Century Bancorp Inc. Annual Report 2010

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FY2010 Annual Report · Century Bancorp Inc.

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Our family’s bank. And yours.

400 Mystic Avenue, Medford, MA 02155 (866) 823-6887 www.AskCentury.com

2010 Annual Report

million in loans

billion in assets

.442
2
0
6.2
1
3.6
REC RD
0

For many reasons, this was a

million in profits

year.

Equal Housing Lender/Member FDIC

002-CSI0881

410991.Cover.CS5.indd 1

3/1/11 10:42 AM

About Century

Century Bancorp, Inc. is a $2.4 billion banking and financial services company headquartered in
Medford, Massachusetts. The Company operates 23 banking offices 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.”

Headquarters

Opening this Fall

Allston Branch

Andover Branch

Beverly Branch

Braintree Branch

Brookline Branch

Burlington Branch

Century Bank Locations

Cambridge Branch

Coolidge Corner Branch

Everett Branch

Federal Street Branch

Fellsway Branch

Kenmore Square Branch

Opening this Spring

Lynn Branch

Malden Branch

Medford Square Branch

Newton Branch

Newton Centre Branch

North End Branch

Peabody Branch

Quincy Branch

Salem Branch

Somerville Branch

State Street Branch

Winchester Branch

32 Langley Road, Newton Centre, MA 02459 OPENING SPRING 2011

Stockholder Information

Corporate Headquarters

Century Bank

400 Mystic Avenue

Medford, MA 02155-6316

TEL (866) 823-6887

AskCentury.com

Annual Meeting

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 12, 2011, 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.

1184-1186 Boylston Street/Rt 9 East, Brookline, MA 02467

1354 Beacon Street, Brookline, MA 02446 (617) 734-1890

300 Western Avenue, Allston, MA 02134

15 Elm Street, Andover, MA 01810

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

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, 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

(617) 562-1700

OPENING FALL 2011

(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

Free-Standing Cash Dispensers

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

North Andover Merrimack College, Volpe Center, 125 Cullan Avenue, North Andover, MA 01845

North Andover Merrimack College, Sakowich Center, 90 Flaherty Extension, North Andover, MA 01845

Weston

Regis College, 235 Wellesley Street, Weston, MA 02493

Stock Listing

10-K Report

Offices

Allston

Andover

Beverly

Boston

Braintree

Brookline

Burlington

Cambridge

Everett

Lynn

Malden

Medford

Newton

Peabody

Quincy

Salem

Somerville

Winchester

Boston

Cambridge

Medford

Milton

410991.Cover.CS5.indd 2

2/25/11 1:49 PM

2010

Dear Fellow Shareholders:

2010 was a record year for Century Bank. We ended the year with $2.44 billion in

assets, and net earnings increased to $13.6 million, the highest levels in our 42 years.

Century’s stock price rose as well in 2010, by 21.6%, to close at $26.79, exceeding

the increases in both the broad market and regional bank indexes.

Our Bank achieved new heights of prosperity for two principal reasons:

First, the marketplace again assigns great value to the safety, soundness, and

responsiveness of financial institutions. Further, Century’s founding values of community

service and fair dealing are understood and appreciated by our customers. Century

has cultivated and expanded upon these core values in its markets, its products, its

technology, and most of all the professionalism of its officers and associates.

We care about our customers and communities; it shows, and people respect us for it.

Second, risk management is everything to us. In 2010, we continued our highly

centralized credit approval process. The daily approval system ensures that loan

applications are carefully reviewed for suitability, underwriting, and collateral. We know

our credits, our borrowers, and our communities. We meet in loan committee almost

every day so that we can provide a fast and thoughtful response to each application.

a record

$2.44

billion in assets

410991.Editorial.CS5.indd 1

2/23/11 1:58 AM

a record

$13.6

million in net income

Some important highlights of 2010

• Net income grew 33.6% to a record $13.6 million, or $2.45 per diluted share, for

the year ended December 31, 2010, as compared to net income of $10.2 million,

or $1.84 per diluted share, for 2009.

• Total assets increased 8.3% to a record $2.44 billion on December 31, 2010, from

$2.25 billion on December 31, 2009, a gain of $188 million. Many consider our

bank a “safe haven” for deposits, which is why we frequently receive unsolicited

deposits from government agencies, other banks, and scores of trust fiduciaries.

• Total equity rose to $145.0 million on December 31, 2010, up 9.3% from $132.7

million at December 31, 2009. Book value per share increased to $26.18 at

December 31, 2010, from $24.00 at the end of 2009.

• Total loans grew by 3.3% to $906.2 million on December 31, 2010. Nonperforming

assets fell, ending the year at a manageable $8.1 million. We continue to utilize

the SBA lending guaranty programs as a resourceful mechanism to expand the

availability of credit to small businesses. In 2009 (the latest data available),

Century was the eighth largest lender to small business in lower-income areas

in Massachusetts.

• Our efficiency ratio, one of the key metrics of our operations, improved again

(decreased) to 65.0% in 2010 from 68.5% in the prior year.

Total Assets (in thousands)

Earnings per share, diluted

Net Income (in thousands)

5
3
0
,
4
5
2
,
2
$

4
8
6
,
1
4
4
,
2
$

6
6
5
,
1
0
8
,
1
$

5
4
.
2
$

4
8
.
1
$

3
6
.
1
$

4
7
5
,
3
1
$

6
4
0
,
9
$

0
6
1
,
0
1
$

410991.Editorial.CS5.indd 2

2/23/11 1:58 AM

Century Bank is proud to
be recognized by these
organizations in 2010.

• We are preparing to open two new branches in 2011, at 32 Langley Road in

Newton Centre and 15 Elm Street in Andover. Century already has well-developed

relationships and a client following in both Newton and Andover, and we expect

significant new deposits and loans from additions #24 and #25 to our branch

office network.

• We continued our focus on enhancing the communities we serve. In 2010,

we made hundreds of charitable donations and coordinated our holiday radio

advertising with the “What’s in the Box?” promotion to bring resources and

enhanced visibility to one of our key philanthropic relationships, the

Franciscan Hospital for Children.

• Standard and Poors issued a “bullish” recommendation on our stock, symbol

CNBKA on NASDAQ, in November 2010.

• Finally, we’re very proud of our Institutional Services (IS) Group for significantly

growing its average deposit balances. Century now has the third-largest payment

processing activity in New England. The IS Group also made major headway in

2010 with the strategic expansion of institutional and governmental client

processing relationships in New Hampshire and Rhode Island.

Coolidge Corner Branch Grand Opening

Ribbon Cutting Ceremony

May 3, 2010

Pictured from left: Barry R. Sloane,

The Honorable Dorothy Kelly Gay of

Hebrew SeniorLife, Linda Sloane Kay,

Marshall M. Sloane, Barbara J. Sloane,

State Representative Frank Israel Smizik,

and State Senator Cynthia Stone Creem

410991.Editorial.CS5.indd 3

2/23/11 1:58 AM

a record

$906.2

million in loans

We are in the waning months of a national recession, one that treated New

England, and especially Massachusetts, relatively kindly, as our stubborn

unemployment rate remained consistently below the national average and

dramatically below many Southern states. We owe much of this condition to

Massachusetts’ status as the “intellectual capital of the world,” a reputation built

on our universities that have fueled the growth of the knowledge-intensive sectors

of our economy. We have followed that demographic by focusing on lending to

two of those expanding segments: healthcare and higher education. Over the

ten years ending in 2016, Massachusetts healthcare employment is projected to

increase 18.6% and private educational services, 11.8%. Hence, the fastest

growth in our loan portfolio has been the direct purchase of tax-exempt loans

issued by state agencies for the benefit of regional not-for-profit institutions.

The country is in the midst of a generational “deleveraging” of debt. Households,

businesses, and governments were burdened with excessive debt when this

recession struck. Whether it’s the impact on a family from a layoff, a fall in a

small business’ sales, or the significant reduction in state capital gains taxes, the

recession reminded us of the real level of sustainable debt service in our lives.

Even though personal debt levels have recently fallen, our total societal debt now

exceeds 100% of Gross Domestic Product (GDP), a stunning total that is miles

away from an appropriate level of debt leverage. In our view, coping with the

spending cuts necessary to “balance” our national and personal budgets is the

real economic challenge ahead.

The US economy will continue to recover, and Massachusetts will prosper, barring

international calamity. We intend to be a part of that prosperity by lending to the

sectors with strong cash flow and to households that have prudently managed their

assets. The case for an independent regional bank has never been stronger; the

410991.Editorial.CS5.indd 4

2/23/11 1:58 AM

combination of Century’s command of our client base and the commitment of our

superb associates will serve us well in 2011 and beyond.

Thank you for your confidence in our leadership. For 42 years, the “family values”

of our Founder and Chairman, Marshall M. Sloane, have enabled us to set our

compass for our own version of “True North.” It hasn’t changed. We aspire to

break more records in the years ahead.

Sincerely,

Barry R. Sloane

for the Management Committee

Management Committee Members

Sitting from left: Barry R. Sloane,

Linda Sloane Kay, and Marshall M. Sloane

Standing from left: Brian J. Feeney,

William P. Hornby, James M. Flynn, Jr.,

David B. Woonton, Jason J. Melius,

and Paul A. Evangelista

410991.Editorial.CS5.indd 5

2/23/11 1:58 AM

2010

Charitable donations

Century Bank continued our proud family tradition of
community service by providing financial and leadership
support to these charitable and civic organizations in 2010:

2020 Women on Boards
AbilityPLUS
Action for Boston Community

Development, Inc.

