Office of the Comptroller of the Currency Issues Interpretation of 12 U.S.C. § 25b
Press Release
WASHINGTON—The Office of the Comptroller of the Currency (OCC) today issued an interpretation of 12 U.S.C. 25b, which codifies preemption standards and establishes procedural requirements for certain preemption actions by the agency.
Federal preemption derives from the Supremacy Clause of the U.S. Constitution and has been recognized as fundamental to the federal government and the operation of the federal banking system. In the landmark case of McCulloch v. Maryland, the U.S. Supreme Court held that under the Supremacy Clause, states “have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control, the operations” of an entity created under federal law.
Federal preemption permits national banks and federal savings associations, many of which operate across state lines, to operate under a uniform set of rules to support nationwide banking. The agency has concluded that the federal banking system, and its customers, would benefit from a comprehensive interpretation of these provisions, which sets out a consistent framework for compliance.
That Covid-19 has sped up the exposure of workers to the possibility of automation replacing them is a saying that is becoming almost cliché. Television commercials remind us that we are “all in this together” and that we should wear masks and safely social distance. Meanwhile, telecommunications companies are promoting 5G technology that when fully deployed will help alleviate the downsides of working from home with a technology that moves data faster and can help connect all your devices and appliances so that you can better manage the data flowing through your home. But what if, in addition to connecting your mobile phone to your refrigerator which may allow you to determine whether to buy more milk, that 5G also helps to turn you into a micro bank by taking a real-time audit of the assets in your possession and using them as a basis for issuing your own coin?
The thought came to me today while conversing with two friends about the probability of Facebook becoming its own “nation.” Facebook, the world’s largest social media platform, is backing a group that plans to issue a cryptocurrency next month called Diem. Diem will hopefully help people send money around the world almost instantaneously. Unlike other cryptocurrencies, Diem will be a “stable coin” meaning it will be backed by reliable fiat currencies like the U.S. dollar or the euro.
But what if we could take the Facebook macro-model and make it micro to you? For example, with 5G-driven internet of things and block chain technology, why couldn’t a real time audit of a person’s possessions be taken and instead of the individual issuing digital fiat currency or even stable coin, the individual could issue their own personal currency. Tom Steyer, for example, could digitally tally up his cash, land, securities, and other holdings and issue a digital certificate that could be used in the digital marketplace. A man of his wealth could take a position in a number of different currencies but should he choose to engage exclusively in the digital world on his own dime, he could do so without any rules or regulations that come along with currency issued by a nation-state, a social media platform, or a corporation.
The advantages to such a scheme compound when more people with the material means decide to go digital and trade either the social media platform’s coin or, if affluent enough, their own coin. This would be true personal banking.
The Federal Reserve Bank of Atlanta yesterday announced the development of a new commercial real estate index designed to provide banks with a better assessment of momentum and risks in the commercial real estate market. The press release has been reproduced below.
Source: Federal Reserve Bank of Atlanta
9 November 2020
The Federal Reserve Bank of Atlanta announces the release of the U.S. Commercial Real Estate (CRE) Momentum Index which combines economic and real estate market data for more than 300 metro areas to provide insight into the momentum of change in CRE markets across the country.
A new interactive market analysis tool will enable users to track the CRE Momentum Index over time to identify CRE trends and assess market risks for the four major property sectors—apartment, office, retail, and industrial—as well as view the underlying variables that affect the index’s movement. One of the intended uses of the tool is to help small and medium-sized banks more quickly identify and accurately gauge risk as they are actively engaged in commercial real estate lending.
The CRE Momentum Index combines publicly available economic data such as employment, e-commerce, retail sales and others, with third-party, market-specific data such as occupancy trends and construction forecasts. The tool also provides a running quarter-to-date analysis as data are released in order to improve tracking in between quarterly data releases.
“Exploring both economic and commercial real estate dynamics in tandem helps users understand the movements in commercial real estate markets, and it is particularly helpful to look at these dynamics by property type,” said Lauren Terschan, senior data analytics and real estate specialist in the Atlanta Fed’s Supervision, Regulation, and Credit division, who helped develop the tool. “By looking at changes in overall market momentum, this tool will help users track market undulations and help identify potential risks.”
