UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(Mark One)
[ X ] |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE
ACT OF 1934 |
|
For the fiscal year ended December 31, 2002 | ||
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 |
Commission file number
0-15752
CENTURY BANCORP, INC.
COMMONWEALTH OF MASSACHUSETTS
04-2498617
State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification number)
400 MYSTIC AVENUE, MEDFORD, MA
02155
(Address of principal executive offices)
(Zip Code)
Registrants telephone number
including area code:
(781) 391-4000
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $1.00 par value
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2.
State the aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 28, 2003: $7,481,943
Indicate the number of shares outstanding of each of the registrants classes of common stock as of February 28,2003:
Class A Common Stock, $1.00 par value | 3,402,700 | Shares | ||
Class B Common Stock, $1.00 par value | 2,115,100 | Shares |
i
CENTURY BANCORP INC.
FORM 10-K
TABLE OF CONTENTS
PAGE | ||||||||||||
|
||||||||||||
PART I | ||||||||||||
ITEM 1 |
BUSINESS
|
1-5 | ||||||||||
ITEM 2 |
PROPERTIES
|
4 | ||||||||||
ITEM 3 |
LEGAL PROCEEDINGS
|
4 | ||||||||||
ITEM 4 |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
4 | ||||||||||
PART II | ||||||||||||
ITEM 5 |
MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
|
4-5 | ||||||||||
ITEM 6 |
SELECTED FINANCIAL DATA
|
5 | ||||||||||
ITEM 7 |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
5 | ||||||||||
ITEM 7a |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
5 | ||||||||||
ITEM 8 |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
5 | ||||||||||
ITEM 9 |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
5 | ||||||||||
PART III | ||||||||||||
ITEM 10 |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
39-41 | ||||||||||
ITEM 11 |
EXECUTIVE COMPENSATION
|
41-46 | ||||||||||
ITEM 12 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
46-48 | ||||||||||
ITEM 13 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|
48 | ||||||||||
PART IV | ||||||||||||
ITEM 14 |
CONTROLS AND PROCEDURES
|
49 | ||||||||||
ITEM 15 |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
|
49-50 | ||||||||||
SIGNATURES | 51 | |||||||||||
CERTIFICATIONS | 52 |
ii
PART I
ITEM 1. BUSINESS | ||
The Company | ||
Century Bancorp, Inc. (together with its bank subsidiary, unless the context otherwise requires, the Company), is a Massachusetts state chartered bank holding company headquartered in Medford, Massachusetts. The Company is a Massachusetts corporation formed in 1972 and has one banking subsidiary (the Bank): Century Bank and Trust Company formed in 1969. The Company had total assets of $1.6 billion on December 31, 2002. The Company presently operates 19 banking offices in 16 cities and towns in Massachusetts ranging from Braintree to Peabody. The Banks customers consist primarily of small and medium-sized businesses and retail customers in these communities and surrounding areas, as well as local governments throughout Massachusetts. | ||
On June 11, 1998, the Company acquired Haymarket Co-operative Bank (Haymarket), headquartered in Boston, Massachusetts, and merged Haymarket into the Bank. The purchase price paid by the Company to the shareholders of Haymarket was $21.1 million in cash and the transaction was accounted for using the purchase method of accounting. The results of operations for 1998 include the effect of the Haymarket acquisition for the period beginning June 12, 1998. | ||
In May 1998, the Company, through its newly formed subsidiary, Century Bancorp Capital Trust, issued 2,875,000 shares of Cumulative Trust Preferred Securities with a liquidation value of $10 per share. These securities pay dividends at an annualized rate of 8.30%. The Company used the proceeds for general business purposes. | ||
On October 30, 2002, the Company and Capital Crossing Bank announced the signing of a definitive agreement under which the Companys wholly-owned subsidiary, Century Bank and Trust Company ( the Bank) will acquire Capital Crossings branch office at 1220 Boylston Street, Chestnut Hill, Massachusetts, and substantially all of its retail deposits in its main office at 101 Summer Street, Boston, Massachusetts. The agreement includes the acquisition of approximately $233.0 million in deposits and $4.0 million of related loans. The transaction is subject to customary conditions, including regulatory approval, which has been obtained, and is expected to close in March 2003. | ||
The Company offers a wide range of services to commercial enterprises, state and local governments and agencies, 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, consumer loans, and accepts savings, time, and demand deposits. In addition, the Company offers to its corporate customers automated lock box collection services, cash management services and account reconciliation services, and actively promotes the marketing of these services to the municipal market. Also, the Company provides full service securities brokerage services through its subsidiary, Century Financial Services, Inc. in conjunction with Commonwealth Equity Services, Inc., a full service securities brokerage business. | ||
The Company is also a provider of financial services including cash management, transaction processing, short term financing and intermediate term leasing to municipalities in Massachusetts. The Company has deposit relationships with approximately 30% of the 351 cities and towns in Massachusetts. | ||
The companys website address is www.century-bank.com and makes available free of charge through its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. |
-1-
Employees | ||
As of December 31, 2002, the Company had 276 full-time and 109 part-time employees. The Companys employees are not represented by any collective bargaining unit. The Company believes that its employee relations are good. | ||
Financial Services Modernization | ||
On November 12, 1999, President Clinton signed into law The Gramm-Leach-Bliley Act (Gramm-Leach) which significantly altered banking laws in the United States. Gramm Leach enables combinations among banks, securities firms and insurance companies beginning March 11, 2000. As a result of Gramm Leach, many of the depression-era laws which restricted these affiliations and other activities which may be engaged in by banks and bank holding companies, were repealed. Under Gramm-Leach, bank holding companies are permitted to offer their customers virtually any type of financial service that is financial in nature or incidental thereto, including banking, securities underwriting, insurance (both underwriting and agency) and merchant banking. | ||
In order to engage in these new financial activities, a bank holding company must qualify and register with the Federal Reserve Board as a financial holding company by demonstrating that each of its bank subsidiaries is well capitalized, well managed, and has at least a satisfactory rating under the Community Reinvestment Act of 1977 (CRA). The Company has not elected to become a financial holding company under Gramm-Leach. | ||
These new financial activities authorized by Gramm-Leach may also be engaged in by a financial subsidiary of a national or state bank, except for insurance or annuity underwriting, insurance company portfolio investments, real estate investment and development and merchant banking, which must be conducted in a financial holding company. In order for the new financial activities to be engaged in by a financial subsidiary of a national or state bank, Gramm-Leach requires each of the parent bank (and its sister-bank affiliates) to be well capitalized and well managed; the aggregate consolidated assets of all of that banks financial subsidiaries may not exceed the lesser of 45% of its consolidated total assets or $50 billion; the bank must have at least a satisfactory CRA rating; and, if that bank is one of the 100 largest banks, it must meet certain financial rating or other comparable requirements. | ||
Gramm-Leach establishes a system of functional regulation, under which the federal banking agencies will regulate the banking activities of financial holding companies and banks financial subsidiaries, the U.S. Securities and Exchange Commission will regulate their securities activities, and state insurance regulators will regulate their insurance activities. Gramm-Leach also provides new protections against the transfer and use by financial institutions of consumers nonpublic, personal information. | ||
Holding Company Regulation | ||
The Company is a bank holding company as defined by the Bank Holding Company Act of 1956, as amended (the Holding Company Act) and is registered as such with the Board of Governors of the Federal Reserve System (the FRB), which is responsible for administration of the Holding Company Act. Although the Company may meet the qualifications for electing to become a financial holding company under Gramm-Leach, the Company has elected to retain its pre-Gramm-Leach status for the present time under the Holding Company Act. As required by the Holding Company Act, the Company files with the FRB an annual report regarding its financial condition and operations, management and intercompany relationships of the Company and the Bank. It is also subject to examination by the FRB and must obtain FRB approval before ( i ) acquiring direct or indirect ownership or control of more than 5% of the voting stock of any bank, unless it already owns or controls a majority of the voting stock of that bank, (ii) acquiring all or substantially all of the assets of a bank, except through a subsidiary which is a bank, or (iii) merging or consolidating with any other bank holding company. A bank holding company must also give the FRB prior written notice before purchasing or redeeming its equity securities, if the gross consideration for the purchase or redemption, when aggregated with the net consideration paid by the company for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the Companys consolidated net worth. |
-2-
The Holding Company Act prohibits a bank holding company, with certain exceptions, from (i ) acquiring direct or indirect ownership or control of any voting shares of any company which is not a bank or a bank holding company, or (ii) engaging in any activity other than managing or controlling banks, or furnishing services to or performing services for its subsidiaries. A bank holding company may own, however, shares of a company engaged in activities which the FRB has determined are so closely related to banking or managing or controlling banks as to be a proper incident thereto. | ||
The Company and its subsidiaries are examined by federal and state regulators. The FRB has responsibility for holding company activities and performed a review in 2001. | ||
Federal Deposit Insurance Corporation Improvement Act of 1991 | ||
On December 19, 1991, the FDIC Improvement Act of 1991 (the 1991 Act) was enacted. This legislation sought to recapitalize the Bank Insurance Fund of the FDIC (BIF), which had been severely depleted as a result of the larger members of failed banks. The recapitalization continues to be funded through, among other things, increased deposit insurance assessments payable by BIF-insured institutions, which increases the cost of doing business by all BIF-insured institutions, including the Bank. The 1991 Act also provides for, among other things: enhanced federal supervision of depository institutions, including greater authority for the appointment of a conservator or receiver for undercapitalized institutions; the establishment of risk-based deposit insurance premiums; a requirement that the federal banking agencies amend their risk-based capital requirements to include components for interest-rate risk, concentration of credit risk, and the risk of nontraditional activities; expanded authority for cross-industry mergers and acquisitions; mandated consumer protection disclosures with respect to deposit accounts; and imposed restrictions on the activities of state-chartered banks, including the Bank. | ||
Provisions of the 1991 Act relating to the activities of state-chartered banks significantly impact the way the Company conducts its business. In this regard, the 1991 Act provides that insured state banks, such as the Bank, may not engage as principal in any activity that is not permissible for a national bank, unless the FDIC has determined that the activity would pose no significant risk to the BIF and the state bank is in compliance with applicable capital standards. Activities of subsidiaries of insured state banks are similarly restricted to those activities permissible for subsidiaries of national banks, unless the FDIC has determined that the activity would pose no significant risk to the BIF and the state bank is in compliance with applicable capital standards. | ||
Interstate Banking | ||
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended (the Interstate Banking Act) generally permits bank holding companies to acquire banks in any state and preempts all state laws restricting the ownership by a bank holding company of banks in more than one state. The Interstate Banking Act also permits a bank to merge with an out-of-state bank and convert any offices into branches of the resulting bank if both states have not opted out of interstate branching; permits a bank to acquire branches from an out-of-state bank if the law of the state where the branches are located permits the interstate branch acquisition; and operated de novo interstate branches whenever the host state opts-in to de novo branching. Bank holding companies and banks seeking to engage in transactions authorized by the Interstate Banking Act must be adequately capitalized and managed. | ||
Competition | ||
The Company experiences substantial competition in attracting deposits and making loans from commercial banks, thrift institutions and other enterprises such as insurance companies and mutual funds. These competitors include several major commercial banks whose greater resources may afford them a competitive advantage by enabling them to maintain numerous branch offices and mount extensive advertising campaigns. A number of these competitors are not subject to the regulatory oversight that the Company is subject to, which increases these competitors flexibility. |
-3-
ITEM 2. PROPERTIES
The Company owns its main banking office, headquarters, and operations center in Medford, and 12 of the 18 other facilities in which its branch offices are located. The remaining offices are occupied under leases expiring on various dates from 2002 to 2026.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various claims and lawsuits arising in the course of their normal business activities. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that none of these matters, even if it resolved adversely to the Company, will have a material adverse effect on the Companys consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Companys Stockholders during the fourth quarter of the fiscal year ended December 31, 2002.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) | The Class A Common Stock of the Company is traded on the NASDAQ National Market system under the symbol CNBKA. The price range of the Companys Class A common stock since January 1, 2001 is shown on page 6. The Class B Common Stock is not traded on NASDAQ or any other national securities exchange. | ||
Generally speaking, the shares of Class A Common Stock are not entitled to vote on any matter, including in the election of Company Directors, but, in limited circumstances, may be entitled to vote as a class on certain extraordinary transactions, including any merger or consolidation (other than one in which the Company is the surviving corporation or one which by law may be approved by the directors without any stockholder vote) or the sale, lease, or exchange of all or substantially all of the property and assets of the Company. Since the vote of a majority of the shares of Class B Common Stock, voting as a class, is required to approve certain extraordinary corporate transactions, the holders of Class B Common Stock have the power to prevent any takeover of the Company not approved by them. | |||
(b) | Approximate number of equity security holders as of December 31, 2002. |
Title of Class |
Approximate Number
of Record Holders |
|
Class A Common Stock | 390 | |
Class B Common Stock | 50 |
(c) | Under the Companys Articles of Organization, the holders of the Class A Common Stock are entitled to receive dividends per share equal to at least 200% of that paid, if any, from time to time, on each share of Class B Common Stock. |
-4-
The following table shows the dividends paid by the Company on the Class A and Class B Common Stock for the periods indicated. |
Dividends Per Share | |||||||||
Class A | Class B | ||||||||
|
|
||||||||
2000
|
|||||||||
First quarter
|
$ | .080 | $ | .0370 | |||||
Second quarter
|
.080 | .0370 | |||||||
Third quarter
|
.080 | .0370 | |||||||
Fourth quarter
|
.090 | .0450 | |||||||
2001
|
|||||||||
First quarter
|
$ | .090 | $ | .0450 | |||||
Second quarter
|
.090 | .0450 | |||||||
Third quarter
|
.090 | .0450 | |||||||
Fourth quarter
|
.100 | .0500 | |||||||
2002
|
|||||||||
First quarter
|
$ | .100 | $ | .0500 | |||||
Second quarter
|
.100 | .0500 | |||||||
Third quarter
|
.110 | .0550 | |||||||
Fourth quarter
|
.110 | .0550 |
As a bank holding company, the Companys ability to pay dividends is dependent in part upon the receipt of dividends from the Bank, which is subject to certain restrictions on the payment of dividends. A Massachusetts trust company may pay dividends out of net profits from time to time, provided that either (i) the trust companys capital stock and surplus account equal an aggregate of at least 10% of its deposit liabilities, or (ii) the amount of its surplus account is equal to at least the amount of its capital account. |
ITEM 6. SELECTED FINANCIAL DATA
The information required herein is shown on page 6 and 7. |
ITEM 7 . MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The information required herein is shown on pages 8 through 13. |
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required herein is shown on page 12 and 13. |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required herein is shown on pages 14 through 38. |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. |
-5-
Financial Highlights
Per Share Data
(dollars in thousands, except share data)
2002
2001
2000
$
1,557,201
$
1,271,022
$
1,083,830
514,249
462,772
439,563
1,146,284
888,408
793,796
100,256
84,599
71,506
$
1,321,593
$
1,058,924
$
949,015
1,231,440
978,371
882,545
571,027
330,217
267,633
126,675
151,975
165,970
488,465
443,395
434,780
965,112
767,574
681,486
219,499
166,083
163,944
92,248
79,279
63,424
$
13,504
$
10,859
$
10,205
46,420
39,800
35,488
10,266
8,863
7,234
34,089
30,025
25,638
$
2.45
$
1.96
$
1.82
$
2.44
$
1.96
$
1.82
14.64
%
13.70
%
16.09
%
$
18.17
$
15.34
$
12.88
1.02
%
1.03
%
1.08
%
60.1
%
61.7
%
60.6
%
5,516,590
5,535,309
5,597,136
5,534,059
5,541,745
5,597,629
5,517,425
5,515,350
5,550,350
2002, Quarter Ended
December 31,
September 30,
June 30,
March 31,
$
28.78
$
28.85
$
27.99
$
23.30
26.20
23.65
22.50
20.00
0.11
0.11
0.10
0.10
0.055
0.055
0.050
0.050
2001, Quarter Ended
December 31,
September 30,
June 30,
March 31,
$
21.79
$
24.30
$
20.60
$
19.125
19.20
18.55
17.10
14.625
0.10
0.09
0.09
0.09
0.05
0.045
0.045
0.045
6
Financial Highlights
(dollars in thousands, except share data)
2002
2001
2000
1999
1998
$
71,124
$
67,459
$
66,554
$
58,819
$
51,878
24,718
27,701
31,092
26,284
22,015
46,406
39,758
35,462
32,535
29,863
1,200
1,500
1,425
1,475
800
45,206
38,258
34,037
31,060
29,063
10,266
8,863
7,234
5,603
5,230
34,089
30,025
25,638
22,655
21,326
21,383
17,096
15,633
14,008
12,967
7,879
6,237
5,428
4,903
4,862
$
13,504
$
10,859
$
10,205
$
9,105
$
8,105
5,516,590
5,535,309
5,597,136
5,791,858
5,806,445
5,534,059
5,541,745
5,597,629
5,818,633
5,847,444
$
2.45
$
1.96
$
1.82
$
1.57
$
1.40
$
2.44
$
1.96
$
1.82
$
1.56
$
1.39
13.9
%
15.2
%
14.5
%
15.0
%
10.3
%
$
1,557,201
$
1,271,022
$
1,083,830
$
925,533
$
853,326
514,249
462,772
439,563
422,725
395,903
1,146,284
888,408
793,796
643,673
643,425
100,256
84,599
71,506
60,296
61,051
$
18.17
$
15.34
$
12.88
$
10.63
$
10.49
1.02
%
1.03
%
1.08
%
1.06
%
1.13
%
14.64
%
13.70
%
16.09
%
14.78
%
14.09
%
3.77
%
4.06
%
4.02
%
4.07
%
4.52
%
(0.04
)%
0.01
%
0.78
%
(0.04
)%
0.12
%
6.98
%
7.49
%
6.68
%
7.16
%
7.99
%
7
Managements Discussion and Analysis of Results of Operations and Financial Condition
Overview | ||
Century Bancorp, Inc. (the Company) had net income of $13,504,000 for the year ended December 31, 2002, compared with net income of $10,859,000 for year ended December 31, 2001 and net income of $10,205,000 for the year ended December 31, 2000. Basic earnings per share were $2.45 in 2002 compared to $1.96 in 2001 and $1.82 in 2000. Diluted earnings per share were $2.44 in 2002 compared to $1.96 in 2001 and $1.82 in 2000. | ||
Total assets were $1,557,201,000 at December 31, 2002, an increase of 22.5% from total assets of $1,271,022,000 on December 31,
2001, which, in turn, were 17.3% higher than total assets of
$1,083,830,000 on December 31, 2000.
On December 31, 2002, stockholders equity totaled $100,256,000 compared with $84,599,000 on December 31, 2001, and $71,506,000 on December 31, 2000. Book value per share increased to $18.17 at December 31, 2002 from $15.34 on December 31, 2001, which had increased from $12.88 on December 31, 2000. |
||
In April 2002, the Company opened a new branch location in Boston, Massachusetts. Last year the Company opened two new branch
locations in Brookline and Newton, Massachusetts. The Brookline branch was opened during January 2001 and the Newton branch was
opened during April 2001. The Company also opened a second lockbox
processing center in Worcester, Massachusetts in October 2001.
