As of March 31,September 30, 2021, and as a result of82 loans aggregating $36,152,000,$16,329,000, primarily consisting of short-term payment deferrals. Of these modifications, $36,152,000, or 100%,Both loans were performing in accordance with their modified terms.
COVID-19
loan modifications, the Company had modifications of There waswere no TDRTDRs made during the three-monthnine-month period ended March 31,September 30, 2020. Also, there were no commitments to lend additional funds to TDR borrowers. There were no TDRs that subsequently defaulted during the first threenine months of 2020.
As of September 30, 2020, and as a result of
COVID-19
loan modifications, the Company has modifications of 33 loans aggregating $37,987,000, primarily consisting of short-term payment deferrals. Of these modifications, $37,987,000, or 100%, were performing in accordance with their modified terms.Note 5. Reclassifications Out of Accumulated Other Comprehensive Income
(a)Amount Reclassified from Accumulated Other Comprehensive Income
Details about Accumulated Other Comprehensive Income Components | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Affected Line Item in the Statement where Net Income is Presented | |||||||||||
| (in thousands) | ||||||||||||||
Unrealized gains and losses on available-for-sale | $ | 0 | $ | 0 | Net gains on sales of investments | |||||||||
0 | 0 | Provision for income taxes | ||||||||||||
$ | 0 | $ | 0 | Net income | ||||||||||
Accretion of unrealized losses transferred | $ | (163 | ) | $ | (196 | ) | Interest on securities held-to-maturity | |||||||
35 | 51 | Provision for income taxes | ||||||||||||
$ | (128 | ) | $ | (145 | ) | Net income | ||||||||
Amortization of defined benefit pension items | ||||||||||||||
Prior-service costs | $ | (54 | ) | (b) | $ | (29 | ) | (b) | Salaries and employee benefits | |||||
Actuarial gains (losses) | (511 | ) | (b) | (472 | ) | (b) | Salaries and employee benefits | |||||||
Total before tax | (565 | ) | (501 | ) | Income before taxes | |||||||||
Tax (expense) or benefit | 159 | 141 | Provision for income taxes | |||||||||||
Net of tax | $ | (406 | ) | $ | (360 | ) | Net income | |||||||
Details about Accumulated Other Comprehensive Income Components | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Affected Line Item in the Statement where Net Income is Presented | |||||||||||
| (in thousands) | ||||||||||||||
Unrealized gains and losses on available-for-sale | $ | 0 | $ | 0 | Net gains on sales of investments | |||||||||
0 | 0 | Provision for income taxes | ||||||||||||
$ | 0 | $ | 0 | Net income | ||||||||||
Accretion of unrealized losses transferred | $ | (532 | ) | $ | (637 | ) | Interest on securities held-to-maturity | |||||||
141 | 166 | Provision for income taxes | ||||||||||||
$ | (391 | ) | $ | (471 | ) | Net income | ||||||||
Amortization of defined benefit pension items | ||||||||||||||
Prior-service costs | $ | (162 | ) | (b) | $ | (86 | ) | (b) | Salaries and employee benefits | |||||
Actuarial gains (losses) | (1,532 | ) | (b) | (1,417 | ) | (b) | Salaries and employee benefits | |||||||
Total before tax | (1,694 | ) | (1,503 | ) | Income before taxes | |||||||||
Tax (expense) or benefit | 476 | 422 | Provision for income taxes | |||||||||||
Net of tax | $ | (1,218 | ) | $ | (1,081 | ) | Net income | |||||||
Details about Accumulated Other Comprehensive Income Components | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Affected Line Item in the Statement where Net Income is Presented | |||||||
| (in thousands) | ||||||||||
Accretion of unrealized losses transferred | $ | (155 | ) | $ | (222 | ) | Interest on securities held-to-maturity | |||
| 41 | 58 | Provision for income taxes | ||||||||
$ | (114 | ) | $ | (164 | ) | Net income | ||||
Amortization of defined benefit pension items | ||||||||||
Prior-service costs | $ | (54 | ) (b) | $ | (29 | )(b) | Salaries and employee benefits | |||
Actuarial gains (losses) | (511 | ) (b) | (472 | )(b) | Salaries and employee benefits | |||||
Total before tax | (565 | ) | (501 | ) | Income before taxes | |||||
Tax (expense) or benefit | 159 | 141 | Provision for income taxes | |||||||
Net of tax | $ | (406 | ) | $ | (360 | ) | Net income | |||
| (a) | Amount in parentheses indicates reductions to net income. |
| (b) | These accumulated other comprehensive income components are included in the computation of net periodic pension |
Page 22 of 48
Note 6. Earnings per Share (“EPS”)
Class A and Class B shares participate equally in undistributed earnings. Under the Company’s Articles of Organization, the holders of Class A Common Stock are entitled to receive dividends per share equal to at least 200% of dividends paid, if any, from time to time, on each share of Class B Common Stock.
Diluted EPS includes the dilutive effect of common stock equivalents and assumes the conversion of all Class B common stock; basic EPS excludes all common stock equivalents. The Company had no common stock equivalents outstanding for the periods ended March 31,September 30, 2021 and 2020.
The following table is a reconciliation of basic EPS and diluted EPS.
| Three Months Ended March 31, | ||||||||
| (in thousands except share and per share data) | 2021 | 2020 | ||||||
Basic EPS Computation: | ||||||||
Numerator: | ||||||||
Net income, Class A | $ | 8,538 | $ | 7,658 | ||||
Net income, Class B | 2,232 | 2,008 | ||||||
Denominator: | ||||||||
Weighted average shares outstanding, Class A | 3,656,469 | 3,652,349 | ||||||
Weighted average shares outstanding, Class B | 1,911,440 | 1,915,560 | ||||||
Basic EPS, Class A | $ | 2.34 | $ | 2.10 | ||||
Basic EPS, Class B | 1.17 | 1.05 | ||||||
Diluted EPS Computation: | ||||||||
Numerator: | ||||||||
Net income, Class A | $ | 8,538 | $ | 7,658 | ||||
Net income, Class B | 2,232 | 2,008 | ||||||
Total net income, for diluted EPS, Class A computation | 10,770 | 9,666 | ||||||
Denominator: | ||||||||
Weighted average shares outstanding, basic, Class A | 3,656,469 | 3,652,349 | ||||||
Weighted average shares outstanding, Class B | 1,911,440 | 1,915,560 | ||||||
Weighted average shares outstanding diluted, Class A | 5,567,909 | 5,567,909 | ||||||
Weighted average shares outstanding, Class B | 1,911,440 | 1,915,560 | ||||||
Diluted EPS, Class A | $ | 1.93 | $ | 1.74 | ||||
Diluted EPS, Class B | 1.17 | 1.05 | ||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands except share and per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Basic EPS Computation: | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income, Class A | $ | 9,326 | $ | 8,630 | $ | 26,452 | $ | 24,254 | ||||||||
Net income, Class B | 2,406 | 2,257 | 6,873 | 6,355 | ||||||||||||
Denominator: | ||||||||||||||||
Weighted average shares outstanding, Class A | 3,672,969 | 3,655,469 | 3,663,669 | 3,653,429 | ||||||||||||
Weighted average shares outstanding, Class B | 1,894,940 | 1,912,440 | 1,904,240 | 1,914,480 | ||||||||||||
Basic EPS, Class A | $ | 2.54 | $ | 2.36 | $ | 7.22 | $ | 6.64 | ||||||||
Basic EPS, Class B | 1.27 | 1.18 | 3.61 | 3.32 | ||||||||||||
Diluted EPS Computation: | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income, Class A | $ | 9,326 | $ | 8,630 | $ | 26,452 | $ | 24,254 | ||||||||
Net income, Class B | 2,406 | 2,257 | 6,873 | 6,355 | ||||||||||||
Total net income, for diluted EPS, Class A computation | 11,732 | 10,887 | 33,325 | 30,609 | ||||||||||||
Denominator: | ||||||||||||||||
Weighted average shares outstanding, basic, Class A | 3,672,969 | 3,655,469 | 3,663,669 | 3,653,429 | ||||||||||||
Weighted average shares outstanding, Class B | 1,894,940 | 1,912,440 | 1,904,240 | 1,914,480 | ||||||||||||
Weighted average shares outstanding diluted, Class A | 5,567,909 | 5,567,909 | 5,567,909 | 5,567,909 | ||||||||||||
Weighted average shares outstanding, Class B | 1,894,940 | 1,912,440 | 1,904,240 | 1,914,480 | ||||||||||||
Diluted EPS, Class A | $ | 2.11 | $ | 1.96 | $ | 5.99 | $ | 5.50 | ||||||||
Diluted EPS, Class B | 1.27 | 1.18 | 3.61 | 3.32 | ||||||||||||
Page 23 of 48
Note 7. Employee Benefits
The Company provides pension benefits to its employees under a noncontributory defined benefit pension plan, the “Defined Benefit Pension Plan”, which is funded on a current basis in compliance with the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) and recognizes costs over the estimated employee service period.
The Company also has the Century Bancorp, Inc. Supplemental Executive Retirement and Insurance Plan (the “Supplemental Plan”) which is limited to certain officers and employees of the Company. The Supplemental Plan is accrued on a current basis and recognizes costs over the estimated employee service period.
Executive officers of the Company and its subsidiaries who have at least one year of service may participate in the Supplemental Plan. The Supplemental Plan is voluntary, and participants are required to contribute to its cost. Life insurance policies, which are owned by the Company, are purchased covering the lives of each participant.
Components of Net Periodic Benefit Cost for the Three Months Ended March 31,September 30,
| Pension Benefits | Supplemental Insurance/ Retirement Plan | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
| (in thousands) | ||||||||||||||||
Service cos t | $ | 379 | $ | 344 | $ | 363 | $ | 353 | ||||||||
Interest | 434 | 450 | 434 | 466 | ||||||||||||
Expected return on plan assets | (1,062 | ) | (952 | ) | — | — | ||||||||||
Recognized prior service cost (benefit) | — | — | 54 | 29 | ||||||||||||
Recognized net actuarial losses | 241 | 261 | 269 | 211 | ||||||||||||
Net periodic benefit (credit) cost | $ | (8 | ) | $ | 103 | $ | 1,120 | $ | 1,059 | |||||||
| Pension Benefits | Supplemental Insurance/ Retirement Plan | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
| (in thousands) | ||||||||||||||||
Service cost | $ 379 | $344 | $ 363 | $ 353 | ||||||||||||
Interest | 434 | 450 | 434 | 466 | ||||||||||||
Expected return on plan assets | (1,062) | (952) | — | — | ||||||||||||
Recognized prior service cost (benefit) | — | 54 | 29 | |||||||||||||
Recognized net actuarial losses | 241 | 261 | 269 | 211 | ||||||||||||
Net periodic benefit (credit) cost | $ (8) | $103 | $1,120 | $1,059 | ||||||||||||
| Pension Benefits | Supplemental Insurance/ Retirement Plan | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
| (in thousands) | ||||||||||||||||
Service cost | $1,137 | $1,032 | $1,089 | $1,059 | ||||||||||||
Interest | 1,302 | 1,350 | 1,302 | 1,398 | ||||||||||||
Expected return on plan assets | (3,186) | (2,856) | — | — | ||||||||||||
Recognized prior service cost (benefit) | — | — | 162 | 87 | ||||||||||||
Recognized net actuarial losses | 723 | 783 | 807 | 633 | ||||||||||||
Net periodic benefit (credit) cost | $ (24) | $ 309 | $3,360 | $3,177 | ||||||||||||
Components of Net Periodic Benefit Cost for the Nine Months Ended September 30,
Approximately $371,000$1,110,000 and $465,000$1,395,000 of costs other than service costs, from the table above, are included in other expenses with the remaining cost included in salaries and employee benefits, for the threenine months ended March 31,September 30, 2021 and 2020, respectively.
