||||
Additional paid-in capital |
11,542 | 11,537 | ||||||
Retained earnings |
142,395 | 131,526 | ||||||
159,478 | 148,603 | |||||||
Unrealized gains on securities available-for-sale, net of taxes |
10,469 | 3,593 | ||||||
Pension liability, net of taxes |
(6,886 | ) | (7,171 | ) | ||||
Total accumulated other comprehensive income(loss), net of taxes |
3,583 | (3,578 | ) | |||||
Total stockholders equity |
163,061 | 145,025 | ||||||
Total liabilities and stockholders equity |
$ | 2,663,912 | $ | 2,441,684 | ||||
See accompanying notes to unaudited consolidated interim financial statements.
Page 4 of 40
Table of Contents
Century Bancorp, Inc.
Consolidated Statements of Income
(unaudited)
(In thousands, except share data)
(In thousands, except share data)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest income |
||||||||||||||||
Loans |
$ | 12,030 | $ | 11,900 | $ | 36,147 | $ | 36,084 | ||||||||
Securities held-to-maturity |
1,304 | 1,645 | 4,595 | 5,501 | ||||||||||||
Securities available-for-sale |
6,042 | 4,618 | 17,104 | 14,630 | ||||||||||||
Federal funds sold and interest-bearing deposits in other banks |
262 | 465 | 967 | 1,246 | ||||||||||||
Total interest income |
19,638 | 18,628 | 58,813 | 57,461 | ||||||||||||
Interest expense |
||||||||||||||||
Savings and NOW deposits |
592 | 940 | 2,023 | 3,254 | ||||||||||||
Money market accounts |
627 | 876 | 2,109 | 3,189 | ||||||||||||
Time deposits |
2,512 | 2,162 | 7,285 | 5,746 | ||||||||||||
Securities sold under agreements to repurchase |
82 | 116 | 290 | 466 | ||||||||||||
Other borrowed funds and subordinated debentures |
1,987 | 1,946 | 5,826 | 6,351 | ||||||||||||
Total interest expense |
5,800 | 6,040 | 17,533 | 19,006 | ||||||||||||
Net interest income |
13,838 | 12,588 | 41,280 | 38,455 | ||||||||||||
Provision for loan losses |
1,200 | 1,200 | 3,600 | 4,225 | ||||||||||||
Net interest income after provision
for loan losses |
12,638 | 11,388 | 37,680 | 34,230 | ||||||||||||
Other operating income |
||||||||||||||||
Service charges on deposit accounts |
2,031 | 2,003 | 5,854 | 5,878 | ||||||||||||
Lockbox fees |
658 | 745 | 2,129 | 2,193 | ||||||||||||
Net gain on sales of investments |
883 | | 1,245 | 1,027 | ||||||||||||
Net gain on sales of loans |
238 | | 364 | | ||||||||||||
Other income |
693 | 664 | 2,287 | 2,678 | ||||||||||||
Total other operating income |
4,503 | 3,412 | 11,879 | 11,776 | ||||||||||||
Operating expenses |
||||||||||||||||
Salaries and employee benefits |
7,357 | 6,844 | 21,948 | 21,619 | ||||||||||||
Occupancy |
1,059 | 937 | 3,285 | 3,003 | ||||||||||||
Equipment |
608 | 454 | 1,700 | 1,537 | ||||||||||||
FDIC assessments |
413 | 785 | 1,612 | 2,175 | ||||||||||||
Other |
2,618 | 2,293 | 7,495 | 7,143 | ||||||||||||
Total operating expenses |
12,055 | 11,313 | 36,040 | 35,477 | ||||||||||||
Income before income taxes |
5,086 | 3,487 | 13,519 | 10,529 | ||||||||||||
Provision for income taxes |
504 | 220 | 1,015 | 879 | ||||||||||||
Net income |
$ | 4,582 | $ | 3,267 | $ | 12,504 | $ | 9,650 | ||||||||
Share data: |
||||||||||||||||
Weighted average number of shares outstanding, basic |
5,540,597 | 5,535,548 | 5,540,592 | 5,532,067 | ||||||||||||
Weighted average number of shares outstanding, diluted |
5,541,646 | 5,537,120 | 5,541,711 | 5,534,457 | ||||||||||||
Net income per share, basic |
$ | 0.83 | $ | 0.59 | $ | 2.26 | $ | 1.74 | ||||||||
Net income per share, diluted |
$ | 0.83 | $ | 0.59 | $ | 2.26 | $ | 1.74 | ||||||||
Cash dividends paid: |
||||||||||||||||
Class A common stock |
$ | 0.12 | $ | 0.12 | $ | 0.36 | $ | 0.36 | ||||||||
Class B common stock |
$ | 0.06 | $ | 0.06 | $ | 0.18 | $ | 0.18 |
See accompanying notes to unaudited consolidated interim financial statements.
Page 5 of 40
Table of Contents
Century Bancorp, Inc.
Consolidated Statements of Changes in Stockholders Equity
(unaudited)
For the Nine Months Ended September 30, 2011 and 2010
For the Nine Months Ended September 30, 2011 and 2010
Accumulated | ||||||||||||||||||||||||
Class A | Class B | Additional | Other | Total | ||||||||||||||||||||
Common | Common | Paid-In | Retained | Comprehensive | Stockholders | |||||||||||||||||||
Stock | Stock | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Balance at December 31, 2009 |
$ | 3,516 | $ | 2,014 | $ | 11,376 | $ | 120,125 | $ | (4,301 | ) | $ | 132,730 | |||||||||||
Net income |
| | | 9,650 | | 9,650 | ||||||||||||||||||
Other comprehensive income, net of tax: |
||||||||||||||||||||||||
Unrealized holding losses arising during period,
net of $3,026 in taxes and $1,027 in realized net gains |
| | | | 4,703 | 4,703 | ||||||||||||||||||
Pension liability adjustment, net of $247 in taxes |
| | | | 366 | 366 | ||||||||||||||||||
Comprehensive income |
14,719 | |||||||||||||||||||||||
Conversion of class B common stock to class A
common stock, 3,150 shares |
3 | (3 | ) | | | | | |||||||||||||||||
Stock options exercised, 6,500 shares |
7 | | 91 | | | 98 | ||||||||||||||||||
Cash dividends paid, Class A common stock,
$.36 per share |
| | | (1,266 | ) | | (1,266 | ) | ||||||||||||||||
Cash dividends paid, Class B common stock,
$.18 per share |
| | | (363 | ) | | (363 | ) | ||||||||||||||||
Balance at September 30, 2010 |
$ | 3,526 | $ | 2,011 | $ | 11,467 | $ | 128,146 | $ | 768 | $ | 145,918 | ||||||||||||
Balance at December 31, 2010 |
$ | 3,529 | $ | 2,011 | $ | 11,537 | $ | 131,526 | $ | (3,578 | ) | $ | 145,025 | |||||||||||
Net income |
| | | 12,504 | | 12,504 | ||||||||||||||||||
Other comprehensive income, net of tax: |
||||||||||||||||||||||||
Unrealized holding gains arising during period, net
of $4,533 in taxes and $1,245 in realized net gains |
| | | | 6,876 | 6,876 | ||||||||||||||||||
Pension liability adjustment, net of $189 in taxes |
| | | | 285 | 285 | ||||||||||||||||||
Comprehensive income |
19,665 | |||||||||||||||||||||||
Conversion of class B common stock to class A
common stock, 17,000 shares |
17 | (17 | ) | | | | | |||||||||||||||||
Stock options exercised, 350 shares |
1 | | 5 | | | 6 | ||||||||||||||||||
Cash dividends paid, Class A common stock,
$.36 per share |
| | | (1,274 | ) | | (1,274 | ) | ||||||||||||||||
Cash dividends paid, Class B common stock,
$.18 per share |
| | | (361 | ) | | (361 | ) | ||||||||||||||||
Balance at September 30, 2011 |
$ | 3,547 | $ | 1,994 | $ | 11,542 | $ | 142,395 | $ | 3,583 | $ | 163,061 | ||||||||||||
See accompanying notes to unaudited consolidated interim financial statements.
Page 6 of 40
Table of Contents
Century Bancorp, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
(In thousands)
Nine months ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 12,504 | $ | 9,650 | ||||
Adjustments
to reconcile net income to net cash provided by operating activities: |
||||||||
Net gain on sales of investments |
(1,245 | ) | (1,027 | ) | ||||
Net gain on sale of loans |
(364 | ) | | |||||
Provision for loan losses |
3,600 | 4,225 | ||||||
Deferred income taxes |
(1,024 | ) | (1,364 | ) | ||||
Net depreciation and amortization |
3,828 | 3,528 | ||||||
Decrease (increase) in accrued interest receivable |
608 | (239 | ) | |||||
Increase in other assets |
(5,587 | ) | (799 | ) | ||||
Increase (decrease) in other liabilities |
816 | (95 | ) | |||||
Net cash provided by operating activities |
13,136 | 13,879 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Proceeds from maturities of short-term investments |
119,044 | 117,150 | ||||||
Purchase of short-term investments |
(24,495 | ) | (222,522 | ) | ||||
Proceeds from maturities of securities available-for-sale |
556,599 | 488,823 | ||||||
Proceeds from sales of securities available-for-sale |
43,124 | 34,625 | ||||||
Purchase of securities available-for-sale |
(955,685 | ) | (698,415 | ) | ||||
Proceeds from maturities of securities held-to-maturity |
95,708 | 136,407 | ||||||
Purchase of securities held-to-maturity |
| (147,386 | ) | |||||
Proceeds from sales of loans |
11,295 | | ||||||
Net (increase) decrease in loans |
(58,990 | ) | 10,553 | |||||
Capital expenditures |
(2,328 | ) | (1,854 | ) | ||||
Net cash used in investing activities |
(215,728 | ) | (282,619 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Net increase in time deposits |
82,456 | 86,513 | ||||||
Net increase in demand, savings, money market and NOW deposits |
120,930 | 94,347 | ||||||
Net proceeds from exercise of stock options |
6 | 98 | ||||||
Cash dividends |
(1,635 | ) | (1,630 | ) | ||||
Net increase (decrease) in securities sold under agreements to repurchase |
24,480 | (10,315 | ) | |||||
Net decrease in other borrowed funds |
(28,975 | ) | (3,543 | ) | ||||
Net cash provided by financing activities |
197,262 | 165,470 | ||||||
Net decrease in cash and cash equivalents |
(5,330 | ) | (103,270 | ) | ||||
Cash and cash equivalents at beginning of period |
188,552 | 398,642 | ||||||
Cash and cash equivalents at end of period |
$ | 183,222 | $ | 295,372 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 17,578 | $ | 24,551 | ||||
Income taxes |
2,311 | 3,010 | ||||||
Change in unrealized gains on securities available-for-sale, net of taxes |
6,876 | 4,703 | ||||||
Pension liability adjustment, net of taxes |
285 | 366 | ||||||
Due to broker |
5,000 | 765 |
See accompanying notes to unaudited consolidated interim financial statements.
Page 7 of 40
Table of Contents
Century Bancorp, Inc.
Notes to Unaudited Consolidated Interim Financial Statements
Nine Months Ended September 30, 2011 and 2010
Nine Months Ended September 30, 2011 and 2010
Note 1. Basis of Financial Statement Presentation
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 consolidated financial statements also include the accounts of the Banks wholly-owned
subsidiaries: Century Subsidiary Investments, Inc. (CSII); Century Subsidiary Investments, Inc.
II (CSII II); and Century Subsidiary Investments, Inc. III (CSII III). CSII, CSII II, CSII III
are engaged in buying, selling and holding investment securities. The Company also owns 100% of
Century Bancorp Capital Trust II (CBCT II). The entity is an unconsolidated subsidiary of the
Company.
All significant intercompany accounts and transactions have been eliminated in
consolidation. 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 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 Companys 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.
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America and
to
general practices within the banking industry. In the opinion of management,
all adjustments considered necessary for a fair presentation of the
financial statements, primarily consisting of normal recurring adjustments,
have been included. 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. The Companys Quarterly report on Form 10-Q should be read in
conjunction with the
Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2010,
as filed with the Securities and Exchange Commission.
Material estimates that are susceptible to change in the near-term
relate to the allowance for loan losses. Management believes that the
allowance for loan losses is
adequate based on independent appraisals and review of other factors
associated with
the loans. While management uses available information to recognize loan
losses,
future additions to the allowance for loan losses may be necessary based on
changes in
economic conditions. In addition, regulatory agencies periodically review
the
Companys allowance for loan losses. Such agencies may require the Company
to
recognize additions to the allowance for loan losses based on their
judgments about
information available to them at the time of their examination.
Page 8 of 40
Table of Contents
Whenever necessary prior period amounts were reclassified to conform
with the current period presentation.