According to NAIOP Research Foundation, commercial real estate contributed more than $1.1 trillion to the U.S. GDP and supported nine million American jobs in 2019.
“Commercial real estate is a hugely important sector to the overall economy and contributes significantly to job creation, investment and lending,” said Brian Bailey, CRE subject matter expert in the Atlanta Fed’s Supervision, Regulation and Credit division, who developed the index’s methodology. “It is critical that industry participants, lenders and regulators have an excellent understanding of economic drivers and risks, and we believe the CRE Momentum Index will help with that understanding.”
The CRE Momentum Index is available in the Data and Tools section of the Atlanta Fed website.
The Board of Governors of the Federal Reserve System begin their two-day meeting next Wednesday, one day after the general election. No changes in inter-bank rates are expected, but what will be of interest is a likely repeat of the plea that Congress and the Executive implement a fiscal policy that keeps the economy on life support during the pandemic. Depending on who wins the Electoral College, Chairman Jerome Powell’s post-meeting comments will be either soothing or raise more hairs on the back of the public’s necks.
Mr Powell will reiterate the need for fiscal policy because monetary policy can only do so much. Monetary policy has as one of its goals the backstopping of its member banks, providing needed liquidity when the credit pipes become clogged by opening the flow of credit to businesses via the banks whose inability to lend could stem from not having enough capital to support additional lending.
Fiscal policy, the Fed chairman will likely remind us next Thursday, does a better job of getting cash into the hands of consumers resulting in increased personal expenditures. Consumer spending has historically driven around seventy percent of national income, and that the kind of spending that is needed now.
But this relief is going to be temporary. The more sustaining stimulus will come from an economy that opens back up. If the polls continue to hold and Joe Biden takes office in January 2021, he could take actions to keep needed capital in the United States that probably props up the economy. Would Mr Biden want to tax this capital as part of his promise to bring about an equitable tax environment where the affluent pay their fair share of taxes or will he back pedal on taxing captured capital in order to quell any attempts at tax avoidance while ensuring the availability of stimulative spending?
Mr Biden may also be reminded that in an economy that is credit driven, where banks are the information search agents that help capital seek out higher returns by identifying worthwhile investments, he could also leave banks, their investors, and their depositors off of his tax hit list thus helping the Federal Reserve further unclog the credit pipes.
MEDFORD, Mass.–(BUSINESS WIRE)–Century Bancorp, Inc. (NASDAQ:CNBKA) (www.centurybank.com) (“the Company”) today announced net income of $30,609,000 for the nine months ended September 30, 2020, or $5.50 per Class A share diluted, an increase of 5.7% compared to net income of $28,967,000, or $5.20 per Class A share diluted, for the same period a year ago. Total assets increased 14.6% from $5.49 billion at December 31, 2019 to $6.3 billion at September 30, 2020. For the quarter ended September 30, 2020, net income totaled $10,887,000 or $1.96 per Class A share diluted, an increase of 8.0% compared to net income of $10,084,000, or $1.81 per Class A share diluted, for the same period a year ago.
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The Company’s Board of Directors voted to increase its regular quarterly dividend from 14.00 cents ($0.14) per share to 16.00 cents ($0.16) per share on the Company’s Class A common stock, and from 7.00 cents ($0.07) per share to 8.00 cents ($0.08) per share on the Company’s Class B common stock. The dividends were declared payable November 16, 2020 to stockholders of record on November 2, 2020.
Net interest income totaled $78.4 million for the nine months ended September 30, 2020 compared to $70.5 million for the same period in 2019. The 11.2% increase in net interest income for the period is primarily due to a decrease in interest expense as a result of falling interest rates. Prepayment penalties collected amounted to approximately $946,000 for the first nine months of 2020 compared to $18,000 for the same period last year. The net interest margin decreased from 2.08% on a fully tax-equivalent basis for the first nine months of 2019 to 2.01% for the same period in 2020. This was primarily the result of increased margin pressure during the recent decrease in interest rates across the yield curve. The average balances of earning assets increased for the first nine months of 2020 compared to the same period last year, by $609.0 million or 12.3%, combined with an average yield decrease of 0.55%, resulting in a decrease in interest income of $6.2 million. The average balance of interest-bearing liabilities increased for the first nine months of 2020 compared to the same period last year, by $486.9 million or 12.1%, combined with an average interest-bearing liabilities interest cost decrease of 0.59%, resulting in a decrease in interest expense of $14.1 million.