Contributions
The Company has contributed $1,302,000 to the Defined Benefit Pension Plan in 2021.
Page 24 of 48
Note 8. Fair Value Measurements
The Company follows FASB ASC(Subtopic 825-10), which among other things, requires enhanced disclosures about assets and liabilities carried at fair value. ASC
820-10,
Fair Value Measurements and Disclosures and ASU2016-1,
“Financial Instruments-Overall” (SubtopicRecognition and Measurement of Financial Assets and Financial Liabilities,
820-10
establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value. The three broad levels of the hierarchy are as follows:Level I – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The type of financial instruments included in Level I are highly liquid cash instruments with quoted prices such as
G-7
government, agency securities, listed equities and money market securities, as well as listed derivative instruments.Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Instruments which are generally included in this category are corporate bonds and loans, mortgage whole loans, municipal bonds, and OTC derivatives.
Level III – Instruments that have little to no pricing observability as of the reported date. These financial instruments do not have
two-way
markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. Instruments that are included in this category generally include municipal securities with no observable fair value with an average life of one year or less. The securities are carried at cost which approximates fair value. A periodic review of underlying financial statements and credit ratings is performed to assess the appropriateness of these valuations.The results of the fair value hierarchy as of September 30, 2021, are as follows:
Securities AFS Fair Value Measurements Using | ||||||||||||||||
Carrying Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
(in thousands) | ||||||||||||||||
SBA Backed Securities | $ | 39,285 | $ | — | $ | 39,285 | $ | — | ||||||||
U.S. Government Agency and Sponsored | 144,608 | — | 144,608 | — | ||||||||||||
Privately Issued Residential Mortgage- | 244 | — | 244 | — | ||||||||||||
Obligations Issued by States and | 11,769 | — | — | 11,769 | ||||||||||||
Other Debt Securities | 8,276 | — | 8,276 | — | ||||||||||||
Total | $ | 204,182 | $ | — | $ | 192,413 | $ | 11,769 | ||||||||
Equity Securities | $ | 1,680 | $ | 342 | $ | 1,338 | $ | — | ||||||||
Financial Instruments Measured at Fair Value Non-recurring Basis | ||||||||||||||||
Impaired Loans | $ | 258 | $ | — | $ | — | $ | 258 | ||||||||
Page 2225 of 4548
The results of the fair value hierarchy as of March 31, 2021, are as follows:
Securities AFS Fair Value Measurements Using | ||||||||||||||||
Carrying Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
(in thousands) | ||||||||||||||||
SBA Backed Securities | $ | 42,855 | $ | — | $ | 42,855 | $ | — | ||||||||
U.S. Government Agency and Sponsored Mortgage-Backed Securities | 166,811 | — | 166,811 | — | ||||||||||||
Privately Issued Residential Mortgage- Backed | 326 | — | 326 | — | ||||||||||||
Obligations Issued by States and Political Subdivisions | 45,668 | — | — | 45,668 | ||||||||||||
Other Debt Securities | 8,238 | — | 8,238 | — | ||||||||||||
Total | $ | 263,898 | $ | — | $ | 218,230 | $ | 45,668 | ||||||||
Equity Securities | $ | 1,722 | $ | 376 | $ | 1,346 | $ | — | ||||||||
Financial Instruments Measured at Fair Value on a Non-recurring Basis | ||||||||||||||||
Impaired Loans | $ | 558 | $ | — | $ | — | $ | 558 | ||||||||
| Securities AFS Fair Value Measurements Using | ||||||||||||||||
| Carrying Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| (in thousands) | ||||||||||||||||
Financial Instruments Measured at Fair Value on a Recurring Basis | ||||||||||||||||
SBA Backed Securities | $ | 44,039 | $ | — | $ | 44,039 | $ | — | ||||||||
U.S. Government Agency and Sponsored Mortgage-Backed Securities | 177,741 | — | 177,741 | — | ||||||||||||
Privately Issued Residential Mortgage- Backed Securities | 328 | — | 328 | — | ||||||||||||
Obligations Issued by States and Political Subdivisions | 52,276 | — | — | 52,276 | ||||||||||||
Other Debt Securities | 8,064 | — | 8,064 | — | ||||||||||||
Total | $ | 282,448 | $ | — | $ | 230,172 | $ | 52,276 | ||||||||
Equity Securities | $ | 1,668 | $ | 303 | $ | 1,365 | $ | — | ||||||||
Financial Instruments Measured at Fair Value on a Non-recurring Basis | ||||||||||||||||
Impaired Loans | $ | 3,178 | $ | — | $ | — | $ | 3,178 | ||||||||
| Securities AFS Fair Value Measurements Using | ||||||||||||||||
| Carrying Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||
| (in thousands) | ||||||||||||||||
Financial Instruments Measured at Fair Value on a Recurring Basis | ||||||||||||||||
SBA Backed Securities | $ | 44,039 | $ | — | $ | 44,039 | $ | — | ||||||||
U.S. Government Agency and Sponsored | 177,741 | — | 177,741 | — | ||||||||||||
Privately Issued Residential Mortgage- | 328 | — | 328 | — | ||||||||||||
Obligations Issued by States and | 52,276 | — | — | 52,276 | ||||||||||||
Other Debt Securities | 8,064 | — | 8,064 | — | ||||||||||||
Total | $ | 282,448 | $ | — | $ | 230,172 | $ | 52,276 | ||||||||
Equity Securities | $ | 1,668 | $ | 303 | $ | 1,365 | $ | — | ||||||||
Financial Instruments Measured at Fair Value Non-recurring BasisImpaired Loans | $ | 3,178 | $ | — | $ | — | $ | 3,178 | ||||||||
Impaired loan balances represent those collateral dependent loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the collateral. Fair value is generally determined through a review process that includes independent appraisals, discounted cash flows, or other external assessments of the underlying collateral, which generally include various Level 3 inputs which are not observable. The Company discounts the fair values, as appropriate, based on management’s observations of the local real estate market for loans in this category.
Appraisals, discounted cash flows and real estate tax assessments are reviewed quarterly. There is no specific policy regarding how frequently appraisals will be updated. Adjustments are made to appraisals and real estate tax assessments based on management’s estimate of changes in real estate values. All impaired loans have been reviewed during the past quarter using either a discounted cash flow analysis, appraisal of collateral or other type of real estate tax assessment. The types of adjustments that are made to specific provisions (credits) related to impaired loans recognized for the three-monththree and nine-month period ended March 31,September 30, 2021 amounted to ($375,000)$9,000 and amounted($491,000). The types of adjustments that are made to $501,000specific provisions related to impaired loans recognized for the year ended December 31, 2020.2020 amounted to $501,000.
There were 0 transfers between level 1, 2 and 3 for the threenine months ended March 31,September 30, 2021 and the year ended December 31, 2020. There were 0 liabilities measured at fair value on a recurring or nonrecurring basis during the threenine months ended March 31,September 30, 2021 and the year ended December 31, 2021.2020.
Page 26 of 48
The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands) at March 31,September 30, 2021. Management continues to monitor the assumptions used to value the assets listed below.
Asset | Fair Value | Valuation Technique | Unobservable Input | Unobservable Input Value or Range | ||||
Securities AFS (1) | $ 11,769 | Discounted cash flow | Discount rate | 0% - 1.0% (2) | ||||
Impaired Loans | $ 1,680 | Appraisal of collateral (3) | Appraisal adjustments (4) | 0% - 17% discount |
Asset | Fair Value | Valuation Technique | Unobservable Input | Unobservable Input Value or Range | ||||||
Securities AFS (1) | $ | 45,668 | Discounted cash flow | Discount rate | 0% - 1.0% (2) | |||||
Impaired Loans | $ | 558 | Appraisal of collateral (3) | Appraisal adjustments (4) | 0%—22% discount |
The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands) at December 31, 2020. Management continues to monitor the assumptions used to value the assets listed below.
Asset | Fair Value | Valuation Technique | Unobservable Input | Unobservable Input Value or Range | ||||
Securities AFS (1) | $ 52,276 | Discounted cash flow | Discount rate | 0% - 1.0% (2) | ||||
Impaired Loans | $ 3,178 | Appraisal of collateral (3) | Appraisal adjustments (4) | 0% - 17% discount |
Asset | Fair Value | Valuation Technique | Unobservable Input | Unobservable Input Value or Range | ||||||
| Securities AFS (1) | $ | 52,276 | Discounted cash flow | Discount rate | 0% - 1.0% (2) | |||||
| Impaired Loans | $ | 3,178 | Appraisal of collateral (3) | Appraisal adjustments (4) | 0%-17% discount |
| (1) | Municipal securities generally have maturities of one year or less and, therefore, the amortized cost equates to the fair value. (2) Weighted averages. |
| (3) | Fair value is generally determined through independent appraisals of the underlying collateral, which generally includevarious Level 3 inputs which are not |
| (4) | Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated expenses. |
The changes in Level 3 securities for the three-monthnine-month period ended March 31,September 30, 2021 are shown in the table below:
Obligations Issued by States & | Obligations Issued by States & Political Subdivisions | |||||||
Balance at December 31, 2020 | $ | 52,276 | $ | 52,276 | ||||
Purchases | 6,770 | 14,855 | ||||||
Maturities and calls | (13,353 | ) | (55,325 | ) | ||||
Amortization | (25 | ) | (37 | ) | ||||
Balance at March 31, 2021 | $ | 45,668 | ||||||
Balance at September 30, 2021 | $ | 11,769 | ||||||
The amortized cost of Level 3 securities was $45,668,000$11,769,000 at March 31,September 30, 2021 with an unrealized loss of $0. The securities in this category are generally municipal securities with no readily determinable fair value. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity.
Page 27 of 48
The changes in Level 3 securities for the three-monthnine-month period ended March 31,September 30, 2020 are shown in the table below:
Obligations Issued by States & Subdivisions | Obligations Issued by States & Political Subdivisions | |||||||
Balance at December 31, 2019 | $ | 13,301 | $ | 13,301 | ||||
Purchases | 9,372 | 53,903 | ||||||
Maturities and calls | (5,449 | ) | (18,357 | ) | ||||
Amortization | 0 | (32 | ) | |||||
Changes in fair value | — | |||||||
Balance at March 31, 2020 | $ | 17,224 | ||||||
Balance at September 30, 2020 | $ | 48,815 | ||||||
The amortized cost of Level 3 securities was $17,224,000$48,815,000 at March 31,September 30, 2020 with an unrealized loss of $0. The securities in this category are generally municipal securities with no readily determinable fair value. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity.
The fair value of impaired loans decreased by $2,624,000,$2,920,000, for the first threenine months of 2021, mainly attributable to one loan that was paid down. The fair value of impaired loans decreased by $269,000, for the first three months of 2020, mainly attributable to one loanrelationship that was paid down. There were 0no liabilities measured at fair value on a recurring or nonrecurring basis during the three-monthnine-month period ended March 31,September 30, 2020.
Note 9. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating fair values of its financial instruments. Excluded from this disclosure are all
non-financial
instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.
Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of timing, amount of expected future cash flows and the credit standing of the issuer. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In some cases, the fair value estimates cannot be substantiated by comparison to independent markets. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below.
Securities
Held-to-Maturity
The fair values of these securities were based on quoted market prices, where available, as provided by third-party investment portfolio pricing vendors. If quoted market prices were not available, fair values provided by the vendors were based on quoted market prices of comparable instruments in active markets and/or based on a matrix pricing methodology which employs The Bond Market Association’s standard calculations for cash flow and price/yield analysis, live benchmark bond pricing and terms/condition data available from major pricing sources. Management regards the inputs and methods used by third party pricing vendors to be “Level 2 inputs and methods” as defined in the “fair value hierarchy” provided by FASB.