Note 2. Recent Market Developments
The financial services industry continues to face unprecedented challenges
in the aftermath of the recent national and global economic crisis. Since
June 2009, the US economy has been recovering from the most severe recession
and financial crisis since the Great Depression. There have been some
improvements in private sector employment, industrial production and US
exports; nevertheless, the pace of economic recovery has been extremely
slow. The housing markets continue to be depressed. Financial markets have
improved since the depths of the crisis, but are still unsettled and
volatile. Investors have pulled back from risky assets. Lower equity
prices and wider spreads on corporate bonds and other debt instruments and
greater pressures on financial institutions have resulted. At the same
time, heightened demand for safe assets has put downward pressure on yields.
There is continued concern about the US economic outlook and the potential
effects of the continued crisis in the European financial markets.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act became law. The Act was intended to address many issues
arising in the recent financial crisis and is exceedingly broad in scope
affecting many aspects of bank and financial market regulation. The Act
requires, or permits by implementing regulation, enhanced prudential
standards for banks and bank holding companies inclusive of capital,
leverage, liquidity, concentration and exposure measures. In addition,
traditional bank regulatory principles such as restrictions on transactions
with affiliates and insiders were enhanced. The Act also contains reforms of
consumer mortgage lending practices and creates a Bureau of Consumer
Financial Protection which is granted broad authority over consumer
financial practices of banks and others. It is expected as the specific new
or incremental requirements applicable to the company become effective that
the costs and difficulties of remaining compliant with all such requirements
will increase. The Act broadens the base for FDIC assessments to average
consolidated assets less tangible equity of financial institutions and also
permanently raises the current standard maximum FDIC deposit insurance
amount to $250,000. The Act extends unlimited deposit insurance on
non-interest bearing transaction accounts through December 31, 2013.
On September 30, 2011 the Massachusetts Department of Revenue issued a draft
directive prohibiting a corporation from pledging more than 50 percent of
security corporation stock it owns to secure a borrowing, effective for tax
years beginning on or after October, 2012. Century Bank currently utilizes
the stock of two of its security corporations to secure Federal Home Loan
Bank of Boston(FHLBB) advances. Should this draft directive become
effective, Century Bank would have fewer assets available to secure FHLBB
advances, or would have a higher tax rate if it chose to utilize security
corporations to a lesser extent.
Note 3. Stock Option Accounting
Stock option activity under the Companys stock option plan for the nine
months ended September 30, 2011 is as follows:
Page 9 of 40
Table of Contents
Weighted | ||||||||
Average | ||||||||
Amount | Exercise Price | |||||||
Shares under option: |
||||||||
Outstanding at beginning of year |
38,712 | $ | 28.36 | |||||
Exercised |
(350 | ) | 15.06 | |||||
Cancelled |
(200 | ) | 15.06 | |||||
Outstanding at end of period |
38,162 | $ | 28.55 | |||||
Exercisable at end of period |
38,162 | $ | 28.55 | |||||
Available to be granted at end of period |
223,084 | |||||||
On September 30, 2011, the outstanding options to purchase
38,162 shares of Class A common stock have exercise prices between $22.50
and $35.01, with a weighted average exercise price of $28.55 and a weighted
average remaining contractual life of 2.0 years. The intrinsic value of
options exercisable at September 30, 2011 had an aggregate value of $5,769.
The intrinsic value of options exercised at September 30, 2011 had an
aggregate value of $4,085.
The Company uses the fair value method to account for stock options.
All of the Companys stock options are vested and there were no options
granted during the first nine months of 2011.
Note 4. Securities Available-for-Sale
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
( In thousands) | ||||||||||||||||||||||||||||||||
U.S. Treasury |
$ | 1,999 | $ | 14 | $ | | $ | 2,013 | $ | 2,000 | $ | 5 | $ | | $ | 2,005 | ||||||||||||||||
U.S. Government
Sponsored
Enterprises |
243,376 | 214 | 313 | 243,277 | 175,842 | 386 | 565 | 175,663 | ||||||||||||||||||||||||
Small Business
Administration |
8,956 | 43 | | 8,999 | 9,735 | 1 | 4 | 9,732 | ||||||||||||||||||||||||
U.S. Government
Agency and Sponsored
Enterprises Mortgage
Backed Securities |
971,923 | 18,820 | 416 | 990,327 | 674,481 | 11,842 | 5,425 | 680,898 | ||||||||||||||||||||||||
Privately Issued
Residential Mortgage
Backed Securities |
3,678 | | 258 | 3,420 | 4,247 | | 279 | 3,968 | ||||||||||||||||||||||||
Privately Issued
Commercial Mortgage
Backed Securities |
| | | | 285 | 2 | | 287 | ||||||||||||||||||||||||
Obligations Issued
by States and
Political
Subdivisions |
20,375 | 90 | 288 | 20,177 | 34,271 | 98 | 295 | 34,074 | ||||||||||||||||||||||||
Other Debt Securities |
13,329 | | 753 | 12,576 | 2,300 | | 47 | 2,253 | ||||||||||||||||||||||||
Equity Securities |
395 | 91 | | 486 | 395 | 116 | | 511 | ||||||||||||||||||||||||
Total |
$ | 1,264,031 | $ | 19,272 | $ | 2,028 | $ | 1,281,275 | $ | 903,556 | $ | 12,450 | $ | 6,615 | $ | 909,391 | ||||||||||||||||
Included in U.S. Government Sponsored Enterprise Securities and U.S.
Government Agency and Sponsored Enterprise Mortgage-Backed Securities are
securities at fair value pledged to secure public deposits and repurchase
agreements amounting to $358,672,000 and $363,240,000 at September 30, 2011
and December 31, 2010, respectively. Also included in securities
available-for-sale are securities pledged for borrowing at the Federal Home
Loan Bank of Boston amounting to $247,358,000 and $124,189,000 at September 30, 2011 and
December 31, 2010, respectively. The Company realized gross gains of
$1,245,000 from the proceeds of $43,124,000 from the sales of
available-for-sale securities for the nine months ended September 30, 2011.
The Company realized gross gains of $1,027,000 from the proceeds of
$34,625,000 from the sales of available-for-sale securities for the nine
months ended September 30, 2010.
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The following table shows the maturity distribution of the Companys
securities available-for-sale at September 30, 2011.
Amortized | Fair | |||||||
Cost | Value | |||||||
( In thousands) | ||||||||
Within one year |
$ | 51,310 | $ | 51,964 | ||||
After one but within five years |
971,079 | 987,676 | ||||||
After five but within ten years |
223,483 | 223,368 | ||||||
More than 10 years |
16,264 | 16,320 | ||||||
Non-maturing |
1,895 | 1,947 | ||||||
Total |
$ | 1,264,031 | $ | 1,281,275 | ||||
The weighted average remaining life of investment securities
available-for-sale at September 30, 2011 was 4.2 years. Included in the
weighted average remaining life calculation at September 30, 2011 was
$226,876,000 of U.S. Government Sponsored Enterprises obligations that are
callable at the discretion of the issuer. These call dates were not utilized
in computing the weighted average remaining life. The contractual
maturities, which were used in the table above, of mortgage-backed
securities will differ from the actual maturities, due to the ability of the
issuers to prepay underlying obligations.
As of September 30, 2011 and December 31, 2010, management concluded that
the unrealized losses of its investment securities are temporary in nature
since they are not related to the underlying credit quality of the issuers,
and the Company does not intend to sell these debt securities and it is not
likely that it will be required to sell these debt securities before the
anticipated recovery of its remaining amortized cost. In making its
other-than-temporary impairment evaluation, the Company considered the fact
that the principal and interest on these securities are from issuers that
are investment grade.
The unrealized loss on U.S. Government Sponsored Enterprises and U.S.
Government Sponsored Enterprises Mortgage Backed Securities related
primarily to interest rates and not credit quality and because the Company
has the ability and intent to hold these investments until recovery of fair
value, which may be maturity, the Company does not consider these
investments to be other-than-temporarily impaired. The change in the
unrealized losses on the state and municipal securities and the nonagency
mortgage-backed securities were primarily caused by changes in credit
spreads and liquidity issues in the marketplace.
In evaluating the underlying credit quality of a security, management
considers several factors such as the credit rating of the obligor and the
issuer, if applicable. Internal reviews of issuer financial statements are
performed as deemed necessary. In the case of privately issued
mortgage-backed securities, the performance of the underlying loans is
analyzed as deemed necessary to determine the estimated future cash flows of
the securities. Factors considered include the level of subordination,
current and estimated future default rates, current and estimated prepayment
rates, estimated loss severity rates, geographic concentrations and
origination dates of underlying loans. In the case of marketable equity
securities, the severity of the unrealized loss, the length of time the
unrealized loss has existed, and the issuers financial performance are
considered.
The following table shows the temporarily impaired securities of the
Companys available-for-sale portfolio at September 30, 2011. This table
shows the unrealized market loss of securities that have been in a
continuous unrealized loss position for 12 months or less and a continuous
loss position for 12 months and longer. There are 38 and 7 securities that
are temporarily impaired for less than 12 months and for 12 months or
longer, respectively, out of a total of 396 holdings at September 30, 2011.
Page 11 of 40
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September 30, 2011 | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Temporarily Impaired Investments | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
U.S. Government Sponsored Enterprises |
$ | 102,135 | $ | 313 | $ | | $ | | $ | 102,135 | $ | 313 | ||||||||||||
U.S. Government Agency and Sponsored
Enterprises Mortgage Backed Securities |
122,448 | 214 | 3,987 | 203 | 126,435 | 417 | ||||||||||||||||||
Privately Issued Residential Mortgage
Backed Securities |
| | 3,421 | 258 | 3,421 | 258 | ||||||||||||||||||
Obligations Issued by States and
Political Subdivisions |
| | 4,393 | 287 | 4,393 | 287 | ||||||||||||||||||
Other Debt Securities |
10,516 | 714 | 1,461 | 39 | 11,977 | 753 | ||||||||||||||||||
Total temporarily impaired securities |
235,099 | $ | 1,241 | $ | 13,262 | $ | 787 | $ | 248,361 | $ | 2,028 | |||||||||||||
The following table shows the temporarily impaired securities of the
Companys available-for-sale portfolio at December 31, 2010. This table
shows the unrealized market loss of securities that have been in a
continuous unrealized loss position for 12 months or less and a continuous
loss position for 12 months and longer. There are 59 and 5 securities that
are temporarily impaired for less than 12 months and for 12 months or
longer, respectively, out of a total of 345 holdings at December 31, 2010.
December 31, 2010 | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Temporarily Impaired Investments | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
U.S. Government Sponsored Enterprises |
$ | 74,290 | $ | 565 | $ | | $ | | $ | 74,290 | $ | 565 | ||||||||||||
SBA Backed Securities |
2,246 | 4 | | | 2,246 | 4 | ||||||||||||||||||
U.S. Government Agency and Sponsored
Enterprises Mortgage Backed Securities |
191,155 | 5,425 | | | 191,155 | 5,425 | ||||||||||||||||||
Privately Issued Residential Mortgage
Backed Securities |
1,503 | 52 | 2,465 | 227 | 3,968 | 279 | ||||||||||||||||||
Obligations Issued by States and
Political Subdivisions |
9,257 | 11 | 4,393 | 284 | 13,650 | 295 | ||||||||||||||||||
Other Debt Securities |
| | 1,454 | 47 | 1,454 | 47 | ||||||||||||||||||
Equity Securities |
| | | | | | ||||||||||||||||||
Total temporarily impaired securities |
$ | 278,451 | $ | 6,057 | $ | 8,312 | $ | 558 | $ | 286,763 | $ | 6,615 | ||||||||||||
Note 5. Investment Securities Held-to-Maturity
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
U.S. Government
Sponsored
Enterprises |
$ | 14,991 | $ | 21 | $ | | $ | 15,012 | $ | 84,534 | $ | 148 | $ | 488 | $ | 84,194 | ||||||||||||||||
U.S. Government
Agency and
Sponsored
Enterprises
Mortgage Backed
Securities |
119,198 | 5,579 | 12 | 124,765 | 145,582 | 5,246 | 1,498 | 149,330 | ||||||||||||||||||||||||
Total |
$ | 134,189 | $ | 5,600 | $ | 12 | $ | 139,777 | $ | 230,116 | $ | 5,394 | $ | 1,986 | $ | 233,524 | ||||||||||||||||
Included in U.S. Government and Agency Securities are securities
pledged to secure public deposits and repurchase agreements at fair value
amounting to $9,380,000 and $10,000,000 at September 30, 2011 and December
31, 2010, respectively. Also included are securities pledged for borrowing
at the Federal Home Loan Bank of Boston at fair value amounting to
$58,432,000 and $79,844,000 at September 30, 2011 and December 31, 2010,
respectively.
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At September 30, 2011 and December 31, 2010, all mortgage-backed securities
are obligations of U.S. Government Agencies and Government Sponsored
Enterprises. Government Sponsored Enterprises primarily refer to debt
securities of Fannie Mae and Freddie Mac.
The following table shows the maturity distribution of the Companys
securities held-to-maturity at September 30, 2011.