During the third quarter of 2002, the Company announced plans to continue its stock repurchase plan. Under the program, the Company is authorized to repurchase up to 300,000 shares, or less than 9% of Century Bancorp Class A Common Stock. The program expires on July 15, 2003. |
||
On October 30, 2002 the Company and Capital Crossing Bank announced the signing of a definitive agreement under which the Companys wholly-owned subsidiary, Century Bank and Trust Company (the Bank) will acquire Capital Crossings branch office at 1220 Boylston Street, Chestnut Hill, Massachusetts, and substantially all of its retail deposits in its main office at 101 Summer Street, Boston, Massachusetts. The agreement includes the acquisition of approximately $233.0 million in deposits and $4.0 million of related loans. The transaction is subject to customary conditions, including regulatory approval, which has been obtained, and is expected to close in the first quarter of 2003. | ||
Critical Accounting Policies | ||
Accounting policies involving significant judgments and assumptions by management, which have, or could have, a material impact on the carrying value of certain assets and impact income, are considered critical accounting policies. The Company considers the following to be its critical accounting policies: allowance for loan losses, impaired investment securities and deferred income taxes. There have been no significant changes in the methods or assumptions used in the accounting policies that require material estimates and assumptions. | ||
ALLOWANCE FOR LOAN LOSSES | ||
Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. Management maintains an allowance for credit losses to absorb losses inherent in the loan portfolio. The allowance is based on assessments of the probable estimated losses inherent in the loan portfolio. Managements methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowances for identified problem loans and the unallocated allowance. | ||
The formula allowance is calculated by applying loss factors to outstanding loans, in each case based on the internal risk grade of such loans. Changes in risk grades affect the amount of the formula allowance. Risk grades are determined by reviewing current collateral value, financial information, cash flow, payment history and other relevant facts surrounding the particular credit. Provisions for losses on the remaining commercial and commercial real estate loans are based on pools of similar loans using a combination of historical loss experience and qualitative adjustments. For the residential real estate and consumer loan portfolios, the reserves are calculated by applying historical charge-off and recovery experience and qualitative adjustments to the current outstanding balance in each loan category. Loss factors are based on the Companys historical loss experience as well as regulatory guidelines. | ||
Specific allowances are established in cases where management has identified significant conditions related to a credit that management believes that the probability that a loss has been incurred in excess of the amount determined by the application of the formula allowance. | ||
The unallocated allowance recognizes the model and estimation risk associated with the formula allowance and specific allowances as well as managements evaluation of various conditions, including the business and economic conditions, delinquency trends, charge-off experience and other asset quality factors, the effects of which are not directly measured in the determination of the formula and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits. | ||
Management believes that the allowance for loan losses is adequate. In addition, various regulatory agencies, as part of the examination process, periodically review the Companys allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. |
8
Managements Discussion and Analysis of Results of Operations and Financial Condition
Year Ended December 31, | 2002 | 2001 | 2000 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||||
Average | Interest | Rate | Average | Interest | Rate | Average | Interest | Rate | ||||||||||||||||||||||||||||||
Balance | Income (1) | Earned (1) | Balance | Income (1) | Earned (1) | Balance | Income (1) | Earned (1) | ||||||||||||||||||||||||||||||
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Assets
|
||||||||||||||||||||||||||||||||||||||
Interest-earning assets:
|
||||||||||||||||||||||||||||||||||||||
Loans
(2)
|
$ | 488,465 | $ | 35,954 | 7.36 | % | $ | 443,395 | $ | 36,853 | 8.31 | % | $ | 434,780 | $ | 39,206 | 9.02 | % | ||||||||||||||||||||
Securities available-for-sale:
|
||||||||||||||||||||||||||||||||||||||
Taxable
|
570,067 | 27,285 | 4.79 | % | 328,351 | 19,040 | 5.80 | % | 266,759 | 16,050 | 6.02 | % | ||||||||||||||||||||||||||
Tax-exempt
|
960 | 39 | 4.06 | % | 1,866 | 111 | 5.95 | % | 874 | 57 | 6.52 | % | ||||||||||||||||||||||||||
Securities held-to-maturity:
|
||||||||||||||||||||||||||||||||||||||
Taxable
|
126,675 | 7,150 | 5.64 | % | 151,975 | 9,381 | 6.17 | % | 165,970 | 10,379 | 6.25 | % | ||||||||||||||||||||||||||
Federal funds sold
|
45,253 | 710 | 1.57 | % | 52,768 | 2,116 | 4.01 | % | 14,156 | 888 | 6.27 | % | ||||||||||||||||||||||||||
Interest bearing deposits
in other banks
|
20 | | 2.50 | % | 16 | | 3.12 | % | 6 | | 6.67 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Total interest-earning
assets
|
$ | 1,231,440 | $ | 71,138 | 5.78 | % | $ | 978,371 | $ | 67,501 | 6.90 | % | $ | 882,545 | $ | 66,580 | 7.54 | % | ||||||||||||||||||||
Non interest-earning assets
|
97,981 | 87,135 | 72,151 | |||||||||||||||||||||||||||||||||||
Allowance for loan losses
|
(7,828 | ) | (6,582 | ) | (5,681 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Total assets
|
$ | 1,321,593 | $ | 1,058,924 | $ | 949,015 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | On a fully taxable equivalent basis calculated using a federal tax rate of 35%. | |
(2) | Nonaccrual loans are included in average amounts outstanding. |
9
Managements Discussion and Analysis of Results of Operations and Financial Condition
Year Ended December 31,
2002
2001
2000
Interest
Rate
Interest
Rate
Interest
Rate
Average
Income/
Earned/
Average
Income/
Earned/
Average
Income/
Earned/
Balance
Expense
(1)
Paid
(1)
Balance
Expense
(1)
Paid
(1)
Balance
Expense
(1)
Paid
(1)
(dollars in thousands)
$
176,976
$
1,919
1.08
%
$
134,535
$
2,531
1.88
%
$
127,809
$
2,926
2.29
%
72,780
595
0.82
%
63,064
882
1.40
%
60,373
1,167
1.93
%
268,504
4,730
1.76
%
130,717
3,334
2.55
%
82,686
2,306
2.79
%
214,480
7,510
3.50
%
230,070
11,727
5.10
%
242,061
13,642
5.64
%
732,740
14,754
2.01
%
558,386
18,474
3.31
%
512,929
20,041
3.91
%
61,718
696
1.13
%
71,826
1,647
2.29
%
68,808
2,919
4.24
%
186,531
9,268
4.97
%
123,007
7,580
6.16
%
123,886
8,132
6.56
%
980,989
24,718
2.52
%
753,219
27,701
3.68
%
705,623
31,092
4.41
%
232,372
209,188
168,557
15,984
17,238
11,411
1,229,345
979,645
885,591
92,248
79,279
63,424
$
1,321,593
$
1,058,924
$
949,015
$
46,420
$
39,800
$
35,488
3.26
%
3.22
%
3.14
%
3.77
%
4.06
%
4.02
%
(1) | On a fully taxable equivalent basis calculated using a federal tax rate of 35%. |
The following table summarizes the year-to-year changes in the Companys net interest income resulting from fluctuations in interest rates and volume changes in earning assets and interest bearing liabilities. Changes due to rate are computed by multiplying the change in rate by the prior years volume. Changes due to volume are computed by multiplying the change in volume by the prior years rate. Changes in volume and rate that cannot be separately identified have been allocated in proportion to the relationship of the absolute dollar amounts of each change. |
10
Managements Discussion and Analysis of Results of Operations and Financial Condition
2002 Compared with 2001
2001 Compared with 2000
Year Ended December 31,
Increase / (Decrease) Due to Change in
Increase / (Decrease) Due to Change in
Income
Income
Volume
Rate
Amount
Volume
Rate
Amount
(in thousands)
$
3,544
$
(4,442
)
$
(898
)
$
765
$
(3,118
)
$
(2,353
)
12,038
(3,793
)
8,245
3,590
(600
)
2,990
(44
)
(28
)
(72
)
59
(5
)
54
(1,473
)
(758
)
(2,231
)
(865
)
(133
)
(998
)
(267
)
(1,139
)
(1,406
)
1,650
(422
)
1,228
13,798
(10,160
)
3,638
5,199
(4,278
)
921
654
(1,266
)
(612
)
148
(543
)
(395
)
121
(408
)
(287
)
50
(335
)
(285
)
2,674
(1,278
)
1,396
1,240
(212
)
1,028
(750
)
(3,467
)
(4,217
)
(654
)
(1,261
)
(1,915
)
2,699
(6,419
)
(3,720
)
784
(2,351
)
(1,567
)
(206
)
(745
)
(951
)
123
(1,395
)
(1,272
)
3,363
(1,675
)
1,688
(57
)
(495
)
(552
)
5,856
(8,839
)
(2,983
)
850
(4,241
)
(3,391
)
$
7,942
$
(1,322
)
$
6,620
$
4,349
$
(37
)
$
4,312
The Companys operating results depend primarily on net interest income and fees received for providing services. Net interest income on a fully taxable equivalent basis increased 16.6% in 2002 to $46,420,000 compared with $39,800,000 in 2001. The increase in net interest income was mainly due to a 25.9% increase in the average balances of earning assets, combined with a similar increase in deposits and borrowed funds. The increase in volume was partially offset by a twenty-nine basis point decrease in the net interest margin. The level of interest rates, the ability of the Companys earning assets and liabilities to adjust to changes in interest rates and the mix of the Companys earning assets and liabilities affect net interest income. The net yield on earning assets on a fully taxable equivalent basis decreased to 3.77% in 2002 from 4.06% in 2001, which had increased from 4.02% in 2000. The decrease was mainly attributable to assets continuing to reprice at historically low levels while the corresponding decrease in rates paid have reached resistant levels. | ||
Average earning assets were $1,231,440,000 in 2002, an increase of $253,069,000 or 25.9% from the average in 2001, which was 10.9% higher than the average in 2000. Total average securities, including securities available for sale and securities held to maturity, increased 44.7% to $697,702,000. The increase in securities volume was mainly attributable to deposit growth as well as growth in borrowings. This increase in securities volume offset by lower interest rates resulted in higher securities income, which increased 20.9% to $34,461,000. Total average loans increased 10.2% to $488,465,000 after increasing $8,615,000 in 2001. Total loans increased primarily as a result of internal loan growth. The increase in loan volume was more than offset by lower interest rates resulting in lower loan income, which decreased by 2.4% or $896,000 to $35,953,000. Total loan income was $39,199,000 in 2000. | ||
The Companys sources of funds include deposits and borrowed funds. On average, deposits showed an increase of 25.7% or $197,538,000 in 2002 after increasing by 12.6% or $86,088,000 in 2001. Deposits increased in 2002 primarily as a result of internal deposit growth and were mainly concentrated in money market accounts, which increased by $137,787,000. Borrowed funds increased by 32.2% in 2002 following an increase of 1.3% in 2001 and were used to fund growth in the balance sheet. The majority of the Companys borrowed funds are borrowings from the Federal Home Loan Bank (FHLB) and retail repurchase agreements. Borrowings from the FHLB contributed approximately $63,516,000 to the Companys increased year-to-date average. Interest expense totaled $24,718,000 in 2002, a decrease of $2,983,000 or 10.8% from 2001 when interest expense decreased 10.9% from 2000. This decrease in interest expense is due primarily to increases in deposits which was more than offset by decreases in deposit rates. | ||
Provision for Loan Loss | ||
The provision for loan losses was $1,200,000 in 2002 compared with $1,500,000 in 2001 and $1,425,000 in 2000. These provisions are the result of managements evaluation of the quality of the loan portfolio considering such factors as loan status, collateral values, financial condition of the borrower, the state of the economy and other relevant information. | ||
The allowance for loan losses was $8,506,000 at December 31, 2002 compared with $7,112,000 at December 31, 2001 and $5,662,000 at December 31, 2000. Expressed as a percentage of outstanding loans at year-end, the allowance was 1.65% in 2002, 1.54% in 2001 and 1.29% in 2000. The increased ratio in 2002 was mainly attributable to increased economic uncertainty and an increase in the commercial loan portfolio. |
11
Managements Discussion and Analysis of Results of Operations and Financial Condition
The Company experienced net recoveries in 2002 with net recoveries as a percent of average loans outstanding at 0.04%. The comparable net charge-offs figures for 2001 and 2000 were 0.01% and 0.78% respectively. Non-performing loans, which include all non-accruing loans and certain restructured, accruing loans, totaled $511,000 on December 31, 2002, compared with $423,000 on December 31, 2001. | ||
Other Operating Income | ||
The Company continued to experience good results in its fee-based services in 2002. The fee-based services include fees derived from traditional banking activities such as deposit related services as well as revenues from its automated lockbox collection system and full service securities brokerage offered through Commonwealth Equity Services, Inc., an unaffiliated registered securities broker-dealer and investment adviser. | ||
Under the lockbox program, which is not tied to extensions of credit by the Company, the Companys customer arranges for payments of its accounts receivable to be made directly to the Company. The Company records on its computer the amounts paid to its customers, deposits the funds to the customers account with the Company and provides computerized records of the amounts received to the Companys customers. Typical customers for the lockbox service are municipalities, who use it to automate tax collections, cable TV companies, and other commercial enterprises. | ||
Through Commonwealth Equity Services, Inc., the Bank provides full service securities brokerage services. Registered representatives employed by the Bank offer investment advice, execute transactions and assist customers in financial and retirement planning. Commonwealth Equity Services, Inc. provides research to and supervises representatives in exchange for payment by the Bank for a fixed fee and a share in the commission revenues. | ||
Total other operating income in 2002 was $10,266,000 an increase of $1,403,000 or 15.8% compared to 2001. This increase followed an increase of $1,629,000 or 22.5% in 2001, compared to 2000. Service charge income, which continues to be a major area of other operating income with $4,418,000 in 2002, saw an increase of $1,039,000 compared to 2001. The increase in service charge income was mainly attributable to an increase in the customer base. Lockbox revenues totaled $3,463,000 up $24,000 in 2002. Brokerage commissions decreased to $1,038,000 in 2002 from $1,248,000 in 2001, primarily as a result of continuing adverse market conditions. Also included in other operating income for 2002 is a pretax realized gain of $359,000 associated with the sale of bank premises. | ||
Operating Expenses | ||
Total operating expenses were $34,089,000 in 2002 compared to $30,025,000 in 2001 and $25,638,000 in 2000. | ||
Salaries and employee benefits expenses increased by $2,939,000 or 15.7% in 2002 after increasing 17.9% in 2001. Most of the increase for 2002 and 2001 was in compensation expense associated with increased staff levels as well as merit increases in salaries and employee benefits. | ||
Occupancy expense increased by $180,000 or 8.5% in 2002, this followed an increase of $535,000 or 33.7% in 2001. The increase in 2002 was mainly attributable to full-year costs associated with the opening of a new branch. The increase in 2001 was mainly attributable to full-year costs associated with the opening of two new branches. | ||
Other operating expenses increased by $682,000 in 2002, which followed a $763,000 increase in 2001. The increase for 2002 was primarily the result of increased marketing, check processing charges, software maintenance expense and legal expense which was offset by a reduction in the amortization of goodwill. The increase for 2001 was primarily the result of increased check processing charges, consultants expense, postage expense and outside services expense. | ||
Provision for Income Taxes | ||
Income tax expense was $7,879,000 in 2002, $6,237,000 in 2001 and $5,428,000 in 2000. The effective tax rate was 36.8% in 2002, 36.5% in 2001 and 34.7% in 2000. The Company is continuing to realize savings in this area as a result of strategic tax savings initiatives. | ||
The Company has received from the Commonwealth of Massachusetts Department of Revenue (DOR) notice that dividend distributions by the Banks subsidiary real estate investment trust (REIT) are fully taxable in Massachusetts and therefore not subject to the dividends received deduction (DRD). The Notice of Assessment to charge additional state excise taxes totaled $2.7 million plus interest for the three years ended December 31, 1999, 2000 and 2001. As of the date of this notice, interest amounted to $398 thousand. The Company has received additional state tax benefits of approximately $1.6 million for the twelve months ended December 31, 2002. The Company intends to vigorously defend its position. | ||
In January 2003, the Massachusetts Governor put forth proposed legislation that would disallow the REIT dividend received deduction (DRD) effective for tax years ending on or after December 31, 1999. If the legislation is passed, the Company will cease recording the future tax benefits of the DRD effective for the tax year in which the legislation is passed. In addition, if the legislation applies retroactively as currently proposed, the Company will be required to recognize additional state excise taxes, including interest (net of the federal tax deduction associated with such taxes and interest), beginning in the first fiscal quarter in which the legislation is passed. This will reduce earnings by a material amount in the quarter in which the legislation is passed. As of February 25, 2003, the Company estimates that this reduction of earnings would be approximately $3.2 million. The Company is aware that Massachusetts financial institution trade groups have contended that the legislature does not have the ability to apply these provisions retroactively back to 1999. | ||
Market Risk and Asset Liability Management | ||
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. |
12
Managements Discussion and Analysis of Results of Operations and Financial Condition
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. One measure of the Companys exposures to differential changes in interest rates between assets and liabilities is an interest rate risk management test. This test measures the impact on net interest income of an immediate change in interest rates in 100 basis point increments. |
Change in Interest Rates (in Basis Points) | Percentage Change in Net Interest Income (1) | |
|
|
|
+200 | (0.7%) | |
+100 | (0.5%) | |
-100 | (2.6%) | |
-200 | (5.5%) |
(1) | The percentage change in this column represents net interest income for 12 months in various rate scenarios versus the net interest income in a stable interest rate environment. |
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. The Company relies primarily on its asset-liability structure to control interest rate risk. | ||
Liquidity | ||
Liquidity is provided by maintaining an adequate level of liquid assets that include cash and due from banks, federal funds sold and other temporary investments. Liquid assets totaled $122,205,000 on December 31, 2002 compared with $177,833,000 on December 31, 2001 and $175,802,000 on December 31, 2000. The decrease in liquid assets at December 31, 2002 was mainly attributable to a decreased reliance on short term investments such as federal funds sold. In each of the three years deposit activity has generally been adequate to support asset activity. | ||
The source of funds for dividends paid by the Company is dividends received from the Bank. The Company and the Bank are regulated enterprises and their abilities to pay dividends are subject to regulatory review and restriction. Certain regulatory and statutory restrictions exist regarding dividends, loans and advances from the Bank to the Company. Generally, the Bank has the ability to pay dividends to the Company subject to minimum regulatory capital requirements. | ||
Capital Adequacy | ||
Total stockholders equity was $100,256,000 at December 31, 2002, compared with $84,599,000 at December 31, 2001 and $71,506,000 at December 31, 2000. The increase in 2002 was primarily the result of retained earnings less dividends paid and an increase in net unrealized gains on securities available-for-sale. The increase in 2001 was primarily the result of retained earnings less dividends paid and an increase in net unrealized gains on securities available-for-sale offset by treasury stock repurchases. Also, there was a $31,000 increase in 2002 and a $104,000 increase in 2000 from the exercise of certain stock options. | ||
Federal banking regulators have issued risk-based capital guidelines, which assign risk factors to asset categories and off-balance sheet items. The current guidelines require a Tier 1 capital-to-risk assets ratio of 4.00% and a total capital-to-risk assets ratio of 8.00%. The Company and the Bank exceeded these requirements with a Tier 1 capital-to-risk assets ratio of 16.99% and 12.05% respectively, and total capital-to-risk assets ratio of 18.21% and 13.26%, respectively at December 31, 2002. Additionally, federal banking regulators have issued leverage ratio guidelines, which supplement the risk-based capital guidelines. The minimum leverage ratio requirement applicable to the Company is 4.00% and at December 31, 2002, the Company and the Bank exceeded this requirement with leverage ratios of 8.28% and 5.87%, respectively. | ||
Forward-Looking Statements | ||
Certain statements contained herein are not based on historical facts and are forward-looking statements within the meaning of Section 21A of the Securities Exchange Act of 1934. Forward-looking statements, which are based on various assumptions (some of which are beyond the Companys control), may be identified by reference to a future period or periods, or by the use of forward- looking terminology, such as may, will, believe, expect, estimate, anticipate, continue, or similar terms or variations on those terms, or the negative of these terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary polices of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset/liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity. | ||
The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. |
13
Consolidated Balance Sheets
December 31,
2002
2001
(dollars in thousands, except share data)
$
63,188
$
71,820
59,017
106,013
122,205
177,833
761,531
460,833
127,209
142,608
514,249
462,772
8,506
7,112
505,743
455,660
12,928
11,882
9,370
7,561
18,215
14,645
$
1,557,201
$
1,271,022
$
248,340
$
227,319
275,834
187,676
357,921
242,665
264,189
230,748
1,146,284
888,408
51,800
72,840
169,420
143,481
60,691
52,944
28,750
28,750
1,456,945
1,186,423
$1.00 par value per share; authorized 10,000,000 shares;
issued 3,780,915 shares in 2002 and 3,761,020 shares in 2001
3,781
3,761
$1.00 par value per share; authorized 5,000,000 shares;
issued 2,167,660 shares in 2002 and 2,185,480 shares in 2001
2,168
2,186
11,123
11,093
81,755
70,123
(5,941
)
(5,941
)
(41
)
(41
)
92,845
81,181
7,411
3,418
100,256
84,599
$
1,557,201
$
1,271,022
See accompanying Notes to Consolidated Financial Statements. |
14
Consolidated Statements of Income
Year Ended December 31,
2002
2001
2000
(dollars in thousands, except share data)
$
35,953
$
36,849
$
39,199
27,311
19,113
16,088
7,150
9,381
10,379
710
2,116
888
71,124
67,459
66,554
2,514
3,413
4,093
4,730
3,334
2,306
7,510
11,727
13,642
696
1,647
2,919
9,268
7,580
8,132
24,718
27,701
31,092
46,406
39,758
35,462
1,200
1,500
1,425
45,206
38,258
34,037
4,418
3,379
2,260
3,463
3,439
2,506
1,038
1,248
1,511
1,347
797
957
10,266
8,863
7,234
21,709
18,770
15,917
2,301
2,121
1,586
2,134
1,871
1,635
7,945
7,263
6,500
34,089
30,025
25,638
21,383
17,096
15,633
7,879
6,237
5,428
$
13,504
$
10,859
$
10,205
5,516,590
5,535,309
5,597,136
5,534,059
5,541,745
5,597,629
$
2.45
$
1.96
$
1.82
$
2.44
$
1.96
$
1.82
See accompanying Notes to Consolidated Financial Statements. |
15
Consolidated Statements of Changes in Stockholders Equity
Accumulated
Class A
Class B
Additional
Treasury
Treasury
Other
Total
Common
Common
Paid-In
Retained
Stock
Stock
Comprehensive
Stockholders
Stock
Stock
Capital
Earnings
Class A
Class B
Income(Loss)
Equity
(dollars in thousands, except share data)
$
3,722
$
2,197
$
11,017
$
52,188
$
(3,122
)
$
(41
)
$
(5,665
)
$
60,296
10,205
10,205
4,498
4,498
14,703
5
(5
)
28
76
104
(2,120
)
(2,120
)
(1,142
)
(1,142
)
(335
)
(335
)
3,755
2,192
11,093
60,916
(5,242
)
(41
)
(1,167
)
71,506
10,859
10,859
4,585
4,585
15,444
6
(6
)
(698
)
(698
)
(1,257
)
(1,257
)
(396
)
(396
)
3,761
2,186
11,093
70,123
(5,941
)
(41
)
3,418
84,599
13,504
13,504
3,993
3,993
17,497
18
(18
)
2
29
31
(1,426
)
(1,426
)
(445
)
(445
)
$
3,781
$
2,168
$
11,123
$
81,755
$
(5,941
)
$
(41
)
$
7,411
$
100,256
See accompanying Notes to Consolidated Financial Statements.