Loans
The fair value of loans is estimated using the exit price notion consistent with Topic 820, Fair Value Measurement. Fair value is determined based on a discounted cash flow analysis. The discounted cash flow analysis was based on the contractual maturity of the loan and market indications of rates, prepayment speeds, defaults and credit risk. For certain
non-performing
assets, fair value of the underlying collateral is determined based on the estimated values of individual receipts.Page 28 of 48
Time Deposits
The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.
Other Borrowed Funds
The fair value of other borrowed funds is based on the discounted value of contractual cash flows. The discount rate used is estimated based on the rates currently offered for other borrowed funds of similar remaining maturities.
Subordinated Debentures
The fair value of subordinated debentures is based on the discounted value of contractual cash flows. The discount rate used is estimated based on the rates currently offered for other subordinated debentures of similar remaining maturities.
The following presents (in thousands) the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31,September 30, 2021 and December 31, 2020. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, short-term investments, FHLBB stock and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include
non-maturity
deposits, short-term borrowings and accrued interest payable.March 31, 2021 | Carrying Amount | Estimated Fair Value | Fair Value Measurements Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Securities held-to-maturity | $ | 3,217,176 | $ | 3,222,903 | $ | — | $ | 3,222,903 | $ | — | ||||||||||
Loans (1) | 2,957,810 | 2,877,220 | — | — | 2,877,220 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Time deposits | 480,784 | 479,087 | — | 479,087 | — | |||||||||||||||
Other borrowed funds | 151,769 | 155,001 | — | 155,001 | — | |||||||||||||||
Subordinated debentures | 36,083 | 36,083 | — | 36,083 | — | |||||||||||||||
December 31, 2020 | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Securities held-to-maturity | $ | 2,509,088 | $ | 2,579,103 | $ | — | $ | 2,579,103 | $ | — | ||||||||||
Loans (1) | 2,960,343 | 2,902,390 | — | — | 2,902,390 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Time deposits | 546,143 | 556,470 | — | 556,470 | — | |||||||||||||||
Other borrowed funds | 177,009 | 183,000 | — | 183,000 | — | |||||||||||||||
Subordinated debentures | 36,083 | 36,083 | — | 36,083 | — | |||||||||||||||
September 30, 2021 | Carrying Amount | Estimated Fair Value | Fair Value Measurements Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Securities held-to-maturity | $ | 3,211,977 | $ | 3,207,259 | $ | — | $ | 3,207,259 | $ | — | ||||||||||
Loans (1) | 2,890,713 | 2,796,258 | — | — | 2,796,258 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Time deposits | 348,296 | 345,677 | — | 345,677 | — | |||||||||||||||
Other borrowed funds | 118,786 | 122,013 | — | 122,013 | — | |||||||||||||||
Subordinated debentures | 36,083 | 36,083 | — | 36,083 | — | |||||||||||||||
December 31, 2020 | ||||||||||||||||||||
Financial assets: | ||||||||||||||||||||
Securities held-to-maturity | $ | 2,509,088 | $ | 2,579,103 | $ | — | $ | 2,579,103 | $ | — | ||||||||||
Loans (1) | 2,960,343 | 2,902,390 | — | — | 2,902,390 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Time deposits | 546,143 | 556,470 | — | 556,470 | — | |||||||||||||||
Other borrowed funds | 177,009 | 183,000 | — | 183,000 | — | |||||||||||||||
Subordinated debentures | 36,083 | 36,083 | — | 36,083 | — | |||||||||||||||
| (1) | Comprised of loans (including collateral dependent impaired loans), net of deferred loan costs and the allowance for |
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the type of financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no active market exists for some of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, cash flows, current economic conditions, risk characteristics and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. 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.
Page 29 of 48
Note 10. Revenue from Contracts with Customers
Revenue from contracts with customers in the scope of ASC Topic 606 is measured based on the consideration specified in the contract with a customer, and excludes amounts collected on behalf of third parties. The Company recognizes revenue from contracts with customers when it satisfies its performance obligations.
The Company’s performance obligations are typically satisfied as services are rendered, and our contracts do not include multiple performance obligations. Payment is generally collected at the time services are rendered, or monthly. Unsatisfied performance obligations at the report date are not material to our consolidated financial statements.
The Company pays sales commissions to its employees in accordance with certain incentive plans. The Company expenses sales commissions when incurred if we do not expect to recover these costs from the terms of the contract with the customer. Sales commissions are included in compensation expense.
In certain cases, other parties are involved with providing products and services to our customers. If the Company is a principal in the transaction (providing goods or services itself), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in noninterest expense. If the Company is an agent in the transaction (arranging for another party to provide goods or services), the Company reports its net fee or commission retained as revenue.
Waivers and reversals are recorded as a reduction of revenue either when the revenue is recognized by the Company or at the time the waiver or reversal is earned by the customer.
A. | Nature of goods and services |
The vast majority of the Company’s revenue is specificallyof Topic 606. For the revenue
out-of-scope
in-scope,
the following is a description of principal activities, separated by the timing of revenue recognition, from which the Company generates its revenue from contracts with customers.| a. | Revenue earned at a point in time – Examples of revenue earned at a point in time are ATM transaction fees, wire transfer fees, “non-sufficient funds” fees, credit and debit card interchange fees and foreign exchange transaction fees. Revenue is generally derived from transactional information accumulated by our systems and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction. The Company is the principal in each of these contracts, with the exception of credit and debit card interchange fees, in which case we are acting as the agent and record revenue net of expenses paid to the principal. |
| b. | Revenue earned over time – The Company earns revenue from contracts with customers in a variety of ways in which the revenue is earned over a period of time – generally monthly or quarterly. Examples of this type of revenue are deposit account service fees, lockbox fees, investment management fees, merchant referral services, and safe deposit box fees. Account service charges, management fees and referral fees are recognized on a monthly basis while any transaction based income is recorded as the activity occurs. Revenue is primarily based on the number and type of transactions or assets managed and is generally derived from transactional information accumulated by our systems. Revenue is recorded in the same period as the related transactions occur or services are rendered to the customer. |
B. | Disaggregation of revenue |
The following table presents total revenues as presented in the Consolidated Statements of Income and the related amounts which are from contracts with customers within the scope of Topic 606. As illustrated here, the vast majority of our revenues are specifically excluded from the scope of Topic 606.
Three Months Ended 3/31/2021 | Revenue from Contracts in Scope of Topic 606 | Three Months Ended 3/31/2020 | Revenue from Contracts in Scope of Topic 606 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Total net interest income | $ | 28,567 | $ | — | $ | 25,201 | $ | — | ||||||||
Noninterest income: | ||||||||||||||||
Service charges on deposit accounts | 2,218 | 2,218 | 2,296 | 2,296 | ||||||||||||
Lockbox fees | 996 | 996 | 930 | 930 | ||||||||||||
Other income | 989 | 695 | 1,084 | 599 | ||||||||||||
Total noninterest income | 4,203 | 3,909 | 4,310 | 3,825 | ||||||||||||
Total net revenues | $ | 32,770 | $ | 3,909 | $ | 29,511 | $ | 3,825 | ||||||||
Page 2830 of 4548
Nine Months Ended 9/30/2021 | Revenue from Contracts in Scope of Topic 606 | Nine Months Ended 9/30/2020 | Revenue from Contracts in Scope of Topic 606 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net interest income | $ | 88,938 | $ | — | $ | 78,350 | $ | — | ||||||||
Noninterest income: | ||||||||||||||||
Service charges on deposit accounts | 6,632 | 6,632 | 6,558 | 6,558 | ||||||||||||
Lockbox fees | 2,876 | 2,876 | 2,850 | 2,850 | ||||||||||||
Net gains on sales of securities | — | �� | — | — | — | |||||||||||
Gains on sales of mortgage loans | — | — | — | — | ||||||||||||
Other income | 2,973 | 2,050 | 3,112 | 1,738 | ||||||||||||
Total noninterest income | 12,481 | 11,558 | 12,520 | 11,146 | ||||||||||||
Total revenues | $ | 101,419 | $ | 11,558 | $ | 90,870 | $ | 11,146 | ||||||||
Three Months Ended 9/30/2021 | Revenue from Contracts in Scope of Topic 606 | Three Months Ended 9/30/2020 | Revenue from Contracts in Scope of Topic 606 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net interest income | $ | 30,380 | $ | — | $ | 27,331 | $ | — | ||||||||
Noninterest income: | ||||||||||||||||
Service charges on deposit accounts | 2,243 | 2,243 | 2,239 | 2,239 | ||||||||||||
Lockbox fees | 914 | 914 | 996 | 996 | ||||||||||||
Net gains on sales of securities | — | — | — | — | ||||||||||||
Gains on sales of mortgage loans | — | — | — | — | ||||||||||||
Other income | 1,015 | 684 | 934 | 580 | ||||||||||||
Total noninterest income | 4,172 | 3,841 | 4,169 | 3,815 | ||||||||||||
Total revenues | $ | 34,552 | $ | 3,841 | $ | 31,500 | $ | 3,815 | ||||||||
The following table provides information about receivables with customers.
September 30, 2021 | December 31, 2020 | |||||||||||||||
| (dollars in thousands) | March 31, 2021 | December 31, 2020 | ||||||||||||||
Receivables, which are included in “Other assets” | $ | 1,393 | $ | 1,397 | $ | 1,348 | $ | 1,397 | ||||||||
Note 11. Leases
The Company has operating leases primarily for branch locations as well as data processing centers. The Company’s operating leases have remaining lease terms of 1 year to 31 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. The Company also has one sublease for part of a data processing center that the Company currently leases from a lessor. The sublease which expires in 2022 with an option to terminate and no option to extend.2024, can be terminated early after each sublease year. Lease income, for the sublease, totaled approximately $10,000$31,000 for the threenine months ended March 31,September 30, 2021. Variable lease costs include costs that are not included in the lease liability.
Page 31 of 48
The components of lease expense were as follows:
(in thousands) | Three Months Ended 3/31/2021 | Three Months Ended 3/31/2020 | ||||||
Operating lease cost | $ | 560 | $ | 546 | ||||
Variable lease cost | 153 | 133 | ||||||
Total lease cost | $ | 713 | $ | 679 | ||||
Three Months Ended 9/30/2021 | Nine Months Ended 9/30/2021 | Three Months Ended 9/30/2020 | Nine Months Ended 9/30/2020 | |||||||||||||
(in thousands) | ||||||||||||||||
Operating lease cost | $ | 543 | $ | 1,663 | $ | 546 | $ | 1,638 | ||||||||
Variable lease cost | 192 | 546 | 135 | 441 | ||||||||||||
Total lease cost | $ | 735 | $ | 2,209 | $ | 681 | $ | 2,079 | ||||||||
Supplemental cash flow information related to leases was as follows:
| (in thousands) | (in thousands) Three Months Ended 3/31/2021 | Three Months Ended 3/31/2020 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $ | 541 | $ | 529 | ||||
Right-of-use | ||||||||
Operating leases | $ | 0 | $ | 0 | ||||
Three Months Ended 9/30/2021 | Nine Months Ended 9/30/2021 | Three Months Ended 9/30/2020 | Nine Months Ended 9/30/2020 | |||||||||||||
| (in thousands) | ||||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
Operating cash flows from operating leases | $ | 541 | $ | 1,624 | $ | 529 | $ | 1,586 | ||||||||
Right-of-use | ||||||||||||||||
Operating leases | $ | 376 | $ | 376 | $ | 431 | $ | 1,306 | ||||||||
Supplemental balance sheet information related to leases was as follows:
3/31/2021 | 12/31/2020 | |||||||
| (in thousands, except lease term and discount rate) | ||||||||
Operating Leases: | ||||||||
Operating lease right-of-use | $ | 13,262 | $ | 13,713 | ||||
Operating lease liabilities | $ | 13,496 | $ | 13,935 | ||||
Weighted Average Remaining Lease Term: | ||||||||
Operating Leases | 10 Years | 10 Years | ||||||
Weighted Average Discount Rate: | ||||||||
Operating Leases | 3.1 | % | 3.1 | % | ||||
9/30/2021 | 12/31/2020 | |||||||
| (in thousands, except lease term and discount rate) | ||||||||
Operating Leases: | ||||||||
Operating lease right-of-use | $ | 12,734 | $ | 13,713 | ||||
Operating lease liabilities | $ | 12,994 | $ | 13,935 | ||||
Weighted Average Remaining Lease Term: | ||||||||
Operating Leases | 10 Years | 10 Years | ||||||
Weighted Average Discount Rate: | ||||||||
Operating Leases | 3.1 | % | 3.1 | % | ||||
The Company has payment obligations under a number ofseveral$713,000$2,209,000 and $679,000$2,079,000 for the quartersnine months ended March 31,September 30, 2021, and 2020, respectively. Included in lease expense are amounts paid to a company affiliated with Barry R. Sloane, Chairman, President and CEO, and Linda Sloane Kay, Vice Chair, amounting to $111,000$395,000 and $109,000,$329,000, for the nine months ended September 30, 2021, and 2020, respectively. Rental income approximated $165,000$621,000 and $168,000 in$498,000, for the nine months ended September 30, 2021, and 2020, respectively.