Amortized | Fair | |||||||
Cost | Value | |||||||
( In thousands) | ||||||||
Within one year |
$ | 7,874 | $ | 8,049 | ||||
After one but within five years |
100,871 | 106,030 | ||||||
After five but within ten years |
25,157 | 25,409 | ||||||
More than ten years |
287 | 289 | ||||||
Total |
$ | 134,189 | $ | 139,777 | ||||
The weighted average remaining life of investment securities
held-to-maturity at September 30, 2011 was 3.4 years. Included in the
weighted average remaining life calculation at September 30, 2011 were
$14,991,000 of U.S. Government Sponsored Enterprises obligations that are
callable at the discretion of the issuer. The actual maturities, which were
used in the table above, of mortgage-backed securities, will differ from the
contractual maturities, due to the ability of the issuers to prepay
underlying obligations.
The following table shows the temporarily impaired securities of the
Companys held-to-maturity portfolio at September 30, 2011. This table shows
the unrealized market loss of securities that have been in a continuous
unrealized loss position for 12 months or less and a continuous loss
position for 12 months and longer. There are 1 and 0 securities that are
temporarily impaired for less than 12 months and for 12 months or longer,
respectively, out of a total of 87 holdings at September 30, 2011.
September 30, 2011 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Temporarily Impaired Investments | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
U.S. Government Sponsored
Enterprises |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
U.S. Government Agency and
Sponsored Enterprise
Mortgage-Backed Securities |
5,367 | 12 | | | 5,367 | 12 | ||||||||||||||||||
Total temporarily impaired
securities |
$ | 5,367 | $ | 12 | $ | | $ | | $ | 5,367 | $ | 12 | ||||||||||||
As of September 30, 2011 and December 31, 2010, management concluded that
the unrealized losses of its investment securities are temporary in nature
since they are not related to the underlying credit quality of the issuers,
and the Company does not intend to sell these debt securities and it is not
likely that it will be required to sell these debt securities before the
anticipated recovery of its remaining amortized cost. In making its
other-than-temporary impairment evaluation, the Company considered the fact
that the principal and interest on these securities are from issuers that
are investment grade.
In evaluating the underlying credit quality of a security, management
considers several factors such as the credit rating of the obligor and the
issuer, if applicable. Internal reviews of issuer financial statements are
performed as deemed necessary.
The unrealized loss on U.S. Government Agency and Sponsored Enterprises
Mortgage-Backed Securities related primarily to interest rates and not
credit quality, and because the Company does not intend to sell any of these
securities and it is not likely that it will be required to sell these
securities before the anticipated recovery of the remaining
Page 13 of 40
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amortized cost, the Company does not consider these investments to be
other-than-temporarily impaired.
The following table shows the temporarily impaired securities of the
Companys held-to-maturity portfolio at December 31, 2010. This table shows
the unrealized market loss of securities that have been in a continuous
unrealized loss position for 12 months or less and a continuous loss
position for 12 months and longer. There are 11 and 0 securities that are
temporarily impaired for less than 12 months and for 12 months or longer,
respectively, out of a total of 101 holdings at December 31, 2010.
December 31, 2010 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Temporarily Impaired Investments | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
( In thousands) | ||||||||||||||||||||||||
U.S. Government Sponsored
Enterprises |
$ | 29,491 | $ | 488 | $ | | $ | | $ | 29,491 | $ | 488 | ||||||||||||
U.S. Government Agency and
Sponsored Enterprise
Mortgage-Backed Securities |
37,628 | 1,498 | | | 37,628 | 1,498 | ||||||||||||||||||
Total temporarily impaired
securities |
$ | 67,119 | $ | 1,986 | $ | | $ | | $ | 67,119 | $ | 1,986 | ||||||||||||
Note 6. Allowance for Loan Losses
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 Companys allowance for
loan losses for the periods indicated.
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Allowance for loan losses, beginning of
period |
$ | 15,915 | $ | 14,350 | $ | 14,053 | $ | 12,373 | ||||||||
Loans charged off |
(1,283 | ) | (1,891 | ) | (2,252 | ) | (3,174 | ) | ||||||||
Recoveries on loans previously
charged-off |
170 | 168 | 601 | 403 | ||||||||||||
Net charge-offs |
(1,113 | ) | (1,723 | ) | (1,651 | ) | (2,771 | ) | ||||||||
Provision charged to expense |
1,200 | 1,200 | 3,600 | 4,225 | ||||||||||||
Allowance for loan losses, end of period |
$ | 16,002 | $ | 13,827 | $ | 16,002 | $ | 13,827 | ||||||||
Further information pertaining to the allowance for loan losses for three
months ending September 30, 2011 follows:
Construction | Commercial | Commercial | Residential | |||||||||||||||||||||||||||||
and land | and | real | real | Consumer | Home | |||||||||||||||||||||||||||
development | industrial | estate | estate | and other | Equity | Unallocated | Total | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||||||
Balance at June 30, 2011 |
$ | 2,572 | $ | 3,575 | $ | 6,321 | $ | 1,745 | $ | 291 | $ | 775 | $ | 636 | $ | 15,915 | ||||||||||||||||
Charge-offs |
(900 | ) | (203 | ) | | | (180 | ) | | | (1,283 | ) | ||||||||||||||||||||
Recoveries |
| 66 | | 4 | 100 | | | 170 | ||||||||||||||||||||||||
Provision |
1,312 | (217 | ) | (364 | ) | 31 | 81 | 8 | 349 | 1,200 | ||||||||||||||||||||||
Balance at September 30, 2011 |
$ | 2,984 | $ | 3,221 | $ | 5,957 | $ | 1,780 | $ | 292 | $ | 783 | $ | 985 | $ | 16,002 | ||||||||||||||||
Page 14 of 40
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Further information pertaining to the allowance for loan losses for
nine months ending September 30, 2011 follows:
Construction | Commercial | Commercial | Residential | |||||||||||||||||||||||||||||
and land | and | real | real | Consumer | Home | |||||||||||||||||||||||||||
development | industrial | estate | estate | and other | Equity | Unallocated | Total | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||||||
Balance at December 31, 2010 |
$ | 1,752 | $ | 3,163 | $ | 5,671 | $ | 1,718 | $ | 298 | $ | 725 | $ | 726 | $ | 14,053 | ||||||||||||||||
Charge-offs |
(900 | ) | (585 | ) | | (281 | ) | (485 | ) | (1 | ) | | (2,252 | ) | ||||||||||||||||||
Recoveries |
| 222 | | 19 | 360 | | | 601 | ||||||||||||||||||||||||
Provision |
2,132 | 421 | 286 | 324 | 119 | 59 | 259 | 3,600 | ||||||||||||||||||||||||
Balance at September 30, 2011 |
$ | 2,984 | $ | 3,221 | $ | 5,957 | $ | 1,780 | $ | 292 | $ | 783 | $ | 985 | $ | 16,002 | ||||||||||||||||
Amount of allowance for loan
losses for loans deemed to be
impaired |
$ | 350 | $ | 345 | $ | 227 | $ | 3 | $ | | $ | | $ | | $ | 925 | ||||||||||||||||
Amount of allowance for loan
losses for loans not deemed to
be impaired |
$ | 2,634 | $ | 2,876 | $ | 5,730 | $ | 1,777 | $ | 292 | $ | 783 | $ | 985 | $ | 15,077 | ||||||||||||||||
Loans: |
||||||||||||||||||||||||||||||||
Ending balance |
$ | 54,498 | $ | 84,765 | $ | 458,858 | $ | 235,636 | $ | 6,419 | $ | 111,131 | $ | | $ | 951,307 | ||||||||||||||||
Loans deemed to be impaired |
$ | 1,800 | $ | 1,778 | $ | 4,247 | $ | 483 | $ | | $ | | $ | | $ | 8,308 | ||||||||||||||||
Loans not deemed to be impaired |
$ | 52,698 | $ | 82,987 | $ | 454,611 | $ | 235,153 | $ | 6,419 | $ | 111,131 | $ | | $ | 942,999 |
Further information pertaining to the allowance for loan losses at December 31, 2010 follows:
Construction | Commercial | Residential | ||||||||||||||||||||||||||||||
and land | and | Commercial real | real | Consumer | Home | |||||||||||||||||||||||||||
development | industrial | estate | estate | and other | equity | Unallocated | Total | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||||||
Balance at December 31, 2009 |
$ | 362 | $ | 4,972 | $ | 2,983 | $ | 1,304 | $ | 1,753 | $ | 761 | $ | 238 | $ | 12,373 | ||||||||||||||||
Charge-offs |
(900 | ) | (1,559 | ) | (922 | ) | (515 | ) | (495 | ) | (52 | ) | | (4,443 | ) | |||||||||||||||||
Recoveries |
| 172 | | 8 | 368 | | | 548 | ||||||||||||||||||||||||
Provision |
2,290 | (422 | ) | 3,610 | 921 | (1,328 | ) | 16 | 488 | 5,575 | ||||||||||||||||||||||
Balance at December 31, 2010 |
$ | 1,752 | $ | 3,163 | $ | 5,671 | $ | 1,718 | $ | 298 | $ | 725 | $ | 726 | $ | 14,053 | ||||||||||||||||
Amount of allowance for loan
losses for loans deemed to be
impaired |
$ | | $ | 292 | $ | 25 | $ | | $ | | $ | | $ | | $ | 317 | ||||||||||||||||
Amount of allowance for loan
losses for loans not deemed to
be impaired |
$ | 1,752 | $ | 2,871 | $ | 5,646 | $ | 1,718 | $ | 298 | $ | 725 | $ | 726 | $ | 13,736 |
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Construction | Commercial | Residential | ||||||||||||||||||||||||||||||
and land | and | Commercial real | real | Consumer | Home | |||||||||||||||||||||||||||
development | industrial | estate | estate | and other | equity | Unallocated | Total | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Loans: |
||||||||||||||||||||||||||||||||
Ending balance |
$ | 53,583 | $ | 90,654 | $ | 433,337 | $ | 207,787 | $ | 6,594 | $ | 114,209 | $ | | $ | 906,164 | ||||||||||||||||
Loans deemed to be impaired |
$ | 4,000 | $ | 1,471 | $ | 2,492 | $ | | $ | | $ | | $ | | $ | 7,963 | ||||||||||||||||
Loans not deemed to be impaired |
$ | 49,583 | $ | 89,183 | $ | 430,845 | $ | 207,787 | $ | 6,594 | $ | 114,209 | $ | | $ | 898,201 |
The company utilizes a six grade internal loan rating system for commercial
real estate, construction and commercial loans as follows:
Loans rated 1-3:
Loans in this category are considered pass rated loans with low to average
risk.
Loans rated monitor 4:
Monitor 4 loans represent classified loans that management is closely
monitoring for credit quality. These loans have had or may have minor credit
quality deterioration as of September 30, 2011 and December 31, 2010.
Loans rated substandard 5:
Substandard 5 loans represent classified loans that management is closely
monitoring for credit quality. These loans have had more significant credit
quality deterioration as of September 30, 2011 and December 31, 2010.
Loans rated doubtful 6:
Doubtful 6 loans represent classified loans that management is closely
monitoring for credit quality. These loans had more significant credit
quality deterioration as of September 30, 2011 and are doubtful for full
collection.
Impaired:
Impaired loans represent classified loans that management is closely
monitoring for credit quality. A loan is classified as impaired when it is
probable that the Company will be unable to collect all amounts due.
The following table presents the Companys loans by risk rating at September
30, 2011.
Construction | Commercial | Commercial | ||||||||||
and land | and | real | ||||||||||
development | industrial | estate | ||||||||||
(Dollars in thousands) | ||||||||||||
Grade: |
||||||||||||
1-3 |
$ | 45,711 | $ | 81,877 | $ | 446,780 | ||||||
Monitor 4 |
6,987 | 1,110 | 7,266 | |||||||||
Substandard 5 |
| | 565 | |||||||||
Doubtful 6 |
| | | |||||||||
Impaired |
1,800 | 1,778 | 4,247 | |||||||||
Total |
$ | 54,498 | $ | 84,765 | $ | 458,858 | ||||||
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The following table presents the Companys loans by risk rating at
December 31, 2010.
Construction | Commercial | |||||||||||
and land | and | Commercial real | ||||||||||
development | industrial | estate | ||||||||||
(Dollars in thousands) | ||||||||||||
Grade: |
||||||||||||
1-3 |
$ | 42,887 | $ | 88,103 | $ | 415,528 | ||||||
Monitor 4 |
6,696 | 1,080 | 15,317 | |||||||||
Substandard 5 |
| | | |||||||||
Doubtful 6 |
| | | |||||||||
Impaired |
4,000 | 1,471 | 2,492 | |||||||||
Total |
$ | 53,583 | $ | 90,654 | $ | 433,337 | ||||||
The Company utilized payment performance as credit quality indicators
for residential real estate, consumer and overdrafts, and the home equity
portfolio. The indicators are depicted in the table aging of past due
loans, below.
