Century Bancorp Inc. Annual Report 2009

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FY2009 Annual Report · Century Bancorp Inc.

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2009 Annual Report

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What’s greater than 2 billion in assets?
41 years of family values.

400 Mystic Avenue, Medford, MA 02155 (866) 823-6887

Equal Housing Lender/Member FDIC

002-CS1A059

Stockholder Information

Corporate Headquarters

Century Bank

400 Mystic Avenue

Medford, MA 02155-6316

AskCentury.com

Annual Meeting

TEL (866) 8-CENTURY or (866) 823-6887

Transfer Agent and Registrar

Computershare Investor Services

P.O. Box 43078

Providence, RI 02940-3078

TEL (781) 575-3400

Computershare.com

Stockholder Information

Corporate Headquarters

Century Bank

400 Mystic Avenue

Medford, MA 02155-6316

AskCentury.com

Annual Meeting

TEL (866) 8-CENTURY or (866) 823-6887

Transfer Agent and Registrar

Computershare Investor Services

P.O. Box 43078

Providence, RI 02940-3078

TEL (781) 575-3400

Computershare.com

The annual meeting of stockholders will be held on Tuesday, April 13, 2010, at 10:00 a.m. The meeting will take place at

Century Bank, 400 Mystic Avenue, Medford, MA.

Century Bancorp, Inc. became a public company in 1987. Century’s Class A Common Stock is listed on the NASDAQ market

and is traded under the symbol “CNBKA.”

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 or online at

http://www.century-bank.com/about/investorrelations.cfm.

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 or online at

http://www.century-bank.com/about/investorrelations.cfm.

Century Bank Locations

Stock Listing

10-K Report

Offices

Allston

Beverly

Boston

Braintree

Brookline

Burlington

Cambridge

Everett

Lynn

Malden

Medford

Newton

Peabody

Quincy

Salem

Somerville

Winchester

Boston

Cambridge

Medford

Milton

Weston

300 Western Avenue, Allston, MA 02134

428 Rantoul Street, Beverly, MA 01915

512 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

1354 Beacon Street, Brookline, MA 02446

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

1 Salem Street, Medford, MA 02155

503 Riverside Avenue, Fellsway Plaza, Medford, MA 02155

31 Boylston Street/Rt 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

522 Main Street, Winchester, MA 01890

OPENING APRIL 2010

(617) 562-1700

(978) 921-2300

(617) 424-1644

(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) 391-9830

(781) 393-4160

(781) 393-6520

(617) 582-0920

(978) 977-4900

(617) 376-8100

(978) 740-6900

(617) 629-0929

(781) 756-3480

The Hotel Commonwealth, 500 Commonwealth Avenue, Boston, MA 02215

CambridgeSide Galleria, 100 CambridgeSide Place, Cambridge, MA 02141

One Kendall Square, Building #100, Cambridge, MA 02139

Sloane Square, 110 Medford Street, Medford, MA 02155

Milton Hospital, 199 Reedsdale Road, Milton, MA 02186

College Hall, Regis College, 235 Wellesley Street, Weston, MA 02493

Stock Listing

10-K Report

Offices

Allston

Beverly

Boston

Braintree

Brookline

Burlington

Cambridge

Everett

Lynn

Malden

Medford

Newton

Peabody

Quincy

Salem

Somerville

Winchester

Boston

Cambridge

Medford

Milton

Weston

300 Western Avenue, Allston, MA 02134

428 Rantoul Street, Beverly, MA 01915

512 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

1354 Beacon Street, Brookline, MA 02446

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

1 Salem Street, Medford, MA 02155

400 Mystic Avenue, Medford, MA 02155

503 Riverside Avenue, Fellsway Plaza, Medford, MA 02155

31 Boylston Street/Rt 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

522 Main Street, Winchester, MA 01890

OPENING APRIL 2010

(617) 562-1700

(978) 921-2300

(617) 424-1644

(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) 391-9830

(781) 393-4160

(781) 393-6520

(617) 582-0920

(978) 977-4900

(617) 376-8100

(978) 740-6900

(617) 629-0929

(781) 756-3480

The Hotel Commonwealth, 500 Commonwealth Avenue, Boston, MA 02215

CambridgeSide Galleria, 100 CambridgeSide Place, Cambridge, MA 02141

One Kendall Square, Building #100, Cambridge, MA 02139

Sloane Square, 110 Medford Street, Medford, MA 02155

Milton Hospital, 199 Reedsdale Road, Milton, MA 02186

College Hall, Regis College, 235 Wellesley Street, Weston, MA 02493

Free-Standing Cash Dispensers

On May 1, 2009, The Sloane family and Century Bank associates celebrated the Bank’s anniversary.

400 Mystic Avenue, Medford, MA 02155

2009

Dear Fellow Shareholders:

In a year when ﬁ nancial “giants” faltered and the federal deﬁ cit ballooned,

Century Bancorp grew its assets by 25% to a record $2.3 billion and increased

net income by 12% to $10.2 million. The Century stock price rose 40%

in 2009, from $15.75 to $22.03 per share. We believe the increase is in

recognition of our consistent and proven brand of banking. Our formula is

once again in high regard by the marketplace because we value relationships,

our colleagues who serve them, and our communities.

2009 was a whirlwind of economic and credit market events, and yet Century

emerged stronger than ever. Century management has been saying for a

very long time that banking is a business that requires a steady temperament

to cultivate quality relationships, built on a foundation of careful risk

management. We found it amusing, even absurd, that the ﬁ nancial giants sent

out press releases announcing their renewed focus on “risk management”

because we believe that skill has always been in our genetic code.

About Century
Century Bancorp, Inc. is a $2.3 billion banking and ﬁ nancial services company headquartered in
Medford, Massachusetts. The Company operates 22 banking ofﬁ ces in 17 cities and towns in
Massachusetts and provides a full range of business, personal, and institutional services. The
Company’s common stock is listed on the NASDAQ market under the symbol: “CNBKA.”

$2.3

billion in assets

400790_Editorial.CS3.indd 1

2/18/10 9:25:11 PM

$10.2

million in net income

34%

increase in deposits

Some important highlights of 2009

(cid:129) Net income grew 12% to $10.2 million for the year ended December 31, 2009,
or $1.84 per diluted share, as compared to net income of $9.0 million, or $1.63 per
diluted share, for the same period a year ago. This growth came despite an
additional FDIC special insurance premium assessment of $1.0 million.

(cid:129) Total assets increased 25% to $2.3 billion on December 31, 2009, from $1.8 billion
on December 31, 2008, a gain of $452.5 million. We were frequently considered
a “safe haven” destination for deposits of well-informed customers and ﬁ duciaries.

(cid:129) Total equity rose to $132.7 million on December 31, 2009, up 10% from $120.5
million on December 31, 2008. Book value per share increased in the period to
$24.00 from $21.76 at the end of 2008.

(cid:129) Total loans grew by 5% to $877.1 million on December 31, 2009. Nonperforming
assets ended the year at a manageable $12.3 million.

(cid:129) Our efﬁ ciency ratio, one of the key metrics of our operations, improved (decreased)
to 68.5% in 2009 from 70.6% in the prior year.

(cid:129) We prepared to open a new branch in April 2010 at 1354 Beacon Street in the
Coolidge Corner neighborhood of Brookline.

(cid:129) We continued our focus on enhancing the communities we serve. In 2009, we
made hundreds of charitable donations; invested in the Hebrew Senior Life Facility
in Brookline, where we dedicated the Sloane Family/Century Bank Garden; and
agreed to construct and maintain a landmark park, the Rose Sloane Garden,
adjacent to our Medford Square Branch.

(cid:129) We were proud to have been acknowledged in 2009 by Sandler O’Neill + Partners
as one of the 30 “Sm-All Stars” top-performing US small-cap banks, by the
Small Business Administration because we were the top lender to veterans in
Massachusetts, and as our market capitalization grew, our stock was included in
the Russell 3000 Index.

(cid:129) Finally, we remind all that we never needed, nor accepted, the TARP (Troubled Assets
Relief Program) capital from the US Treasury.

Total Assets (in thousands)

Earnings per share, diluted

Net Income (in thousands)

5
3
0
4
5
2
2
$

1
8
2
0
8
6
1
$

6
6
5
1
0
8
1
$

4
8
1
$

3
6
1
$

2
4
1
$

6
4
0
9
$

0
6
1
0
1
$

4
6
8
7
$

400790_Editorial.CS3.indd 2

2/18/10 9:25:11 PM

Century Bank is proud to be recognized by these organizations in 2009.

LENDER TO
VETERANS

SANDLER O’NEILL + PARTNERS

2009
Bank & Thrift
SM-ALL STARS

RUSSELL
3000
INDEX

Many bank management teams traditionally spend a fair amount of time working
on their bank strategic plan and long-range forecasts. None that we have heard of
foresaw anything like the events of 2009. What led us through the storm was our
basic system of business beliefs: lend in your home geography, lend with veriﬁ ed
collateral, know your customer, care about your communities, and treat your
customers and associates fairly. These are what we’ve called “family values” for
41 years. They are the core values our Founder and Chairman, Marshall M. Sloane,
set down in 1969, and they propelled our organization to a record 2009. They are
the reason we are the largest family-controlled bank in New England.

In 2010, with the dedication of all of our associates, the support of our clients,
and the conﬁ dence of our shareholders, we plan to do it again.

Sincerely,

Barry R. Sloane
for the Management Committee

Management Committee members, pictured from left:
Brian J. Feeney, William P. Hornby, Linda Sloane Kay,
Marshall M. Sloane, Barry R. Sloane, David B. Woonton,
and Paul A. Evangelista

400790_Editorial.CS3.indd 3

2/23/10 8:16:51 PM

Sloane Family and Century Bank
Garden Dedication
Hebrew Senior Life, Brookline, MA
June 25, 2009

Rose Sloane Garden Dedication
Medford Square, Medford, MA
July 16, 2009

Charitable donations 2009

For 41 years, Century Bank has been supporting charitable and civic organizations dedicated to
the betterment of the communities we serve. In 2009, we provided ﬁ nancial and leadership
support to the following 163 organizations:

Adopt-A-Student Foundation (cid:129) Alzheimer’s Association (cid:129) American Cancer Society (cid:129) American Heart
Association (cid:129) American Red Cross of Massachusetts Bay (cid:129) Andover Business Center Association (cid:129) Arthritis
Foundation (cid:129) Associazione Gizio (cid:129) Bay State Chapter Freedoms Foundation (cid:129) Beacon Academy (cid:129) Ben-Gurion
University of the Negev (cid:129) Beverly Main Streets (cid:129) Big Brothers Big Sisters of MA Bay (cid:129) Boston Center for
Community & Justice (cid:129) Boston Harbor Association (cid:129) Boston Minuteman Council, Boy Scouts of America (cid:129) Boston
University (cid:129) Boy Scouts of America (cid:129) Brendan M. Curtin Sponsorship Fund (cid:129) Brookline High School (cid:129) Brookline Music
School (cid:129) Burlington Community Scholarship Foundation/Dollars for Scholars (cid:129) Burlington Education Foundation (cid:129)
Burlington High School Scholarship Fund (cid:129) Burlington Knights of Columbus (cid:129) Cambridge & Somerville
Program for Alcoholism and Drug Abuse Rehabilitation (CASPAR) (cid:129) Cambridge Youth Dance Program (cid:129) Caritas St.
Elizabeth’s Medical Center (cid:129) Catholic Charities of Boston (cid:129) Center for Integration of Medicine & Innovative
Technology (cid:129) City of Malden (cid:129) City of Medford (cid:129) City of Somerville (cid:129) Codman Square Health Center (cid:129) Cohen Hillel
Academy (cid:129) Cystic Fibrosis Foundation (cid:129) Dana-Farber Cancer Institute (cid:129) Dimock Community Health Centers (cid:129) Don
Guanella Center (cid:129) DONNE 2000 (cid:129) Elizabeth Peabody House (cid:129) Everett Chamber of Commerce (cid:129) Everett Kiwanis
Club (cid:129) Facing Cancer Together (cid:129) First Candle (cid:129) Foundation for Faces of Children (cid:129) Fourth Presbyterian Church
of South Boston (cid:129) Franciscan Children’s Hospital (cid:129) Friends of Francis Food Pantry (cid:129) Gann Academy (cid:129) Greater
Boston Chamber of Commerce (cid:129) Greater Medford VNA (cid:129) Harry Langburd Scholarship Fund (cid:129) Healthy Malden, Inc. (cid:129)
Hebrew Senior Life (cid:129) High Mowing School (cid:129) Housing Families (cid:129) I.B.E.W. Local 103 (cid:129) Institute of Contemporary Art (cid:129)
Interfaithfamily.com (cid:129) Italia Unita (cid:129) Jewish Big Brothers Big Sisters (cid:129) Jewish Cemetery Association of
Massachusetts (cid:129) Jewish Community Centers of Greater Boston (cid:129) Jewish Family Services of the North Shore (cid:129) Kids
Clothes Club (cid:129) KIPP Academy Lynn (cid:129) LADDERS (cid:129) League of Women Voters of Winchester (cid:129) Little League of Somerville
(cid:129) Little Sisters of the Poor (cid:129) Lynn Chamber of Commerce (cid:129) Maimonides School (cid:129) Malden Babe Ruth League (cid:129) Malden
Chamber of Commerce (cid:129) Malden Rotary Club (cid:129) MASCO (cid:129) Medford Fireﬁ ghters Union (cid:129) Medford Housing
Authority (cid:129) Medford Mustangs Football (cid:129) Medford Police Association (cid:129) Mental Health Programs, Inc. (MHPI) (cid:129)
MetroCast Foundation (cid:129) MetroWest Jewish Day School (cid:129) MIRA Coalition (cid:129) Museum of African American History (cid:129)
Mystic Valley Regional Charter School (cid:129) Nazzaro Recreation Center (cid:129) North End Against Drugs, Inc. (cid:129) Neighborhood
Charter School (cid:129) NEMPAC (cid:129) New England Province of Jesuits (cid:129) Newton-Needham Chamber of Commerce (cid:129) North
Bennet Street School (cid:129) North Cambridge Catholic High School (cid:129) North Shore Chamber of Commerce (cid:129) North Shore
Community Mediation, Inc. (cid:129) North Shore Medical Center Cancer Walk (cid:129) Pan-Mass Challenge (cid:129) Peabody Chamber of
Commerce (cid:129) Peabody High School Hockey Boosters (cid:129) Prospect Hill Academy Charter School (cid:129) Rashi School (cid:129) Regis
College (cid:129) RESPOND, Inc. (cid:129) Rodman Ride for Kids (cid:129) Rosie’s Place (cid:129) Sacred Heart School (cid:129) Saint Anthony School (cid:129) Saint John
School (cid:129) Saint Peter School (cid:129) Salem High School (cid:129) Salem State College, Bertolon School of Business (cid:129) SCM Community
Transportation/Somerville Chamber of Commerce (cid:129) Silent Spring Institute (cid:129) Societa di San Guiseppe (cid:129) Society Of
Jesus Of New England (cid:129) Solomon Schechter Day School (cid:129) Somerville Chamber of Commerce (cid:129) Somerville Council
on Aging/City of Somerville (cid:129) Somerville High School (cid:129) Somerville High School Football Association (cid:129) Somerville
Housing Authority (cid:129) Somerville Kiwanis Club (cid:129) Somerville Mental Health (cid:129) Somerville Pop Warner (cid:129) Somerville
Rotary Club (cid:129) Special Olympics Massachusetts (cid:129) St. Elizabeth’s Medical Center (cid:129) St. Francis House (cid:129) St. Joseph
School (cid:129) St. Patrick Parish (cid:129) St. Patrick’s Shelter for Homeless Women (cid:129) Synagogue Council of Massachusetts (cid:129)
Teamsters Local 25 (cid:129) Temple Beth Avodah (cid:129) Temple Israel of Boston (cid:129) The 9691 Foundation (cid:129) The Arc of Greater
Boston (cid:129) The David Project (cid:129) The Elliott Chambers Memorial Foundation, Inc. (cid:129) The Genesis Fund (cid:129) The Jimmy
Fund (cid:129) The Progeria Research Foundation (cid:129) The Winchester Foundation for Education Excellence (cid:129) The Yancey
Book Fair (cid:129) Torah Academy (cid:129) Town of Burlington (cid:129) Town of Wayland (cid:129) Town of Weymouth (cid:129) Toys for Tots (cid:129) Tufts
University PMC Team (cid:129) Wachusett Area Rotary Club (cid:129) Ward 7 Improvement Association (cid:129) West Suburban YMCA
(cid:129) Wheelock College (cid:129) William H. Lincoln School (cid:129) Winchester Community Music School (cid:129) Winchester Historical
Society (cid:129) Winchester Rotary Charitable Fund, Inc. (cid:129) Winchester Rotary Club (cid:129) World Unity (cid:129) Young Israel of Brookline

GIVE

400790_Editorial.CS3.indd 4

2/18/10 9:25:13 PM

Century Bank and Trust
Company Officers

Management Committee

Marshall M. Sloane
Chairman of the Board

Barry R. Sloane
Co-President & Co-CEO

Jonathan G. Sloane
Co-President & Co-CEO

William P. Hornby, CPA
Chief Financial Officer & Treasurer

Paul A. Evangelista
Executive Vice President

Brian J. Feeney
Executive Vice President

David B. Woonton
Executive Vice President

Linda Sloane Kay
Senior Vice President

Senior Vice Presidents

Gerald S. Algere
Richard L. Billig
Janice A. Brandano
Bradford J. Buckley
Peter R. Castiglia
James M. Flynn, Jr.
William J. Gambon, Jr.
Timothy L. Glynn
Anthony C. LaRosa, CPA
Nancy Lindstrom
Jason J. Melius
Deborah R. Rush
Kenneth A. Samuelian
Yasmin D. Whipple

First Vice Presidents

Susan B. Delahunt
Phillip A. Gallagher
Shipley C. Mason

Vice Presidents

Michael D. Ballard
Roger F. Ballou, CPA
Jean P. Belcher-Scarpa
Robert A. Bennett
Gerald Bovardi
Pasqualina Buttiri
Toni M. Chardo
Gracine Copithorne
Rosalie A. Cunio
Barbara J. Cunningham
Sandra R. Edey

Century Bancorp, Inc.
Directors

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

Roger S. Berkowitz 2,5,7*
President & CEO
Legal Sea Foods, Inc.

Marshall I. Goldman 3*,5**
Professor Emeritus
Wellesley College

Russell B. Higley, Esq.6,7
Attorney
Higley & Higley

Jackie Jenkins-Scott 4,5
President
Wheelock College

Linda Sloane Kay 7
Senior Vice President
Century Bank and Trust Company

Fraser Lemley 2*,4,5
Chairman & CEO
Sentry Auto Group

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

Barry R. Sloane 4,5,6,7
Co-President & Co-CEO
Century Bank and Trust Company

Jonathan G. Sloane 4,5,6,7
Co-President & Co-CEO
Century Bank and Trust Company

Marshall M. Sloane 4,5
Chairman of the Board
Century Bank and Trust Company

Stephanie Sonnabend 1,3,5*
CEO & President
Sonesta International Hotels Corporation

George F. Swansburg 4*,5

Jon Westling 1,2,3
President Emeritus
Boston University

Officers

Marshall M. Sloane
Founder and Chairman

Barry R. Sloane
Co-President & Co-CEO

Jonathan G. Sloane
Co-President & Co-CEO

William P. Hornby, CPA
Chief Financial Officer & Treasurer

Rosalie A. Cunio
Clerk

Paula A. Grimaldi
Assistant Clerk

Michele English
Judith A. Fallon
Howard N. Gold
Lisa Gosling
F. Omar Hazoury
T. Daniel Kausel
Kathleen A. Kelly
Michael F. Long
Nancy M. Marsh
Karen M. Martin
Carl M. Mattos
Thomas E. Piemontese
Cornelius C. Prioleau
Andrew J. Santos, Jr.
Bernice A. Shuman
Janice D. Taylor
Tuesday N. Thomas
David J. Waryas

Assistant Vice Presidents

John S. Bosco, Jr.
Frank A. Call
Cynthia A. Davidson
Laura A. DiFava
Christine M. Downey
John R. Ferguson
Marissa L. Fitzgerald
Thatcher L. Freeborn
Anna M. Gorska
Daniel F. Griffin
Janice D. Hallinan
Kristine M. Holopainen
James J. Jordan
Malcolm I. Maloon
Ann E. Mannion
Kathleen McGillicuddy
Carol A. Melisi
Richard D. Murray
Sarah A. O’Toole
Karen J. Pessia
Elizabeth M. Pinault
Laurie A. Rizzo
William F. Shutt, Jr.
Richard A. Thimble
Lawrence H. Tsoi
Jose I. Umana
Christina Welch-Matthews

Officers

Leonard A. Adjetey
John J. Ferren
Janet Garcia
Sara A. Gaudet
Paula A. Grimaldi
Amelia N. Iocco
Brian Kelly
Brandon N. Letellier
Robson G. Miguel
Marie A. Nugent
Scott M. Rembis
Judith A. Shannon
Krzysztof A. Sikorski
Elizabeth A. Theriault
Jeanne A. Wood

1 Audit Committee, 2 Compensation Committee, 3 Nominating Committee, 4 Executive Committee, 5 Asset Liability Committee, 6 Non-deposit Investment and Insurance
Products Committee, 7 Trust Committee, * Committee Chairperson, ** Vice Chairperson

400790_Editorial.CS3.indd 5

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400790_Editorial.CS3.indd 6

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Century Bancorp, Inc. AR ’09

FINAN C IAL STATEMENTS

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 in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm

Management’s Report on Internal Control Over Financial Reporting

400790_Financial.CS3.indd i

2/18/10 9:27:50 PM

2009

2008

2007

2006

2005

79,600
31,723

47,877
6,625

41,252
16,470
46,379

11,343
1,183

80,693
35,914

44,779
4,425

40,354
13,975
43,028

11,301
2,255

83,008
43,805

39,203
1,500

37,703
13,948
40,255

11,396
3,532

80,707
43,944

36,763
825

35,938
11,365
40,196

7,107
2,419

72,811
32,820

39,991
600

39,391
10,973
40,318

10,046
3,166

10,160

9,046

7,864

4,688

6,880

5,532,249
5,534,340
5,530,297

$
$

1.84
1.84
21.4 %

$ 2,254,035
877,125
1,701,987
132,730
24.00

0.50 %
7.98 %
2.69 %

0.63 %

6.26 %
68.5 %

5,541,983
5,543,702
5,538,407

$
$

1.63
1.63
24.0 %

$ 1,801,566
836,065
1,265,527
120,503
21.76

0.54 %
7.43 %
3.00 %

0.38 %

7.23 %
70.6 %

5,542,461
5,546,707
5,543,804

5,540,966
5,550,722
5,541,188

5,535,202
5,553,009
5,535,422

$
$

1.42
1.42
27.6 %

$
$

0.85
0.84
46.2 %

$
$

1.24
1.24
31.3 %

$ 1,680,281
726,251
1,130,061
118,806
21.43

$ 1,644,290
736,773
1,268,965
106,818
19.28

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

0.49 %
7.05 %
2.65 %

0.22 %

6.97 %
77.5 %

0.28 %
4.45 %
2.40 %

0.06 %

6.39 %
83.5 %

0.41 %
6.57 %
2.58 %

0.04 %

6.31 %
79.1 %

Financial Highlights

Century Bancorp, Inc. AR ’09

(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

Net income

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 charge-offs as a percent

of average loans

Average stockholders’ equity to

average assets

Efficiency ratio

400790_Financial.CS3.indd 1

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Per Share Data

2009, Quarter Ended

Market price range (Class A)
High
Low
Dividends Class A
Dividends Class B

2008, Quarter Ended

Market price range (Class A)
High
Low
Dividends Class A
Dividends Class B

Financial Highlights

Century Bancorp, Inc. AR ’09

December 31,

September 30,

June 30,

March 31,

$ 25.00
18.53
0.12
0.06

$ 24.99
17.60
0.12
0.06

$ 18.99
13.00
0.12
0.06

$ 17.75
9.46
0.12
0.06

December 31,

September 30,

June 30,

March 31,

$ 18.00
11.50
0.12
0.06

$ 20.51
12.76
0.12
0.06

$ 21.62
17.00
0.12
0.06

$ 22.48
18.25
0.12
0.06

The stock performance graph below compares the cumulative total shareholder return of the Company’s Common Stock from December 31, 2004 to December 31,
2009 with the cumulative total return of the NASDAQ Market Index (U.S. Companies) and the NASDAQ Bank Stock Index. The lines in the table below represent
monthly index levels derived from compounded daily returns that include all dividends. If the monthly interval, based on the fiscal year-end, was not a trading day,
the preceding trading day was used.