Adopt-A-Student Foundation
Allston Village Main Streets
Alzheimer’s Association

we are proud to have
helped support a record

205

organizations this year

American Cancer Society
American Heart Association
American Red Cross of Massachusetts Bay
Anti-Defamation League
Archdiocese of Boston
Associazione Gizio
Aviv Centers for Living
Bais Yaakov of Boston High School for Girls
Bay State Chapter Freedoms Foundation
Beacon Academy
Beth Israel Deaconess Medical Center
Beverly Football Boosters
Beverly Holiday Parade
Boston Bruins Alumni Association
Boston Harbor Association
Boston Initiative to Advance Human Rights
Boston MedFlight
Boston Minuteman Council,
Boy Scouts of America

Boston Renaissance Charter Public School
Boston University
Boy Scouts of America
Bread of Life
Brendan M. Curtin Sponsorship Fund
Brookline Chamber of Commerce
Brookline First Light Festival
Brookline Music School

Burlington Community Scholarship
Foundation/Dollars for Scholars

Burlington Food Pantry
Burlington Housing Authority
Burlington Knights of Columbus
Burlington Recreation Department
Cambridge & Somerville Program
for Alcoholism and Drug Abuse
Rehabilitation (CASPAR)

Cambridge YMCA
Cambridge Youth Dance Program
Camp Harbor View Foundation, Inc.
Cardinal Cushing Centers, Inc.
Casa Monte Casino
Catholic Charities of Boston
Center for Women & Enterprise
City of Chicopee
City of Malden
City of Peabody
City of Somerville
Combined Jewish Philanthropies
Community Action Agency of

Somerville (CAAS)

Congregation Beth Israel

of Malden

Dante Alighieri Society
of Massachusetts
Dimock Community
Health Centers
Don Guanella Center
DONNE 2000
Dreamfar High School

Marathon

Elizabeth Peabody House
Endicott College
Everett Chamber of

Commerce

Everett Kiwanis Club
Everett Little League
Family Action Network of Winchester
First Candle/Marley Jaye
Cherella Memorial Fund

Fontbonne Academy
Foundation for Faces of Children
Fourth Presbyterian Church of South Boston
Franciscan Hospital for Children

Friends of Christopher Columbus Park
Friends of South Shore Hospital
Friends of Winter Pond
Gift of Life Bone Marrow Foundation
Greater Medford Visiting Nursing

Association

Hebrew SeniorLife
Historic Newton
Holy Family Hospital Foundation
Housing Families
I.B.E.W. Local 103
Jewish Big Brothers Big Sisters
Jewish Cemetery Association of

Massachusetts

Jewish Family Service of the North Shore
Jewish Vocational Service
Junior Aid Association of Malden
Kids Clothes Club
KIPP Academy Lynn
Ladies Ancient Order of Hibernians
Liberty Belle Chorus of Sweet Adelines
Little League of Somerville
Little Sisters of the Poor

Live “What’s in the Box?”
Holiday Radio Broadcast

Standing from left: Linda Sloane Kay,
Barry R. Sloane, Chief Development
Officer, Steven Snyder of the
Franciscan Hospital for Children,
and Marshall M. Sloane

Sitting from left: Loren Owens
and Wally Brine, WROR Morning
Show Hosts

Lynn Housing Authority &

Neighborhood Development

Lynn Lions Club
Lynn Vocational & Technical Institute
Make-A-Wish Foundation
Malden Babe Ruth League
Malden Rotary Club
Malden YMCA
Marblehead Arts Association
March of Dimes

410991.Editorial.CS5.indd 6

2/25/11 1:52 PM

MASCO
Massachusetts General Hospital,

Melanoma Research Fund
Massachusetts School of Law
Matignon High School
Medford Chamber of Commerce

Marshall M. Sloane
named Medford Chamber
of Commerce Citizen of
the Year

From left: Sam Tarabelsi,
System Director of
Operation for Physician
Practices at Hallmark Health,
Marshall M. Sloane, and
State Representative
Paul J. Donato

Medford Family Network
Medford High School
Medford Housing Authority
Medford Jingle Bell Festival
Medford Mustangs Football
Medford Police Association
Mental Health Programs, Inc. (MHPI)
Merrimack Valley Striders
MetroCast Foundation
MetroWest Jewish Day School
Mil Milagros, Inc.
Milton Hospital
NAIOP Massachusetts
National Library of Addictions
Newton-Needham Chamber

of Commerce

North Bennet Street School
North Cambridge Catholic High School
North Cambridge Senior Center
North End Against Drugs, Inc.
North End Community Health Center
North Reading Little League
North Shore Chamber of Commerce
North Shore Medical Cancer Walk
North Shore Veterans Counseling

Service, Inc.

Notre Dame Education Center
Operation A.B.L.E. of Greater Boston

Pan-Mass Challenge
Peabody Chamber of Commerce
Peabody High School Hockey Boosters
Pope John XXIII High School
Prospect Hill Academy Charter School
Rashi School
Redemptoris Mater Seminary
Regis College
Rodman Ride for Kids
Rotary Club of Lexington
Sacred Heart School
Saint John School
Saint Joseph School
Saint Mary’s School
Saint Peter School
Save the Children Federation, Inc.
Seven Mile Road
Shakespeare & Company
Shannon Hayward Fundraiser Campaign
Silent Spring Institute
Societa di San Giuseppe
Solomon Schechter Day School
Somerville Chamber of

Commerce

Somerville Historic Preservation

Commission

Somerville Housing Authority
Somerville Mental Health
Somerville Pop Warner
Somerville Rotary Club
Somerville Youth Hockey

Association, Inc.

The American Ireland Fund
The Andovers Village at Home
The Angel Fund
The ARC of Greater Boston
The Black Ministerial Alliance of Greater

Boston, Inc.
The David Project
The Friends of Donny Higgins Fund
The Genesis Fund
The Gifford School
The Greater Boston Food Bank
The Home for Little Wanderers
The Wellesley-Weston Chapter of Hadassah
Torah Academy
Tower Hill Tenant Association
Town of Burlington
Town of Georgetown
Town of Swampscott
Town of Wayland
Town of Weymouth

Team Century,
Rodman Ride
for Kids

From left: Ben Pagett,
Merlen Schaepe,
Bharti Gudipaty,
Alan Cohen,
Thomas Piemontese,
and Zubin Bagwadia

Sons of Italy
Special Olympics of Massachusetts
Springstep
St. Francis House
St. Joseph’s Food Pantry
St. Patrick’s Shelter for Homeless Women
Stone Family Adoption Assistance Fund
Synagogue Council of Massachusetts
Temple Beth Elohim
Temple B’nai Brith
Temple Emmanuel
Temple Israel of Boston
Temple Ohabei Shalom
The 9691 Foundation

Tri-City Community Action Program, Inc.
U.S. Small Business Administration
Uniting Against Lung Cancer New England
Wachusett Area Rotary Club
Ward 7 Improvement Association
We Are Boston
Winchester Historical Society
Winchester Hospital Foundation
Winchester Rotary Club
Woburn Public Library
WORK, Inc.
World Unity
Xaverian Brothers High School
Young Israel of Brookline

410991.Editorial.CS5.indd 7

2/23/11 1:58 AM

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 4,5,7
Executive Vice President
Century Bank and Trust Company

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

Joseph P. Mercurio 4,7
Executive Vice President
Boston University

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

Barry R. Sloane 4,5,6,7
President & 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
President & CEO

William P. Hornby, CPA
Chief Financial Officer & Treasurer

Rosalie A. Cunio
Clerk

Paula A. Grimaldi
Assistant Clerk

Century Bank and Trust
Company Officers

Management Committee

Marshall M. Sloane
Chairman of the Board

Barry R. Sloane
President & CEO

William P. Hornby, CPA
Chief Financial Officer & Treasurer

Paul A. Evangelista
Executive Vice President

Brian J. Feeney
Executive Vice President

Linda Sloane Kay
Executive Vice President

David B. Woonton
Executive Vice President

James M. Flynn, Jr.
Senior Vice President

Jason J. Melius
Senior Vice President

Senior Vice Presidents

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

First Vice Presidents

Susan B. Delahunt
Phillip A. Gallagher
Shipley C. Mason
David J. Waryas

Vice Presidents

Barry M. Aldorisio
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
Paul C. Eldredge
Michele English

Judith A. Fallon
Howard N. Gold
Lisa Gosling
T. Daniel Kausel
Kathleen A. Kelly
Michael F. Long
Nancy M. Marsh
Karen M. Martin
Carl M. Mattos
Cornelius C. Prioleau
Bernice A. Shuman
Janice D. Taylor
Tuesday N. Thomas

Assistant Vice Presidents

John S. Bosco, Jr.
Cynthia A. Davidson
Laura A. DiFava
John R. Ferguson
Marissa L. Fitzgerald
Thatcher L. Freeborn
Anna M. Gorska
Janice D. Hallinan
Michelle L. Haughton
Kristine M. Holopainen
James J. Jordan
Malcolm I. Maloon
Ann E. Mannion
Kathleen McGillicuddy
Carol A. Melisi
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
Zubin C. Bagwadia
Valerie R. Bosse
Roberta M. Byington
John J. Ferren
Janet Garcia
Sara A. Gaudet
Paula A. Grimaldi
Amelia N. Iocco
William B. Keefe
Joseph P. Kelley
Brian Kelly
Earl K. Kishida
Brandon N. Letellier
Robson G. Miguel
Anne M. Milczarek
John L. Norris III
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, ** Committee Vice Chairperson

410991.Editorial.CS5.indd 8

2/23/11 1:58 AM

Century Bancorp, Inc. AR ’10

Financial Highlights

1
FINAN C IAL STATEMENTS
3

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

410991.Financial.CS5.indd 1

2/23/11 2:05 AM

Financial Highlights

Century Bancorp, Inc. AR ’10

(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

2010

2009

2008

2007

2006

76,583
24,817

51,766
5,575

46,191
15,999
47,372

14,818
1,244

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

13,574

10,160

9,046

7,864

80,707
43,944

36,763
825

35,938
11,365
40,196

7,107
2,419

4,688

5,533,506
5,535,742
5,540,247

$
$

2.45
2.45
16.0 %

$ 2,441,684
906,164
1,902,023
145,025
26.18

0.56 %
9.52 %
2.52 %

0.44 %

5.93 %
65.0 %

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

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

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

$
$

1.63
1.63
24.0 %

$
$

1.42
1.42
27.6 %

$
$

0.85
0.84
46.2 %

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

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

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

0.54 %
7.43 %
3.00 %

0.38 %

7.23 %
70.6 %

0.49 %
7.05 %
2.65 %

0.22 %

6.97 %
77.5 %

0.28 %
4.45 %
2.40 %

0.06 %

6.39 %
83.5 %

410991.Financial.CS5.indd 1

2/23/11 2:05 AM

Per Share Data

2010, Quarter Ended

Market price range (Class A)

High

Low

Dividends Class A

Dividends Class B

2009, Quarter Ended

Market price range (Class A)

High

Low

Dividends Class A

Dividends Class B

Financial Highlights

Century Bancorp, Inc. AR ’10

December 31,

September 30,

June 30,

March 31,

$ 27.39
22.54
0.12
0.06

$ 24.00
19.40
0.12
0.06

$ 23.22
16.77
0.12
0.06

$ 23.60
18.65
0.12
0.06

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

The stock performance graph below compares the cumulative total shareholder return of the Company’s Class A Common Stock from December 31, 2005 to
December 31, 2010 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
$200
Cumulative Total Return*

$175

$150

$125

$100

$75

$50

$25

NASDAQ Banks

Century Bancorp, Inc.