Further information pertaining to the allowance for loan losses at
September 30, 2011 follows:
Accrual | ||||||||||||||||||||||||
Accruing | Greater | |||||||||||||||||||||||
30-89 Days | Than | Total | ||||||||||||||||||||||
Past Due | Non Accrual | 90 Days | Past Due | Current Loans | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Construction and land
development |
$ | | $ | 1,800 | $ | | $ | 1,800 | $ | 52,698 | $ | 54,498 | ||||||||||||
Commercial and industrial |
1,568 | 1,200 | 38 | 2,806 | 81,960 | 84,766 | ||||||||||||||||||
Commercial real estate |
3,996 | 976 | | 4,972 | 453,886 | 458,858 | ||||||||||||||||||
Residential real estate |
4,079 | 1,966 | | 6,045 | 229,591 | 235,636 | ||||||||||||||||||
Consumer and other |
87 | 1 | | 88 | 6,330 | 6,418 | ||||||||||||||||||
Home equity |
601 | 160 | | 761 | 110,370 | 111,131 | ||||||||||||||||||
Total |
$ | 10,331 | $ | 6,103 | $ | 38 | $ | 16,472 | $ | 934,835 | $ | 951,307 | ||||||||||||
Further information pertaining to the allowance for loan losses at
December 31, 2010 follows:
Accrual | ||||||||||||||||||||||||
Accruing | Greater | |||||||||||||||||||||||
30-89 Days | Than | Total | ||||||||||||||||||||||
Past Due | Non Accrual | 90 Days | Past Due | Current Loans | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Construction and land
development |
$ | | $ | 4,000 | $ | | $ | 4,000 | $ | 49,583 | $ | 53,583 | ||||||||||||
Commercial and industrial |
912 | 569 | 50 | 1,531 | 89,123 | 90,654 | ||||||||||||||||||
Commercial real estate |
1,737 | 784 | | 2,521 | 430,816 | 433,337 | ||||||||||||||||||
Residential real estate |
4, 172 | 2,487 | | 6,659 | 201,128 | 207,787 | ||||||||||||||||||
Consumer and other |
8 | 4 | | 12 | 6,582 | 6,594 | ||||||||||||||||||
Home equity |
574 | 224 | | 798 | 113,411 | 114,209 | ||||||||||||||||||
Total |
$ | 7,403 | $ | 8,068 | $ | 50 | $ | 15,521 | $ | 890,643 | $ | 906,164 | ||||||||||||
A loan is impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement. When a loan is impaired, The
Company measures impairment
Page 17 of 40
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based on the present value of expected future
cash flows discounted at the loans effective interest rate, except that as
a practical expedient, the Company measures impairment based on a loans
observable market price, or the fair value of the collateral if the loan is
collateral dependent. The Companys policy for recognizing interest
income on impaired loans is contained within Note 1 of the consolidated
financial statements.
The following is information pertaining to impaired loans for September 30,
2011:
Average | Average | Interest | Interest | |||||||||||||||||||||||||
Carrying Value | Carrying Value | Income | Income | |||||||||||||||||||||||||
For 3 months | For 9 months | Recognized for | Recognized for | |||||||||||||||||||||||||
Unpaid | ending | ending | 3 months ending | 9 months ending | ||||||||||||||||||||||||
Principal | Required | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||
Carrying Value | Balance | Reserve | 2011 | 2011 | 2011 | 2011 | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
With no required reserve
recorded: |
||||||||||||||||||||||||||||
Construction and land development |
$ | | $ | | $ | | $ | 1,350 | $ | 2,940 | $ | | $ | | ||||||||||||||
Commercial and industrial |
642 | 1,090 | | 443 | 429 | 1 | 3 | |||||||||||||||||||||
Commercial real estate |
415 | 431 | | 246 | 378 | | | |||||||||||||||||||||
Residential real estate |
450 | 450 | | | | | | |||||||||||||||||||||
Consumer and other |
| | | | | | | |||||||||||||||||||||
Home equity |
| | | | | | | |||||||||||||||||||||
Total |
$ | 1,507 | $ | 1,971 | $ | | $ | 2,039 | $ | 3,747 | $ | 1 | $ | 3 | ||||||||||||||
With required reserve recorded: |
||||||||||||||||||||||||||||
Construction and land development |
$ | 1,800 | $ | 3,292 | $ | 350 | $ | 2,110 | $ | 844 | $ | | $ | | ||||||||||||||
Commercial and industrial |
1,136 | 1,160 | 345 | 1,428 | 1,087 | 6 | 10 | |||||||||||||||||||||
Commercial real estate |
3,832 | 3,858 | 227 | 6,738 | 5,215 | 82 | 112 | |||||||||||||||||||||
Residential real estate |
33 | 33 | 3 | 146 | 68 | 1 | 2 | |||||||||||||||||||||
Consumer and other |
| | | | | | | |||||||||||||||||||||
Home equity |
| | | | | | | |||||||||||||||||||||
Total |
$ | 6,801 | $ | 8,343 | $ | 925 | $ | 10,422 | $ | 7,214 | $ | 89 | $ | 124 | ||||||||||||||
Total |
||||||||||||||||||||||||||||
Construction and land development |
$ | 1,800 | $ | 3,292 | $ | 350 | $ | 3,460 | $ | 3,784 | $ | | $ | | ||||||||||||||
Commercial and industrial |
1,778 | 2,250 | 345 | 1,871 | 1,516 | 7 | 13 | |||||||||||||||||||||
Commercial real estate |
4,247 | 4,289 | 227 | 6,984 | 5,593 | 82 | 112 | |||||||||||||||||||||
Residential real estate |
483 | 483 | 3 | 146 | 68 | 1 | 2 | |||||||||||||||||||||
Consumer and other |
| | | | | | | |||||||||||||||||||||
Home equity |
| | | | | | | |||||||||||||||||||||
Total |
$ | 8,308 | $ | 10,314 | $ | 925 | $ | 12,461 | $ | 10,961 | $ | 90 | $ | 127 | ||||||||||||||
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The following is information pertaining to impaired loans at December
31, 2010:
Unpaid | Interest | |||||||||||||||||||
Principal | Required | Average | Income | |||||||||||||||||
Carrying Value | Balance | Reserve | Carrying Value | Recognized | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
With no required reserve
recorded: |
||||||||||||||||||||
Construction and land
development |
$ | 4,000 | $ | 8,504 | $ | | $ | 2,262 | $ | | ||||||||||
Commercial and industrial |
893 | 1,092 | | 826 | 83 | |||||||||||||||
Commercial real estate |
960 | 969 | | 2,013 | 122 | |||||||||||||||
Residential real estate |
| | | | | |||||||||||||||
Consumer and other |
| | | | | |||||||||||||||
Home equity |
| | | | | |||||||||||||||
Total |
$ | 5,853 | $ | 10,565 | $ | | $ | 5,101 | $ | 205 | ||||||||||
With required reserve
recorded: |
||||||||||||||||||||
Construction and land
development |
$ | | $ | | $ | | $ | 2,500 | $ | | ||||||||||
Commercial and industrial |
578 | 588 | 292 | 842 | 31 | |||||||||||||||
Commercial real estate |
1,532 | 1,532 | 25 | 1,163 | 20 | |||||||||||||||
Residential real estate |
| | | | | |||||||||||||||
Consumer |
| | | | | |||||||||||||||
Home equity |
| | | | | |||||||||||||||
Total |
$ | 2,110 | $ | 2,120 | $ | 317 | $ | 4,505 | $ | 51 | ||||||||||
Total |
||||||||||||||||||||
Construction and land
development |
$ | 4,000 | $ | 8,504 | $ | | $ | 4,762 | $ | | ||||||||||
Commercial and industrial |
1,471 | 1,680 | 292 | 1,668 | 114 | |||||||||||||||
Commercial real estate |
2,492 | 2,501 | 25 | 3,176 | 142 | |||||||||||||||
Residential real estate |
| | | |||||||||||||||||
Consumer |
| | | | | |||||||||||||||
Home equity |
| | | | | |||||||||||||||
Total |
$ | 7,963 | $ | 12,685 | $ | 317 | $ | 9,606 | $ | 256 | ||||||||||
Troubled Debt Restructurings occurring during the three and nine month
periods ended September 30, 2011:
Three month period ended September 30, 2011 | Nine month period ended September 30, 2011 | |||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Pre- | Post- | Pre- | Post- | |||||||||||||||||||||
modification | modification | modification | modification | |||||||||||||||||||||
outstanding | outstanding | outstanding | outstanding | |||||||||||||||||||||
Number of | recorded | recorded | Number of | recorded | recorded | |||||||||||||||||||
Contracts | investment | investment | Contracts | investment | investment | |||||||||||||||||||
Construction and land
development |
0 | $ | | $ | | 1 | $ | 39 | $ | 39 | ||||||||||||||
Commercial and industrial |
1 | 41 | 41 | 10 | 695 | 679 | ||||||||||||||||||
Commercial real estate |
0 | | | 4 | 2,641 | 2,640 | ||||||||||||||||||
Residential real estate |
0 | | | 0 | | | ||||||||||||||||||
Consumer and other |
0 | | | 0 | | | ||||||||||||||||||
Home equity |
0 | | | 0 | | | ||||||||||||||||||
Total |
1 | $ | 41 | $ | 41 | 15 | $ | 3,375 | $ | 3,358 | ||||||||||||||
Page 19 of 40
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Troubled Debt Restructurings occurring during the three and nine month
periods ended September 30, 2011, that subsequently defaulted:
Number of | Recorded | |||||||
Contracts | Investment | |||||||
(Dollars in thousands) | ||||||||
Construction and land
development |
0 | $ | | |||||
Commercial and industrial |
1 | 15 | ||||||
Commercial real estate |
0 | | ||||||
Residential real estate |
0 | | ||||||
Consumer and other |
0 | | ||||||
Home equity |
0 | | ||||||
Total |
1 | $ | 15 | |||||
Troubled Debt Restructurings were identified as a modification where a
concession was granted to a customer who is having financial difficulties.
This concession may be below market rate, longer amortization/term, and a
lower payment amount. The present value calculation of the modification did
not result in an increase in the allowance for these loans beyond any
previously established allocations. The loans were modified, for both the
commercial and industrial and commercial real estate loans, by reducing
interest rates as well as extending terms on the loans. The financial impact
of the modifications for performing commercial and industrial loans were
$14,000 and $22,000 reduction in principal and an additional $2,000 and
$2,000 in interest payments for the three and nine month periods ended
September 30, 2011, respectively. The financial impact of the modifications
for performing commercial real estate were $9,000 and $18,000 reduction in
principal and a reduction of $17,000 and $36,000 in interest payments for
the three and nine month periods ended September 30, 2011, respectively. The
financial impact of the modifications for nonperforming loans was a $7,000
reduction in the carrying value of the loans as a result of payments
received under the modified terms of the loans.
Note 7. Employee Benefits
The Company provides pension benefits to its employees under a
noncontributory, defined benefit plan which is funded on a current basis in
compliance with the requirements of the Employee Retirement Income Security
Act of 1974 (ERISA) and recognizes costs over the estimated employee
service period.
The Company also has a Supplemental Executive Insurance/Retirement Plan
(the Supplemental Plan) which is limited to certain officers and employees
of the Company. The Supplemental Plan is accrued on a current basis and
recognizes costs over the estimated employee service period.
Executive officers of the Company and its subsidiaries who have at
least one year of
service may participate in the Supplemental Plan. The Supplemental Plan is
voluntary and participants are required to contribute to its cost. Life
insurance policies, which are owned by the Company, are purchased covering
the lives of each participant.
Page 20 of 40
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Components of Net Periodic Benefit Cost for the Three Months Ended
September 30,
Supplemental Insurance/ | ||||||||||||||||
Pension Benefits | Retirement Plan | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Service cost |
$ | 211 | $ | 213 | $ | 170 | $ | 147 | ||||||||
Interest |
355 | 333 | 233 | 207 | ||||||||||||
Expected return on plan assets |
(399 | ) | (342 | ) | | | ||||||||||
Recognized prior service cost
(benefit) |
(26 | ) | (26 | ) | 28 | 28 | ||||||||||
Recognized net actuarial losses |
123 | 159 | 32 | 17 | ||||||||||||
Net periodic benefit cost |
264 | $ | 337 | $ | 463 | $ | 399 | |||||||||
Components of Net Periodic Benefit Cost for the Nine Months Ended
September 30,
Supplemental Insurance/ | ||||||||||||||||
Pension Benefits | Retirement Plan | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Service cost
|
$ | 633 | $ | 638 | $ | 510 | $ | 441 | ||||||||
Interest
|
1,065 | 1,000 | 699 | 673 | ||||||||||||
Expected return on plan assets
|
(1,197 | ) | (1,025 | ) | | | ||||||||||
Recognized prior service cost (benefit) |
(78 | ) | (78 | ) | 84 | 83 | ||||||||||
Recognized net actuarial losses
|
370 | 476 | 97 | 103 | ||||||||||||
Net periodic benefit cost
|
$ | 793 | $ | 1,011 | $ | 1,390 | $ | 1,300 | ||||||||
Contributions
The Company previously disclosed in its financial statements for the year
ended December 31, 2010 that it expected to contribute $1,275,000 to the
Pension Plan in 2011. As of September 30, 2011, $956,250 of the contribution
had been made. The Company expects to contribute an additional $318,750 by
the end of the year.