Comparison of Five-Year
Cumulative Total Return*

$200

$175

$150

$125

$100

$75

$50

$25

NASDAQ U.S.

NASDAQ Banks

Century Bancorp, Inc.

2004

2005

2006

2007

2008

2009

Value of $100 Invested on
December 31, 2004 at:

2005

2006

2007

2008

2009

Century Bancorp, Inc.
NASDAQ U.S.
NASDAQ Banks

$ 100.83
102.13
97.69

$ 95.75
112.19
109.64

$ 72.26
121.68
86.90

$ 58.04
58.64
63.36

$ 83.35
84.28
53.09

* Assumes that the value of the investment in the Company’s Common Stock and each index was $100 on
December 31, 2004 and that all dividends were reinvested.

400790_Financial.CS3.indd 2

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

Century Bancorp, Inc. AR ’09

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 negative of these terms. Actual results could differ materially from those
set forth in forward-looking statements due to a variety of factors, including,
but not limited to, those related to the economic environment, particularly
in the market areas in which the Company operates, competitive products
and pricing, fiscal and monetary policies 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.

RECENT MARKET DEVELOPMENTS
The financial services industry is facing unprecedented challenges in the face of
the current national and global economic crisis. The global and U. S. economies
are experiencing significantly reduced business activity. Dramatic declines in the
housing market during the past two years, with falling home prices and increasing
foreclosures and unemployment, have resulted in significant write-downs of
asset values by financial institutions, including government-sponsored entities
and major commercial and investment banks. These write-downs, initially of
mortgage-backed securities but spreading to credit default swaps and other
derivative securities, have caused many financial institutions to seek additional
capital; to merge with larger and stronger institutions; and, in some cases, to fail.
The Company is fortunate that the markets it serves have been impacted to a
lesser extent than many areas around the country.

In response to the financial crises affecting the banking system and financial
markets, there have been several announcements of federal programs designed
to purchase assets from, provide equity capital to, and guarantee the liquidity of
the industry.

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the
“EESA”) was signed into law. The EESA authorizes the U.S. Treasury to, among
other things, purchase up to $750 billion of mortgages, mortgage-backed
securities, and certain other financial instruments from financial institutions for
the purpose of stabilizing and providing liquidity to the U.S. financial markets.
The Company does not expect to participate in the sale of any of our assets into
these programs. EESA, as amended, also increases the FDIC deposit insurance
limit from $100,000 to $250,000 through December 31, 2013.

On October 14, 2008, the U.S. Treasury announced that it would purchase
equity stakes in a wide variety of banks and thrifts. Under this program, known
as the Troubled Assets Relief Program Capital Purchase Program (the “TARP
Capital Purchase Program”), the U.S. Treasury made $250 billion of capital
available (from the $750 billion authorized by the EESA) to U.S. financial
institutions in the form of preferred stock. In conjunction with the purchase
of preferred stock, the U.S. Treasury received warrants to purchase common
stock with an aggregate market price equal to 15% of the preferred investment.
Participating financial institutions were required to adopt the U. S. Treasury’s
standards for executive compensation, dividend restrictions and corporate
governance for the period during which the Treasury holds equity issued under

the TARP Capital Purchase Program. The U.S. Treasury also announced that
nine large financial institutions had already agreed to participate in the TARP
Capital Purchase Program. Subsequently, a number of smaller institutions had
participated in the TARP Capital Purchase Program. On December 18, 2008,
the Company announced in a press release, it had received preliminary approval
from the U.S. Treasury to participate in the TARP Capital Purchase Program,
in an amount up to $30 million in the form of Century Bancorp, Inc. preferred
stock and warrants to purchase Class A common stock. In light of uncertainty
surrounding additional restrictions that may be imposed on participants under
pending legislation, the Company, on January 14, 2009, informed the U.S.
Treasury that it would not be closing on the transaction on January 16, 2009,
as originally scheduled. The Company subsequently withdrew its application.

On October 14, 2008, the U. S. Treasury and the FDIC jointly announced a
new program, known as the Temporary Liquidity Guarantee Program (“TLGP”),
to strengthen confidence and encourage liquidity in the nation’s banking system.
The TLGP consists of two programs: the Debt Guarantee Program (“DGP”)
and the Transaction Account Guarantee Program (“TAGP”). Under the DGP,
as amended, the FDIC will guarantee certain newly issued senior unsecured
debt of participating banks, thrifts and certain holding companies issued from
October 14, 2008 through October 31, 2009, which debt matures on or
prior to December 31, 2012, up to a fixed maximum amount per participant. In
addition, under the TAGP, the FDIC will fully guarantee deposits in noninterest
bearing transaction accounts without dollar limitation through December 31,
2009. Institutions opting to participate in the DGP will be charged a 50-, 75- or
100-basis point fee (depending on maturity) for the guarantee of eligible debt,
and a 10-basis point assessment will be applicable to deposits in noninterest
bearing transaction accounts at institutions participating in the TAGP that
exceed the existing deposit insurance limit of $250,000. The Company opted
to participate in both the DGP and the TAGP. The TAGP has been extended
through June 30, 2010. The annual assessment rate that will apply during the
extension period will be either 15, 20 or 25 basis points, depending on the risk
category assigned to the institution under the FDIC’s risk-based premium system.

On May 22, 2009, the FDIC announced a special assessment on insured
institutions as part of its efforts to rebuild the Deposit Insurance Fund and
help maintain public confidence in the banking system. The special assessment
is five basis points of each FDIC-insured depository institution’s assets minus
Tier 1 capital, as of June 30, 2009. The Company recorded a pre-tax charge of
approximately $1.0 million in the second quarter of 2009 in connection with
the special assessment.

On September 29, 2009, the FDIC adopted a Notice of Proposed Rulemaking
(NPR) that would require insured institutions to prepay their estimated
quarterly risk-based assessments for the fourth quarter of 2009 and for all of
2010, 2011 and 2012. The FDIC Board voted to adopt a uniform three-basis
point increase in assessment rates effective on January 1, 2011, and extend
the restoration period from seven to eight years. This rule was finalized on
November 2, 2009. As a result, the Company is carrying a prepaid asset of
$8.8 million as of December 31, 2009. The Company’s quarterly risk-based
deposit insurance assessments will be paid from this amount until the amount is
exhausted or until December 30, 2014, when any amount remaining would be
returned to the Company.

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. At December 31,
2009, the Company had total assets of $2.3 billion. Currently, the Company
operates 22 banking offices in 17 cities and towns in Massachusetts, ranging

400790_Financial.CS3.indd 3

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

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
the interest paid on deposits and borrowings. The results of operations are also
affected by the level of income/fees from loans and 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, nonprofit organizations and individuals. It
emphasizes service to small and medium-sized businesses and retail customers
in its market area. The Company makes commercial loans, real estate and
construction loans, and consumer loans and accepts savings, time and demand
deposits. In addition, the Company offers to its corporate and institutional
customers automated lockbox collection services, cash management services
and account reconciliation services, and it actively promotes the marketing of
these services to the municipal market. Also, the Company provides full-service
securities brokerage services through a program called Investment Services at
Century Bank, which is supported by Linsco/Private Ledger Corp., a full-service
securities brokerage business.

Century Bancorp, Inc. AR ’09

The primary factors accounting for the general decrease in the net interest
margin during 2009 were a large influx of deposits, primarily from municipalities,
and a corresponding increase in short-term investments.

While management will continue its efforts to improve the net interest margin,
there can be no assurance that certain factors beyond its control, such as
prepayments of loans and changes in market interest rates, will continue to
positively impact the net interest margin.

Historical U.S. Treasury Yield Curve

5.00 %

4.00 %

3.00 %

2.00 %

1.00 %

0.00 %

3 Month 6 Month 2 Year 3 Year

5 Year 10 Year 30 Year

U.S. Treasury Yield Curve 12/31/2007
U.S. Treasury Yield Curve 12/31/2008
U.S. Treasury Yield Curve 12/31/2009

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
175 (50%) of the 351 cities and towns in Massachusetts.

A yield curve is a line that typically plots the interest rates of U.S. Treasury
Debt, which have different maturity dates but the same credit quality, at a
specific point in time. The three main types of yield curve shapes are normal,
inverted and flat.

The Company had net income of $10,160,000 for the year ended
December 31, 2009, compared with net income of $9,046,000 for the
year ended December 31, 2008 and net income of $7,864,000 for the year
ended December 31, 2007. Diluted earnings per share were $1.84 in 2009,
compared to $1.63 in 2008 and $1.42 in 2007. Included in income for
2007 is a $1,321,000 pre-tax gain on the sale of the building that houses the
Company’s Medford Square branch.

Throughout 2008, the Company had seen improvement in its net interest
margin; however, the first quarter of 2009 reflects a decrease in the net interest
margin with a modest increase during the second and third quarters of 2009
followed by a decrease during the fourth quarter of 2009 as illustrated in the
graph below:

Net Interest Margin

2.82% 2.86%

3.14%

3.16%

2.57% 2.64%

2.81% 2.63%

3.60 %
3.20 %
2.80 %
2.40 %
2.00 %

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
2009
2008

2009

2008

2009

2008

The primary factors accounting for the increase in net interest margin during
2008 are:

• a continuing decline in the cost of funds as a result of increased pricing

discipline related to deposits

• an increase in average loans outstanding during 2008

• the maturity of lower-yielding investment securities

• an increase in the slope of the yield curve

• an increase in investment yields due, in part, to taking advantage of elevated
yields in the municipal auction rate securities market, particularly in the third
quarter of 2008

During 2009, the Company’s earnings were positively impacted primarily by an
increase in net interest income. This increase was primarily due to an increase in
earning assets. During 2009 and 2008, the U.S. economy experienced a lower
rate environment along with a steepening of the yield curve, which means that
the spread between the long-term and short-term yields has increased. The
lower short-term rates negatively impacted the net interest margin for 2009
as the rate at which short-term deposits could be invested declined more than
the rates offered on those deposits. The steeper yield curve positively impacted
the net interest margin for 2008. During 2007, rates fell and the yield curve
steepened somewhat, positively impacting the net interest margin.

Total assets were $2,254,035,000 at December 31, 2009, an increase of
25.1% from total assets of $1,801,566,000 on December 31, 2008.

On December 31, 2009, stockholders’ equity totaled $132,730,000,
compared with $120,503,000 on December 31, 2008. Book value per
share increased to $24.00 at December 31, 2009 from $21.76 on
December 31, 2008.

On August 17, 2007, the Company sold the building that houses one of its
branches located at 55 High Street, Medford, Massachusetts, for $1.5 million
at market terms. The Bank relocated this branch to 1 Salem Street (formerly
3 Salem Street), Medford, Massachusetts. This sale resulted in a pre-tax gain of
$1,321,000. The branch opened on May 5, 2008.

On April 14, 2008, the Company opened a branch located on Riverside Avenue
in Medford, Massachusetts. On November 17, 2008, the Company opened a
branch located on Main Street in Winchester, Massachusetts. During October
2008, the Company received regulatory approval to close a branch on Albany
Street in Boston, Massachusetts. This branch closed during the first quarter
of 2009. Also, during the fourth quarter of 2009, the Company received
regulatory approval to open a branch located at Coolidge Corner in Brookline,
Massachusetts. This branch is expected to open during the second quarter
of 2010.

400790_Financial.CS3.indd 4

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

Century Bancorp, Inc. AR ’09

During the fourth quarter of 2007, the Company sold the assets associated
with the Sherman Union branch located on Commonwealth Avenue in Boston,
Massachusetts, as well as automated teller machines (“ATMs”) located at or
near Boston University. The buyer assumed the leases for the branch and ATMs.
The deposits associated with the Sherman Union branch were transferred to
Century’s Hotel Commonwealth branch located at 512 Commonwealth Avenue
in Boston, Massachusetts. This resulted in a gain of $115,000.

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 of its portfolio.

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 and
specific allowances for identified problem loans.

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 similar 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 net 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 net loss experience, as well as regulatory guidelines.

Specific allowances for loan losses entail 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
probable that the Company will not collect all the contractual interest and
principal payments as scheduled in the loan agreement. Under this method,
loans are selected for evaluation based upon a change in internal risk rating,
occurrence of delinquency, loan classification or nonaccrual 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) present value of anticipated future cash flows,
(b) the loan’s observable fair market price or (c) fair value of collateral if the loan
is collateral dependent.

The formula allowance and specific allowances also include management’s
evaluation of various conditions, including business and economic conditions,
delinquency trends, charge-off experience and other quality factors.

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 characteristics of the Company’s loan

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 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 writedown is included as a charge
to earnings. The amount of the impairment charge is recognized in earnings
with an offset for the noncredit component which is recognized through other
comprehensive income. 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 hinders its ability to make future
scheduled interest and principal payments on a timely basis or whether there
was a downgrade in ratings by rating agencies.

The Company does not intend to sell any of its debt securities with an
unrealized loss, and it is not likely that it will be required to sell the debt
securities before the anticipated recovery of their remaining amortized cost,
which may be maturity.

FINANCIAL CONDITION
Investment Securities
The Company’s securities portfolio consists of securities available-for-sale
(“AFS”) and securities held-to-maturity.

Securities available-for-sale consist of certain U.S. Treasury and U.S. Government
Sponsored Enterprise mortgage-backed securities; state, county and municipal
securities; privately issued mortgage-backed securities; foreign debt securities;
and other marketable equities.

These securities are carried at fair value, and unrealized gains and losses,
net of applicable income taxes, are recognized as a separate component
of stockholders’ equity. The fair value of securities available-for-sale at
December 31, 2009 totaled $647,796,000 and included gross unrealized
gains of $9,442,000 and gross unrealized losses of $2,656,000. A year earlier,
securities available-for-sale were $495,585,000 including gross unrealized
gains of $4,783,000 and unrealized losses of $5,244,000. In 2009, the
Company recognized gains of $2,734,000 on the sale of available-for-sale
securities. In 2008, the Company recognized gross gains of $251,000 and
gross losses of $2,000 on the sale of available-for-sale securities. The Company
also recognized $76,000 in realized losses in 2008 on the writedown of
two stocks.

Securities which management intends to hold until maturity consist of U.S.
Government Sponsored Enterprises and mortgage-backed securities. Securities
held-to-maturity as of December 31, 2009 are carried at their amortized cost
of $217,643,000 and exclude gross unrealized gains of $4,526,000 and
gross unrealized losses of $756,000. A year earlier, securities held-to-maturity
totaled $184,047,000 excluding gross unrealized gains of $1,820,000 and
gross unrealized losses of $434,000.

400790_Financial.CS3.indd 5

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

Century Bancorp, Inc. AR ’09

The following table sets forth the fair value and percentage distribution of securities available-for-sale at the dates indicated.

Fair Value of Securities Available-for-Sale

At December 31,

(dollars in thousands)

U.S. Treasury

U.S. Government Sponsored Enterprises

U.S. Government Agency and Sponsored Enterprises
Mortgage-Backed Securities

Privately Issued Residential Mortgage-Backed Securities

Privately Issued Commercial Mortgage-Backed Securities

Obligations Issued by States and Political Subdivisions

Other Debt Securities

Equity Securities

Total

2009

2008

2007

Amount

Percent

Amount

Percent

Amount

Percent

2,003

192,364

0.3 %

29.7 %

$ 2,028

161,292

0.4 %

32.5 %

418,512

64.6 %

260,132

52.5 %

4,910

544

26,289

2,259

915

0.8 %

0.1 %

4.1 %

0.3 %

0.1 %

5,659

3,367

1.1 %

0.7 %

60,259

12.2 %

2,100

748

0.4 %

0.2 %

$ 2,036

218,729

145,638

10,161

6,363

1,678

2,090

1,409

0.5 %

56.4 %

37.5 %

2.6 %

1.6 %

0.4 %

0.6 %

0.4 %

$ 647,796

100.0 %

$ 495,585

100.0 %

$ 388,104

100.0 %

Included in Obligations Issued by States and Political Subdivisions as of December 31, 2009, are $11,635,000 of auction rate municipal obligations (“ARSs”) and
$5,000,000 of variable rate demand notes (“VRDNs”) with unrealized losses of $468,000 for ARSs. VRDNs’ fair value equals the carrying value. These debt securities
were issued by governmental entities but are not necessarily debt obligations of the issuing entity. Of the total of $16,635,000 of ARSs and VRDNs, $5,000,000
are obligations of governmental entities and the remainder are obligations of large nonprofit entities. These obligations are variable rate securities with long-term
maturities whose interest rates are set periodically through an auction process for ARSs and by prevailing market rates for VRDNs. Should the auction not attract
sufficient bidders, the interest rate adjusts to the default rate defined in each obligation’s underlying documents. The Company increased its holdings in these types
of securities during the second and third quarters of 2008 to take advantage of yields available due to market disruption. Although many of these issuers have bond
insurance, the Company purchased the securities based on the creditworthiness of the underlying obligor.

In the case of a failed auction, the Company may not have access to funds as only a limited market exists for failed ARSs. As of December 31, 2009, two of the
Company’s ARSs were purchased subsequent to their failure with a fair value of $7,820,000 and an amortized cost of $8,288,000.

As of December 31, 2009, the weighted average taxable equivalent yield on these securities was 0.52%.

The majority of the Company’s securities AFS are classified as Level 2, as defined in footnote 1 of the “Notes to Consolidated Financial Statements.” The fair values
of these securities are obtained from a pricing service, which provides the Company with a description of the inputs generally utilized for each type of security. These
inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.
Market indicators and industry and economic events are also monitored. The decline in fair value from amortized cost for available-for-sale securities is not attributable
to changes in credit quality. Because the Company does not intend to sell any of its debt securities and it is not likely that it will be required to sell the debt securities
before the anticipated recovery of their remaining amortized cost, the Company does not consider these investments to be other-than-temporarily impaired at
December 31, 2009.

Securities available-for-sale totaling $13,677,000, or 0.61% of assets, are classified as Level 3, as defined in footnote 1 of the “Notes to Consolidated Financial
Statements.” These securities are generally equity investments or municipal securities with no readily determinable fair value. The securities are carried at fair value with
periodic review of underlying financial statements and credit ratings to assess the appropriateness of these valuations.

Debt securities of Government Sponsored Enterprises primarily refer to debt securities of Fannie Mae and Freddie Mac. Control of these enterprises was directly taken
over by the U.S. Government in the third quarter of 2008.

The following table sets forth the amortized cost and percentage distribution of securities held-to-maturity at the dates indicated.