NASDAQ U.S.

2005

2006

2007

2008

2009

2010

Value of $100 Invested on
December 31, 2005 at:

2006

2007

2008

2009

2010

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

$ 94.97
112.23
109.84

$ 71.67
88.95
119.14

$ 57.57
64.86
57.41

$ 82.67
54.35
82.53

$ 102.68
64.28
97.95

* Assumes that the value of the investment in the Company’s Common Stock and each index was $100 on
December 31, 2005 and that all dividends were reinvested.

410991.Financial.CS5.indd 2

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

Century Bancorp, Inc. AR ’10

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 several 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.

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 guaranteed 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 fully guaranteed deposits in noninterest
bearing transaction accounts without dollar limitation through December 31,
2009. Institutions opting to participate in the DGP were 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 was 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 annual assessment rate that
was applied during the extension period was 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 April 13, 2010 the FDIC approved an interim
rule to extend the TAGP to December 31, 2010. The Company continued to
participate in the TAGP through December 31, 2010. The interim rule gave the
FDIC discretion to extend the program to the end of 2011, without additional
rulemaking, if it determines that economic conditions warrant such an extension.
On November 9, 2010, the FDIC approved temporary unlimited coverage for
noninterest-bearing transaction accounts. This coverage became effective on
December 31, 2010, and will end on December 31, 2012.

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 $1.0 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
$6.1 million as of December 31, 2010. 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.

410991.Financial.CS5.indd 3

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

Century Bancorp, Inc. AR ’10

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection
Act became law. The Act was intended to address many issues arising in the
recent financial crisis and is exceedingly broad in scope affecting many aspects
of bank and financial market regulation. The Act requires, or permits by
implementing regulation, enhanced prudential standards for banks and bank
holding companies inclusive of capital, leverage, liquidity, concentration and
exposure measures. In addition, traditional bank regulatory principles such as
restrictions on transactions with affiliates and insiders were enhanced. The Act
also contains reforms of consumer mortgage lending practices and creates a
Bureau of Consumer Financial Protection which is granted broad authority over
consumer financial practices of banks and others. It is expected as the specific
new or incremental requirements applicable to the company become effective
that the costs and difficulties of remaining compliant with all such requirements
will increase. The Dodd-Frank Wall Street Reform and Consumer Protection Act
also permanently raises the current standard maximum FDIC deposit insurance
amount to $250,000.

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,
2010, the Company had total assets of $2.4 billion. Currently, the Company
operates 23 banking offices in 17 cities and towns in Massachusetts, ranging
from Braintree in the south to Beverly in the north. The Bank’s customers consist
primarily of small and medium-sized businesses and retail customers in these
communities and surrounding areas, as well as local governments and institutions
throughout Massachusetts.

The Company’s results of operations are largely dependent on net interest
income, which is the difference between the interest earned on loans and
securities and 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 LPL Financial, a full-service securities
brokerage business.

The Company is also a provider of financial services, including cash management,
transaction processing and short-term financing, to municipalities in
Massachusetts and Rhode Island. The Company has deposit relationships with
178 (51%) of the 351 cities and towns in Massachusetts.

The Company had net income of $13,574,000 for the year ended
December 31, 2010, compared with net income of $10,160,000 for the
year ended December 31, 2009 and net income of $9,046,000 for the year
ended December 31, 2008. Diluted earnings per share were $2.45 in 2010,
compared to $1.84 in 2009 and $1.63 in 2008.

Throughout 2008, the Company had seen improvement in its net interest
margin; however, the first quarter of 2009 reflected a decrease in the net
interest margin with a modest increase during the second and third quarters
of 2009 followed by a general decline through the fourth quarter of 2010 as
illustrated in the graph below:
3.60 %
3.20 %
2.86%
Net Interest Margin
2.82%
2.80 %

3.14%

2.81%

3.16%

2.63%

2.64%

2.57%

2.58%

2.55%

2.39%

2.40 %

2.00 %

Q3 Q4

2008

2009

2010

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

The primary factors accounting for the general decrease in the net interest
margin during 2009 and 2010 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.
5.00 %

Historical U.S. Treasury Yield Curve
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 12/31/2008
U.S. Treasury Yield Curve 12/31/2009
U.S. Treasury Yield Curve 12/31/2010

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. Over the past three years, the U.S. economy has experienced
low short-term rates. From 2008 to 2009, the yield curve steepened
significantly, offset somewhat by a slight flattening from 2009 to 2010.

410991.Financial.CS5.indd 4

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

Century Bancorp, Inc. AR ’10

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. Specific allowances for loan losses
entail the assignment of allowance amounts to individual loans on the basis of
loan impairment. 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.
Further information regarding the Company’s methodology for assessing
the appropriateness of the allowance is contained within footnote 1 of the
Company’s financial statements.

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.

FINANCIAL CONDITION
Investment Securities

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

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, 2010 totaled $909,391,000 and included gross unrealized
gains of $12,450,000 and gross unrealized losses of $6,615,000. A year
earlier, securities available-for-sale were $647,796,000 including gross
unrealized gains of $9,442,000 and gross unrealized losses of $2,656,000. In
2010, the Company recognized gains of $1,851,000 on the sale of available-
for-sale securities. In 2009, the Company recognized gains of $2,734,000.

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, 2010 are carried at their amortized cost
of $230,116,000 and exclude gross unrealized gains of $5,394,000 and gross
unrealized losses of $1,986,000. A year earlier, securities held-to-maturity
totaled $217,643,000 excluding gross unrealized gains of $4,526,000 and
gross unrealized losses of $756,000.

During 2010, 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 2010, 2009 and 2008, the U.S. economy
has experienced a lower short-term rate environment along with a general
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 2010 and 2009 as the rate at which
short-term deposits could be invested declined more than the rates offered on
those deposits.

Total assets were $2,441,684,000 at December 31, 2010, an increase of
8.3% from total assets of $2,254,035,000 on December 31, 2009.

On December 31, 2010, stockholders’ equity totaled $145,025,000,
compared with $132,730,000 on December 31, 2009. Book value per share
increased to $26.18 at December 31, 2010 from $24.00 on December 31,
2009.

During October 2008, the Company received regulatory approval to close
a branch on Albany Street in Boston, Massachusetts. This branch closed in
January 2009.

During August 2009, the Company entered into a lease agreement to open
a branch located at Coolidge Corner in Brookline, Massachusetts. The branch
opened on April 27, 2010.

During July 2010, the Company entered into a lease agreement to open a
branch located at Newton Centre in Newton, Massachusetts. The branch is
scheduled to open during the first half of 2011.

During September 2010, the Company entered into a lease agreement to open
a branch located in Andover, Massachusetts. The branch is scheduled to open
during the fourth quarter of 2011.

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 impairment of investment securities and allowance for
loan losses to be its critical accounting policies. There have been no significant
changes in the methods or assumptions used in the accounting policies that
require material estimates and assumptions.

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.

410991.Financial.CS5.indd 5

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

Fair Value of Securities Available-for-Sale

The following table sets forth the fair value and percentage distribution of securities available-for-sale at the dates indicated.
At December 31,

2010

2009

Century Bancorp, Inc. AR ’10

2008

(dollars in thousands)

U.S. Treasury

U.S. Government Sponsored Enterprises

SBA Backed Securities

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

Amount

Percent

Amount

Percent

Amount

Percent

2,005

175,663

9,732

0.2 %

19.3 %

1.1 %

$ 2,003

192,364

—

0.3 %

29.7 %

—

$ 2,028

161,292

—

0.4 %

32.5 %

—

680,898

74.9 %

418,512

64.6 %

260,132

52.5 %

3,968

287

34,074

2,253

511

0.4 %

0.1 %

3.7 %

0.2 %

0.1 %

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 %

$ 909,391

100.0 %

$ 647,796

100.0 %

$ 495,585

100.0 %

Included in Obligations Issued by States and Political Subdivisions as of December 31, 2010, are $4,393,000 of auction rate municipal obligations (“ARSs”) and
$10,000,000 of variable rate demand notes (“VRDNs”) with unrealized losses of $284,000 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 $14,393,000 of ARSs and VRDNs,
$10,000,000 are obligations of governmental entities and the remainder are the obligation of a large nonprofit entity. 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, 2010, the Company’s
ARS was purchased subsequent to its failure with a fair value of $4,393,000 and an amortized cost of $4,677,000.

As of December 31, 2010, the weighted average taxable equivalent yield on these securities was 0.47%.

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 individual available-for-sale securities that are
temporarily impaired 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, 2010.