Note 8. Fair Value Measurements
The Company follows FASB ASC 820-10, Fair Value Measurements and
Disclosures, (formerly SFAS 157, Fair Value Measurements,) which among
other things, requires enhanced disclosures about assets and liabilities
carried at fair value. ASC 820-10 establishes a hierarchal disclosure
framework associated with the level of pricing observability utilized in
measuring financial instruments at fair value. The three broad levels of the
hierarchy are as follows:
Level I Quoted prices are available in active markets for identical
assets or liabilities as of the reported date. The type of financial
instruments included in Level I are highly liquid cash instruments with
quoted prices such as G-7 government, agency securities, listed equities and
money market securities, as well as listed derivative instruments.
Level II Pricing inputs are other than quoted prices in active markets,
which are either directly or indirectly observable as of the reported date.
The nature of these financial instruments include cash instruments for which
quoted prices are available but traded less frequently, derivative
instruments whose fair value have been derived using a model where inputs to
the model are directly observable in the market, or can be derived
principally from or corroborated by observable market data, and instruments
that are fair valued using other financial instruments, the parameters of
which can be
Page 21 of 40
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directly observed. Instruments which are generally included in
this category are corporate bonds and loans, mortgage whole loans, municipal
bonds and OTC derivatives.
Level III Instruments that have little to no pricing observability as of
the reported date. These financial instruments do not have two-way markets
and are measured using managements best estimate of fair value, where the
inputs into the determination of fair value require significant management
judgment or estimation. Instruments that
are included in this category generally include certain commercial mortgage
loans, certain private equity investments, distressed debt, non-investment
grade residual interests in securitizations, as well as certain highly
structured OTC derivative contracts. Specifically, the categories include
auction rate securities, obligations issued by states and political
subdivisions and equity securities.
The results of the fair value hierarchy as of September 30, 2011 are as
follows:
Financial Instruments Measured at Fair Value on a Recurring Basis:
Securities AFS Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
In Active | Significant | |||||||||||||||
Markets for | Significant | Other | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Carrying | Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(In thousands) | ||||||||||||||||
U.S. Treasury |
$ | 2,013 | $ | | $ | 2,013 | $ | | ||||||||
U.S. Government
Sponsored
Enterprises |
243,277 | | 243,277 | | ||||||||||||
SBA Backed Securities |
8,999 | | 8,999 | | ||||||||||||
U.S. Government
Agency and Sponsored
Mortgage Backed
Securities |
990,327 | | 990,327 | | ||||||||||||
Privately Issued
Residential Mortgage
Backed Securities |
3,420 | | 3,420 | | ||||||||||||
Privately Issued
Commercial Mortgage
Backed Securities |
| | | | ||||||||||||
Obligations Issued
by States and
Political
Subdivisions |
20,177 | | 2,561 | 17,616 | ||||||||||||
Other Debt Securities |
12,576 | | 12,576 | | ||||||||||||
Equity Securities |
486 | 207 | | 279 | ||||||||||||
Total |
$ | 1,281,275 | $ | 207 | $ | 1,263,173 | $ | 17,895 | ||||||||
Financial Instruments Measured at Fair Value on a Non-recurring Basis:
Impaired Loans |
2,892 | | | 2,892 |
Impaired loan balances represent those collateral dependent loans where
management has estimated the credit loss by comparing the loans carrying
value against the expected realizable fair value of the collateral. Specific
provisions relate to impaired loans recognized for the three and nine-month
periods ended September 30, 2011 amounted to $517,000 and $1.6 million,
respectively. The Company uses appraisals, discounted as appropriate, based
on managements observations of the local real estate market for loans in
this category.
There were no transfers of financial instruments to or from Level 1 and
Level 2 classifications.
The changes in Level 3 securities for the nine-month period ended September
30, 2011 are shown in the table below:
Page 22 of 40
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Obligations | ||||||||||||||||
Issued by States | ||||||||||||||||
Auction Rate | & Political | Equity | ||||||||||||||
Securities | Subdivisions | Securities | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Balance at December 31, 2010 |
$ | 4,393 | $ | 15,988 | $ | 279 | $ | 20,660 | ||||||||
Purchases |
| 18,905 | | 18,905 | ||||||||||||
Maturities and calls |
| (21,665 | ) | | (21,665 | ) | ||||||||||
Amortization |
| (5 | ) | | (5 | ) | ||||||||||
Balance at September 30, 2011 |
$ | 4,393 | $ | 13,223 | $ | 279 | $ | 17,895 | ||||||||
The amortized cost of Level 3 securities was $18,179,000 at September
30, 2011 with an unrealized loss of $284,000. The securities in this
category are generally equity investments, municipal securities with no
readily determinable fair value or failed auction rate securities.
Management evaluated the fair value of these securities based on an
evaluation of the underlying issuer, prevailing rates and market liquidity.
The changes in Level 3 securities for the nine-month period ended September
30, 2010, are shown in the table below:
Obligations | ||||||||||||||||
Issued by | ||||||||||||||||
States & | ||||||||||||||||
Auction Rate | Political | Equity | ||||||||||||||
Securities | Subdivisions | Securities | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Balance at December 31, 2009 |
$ | 7,820 | $ | 5,623 | $ | 234 | $ | 13,677 | ||||||||
Purchases |
| 21,037 | 64 | 21,101 | ||||||||||||
Maturities |
(3,427 | ) | (11,173 | ) | (19 | ) | (14,619 | ) | ||||||||
Balance at September 30, 2010 |
$ | 4,393 | $ | 15,487 | $ | 279 | $ | 20,159 | ||||||||
The amortized cost of Level 3 securities was $20,442,000 at September
30, 2010 with an unrealized loss of $283,000. The securities in this
category are generally equity investments, municipal securities with no
readily determinable fair value or failed auction rate securities.
Management evaluated the fair value of these securities based on an
evaluation of the underlying issuer, prevailing rates and market liquidity.
Note 9. 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
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.
Short-term Investments
The fair value of short-term investments is estimated using the discounted
value of contractual cash flows. The discount rate used is estimated based
on the rates currently offered for short-term investments of similar
remaining maturities.
Page 23 of 40
Table of Contents
Securities Held-to-Maturity and Securities Available-for-Sale
The majority of the Companys securities AFS are classified as Level 2. The
fair values of these securities are obtained from a pricing service, which
provides the Company with a description of the inputs generally utilized for
each type of security. These inputs include benchmark yields, reported
trades, broker/dealer quotes, issuer
spreads, two-sided markets, benchmark securities, bids, offers and reference
data. Market indicators and industry and economic events are also monitored.
Securities available-for-sale totaling $17.9 million, or 0.67% of assets are
classified as Level 3. These securities are generally failed auction rate
securities, equity investments or obligations of states and political
subdivisions with no readily determinable fair value. Level 3 securities
have little or no pricing observability as of the reported date. Fair values
for Level 3 securities are generally arrived at based upon a review of
market trades of similar instruments, if any, as well as an analysis of the
security based upon an evaluation of the underlying issuer, market liquidity
and prevailing market interest rates.
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
nonperforming loans has been considered. The methods and assumptions used
are not based on the exit price concept of fair value.
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, is equal to the
carrying amount. The fair value of time deposits is based on the discounted
value of contractual cash flows, applying interest rates currently being
offered on the deposit products of similar maturities. The fair value
estimates for deposits do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
alternative forms of funding (deposit base intangibles).
Repurchase Agreements and Other Borrowed Funds
The fair value of repurchase agreements and 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.
Subordinated Debentures
The fair value of subordinated debentures is based on the discounted value
of contractual cash flows. The discount rate used is estimated based on the
rates currently offered for other subordinated debentures of similar
remaining maturities.
Page 24 of 40
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Off-Balance Sheets Instruments
The fair values of the Companys unused lines of credit and unadvanced
portions of construction loans, 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 carrying amounts and fair values of the Companys financial instruments
are as follows:
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amounts | Fair Value | Amounts | Fair Value | |||||||||||||
( In thousands) | ||||||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 183,222 | $ | 183,222 | $ | 188,552 | $ | 188,552 | ||||||||
Short-term investments |
19,369 | 19,404 | 113,918 | 114,134 | ||||||||||||
Securities available-for-sale |
1,281,275 | 1,281,275 | 909,391 | 909,391 | ||||||||||||
Securities held-to-maturity |
134,189 | 139,777 | 230,116 | 233,524 | ||||||||||||
Net loans |
935,305 | 976,466 | 892,111 | 913,394 | ||||||||||||
Accrued interest receivable |
5,993 | 5,993 | 6,601 | 6,601 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
2,105,409 | 2,112,326 | 1,902,023 | 1,908,125 | ||||||||||||
Repurchase agreement and
other borrowed funds |
326,173 | 336,579 | 330,668 | 334,872 | ||||||||||||
Subordinated debentures |
36,083 | 42,965 | 36,083 | 36,749 | ||||||||||||
Accrued interest payable |
958 | 958 | 1,003 | 1,003 | ||||||||||||
Standby letters of credit |
| 30 | | 68 |
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 Banks entire holdings of a
particular financial instrument. Because no active market exists for some of
the Banks financial instruments, fair value estimates are based on
judgments 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 judgment and therefore cannot be determined with precision.
Accordingly, the fair value estimates may not be realized in an immediate
settlement of the instrument. 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.
Note 10. Recent Accounting Developments
In April 2011, the FASB issued an amendment to the Troubled Debt
Restructuring topic (Topic 310) of the ASC. This amendment clarifies a
creditors determination of whether a restructuring is a troubled debt
restructuring. In evaluating whether a restructuring constitutes a troubled
debt restructuring, a creditor must separately conclude that both of the
following exist: 1. The restructuring constitutes a concession.
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2. The debtor is experiencing financial difficulties. This amendment is effective for
periods beginning after June 15, 2011, and should be applied
retrospectively to the beginning of the annual period of adoption.
Accordingly, the Company adopted this amendment in the second quarter 2011.
The Company has provided the disclosures required as of September 30, 2011
in Note 6.
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common
Fair Value Measurement and Disclosure Requirement in U.S. GAAP and IFRSs.
This Update results in common principles and requirements for measuring fair
value and for disclosing information about fair value measurements in
accordance with U.S. GAAP and International Financial Reporting Standards
(IFRSs.). The amendments in this Update explain how to measure fair
value. They do not require additional fair value measurements and are not
intended to result in a change in the application of current fair value
measurements requirements. The amendments in this Update are effective
during interim and annual periods beginning after December 15, 2011. The
adoption of ASU No. 2011-04, in January 2012, is not expected to have a
material impact on the Companys financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of
Comprehensive Income. The objective of this Update is to improve the
comparability, consistency and transparency of financial reporting and to
increase the prominence of items reported in other comprehensive income.
Under the amendments in this Update, a company has the option to present the
total of comprehensive income and details of each of its components (net
income and other comprehensive income) either in a single continuous
statement of comprehensive income or in two separate but consecutive
statements. In both choices, an entity is required to present each component
of net income along with total net income, each component of other
comprehensive income along with a total for other comprehensive income, and
a total amount for comprehensive income. This Update eliminates the option
to present the components of other comprehensive income as part of the
statement of changes in stockholders equity. The amendments in this Update
do not change the items that must be reported in other comprehensive income
or when an item of other comprehensive income must be reclassified to net
income. The amendments in this Update are effective during interim and
annual periods beginning after December 15, 2011. As ASU No. 2011-05 only
deals with presentation requirements, the adoption of ASU No. 2011-05 in
January 2012, is not expected to have any impact on the Companys financial
statements. The FASB announced the addition of a FASB agenda project to
consider deferring certain aspects of ASU No. 2011-05, Presentation of
Comprehensive Income.
In September 2011, the FASB issued ASU No. 2011-08, IntangiblesGoodwill
and Other (Topic 350). ASU No. 2011-08 applies to all entities, both public
and nonpublic, that have goodwill reported in their financial statements.