non-cancelable
operating leases for premises and equipment expiring in various years through 2030. Total lease expense approximated Page 32 of 48
A summary of future minimum rental payments under such leases as the dates indicated follows:
| Minimum Rental Payments | ||||||||
March 31, 2021 | December 31, 2020 | |||||||
| Year Ending December 31, | (in thousands) | |||||||
| 2021 | $ | 1,612 | $ | 2,156 | ||||
2022 | 1,995 | 1,995 | ||||||
2023 | 1,962 | 1,962 | ||||||
2024 | 1,692 | 1,692 | ||||||
2025 | 1,471 | 1,471 | ||||||
Thereafter | 7,394 | 7,394 | ||||||
Total lease payments | $ | 16,126 | $ | 16,670 | ||||
Less imputed interest | (2,630 | ) | (2,735 | ) | ||||
Present value of lease liability | $ | 13,496 | $ | 13,935 | ||||
| Minimum Rental Payments | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
(in thousands) | ||||||||
Year Ending December 31, 2020 2021 | $ | 544 | $ | 2,156 | ||||
2022 | 2,072 | 1,995 | ||||||
2023 | 2,039 | 1,962 | ||||||
2024 | 1,769 | 1,692 | ||||||
2025 | 1,548 | 1,471 | ||||||
Thereafter | 7,453 | 7,394 | ||||||
Total lease payments | $ | 15,425 | $ | 16,670 | ||||
Less imputed interest | (2,431 | ) | (2,735 | ) | ||||
Present value of lease liability | $ | 12,994 | $ | 13,935 | ||||
Note 12. Subsequent Events
On April 7, 2021, the Company and Eastern Bankshares, Inc. (“Eastern”) (NASDAQ: EBC) entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, through a series of transactions, Eastern will acquire the Company in a cash transaction for total consideration valued at approximately $642 million. Under the terms of the Merger Agreement, and Plan of Merger, (i) each holder of Class A common stock will receive a cash payment of $115.28 per share of Class A common stock and (ii) each holder of Class B common stock will receive a cash payment of $115.28 per share of Class B common stock. The transaction is expected to close in the fourth quarter of 2021 and is subject to customary closing conditions, including approval byconditions. The Company’s shareholders approved the shareholdersMerger Agreement at the Special Meeting of the Shareholders held on July 7, 2021. The Company andreceived the required regulatory approvals.approvals during the third quarter of 2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Century Bancorp, Inc. (together with its bank subsidiary, unless the context otherwise requires, the “Company”) is a Massachusetts state-chartered bank holding company headquartered in Medford, Massachusetts. The Company is a Massachusetts corporation formed in 1972 and has one banking subsidiary (the “Bank”): Century Bank and Trust Company, a Massachusetts state-chartered trust company formed in 1969.1969 and headquartered in Medford, Massachusetts. At March 31,September 30, 2021, the Company had total assets of $7.3$7.1 billion. Currently, the Company operates 2728 banking offices in 2021 cities and towns in Massachusetts and Southern New Hampshire, ranging from Braintree in the south to AndoverSalem, New Hampshire in the north. The Bank’s customers consist primarily of small and
medium-sized
businesses and retail customers in these communities and surrounding areas, as well as local governments and large healthcare and higher educational institutions primarily throughout Massachusetts, New Hampshire, Rhode Island, Connecticut, New York, Virginia, Washington D.C., and Pennsylvania.The Company’s results of operations are largely dependent on net interest income, which is the difference between the interest earned on loans and securities and interest paid on deposits and borrowings. The results of operations are also affected by the level of income and fees from loans, deposits, as well as operating expenses, the provision for loan losses, the impact of federal and state income taxes and the relative levels of interest rates and economic activity. The Company offers a wide range of services to commercial enterprises, state and local governments and agencies,
non-profit
organizations and individuals. It emphasizes service to small and medium sized businesses and retail customers in its market area. In recent years, the Company has increased business to larger institutions, specifically, healthcare and higher education.Page 33 of 48
The Company makes commercial loans, real estate and construction loans and consumer loans, and accepts savings, time, and demand deposits. In addition, the Company offers its corporate and institutional customers automated lock box collection services, cash management services and account reconciliation services, and actively promotes the marketing of these services to the municipal market. Also, the Company provides full-service securities brokerage services through a program called Investment Services at Century Bank, which is supported by LPL Financial, a third party full-service securities brokerage business.
The Company has municipal cash management client engagements in Massachusetts, New Hampshire and Rhode Island composed of approximately 302 government entities.
Net income for the threenine months ended March 31,September 30, 2021, was $10,770,000$33,325,000 or $1.93$5.99 per Class A share diluted, an increase of 11.4%8.9% compared to net income of $9,666,000,$30,609,000, or $1.74$5.50 per Class A share diluted, for the same period a year ago.
Earnings per share (EPS)“EPS” for each class of stock and time period is as follows:
| Three Months Ended | ||||||||||||||||
| March 31, | Three Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Basic EPS – Class A common | $ | 2.34 | $ | 2.10 | $ | 2.54 | $ | 2.36 | ||||||||
Basic EPS – Class B common | $ | 1.17 | $ | 1.05 | $ | 1.27 | $ | 1.18 | ||||||||
Diluted EPS – Class A common | $ | 1.93 | $ | 1.74 | $ | 2.11 | $ | 1.96 | ||||||||
Diluted EPS – Class B common | $ | 1.17 | $ | 1.05 | $ | 1.27 | $ | 1.18 | ||||||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
2021 | 2020 | |||||||
Basic EPS – Class A common | $ | 7.22 | $ | 6.64 | ||||
Basic EPS – Class B common | $ | 3.61 | $ | 3.32 | ||||
Diluted EPS – Class A common | $ | 5.99 | $ | 5.50 | ||||
Diluted EPS – Class B common | $ | 3.61 | $ | 3.32 | ||||
Net interest income totaled $28,567,000$88.9 million for the threenine months ended March 31,September 30, 2021, compared to $25,201,000$78.4 million for the same period in 2020. The 13.4%13.5% increase in net interest income for the period is primarily due to a decrease in interest expense as a result of falling interest rates. The net interest margin decreased from 2.11%2.01% on a fullythreenine months of 2020 compared to 1.80%1.81% for the same period in 2021. This was primarily the result of increased margin pressure during the recent decreaseas a result of decreases in interest rates across the yield curve.
tax-equivalent
basis for the first curve in 2020. The average balances of earninginterest-earning assets increased for the first three months of 2021 compared to the same period last year, by $1,608,721,000$1.36 billion, or 31.0%24.4%, combined with an average yield decrease of 1.03%0.68%, resulting in a decrease in interest income of $4,264,000.$6.0 million. The average balance of interest-bearing liabilities increased for the first three months of 2021 compared to the same period last year, by $1,191,116,000$1.04 billion, or 27.9%23.2%, combined with an average interest-bearing liabilities interest cost decrease of 0.86%0.59%, resulting in a decrease in interest expense of $7,630,000.$16.5 million.
The trends in the net interest margin are illustrated in the graph below:
Page 34 of 48
The net interest margin decreased during the first quarter of 2020 mainly as a result of decreases in rates on earning assets. This was partially offset by prepayment penalties collected of $874,000 andthat contributed approximately seven basis points to the net interest margin. The net interest margin decreased during the second, third, and fourth quarters of 2020 primarily as a result of increased margin pressure during the recent decrease in interest rates across the yield curve. This was partially offset by prepayment penalties collected of $453,000 andthat contributed approximately three basis points to the net interest margin during the fourth quarter of 2020. The net interest margin decreased during the first quarternine months of 2021 primarily as afrom the result of increased margin pressure duringas a result of the recent decreasedecreases in interest rates across the yield curve. While management will continue its efforts to improve the net interest margin, there can be no assurance that certain factors beyond its control, such as the prepayment of loans and changes in market interest rates, will positively impact the net interest margin.
COVID-19
pandemic. The credit provision for the first nine months of 2021 was primarily attributable to a reduction in specific allocations to the allowance for loan losses and a reduction in the historical experience reserve allocation. This was offset, somewhat, by provisions associated with originations of commercial and industrial loans during 2021.The Company’s effective tax rate increased from 5.8%9.5% for the quarternine months ended March 31,September 30, 2020, to 13.5%15.7% for the same period in 2021. ThisThe increase in the effective tax rate was primarily as athe result of an increase in taxable income relative to total income.income and nondeductible merger related expenses.
During the third quarter of 2019, the Company purchased a future branch location in Salem, New Hampshire. The Company plans to openopened this branch during the second quarter of 2021. During the second quarter of 2020, the Company executed a lease for a future branch location in Needham, Massachusetts. The Company plans to open this branch during the thirdfourth quarter of 2021.
Recent Market Developments
Coronavirus Aid, Relief and Economic Security Act, (“CARES Act”), Families First Coronavirus Response Act (“FFCRA”), and Coronavirus Response and Relief Supplemental Appropriations Act of 2021
On March 18, 2020, the FFCRA was signed into law and on March 27, 2020, the CARES Act was signed into law. The FFCRA and the CARES Act provide relief for families and businesses impacted by the coronavirus pandemic. The provisions in this legislation include, among other things, loan programs for businesses, expanded unemployment insurance benefits, stimulus payments to certain taxpayers, new provisions on sick leave and family leave, and funding for a variety of health-related efforts and government programs. Also, as a result of the CARES Act, the full balance of the Company’s AMT credit was refunded in 2020.
The CARES Act, among other things, provides cash payments to certain individuals and has various programs for businesses. In particular, it includes the PPP which provides forgivable loans to qualified small businesses, primarily to allow these businesses to continue to pay their employees. The original amount allocated to the program was $349 billion, which was exhausted on April 16, 2020. On April 24, 2020, an additional allocation of $310 billion was signed into law. These loans are funded by participating banks and are 100% guaranteed by the SBA. If utilized primarily for payroll, subject to certain other conditions, the loans may be forgiven, in whole or in part, and repaid by the SBA. During 2020 and 2021, the Company participated in the PPP. Since the inception of the program, PPP originations totaled approximately 1,8602,008 loans for approximately $325$341 million. As of March 31,September 30, 2021, Century Bank’s PPP loans totaled approximately 1,117661 loans for approximately $213$95.1 million. The fees collected, from the SBA, amount to approximately $11.9$12.7 million. The amount of fees recognized during the first quarternine months of 2021 amounted to approximately $2.2 million.$5.0 million compared to $2.8 million for the same period last year. Total cost deferrals amounted to approximately $1.7$1.9 million since inception. The amount of costs recognized during the first nine months of 2021 amounted to approximately $767,000 compared to $394,000 for the same period last year. The fees and costs are being amortized over the lives of the loans utilizing the level-yield method.