Securities available-for-sale totaling $20,660,000, or 0.85% 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.
Amortized Cost of Securities Held-to-Maturity

The following table sets forth the amortized cost and percentage distribution of securities held-to-maturity at the dates indicated.
At December 31,

2010

2009

2008

Amount

Percent

Amount

Percent

Amount

Percent

(dollars in thousands)

U.S. Government Sponsored Enterprises

$ 84,534

36.7 %

$ 69,555

32.0 %

$ 44,000

23.9 %

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

145,582

63.3 %

148,088

68.0 %

140,047

76.1 %

Total

$ 230,116

100.0 %

$ 217,643

100.0 %

$ 184,047

100.0 %

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

410991.Financial.CS5.indd 6

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

Century Bancorp, Inc. AR ’10

Fair Value of Securities Available-for-Sale
The following two tables set forth contractual maturities of the Bank’s securities portfolio at December 31, 2010. Actual maturities will differ from contractual
Amounts Maturing
maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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

$ 2,005

0.2 %

0.95 %

—

0.0 %

0.00 %

—

0.0 %

0.00 % $

—

0.0 % 0.00 %

U.S. Government
Sponsored Enterprises

SBA Backed Securities

U.S. Government Agency

and Sponsored Enterprise

—

0.0 %

0.00 %

148,019 16.3 %

1.41 %

27,644

3.0 %

1.22 %

—

0.0 % 0.00 %

0.0 %

0.00 %

1,158

0.1 %

0.71 %

3,983

0.4 %

0.77 %

4,591

0.5 % 0.93 %

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

21,536

2.4 %

5.21 %

539,454 59.3 %

2.71 %

118,267 13.0 %

2.84 %

1,641

0.2 % 2.60 %

—

0.0 %

0.00 %

3,968

0.4 %

2.88 %

—

0.0 %

0.00 %

—

0.0 % 0.00 %

287

0.0 %

3.78 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

—

0.0 % 0.00 %

17,505

2.0 %

1.39 %

2,176

0.3 %

4.98 %

5,000

0.6 %

0.41 %

9,393

1.0 % 0.46 %

200

0.0 %

5.38 %

600

0.1 %

2.10 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

0.0 %

0.00 %

—

0.0 % 0.00 %

Total

$ 41,533

4.6 %

3.36 %

$ 695,375 76.5 %

2.44 %

$ 154,894 17.0 %

2.42 % $ 15,625

1.7 % 0.82 %

Non-

Maturing

% of

Total

Weighted

Average

Yield

Total

Weighted

Average

Yield

% of

Total

—

0.0 %

0.00 %

$ 2,005

0.2 %

0.95 %

0.0 %

0.00 %

175,663 19.3 %

1.38 %

0.0 %

0.00 %

9,732

1.1 %

0.84 %

0.0 %

0.00 %

680,898 75.0 %

2.82 %

0.0 %

0.00 %

3,968

0.4 %

2.88 %

0.0 %

0.00 %

287

0.0 %

3.78 %

0.0 %

0.00 %

34,074

3.7 %

1.22 %

1,453

0.1 %

4.63 %

2,253

0.2 %

4.02 %

511

0.1 %

1.71 %

511

0.1 %

1.71 %

$ 1,964

0.2 %

3.87 %

$ 909,391 100.0 %

2.45 %

(dollars in thousands)

U.S. Treasury

U.S. Government Sponsored Enterprises

SBA Backed Securities

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 %

$ 9,998

4.4 %

1.63 %

$ 74,536 32.4 %

1.67 % $ 84,534 36.7 % 1.67 %

Backed Securities

7,298

3.2 %

4.49 %

113,059 49.1 %

4.11 %

25,225 11.0 %

2.69 %

145,582 63.3 % 3.88 %

Total

$ 7,298

3.2 %

4.49 %

$ 123,057 53.5 %

3.91 %

$ 99,761 43.4 %

1.93 % $ 230,116 100.0 % 3.07 %

410991.Financial.CS5.indd 7

2/28/11 4:22 PM

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

Century Bancorp, Inc. AR ’10

At December 31, 2010 and 2009, the Bank had no investments in obligations of individual states, counties, municipalities or nongovernment corporate entities which
exceeded 10% of stockholders’ equity. In 2010, sales of securities totaling $41,251,000 in gross proceeds resulted in a net realized gain of $1,851,000. There
were no sales of state, county or municipal securities during 2010. 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.

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.
December 31,

2010

2009

2008

2007

2006

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

Amount

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

(dollars in thousands)

Construction and

land development

$ 53,583

5.9 %

$ 60,349

6.9 %

$ 59,511

7.1 %

$ 62,412

8.6 % $ 49,709

6.7 %

Commercial and industrial

90,654

10.0 %

141,061

16.1 %

141,373

16.9 %

117,332

16.2 %

117,497

15.9 %

Commercial real estate

433,337

47.8 %

361,823

41.2 %

332,325

39.8 %

299,920

41.3 %

327,040

44.4 %

Residential real estate

207,787

22.9 %

188,096

21.4 %

194,644

23.3 %

168,204

23.2 %

167,946

22.8 %

Consumer

Home equity

Overdrafts

Total

5,957

0.7 %

7,105

0.8 %

8,246

1.0 %

8,359

1.1 %

7,104

114,209

12.6 %

118,076

13.5 %

98,954

11.8 %

68,585

9.4 %

66,157

637

0.1 %

615

0.1 %

1,012

0.1 %

1,439

0.2 %

1,320

1.0 %

9.0 %

0.2 %

$ 906,164

100.0 %

$ 877,125

100.0 %

$ 836,065

100.0 %

$ 726,251 100.0 % $ 736,773 100.0 %

At December 31, 2010, 2009, 2008, 2007 and 2006, loans were carried net of discounts of $598,000, $645,000, $692,000, $3,000 and $3,000, respectively.
Net deferred loan fees of $186,000, $71,000, $81,000, $38,000 and $183,000 were carried in 2010, 2009, 2008, 2007 and 2006, respectively.

The following table summarizes the remaining maturity distribution of certain components of the Company’s loan portfolio on December 31, 2010. 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.

Remaining Maturities of Selected Loans at December 31, 2010

One Year
or Less

One to Five
Years

Over
Five Years

Total

(dollars in thousands)

Construction and land development

Commercial and industrial

Commercial real estate

Total

December 31, 2010

$ 12,379
36,995
30,238

$ 79,612

$ 32,322
28,602
135,767

$ 8,882
25,057
267,332

$ 53,583
90,654
433,337

$ 196,691

$ 301,271

$ 577,574

The following table indicates the rate variability of the above loans due after one year.
(dollars in thousands)

One to Five
Years

Over
Five Years

Total

Predetermined interest rates

Floating or adjustable interest rates

Total

$ 91,435
105,256

$ 50,431
250,840

$ 141,866
356,096

$ 196,691

$ 301,271

$ 497,962

410991.Financial.CS5.indd 8

2/23/11 2:05 AM

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

Century Bancorp, Inc. AR ’10

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 $11,109,000 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. 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, 2010, the Company was obligated to advance a total of $22,337,000 to complete projects under
December 31,
construction.
(dollars in thousands)
The composition of nonperforming assets is as follows:
Total nonperforming loans

2010

2009

2008

2007

2006

$ 8,068
—

$ 12,311
—

$ 3,661
—

$ 1,312
452

$ 135
—

Other real estate owned

Total nonperforming assets

Accruing 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

Residential real estate, multi-family
The composition of impaired loans at December 31, is as follows:
Commercial real estate

Construction and land development

Commercial and industrial

Total impaired loans

$ 8,068

$ 1,248
50
0.89 %
0.33 %

2010

$ —
2,492
4,000
1,471

$ 7,963

$ 12,311

$ 521
—
1.40 %
0.55 %

2009

$ —
4,260
4,900
1,356

$ 10,516

$ 3,661

$ —
89

0.44 %
0.20 %

2008

$ 194
1,175
—
1,329

$ 2,698

$ 1,764

$ 135

$ —
122
0.18 %
0.10 %

$ —
789
0.02 %
0.01 %

2007

$ —
—
—
196

$ 196

2006

$ —
—
—
16

At December 31, 2010, 2009, 2008 and 2007, impaired loans had specific reserves of $317,000, $745,000, $600,000 and $75,000, respectively. There were
no impaired loans with specific reserves at December 31, 2006.

The Company was servicing mortgage loans sold to others without recourse of approximately $983,000, $1,127,000, $768,000, $559,000 and $798,000 at
December 31, 2010, 2009, 2008, 2007 and 2006, respectively. Additionally, the Company services mortgage loans sold to others with limited recourse. The
outstanding balance of these loans with limited recourse was approximately $36,000, $47,000, $56,000, $65,000 and $72,000 at December 31, 2010, 2009,
2008, 2007 and 2006, respectively.

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

410991.Financial.CS5.indd 9

2/23/11 2:05 AM

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

Century Bancorp, Inc. AR ’10

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 decreased during 2010 primarily as a result of resolution of a $2,479,000 commercial real estate loan as well as $900,000 in charge-offs from two
construction loans during 2010. 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 $32,905,000 and $35,229,000 at December 31, 2010 and 2009, respectively, of loans for which management has
concerns regarding the ability of the borrowers to perform. The majority of the loans are secured by real estate and are considered to have adequate collateral value to
cover the loan balances at December 31, 2010, 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
Year Ended December 31,
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.
(dollars in thousands)

2010

2007

2009

2008

2006

Year-end loans outstanding

(net of unearned discount and deferred loan fees)

$ 906,164

$ 877,125

$ 836,065

$ 726,251

$ 736,773

Average loans outstanding

(net of unearned discount and deferred loan fees)

$ 877,858

$ 853,422

$ 775,337

$ 725,903

$ 723,825

Balance of allowance for

loan losses at the beginning of year

Loans charged-off:

Commercial

Construction

Commercial real estate

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

Provision charged to operating expense

$ 12,373

$ 11,119

9,633

9,713

9,340

1,559
900
922
515
547

4,443

172
—
8
368

548

3,895
5,575

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

Balance at end of year

$ 14,053

$ 12,373

$ 11,119

9,633

9,713

Ratio of net charge-offs during the year

to average loans outstanding

Ratio of allowance for loan losses to loans outstanding

0.44 %

1.55 %

0.63 %

1.41 %

0.38 %

1.33 %

0.22 %

1.33 %

0.06 %

1.32 %

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 2006 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. Charge-offs declined in 2010 as a result of the overall decrease in the level of nonaccrual loans.

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

Construction loans — The outstanding loan balance of construction loans at December 31, 2010 is $53,583,000. A major factor in nonaccrual loans are 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.

410991.Financial.CS5.indd 10

2/23/11 2:05 AM

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

Century Bancorp, Inc. AR ’10

Higher balance loans — Loans greater than $1.0 million are considered “high balance loans.” The balance of these loans is $434,829,000 at December 31,
2010. 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. Included in high balance loans are loans greater than $10.0 million. The balance of these loans is $124,685,000 at December 31, 2010. Additional
allowance allocations are made based upon the level of this type of high balance loans that is separate and greater than the $1.0 million allocation.

Small business loans — The outstanding loan balances of small business loans is $47,815,000 at December 31, 2010. 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.