16
Consolidated Statements of Cash Flows
Year Ended December 31,
2002
2001
2000
(in thousands)
$
13,504
$
10,859
$
10,205
1,200
1,500
1,425
(5,690
)
(133
)
4,455
1,822
2,066
1,939
(1,809
)
51
(988
)
(4,318
)
(948
)
(2,902
)
73
89
61
(1
)
(1
)
(1
)
(47
)
(359
)
(386
)
6,702
(8,739
)
3,261
11,124
4,697
17,069
324,502
215,708
20,396
(618,946
)
(396,285
)
(31,611
)
63,494
95,904
14,269
(48,113
)
(69,340
)
(30,934
)
4,093
38,976
1,999
(50,883
)
(22,875
)
(19,906
)
1,020
1,342
(2,854
)
(4,558
)
(1,684
)
(327,687
)
(142,470
)
(46,129
)
33,441
(57,320
)
17,493
224,435
151,932
132,630
31
104
(698
)
(2,120
)
(1,871
)
(1,653
)
(1,477
)
(21,040
)
1,390
11,970
25,939
46,153
(20,266
)
260,935
139,804
138,334
(55,628
)
2,031
109,274
177,833
175,802
66,528
$
122,205
$
177,833
$
175,802
$
24,668
$
29,755
$
29,549
8,367
5,588
2,424
$
3,993
$
4,585
$
4,498
See accompanying Notes to Consolidated Financial Statements. |
17
Notes to Consolidated Financial Statements
18
Notes to Consolidated Financial Statements
19
20
Notes to Consolidated Financial Statements
21
Notes to Consolidated Financial Statements
22
Notes to Consolidated Financial Statements
23
Notes to Consolidated Financial Statements
24
Notes to Consolidated Financial Statements
25
Notes to Consolidated Financial Statements
7. Bank Premises and Equipment
26
Notes to Consolidated Financial Statements
Time Deposits as of December 31, are as follows:
Time Deposits of $100,000 or more as of December 31, are as follows:
27
Notes to Consolidated Financial Statements
FEDERAL HOME LOAN BANK BORROWINGS
The following table shows the maturity distribution of borrowings from the Federal Home Loan Bank of Boston (FHLB) as follows:
11. Stockholders Equity
28
Notes to Consolidated Financial Statements
Stock option activity under the plan is as follows:
29
Notes to Consolidated Financial Statements
12. Income Taxes
30
Notes to Consolidated Financial Statements
The following table sets forth the Companys gross deferred income tax assets and gross deferred income tax liabilities at December 31:
13. Employee Benefits
31
Notes to Consolidated Financial Statements
14. Commitments and Contingencies
32
Notes to Consolidated Financial Statements
15. Financial Instruments With Off-Balance Sheet Risk
16. Other Operating Expenses
33
Notes to Consolidated Financial
Statements
34
Notes to Consolidated Financial Statements
18. Quarterly Result of Operations (unaudited)
35
Notes to Consolidated Financial Statements
19. Parent Company Financial Statements
1.
Summary of Significant Accounting Policies
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). 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 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 preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ from those estimates.
Material estimates that are susceptible to change in the near-term relate to the allowance for losses on loans. Management believes that
the allowance for losses on loans is adequate based on independent appraisals and review of other factors associated with the assets.
While management uses available information to recognize losses on loans, future additions to the allowance for loans may be
necessary based on changes in economic conditions. In addition, regulatory agencies periodically review the Companys allowance for
losses on loans. Such agencies may require the Company to recognize additions to the allowance for loans based on their judgements
about information available to them at the time of their examination.
INVESTMENT SECURITIES
Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and reported
at amortized cost; debt and equity securities that are bought and held principally for the purpose of selling are classified as trading and
reported at fair value, with unrealized gains and losses included in earnings; and debt and equity securities not classified as either
held-to-maturity or trading are classified as available-for-sale and reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders equity, net of estimated related income taxes. The Company has no
securities held for trading.
Premiums and discounts on investment securities are amortized or accreted into income by use of the level-yield method. If a decline in
fair value below the amortized cost basis of an investment is judged to be other than temporary, the cost basis of the investment is
written down to fair value. The amount of the writedown is included as a charge to earnings. Gains and losses on the sale of investment
securities are recognized at the time of sale on a specific identification basis.
LOANS
Interest on loans is recognized based on the daily principal amount outstanding. Accrual of interest is discontinued when loans become
90 days delinquent unless the collateral is sufficient to cover both principal and interest and the loan is in the process of collection.
Loans, including impaired loans, on which the accrual of interest has been discontinued are designated non-accrual loans. When a loan
is placed on non-accrual, all income which has been accrued but remains unpaid is reversed against current period income and all
amortization of deferred loan fees is discontinued. Non-accrual loans may be returned to an accrual status when principal and interest
payments are not delinquent and the risk characteristics of the loan have improved to the extent that there no longer exists a concern
as to the collectibility of principal and income. Income received on non-accrual loans is either recorded in income or applied to the
principal balance of the loan depending on managements evaluation as to the collectibility of principal.
Loan origination fees and related direct incremental loan origination costs are offset and the resulting net amount is deferred and
amortized over the life of the related loans using the level-yield method.
The Bank accounts for impaired loans, except those loans that are accounted for at fair value or at lower of cost or fair value, at the
present value of the expected future cash flows discounted at the loans effective interest rate. This method applies to all loans,
uncollateralized as well as collateralized, except large groups of smaller-balance homogeneous loans that are collectively evaluated for
Table of Contents
impairment, loans that are measured at fair value and leases. Management considers the payment status, net worth and earnings
potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with
its contractual terms. Management does not set any minimum delay of payments as a factor in reviewing for impaired classification.
Impaired loans are charged-off when management believes that the collectibility of the loans principal is remote. In addition, criteria
for classification of a loan as in-substance foreclosure has been modified so that such classification need be made only when a lender
is in possession of the collateral. The Bank measures the impairment of troubled debt restructurings using the pre-modification rate
of interest.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on managements evaluation of the quality of the loan portfolio and is used to provide for
losses resulting from loans which ultimately prove uncollectible. In determining the level of the allowance, periodic evaluations are
made of the loan portfolio which take into account such factors as the character of the loans, loan status, financial posture of the
borrowers, value of collateral securing the loans and other relevant information sufficient to reach an informed judgement. The
allowance is increased by provisions charged to income and reduced by loan charge-offs, net of recoveries.
Management maintains an allowance for credit losses to absorb losses inherent in the loan portfolio. The allowance is based on
assessments of the probable estimated losses inherent in the loan portfolio. Managements methodology for assessing the
appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowances for
identified problem loans and the unallocated allowance.
The formula allowance is calculated by applying loss factors to outstanding loans, in each case based on the internal risk grade of such
loans. Changes in risk grades affect the amount of the formula allowance. Loss factors are based on the Companys historical loss
experience as well as regulatory guidelines.
Specific allowances are established in cases where management has identified significant conditions related to a credit that
management believes that the probability that a loss has been incurred in excess of the amount determined by the application of the
formula allowance.
The unallocated allowance recognizes the model and estimation risk associated with the formula allowance and specific allowances as
well as managements evaluation of various conditions, the effects of which are not directly measured in the determination of the
formula and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of
uncertainty because they are not identified with specific problem credits.
While management uses available information in establishing the allowance for loan losses, future adjustments to the allowance may
be necessary if economic conditions differ substantially from the assumptions used in making the evaluations. Loans are charged-off in
whole or in part when, in managements opinion, collectibility is not probable.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets or the terms of leases, if shorter. It is general practice to charge the cost
of maintenance and repairs to operations when incurred; major expenditures for improvements are capitalized and depreciated.
STOCK OPTION ACCOUNTING
The Company currently accounts for employee stock options using the intrinsic value method. Under the intrinsic value method, no
compensation cost is recognized related to options if the exercise price of the option is greater than or equal to the fair market value of
the underlying stock on the date of grant. Under an alternative method, the fair value method, the cost of the option is estimated
using an option valuation model and recognized as compensation expense over the vesting period of the option. Any change from the
intrinsic value method to the fair value method of accounting for stock options is required to be applied prospectively for options
granted after the date of change in method which must be as of the beginning of a fiscal year. The Company generally awards stock
options annually with a grant date in January.
Table of Contents
Notes to Consolidated Financial Statements
The Company measures compensation cost for its stock option plans using the intrinsic value based method of accounting. Had
compensation cost for the Companys stock option plans been determined based on the fair value at the grant date, the Companys net
income and earnings per share would have been reduced to the pro forma amounts indicated below:
December 31,
2002
2001
(in thousands, except per share data)
$
13,504
$
10,859
$
13,262
$
10,789
$
242
$
70
$
2.45
$
1.96
$
2.40
$
1.95
$
2.44
$
1.96
$
2.40
$
1.95
In determining the pro forma amounts, the fair value of each option grant was estimated as of the date of grant using Black-Scholes
option-pricing model with the following weighted average assumptions:
December 31,
2002
2001
2.25
%
2.65
%
8
years
9
years
25
%
36
%
4.01
%
4.94
%
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Under
this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
2.
Cash and Due From Banks
The Company is required to maintain a portion of its cash and due from banks as a reserve balance under the Federal Reserve Act. Such
reserve is calculated based upon deposit levels and amounted to $507,000 at December 31, 2002 and $437,000 at December 31, 2001.
3.
Securities Available-for-Sale
December 31, 2002
December 31, 2001
Gross
Gross
Estimated
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Market
Amortized
Unrealized
Unrealized
Market
Cost
Gains
Losses
Value
Cost
Gains
Losses
Value
(in thousands)
$
731,875
$
11,538
$
$
743,413
$
435,796
$
6,459
$
1,089
$
441,166
390
390
2,005
2,005
13,084
13,084
13,084
13,084
4,780
52
188
4,644
4,690
48
160
4,578
$
750,129
$
11,590
$
188
$
761,531
$
455,575
$
6,507
$
1,249
$
460,833
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December 31, 2000
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Market
Cost
Gains
Losses
Value
(in thousands)
$
256,390
$
137
$
1,689
$
254,838
1,000
1,000
13,084
13,084
4,465
19
262
4,222
$
274,939
$
156
$
1,951
$
273,144
Included in U.S. Government and Agency securities are securities pledged to secure public deposits and repurchase agreements amounting
to $60,841,000 at December 31, 2002, $81,332,000 at December 31, 2001 and $79,464,000 at December 31, 2000.
The following tables show the maturity distribution of the Companys securities available-for-sale at December 31, 2002 and the
weighted average yields of securities, which are based on the amortized cost, calculated on a fully taxable equivalent basis.
December 31, 2002
Obligations
U.S.
of States
Estimated
Government
and Political
Market
and Agencies
Yield
Subdivisions
Yield
Other
Yield
Total
Yield
Value
(in thousands)
$
54,607
5.01
%
$
390
3.71
%
$
100
6.30
%
$
55,097
5.00
%
$
56,332
643,357
4.09
%
0.00
%
650
6.27
%
644,007
4.09
%
653,313
3,999
5.90
%
0.00
%
0.00
%
3,999
5.90
%
4,084
29,912
5.97
%
0.00
%
0.00
%
29,912
5.97
%
30,823
0.00
%
0.00
%
17,114
3.77
%
17,114
3.77
%
16,979
$
731,875
4.25
%
$
390
3.71
%
$
17,864
3.88
%
$
750,129
4.23
%
$
761,531
The weighted average remaining life of investment securities available-for-sale at December 31, 2002, 2001 and 2000 was 2.9, 3.4 and
3.8 years, respectively. Included in the weighted average remaining life calculation at December 31, 2002 and 2001 there were $547.7
million and $268.7 million respectively of U.S. agency obligations that are callable at the discretion of the issuer. These call dates were
not utilized in computing the weighted average remaining life.
4.
Investment Securities Held-to-Maturity
December 31, 2002
December 31, 2001
Gross
Gross
Estimated
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Market
Amortized
Unrealized
Unrealized
Market
Cost
Gains
Losses
Value
Cost
Gains
Losses
Value
(in thousands)
$
116,332
$
2,664
$
$
118,996
$
125,054
$
2,662
$
228
$
127,488
10,877
141
11,018
17,554
207
12
17,749
$
127,209
$
2,805
$
$
130,014
$
142,608
$
2,869
$
240
$
145,237
December 31, 2000
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Market
Cost
Gains
Losses
Value
(in thousands)
$
146,962
$
485
$
1,003
$
146,444
22,224
206
22,018
$
169,186
$
485
$
1,209
$
168,462
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The following tables show the maturity distribution of the Companys securities held-to-maturity at December 31, 2002 and the weighted
average yields of securities, which are based on the amortized cost, calculated on a fully taxable equivalent basis.
December 31, 2002
Obligations
U.S.
of States
Estimated
Government
and Political
Market
and Agencies
Yield
Subdivisions
Yield
Other
Yield
Total
Yield
Value
(in thousands)
$
18,000
5.74
%
$
0.00
%
$
0.00
%
$
18,000
5.74
%
$
18,483
55,373
4.81
%
0.00
%
25
5.50
%
55,398
4.81
%
56,396
1,969
6.71
%
0.00
%
0.00
%
1,969
6.71
%
2,098
40,990
5.57
%
0.00
%
10,852
6.4
7
%
51,842
5.76
%
53,037
$
116,332
5.25
%
$
0.00
%
$
10,877
6.47
%
$
127,209
5.35
%
$
130,014
The weighted average remaining life of investment securities held-to-maturity at December 31, 2002, 2001 and 2000 was 3.2, 3.2 and
4.9 years, respectively. Included in the weighted average remaining life calculation at December 31, 2002 and 2001 there were $44
million and $53.4 million respectively of U.S. agency obligations that are callable at the discretion of the issuer. These call dates were
not utilized in computing the weighted average remaining life.
5.
Loans
The Companys lending activities are conducted principally in Massachusetts and Southern New Hampshire. The Company grants
single and multi-family residential loans, commercial and commercial real estate loans, and a variety of consumer loans. To a lesser
extent, the Company grants loans for the construction of residential homes, multi-family properties, commercial real estate properties,
and land development. Most loans made by the Company are secured by real estate collateral. The ability and willingness of
commercial real estate, commercial, construction, residential and consumer loan borrowers to honor their repayment commitments is
generally dependent on the health of the real estate market in the borrowers geographic areas and the general economy.
The following summary shows the composition of the
loan portfolio at the dates indicated.
December 31,
2002
2001
2000
1999
1998
Percent
Percent
Percent
Percent
Percent
Amount
of Total
Amount
of Total
Amount
of Total
Amount
of Total
Amount
of Total
(in thousands)
$
33,155
6.4
%
$
39,256
8.5
%
$
21,840
5.0
%
$
21,682
5.1
%
$
21,691
5.5
%
46,044
9.0
%
59,162
12.8
%
95,957
21.8
%
77,166
18.3
%
64,822
16.4
%
0.0
%
48
0.0
%
119
0.0
%
190
0.0
%
1,034
0.3
%
291,598
56.7
%
241,419
52.2
%
209,233
47.6
%
209,332
49.5
%
187,285
47.3
%
92,291
17.9
%
88,450
19.1
%
81,526
18.5
%
82,968
19.6
%
87,518
22.1
%
8,169
1.6
%
7,701
1.7
%
9,226
2.1
%
11,678
2.8
%
14,355
3.6
%
41,527
8.1
%
26,016
5.6
%
21,107
4.8
%
19,227
4.5
%
18,839
4.8
%
1,465
0.3
%
720
0.2
%
555
0.1
%
482
0.1
%
359
0.1
%
$
514,249
100.0
%
$
462,772
100.0
%
$
439,563
100.0
%
$
422,725
100.0
%
$
395,903
100.0
%
At December 31, 2002, 2001, 2000, 1999 and 1998 loans were carried net of discounts of $492,000, $969,000, $1,446,000, $1,923,000
and $2,875,000 respectively. Included in these amounts at December 31, 2002, 2001, 2000, 1999 and 1998, residential real estate
loans were carried net of discounts of $487,000, $959,000, $1,431,000, $1,903,000 and $2,375,000 respectively, associated with the
acquisition of loans from another financial institution.
The following table summarizes the remaining maturity distribution of certain components of the Companys loan portfolio on December
31, 2002. The table excludes loans secured by 1-4 family residential real estate and loans for household family and other personal
expenditures. Maturities are presented as if scheduled principal amortization payments are due on the last contractual payment date.