Under Section 4013 of the CARES Act, from March 1, 2020 through the earlier of January 1, 2022 or 60 days after the termination date of the national emergency declared by the President on March 13, 2020 concerning the
COVID-19
outbreak (the “national emergency”), a financial institution may elect to suspend the requirements under U.S. GAAP for loan modifications related to theCOVID-19
pandemic that would otherwise be categorized as a troubled debt restructured, including impairment accounting. This troubled debt restructuring relief applies for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019.Page 35 of 48
As of March 31,September 30, 2021, and as a result of82 loans aggregating approximately $36.2$16.3 million, primarily consisting of short-term payment deferrals. OfBoth of these modifications, $36.2 million, or 100%,loans were performing in accordance with their modified terms.
COVID-19
loan modifications, the Company has modifications of The CARES Act also allows companies to delay Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) concerning theCOVID-19outbreak declared by the President on March 15, 2020 terminates or December 31, 2020, with an effective retrospective implementation date of January 1, 2020. On December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 was signed into law. The law changed the delayed implementation date to the earlier of the Company’s fiscal year that begins after the date on which the national emergency terminates or January 1, 2022.
2016-13,
Measurement of Credit Losses on Financial Instruments (CECL), including the current expected credit losses methodology for estimating allowances for credit losses. The Company elected to delay FASB ASU2016-13.
This ASU was delayed until the earlier of the date on which the national emergencyRecent Accounting Developments
Recently Adopted Accounting Standards Updates
In August 2018, FASB issued ASU
2018-14,
“Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic715-20)”
(“ASU2018-14”),
to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU2018-14
is effective for fiscal years beginning after December 15, 2020, for public business entities and for fiscal years beginning after December 15, 2021, for all other entities. Early adoption is permitted. Management has evaluated ASU2018-14
and as of 2018-14
and determined the impact to be immaterial.In December 2019, the FASB issued ASU
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The effect of this ASU did not have a material impact on the Company’s consolidated financial position.Accounting Standards Issued but not yet Adopted
The following list identifies ASUs applicable to the Company that have been issued by the FASB but are not yet effective:
In March 2020, the FASB issued ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in the ASU are effective for a limited period and mainly address accounting and reporting challenges due to the transition from LIBOR on existing contracts. The optional expedients may be applied to loans, borrowings, leases and derivatives at any period as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020 up to the date that the financial statements are available to be issued. The ASU simplifies the accounting analyses for contract modifications and simplifies the hedge effectiveness assessment and allows hedging relationships impacted by the LIBOR transition to continue. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is assessing the impact of this standard but does not expect that it will have a material impact on the Company’s consolidated financial statements, or results of operations.In June 2016, the FASB issued ASU
2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL). This ASU was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. See discussion below of the deferral of the amendments in this ASU.
To implement the new standard the Company has purchased a software solution and has captured the information needed to implement this ASU. As part of the FASB ASC 326 implementation process, the company is using two models: a rating migration model and a probability of default model. The ratings migration model, which will be used for our larger loans made to institutions with available credit ratings, is designed to estimate loss reserves according to the CECL standard for rated loans or similar instruments. The model structure follows a grade migration approach, where the default rate is based on the probability of each grade transition which is modelled using historical data. The probability of default model, which will be used for our remaining commercial loans and our consumer loans, is based primarily on four components: loss history, product life cycle, behavioral attributes and the economic environment. During
Page 36 of 48
Since the fourth quarter of 2019, and during 2020, the Company tested the two CECL credit models in parallel with the existing incurred loss models. The securitiesinclude U.S. Treasury, U.S. Government Sponsored Enterprises, SBA Backed Securities and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities. The CECL standard allows assumption of zero expected credit losses where expectation of
held-to-maturity
non-payment
is zero for these types of securities. The Company expects no impact from ASU2016-13
to arise from this portfolio.Since ASUdebt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics
2016-13,
the FASB has issued amendments intended on improving the clarification of the amendment, ASU2018-19
Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU2019-04
Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging. The amendment in ASU2018-19
was issued in November 2018 and was intended to clarify that receivables arising from operating leases are not within the scope of Subtopic326-20.
Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The amendment in ASU2019-04
was issued in April 2019 and was intended to clarify stakeholders’ specific issues about certain aspects of the amendments in ASU2016-13.
ASU 2019- 05 Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief was also issued in May 2019. This ASU provides entities the option to irrevocably elect the fair value option for certain financial assets previously measured at amortized costs basis. The fair value option election does not apply toheld-to-maturity
820-10,
Fair Value Measurement—Overall. The amendments in this ASU should be applied on a modified-retrospective basis by means of acumulative-effect
adjustment to the opening balance of retained earnings balance in the statement of financial position as of the date that an entity early adopted the amendments in ASU2016-13.
In November 2019, the FASB issued ASU2019-11,
Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments in this ASU affect a variety of Topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance. This ASU is effective for annual reporting periods beginning after December 15, 2019. See discussion below of the deferral of the amendments in this ASU.On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES)CARES Act was signed into law. The CARES Act allows certain companies to delay FASB ASUMarch 31,September 30, 2021.
2016-13,
Measurement of Credit Losses on Financial Instruments (CECL), and subsequent amendments to the ASU noted above, including the current expected credit losses methodology for estimating allowances for credit losses. The Company has elected to delay FASB ASU2016-13.
This ASU was delayed until the earlier of the date on which the national emergency concerning theCOVID-19
outbreak declared by the President on March 15, 2020 terminates or December 31, 2020, with an effective retrospective implementation date of January 1, 2020. On December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 was signed into law. The law changed the delayed implementation date to the earlier of the first day of the Company’s fiscal year that begins after the date on which the national emergency terminates or January 1, 2022. The Company does not believe the impact of adoption would have been material to the Company’s consolidated financial statements as of Financial Condition
Loans
On March 31,September 30, 2021, total loans outstanding were $2,992,762,000,$2,925,477,000, down by $3,067,000$70,352,000 from the total on December 31, 2020. At March 31,September 30, 2021, commercial real estate loans accounted for 26.6%24.9%, commercial and industrial accounted for 43.9%45.2%, and residential real estate loans, including home equity loans, accounted for 23.9%24.2% of total loans.
Commercial and industrial loans increased to $1,315,295,000$1,321,907,000 on March 31,September 30, 2021 from $1,314,245,000 at December 31, 2020. The Company originated approximately $92,800,000$108,197,000 of PPP loans during the first quarter ofnine months ended September 30, 2021 and received approximately $76,200,000$209,558,000 of PPP loan payoffs, primarily from loan forgiveness, duringfor the first quarter of 2021.same period. This was offset by commercial and industrial loan originations. Commercial real estate loans increaseddecreased to $796,660,000$729,384,000 on March 31,September 30, 2021 from $789,836,000 on December 31, 2020 primarily as a result of loan originations.payoffs. Construction loans decreased to $7,854,000$6,358,000 at March 31,September 30, 2021 from $10,909,000 on December 31, 2020, primarily as a result of loan payoffs. Residential real estate loans increased to $460,123,000$466,109,000 on March 31,September 30, 2021 from $448,436,000 on December 31, 2020, primarily as a result of loan originations. Home equity loans decreased to $255,770,000$243,225,000 on March 31,September 30, 2021 from $274,357,000 on December 31, 2020, primarily as a result of a home equity loan payoffs. Municipal loans decreasedincreased slightly to $137,073,000$138,945,000 from $137,607,000.
In recent years, the Company has increased business to larger institutions, specifically, healthcare, higher education, and municipal organizations. Further discussion relating to changes in portfolio composition is provided in the allowance for loan loss section of the management discussion and analysis. We willbelow. The Company closely monitor themonitors concentrations to determine the impact of
COVID-19
upon their short-term and long-term operations.Page 37 of 48
Allowance for Loan Losses
The allowance for loan loss at March 31,September 30, 2021 was $34,952,000$34,764,000 as compared to $35,486,000 at December 31, 2020. The level of the allowance for loan losses to total loans was 1.17%1.19% at March 31,September 30, 2021 and 1.18% at December 31, 2020. The ratio of the allowance for loan losses to loans outstanding has decreasedincreased slightly from December 31, 2020,2020. The increase is primarily from the payoffresult of one largecommercial and industrial loan and a decrease in general economic factor allocations.originations offset, somewhat, by PPP loans payoffs. The Company monitors the outlook for the industries in which our borrowers operate. Healthcare and higher education are two of the primary industries. In particular the Company utilizes outlooks and forecasts from various sources. The Company also monitors the volatility of the losses within the historical data.
By combining the credit rating, the industry outlook and the loss volatility, the Company arrives at the loss factor for each credit grade. For a large loan to large institutions with publicly available credit ratings, the Company tracks these ratings. These ratings are tracked as a credit quality indicator for these loans. Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at March 31,September 30, 2021.
Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at March 31,September 30, 2021 and are included within the total loan portfolio.
Commercial and Industrial | Municipal | Commercial Real Estate | Total | |||||||||||||||||||||||||||||
Commercial and Industrial | Municipal | Commercial Real Estate | Total | |||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Credit Rating: | ||||||||||||||||||||||||||||||||
Aaa – Aa3 | $ | 705,387 | $ | 73,758 | $ | 36,519 | $ | 815,664 | $ | 755,120 | $ | 76,412 | $ | 35,915 | $ | 867,447 | ||||||||||||||||
A1 – A3 | 182,559 | 7,103 | 145,096 | 334,758 | 259,913 | 6,980 | 70,359 | 337,252 | ||||||||||||||||||||||||
Baa1 – Baa3 | 50,000 | 51,133 | 146,930 | 248,063 | 50,000 | 51,133 | 144,023 | 245,156 | ||||||||||||||||||||||||
Ba2 | — | 5,080 | — | 5,080 | — | 4,420 | — | 4,420 | ||||||||||||||||||||||||
Total | $ | 937,946 | $ | 137,074 | $ | 328,545 | $ | 1,403,565 | $ | 1,065,033 | $ | 138,945 | $ | 250,297 | $ | 1,454,275 | ||||||||||||||||
Credit ratings issued by national organizations are presented in the following table at December 31, 2020.
| Commercial and Industrial | Municipal | Commercial Real Estate | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Credit Rating: | ||||||||||||||||
Aaa – Aa3 | $ | 710,955 | $ | 74,291 | $ | 38,035 | $ | 823,281 | ||||||||
A1 – A3 | 183,123 | 7,103 | 145,583 | 335,809 | ||||||||||||
Baa1 – Baa3 | 50,000 | 51,133 | 140,905 | 242,038 | ||||||||||||
Ba2 | — | 5,080 | — | 5,080 | ||||||||||||
Total | $ | 944,078 | $ | 137,607 | $ | 324,523 | $ | 1,406,208 | ||||||||
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 experience and current economic conditions. Although the allowance is allocated between categories, the entire allowance is available to absorb losses attributable to all loan categories.
Page 38 of 48
The following table summarizes the changes in the Company’s allowance for loan losses for the periods indicated.
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||
| Three months ended March 31, | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | (in thousands) | (in thousands) | ||||||||||||||||||||||
Allowance for loan losses, beginning of period | $ | 35,486 | $ | 29,585 | $ | 34,949 | $ | 32,516 | $ | 35,486 | $ | 29,585 | ||||||||||||
Loans charged off | (67 | ) | (62 | ) | (38 | ) | (41 | ) | (134 | )�� | (120 | ) | ||||||||||||
Recoveries on loans previously charged-off | 83 | 206 | 53 | 19 | 162 | 254 | ||||||||||||||||||
Net recoveries | 16 | 144 | ||||||||||||||||||||||
Provision (credit) charged to expense | (550 | ) | 1,075 | |||||||||||||||||||||
Net recoveries (charge-offs) | 15 | (22 | ) | 28 | 134 | |||||||||||||||||||
(Credit) provision charged to expense | (200 | ) | 900 | (750 | ) | 3,675 | ||||||||||||||||||
Allowance for loan losses, end of period | $ | 34,952 | $ | 30,804 | $ | 34,764 | $ | 33,394 | $ | 34,764 | $ | 33,394 | ||||||||||||
The Company may experience increased levels of nonaccrual loans if borrowers are negatively impacted by future negative economic conditions. Management continually monitors trends in the loan portfolio to determine the appropriate level of allowance for loan losses. At the current time, management believes that the allowance for loan losses is adequate.