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
2009
economic conditions. Although the allowance is allocated between categories, the entire allowance is available to absorb losses attributable to all loan categories. At
Percent
December 31 of each year listed below, the allowance was comprised of the following:
of Loans
in Each
Category
to Total
Loans

Percent
of Loans
in Each
Category
to Total
Loans

Amount

2010

2008

2007

2006

(dollars in thousands)

Construction and land development

$ 1,752

5.9 %

362

6.9 %

677

7.1 %

$ 583

8.6 %

$ 849

6.7 %

Commercial and industrial

Commercial real estate

Residential real estate

Consumer and other

Home equity

Unallocated

Total

3,163 10.0

4,972 16.1

5,125 16.9

5,671 47.8

2,983 41.2

2,620 39.8

1,718 22.9

1,304 21.4

1,753

0.9

778 23.3

342

1.1

298

0.8

725 12.6

726

761 13.5

1,527 11.8

238

4,645

2,548

637

392

686

142

16.2

41.3

23.2

1.3

9.4

1,916

4,502

512

135

219

1,580

15.9

44.4

22.8

1.2

9.0

$ 14,053 100.0 %

$ 12,373 100.0 %

$ 11,119 100.0 %

$ 9,633 100.0 %

$ 9,713 100.0 %

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. Futher information regarding the allocation of the allowance is contained within footnote 6 of
the Company’s financial statements.

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.

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.

2010

2009

2008

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

Percent

Amount

Percent

(dollars in thousands)

Demand Deposits

$ 298,825

15.8 %

$ 277,300

17.8 %

$ 267,966 22.0 %

Savings and Interest Checking

696,232

36.7 %

528,973

34.0 %

369,687 30.3 %

Money Market

543,432

28.7 %

432,159

27.8 %

308,432 25.3 %

Time Certificates of Deposit

356,457

18.8 %

318,413

20.4 %

273,925 22.4 %

Total

$ 1,894,946 100.0 %

$ 1,556,845 100.0 %

$ 1,220,010 100.0 %

410991.Financial.CS5.indd 11

2/28/11 2:15 PM

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

Century Bancorp, Inc. AR ’10

(dollars in thousands)
Time Deposits of $100,000 or more as of December 31 are as follows:

2010

Three months or less

Three months through six months

Six months through twelve months

Over twelve months

Borrowings

$ 16,215
43,910
99,533
86,816

$ 246,474

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 $221,000,000, a decrease of $11,500,000 from the prior year. The Bank’s remaining term borrowing capacity at the FHLBB at December 31, 2010
was approximately $73,241,000. 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
$108,550,000, a decrease of $10,195,000 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 11.1% in 2010 to $56,893,000, compared with $51,215,000 in 2009. The increase in net interest income for 2010 was mainly due to an 18.8%
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 seventeen
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 2.52% in
2010 from 2.69% in 2009 and decreased from 3.00% in 2008.

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.

410991.Financial.CS5.indd 12

2/23/11 2:05 AM

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

Century Bancorp, Inc. AR ’10

Year Ended December 31,
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.
Average
Balance

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

Average
Balance

2010

2009

2008

(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

$ 877,858

$ 53,356

6.08 %

$ 853,422

$ 51,174

6.00 %

$ 775,337

$ 50,199

6.47 %

756,544
32,407

18,958
596

2.51
1.84

562,899
48,347

20,439
1,061

3.63
2.19

411,938
61,406

18,183
3,204

4.41
5.24

222,154

7,158

3.22

193,520

8,093

4.18

193,584

8,265

4.27

—

99,784

2,442

2.45

371,665

1,642

0.44

245,002

2,171

0.87

14,478

371

2.56

Total interest-earning assets

2,260,628

81,710

3.61 %

1,903,190

82,938

4.36 %

1,556,527

82,664

5.31 %

Noninterest-earning assets

Allowance for loan losses

155,956

(13,686)

Total assets

$ 2,402,898

143,984

(13,331)

$ 2,033,843

136,830

(9,997)

$ 1,683,360

LIABILITIES AND

STOCKHOLDERS’ EQUITY
Interest-bearing deposits:
NOW accounts
Savings accounts
Money market accounts
Time deposits

$ 423,693
272,539
543,432
356,457

$ 2,504
1,568
3,942
7,914

0.59 %
0.58
0.73
2.22

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

166,009
308,432
273,925

1.51 %
1.76
2.35
3.56

Total interest-bearing deposits

1,596,121

15,928

1.00

1,279,545

20,796

1.63

952,044

23,009

2.42

Securities sold under
agreements to repurchase

Other borrowed funds
and subordinated debentures

133,080

573

0.43

98,635

576

0.58

94,526

1,393

1.47

201,273

8,316

4.13

219,713

10,351

4.71

225,743

11,512

5.10

Total interest-bearing liabilities

1,930,474

24,817

1.29 %

1,597,893

31,723

1.99 %

1,272,313

35,914

2.82 %

Noninterest-bearing liabilities
Demand deposits
Other liabilities

Total liabilities

Stockholders’ equity
Total liabilities and

298,825
31,074

2,260,373

142,525

stockholders’ equity

$ 2,402,898

Net interest income on a fully
taxable equivalent basis

Less taxable equivalent adjustment

Net interest income

Net interest spread

Net interest margin

(1)

277,300
31,289

1,906,482

127,361

$ 2,033,843

267,966
21,363

1,561,642

121,718

$ 1,683,360

$ 56,893

(5,127)

$ 51,766

$ 51,215

(3,338)

$ 47,877

$ 46,750

(1,971)

$ 44,779

2.32 %

2.52 %

2.37 %

2.69 %

2.49 %

3.00 %

(2)

(3)

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

410991.Financial.CS5.indd 13

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

Century Bancorp, Inc. AR ’10

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
Year Ended December 31,
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.

2010 Compared with 2009
Increase/(Decrease)
Due to Change in

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

(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

Volume

Rate

Total

Volume

Rate

Total

$ 1,465

$ 717

$ 2,182

$ 5,110

$(4,135)

$ 975

5,885
(312)

1,090
—
822

8,950

999
241
1,306
1,036

3,582
171
(825)

2,928

(7,366)
(153)

(2,025)
—
(1,351)

(1,481)
(465)

(935)
—
(529)

5,867
(574)

(3)
(2,442)
2,198

(3,611)
(1,569)

(169)
—
(398)

(10,178)

(1,228)

10,156

(9,882)

(891)
(1,535)
(3,464)
(2,560)

(8,450)
(174)
(1,210)

(9,834)

108
(1,294)
(2,158)
(1,524)

(4,868)
(3)
(2,035)

(6,906)

913
1,172
2,329
1,452

5,866
58
(301)

5,623

(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)

$ 6,022

$ (344)

$ 5,678

$ 4,533

$ (68)

$ 4,465

Average earning assets were $2,260,628,000 in 2010, an increase of $357,438,000 or 18.8% from the average in 2009, which was 22.3% higher than the
average in 2008. Total average securities, including securities available-for-sale and securities held-to-maturity, were $1,011,105,000, an increase of 25.6% from
the average in 2009. 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 9.7% to $26,712,000 on a fully tax equivalent basis. Total average loans increased 2.9% to
$877,858,000 after increasing $78,085,000 in 2009. 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 as well as an increase in loan rates resulted in higher loan
income, which increased by 4.3% or $2,182,000 to $53,356,000. Total loan income was $50,199,000 in 2008.

The Company’s sources of funds include deposits and borrowed funds. On average, deposits increased 21.7% or $338,101,000 in 2010 after increasing by 27.6%
or $336,835,000 in 2009. Deposits increased in 2010, primarily as a result of increases in demand deposits, savings, money market, NOW and time deposit
accounts. Deposits increased in 2009 primarily as a result of increases in savings, money market, NOW and time deposit accounts. Borrowed funds and subordinated
debentures increased by 5.0% in 2010 following a decrease of 0.6% in 2009. 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 $18,568,000, and average retail repurchase agreements increased by
$34,445,000 in 2010. Interest expense totaled $24,817,000 in 2010, a decrease of $6,906,000 or 21.8% from 2009 when interest expense decreased 11.7%
from 2008. The decrease in interest expense is primarily due to market decreases in deposit rates and continued deposit pricing discipline.

410991.Financial.CS5.indd 14

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

Century Bancorp, Inc. AR ’10

Provision for Loan Losses

The provision for loan losses was $5,575,000 in 2010, compared with
$6,625,000 in 2009 and $4,425,000 in 2008. 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 for loan losses decreased during 2010, primarily as a
result of decreases in loans on nonaccrual as well as management’s quantitative
analysis of the loan portfolio. The provision increased during 2009 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 $14,053,000 at December 31, 2010,
compared with $12,373,000 at December 31, 2009. Expressed as a
percentage of outstanding loans at year-end, the allowance was 1.55% in 2010
and 1.41% in 2009. This ratio increased as a result of management’s evaluation
of the loan portfolio.

Nonperforming loans, which include all nonaccruing loans, totaled $8,068,000
on December 31, 2010, compared with $12,311,000 on December 31,
2009. Nonperforming loans decreased primarily as a result of resolution of a
$2,479,000 commercial real estate loan as well as $900,000 in charge-offs
from two construction loans during 2010.

Other Operating Income

During 2010, 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 supported by LPL Financial, a full-service securities
brokerage business.

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 Financial, a
full-service securities brokerage business. Registered representatives employed
by Century Bank offer limited investment advice, execute transactions and assist
customers in financial and retirement planning. LPL Financial provides research
to the Bank’s representatives. The Bank receives a share in the commission
revenues.

Total other operating income in 2010 was $15,999,000, a decrease of
$471,000 or 2.9% compared to 2009. This decrease followed an increase
of $2,495,000 or 17.9% in 2009, compared to 2008. Included in other
operating income are net gains on sales of securities of $1,851,000,
$2,734,000 and $249,000 in 2010, 2009 and 2008, respectively. Service
charge income, which continues to be a major area of other operating income,
totaling $7,876,000 in 2010, decreased $127,000 compared to 2009.
This followed a decrease of $187,000 compared to 2008. Service charges
on deposit accounts decreased during 2010 mainly because of decreases
in fees collected. The decrease in fees collected was mainly attributable to a
reduction in processing activity as well as a decrease in money service business
activity. 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 decrease in overdraft lines. Lockbox revenues totaled
$2,911,000, up $97,000 in 2010 following a decrease of $139,000 in
2009. Other income totaled $3,131,000, up $352,000 in 2010 following an
increase of $300,000 in 2009. The increase in 2010 was mainly attributable to
an increase of $378,000 in the growth of cash surrender values on life insurance
policies, which was attributable to additional earnings as a result of certain
policies reaching their twenty year anniversary during the first quarter of 2010.
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.