The provision for loan losses increased by $2,975,000 from $700,000 for the nine months ended September 30, 2019 to $3,675,000 for the same period in 2020, primarily as a result of the economic uncertainties associated with the novel coronavirus disease (COVID–19) pandemic and increased loan balances.
The Company’s effective tax rate increased from 2.0% for the nine months ended September 30, 2019 to 9.5% for the same period in 2020. This was primarily as a result of an increase in taxable income relative to total income and a reduction in tax accruals, during 2019, related to sequestration of the refundable portion of our alternative minimum tax (AMT) credit carryforward. On January 14, 2019, the IRS updated its announcement “Effect of Sequestration on the Alternative Minimum Tax Credit for Corporations” to clarify that refundable AMT credits under Section 53(e) of the Internal Revenue Code are not subject to sequestration for taxable years beginning after December 31, 2017. On March 27, 2020, the Coronavirus, Aid, Relief and Economic Security (CARES) Act was signed into law. As a result of the CARES Act, the full balance of the AMT credit was refunded in 2020.
At September 30, 2020, total equity was $363.4 million compared to $332.6 million at December 31, 2019. The Company’s equity increased primarily as a result of earnings, offset somewhat by dividends paid.
The Company’s leverage ratio stood at 6.79% at September 30, 2020, compared to 7.25% at December 31, 2019. 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 September 30, 2020 was $65.27 per share compared to $59.73 at December 31, 2019.
The Company’s allowance for loan losses was $33.4 million or 1.12% of loans outstanding at September 30, 2020 compared to $29.6 million or 1.22% of loans outstanding at December 31, 2019, and $29.1 million or 1.22% of loans outstanding at September 30, 2019. The ratio of the allowance for loan losses to loans outstanding has decreased from December 31, 2019, primarily from approximately $232 million of Payroll Protection Program (PPP) loans that are guaranteed by the U.S. Small Business Administration (SBA), which require no allowance for loan losses. Nonperforming assets totaled $1.4 million at September 30, 2020, compared to $2.0 million at December 31, 2019, and $1.1 million at September 30, 2019.
As of September 30, 2020, the Company has COVID-19 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.
The CARES Act also allows companies to delay Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 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 has elected to delay FASB ASU 2016-13. This ASU will be delayed until the earlier of the date on which the national emergency concerning the COVID–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.
The Company, through its subsidiary bank, Century Bank and Trust Company, a state chartered full service commercial bank, operating twenty-seven full-service branches in the Greater Boston area, offers a full range of Business, Personal and Institutional Services.
Century Bank and Trust Company is a member of the FDIC and is an Equal Housing Lender.
This press release contains certain “forward-looking statements” with respect to the financial condition, results of operations and business of the Company. Actual results may differ from those contemplated by these statements. The Company wishes to caution readers not to place undue reliance on any forward-looking statements. The Company disclaims any intent or obligation to update publicly any such forward-looking statements, whether in response to new information, future events or otherwise.