Table of Contents
Remaining Maturities of Selected Loans at December 31, 2002
One Year
One to Five
Over
or Less
Years
Five Years
Total
(in thousands)
$
18,700
$
6,656
$
7,799
$
33,155
28,118
15,171
2,755
46,044
36,201
103,694
151,703
291,598
$
83,019
$
125,521
$
162,257
$
370,797
The following table indicates the rate variability of the above loans due after one year.
December 31, 2002
One to Five
Over
Years
Five Years
Total
(in thousands)
$
95,379
$
13,106
$
108,485
30,142
149,151
179,293
$
125,521
$
162,257
$
287,778
The Companys commercial and industrial (C&I) loan customers represent various small and middle market established businesses
involved in manufacturing, distribution, retailing and services. Most clients are privately owned with markets that range from local
to national in scope. Many of the loans to this segment are secured by liens on corporate assets and the personal guarantees of the
principals. The Bank has placed greater emphasis on building its C&I base in the future. The regional economic strength or weakness
impacts the relative risks in this loan category. There is little concentration to any one business sector and loan risks are generally
diversified among many borrowers.
Commercial real estate loans are extended to finance various manufacturing, warehouse, light industrial, office, retail and residential
properties in the Banks market area, which generally includes Massachusetts and Southern New Hampshire. Loans are normally
extended in amounts up to a maximum of 80% of appraised value and normally for terms between three to five years. Amortization
schedules are long-term and thus a balloon payment is due at maturity. Under most circumstances, the Bank will offer to re-write
or otherwise extend the loan at prevailing interest rates. During recent years, the Bank has emphasized non-residential type
owner-occupied properties. This compliments our C&I emphasis placed on the operating business entities and will be continued. The
regional economic environment affects the risk of both non-residential and residential mortgages.
Residential real estate (1-4 family) includes two categories of loans. Approximately $9 million of loans are classified as Commercial
and Industrial type loans secured by 1-4 family real estate. Primarily, these are small businesses with modest capital or shorter
operating histories where the collateral mitigates some risk. This category of loans shares similar risk characteristics with the
C&I loans, notwithstanding the collateral position.
The other category of residential real estate loans are mostly 1-4 family residential properties located in the Banks market area. General
underwriting criteria are largely the same as those used by Fannie Mae but normally only one or three year adjustable or 15 year fixed
rate interest rates are used. The Bank utilizes mortgage insurance to provide lower down payment products and has provided a
First Time Homebuyer product to encourage new home ownership. Residential real estate loan volume has increased and remains
a core consumer product. The economic environment impacts the risks associated with this category. This year, the economy has
deteriorated, and the market has generally been volatile.
Home equity loans are extended as both first and second mortgages on owner-occupied residential properties in the Banks market area.
Loans are underwritten to a maximum loan to property value of 75%.
The Bank intends to maintain a market for construction loans, principally for smaller local residential projects or an owner-occupied
commercial project. Individual consumer residential home construction loans are also extended on a similar basis.
Bank officers evaluate the feasibility of construction projects, based on independent appraisals of the project, architects or engineers
evaluations of the cost of construction, and other relevant data. As of December 31, 2002, the Company was obligated to advance a
total of $19.2 million to complete projects under construction.
Table of Contents
The composition of non-accrual loans and impaired loans as of and for the year ended December 31 is as follows:
2002
2001
2000
1999
1998
(in thousands)
$
511
$
423
$
110
$
4,621
$
1,281
$
487
$
292
$
41
$
4,378
$
1,131
$
1,116
$
1,118
$
1,535
$
6,019
$
2,992
$
1,273
$
2,149
$
2,919
$
4,047
$
3,319
$
$
9
$
19
$
188
$
698
$
50
$
43
$
19
$
463
$
166
$
$
32
$
9
$
331
$
27
$
60
$
116
$
160
$
458
$
142
The composition of impaired loans at December 31, is as follows:
2002
2001
2000
1999
1998
(in thousands)
$
$
29
$
41
$
341
$
330
629
656
681
702
729
487
433
782
950
1,662
31
4,026
271
$
1,116
$
1,118
$
1,535
$
6,019
$
2,992
$
1,116
$
1,118
$
1,535
$
6,019
$
2,992
There were no impaired loans with specific reserves from December 31, 1998 through December 31, 2002 and in the opinion of
management, none of the above listed impaired loans required a specific reserve. All of the impaired loans listed above have been
measured using the fair value of the collateral method.
The Company was servicing mortgage loans sold to others without recourse of approximately $4,637,000, $7,226,000, $10,678,000,
$13,033,000 and $16,123,000 at December 31, 2002, 2001, 2000, 1999 and at December 31, 1998 respectively. Additionally, the
Company was servicing mortgage loans sold to others with limited recourse. The outstanding balance of these loans with limited
recourse was approximately $193,000, $338,000, $479,000, $490,000 and $501,000 at December 31, 2002, 2001, 2000, 1999 and
at December 31, 1998 respectively.
Directors and officers of the Company and their associates are customers of, and have other transactions with, the Company in the
normal course of business. All loans and commitments included in such transactions were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for comparable transactions with other unaffiliated persons and
do not involve more than normal risk of collection or present other unfavorable features.
The following table shows the aggregate amount of loans to directors and officers of the Company and their associates during 2002.
Balance at
Repayments
Balance at
December 31, 2001
Additions
and Deletions
December 31, 2002
(in thousands)
$
1,351
$
770
$
414
$
1,707
Loans are placed on non-accrual status when any payment of principal and/or interest is 90 days or more past due, unless the
collateral is sufficient to cover both principal and interest and the loan is in the process of collection. The Company monitors closely
the performance of its loan portfolio. In addition to internal loan review, the Company has contracted with an independent
organization to review the Companys commercial and commercial real estate loan portfolios. This independent review was performed
in each of the past five years. The status of delinquent loans, as well as situations identified as potential problems, are reviewed on a
regular basis by senior management and monthly by the Board of Directors of the Company.
Table of Contents
The relatively low level of nonperforming assets of $511 thousand in 2002 and $423 thousand in 2001 resulted from fewer additions
to nonperforming assets during the year combined with an improvement in the resolution of nonperforming assets including payments
on nonperforming loans.
In addition to the above, as of December 31, 2002, the Company continues to monitor closely $8.5 million of loans for which
management has concerns regarding the ability of the borrowers to perform. The majority of the loans are secured by real estate and
are considered to have adequate collateral value to cover the loan balances at December 31, 2002, although such values can fluctuate
with changes in the economy and the real estate market.
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 years indicated.
Year Ended December 31,
2002
2001
2000
1999
1998
(in thousands)
$
514,249
$
462,772
$
439,563
$
422,725
$
395,903
$
488,465
$
443,395
$
434,780
$
405,794
$
358,498
$
7,112
$
5,662
$
7,646
$
6,022
$
4,446
27
3,522
81
316
58
343
61
21
12
14
87
55
139
315
506
145
437
3,661
471
843
276
154
26
197
21
184
195
393
367
63
49
31
30
37
339
387
252
620
425
(194
)
50
3,409
(149
)
418
1,200
1,500
1,425
1,475
800
1,194
$
8,506
$
7,112
$
5,662
$
7,646
$
6,022
(0.04
%)
0.01
%
0.78
%
(0.04
%)
0.12
%
1.65
%
1.54
%
1.29
%
1.81
%
1.52
%
The increased ratio of allowance for loan loss to loans for 1999, reflects increased provisions associated with the deterioration of one
borrowers credit quality whose total relationship amounted to $4.1 million. Management placed this credit to non-accrual status
during the fourth quarter of 1999 and subsequently charged-off $3.5 million of this loan during the first quarter of 2000. These
provisions are the result of managements evaluation of the quality of the loan portfolio considering such factors as loan status,
collateral values, financial condition of the borrower, the state of the economy and other relevant information.
While the Company expects a similar level of charge-offs in future periods, the pace of the charge-offs depends on many factors
including the national and regional economy. Cyclical lagging factors may result in charge-offs being higher than historical levels.
Table of Contents
The allowance for loan losses is an estimate of the amount needed for an adequate reserve to absorb losses in the existing loan
portfolio. This amount is determined by an evaluation of the loan portfolio including input from an independent organization engaged
to review selected larger loans, a review of loan loss experience and current economic conditions. At December 31 of each year listed
below, the allowance was comprised of the following components.
2002
2001
2000
1999
1998
Percent of
Percent of
Percent of
Percent of
Percent of
loans in
loans in
loans in
loans in
loans in
each category
each category
each category
each category
each category
to total
to total
to total
to total
to total
Amount
loans
Amount
loans
Amount
loans
Amount
loans
Amount
loans
(dollars in thousands)
$
497
6.4
%
$
605
8.5
%
$
285
5.0
%
$
441
5.1
%
$
361
5.5
%
1,106
9.0
%
1,257
12.8
%
1,200
21.8
%
2,846
18.3
%
912
16.4
%
4,941
56.7
%
3,786
52.2
%
1,923
47.6
%
2,951
49.5
%
2,737
47.3
%
1,160
17.9
%
955
19.1
%
726
18.5
%
867
19.6
%
1,296
22.1
%
210
1.9
%
173
1.8
%
1,298
2.3
%
332
3.0
%
519
3.9
%
592
8.1
%
336
5.6
%
230
4.8
%
209
4.5
%
197
4.8
%
$
8,506
100.0
%
$
7,112
100.0
%
$
5,662
100.0
%
$
7,646
100.0
%
$
6,022
100.0
%
December 31,
2002
2001
Estimated Useful Life
(in thousands)
$
3,607
$
3,633
6,198
6,533
30-39 years
16,377
15,330
3-10 years
3,483
1,888
30-39 years or lease term
29,665
27,384
(16,737
)
(15,502
)
$
12,928
$
11,882
The Company and its subsidiaries are obligated
under a number of noncancelable operating leases for premises and equipment expiring in various years through 2026. Total lease expense approximated $711,000, $589,000 and $199,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.
Future minimum rental commitments for noncancelable operating leases with initial or remaining terms of one year or more at
December 31, 2002 were as follows:
Year
Amount
(in thousands)
$
688
636
626
553
538
1,990
$
5,031
Table of Contents
8.
Deposits
The Company offers savings accounts, NOW accounts, demand deposits, time deposits and money market accounts. The Company
offers cash management accounts which provide either automatic transfer of funds above a specified level from the customers
checking account to a money market account or short-term borrowings. Also, an account reconciliation service is offered whereby the
Company provides a computerized report balancing the customers checking account.
Interest rates on deposits are set bi-monthly by the Banks rate-setting committee, based on factors including loan demand, maturities
and a review of competing interest rates offered. Interest rate policies are reviewed periodically by the Executive Management Committee.
2002
2001
2000
(in thousands)
$
89,701
$
102,004
$
153,958
101,001
111,150
106,222
73,487
17,594
27,888
$
264,189
$
230,748
$
288,068
2002
2001
2000
(in thousands)
$
49,939
$
54,873
$
108,783
38,415
22,425
31,382
1,078
770
1,688
$
89,432
$
78,068
$
141,853
9.
Securities Sold Under Agreements to Repurchase
2002
2001
2000
(dollars in thousands)
$
51,800
$
72,840
$
71,450
1.00
%
1.12
%
4.04
%
$
69,190
$
75,950
$
77,426
$
61,718
$
71,826
$
68,808
1.13
%
2.29
%
4.24
%
Amounts outstanding at December 31, 2002, 2001, and 2000 carried maturity dates of the next business day. U.S. Government and
Agency securities with a total book value of $51,176,000, $71,629,000, and $72,974,000 were pledged as collateral and held by
custodians to secure the agreements at December 31, 2002, 2001, and 2000, respectively. The approximate market value of the collateral
at those dates was $51,994,000, $73,262,000, and $72,552,000, respectively.
10.
Other Borrowed Funds and Long Term Debt
2002
2001
2000
(dollars in thousands)
$
198,170
$
172,231
$
126,078
4.97
%
5.30
%
6.73
%
$
199,163
$
172,231
$
161,83
$
186,531
$
123,007
$
123,886
4.97
%
6.16
%
6.56
%
Table of Contents
The Bank serves as a Treasury Tax and Loan depository under a note option with the Federal Reserve Bank of Boston. This open-ended
interest bearing borrowing carries an interest rate equal to the daily Federal funds rate less 0.25% and amounted to $2,038,000 at
December 31, 2002. Also, the bank borrowed twenty-eight long term loans with the Federal Home Loan Bank. These loans total
$166,233,000, bear a weighted average interest rate of 4.28% and mature between January 10, 2003 and March 21, 2011.
In May 1998, the Company, through its newly formed subsidiary, Century Bancorp Capital Trust, issued 2,875,000 shares of Cumulative
Trust Preferred Securities with a liquidation value of $10 per share. These securities pay dividends at an annualized rate of 8.30% and
mature on June 30, 2029. The Company is using the proceeds primarily for general business purposes.
December 31,
2002
2001
2000
Weighted
Weighted
Weighted
Average
Average
Average
Amount
Rate
Amount
Rate
Amount
Rate
(dollars in thousands)
$
70,000
2.65
%
$
48,000
2.11
%
0.00
%
0.00
%
0.00
%
$
2,000
6.76
%
0.00
%
5,000
1.99
%
0.00
%
1,233
7.20
%
1,284
7.20
%
0.00
%
95,000
5.45
%
86,000
5.53
%
72,331
5.87
%
$
166,233
4.28
%
$
140,284
4.25
%
$
74,331
5.89
%
DIVIDENDS
Holders of the Class A common stock may not vote in the election of directors, but may vote as a class to approve certain extraordinary
corporate transactions. Class A common stockholders are entitled to receive dividends per share equal to at least 200% per share of
that paid, if any, on each share of Class B common stock. Class A common stock is publicly traded. Class B common stock is not publicly
traded, however, it can be converted on a share for share basis to Class A common stock at any time at the option of the holder.
Dividend payments by the Company are dependent in part on the dividends it receives from the Bank, which are subject to certain
regulatory restrictions.
EARNINGS PER SHARE (EPS)
Diluted EPS includes the dilutive effect of common stock equivalents; basic EPS excludes all common stock equivalents. The only
common stock equivalents for the Company are the stock options discussed below. The dilutive effect of these stock options for 2002,
2001 and 2000 was an increase of 17,469, 6,436 and 493 shares, respectively.
STOCK OPTION PLAN
During 2001, common stockholders of the Company approved a stock option plan (the Option Plan) that provides for granting of
options for not more than 150,000 shares of Class A common stock. Under the Option Plan, all officers and key employees of the
Company are eligible to receive non-qualified and incentive stock options to purchase shares of Class A common stock. The Option
Plan is administered by the Compensation Committee, of the Board of Directors, whose members are ineligible to participate in the
Option Plan. Based on managements recommendations, the Committee submits its recommendations to the Board of Directors as to
persons to whom options are to be granted, the number of shares granted to each, the option price (which may not be less than 85%
of the fair market value for non-qualified stock options, or the fair market value for incentive stock options, of the shares on the date
of grant) and the time period over which the options are exercisable (not more than ten years from the date of grant). There were 32,925
options exercisable at December 31, 2002.
Table of Contents
December 31,2002
December 31,2001
Weighted Average
Weighted Average
Amount
Exercise Price
Amount
Exercise Price
36,500
$
15.56
34,075
23.29
36,500
$
15.56
(1,500
)
15.063
(2,075
)
15.063
67,000
$
19.52
36,500
$
15.56
32,925
79,425
113,500
$
9.15
$
5.92
At December 31, 2002 the 67,000 options outstanding have exercise prices between $15.063 and $24.75, with a weighted average
exercise price at $19.52 and a weighted average remaining contractual life of 8 years. There were no options granted in 2000.
CAPITAL AND OTHER REGULATORY REQUIREMENTS
The Bank is subject to various regulatory requirements administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have
a direct material affect on the Companys financial statements. Under capital adequacy guidelines and regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classification are
also qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as defined in the regulation) to risk weighted assets (as defined), and Tier 1
capital (as defined) to average assets (as defined). Management believes, as of December 31, 2002, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 2002, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based,
Tier risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that
management believes would cause a change in the Banks categorization.
The Banks actual capital amounts and ratios are presented in the following table.
To Be Well Capitalized
For Capital Adequacy
Under Prompt Corrective
Actual
Purposes
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
92,636
13.26
%
$
55,876
8.00
%
$
69,845
10.00
%
84,130
12.05
%
27,938
4.00
%
41,907
6.00
%
84,130
5.87
%
57,357
4.00
%
71,696
5.00
%
$
80,895
13.31
%
$
48,630
8.00
%
$
60,788
10.00
%
73,783
12.14
%
24,315
4.00
%
36,473
6.00
%
73,783
6.79
%
43,449
4.00
%
54,312
5.00
%
Table of Contents
The current and deferred components of income tax expense for the years ended December 31 are as follows:
2002
2001
2000
(in thousands)
$
12,936
$
6,161
$
883
633
177
90
13,569
6,338
973
(5,617
)
(101
)
4,534
(73
)
(79
)
(5,690
)
(101
)
4,455
$
7,879
$
6,237
$
5,428
Income tax accounts included in other
assets and other liabilities at December 31 are as
follows:
2002
2001
(in thousands)
$
(4,875
)
$
328
403
(3,137
)
$
(4,472
)
$
(2,809
)
Income tax expense for the years presented is different from the amounts computed by applying the statutory Federal income tax rate of
35% for 2002, 2001 and 2000 to income before Federal income taxes. The following tabulation reconciles Federal income tax expense based
on statutory rates to the actual income tax expense for the years ended December 31:
2002
2001
2000
(in thousands)
$
7,484
$
5,984
$
5,471
364
115
59
(10
)
(27
)
(17
)
41
165
(85
)
$
7,879
$
6,237
$
5,428
36.8
%
36.5
%
34.7
%
Table of Contents
2002
2001
(in thousands)
$
2,995
$
2,640
2,467
2,169
568
441
51
51
172
44
49
6,297
5,350
(4,879
)
(3,991
)
(1,841
)
(7
)
(66
)
(546
)
(358
)
(1,317
)
(1,263
)
(33
)
(80
)
(5,894
)
(8,487
)
$
403
$
(3,137
)
The Company has received from the Commonwealth of Massachusetts Department of Revenue (DOR) notice that dividend distributions
by the Banks subsidiary real estate investment trust (REIT) are fully taxable in Massachusetts and therefore not subject to the dividends
received deduction (DRD). The Notice of Assessment to charge additional state excise taxes totaled $2.7 million plus interest for the three
years ended December 31, 1999, 2000 and 2001. As of the date of this notice, interest amounted to $398 thousand. The Company has
received additional state tax benefits of approximately $1.6 million for the twelve months ended December 31, 2002. The Company
intends to vigorously defend its position.
In January 2003, the Massachusetts Governor put forth proposed legislation that would disallow the REIT dividend received deduction
(DRD) effective for tax years ending on or after December 31, 1999. If the legislation is passed, the Company will cease recording the
future tax benefits of the DRD effective for the tax year in which the legislation is passed. In addition, if the legislation applies
retroactively as currently proposed, the Company will be required to recognize additional state excise taxes, including interest (net of the
federal tax deduction associated with such taxes and interest), beginning in the first fiscal quarter in which the legislation is passed. This
will reduce earnings by a material amount in the quarter in which the legislation is passed. As of February 25, 2003, the Company
estimates that this reduction of earnings would be approximately $3.2 million. The Company is aware that Massachusetts financial
institution trade groups have contended that the legislature does not have the ability to apply these provisions retroactively back to 1999.
The Company has a qualified Defined Benefit Pension Plan (the Plan), which is offered to all employees reaching minimum age and
service requirements. An increase in the size of the work force and increased compensation expense in 2002 resulted in an increase in
pension cost.