Under the amendments, an entity has the option to first assess qualitative
factors to determine whether the existence of events or circumstances leads
to a determination that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. If, after assessing the
totality of events or circumstances, an entity determines it is not more
likely than not that the fair value of a reporting unit is less than its
carrying amount, then performing the two-step impairment test is
unnecessary. However, if an entity concludes otherwise, then it is required
to perform the first step of the two-step impairment test by calculating the
fair value of the reporting unit and comparing the fair value with the
carrying amount of the reporting unit. If the carrying amount of a reporting
unit exceeds its fair value, then the entity is required to perform the
second step of the goodwill impairment test to measure the amount of the
impairment loss, if any. An entity has the option to bypass the qualitative
assessment for any reporting unit in any period and proceed directly to
performing the first step of the two-step goodwill impairment test. An
entity may resume performing the qualitative assessment in any subsequent
period. The amendments are effective for annual and interim goodwill
impairment tests performed for fiscal years beginning
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after December 15, 2011. The adoption of ASU No. 2011-08, in January 2012, is not expected to
have a material impact on the Companys financial statements.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
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
approximately $2.7 billion as of September 30, 2011. The Company presently
operates 24 banking offices in 17 cities and towns in Massachusetts ranging from
Braintree in the south to Beverly in the north. 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 and institutions throughout
Massachusetts.
During August 2009, the Company entered into a lease agreement to open a branch
located at Coolidge Corner in Brookline, Massachusetts. The branch opened on
April 27, 2010.
During July 2010, the Company entered into a lease agreement to open a branch
located at Newton Centre in Newton, Massachusetts. The branch opened on June 20,
2011.
During September 2010, the Company entered into a lease agreement to open a
branch located in Andover, Massachusetts. The branch is scheduled to open
during the first half of 2012.
The Companys results of operations are largely dependent on net interest income, which is the
difference between the interest earned on loans and securities and interest paid on deposits and
borrowings. The results of operations are also affected by the level of income and fees from loans,
deposits, as well as operating expenses, the provision for loan losses, the impact of federal and
state income taxes and the relative levels of interest rates and economic activity.
The Company offers a wide range of services to commercial enterprises, state
and local governments and agencies, non-profit organizations and
individuals. It emphasizes service to small and medium-sized businesses and
retail customers in its market area. The Company makes commercial loans,
real estate and construction loans and consumer loans, and accepts savings,
time, and demand deposits. In addition, the Company offers to its corporate
and institutional 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. Also, the
Company provides full service securities brokerage services through a
program called Investment Services at Century Bank, which is supported by
LPL Financial, a full-service securities brokerage business.
The Company is also a provider of financial services, including cash
management, transaction processing and short term financing to
municipalities in Massachusetts and
Rhode Island. The Company has deposit relationships with approximately 51%
of the 351 cities and towns in Massachusetts.
Earnings for the third quarter ended September 30, 2011 were $4,582,000, or
$0.83 per share diluted, compared to net income of $3,267,000, or $0.59 per
share diluted, for the
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third quarter ended September 30, 2010. For the first nine months of 2011,
net income totaled $12,504,000, or $2.26 per share diluted, compared to net
income of $9,650,000, or $1.74 per share diluted, for the same period a year
ago.
Net interest income totaled $41.3 million for the first nine months of 2011
compared to $38.5 million for the same period in 2010. The 7.3% increase in
net interest income for the period is due to an 10.3% increase in the
average balances of earning assets, combined with a similar increase in
deposits, offset slightly by a decrease in the net interest margin. The net
interest margin decreased from 2.51% on a fully taxable equivalent basis in
2010 to 2.49% on the same basis for 2011.
The net interest margin for 2009 reflected a general increase followed by a
general decline through the third quarter of 2010 which was then followed by
an increase through in the first quarter then a slight decrease in the
second and third quarter of 2011 as illustrated in the graph below:
The primary factor accounting for the general increase in the net interest
margin for 2009 was pricing discipline. The primary factor accounting for
the general decrease in the net interest margin for 2010 was a large influx
of deposits, primarily from municipalities, and a corresponding increase in
short-term investments. Pricing discipline continued through the first
quarter of 2011. The net interest margin fell somewhat during the second
quarter of 2011 mainly as a result of increased deposits and corresponding
lower yield short-term investments. During the third quarter, management
stabilized the net interest margin by continuing to lower cost of funds, and
by deploying excess liquidity through expansion of the investment portfolio.
While management will continue its efforts to improve the net interest margin, there
can be no assurance that certain factors beyond its control, such as the prepayment of loans and changes in market interest rates, will continue to positively impact the net
interest margin.
For the three months ended September 30, 2011, the loan loss provision was
$1.2 million compared to a provision of $1.2 million for the same period
last year. For the nine months ended September 30, 2011, the loan loss
provision was $3.6 million compared to a provision of $4.2 million for the
same period last year for a decrease of $625,000. The decrease in the
provision was primarily due to decreased provisions related to nonaccrual
loans. Nonperforming loans decreased to $6.1 million at September 30, 2011
from $9.5 million on September 30, 2010.
The Company capitalized on favorable market conditions for the third quarter
and nine months ended September 30, 2011 and realized net gains on sales of
investments of $883,000 and $1.2 million, respectively, as compared to $0
and $1.0 million for the same periods in 2010. Other income increased for
the third quarter of 2011 compared to the same period last year primarily as
a result of a sale of one nonaccrual loan. Included in operating expenses
for the third quarter and nine months ended September 30, 2011 are FDIC
assessments of $413,000 and $1.6 million, respectively, as
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compared to $785,000 and $2.2 million, for the same periods in 2010. FDIC
assessments decreased primarily as a result of a decrease in the assessment
rate. Also
included in operating expenses for the nine months ended September 30, 2010
is a charge for payments due a former Co-CEO, in accordance with his
separation
agreement as previously announced. The Company recorded a pre-tax charge of
$916,000 during the second quarter of 2010.
For the third quarter of 2011, the Companys effective income tax was 9.9%
compared to 6.3% for last years corresponding quarter. For the first nine
months of 2011, the Companys effective income tax was 7.5% compared to 8.3%
for last years corresponding quarter. The effective income tax rate
decreased primarily as a result of increased levels of tax-exempt income.
Financial Condition
Loans
On September 30, 2011, total loans outstanding were $951.3 million, an
increase of 5.0% from the total on December 31, 2010. At September 30, 2011,
commercial real estate loans accounted for 48.2% and residential real estate
loans, including home equity loans, accounted for 36.5% of total loans.
Commercial and industrial loans decreased to $84.8 million at September 30,
2011 from $90.7 million at December 31, 2010. Construction loans increased
to $54.5 million at September 30, 2011 from $53.6 million on December 31,
2010.
Allowance for Loan Losses
The allowance for loan loss at September 30, 2011 was $16.0 million as
compared to $14.1 million at December 31, 2010. The increase was due to
quantitative and
qualitative factors associated with the loan loss reserve requirement. Also,
the level of the allowance for loan losses to total loans increased from
1.55% at December 31, 2010 to 1.68% at September 30, 2011. The dollar amount
of the allowance for loan losses and the level of the allowance for loan
losses to total loans increased, primarily as a result of decreased levels
of charge-offs, an increase in the historical loss factor on construction
loans, increases in required specific reserves associated with impaired
loans as well as an increase in commercial real estate loans. In evaluating
the allowance for loan losses the Company considered the following
categories to be higher risk:
| Construction loans: The outstanding loan balance of construction loans at September 30, 2011 is $54.5 million. A major factor in nonaccrual loans is one large construction loan. Based on this fact, and the general local conditions facing construction, management closely monitors all construction loans and considers this type of loans to be higher risk. | ||
| Higher balance loans: Loans greater than $1.0 million are considered high balance loans. The balance of these loans is $460.3 million at September 30, 2011. These loans are considered higher risk due to the concentration in individual loans. Additional allowance allocations are made based upon the level of high balance loans. Included in high balance loans are loans greater than $10.0 million. The balance of these loans, which is included in the loans greater than $1.0 million category, is $171.2 million, at September 30, 2011. Additional allowance allocations are made based upon the level of this type of high balance loans that is separate and greater than the $1.0 million allocation. | ||
| Small business loans: The outstanding loan balances of small business loans is $44.5 million at September 30, 2011. These are considered higher risk loans |
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because small businesses have been negatively impacted by the current economic conditions. In a liquidation scenario, the collateral, if any, is often not sufficient to fully recover the outstanding balance of the loan. As a result, the Company often seeks additional collateral prior to renewing maturing small business loans. In addition, the payment status of the loans is monitored closely in order to initiate collection efforts in a timely fashion. |
The following table summarizes the changes in the Companys allowance for
loan losses for the periods indicated:
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Allowance for loan losses, beginning of
period |
$ | 15,915 | $ | 14,350 | $ | 14,053 | $ | 12,373 | ||||||||
Loans charged off |
(1,283 | ) | (1,891 | ) | (2,252 | ) | (3,174 | ) | ||||||||
Recoveries on loans previously
charged-off |
170 | 168 | 601 | 403 | ||||||||||||
Net charge-offs |
(1,113 | ) | (1,723 | ) | (1,651 | ) | (2,771 | ) | ||||||||
Provision charged to expense |
1,200 | 1,200 | 3,600 | 4,225 | ||||||||||||
Allowance for loan losses, end of period |
$ | 16,002 | $ | 13,827 | $ | 16,002 | $ | 13,827 | ||||||||
The Company may experience increased levels of nonaccrual loans if borrowers
are negatively impacted by future negative economic conditions. Management
continually monitors trends in the loan portfolio to determine the
appropriate level of allowance for loan losses. At the current time,
management believes that the allowance for loan losses is adequate.
Nonperforming Assets
The following table sets forth information regarding nonperforming assets
held by the Bank at the dates indicated:
September 30, 2011 | December 31, 2010 | |||||||
(Dollars in thousands) | ||||||||
Nonaccruing loans |
$ | 6,103 | $ | 8,068 | ||||
Loans past due 90 days
or more and still accruing |
$ | 38 | $ | 50 | ||||
Other real estate owned |
$ | 1,300 | $ | | ||||
Nonaccruing loans as a
percentage of total loans |
0.64 | % | 0.89 | % | ||||
Accruing troubled debt
restructures |
$ | 3,909 | $ | 1,248 |
Loans past due greater than 90 days and accruing represent loans that
matured and the borrower has continued to make regular principal and
interest payments as if the loan had been renewed when, in fact, renewal had
not yet taken place. It is expected that the loans will be renewed or paid
in full without any loss.
Cash and Cash Equivalents
Cash and cash equivalents remained relatively stable during the third
quarter of 2011.
Short-term Investments
Short-term investments decreased mainly as a result of increases in longer
term higher yielding investments.
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Investments
Management continually evaluates its investment alternatives in order to
properly manage the overall balance sheet mix. The timing of purchases,
sales and reinvestments, if any, will be based on various factors including
expectation of
movements in market interest rates, deposit flows and loan demand.
Notwithstanding these events, it is the intent of management to grow the
earning asset base mainly
through loan originations while funding this growth through a mix of retail
deposits, FHLB advances, and retail repurchase agreements.
Securities Available-for-Sale (at Fair Value)
September 30, 2011 | December 31, 2010 | |||||||
(In thousands) | ||||||||
U.S. Treasury |
$ | 2,013 | $ | 2,005 | ||||
U.S. Government Sponsored Enterprises |
243,277 | 175,663 | ||||||
Small Business Administration |
8,999 | 9,732 | ||||||
U.S Government Agency and Sponsored
Enterprise Mortgage-backed Securities |
990,327 | 680,898 | ||||||
Privately Issued Residential
Mortgage-backed Securities |
3,420 | 3,968 | ||||||
Privately Issued Commercial
Mortgage-backed Securities |
| 287 | ||||||
Obligations issued by States and Political
Subdivisions |
20,177 | 34,074 | ||||||
Other Debt Securities |
12,576 | 2,253 | ||||||
Equity Securities |
486 | 511 | ||||||
Total Securities Availablefor-Sale |
$ | 1,281,275 | $ | 909,391 | ||||
During the first nine months of 2011 the Company capitalized on favorable
market conditions and realized $1,245,000 of gains on sales of investments.
The sales of
investments represented eleven U.S. Government Sponsored Enterprise bonds
totaling $43.1 million.
Debt securities of Government Sponsored Enterprises primarily refer to debt
securities of Fannie Mae and Freddie Mac. Control of these enterprises was
directly taken over by the U.S. Government in the third quarter of 2008.
Securities Held-to-Maturity (at Amortized Cost)
September 30, 2011 | December 31, 2010 | |||||||
(In thousands) | ||||||||
U.S. Government Sponsored Enterprises |
$ | 14,991 | $ | 84,534 | ||||
U.S. Government Agency and Sponsored
Enterprise Mortgage-backed Securities |
119,198 | 145,582 | ||||||
Total Securities Held-to-Maturity |
$ | 134,189 | $ | 230,116 | ||||
At September 30, 2011 and December 31, 2010, all mortgage-backed securities are
obligations of U.S. Government Sponsored Enterprises.
Debt securities of Government Sponsored Enterprises primarily refer to debt
securities of Fannie Mae and Freddie Mac.
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Securities Available-for-Sale
The securities available-for-sale portfolio totaled $1.3 billion at
September 30, 2011, an increase of 40.9% from December 31, 2010. Purchases
of securities available-for-sale totaled $955.7 million for the nine months
ended September 30, 2011. The portfolio is concentrated in United States
Government Sponsored Enterprises, Mortgage-backed Securities and Obligations
issued by States and Political Subdivisions and had an estimated weighted
average remaining life of 4.2 years.