Amortized Cost of Securities Held-to-Maturity

At December 31,

(dollars in thousands)

2009

2008

2007

Amount

Percent

Amount

Percent

Amount

Percent

U.S. Government Sponsored Enterprises

$ 69,555

32.0 %

$ 44,000

23.9 %

$ 94,987

51.7 %

U.S. Government Agency and Sponsored Enterprise
Mortgage-Backed Securities

148,088

68.0 %

140,047

76.1 %

88,723

48.3 %

Total

$ 217,643

100.0 %

$ 184,047

100.0 %

$ 183,710

100.0 %

For all years presented, all mortgage-backed securities are obligations of U.S. Government Sponsored Enterprises.

400790_Financial.CS3.indd 6

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

Century Bancorp, Inc. AR ’09

The following two tables set forth contractual maturities of the Bank’s securities portfolio at December 31, 2009. Actual maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Fair Value of Securities Available-for-Sale
Amounts Maturing

Within

One

Year

Weighted

One Year

Weighted

Five Years

% of

Total

Average

Yield

to Five

Years

% of

Total

Average

Yield

to Ten

Years

% of

Total

Weighted

Average

Yield

Over

Ten

Years

Weighted

% of

Average

Total

Yield

(dollars in thousands)

U.S. Treasury

—

0.0 %

0.00 %

$ 2,003

0.3 %

0.95 %

—

0.0 %

0.00 % $

—

0.0 % 0.00 %

U.S. Government
Sponsored Enterprises

U.S. Government Agency

and Sponsored Enterprise

—

0.0 %

0.00 %

115,098 17.8 %

1.89 %

77,266 11.9 %

2.89 %

—

0.0 % 0.00 %

Mortgage-Backed
Securities

Privately Issued
Residential Mortgage-
Backed Securities

Privately Issued
Commercial Mortgage-
Backed Securities

Obligations of States
and Political
Subdivisions

23,762

3.7 %

4.00 %

348,048 53.7 %

3.86 %

36,268

5.6 %

4.05 %

10,434

1.6 % 3.62 %

—

0.0 %

0.00 %

4,910

0.8 %

3.08 %

—

0.0 %

0.00 %

—

0.0 % 0.00 %

—

0.0 %

0.00 %

544

0.1 %

3.90 %

—

0.0 %

0.00 %

—

0.0 % 0.00 %

6,355

1.0 %

1.49 %

3,299

0.5 %

3.22 %

5,000

0.8 %

0.35 %

11,635

1.8 % 0.45 %

Other Debt Securities

100

0.0 %

2.19 %

700

0.1 %

3.19 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

0.0 %

0.00 %

—

0.0 % 0.00 %

$ 30,217

4.7 %

3.47 %

$ 474,602 73.3 %

3.35 %

$ 118,534 18.3 %

3.14 % $ 22,069

3.4 % 1.95 %

Equity Securities

Total

Non-

Maturing

% of

Total

Weighted

Average

Yield

Total

Weighted

Average

Yield

% of

Total

—

0.0 %

0.00 %

$ 2,003

0.3 %

0.95 %

0.0 %

0.00 %

192,364 29.7 %

2.29 %

0.0 %

0.00 %

418,512 64.6 %

3.88 %

0.0 %

0.00 %

4,910

0.8 %

3.08 %

0.0 %

0.00 %

544

0.1 %

3.90 %

0.0 %

0.00 %

26,289

4.1 %

0.98 %

1,459

0.2 %

5.00 %

2,259

0.3 %

4.40 %

915

0.1 %

2.73 %

915

0.1 %

2.73 %

$ 2,374

0.3 %

4.12 %

$ 647,796 100.0 %

3.28 %

(dollars in thousands)

U.S. Treasury

U.S. Government Sponsored Enterprises

U.S. Government Agency and Sponsored

Enterprise Mortgage-Backed Securities

Privately Issued Residential Mortgage-Backed Securities

Privately Issued Commercial Mortgage-Backed Securities

Obligations of States and Political Subdivisions

Other Debt Securities

Equity Securities

Total

Amortized Cost of Securities Held-to-Maturity
Amounts Maturing

Within

One

Year

Weighted

One Year

Weighted

Five Years

% of

Total

Average

Yield

to Five

Years

% of

Total

Average

Yield

to Ten

Years

% of

Total

Weighted

Average

Yield

Total

Weighted

Average

Yield

% of

Total

(dollars in thousands)

U.S. Government
Sponsored Enterprises $

U.S. Government Sponsored
Enterprise Mortgage-

—

0.0 %

0.00 %

$ 20,572

9.5 %

2.74 %

$ 48,983 22.5 %

2.49 % $ 69,555 32.0 % 2.57 %

Backed Securities

4,693

2.2 %

3.98 %

142,949 65.6 %

4.46 %

446

0.2 %

2.31 %

148,088 68.0 % 4.44 %

Total

$ 4,693

2.2 %

3.98 %

$ 163,521 75.1 %

4.24 %

$ 49,429 22.7 %

2.49 % $ 217,643 100.0 % 3.84 %

400790_Financial.CS3.indd 7

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

Century Bancorp, Inc. AR ’09

At December 31, 2009 and 2008, the Bank had no investments in obligations of individual states, counties, municipalities or nongovernment corporate entities
which exceeded 10% of stockholders’ equity. Additionally, in 2009, there were sales totaling $16,185,000 in gross proceeds in state, county or municipal
securities resulting in gross gains of $0 and gross losses of $0. In 2009, sales of securities totaling $94,142,000 in gross proceeds resulted in a net realized gain
of $2,734,000. In 2008, there were sales totaling $123,704,000 in gross proceeds in state, county or municipal securities resulting in gross gains of $46,000 and
gross losses of $0. In 2008, sales of securities totaling $238,894,000 in gross proceeds resulted in a net realized gain of $249,000. The book value of two equity
securities was written down $76,000 during 2008.

Management reviews the investment portfolio for other-than-temporary impairment of individual securities on a regular basis. The results of such analysis are
dependent upon general market conditions and specific conditions related to the issuers of our securities.

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,
commercial 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 are generally dependent on the
health of the real estate market in the borrowers’ geographic areas and of the general economy.

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

December 31,

2009

2008

2007

2006

2005

Amount

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

(dollars in thousands)

Construction and

land development

$ 60,349

6.9 %

$ 59,511

7.1 %

$ 62,412

8.6 % $ 49,709

6.7 % $ 58,846

8.5 %

Commercial and industrial

141,061

16.1 %

141,373

16.9 %

117,332

16.2 %

117,497

15.9 %

94,139

13.7 %

Commercial real estate

361,823

41.2 %

332,325

39.8 %

299,920

41.3 %

327,040

44.4 %

302,279

43.8 %

Residential real estate

188,096

21.4 %

194,644

23.3 %

168,204

23.2 %

167,946

22.8 %

146,355

21.2 %

Consumer

Home equity

Overdrafts

Total

7,105

0.8 %

8,246

1.0 %

8,359

1.1 %

7,104

118,076

13.5 %

98,954

11.8 %

68,585

9.4 %

66,157

615

0.1 %

1,012

0.1 %

1,439

0.2 %

1,320

1.0 %

9.0 %

0.2 %

8,318

1.2 %

78,369

11.4 %

1,339

0.2 %

$ 877,125

100.0 %

$ 836,065

100.0 %

$ 726,251

100.0 % $ 736,773 100.0 % $ 689,645 100.0 %

At December 31, 2009, 2008, 2007, 2006 and 2005, loans were carried net of discounts of $645,000, $692,000, $3,000, $3,000 and $4,000, respectively.
Net deferred loan fees of $71,000, $81,000, $38,000, $183,000 and $482,000 were carried in 2009, 2008, 2007, 2006 and 2005, respectively.

The following table summarizes the remaining maturity distribution of certain components of the Company’s loan portfolio on December 31, 2009. The table excludes
loans secured by 1-4 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, 2009

One Year
or Less

One to Five
Years

Over
Five Years

Total

$ 10,435
60,578
24,551

$ 95,564

$ 12,868
40,150
138,595

$ 37,046
40,333
198,677

$ 191,613

$ 276,056

$ 60,349
141,061
361,823

$ 563,233

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

December 31, 2009

(dollars in thousands)

Predetermined interest rates
Floating or adjustable interest rates

Total

One to Five
Years

Over
Five Years

Total

$ 100,346
91,267

$ 46,760
229,296

$ 147,106
320,563

$ 191,613

$ 276,056

$ 467,669

400790_Financial.CS3.indd 8

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

Century Bancorp, Inc. AR ’09

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 regional economic strength or weakness impacts the relative risks in this loan
category. There is little concentration in 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. Also included are loans to educational institutions, hospitals and other non-profit
organizations. Loans are normally extended in amounts up to a maximum of 80% of appraised value and normally for terms between three and ten years. Amortization
schedules are long term and thus a balloon payment is generally due at maturity. Under most circumstances, the Bank will offer to rewrite or otherwise extend the loan
at prevailing interest rates. During recent years, the Bank has emphasized nonresidential-type owner-occupied properties. This complements our C&I emphasis placed
on the operating business entities and will continue. The regional economic environment affects the risk of both nonresidential and residential mortgages.

Residential real estate (1-4 family) includes two categories of loans. Included in residential real estate are approximately $6,860,000 of C&I type loans secured by
1-4 family real estate. Primarily, these are small businesses with modest capital or shorter operating histories where the collateral mitigates some risk. This category of
loans shares similar risk characteristics with the C&I loans, notwithstanding the collateral position.

The other category of residential real estate loans is 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%.

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, 2009, the Company was obligated to advance a total of $22,699,000 to complete projects under
construction.

The composition of nonperforming assets is as follows:

December 31,

(dollars in thousands)

Total nonperforming loans/loans on nonaccrual
Other real estate owned

Total nonperforming assets

Troubled debt restructured loans
Loans past due 90 and still accruing
Nonperforming loans as a percent of gross loans

Nonperforming assets as a percent of total assets

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

Residential real estate, multi-family
Commercial real estate
Construction and land development
Commercial and industrial

Total impaired loans

2009

2008

2007

2006

2005

$ 12,311
—

$ 12,311

$ 521
—
1.40 %

0.55 %

2009

$ —
4,260
4,900
1,356

$ 10,516

$ 3,661
—

$ 3,661

$ —
89

0.44 %

0.20 %

2008

$ 194
1,175
—
1,329

$ 2,698

$ 1,312
452

$ 1,764

$ —
122
0.18 %

0.10 %

2007

$ —
—
—
196

$ 196

$ 135
—

$ 135

$ —
789
0.02 %

$ 949
—

$ 949

$ —
—
0.14 %

0.01 %

0.05 %

2006

$ —
—
—
16

2005

$ —
—
675
211

$ 886

At December 31, 2009, 2008 and 2007, impaired loans had specific reserves of $745,000, $600,000 and $75,000, respectively. There were no impaired loans
with specific reserves at December 31, 2005 and December 31, 2006.

The Company was servicing mortgage loans sold to others without recourse of approximately $1,127,000, $768,000, $559,000, $798,000 and $1,078,000
at December 31, 2009, 2008, 2007, 2006 and 2005, respectively. Additionally, the Company services mortgage loans sold to others with limited recourse. The
outstanding balance of these loans with limited recourse was approximately $47,000, $56,000, $65,000, $72,000 and $80,000 at December 31, 2009, 2008,
2007, 2006 and 2005, 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.

400790_Financial.CS3.indd 9

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

Century Bancorp, Inc. AR ’09

Loans are placed on nonaccrual 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, is reviewed on
a regular basis by senior management and monthly by the Board of Directors of the Bank.

Nonaccrual loans increased from 2008 to 2009 primarily as a result of three loan relationships, one primarily commercial real estate and two construction totaling
$7,379,000. Nonaccrual loans increased from 2007 to 2008 primarily as a result of eight consumer mortgages totaling $1,649,000. Nonaccrual loans increased
from 2006 to 2007 primarily as a result of three consumer mortgages totaling $938,000. The relatively low level of nonperforming assets of $135,000 in 2006 and
$949,000 in 2005 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.

The Company continues to monitor closely $35,229,000 and $21,807,000 at December 31, 2009 and 2008, respectively, of loans for which management has
concerns regarding the ability of the borrowers to perform. The majority of the loans is secured by real estate and is considered to have adequate collateral value to
cover the loan balances at December 31, 2009, although such values may fluctuate with changes in the economy and the real estate market.

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

2009

2008

2007

2006

2005

(net of unearned discount and deferred loan fees)

$ 877,125

$ 836,065

$ 726,251

$ 736,773

$ 689,645

Average loans outstanding

(net of unearned discount and deferred loan fees)

$ 853,422

$ 775,337

$ 725,903

$ 723,825

$ 641,103

Balance of allowance for

loan losses at the beginning of year

Loans charged-off:
Commercial
Construction
Residential real estate
Consumer

Total loans charged-off

Recovery of loans previously charged-off:
Commercial
Construction
Real estate
Consumer

Total recoveries of loans previously charged-off:

Net loan charge-offs
Additions to allowance charged to operating expense

$ 11,119

9,633

9,713

9,340

9,001

1,498
3,639
490
443

6,070

352
25
4
318

699

5,371
6,625

2,869
15
—
489

3,373

159
—
5
270

434

2,939
4,425

1,828
—
—
311

2,139

268
—
149
142

559

1,580
1,500

386
—
—
322

708

96
—
49
111

256

452
825

366
—
—
324

690

75
—
235
119

429

261
600

Balance at end of year

$ 12,373

$ 11,119

9,633

9,713

9,340

Ratio of net charge-offs during the year

to average loans outstanding

Ratio of allowance for loan losses to loans outstanding

0.63 %

1.41 %

0.38 %

1.33 %

0.22 %

1.33 %

0.06 %

1.32 %

0.04 %

1.35 %

These provisions are the result of management’s evaluation of the quality of the loan portfolio considering such factors as loan status, specific reserves on impaired
loans, 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. Charge-offs increased
during 2007 through 2009 due to an increase in commercial loan charge-offs and construction loan charge-offs for 2009 as a result of the weakening of the overall
economy and real estate market.

In evaluating the allowance for loan losses the Company considered the following categories to be higher risk:

Small business loans — The outstanding loan balances of small business loans is $50,414,000 at December 31, 2009. These are considered higher risk loans
because small businesses have been negatively impacted by the current economic conditions. In a liquidation scenario, the collateral, if any, is often not sufficient to
fully recover the outstanding balance of the loan. As a result, the Company often seeks additional collateral prior to renewing maturing small business loans. In addition,
the payment status of the loans is monitored closely in order to initiate collection efforts in a timely fashion.

400790_Financial.CS3.indd 10

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

Century Bancorp, Inc. AR ’09

Construction loans — The outstanding loan balance of construction loans at December 31, 2009 is $60,349,000. As noted above, a major factor in nonaccrual
loans is two large construction loans. Based on this fact, and the general local construction conditions facing construction, the management closely monitors all
construction loans and considers this type of loan to be higher risk.

Higher balance loans — Loans greater than $1.0 million are considered “high balance loans.” The balance of these loans is $421,371,000 at December 31, 2009. These
loans are considered higher risk due to the concentration in individual loans. Additional allowance allocations are made based upon the level of high balance loans.

The allowance for loan losses is an estimate of the amount needed for an adequate reserve to absorb losses in the existing loan portfolio. This amount is determined by
an evaluation of the loan portfolio, including input from an independent organization engaged to review selected larger loans, a review of loan experience and current
economic conditions. Although the allowance is allocated between categories, the entire allowance is available to absorb losses attributable to all loan categories. At
December 31 of each year listed below, the allowance was comprised of the following:

2009

2008

2007

2006

2005

Percent
of Loans
in Each
Category
to Total
Loans

Amount

Percent
of Loans
in Each
Category
to Total
Loans

Amount

Percent
of Loans
in Each
Category
to Total
Loans

Amount

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

$ 370

6.9 %

$ 679

7.1 %

$ 592

8.6 %

$ 849

6.7 %

$ 1,014

8.5 %

Commercial and industrial

Commercial real estate

Residential real estate

Consumer and other

Home equity

Unallocated

Total

5,070 16.1

5,148 16.9

3,042 41.2

2,632 39.8

4,714

2,584

1,329 21.4

1,787

0.9

782 23.3

344

1.1

775 13.5

1,534 11.8

—

647

407

689

—

16.2

41.3

23.2

1.3

9.4

1,916

4,502

512

135

219

15.9

44.4

22.8

1.2

9.0

1,575

4,131

778

148

625

13.7

43.8

21.2

1.4

11.4

1,580

1,069

$ 12,373 100.0 %

$ 11,119 100.0 %

$ 9,633 100.0 %

$ 9,713 100.0 %

$ 9,340 100.0 %

The shift in the allocations of the allowance for loan losses in 2007 is the result of the implementation of guidance issued by the FDIC. The current allocation is based
on historical charge-off rates with additional allocations based on risk factors for each category and general economic factors. Prior to 2007, the allowance related to
general economic factors was included solely in the unallocated category.

Deposits
The Company offers savings accounts, NOW accounts, demand deposits, time deposits and money market accounts. Additionally, 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.

The following table sets forth the average balances of the Bank’s deposits for the periods indicated.

2009

2008

2007

Amount

Percent

Amount

Percent

Amount

Percent

(dollars in thousands)

Demand Deposits

$ 277,300

17.8 %

$ 267,966

22.0 %

$ 278,402 23.1 %

Savings and Interest Checking

528,973

34.0 %

369,687

30.3 %

314,961 26.1 %

Money Market

432,159

27.8 %

308,432

25.3 %

277,482 23.0 %

Time Certificates of Deposit

318,413

20.4 %

273,925

22.4 %

335,972 27.8 %

Total

$ 1,556,845 100.0 %

$ 1,220,010 100.0 %

$ 1,206,817 100.0 %

400790_Financial.CS3.indd 11

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

Century Bancorp, Inc. AR ’09

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

2009

$ 33,331
34,495
33,687
50,167

$ 151,680

Borrowings
The Bank’s borrowings consisted primarily of Federal Home Loan Bank of Boston (“FHLBB”) borrowings collateralized by a blanket pledge agreement on the Bank’s
FHLBB stock, certain qualified investment securities, deposits at the FHLBB and residential mortgages held in the Bank’s portfolios. The Bank’s borrowings from the
FHLBB totaled $232,500,000, a decrease of $4,500,000 from the prior year. The Bank’s remaining term borrowing capacity at the FHLBB at December 31, 2009
was approximately $136,476,000. In addition, the Bank has a $14,500,000 line of credit with the FHLBB. See Note 12, “Other Borrowed Funds and Subordinated
Debentures,” for a schedule, their interest rates and other information.

Subordinated Debentures
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, its 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 20 years. The Company
is using the proceeds primarily for general business purposes.

Securities Sold Under Agreements to Repurchase
The Bank’s remaining borrowings consist primarily of securities sold under agreements to repurchase. Securities sold under agreements to repurchase totaled
$118,745,000, an increase of $6,235,000 from the prior year. See Note 11, “Securities Sold Under Agreements to Repurchase,” for a schedule, including their
interest rates and other information.

RESULTS OF OPERATIONS
Net Interest Income
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 increased 9.6% in 2009 to $51,215,000, compared with $46,750,000 in 2008. The increase in net interest income for 2009 was mainly due to a 22.3%
increase in the average balances of earning assets, combined with a similar increase in deposits. The increased volume was partially offset by a decrease of thirty-one
basis points 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 2.69% in
2009 from 3.00% in 2008 and increased from 2.65% in 2007.

Additional information about the increased net interest margin is contained in the “Overview” section of this report. Also, there can be no assurance that certain factors
beyond its control, such as the prepayment of loans and changes in market interest rates, will continue to positively impact the net interest margin. Management
believes that the current yield curve environment will continue to present challenges as deposit and borrowing costs may have the potential to increase at a faster rate
than corresponding asset categories.

400790_Financial.CS3.indd 12

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

Century Bancorp, Inc. AR ’09

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,

2009

2008

2007

Average
Balance

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

Average
Balance

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

Average
Balance

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

(dollars in thousands)

ASSETS
Interest-earning assets:
Loans(2)

Securities available-for-sale:(3)
Taxable
Tax-exempt

Securities held-to-maturity:
Taxable

Federal funds sold
Interest-bearing deposits

in other banks

$ 853,422

$ 51,174

6.00 %

$ 775,337

$ 50,199

6.47 %

$ 725,903 $ 52,902

7.29 %

562,899
48,347

20,439
1,061

3.63
2.19

411,938
61,406

18,183
3,204

4.41
5.24

372,878
330

14,466
17

3.88
5.21

193,520

8,093

4.18

193,584

8,265

4.27

248,338

9,065

3.65

—

99,784

2,442

2.45

131,737

6,661

5.06

245,002

2,171

0.87

14,478

371

2.56

163

4.29

Total interest-earning assets

1,903,190

82,938

4.36 %

1,556,527

82,664

5.31 %

1,479,349

83,118

5.62 %

Noninterest-earning assets
Allowance for loan losses

143,984
(13,331)

Total assets

$ 2,033,843

136,830
(9,997)

$ 1,683,360

130,652
(9,719)

$ 1,600,282

LIABILITIES AND

STOCKHOLDERS’ EQUITY

Interest-bearing deposits:
NOW accounts
Savings accounts
Money market accounts
Time deposits

$ 279,213
249,761
432,159
318,412

$ 2,396
2,862
6,100
9,438

0.86 %
1.15
1.41
2.96

$ 203,678
166,009
308,432
273,925

$ 3,076
2,929
7,260
9,744

1.51 %
1.76
2.35
3.56

$ 202,761 $ 4,235
2,477
8,901
15,640

112,200
277,482
335,972

2.09 %
2.21
3.21
4.66

Total interest-bearing deposits

1,279,545

20,796

1.63

952,044

23,009

2.42

928,415

31,253

3.37

Securities sold under
agreements to repurchase

Other borrowed funds
and subordinated debentures

98,635

576

0.58

94,526

1,393

1.47

89,815

3,193

3.56

219,713

10,351

4.71

225,743

11,512

5.10

168,535

9,359

5.55

Total interest-bearing liabilities

1,597,893

31,723

1.99 %

1,272,313

35,914

2.82 %

1,186,765

43,805

3.69 %

Noninterest-bearing liabilities
Demand deposits
Other liabilities

Total liabilities

Stockholders’ equity
Total liabilities and

277,300
31,289

1,906,482

127,361

stockholders’ equity

$ 2,033,843

Net interest income on a fully
taxable equivalent basis

Less taxable equivalent adjustment

Net interest income

Net interest spread

Net interest margin

267,966
21,363

1,561,642

121,718

$ 1,683,360

278,402
23,565

1,488,732

111,550

$ 1,600,282

$ 51,215

(3,338)

$ 47,877

$ 46,750

(1,971)

$ 44,779

$ 39,313

(110)

$ 39,203

2.37 %

2.69 %

2.49 %

3.00 %

1.93 %

2.65 %

(1) On a fully taxable equivalent basis calculated using a federal tax rate of 34%.
(2) Nonaccrual loans are included in average amounts outstanding.
(3) At amortized cost.