The Company has a Supplemental Insurance/Retirement Plan (the Supplemental Plan), which is limited to certain officers and
employees of the Company. The Supplemental Plan is voluntary and participants are required to contribute to its cost. Under the
Supplemental Plan, each participant will receive a retirement benefit based on compensation and length of service. Individual life
insurance policies, which are owned by the Company, are purchased covering the lives of each participant. Increased compensation
expense resulted in increased cost for the Supplemental Plan.
Table of Contents
Defined Benefit Pension Plan
Supplemental Insurance / Retirement Plan
2002
2001
2002
2001
(in thousands)
$
10,533
$
9,240
$
9,791
$
8,067
583
493
72
53
685
624
636
545
158
578
890
396
1,407
1,139
(215
)
(220
)
(17
)
(13
)
$
12,634
$
10,533
$
12,467
$
9,791
$
7,059
$
6,446
164
158
775
675
(215
)
(220
)
$
7,783
$
7,059
$
(4,851
)
$
(3,474
)
$
(12,467
)
$
(9,791
)
(382
)
(324
)
(250
)
368
(3,542
)
(2,345
)
(5,165
)
(3,958
)
$
(927
)
$
(805
)
$
(7,052
)
$
(6,201
)
6.50
%
6.75
%
6.50
%
6.75
%
8.00
%
8.00
%
N/A
N/A
5.00
%
5.00
%
5.00
%
5.00
%
$
583
$
493
$
72
$
53
685
624
636
545
(557
)
(508
)
1
103
99
99
(39
)
(39
)
86
48
199
144
$
896
$
757
$
868
$
806
The Company offers a 401(k) defined contribution plan for all employees reaching minimum age and service requirements. The plan is
voluntary and employee contributions were matched by the Company at a rate of 25% for the first 4% of compensation contributed by
each employee. The match was increased to a 33.3% match for the first 6% of compensation on October 1, 2001. The Companys match
totaled $202,500 for 2002, $112,000 for 2001 and $70,000 in 2000. Administrative costs associated with the plan are absorbed
by the Company.
The Company does not offer any post retirement programs other than pensions.
A number of legal claims against the Company arising in the normal course of business were outstanding at December 31, 2002.
Management, after reviewing these claims with legal counsel, is of the opinion that their resolution will not have a material adverse affect
on the Companys consolidated financial position or results of operation.
During February 2003 the Company began construction of an addition to its corporate headquarters building. The property is located
adjacent to its current headquarters in Medford, Massachusetts and will provide additional corporate office space and an expanded
branch banking floor. The building is scheduled to be completed at the end of 2003 and the current commitment, which excludes build
out costs, is approximately seven million dollars.
Table of Contents
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments primarily include commitments to originate and sell loans, standby letters of credit, unused
lines of credit and unadvanced portions of construction loans. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in these particular classes of financial instruments.
The Companys exposure to credit loss in the event of non-performance by the other party to the financial instrument for loan
commitments, standby letters of credit and unadvanced portions of construction loans is represented by the contractual amount of
those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. Financial instruments with off-balance sheet risk at December 31 are as follows:
Contract or Notional Amount
2002
2001
(in thousands)
$
1,902
$
2,305
3,467
1,738
97,535
86,556
19,234
25,547
Commitments to originate loans, unadvanced portions of construction loans and unused lines of credit are generally agreements to lend
to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each
customers credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on managements credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third
party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
In addition to general commitments, the Company has originated 14 family mortgages for sale in the secondary markets. These loans
were sold with and without recourse and no loan was originated without its sale having been pre-arranged. The Company was servicing
mortgage loans sold to others with a maximum recourse provision of 10% of the outstanding balance of approximately $193,000 at
December 31, 2002 and $338,000 at December 31, 2001.
Year ended December 31,
2002
2001
2000
(in thousands)
$
1,440
$
1,064
$
1,286
664
587
595
434
312
268
690
621
492
683
508
546
399
419
278
723
584
539
1,215
1,013
764
205
200
164
192
208
181
163
150
141
167
200
200
267
267
311
311
224
659
819
555
$
7,945
$
7,263
$
6,500
Table of Contents
17.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating fair values of its financial instruments.
Excluded from this disclosure are certain financial instruments for which it is not practical to estimate their value and all nonfinancial
instruments. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.
CASH AND CASH EQUIVALENTS:
The carrying amounts reported in the balance sheet for cash and cash equivalents approximate the fair
values of these assets because of the short-term nature of these financial instruments.
SECURITIES HELD-TO-MATURITY AND SECURITIES AVAILABLE-FOR-SALE:
The fair value of these securities, excluding certain state and
municipal securities whose fair value is estimated at book value because they are not readily marketable, is estimated based on bid prices
published in financial newspapers or bid quotations received from securities dealers.
LOANS:
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying
amounts. The fair value of other loans is estimated using discounted cash flow analysis, based on interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Incremental credit risk for non-performing loans has been considered.
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.
OFF-BALANCE SHEET 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.
Therefore, at December 31, 2002 and 2001, there was no fair value adjustment.
The carrying amounts and fair values of the Companys financial instruments at December 31 are as follows:
2002
2001
Carrying Amounts
Fair Value
Carrying Amounts
Fair Value
(in thousands)
$
122,205
$
122,205
$
177,833
$
177,833
761,531
761,531
460,833
460,833
127,209
130,014
142,608
145,237
505,743
524,860
455,660
460,302
9,370
9,370
7,561
7,561
1,146,284
1,156,330
888,408
889,191
221,220
222,123
216,321
227,655
28,750
28,693
28,750
28,750
1,176
1,176
1,204
1,204
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 judgements regarding future expected loss experience, cash flows, current economic conditions, risk
characteristics and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgement
and therefore cannot be determined with precision. Changes in assumptions and changes in the loan, debt and interest rate markets could
significantly affect the estimates. Further, the income tax ramifications related to the realization of the unrealized gains and losses can have
a significant effect on the fair value estimates and have not been considered.
Table of Contents
2002 Quarters
Fourth
Third
Second
First
(in thousands, except per share data)
$
18,466
$
18,090
$
17,786
$
16,782
6,293
6,532
6,087
5,806
12,173
11,558
11,699
10,976
300
300
300
300
11,873
11,258
11,399
10,676
2,379
2,460
2,979
2,448
8,678
8,399
8,644
8,368
5,574
5,319
5,734
4,756
2,113
1,916
2,098
1,752
$
3,461
$
3,403
$
3,636
$
3,004
5,517,400
5,517,400
5,515,982
5,515,350
5,539,137
5,537,009
5,536,224
5,526,697
$
0.63
$
0.62
$
0.66
$
0.54
$
0.62
$
0.61
$
0.66
$
0.54
2001 Quarters
Fourth
Third
Second
First
(in thousands, except per share data)
$
16,171
$
16,885
$
17,128
$
17,275
5,758
6,813
7,353
7,777
10,413
10,072
9,775
9,498
375
375
375
375
10,038
9,697
9,400
9,123
2,353
2,170
2,259
2,081
7,956
7,446
7,441
7,182
4,435
4,421
4,218
4,022
1,583
1,626
1,552
1,476
$
2,852
$
2,795
$
2,666
$
2,546
5,515,350
5,538,502
5,540,350
5,547,350
5,524,578
5,550,007
5,548,550
5,547,350
$
0.52
$
0.50
$
0.48
$
0.46
$
0.52
$
0.50
$
0.48
$
0.46
Table of Contents
The balance sheets of Century Bancorp, Inc. (Parent Company) as of December 31, 2002 and 2001 and the statements of income
and cash flows for each of the years in the three-year period ended December 31, 2002 are presented below. The statements of changes in
stockholders equity are identical to the consolidated statements of changes in stockholders equity and are therefore not presented here.
BALANCE SHEETS
December 31,
2002
2001
(in thousands)
$
34,882
$
33,014
94,342
80,144
557
859
$
129,781
$
114,017
$
775
$
668
28,750
28,750
100,256
84,599
$
129,781
$
114,017
STATEMENTS OF INCOME
December 31,
2002
2001
2000
(in thousands)
$
4,774
$
4,251
$
3,193
575
1,297
1,835
74
73
79
5,423
5,621
5,107
2,460
2,460
2,460
451
448
283
2,512
2,713
2,364
(786
)
(542
)
(293
)
3,298
3,255
2,657
10,206
7,604
7,548
$
13,504
$
10,859
$
10,205
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2002
2001
2000
(in thousands)
$
13,504
$
10,859
$
10,205
(10,206
)
(7,604
)
(7,548
)
314
317
230
(11
)
153
(133
)
107
(532
)
507
3,708
3,193
3,261
31
104
(1,871
)
(1,653
)
(1,477
)
(698
)
(2,120
)
(1,840
)
(2,351
)
(3,493
)
1,868
842
232
33,014
32,172
32,404
$
34,882
$
33,014
$
32,172
36
Notes to Consolidated Financial Statements
20. Acquisition
On October 30, 2002 the Company and Capital Crossing Bank announced the signing of a definitive agreement under which the Bank will acquire Capital Crossings branch office at 1220 Boylston Street, Chestnut Hill, Massachusetts, and substantially all of its retail deposits in its main office at 101 Summer Street, Boston, Massachusetts. The agreement includes the acquisition of approximately $233.0 million in deposits and $4.0 million of related loans. The transaction is subject to customary conditions, including regulatory approval, which has been obtained, and is expected to close in the first quarter of 2003. | |
The following pro-forma condensed balance sheet was prepared as if this acquisition had taken place at December 31, 2002: |
PRO-FORMA CONDENSED BALANCE SHEETS (unaudited)
Century | Capital | Pro-Forma | Pro-Forma | |||||||||||||||||||||||||
December 31, 2002 | Bancorp, Inc. | Crossing Components | Adjustments | Combined | ||||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Assets:
|
||||||||||||||||||||||||||||
Cash and cash equivalents
|
$ | 122,205 | | $ | (4,674 | ) (a) | $ | 117,531 | ||||||||||||||||||||
Securities
|
888,740 | $ | 228,300 | (b) | | 1,117,040 | ||||||||||||||||||||||
Loans, net
|
505,743 | 4,000 | | 509,743 | ||||||||||||||||||||||||
Bank premises and equipment
|
12,928 | 700 | | 13,628 | ||||||||||||||||||||||||
Goodwill and intangibles
|
2,717 | | 4,674 | (a) | 7,391 | |||||||||||||||||||||||
Other assets
|
24,868 | | | 24,868 | ||||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||||
Total assets
|
$ | 1,557,201 | $ | 233,000 | $ | | $ | 1,790,201 | ||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||||
Liabilities:
|
||||||||||||||||||||||||||||
Deposits
|
$ | 1,146,284 | $ | 233,000 | | $ | 1,379,284 | |||||||||||||||||||||
Borrowed funds
|
221,220 | | | 221,220 | ||||||||||||||||||||||||
Other liabilities
|
60,691 | | | 60,691 | ||||||||||||||||||||||||
Long term debt
|
28,750 | | | 28,750 | ||||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||||
Total liabilities
|
1,456,945 | 233,000 | | 1,689,945 | ||||||||||||||||||||||||
Stockholders equity
|
100,256 | | | 100,256 | ||||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||||
Total Liabilities & stockholders equity
|
$ | 1,557,201 | $ | 233,000 | $ | | $ | 1,790,201 | ||||||||||||||||||||
|
|
|
|
|
(a) | Premium and deal costs funded by sale of federal funds. | |
(b) | Assumes net proceeds invested in investment securities. |
The following pro-forma condensed results of were prepared as if this acquisition had taken place on January 1, 2002. The pro-forma results are not necessarily indicative of the actual results of operations had the acquisition actually occurred on January 1, 2002. |
PRO-FORMA CONDENSED STATEMENTS OF INCOME (unaudited)
Effects of | |||||||||||||||||
Century | Capital | Pro-Forma | Pro-Forma | ||||||||||||||
Year Ended December 31, 2002 | Bancorp, Inc. | Crossing Components | Adjustments | Combined | |||||||||||||
|
|
|
|
|
|||||||||||||
(in thousands) | |||||||||||||||||
Interest income
|
$ | 71,124 | $ | 9,600 | $ | (82 | ) (a) | $ | 80,643 | ||||||||
Interest expense
|
24,718 | 7,011 | | 31,729 | |||||||||||||
|
|
|
|
|
|||||||||||||
Net interest income
|
46,406 | 2,590 | (82 | ) | 48,914 | ||||||||||||
Provision for loan losses
|
1,200 | | | 1,200 | |||||||||||||
|
|
|
|
|
|||||||||||||
Net interest income after provision for loan losses
|
45,206 | 2,590 | (82 | ) | 47,714 | ||||||||||||
Operating income
|
10,266 | 54 | 0 | 10,320 | |||||||||||||
Operating expenses
|
34,089 | 180 | 668 | (b) | 34,937 | ||||||||||||
|
|
|
|
|
|||||||||||||
Income before income taxes
|
21,383 | 2,464 | (750 | ) | 23,097 | ||||||||||||
Provision for income taxes
|
7,879 | 907 | (274 | ) (c) | 8,512 | ||||||||||||
|
|
|
|
|
|||||||||||||
Net income
|
$ | 13,504 | $ | 1,557 | $ | (476 | ) | $ | 14,585 | ||||||||
|
|
|
|
|
|||||||||||||
Net income per share, basic
|
$ | 2.45 | | | $ | 2.64 | |||||||||||
Net income per share, diluted
|
$ | 2.44 | | | $ | 2.64 |
(a) | Foregone interest on federal funds sold to finance the acquisition. | |
(b) | Amortization of core deposit intangible amortization assuming a seven year amortization period. | |
(c) | Tax effect of pro-forma adjustments. |
37
Independent Auditors Report
January 10, 2003
38
KPMG
LLP
Certified Public Accountants
99 High Street
Boston, Massachusetts 02110
The Board of Directors
Century Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Century
Bancorp, Inc. and subsidiary (the Company) as of
December 31, 2002 and 2001, and the related consolidated statements of
income, changes in stockholders equity and cash flows for
each of the years in the three-year period ended December 31, 2002. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Century Bancorp, Inc. and subsidiary as of December 31, 2002 and 2001, and
the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2002 in
conformity with accounting principles generally accepted in the
United States of America.
Table of Contents
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of the Company and their ages as of December 31, 2002 are as
follows:
Name
Age
Position
George R. Baldwin
59
Director, Century Bancorp, Inc., and Century Bank and
Trust Co.
Roger S. Berkowitz
50
Director, Century Bancorp, Inc., and Century Bank and
Trust Co.
Karl E. Case, Ph.D.
56
Director, Century Bancorp, Inc., and Century Bank and
Trust Co.
Henry L. Foster, D.V.M
77
Director, Century Bancorp, Inc., and Century Bank
and Trust Co.
Marshall I. Goldman, Ph.D.
72
Director, Century Bancorp, Inc., and Century Bank
and Trust Co.
Russell B. Higley, Esquire
63
Director, Century Bancorp, Inc., and Century Bank
and Trust Co.
Jonathan B. Kay
43
Director, Century Bancorp, Inc., and Century Bank and Trust
Co.
Fraser Lemley
62
Director, Century Bancorp, Inc., and Century Bank and Trust
Co.
Joseph P. Mercurio
54
Director, Century Bancorp, Inc., and Century Bank and
Trust Co.
Joseph J. Senna, Esquire
63
Director, Century Bancorp, Inc., and Century Bank
and Trust Co.
Barry R. Sloane
47
Director, Century Bancorp, Inc., and Century Bank and Trust
Co.
Jonathan G. Sloane
44
Director and Executive Vice President, Century Bancorp,
Inc.;
Director, President and Chief Operating Officer, Century Bank and
Trust Company
Marshall M. Sloane
76
Chairman, President and Chief Executive Officer,
Century Bancorp, Inc.; Chairman and Chief Executive Officer,
Century Bank and Trust Company
Stephanie Sonnabend
49
Director, Century Bancorp, Inc., and Century Bank and
Trust Co.
George F. Swansburg
60
Director, Century Bancorp, Inc., and Century Bank and
Trust Co.
Jon Westling
60
Director, Century Bancorp, Inc., and Century Bank and Trust Co.
-39-
Mr. Baldwin became a director of the Company in 1996. He has been a director of Century Bank and Trust Company since 1995. Mr. Baldwin is President and CEO of Baldwin & Co., which is a financial services firm. He was formerly President and Chief Executive Officer of Kaler Carney Liffler & Co.
Mr. Berkowitz became a director of the Company in 1996. He was elected a director of Century Bank/Suffolk in 1989 and has been a director of Century Bank and Trust Company since the banks merged in 1992. Mr. Berkowitz is President and CEO of Legal SeaFoods, Inc.
Dr. Case became a director of the Company in 1996. Dr. Case has been a director of Century Bank and Trust Company since 1995. He is a Professor of Economics at Wellesley College and a Visiting Scholar at the Federal Reserve Bank of Boston.
Dr. Foster has been a director of the Company since its organization in 1972. He was a founding director of Century Bank and Trust Company in 1969. He is Founder and Chairman Emeritus of Charles River Laboratories, Inc. Formerly, he was Chairman of the Board of Charles River Laboratories, Inc.
Dr. Goldman has been a director of the Company since its organization in 1972. He was also a founding director of Century Bank and Trust Company in 1969. He is a Professor Emeritus of Economics at Wellesley College and Associate Director of the Davis Center for Russian Studies at Harvard University.
Mr. Higley became a director of the Company in 1996. He has been a director of Century Bank and Trust Company since 1986. Mr. Higley is an attorney in private practice.
Mr. Kay became a director of the Company in 1997. He was also elected a director of Century Bank and Trust Company in 1997. Mr. Kay is President of The Kay Companies.
Mr. Lemley became a director of the Company in 1996. He has been a director of Century Bank and Trust Company since 1988. Mr. Lemley is Chairman of the Board and CEO of Sentry Ford, Inc., Sentry Lincoln-Mercury, Inc., and Sentry South Lincoln-Mercury, Inc.
Mr. Mercurio became a director of the Company in 1990. He has been a director of Century Bank and Trust Company since 1995. He is an Executive Vice President of Boston University.
Mr. Senna became a director of the Company in 1986. He has been a director of Century Bank and Trust Company since 1979. Mr. Senna is an attorney in private practice.
Mr. Barry R. Sloane became a director of the Company in 1997. He was also elected a director of Century Bank and Trust Company in 1997. Mr. Sloane is Managing Director of Steinberg, Priest & Sloane Capital Management, LLC, which is an investment advisory firm. Formerly, he was Region Head for the Southeastern United States for the Citigroup Private Bank and Head of North America for Credit Suisse Private Banking.
Mr. Jonathan G. Sloane became a director of the Company in 1986. He has been a director of Century Bank and Trust Company since 1992. Mr. Sloane is currently Executive Vice President of Century Bancorp Inc. and President and Chief Operating Officer of Century Bank and Trust Company. From 1992 to 1998 he was Senior Executive Vice President of Century Bank and Trust Company.
Mr. Marshall M. Sloane is the founder of the Company and has been Chairman, President and Chief Executive Officer since its organization in 1972. He founded Century Bank and Trust Company in 1968 and is currently its Chairman and Chief Executive Officer.
Ms. Sonnabend became a director of the Company in 1997. She has been a director of Century Bank and Trust Company since 1997. Ms. Sonnabend is President of Sonesta International Hotels Corporation.
Mr. Swansburg became a director of the Company in 1986. He has been a director of Century Bank and Trust since 1992. From 1992 to 1998 he was President and Chief Operating Officer of Century Bank and Trust Company. He is now retired from Century Bank and Trust Company.
Mr. Westling became a director of the Company in 1996. He has been a director of Century Bank and Trust Company since 1995. Mr. Westling is President Emeritus of Boston University.
All of the Companys directors are elected annually and hold office until their successors are duly elected and qualified. There are no family relationships between any of the directors or executive officers, except that Barry R. Sloane and Jonathan G. Sloane are the sons of Marshall M. Sloane and Jonathan B. Kay is the son-in-law of Marshall M. Sloane.