Nonperforming Assets
The following table sets forth information regarding nonperforming assets held by the Bank at the dates indicated:
March 31, | December 31, | September 30, 2021 | December 31, 2020 | |||||||||||||
2021 | 2020 | |||||||||||||||
| (dollars in thousands) | (dollars in thousands) | |||||||||||||||
Nonaccruing loans | $ | 942 | $ | 3,996 | $ | 1,318 | $ | 3,996 | ||||||||
Total nonperforming assets | $ | 942 | $ | 3,996 | $ | 1,318 | $ | 3,996 | ||||||||
Loans past due 90 days or more and still accruing | $ | — | $ | 90 | $ | — | $ | 90 | ||||||||
Nonaccruing loans as a percentage of total loans | 0.03 | % | 0.13 | % | 0.05 | % | 0.13 | % | ||||||||
Nonperforming assets as a percentage of total assets | 0.01 | % | 0.06 | % | 0.02 | % | 0.06 | % | ||||||||
Accruing troubled debt restructures | $ | 2,099 | $ | 2,202 | $ | 2,058 | $ | 2,202 | ||||||||
Investments
Management continually evaluates its investment alternatives in order to properly manage the overall balance sheet mix. The timing of purchases, sales and reinvestments, if any, will be based on various factors including expectation of movements in market interest rates, deposit flows and loan demand. Notwithstanding these events, it is the intent of management to grow the earning asset base mainly through loan originations while funding this growth through a mix of retail deposits, FHLB advances, and retail repurchase agreements.
Securities(at Fair Value)
Available-for-Sale
The securitiesportfolio totaled $263,898,000$204,182,000 at March 31,September 30, 2021, a decrease of 6.6%27.7% from December 31, 2020. The portfolio decreased mainly as a result of paydowns and maturities of securitiestotaling $25,993,000$95,808,000 offset, somewhat by purchases of $6,770,000.$16,155,000. The portfolio is concentrated in United States Government Sponsored Enterprises, Mortgage-backed Securities and Obligations issued by States and Political Subdivisions and had an estimated weighted average remaining life of 5.05.4 years.
available-for-sale
available-for-sale
At March 31,September 30, 2021, 82.7%94.2% of the Company’s securitiesare classified as Level 2. The fair values of these securities are generally obtained from a pricing service, which provides the Company with a description of the inputs generally utilized for each type of security. These inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads,
available-for-sale
two-sided
markets, benchmark securities, bids, offers and reference data. Market indicators and industry and economic events are also monitored.Securitiestotaling $45,668,000$11,769,000 or 17.3%5.8% of securitiesare classified as Level 3. These securities are generally municipal securities with no observable fair value with an average life of one year or less. The securities are carried at cost which approximates fair value. A periodic review of underlying financial statements and credit ratings is performed to assess the appropriateness of these valuations.
available-for-sale
available-for-sale
Page 39 of 48
During the first threenine months of 2021, net unrealized gains on the securitiesincreased to $809,000$1,462,000 from a net unrealized gain of $175,000 at December 31, 2020. This was primarily the result of an increase in the value of floating rate securities.
available-for-sale
The following table sets forth the fair value of securitiesat the dates indicated.
available-for-sale
March 31, | December 31, | September 30, 2021 | December 31, 2020 | |||||||||||||
2021 | 2020 | |||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
Small Business Administration | $ | 42,855 | $ | 44,039 | $ | 39,285 | $ | 44,039 | ||||||||
U.S Government Agency and Sponsored Enterprise Mortgage-backed Securities | 166,811 | 177,741 | ||||||||||||||
U.S Government Agency and Sponsored Enterprise Mortgage- backed Securities | 144,608 | 177,741 | ||||||||||||||
Privately Issued Residential Mortgage-backed Securities | 326 | 328 | 244 | 328 | ||||||||||||
Obligations issued by States and Political Subdivisions | 45,668 | 52,276 | 11,769 | 52,276 | ||||||||||||
Other Debt Securities | 8,238 | 8,064 | 8,276 | 8,064 | ||||||||||||
Total Securities Available–for-Sale | $ | 263,898 | $ | 282,448 | $ | 204,182 | $ | 282,448 | ||||||||
There were no sales ofsecurities for the threenine months ended March 31,September 30, 2021.
available-for-sales
Securities(at Amortized Cost)
Held-to-Maturity
The securitiesportfolio totaled $3,217,176,000$3,211,977,000 on March 31,September 30, 2021, an increase of 28.2%28.0% from December 31, 2020. Purchases ofsecurities totaled $964,868,000$1,418,979,000 for the threenine months ended March 31,September 30, 2021. The purchases were offset somewhat, by maturities and scheduled principal payments of $257,255,000.$717,320,000. The portfolio is concentrated in United States Government Sponsored Enterprises and Mortgage-backed Securities and had an estimated weighted average remaining life of 4.74.8 years.
held-to-maturity
held-to-maturity
The following table sets forth the amortized cost of securitiesat the dates indicated.
held-to-maturity
September 30, 2021 | December 31, 2020 | |||||||||||||||
March 31, 2021 | December 31, 2020 | |||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
U.S. Government Sponsored Enterprises | $ | 381,077 | $ | 244,220 | $ | 350,583 | $ | 244,220 | ||||||||
SBA Backed Securities | 36,330 | 37,783 | 38,594 | 37,783 | ||||||||||||
U.S. Government Agency and Sponsored Enterprise Mortgage-backed Securities | 2,799,769 | 2,227,085 | ||||||||||||||
U.S. Government Agency and Sponsored Enterprise Mortgage- backed Securities | 2,822,800 | 2,227,085 | ||||||||||||||
Total Securities Held-to-Maturity | $ | 3,217,176 | $ | 2,509,088 | $ | 3,211,977 | $ | 2,509,088 | ||||||||
There were no sales ofsecurities for the threenine months ended March 31,September 30, 2021.
held-to-maturity
The net unrealized gainsloss on investment securitieswas $5,727,000were $4,718,000 or 0.2%0.1% of the total securitiesportfolio at March 31,September 30, 2021 and the net unrealized gains was $70,015,000 or 2.8% of the total securitiesportfolio at December 31, 2020. The decrease in the net unrealized gains on securitiesrelated primarily to an increase in interest rates. The gross unrealized losses relate primarily to interest rates and not credit quality, and because the Company does not intend to sell any of these securities and it is not likely that it will be required to sell these securities before the anticipated recovery of the remaining amortized cost, the Company does not consider these investments to be other-than-temporarilyother-than- temporarily impaired as of March 31,September 30, 2021 and December 31, 2020.
held-to-maturity
held-to-maturity
held-to-maturity
held-to-maturity
Page 40 of 48
Federal Home Loan Bank of Boston Stock
The Bank, as a member of the Federal Home Loan Bank of Boston (“FHLBB”), is required to maintain an investment in capital stock of the FHLBB. Based on redemption provisions, the stock has no quoted market value and is carried at cost. At its discretion, the FHLBB may declare dividends on the stock. The Company reviews this investment for impairment based on the ultimate recoverability of the cost basis in the stock. As of March 31,September 30, 2021, there have been no indicators of impairment that would require further consideration of potential impairment.
Equity Securities
On March 31,September 30, 2021, equity securities totaled $1,722,000$1,680,000 compared to $1,668,000 at December 31, 2020, the increase is primarily the result of changes in fair values.
Deposits and Borrowed Funds
On March 31,September 30, 2021, deposits totaled $6,396,042,000$6,204,376,000 representing a 17.3%13.8% increase from December 31, 2020. Total deposits increased primarily as a result of an increase in savings and NOW deposits, demand deposits, and money market accounts. These types of deposits increased primarily from an increased customer base and the cyclical nature of the municipal deposit base. Savings and NOW deposits increased mainly as a result of an increase in municipal NOW accounts and corporate savings accounts. Demand deposits increased mainly as a result of increased corporate checking balances as a result of PPP loan proceed deposits.balances. Money market accounts increased mainly as a result of an increase in municipal and corporate money market accounts. Time deposits decreased primarily as a result of decreased municipal time deposits.
Borrowed funds totaled $380,524,000$388,747,000 at March 31,September 30, 2021 compared to $409,099,000 at December 31, 2020. Borrowed funds decreased mainly as a result of a decrease in borrowings from the FHLBB, and a decreaseoffset, somewhat by an increase in repurchase agreements. FHLBB borrowings decreased mainly as a result of anthe increase in funds provided by deposits. Repurchase agreements decreasedincreased primarily as a result of short-term customer activity.
Stockholders’ Equity
At March 31,September 30, 2021, total equity was $381,332,000$402,951,000 compared to $370,409,000 on December 31, 2020. The Company’s equity increased primarily as a result of earnings, partially offset by dividends paid. The Company’s leverage ratio stood at 6.16%6.31% on March 31,September 30, 2021, compared to 6.64% at December 31, 2020. The decrease in the leverage ratio was due to an increase in quarterly average assets, offset somewhat by an increase in stockholders’ equity. Book value as of March 31,September 30, 2021, was $68.49$72.37 as compared to $66.53 on December 31, 2020.
Page 3841 of 4548
Results of Operations
The following table sets forth the distribution of the Company’s average assets, liabilities and stockholders’ equity, and average annualized rates earned or paid on a fully taxable equivalent basis for each of the three-month periods indicated.