400790_Financial.CS3.indd 13

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

Century Bancorp, Inc. AR ’09

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

2009 Compared with 2008
Increase/(Decrease)
Due to Change in

2008 Compared with 2007
Increase/(Decrease)
Due to Change in

Volume

Rate

Total

Volume

Rate

Total

$ 5,110

$ (4,135)

$ 975

$ 3,450

$(6,153)

$(2,703)

5,867
(574)

(3)
(2,442)

2,198

10,156

913
1,172
2,329
1,452

5,866
58
(301)

5,623

(3,611)
(1,569)

(169)
—

(398)

(9,882)

(1,593)
(1,239)
(3,489)
(1,758)

(8,079)
(875)
(860)

(9,814)

2,256
(2,143)

(172)
(2,442)

1,800

274

(680)
(67)
(1,160)
(306)

(2,213)
(817)
(1,161)

(4,191)

1,606
3,187

(2,190)
(1,349)

368

5,072

19
1,020
915
(2,589)

(635)
159
2,968

2,492

2,111
—

1,390
(2,870)

(4)

(5,526)

(1,178)
(568)
(2,556)
(3,307)

(7,609)
(1,959)
(815)

(10,383)

3,717
3,187

(800)
(4,219)

364

(454)

(1,159)
452
(1,641)
(5,896)

(8,244)
(1,800)
2,153

(7,891)

$ 4,533

$ (68)

$ 4,465

$ 2,580

$ 4,857

$ 7,437

Average earning assets were $1,903,190,000 in 2009, an increase of $346,663,000 or 22.3% from the average in 2008, which was 5.2% higher than the
average in 2007. Total average securities, including securities available-for-sale and securities held-to-maturity, were $804,766,000, an increase of 20.7% from
the average in 2008. The increase in securities volume was mainly attributable to an increase in taxable securities. An increase in securities balances offset by lower
securities returns resulted in lower securities income, which decreased 0.2% to $29,593,000 on a fully tax equivalent basis. Total average loans increased 10.1% to
$853,422,000 after increasing $49,434,000 in 2008. The primary reason for the increase in loans was due in large part to an increase in tax-exempt commercial
real estate lending as well as residential first and second mortgage lending. The increase in loan volume partially offset by decreases in loan rates resulted in higher loan
income, which increased by 1.9% or $975,000 to $51,174,000. Total loan income was $52,902,000 in 2007.

The Company’s sources of funds include deposits and borrowed funds. On average, deposits showed an increase of 27.6% or $336,835,000 in 2009 after increasing
by 1.1% or $13,193,000 in 2008. Deposits increased in 2009, primarily as a result of increases in savings, money market, NOW and time deposit accounts.
Deposits increased in 2008 primarily as a result of increases in savings and money market accounts, which increased by 21.8% or $84,759,000, somewhat offset
by decreases in time deposits, which decreased by 18.5% or $62,047,000. Borrowed funds and subordinated debentures decreased by 0.6% in 2009 following an
increase of 24.0% in 2008. The majority of the Company’s borrowed funds are borrowings from the FHLBB and retail repurchase agreements. Average borrowings
from the FHLBB decreased by approximately $6,030,000, and average retail repurchase agreements increased by $4,109,000 in 2009. Interest expense totaled
$31,723,000 in 2009, a decrease of $4,191,000 or 11.7% from 2008 when interest expense decreased 18.0% from 2007. The decrease in interest expense is
primarily due to market decreases in deposit rates and continued deposit pricing discipline.

Provision for Loan Losses
The provision for loan losses was $6,625,000 in 2009, compared with $4,425,000 in 2008 and $1,500,000 in 2007. 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. The provision increased during 2009 and 2008 primarily as a result of growth in the loan portfolio,
nonperforming loans and an increase in net charge-offs during the year as well as management’s quantitative analysis of the loan portfolio.

The allowance for loan losses was $12,373,000 at December 31, 2009, compared with $11,119,000 at December 31, 2008. Expressed as a percentage of
outstanding loans at year-end, the allowance was 1.41% in 2009 and 1.33% in 2008. This ratio increased as a result of management’s evaluation of the loan
portfolio.

400790_Financial.CS3.indd 14

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

Century Bancorp, Inc. AR ’09

Nonperforming loans, which include all nonaccruing loans, totaled $12,311,000
on December 31, 2009, compared with $3,661,000 on December 31, 2008.
Nonperforming loans increased primarily as a result of three loan relationships:
one primarily commercial real estate, and two construction totaling $7,379,000.
During 2009, charge-offs totaling $3,604,000 were taken on the two
construction loans.

Other Operating Income
During 2009, 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 Linsco/Private Ledger Corp. (“LPL”), an
unaffiliated registered securities broker-dealer and investment advisor.

Under the lockbox program, which is not tied to extensions of credit by the
Company, the Company’s customers arrange for payments of their 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 that use it to automate
tax collections, cable TV companies and other commercial enterprises.

Through a program called Investment Services at Century Bank, the Bank
provides full-service securities brokerage services supported by LPL, a full-
service securities brokerage business. Registered representatives employed by
LPL offer limited investment advice, execute transactions and assist customers
in financial and retirement planning. LPL provides research to and supervises its
representatives. The Bank receives a share in the commission revenues.

Total other operating income in 2009 was $16,470,000, an increase of
$2,495,000 or 17.9% compared to 2008. This increase followed an increase
of $27,000 or 0.2% in 2008, compared to 2007. Included in other operating
income are net gains on sales of securities of $2,734,000, $249,000 and
$153,000 in 2009, 2008 and 2007, respectively. Included in 2007 is the
$1,321,000 pre-tax gain on the sale of the building that houses the Company’s
Medford Square branch. Service charge income, which continues to be a major
area of other operating income, totaling $8,003,000 in 2009, decreased
$187,000 compared to 2008. This followed an increase of $611,000
compared to 2007. Service charges on deposit accounts decreased during
2009 mainly because of decreases in overdraft fees. The decrease in overdraft
fees was mainly attributable to a reduction in the number of overdraft lines.
Service charges on deposit accounts increased during 2008 mainly because
of increases in fees. Lockbox revenues totaled $2,814,000, down $139,000
in 2009 following a decrease of $3,000 in 2008. Other income totaled
$2,709,000, up $230,000 in 2009 following an increase of $792,000
in 2008. The increase in 2009 was mainly attributable to an increase of
$263,000 in the growth of cash surrender values on life insurance policies,
which was attributable to higher returns on life insurance policies. The increase
in 2008 was mainly attributable to an increase of $420,000 in the growth of
cash surrender values on life insurance policies, which was attributable to higher
returns on life insurance policies, an increase of $143,000 in foreign ATM
surcharges and an increase of $138,000 in royalty payments on the merchant
and credit card customer base. Foreign ATM surcharges increased because of an
increase in rates charged and the addition of ATMs.

Operating Expenses
Total operating expenses were $46,379,000 in 2009, compared to
$43,028,000 in 2008 and $40,255,000 in 2007.

Salaries and employee benefits expenses increased by $1,304,000 or 5.1%
in 2009, after increasing by 4.4% in 2008. The increase in 2009 was mainly
attributable to increases in pension expense and health insurance costs. The
increase in 2008 was mainly attributable to an increase in staff levels, merit
increases in salaries and increases in health insurance costs.

Occupancy expense decreased by $142,000 or 3.3% in 2009, following an
increase of $394,000 or 10.2% in 2008. The decrease in 2009 was primarily
attributable to a decrease in depreciation offset, somewhat, by an increase
in rent expense associated with full year costs of branch expansion as well as
general rent escalations. The increase in 2008 was primarily attributable to an
increase in rent expense associated with general rent escalations as well as retail
branch expansion, depreciation and real estate taxes.

Equipment expense decreased by $502,000 or 17.5% in 2009, following a
decrease of $83,000 or 2.8% in 2008. The decrease in 2009 and 2008 was
primarily attributable to a decrease in depreciation expense. Other operating
expenses decreased by $32,000 in 2009, which followed a $925,000 increase
in 2008. The decrease in 2009 was primarily attributable to a decrease
in personnel recruitment expense and other real estate owned expense,
offset, somewhat by an increase in legal expense. The increase in 2008 was
primarily attributable to an increase in legal expense, consulting expense and
contributions to charitable organizations.

FDIC assessments increased by $2,723,000, mainly because of an increase
in the assessment rate, a special assessment and an increase in the deposit
base. The FDIC assessment rate was raised beginning on January 1, 2009 and
contributed approximately $1,000,000 to the increase in assessments. On
May 22, 2009, the FDIC announced a special assessment on insured institutions
as part of its efforts to rebuild the Deposit Insurance Fund and help maintain
public confidence in the banking system. The special assessment was five basis
points of each FDIC-insured depository institution’s assets minus Tier 1 capital,
as of June 30, 2009. The Company recorded a pre-tax charge of approximately
$1,000,000 in the second quarter of 2009 in connection with the special
assessment. The remainder of the increase was associated with an increase in the
deposit base and from participation in the TAGP. Participation in the TAGP is
discussed in the “Recent Market Developments” section.

Provision for Income Taxes
Income tax expense was $1,183,000 in 2009, $2,255,000 in 2008 and
$3,532,000 in 2007. The effective tax rate was 10.4% in 2009, 20.0% in
2008 and 31.0% in 2007. The decreases in the effective tax rate for 2009 and
2008 were mainly attributable to an increase in tax-exempt interest income as
a percentage of taxable income. The federal tax rate was 34% in 2009, 2008
and 2007.

On July 3, 2008, the Commonwealth of Massachusetts enacted a law that
included reducing the tax rates on net income applicable to financial institutions.
The rate drops from the current rate of 10.5% to 10% for tax years beginning
on or after January 1, 2010 to 9.5% for tax years beginning on or after
January 1, 2011 and to 9% for tax years beginning on or after January 1, 2012
and thereafter. The Company has analyzed the impact of this law and as a result
of revaluing its net deferred tax assets; we calculated the impact to be additional
tax expense of approximately $80,000 that was recognized during 2008.

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. 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 change 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 exposure to
differential changes in interest rates between assets and liabilities is an interest
rate risk management test.

400790_Financial.CS3.indd 15

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

This test measures the impact on net interest income of an immediate change in
interest rates in 100-basis point increments as set forth in the following table:

Change in Interest Rates
(in Basis Points)

Percentage Change in
Net Interest Income(1)

+300
+200
+100
–100
–200
–300

(7.7) %
(5.5) %
(3.1) %
3.9 %
6.5 %
0.5 %

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

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

The 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 $417,160,000 on December 31, 2009,
compared with $199,982,000 on December 31, 2008. In each of these two
years, deposit and borrowing activity has generally been adequate to support
asset activity.

Century Bancorp, Inc. AR ’09

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

Capital Adequacy
Total stockholders’ equity was $132,730,000 at December 31, 2009,
compared with $120,503,000 at December 31, 2008. The increase in
2009 was primarily the result of earnings and a decrease in accumulated
other comprehensive loss, net of taxes, offset by dividends paid. The decrease
in accumulated other comprehensive loss was mainly attributable to an increase
of $4,421,000 in the net unrealized gains on the Company’s available-for-sale
portfolio, net of taxes offset by an increase of $77,000 in the pension liability,
net of taxes.

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 14.45% and 11.68%,
respectively, and total capital-to-risk assets ratio of 15.53% and 12.76%,
respectively, at December 31, 2009. 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, 2009, the Company and the Bank exceeded this
requirement with leverage ratios of 7.73% and 6.23%, 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, 2009.

Contractual Obligations and Commitments by Maturity
(dollars in thousands)

CONTRACTUAL OBLIGATIONS

FHLBB advances
Subordinated debentures
Retirement benefit obligations
Lease obligations
Other

Treasury, tax and loan

Customer repurchase agreements

Total contractual cash obligations

OTHER COMMITMENTS

Lines of credit
Standby and commercial letters of credit

Other commitments

Total commitments

Total

$ 232,500
36,083
23,611
5,631

1,380
118,745

$ 417,950

Total

$ 143,556
8,904
28,368

$ 180,828

Payments Due — By Period

Less Than
One Year

$ 104,000
—
1,835
1,474

1,380
118,745

$ 227,434

One to
Three Years

$ 30,500
—
3,860
1,823

—
—

Three to
Five Years

$ 56,000
—
4,069
934

—
—

After Five
Years

$ 42,000
36,083
13,847
1,400

—
—

$ 36,183

$ 61,003

$ 93,330

Amount of Commitment Expiring—By Period

Less Than
One Year

$ 87,726
7,440
5,132

$ 100,298

One to
Three Years

310
1,214
4,839

Three to
Five Years

$ 2,228
250
1,206

$ 6,363

$ 3,684

After Five
Years

$ 53,292
—
17,191

$ 70,483

400790_Financial.CS3.indd 16

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

Century Bancorp, Inc. AR ’09

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 nonperformance 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

2009

2008

(dollars in thousands)

Financial instruments whose contract amount

represents credit risk:

Commitments to originate 1-4 family mortgages
Standby and commercial letters of credit
Unused lines of credit
Unadvanced portions of construction loans
Unadvanced portions of other loans

1,262
8,904
143,556
22,699
4,407

$ 1,225
14,225
144,653
16,642
6,558

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
creditworthiness 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. The fair value of standby letters of credit
was $93,000 and $117,000 for 2009 and 2008, respectively.

Recent Accounting Developments
FASB ASC 320-10, Investments-Debt and Equity Securities (formerly FASB
Staff Position FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments”). On April 9, 2009, the FASB issued FASB
ASC 320-10, which is intended to provide greater clarity to investors about
the credit and noncredit component of an OTTI event and to more effectively
communicate when an OTTI event has occurred. The FSP applies to debt securities
and requires that the total OTTI be presented in the statement of income with
an offset for the amount of impairment that is recognized in other comprehensive
income, which is the noncredit component. Noncredit component losses are to be
recorded in other comprehensive income if an investor can assess that (a) it does
not have the intent to sell or (b) it is more likely than not that it will not have to
sell the security prior to its anticipated recovery. The Company adopted FASB
ASC 320-10 as of April 1, 2009. The adoption did not have a material effect on
the Company’s consolidated financial statements.

FASB ASC 820-10, Fair Value Measurements and Disclosures-Overall (formerly
FSP FAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly”). On April 9, 2009, FASB issued FASB
ASC 820, which provides additional guidance on determining whether a market
for a financial asset is not active and a transaction is not distressed for fair value
measurements. The FSP was applied prospectively, as retrospective application
was not permitted. The Company adopted FASB ASC 820 as of April 1, 2009.
The adoption did not have a material effect on the Company’s consolidated
financial statements.

FASB ASC 805, Business Combinations (formerly Statement of Financial
Accounting Standards No. 141 (revised 2007), “Business Combinations” )
and FASB ASC 810, Consolidation (formerly Statement of Financial Accounting
Standards No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB No. 51”). In December 2007, the FASB issued
FASB ASC 805 and FASB ASC 810. These statements require significant changes
in the accounting and reporting for business acquisitions and the reporting of
noncontrolling interests in subsidiaries. Among many changes under FASB ASC
805, an acquirer will record 100% of all assets and liabilities at fair value for
partial acquisitions, contingent consideration will be recognized at fair value at
the acquisition date with changes possibly recognized in earnings, and acquisition
related costs will be expensed rather than capitalized. FASB ASC 810 establishes
new accounting and reporting standards for the noncontrolling interest in a
subsidiary. Key changes under the standard are that noncontrolling interests in a
subsidiary will be reported as part of equity, losses allocated to a noncontrolling
interest can result in a deficit balance, and changes in ownership interests that
do not result in a change of control are accounted for as equity transactions
and, upon a loss of control, gain or loss is recognized and the remaining interest
is remeasured at fair value on the date control is lost. FASB ASC 805 applies
prospectively to business combinations for which the acquisition is on or after the
beginning of the first annual reporting period beginning on or after December 15,
2008. The effective date for applying FASB ASC 810 is also the first annual
reporting period beginning on or after December 15, 2008. Adoption of these
statements will affect the Company’s accounting for any business acquisitions
occurring after the effective date and the reporting of any noncontrolling interests
in subsidiaries existing on or after the effective date.

FASB ASC 350, Intangibles-Goodwill and Other (formerly FSP FAS 142-3,
“Determination of the Useful Life of Intangible Assets). In April 2008, the FASB
issued FASB ASC 350. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset. The intent of this FSP is to improve the consistency
between the useful life of a recognized intangible asset and the period of expected
cash flows used to measure the fair value of the asset. These principles are
effective for fiscal years beginning on or after December 15, 2008, and interim
periods within those years. Early application is not permitted. The Company has
determined that the impact of the adoption of FASB ASC 350 to the Company’s
statement of financial position or results of operations is immaterial.

FASB ASC 260-10, Earnings per Share-Overall (formerly FSP EITF 03-6-01,
“Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities”). In June 2008, the FASB issued FASB
ASC 260-10-55, “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities.” FASB ASC 260-10-55
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in the
earnings allocation in computing earnings per share (“EPS”) under the two-class
method. The guidance applies to the calculation of EPS for share-based payment
awards with rights to dividends or dividend equivalents. Unvested share-based

400790_Financial.CS3.indd 17

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

Century Bancorp, Inc. AR ’09

the effective date. Additionally, on or after the effective date, the concept of a
qualifying special-purpose entity is no longer relevant for accounting purposes.
FASB ASC 860 must be applied as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009, for interim periods
within that first annual reporting period and for interim and annual reporting
periods thereafter with early application prohibited. Management does not expect
the adoption of these Statements to have a material effect on the Company’s
financial statement at the date of adoption, January 1, 2010.

FASB ASC 810, Consolidation (formerly Statement of Financial Accounting
Standards No. 167, “Amendments to FASB Interpretation No. 46(R)”). In
June 2009, the FASB issued FASB ASC 810. FASB ASC 810 was issued to
improve financial reporting by enterprises involved with variable interest entities,
specifically to address: (1) the effects on certain provisions of FASB Interpretation
No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,”
as a result of the elimination of the qualifying special-purpose entity concept in
FASB ASC 860 and (2) constituent concerns about the application of certain
key provisions of FASB ASC 860, including those in which the accounting and
disclosures under the Interpretation do not always provide timely and useful
information about an enterprise’s involvement in a variable interest entity. FASB
ASC 810 must be applied as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009, for interim periods
within that first annual reporting period and for interim and annual reporting
periods thereafter with early application prohibited. Management does not expect
the adoption of these Statements to have a material effect on the Company’s
financial statement at the date of adoption, January 1, 2010.

FASB ASC 105, Generally Accepted Accounting Principles (formerly Statement
of Financial Accounting Standards No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles –
a replacement of FASB Statement No. 162”). The codification will become
the source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. The Codification supersedes all previously existing non-SEC
accounting and reporting standards. All other nongrandfathered non-SEC
accounting literature not included in the Codification will become nonauthoritative.
ASC 105 is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. ASC 105 has not had a material impact on our
financial statements.

payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of EPS pursuant to the two-class method. FASB
260-10-55 is effective for fiscal years beginning on or after December 15, 2008,
and interim periods within those years. All prior-period EPS data presented shall
be adjusted retrospectively (including interim financial statements, summaries
of earnings and selected financial data) to conform to these provisions. Early
application is not permitted. The Company adopted FASB ASC 260-10-55 and
the adoption did not have a material effect on the results of operations.

FASB ASC 715-20, Defined Benefit Plans-General (formerly FSP FAS 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit Plan Assets”). In December
2008, the FASB issued FASB ASC 715-30-50, “Employers’ Disclosures about
Postretirement Benefit Plan Assets.” FASB ASC 715-30-50 requires disclosure
of additional information about investment allocation, fair values of major
asset categories of assets, the development of fair value measurements, and
concentrations of risk. FASB ASC 715-30-50 is effective for fiscal years ending
after December 15, 2009; however, earlier application is permitted. The Company
has made the required disclosures for the period ending December 31, 2009.

FASB ASC 825-10-50, Financial Instruments-Overall-Disclosure and FASB ASC
270-10-05 Interim Reporting-Overall-Disclosure (formerly FSP FAS 107-1 and
APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”). These
standards require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements. These standards, which became effective for interim reporting periods
ending after June 15, 2009, allowed early adoption for periods ending after March
15, 2009, only if a company also elects to early adopt. The Company adopted
these standards for the period ended June 30, 2009.