Operating Expenses

Total operating expenses were $47,372,000 in 2010, compared to
$46,379,000 in 2009 and $43,028,000 in 2008.

Salaries and employee benefits expenses increased by $1,479,000 or 5.5%
in 2010, after increasing by 5.1% in 2009. The increase in 2010 was mainly
attributable to $916,000 due to Jonathan G. Sloane, former Co-CEO, in
accordance with his separation agreement as previously announced as well as
an increase in staff levels and merit increases in salaries and increases in health
insurance costs. The increase in 2009 was mainly attributable to increases in
pension expense and health insurance costs.

Occupancy expense decreased by $67,000 or 1.6% in 2010, following a
decrease of $142,000 or 3.3% in 2009. The decrease in 2010 was primarily
attributable to a decrease in utility and building maintenance costs offset
somewhat by an increase in rent expense and real estate taxes. 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.

Equipment expense decreased by $240,000 or 10.1% in 2010, following
a decrease of $502,000 or 17.5% in 2009. The decrease in 2010 and
2009 was primarily attributable to a decrease in depreciation expense. Other
operating expenses increased by $192,000 in 2010, which followed a
$32,000 decrease in 2009. The increase in 2010 was primarily attributable to
an increase in marketing expense and software maintenance offset somewhat by
decreases in legal expense. 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.

FDIC assessments decreased by $371,000 or 11.1% in 2010, following an
increase of $2,723,000 or 444.2% in 2009. FDIC assessments decreased in
2010 mainly as a result of a special assessment $1,000,000 during 2009,
offset somewhat by an increase in the deposit base. FDIC assessments increased
in 2009 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.

410991.Financial.CS5.indd 15

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

Century Bancorp, Inc. AR ’10

Provision for Income Taxes

Liquidity and Capital Resources

Income tax expense was $1,244,000 in 2010, $1,183,000 in 2009 and
$2,255,000 in 2008. The effective tax rate was 8.4% in 2010, 10.4% in
2009 and 20.0% in 2008. The decreases in the effective tax rate for 2010 and
2009 were mainly attributable to an increase in tax-exempt interest income and
tax credits as a percentage of taxable income. The federal tax rate was 34% in
2010, 2009 and 2008.

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 $302,470,000 on December 31, 2010,
compared with $417,160,000 on December 31, 2009. In each of these two
years, deposit and borrowing activity has generally been adequate to support
asset activity.

The source of funds for dividends paid by the Company is dividends received
from the Bank and liquid funds held by the Company. 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 $145,025,000 at December 31, 2010,
compared with $132,730,000 at December 31, 2009. The increase in 2010
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 a decrease
of $1,259,000 in the pension liability, net of taxes, offset by a decrease of
$536,000 in the net unrealized gains on the Company’s available-for-sale
portfolio, 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 14.86% and 12.43%, respectively, and total capital-to-risk assets ratio of
16.03% and 13.61%, respectively, at December 31, 2010. 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, 2010, the Company and the
Bank exceeded this requirement with leverage ratios of 7.35% and 6.14%,
respectively.

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 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.

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)

+400
+300
+200
+100
–100
–200

(10.1) %
(7.6) %
(5.6) %
(2.8) %
2.9 %
4.9 %

(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.

410991.Financial.CS5.indd 16

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

Century Bancorp, Inc. AR ’10

Contractual Obligations, Commitments, and Contingencies
Contractual Obligations and Commitments by Maturity
The Company has entered into contractual obligations and commitments. The following tables summarize the Company’s contractual cash obligations and other
(dollars in thousands)
commitments at December 31, 2010.

Payments Due—By Period

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

$ 221,000
36,083
25,024
8,552

975
108,550

$ 400,184

Total

$ 169,862
4,935
40,309

$ 215,106

Less Than
One Year

$ 91,500
—
1,924
1,856

975
108,550

$ 204,805

One to
Three Years

$ 50,500
—
3,995
2,530

—
—

Three to
Five Years

$ 37,000
—
4,215
1,765

—
—

After Five
Years

$ 42,000
36,083
14,890
2,401

—
—

$ 57,025

$ 42,980

$ 95,374

Amount of Commitment Expiring—By Period

Less Than
One Year

$ 86,403
4,539
15,468

$ 106,410

One to
Three Years

$ 11,198
396
4,216

$ 15,810

Three to
Five Years

$ 14,050
—
1,863

$ 15,913

After Five
Years

$ 58,211
—
18,762

$ 76,973

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-
2009
Contract or Notational Amount
balance-sheet instruments. Financial instruments with off-balance-sheet risk at
(dollars in thousands)
December 31 are as follows:
Financial instruments whose contract amount

2010

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

$ 14,635
4,935
169,862
22,337
3,337

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

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 $68,000 and $93,000 for 2010 and 2009, respectively.

Recent Accounting Developments

410991.Financial.CS5.indd 17

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

Century Bancorp, Inc. AR ’10

The Statement will require disclosures related to the allowance for credit losses
on a “portfolio segment” basis instead of on an aggregate basis. “Portfolio
segment” is defined as the level at which an entity develops and documents
a systematic methodology to determine its allowance for credit losses. The
Statement also establishes the concept of a “class of financing receivables”.
A class is generally a disaggregation of a portfolio segment. The Statement
requires numerous disclosures at the class level including (a) delinquency and
nonaccrual information and related significant accounting policies, (b) impaired
financing receivables and related significant accounting policies, (c) a description
of credit quality indicators used to monitor credit risk and (d) modifications of
financing receivables that meet the definition of a troubled debt restructuring.
The Statement will expand disclosure requirements to include all financing
receivables that are individually evaluated for impairment and determined to be
impaired, and require the disclosures at the class level.

Entities will be required to disclose the activity within the allowance for credit
losses, including the beginning and ending balance of the allowance for each
portfolio segment, as well as current-period provisions for credit losses, direct
write-downs charged against the allowance and recoveries of any amounts
previously written off. Entities will also be required to disclose the effect
on the provision for credit losses due to changes in accounting policies or
methodologies from prior periods.

Public entities will need to provide disclosures related to period-end information
(e.g., credit quality information and the ending financing receivables balance
segregated by impairment method) in all interim and annual reporting periods
ending on or after December 15, 2010. Disclosures of activity that occurs
during a reporting period (e.g., modifications and the rollforward of the
allowance for credit losses by portfolio segment) are required in interim and
annual periods beginning on or after December 15, 2010. As this Statement
amends only the disclosure requirements for loans and the allowance, adoption
will have no impact on the Company’s financial statements. The Company has
provided the disclosures required as of December 31, 2010 in Note 6.

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. The adoption of this Statement did not have a
material effect on the Company’s financial statements 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.
The adoption of this Statement did not have a material effect on the Company’s
financial statements at the date of adoption, January 1, 2010.

In January 2010, the FASB issued an amendment to the Fair Value
Measurements and Disclosures topic of the ASC. This amendment requires
disclosures about transfers into and out of Levels 1 and 2 and separate
disclosures about purchases, sales, issuances, and settlements relating to Level 3
measurements. It also clarifies existing fair value disclosures about the level of
disaggregation and about inputs and valuation techniques used to measure fair
value. This amendment is effective for periods beginning after December 15,
2009, except for the requirement to provide the Level 3 activity of purchases,
sales, issuances, and settlements, which will be effective for fiscal years beginning
after December 15, 2010. The adoption of this Statement did not have a
material effect on the Company’s financial statements at the date of adoption,
January 1, 2010.

In July, 2010, the FASB issued Accounting Standards Update (ASU) No.
2010-20, “Disclosures about the Credit Quality of Financing Receivables and
the Allowance for Credit Losses.” This Statement will significantly increase
disclosures that entities must make about the credit quality of financing
receivables and the allowance for credit losses. The Statement will require
reporting entities to make new disclosures about (a) the nature of credit risk
inherent in the entity’s portfolio of financing receivables (loans), (b) how that
risk is analyzed and assessed in determining the allowance for credit (loan)
losses and (c) the reasons for changes in the allowance for credit losses.

410991.Financial.CS5.indd 18

2/23/11 2:05 AM

Consolidated Balance Sheets

Century Bancorp, Inc. AR ’10
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 $903,556 in 2010 and $641,010

in 2009 (Notes 3 and 9)

Securities held-to-maturity, fair value $233,524 in 2010 and $221,413

in 2009 (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 3,528,867 shares in 2010 and

3,515,767 shares in 2009

Common stock, Class B,

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

2,011,380 shares in 2010 and 2,014,530 shares in 2009

Additional paid-in capital

Retained earnings

Unrealized gains 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.”