The majority of the Companys securities AFS are classified as Level 2. The
fair values of these securities are obtained from a pricing service, which
provides the
Company with a description of the inputs generally utilized for each type of
security. These inputs include benchmark yields, reported trades,
broker/dealer quotes, issuer
spreads, two-sided markets, benchmark securities, bids, offers and reference
data. Market indicators and industry and economic events are also monitored.
Securities available-for-sale totaling $17.9 million, or 0.67% of assets are
classified as Level 3. These securities are generally failed auction rate
securities, equity investments or obligations of states and political
subdivisions with no readily determinable fair value. Failed auction rate
securities were reclassified to Level 3 during the first quarter of 2009 due
to the lack of an active market. Fair values for Level 3 securities are
generally arrived at based upon a review of market trades of similar
instruments, if any, as well as an analysis of the security based upon
market liquidity and prevailing market interest rates.
Securities Held-to-Maturity
The securities held-to-maturity portfolio totaled $134.2 million on
September 30, 2011, a decrease of 41.7% from the total on December 31, 2010.
The portfolio is concentrated in United States Government Sponsored
Enterprises and Mortgage-backed Securities and had an estimated weighted
average remaining life of 3.4 years.
Federal Home Loan Bank of Boston Stock
The Company owns Federal Home Loan Bank of Boston (FHLBB) stock which is
considered a restricted equity security. As a voluntary member of the FHLBB,
the Company is required to invest in stock of the FHLBB in an amount equal
to 4.5% of its
outstanding advances from the FHLBB. Stock is purchased at par value. As and
when such stock is redeemed, the Company would receive from the FHLBB an
amount equal
to the par value of the stock. At its discretion, the FHLBB may declare
dividends on the stock. On April 10, 2009, the FHLBB reiterated to its
members that, while it currently meets all its regulatory capital
requirements, it is focusing on preserving capital in response to ongoing
market volatility, and accordingly, has suspended its
quarterly dividend and has extended the moratorium on excess stock
repurchases. It also announced that it had taken a write-down of $381.7
million in other-than-temporary impairment charges on its private-label
mortgage-backed securities for the year ended December 31, 2008. This
resulted in a net loss of $115.8 million. For the year ended December 31,
2009, the FHLBB reported a net loss of $186.8 million resulting from the
recognition of $444.1 million of impairment losses which were recognized
through income. For the year ended December 31, 2010, the FHLBB reported net
income of $106.6 million. For the nine months ended September 30, 2011, the
FHLBB reported net income of $94.9 million. The FHLBB also declared a
dividend equal to an annual yield of 0.30%. The FHLBBs board of directors
anticipates that it will continue to declare modest cash dividends through
2011. In the future, if additional unrealized losses are deemed to be
other-than-temporary, the associated impairment charges could exceed the
FHLBBs current level of retained earnings and possibly put into question
whether the fair value of the FHLBB stock
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owned by the Company is less than par value. The FHLBB has stated that it
expects and intends to hold its private-label mortgage-backed securities to
maturity. Despite
these negative trends, the FHLBB exceeded the regulatory capital
requirements promulgated by the Federal Home Loan Banks Act and the Federal
Housing Financing Agency. The FHLBB has the capacity to issue additional
debt if necessary to raise cash. If needed, the FHLBB also has the ability
to secure funding available to U.S. Government Sponsored Enterprises through
the U.S. Treasury. Based on the capital adequacy and the liquidity position
of the FHLBB, management believes there is no other-than-temporary
impairment related to the carrying amount of the Companys FHLBB stock as of
September 30, 2011. The Company will continue to monitor its investment in
FHLBB stock.
Deposits and Borrowed Funds
On September 30, 2011, deposits totaled $2.1 billion, representing a 10.7%
increase from December 31, 2010. Total deposits increased primarily as a
result of increases in time deposits, money market, savings and NOW and
demand deposit accounts. Savings and NOW, money market and time deposits
increased as the Company continued to offer attractive rates for these types
of deposits during the first nine months of the year. Borrowed funds totaled
$326.2 million compared to $330.7 million at December 31, 2010. Borrowed
funds decreased mainly as a result of matured term borrowings from the FHLB.
Stockholders Equity
At September 30, 2011, total equity was $163.1 million compared to $145.0
million at December 31, 2010. The Companys equity increased primarily as a
result of earnings and other comprehensive income, net of taxes, offset
somewhat by dividends paid. The Companys leverage ratio stood at 7.02% at
September 30, 2011, compared to 7.13% at September 30, 2010. This decline in
the leverage ratio is due to an increase in assets, offset by an increase in
stockholders equity. The Companys Tier 1 capital-to-risk assets and total
capital-to-risk assets stood at 14.82% and 16.07%, respectively, at
September 30, 2011. Book value as of September 30, 2011 was $29.43 per
share.
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Results of Operations
The following table sets forth the distribution of the Companys average assets, liabilities and stockholders equity, and average rates earned or paid on a fully taxable equivalent basis for each of the three-month periods indicated. |
Three Months Ended | |||||||||||||||||||||||||
September 30, 2011 | September 30, 2010 | ||||||||||||||||||||||||
( In thousands) | |||||||||||||||||||||||||
Average | Average | ||||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | ||||||||||||||||||||||
Balance | Interest(1) | Rate | Balance | Interest(1) | Rate | ||||||||||||||||||||
ASSETS |
|||||||||||||||||||||||||
Interest-earning assets: |
|||||||||||||||||||||||||
Loans(2) |
$ | 960,341 | $ | 13,770 | 5.69 | % | $ | 871,471 | $ | 13,169 | 6.00 | % | |||||||||||||
Securities available-for-sale(5): |
|||||||||||||||||||||||||
Taxable |
1,114,498 | 5,997 | 2.15 | 768,231 | 4,534 | 2.36 | |||||||||||||||||||
Tax-exempt |
18,610 | 68 | 1.46 | 35,796 | 126 | 1.41 | |||||||||||||||||||
Securities held-to-maturity: |
|||||||||||||||||||||||||
Taxable |
155,857 | 1,304 | 3.35 | 210,984 | 1,645 | 3.12 | |||||||||||||||||||
Tax-exempt |
| | | | | | |||||||||||||||||||
Interest-bearing deposits in other
banks |
304,852 | 262 | 0.34 | 420,903 | 465 | 0.43 | |||||||||||||||||||
Total interest-earning assets |
2,554,158 | 21,401 | 3.34 | % | 2,307,385 | 19,939 | 3.44 | % | |||||||||||||||||
Non interest-earning assets |
163,964 | 159,210 | |||||||||||||||||||||||
Allowance for loan losses |
(16,503 | ) | (13,920 | ) | |||||||||||||||||||||
Total assets |
$ | 2,701,619 | $ | 2,452,675 | |||||||||||||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|||||||||||||||||||||||||
Interest-bearing deposits: |
|||||||||||||||||||||||||
NOW accounts |
$ | 477,829 | $ | 390 | 0.32 | % | $ | 464,267 | $ | 610 | 0.52 | % | |||||||||||||
Savings accounts |
262,818 | 193 | 0.29 | 275,797 | 330 | 0.47 | |||||||||||||||||||
Money market accounts |
586,284 | 636 | 0.43 | 546,031 | 876 | 0.64 | |||||||||||||||||||
Time deposits |
521,962 | 2,512 | 1.91 | 370,606 | 2,162 | 2.32 | |||||||||||||||||||
Total interest-bearing deposits |
1,848,893 | 3,731 | 0.80 | 1,656,701 | 3,978 | 0.95 | |||||||||||||||||||
Securities sold under agreements to repurchase |
118,145 | 82 | 0.28 | 122,028 | 116 | 0.38 | |||||||||||||||||||
Other borrowed funds and subordinated debentures |
202,599 | 1,987 | 3.89 | 191,584 | 1,946 | 4.03 | |||||||||||||||||||
Total interest-bearing liabilities |
2,169,637 | 5,800 | 1.06 | % | 1,970,313 | 6,040 | 1.22 | % | |||||||||||||||||
Non interest-bearing liabilities
Demand deposits |
342,624 | 305,912 | |||||||||||||||||||||||
Other liabilities |
29,866 | 31,546 | |||||||||||||||||||||||
Total liabilities |
2,542,127 | 2,307,771 | |||||||||||||||||||||||
Stockholders equity |
159,492 | 144,904 | |||||||||||||||||||||||
Total liabilities & stockholders
equity |
$ | 2,701,619 | $ | 2,452,675 | |||||||||||||||||||||
Net interest
income on a fully taxable equivalent basis |
15,601 | 13,899 | |||||||||||||||||||||||
Less taxable equivalent adjustment |
(1,763 | ) | (1,311 | ) | |||||||||||||||||||||
Net interest income |
$ | 13,838 | $ | 12,588 | |||||||||||||||||||||
Net interest spread (3) |
2.28 | % | 2.22 | % | |||||||||||||||||||||
Net interest margin (4) |
2.42 | % | 2.39 | % | |||||||||||||||||||||
(1) | On a fully taxable equivalent basis calculated using a federal tax rate of 34%. | |
(2) | Nonaccrual loans are included in average amounts outstanding. | |
(3) | Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. | |
(4) | Net interest margin represents net interest income as a percentage of average interest-earning assets. | |
(5) | Average balances of securities available-for-sale calculated utilizing amortized cost. |
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The following table sets forth the distribution of the Companys average assets, liabilities and stockholders equity, and average rates earned or paid on a fully taxable equivalent basis for each of the nine-month periods indicated. |
Nine Months Ended | ||||||||||||||||||||||||
September 30, 2011 | September 30, 2010 | |||||||||||||||||||||||
( In thousands) | ||||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | |||||||||||||||||||||
Balance | Interest(1) | Rate | Balance | Interest(1) | Rate | |||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
Loans(2) |
$ | 946,905 | $ | 41,052 | 5.79 | % | $ | 875,759 | $ | 39,614 | 6.04 | % | ||||||||||||
Securities available-for-sale(5): |
||||||||||||||||||||||||
Taxable |
1,015,393 | 16,943 | 2.22 | 730,392 | 14,313 | 2.61 | ||||||||||||||||||
Tax-exempt |
23,062 | 244 | 1.41 | 32,130 | 485 | 2.01 | ||||||||||||||||||
Securities held-to-maturity: |
||||||||||||||||||||||||
Taxable |
189,100 | 4,595 | 3.24 | 219,137 | 5,501 | 3.35 | ||||||||||||||||||
Tax-exempt |
| | | | | | ||||||||||||||||||
Interest-bearing deposits in other
banks |
305,717 | 967 | 0.42 | 391,527 | 1,246 | 0.42 | ||||||||||||||||||
Total interest-earning assets |
2,480,177 | 63,801 | 3.43 | % | 2,248,945 | 61,159 | 3.63 | % | ||||||||||||||||
Non interest-earning assets |
157,061 | 155,395 | ||||||||||||||||||||||
Allowance for loan losses |
(15,517 | ) | (13,545 | ) | ||||||||||||||||||||
Total assets |
$ | 2,621,721 | $ | 2,390,795 | ||||||||||||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||||||
Interest-bearing deposits: |
||||||||||||||||||||||||
NOW accounts |
$ | 474,432 | $ | 1,371 | 0.39 | % | $ | 420,217 | $ | 1,975 | 0.63 | % | ||||||||||||
Savings accounts |
253,806 | 652 | 0.34 | 272,840 | 1,279 | 0.63 | ||||||||||||||||||
Money market accounts |
575,785 | 2,109 | 0.49 | 550,412 | 3,189 | 0.77 | ||||||||||||||||||
Time deposits |
489,808 | 7,285 | 1.99 | 344,036 | 5,746 | 2.23 | ||||||||||||||||||
Total interest-bearing deposits |
1,793,831 | 11,417 | 0.85 | 1,587,505 | 12,189 | 1.03 | ||||||||||||||||||
Securities sold under agreements to repurchase |
121,750 | 290 | 0.32 | 138,263 | 466 | 0.45 | ||||||||||||||||||
Other borrowed funds and subordinated debentures |
202,720 | 5,826 | 3.84 | 201,976 | 6,351 | 4.20 | ||||||||||||||||||
Total interest-bearing liabilities |
2,118,300 | 17,533 | 1.11 | % | 1,927,744 | 19,006 | 1.32 | % | ||||||||||||||||
Non interest-bearing liabilities
|
||||||||||||||||||||||||
Demand deposits |
321,340 | 291,210 | ||||||||||||||||||||||
Other liabilities |
29,160 | 30,922 | ||||||||||||||||||||||
Total liabilities |
2,468,801 | 2,249,876 | ||||||||||||||||||||||
Stockholders equity |
159,920 | 140,919 | ||||||||||||||||||||||
Total liabilities & stockholders
equity |
$ | 2,621,721 | $ | 2,390,795 | ||||||||||||||||||||
Net interest
income on a fully taxable equivalent basis |
46,268 | 42,153 | ||||||||||||||||||||||
Less taxable equivalent adjustment |
(4,988 | ) | (3,698 | ) | ||||||||||||||||||||
Net interest income |
$ | 41,280 | $ | 38,455 | ||||||||||||||||||||
Net interest spread (3) |
2.32 | % | 2.31 | % | ||||||||||||||||||||
Net interest margin (4) |
2.49 | % | 2.51 | % | ||||||||||||||||||||
(1) | On a fully taxable equivalent basis calculated using a federal tax rate of 34%. | |
(2) | Nonaccrual loans are included in average amounts outstanding. | |
(3) | Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. | |
(4) | Net interest margin represents net interest income as a percentage of average interest-earning assets. | |
(5) | Average balances of securities available-for-sale calculated utilizing amortized cost. |
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The following table presents certain information on a fully-tax equivalent basis regarding changes in the Companys interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to changes in rate and changes in volume. |
Three Months Ended September 30, 2011 | Nine Months Ended September 30, 2011 | |||||||||||||||||||||||
Compared with | Compared with | |||||||||||||||||||||||
Three Months Ended September 30, 2010 | Nine Months Ended September 30, 2010 | |||||||||||||||||||||||
Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||||||||
Due to Change in | Due to Change in | |||||||||||||||||||||||
Volume | Rate | Total | Volume | Rate | Total | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Interest income: |