Century Bancorp, Inc. and Subsidiaries
Consolidated Comparative Statements of Condition (unaudited)
(in thousands)
September 30,
December 31,
Assets
2020
2019
Cash and Due From Banks
$
101,679
$
44,420
Federal Funds Sold and Interest-bearing Deposits In Other Banks
310,901
214,273
Securities Available-for-Sale (AFS)
293,277
262,190
Securities Held-to-Maturity
2,407,176
2,351,120
Federal Home Loan Bank of Boston stock, at cost
13,361
19,471
Loans:
Commercial & Industrial
1,315,407
812,417
Municipal
130,047
120,455
Construction & Land Development
9,116
8,992
Commercial Real Estate
784,895
786,102
Residential Real Estate
443,703
371,897
Consumer and Other
19,866
21,893
Home Equity
287,099
304,363
Total Loans
2,990,133
2,426,119
Less: Allowance for Loan Losses
33,394
29,585
Net Loans
2,956,739
2,396,534
Bank Premises and Equipment, net
37,340
33,952
Accrued Interest Receivable
13,223
13,110
Goodwill
2,714
2,714
Other Assets
159,016
154,640
Total Assets
$
6,295,426
$
5,492,424
Liabilities
Demand Deposits
$
991,590
$
712,842
Interest Bearing Deposits:
Savings and NOW Deposits
1,932,339
1,678,250
Money Market Accounts
1,906,676
1,453,572
Time Deposits
581,866
555,447
Total Interest Bearing Deposits
4,420,881
3,687,269
Total Deposits
5,412,471
4,400,111
Borrowed Funds:
Securities Sold Under Agreements to Repurchase
231,030
266,045
Other Borrowed Funds
152,248
370,955
Total Borrowed Funds
383,278
637,000
Other Liabilities
100,160
86,649
Subordinated Debentures
36,083
36,083
Total Liabilities
5,931,992
5,159,843
Total Stockholders’ Equity
363,434
332,581
Total Liabilities & Stockholders’ Equity
$
6,295,426
$
5,492,424
Century Bancorp, Inc. and Subsidiaries
Consolidated Comparative Statements of Income (unaudited)
For the quarter and nine months ended September 30, 2020 and 2019
(in thousands)
Quarter ended September 30,
Nine months ended September 30,
2020
2019
2020
2019
Interest Income:
Loans
$
21,431
$
22,117
$
63,478
$
65,106
Securities Held-to-Maturity
14,186
14,623
44,701
43,006
Securities Available-for-Sale
818
2,184
3,493
7,305
Federal Funds Sold and Interest-bearing Deposits In Other Banks
69
928
747
3,204
Total Interest Income
36,504
39,852
112,419
118,621
Interest Expense:
Savings and NOW Deposits
1,726
5,445
7,569
16,788
Money Market Accounts
3,056
5,050
12,090
15,805
Time Deposits
2,858
3,038
9,141
8,724
Securities Sold Under Agreements to Repurchase
241
697
1,176
1,572
Other Borrowed Funds and Subordinated Debentures
1,292
1,852
4,093
5,274
Total Interest Expense
9,173
16,082
34,069
48,163
Net Interest Income
27,331
23,770
78,350
70,458
Provision For Loan Losses
900
75
3,675
700
Net Interest Income After
Provision for Loan Losses
26,431
23,695
74,675
69,758
Other Operating Income:
Service Charges on Deposit Accounts
2,239
2,310
6,558
6,801
Lockbox Fees
996
937
2,850
3,018
Net Gain on Sales of Loans
–
–
–
154
Other Income
934
1,039
3,112
3,737
Total Other Operating Income
4,169
4,286
12,520
13,710
Operating Expenses:
Salaries and Employee Benefits
11,362
10,670
33,020
32,621
Occupancy
1,477
1,463
4,448
4,686
Equipment
809
862
2,608
2,440
Other
4,519
4,467
13,306
14,170
Total Operating Expenses
18,167
17,462
53,382
53,917
Income Before Income Taxes
12,433
10,519
33,813
29,551
Income Tax Expense
1,546
435
3,204
584
Net Income
$
10,887
$
10,084
$
30,609
$
28,967
Century Bancorp, Inc. and Subsidiaries
Consolidated Year-to-Date Average Comparative Statements of Condition (unaudited)
(in thousands)
September 30,
September 30,
Assets
2020
2019
Cash and Due From Banks
$
80,686
$
74,413
Federal Funds Sold and Interest-Bearing Deposits in Other Banks
238,525
184,035
Securities Available-For-Sale (AFS)
293,301
325,036