2010

2009

37,215
151,337

188,552

113,918

909,391

230,116
15,531
906,164
14,053

892,111
21,228
6,601
6,129
58,107

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

$ 2,441,684

$ 2,254,035

$ 322,002
649,402
513,359
417,260

1,902,023

108,550
222,118
36,083
27,885

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

1,701,987

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

2,296,659

2,121,305

3,529

3,516

2,011
11,537
131,526

148,603

3,593
(7,171)

(3,578)

2,014
11,376
120,125

137,031

4,129
(8,430)

(4,301)

145,025

132,730

$ 2,441,684

$ 2,254,035

410991.Financial.CS5.indd 19

2/23/11 2:05 AM

2010

40,163
8,271
18,958
391
—
7,158
1,642

76,583

4,072

3,942

7,914

573

8,316

24,817

51,766

5,575

46,191

7,876

2,911

230

1,851

—

3,131

15,999

28,398

4,037

2,132

2,965

9,840

47,372

14,818

1,244

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)

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

2009

Century Bancorp, Inc. AR ’10

2008

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

—

2,779

16,470

26,919

4,104

2,372

3,336

9,648

46,379

11,343

1,183

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

13,574

10,160

5,533,506

5,535,742

2.45

5,532,249

5,534,340

1.84

5,541,983

5,543,702

1.63

410991.Financial.CS5.indd 20

2/23/11 2:05 AM

Consolidated Statements of Changes in Stockholders’ Equity

Century Bancorp, Inc. AR ’10

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, 2007

$ 3,517

$ 2,027

$ 11,553

$ 105,550

$ (3,841)

$ 118,806

Net income

Other comprehensive income, net of tax:

Unrealized holding gains 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

0
(107)
(1,684)
(486)

BALANCE, DECEMBER 31, 2009

$ 3,516

$ 2,014

$ 11,376

$ 120,125

$ (4,301)

$ 132,730

Net income

Other comprehensive income, net of tax:

Unrealized holding losses arising during period, net of $415 in taxes

and $1,851 in realized net gains

Pension liability adjustment, net of $836 in taxes

Comprehensive income

Conversion of Class B Common Stock to Class A Common Stock, 3,150 shares

Stock options exercised, 9,950 shares

Tax benefit of stock option exercises

Cash dividends, Class A Common Stock, $0.48 per share

Cash dividends, Class B Common Stock, $0.24 per share

—

—
—

3
10
—
—
—

—

—
—

(3)
—
—
—
—

—

13,574

—

13,574

—
—

—
140
21
—
—

—
—

(536)
1,259

—
—
—
(1,690)
(483)

—
—
—
—
—

(536)
1,259

14,297
—
150
21
(1,690)
(483)

BALANCE, DECEMBER 31, 2010

$ 3,529

$ 2,011

$ 11,537

$ 131,526

$ (3,578)

$ 145,025

See accompanying “Notes to Consolidated Financial Statements.”

410991.Financial.CS5.indd 21

2/25/11 2:32 PM

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:

Consolidated Statements of Cash Flows

2010

2009

Century Bancorp, Inc. AR ’10

2008

$ 13,574

$ 10,160

9,046

Mortgage loans originated for sales

Proceeds from mortgage loans sold

Gain on sale of loans

Gain on sale of fixed assets

Net gains on sales of securities

Writedown of certain investments to fair value

Provision for loan losses

Deferred tax benefit

Net depreciation and amortization

(Increase) decrease in accrued interest receivable

Decrease (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 in loans

Proceeds from sales of other real estate owned

Proceeds from sales of fixed assets

Capital expenditures

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time deposit accounts
Net increase 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 (decrease) increase in securities sold under agreements to repurchase

Net decrease in other borrowed funds

Net cash provided by financing activities

Net decrease (increase) 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.”

—
—
—
(7)
(1,851)
—
5,575
(1,546)
4,955
(795)
2,629
(127)
—
(1,417)
(849)

20,141

131,762
(227,162)
610,975
41,251
(914,944)
154,445
(167,442)
—
(33,315)
555
13
(2,281)

(406,143)

124,622
75,414
—
150
(2,173)
(10,195)
(11,906)

175,912

(210,090)
398,642

$ 188,552

$ 24,930
3,580
(536)
1,259

—
428

(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

410991.Financial.CS5.indd 22

2/23/11 2:05 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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,
including, historical charge-off rates with additional allocations based on risk
factors for each category and general economic factors. 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 and 2010, short-term investments include highly
liquid certificates of deposit with original maturities of more than 90 days but
less than one year.

410991.Financial.CS5.indd 23

2/23/11 2:05 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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, had 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 year
ended December 31, 2009, the FHLBB reported a net loss of $186.8 million
resulting from the recognition of $444.1 million of impairment losses which were
recognized through income. For the year ended December 31, 2010, the FHLBB
reported net income of $106.6 million. The FHLBB also declared a dividend
equal to an annual yield of 0.30%. The FHLBB’s board of directors anticipates
that it will continue to declare modest cash dividends through 2011. 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, 2010. The Company will continue to monitor its investment in
FHLBB stock.

LOANS

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
longer exists a concern as to the collectibility 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
collectibility 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 collectibility 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.

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. Past due status is based on contractual
terms of the loan. Loans, including impaired loans, on which the accrual of

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.

410991.Financial.CS5.indd 24

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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
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, collectibility is not probable.

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.

An unallocated component is maintained to cover uncertainties that could
affect management’s estimate of probable losses. The unallocated component
of the allowance reflects the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating allocated and general
reserves in the portfolio.

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
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.

The qualitative factors are determined based on the various risk characteristics
of each loan segment. Risk characteristics relevant to each portfolio segment are
as follows:

Residential real estate — The Company generally does not originate loans with
a loan-to-value ratio greater than 80 percent and does not grant subprime
loans. All loans in this segment are collateralized by owner-occupied residential
real estate and repayment is dependent on the credit quality of the individual
borrower. The overall health of the economy, including unemployment rates will
have an effect on the credit quality in the segment.

Commercial real estate — Loans in this segment are primarily income-producing
properties. The underlying cash flows generated by the properties are adversely
impacted by a downturn in the economy as evidenced by increased vacancy
rates, which in turn, will have an effect on the credit quality in this segment.
Management monitors the cash flows of these loans.

Construction loans — Loans in this segment primarily include real estate
development loans for which payment is derived from sale of the property as
well as construction projects in which the property will ultimately be used by the
borrower. Credit risk is affected by cost overruns, time to sell at an adequate
price, and market conditions.

Commercial and industrial loans — Loans in this segment are made to
businesses and are generally secured by assets of the business. Repayment
is expected from the cash flows of the business. A weakened economy, and
resultant decreased consumer spending, will have an effect on the credit quality
in this segment.

410991.Financial.CS5.indd 25

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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 38,712 shares of Class A common stock
exercisable at December 31, 2010.

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

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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
2010 and 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
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.

410991.Financial.CS5.indd 26

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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
life of each participant.

RECENT ACCOUNTING DEVELOPMENTS

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 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. The adoption of this Statement did not have a
material effect on the Company’s financial statements 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.
The adoption of this Statement did not have a material effect on the Company’s
financial statements at the date of adoption, January 1, 2010.

In July, 2010, the FASB issued Accounting Standards Update (ASU)
No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses.” This Statement will significantly increase
disclosures that entities must make about the credit quality of financing
receivables and the allowance for credit losses. The Statement will require
reporting entities to make new disclosures about (a) the nature of credit risk
inherent in the entity’s portfolio of financing receivables (loans), (b) how that
risk is analyzed and assessed in determining the allowance for credit (loan)
losses and (c) the reasons for changes in the allowance for credit losses.

The Statement will require disclosures related to the allowance for credit losses
on a “portfolio segment” basis instead of on an aggregate basis. Portfolio
segment is defined as the level at which an entity develops and documents
a systematic methodology to determine its allowance for credit losses. The
Statement also establishes the concept of a “class of financing receivables.”
A class is generally a disaggregation of a portfolio segment. The Statement
requires numerous disclosures at the class level including, (a) delinquency and
nonaccrual information and related significant accounting policies, (b) impaired
financing receivables and related significant accounting policies, (c) a description
of credit quality indicators used to monitor credit risk and (d) modifications of
financing receivables that meet the definition of a troubled debt restructuring.
The Statement will expand disclosure requirements to include all financing
receivables that are individually evaluated for impairment and determined to be
impaired, and require the disclosures at the class level.

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 $3,543,000 at December 31,
2010 and $1,061,000 at December 31, 2009.

410991.Financial.CS5.indd 27

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

3. Securities Available-for-Sale

(dollars in thousands)

U.S. Treasury
U.S. Government Sponsored Enterprises

SBA Backed Securities
U.S. Government Agency and Sponsored

December 31, 2010
Gross
Unrealized
Losses

Gross
Unrealized
Gains

Estimated
Fair
Value

Amortized
Cost*

December 31, 2009
Gross
Gross
Unrealized
Losses

Gains

Amortized Unrealized

Cost*

Estimated
Fair
Value

$
2,000
175,842
9,735

5
386
1

—
565
4

$
2,005
175,663
9,732

$
1,998
192,942
—

5
374
—

—
952
—

$
2,003
192,364
—

Enterprises Mortgage-Backed Securities

674,481

11,842

5,425

680,898

410,181

8,855

524

418,512

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

4,247

285

34,271
2,300
395

—

98
—
116

279

—

295
47
—

3,968

287

34,074
2,253
511

5,383

537

26,627
2,300
1,042

—

130
—
71

473

4,910

—

468
41
198

544

26,289
2,259
915

Total

$ 903,556

$ 12,450

$ 6,615

$ 909,391

$ 641,010

$ 9,442

$ 2,656

$ 647,796

* 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 $363,240,000 and $332,064,000 at December 31, 2010 and
2009, respectively. Also included in securities available-for-sale at fair value are securities pledged for borrowing at the Federal Home Loan Bank amounting to
$124,189,000 and $172,497,000 at December 31, 2010 and 2009, respectively. The Company realized net gains on sales of securities of $1,851,000,
$2,734,000 and $249,000 from the proceeds of sales of available-for-sale securities of $41,251,000, $94,142,000 and $238,894,000 for the years ended
December 31, 2010, 2009, and 2008, respectively.

Amortized
Cost*

Fair
Value

The following table shows the estimated maturity distribution of the Company’s securities available-for-sale at December 31, 2010.
(dollars in thousands)

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

Total

$ 40,963 $ 41,533
695,375
687,158
154,894
157,710
15,625
15,830
1,964
1,895

$ 903,556 $ 909,391

* Amortized cost is net of impairment writedown.

The weighted average remaining life of investment securities available-for-sale at December 31, 2010, was 4.0 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, 2010, was $175,663,000 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, 2010. 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 59 and 5 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 345 holdings at
December 31, 2010.

As of December 31, 2010, 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.

410991.Financial.CS5.indd 28

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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
Temporarily Impaired Investments*
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
Less Than 12 Months
financial performance are considered.