On June 30, 2009, the Company adopted FASB ASC 855, Subsequent Events
(formerly Statement of Financial Accounting Standards No. 165, “Subsequent
Events”). FASB ASC 855 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. Specifically, FASB ASC 855
defines: (1) the period after the balance sheet date during which management
of a reporting entity should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial statements, (2) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and (3) the
disclosures that an entity should make about events or transactions that occurred
after the balance sheet date. Management has reviewed events occurring through
February 23, 2010, the date the financial statements were issued, and no
subsequent events occurred requiring accrual or disclosure.

FASB ASC 860, Transfers and Servicing (formerly Statement of Financial
Accounting Standards No.166, “Accounting for Transfers of Financial Assets –
an amendment of FASB Statement No. 140”). In June, 2009, the FASB
issued FASB ASC 860. FASB ASC 860 was issued to improve the relevance,
representational faithfulness, and comparability of the information that a reporting
entity provides in its financial statements about a transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and cash flows;
and a transferor’s continuing involvement, if any, in transferred financial assets.
Specifically to address: (1) practices that have developed since the issuance of
FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities,” that are not consistent with the original
intent and key requirements of that Statement and (2) concerns of financial
statement users that many of the financial assets (and related obligations) that
have been derecognized should continue to be reported in the financial statements
of transferors. This Statement must be applied to transfers occurring on or after

400790_Financial.CS3.indd 18

2/18/10 9:27:53 PM

Consolidated Balance Sheets

Century Bancorp, Inc. AR ’09

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

Short-term investments

Securities available-for-sale, amortized cost $641,010 in 2009 and $496,046

in 2008 (Notes 3 and 9)

Securities held-to-maturity, fair value $221,413 in 2009 and $185,433

in 2008 (Notes 4 and 11)

Federal Home Loan Bank of Boston, stock at cost
Loans, net (Note 5)

Less: allowance for loan losses (Note 6)

Net loans

Bank premises and equipment (Note 7)
Accrued interest receivable
Prepaid FDIC assessments
Other assets (Notes 8 and 14)

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
Demand deposits
Savings and NOW deposits
Money market accounts
Time deposits (Note 10)

Total deposits

Securities sold under agreements to repurchase (Note 11)
Other borrowed funds (Note 12)
Subordinated debentures (Note 12)
Other liabilities

Total liabilities

Commitments and contingencies (Notes 7, 16 and 17)

Stockholders’ equity (Note 13):

Common stock, Class A,

$1.00 par value per share; authorized

10,000,000 shares; issued 3,515,767 shares in 2009 and

3,511,307 shares in 2008

Common stock, Class B,

$1.00 par value per share; authorized 5,000,000 shares; issued
2,014,530 shares in 2009 and 2,027,100 shares in 2008

Additional paid-in capital
Retained earnings

Unrealized gains (losses) on securities available-for-sale, net of taxes
Pension liability, net of taxes

Total accumulated other comprehensive loss, net of taxes (Notes 3 and 13)

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying “Notes to Consolidated Financial Statements.”

2009

2008

42,627
356,015

398,642

18,518

647,796

217,643
15,531
877,125
12,373

864,752
21,015
5,806
8,757
55,575

61,195
94,973

156,168

43,814

495,585

184,047
15,531
836,065
11,119

824,946
22,054
6,723
—
52,698

$ 2,254,035

$ 1,801,566

$ 279,874
575,592
553,883
292,638

1,701,987

118,745
234,024
36,083
30,466

$ 277,217
353,261
308,177
326,872

1,265,527

112,510
238,558
36,083
28,385

2,121,305

1,681,063

3,516

3,511

2,014
11,376
120,125

137,031

4,129
(8,430)

(4,301)

132,730

2,027
11,475
112,135

129,148

(292)
(8,353)

(8,645)

120,503

$ 2,254,035

$ 1,801,566

400790_Financial.CS3.indd 19

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Year Ended December 31,

(dollars in thousands except share data)

INTEREST INCOME
Loans, taxable
Loans, non-taxable

Securities available-for-sale, taxable
Securities available-for-sale, non-taxable

Federal Home Loan Bank of Boston dividends

Securities held-to-maturity

Federal funds sold, interest-bearing deposits in other banks and short-term investments

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 gains on sales of securities

Writedown of certain investments to fair value (Note 3)

Net gains on sales of fixed assets

Other income

Total other operating income

OPERATING EXPENSES
Salaries and employee benefits (Note 15)

Occupancy

Equipment

FDIC assessments

Other (Note 18)

Total operating expenses

Income before income taxes

Provision for income taxes (Note 14)

Net income

SHARE DATA (Note 13)

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 Income

Century Bancorp, Inc. AR ’09

2009

2008

2007

43,119
5,080
20,439
698
—
8,093
2,171

79,600

5,258

6,100

9,438

576

10,351

31,723

47,877

6,625

41,252

8,003

2,814

140

2,734

—

2,709

16,470

26,919

4,104

2,372

3,336

9,648

46,379

11,343

1,183

10,160

47,521
1,782
17,680
2,101
531
8,265
2,813

80,693

6,005

7,260

9,744

1,393

11,512

35,914

44,779

4,425

40,354

8,190

2,953

180

249

(76)

—

2,479

13,975

25,615

4,246

2,874

613

9,680

43,028

11,301

2,255

9,046

52,589
207
13,815
12
651
9,065
6,669

83,008

6,712

8,901

15,640

3,191

9,361

43,805

39,203

1,500

37,703

7,579

2,956

135

153

—

1,438

1,687

13,948

24,543

3,852

2,957

148

8,755

40,255

11,396

3,532

7,864

5,532,249

5,534,340

1.84

5,541,983

5,543,702

1.63

5,542,461

5,546,707

1.42

400790_Financial.CS3.indd 20

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Consolidated Statements of Changes in Stockholders’ Equity

Century Bancorp, Inc. AR ’09

Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-in
Capital

Accumulated
Other

Total

Retained Comprehensive Stockholders’
Earnings

Equity

Loss

(dollars in thousands except share data)

BALANCE, DECEMBER 31, 2006

$ 3,499

$ 2,042

$ 11,505

$ 99,859

$ (10,087)

$ 106,818

Net income
Other comprehensive income, net of tax:

Unrealized holding gains arising during period, net of $2,977 in taxes

and $153 in realized net gains

Pension liability adjustment, net of $934 in taxes

Comprehensive income
Conversion of Class B Common Stock to Class A Common Stock, 15,350 shares
Stock options exercised, 2,616 shares
Cash dividends, Class A Common Stock, $0.48 per share
Cash dividends, Class B Common Stock, $0.24 per share

—

—
—

15
3
—
—

—

—
—

(15)
—
—
—

—

7,864

—

7,864

—
—

—
48
—
—

—
—

4,900
1,346

—
—
(1,685)
(488)

—
—
—
—

4,900
1,346

14,110
—
51
(1,685)
(488)

BALANCE, DECEMBER 31, 2007

$ 3,517

$ 2,027

$ 11,553

$ 105,550

$ (3,841)

$ 118,806

Net income
Other comprehensive income, net of tax:

Unrealized holding losses arising during period, net of $32 in taxes

and $249 in realized net gains

Pension liability adjustment, net of $3,054 in taxes

Comprehensive income
Effects of changing pension plans’ measurement

date pursuant to SFAS 158, net of $177 in taxes

Stock repurchased, 5,397 shares
Cash dividends, Class A Common Stock, $0.48 per share
Cash dividends, Class B Common Stock, $0.24 per share

—

—
—

—
(6)
—
—

—

—
—

—
—
—
—

—

9,046

—

9,046

—
—

—
(78)
—
—

—
—

(81)
(4,754)

(287)
—
(1,687)
(487)

31
—
—
—

(81)
(4,754)

4,211

(256)
(84)
(1,687)
(487)

BALANCE, DECEMBER 31, 2008

$ 3,511

$ 2,027

$ 11,475

$ 112,135

$ (8,645)

$ 120,503

Net income
Other comprehensive income, net of tax:

Unrealized holding gains arising during period, net of $2,826 in taxes

and $2,734 in realized net gains

Pension liability adjustment, net of $50 in taxes

Comprehensive income
Conversion of Class B Common Stock to Class A Common Stock,
12,570 shares
Stock repurchased, 8,110 shares
Cash dividends, Class A Common Stock, $0.48 per share
Cash dividends, Class B Common Stock, $0.24 per share

—

—
—

13
(8)
—
—

—

—
—

(13)
—
—
—

—

10,160

—

10,160

—
—

—
(99)
—
—

—
—

4,421
(77)

—
—
(1,684)
(486)

—
—
—
—

4,421
(77)

14,504

—
(107)
(1,684)
(486)

BALANCE, DECEMBER 31, 2009

$ 3,516

$ 2,014

$ 11,376

$ 120,125

$ (4,301)

$ 132,730

See accompanying “Notes to Consolidated Financial Statements.”

400790_Financial.CS3.indd 21

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Consolidated Statements of Cash Flows

Century Bancorp, Inc. AR ’09

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:

2009

2008

2007

$ 10,160

9,046

7,864

Mortgage loans originated for sales

Proceeds from mortgage loans sold

Gain on sale of loans

Gain on sale of building

Gain on sale of fixed assets

Net gain on sales of securities

Writedown of certain investments to fair value

Provision for loan losses

Deferred tax (benefit) expense

Net depreciation and amortization

Decrease (increase) in accrued interest receivable

Increase in prepaid FDIC assessments

Loss on sales of other real estate owned

Writedown of other real estate owned

Increase in other assets

Increase (decrease) in other liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of short-term investments
Purchase of short-term investments

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

Loan acquired, net of discount

Net (increase) decrease in loans

Proceeds from sales of other real estate owned

Proceeds from sale of building

Proceeds from sales of fixed assets

Capital expenditures

Net cash (used in) provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in time deposit accounts
Net increase (decrease) in demand, savings, money market and NOW deposits

Net payments for the repurchase of stock

Net proceeds from the exercise of stock options

Cash dividends

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

Net (decrease) increase in other borrowed funds

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

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

Pension liability adjustment, net of taxes

Effects of changing pension plans’ measurement date pursuant to

FASB ASC 715-30 (formerly SFAS 158), net of taxes

Transfer of loans to other real estate owned

See accompanying “Notes to Consolidated Financial Statements.”

(374)
379
(5)
—
(70)
(2,734)
—
6,625
(2,294)
6,035
917
(8,757)
—
—
(3,822)
2,003

8,063

221,628
(196,332)
327,615
94,142
(566,680)
94,069
(128,373)
—
(46,385)
—
—
100
(1,257)

(201,473)

(34,234)
470,694
(107)
—
(2,170)
6,235
(4,534)

435,884

242,474
156,168

$ 398,642

$ 32,202
2,858
4,421
(77)

—
—

(512)
515
(3)
—
—
(249)
76
4,425
(1,094)
3,229
(133)
—
33
77
(1,415)
737

14,732

3,717
(47,531)
282,705
238,894
(593,958)
56,123
(91,431)
(4,099)
(108,950)
673
—
—
(3,009)

(266,866)

31,294
104,172
(84)
—
(2,174)
26,520
(51,327)

108,401

(143,733)
299,901

$ 156,168

$ 35,997
2,750
(81)
(4,754)

(256)
330

—
—
—
(1,321)
(117)
(153)
—
1,500
111
3,443
782
—
—
—
(5,809)
(656)

5,644

—
—
197,322
160
(177,870)
82,074
—
—
8,489
—
1,500
300
(2,252)

109,723

(114,519)
(24,385)
—
51
(2,173)
(970)
166,862

24,866

140,233
159,668

$ 299,901

$ 44,787
3,942
4,900
1,346

—
453

400790_Financial.CS3.indd 22

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

1. Summary of Significant Accounting Policies

BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of Century Bancorp,
Inc. (the “Company”) and its wholly owned subsidiary, Century Bank and Trust
Company (the “Bank”). 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, and 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 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 judgments about information available to them at the
time of their examination.

Certain reclassifications are made to prior-year amounts whenever necessary to
conform with the current-year presentation.

FAIR VALUE MEASUREMENTS
In September 2006, the Financial Accounting Standards Board (“FASB”) issued
FASB ASC 820, Fair Value Measurements and Disclosures (formerly SFAS 157,
“Fair Value Measurements”), which, among other things, requires enhanced
disclosures about assets and liabilities carried at fair value. FASB ASC 820 is
effective for fiscal years beginning after November 15, 2007. The effective date
of FASB ASC 820 was delayed for nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually) to fiscal years beginning
after November 15, 2008. FASB ASC 820 establishes a hierarchal disclosure
framework associated with the level of pricing observability utilized in measuring
financial instruments at fair value. The three broad levels defined by the FASB
ASC 820 hierarchy are as follows:

Level I — Quoted prices are available in active markets for identical assets or
liabilities as of the reported date. The type of financial instruments included
in Level I are highly liquid cash instruments with quoted prices such as G-7
government, agency securities, listed equities and money market securities, as
well as listed derivative instruments.

Level II — Pricing inputs are other than quoted prices in active markets, which
are either directly or indirectly observable as of the reported date. The nature
of these financial instruments includes cash instruments for which quoted
prices are available but traded less frequently, derivative instruments whose fair
value has been derived using a model where inputs to the model are directly
observable in the market or can be derived principally from or corroborated by
observable market data, and instruments that are fair valued using other financial
instruments, the parameters of which can be directly observed. Instruments that
are generally included in this category are corporate bonds and loans, mortgage
whole loans, municipal bonds and OTC derivatives.

Level III — Instruments that have little to no pricing observability as of the
reported date. These financial instruments do not have two-way markets
and are measured using management’s best estimate of fair value, where the
inputs into the determination of fair value require significant management
judgment or estimation. Instruments that are included in this category generally
include certain commercial mortgage loans, certain private equity investments,
distressed debt, and noninvestment grade residual interests in securitizations as
well as certain highly structured OTC derivative contracts.

FASB ASC 820-10, Fair Value Measurements and Disclosures-Overall (formerly
FSP FAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly”). On April 9, 2009, FASB issued FASB
ASC 820, which provides additional guidance on determining whether a market
for a financial asset is not active and a transaction is not distressed for fair value
measurements. The Company adopted FASB ASC 820 as of April 1, 2009. The
adoption did not have a material effect on the Company’s consolidated financial
statements.

CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include highly liquid
assets with an original maturity of three months or less. Highly liquid assets
include cash and due from banks, federal funds sold and certificates of deposit.

SHORT-TERM INVESTMENTS
As of December 31, 2009, short-term investments include highly liquid
certificates of deposit with original maturities of more than 90 days but less
than one year.

400790_Financial.CS3.indd 23

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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 total amount of
the impairment charge is recognized in earnings, with an offset for the noncredit
component which is recognized as other comprehensive income. Gains and
losses on the sale of investment securities are recognized on the trade date on a
specific identification basis.

The Company owns Federal Home Loan Bank of Boston (“FHLBB”) stock which is
considered a restricted equity security. As a voluntary member of the FHLBB, the
Company is required to invest in stock of the FHLBB in an amount equal to 4.5%
of its outstanding advances from the FHLBB. Stock is purchased at par value. As
and when such stock is redeemed, the Company would receive from the FHLBB
an amount equal to the par value of the stock. At its discretion, the FHLBB may
declare dividends on the stock. On April 10, 2009, the FHLBB reiterated to its
members that, while it currently meets all its regulatory capital requirements,
it is focusing on preserving capital in response to ongoing market volatility,
and accordingly, has suspended its quarterly dividend and has extended the
moratorium on excess stock repurchases. It also announced that it had taken a
write-down of $381.7 million in other-than-temporary impairment charges on
its private-label mortgage-backed securities for the year ended December 31,
2008. This resulted in a net loss of $115.8 million. For the nine months
ended September 30, 2009, the FHLBB reported a net loss of $193.1 million
resulting from the recognition of $371.6 million of impairment losses which
were recognized through income. In the future, if additional unrealized losses
are deemed to be other-than-temporary, the associated impairment charges
could exceed the FHLBB’s current level of retained earnings and possibly put
into question whether the fair value of the FHLBB stock owned by the Company
is less than par value. The FHLBB has stated that it expects and intends to hold
its private-label mortgage-backed securities to maturity. Despite these negative
trends, the FHLBB exceeded the regulatory capital requirements promulgated
by the Federal Home Loan Banks Act and the Federal Housing Financing Agency.
The FHLBB has the capacity to issue additional debt if necessary to raise cash.
If needed, the FHLBB also has the ability to secure funding available to U.S.
Government Sponsored Enterprises through the U.S. Treasury. Based on the
capital adequacy and the liquidity position of the FHLBB, management believes
there is no other-than-temporary impairment related to the carrying amount
of the Company’s FHLBB stock as of December 31, 2009. The Company will
continue to monitor its investment in FHLBB stock.

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 nonaccrual loans.
When a loan is placed on nonaccrual, all income that has been accrued but
remains unpaid is reversed against current period income, and all amortization of
deferred loan costs and fees is discontinued. Nonaccrual 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

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

longer exists a concern as to the collectability of principal and interest. Income
received on nonaccrual loans is either recorded in income or applied to the
principal balance of the loan, depending on management’s evaluation as to the
collectability of principal.

Loan origination fees and related direct 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. Prepayments are not initially considered when
amortizing premiums and discounts.

The Bank measures impairment for impaired loans at either the fair value of
the loan, the present value of the expected future cash flows discounted at
the loan’s effective interest rate or the fair value of the collateral if the loan is
collateral dependent. This method applies to all loans, uncollateralized as well as
collateralized, except large groups of smaller-balance homogeneous loans such
as residential real estate and consumer loans that are collectively evaluated for
impairment and 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 collectability of the
loan’s principal is not probable. In addition, criteria for classification of a loan as
in-substance foreclosure has been modified so that such classification need be
made only when a lender is in possession of the collateral. The Bank measures
the impairment of troubled debt restructurings using the pre-modification rate
of interest.

ACQUIRED LOANS
In accordance with FASB ASC 310-30, Loans and Debt Securities Acquired with
Deteriorated Credit Quality (formerly Statement of Position (“SOP”) No. 03-3,
“Accounting for Certain Loans or Debt Securities Acquired in a Transfer,”) the
Company reviews acquired loans for differences between contractual cash flows
and cash flows expected to be collected from the Company’s initial investment
in the acquired loans to determine if those differences are attributable, at least
in part, to credit quality. If those differences are attributable to credit quality,
the loan’s contractually required payments received in excess of the amount of
its cash flows expected at acquisition, or nonaccretable discount, is not accreted
into income. FASB ASC 310-30 requires that the Company recognize the excess
of all cash flows expected at acquisition over the Company’s initial investment in
the loan as interest income using the interest method over the term of the loan.
This excess is referred to as accretable discount and is recorded as a reduction
of the loan balance.

Loans which, at acquisition, do not have evidence of deterioration of credit
quality since origination are outside the scope of FASB ASC 310-30. For such
loans, the discount, if any, representing the excess of the amount of reasonably
estimable and probable discounted future cash collections over the purchase
price, is accreted into interest income using the interest method over the term of
the loan. Prepayments are not considered in the calculation of accretion income.
Additionally, discount is not accreted on nonperforming loans.

When a loan is paid off, the excess of any cash received over the net investment
is recorded as interest income. In addition to the amount of purchase discount
that is recognized at that time, income may include interest owed by the
borrower prior to the Company’s acquisition of the loan, interest collected if on
nonperforming status, prepayment fees and other loan fees.

NONPERFORMING ASSETS
In addition to nonperforming loans, nonperforming assets include other real
estate owned. Other real estate owned is comprised of properties acquired
through foreclosure or acceptance of a deed in lieu of foreclosure. Other real
estate owned is recorded initially at estimated fair value less costs to sell. When
such assets are acquired, the excess of the loan balance over the estimated fair

400790_Financial.CS3.indd 24

2/18/10 9:27:54 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

value of the asset is charged to the allowance for loan losses. An allowance for
losses on other real estate owned is established by a charge to earnings when,
upon periodic evaluation by management, further declines in the estimated
fair value of properties have occurred. Such evaluations are based on an
analysis of individual properties as well as a general assessment of current real
estate market conditions. Holding costs and rental income on properties are
included in current operations, while certain costs to improve such properties
are capitalized. Gains and losses from the sale of other real estate owned are
reflected in earnings when realized.

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 that
ultimately prove uncollectible. In determining the level of the allowance, periodic
evaluations are made of the loan portfolio, which takes into account such factors
as the character of the loans, loan status, financial posture of the borrowers,
value of collateral securing the loans and other relevant information sufficient to
reach an informed judgment. 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, if appropriate, 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, collectability 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.

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
Goodwill represents the excess of the cost of an acquisition over the fair value
of the net assets acquired. Goodwill is not subject to amortization. Identifiable
intangible assets consist of core deposit intangibles and are assets resulting
from acquisitions that are being amortized over their estimated useful lives.
Goodwill and identifiable intangible assets are included in other assets on the
consolidated balance sheets. The Company tests goodwill for impairment on
an annual basis, or more often if events or circumstances indicate there may
be impairment. Goodwill impairment testing is performed at the segment (or
“reporting unit”) level. Currently, the Company’s goodwill is evaluated at the
entity level as there is only one reporting unit. Goodwill is assigned to reporting
units at the date the goodwill is initially recorded. Once goodwill has been
assigned to reporting units, it no longer retains its association with a particular
acquisition, and all of the activities within a reporting unit, whether acquired or
organically grown, are available to support the value of the goodwill.