-40-
The Audit Committee meets with KPMG LLP, the independent certified public accountants, in connection with the annual audit of the Companys financial statements. The Audit Committee reviews the findings and recommendations of the FRB, FDIC, and Massachusetts Bank Commissioners staff in connection with their examinations and the internal audit reports and procedures for the Company and its subsidiary. The Audit Committee met four times during 2002.
Audit Committee Report
The Audit Committee of the Companys Board of Directors is responsible for providing independent, objective oversight of the Companys accounting functions and internal controls. The Audit Committee is composed of five directors, each of whom is independent as defined by the National Association of Securities Dealers current listing standards. The Audit Committee operates under a written charter first adopted and approved by the Board of Directors in 2000. A copy of this Charter was last published in the 10-K for the period ending December 31, 2000.
Management is responsible for the Companys internal controls and financial reporting process. The independent accountants are responsible for performing an independent audit of the Companys consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and to issue a report thereon. The Audit Committees responsibility is to monitor and oversee these processes.
The Audit Committee has reviewed and discussed the audited financial statements with management. The Audit Committee has also discussed with KPMG LLP, the independent accounting firm for the Company, the matters required to be discussed by Codification of Statements on Auditing Standards No. 61 (Communication with Audit Committees). The Audit Committee has received the written disclosures and the letter from the independent accountants as required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). Additionally, the Audit Committee has discussed with KPMG LLP the firms independence. Fees paid to KPMG LLP for audit and other fees were $110,000 and $58,000, respectively. The other fees were approximately $40,000 for tax services performed and $18,000 for benefit plan audits.
Based on the review and discussions referred to in the paragraph above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Companys Annual Report on Form 10-K for the last fiscal year for filing with the Securities and Exchange Commission.
Joseph J. Senna, Chair, George R. Baldwin, Russell B. Higley, George F. Swansburg, Jon Westling
Director Compensation
Directors not employed by the Company receive a $6,000 retainer per year, $250 per Century Bancorp, Inc. Board meeting attended, $500 per Century Bank and Trust Company Board and $450 per committee meeting attended.
ITEM 11. EXECUTIVE COMPENSATION
Executive officers are elected annually by the Board prior to the Annual
Meeting of Shareholders to serve for a one year term and until their successors
are elected and qualified. The following table sets forth the name of each
executive officer of the Company and the principal positions and offices he
holds with the Company
Marshall M. Sloane
Chairman, President and Chief Executive Officer;
Chairman and Chief Executive Officer, Century Bank and
Trust Company. Mr. Sloane is 76 years old.
Jonathan G. Sloane
Director and Executive Vice President; Director,
President and Chief Operating Officer, Century Bank and
Trust Company. Mr. Sloane is 44 years old.
Paul V. Cusick, Jr.
Vice President and Treasurer; Executive Vice President,
Chief Financial Officer and Treasurer, Century Bank and Trust Company.
Mr. Cusick is 58 years old.
Paul A. Evangelista
Executive Vice President, Century Bank and Trust Company with responsibility for retail, cash management
and fee income. Mr. Evangelista is 39 years old. He joined the Company in 1999. Formerly, he was Senior
Vice President at U.S. Trust.
-41-
David B. Woonton
Executive Vice President, Century Bank and Trust Company with
responsibility for lending. Mr. Woonton is 47
years old. He joined the Company in 1999.
Formerly, he was Regional President of
Citizens Bank.
Compensation Committee Report on Executive Compensation
The Compensation Committee is a committee of the Board of Directors composed of Joseph P. Mercurio as Chairman, Fraser Lemley and Roger S. Berkowitz. It reviews the salaries of the Companys officers and administers the Companys Supplemental Executive Insurance/Retirement Income Plan and Incentive Compensation Plan.
Decisions on compensation of the Companys executives are generally made by the Compensation Committee of the Board of Directors. Each member of the Compensation Committee is a non-employee director. The goal of the Committee is to provide competitive levels of compensation in order to attract and retain qualified executive personnel. The Compensation Committee believes that the actions of each executive officer have the potential to affect the short and long term profitability of the Company. Accordingly, the Compensation Committee places considerable importance on the design and administration of the executive compensation program.
The Company has an executive compensation program that is driven by the overall performance of the Company, the increase in shareholder value, the performance of the business unit directly affected by the executive and by the performance of the individual executive. The three primary components of the executive compensation program are base salary, cash incentive plan and stock based incentive plans.
Base Salary
Base salary levels are set so that the Company has the management talent to meet the challenges in the financial services industry. Several factors are included in setting base salaries including the responsibilities of the executive officer, the scope of the executives position, individual performance and salary levels at peer banks. Historically, the Companys executive compensation practices have been designed to provide total compensation in the middle range of compensation levels at similar banking institutions. Salary increases for the senior management group have averaged 5% to 9% during the last several years.
Cash Incentive Plans
The Company has a cash incentive compensation plan which provides for the award of bonuses up to a percentage of base salary to officers of the Company or its subsidiaries. Recipients of incentive compensation are selected by the Compensation Committee, upon the recommendation of management, as eligible to participate in the plan. Awards are based upon the attainments of established objectives including profitability, expense control, sales volume and overall job performance. No bonuses are paid unless actual earnings are of budgeted net income. Upon recommendation of the Compensation Committee, the Board of Directors determines the amounts, if any, to be awarded. Earned bonuses for 2002, 2001 and 2000 are shown in the Summary Compensation Table.
Executive Benefits
The Companys executive compensation package includes a special benefits component in addition to base salary and cash and stock incentive plans. These special benefits are viewed as less important than the above. Where such benefits are provided, they are intended to support other business purposes including facilitating business development efforts.
Chief Executive Officer Compensation
Mr. Marshall Sloane is eligible to participate in the same executive compensation plans available to other executive officers described above. The 2002 cash compensation for Mr. Sloane was $1,005,600 of which $710,000 was base salary.
Conclusion
The Compensation Committee believes that the executive compensation package will motivate the management team to produce the results the Company has historically achieved.
-42-
Value of $100 Invested on December 31, 1997 at:
12/31/98
12/31/99
12/31/00
12/31/01
12/31/02
103.17
93.43
86.52
120.01
161.75
99.36
95.51
108.95
117.97
120.61
140.99
261.48
157.42
124.89
86.33
* | Assumes that the value of the investment in the Companys Common Stock and each index was $100 on December 31, 1997 and that all dividends were reinvested. |
-43-
Summary of Cash and Certain Other Compensation
The following table shows, for fiscal years ending December 31, 2000, 2001
and 2002, the cash compensation paid by the Company and its subsidiaries,
as well as certain other compensation paid, accrued or granted for those
years to the five most highly compensated executive officers of the
Company.
Summary Compensation Table
Long-Term Compensation
Annual Compensation
Awards
Payouts
All Other
Compensation
Restricted
Securities
($)
Name
Stock
Underlying
LTIP
(2)
And
Salary
Bonus(1)
Other
Awards
Options
Payouts
Principal Position
Year
($)
($)
($)
($)
(#)
($)
2002
710,000
377,000
0
0
12,000
0
78,079
Chairman, President and CEO,
2001
643,500
295,600
0
0
12,000
0
58,863
Century Bancorp, Inc.
2000
585,000
268,000
0
0
0
0
49,955
Chairman and CEO, Century
Bank and Trust Company
Jonathan G. Sloane
2002
360,000
151,600
0
0
6,000
0
6,848
Executive Vice President Century
2001
316,000
119,700
0
0
6,000
0
5,762
Bancorp, Inc.
2000
295,000
108,800
0
0
0
0
5,379
President and COO,
Century
Bank and Trust
Company
Paul V. Cusick, Jr.
2002
250,000
95,800
0
0
3,000
0
11,539
Executive Vice President
2001
209,000
76,500
0
0
3,000
0
8,466
Century Bank and Trust
Company
2000
195,000
69,500
0
0
0
0
6,218
David B. Woonton
2002
220,000
95,800
0
0
2,000
0
3,850
Executive Vice President
2001
200,000
76,500
0
0
2,000
0
2,851
Century Bank and Trust
Company
2000
187,200
69,500
0
0
0
0
1,280
Paul A. Evangelista
2002
193,000
95,800
0
0
2,000
0
4,359
Executive Vice President
2001
172,000
76,500
0
0
2,000
0
2,167
Century Bank and Trust
Company
2000
160,000
69,500
0
0
0
0
560
(1) | Bonus amounts are based on performance for the years shown. | |
(2) | Term insurance premiums paid for Supplemental Executive Insurance/Retirement Income Plan and matching contribution for the 401(k) plan. |
44
Options Grants in 2002
The following table provides information relating to option grants pursuant
to our stock option plans during 2002 to our named executive officers.
Potential Realizable Value
Individual Grants
at Assumed Rates of
(1)
(2)
(3)
Stock Price Appreciation
Percentage of
for Option Term(4)(5)(6)
Options
Total Options
Exercise
Expiration
Executive Officer
Granted
Granted
Price
Date
5%
10%
12,000
35.22
%
$
24.75
January 16, 2006
$
82,056
$
181,321
6,000
17.61
%
22.50
January 16, 2011
84,901
215,155
3,000
8.80
%
22.50
January 16, 2011
42,450
107,578
2,000
5.87
%
22.50
January 16, 2011
28,300
71,718
2,000
5.87
%
22.50
January 16, 2011
28,300
71,718
(1) | Options vest and become exercisable 50% per year commencing on the first anniversary of the date of grant. None of the indicated awards were accompanied by stock appreciation rights. | |
(2) | Percentage of options to purchase an aggregate of 34,075 shares of Common Stock to all Officers during 2002. | |
(3) | The exercise price was based on the market price of the Common Stock on the date of grant. | |
(4) | Assumes future stock prices of $30.08 and $36.24 for options granted on January 16, 2002 to Marshall M. Sloane at compounded rates of return of 5% and 10% respectively. | |
(5) | Assumes future stock prices of $34.90 and $53.05 for options granted on January 16, 2002 to all other Officers at compounded rates of return of 5% and 10% respectively. | |
(6) | There were no exercises of stock options in 2002. |
Aggregated Option Exercises in 2002 and Year-end Option Values
The following table provides information relating to option exercises in 2002 by our named executive officers and the value of such officers unexercised options at December 31,2002.
Value of Unexercised | ||||||||||||||||||||||||
Number of | In-The-Money | |||||||||||||||||||||||
Shares Acquired | Value | Options | Options at | |||||||||||||||||||||
On Exercise(#) | Realized($) | at Year End(#) | Year End(#)(1) | |||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||||||||||||||||
Marshall M. Sloane
|
| $ | 0 | 6,000 | 18,000 | $ | 59,700 | $ | 179,100 | |||||||||||||||
Jonathan G. Sloane
|
| 0 | 3,000 | 9,000 | 34,371 | 103,113 | ||||||||||||||||||
Paul V. Cusick
|
| 0 | 1,500 | 4,500 | 17,186 | 51,557 | ||||||||||||||||||
David B.Woonton
|
| 0 | 1,000 | 3,000 | 11,457 | 34,371 | ||||||||||||||||||
Paul A. Evangelista
|
| 0 | 1,000 | 3,000 | 11,457 | 34,371 |
(1) | Based on a per share market price of $26.52 |
Supplemental Executive Insurance/Retirement Income Plan
Executive officers of the Company or its subsidiaries who have at least one year of service may participate in the Supplemental Executive Insurance/Retirement Income Plan (the Supplemental Plan).
The Company maintains split dollar life insurance policies for participants, in addition to the group term life insurance, which provides life insurance equal to twice the individuals salary with a maximum of $200,000, which they receive under a policy the Company maintains for its employees generally. The split dollar insurance provides death benefits if the participant dies while in the employ of the Company, equal to $3,925,000, $1,800,000, $1,250,000, $1,100,000 and $965,000 for Messrs. Marshall M. Sloane, Jonathan G. Sloane, Cusick, Woonton and Evangelista.
-45-
Premiums paid by the Company in 2002 amounted to $87,800, $63,500, $27,200, $65,000, and $46,587, for policies on the lives of Messrs. Marshall M. Sloane, Jonathan G. Sloane, Cusick, Woonton, and Evangelista. The policies are on an insurance bonus basis, which means that the Company pays the full amount of all premiums on the policies but an amount equal to the one-year term cost of the insurance is treated for tax purposes as a bonus to the insured. The Company is the owner of these policies and each participating employee has received an assignment of a portion of each policys proceeds. Upon the death of a participant, the Company will receive benefits equal to the difference between the death benefits payable to the named beneficiary under the Supplemental Plan and the face amount of the policy (less any policy loans then in force).
A participant in the Supplemental Plan is also entitled to retirement benefits. Participants, upon retirement at age 65, after a specified number of years of service, are entitled to receive for life, with ten years certain, 75% of their highest 36 months compensation for certain executives, or 66% of such compensation if the participants are senior officers (as determined by the Compensation Committee), less the primary social security benefits and the benefit received from the defined benefit retirement plan. If a participant retires or terminates employment prior to age 65 such person is entitled to a reduced benefit. Five years of service are required for any benefits to become vested. Thereafter benefits vest incrementally.
The following table illustrates representative annual retirement benefits at
various compensation levels for executive management employees under the
Supplemental Plan who retire at age 65 and with 15 years of service, without
reflecting the required offset of benefits from social security and the defined
benefit retirement plan.
Five Year
Executive Officer
Senior Officer
Average Compensation
Annual Benefit
Annual Benefit
$
100,000
$
75,000
$
66,666
150,000
112,500
100,000
200,000
150,000
133,300
250,000
187,500
166,700
300,000
225,000
200,000
400,000
300,000
266,700
600,000
450,000
400,000
800,000
600,000
533,300
As of January 1, 2003, Messrs. Marshall M. Sloane, Jonathan G. Sloane, Cusick, Woonton, and Evangelista were 100%, 100%, 92.5%, 0%, and 0%, vested, respectively, under the Supplemental Plan.
The Company has entered into an agreement with Mr. Marshall Sloane to freeze his Supplemental Executive/Insurance Retirement Income Plan benefit. The frozen benefit is $2,925,000 of pre-retirement death benefit and $455,034 of annual retirement income. In consideration of this frozen benefit, the Company has acquired a life insurance policy providing a death benefit of $25,000,000 upon the death of the survivor of Mr. Sloane or Mrs. Sloane.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information as to the number and percentage of shares of Class A and Class B Common Stock beneficially owned as of December 31, 2002 (i) by each person known by the Company to own beneficially more than 5% of the Companys outstanding shares of Class A or Class B Common Stock (ii) by each of the Companys directors and certain officers; and (iii) by all directors and officers of the Company as a group. As of December 31, 2002, there were 3,397,315 shares of Class A Common Stock and 2,120,110 shares of Class B Common Stock outstanding.
-46-
Number of Beneficial
Owner & Address or Number
Class A
% A
Class B
% B
of Persons in Group
Owned
Owned
Owned
Owned
272,700
8.03
%
Chicago, IL 60604
266,800
7.85
%
New York, NY 10017
211,700
6.23
%
Boston, MA 02109
204,600
6.02
%
St. Louis, MO 63141
17,203
(1)
0.51
%
1,695,930
(2)
79.99
%
Medford, MA 02155
3,359
0.10
%
2,534
0.07
%
1,797
0.05
%
15,200
0.45
%
500
0.01
%
19,900
0.59
%
1,000
0.05
%
1,704
(3)
0.05
%
30,000
(4)
1.42
%
4,864
0.14
%
6,418
(7)
0.19
%
60,000
(6)
2.83
%
8,685
(9)
0.26
%
4,344
0.13
%
46,531
(5)
1.37
%
2,822
(10)
0.08
%
18,273
(8)
0.54
%
60,000
2.83
%
1,434
0.04
%
30,040
0.88
%
1,906
0.06
%
0.00
%
(a) Denotes director of the Company
(b) Denotes officer of the Company
187,514
5.52
%
1,846,930
87.11
%
(1) | Includes 2,500 shares owned by Mr. Sloanes spouse and also includes 13,999 shares held in trust for Mr. Sloanes grandchildren. | |
(2) | Includes 1,500 shares owned by Mr. Sloanes spouse, and does not include 120,000 shares owned by Mr. Sloanes children. Mr. Sloane disclaims beneficial ownership of such 120,000 shares. | |
(3) | Does not include 9,000 shares held of record by Mr. Goldmans children; Mr. Goldman disclaims beneficial ownership of such shares. | |
(4) | Does not include 9,000 shares held of record by Mr. Goldmans children; Mr. Goldman disclaims beneficial ownership of such shares. | |
(5) | Includes 34,800 shares owned by Mr. Sennas spouse. | |
(6) | Entire 60,000 shares are owned by Mr. Kays spouse who is also Marshall Sloanes daughter. |
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(7) | Includes 71 shares owned by Mr. Kays spouse. | |
(8) | Includes 81.86 shares owned by Mr. Sloanes spouse and includes 345 shares owned by Mr. Jonathan Sloanes children. | |
(9) | Includes 500 shares owned by Mr. Lemleys spouse and 610 shares held by son, Noah Lemley. | |
(10) | Includes 40 shares owned by son and 71 shares owned by partner Candace Lapidus. | |
(11) | The Company has relied upon the information set forth in the Schedule 13G filed with the SEC by The Banc Funds on February 13, 2003. | |
(12) | The Company has relied upon the information set forth in the Schedule 13G filed with the SEC by Kennedy Capital Management, Inc. on February 18, 2003. | |
(13) | The Company has relied upon the information set forth in the Schedule 13G filed with the SEC by the Wellington Management Co., LLP on February 12, 2003. | |
(14) | The Company has relied upon the information set forth in the Schedule 13G filed with the SEC by the Endicott Management Company on February 14, 2003. |
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Companys Executive Officers and Directors, and any persons who own more than 10% of a registered class of the Companys equity securities, to file reports of ownership and changes in ownership of securities with the SEC and NASDAQ. Executive Officers, Directors, and greater than 10% stockholders (of which, to the Companys knowledge, there currently are none) are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such reports received by it or written representations from certain reporting persons that no other reports were required, the Company believes that, during 2002, all Section 16(a) filing requirements applicable to its Executive Officers and Directors were complied with.
The following schedule provides information, with respect to compensation
plans, on equity securities (common shares) that are authorized for issuance as
of December 31, 2002:
Number of shares
remaining available for
future issuance under
Number of shares
equity compensation
to be issued
Weighted-average
plans (excluding
upon exercise of
exercise price of
shares in
outstanding options
outstanding options
column (a))
Plan Category
(a)
(b)
(c)
67,000
$
19.52
79,425
67,000
$
19.52
79,425
All compensation plans have been previously approved by shareholders. There are 79,425 shares available for future issuance for the Employee plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Directors and Officers of the Company and Bank and members of their immediate family are at present, as in the past, customers of the Bank have transactions with the Bank in the ordinary course of business. In addition, certain of the Directors are at present, as in the past, also Directors, Officers or Stockholders of Corporations or members of partnerships that are customers of the Bank and have transactions with the Bank in the ordinary course of business. Such transactions with Directors and Officers of the Company and the bank and their families and with such corporations and partnerships were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility or present other features unfavorable to the Bank.
-48-
PART IV
ITEM 14. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the Company have evaluated the disclosure controls and procedures as of a date within 90 days before the filing date of this annual report. Based on this evaluation, the principal executive officer and principal financial officer have concluded that the 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 recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. In addition, the Company has reviewed its internal controls and there have been no significant changes in its internal controls or in other factors that could significantly affect those controls subsequent to the date of its last evaluation.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
-49-
(b) | Reports on Form 8K. | ||
Current report on 8-K dated October 28, 2002, announcing Century Bank and Trust Company (theBank), the principal subsidiary of Century Bancorp, Inc. (theCompany), executed a Purchase and Assumption Agreement with Capital Crossing Bank pursuant to which the Bank will acquire Capital Crossings branch office at 1220 Boylston Street, Chestnut Hill, Massachusetts, and substantially all of its retail deposits in its main office at 101 Summer Street, Boston, Massachusetts. | |||
(c) | Exhibits required by Item 601 of Regulation S-K. | ||
See (a)(3) above for exhibits filed herewith. | |||
(d) | Financial Statement required by Regulation S-X. | ||
Schedules to Consolidated Financial Statements required by Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted. |
-50-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 11th day of March 2003.