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2021 | March 31, 2020 | Average Balance | Interest Income/ Expenses (1) | Rate Earned/ Paid (1) | Average Balance | Interest Income/ Expenses (1) | Rate Earned/ Paid (1) | |||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest Income/ Expenses (1) | Rate Earned/ Paid (1) | Average Balance | Interest Income/ Expenses (1) | Rate Earned/ Paid (1) | |||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans (2) | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans taxable | $ | 1,740,943 | $ | 15,636 | 3.64 | % | $ | 1,275,999 | $ | 13,481 | 4.25 | % | $ | 1,679,169 | $ | 14,832 | 3.50 | % | $ | 1,681,573 | $ | 15,074 | 3.57 | % | ||||||||||||||||||||||||
Loans tax-exempt | 1,241,051 | 7,582 | 2.48 | % | 1,171,963 | 10,789 | 3.70 | % | 1,301,804 | 7,751 | 2.36 | % | 1,240,668 | 7,997 | 2.56 | % | ||||||||||||||||||||||||||||||||
Securities available-for-sale | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | 240,695 | 539 | 0.90 | % | 262,332 | 1,582 | 2.41 | % | 212,012 | 445 | 0.84 | % | 272,475 | 722 | 1.06 | % | ||||||||||||||||||||||||||||||||
Tax-exempt | 48,274 | 110 | 0.91 | % | 9,640 | 137 | 5.68 | % | 17,845 | 37 | 0.83 | % | 43,000 | 110 | 1.02 | % | ||||||||||||||||||||||||||||||||
Securities held-to-maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | 2,816,215 | 13,117 | 1.86 | % | 2,299,750 | 15,293 | 2.66 | % | 3,276,477 | 13,678 | 1.67 | % | 2,368,987 | 14,186 | 2.40 | % | ||||||||||||||||||||||||||||||||
Interest-bearing deposits in other banks | 715,155 | 179 | 0.10 | % | 173,928 | 610 | 1.40 | % | 488,359 | 186 | 0.15 | % | 275,157 | 69 | 0.10 | % | ||||||||||||||||||||||||||||||||
Total interest-earning assets | 6,802,333 | 37,163 | 2.19 | % | 5,193,612 | 41,892 | 3.23 | % | 6,975,666 | 36,929 | 2.11 | % | 5,881,860 | 38,158 | 2.59 | % | ||||||||||||||||||||||||||||||||
Non interest-earning assets | 362,917 | 285,422 | 332,944 | 306,887 | ||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses | (35,734 | ) | (29,765 | ) | (35,003 | ) | (32,819 | ) | ||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 7,129,516 | $ | 5,449,269 | $ | 7,273,607 | $ | 6,155,928 | ||||||||||||||||||||||||||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||
NOW accounts | $ | 1,159,180 | $ | 647 | 0.23 | % | $ | 1,016,266 | $ | 2,252 | 0.89 | % | $ | 1,342,305 | $ | 297 | 0.09 | % | $ | 1,170,430 | $ | 1,060 | 0.36 | % | ||||||||||||||||||||||||
Savings accounts | 1,068,525 | 471 | 0.18 | % | 716,569 | 1,473 | 0.83 | % | 1,099,585 | 273 | 0.10 | % | 794,806 | 666 | 0.33 | % | ||||||||||||||||||||||||||||||||
Money market accounts | 2,296,286 | 2,886 | 0.51 | % | 1,480,399 | 5,572 | 1.51 | % | 2,306,353 | 2,368 | 0.41 | % | 1,747,629 | 3,056 | 0.70 | % | ||||||||||||||||||||||||||||||||
Time deposits | 510,287 | 1,581 | 1.26 | % | 589,396 | 3,172 | 2.16 | % | 409,856 | 791 | 0.77 | % | 595,453 | 2,858 | 1.91 | % | ||||||||||||||||||||||||||||||||
Total interest-bearing deposits | 5,034,278 | 5,585 | 0.45 | % | 3,802,630 | 12,469 | 1.32 | % | 5,158,099 | 3,729 | 0.29 | % | 4,308,318 | 7,640 | 0.71 | % | ||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 234,810 | 141 | 0.24 | % | 246,272 | 626 | 1.02 | % | 263,206 | 91 | 0.14 | % | 209,477 | 241 | 0.46 | % | ||||||||||||||||||||||||||||||||
Other borrowed funds and subordinated debentures | 188,769 | 1,238 | 2.66 | % | 217,839 | 1,499 | 2.77 | % | 154,951 | 1,065 | 2.73 | % | 207,467 | 1,292 | 2.48 | % | ||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 5,457,857 | 6,964 | 0.52 | % | 4,266,741 | 14,594 | 1.38 | % | 5,576,256 | 4,885 | 0.35 | % | 4,725,262 | 9,173 | 0.77 | % | ||||||||||||||||||||||||||||||||
Non-interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Demand deposits | 1,195,863 | 758,173 | 1,202,969 | 983,990 | ||||||||||||||||||||||||||||||||||||||||||||
Other liabilities | 99,787 | 87,423 | 95,987 | 88,896 | ||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 6,753,507 | 5,112,337 | 6,875,212 | 5,798,148 | ||||||||||||||||||||||||||||||||||||||||||||
Stockholders’ equity | 376,009 | 336,932 | 398,395 | 357,780 | ||||||||||||||||||||||||||||||||||||||||||||
Total liabilities & stockholders’ equity | $ | 7,129,516 | $ | 5,449,269 | $ | 7,273,607 | $ | 6,155,928 | ||||||||||||||||||||||||||||||||||||||||
Net interest income on a fully taxable equivalent basis | 30,199 | 27,298 | 32,044 | 28,985 | ||||||||||||||||||||||||||||||||||||||||||||
Less taxable equivalent adjustment | (1,632 | ) | (2,097 | ) | (1,664 | ) | (1,654 | ) | ||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 28,567 | $ | 25,201 | $ | 30,380 | $ | 27,331 | ||||||||||||||||||||||||||||||||||||||||
Net interest spread (3) | 1.67 | % | 1.85 | % | 1.76 | % | 1.82 | % | ||||||||||||||||||||||||||||||||||||||||
Net interest margin (4) | 1.80 | % | 2.11 | % | 1.82 | % | 1.96 | % | ||||||||||||||||||||||||||||||||||||||||
| (1) | On a fully taxable equivalent basis calculated using a federal tax rate of 21%. Rates are annualized. |
| (2) | Nonaccrual loans are included in average amounts outstanding. |
| (3) | Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the |
| (4) | Net interest margin represents net interest income as a percentage of average interest-earning assets. |
| (5) | Average balances of securities available-for-sale |
Page 3942 of 4548
Results of Operations
The following table sets forth the distribution of the Company’s average assets, liabilities and stockholders’ equity, and average annualized rates earned or paid on a fully taxable equivalent basis for each of the nine-month periods indicated.
| Nine Months Ended | ||||||||||||||||||||||||
September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
Average Balance | Interest Income/ Expenses (1) | Rate Earned/ Paid (1) | Average Balance | Interest Income/ Expenses (1) | Rate Earned/ Paid (1) | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans (2) | ||||||||||||||||||||||||
Loans taxable | $ | 1,715,554 | $ | 45,407 | 3.54 | % | $ | 1,489,641 | $ | 41,884 | 3.76 | % | ||||||||||||
Loans tax-exempt | 1,270,214 | 22,908 | 2.41 | % | 1,203,359 | 27,100 | 3.01 | % | ||||||||||||||||
Securities available-for-sale | ||||||||||||||||||||||||
Taxable | 226,281 | 1,465 | 0.86 | % | 271,882 | 3,241 | 1.59 | % | ||||||||||||||||
Tax-exempt | 35,627 | 240 | 0.90 | % | 21,419 | 304 | 1.89 | % | ||||||||||||||||
Securities held-to-maturity: | ||||||||||||||||||||||||
Taxable | 3,137,556 | 40,908 | 1.74 | % | 2,346,502 | 44,701 | 2.54 | % | ||||||||||||||||
Interest-bearing deposits in other banks | 544,227 | 477 | 0.12 | % | 238,525 | 747 | 0.42 | % | ||||||||||||||||
Total interest-earning assets | 6,929,459 | 111,405 | 2.15 | % | 5,571,328 | 117,977 | 2.83 | % | ||||||||||||||||
Non interest-earning assets | 349,782 | 294,226 | ||||||||||||||||||||||
Allowance for loan losses | (35,332 | ) | (31,359 | ) | ||||||||||||||||||||
Total assets | $ | 7,243,909 | $ | 5,834,195 | ||||||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||||||||
NOW accounts | $ | 1,280,576 | $ | 1,375 | 0.14 | % | $ | 1,110,309 | $ | 4,633 | 0.56 | % | ||||||||||||
Savings accounts | 1,061,440 | 1,066 | 0.13 | % | 771,588 | 2,936 | 0.51 | % | ||||||||||||||||
Money market accounts | 2,332,307 | 7,743 | 0.44 | % | 1,603,367 | 12,090 | 1.01 | % | ||||||||||||||||
Time deposits | 460,474 | 3,487 | 1.01 | % | 597,589 | 9,141 | 2.04 | % | ||||||||||||||||
Total interest-bearing deposits | 5,134,797 | 13,671 | 0.36 | % | 4,082,853 | 28,800 | 0.94 | % | ||||||||||||||||
Securities sold under agreements to repurchase | 247,665 | 330 | 0.18 | % | 220,796 | 1,176 | 0.71 | % | ||||||||||||||||
Other borrowed funds and subordinated debentures | 171,639 | 3,527 | 2.75 | % | 206,055 | 4,093 | 2.65 | % | ||||||||||||||||
Total interest-bearing liabilities | 5,554,101 | 17,528 | 0.42 | % | 4,509,704 | 34,069 | 1.01 | % | ||||||||||||||||
Non-interest-bearing liabilities | ||||||||||||||||||||||||
Demand deposits | 1,205,456 | 889,237 | ||||||||||||||||||||||
Other liabilities | 96,964 | 88,028 | ||||||||||||||||||||||
Total liabilities | 6,856,521 | 5,486,969 | ||||||||||||||||||||||
Stockholders’ equity | 387,388 | 347,226 | ||||||||||||||||||||||
Total liabilities & stockholders’ equity | $ | 7,243,909 | $ | 5,834,195 | ||||||||||||||||||||
Net interest income on a fully taxable equivalent basis | 93,877 | 83,908 | ||||||||||||||||||||||
Less taxable equivalent adjustment | (4,939 | ) | (5,558 | ) | ||||||||||||||||||||
Net interest income | $ | 88,938 | $ | 78,350 | ||||||||||||||||||||
Net interest spread (3) | 1.73 | % | 1.82 | % | ||||||||||||||||||||
Net interest margin (4) | 1.81 | % | 2.01 | % | ||||||||||||||||||||
| (1) | On a fully taxable equivalent basis calculated using a federal tax rate of 21%. Rates are annualized. |
| (2) | Nonaccrual loans are included in average amounts outstanding. |
| (3) | Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. |
| (4) | Net interest margin represents net interest income as a percentage of average interest-earning assets. |
| (5) | Average balances of securities available-for-sale calculated utilizing amortized cost. |
Page 43 of 48
The following table presents certain information on a
fully-tax
equivalent basis regarding changes in the Company’s interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to changes in rate and changes in volume.| Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020 | Increase/(Decrease) Due to Change in | Increase/(Decrease) Due to Change in | ||||||||||||||||||||||||||||||||||
| Increase/(Decrease) Due to Change in | Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||||||||||||||
| Volume | Rate | Total | ||||||||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | (in thousands) | ||||||||||||||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||||||
Taxable | $ | 4,371 | $ | (2,216 | ) | $ | 2,155 | $ | (18 | ) | $ | (224 | ) | $ | (242 | ) | $ | 6,052 | $ | (2,529 | ) | $ | 3,523 | |||||||||||||
Tax-exempt | 599 | (3,806 | ) | (3,207 | ) | 392 | (638 | ) | (246 | ) | 1,433 | (5,625 | ) | (4,192 | ) | |||||||||||||||||||||
Securities available-for-sale | ||||||||||||||||||||||||||||||||||||
Taxable | (121 | ) | (922 | ) | (1,043 | ) | (143 | ) | (134 | ) | (277 | ) | (477 | ) | (1,299 | ) | (1,776 | ) | ||||||||||||||||||
Tax-exempt | 168 | (195 | ) | (27 | ) | (55 | ) | (18 | ) | (73 | ) | 143 | (207 | ) | (64 | ) | ||||||||||||||||||||
Securities held-to-maturity | ||||||||||||||||||||||||||||||||||||
Taxable | 2,994 | (5,170 | ) | (2,176 | ) | 4,515 | (5,023 | ) | (508 | ) | 12,613 | (16,406 | ) | (3,793 | ) | |||||||||||||||||||||
Interest-bearing deposits in other banks | 541 | (972 | ) | (431 | ) | 70 | 47 | 117 | 516 | (786 | ) | (270 | ) | |||||||||||||||||||||||
Total interest income | 8,552 | (13,281 | ) | (4,729 | ) | 4,761 | (5,990 | ) | (1,229 | ) | 20,280 | (26,852 | ) | (6,572 | ) | |||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||||||||||||||
NOW accounts | 290 | (1,895 | ) | (1,605 | ) | 137 | (900 | ) | (763 | ) | 618 | (3,876 | ) | (3,258 | ) | |||||||||||||||||||||
Savings accounts | 512 | (1,514 | ) | (1,002 | ) | 193 | (586 | ) | (393 | ) | 827 | (2,697 | ) | (1,870 | ) | |||||||||||||||||||||
Money market accounts | 2,173 | (4,859 | ) | (2,686 | ) | 806 | (1,494 | ) | (688 | ) | 4,109 | (8,456 | ) | (4,347 | ) | |||||||||||||||||||||
Time deposits | (370 | ) | (1,221 | ) | (1,591 | ) | (708 | ) | (1,359 | ) | (2,067 | ) | (1,767 | ) | (3,887 | ) | (5,654 | ) | ||||||||||||||||||
Total interest-bearing deposits | 2,605 | (9,489 | ) | (6,884 | ) | 428 | (4,339 | ) | (3,911 | ) | 3,787 | (18,916 | ) | (15,129 | ) | |||||||||||||||||||||
Securities sold under agreements to repurchase | (25 | ) | (460 | ) | (485 | ) | 51 | (201 | ) | (150 | ) | 128 | (974 | ) | (846 | ) | ||||||||||||||||||||
Other borrowed funds and subordinated debentures | (186 | ) | (75 | ) | (261 | ) | (349 | ) | 122 | (227 | ) | (706 | ) | 140 | (566 | ) | ||||||||||||||||||||
Total interest expense | 2,394 | (10,024 | ) | (7,630 | ) | 130 | (4,418 | ) | (4,288 | ) | 3,209 | (19,750 | ) | (16,541 | ) | |||||||||||||||||||||
Change in net interest income | $ | 6,158 | $ | (3,257 | ) | $ | 2,901 | $ | 4,631 | $ | (1,572 | ) | $ | 3,059 | $ | 17,071 | $ | (7,102 | ) | $ | 9,969 | |||||||||||||||
Net Interest Income
For the three months ended March 31,September 30, 2021, net interest income on a fully taxable equivalenttaxable-equivalent basis totaled $30,109,000$32,044,000 compared to $27,298,000$28,985,000 for the same period in 2020, an increase of $2,811,000$3,059,000, or 10.3%10.6%. The increase in net interest income for the period is primarily due to a decrease in interest expense as a result of falling interest rates. The net interest margin decreased from 2.11%1.96% on a fullyquarterthree months of 2020 compared to 1.80%1.82% for the same period in 2021. This was primarily the result of increased margin pressure during the recent decreasefrom decreases in interest rates across the yield curve.curve in 2020. The average balances of earninginterest-earning assets increased for 2021 compared to the same period last year, by $1,608,721,000$1,093,806,000 or 31.0%18.6%, combined with an average yield decrease of 1.03%0.48%, resulting in a decrease in interest income of $4,729,000 on a fullytax-equivalentbasis.$1,229,000. The average balance of interest-bearinginterest- bearing liabilities increased for 2021 compared to the same period last year, by $1,191,116,000$850,994,000, or 27.9%18.0%, combined with an average interest-bearing liabilities interest cost decrease of 0.86%0.42%, resulting in a decrease in interest expense of $7,630,000.$4,288,000.