||||||||||||||||||||||||
Loans |
$ | 1,297 | $ | (696 | ) | $ | 601 | $ | 3,128 | (1,690 | ) | $ | 1,438 | |||||||||||
Securities available-for-sale |
||||||||||||||||||||||||
Taxable |
1,893 | (430 | ) | 1,463 | 4,984 | (2,354 | ) | 2,630 | ||||||||||||||||
Tax-exempt |
(63 | ) | 5 | (58 | ) | (117 | ) | (124 | ) | (241 | ) | |||||||||||||
Securities held-to-maturity |
||||||||||||||||||||||||
Taxable |
(454 | ) | 113 | (341 | ) | (734 | ) | (172 | ) | (906 | ) | |||||||||||||
Interest-bearing deposits in other
banks |
(112 | ) | (91 | ) | (203 | ) | (271 | ) | (8 | ) | (279 | ) | ||||||||||||
Total interest income |
2,561 | (1,099 | ) | 1,462 | 6,990 | (4,348 | ) | 2,642 | ||||||||||||||||
Interest expense: |
||||||||||||||||||||||||
Deposits: |
||||||||||||||||||||||||
NOW accounts |
17 | (237 | ) | (220 | ) | 230 | (834 | ) | (604 | ) | ||||||||||||||
Savings accounts |
(15 | ) | (122 | ) | (137 | ) | (84 | ) | (543 | ) | (627 | ) | ||||||||||||
Money market accounts |
61 | (301 | ) | (240 | ) | 141 | (1,221 | ) | (1,080 | ) | ||||||||||||||
Time deposits |
775 | (425 | ) | 350 | 2,223 | (684 | ) | 1,539 | ||||||||||||||||
Total interest-bearing deposits |
838 | (1,085 | ) | (247 | ) | 2,510 | (3,282 | ) | (772 | ) | ||||||||||||||
Securities sold under agreements to
repurchase |
(4 | ) | (30 | ) | (34 | ) | (51 | ) | (125 | ) | (176 | ) | ||||||||||||
Other borrowed funds and subordinated
debentures |
109 | (68 | ) | 41 | 23 | (548 | ) | (525 | ) | |||||||||||||||
Total interest expense |
943 | (1,183 | ) | (240 | ) | 2,482 | (3,955 | ) | (1,473 | ) | ||||||||||||||
Change in net interest income |
$ | 1,618 | $ | 84 | $ | 1,702 | $ | 4,508 | $ | (393 | ) | $ | 4,115 | |||||||||||
Net Interest Income | |||
For the three months ended September 30, 2011, net interest income on a fully taxable equivalent basis totaled $15.6 million compared to $13.9 million for the same period in 2010, an increase of $1.7 million or 12.2%. This increase in net interest income for the period is due to a 10.7% increase in the average balances of earning assets, combined with a similar increase in deposits, as well as an increase in the net interest margin. The net interest margin increased from 2.39% on a fully taxable equivalent basis in 2010 to 2.42% on the same basis for 2011. | |||
For the nine months ended September 30, 2011, net interest income on a fully taxable equivalent basis totaled $46.3 million compared to $42.2 million for the same period in 2010, an increase of $4.1 million or 9.8%. This increase in net interest income for the period is due to a 10.3% increase in the average balances of earning assets, combined with a similar increase in deposits, offset somewhat by a decrease in the net interest margin. The net interest margin decreased from 2.51% on a fully taxable equivalent basis in 2010 to 2.49% on the same basis for 2011. | |||
Provision for Loan Losses | |||
For the three months ended September 30, 2011, the loan loss provision was $1.2 million compared to a provision of $1.2 million for the same period last year. For the nine months ended September 30, 2011, the loan loss provision was $3.6 million |
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compared to a provision of $4.2 million for the same period last year for a decrease of $625,000. The decrease in the provision for the nine months ended period was primarily due to decreased provisions related to nonaccrual loans. The level of the allowance for loan losses to total loans increased from 1.55% at December 31, 2010 to 1.68% at September 30, 2011. The increase was primarily the result of decreased levels of charge-offs, an increase in the historical loss factor on construction loans, and an increase in required specific reserves associated with impaired loans. | |||
Non-Interest Income and Expense | |||
Other operating income for the quarter ended September 30, 2011 increased by $1.1 million to $4.5 million from $3.4 million for the same period last year. There was an increase in the gain on sales of investments of $883,000. There was also an increase in other income of $267,000 primarily as a result of a gain on the sale of one nonaccrual loan. There was also an increase in service charges on deposit accounts of $28,000 which was mainly attributable to an increase in overdraft and debit card fees. Lockbox fees decreased by $87,000 as a result of decreased customer volume. | |||
Other operating income for the nine months ended September 30, 2011 increased by $103,000 to $11.9 million from $11.8 million for the same period last year. There was an increase from the sale of investments of $218,000.There was a decrease in service charges on deposit accounts of $24,000 which was mainly attributable to a decrease in service charges on business accounts. Lockbox fees decreased by $64,000 as a result of decreased customer volume. Other income decreased slightly by $27,000 mainly as a result of decreases in the growth of cash surrender values on life insurance policies offset by an increase in brokerage commissions as well as a gain on the sale of mortgages and a gain on the sale of one nonaccrual loan. The income related to cash surrender values decreased mainly as a result of additional earnings as a result of certain policies reaching their twenty year anniversary during the first quarter of 2010. | |||
For the quarter ended September 30, 2011, operating expenses increased by $742,000 or 6.6% to $12.1 million, from the same period last year. The increase in operating expenses for the quarter was mainly attributable to an increase of $513,000 in salaries and employee benefits, $325,000 in other expenses and $276,000 occupancy and equipment expenses. This was offset somewhat by a decrease of $372,000 in FDIC assessments. Salaries and employee benefits increased mainly as a result of merit increases and increased staffing levels. Occupancy and equipment increased mainly as a result of costs associated with the Newton Centre branch opening during the second quarter of 2011. Other expenses increased mainly as a result of increases in marketing related expenses and legal expenses. FDIC assessments decreased mainly as a result of a decrease in the assessment rate. | |||
For the nine months ended September 30, 2011, operating expenses increased by $563,000 or 1.6% to $36.0 million, from the same period last year. The increase in operating expenses for the nine months ended was mainly attributable to an increase of $329,000 in salaries and employee benefits, $445,000 in occupancy and equipment expenses and $352,000 in other expenses. This was offset somewhat by a decrease of $563,000 in FDIC assessments. Salaries and employee benefits increased mainly as a result of merit increases and increased staffing levels, this was offset somewhat as a result of a $916,000 charge for payments due to a former Co-CEO, in accordance with his separation agreement during the second quarter of 2010. Occupancy and equipment expenses increased mainly as a result of costs associated with the Newton Centre branch opening during the second quarter of 2011 as well as full period costs associated with opening the Coolidge Corner branch during the second quarter of 2010. Other expenses increased mainly as a result of increases in marketing related expenses and legal expenses. FDIC assessments decreased mainly as a result of a decrease in the assessment rate. |
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Income Taxes | |||
For the third quarter of 2011, the Companys income tax expense totaled $504,000 on pretax income of $5.1 million resulting in an effective tax rate of 9.9%. For last years corresponding quarter, the Companys income tax expense totaled $220,000 on pretax income of $3.5 million resulting in an effective tax rate of 6.3%. For the nine months ended September 30, 2011, the Companys income tax expense totaled $1.0 million on pretax income of $13.5 million resulting in an effective tax rate of 7.5%. For last years corresponding period, the Companys income tax expense totaled $879,000 on pretax income of $10.5 million resulting in an effective tax rate of 8.3%. The effective income tax rate increased for the current quarter mainly as a result of an increase in taxable income. The effective income tax rate decreased for the nine months ended mainly as a result of an increase in tax exempt income as a percentage of taxable income compared to the same period last year. |
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. The Companys 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 Companys profitability is affected by fluctuations in interest rates. A sudden and substantial increase or decrease in interest rates may adversely impact the Companys earnings to the extent that the interest rates tied to specific 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 rates on its net interest income using several tools. The Companys primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Companys net interest income and capital, while structuring the Companys asset-liability structure to obtain the maximum yield-cost spread on that structure. Management believes that there has been no material changes in the interest rate risk reported in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission. The information is contained in the Form 10-K within the Market Risk and Asset Liability Management section of Managements Discussion and Analysis of Results of Operations and Financial Condition. |
Item 4. Controls and Procedures
The Companys management, with participation of the Companys principal executive and financial officers, has evaluated its disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, the Companys management, with participation of its principal executive and financial officers, have concluded that the Companys disclosure controls and procedures effectively ensure that information required to be disclosed in the Companys filings and submissions with the Securities and Exchange Commission under the Exchange Act is accumulated and reported to Company management (including the principal executive officers and the principal financial officer) as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. In addition, the Company has evaluated its internal control over financial reporting and during the third quarter of 2011 there has been no change in its internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting. |
Part II Other Information
Item 1
|
Legal proceedings At the present time, the Company is not engaged in any legal proceedings which, if adversely determined to the Company, would have a material |
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adverse impact on the Companys financial condition or results of operations. From time to time, the Company is party to routine legal proceedings within the normal course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the Companys financial condition and results of operation. |
Item 1A
|
Risk Factors Please read Risk Factors in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2010. There have been no material changes since this 10-K was filed. These risks are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely effect the Companys business, financial condition and operating results. |
Item 2
|
Unregistered Sales of Equity Securities and Use of Proceeds | |
(a) (b) Not applicable. | ||
(c) The following table sets forth information with respect to any purchase made by or on behalf of Century Bancorp, Inc. or any affiliated purchaser, as defined in 204.10b-18(a)(3) under the Exchange Act, of shares of Century Bancorp, Inc. Class A common stock during the indicated periods: |
Issuer Purchases of Equity Securities | ||||||||||||||||
Total number of shares | Maximum number of | |||||||||||||||
Weighted | purchased as part of | shares that may yet be | ||||||||||||||
Total number of | Average price paid | publicly announced plans | purchased under the | |||||||||||||
Period | shares purchased | per share | or programs | plans or programs (1) | ||||||||||||
July 1 July 31, 2011 |
| $ | | | 300,000 | |||||||||||
August 1 August 31, 2011 |
| $ | | | 300,000 | |||||||||||
September 1 September 30, 2011 |
| $ | | | 300,000 |
(1) | On July 12, 2011, the Company announced a reauthorization of the Class A common stock repurchase program to repurchase up to 300,000 shares. The Company placed no deadline on the repurchase program. There were no shares purchased other than through a publicly announced plan or program. |
Item 3
|
Defaults Upon Senior Securities None |
Item 5
|
Other Information None |
Item 6
|
Exhibits |
31.1
|
Certification of President and Chief Executive Officer of the Company Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14. | |
31.2
|
Certification of Chief Financial Officer of the Company Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14. | |
32.1
|
+
|
Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2
|
+
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS*
|
XBRL Instance Document. | |
101.SCH*
|
XBRL Taxonomy Extension Schema. | |
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase. | |
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase. | |
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase. | |
101.DEF*
|
XBRL Taxonomy Definition Linkbase. |
+ | This exhibit shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. | |
* | As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date:
|
November 7, 2011 | Century Bancorp, Inc. | ||||
/s/ Barry R. Sloane | ||||
Barry R. Sloane | ||||
President and Chief Executive Officer | ||||
/s/ William P. Hornby | ||||
William P. Hornby, CPA | ||||
Chief Financial Officer and Treasurer (Principal Accounting Officer) |
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