Securities Held-to-Maturity (HTM)
2,346,502
2,128,082
Total Loans
2,693,000
2,325,136
Less: Allowance for Loan Losses
31,359
28,936
Net Loans
2,661,641
2,296,200
Unrealized (Loss)Gain on Securities AFS and HTM Transfers
(2,861
)
(3,352
)
Bank Premises and Equipment
36,253
26,273
Accrued Interest Receivable
12,630
13,942
Goodwill
2,714
2,714
Other Assets
164,804
133,754
Total Assets
$
5,834,195
$
5,181,097
Liabilities
Demand Deposits
$
889,237
$
764,852
Interest Bearing Deposits:
Savings and NOW Deposits
1,881,897
1,818,017
Money Market Accounts
1,603,367
1,249,531
Time Deposits
597,589
512,228
Total Interest Bearing Deposits
4,082,853
3,579,776
Total Deposits
4,972,090
4,344,628
Borrowed Funds:
Securities Sold Under Agreements to Repurchase
220,796
205,185
Other Borrowed Funds
169,972
201,804
Total Borrowed Funds
390,768
406,989
Other Liabilities
88,028
79,327
Subordinated Debentures
36,083
36,083
Total Liabilities
5,486,969
4,867,027
Total Stockholders’ Equity
347,226
314,070
Total Liabilities & Stockholders’ Equity
$
5,834,195
$
5,181,097
Total Average Earning Assets – QTD
$
5,881,860
$
4,971,831
Total Average Earning Assets – YTD
$
5,571,328
$
4,962,289
Century Bancorp, Inc. and Subsidiaries
Consolidated Selected Key Financial Information (unaudited)
(in thousands, except share data)
September 30,
September 30,
2020
2019
Performance Measures:
Earnings per average Class A share, diluted, quarter
$
1.96
$
1.81
Earnings per average Class A share, diluted, year-to-date
$
5.50
$
5.20
Return on average assets, year-to-date
0.70
%
0.75
%
Return on average stockholders’ equity, year-to-date
11.78
%
12.33
%
Net interest margin (taxable equivalent), quarter
1.96
%
2.08
%
Net interest margin (taxable equivalent), year-to-date
2.01
%
2.08
%
Efficiency ratio, Non-GAAP (1)
55.4
%
59.1
%
Book value per share
$
65.27
$
59.08
Tangible book value per share – Non-GAAP (1)
$
64.79
$
58.59
Capital / assets
5.77
%
6.21
%
Tangible capital / tangible assets – Non-GAAP (1)
5.73
%
6.16
%
Common Share Data:
Average Class A shares outstanding, diluted, quarter and year-to-date
5,567,909
5,567,909
Shares outstanding Class A
3,655,469
3,650,449
Shares outstanding Class B
1,912,440
1,917,460
Total shares outstanding at period end
5,567,909
5,567,909
Asset Quality and Other Data:
Allowance for loan losses / loans
1.12
%
1.22
%
Nonaccrual loans
$
1,419
$
1,066
Nonperforming assets
$
1,419
$
1,066
Loans 90 days past due and still accruing
$
49
$
–
Accruing troubled debt restructures
$
2,240
$
2,404
Net charge-offs (recoveries), year-to-date
$
(134
)
$
146
Leverage ratio
6.79
%
7.25
%
Common equity tier 1 risk weighted capital ratio
11.36
%
11.90
%
Tier 1 risk weighted capital ratio
12.40
%
13.12
%
Total risk weighted capital ratio
13.39
%
14.13
%
Total risk weighted assets
$
3,370,541
$
2,867,422
(1) Non-GAAP Financial Measures are reconciled in the following tables:
Calculation of Efficiency ratio:
Total operating expenses(numerator)
$
53,382
$
53,917
Less: other real estate owned expenses
–
(139
)
Total adjusted operating expenses(numerator)
$
53,382
$
53,778
Net interest income
$
78,350
$
70,458
Total other operating income
12,520
13,710
Tax equivalent adjustment
5,558
6,875
Total income(denominator)
$
96,428
$
91,043
Efficiency ratio – Non-GAAP
55.4
%
59.1
%
Calculation of tangible book value per share:
Total stockholders’ equity
$
363,434
$
328,960
Less: goodwill
2,714
2,714
Tangible stockholders’ equity(numerator)
$
360,720
$
326,246
Total shares outstanding at period end(denominator)
5,567,909
5,567,909
Tangible book value per share – Non-GAAP
$
64.79
$
58.59
Book value per share – GAAP
$
65.27
$
59.08
Calculation of tangible capital / tangible assets:
