Century Bancorp Inc. Annual Report 2005

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FY2005 Annual Report · Century Bancorp Inc.

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C E N T U RY B A N C O R P, I n c .

2005 ANNUAL REPORT

MARSHALL M. SLOANE
Founder and Chairman

Strength in Independence.

For 38 years I have set Century’s

“

guiding policies. And the fundamental

policy at Century is to be an honor-

able and ethical company; always
doing the right thing for all of our

constituencies.

”

INDEPENDENCE. It means the freedom to do what is best for our customers, our

community, and our shareholders in such a way as to exceed their expectations.

At Century Bank, we’ve always been independent. It means we can assess risks and

rewards according to our standards, not those of a parent company.

It means that we can satisfy the financial needs and wants of our customers with service

quality that creates value. Our independence also means we’re free to give back

generously to our communities. In the end, our independence helps us make both the people and

communities we serve more independent themselves.

Who better, then, to discuss strength in independence in our annual report than the man who embodies it for

our company—our Founder and Chairman, Marshall Sloane.

How did you get into the community banking business?
My dad had a furniture business in Magoun Square in Somerville. During the depression, a bank across the

street from us failed. Subsequently, my dad bought the building. He said, “Someday, we’ll have a bank there.”

He meant as a tenant, but I had higher aspirations. Unfortunately, my father died at the age of 59. I wanted

to fulfill his dream. I was in my 20’s. I called the Banking Commissioner and asked about a bank charter, he said

to me, “Well young fellow, there haven’t been any new banks in a long, long while. Why don’t you think about

a thrift charter?” And that’s what I did. My fellow directors and I each had to invest $5,000 for a guaranty

fund. I fulfilled my dad’s dream. Little did he think that his son would be the banker.

Century Bancorp, Inc. AR ‘05

Does being independent help keep you more
nimble than the bigger, national banks?
We can react faster than the big guys can in many ways. By the same token, don’t discount the

giants. They have the marketing ability, dollars to spend, and can quickly research and intro-

duce new products. I would never discount them, but there is a powerful market opportunity

MARSHALL M. SLOANE
Founder and Chairman

for us with the small to medium-sized business community. When we make a loan, we’re in the

community. We bring our customers into the bank, or we go out and visit them. We’re involved.

We institutionalize the relationships.

“

In1969 I opened Century
Bank. We’ve been the most
successful survivor of banks
chartered here during the
60s and 70s because we
have paid attention to our
clients. We have helped them
grow. We know how to do
that. We haven’t taken big
risks. Our Board has always
stayed focused on our cus-
tomer and community needs.
It’s not more complicated
than that.

”

Why did people entrust you with $1.1 million
on your opening day?
I knew the community. Our family had been part of the community for 70 years by then.

My dad had created a great reputation for confidence, honesty, and integrity. People knew

my father, and they knew me. I think the community trusted me. I received Century’s charter

in ’68, and we set up the bank in an office trailer in May 1969 on the corner of the Fellsway

West and Mystic Avenue as the permanent building was under construction. We were

profitable the first month in business. I’m sometimes asked to speak to the students at

Somerville High School. I say “Kids, you’re better off than children who grow up in more

affluent communities. Do you know why? Because you’ve got to seek opportunity.” I saw

an opportunity and made something out of it.

What was the most significant achievement
at Century Bank during the last year?
Well, we moved into our new headquarters facility and invested in a tremendous amount

of state-of-the-art technology. We also opened several new branches. You have to stay ahead

of the times. I just read a book called From Good To Great. It talks about the A&P stores. A&P

was once the second largest company after General Motors in the United States. They didn’t

upgrade their stores. And where are they now? You have to upgrade your stores. That’s what

we do with technology. You may think you’re conquering the world, but let me tell you, busi-

ness success can disappear like the morning dew.

Century Bancorp, Inc. AR ‘05

MARSHALL M. SLOANE
Founder and Chairman

“

My family has been in
business in Massachusetts
for 100 years. My advice
to the leaders of the next
century is simple. Stay hon-
est. Have integrity. Preserve
your integrity. And always
be open. My door is always
open. I’m always willing to
listen to people. To spend
time with them. I have people
call me at home. I take my
business personally. And
I’m personally accountable
for it.

”

You’ve seen your fair share of both up and
down markets. What’s the main thing you’ve
learned from both?
We’ve always run a reasonably conservative ship, and we stayed away from businesses that

we didn’t understand. We’re a bread and butter kind of lender. That helps in up and down

markets. I began as a thrift banker where we had nothing but real estate, basically one, two,

and three-family houses. And so we’ve always had a heavy involvement in real estate. We didn’t

have professional appraisers. Three of us would go out and look at a house. We knew our

customers, and we knew the real estate values in our area. We made the deals. Knowing your

customers is the main thing in any market.

What is the importance of the community
and giving back?
It’s absolutely important. A lot of our local clients are in business for the long run, and so are

we. It goes back to the community relationships we’ve maintained since our founding. That’s

what this business is about. I know the people I’m lending to. I know their character. I know

the character of their children. They know that we understand what they need. That’s not just

talk. You’ve done your job if you take a company and help build it up. We’ve helped the

community. They’ve helped us.

So many local banks have been merged
out of existence, did you ever think Century
wouldn’t succeed?
Sure. During the 80s and 90s many local banks were forced to merge or close. There was great

uncertainty. But I just worked harder. And I expected my employees to work harder. And we did.

And I think because we make our own loans, and our Board was and still is very focused, we made

smarter loans and smarter business decisions, not affected by larger corporate decisions. This

helped us prosper. And we provided the returns on equity and returns on investment that our

shareholders expect. There’s an old saying, “When the going gets tough, the tough get going.”

And it’s been tough.

Century Bank Institutional Services Clients and Branch Coverage by Zip Code

Institutional Services Clients

Century Bank Branches

Century Bancorp, Inc. AR ‘05

What has been the most significant change to
the banking industry?
The business has changed dramatically since I began with handwritten passbooks. Technology

has changed the business. People can shop around now. Today’s thrifts can do anything we

can do. Wal-Mart can clear your check at the cash register. The competition is fierce. Right now,

MARSHALL M. SLOANE
Founder and Chairman

we can compete through technology with services such as online-banking, ACH, account

reconciliation, Positive Pay, Debit Card, and E-Checks; but rapid changes are underway, and we

need to remain competitive.

What’s the one thing most people don’t
understand about Century Bank?
I think most of our customers do know and understand us. Our mission is to get more people to know

about Century Bank and our capabilities. Those who don’t know us probably don’t realize we

now have 23 branches in greater Boston and are growing our network in Massachusetts every year.

Century associates stay at Century for
15-30 years. What about the culture helps
people stay here so long?
We’re a family. We care for one another. If someone’s sick, we take care of them. If someone needs

time, we give it to them. I’ve tried to create a company that is a pleasant place to work. In addition

to being profitable, I think there’s a sense of accomplishment knowing we’re working to help our

community. That’s a value in a bank that’s not on the books.

“

Being independent
serves our customers and
our shareholders well. Our
business has been profit-
able. We provide solid
returns because we know
our market. We invest in our
relationships with clients
and we grow their businesses.
Otherwise, what do you
have? This is a service busi-
ness. To be profitable in the
long run, you have to be
dedicated to your community
customers in the long run.
I’m not sure customers get
that with bigger banks.

”

CUMULATIVE TOTAL RETURN 1987- 2005

$ 800

$ 700

$ 600

$ 500

$ 400

$ 300

$ 200

$ 100

565%

* Compounded annual rate of return 10.8%.
* Assumes that the value of the investment in the Company’s Common Stock

was $100 in 1987 and that all dividends were reinvested.

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
YEAR

CORE GROWTH

$ 2,000,000

$ 1,800,000

$ 1,600,000

$ 1,400,000

$ 1,200,000

$ 1,000,000

800,000

600,000

400,000

200,000

1970

1975

1980

1985

1990

1995

2000

2005

ASSETS LOANS DEPOSITS

*5-year point-to-point measure.

Century Bancorp, Inc. AR ‘05

Dear Shareholders,

2005 was the first full year of Century’s second generation management team working together; and what a complex year
it was. A year full of challenges and opportunities, one in which we kept our eye on our long-term goal to be the leading
independent bank in Massachusetts, while working hard to improve short-term performance. Net Income for the year ending
12/31/05 was $6,880,000 or $1.24 per share, diluted, compared to $1.60 per share in 2004.

Century's balance sheet is sound, with a very strong loan portfolio and the highest quality investment securities. However, we
battled all year amidst the vise grip of a flat yield curve and intense deposit competition, resulting in a record-setting low net
interest margin. Much has been written about the flat yield curve and how it impacts bank margins. Suffice it to say, the macro-
economic environment has created one of the most difficult scenarios for earnings growth in our history. While we remain
frustrated by our short-term performance, we are increasingly convinced that the missteps and disconnections of the banking
giants in our communities create a viable and attractive future for our franchise.

We are proud of many achievements in 2005. Here are some highlights:

• Our loan portfolio increased by a record $110 million, or 19% from year-end 2004.
• Our Business Development Officers and branches added 429 new small business loans

for a total outstanding of $37.5 million.

• The Institutional Service team opened 122 new lockbox and cash management accounts.
• We opened our 23rd branch on State Street in Boston and added a number of new ATM’s and cash dispensers

bringing the total to 42.

• We recruited an experienced commercial banker to begin building a Worcester based business lending center,

joining our highly successful Institutional Service presence in Central Massachusetts.

• We organized a new and enhanced securities and insurance sales platform, Investment Services at Century Bank,

which will debut in February 2006.

All of these accomplishments are revenue enhancing over the short to medium term. Coupled with strong expense controls,
they should have an important impact on our 2006 results. We are committed to our three lines of business: Personal Banking,
Business Banking and Lending, and Institutional Services. All three are mature, high quality services where clients perceive
premium value from our brand of high-touch, relationship-driven service. In 2006 we also expect to finalize our plans for our
fourth business line, Fiduciary Services.

Marshall Sloane announced in January that he would ask the Board of Directors at their April meeting to elevate Barry Sloane
and Jonathan Sloane to Co-Presidents and Co-CEO’s of Century Bancorp, positions they already hold at Century Bank.
Marshall Sloane will remain Chairman of both Century Bancorp and Century Bank. This step will complete the second
generation management succession process first announced two years ago.

Century is blessed with a wonderful team of diligent associates, whose tenure and client knowledge is unrivaled in our
peer group. With their help, we look forward to improved financial performance in the years ahead.

Sincerely,

MARSHALL M. SLOANE
Founder, Chairman and Chief Executive Officer
Century Bancorp, Inc.
Chairman
Century Bank

JONATHAN G. SLOANE
Co-President and Co-Chief Operating Officer
Century Bancorp, Inc.
Co-President and Co-Chief Executive Officer
Century Bank

BARRY R. SLOANE
Co-President and Co-Chief Operating Officer
Century Bancorp, Inc.
Co-President and Co-Chief Executive Officer
Century Bank

T h e C o r e S t r e n g t h o f C e n t u r y.

BARRY R. SLOANE

MARSHALL M. SLOANE

JONATHAN G. SLOANE

“

My dream was to have my children in business with me. I want
future generations to gain experience elsewhere as my son, Barry,
did. He worked with the global banks for 15 years. He broadened
his experience and came back with a different dimension. My son,
Jonathan, has been instrumental in Century’s success throughout
his 26-year career. He has a nearly complete knowledge of our
institutional history and enormous depth of experience and
involvement with our banking and borrowing communities. They
are a powerful team. It just happens that they’re also brothers.
They’ll take my dream to the next plateau. After that, it’s up to
them and their children.

”

CENTURY BANCORP, INC. DIRECTORS

George R. Baldwin1,4,6
President & CEO
Baldwin & Company

Roger S. Berkowitz2,5
President & CEO
Legal Seafoods, Inc

Karl E. Case, Ph.D.3,5*
Katharine Coman & A. Barton Hepburn
Professor of Economics
Wellesley College

Henry L. Foster, D.V.M.
Director Emeritus
Founder & Chairman Emeritus
Charles River Labs, Inc.

Marshall I. Goldman3*,5**
Professor Emeritus
Wellesley College

Russell B. Higley, Esq.6*
Attorney
Higley & Higley

Linda Sloane Kay
Vice President
Century Bank

Fraser Lemley2,4,5
Chairman & CEO
Sentry Auto Group

Joseph J. Senna, Esq.1*,4
Attorney

Barry R. Sloane4,5,6
Co-President & Co-CEO
Century Bank and Trust Company

Jonathan G. Sloane4,5,6
Co-President & Co-CEO
Century Bank and Trust Company

Marshall M. Sloane4,5
Chairman of the Board
Century Bank and Trust Company

Stephanie Sonnabend1,5
President and CEO
Sonesta International Hotels Corporation

George F. Swansburg4*,5

Jon Westling1,2*,3
President Emeritus
Boston University

HONORARY DIRECTORS

Michael M. Ossoff
Philibert L. Pellegrini, Esquire

OFFICERS

Marshall M. Sloane
Founder, Chairman and CEO

Jonathan G. Sloane
Co-President & Co-COO

Barry R. Sloane
Co-President & Co-COO

Paul V. Cusick, Jr.5,6
Vice President and Treasurer

Rosalie A. Cunio
Clerk

Paula A. Grimaldi
Assistant Clerk

CENTURY BANK AND TRUST
COMPANY OFFICERS

MANAGEMENT COMMITTEE

Marshall M. Sloane
Chairman of the Board

Jonathan G. Sloane
Co-President & Co-CEO

Barry R. Sloane
Co-President & Co-CEO

Paul V. Cusick, Jr.
Executive Vice President, CFO & Treasurer

Paul A. Evangelista
Executive Vice President

David B. Woonton
Executive Vice President

SENIOR VICE PRESIDENTS

Gerald S. Algere
Richard L. Billig
Janice A. Brandano
Diana L. Carito, CIA, CRP
Brian J. Feeney
James M. Flynn, Jr.
James J. Gennaro
Anthony C. LaRosa, CPA
John C. Lavallee
John McKenna
Jason J. Melius
Louise F. Young

FIRST VICE PRESIDENTS

Bradford J. Buckley
William J. Gambon, Jr.
Timothy L. Glynn
Nancy Lindstrom
Shipley C. Mason
Deborah R. Rush
Yasmin D. Whipple

VICE PRESIDENTS

Robert A. Bennett
Joseph B. Chapman
Jennifer L. Conrad
Charles J. Cope, Jr.
Gracine Copithorne
Rosalie A. Cunio
Sylvia Daikos
Anthony J. DiGuilio
Sandra R. Edey
Stuart J. Erbstein

1 Audit Committee, 2 Compensation Committee, 3 Nominating Committee, 4 Executive Committee,
5 Asset Liability Committee, 6 Non-deposit Investment and Insurance Products Committee, * Committee Chairperson, ** Vice Chairperson

Judith A. Fallon
Phillip A. Gallagher
Howard N. Gold
Ann J. Hollup
T. Daniel Kausel
Linda Sloane Kay
Nancy M. Marsh
Karen Martin
Janet McElwee
Joanne C. McNamara, CISA
Miguel A. Rosado
Kenneth A. Samuelian
Andrew J. Santos, Jr.
Bernice A. Shuman
Jim Smith
Maria L. Spadoni Merena
Michael W. Sweeney
Janice D. Taylor
David J. Waryas

ASSISTANT VICE PRESIDENTS

Michael D. Ballard
Gerald Bovardi
Pasqualina Buttiri
Toni M. Chardo
Bonnie W. Chung
Debra J. Cloutier
Barbara J. Cunningham
Cynthia A. Davidson
Susan B. Delahunt
Laura A. DiFava
John R. Ferguson
Daniel F. Griffin
Roland E. Harvey
Kristine M. Holopainen
James J. Jordan
Kathleen A. Kelly
Ann E. Mannion
Carl M. Mattos
Carol A. Melisi
Cornelius C. Prioleau
William F. Shutt, Jr.
Suzanne Sumski
Marcia T. Trenholm, CISA

OFFICERS

Ozge Akcan-Sozeri
John S. Bosco, Jr.
Marianne Cacciola
Michael J. Dwyer
Jason D. Eastep
Janet Garcia
Lisa Gosling
Paula A. Grimaldi
Janice D. Hallinan
Amelia N. Iocco
Aslihan Kendircioglu
Brandon N. Letellier
Irene A. Lima-Butler
Christopher M. Logan, CISSP
Malcolm I. Maloon
Kathleen McGillicuddy
David C. Pennybaker, Jr.
Bruce A. Priestley
Judith A. Shannon
Elizabeth A. Theriault
Lawrence H. Tsoi
Jose I. Umana
Christina Welch-Matthews

Century Bancorp, Inc. AR ‘05

F I N A N C I A L S TAT E M E N T S

Financial Highlights

Management’s Discussion and Analysis of Results of Operations and Financial Condition

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Changes of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Management’s Report on Internal Control over Financial Reporting

Financial Highlights

Century Bancorp, Inc. AR ‘05

(dollars in thousands, except share data)

FOR THE YEAR

Interest income

Interest expense

Net interest income

Provision for loan losses

Net interest income after

provision for loan losses

Other operating income

Operating expenses

Income before income taxes

Provision for income taxes

2005

2004

2003

2002

2001

72,811
32,820

39,991
600

39,391
10,973
40,318

10,046
3,166

65,033
23,646

41,387
300

41,087
10,431
37,663

13,855
4,974

69,298
23,942

45,356
450

44,906
10,009
34,272

20,643
8,963

71,124
24,718

46,406
1,200

45,206
10,266
34,089

21,383
7,879

67,459
27,701

39,758
1,500

38,258
8,863
30,025

17,096
6,237

Net income

6,880

8,881

11,680

13,504

10,859

Average shares outstanding, basic

Average shares outstanding, diluted

Shares outstanding at year-end

Earnings per share:

Basic

Diluted

Dividend payout ratio

AT YEAR-END

Assets

Loans

Deposits

Stockholders’ equity

Book value per share

SELECTED FINANCIAL PERCENTAGES

Return on average assets

Return on average stockholders’ equity

Net interest margin, taxable equivalent

Net (recoveries) charge-offs as a

percent of average loans

Average stockholders’ equity to

average assets

Efficiency Ratio

Per Share Data

2005, Quarter Ended

Market price range (Class A)

High

Low

Dividends Class A

Dividends Class B

2004, Quarter Ended

Market price range (Class A)

High

Low

Dividends Class A

Dividends Class B

5,535,202
5,548,467
5,535,442

5,526,202
5,553,197
5,534,088

5,519,800
5,548,615
5,524,438

5,516,590
5,534,059
5,517,425

5,535,309
5,541,745
5,515,350

$
$

1.24
1.24
31.3 %

$
$

1.61
1.60
24.2 %

$
$

2.12
2.11
17.2 %

$
$

2.45
2.44
13.9 %

$
$

1.96
1.96
15.2 %

$ 1,728,769
689,645
1,217,040
103,201
18.64

$ 1,833,701
580,003
1,394,010
104,773
18.93

$ 1,688,911
512,314
1,338,853
103,728
18.78

$ 1,557,201
514,249
1,146,284
100,256
18.17

$ 1,271,022
462,772
888,408
84,599
15.34

.41 %
6.57 %
2.58 %

0.04 %

6.31 %
79.1 %

.55 %
8.61 %
2.75 %

0.01 %

6.38 %
72.7 %

.74 %
11.57 %
3.08 %

0.04 %

6.40 %
61.9 %

1.02 %
14.64 %
3.77 %

(0.04)%

6.98 %
60.1 %

1.03 %
13.70 %
4.06 %

0.01 %

7.49 %
61.7 %

December 31,

September 30,

June 30,

March 31,

$ 32.00
27.00
0.12
0.06

$ 35.19
30.31
0.12
0.06

$ 31.55
26.00
0.12
0.06

$ 30.35
27.75
0.12
0.06

December 31,

September 30,

June 30,

March 31,

$ 32.79
28.15
0.12
0.06

$ 33.62
30.38
0.12
0.06

$ 33.74
29.75
0.12
0.06

$ 37.51
32.80
0.12
0.06

Management’s Discussion and Analysis of Results of Operations and Financial Condition

Century Bancorp, Inc. AR ‘05

Forward-looking Statements
Certain statements contained herein are not based on historical facts and are
“forward-looking statements” within the meaning of Section 21A of the
Securities Exchange Act of 1934. Forward-looking statements, which are based
on various assumptions (some of which are beyond the Company’s control),
may be identified by reference to a future period or periods, or by the use of
forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,”
“anticipate,” “continue” or similar terms or variations on those terms, or the neg-
ative of these terms. Actual results could differ materially from those set forth in
forward-looking statements due to a variety of factors, including, but not limited
to, those related to the economic environment, particularly in the market areas
in which the Company operates, competitive products and pricing, fiscal and
monetary polices of the U.S. Government, changes in government
regulations affecting financial institutions, including regulatory fees and capital
requirements, changes in prevailing interest rates, acquisitions and the
integration of acquired businesses, credit risk management, asset/liability
management, the financial and securities markets and the availability of and
costs associated with sources of liquidity.

The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.

Overview
Century Bancorp, Inc. (together with its bank subsidiary, unless the context
otherwise requires, the “Company”), is a Massachusetts state chartered bank
holding company headquartered in Medford, Massachusetts. The Company is a
Massachusetts corporation formed in 1972 and has one banking subsidiary (the
“Bank”): Century Bank and Trust Company formed in 1969. The Company had
total assets of $1.7 billion on December 31, 2005. The Company presently
operates 23 banking offices in 16 cities and towns in Massachusetts ranging
from Braintree in the south to Beverly 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
institutions throughout Massachusetts.

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/fees from loans, deposits,
as well as operating expenses, the provision for loan losses, the impact of
federal and state income taxes and the relative levels of interest rates and
economic activity.

The Company offers a wide range of services to commercial enterprises, state
and local governments and agencies, non-profit organizations and individuals.
It emphasizes service to small and medium-sized businesses and retail customers
in its market area. The Company makes commercial loans, real estate and
construction loans, consumer loans, and accepts savings, time and demand
deposits. In addition, the Company offers to its corporate and institutional
customers automated lockbox collection services, cash management services
and account reconciliation services, and actively promotes the marketing of
these services to the municipal market. Also, the Company provides full service
securities brokerage services through its subsidiary, Century Financial Services,
Inc. in conjunction with Commonwealth Equity Services, Inc., a full service
securities brokerage business.

The Company is also a provider of financial services including cash management,
transaction processing and short term financing to municipalities in

Massachusetts and Rhode Island. The Company has deposit relationships with
approximately 30% of the 351 cities and towns in Massachusetts.

Century Bancorp, Inc. (the “Company”) had net income of $6,880,000 for the
year ended December 31, 2005, compared with net income of $8,881,000 for
year ended December 31, 2004 and net income of $11,680,000 for the year
ended December 31, 2003. Basic earnings per share were $1.24 in 2005,
compared to $1.61 in 2004 and $2.12 in 2003. Diluted earnings per share
were $1.24 in 2005, compared to $1.60 in 2004 and $2.11 in 2003. The
Company’s earnings in 2005 were negatively impacted by a decrease in net
interest income, increases in salary expense as well as costs associated with
the Company’s new addition to its corporate headquarters building and the
addition of a lockbox image system. The Company believes that the net interest
margin will continue to be challenged as rates continue to rise. This is mainly the
result of deposit and borrowing pricing that has the potential to increase faster
than corresponding asset categories. During 2003, the Company’s earnings were
also negatively affected by a net tax charge of $1,183,000 associated with the
Real Estate Investment Trust (“REIT”) settlement. This charge was the result
of an agreement with the Massachusetts Department of Revenue (“DOR”)
settling a dispute related to taxes that the DOR claimed were owed from the
Company’s REIT.

Total assets were $1,728,769,000 at December 31, 2005, a decrease of 5.7%
from total assets of $1,833,701,000 on December 31, 2004.

On December 31, 2005, stockholders’ equity totaled $103,201,000, compared
with $104,773,000 on December 31, 2004. Book value per share decreased to
$18.64 at December 31, 2005 from $18.93 on December 31, 2004.

During February 2003, the Company began construction of an addition to its
corporate headquarters building. The property is located adjacent to its current
headquarters in Medford, Massachusetts and provides additional corporate
office space and an expanded banking floor. The building was substantially
completed during the fourth quarter of 2004 and $14,500,000 has been
expended in connection with this expansion. The capital expenditure has provided
a five-story addition containing approximately 50,000 square feet of office and
branch banking space. Occupancy costs have increased by approximately
$960,000 for 2005 as a result of the addition.

On March 21, 2003, the Company completed the acquisition of Capital
Crossing Bank’s branch office at 1220 Boylston Street, Chestnut Hill,
Massachusetts, and substantially all of the retail deposits at Capital Crossing’s
main office at 101 Summer Street, Boston, Massachusetts. Century closed the
Chestnut Hill branch and transferred all customers of the branch to its nearby
branch office at 1184 Boylston Street, Brookline, Massachusetts. In addition,
Century transferred all of the retail deposits from Capital Crossing’s Summer
Street branch to its branch at 24 Federal Street, Boston, Massachusetts. The
acquisition included $192,700,000 in deposits. The acquisition also included a
premium paid to Capital Crossing of approximately $3,900,000. This premium
was subsequently reduced by a gain of $395,000 from the sale of the acquired
Chestnut Hill branch and a rebate of $282,000 for closed accounts at the
Boston office.

During the third quarter of 2005, the Company announced plans to continue
its stock repurchase plan. Under the program, the Company is authorized to
repurchase up to 300,000 shares, or less than 9%, of Century Bancorp Class A
Common Stock. The program expires on July 11, 2006.

In 2005, the Company opened a new branch location on State Street in
Boston, Massachusetts. In 2004, the Company opened one branch on Albany
Street in Boston, Massachusetts.

Management’s Discussion and Analysis of Results of Operations and Financial Condition

During the fourth quarter of 2004, the Company announced that it entered
into an Investment Management Agreement with BlackRock Financial
Management, Inc. for the Company’s Available-For-Sale securities portfolio.
During 2005 the Company began experiencing strong loan growth, and believes
that reinvesting the investment cash flows in loans will help to achieve
improvements in its yield. The expense related to this contract ended on
June 30, 2005 and the contract terminated January 31, 2006.

Also during the fourth quarter of 2004, the Company consummated the sale
of a trust preferred securities offering, in which it issued $36,083,000 of
subordinated debt securities due 2034 to its newly formed unconsolidated
subsidiary Century Bancorp Capital Trust II. Century Bancorp Capital Trust II
issued 35,000 shares of Cumulative Trust Preferred Securities with a liquidation
value of $1,000 per share. These securities pay dividends at an annualized rate
of 6.65% for the first ten years and then convert to the three-month LIBOR rate
plus 1.87% for the remaining twenty years. The total amount of this issuance
was $36,083,000. The Company is using the proceeds primarily for general
business purposes. Also, the Company, through its subsidiary, Century Bancorp
Capital Trust, announced the redemption of their 8.30% Trust Preferred
Securities, with a redemption date of January 10, 2005. The total amount of this
redemption was $29,639,000.

Critical Accounting Policies
Accounting policies involving significant judgments and assumptions by
management, which have, or could have, a material impact on the carrying value
of certain assets and impact income, are considered critical accounting policies.
The Company considers the following to be its critical accounting policies:
allowance for loan losses and impairment of investment securities. There have
been no significant changes in the methods or assumptions used in the
accounting policies that require material estimates and assumptions.

Allowance for Loan Losses
Arriving at an appropriate level of allowance for loan losses necessarily involves
a high degree of judgment. Management maintains an allowance for loan losses
to absorb losses inherent in the loan portfolio. The allowance is based on
assessments of the probable estimated losses inherent in the loan portfolio.
Management’s methodology for assessing the appropriateness of the allowance
consists of several key elements, which include the formula allowance, specific
allowances for identified problem loans and the unallocated allowance.

The formula allowance evaluates groups of loans to determine the allocation
appropriate within each portfolio segment. Individual loans within the commercial
and industrial, commercial real estate and real estate construction loan portfolio
segments are assigned internal risk ratings to group them with other loans
possessing similiar risk characteristics. Changes in risk grades affect the amount
of the formula allowance. Risk grades are determined by reviewing current collateral
value, financial information, cash flow, payment history and other relevant facts
surrounding the particular credit. Provisions for losses on the remaining
commercial and commercial real estate loans are based on pools of similar loans
using a combination of historical loss experience and qualitative adjustments.
For the residential real estate and consumer loan portfolios, the reserves are
calculated by applying historical charge-off and recovery experience and
qualitative adjustments to the current outstanding balance in each loan category.
Loss factors are based on the Company’s historical loss experience, as well as
regulatory guidelines.

Specific allowances for loan losses entails the assignment of allowance amounts
to individual loans on the basis of loan impairment. Certain loans are evaluated
individually and are judged to be impaired when management believes it is

Century Bancorp, Inc. AR ‘05

probable that the Company will not collect all the contractual interest and
principle payments as scheduled in the loan agreement. Under this method,
loans are selected for evaluation based upon a change in internal risk rating,
occurence of delinquency, loan classification or non-accrual status. A specific
allowance amount is allocated to an individual loan when such loan has been
deemed impaired and when the amount of a probable loss is able to be
estimated on the basis of: (a.) fair value of collateral, (b.) present value of
anticipated future cash flows or (c.) the loan’s observable fair market price.

The unallocated allowance recognizes the model and estimation risk associated
with the formula allowance and specific allowances, as well as management’s
evaluation of various conditions, including business and economic conditions,
delinquency trends, charge-off experience and other quality factors, the effects
of which are not directly measured in the determination of the formula and
specific allowances. The evaluation of the inherent loss with respect to these
conditions is subject to a higher degree of uncertainty because they are not
identified with specific problem credits.

Management has identified certain risk factors, which could impact the degree
of loss sustained within the portfolio. These include: (a.) market risk factors,
such as the effects of economic variability on the entire portfolio, and (b.)
unique portfolio risk factors that are inherent characterisitcs of the Company’s
loan portfolio. Market risk factors may consist of changes to general economic
and business conditions that may impact the Company’s loan portfolio customer
base in terms of ability to repay and that may result in changes in value of
underlying collateral. Unique portfolio risk factors may include industry
concentrations and geographic concentrations or trends that may exacerbate
losses resulting from economic events which the Company may not be able to
fully diversify out its portfolio.

Management believes that the allowance for loan losses is adequate. In addition,
various regulatory agencies, as part of the examination process, periodically
review the Company’s allowance for loan losses. Such agencies may require the
Company to recognize additions to the allowance based on their judgments
about information available to them at the time of their examination.

Impaired Investment Securities
If a material decline in fair value below the amortized cost basis of an investment
security is judged to be “other-than-temporary,” the cost basis of the investment
is written down to fair value. The amount of the write down is included as a
charge to earnings. An “other-than-temporary” impairment exists for debt
securities if it is probable that the Company will be unable to collect all amounts
due according to contractual terms of the security. Some factors considered for
“other than temporary” impairment related to a debt security include an analysis
of yield which results in a decrease in expected cash flows, whether an unrealized
loss is issuer specific, whether the issuer has defaulted on scheduled interest and
principal payments, whether the issuer’s current financial condition hinder its
ability to make future scheduled interest and principal payments on a timely
basis or whether there was downgrade in ratings by rating agencies.

The Company has the ability and and intent to hold these investments until
recovery of fair value, which may be maturity.

Management’s Discussion and Analysis of Results of Operations and Financial Condition

Century Bancorp, Inc. AR ‘05

Results of Operations and Financial Condition
The following table sets forth the distribution of the Company’s average assets, liabilities and stockholders’ equity, and average rates earned
or paid on a fully taxable equivalent basis for each of the years indicated.

Year Ended December 31,

(dollars in thousands)

ASSETS

Interest-earning assets:
Loans(2)`

Securities available-for-sale:

Taxable

Tax-exempt

Securities held-to-maturity:

Taxable

Federal funds sold

Interest-bearing deposits

in other banks

2005

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

2004

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

2003

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

Average
Balance

641,103

$ 41,274

6.44 %

$ 546,147

$ 33,384

6.11 %

500,723

$ 33,134

6.62 %

580,129
878

19,518
22

311,738

11,635

15,847

362

3.36
2.51

3.73

2.28

570,935
61

18,528
1

319,860

12,296

69,461

824

3.25
1.64

3.84

1.19

782,782
92

28,735
3

162,988

7,152

24,730

274

3.67
3.26

4.39

1.11

—

0.64

251

— 0.13

— 0.58

Total interest-earning assets

1,549,745

72,811

4.70 %

1,506,715

65,033

4.32

1,471,345

69,298

4.71 %

Non interest-earning assets

Allowance for loan losses

118,325
(9,353)

Total assets

$ 1,658,717

120,306
(8,813)

$ 1,618,208

114,919
(8,901)

$ 1,577,363

LIABILITIES AND

STOCKHOLDERS’ EQUITY

Interest-bearing deposits:

NOW accounts

Savings accounts

Money market accounts

Time deposits

Total interest-bearing deposits

Securities sold under

237,016
76,131
366,622
265,310

945,079

$ 3,265
287
7,018
8,835

1.38 %
0.38
1.91
3.33

250,224
79,037
412,220
242,791

$ 1,966
302
5,010
6,833

0.79 %
0.38
1.22
2.81

260,383
79,333
392,066
239,189

$ 2,267
319
5,111
7,246

0.87 %
0.40
1.30
3.03

19,405

2.05

984,272

14,111

1.43

970,971

14,943

1.54

agreements to repurchase

39,746

813

2.05

40,937

331

0.81

51,402

457

0.89

Other borrowed funds

and subordinated debentures

268,878

12,602

4.69

194,932

9,204

4.72

170,344

8,542

5.01

Total interest-bearing liabilities

1,253,703

32,820

2.62 %

1,220,141

23,646

1.94 %

1,192,717

23,942

2.01 %

Non interest-bearing liabilities

Demand deposits

Other liabilities

Total liabilities

Stockholders’ equity

Total liabilities &

283,876
16,463

1,554,042

104,675

279,361
15,511

1,515,013

103,195

267,284
16,429

1,476,430

100,933

stockholders’ equity

$ 1,658,717

$ 1,618,208

$ 1,577,363

Net interest income(1)

Net interest spread

Net interest margin

$ 39,991

$ 41,387

$ 45,356

2.08 %

2.58 %

2.38 %

2.75 %

2.70 %

3.08 %

(1) On a fully taxable equivalent basis calculated using a federal tax rate of 35%.
(2) Nonaccrual loans are included in average amounts outstanding.

Management’s Discussion and Analysis of Results of Operations and Financial Condition

Century Bancorp, Inc. AR ‘05

The following table summarizes the year to year changes in the Company's net interest income resulting from fluctuations in interest rates and volume changes in
earning assets and interest-bearing liabilities. Changes due to rate are computed by multiplying the change in rate by the prior year's volume. Changes due to volume
are computed by multiplying the change in volume by the prior year's rate. Changes in volume and rate that cannot be separately identified have been allocated in
proportion to the relationship of the absolute dollar amounts of each change.

Year Ended December 31,

(dollars in thousands)

Interest income:

Loans

Securities available-for-sale:

Taxable

Tax-exempt

Securities held-to-maturity:

Taxable

Federal funds sold

Interest-bearing deposits

in other banks

Total interest income

Interest expense:

Deposits:

NOW accounts

Savings accounts

Money market accounts

Time deposits

Total interest-bearing deposits

Securities sold under agreements to repurchase

Other borrowed funds and subordinated debentures

Total interest expense

Change in net interest income

2005 Compared with 2004
Increase/(Decrease)
Due to Change in

2004 Compared with 2003
Increase/(Decrease)
Due to Change in

Volume

Rate

Total

Volume

Rate

Total

$ 6,041

$ 1,849

$ 7,890

$ 2,881

$ (2,631)

250

302
20

(308)
(903)

—

5,152

(109)
(11)
(606)
673

(53)
(10)
3,466

3,403

688
1

(353)
440

—

2,625

1,408
(4)
2,614
1,329

5,347
492
(68)

5,771

990
21

(661)
(463)

—

7,777

1,299
(15)
2,008
2,002

5,294
482
3,398

9,174

(7,145)
(1)

6,128
529

(3,063)
(1)

(10,208)
(2)

(984)
21

(1)

5,144
550

—

2,393

(6,659)

(4,266)

(86)
(1)
255
108

276
(87)
1,152

1,341

(215)
(16)
(356)
(521)

(1,108)
(39)
(490)

(1,637)

(301)
(17)
(101)
(413)

(832)
(126)
662

(296)

$ 1,749

$ (3,146)

$ (1,397)

$ 1,052

$ (5,022)

$ (3,970)

The Company’s operating results depend primarily on net interest income and
fees received for providing services. Net interest income on a fully taxable
equivalent basis decreased 3.4% in 2005 to $39,991,000, compared with
$41,387,000 in 2004. The decrease in net interest income for 2005 was mainly
due to an 6.2% or a seventeen basis point decrease in the net interest margin.
The level of interest rates, the ability of the Company’s earning assets and liabilities
to adjust to changes in interest rates and the mix of the Company’s earning
assets and liabilities affect net interest income. The net interest margin on a
fully taxable equivalent basis decreased to 2.58% in 2005 from 2.75% in 2004,
which had decreased from 3.08% in 2003. The Company believes that the net
interest margin will continue to be challenged as rates continue to rise. This is
mainly the result of deposit and borrowing pricing that has the potential to
increase faster than corresponding asset categories.

Average earning assets were $1,549,745,000 in 2005, an increase of
$43,030,000 or 2.9% from the average in 2004, which was 2.4% higher than
the average in 2003. Total average securities, including securities available-for-
sale and securities held-to-maturity were $892,745,000. The stable securities
volume was mainly attributable to a continued shift in asset concentration to
loans. An increase in securities rates resulted in higher securities income, which
increased 1.1% to $31,175,000. Total average loans increased 17.4% to

$641,103,000 after increasing $45,424,000 in 2004. The primary reason for
the increase in loans across all of the business lines is due, in large part, to the
hiring of additional officers as well as an emphasis on small business loans. The
increase in loan volume and increases in loan rates resulted in higher loan
income, which increased by 23.6% or $7,890,000 to $41,274,000. Total loan
income was $33,134,000 in 2003.

The Company’s sources of funds include deposits and borrowed funds. On
average, deposits showed an decrease of 2.7% or $34,678,000 in 2005 after
increasing by 2.0% or $25,378,000 in 2004. Deposits decreased in 2005
primarily as a result of a decrease in money market accounts, which decreased
by 11% or $45,598,000. Borrowed funds and subordinated debentures
increased by 37.9% in 2005 following an increase of 14.4% in 2004. The
majority of the Company’s borrowed funds are borrowings from the Federal
Home Loan Bank (FHLB) and retail repurchase agreements. Borrowings from
the FHLB increased by approximately $69,542,000 and retail repurchase
agreements decreased by $1,191,000. Interest expense totaled $32,820,000
in 2005, an increase of $9,174,000 or 38.8% from 2004 when interest
expense decreased 1.2% from 2003. This increase in interest expense is due
to increases in deposit and borrowed funds rates.

Management’s Discussion and Analysis of Results of Operations and Financial Condition

Century Bancorp, Inc. AR ‘05

Provision for Loan Loss
The provision for loan losses was $600,000 in 2005, compared with
$300,000 in 2004 and $450,000 in 2003. These provisions are the result
of management’s evaluation of the amounts and quality of the loan portfolio
considering such factors as loan status, collateral values, financial condition of
the borrower, the state of the economy and other relevant information.
Additional provisions have been made due to growth in the loan portfolio.

The allowance for loan losses was $9,340,000 at December 31, 2005,
compared with $9,001,000 at December 31, 2004. Expressed as a percentage
of outstanding loans at year-end, the allowance was 1.35% in 2005 and 1.55%
in 2004. The coverage ratio decreased mainly as a result of the continued low
levels of problem assets.

Non-performing loans, which include all non-accruing loans and certain
restructured, accruing loans, totaled $949,000 on December 31, 2005,
compared with $628,000 on December 31, 2004.

Other Operating Income
During 2005, the Company continued to experience positive results in its
fee-based services including fees derived from traditional banking activities such
as deposit related services, its automated lockbox collection system and full
service securities brokerage offered through Commonwealth Equity Services, Inc.,
an unaffiliated registered securities broker-dealer and investment adviser.

Under the lockbox program, which is not tied to extensions of credit by the
Company, the Company’s customer arranges for payments of its accounts
receivable to be made directly to the Company. The Company records the
amounts paid to its customers, deposits the funds to the customer’s account
and provides automated records of the transactions to customers. Typical
customers for the lockbox service are municipalities who use it to automate tax
collections, cable TV companies and other commercial enterprises.

Through Commonwealth Equity Services, Inc., an unaffiliated company, the Bank
provides full service securities brokerage services. Registered representatives
employed by the Bank offer investment advice, execute transactions and assist
customers in financial and retirement planning. Commonwealth Equity Services,
Inc. provides research to and supervises representatives in exchange for payment
by the Bank for a fixed fee and a share in the commission revenues.

Total other operating income in 2005 was $10,973,000, an increase of
$542,000 or 5.2% compared to 2004. This increase followed an increase of
$422,000 or 4.2% in 2004, compared to 2003. Service charge income, which
continues to be a major area of other operating income with $5,846,000 in
2005, saw an increase of $575,000 compared to 2004. This follows an increase
of $489,000 compared to 2003. Service charges on deposit accounts
increased mainly because of an increase in overdraft charges associated with a
new overdraft fee protection program. Lockbox revenues totaled $2,807,000,
down $143,000 in 2005 and a decrease of $236,000 in 2004. This decrease
was mainly attributable to competitive pricing pressures. Through Commonwealth
Equity Services, Inc., brokerage commissions decreased to $462,000 in 2005,
from $670,000 in 2004, primarily as a result of decreased transaction volume.
Brokerage commissions increased in 2004 by $91,000 mainly as a result of
increased transaction volume.

Operating Expenses
Total operating expenses were $40,318,000 in 2005, compared to
$37,663,000 in 2004 and $34,272,000 in 2003.

Salaries and employee benefits expenses increased by $931,000 or 4.0% in
2005, after increasing by 6.9% in 2004. The increases for 2005 and 2004 were
mainly attributable to an increase in staff levels and merit increases in salaries.

Occupancy expense increased by $801,000 or 26.7% in 2005, this followed an
increase of $349,000 or 13.2% in 2004. The increase in 2005 was mainly
attributable to depreciation and real estate taxes associated with the addition to
the corporate headquarters as well as full-year costs associated with the opening
of one new branch in 2004 and partial year costs associated with the opening
of one new branch in 2005. The increase in 2004 was mainly attributable to
full-year costs associated with the opening of two new branches in 2003 and
the partial year cost associated with the opening of one new branch in 2004.
Equipment expense increased by $607,000 or 25.5% in 2005; this followed an
increase of $677,000 or 39.8% in 2004. The increase in 2005 was mainly
attributable to full-year costs of depreciation and service contract expense
associated with the addition of the lockbox image system, as well as depreciation
associated with the addition to the corporate headquarters. The increase in
2004 was mainly attributable to increased depreciation and service contract
expense associated with the additions of check and lockbox image systems.
Other operating expenses increased by $316,000 in 2005, which followed a
$862,000 increase in 2004. The increase for 2005 was primarily the result of
increased consulting costs associated with the BlackRock contract. The expense
related to this contract ended on June 30, 2005 and the contract terminated
January 31, 2006. The increase for 2004 was primarily the result of increased
legal, audit, personnel recruitment and marketing expense. The costs increased
mainly because of compliance related services. Marketing increased because of
an increase in advertising.

Provision for Income Taxes
Income tax expense was $3,166,000 in 2005, $4,974,000 in 2004 and
$8,963,000 in 2003. The effective tax rate was 31.5% in 2005, 35.9% in
2004 and 43.4% (37.7%, excluding REIT settlement) in 2003. The decrease
in the effective tax rate for 2005 and 2004 was mainly attributable to less
earnings at the Bank that caused a decrease in both federal and state taxes. The
portion of earnings subject to a higher tax rate decreased in 2005 and 2004.
The federal tax rate was 34% in 2005 and 35% in 2004. Also, 2005 had a
higher proportion of non-taxable income. Included in tax expense for 2003 is a
net tax charge of $1,183,000 associated with the REIT settlement. This charge
was the result of an agreement with the Massachusetts DOR settling a dispute
related to taxes that the DOR claimed were owed from the Company’s REIT.

Market Risk and Asset Liability Management
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company’s market risk arises primarily from interest rate risk inherent in its
lending and deposit taking activities, and to that end, management actively
monitors and manages its interest rate risk exposure.

The Company’s profitability is affected by fluctuations in interest rates.
A sudden and substantial increase in interest rates may adversely impact the
Company’s earnings to the extent that the interest rates borne by assets and
liabilities do not change at the same speed, to the same extent, or on the same
basis. The Company monitors the impact of changes in interest rates on its net
interest income using several tools. One measure of the Company’s exposures to
differential changes in interest rates between assets and liabilities is an interest
rate risk management test. This test measures the impact on net interest income
of an immediate change in interest rates in 100 basis point increments.

Management’s Discussion and Analysis of Results of Operations and Financial Condition

Century Bancorp, Inc. AR ‘05

Change in Interest Rates
(in Basis Points)

Percentage Change in
Net Interest Income(1)

+300
+200
+100
–100
–200

(13.1)%
(8.6)%
(4.3)%
1.1 %
1.5 %

The source of funds for dividends paid by the Company is dividends received
from the Bank. The Company and the Bank are regulated enterprises and their
abilities to pay dividends are subject to regulatory review and restriction.
Certain regulatory and statutory restrictions exist regarding dividends, loans
and advances from the Bank to the Company. Generally, the Bank has the
ability to pay dividends to the Company subject to minimum regulatory
capital requirements.

(1) The percentage change in this column represents net interest income for 12 months in various

rate scenarios versus the net interest income in a stable interest rate environment.

The Company’s primary objective in managing interest rate risk is to minimize
the adverse impact of changes in interest rates on the Company’s net interest
income and capital, while structuring the Company’s asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability structure to control interest rate risk.

Liquidity and Capital Resources
Liquidity is provided by maintaining an adequate level of liquid assets that
include cash and due from banks, federal funds sold and other temporary
investments. Liquid assets totaled $152,679,000 on December 31, 2005,
compared with $238,235,000 on December 31, 2004. In each of these two
years, deposit and borrowing activity has generally been adequate to support
asset activity.

Capital Adequacy
Total stockholders’ equity was $103,201,000 at December 31, 2005, compared
with $104,773,000 at December 31, 2004. The decrease in 2005 was primarily
the result of a decrease in accumulated other comprehensive income somewhat
offset by earnings less dividends paid.

Federal banking regulators have issued risk-based capital guidelines, which
assign risk factors to asset categories and off-balance sheet items. The current
guidelines require a Tier 1 capital-to-risk assets ratio of at least 4.00% and a
total capital-to-risk assets ratio of at least 8.00%. The Company and the Bank
exceeded these requirements with a Tier 1 capital-to-risk assets ratio of 15.46%
and 12.11%, respectively, and total capital-to-risk assets ratio of 16.48% and
13.13%, respectively at December 31, 2005. Additionally, federal banking
regulators have issued leverage ratio guidelines, which supplement the risk-based
capital guidelines. The minimum leverage ratio requirement applicable to the
Company is 4.00% and at December 31, 2005, the Company and the
Bank exceeded this requirement with leverage ratios of 8.58% and 6.72%,
respectively.

Contractual Obligations, Commitments, and Contingencies
The Company has entered into contractual obligations and commitments. The following tables summarize the Company’s contractual cash obligations
and other commitments at December 31, 2005.

Contractual Obligations and Commitments by Maturity

(dollars in thousands)

CONTRACTUAL OBLIGATIONS

FHLB advances

Subordinated debentures

Retirement benefit obligations

Lease obligations

Other

Treasury, tax and loan

Customer repurchase agreements

Total

$ 298,656
36,083
16,978
5,342

1,418
50,010

Payments Due — by Period

Less than
One Year

$ 197,156
—
1,457
1,081

1,418
50,010

One to
Three Years

$ 22,000
—
3,083
1,964

—
—

Three to
Five Years

$ 63,500
—
3,255
1,344

—
—

After Five
Years

$ 16,000
36,083
9,183
953

—
—

Total contractual cash obligations

$ 408,487

$ 251,122

$ 27,047

$ 68,099

$ 62,219

OTHER COMMITMENTS

Lines of credit

Standby letters of credit

Other commitments

Total commitments

Amount of Commitment Expiring — by Period

Total

$ 143,533
10,272
62,217

Less than
One Year

$ 27,407
3,915
13,369

$ 216,022

$ 44,691

One to
Three Years

$ 26,016
390
35,966

$ 62,372

Three to
Five Years

1,769
5,200
2,199

9,168

After Five
Years

$ 88,341
767
10,863

$ 99,971

Management’s Discussion and Analysis of Results of Operations and Financial Condition

Century Bancorp, Inc. AR ‘05

Financial Instruments With Off-Balance Sheet Risk
The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments primarily include commitments to originate and sell loans,
standby letters of credit, unused lines of credit and unadvanced portions of
construction loans. The instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheet. The contract or notational amounts of those
instruments reflect the extent of involvement the Company has in these
particular classes of financial instruments.

The Company’s exposure to credit loss in the event of non-performance by the
other party to the financial instrument for loan commitments, standby letters of
credit and unadvanced portions of construction loans is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. Financial instruments with off-balance sheet risk
at December 31, are as follows:

Contract or Notational Amount

2005

2004

(dollars in thousands)

Financial instruments whose contract amount

represents credit risk:
Commitments to originate 1-4 family mortgages

Standby letters of credit

Unused lines of credit

Unadvanced portions of construction loans

Unadvanced portions of other loans

1,814
10,272
143,533
52,469
7,934

$ 2,511
11,195
118,008
33,754
10,907

Commitments to originate loans, unadvanced portions of construction loans and
unused letters of credit are generally agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer’s
credit worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Company upon extension of credit, is based on
management’s credit evaluation of the borrower.

Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers.

Recent Accounting Developments
FASB Emerging Issues Task Force (“EITF”) Issue 03-1, “The Meaning of Other-
Than-Temporary Impairment and Its Application to Certain Investments”

In November 2005, the FASB issued FSP FAS 115-1 and 124-1 “The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments.”
This FSP nullifies certain requirements of EITF 03-1 and supersedes EITF Topic
No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned
Sale of a Security Whose Cost Exceeds Fair Value”. This FSP addresses the
determination as to when an investment is considered impaired, whether that
impairment is other than temporary, and the measurement of an impairment
loss. Additionally, the FSP addresses accounting considerations subsequent to
the recognition of other-than-temporarily impairment and requires certain
disclosures about unrealized losses that have not been recognized as other-than-
temporary impairments. Other-than-temporary impairment per FSP FAS 115-1and

FAS 124-1 require an investor to apply other existing guidance that is pertinent
to the determination of whether an impairment is other than temporary rather
than the evaluation guidance set forth in EITF 03-1. The guidance does require
an impairment charge to be recognized in the current period if it is determined
that a security will be sold in a subsequent period where the fair value is not
expected to be fully recovered by the time of sale. This FSP is effective for
other-than-temporary impairment analysis conducted in periods beginning after
December 15, 2005. The adoptions of EITF 03-1 and EITF 03-1-1did not have
a material impact on the Company’s financial position or results of operations
and the Company does not believe that the adoption of FSP FAS 115-1 and
124-1 will have a material impact on the Company’s financial position.

In December 2004, the FASB issued a revised Statement No. 123, (revised
2004) (SFAS 123R), “Share-Based Payment.” This Statement replaces SFAS No.
123, Accounting for Stock-Based Compensation, and supercedes APB Opinion No.
25, Accounting for Stock Issued to Employees, and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This Statement requires a public entity to measure the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions). That cost will be
recognized over the period during which an employee is required to provide
service in exchange for the award – the requisite service period (usually the vesting
period). This Statement is effective as of the beginning of the first annual
reporting period that begins after June 15, 2005. The Company voted to
accelerate the vesting of certain unvested “out-of-the-money” stock options
awarded to Century Bank employees pursuant to the Century Bancorp, Inc.
2000 and 2004 Employee Stock Option Plans so that they immediately vested
as of December 30, 2005. The Board also voted a technical amendment to each
of the Plans to eliminate the possibility that the terms of any outstanding or
future stock option would require a cash settlement on the occurrence of any
circumstance outside the control of the Company. These amendments avoid
classification of the Company’s stock options as liabilities under SFAS 123R.

The Company decided to accelerate the vesting of certain stock options primarily
to reduce the non-cash compensation expense that would otherwise be expected
to be recorded in conjunction with the Company’s required adoption of SFAS
123R in 2006. SFAS 123R, which becomes effective for the Company on January
1, 2006, is an accounting rule that requires companies to record compensation
expense over a stock option’s vesting period, even if the exercise price of a stock
option exceeds the current market value of the company’s common stock. There
will be no earnings impact in 2006.

On December 30, 2005 the Board vote approved the acceleration and immediate
vesting of all unvested options with an exercise price of $31.60 and $31.83 or
greater per share. As a consequence of the Board vote, options to purchase
23,950 shares of Century Bancorp Class A common stock became exercisable
immediately. The average of the high and low price at which the Company’s
common stock traded on December 30, 2005, the date of the Board vote, was
$29.28 per share. The Company estimates that, as a result of this accelerated
vesting, approximately $190,000 of 2006 non-cash compensation expense
will be eliminated that would otherwise have been recognized in the
Company’s earnings.

December 31,

(dollars in thousands except share data)

ASSETS

Cash and due from banks (note 2)

Federal funds sold and interest-bearing deposits in other banks

Total cash and cash equivalents

Securities available-for-sale, amortized cost $546,524 in 2005

and $614,729 in 2004 (note 3)

Securities held-to-maturity, market value $277,769 in 2005

and $343,399 in 2004 (notes 4 and 9)

Loans, net (note 5)

Less: allowance for loan losses (note 6)

Net loans

Bank premises and equipment (note 7)

Accrued interest receivable

Other assets (note 12)

Total assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Demand deposits

Savings and NOW deposits

Money market accounts

Time deposits (note 8)

Total deposits

Securities sold under agreements to repurchase (note 9)

Other borrowed funds (note 10)

Subordinated debentures (note 10)

Other liabilities

Total liabilities

Commitments and contingencies (notes 7, 14 and 15)

Stockholders' equity (note 11):

Common stock, Class A,

$1.00 par value per share; authorized 10,000,000 shares;

issued 3,453,202 shares in 2005 and 3,434,448 shares in 2004

Common stock, Class B,

$1.00 par value per share; authorized 5,000,000 shares;

issued 2,082,240 shares in 2005 and 2,099,640 shares in 2004

Additional paid-in-capital

Retained earnings

Unrealized loses on securities available-for-sale, net of taxes

Additional minimum pension liability, net of taxes

Total accumulated other comprehensive income, net of taxes (note 3)

Total stockholders' equity

Total liabilities and stockholders' equity

See accompanying Notes to Consolidated Financial Statements.

Consolidated Balance Sheets

Century Bancorp, Inc. AR ‘05

2005

2004

47,626
105,053

152,679

36,209
202,026

238,235

532,982

286,578

689,645
9,340

680,305
25,228
7,127
43,870

609,806

345,369

580,003
9,001

571,002
26,265
6,800
36,224

$ 1,728,769

$ 1,833,701

296,696
239,326
279,245
401,773

280,871
268,317
485,006
359,816

1,217,040

1,394,010

50,010
304,722
36,083
17,713

38,650
214,906
65,722
15,640

1,625,568

1,728,928

3,453

3,434

2,082
11,416
97,338

114,289

(8,270)
(2,818)

(11,088)

103,201

2,099
11,395
92,611

109,539

(3,009)
(1,757)

(4,766)

104,773

$ 1,728,769

$ 1,833,701

2005

2004

2003

41,274
19,540
11,635
362

72,811

3,552

7,018

8,835

813

12,602

32,820

39,991

600

39,391

5,846

2,807

462

—

1,858

10,973

24,197

3,798

2,987

9,336

40,318

10,046

3,166

—

33,384
18,529
12,296
824

65,033

2,268

5,010

6,833

331

9,204

23,646

41,387

300

41,087

5,271

2,950

670

(91)

1,631

10,431

23,266

2,997

2,380

9,020

37,663

13,855

4,974

—

33,134
28,738
7,152
274

69,298

2,586

5,111

7,246

457

8,542

23,942

45,356

450

44,906

4,782

3,186

579

1,461

10,009

21,763

2,648

1,703

8,158

34,272

20,643

7,780

1,183

6,880

8,881

11,680

5,535,202

5,548,467

1.24

5,526,202

5,553,197

1.61

1.60

5,519,800

5,548,615

2.12

2.11

Consolidated Statements of Income

Century Bancorp, Inc. AR ‘05

Year Ended December 31,

(dollars in thousands except share data)

INTEREST INCOME

Loans

Securities available-for-sale

Securities held-to-maturity

Federal funds sold and interest-bearing deposits in other banks

Total interest income

INTEREST EXPENSE

Savings and NOW deposits

Money market accounts

Time deposits (note 8)

Securities sold under agreements to repurchase

Other borrowed funds and subordinated debentures

Total interest expense

Net interest income

Provision for loan losses (note 6)

Net interest income after provision for loan losses

OTHER OPERATING INCOME

Service charges on deposit accounts

Lockbox fees

Brokerage commissions

Net (losses) gains on sales of securities

Other income

Total other operating income

OPERATING EXPENSES

Salaries and employee benefits (note 13)

Occupancy

Equipment

Other (note 16)

Total operating expenses

Income before income taxes

Provision for income taxes (note 12)

Retroactive REIT settlement (note 12)

Net income

SHARE DATA (NOTE 11)

Weighted average number of shares outstanding, basic

Weighted average number of shares outstanding, diluted

Net income per share, basic

Net income per share, diluted

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Changes in Stockholders’ Equity

Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Treasury
Stock
Class A

Treasury
Stock
Class B

Century Bancorp, Inc. AR ‘05

Accumulated
Other

Total

Comprehensive Stockholders'
Income (Loss)

Equity

(dollars in thousands except share data)

BALANCE, DECEMBER 31, 2002

$ 3,781

$ 2,168

$ 11,123

$ 81,755

$ (5,941)

$ (41)

$ 7,411

$ 100,256

Net income

Other comprehensive income, net of tax:

Unrealized holding losses arising

during period, net of $3,200 in taxes

Comprehensive income

Conversion of Class B Common

Stock to Class A Common

Stock, 5,010 shares

Stock options exercised, 7,013 shares

Cash dividends, Class A Common

Stock, $0.45 per share

Cash dividends, Class B Common

Stock, $0.225 per share

—

5
7

—

(5)
—

—

—
104

—

11,680

—

—
—

(1,532)

(476)

—

—
—

—

—
—

—

11,680

(6,311)

5,369

—
111

(1,532)

(476)

—
—

—

BALANCE, DECEMBER 31, 2003

3,793

2,163

11,227

91,427

(5,941)

(41)

1,100

103,728

Net income

Other comprehensive income, net of tax:

Unrealized holding losses arising

during period, net of $2,741 in taxes

Less: reclassification adjustment

for gains included in net income,

net of $36 in taxes

Minimum pension liability adjustment

Comprehensive income

Conversion of Class B Common

Stock to Class A Common

Stock, 15,460 shares

Stock options exercised, 9,650 shares

Cash dividends, Class A Common

Stock, $0.48 per share

Cash dividends, Class B Common

Stock, $0.24 per share

Elimination of treasury stock

—

—
—

16
9

—

—
—

(16)
—

—

due to change in Massachusetts law (Note 1)

BALANCE, DECEMBER 31, 2004

(384)

3,434

(48)

2,099

Net income

Other comprehensive income, net of tax:

Unrealized holding losses arising

during period, net of $3,357 in taxes

Minimum pension liability adjustment

Comprehensive income

Conversion of Class B Common

Stock to Class A Common

Stock, 17,400 shares

Stock options exercised, 1,354 shares

Cash dividends, Class A Common

Stock, $0.48 per share

Cash dividends, Class B Common

Stock, $0.24 per share

—

—
—

17
2

—

—
—

(17)
—

—

—
—

—
168

—

8,881

—

—
—

(1,642)

(505)

—

—
—

—

(5,550)

5,941

11,395

92,611

—

—
—

—
21

—

6,880

—
—

(1,649)

(504)

—

—
—

—

BALANCE, DECEMBER 31, 2005

$ 3,453

$ 2,082

$ 11,416

$ 97,338

See accompanying Notes to Consolidated Financial Statements.

—

—
—

—

—
—

—

8,881

(4,164)

55
(1,757)

—
—

—

55
(1,757)

3,015

—
177

(1,642)

(505)

—

(4,766)

104,773

—

6,880

(5,261)
(1,061)

—
—

—

(5,261)
(1,061)

558

—
23

(1,649)

(504)

$ (11,088)

$ 103,201

Consolidated Statements of Cash Flows

Century Bancorp, Inc. AR ‘05

Year Ended December 31,

(dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses

Deferred income taxes

Net depreciation and amortization

(Increase) decrease in accrued interest receivable

Increase in other assets

Loans originated for sale

Proceeds from sales of loans

Gain on sales of loans

Loss (gain) on sales of securities available-for-sale

Increase (decrease) in other liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from calls/maturities of securities available-for-sale

Proceeds from sales of securities available-for-sale

Purchase of securities available-for-sale

Proceeds from calls/maturities of securities held-to-maturity

Purchase of securities held-to-maturity

(Decrease) increase in investments purchased payable

Net (increase) decrease in loans

Capital expenditures

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase in time deposit accounts

Net (decrease) increase in demand, savings, money market and NOW deposits

Net proceeds from the exercise of stock options

Cash dividends

Net increase (decrease) in securities sold under agreements to repurchase

Net increase (decrease) in other borrowed funds

Issuance (retirement) of subordinated debentures

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

2005

2004

2003

6,880

8,881

$ 11,680

600
128
3,348
(327)
(3,646)
—
—
—
—
299

7,282

180,317
—
(112,235)
60,950
(2,022)
—
(110,369)
(1,916)

14,725

41,957
(218,927)
23
(2,153)
11,360
89,816
(29,639)

(107,563)

(85,556)
238,235

300
470
1,848
1,650
(4,368)
—
—
—
91
1,699

10,571

389,172
88,198
(390,398)
56,930
(204,309)
(29,330)
(67,639)
(6,728)

(164,104)

199
54,958
177
(2,147)
(1,400)
78,577
36,083

166,447

12,914
225,321

450
(1,416)
1,754
920
(6,639)
(267)
270
(3)
(1)
(6,614)

134

665,635
—
(616,783)
125,254
(195,991)
(13,739)
2,102
(10,217)

(43,739)

137,292
55,277
112
(2,008)
(11,750)
(33,091)
889

146,721

103,116
122,205

Cash and cash equivalents at end of year

$ 152,679

$ 238,235

$ 225,321

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:

Interest

Income taxes

Change in unrealized gains on securities available-for-sale, net of taxes

See accompanying Notes to Consolidated Financial Statements.

33,369
3,050
(5,261)

23,165
4,600
(4,109)

$ 24,102
15,632
(6,311)

Summary of Significant Accounting Policies
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of Century Bancorp,
Inc. (the “Company”) and its wholly-owned subsidiary, Century Bank and
Trust Company (the “Bank”). The consolidated financial statements also include
the accounts of the Bank’s wholly-owned subsidiaries, Century Subsidiary
Investments, Inc. (CSII), Century Subsidiary Investments, Inc. II (CSII II),
Century Subsidiary Investments, Inc. III (CSII III) and Century Financial Services
Inc. (CFSI). CSII, CSII II, CSII III are engaged in buying, selling and holding
investment securities. CFSI has the power to engage in financial agency,
securities brokerage and investment and financial advisory services and related
securities credit.

The Company also owns 100% of Century Bancorp Capital Trust II (CBCT II).
The entity is an unconsolidated subsidiary of the Company.

All significant intercompany accounts and transactions have been eliminated
in consolidation. The Company provides a full range of banking services to
individual, business and municipal customers in Massachusetts. As a bank holding
company, the Company is subject to the regulation and supervision of the
Federal Reserve Board. The Bank, a state chartered financial institution, is
subject to supervision and regulation by applicable state and federal banking
agencies, including the Federal Reserve Board, the Federal Deposit Insurance
Corporation (the “FDIC”) and the Commonwealth of Massachusetts
Commissioner of Banks. The Bank is also subject to various requirements and
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans that
may be granted and the interest that may be charged thereon, and limitations on
the types of investments that may be made and the types of services that may
be offered. Various consumer laws and regulations also affect the operations of
the Bank. In addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve Board as it attempts to control
the money supply and credit availability in order to influence the economy. All
aspects of the Company’s business are highly competitive. The Company faces
aggressive competition from other lending institutions and from numerous
other providers of financial services. The Company has one reportable
operating segment.

The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America and to general
practices within the banking industry. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ from
those estimates.

Material estimates that are susceptible to change in the near-term relate to the
allowance for loan losses. Management believes that the allowance for loan
losses is adequate based on independent appraisals and review of other factors
associated with the loans. While management uses available information to
recognize loan losses, future additions to the allowance for loan losses may be
necessary based on changes in economic conditions. In addition, regulatory
agencies periodically review the Company’s allowance for loan losses. Such
agencies may require the Company to recognize additions to the allowance for
loan losses based on their judgements about information available to them at
the time of their examination.

Certain reclassifications were made to prior year amounts to conform with the
current year presentation.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

INVESTMENT SECURITIES
Debt securities that the Company has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost; debt
and equity securities that are bought and held principally for the purpose of
selling are classified as trading and reported at fair value, with unrealized gains
and losses included in earnings; and debt and equity securities not classified as
either held-to-maturity or trading are classified as available-for-sale and reported
at fair value, with unrealized gains and losses excluded from earnings and reported
as a separate component of stockholders’ equity, net of estimated related
income taxes. The Company has no securities held for trading.

Premiums and discounts on investment securities are amortized or accreted into
income by use of the level-yield method. If a decline in fair value below the
amortized cost basis of an investment is judged to be other-than-temporary,
the cost basis of the investment is written down to fair value. The amount of
the write down is included as a charge to earnings. Gains and losses on the sale
of investment securities are recognized at the time of sale on a specific
identification basis.

LOANS
Interest on loans is recognized based on the daily principal amount outstanding.
Accrual of interest is discontinued when loans become 90 days delinquent
unless the collateral is sufficient to cover both principal and interest and the
loan is in the process of collection. Loans, including impaired loans, on which the
accrual of interest has been discontinued are designated non-accrual loans.
When a loan is placed on non-accrual, all income which has been accrued but
remains unpaid is reversed against current period income and all amortization of
deferred loan fees is discontinued. Non-accrual loans may be returned to an
accrual status when principal and interest payments are not delinquent or the
risk characteristics of the loan have improved to the extent that there no longer
exists a concern as to the collectibility of principal and income. Income received
on non-accrual loans is either recorded in income or applied to the principal
balance of the loan depending on management’s evaluation as to the
collectibility of principal.

Loan origination fees and related direct incremental loan origination costs are
offset and the resulting net amount is deferred and amortized over the life of
the related loans using the level-yield method.

The Bank accounts for impaired loans, except those loans that are accounted for
at fair value or at lower of cost or fair value, at the present value of the expected
future cash flows discounted at the loan’s effective interest rate. This method
applies to all loans, uncollateralized, as well as collateralized, except large groups
of smaller-balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value. Management considers the
payment status, net worth and earnings potential of the borrower, and the value
and cash flow of the collateral as factors to determine if a loan will be paid in
accordance with its contractual terms. Management does not set any minimum
delay of payments as a factor in reviewing for impaired classification. Loans
are charged-off when management believes that the collectibility of the loan’s
principal is remote. In addition, criteria for classification of a loan as in-substance
foreclosure has been modified so that such classification need be made only
when a lender is in possession of the collateral. The Bank measures the impair-
ment of troubled debt restructurings using the pre-modification rate of interest.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management’s evaluation of the
quality of the loan portfolio and is used to provide for losses resulting from
loans which ultimately prove uncollectible. In determining the level of the
allowance, periodic evaluations are made of the loan portfolio which take into
account such factors as the character of the loans, loan status, financial posture
of the borrowers, value of collateral securing the loans and other relevant infor-
mation sufficient to reach an informed judgement. The allowance is increased by
provisions charged to income and reduced by loan charge-offs, net of recoveries.

Management maintains an allowance for loan losses to absorb losses inherent
in the loan portfolio. The allowance is based on assessments of the probable
estimated losses inherent in the loan portfolio. Management’s methodology for
assessing the appropriateness of the allowance consists of several key elements,
which include the formula allowance, specific allowances for identified problem
loans and the unallocated allowance.

While management uses available information in establishing the allowance for
loan losses, future adjustments to the allowance may be necessary if economic
conditions differ substantially from the assumptions used in making the
evaluations. Loans are charged-off in whole or in part when, in management’s
opinion, collectibility is not probable.

BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets or the terms of leases, if shorter.
It is general practice to charge the cost of maintenance and repairs to
operations when incurred; major expenditures for improvements are capitalized
and depreciated.

STOCK OPTION ACCOUNTING
The Company currently accounts for employee stock options using the intrinsic
value method. Under the intrinsic value method, no compensation cost is
recognized related to options if the exercise price of the option is greater than
or equal to the fair market value of the underlying stock on the date of grant.
Under an alternative method, the fair value method, the “cost” of the option is
estimated on the date of grant using an option valuation model and recognized
as compensation expense over the vesting period of the option. The Company
generally awards stock options annually.

Had compensation cost for the Company’s stock option plans been determined
based on the fair value at the grant date, the Company’s net income and earnings per
share would have been reduced to the pro forma amounts indicated below:

December 31,

2005

2004

2003

(dollars in thousands, except share data)

Net income:

As reported

Less:

Pro forma stock based

compensation cost

(net of tax):

Pro forma and diluted

Basic earning per share

As reported

Pro forma

Diluted earnings per share

As reported

Pro forma

$ 6,880

$ 8,881

$ 11,680

$ 282

$ 6,598

$ 1.24
$ 1.19

$ 151

140

$ 8,730

$ 11,540

$ 1.61
$ 1.58

$ 2.12
$ 2.09

$ 1.60
$ 1.57

$ 2.11
2.08
$

In determining the pro forma amounts, the fair value of each option grant was
estimated as of the date of grant using Black-Scholes option-pricing model
with the following weighted average assumptions:
December 31,

2004

2003

Dividend yields

Expected life

Expected volatility

Risk-free interest rate

1.59 %

1.69 %

9 years

8 years

28 %
3.95 %

26 %
3.78 %

INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. Under this
method, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.

TREASURY STOCK
Effective July 1, 2004, companies incorporated in Massachusetts became
subject to Chapter 156D of the Massachusetts Business Corporation Act,
provisions of which eliminate the concept of treasury stock and provide that
shares reaquired by a company are to be treated as authorized but unissued
shares. As a result of this change in law, the Company has reclassified, for the
balance sheets presented, shares previously classified as treasury shares as a
reduction to issued shares of common stock, and, accordingly, adjusted the
stated value of common stock and paid in capital. At December 31, 2004
the Company had 431,150 shares at a cost of $5,982,000 previously
classified as treasury stock.

PENSION
The Bank provides pension benefits to its employees under a noncontributory,
defined benefit plan which is funded on a current basis in compliance with the
requirements at the Employee Retirement Income Security Act of 1974 (ERISA)
and recognizes costs over the estimated employee service period.

Cash and Due From Banks
The Company is required to maintain a portion of its cash and due from banks
as a reserve balance under the Federal Reserve Act. Such reserve is calculated
based upon deposit levels and amounted to $746,000 at December 31, 2005
and $725,000 at December 31, 2004.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

Securities Available-for-Sale

(dollars in thousands)

U.S. Government and Agencies
Mortgage Backed Securities
Obligations of states and
political subdivisions

FHLB Stock
Other

Amortized
Cost

$ 301,914
224,256

807
16,312
3,235

December 31, 2005
Gross
Unrealized
Losses

Gross
Unrealized
Gains

Estimated
Fair
Value

December 31, 2004
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

Amortized
Cost

—
24

—
—
46

$ 7,782
5,728

$ 294,132
218,552

$ 384,504
187,170

182
165

$ 3,824
1,577

$ 380,862
185,758

—
—
102

807
16,312
3,179

499
13,895
28,661

—
—
174

—
—
43

499
13,895
28,792

$ 546,524

$ 13,612

$ 532,982

$ 614,729

521

$ 5,444

$ 609,806

(dollars in thousands)

U.S. Government and Agencies
Mortgage Backed Securities
Obligations of states and
political subdivisions

FHLB Stock
Other

December 31, 2003

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

$ 674,766
8,977

$ 3,981
209

$ 2,253
145

$ 676,494
9,041

—
13,084
4,617

—
—
278

—
—
179

—
13,084
4,716

$ 701,444

$ 4,468

$ 2,577

$ 703,335

Included in U.S. Government and Agencies is one U.S. Government security totalling $2,000,000 with gross unrealized gains (losses) totalling ($21,000), ($5,000)
and $6,000 in 2005, 2004 and 2003, respectively. Also included in U.S. Government and Agency securities are securities pledged to secure public deposits and
repurchase agreements amounting to $53,774,000 at December 31, 2005. Also included are securities pledged for borrowing at the Federal Home Loan Bank
amounting to $262,051,000 at December 31, 2005.

The following table shows the temporarily impaired securities of the Company's securities available-for-sale portfolio at December 31, 2005. This table shows the
unrealized market loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and
longer. There are 22 and 99 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively out of a total of 178 holdings
at December 31,2005. The Company believes that the investments are temporarily impaired.

Temporarily Impaired Investments*

December 31, 2005

(dollars in thousands)

U.S. Government and Agencies
Mortgage Backed Securities
Other

Less than 12 months

12 months or longer

Total

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

$ 16,636
72,786
132

346
1,308
16

$ 277,496
144,913
1,464

7,436
4,420
86

$ 294,132
217,699
1,596

7,782
5,728
102

Total temporarily impaired securities

$ 89,554

$ 1,670

$ 423,873

$ 11,942

$ 513,427

$ 13,612

* The decline in market value is attributable to changes in interest rates and not credit quality and because the Company has the ability and intent to hold these investments until recovery of fair value,

which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2005.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

The following table shows the temporary impaired securities of the Company’s securities available-for-sale portfolio at December 31, 2004. This table shows the unre-
alized market loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and longer.
There are 93 and 9 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively out of a total of 176 holdings at
December 31, 2004. The Company believes that the investments are temporarily impaired.

Temporarily Impaired Investments*

December 31, 2004

(dollars in thousands)

U.S. Government and Agencies
Mortgage Backed Securities
Other

Total temporarily impaired securities

Less than 12 months

12 months or longer

Fair Value

Unrealized
Losses

$ 238,849
161,567
25,990

$ 3,064
1,436
12

$ 426,406

$ 4,512

Fair Value

$ 29,232
4,258
1,519

$ 35,009

Unrealized
Losses

760
141
31

932

Total

Unrealized
Losses

Fair Value

$ 268,081
165,825
27,509

$ 3,824
1,577
43

$ 461,415

$ 5,444

which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2004.

The following tables show the contractual maturity distribution of the Company's securities available-for-sale at December 31, 2005 and the weighted average
yields of securities, which are based on the amortized cost, calculated on a fully taxable equivalent basis.

U.S. Government
and Agencies

Yield

Mortgage
Backed
Securities

Obligations of
States and political
Subdivisions
and Other

Yield

Total

Yield

Estimated
Fair
Value

(dollars in thousands)

December 31, 2005

Within one year
After one but within five years
After five but within ten years
Non-maturing

$ 74,997
226,917
—
—

2.29 % $ —
220,544
3.09 %
3,713
0.00 %
—
0.00 %

$ 301,914

2.89 %

$ 224,257

0.00 %
3.97 %
3.52 %
0.00 %

3.96 %

907
600
—
18,846

$ 20,353

3.36 %
4.20 %
0.00 %
4.30 %

4.25 %

75,904
448,061
3,713
18,846

2.30 % $
3.52 %
3.52 %
4.30 %

74,785
435,898
3,499
18,800

$ 546,524

3.38 % $ 532,982

The actual maturities of mortgage backed securities, collateralized mortgage obligations and corporate debt securities will differ from the contractual maturities due to
the ability of the issuers to prepay underlying obligations.

The weighted average remaining life of investment securities available-for-sale at December 31, 2005, 2004 and 2003 was 2.3, 2.7 and 3.5 years, respectively.
Included in the weighted average remaining life calculation at December 31, 2005 and 2004 there were $15,000,000 and $134,100,000 respectively of U.S. agency
obligations that are callable at the discretion of the issuer. These call dates were not utilized in computing the weighted average remaining life. The Bank realized gross
gains in 2004 and 2003 of $693,000 and $0, respectively. The Bank realized gross losses in 2004 and 2003 of $784,000 and $1,000, respectively.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

Investment Securities Held-to-Maturity

(dollars in thousands)

U.S. Government Agencies

Mortgage Backed Securities

Other

(dollars in thousands)

U.S. Government Agencies

Mortgage Backed Securities

Other

December 31, 2005
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

Amortized
Cost

December 31, 2004
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

Amortized
Cost

$ 159,952

—

$ 4,770

$ 155,182

$ 186,324

175

$ 1,609

$ 184,890

126,626

—

109

—

4,148

—

122,587

—

159,045

—

589

—

1,125

158,509

—

$ 286,578

109

$ 8,918

$ 277,769

$ 345,369

764

$ 2,734

$ 343,399

December 31, 2003

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

Amortized
Cost

6,400

278

191,447

1,548

—

908

—

6,678

192,087

$ 197,872

$ 1,826

908

$ 198,790

Included in U.S. Government Agencies securities are securities pledged to secure public deposits amounting to $6,000,000 at December 31, 2005. Also included are
securities pledged for borrowing at the Federal Home Loan Bank amounting to $124,632,000 at December 31, 2005.

The following table shows the temporarily impaired securities of the Company's securities held-to-maturity portfolio at December 31, 2005. This table shows the
unrealized market loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and
longer. There are 20 and 64 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively out of a total of 91 holdings
at December 31, 2005. The Company believes that the investments are temporarily impaired.

Temporarily Impaired Investments*

December 31, 2005

(dollars in thousands)

U.S. Government Agencies

Mortgage Backed Securities

Less than 12 months
Unrealized
Losses

Fair Value

12 months or longer
Unrealized
Losses

Fair Value

Total

Unrealized
Losses

Fair Value

$ 19,561

29,740

407

624

$ 135,621

$ 4,363

$ 155,182

$ 4,770

89,038

3,524

118,778

4,148

Total temporarily impaired securities

$ 49,301

$ 1,031

$ 224,659

$ 7,887

$ 273,960

$ 8,918

which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2005.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

The following table shows the temporary impaired securities of the Company’s securities held-to-maturity portfolio at December 31, 2004. This table shows the unre-
alized market loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and longer.
There are 50 and 5 securities temporarily impaired for less than 12 months and for 12 months or longer, respectively out of a total of 98 holdings at December 31,
2004. The Company believes that the investments are temporarily impaired.

Temporarily Impaired Investments*

December 31, 2004

Less than 12 months

12 months or longer

(dollars in thousands)

U.S. Government Agencies
Mortgage Backed Securities

Total temporarily impaired securities

Fair Value

$ 133,367
74,165

$ 207,532

Unrealized
Losses

$ 1,609
673

$ 2,282

Fair Value

Unrealized
Losses

Fair Value

Total

Unrealized
Losses

—
15,678

$ 15,678

—
452

452

$ 133,367
89,843

$ 1,609
1,125

$ 223,210

$ 2,734

which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2004.

The following tables show the contractual maturity distribution of the Company's securities held-to-maturity at December 31, 2005 and the weighted average yields
of securities, which are based on the amortized cost, calculated on a fully taxable equivalent basis.

December 31,

(dollars in thousands)

Within one year

After one but within five years

After five but within ten years

U.S.
Government
Agencies

—

159,952

—

$ 159,952

Mortgage
Backed
Securities

297

117,230

9,099

$ 126,626

Yield

0.00 %

3.27 %

0.00 %

3.27 %

Yield

Total

Yield

6.52 %

4.20 %

4.04 %

4.20 %

297

277,182

9,099

$ 286,578

6.52 %

3.67 %

4.04 %

3.68 %

Estimated
Market
Value

302

268,793

8,674

$ 277,769

The weighted average remaining life of investment securities held-to-maturity at December 31, 2005, 2004 and 2003 was 3.0, 3.3 and 3.5 years, respectively.
Included in the weighted average remaining life calculation at December 31, 2005 and 2004 there were $5,000,000 and $139,900,000 respectively of
U.S. agency obligations that are callable at the discretion of the issuer. These call dates were not utilized in computing the weighted average remaining life.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

Loans
The Company's lending activities are conducted principally in Massachusetts. The company grants single and multi-family residential loans, commercial and commercial
real estate loans, and a variety of consumer loans. To a lesser extent, the Company grants loans for the construction of residential homes, multi-family properties, com-
mercial real estate properties, and land development. Most loans granted by the company are secured by real estate collateral. The ability and willingness of commercial
real estate, commercial, construction, residential and consumer loan borrowers to honor their repayment commitments is generally dependent on the health of the real
estate market in the borrowers' geographic areas and the general economy.

The following summary shows the composition of the loan portfolio at the dates indicated.

December 31,

2005

2004

2003

2002

2001

Amount

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

Construction and

land development

$ 58,846

8.5 %

$ 51,918

9.0 %

$ 34,121

Commercial and industrial

Industrial revenue bonds

Commercial real estate

Residential real estate

Consumer

Home Equity

Overdrafts

94,139

—

302,279

146,355

9,977

76,710

1,339

13.7 %

0.0 %

43.8 %

21.2 %

1.5 %

11.1 %

0.2 %

71,962

—

258,524

118,223

8,607

69,957

812

12.4 %

0.0 %

44.6 %

20.4 %

1.5 %

12.0 %

0.1 %

39,742

—

293,781

86,780

8,025

49,382

483

6.7 %

7.8 %

0.0 %

57.3 %

16.9 %

1.6 %

9.6 %

0.1 %

$ 33,155

6.4 % $ 39,256

8.5 %

46,044

—

9.0 %

0.0 %

59,162

12.8 %

0.0 %

291,598

56.7 %

241,419

52.2 %

92,291

17.9 %

88,450

19.1 %

8,169

41,527

1,465

1.6 %

8.1 %

0.3 %

7,701

26,016

720

1.7 %

5.6 %

0.1 %

$ 689,645

100.0 %

$ 580,003

100.0 %

$ 512,314

100.0 %

$ 514,249 100.0 % $ 462,772 100.0 %

At December 31, 2005, 2004, 2003, 2002 and 2001 loans were carried net of discounts of $4,000, $20,000, $138,000, $492,000, and $969,000
respectively. Included in these amounts at December 31, 2005, 2004, 2003, 2002 and 2001, residential real estate loans were carried net of discounts of $0,
$16,000, $133,000, $487,000 and $959,000 respectively, associated with the acquisition of loans from another financial institution. Net deferred loan fees of
$482,000, $485,000, $389,000, $315,000, and $389,000 were carried in 2005, 2004, 2003, 2002 and 2001 respectively.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

The following table summarizes the remaining maturity distribution of certain
components of the Company's loan portfolio on December 31, 2005. The table
excludes loans secured by one-to-four family residential real estate and loans for
household and family personal expenditures. Maturities are presented as if
scheduled principal amortization payments are due on the last contractual
payment date.

(dollars in thousands)

Construction and land development

Commercial and industrial

Commercial real estate

Total

Remaining Maturities of Selected Loans at December 31, 2005

One Year
or Less

One to Five
Years

Over
Five Years

Total

$ 19,973
39,999
34,762

$ 94,734

$ 31,270
46,011
107,441

7,603
8,129
160,076

$ 184,722

$ 175,808

$ 58,846
94,139
302,279

$ 455,264

The following table indicates the rate variability of the above loans due after one year.

December 31, 2005

(dollars in thousands)

Predetermined interest rates

Floating or adjustable interest rates

Total

One to Five
Years

Over
Five Years

Total

$ 111,403
73,319

$ 184,722

$ 26,869
148,939

$ 175,808

$ 138,272
222,258

$ 360,530

The other category of residential real estate loans are mostly 1-4 family
residential properties located in the Bank’s market area. General underwriting
criteria are largely the same as those used by Fannie Mae but normally only one
or three year adjustable interest rates are used. The Bank utilizes mortgage
insurance to provide lower down payment products and has provided a “First
Time Homebuyer” product to encourage new home ownership. Residential real
estate loan volume has increased and remains a core consumer product. The
economic environment impacts the risks associated with this category.

Home equity loans are extended as both first and second mortgages on owner
occupied residential properties in the Bank’s market area. Loans are underwritten
to a maximum loan to property value of 75%.

The Bank intends to maintain a market for construction loans, principally for
smaller local residential projects or an owner occupied commercial project.
Individual consumer residential home construction loans are also extended on
a similar basis.

Bank officers evaluate the feasibility of construction projects, based on
independent appraisals of the project, architects or engineers evaluations of
the cost of construction, and other relevant data. As of December 31, 2005,
the Company was obligated to advance a total of $52,469,000 to complete
projects under construction.

The Company’s commercial and industrial (C&I) loan customers represent various
small and middle market established businesses involved in manufacturing,
distribution, retailing and services. Most clients are privately owned with markets
that range from local to national in scope. Many of the loans to this segment
are secured by liens on corporate assets and the personal guarantees of the
principals. The Bank is placing greater emphasis on building its C&I base in the
future. The regional economic strength or weakness impacts the relative risks in
this loan category. There is little concentration to any one business sector and
loan risks are generally diversified among many borrowers.

Commercial real estate loans are extended to finance various manufacturing,
warehouse, light industrial, office, retail and residential properties in the Bank’s
market area, which generally includes Eastern Massachusetts and Southern New
Hampshire. Loans are normally extended in amounts up to a maximum of 80%
of appraised value and normally for terms between three to five years.
Amortization schedules are long-term and thus a balloon payment is due at
maturity. Under most circumstances, the Bank will offer to re-write or otherwise
extend the loan at prevailing interest rates. During recent years, the Bank has
emphasized non-residential type owner-occupied properties. This compliments
our C&I emphasis placed on the operating business entities and will be
continued. The regional economic environment affects the risk of both
non-residential and residential mortgages.

Residential real estate (1-4 family) includes two categories of loans.
Approximately $10,322,000 of loans are classified as “Commercial and
Industrial” type loans secured by 1-4 family real estate. Primarily, these are
small businesses with modest capital or shorter operating histories where the
collateral mitigates some risk. This category of loans shares similar risk
characteristics with the C&I loans, notwithstanding the collateral position.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

The composition of non-accrual loans and impaired loan agreements is as follows:

December 31,

(dollars in thousands)

Loans on non-accrual

Impaired loans on non-accrual included above

Total recorded investment in impaired loans

Average recorded value of impaired loans

Loans 90 days past due and still accruing

Interest income on non-accrual loans according to their original terms

Interest income on non-accrual loans actually recorded

Interest income recognized on impaired loans

The composition of impaired loans at December 31, is as follows:

Residential real estate, multi-family

Construction and land development

Commercial real estate

Commercial and industrial

Total impaired loans

2005

2004

2003

2002

2001

$ 949
$ 886

$ 886
$ 1,384

$ —

$
75
$ —
$ 202

2005

$ —
675
—
211

$ 886

$ 628
$ 452

$ 964
$ 1,156

$ 160

$
66
$ —
$ 105

2004

$ 512
—
—
452

$ 964

$ 1,175
$ 1,137

$ 1,618
$ 2,043

$
$
$

—

100
70
116

2003

$ 541
—
—
1,077

$ 1,618

$ 511
$ 487

$ 1,116
$ 1,273

$ —

$
50
$ —
60
$

2002

$ 629
—
487
—

$ 1,116

$
$

423
292

$ 1,089
$ 2,149

$
$
$

43
32
116

2001

$ 656
—
433
—

$ 1,089

There were no impaired loans with specific reserves from December 31, 2000
through December 31, 2005 and in the opinion of management, none of the
above listed impaired loans required a specific reserve.

The Company was servicing mortgage loans sold to others without recourse of
approximately $1,078,000, $1,538,000, $2,397,000, $4,444,000 and
$6,888,000 at December 31, 2005, 2004, 2003, 2002 and at December 31,
2001 respectively. Additionally, the Company was servicing mortgage loans sold
to others with limited recourse. The outstanding balance of these loans with
limited recourse was approximately $80,000, $86,000, $183,000, $194,000,
and $338,000 at December 31, 2005, 2004, 2003, 2002 and at December
31, 2001 respectively.

Directors and officers of the Company and their associates are customers of,
and have other transactions with, the Company in the normal course of
business. All loans and commitments included in such transactions were made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons
and do not involve more than normal risk of collection or present other
unfavorable features.

The following table shows the aggregate amount of loans to directors and
officers of the Company and their associates during 2005.

Loans are placed on non-accrual status when any payment of principal and/or
interest is 90 days or more past due, unless the collateral is sufficient to cover
both principal and interest and the loan is in the process of collection. The
Company monitors closely the performance of its loan portfolio. In addition
to internal loan review, the Company has contracted with an independent
organization to review the Company’s commercial and commercial real estate
loan portfolios. This independent review was performed in each of the past five
years. The status of delinquent loans, as well as situations identified as potential
problems, are reviewed on a regular basis by senior management and monthly
by the Board of Directors of the Company.

The relatively low level of nonperforming assets of $949,000 in 2005 and
$628,000 in 2004 resulted from fewer additions to nonperforming assets
during the year combined with an improvement in the resolution of
nonperforming assets including payments on nonperforming loans.

In addition to the above, as of December 31, 2005, the Company continues to
monitor closely $14,077,000 of loans for which management has concerns
regarding the ability of the borrowers to perform. The majority of the loans are
secured by real estate and are considered to have adequate collateral value to
cover the loan balances at December 31, 2005, although such values can
fluctuate with changes in the economy and the real estate market.

Balance at
December 31, 2004

(dollars in thousands)

Additions

Repayments
and Deletions

Balance at
December 31, 2005

$ 1,482

$ 743

$ 289

$ 1,936

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

Allowance for Loan Losses
The Company maintains an allowance for loan losses in an amount determined
by management on the basis of the character of the loans, loan performance,
the financial condition of borrowers, the value of collateral securing loans and
other relevant factors. The following table summarizes the changes in the
Company's allowance for loan losses for the years indicated.

Year Ended December 31,

(dollars in thousands)

Year-end loans outstanding

(net of unearned discount)

Average loans outstanding

(net of unearned discount)

Balance of allowance for

loan losses at the beginning of year

Loans charged-off:

Commercial

Commercial real estate

Residential real estate

Consumer

Total loans charged-off

Recovery of loans previously charged-off:

Commercial

Real estate

Consumer

Total recoveries of loans previously charged off:

Net loan charge-offs (recoveries)

Additions to allowance charged to operating expense

2005

2004

2003

2002

2001

$ 689,645

$ 580,003

$ 512,314

$ 514,249

$ 462,772

$ 641,103

$ 546,147

$ 500,723

$ 488,465

$ 443,395

9,001

366
—
—
324

690

75
235
119

429

261
600

8,769

1
—
194
113

308

117
103
20

240

68
300

8,506

7,112

240
—
—
125

365

127
29
22

178

187
450

$ —
58
—
87

145

276
-
63

339

(194)
1,200

5,662

27
343
12
55

437

154
184
49

387

50
1,500

Balance at end of year

9,340

9,001

8,769

8,506

7,112

Ratio of net charge-offs during the year

to average loans outstanding

Ratio of allowance for loan losses to loans outstanding

0.04 %

1.35 %

0.01 %

1.55 %

0.04 %

1.71 %

(0.04) %

1.65 %

0.01 %

1.54 %

These provisions are the result of management's evaluation of the quality of the
loan portfolio considering such factors as loan status, collateral values, financial
condition of the borrower, the state of the economy and other relevant
information. The pace of the charge-offs depends on many factors including
the national and regional economy. Cyclical lagging factors may result in
charge-offs being higher than historical levels.

The allowance for loan losses is an estimate of the amount needed for an
adequate reserve related to the inherent risk of loss. This amount is determined
by an evaluation of the loan portfolio including input from an independent
organization engaged to review selected larger loans, a review of loan loss
experience and current economic conditions. At December 31 of each year
the allowance was comprised of the following:

2005

2004

2003

2002

2001

Percent
of loans
in each
category
to total
loans

Amount

Percent
of loans
in each
category
to total
loans

Amount

(dollars in thousands)

Construction and land development

$ 1,014

8.5 %

$ 806

9.0 %

563

6.7 %

$ 303

6.4 %

$ 402

8.5 %

Commercial and industrial

Commercial real estate

Residential real estate

Consumer and other

Home equity

Unallocated

13.7

43.8

21.2

1.7

11.1

1,575

4,131

778

173

600

1,069

12.4

44.6

20.4

1.6

12.0

1,232

3,626

628

144

546

2,019

7.8

57.3

16.9

1.7

9.6

895

4,182

551

130

385

2,063

9.0

56.7

17.9

1.9

8.1

832

3,131

556

147

321

3,216

12.8

52.2

19.1

1.8

5.6

971

2,554

498

130

203

2,354

$ 9,340 100.0 %

$ 9,001 100.0 %

$ 8,769 100.0 %

$ 8,506 100.0 %

$ 7,112 100.0 %

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

Bank Premises and Equipment

December 31,

(dollars in thousands)

Land

Bank premises

Construction in progress (note 14)

Furniture and equipment

Leasehold improvements

Accumulated depreciation and amortization

2005

2004

2003

Estimated Useful Life

3,650
16,916
—
22,726
5,102

48,394
(23,166)

3,650
6,198
11,766
19,740
5,083

46,437
(20,172)

3,650
6,198
7,506
17,969
4,446

39,769
(18,180)

$ 25,228

$ 26,265

$ 21,589

—
30-39 years

3-10 years
30-39 years or lease term

The Company and its subsidiaries are obligated under a number of
noncancelable operating leases for premises and equipment expiring in
various years through 2026. Total lease expense approximated $1,076,000,
$1,084,000 and $886,000 for the years ended December 31, 2005, 2004
and 2003, respectively.

Future minimum rental commitments for noncancelable operating leases with
initial or remaining terms of one year or more at December 31, 2005 were
as follows:

(dollars in thousands)

Year

Amount

2006
2007
2008
2009
2010
Thereafter

$ 1,081
1,017
947
743
601
953

$ 5,342

Deposits
The Company offers savings accounts, NOW accounts, demand deposits, time
deposits and money market accounts. The Company offers cash management
accounts which provide either automatic transfer of funds above a specified level
from the customer's checking account to a money market account or short-term
borrowings. Also, an account reconciliation service is offered whereby the
Company provides a computerized report balancing the customer's checking
account.

Interest rates on deposits are set bi-monthly by the Bank’s rate-setting committee,
based on factors including loan demand, maturities and a review of competing
interest rates offered. Interest rate policies are reviewed periodically by the
Executive Management Committee.

Time Deposits as of December 31, are as follows:

(dollars in thousands)

Three months or less

Three months through six months

Six months through twelve months

Over twelve months

2005

2004

2003

$ 205,722
46,398
60,677
88,976

$ 206,518
36,323
36,059
80,916

$ 207,180
33,011
52,640
66,786

$ 401,773

$ 359,816

$ 359,617

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

Time Deposits of $100,000 or more as of December 31, are as follows:

(dollars in thousands)

Three months or less

Three months through six months

Six months through twelve months

Over twelve months

2005

2004

2003

$ 181,146
27,455
20,317
30,383

$ 169,423
15,576
7,866
20,428

$ 165,198
2,852
8,003
3,759

$ 259,301

$ 213,293

$ 179,812

Securities Sold Under Agreements to Repurchase

(dollars in thousands)

Amount outstanding at December 31,

Weighted average rate at December 31,

Maximum amount outstanding at any month end

Daily average balance outstanding during the year

Weighted average rate during the year

2005

2004

2003

$ 50,010

$ 38,650

$ 40,500

3.05 %

0.97 %

0.77 %

$ 52,680
$ 39,746

$ 49,700
$ 40,937

2.05 %

0.81 %

$ 58,830
$ 51,402
0.89 %

Amounts outstanding at December 31, 2005, 2004, and 2003 carried maturity
dates of the next business day. U.S. Government and Agency securities with a
total book value of $52,009,000, $39,460,000, and $40,560,000 were
pledged as collateral and held by custodians to secure the agreements at
December 31, 2005, 2004, and 2003, respectively. The approximate market
value of the collateral at those dates was $50,328,000, $38,989,000, and
$40,638,000, respectively.

10.

Other Borrowed Funds and Subordinated Debentures

(dollars in thousands)

Amount outstanding at December 31,

Weighted average rate at December 31,

Maximum amount outstanding at any month end

Daily average balance outstanding during the year

Weighted average rate during the year

2005

2004

2003

$ 340,805

$ 280,628

$ 165,968

4.79 %

4.62 %

4.86 %

$ 393,734
$ 268,878

$ 280,628
$ 194,932

4.69 %

4.72 %

$ 233,600
$ 170,344
5.01 %

FEDERAL HOME LOAN BANK BORROWINGS
Federal Home Loan Bank ("FHLB") borrowings are collateralized by a blanket pledge agreement on the Bank's FHLB stock, certain qualified investment securities,
deposits at the Federal Home Loan Bank and residential mortgages held in the Bank's portfolio. The Bank's borrowing capacity at the Federal Home Loan Bank at
December 31, 2005 was approximately $320,256,000 based on levels of FHLB stock held and mix of overnight and term advances on that date. In addition, the Bank
has a $14,500,000 line of credit with the FHLB. A schedule of the maturity distribution of FHLB advances with the weighted average interest rates is as follows:

December 31,

2005

2004

2003

Amount

$ 197,156
2,500
19,500
63,500
16,000

$ 298,656

Weighted
Average
Rate

4.15 %
3.66 %
5.38 %
5.72 %
4.43 %

4.58 %

Weighted
Average
Rate

2.22 %
7.20 %
0.00 %
5.25 %
5.32 %

3.79 %

Amount

$ 105,000
1,120
—
51,500
55,500

$ 213,120

Amount

$ 35,000
—
1,178
19,500
78,500

$ 134,178

Weighted
Average
Rate

1.55 %
0.00 %
7.20 %
5.38 %
5.40 %

4.41 %

(dollars in thousands)

Within 1 year

Over 1 year to 2 years

Over 2 years to 3 years

Over 3 years to 5 years

Over 5 years

Total

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

SUBORDINATED DEBENTURES

11.

In May 1998, the Company consummated the sale of a trust preferred securities
offering, in which it issued $29,639,000 of subordinated debt securities due
2029 to its newly formed unconsolidated subsidiary Century Bancorp
Capital Trust.

Century Bancorp Capital Trust then issued 2,875,000 shares of Cumulative
Trust Preferred Securities with a liquidation value of $10 per share. These
securities pay dividends at an annualized rate of 8.30%. The Company
redeemed through its subsidiary, Century Bancorp Capital Trust, their 8.30%
Trust Preferred Securities, January 10, 2005.

In December 2004, the Company consummated the sale of a trust preferred
securities offering, in which it issued $36,083,000 of subordinated debt
securities due 2034 to its newly formed unconsolidated subsidiary Century
Bancorp Capital Trust II.

Century Bancorp Capital Trust II then issued 35,000 shares of Cumulative
Trust Preferred Securities with a liquidation value of $1,000 per share. These
securities pay dividends at an annualized rate of 6.65% for the first ten years
and then convert to the three-month LIBOR rate plus 1.87% for the remaining
twenty years. The Company is using the proceeds primarily for general
business purposes.

OTHER BORROWED FUNDS
The Bank had $4,500,000 of overnight federal funds purchased on December
31, 2005. This borrowing carried an interest rate at 4.00%.

The Bank serves as a Treasury Tax and Loan depository under a note option with
the Federal Reserve Bank of Boston. This open-ended interest bearing borrowing
carries an interest rate equal to the daily Federal funds rate less 0.25%. This
amount totaled $1,418,000 and $1,638,000 at December 31, 2005 and
2004, respectively.

The Bank also has an outstanding loan in the amount of $148,000 borrowed
against the cash value of a whole life insurance policy for a key executive
of the bank.

Stockholders’ Equity
DIVIDENDS
Holders of the Class A common stock may not vote in the election of directors,
but may vote as a class to approve certain extraordinary corporate transactions.
Holders of Class B may vote in the election of directors. Class A common stock-
holders are entitled to receive dividends per share equal to at least 200% per
share of that paid, if any, on each share of Class B common stock. Class A
common stock is publicly traded. Class B common stock is not publicly traded,
however, it can be converted on a share for share basis to Class A common stock
at any time at the option of the holder. Dividend payments by the Company are
dependent in part on the dividends it receives from the Bank, which are
subject to certain regulatory restrictions.

EARNINGS PER SHARE (EPS)
Diluted EPS includes the dilutive effect of common stock equivalents; basic EPS
excludes all common stock equivalents. The only common stock equivalents for
the Company are the stock options discussed below. The dilutive effect of these
stock options for 2005, 2004 and 2003 was an increase of 13,265, 26,995
and 28,815 shares, respectively.

STOCK OPTION PLAN
During 2000 and 2004, common stockholders of the Company approved stock
option plans (the “Option Plans”) that provides for granting of options for not
more than 150,000 shares of Class A common stock per plan. Under the
Option Plans, all officers and key employees of the Company are eligible to
receive non-qualified and incentive stock options to purchase shares of Class A
common stock. The Option Plans are administered by the Compensation
Committee of the Board of Directors, whose members are ineligible to
participate in the Option Plans. Based on management’s recommendations, the
Committee submits its recommendations to the Board of Directors as to persons
to whom options are to be granted, the number of shares granted to each, the
option price (which may not be less than 85% of the fair market value for
non-qualified stock options, or the fair market value for incentive stock options,
of the shares on the date of grant) and the time period over which the options
are exercisable (not more than ten years from the date of grant). There were
130,133 options exercisable at December 31, 2005.

Stock option activity under the plan is as follows:

Shares under option:

Outstanding at beginning of year

Granted

Cancelled

Exercised

Outstanding at end of year

Exercisable at end of year

Available to be granted at end of year

Weighted average fair value of

options granted during the year

December 31, 2005

December 31, 2004

December 31, 2003

Weighted
Average
Exercise Price

26.65
—
28.56
16.82

26.74

Weighted
Average
Exercise Price

22.84
32.64
26.68
18.31

26.65

22.22

Amount

95,062
47,050

(675)
(9,650)

131,787

67,486

149,475

Weighted
Average
Exercise Price

19.52
27.58
15.49
15.93

22.84

18.65

Amount

67,000
35,750
(675)
(7,013)

95,062

42,399

45,850

10.69

6.84

Amount

$ 131,787
—
(300)
(1,354)

130,133

149,775

At December 31, 2005, the 130,133 options outstanding have exercise prices between $15.063 and $35.010, with a weighted average exercise price at $26.74 and a
weighted average remaining contractual life of 6 years.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

The Bank and the Company are subject to various regulatory requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct material affect on
the Bank and the Company’s financial statements. Under capital adequacy
guidelines and regulatory framework for prompt corrective action, the Bank and
the Company must meet specific capital guidelines that involve quantitative
measures of the Bank and the Company’s assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices.
The Bank and the Company’s capital amounts and classification are also
qualitative judgments by the regulators about components, risk weightings,
and other factors.

Quantitative measures established by regulation to ensure capital adequacy require
the Bank and the Company to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital (as defined in the regulation) to
risk weighted assets (as defined), and Tier 1 capital (as defined) to average assets
(as defined). Management believes, as of December 31, 2005, that the Bank and
the Company meet all capital adequacy requirements to which it is subject.

As of December 31, 2005, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier risk- based, and Tier 1 leverage ratios as
set forth in the table. There are no conditions or events since that notification
that management believes would cause a change in the Bank's categorization.

The Bank’s actual capital amounts and ratios are presented in the following table.

As of December 31, 2005

Total Capital (to risk-weighted assets)

Tier 1 capital (to risk-weighted assets)

Tier 1 capital (to 4th Qtr. average assets)

As of December 31, 2004

Total Capital (to risk-weighted assets)

Tier 1 capital (to risk-weighted assets)

Tier 1 capital (to 4th Qtr. average assets)

Actual
Amount

$ 119,839

110,499

116,698

107,697

Ratio

13.13 %

12.11 %

6.72 %

13.47 %

12.43 %

6.54 %

The Company’s actual capital amounts and ratios are presented in the following table.

As of December 31, 2005

Total Capital (to risk-weighted assets)

Tier 1 capital (to risk-weighted assets)

Tier 1 capital (to 4th Qtr. average assets)

As of December 31, 2004

Total Capital (to risk-weighted assets)

Tier 1 capital (to risk-weighted assets)

Tier 1 capital (to 4th Qtr. average assets)

Actual
Amount

$ 150,603

141,263

174,984

136,311

Ratio

16.48 %

15.46 %

8.58 %

20.14 %

15.69 %

8.27 %

For Capital Adequacy
Purposes

Amount

Ratio

To Be Well Capitalized
Action Provisions

Amount

Ratio

$ 73,001

36,500

65,729

69,312

34,656

65,835

8.00 %

4.00 %

8.00 %

4.00 %

For Capital Adequacy
Purposes

Amount

Ratio

$ 73,108

36,554

65,821

69,503

34,752

65,940

8.00 %

4.00 %

8.00 %

4.00 %

$ 91,251

10.00 %

54,751

82,162

86,640

51,984

82,294

6.00 %

5.00 %

10.00 %

6.00 %

5.00 %

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

Amount

Ratio

$ 91,385

10.00 %

54,831

82,276

86,879

52,127

82,425

6.00 %

5.00 %

10.00 %

6.00 %

5.00 %

12.

Income Taxes
The current and deferred components of income tax expense for the years ended December 31 are as follows:

(dollars in thousands)

Current expense:

Federal

State

Total current expense

Deferred expense (benefit):

Federal

State

Total deferred expense (benefit)

Provision for income taxes

2005

2004

2003

2,842
196

3,038

4,277
227

4,504

5,783
4,596

10,379

117
11

128

427
43

470

102
(1,518)

(1,416)

3,166

4,974

8,963

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

Income tax accounts included in other assets at December 31 are as follows:

(dollars in thousands)

Currently receivable

Deferred income tax asset, net

2005

2004

486
12,509

474
8,518

$ 12,995

$ 8,992

Income tax expense for the years presented is different from the amounts computed by applying the statutory Federal income tax rate of 35% for 2005 and 35% for
2004 and 2003 to income before Federal income taxes. The following tabulation reconciles Federal income tax expense based on statutory rates to the actual income
tax expense for the years ended December 31:

(dollars in thousands)

Federal income tax expense at statutory rates

State income tax, net of federal income tax benefit

Insurance gains

Effect of tax-exempt interest

Other

2005

2004

2003

3,516
135
(356)
(8)
(121)

4,849
176
(260)
—
209

7,225
2,001
(159)
(1)
(103)

3,166

4,974

8,963

Effective tax rate

31.5 %

35.9 %

43.4 %

The following table sets forth the Company’s gross deferred income tax assets
and gross deferred income tax liabilities at December 31:

(dollars in thousands)

Deferred income tax assets:

Allowance for loan losses

Deferred compensation

Unrealized loss on securities

available-for-sale

Unrecognized SERP liability

Acquisition premium

Investments writedown

Deferred gain

Other

Gross deferred

income tax asset

Deferred income tax liabilities:

Accrued dividends

Depreciation

Limited partnerships

Other

Gross deferred income

tax liability

Deferred income tax

asset net

2005

2004

$ 3,907
4,136
5,271

$ 3,765
3,855
1,914

2,026
380
33
156
1

1,264
721
33
176
8

15,910

11,736

(70)
(1,191)
(2,048)
(92)

(41)
(1,277)
(1,836)
(64)

(3,401)

(3,218)

$ 12,509

$ 8,518

During 2003, the Company incurred a net tax charge of $1,183,000 associated
with the Real Estate Investment Trust (“REIT”) settlement. This charge was the
result of an agreement with the Massachusetts Department of Revenue (“DOR”)
settling a dispute related to taxes that the DOR claimed were owed from the
Company’s REIT.

Based on the Company’s historical and current pretax earnings, management
believes it is more likely than not that the Company will realize the deferred
income tax asset existing at December 31, 2005. Management believes that
existing net deductible temporary differences which give rise to the deferred tax
asset will reverse during periods in which the Company generates net taxable
income. In addition, gross deductible temporary differences are expected to
reverse in periods during which offsetting gross taxable temporary differences are
expected to reverse. Factors beyond management’s control, such as the general
state of the economy and real estate values, can effect future levels of taxable
income, and no assurance can be given that sufficient taxable income will be
generated to fully absorb gross deductible temporary differences.

13.

Employee Benefits
The Company has a qualified Defined Benefit Pension Plan (the "Plan"), which is
offered to all employees reaching minimum age and service requirements.
Stability in the size of the work force, modest increases in compensation expense
offset by lower accruals for those hired after March 31, 2004 resulted in a
decrease in pension cost.

The measurement date for the Plan is September 30 for each year. The benefits
expected to be paid in each year from 2006-2010 are $563,000, $572,000,
$613,000, $687,000, and $754,000. The aggregate benefits expected to be
paid in the five years from 2011-2015 are $4,922,000. The Company plans to
contribute $1,480,000 to the Plan in 2006.

The weighted-average asset allocation of pension benefit assets at September
30, were:

Asset Category

Debt Securities

Equity Securities

Other

2005

2004

73 %
14 %
13 %

66 %
15 %
19 %

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

The Company has a Supplemental Insurance/Retirement Plan (the Supplemental
Plan), which is limited to certain officers and employees of the Company. The
Supplemental Plan is voluntary and participants are required to contribute to its
cost. Under the Supplemental Plan, each participant will receive a retirement
benefit based on compensation and length of service. Individual life insurance
policies, which are owned by the Company, are purchased covering the lives of
each participant. Decreased compensation expense resulted in decreased cost
for the Supplemental Plan.

The measurement date for the Supplemental Plan is September 30 for each year.
The benefits expected to be paid in each year from 2006-2010 are $894,000,
$960,000, $938,000, $916,000, and $898,000. The aggregate benefits
expected to be paid in the five years from 2011-2015 are $4,261,000.

Change in benefit obligation

Benefit obligation at beginning of year

Service cost

Interest cost

Actuarial (gain)/loss

Benefits paid

Benefit obligation at end of year

Change in plan assets

Fair value of plan assets at beginning of year

Actual return on plan assets

Employer contributions

Benefits paid

Fair value of plan assets at end of year

(Unfunded) funded status

Unrecognized prior service benefit (cost)

Unrecognized net actuarial loss

Accrued benefit cost

Accumulated benefit obligation

Weighted-average assumptions as of December 31

Discount rate – Liability

Discount rate – Expense

Expected return on plan assets

Rate of compensation increase

Components of net periodic benefit cost

Service cost

Interest cost

Expected return on plan assets

Recognized prior service cost

Recognized net losses

Net periodic cost

Additional minimum pension liability

Defined Benefit Pension Plan

Supplemental Insurance/
Retirement Plan

2005

2004

2005

2004

14,076
760
914
2,869
(280)

18,339

10,803
282
1,389
(280)

12,194

(6,145)
1,421
(7,401)

(165)

16,680

5.50 %
6.00 %
8.00 %
4.00 %

760
914
(854)
(20)
256

1,056

3,135

13,353
714
868
(628)
(231)

11,857
128
746
1,676
(277)

13,368
12
869
(2,331)
(61)

14,076

14,130

11,857

9,285
224
1,525
(231)

10,803

(3,273)
1,441
(4,216)

(498)

13,037

6.50 %
6.50 %
8.00 %
4.00 %

714
868
(597)
(4)
224

1,205

2,201

(14,130)
(1,091)
(3,062)

(9,977)

13,291

5.50 %
6.00 %
N/A
4.00 %

128
746
—
64
51

989

1,708

(11,857)
(1,155)
(1,437)

(9,265)

11,151

6.50 %
6.50 %
N/A
4.00 %

12
869
—
64
174

1,119

820

Assumptions for expected return on plan assets and discount rates in the
Company’s Plan and Supplemental Plan are periodically reviewed. As part of the
review, management in consultation with independent consulting actuaries
perform an analysis of expected returns based on the plan’s asset allocation.
This forecast reflects the Company’s and actuarial firm’s expected return on plan
assets for each significant asset class or economic indicator. The range of
returns developed relies both on forecasts and on broad-market historical
benchmarks for expected return, correlation, and volatility for each asset class.
Also, as a part of the review, the Company’s management in consultation with
independent consulting actuaries perform an analysis of discount rates based
on expected returns of high grade fixed income debt securities.

The Company offers a 401(k) defined contribution plan for all employees
reaching minimum age and service requirements. The plan is voluntary and
employee contributions are matched by the Company at a rate of 33.3% for
the first 6% of compensation contributed by each employee. The Company's
match totaled $217,000 for 2005, $211,000 for 2004 and $218,000 for
2003. Administrative costs associated with the plan are absorbed by the
Company. The Company does not offer any post retirement programs other
than pensions.

14.

Commitments and Contingencies
A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 2005. Management, after reviewing
these claims with legal counsel, is of the opinion that their resolution will not
have a material adverse effect on the Company’s consolidated financial position
or results of operation.

15.

Financial Instruments With Off-Balance Sheet Risk
The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments primarily include commitments to originate and sell loans,
standby letters of credit, unused lines of credit and unadvanced portions of
construction loans. The instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the consoli-
dated balance sheet. The contract or notational amounts of those instruments
reflect the extent of involvement the Company has in these particular classes of
financial instruments.

The Company's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for loan commitments, standby letters of
credit and unadvanced portions of construction loans is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. Financial instruments with off-balance sheet risk
at December 31, are as follows:

Contract or Notational Amount

(dollars in thousands)

Financial instruments whose contract

amount represents credit risk:

Commitments to originate

1-4 family mortgages

Standby letters of credit

Unused lines of credit

Unadvanced portions

of construction loans

Unadvanced portions

of other loans

2005

2004

1,814
10,272
143,533

$ 2,511
11,195
118,008

52,469

33,754

7,934

10,907

Commitments to originate loans, unadvanced portions of construction loans and
unused letters of credit are generally agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the borrower.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

16.

Other Operating Expenses
Year ended December 31,

2005

2004

2003

(dollars in thousands)

Marketing

Processing services

Supplies

Telephone

Postage and delivery

Legal and audit

Consulting

Software maintenance/amortization

Insurance

Director's fees

FDIC assessment

Core deposit tangible amortization

Capital expense amortization

Other

$ 1,478
1,281
605
489
820
881
616
876
370
200
186
388
9
1,137

$ 1,403
1,379
728
583
826
812
316
653
316
258
198
388
—
1,160

$ 1,265
1,292
775
511
735
478
316
743
248
270
208
320
137
860

$ 9,336

$ 9,020

$ 8,158

17.

Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating fair values of its financial instruments.

Excluded from this disclosure are certain financial instruments for which it is not
practical to estimate their value and all nonfinancial instruments. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.

CASH AND CASH EQUIVALENTS
The carrying amounts reported in the balance sheet for cash and cash equiva-
lents approximate the fair values of these assets because of the short-term
nature of these financial instruments.

SECURITIES HELD-TO-MATURITY AND SECURITIES AVAILABLE-FOR-SALE
The fair value of these securities, excluding certain state and municipal securities
whose fair value is estimated at book value because they are not readily
marketable, is estimated based on bid prices published in financial newspapers
or bid quotations received from securities dealers.

LOANS
For variable-rate loans that reprice frequently and with no significant change in
credit risk, fair values are based on carrying amounts. The fair value of other
loans is estimated using discounted cash flow analysis, based on interest rates
currently being offered for loans with similar terms to borrowers of similar credit
quality. Incremental credit risk for non-performing loans has been considered.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

ACCRUED INTEREST RECEIVABLE AND PAYABLE
The carrying amounts for accrued interest receivable and payable approximate
fair values because of the short-term nature of these financial instruments.

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 for other subordinated debentures of similar remaining maturities.

DEPOSITS
The fair value of deposits with no stated maturity is equal to the
carrying amount. The fair value of time deposits is based on the discounted
value of contractual cash flows, applying interest rates currently being offered on
the deposit products of similar maturities. The fair value estimates for deposits
do not include the benefit that results from the low-cost funding provided by
the deposit liabilities compared to the cost of alternative forms of funding
(“deposit base intangibles”).

REPURCHASE AGREEMENTS AND OTHER BORROWED FUNDS
The fair value of repurchase agreements and other borrowed funds is based on
the discounted value of contractual cash flows. The discount rate used is
estimated based on the rates currently offered for other borrowed funds of
similar remaining maturities.

OFF-BALANCE SHEET INSTRUMENTS
The fair values of the Company’s unused lines of credit and unadvanced
portions of construction loans, commitments to originate and sell loans and
standby letters of credit are estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties’ credit standing.

The carrying amounts and fair values of the Company’s financial instruments at December 31, are as follows:

(dollars in thousands)

Financial assets:

Cash and cash equivalents

Securities available-for-sale

Securities held-to-maturity

Net loans

Accrued interest receivable

Financial liabilities:

Deposits

Repurchase agreement and other borrowed funds

Subordinated debentures

Accrued interest payable

Standby letters of credit

2005

2004

Carrying
Amounts

Fair Value

Carrying
Amounts

Fair Value

$ 152,679
532,982
286,578
680,305
7,127

1,217,040
354,732
36,083
1,891

—

152,679
532,982
277,769
665,515
7,127

1,216,610
358,263
35,769
1,891

118

238,235
609,806
345,369
571,002
6,800

1,394,010
253,556
65,722
2,305

$ 238,235
609,806
343,399
565,539
6,800

1,397,901
255,036
65,801
2,305

—

136

LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the type of financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Bank’s entire holdings of a particular financial
instrument. Because no active market exists for some of the Bank’s financial
instruments, fair value estimates are based on judgements regarding future
expected loss experience, cash flows, current economic conditions, risk
characteristics and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgement and therefore cannot
be determined with precision. Changes in assumptions and changes in the loan,
debt and interest rate markets could significantly affect the estimates. Further,
the income tax ramifications related to the realization of the unrealized gains
and losses can have a significant effect on the fair value estimates and have
not been considered.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

18.

Quarterly Results of Operations (unaudited)

2005 Quarters

(in thousands, except share data)

Interest income

Interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Other operating income

Operating expenses

Income before income taxes

Provision for income taxes

Net income

Share data:

Average shares outstanding, basic

Average shares outstanding, diluted

Earnings per share, basic

Earnings per share, diluted

2004 Quarters

(in thousands, except share data)

Interest income

Interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Other operating income

Operating expenses

Income before income taxes

Provision for income taxes

Net income

Share data:

Average shares outstanding, basic

Average shares outstanding, diluted

Earnings per share, basic

Earnings per share, diluted

Fourth

Third

Second

First

18,788
9,421

9,367
150

9,217
2,633
10,100

1,750
478

1,272

5,535,442

5,548,548

0.23

Fourth

16,892
6,578

10,314
150

10,164
2,432
9,452

3,144
1,117

18,289
8,533

9,756
150

9,606
2,720
10,067

2,259
727

1,532

5,535,388

5,559,425

0.28

Third

16,077
5,561

10,516
150

10,366
2,501
9,587

3,280
1,147

18,082
7,745

10,337
150

10,187
2,937
10,116

3,008
973

2,035

5,535,317

5,540,598

0.37

Second

16,102
5,502

10,600
—

10,600
2,745
9,560

3,785
1,382

2,027

2,133

2,403

5,528,008

5,547,913

0.37

5,526,438

5,552,202

0.39

0.38

5,525,665

5,553,500

0.44

0.43

17,652
7,121

10,531
150

10,381
2,683
10,035

3,029
988

2,041

5,534,651

5,543,783

0.37

First

15,962
6,005

9,957

9,957
2,753
9,064

3,646
1,328

2,318

5,524,659

5,557,984

0.42

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ‘05

19.

Parent Company Financial Statements
The balance sheets of Century Bancorp, Inc. (“Parent Company”) as of December 31, 2005 and 2004 and the statements of income and cash flows for each of the
years in the three-year period ended December 31, 2005 and presented below. The statements of changes in stockholders’ equity are identical to the consolidated
statements of changes in stockholders’ equity and are therefore not presented here.

BALANCE SHEETS
December 31,

(dollars in thousands)

ASSETS:

Cash

Investment in subsidiary, at equity

Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY:

Liabilities

Subordinated debentures

Stockholders’ equity

Total liabilities and stockholders’ equity

STATEMENTS OF INCOME
December 31,

(dollars in thousands)

Income:

Dividends from subsidiary

Interest income from deposits in bank

Other income

Total Income

Interest expense

Operating expenses

Income before income taxes and equity in undistributed income of subsidiary

Provision for income taxes

Income before equity in undistributed income of subsidiary

Equity in undistributed income of subsidiary

2005

2004

$ 30,458
107,388
1,550

$ 139,396

112
36,083
103,201

$ 139,396

58,704
110,189
2,465

$ 171,358

863
65,722
104,773

$ 171,358

2005

2004

2003

4,505
798
72

5,375
2,468
186

2,721
(638)

3,359
3,521

5,786
313
80

6,179
2,653
216

3,310
(873)

4,183
4,698

2,825
377
74

3,276
2,460
250

566
(790)

1,356
10,324

Net income

6,880

8,881

$ 11,680

STATEMENTS OF CASH FLOWS
Year Ended December 31,

(dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

2005

2004

2003

6,880

8,881

$ 11,680

Undistributed income of subsidiary

Depreciation and amortization

Decrease (increase) in other assets

(Decrease) increase in liabilities

Net cash provided by operating activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Subordinated debt issuance (retirement)

Capital payment to bank subsidiary

Stock options exercised

Cash dividends paid

Treasury stock repurchases

Net cash (used in) provided by financing activities

Net (decrease) increase in cash

Cash at beginning of year

Cash at end of year

(3,521)
9
906
(751)

3,523

(29,639)
—
23
(2,153)
—

(31,769)

(28,246)

58,704

(4,698)
—
(1,098)
444

3,529

36,083
—
177
(2,147)
—

34,113

37,642

21,062

(10,324)
138
(61)
(1,245)

188

889
(13,000)
111
(2,008)
—

(14,008)

(13,820)

34,882

$ 30,458

$ 58,704

$ 21,062

Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ‘05

KPMG LLP

Independent Registered Public Accounting Firm
99 High Street
Boston, Massachusetts 02110

The Board of Directors and Stockholders
Century Bancorp, Inc.:

We have audited the accompanying consolidated balance sheets of Century Bancorp, Inc. and subsidiary as of December 31, 2005 and 2004, and
the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Century Bancorp,
Inc. and subsidiary as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 2006 expressed an
unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

Boston, Massachusetts

February 27, 2006

Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ‘05

KPMG LLP

Independent Registered Public Accounting Firm
99 High Street
Boston, Massachusetts 02110

The Board of Directors and Stockholders
Century Bancorp, Inc.:

We have audited management's assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting,
that Century Bancorp, Inc. and subsidiary maintained effective internal control over financial reporting as of December 31, 2005, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment
and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Century Bancorp, Inc. and subsidiary maintained effective internal control over financial
reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheets of Century Bancorp, Inc. and subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of
income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005, and our
report dated February 27, 2006 expressed an unqualified opinion on those consolidated financial statements.

Boston, Massachusetts

February 27, 2006

Management’s Report on Internal Control Over Financial Reporting

Century Bancorp, Inc. AR ‘05

CENTURY BANCORP, INC.

400 Mystic Avenue
Medford, Massachusetts 02155

We, together with the other members of Century Bancorp, Inc. and subsidiary (the “Company”), are responsible for establishing and maintaining adequate
internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the Company’s
management and board of directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and presentation.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making
this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—
Integrated Framework. Based on our assessment we believe that, as of December 31, 2005, the Company’s internal control over financial reporting is
effective based on those criteria.

The Company’s independent registered public accounting firm has issued an audit report on our assessment of the Company’s internal control over
financial reporting. Their report appears on page 34.

Marshall M. Sloane
Chairman and CEO

February 27, 2006

Paul V. Cusick, Jr.
Vice President and Treasurer

Notes

Century Bancorp, Inc. AR ‘05

Stockholder Information

C O R P O R AT E H E A D Q UA RT E RS
Century Bank
400 Mystic Avenue
Medford, MA 02155-6316
TEL 866.8.CENTURY
century-bank.com

T R A N S F E R AG E N T A N D R E G I S T R A R
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
TEL (781) 575.3400 (Investor Relations)
computershare.com/EquiServe

A N N UA L M E E T I N G
The annual meeting of stockholders will be held on Tuesday, April 11, 2006, at 10:00 a.m. The meeting will take place at Century Bank,
400 Mystic Avenue, Medford, MA.

S TO C K L I S T I N G
Century Bancorp, Inc. became a public company in 1987. Century’s Class A Common Stock is listed in the NASDAQ national market and is traded
under the symbol CNBKA. The stock is listed as CntyBcMA in The Boston Globe and Boston Herald, and CentBcp in The Wall Street Journal.

10 - K R E P O RT
A copy of the Company’s annual report to the Securities and Exchange Commission on Form 10-K may be obtained without charge upon written
request to: Century Bancorp, Inc., Investor Relations, 400 Mystic Avenue, Medford, MA 02155.

Century Bank Locations

O F F I C E S
Allston
Beverly
Boston
Boston
Boston
Boston
Boston
Boston
Boston
Braintree
Brookline
Burlington
Cambridge
Everett
Lynn
Malden
Medford
Medford Square
Newton
Peabody
Quincy
Salem
Somerville
Worcester

300 Western Avenue, Allston, MA 02134
428 Rantoul Street, Beverly, MA 01915
710 Albany Street, Boston, MA 02118
280 Atlantic Avenue, Boston, MA 02110
512 Commonwealth Avenue, Boston, MA 02215
771 Commonwealth Avenue, Boston, MA 02215
275 Hanover Street, Boston, MA 02113
24 Federal Street, Boston, MA 02110
136 State Street, Boston, MA 02110
703 Granite Street, Braintree, MA 02184
1184-1186 Boylston Street/Rt 9 East, Brookline, MA 02467
134 Cambridge Street/Rt 3A, Burlington, MA 01803
2309 Massachusetts Avenue, Cambridge, MA 02140
1763 Revere Beach Parkway/Rt 16, Everett, MA 02149
2 State Street, Lynn, MA 01901
140 Ferry Street at Eastern Avenue, Malden, MA 02148
400 Mystic Avenue, Medford, MA 02155
55 High Street, Medford, MA 02155
31 Boylston Street/Route 9 West, Newton, MA 02467
12 Peabody Square, Peabody, MA 01960
651 Hancock Street, Quincy, MA 02170
37 Central Street, Salem, MA 01970
102 Fellsway West at Mystic Avenue, Somerville, MA 02145
114 West Boylston Street, Worcester, MA 01606

(617) 562.1700
(978) 921.2300
(617) 578.9250
(617) 557.0516
(617) 424.1644
(617) 424.5211
(617) 557.2950
(617) 423.1490
(617) 367.3712
(781) 356.3400
(617) 713.4910
(781) 238.8700
(617) 349.5300
(617) 381.6300
(781) 586.8700
(781) 388.2100
(781) 393.4160
(781) 391.9830
(617) 582.0920
(978) 977.4900
(617) 376.8100
(978) 740.6900
(617) 629.0929
(508) 854.2209

F R E E S TA N D I N G C A S H D I S P E N S E RS
Boston
Boston
Boston
Boston
Boston
Boston
Boston
Boston
Cambridge
Medford

Agganis Arena, Boston University, 925 Commonwealth Avenue, Boston, MA 02215
Barnes & Noble, 660 Beacon Street, Boston, MA 02215
Campus Convenience/Sleeper Hall, Boston University, 275 Babcock Street, Boston, MA 02215
Dental School, Boston University, 100 East Newton Street, Boston, MA 02118
The Hotel Commonwealth, 500 Commonwealth Avenue, Boston, MA 02215
Medical School, Boston University, 715 Albany Street, Boston, MA 02118
Parking Garage, Boston University, 710 Albany Street, Boston, MA 02118
Warren Towers, 770 Commonwealth Avenue, Boston, MA 02215
One Kendall Square, Building #100, Cambridge, MA 02139
Magoun Square, 110 Medford Street, Medford, MA 02155

400 Mystic Avenue
Medford, MA 02155
866.8.CENTURY
www.century-bank.com

0665-AR-06