Century Bancorp, Inc. | |
/s/ Marshall M. Sloane
By: Marshall M. Sloane, Chairman, President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the date indicated.
/s/ George R. Baldwin
George R. Baldwin, Director |
/s/ Barry R. Sloane
Barry R. Sloane, Director |
|
/s/ Roger S. Berkowitz
Roger S. Berkowitz, Director |
/s/ Stephanie Sonnabend
Stephanie Sonnabend, Director |
|
/s/ Karl E. Case
Karl E. Case, Ph.D., Director |
/s/ George F. Swansburg
George F. Swansburg, Director |
|
/s/ Henry L. Foster
Henry L. Foster, D.V.M., Director |
/s/ Jon Westling
Jon Westling, Director |
|
/s/ Marshall I. Goldman
Marshall I. Goldman, Ph.D., Director |
/s/ Marshall M. Sloane
Marshall M. Sloane, Chairman, President and Chief Executive Officer |
|
/s/ Russell B. Higley
Russell B. Higley, Esquire, Director |
/s/ Jonathan G. Sloane
Jonathan G. Sloane, Director and Executive Vice President |
|
/s/ Jonathan B. Kay
Jonathan B. Kay, Director |
/s/ Paul V. Cusick, Jr.
Paul V. Cusick, Jr., Vice President and Treasurer, Principal Financial Officer |
|
/s/ Fraser Lemley
Fraser Lemley, Director |
/s/ Kenneth A. Samuelian
Kenneth A. Samuelian, Vice President and Controller, Century Bank and Trust Company, Principal Accounting Officer |
|
/s/ Joseph P. Mercurio
Joseph P. Mercurio, Director |
||
/s/ Joseph J. Senna
Joseph J. Senna, Esquire, Director |
-51-
CERTIFICATIONS
I, Marshall M. Sloane, certify that:
1. I have reviewed this annual report on Form 10-K of Century Bancorp, Inc.; | ||
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | ||
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this annual report; | ||
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: |
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | |||
(b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and | |||
(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors; |
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and | |||
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and |
6. The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: March 19, 2003 |
/s/ Marshall M. Sloane
Marshall M. Sloane Chairman and Chief Executive Officer (Principal Executive Officer) |
-52-
I, Paul V. Cusick, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Century Bancorp, Inc.; | ||
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | ||
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this annual report; | ||
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: |
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | |||
(b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and | |||
(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors; |
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and | |||
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and |
6. The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: March 19, 2003 |
/s/ Paul V. Cusick Jr.
Paul V. Cusick, Jr. Vice President and Treasurer (Chief Financial Officer) |
-53-
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors
Century Bancorp, Inc.:
We consent to the incorporation by reference in the registration statement on Form S-8 of Century Bancorp, Inc. of our report dated January 10, 2003, with respect to the consolidated balance sheets of Century Bancorp, Inc as of December 31, 2002 and 2001, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2002, which report appears in the December 31, 2002, annual report on Form 10-K of Century Bancorp, Inc.
/s/ KPMG LLP Boston, Massachusetts March 24, 2003 |
Exhibit 23.2
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Century Bancorp, Inc. (the "Company") for the year ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Marshall M. Sloane /s/ Paul V. Cusick, Jr. -------------------------------- ----------------------------- Marshall M. Sloane Paul V. Cusick, Jr. Chairman, President and CEO Vice President and Treasurer (Chief Financial Officer) Date: March 19, 2003 Date: March 19, 2003 |
Exhibit 23.3
AGREEMENT
Agreement by and between Century Bank and Trust Company, a Massachusetts trust company (the "Company"), and Marshall M. Sloane ("Mr. Sloane"), dated as of December 28, 2001.
WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its stockholders for the Company to enter into this Agreement as part of a retention strategy for Mr. Sloane and in recognition of his invaluable contributions to the Company's success in developing, implementing and managing the strategy of growth and diversification.
NOW, THEREFORE, the Company and Mr. Sloane agree as follows:
1. SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFIT
Effective immediately, Mr. Sloane's Supplemental Executive Retirement Benefit shall be frozen at its current level with no future increases or contributions by the Company ($2,925,000 of pre-retirement death benefit and $455,034 of annual retirement income).
2. SPLIT DOLLAR LIFE INSURANCE POLICY
(a) ACQUISITION AND PREMIUM PAYMENT. In consideration for the agreement of Mr. Sloane in Section 1, as soon as practicable after the date of this Agreement, the Company will acquire a life insurance policy (the "Policy") providing a death benefit of at least the Death Benefit described below upon the death of the survivor of Mr. Sloane or Mrs. Sloane (his "wife"). The Company will select a reputable and financially sound insurance company or
companies to issue the Policy (if the Company selects more than one insurance company to issue a life insurance contract pursuant to the requirements of this subsection (a), all such life insurance contracts are referred to collectively as the Policy herein). When the Policy is acquired, the attachment identifying the Policy will be attached to this Agreement. The Company will pay all premiums necessary to acquire the Policy and maintain it in force, and will, if requested, provide evidence of such payment to the Sloane's. Further, the Company's obligation to pay premiums shall not be subject to any right of setoff or counterclaim that the Company may have, for any reason, against Mr. Sloane.
The "Death Benefit" payable to the Sloane's named beneficiary shall equal:
(i) $25 million;
(b) COMPANY'S OWNERSHIP INTEREST. The Company will be the owner of record of the Policy and will endorse the right to designate the beneficiary (and contingent beneficiary) of and the settlement option for payment of the Death Benefit to the Sloane's or the Sloane's assignee. The Company agrees to complete, execute and file with the issuer of the Policy such forms of endorsement, designation of beneficiary or other documentation necessary to effectuate such endorsement as to the portion of the Policy death benefit equal to the Death Benefit (subject to the provisions of this Agreement). Unless Mr. Sloane has irrevocably assigned his interest under the Policy, Mr. Sloane will have the right to designate the beneficiary or beneficiaries and the settlement option for payment of such death benefits. The Company shall have sole ownership interest in that portion of the Policy's death benefit that is in excess of the amount endorsed to the Sloane's beneficiary or the beneficiary of the Sloane's assignee hereunder.
Except as provided herein, the Company may exercise all ownership rights under the Policy. The Company will not exercise ownership rights in a way that will or could result in the reduction of the death benefits payable upon the death of the survivor of Mr. or Mrs. Sloane to the Sloane's beneficiary or to Sloane's assignee's beneficiary below the Death Benefit. In addition, the Company will not sell, assign, transfer, surrender or cancel the Policy, or take any other action with respect to the Policy that would be inconsistent with the Company's obligations under this Section or that could reasonably be expected to jeopardize the payment of the Death Benefit to the Sloane's beneficiary or the Sloane's assignee's beneficiary hereunder, provided, however, that the following shall not prohibit or limit any merger or other acquisition of the Company.
(c) TAX GROSS-UP PAYMENTS. The Company will pay to Mr. Sloane (or Mrs. Sloane or, if applicable, his or her estate or any trust or other assignee of the Sloane's right, title and interest pursuant to subsection (e) below) each year an amount equal to the federal and (if applicable) state income taxes owed by such taxpayer on the imputed income under applicable tax rules generated by the Company's payment of premiums with respect to the Policy plus any federal and (if applicable) state income taxes owed as a result of the payments under this subsection (c).
(d) INSURER NOT A PARTY. The insurance company issuing the Policy shall be fully discharged from its obligations under the Policy by payment of the Policy death benefit to the beneficiary or beneficiaries named in the Policy, subject to the terms and conditions of the Policy (including any endorsement thereon filed with the insurance company). In no event shall the insurance company be considered a party to this Agreement, or any modification or amendment hereof.
(e) ASSIGNMENT BY MR. SLOANE. Notwithstanding any provision hereof to the contrary, Mr. Sloane shall have the right absolutely and irrevocably to assign by gift all of his right, title and interest under this Agreement. This right shall be exercisable by the execution and delivery to the Company of a written assignment. Upon receipt of such written assignment executed by Mr. Sloane, the Company shall thereafter treat the Sloane's assignee as the sole owner of all of Mr. Sloane's right, title and interest under of this Agreement and in and to the Policy. Thereafter, Mr. Sloane shall have no right, title or interest under this Agreement or the Policy, all such rights being vested in and exercisable only by such assignee.
(f) ERISA MATTERS. The provisions of this subsection (f) shall apply only if and to the extent that it is determined that the benefits provided under this Agreement constitute an employee welfare benefit plan for purposes of ERISA.
(i) The Company is hereby designated as the named fiduciary under this Agreement. The named fiduciary shall have authority to control and manage the operation and administration of this Agreement, and it shall be responsible for establishing and carrying out a funding policy and method consistent with the objectives of this Agreement.
(ii) Any claim for a benefit under this Agreement will be reviewed and determined under procedures that satisfy the applicable requirements of ERISA and regulations thereunder for the determination of claims.
2. MISCELLANEOUS
(a) BINDING ON SUCCESSORS. This Agreement shall be binding upon, shall inure to the benefit of, and shall be enforceable by the Company and its successors and assigns and Mr. Sloane, Mr. Sloane's heirs, executors, administrators, and permitted assigns.
As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(b) TAX WITHHOLDING. The Company will withhold (or cause to be withheld) from any payment due hereunder all taxes required by law to be withheld, any amounts specified for payment under this Agreement will be reduced by all such required tax withholdings.
(c) NO ASSIGNMENT. Except as specifically provided for hereunder, neither Mr. Sloane nor any beneficiary or Permitted Transferee will have any power or right to transfer, assign, anticipate or otherwise encumber any benefit or amount payable under this Agreement, nor shall any such benefit or amount payable be subject to seizure or attachment by any creditor of Mr. Sloane or a beneficiary or Permitted Transferee, or to any other legal, equitable or other process, or be liable for, or subject to, the debts, liabilities or other obligations of Mr. Sloane or any beneficiary or Permitted Transferee, except as may otherwise be required by law.
(d) ATTORNEYS' FEES. The Company agrees to pay Mr. Sloane's reasonable attorneys' fees if Mr. Sloane, in Mr. Sloane's reasonable judgment,
determines that it is necessary to engage counsel to represent Mr. Sloane in protecting his rights (or those of an assignee) under this Agreement. The Company further agrees that its obligations under this subsection (d) are additional contractual obligations to Mr. Sloane (in accordance with their terms) and the Company will pay the Sloane's reasonable attorneys' fees as required by this subsection (d) even if the benefit in dispute is one that is determined to be subject to ERISA, and the Company also agrees that it will not in such a circumstance assert that its obligations under this subsection (d) are preempted by ERISA.
(e) SURVIVING PROVISIONS. The parties intend that this Agreement shall be enforceable as written. However, if any portion or provision of this Agreement is declared illegal or unenforceable to any extent by a court of competent jurisdiction, if is intended that the remainder of this Agreement will not be affected thereby and that each portion and provision of this Agreement will be valid and enforceable to the fullest extent permitted by law.
(f) NOTICES. All notices and communications required or permitted to be given hereunder shall be given by delivering the same in hand, by mailing the same by certified or registered mail, return receipt requested, postage prepaid, or by prepaid overnight carrier, as follows:
IF TO THE COMPANY:
Century Bank and Trust Company
400 Mystic Avenue
Medford, MA 02155
Attn: Treasurer
IF TO THE EXECUTIVE:
Marshall M. Sloane
Or to such other address as either party shall have furnished to the other party in writing in accordance with this subsection.
(g) CAPTIONS AND HEADINGS; DEFINITIONS. All captions and headings in this Agreement are intended solely for the convenience of the parties, and shall not affect the meaning or construction of any provision hereof.
Any term defined in any section of this Agreement will have the same meaning when used anywhere else in this Agreement unless expressly provided otherwise.
(h) AMENDMENT. This Agreement may not be amended, altered or modified, except by a written instrument signed by the parties hereto, or their respective successors or assigns.
(i) CONTROLLING LAW. This Agreement shall be construed under and governed in all respects by the law of the State of Massachusetts without reference to principles of conflicts of laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement.
Century Bank & Trust Company
By: /s/ Paul V. Cusick, Jr. ----------------------- Paul V. Cusick, Jr., E.V.P. /s/ Marshall M. Sloane ----------------------- Marshall M. Sloane |
EXHIBIT 23.4
THE CENTURY BANCORP
SUPPLEMENTAL EXECUTIVE RETIREMENT
AND INSURANCE PLAN
AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 2002
TABLE OF CONTENTS
Page PREAMBLE ARTICLE I CONSTRUCTION OF THE PLAN 1 1.1 Definitions (a) Accrual Percentage 1 (b) Actuarial Equivalent 2 (c) Actuary 2 (d) Average Compensation 2 (e) Beneficiary 2 (f) Benefit Percentage 2 (g) Board of Directors 3 (h) Change of Control 3 (i) Code 4 (j) Committee 4 (k) Compensation 4 (l) Director 4 (m) Early Retirement Age 4 (n) Early Retirement Date 4 (o) Effective Date 4 (p) Employee 4 (q) Employer 4 (r) ERISA 4 (s) Executive Management Group 4 (t) Normal Retirement Date 4 (u) Participant 4 (v) Pension Trust Offset 5 (w) Pension Trust 5 (x) Plan Year 5 (y) Postponed Retirement Date 5 (z) Senior Management Group 5 (aa) Social Security Benefit 5 (bb) Years of Plan Participation 5 1.2 Construction 5 ARTICLE II PARTICIPATION 6 ARTICLE III ELIGIBILITY FOR BENEFITS 7 3.1 Normal Retirement 7 3.2 Early Retirement 7 |
3.3 Deferred Vested Retirement 7 ARTICLE IV SUPPLEMENTAL RETIREMENT BENEFITS 8 4.1 Normal or Postponed Retirement Benefits 8 4.2 Early Retirement Benefits 8 4.3 Deferred Vested Retirement Benefits 9 ARTICLE V PAYMENT OF BENEFITS 10 5.1 Normal Form of Payment 10 5.2 Optional Forms of Payment 10 5.3 Frequency of Payment 11 5.4 Nature of Claim for Payments 11 ARTICLE VI INSURANCE BENEFITS 12 6.1 Amount of Insurance 12 6.2 Termination of Employment 12 6.3 Beneficiaries 12 6.4 Taxation 13 6.5 Procedures 13 ARTICLE VII PLAN ADMINISTRATION 14 7.1 Plan Administrator 14 7.2 Composition of the Committee 14 7.3 Powers and Duties of Committee 14 ARTICLE VIII MISCELLANEOUS PROVISIONS 15 8.1 No Contract of Employment 15 8.2 Assignment 15 8.3 Forfeiture in the Event of Discharge for Cause 15 8.4 Amendment 15 Schedule A Change of Control Definition 17 |
THE CENTURY BANCORP
SUPPLEMENTAL EXECUTIVE RETIREMENT
AND INSURANCE PLAN
PREAMBLE
Century Bancorp, Inc. has adopted this Plan for a select group of management Employees in order to (a) attract, retain and motivate qualified management Employees, (b) facilitate the retirement of such Employees, and (c) in certain cases, provide survivor income for the Beneficiaries of such Employees. The Plan is intended to be "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, and shall be interpreted and administered to the extent possible in a manner consistent with that intent.
This Plan amends and restates, effective January 1, 2000, The Century Bancorp, Inc. Supplemental Executive Retirement/Insurance Plan. This Plan was previously amended effective January 1, 1984 and January 1, 1989.
ARTICLE I
CONSTRUCTION OF THE PLAN
1.1 DEFINITIONS
Whenever used in this Plan with initial capital letters, the following terms shall have the following meanings:
(a) "ACCRUAL PERCENTAGE" means:
(i) in the case of a Participant whose employment with
the Employer terminates before attaining age forty
(40), 0%; or
(ii) in the case of a Participant whose employment with
the Employer terminates after attaining age forty
(40), the percentage from the following tables:
For employees who became Participants before January 1, 2000 the following table will apply:
------------------------------------------------------------------------------- Years of Plan Participation Accrual Percentage ------------------------------------------------------------------------------- Fewer than 5 0.0% ------------------------------------------------------------------------------- 5 but less than 6 25.0 ------------------------------------------------------------------------------- 6 but less than 7 32.5 ------------------------------------------------------------------------------- 7 but less than 8 40.0 ------------------------------------------------------------------------------- 8 but less than 9 47.5 ------------------------------------------------------------------------------- 9 but less than 10 55.0 ------------------------------------------------------------------------------- 10 but less than 11 62.5 ------------------------------------------------------------------------------- 11 but less than 12 70.0 ------------------------------------------------------------------------------- 12 but less than 13 77.5 ------------------------------------------------------------------------------- 13 but less than 14 85.0 ------------------------------------------------------------------------------- 14 but less than 15 92.5 ------------------------------------------------------------------------------- 15 or more 100.0 ------------------------------------------------------------------------------- |
For employees who became Participants after December 31, 1999 the following table shall apply:
------------------------------------------------------------------------------- Years of Plan Participation Accrual Percentage ------------------------------------------------------------------------------- Fewer than 5 0% ------------------------------------------------------------------------------- 5 but less than 6 20 ------------------------------------------------------------------------------- 6 but less than 7 24 ------------------------------------------------------------------------------- 7 but less than 8 28 ------------------------------------------------------------------------------- 8 but less than 9 32 ------------------------------------------------------------------------------- 9 but less than 10 36 ------------------------------------------------------------------------------- 10 but less than 11 40 ------------------------------------------------------------------------------- 11 but less than 12 44 ------------------------------------------------------------------------------- 12 but less than 13 48 ------------------------------------------------------------------------------- |
------------------------------------------------------------------------------- 13 but less than 14 52 ------------------------------------------------------------------------------- 14 but less than 15 56 ------------------------------------------------------------------------------- 15 but less than 16 60 ------------------------------------------------------------------------------- 16 but less than 17 64 ------------------------------------------------------------------------------- 17 but less than 18 68 ------------------------------------------------------------------------------- 18 but less than 19 72 ------------------------------------------------------------------------------- 19 but less than 20 76 ------------------------------------------------------------------------------- 20 but less than 21 80 ------------------------------------------------------------------------------- 21 but less than 22 84 ------------------------------------------------------------------------------- 22 but less than 23 88 ------------------------------------------------------------------------------- 23 but less than 24 92 ------------------------------------------------------------------------------- 24 but less than 25 96 ------------------------------------------------------------------------------- 25 or more 100 ------------------------------------------------------------------------------- |
Notwithstanding the above, upon a Change of Control the Accrual Percentage of a Participant who is employed by the Employer on the date of such Change will be 100%.
(b) "ACTUARIAL EQUIVALENT" means a benefit of equal present value to the benefit which otherwise would have been provided to the Participant, computed on the basis of mortality according to the 1984 Unisex Pension Mortality Table and an interest rate of 7.5% compounded annually.
(c) "ACTUARY" means the enrolled actuary selected by the Board.
(d) "AVERAGE COMPENSATION" means the Compensation of a Participant averaged over the thirty-six (36) consecutive calendar months within the last one hundred twenty (120) calendar months as an Employee which produces the highest average.
(e) "BENEFICIARY" means a person entitled to benefits under the provisions of the Plan, other than the Participant.
(f) "BENEFIT PERCENTAGE" means, for employees who became Participants before January 1, 2000; 75% for a member of the Executive Management Group or 66% for all for members of the Senior Management Group; and 66% for all employees who become Participants after December 31, 1999.
(g) "BOARD OF DIRECTORS" means the Board of Directors of the Employer.
(h) "CHANGE OF CONTROL" shall mean the occurrence of any one of the events defined in Schedule A.
(i) "CODE" means the Internal Revenue Code of 1986, as amended.
(j) "COMMITTEE" means the Plan Committee described in Article VII.
(k) "COMPENSATION" means the total W-2 earnings paid by the Employer to the Employee during a Plan Year, increased by the amount of any salary reduction contribution on behalf of the Employee by the Employer to a 401(k) plan maintained by the Employer or to any cafeteria plan maintained by the Employer pursuant to Section 125 of the Code.
(l) "DIRECTOR" means a member of the Board of Directors.
(m) "EARLY RETIREMENT AGE" means the first day of the month after a Participant has attained age fifty-five (55) and completed five (5) or more years of participation.
(n) "EARLY RETIREMENT DATE" means a Participant's date of termination after attaining his Early Retirement Age, but prior to his Normal Retirement Date.
(o) "EFFECTIVE DATE" means January 1, 1984.
(p) "EMPLOYEE" means any person who is hired by the Employer.
(q) "EMPLOYER" means Century Bancorp, Inc., Century Bank & Trust Co., Century North Shore Bank & Trust Company, and the Bank of Massachusetts, all corporations organized and existing under laws of the Commonwealth of Massachusetts or its successor or successors.
(r) "ERISA" means the Employee Retirement Income Security Act of 1974.
(s) "NORMAL RETIREMENT DATE" means the first day of the month coincident with or next following the Participant's 65th birthday.
(t) "PARTICIPANT" means any eligible Employee of the Employer who has satisfied the requirements in Section 2.1.
(u) "PENSION TRUST OFFSET" means the monthly retirement benefit that would be payable
to the Participant under the Pension Trust beginning on his Normal Retirement Date or Postponed Retirement Date, if applicable, (both as defined in this Plan), under the 120 month term certain annuity form of payment under the Pension Trust.
In the event that payments under the Pension Trust actually begin on a date other than the Participant's Normal Retirement Date or Postponed Retirement Date, if applicable (both as defined in this Plan), or are paid in a form other than the 120 months certain annuity, such retirement benefit shall be adjusted based on this Plan's definition of Actuarial Equivalence.
(v) "PENSION TRUST" means The Century Bancorp Pension Trust, a pension plan qualified under Section 401 of the Code.
(w) "PLAN" means The Century Bancorp Supplemental Executive Retirement and Insurance Plan.
(x) "PLAN YEAR" means the 12-month period ending on September 30.
(y) "POSTPONED RETIREMENT DATE" means the first day of any month after a Participant's Normal Retirement Date and after his termination of employment.
(z) "SENIOR MANAGEMENT GROUP" means the group of Employees so designated for purposes of participation in this Plan.
(aa) "SOCIAL SECURITY BENEFIT" means an estimate made by the Actuary of the monthly primary old-age Social Security Benefit (under Title II of the federal Social Security Act) which would be payable commencing at Normal Retirement or a Postponed Retirement Date, if applicable, assuming the Participant has the number of covered employment years required to maximize his Social Security Benefit.
(bb) "YEARS OF PLAN PARTICIPATION" means 1/12 of the number of calendar months while an Employee is employed by the Employer and while he is designated as a Participant in this Plan. When this calculation results in a number of years plus a fraction of a year, if the fraction is 5/12 or less it shall be ignored, otherwise it will be considered the same as one full year.
1.2 CONSTRUCTION
(a) Where necessary or appropriate to the meaning hereof, the singular shall be deemed to include the plural, the plural to include the singular, the masculine to include the feminine, and the feminine to include the masculine.
(b) If any provision of the Plan or the application thereof to any circumstance or person is
invalid, the remainder of the Plan and the application thereof to other circumstances or persons shall not be affected thereby.
(c) All headings contained herein are for convenience of reference only and shall not be construed as a part of this Plan, or have any effect upon the meaning of the provisions hereof.
(d) To the extent not preempted by federal law, the provisions of the Plan shall be construed, administered, and enforced under the laws of the Commonwealth of Massachusetts.
ARTICLE II
PARTICIPATION
2.1 PARTICIPATION
The Participants in the Plan will be such management employees as may be selected from time to time by the Committee. Each individual who becomes a Participant prior to January 1, 1989 will be designated by the Committee as belonging to either the Executive Management Group or the Senior Management Group for purposes of determining the Participant's benefits. Each employee who becomes a Participant on or after January 1, 1989 will be a member of the Senior Management Group. As of January 1, 1989, no Participant may be moved from one group to the other.
The Committee may terminate an Employee's participation in the Plan (while he is still an Employee), but, subject to Section 8.3, no such action will reduce the Employer's obligation to any Participant below the amount to which he would be entitled under the Plan as in effect immediately prior to such action if his employment then terminated.
ARTICLE III
ELIGIBILITY FOR BENEFITS
3.1 NORMAL RETIREMENT
A Participant who terminates employment with the Employer after attaining his Normal Retirement Date, or after his Early Retirement Age but having elected to defer commencement of his benefit until his Normal Retirement Date, shall be eligible, upon application therefor, to receive the Normal Retirement Benefit described in Section 4.1.
3.2 EARLY RETIREMENT
A Participant who has attained his Early Retirement Age shall be eligible, upon application therefor, to receive the Early Retirement Benefit described in Section 4.2.
3.3 DEFERRED VESTED RETIREMENT
A Participant who has attained age forty (40) and has at least five (5) Years of Participation whose employment with the Employer is terminated prior to attainment of his Normal Retirement Date shall, after attaining his Early Retirement Age, be eligible, upon application therefor, to receive the Deferred Vested Retirement Benefit described in Section 4.3.
ARTICLE IV
SUPPLEMENTAL RETIREMENT BENEFITS
4.1 NORMAL OR POSTPONED RETIREMENT BENEFITS
The monthly Normal Retirement Benefit of a Participant commencing on the Participant's Normal Retirement Date or Postponed Retirement Date shall be the sum of (a) minus (b) minus (c), subject to a minimum benefit (d) below, then multiplied by his Accrual Percentage and then divided by twelve (12):
(a) His Benefit Percentage multiplied by his Average Compensation;
(b) His Pension Trust Offset;
(c) His Social Security Offset, which is equal to 100% of the Social Security Benefit;
(d) $2,400
The monthly Retirement Benefit for Mr. Marshall M. Sloane has been calculated as of January 1, 2001 based on his Accrual Percentage as of January 1, 2001, his Pension Trust offset as of January 1, 2001, and his Social Security offset as of January 1, 2001, and will not change after January 1, 2001.
4.2 EARLY RETIREMENT BENEFITS
The monthly early retirement benefit of a Participant shall be the benefit calculated in accordance with Section 4.1, provided, however, that to the extent payment begins prior to the Participant's Normal Retirement Date, the amount thereof shall be reduced according to the following schedule:
------------------------------------------------------------------------- Age of Commencement Early Retirement Percentage ------------------------------------------------------------------------- 55 35% ------------------------------------------------------------------------- 56 40 ------------------------------------------------------------------------- 57 45 ------------------------------------------------------------------------- 58 50 ------------------------------------------------------------------------- 59 55 ------------------------------------------------------------------------- 60 60 ------------------------------------------------------------------------- 61 68 ------------------------------------------------------------------------- 62 76 ------------------------------------------------------------------------- 63 84 ------------------------------------------------------------------------- 64 92 ------------------------------------------------------------------------- 65 100 ------------------------------------------------------------------------- |
The above factors will be interpolated to the nearest month.
The monthly Early Retirement Benefit of a Participant, who has commenced receiving payments on or after January 1, 1999, shall be the benefit calculated in accordance with Section 4.1, provided., however, that to the extent payment commences prior to the Participant's Normal Retirement Date, the amount thereof shall be reduced 5/9% for each of the first sixty (60) months that the commencement of payments precedes the Participant's Normal Retirement Date and 5/18% for each of the next sixty (60) months.
The monthly Early Retirement Benefit of a Participant in the Executive Management group, who has commenced receiving payments on or after January 1, 2002, shall be the benefit calculated in accordance with Section 4.1, provided, however, that to the extent payment commences prior to the Participant's 62nd birthday, the amount thereof shall be reduced 5/9% for each of the first twenty-four (24) months that the commencement of payment precedes the Participant's 62nd birthday and 5/18% for each for the next sixty (60) months.
4.3 DEFERRED VESTED RETIREMENT BENEFITS
The monthly deferred vested benefit of a Participant shall be the benefit calculated in accordance with Section 4.1, provided, however, that to the extent payment begins prior to the Participant's Normal Retirement Date, the amounts thereof shall be reduced as in Section 4.2 above.
ARTICLE V
PAYMENT OF BENEFITS
5.1 NORMAL FORM OF PAYMENT
Retirement benefits shall be paid to the Participant monthly for the life of the Participant, but in any event for a minimum of one hundred and twenty (120) months of payments.
If the Participant dies prior to the expiration of such one hundred and twenty (120) month period, his Beneficiary will receive a monthly payment for the remainder of the one hundred and twenty (120) month period equal to the monthly amount payable to the Participant prior to his death. A Participant may designate a Beneficiary entitled to receive benefits under this Section for the balance of the one hundred and twenty (120) month period in writing on a form satisfactory to the Employer. If, after the death of a Participant during the one hundred and twenty (120) month period, there is no designated Beneficiary, the present value of the Retirement Benefits remaining to be paid during the one hundred and twenty (120) month period shall be calculated on the basis of the Plan's Actuarial Equivalent assumptions and shall be paid as soon as practicable to the Participant's estate.
5.2 OPTIONAL FORMS OF PAYMENTS
Subject to such rules and regulations as the Committee may establish from time to time, a Participant eligible for a Normal, Early, or Deferred Vested Retirement Benefit under the Plan may, in lieu of the Normal Form of Retirement described in Section 5.1, elect to receive his benefit in the form of one of the following optional forms of payment:
(a) JOINT AND SURVIVOR ANNUITIES
A Participant may elect a joint and survivor annuity which shall provide that either one-fourth (1/4), one-half (1/2), two-thirds (2/3), three-fourths (3/4), or all of the monthly joint and survivor benefit payable to the Participant shall continue to be paid following his death to his designated joint annuitant for the duration of such joint annuitant's life. A joint and survivor annuity shall be the Actuarial Equivalent of the Participant's normal form of payment described in Section 5.1. If the joint annuitant predeceases the Participant after the benefit has commenced, the Participant shall continue to receive the same amount as was being paid during their joint lives.
(b) LIFE ANNUITY AND TERM CERTAIN FORMS OF PAYMENT
A Participant may elect, in lieu of any other retirement benefit under
the Plan, to receive his benefit as a life annuity or as a five (5) or fifteen
(15) years certain annuity (a "Term Certain Annuity".)
Any such life annuity or Term Certain Annuity shall be the Actuarial Equivalent of the
Normal Form of Payment in Section 5.1 to which the Participant would have been entitled. A Term Certain Annuity shall provide a monthly pension for the life of the Participant with monthly payments guaranteed for 60 or 180 months. If the retired Participant begins to receive payments but does not live to receive 60 or 180 payments, then such payment shall continue to his designated Beneficiary (or to his estate if the Beneficiary is deceased) until 60 or 180 payments have been made.
5.3 FREQUENCY FORMS OF PAYMENTS
The Committee, at its discretion, may adjust the frequency of payment of Retirement Benefits from monthly payment, with such adjustment being the Actuarial Equivalent of the monthly Retirement Benefit.
5.4 NATURE OF PAYMENTS
The Employer shall not be required to set aside or segregate any assets of any kind to meet its obligations hereunder. A Participant shall have no right on account of this Plan in or to any specific assets of the Employer (other than rights with respect to life insurance policies purchased under Article VI). Any right to any payment that a Participant may have on account of the Plan shall be those of a general, unsecured creditor of the Employer.
ARTICLE VI
INSURANCE BENEFITS
6.1 AMOUNT OF INSURANCE
The Employer will purchase and maintain one or more insurance policies on the life of each Participant which, upon the death of the Participant, will pay directly to the Participant's Beneficiary an amount equal to:
(a) in the case of a Participant in the Executive Management Group who dies while in the employment of the Employer, five (5) times the annual rate of salary being paid to the Participant at the time of his death, or
(b) in the case of a Participant in the Senior Management Group who dies while in the employment of the Employer, four (4) times the annual rate of salary being paid to the Participant at the time of his death.
Any insurance amounts provided under this Article VI shall be in addition to any group-term life insurance provided to the Participant by the Employer outside of this Plan.
6.2 TERMINATION OF EMPLOYMENT
As of the date of a Participant's termination with the Employer for any reason other than death;
(a) the Employer's obligations under this Article to purchase and maintain insurance or otherwise provide a supplemental death benefit with respect to the Participant shall cease;
(b) the Participant will have no further rights under this Article or under any insurance policy purchased hereunder; and
(c) if the Employer in its discretion decides to continue to maintain any insurance policies on the life of the Participant purchased under this Article beyond his date of termination, the Employer, and, if required by any such policies, the Participant shall take all steps necessary to name the Employer as the sole Beneficiary of such policies as of such date.
6.3 BENEFICIARIES
A Participant may designate one or more Beneficiaries entitled to receive benefits under this Article in the event of his death on a form satisfactory to the Employer and the insurance company or companies issuing the insurance policy or policies on his life hereunder; however, the Participant
shall have no other rights or incidence of ownership in any such policy.
6.4 TAXATION
It is intended that any death benefit payable under an insurance policy purchased under this Article will not be includible in the income of the Beneficiary for federal income tax purposes, but that the one-year term cost of such life insurance protection, as determined under the applicable provisions of the Code, will be includible in the gross income of a Participant while he has the right to name a Beneficiary entitled to receive the death benefit.
6.5 PROCEDURES
A Participant shall cooperate fully with the Employer in connection with any such policy, including, but not limited to, submitting to such medical examinations, providing such information as may be required from time to time by the Employer or the insurance company, and executing any forms required by either the Employer or the insurance company.
ARTICLE VII
PLAN ADMINISTRATION
7.1 PLAN ADMINISTRATOR
The Plan shall be administered by a Plan Committee.
7.2 COMPOSITION OF THE COMMITTEE
The Committee shall be composed of three or more members, who shall be Employees or Directors of the Employer. Any member of the Committee may be removed by the Employer at any time or may resign at any time by submitting his resignation in writing to the Employer. A new Committee member shall be appointed as soon as possible in the event that a Committee member is removed or resigns. Any person so appointed shall signify his acceptance by filing a written acceptance with the Employer. No member of the Committee who is a Participant in this Plan may vote or otherwise participate in any decision or act with respect to a matter relating solely to himself (or to himself and any Beneficiary).
7.3 POWERS AND DUTIES OF COMMITTEE
The Committee will have authority to interpret the provisions of the Plan and decide all questions and settle all disputes which may arise in connection with the Plan and may establish its own operating and administrative rules and procedures in connection therewith. All interpretations, decisions, and determinations made by the Committee will be binding on all persons concerned.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 NO CONTRACT OF EMPLOYMENT
The Plan will not be deemed to constitute a contract of employment between the Employer and any Participant, or to be consideration for the employment of any Participant. The Plan will not be deemed to give any Participant the right to be retained in the employ of the Employer or to affect the Employer's ability to discharge any Participant at any time.
8.2 ASSIGNMENT
The interest hereunder of any Participant or Beneficiary will not be alienable by the Participant or Beneficiary by assignment or any other method and will not be subject to be taken by his creditors to any process whatsoever, and any attempt to cause such interest to be so subjected will not be recognized, except to such extent as may be required by law.
The obligations of the Employer hereunder shall be binding on its successors or assigns, whether by merger, consolidation, or acquisition of all or substantially all of its business or assets.
8.3 FORFEITURE IN THE EVENT OF DISCHARGE FOR CAUSE
Notwithstanding any provision in this Plan to the contrary, no Retirement Benefits will be payable hereunder with respect to any Participant who is discharged from the Employer for cause. For purposes of this Plan only the following shall constitute "cause":
(a) the Participant's falsification of accounts of the Employer, embezzlement of funds from the Employer, or commission of any act constituting gross dereliction of duties; or
(b) the conviction of the Participant for, or entry of a pleading of guilty or nolo contendere by the Participant to, any crime involving moral turpitude or any felony.
8.4 AMENDMENT
The Plan (including the attached Schedule A) may be altered, amended, or revoked in writing by the Employer at any time, but no such action may reduce the Employer's obligation with respect to a Participant who is then still employed by the Employer below the amount to which he would be entitled under the Plan as in effect immediately prior to such action if his employment then terminated, and no such action may reduce the Employer's obligation with respect to a Participant whose employment with Employer has already then terminated.
IN WITNESS WHEREOF, the Employer, by its duly authorized officer, has executed this amended and restated Plan, this thirty-first day of January, 2002.
CENTURY BANCORP, INC.
By: /s/ Paul V. Cusick, Jr. ----------------------- |
Schedule A
CHANGE OF CONTROL DEFINITION
"Change of Control" means the occurrence of anyone of the following events:
(a) there occurs a change of control of Century Bancorp, Inc. of a
nature that would be required to be reported in response to
Item 1(a) of the Current Report on Form 8-K pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 or
in any other filing under the Securities Exchange Act of 1934;
or
(b) any Person (other than family members of Marshall M. Sloane) becomes the owner of 25% or more of the Employer's Class B Common Stock and thereafter individuals who were not directors of the Employer prior to the date such Person became a 25% owner are elected as directors pursuant to an arrangement or understanding with, or upon the request of, or nomination by, such Person and constitute at least 25% of the Board of Directors; or
(c) there occurs any solicitation or series of solicitations of proxies by or on behalf of any Person other than the Board of Directors and thereafter individuals who were not directors of the Employer prior to the commencement of such solicitation, or series of solicitations, are elected as directors pursuant to an arrangement or understanding with, or upon the request of or nomination by, such Person and constitute at least 25% of the Board of Directors; or
(d) the Employer executes an agreement of acquisition, merger, or consolidation which contemplates that (i) after the effective date provided for in the agreement all or substantially all of the business and/or assets of the Employer shall be owned, leased, or otherwise controlled by another corporation or entity, and (ii) individuals who are directors of the Employer when such agreement is executed shall not constitute a majority of the board of directors of the survivor or successor company immediately after the effective date provided for in such agreement; provided, however, for purposes of this paragraph (d) that if such agreement requires as a condition precedent approval by the Employer's shareholders of the agreement or transaction, a Change of Control shall not be deemed to have taken place unless and until such approval is secured (but upon any such approval a Change of Control shall be deemed to have occurred on the date of execution of such agreement).
For purposes of the above, the following definitions apply:
"Common Stock" shall mean the then outstanding Common Stock of the Employer plus, for purposes of determining the stock ownership of any Person, the number of unissued shares of Common Stock which such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) upon the exercise of conversion rights, exchange
rights, warrants, or options or otherwise. Notwithstanding the foregoing, the term Common Stock shall not include shares of preferred stock or convertible debt or options or warrants to acquire shares of Common Stock (including any shares of Common Stock issued or issuable upon the conversion or exercise thereof) to the extent that the Board of Directors shall expressly so determine in any future transaction or transactions.
A Person shall be deemed to be the "owner" of any Common Stock:
(i) if which such Person would be "beneficial owner" as such term is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934; or
(ii) if which such Person would be the "beneficial owner" as such term is defined under Section 16 of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission promulgated thereunder; or
(iii) which such Person or any of its Affiliates or Associates (as such terms are defined in Rule 12B-2 promulgated by the Securities Exchange Commission under the Securities and Exchange Act of 1934) has the right to acquire (whether such right is exercisable immediate or only after the passage of time) pursuant to any agreement, arrangement, or understanding, or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise.
"Person" shall have the meaning used in Section 13(d) of the Securities Exchange Act of 1934.