The goodwill impairment analysis is a two-step test. The first step, used to
identify potential impairment, involves comparing each reporting unit’s fair
value to its carrying value including goodwill. If the fair value of a reporting unit
exceeds its carrying value, applicable goodwill is considered not to be impaired.
If the carrying value exceeds fair value, there is an indication of impairment and
the second step is performed to measure the amount of impairment.

STOCK OPTION ACCOUNTING
The Company follows the fair value recognition provisions of FASB ASC 718,
Compensation – Stock Compensation (formerly SFAS 123R) for all share-based
payments, using the modified-prospective transition method. The Company’s
method of valuation for share-based awards granted utilizes the Black-Scholes
option-pricing model, which was also previously used for the Company’s pro
forma information required under FASB ASC 718. The Company will recognize
compensation expense for its awards on a straight-line basis over the requisite
service period for the entire award (straight-line attribution method), ensuring
that the amount of compensation cost recognized at any date at least equals the
portion of the grant-date fair value of the award that is vested at that time.

During 2000 and 2004, common stockholders of the Company approved
stock option plans (the “Option Plans”) that provide for granting of options
to purchase up to 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 nonqualified or 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 nonqualified 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 options to purchase an aggregate of 68,637 shares of Class A common
stock exercisable at December 31, 2009.

On December 30, 2005, the Board of Directors approved the acceleration
and immediate vesting of all unvested options with an exercise price of $31.60
or greater per share. As a consequence, options to purchase 23,950 shares
of Class A common stock became exercisable immediately. The average of the
high and low price at which the Class A common stock traded on December 30,
2005, the date of the acceleration and vesting, was $29.28 per share. In
connection with this acceleration, the Board of Directors approved a technical
amendment to each of the Option 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. Effective as of January 1, 2006, the Company adopted FASB
ASC 718 for all share-based payments. The Company estimates that, as a
result of this accelerated vesting, approximately $190,000 of 2006 noncash
compensation expense was eliminated that would otherwise have been
recognized in the Company’s earnings.

The Company decided to accelerate the vesting of certain stock options
primarily to reduce the noncash compensation expense that would otherwise be
expected to be recorded in conjunction with the Company’s required adoption
of FASB ASC 718 in 2006. There was no earnings impact for 2006 due to the
Company’s adoption of FASB ASC 718.

The Company uses the fair value method to account for stock options. All of
the Company’s stock options are vested, and there were no options granted
during 2009.

INCOME TAXES
The Company uses the asset and liability method in 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

400790_Financial.CS3.indd 25

2/18/10 9:27:54 PM

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.

In July 2006, the FASB issued FASB ASC 740, Income Taxes (formerly Financial
Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes”). This clarified the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements. FASB ASC 740 prescribes a
recognition threshold and measurement attributable for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a tax return. FASB ASC 740 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosures
and transitions. The Company adopted FASB ASC 740 on January 1, 2007. The
adoption of FASB ASC 740 did not have a material impact on the Company’s
results of operations or its financial position.

The Company classifies interest resulting from underpayment of income taxes
as income tax expense in the first period the interest would begin accruing
according to the provisions of the relevant tax law.

The Company classifies penalties resulting from underpayment of income taxes
as income tax expense in the period for which the Company claims or expects to
claim an uncertain tax position or in the period in which the Company’s judgment
changes regarding an uncertain tax position.

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 reacquired by a company are to be treated as authorized but
unissued shares.

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

The Company also has a Supplemental Executive Insurance/Retirement Plan
(“the Supplemental Plan”), which is limited to certain officers and employees
of the Company. The Supplemental Plan is accrued on a current basis and
recognizes costs over the estimated employee service period.

Executive officers of the Company or its subsidiaries who have at least one year
of service may participate in the Supplemental Plan. The Supplemental Plan is
voluntary, and participants are required to contribute to its cost. Individual life
insurance policies, which are owned by the Company, are purchased covering the
lives of each participant.

RECENT ACCOUNTING DEVELOPMENTS
FASB ASC 320-10, Investments-Debt and Equity Securities (formerly FASB
Staff Position FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments”). On April 9, 2009, the FASB issued FASB
ASC 320-10, which is intended to provide greater clarity to investors about
the credit and noncredit component of an OTTI event and to more effectively
communicate when an OTTI event has occurred. The FSP applies to debt
securities and requires that the total OTTI be presented in the statement of
income with an offset for the amount of impairment that is recognized in other
comprehensive income, which is the noncredit component. Noncredit component
losses are to be recorded in other comprehensive income if an investor can
assess that (a) it does not have the intent to sell or (b) it is more likely than

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

not that it will have to sell the security prior to its anticipated recovery. The
Company adopted FASB ASC 320-10 as of April 1, 2009. The adoption did
not have a material effect on the Company’s consolidated financial statements.

FASB ASC 820-10, Fair Value Measurements and Disclosures-Overall (formerly
FSP FAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly”). On April 9, 2009, FASB issued FASB ASC
820, which provides additional guidance on determining whether a market for
a financial asset is not active and a transaction is not distressed for fair value
measurements. The FSP was applied prospectively as retrospective application
was not permitted. The Company adopted FASB ASC 820 as of April 1, 2009.
The adoption did not have a material effect on the Company’s consolidated
financial statements.

FASB ASC 805, Business Combinations (formerly Statement of Financial
Accounting Standards No. 141 (revised 2007), “Business Combinations”) and
FASB ASC 810, Consolidation (formerly Statement of Financial Accounting
Standards No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB No. 51”). In December 2007, the FASB
issued FASB ASC 805 and FASB ASC 810. These statements require significant
changes in the accounting and reporting for business acquisitions and the
reporting of noncontrolling interests in subsidiaries. Among many changes under
FASB ASC 805, an acquirer will record 100% of all assets and liabilities at fair
value for partial acquisitions, contingent consideration will be recognized at fair
value at the acquisition date with changes possibly recognized in earnings, and
acquisition related costs will be expensed rather than capitalized. FASB ASC
810 establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary. Key changes under the standard are that noncontrolling
interests in a subsidiary will be reported as part of equity, losses allocated
to a noncontrolling interest can result in a deficit balance, and changes in
ownership interests that do not result in a change of control are accounted for
as equity transactions and, upon a loss of control, gain or loss is recognized
and the remaining interest is remeasured at fair value on the date control is
lost. FASB ASC 805 applies prospectively to business combinations for which
the acquisition is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The effective date for applying
FASB ASC 810 is also the first annual reporting period beginning on or after
December 15, 2008. Adoption of these statements will affect the Company’s
accounting for any business acquisitions occurring after the effective date and
the reporting of any noncontrolling interests in subsidiaries existing on or after
the effective date.

FASB ASC 350, Intangibles-Goodwill and Other (formerly FSP FAS 142-3,
“Determination of the Useful Life of Intangible Assets). In April 2008, the FASB
issued FASB ASC 350. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful
life of a recognized intangible asset. The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of the asset. These
principles are effective for fiscal years beginning on or after December 15,
2008, and interim periods within those years. Early application is not permitted.
The Company has determined that the impact of the adoption of FASB ASC
350 to the Company’s statement of financial position or results of operations
is immaterial.

400790_Financial.CS3.indd 26

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

transactions are participating securities prior to vesting and, therefore, need to
be included in the earnings allocation in computing earnings per share (“EPS”)
under the two-class method. The guidance applies to the calculation of EPS for
share-based payment awards with rights to dividends or dividend equivalents.
Unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of EPS pursuant to the two-
class method. FASB 260-10-55 is effective for fiscal years beginning on or after
December 15, 2008, and interim periods within those years. All prior-period
EPS data presented shall be adjusted retrospectively (including interim financial
statements, summaries of earnings and selected financial data) to conform to
these provisions. Early application is not permitted. The Company adopted FASB
ASC 260-10-55 and the adoption did not have a material effect on the results
of operations.

FASB ASC 715-20, Defined Benefit Plans-General (formerly FSP FAS
132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”).
In December 2008, the FASB issued FASB ASC 715-30-50, “Employers’
Disclosures about Postretirement Benefit Plan Assets.” FASB ASC 715-30-
50 requires disclosure of additional information about investment allocation,
fair values of major asset categories of assets, the development of fair value
measurements, and concentrations of risk. FASB ASC 715-30-50 is effective
for fiscal years ending after December 15, 2009; however, earlier application
is permitted. The Company has made the required disclosures for the period
ending December 31, 2009.

FASB ASC 825-10-50, Financial Instruments-Overall-Disclosure and FASB
ASC 270-10-05 Interim Reporting-Overall-Disclosure (formerly FSP FAS
107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial
Instruments”). These standards require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. These standards, which became effective for
interim reporting periods ending after June 15, 2009, allowed early adoption
for periods ending after March 15, 2009, only if a company also elects to
early adopt. The Company adopted these standards for the period ended
June 30, 2009.

On June 30, 2009, the Company adopted FASB ASC 855, Subsequent Events
(formerly Statement of Financial Accounting Standards No. 165, “Subsequent
Events”). FASB ASC 855 establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. Specifically, FASB
ASC 855 defines: (1) the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that
may occur for potential recognition or disclosure in the financial statements,
(2) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements,
and (3) the disclosures that an entity should make about events or transactions
that occurred after the balance sheet date. Management has reviewed events
occurring through February 23, 2010, the date the financial statements were
issued and no subsequent events occurred requiring accrual or disclosure.

and cash flows; and a transferor’s continuing involvement, if any, in transferred
financial assets. Specifically to address: (1) practices that have developed
since the issuance of FASB Statement No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” that are not
consistent with the original intent and key requirements of that Statement
and (2) concerns of financial statement users that many of the financial assets
(and related obligations) that have been derecognized should continue to be
reported in the financial statements of transferors. This Statement must be
applied to transfers occurring on or after the effective date. Additionally, on
or after the effective date, the concept of a qualifying special-purpose entity
is no longer relevant for accounting purposes. FASB ASC 860 must be applied
as of the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods thereafter with
early application prohibited. Management does not expect the adoption of these
Statements to have a material effect on the Company’s financial statement at
the date of adoption, January 1, 2010.

FASB ASC 810, Consolidation (formerly Statement of Financial Accounting
Standards No. 167, “Amendments to FASB Interpretation No. 46(R)”). In
June 2009, the FASB issued FASB ASC 810. FASB ASC 810 was issued to
improve financial reporting by enterprises involved with variable interest
entities, specifically to address: (1) the effects on certain provisions of FASB
Interpretation No. 46 (revised December 2003), “Consolidation of Variable
Interest Entities,” as a result of the elimination of the qualifying special-purpose
entity concept in FASB ASC 860 and (2) constituent concerns about the
application of certain key provisions of FASB ASC 860, including those in which
the accounting and disclosures under the Interpretation do not always provide
timely and useful information about an enterprise’s involvement in a variable
interest entity. FASB ASC 810 must be applied as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter with early application prohibited.
Management does not expect the adoption of these Statements to have a
material effect on the Company’s financial statement at the date of adoption,
January 1, 2010.

FASB ASC 105, Generally Accepted Accounting Principles (formerly Statement
of Financial Accounting Standards No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles –
a replacement of FASB Statement No. 162”). The codification will become
the source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP
for SEC registrants. The Codification supersedes all previously-existing
non-SEC accounting and reporting standards. All other nongrandfathered
non-SEC accounting literature not included in the Codification will become
nonauthoritative. FASB ASC 105 is effective for financial statements issued for
interim and annual periods ending after September 15, 2009. FASB ASC 105
has not had a material impact on our financial statements.

2. Cash and Due from Banks

The Company is required to maintain a portion of its cash and due from banks
as a reserve balance under the Federal Reserve Act. Such reserve is calculated
based upon deposit levels and amounted to $1,061,000 at December 31,
2009 and $1,020,000 at December 31, 2008.

400790_Financial.CS3.indd 27

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

3. Securities Available-for-Sale

(dollars in thousands)

U.S. Treasury
U.S. Government Sponsored Enterprises
U.S. Government Agency and Sponsored

December 31, 2009
Gross
Unrealized
Losses

Gross
Unrealized
Gains

Estimated
Fair
Value

Amortized
Cost*

December 31, 2008
Gross
Gross
Unrealized
Losses

Gains

Amortized Unrealized

Cost

Estimated
Fair
Value

$
1,998
192,942

5
374

—
952

$
2,003
192,364

$
1,999
159,100

$
29
2,216

—
24

$
2,028
161,292

Enterprises Mortgage-Backed Securities

410,181

8,855

524

418,512

259,264

2,427

1,559

260,132

Privately Issued Residential
Mortgage-Backed Securities
Privately Issued Commercial
Mortgage-Backed Securities
Obligations Issued by States and
Political Subdivisions
Other Debt Securities
Equity Securities

5,383

537

26,627
2,300
1,042

—

130
—
71

473

—

468
41
198

4,910

544

26,289
2,259
915

7,539

3,433

61,532
2,200
979

—

38
—
73

1,880

5,659

3,367

1,311
100
304

60,259
2,100
748

Total

$ 641,010

$ 9,442

$ 2,656

$ 647,796

$ 496,046

$ 4,783

$ 5,244

$ 495,585

* Amortized cost is net of impairment writedown.

Included in U.S. Government Sponsored Enterprise Securities and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities are securities
at fair value pledged to secure public deposits and repurchase agreements amounting to $332,064,000 and $113,259,000 at December 31, 2009 and
2008, respectively. Also included in securities available-for-sale at fair value are securities pledged for borrowing at the Federal Home Loan Bank amounting to
$172,497,000 and $244,409,000 at December 31, 2009 and 2008, respectively. The Company realized gross gains of $2,734,000 from the proceeds of
$94,142,000 from the sales of available-for-sale securities for the year ended December 31, 2009.

Debt securities of Government Sponsored Enterprises primarily refer to debt securities of Fannie Mae and Freddie Mac. Control of these enterprises was directly
taken over by the U.S. Government in the third quarter of 2008.

The following table shows the estimated maturity distribution of the Company’s securities available-for-sale at December 31, 2009.

(dollars in thousands)

Within one year
After one but within five years
After five but within ten years
More than ten years
Nonmaturing

Total

Amortized
Cost*

Fair
Value

$ 29,585 $ 30,217
474,602
467,566
118,534
118,917
22,069
22,400
2,374
2,542

$ 641,010 $ 647,796

* Amortized cost is net of impairment writedown.

The weighted average remaining life of investment securities available-for-sale at December 31, 2009, was 3.9 years. Auction rate municipal obligations (“ARSs”)
and variable rate demand notes (“VRDNs”) are included in Obligations Issued by States and Political Subdivisions. Included in the weighted average remaining life
calculation at December 31, 2009, was $187,342,000 of U.S. Government Sponsored Enterprise obligations that are callable at the discretion of the issuer. These
call dates were not utilized in computing the weighted average remaining life. The contractual maturities, which were used in the table above, of mortgage-backed
securities, will differ from the actual maturities due to the ability of the issuers to prepay underlying obligations.

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at December 31, 2009. 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 41 and 17 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 287 holdings at
December 31, 2009.

As of December 31, 2009, management concluded that the unrealized losses of its investment securities are temporary in nature since they are not related to the
underlying credit quality of the issuers, and the Company does not intend to sell any of its debt securities and it is not likely that it will be required to sell the debt
securities before the anticipated recovery of their remaining amortized cost. In making its other-than-temporary impairment evaluation, the Company considered
the fact that the principal and interest on these securities are from issuers that are investment grade. The change in the unrealized losses on the state and municipal
securities and the nonagency mortgage-backed securities was primarily caused by changes in credit spreads and liquidity issues in the marketplace.

In evaluating the underlying credit quality of a security, management considers several factors such as the credit rating of the obligor and the issuer, if applicable.
Internal reviews of issuer financial statements are performed as deemed necessary. In the case of privately issued mortgage-backed securities, the performance of the
underlying loans is analyzed as deemed necessary to determine the estimated future cash flows of the securities. Factors considered include the level of subordination,
current and estimated future default rates, current and estimated prepayment rates, estimated loss severity rates, geographic concentrates and origination dates of
underlying loans. In the case of marketable equity securities, the severity of the unrealized loss, the length of time the unrealized loss has existed, and the issuer’s
financial performance are considered.

400790_Financial.CS3.indd 28

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

Temporarily Impaired Investments*

December 31, 2009

(dollars in thousands)

U.S. Government Sponsored Enterprise
U.S. Government Agency and Sponsored
Enterprise Mortgage-Backed Securities
Privately Issued Residential Mortgage-Backed Securities
Obligations Issued by States and Political Subdivisions
Other Debt Securities
Equity Securities

Less Than 12 Months

12 Months or Longer

Total

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

$ 127,259

952

—

$ 127,259

952

51,903
—
3,427
—
—

428
—
187
—
—

11,752
4,910
4,393
1,459
495

96
473
281
41
198

63,655
4,910
7,820
1,459
495

524
473
468
41
198

Total temporarily impaired securities

$ 182,589

$ 1,567

$ 23,009

$ 1,089

$ 205,598

$ 2,656

* At December 31, 2009, the Company does not intend to sell any of its debt securities and it is not likely that it will be required to sell the debt securities before the anticipated recovery of their
remaining amortized cost. The unrealized losses on Obligations Issued by States and Political Subdivisions were considered by management to be temporary in nature. Full collection of those debt
securities is expected because the financial condition of the obligors is considered to be sound, there has been no default in scheduled payment and the debt securities are rated investment grade. The
unrealized loss on U.S. Government Sponsored Enterprises and U.S. Government Sponsored Enterprises Mortgage-Backed Securities related primarily to interest rates and not credit quality, and because
the Company has the ability and intent to hold these investments until recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily
impaired at December 31, 2009. Excluded from the table above are two equity securities that were written down in 2008 by $76,000. The fair value is $121,000 with an unrealized gain of $12,000 at
December 31, 2009. These stocks were deemed to be other than temporarily impaired based on the extent of the decline in value and the length of time the stocks had been trading below cost.

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at December 31, 2008. 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 44 and 17 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 260 holdings at
December 31, 2008. The Company believes that the investments are temporarily impaired.

Temporarily Impaired Investments*

December 31, 2008

(dollars in thousands)

U.S. Government Sponsored Enterprises
U.S. Government Agency and Sponsored

Enterprises Mortgage-Backed Securities

Privately Issued Residential Mortgage-Backed Securities
Privately Issued Commercial Mortgage-Backed Securities
Obligations Issued by States and Political Subdivisions
Other Debt Securities
Equity Securities

Total temporarily impaired securities

Less Than 12 Months

12 Months or Longer

Total

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

$ 4,976

—

$ 4,976

80,873
1,716
—
13,645
100
382

$ 101,692

1,351
569
—
1,311
1
265

$ 3,521

15,793
5,455
1,855
—
150
1,419

208
1,320
57
—
1
124

96,666
7,171
1,855
13,645
250
1,801

1,559
1,889
57
1,311
2
389

$ 24,672

$ 1,710

$ 126,364

$ 5,231

* The decline in fair value is attributable to change 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, 2008. Excluded from the table above are two equity securities that were written
down by $76,000. The fair value is $96,000 with an unrealized loss of $13,000. These stocks were deemed to be other than temporarily impaired based on the extent of the decline in value and the
length of time the stocks had been trading below cost.

4. Investment Securities Held-to-Maturity

December 31, 2009
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

Amortized
Cost

December 31, 2008
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

Amortized
Cost

(dollars in thousands)

U.S. Government Sponsored Enterprise

$ 69,555

707

$ 68,884

$ 44,000

$ 506

—

$ 44,506

U.S. Government Agency and Sponsored

Enterprise Mortgage-Backed Securities

148,088

Total

$ 217,643

4,490

$ 4,526

152,529

140,047

1,314

434

140,927

756

$ 221,413

$ 184,047

$ 1,820

434

$ 185,433

Included in U.S. Government and Agency Securities are securities pledged to secure public deposits and repurchase agreements at fair value amounting to $9,036,000
and $35,000,000 at December 31, 2009, and 2008, respectively. Also included are securities pledged for borrowing at the Federal Home Loan Bank at fair value
amounting to $83,693,000 and $114,103,000 at December 31, 2009, and 2008, respectively.

At December 31, 2009 and 2008, all mortgage-backed securities are obligations of U.S. Government Sponsored Enterprises. Government Sponsored Enterprises primarily
refer to debt securities of Fannie Mae and Freddie Mac. Control of these enterprises was directly taken over by the U.S. Government in the third quarter of 2008.

400790_Financial.CS3.indd 29

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

The following table shows the maturity distribution of the Company’s securities held-to-maturity at December 31, 2009.

Amortized
Cost

Fair
Value

(dollars in thousands)

Within one year
After one but within five years
After five but within ten years

4,693 $

$
163,521
49,429

4,719
167,768
48,926

Total

$ 217,643 $ 221,413

The weighted average remaining life of investment securities held-to-maturity at December 31, 2009, was 3.8 years. Included in the weighted average remaining life
calculation at December 31, 2009, were $69,555,000 of U.S. Government Sponsored Enterprises obligations that are callable at the discretion of the issuer. The
actual maturities, which were used in the table above, of mortgage-backed securities, will differ from the contractual maturities due to the ability of the issuers to
prepay underlying obligations.

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at December 31, 2009. 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 12 and 0 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 94 holdings at December 31,
2009.

As of December 31, 2009, management concluded that the unrealized losses of its investment securities are temporary in nature since they are not related to the
underlying credit quality of the issuers, and the Company does not intend to sell this debt security and it is not likely that it will be required to sell this debt security
before the anticipated recovery of its remaining amortized cost. In making its other-than-temporary impairment evaluation, the Company considered the fact that the
principal and interest on this security are from an issuer that is investment grade.

In evaluating the underlying credit quality of a security, management considers several factors such as the credit notary of the obligor and the issuer, if applicable.
Internal reviews of issuer financial statements are performed as deemed necessary.

Temporarily Impaired Investments*

December 31, 2009

(dollars in thousands)

U.S. Government Sponsored Enterprises
U.S. Government Agency and Sponsored
Enterprise Mortgage-Backed Securities

Total temporarily impaired securities

Less Than 12 Months

12 Months or Longer

Total

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

$ 49,848

707

11,152

$ 61,000

756

—

$ 49,848

707

11,152

$ 61,000

756

* The unrealized loss on U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities related primarily to interest rates and not credit quality, and because the Company does not intend
to sell any of this security and it is not likely that it will be required to sell this security before the anticipated recovery of the remaining amortized cost, the Company does not consider this investment to
be other-than-temporarily impaired at December 31, 2009.

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at December 31, 2008. 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 9 and 12 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 80 holdings at
December 31, 2008.

Temporarily Impaired Investments*

December 31, 2008

(dollars in thousands)

U.S. Government Agency and Sponsored

Enterprise Mortgage-Backed Securities

Total temporarily impaired securities

Less Than 12 Months

12 Months or Longer

Total

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

$ 12,995

111

$ 19,821

323

$ 32,816

434

* The unrealized loss on U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities related primarily to interest rates and not credit quality, and because the Company 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, 2008.

400790_Financial.CS3.indd 30

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

5. Loans

The majority of the Bank’s lending activities are conducted in the Commonwealth of Massachusetts. The Bank originates construction, commercial and residential real
estate loans, commercial and industrial loans, consumer, home equity and other loans for its portfolio.

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

December 31,

2009

2008

(dollars in thousands)

Construction and

land development

Commercial and industrial

Commercial real estate

Residential real estate

Consumer

Home equity

Overdrafts

Total

$ 60,349
141,061
361,823
188,096
7,105

118,076

615

$ 877,125

$ 59,511
141,373
332,325
194,644
8,246

98,954

1,012

$ 836,065

Net deferred fees included in loans at December 31, 2009 and December 31, 2008 were $71,000 and $81,000, respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $1,127,000 and $768,000 at December 31, 2009, and December 31,
2008, 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 $47,000 and $56,000 at December 31, 2009, and at December 31, 2008, respectively.

As of December 31, 2009, and 2008, the Bank recorded investment in impaired loans was $10,516,000 and $2,698,000, respectively. If an impaired loan is placed
on nonaccrual, the loan may be returned to an accrual status when principal and interest payments are not delinquent or the risk characteristics have improved to the
extent that there no longer exists a concern as to the collectibility of principal and interest. At December 31, 2009, there were $1,980,000 of impaired loans with a
specific reserve of $745,000. At December 31, 2008, there were $1,460,000 of impaired loans with a specific reserve of $600,000.

Loans are designated as “restructured” when a concession is made on a credit as a result of financial difficulties of the borrower. Typically, such concessions consist of
a reduction in interest rate to a below market rate, taking into account the credit quality of the note, or a deferment of payments, principal or interest, which materially
alters the Bank’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those
contractually established at the loan’s origination. Restructured loans are included in the impaired loan category.

The composition of nonaccrual loans and impaired loans is as follows:

December 31,

(dollars in thousands)

Loans on nonaccrual

Loans 90 days past due and still accruing

Impaired loans on nonaccrual included above

Total recorded investment in impaired loans

Average recorded investment of impaired loans

Troubled debt restructured loans

Interest income not recorded on nonaccrual loans

according to their original terms

Interest income on nonaccrual loans actually recorded

Interest income recognized on impaired loans

2009

2008

2007

$ 12,311
—
9,736
10,516
9,718
521

1,121
—
24

$ 3,661
89
1,511
2,698
1,194
—

121
—
24

$ 1,312
122
196
196
332
—

52
—
—

During the first quarter of 2008, the Company purchased a loan for $4,823,000 with a discount of $724,000. The entire discount is classified as an accretable
discount. The Company accreted $46,000 and $34,000 of the discount during 2009 and 2008, respectively.

The following table shows the aggregate amount of loans to directors and officers of the Company and their associates during 2009.

Balance at
December 31, 2008

(dollars in thousands)

Additions

Repayments
and Deletions

Balance at
December 31, 2009

$ 2,572

$ 568

$ 167

$ 2,973

400790_Financial.CS3.indd 31

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

6. Allowance for Loan Losses

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

An analysis of the total allowances for loan losses for each of the three years ending December 31, 2009, 2008 and 2007 are as follows:

(dollars in thousands)

Allowance for loan losses, beginning of year

Loans charged-off

Recoveries on loans previously charged-off

Net charge-offs

Provision charged to expense

Allowance for loan losses, end of year

7. Bank Premises and Equipment

December 31,

(dollars in thousands)

Land

Bank premises

Furniture and equipment

Leasehold improvements

Accumulated depreciation and amortization

2009

2008

2007

$ 11,119
(6,070)
699

(5,371)
6,625

9,633
(3,373)
434

(2,939)
4,425

$ 9,713
(2,139)
559

(1,580)
1,500

$ 12,373

$ 11,119

$ 9,633

2009

2008

Estimated Useful Life

$ 3,478
17,883
26,202
6,328

53,891
(32,876)

$ 3,478
17,846
25,357
6,558

53,239
(31,185)

—
30-39 years
3-10 years
30-39 years or lease term

Total

$ 21,015

$ 22,054

During 2007, the Company sold the building that houses one of its branches located at 55 High Street, Medford, Massachusetts, for $1,500,000 at market terms.
This property was sold to an entity affiliated with a director of the Company. The Bank financed $1,000,000 of this purchase at market terms. This sale resulted in a
pre-tax gain of $1,321,000.

The Bank relocated this branch to 1 Salem Street (formerly 3 Salem Street), Medford, Massachusetts. This property is leased from an entity affiliated with Marshall M.
Sloane, Chairman of the Board of the Company. The lease is for a period of 15 years. The annual base rent amount is $28,500 with annual increases based on the
consumer price index. The Company is also required to pay 25% of all real estate taxes and operating costs. The lease contains options to extend the lease for three
additional five-year periods. The lease was effective on September 1, 2007. The terms of the lease were based on an independent appraisal of the property and are
considered to be market terms. The branch opened on May 5, 2008.

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 $1,673,000, $1,533,000 and $1,349,000 for the years ended December 31, 2009, 2008 and 2007, respectively. Rental
income approximated $418,000, $399,000 and $351,000 in 2009, 2008 and 2007, respectively.

Future minimum rental commitments for noncancelable operating leases with initial or remaining terms of one year or more at December 31, 2009, were as follows:

(dollars in thousands)

Year

Amount

2010
2011
2012
2013
2014
Thereafter

$ 1,474
1,230
593
502
432
1,400

$ 5,631

400790_Financial.CS3.indd 32

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

8. Goodwill and Identifiable Intangible Assets

Historically, the Company has determined fair values of reporting units based on stock prices, market earnings and tangible book value multiples of peer companies for
the reporting unit. During the third quarter of 2008, management determined that the Company’s goodwill should be tested for impairment as the Company’s Class
A common stock had been trading below book value per share. In the third quarter of 2008, management enhanced the valuation methodology with discounted cash
flow analysis. During the fourth quarter of 2008, management reviewed the assumptions used during the third quarter and concluded that the assumptions continued
to be appropriate. Based on management’s assessment of the reporting unit’s fair value, goodwill was not considered to be impaired at December 31, 2008.

During the second half of 2009, the Company’s Class A common stock traded closer to or above book value per share. Accordingly, at December 31, 2009
management measured for impairment utilizing the fair value of the reporting unit based on the recent stock price of the Company. Management determined that the
Company’s goodwill is not considered to be impaired at December 31, 2009.

The changes in goodwill and identifiable intangible assets for the years ended December 31, 2009 and 2008 are shown in the table below.

Carrying Amount of Goodwill and Intangibles

Goodwill

Core Deposit
Intangibles

Total

(dollars in thousands)

Balance at December 31, 2007

Amortization Expense

Balance at December 31, 2008

Amortization Expense

Balance at December 31, 2009

2,714
—

$ 2,714

1,671
(388)

1,283
(387)

$ 4,385
(388)

$ 3,997
(387)

896

$ 3,610

The following table sets forth the estimated annual amortization expense of the identifiable intangible assets.

Core Deposit Intangibles

(dollars in thousands)

9. Fair Value Measurements

Year

Amount

2010
2011
2012

$ 388
388
119

$ 895

The Company follows FASB ASC 820-10, Fair Value Measurements and Disclosures (formerly SFAS 157, “Fair Value Measurements”), which among other things,
requires enhanced disclosures about assets and liabilities carried at fair value. The principles were effective for fiscal years beginning after November 15, 2007. The
effective date for nonfinancial assets and nonfinancial liabilities was delayed, except for items that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. These elements were adopted on January 1, 2009. ASC 820-10
establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value. The three broad
levels of the hierarchy are as follows:

Level I – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The type of financial instruments included in Level I are
highly liquid cash instruments with quoted prices such as G-7 government, agency securities, listed equities and money market securities, as well as listed derivative
instruments.

Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these
financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been
derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data,
and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Instruments which are generally included in this
category are corporate bonds and loans, mortgage whole loans, municipal bonds and OTC derivatives.

Level III – Instruments that have little to no pricing observability as of the reported date. These financial instruments do not have two-way markets and are measured
using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
Instruments that are included in this category generally include certain commercial mortgage loans, certain private equity investments, distressed debt, non-investment
grade residual interests in securitizations, as well as certain highly structured OTC derivative contracts.

400790_Financial.CS3.indd 33

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

The results of the fair value hierarchy as of December 31, 2009 are as follows:

(dollars in thousands)

Financial Instruments Measured at Fair Value
on a Recurring Basis – Securities AFS

U.S. Treasury

U.S. Government Sponsored Enterprises

U.S. Government Agency and Sponsored Enterprises

Mortgage-Backed Securities

Privately Issued Residential Mortgage-Backed Securities

Privately Issued Commercial Mortgage-Backed Securities

Obligations Issued by States and Political Subdivisions

Other Debt Securities

Equity Securities

Total

Financial Instruments Measured at Fair Value
on a Non-recurring Basis

Impaired Loans

Fair Value Measurements Using

Quoted Prices
in Active Markets
for Identical Assets Observable Inputs

Significant

(Level 1)

(Level 2)

Significant
Other Unobservable
Inputs
(Level 3)

Carrying
Value

$
2,003
192,364

418,512
4,910
544
26,289
2,259
915

$ 647,796

$ —
—

—
—
—
—
—
681

$ 681

$
2,003
192,364

418,512
4,910
544
12,846
2,259
—

$ 633,438

—
—

—
—
—
13,443
—
234

$ 13,677

6,855

$ —

—

$ 6,855

Impaired loan balances in the table above represent those collateral dependent loans where management has estimated the credit loss during the year by comparing the
loan’s carrying value against the expected realizable fair value of the collateral. Specific provisions relates to impaired loans recognized for 2009 for the estimated credit
loss amounted to $4,553,000. There was an $8,500,000 reclassification of impaired loans to Level 3 during the third quarter of 2009 due to the lack of an active real
estate market for the loans in this category. The Company uses discounts to appraisals based on management’s observations of the local real estate market for loans in
this category.

The changes in Level 3 securities for the year ended December 31, 2009 are shown in the table below:

(dollars in thousands)

Balance at December 31, 2008

Purchases

Maturities

Reclassification

Change in fair value

Balance at December 31, 2009

Auction Rate
Securities

—
—
(12,580)
21,061
(661)

$ 7,820

Obligations
Issued by States
and Political
Subdivisions

$ 3,300
7,790
(5,467)
—
—

$ 5,623

Equity
Securities

$ 170
64
—
—
—

$ 234

Total

$ 3,470
7,854
(18,047)
21,061
(661)

$ 13,677

There was a $21,061,000 reclassification of failed auction rate securities to Level 3 during the first quarter of 2009 due to the lack of an active market. The
amortized cost of Level 3 securities was $14,142,000 with an unrealized loss of $465,000 at December 31, 2009. The securities in this category are generally
equity investments, municipal securities with no readily determinable fair value or failed auction rate securities. Management evaluated the fair value of these securities
based on an evaluation of the underlying issuer, prevailing rates and market liquidity.

400790_Financial.CS3.indd 34

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

The results of the fair value hierarchy as of December 31, 2008 are as follows:

(dollars in thousands)

Financial Instruments Measured at Fair Value
on a Recurring Basis – Securities AFS

U.S. Treasury

U.S. Government Sponsored Enterprises

U.S. Government Agency and Sponsored Enterprises

Mortgage-Backed Securities

Privately Issued Residential Mortgage-Backed Securities

Privately Issued Commercial Mortgage-Backed Securities

Obligations Issued by States and Political Subdivisions

Other Debt Securities

Equity Securities

Total

Financial Instruments Measured at Fair Value
on a Non-recurring Basis

Impaired Loans

Fair Value Measurements Using

Quoted Prices
in Active Markets
for Identical Assets
(Level 1)

Significant
Observable Inputs
(Level 2)

Significant
Other Unobservable
Inputs
(Level 3)

Carrying
Value

$
2,028
161,292

260,132
5,659
3,367
60,259
2,100
748

$ 495,585

$ —
—

—
—
—
—
—
578

$ 578

$
2,028
161,292

260,132
5,659
3,367
56,959
2,100
—

$ 491,537

$ —
—

—
—
—
3,300
—
170

$ 3,470

1,460

$ —

—

$ 1,460

Specific provisions related to impaired loans recognized for 2008 for credit losses amounted to $2,519,000.

The changes in Level 3 securities for the year ended December 31, 2008 are shown in the table below:

(dollars in thousands)

Balance at December 31, 2007

Purchases

Maturities

Reclassification

Change in fair value

Balance at December 31, 2008

Auction Rate
Securities

Obligations
Issued by States
and Political
Subdivisions

$ —
—
—
—
—

$ —

—
$
12,741
(10,194)
753
—

$ 3,300

Equity
Securities

$ —
29
(12)
153
—

$ 170

Total

—
$
12,770
(10,206)
906
—

$ 3,470

10. Deposits

The following is a summary of original maturities or repricing of time deposits as of December 31,

(dollars in thousands)

Within one year

Over one year to two years

Over two years to three years

Over three years to five years

Total

2009

Percent

2008

Percent

$ 180,498
84,395
16,788
10,957

$ 292,638

61 %
29 %
6 %
4 %

$ 254,314
23,517
36,576
12,465

78 %
7 %
11 %
4 %

100 %

$ 326,872

100 %

Time deposits of $100,000 or more totaled $151,680,000 and $182,694,000 in 2009 and 2008, respectively.

400790_Financial.CS3.indd 35

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

11. Securities Sold Under Agreements to Repurchase

The following is a summary of securities sold under agreements to repurchase as of December 31,

(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

2009

2008

2007

$ 118,745

$ 112,510

$ 85,990

0.52 %

1.08 %

2.95 %

$ 122,521
$ 98,635

$ 112,510
$ 94,526

$ 102,110
$ 89,815

0.58 %

1.47 %

3.56 %

Amounts outstanding at December 31, 2009, 2008 and 2007 carried maturity dates of the next business day. U.S. Government Sponsored Enterprise securities with a
total amortized cost of $115,792,000, $112,072,000 and $86,760,000 were pledged as collateral and held by custodians to secure the agreements at December 31,
2009, 2008 and 2007, respectively. The approximate fair value of the collateral at those dates was $118,186,000, $112,990,000 and $86,692,000, respectively.

12. Other Borrowed Funds and Subordinated Debentures

The following is a summary of other borrowed funds and subordinated debentures as of December 31,

(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

2009

2008

2007

$ 270,107

$ 274,641

$ 325,968

3.63 %

4.22 %

4.94 %

$ 272,071
$ 219,713

$ 293,668
$ 225,743

$ 325,968
$ 168,535

4.71 %

5.10 %

5.55 %

FEDERAL HOME LOAN BANK BORROWINGS
Federal Home Loan Bank of Boston (“FHLBB”) borrowings are collateralized by a blanket pledge agreement on the Bank’s FHLBB stock, certain qualified investment
securities, deposits at the FHLBB and residential mortgages held in the Bank’s portfolios. The Bank’s remaining term borrowing capacity at the FHLBB at December 31,
2009, was approximately $136,476,000. In addition, the Bank has a $14,500,000 line of credit with the FHLBB. A schedule of the maturity distribution of FHLBB
advances with the weighted average interest rates is as follows:

December 31,

2009

2008

2007

(dollars in thousands)

Within one year

Over one year to two years

Over two years to three years

Over three years to five years
Over five years

Total

Amount

$ 104,000
11,000
19,500
56,000
42,000

$ 232,500

Weighted
Average
Rate

2.72 %
1.81 %
2.08 %
3.65 %
4.55 %

3.18 %

Weighted
Average
Rate

2.80 %
5.17 %
4.05 %
4.18 %
4.55 %

3.88 %

Amount

$ 104,500
59,000
11,000
20,500
42,000

$ 237,000

Amount

$ 124,750
54,500
59,000
9,000
42,000

$ 289,250

Weighted
Average
Rate

4.65 %
4.67 %
5.17 %
4.14 %
4.53 %

4.73 %

Included in the table above are $82,500,000, $85,000,000 and $123,500,000 of FHLBB advances at December 31, 2009, 2008 and 2007, respectively, that are
putable at the discretion of FHLBB. These put dates were not utilized in the table above.

During 2009, the Company restructured $19,000,000 of FHLBB advances. Prior to restructure, the weighted average rate on these advances was 4.10% and the
weighted average remaining maturity was 15 months. Subsequent to restructure, the weighted average rate was 3.56% and the weighted average maturity was
46 months. The restructure was accounted for as a modification.

SUBORDINATED DEBENTURES
Subordinated debentures totaled $36,083,000 at December 31, 2009 and 2008. 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, its 8.30% Trust Preferred Securities on
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.

400790_Financial.CS3.indd 36

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

OTHER BORROWED FUNDS
There were no overnight federal funds purchased at December 31, 2009 and 2008.

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 $1,380,000 and $1,413,000 at December 31, 2009 and 2008, respectively.

The Bank also has an outstanding loan in the amount of $144,000 and $145,000 at December 31, 2009 and 2008, respectively, borrowed against the cash value
of a whole life insurance policy for a key executive of the Bank.

13. 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 common stock may vote in the election of directors. Class A common stockholders are entitled to receive dividends per share equal to at least
200% per share of that paid, if any, on each share of Class B common stock. Class A common stock is publicly traded. Class B common stock is not publicly traded;
however, it can be converted on a per 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 2009, 2008 and 2007 was an increase of 2,091, 1,719 and 4,246
shares, respectively.

STOCK REPURCHASE PLAN
During 2009, the Board of Directors of the Company approved a reauthorization of the stock repurchase program. Under the program, the Company is reauthorized
to repurchase up to 300,000, or less than 9%, of Century Bancorp Class A Common Stock outstanding. This vote supersedes the previous program voted by the
Board of Directors during 2008, which also authorized the Company to repurchase up to 300,000, or less than 9%, of Century Bancorp Class A Common Stock.

The stock buy back is authorized to take place from time-to-time, subject to prevailing market conditions. The purchases are made on the open market and are funded
from available cash. During 2009, the Company repurchased 8,110 shares at an average price of $13.04 per share.

STOCK OPTION PLAN
During 2000 and 2004, common stockholders of the Company approved stock option plans (the “Option Plans”) that provide 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 nonqualified
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 nonqualified 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 68,637 options exercisable at December 31, 2009.

Stock option activity under the plan is as follows:

December 31, 2009

Weighted
Average
Exercise Price

Amount

December 31, 2008
Weighted
Average
Exercise Price

Amount

Shares under option:

Outstanding at beginning of year

Forfeitured

Exercised

Outstanding at end of year

Exercisable at end of year

81,037
(12,400)
—

68,637

27.42
34.77
—

26.09

Available to be granted at end of year

202,909

94,787
(13,750)
—

81,037

190,509

27.66
29.07
—

27.42

December 31, 2007

Weighted
Average
Exercise Price

27.20
26.32
19.20

27.66

Amount

122,737
(25,334)
(2,616)

94,787

176,759

At December 31, 2009, 2008 and 2007, the options outstanding have exercise prices between $15.063 and $35.010, and a weighted average remaining
contractual life of three years for 2009, four years for 2008 and four years for 2007. The weighted average intrinsic value of options exercised for the period ended
December 31, 2007 was $4.90 per share with an aggregate value of $61,805. The average intrinsic value of options exercisable at December 31, 2009, 2008 and
2007 had an aggregate value of $74,056, $7,331 and $54,805, respectively.

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 effect on the Bank and
Company’s financial statements. Under capital adequacy guidelines and regulatory framework for prompt corrective action, the Bank and Company must meet
specific capital guidelines that involve quantitative measures of the Bank and Company’s assets and liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank and Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.

400790_Financial.CS3.indd 37

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

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, 2009, that the Bank and the Company meet all capital adequacy requirements to which they are subject.

As of December 31, 2009, 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
below. 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, 2009

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, 2008

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

Tier 1 Capital (to 4th Qtr. Average Assets)

Actual
Amount

Ratio

$ 145,586

133,213

12.76 %

11.68 %

6.23 %

$ 134,990

123,871

13.19 %

12.10 %

7.15 %

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

As of December 31, 2009

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, 2008

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

Tier 1 Capital (to 4th Qtr. Average Assets)

Actual
Amount

Ratio

$ 177,808

165,435

15.53 %

14.45 %

7.73 %

$ 168,121

157,002

16.38 %

15.30 %

9.05 %

For Capital Adequacy
Purposes

Amount

Ratio

$ 91,262

45,631

85,466

$ 81,904

40,952

69,264

8.00 %

4.00 %

8.00 %

4.00 %

For Capital Adequacy
Purposes

Amount

Ratio

$ 91,571

45,786

85,619

$ 82,114

41,057

69,404

8.00 %

4.00 %

8.00 %

4.00 %

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

Amount

Ratio

$ 114,078

10.00 %

68,447

106,832

6.00 %

5.00 %

$ 102,380

10.00 %

61,428

86,580

6.00 %

5.00 %

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

Amount

Ratio

$ 114,464

10.00 %

68,678

107,024

6.00 %

5.00 %

$ 102,643

10.00 %

61,586

86,755

6.00 %

5.00 %

14. Income Taxes

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

2009

2008

2007

(dollars in thousands)

Current expense:
Federal

State

Total current expense

Deferred expense (benefit):

Federal

State

Total deferred expense (benefit)

Provision for income taxes

$ 3,058
419

$ 3,117
232

$ 3,137
284

3,477

3,349

3,421

(1,759)
(535)

(2,294)

(954)
(140)

(1,094)

50
61

111

$ 1,183

$ 2,255

$ 3,532

Included in income tax expense for the year ended December 31, 2009, 2008, and 2007 is interest of $0, $0 and $0, respectively. There were no penalties during
these periods.

400790_Financial.CS3.indd 38

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

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

(dollars in thousands)

Currently (payable) receivable
Deferred income tax asset, net

Total

2009

2008

$
(628)
12,340

$
(9)
12,822

$ 11,712

$ 12,813

Differences between income tax expense at the statutory federal income tax rate
and total income tax expense are summarized as follows:

2009

2008

2007

(dollars in thousands)

Federal income tax expense

at statutory rates

State income tax, net of

federal income tax benefit

Insurance income

Effect of tax-exempt interest

Other

Total

$ 3,856

$ 3,842

$ 3,875

(76)
(442)
(1,965)
(190)

62
(353)
(1,307)
11

225
(210)
(105)
(253)

$ 1,183

$ 2,255

$ 3,532

Effective tax rate

10.4 %

20.0 %

31.0 %

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

2009

2008

(dollars in thousands)

Deferred income tax assets:

Allowance for loan losses

Deferred compensation

Unrealized loss on securities

available-for-sale

Pension and SERP liability

Acquisition premium

Depreciation

Investments writedown

Deferred gain

Other

Nonaccrual interest

$ 6,430
4,384

—
5,795
532
—
31
71
60
444

Gross deferred income tax asset

17,747

Deferred income tax liabilities:

Depreciation

Limited partnerships

Unrealized gain on securities

available-for-sale

Other

Gross deferred income tax liability

(169)
(2,466)

(2,657)
(115)

(5,407)

$ 4,495
4,151

169
5,745
519
64
27
91
11
54

15,326

—
(2,401)

—
(103)

(2,504)

Deferred income tax asset net

$ 12,340

$ 12,822

Based on the Company’s historical and current pre-tax earnings, management
believes it is more likely than not that the Company will realize the deferred
income tax asset existing at December 31, 2009. 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 affect 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.

The Company and its subsidiaries file a consolidated federal tax return. For the
tax year beginning in 2009, the Commonwealth of Massachusetts requires a
combined state tax return, except for security corporations, which file separate
tax returns. For years before 2006, the Company is no longer subject to federal
or state income tax examinations.

15. Employee Benefits

The Company has a Qualified Defined Benefit Pension Plan (the “Plan”),
which had been offered to all employees reaching minimum age and service
requirements. In 2006, the Bank became a member of the Savings Bank
Employees Retirement Association (“SBERA”) within which it then began
maintaining the Qualified Defined Benefit Pension Plan. SBERA offers a common
and collective trust as the underlying investment structure for its retirement
plans. The target allocation mix for the common and collective trust portfolio
calls for an equity-based investment deployment range of 40% to 64% of total
portfolio assets. The remainder of the portfolio is allocated to fixed income
securities with target range of 15% to 25% and other investments including
global asset allocation and hedge funds from 20% to 36%.

The Trustees of SBERA, through its Investment Committee, select investment
managers for the common and collective trust portfolio. A professional
investment advisory firm is retained by the Investment Committee to provide
allocation analysis, performance measurement and to assist with manager
searches. The overall investment objective is to diversify investments across
a spectrum of investment types to limit risks from large market swings. The
Company closed the plan to employees hired after March 31, 2006.

Prior to 2008, the measurement date for the Plan was September 30 for each
year. Beginning in 2008, the measurement date was changed to December 31.
The benefits expected to be paid in each year from 2010 to 2014 are $780,000,
$824,000, $926,000, $955,000 and $1,013,000, respectively. The
aggregate benefits expected to be paid in the five years from 2015 to 2019 are
$6,482,000. The Company plans to contribute $1,275,000 to the Plan in 2010.

The weighted-average asset allocation of pension benefit assets was:

Asset Category

Fixed income
Domestic equity
International equity
Hedge funds

Total

December 31, December 31,

2009

2008

32 %
48 %
12 %
8 %

35 %
45 %
12 %
8 %

100 %

400790_Financial.CS3.indd 39

2/18/10 9:27:56 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

The fair value of plan assets as of December 31, 2009 is as follows:

Asset Category

(dollars in thousands)

Collective funds

Equity securities

Mutual funds

Hedge funds

Short term investments

Percent

Total

Level 1

Level 2

Level 3

41.1 %
25.8 %
14.5 %
7.7 %
10.9 %

100.0 %

$ 7,038
4,400
2,476
1,319
1,854

$ 17,087

$ 2,057
4,400
2,282
—
—

$ 8,739

$ 4,981
—
194
—
1,854

$ 7,029

$ —
—
—
1,319
—

$ 1,319

The Bank’s fair value of major categories of pension plan assets are summarized above.

LEVEL 1
The plan assets measured at fair value in Level 1 are based on quoted market prices in an active exchange market.

LEVEL 2
Plan assets measured at fair value in Level 2 are based on pricing models that consider standard input factors, such as observable market data, benchmark yields,
interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

LEVEL 3
Plan assets measured at fair value in Level 3 are based on unobservable inputs, which includes SBERA’s assumptions and the best information available under the
circumstance. Level 3 assets consist of hedge funds. The underlying assets are valued based upon quoted exchange prices, over-the-counter trades, bid/ask prices,
relative value assessments based on market conditions, and other information, as available. Further adjustments may be made based on factors impacting liquidity.

The changes in Level 3 securities for the year ended December 31, 2009 are shown in the table below:

Balance at December 31, 2008

Actual return – assets still being held

Actual return – assets sold during year

Purchases

Sales

Maturities

Transfers

Balance at December 31, 2009

$ 1,174
145
—
—
—
—
—

$ 1,319

The performance of the plan assets is dependent upon general market conditions and specific conditions related to the issuers of the underlying securities.

The Company has a Supplemental Executive Insurance/Retirement Plan (the Supplemental Plan), which is limited to certain officers and employees of the Company.
The Supplemental Plan is 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.

Prior to 2008, the measurement date for the Supplemental Plan was September 30 for each year. Beginning in 2008, the measurement date was changed
to December 31 in accordance with FASB ASC 715-20. The benefits expected to be paid in each year from 2010 to 2014 are $1,055,000, $1,058,000,
$1,052,000, $1,051,000 and $1,050,000, respectively. The aggregate benefits expected to be paid in the five years from 2015 to 2019 are $7,365,000.

400790_Financial.CS3.indd 40

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

(dollars in thousands)

Change projected in benefit obligation

Benefit obligation at beginning of year

Service cost

Interest cost

Actuarial (gain)/loss

Benefits paid

Defined Benefit Pension Plan

Supplemental Insurance/
Retirement Plan

2009

2008

2009

2008

21,413
792
1,240
1,396
(594)

19,139
1,026
1,436
459
(647)

15,768
469
934
782
(1,047)

13,462
336
1,008
2,255
(1,293)

Projected benefit obligation at end of year

24,247

21,413

16,906

15,768

Change in plan assets

Fair value of plan assets at beginning of year

Actual (loss) return on plan assets

Employer contributions

Benefits paid

Fair value of plan assets at end of year

(Unfunded) Funded status

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

Other changes in plan assets and benefit obligations

recognized in other comprehensive income

Amortization of prior service cost

Net (gain) loss

Total recognized in other comprehensive income

Total recognized in net periodic benefit cost and

other comprehensive income

14,059
2,347
1,275
(594)

17,087

(7,160)

21,939

5.50 %
5.75 %
8.00 %
4.00 %

792
1,240
(1,128)
(113)
696

16,660
(3,731)
1,777
(647)

14,059

(7,534)

19,468

5.75 %
6.00 %
8.00 %
4.00 %

821
1,148
(1,333)
(116)
211

(16,906)

15,030

(15,768)

14,165

5.50 %
5.75 %
NA
4.00 %

469
934
—
110
139

5.75 %
6.00 %
NA
4.00 %

308
814
—
108
49

1,487

731

1,652

1,279

113
(519)

(406)

116
5,623

5,739

(110)
643

533

(108)
2,177

2,069

1,081

6,470

2,185

3,348

The following table summarizes amounts recognized in Accumulated Other Comprehensive Loss as of:

December 31, 2009
Supplemental
Plan

Total

(1,440)
(4,272)

(508)
(13,570)

Plan

932
(9,298)

December 31, 2008
Supplemental
Plan

Total

$ (1,513)
(3,666)

(468)
(13,483)

Plan

1,045
(9,817)

(8,366)

(5,712)

$ (14,078)

(8,772)

$ (5,179)

(13,951)

Prior service cost
Net actuarial loss

Total

400790_Financial.CS3.indd 41

2/18/10 9:27:56 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

2009

2008

The following table summarizes the amounts included in Accumulated Other
Comprehensive Loss at December 31, 2009, expected to be recognized as
components of net periodic benefit cost in the next year:

Amortization of prior service cost to be

recognized in 2010

Amortization of loss to be recognized in 2010

Plan

$ (104)
634

Supplemental
Plan

$ 110
172

Contract or Notational Amount

(dollars in thousands)

Financial instruments whose contract

amount represents credit risk:

Commitments to originate

1-4 family mortgages

Assumptions for the 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
performs 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 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 performs 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 $261,000 for 2009, $265,000 for 2008 and $229,000 for 2007.
Administrative costs associated with the plan are absorbed by the Company.

The Company has a cash incentive plan that is designed to reward our
executives and officers for the achievement of annual financial performance
goals of the Company as well as business line, department and individual
performance. The plan supports the philosophy that management be measured
for their performance as a team in the attainment of these goals. There were
no payments under this plan for 2007, 2008 and 2009. Discretionary bonus
expense amounted to $403,000, $348,000 and $154,000 in 2009, 2008,
and 2007, respectively.

The Company does not offer any postretirement programs other than pensions.

16. Commitments and Contingencies

A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 2009. 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 operations.

17. 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.

Standby and commercial letters of credit

8,904

Unused lines of credit

Unadvanced portions

of construction loans

Unadvanced portions

of other loans

1,262

143,556

$ 1,225

14,225

144,653

22,699

16,642

4,407

6,558

Commitments to originate loans, unadvanced portions of construction loans,
unused lines of credit 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 creditworthiness 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.

18. Other Operating Expenses

Year ended December 31,

2009

2008

2007

(dollars in thousands)

Marketing

Processing services

Legal and audit

Postage and delivery

Software maintenance/amortization

Supplies

Consulting

Telephone

Core deposit tangible amortization

Insurance

Director’s fees

Other

Total

$ 1,518
981
1,284
882
794
662
733
585
388
304
256
1,261

$ 1,482
828
994
922
807
698
832
626
388
322
229
1,552

$ 1,540
806
776
867
721
759
639
546
388
380
232
1,101

$ 9,648

$ 9,680

$ 8,755

19. Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in
estimating fair values of its financial instruments. Excluded from this disclosure
are all nonfinancial instruments. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.

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

400790_Financial.CS3.indd 42

2/18/10 9:27:56 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

SHORT-TERM INVESTMENTS
The fair value of short-term investments is estimated using the discounted value of contractual cash flows. The discount rate used is estimated based on the rates
currently offered for short-term investments of similar remaining maturities.

SECURITIES HELD-TO-MATURITY AND SECURITIES AVAILABLE-FOR-SALE
The fair value of these securities were based on quoted market prices, where available, as provided by third-party investment portfolio pricing vendors. If quoted
market prices were not available, fair values provided by the vendors were based on quoted market prices of comparable instruments in active markets and/or based on
a matrix pricing methodology which employs The Bond Market Association’s standard calculations for cash flow and price/yield analysis, live benchmark bond pricing
and terms/condition data available from major pricing sources. Management regards the inputs and methods used by third party pricing vendors to be “Level 2 inputs
and methods” as defined in the “fair value hierarchy” provided by FASB.

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

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

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

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

SUBORDINATED DEBENTURES
The fair value of subordinated debentures is based on the discounted value of contractual cash flows. The discount rate used is estimated based on the rates currently
offered for other subordinated debentures of similar remaining maturities.

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

Short-term investments

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

2009

2008

Carrying
Amounts

Fair Value

Carrying
Amounts

Fair Value

398,642
18,518
647,796
217,643
877,125
5,806

1,701,987
352,769
36,083
1,116

$ 398,642
18,665
647,796
221,413
876,197
5,806

1,706,271
359,989
36,136
1,116

$ 156,168
43,814
495,585
184,047
824,946
6,723

1,265,527
351,068
36,083
1,595

—

$ 156,168
43,978
495,585
185,433
837,064
6,723

1,271,404
357,927
41,908
1,595

117

400790_Financial.CS3.indd 43

2/18/10 9:27:56 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

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

20. Quarterly Results of Operations (unaudited)

2009 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

2008 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

19,786
7,337

12,449
2,475

9,974
4,861
11,418

3,417
332

20,037
7,363

12,674
1,250

11,424
3,399
11,228

3,595
413

20,194
8,232

11,962
1,050

10,912
3,540
12,283

2,169
162

$ 19,583
8,791

10,792
1,850

8,942
4,670
11,450

2,162
276

3,085

3,182

2,007

1,886

5,530,297

5,533,943

5,530,297

5,533,622

5,530,724

5,531,329

0.56

Fourth

20,570
8,638

11,932
1,450

10,482
3,499
10,851

3,130
320

0.58

Third

20,891
8,932

11,959
1,350

10,609
3,577
11,051

3,135
576

5,537,781

0.34

0.36

Second

First

19,470
8,814

10,656
925

9,731
3,477
10,743

2,465
589

$ 19,762
9,530

10,232
700

9,532
3,422
10,384

2,570
770

2,810

2,559

1,876

1,800

5,539,043

5,539,092

0.51

5,541,345

5,542,404

0.46

5,543,781

5,546,128

0.34

5,543,804

5,546,700

0.32

400790_Financial.CS3.indd 44

2/18/10 9:27:57 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’09

21. Parent Company Financial Statements

The balance sheets of Century Bancorp, Inc. (“Parent Company”) as of December 31, 2009 and 2008 and the statements of income and cash flows for each of the
years in the three-year period ended December 31, 2009, are presented below. The statements of changes in stockholders’ equity are identical to the consolidated
statements of changes in stockholders’ equity and are therefore not presented here.

BALANCE SHEETS
December 31,

(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
Year Ended 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

Benefit from income taxes

Income before equity in undistributed income of subsidiary

Equity in undistributed income of subsidiary

2009

2008

$ 29,488
135,459
3,973

$ 168,920

107
$
36,083
132,730

$ 168,920

$ 31,588
122,324
2,786

$ 156,698

112
36,083
120,503

$ 156,698

2009

2008

2007

$ 2,766
409
72

3,247
2,400
200

647
(720)

1,367
8,793

4,778
884
72

5,734
2,400
165

3,169
(547)

3,716
5,330

$ 3,611
1,442
72

5,125
2,400
130

2,595
(345)

2,940
4,924

Net income

$ 10,160

9,046

$ 7,864

STATEMENTS OF CASH FLOWS
December 31,

(dollars in thousands)

2009

2008

2007

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:

$ 10,160

9,046

$ 7,864

Undistributed income of subsidiary
Depreciation and amortization

Increase in other assets
Increase (decrease) in liabilities

Net cash provided by operating activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Stock repurchases
Net proceeds from the exercise of stock options
Cash dividends paid

Net cash used in financing activities

Net increase (decrease) in cash

Cash at beginning of year

Cash at end of year

(8,793)
12
(1,197)
(5)

177

(107)
—
(2,170)

(2,277)

(2,100)

31,588

$ 29,488

(5,330)
12
(286)
5

3,447

(84)
—
(2,174)

(2,258)

1,189

30,399

$ 31,588

(4,924)
12
(495)
(39)

2,418

—
51
(2,173)

(2,122)

296

30,103

$ 30,399

400790_Financial.CS3.indd 45

2/18/10 9:27:57 PM

Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ’09

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 its subsidiary as of December 31, 2009 and 2008 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, 2009. 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
its subsidiary as of December 31, 2009 and 2008 and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2009, 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), Century Bancorp, Inc.’s internal control
over financial reporting as of December 31, 2009, 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 23, 2010, expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.

Boston, Massachusetts

February 23, 2010

400790_Financial.CS3.indd 46

2/18/10 9:27:57 PM

Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ’09

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 Century Bancorp, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Century Bancorp, Inc.’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, included in the
accompanying “Management’s Report on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on 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, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included 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, Century Bancorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, 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. as of December 31, 2009 and 2008 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, 2009, and our report dated February 23, 2010, expressed an unqualified opinion on those
consolidated financial statements.

Boston, Massachusetts

February 23, 2010

400790_Financial.CS3.indd 47

2/18/10 9:27:57 PM

Management’s Report on Internal Control Over Financial Reporting

Century Bancorp, Inc. AR ’09

CENTURY BANCORP, INC.

400 Mystic Avenue
Medford, Massachusetts 02155

We, together with the other members of Century Bancorp, Inc. and our 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, 2009. 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, 2009, 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 the effectiveness of the Company’s internal control over financial
reporting. Their report appears on page 47.

Barry R. Sloane
Co-President & Co-CEO

William P. Hornby, CPA
Chief Financial Officer
& Treasurer

February 23, 2010

400790_Financial.CS3.indd 48

2/18/10 9:27:57 PM

Notes

Century Bancorp, Inc. AR ’09

400790_Financial.CS3.indd 49

2/18/10 9:27:58 PM

Stockholder Information

Corporate Headquarters

Transfer Agent and Registrar

Century Bank
400 Mystic Avenue
Medford, MA 02155-6316
TEL (866) 8-CENTURY or (866) 823-6887
AskCentury.com

Annual Meeting

Computershare Investor Services
P.O. Box 43078
Providence, RI 02940-3078
TEL (781) 575-3400
Computershare.com

The annual meeting of stockholders will be held on Tuesday, April 13, 2010, at 10:00 a.m. The meeting will take place at
Century Bank, 400 Mystic Avenue, Medford, MA.

Stock Listing

Century Bancorp, Inc. became a public company in 1987. Century’s Class A Common Stock is listed on the NASDAQ market
and is traded under the symbol “CNBKA.”

10-K Report

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 or online at
http://www.century-bank.com/about/investorrelations.cfm.

Century Bank Locations

Offices

Allston
Beverly
Boston
Boston
Boston
Boston
Braintree
Brookline
Brookline
Burlington
Cambridge
Everett
Lynn
Malden
Medford
Medford
Medford
Newton
Peabody
Quincy
Salem
Somerville
Winchester

300 Western Avenue, Allston, MA 02134
428 Rantoul Street, Beverly, MA 01915
512 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
1354 Beacon Street, Brookline, MA 02446
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
1 Salem Street, Medford, MA 02155
400 Mystic Avenue, Medford, MA 02155
503 Riverside Avenue, Fellsway Plaza, Medford, MA 02155
31 Boylston Street/Rt 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
522 Main Street, Winchester, MA 01890

Free-Standing Cash Dispensers

Boston
Cambridge
Cambridge
Medford
Milton
Weston

The Hotel Commonwealth, 500 Commonwealth Avenue, Boston, MA 02215
CambridgeSide Galleria, 100 CambridgeSide Place, Cambridge, MA 02141
One Kendall Square, Building #100, Cambridge, MA 02139
Sloane Square, 110 Medford Street, Medford, MA 02155
Milton Hospital, 199 Reedsdale Road, Milton, MA 02186
College Hall, Regis College, 235 Wellesley Street, Weston, MA 02493

(617) 562-1700
(978) 921-2300
(617) 424-1644
(617) 557-2950
(617) 423-1490
(617) 367-3712
(781) 356-3400
(617) 713-4910
OPENING APRIL 2010
(781) 238-8700
(617) 349-5300
(617) 381-6300
(781) 586-8700
(781) 388-2100
(781) 391-9830
(781) 393-4160
(781) 393-6520
(617) 582-0920
(978) 977-4900
(617) 376-8100
(978) 740-6900
(617) 629-0929
(781) 756-3480

On May 1, 2009, The Sloane family and Century Bank associates celebrated the Bank’s anniversary.

www.AskCentury.com

2009 Annual Report

400 Mystic Avenue, Medford, MA 02155 (866) 823-6887

41>2

Equal Housing Lender/Member FDIC

002-CS1A059