tax-equivalent
basis for the first For the nine months ended September 30, 2021, net interest income on a fully taxable equivalent basis totaled $93,877,000 compared to $83,908,000 for the same period in 2020, an increase of $9,969,000, or 11.9%. The increase in net interest income for the period is primarily due to a decrease in interest expense as a result of falling interest rates. The net interest margin decreased from 2.01% on a fully
tax-equivalent
basis for the first nine months of 2020 compared to 1.81% for the same period in 2021. This was primarily the result of increased margin pressure from decreases in interest rates across the yield curve in 2020. The average balances of interest-earning assets increased for 2021 compared to the same period last year, by $1,358,131,000, or 24.4%, combined with an average yield decrease of 0.68%, resulting in a decrease in interest income of $6,572,000. The average balance of interest-bearing liabilities increased for 2021 compared to the same period last year, by $1,044,397,000, or 23.2%, combined with an average interest-bearing liabilities interest cost decrease of 0.59%, resulting in a decrease in interest expense of $16,541,000.Page 44 of 48
As illustrated in the table above, the main contributors to the increase in net interest income for the three-monththree and nine-month period was a decrease in rates paid on interest-bearing deposits. The Company has decreased interest rates on these products as market rates have decreased. Securitiesincome increased, for the three-month period, primarily as a result of an increase in volume. SecuritiesThe Company hasSecuritiesincome decrease was offset, somewhat, by an increase in volume. Interest-bearing deposits in other banks increased for the three months ended September 30, 2021, primarily as a sizable floating rateavailable-for-saleand loan portfolio. These portfolios reprice as interest rates rise or fall.
held-to-maturity,
securities
interest-bearing deposits in other banks, and loan income decreased primarily from a decrease in rates paid on the portfolios. available-for-sale,
held-to-maturity
Provision for Loan Losses
The provision for loan losses decreased by $1,625,000$4,425,000 from $1,075,000$3,675,000 for the quarternine months ended March 31,September 30, 2020, compared to a credit of $550,000$750,000 for the same period in 2021. The credit for 2021 was offset, somewhat, by provisions associated with originations of commercial and industrial loans. The provision for the first quarternine months of 2020 was primarily thea result of provisions related to the onset of thequarternine months of 2021 was primarily attributable to a decline in loan balances exclusive of PPP loans and a reduction in specific allocations to the allowance for loan losses.losses and a reduction in the historical experience reserve allocation.
COVID-19
pandemic. The credit provision for the first Further discussion relating to changes in portfolio composition is discussed in Note 4.
Non-Interest
Income and ExpenseOther operating income for the quarter ended March 31,September 30, 2021, decreasedincreased by $107,000$3,000 from the same period last year to $4,203,000.$4,172,000. This was mainly attributable to an increase in service charges on deposit accounts of $4,000 and an increase in other income of $81,000. This was offset, somewhat, by a decrease of $82,000 in lockbox fees. Service charges on deposit accounts remained relatively stable. Lockbox fees decreased mainly from decreased customer activity. Other income increased mainly from an increase in loan servicing fees.
Other operating income for the nine months ended September 30, 2021, decreased by $39,000 from the same period last year to $12,481,000. This was mainly attributable to a decrease in other income of $95,000 and a decrease$139,000. This was offset, somewhat, by an increase in service charges on deposit accounts of $78,000. This was offset, somewhat, by$74,000 and an increase of $66,000 in lockbox fees. Service charges on deposit accounts decreased mainly as a resultfees of a decrease in customer activity due in large part to theCOVID-19pandemic.$26,000. Other income decreased mainly as a result of a decrease in insurance gains on life insurance policies. Lockbox feesService charges on deposit accounts increased mainly as a result of an increase in processing activities and an increase in debit card fees. Lockbox fees increased mainly from increased customer activity.
For the quarter ended March 31,September 30, 2021, operating expenses increased by $2,698,000$2,572,000, or 14.8%14.2%, to $20,871,000,$20,739,000, from the same period last year. This was primarily attributable to an increase in salaries and employee benefits of $879,000,$545,000, an increase of $187,000$610,000 in FDIC assessments, an increase of $1,290,000 in other expenses, and an increase of $147,000 is equipment expenses. The increase in salaries and employee benefits was mainly attributable to merit increases, lower bonus accruals during the same period in 2020 as a result of uncertainties from the
COVID-19
pandemic, decreased deferred origination cost credits, and increased employee benefits including health insurance costs. The increase in FDIC assessments was attributable to increased deposits and increased deposit assessment rates. Other expenses increased mainly from expenses related to the previously announced merger, increases inCOVID-19
related expenses, and increased software maintenance costs. Equipment costs increased mainly from increases in service costs.For the nine months ended September 30, 2021, operating expenses increased by $9,240,000, or 17.3%, to $62,622,000, from the same period last year. This was primarily attributable to an increase in salaries and employee benefits of $3,439,000, an increase of $302,000 in occupancy costs, an increase of $112,000$228,000 in equipment expenses, an increase of $472,000$1,529,000 in FDIC assessments, and an increase of $1,048,000$3,742,000 in other expenses. The increase in salaries and employee benefits was mainly attributable to merit increases, lower bonus accruals during the same period in 2020 as a result of uncertainties from theotherincreased employee benefits.benefits including health insurance costs. The increase in FDIC assessments was attributable to credits applied during the first quarter of 2020.2020, increased deposits and increased deposit assessment rates. The increase in occupancy costs was mainly attributable to an increase in building maintenance. Other expenses increased mainly as a result of expenses related to the previously announced merger, increases in bank security,expense.
expense and increased service costs.COVID-19
pandemic, decreased deferred origination cost credits, and COVID-19
related expenses, and increases in charitable contributions. Equipment expense increased mainly from an increase in depreciation Income Taxes
For the quarter ended March 31,September 30, 2021, the Company’s income tax expense totaled $1,679,000$2,281,000 on pretax income of $12,449,000$14,013,000 resulting in an effective tax rate of 13.5%16.3%. For last year’s corresponding quarter, the Company’s income tax expense totaled $597,000$1,546,000 on pretax income of $10,263,000$12,433,000 resulting in an effective tax rate of 5.8%12.4%. This increase was primarily the result of an increase in taxable income relative to total income.income and nondeductible merger related expenses.
Page 45 of 48
For the nine months ended September 30, 2021, the Company’s income tax expense totaled $6,222,000 on pretax income of $39,547,000 resulting in an effective tax rate of 15.7%. For the nine months ended September 30, 2020, the Company’s income tax expense totaled $3,204,000 on pretax income of $33,813,000 resulting in an effective tax rate of 9.5%. This increase was primarily the result of an increase in taxable income relative to total income and nondeductible merger related expenses.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. To that end, management actively monitors and manages its interest rate risk exposure. The Company’s profitability is affected by fluctuations in interest rates. A sudden and substantial increase or decrease in interest rates may adversely impact the Company’s earnings to the extent that the interest rates tied to specific assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using several tools. The Company’s primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Company’s net interest income and capital, while structuring the Company’s asset-liability structure to obtain the maximum yield-cost spread on that structure. Management believes that there has been no material changes in the interest rate risk reported in the Company’s Annual Report on FormForm 10-Kfor the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission. The information is contained in the FormForm 10-Kwithin the Market Risk and Asset Liability Management section of Management’s Discussion and Analysis of Results of Operations and Financial Condition.
Item 4. Controls and Procedures
The Company’s management, with participation of the Company’s principal executive and financial officers, has evaluated its disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, the Company’s management, with participation of its principal executive and financial officers, has concluded that the Company’s disclosure controls and procedures are effective. The disclosure controls and procedures also effectively ensure that information required to be disclosed in the Company’s filings and submissions with the Securities and Exchange Commission under the Exchange Act is accumulated and reported to Company management (including the principal executive officer and the principal financial officer) as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. In addition, the Company has evaluated its internal control over financial reporting and during the first threenine months of 2021 there were no changes that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Page 4146 of 4548
Part II
–Other Information
| Item 1 | A number of legal claims against the Company arising in the normal course of business were outstanding at |
| Item 1A | Risk Factors – Please read the “Risk 10-Q for the quarter ended on June 30, 2021 (the“10-Q”). There have been no material changes since | |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds – | |
(a) – (b) Not applicable. | ||
(c) None | ||
| Item 3 | Defaults Upon Senior Securities – None | |
| Item 4 | Mine Safety Disclosures – Not applicable | |
| + | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. |
| ++ | As provided in Rule 406T of regulation S-T, this information is filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 and consists of the following materials from Century Bancorp Inc.’s Quarterly Report on10-Q for the quarter ended |
Page 4447 of 4548
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: | Century Bancorp, Inc. |
/s/ | ||||
Barry R. Sloane | ||||
Barry R. Sloane | ||||
Chairman, President and Chief Executive Officer | ||||
/s/ | ||||
William P. Hornby, CPA | ||||
William P. Hornby, CPA | ||||
Chief Financial Officer and Treasurer | ||||
(Principal Accounting Officer) | ||||
Page 4548 of 4548