12 Months or Longer

December 31, 2010

Total

(dollars in thousands)

U.S. Government Sponsored Enterprise
SBA Backed Securities
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

Total temporarily impaired securities

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

$ 74,290
2,246

565
4

—
—

191,155
1,503
9,257
—
—

$ 278,451

5,425
52
11
—
—

$ 6,057

—
2,465
4,393
1,454
—

8,312

—
—

—
227
284
47
—

558

$ 74,290
2,246

565
4

191,155
3,968
13,650
1,454
—

5,425
279
295
47
—

$ 286,763

$ 6,615

* At December 31, 2010, 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, 2010. Excluded from the table above are two equity securities that were written down in 2008 by $76,000. The fair value is $156,000 with an unrealized gain of $47,000 at
December 31, 2010. In 2008, 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, 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.
Temporarily Impaired Investments*
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.
Less Than 12 Months

12 Months or Longer

December 31, 2009

Total

(dollars in thousands)

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

Enterprises Mortgage-Backed Securities

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

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

* 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, 2009. Excluded from the table above are two equity securities that were written
down by $76,000. The fair value is $121,000 with an unrealized gain of $12,000. In 2008, 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

Amortized
Cost

(dollars in thousands)

December 31, 2010
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

December 31, 2009
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

Amortized
Cost

U.S. Government Sponsored Enterprise

$ 84,534

$ 148

488

$ 84,194

$ 69,555

707

$ 68,884

U.S. Government Agency and Sponsored

Enterprise Mortgage-Backed Securities

145,582

5,246

1,498

149,330

148,088

4,490

152,529

Total

$ 230,116

$ 5,394

$ 1,986

$ 233,524

$ 217,643

$ 4,526

756

$ 221,413

410991.Financial.CS5.indd 29

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Included in U.S. Government and Agency Securities are securities pledged to secure public deposits and repurchase agreements at fair value amounting to $10,000,000
and $9,036,000 at December 31, 2010, and 2009, respectively. Also included are securities pledged for borrowing at the Federal Home Loan Bank at fair value
amounting to $79,844,000 and $83,693,000 at December 31, 2010, and 2009, respectively.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

At December 31, 2010 and 2009, 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.

Fair
Value
The following table shows the maturity distribution of the Company’s securities held-to-maturity at December 31, 2010.
(dollars in thousands)

Amortized
Cost

Within one year

After one but within five years
After five but within ten years

7,298 $

$
123,057
99,761

7,497
127,932
98,095

Total

$ 230,116 $ 233,524

The weighted average remaining life of investment securities held-to-maturity at December 31, 2010, was 4.6 years. Included in the weighted average remaining life
calculation at December 31, 2010, were $84,534,000 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, 2010. 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 11 and 0 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 101 holdings at
December 31, 2010.

As of December 31, 2010, 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.

Temporarily Impaired Investments*
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.
Less Than 12 Months

12 Months or Longer

December 31, 2010

Total

(dollars in thousands)

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

Total temporarily impaired securities

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

$ 29,491

488

37,628

$ 67,119

1,498

$ 1,986

—

$ 29,491

488

37,628

1,498

$ 67,119

$ 1,986

* 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 these investments and it is not likely that it will be required to sell these investments 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, 2010.

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.
Temporarily Impaired Investments*
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.

December 31, 2009

Less Than 12 Months

12 Months or Longer

Total

(dollars in thousands)

U.S. Government Sponsored Enterprises

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

Total temporarily impaired securities

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 these investments and it is not likely that it will be required to sell these investments before the anticipated recovery of the remaining amortized cost, the Company does not consider these
investments to be other-than-temporarily impaired at December 31, 2009.

410991.Financial.CS5.indd 30

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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.
December 31,

2010

2009

The following summary shows the composition of the loan portfolio at the dates indicated.
(dollars in thousands)

Construction and

land development

Commercial and industrial

Commercial real estate

Residential real estate

Consumer

Home equity

Overdrafts

Total

$ 53,583
90,654
433,337
207,787
5,957

114,209

637

$ 906,164

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

118,076

615

$ 877,125

Net deferred fees included in loans at December 31, 2010 and December 31, 2009 were $186,000 and $71,000, respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $983,000 and $1,127,000 at December 31, 2010, and December 31,
2009, 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 $36,000 and $47,000 at December 31, 2010, and at December 31, 2009, respectively.

As of December 31, 2010, and 2009, the Company’s recorded investment in impaired loans was $7,963,000 and $10,516,000, 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, 2010, there were $2,110,000 of impaired loans
with a specific reserve of $317,000. At December 31, 2009, there were $1,980,000 of impaired loans with a specific reserve of $745,000.

Loans are designated as troubled debt restructures 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
December 31,
materially less than those contractually established at the loan’s origination. Restructured loans are included in the impaired loan category.

2010

2009

2008

(dollars in thousands)
The composition of nonaccrual loans and impaired loans is as follows:
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

Accruing troubled debt restructures

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

$ 8,068
50
5,353
7,963
9,606
1,248

1,313
—
256

$ 12,311
—
9,736
10,516
9,718
521

1,121
—
24

$ 3,661
89
1,511
2,698
1,194
—

121
—
24

410991.Financial.CS5.indd 31

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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 $47,000 and $46,000 of the discount during 2010 and 2009, respectively.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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.
Balance at
Balance at
December 31, 2010
December 31, 2009
The following table shows the aggregate amount of loans to directors and officers of the Company and their associates during 2010.
(dollars in thousands)

Repayments
and Deletions

Additions

$ 2,973

$ 1,007

$ 182

$ 3,798

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.

2010

2009

2008

An analysis of the allowance for loan losses for each of the three years ending December 31, 2010, 2009 and 2008 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

$ 12,373
(4,443)
548

$ 11,119
(6,070)
699

$ 9,633
(3,373)
434

(3,895)
5,575

(5,371)
6,625

(2,939)
4,425

Allowance for loan losses, end of year

$ 14,053

$ 12,373

$ 11,119

ALLOWANCE FOR LOAN LOSSES AND AMOUNT OF INVESTMENTS IN LOANS

Construction Commercial

Further information pertaining to the allowance for loan losses at December 31, 2010 follows:

and Land
Development

and
Industrial

Commercial
Real Estate

Residential
Real Estate

Consumer

Home
Equity

Unallocated

Total

(dollars in thousands)

Allowance for Loan Losses:
Balance at December 31, 2009
Charge-offs
Recoveries
Provision

362
(900)
—
2,290

$ 4,972
(1,559)
172
(422)

2,983
(922)
—
3,610

$ 1,304
(515)
8
921

$ 1,753
(495)
368
(1,328)

Ending balance at December 31, 2010

$ 1,752

$ 3,163

$ 5,671

$ 1,718

$ 298

Amount of allowance for loan losses
for loans deemed to be impaired
Amount of allowance for loan losses

—

292

—

$ —

for loans not deemed to be impaired

$ 1,752

$ 2,871

$ 5,646

$ 1,718

$ 298

761
(52)
—
16

$ 238
—
—
488

$ 12,373
(4,443)
548
5,575

725

$ 726

$ 14,053

—

$ —

317

725

$ 726

$ 13,736

Loans:

Ending balance
Loans deemed to be impaired
Loans not deemed to be impaired

$ 53,583
$ 4,000
$ 49,583

$ 90,654
$ 1,471
$ 89,183

$ 433,337
$ 2,492
$ 430,845

$ 207,787
$
—
$ 207,787

$ 6,594
$ —
$ 6,594

$ 114,209
$
—
$ 114,209

$ —
$ —
$ —

$ 906,164
$ 7,963
$ 898,201

410991.Financial.CS5.indd 32

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

CREDIT QUALITY INFORMATION

The Company utilizes a six grade internal loan rating system for commercial real estate, construction and commercial loans as follows:

Loans rated 1-3 (Pass) — Loans in this category are considered “pass” rated loans with low to average risk.

Loans rated 4 (Monitor) — These loans represent classified loans that management is closely monitoring for credit quality. These loans have had or may have minor
credit quality deterioration as of December 31, 2010.

Loans rated 5 (Substandard) — Substandard loans represent classified loans that management is closely monitoring for credit quality. These loans have had more
significant credit quality deterioration as of December 31, 2010.

Loans rated 6 (Doubtful) — Doubtful loans represent classified loans that management is closely monitoring for credit quality. These loans had more significant credit
quality deterioration as of December 31, 2010 and are doubtful for full collection.

Impaired — Impaired loans represent classified loans that management is closely monitoring for credit quality. A loan is classified as impaired when it is probable that
the Company will be unable to collect all amounts due.

Construction Commercial

The following table presents the Company’s loans by risk rating at December 31, 2010.

and Land
Development

and
Industrial

Commercial
Real Estate

(dollars in thousands)

Grade:

1-3 (Pass)
4 (Monitor)
5 (Substandard)
6 (Doubtful)
Impaired

Total

$ 42,887
6,696
—
—
4,000

$ 88,103
1,080
—
—
1,471

$ 415,528
15,317
—
—
2,492

$ 53,583

$ 90,654

$ 433,337

The Company utilized payment performance as credit quality indicators for residential real state, consumer and overdrafts, and the home equity portfolio. The
indicators are depicted in the table “aging of past due loans,” below.

AGING OF PAST DUE LOANS

Further information pertaining to the allowance for loan losses at December 31, 2010 follows:

Accruing
30-89 Days

Accruing
Greater
Than
90 Days

Total
Past Due

Current
Loans

Total

(dollars in thousands)

Construction and land development
Commercial and industrial
Commercial real estate
Residential real estate
Consumer and overdrafts
Home equity

Past Due Non Accrual

$ —
912
1,737
4,172
8
574

$ 4,000
569
784
2,487
4
224

Total

$ 7,403

$ 8,068

$ —
50
—
—
—
—

$ 50

$ 4,000
1,531
2,521
6,659
12
798

$ 49,583
89,123
430,816
201,128
6,582
113,411

$ 53,583
90,654
433,337
207,787
6,594
114,209

$ 15,521

$ 890,643

$ 906,164

IMPAIRED LOANS

A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual
terms of the loan agreement. When a loan is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the
loan’s effective interest rate, except that as a practical expedient, the Company measures impairment based on a loan’s observable market price, or the fair value of the
collateral if the loan is collateral dependent. The Company’s policy for recognizing interest income on impaired loans is contained within Note 1 of the consolidated
financial statement.

410991.Financial.CS5.indd 33

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The following is information pertaining to impaired loans at December 31, 2010:

Carrying
Value

Unpaid
Balance
Principal

Required
Reserve

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

Average
Carrying Value

Interest
Income
Recognized

(dollars in thousands)

With no required reserve recorded:
Construction and land development
Commercial and industrial
Commercial real estate
Residential real estate
Consumer
Home equity

$ 4,000
893
960
—
—
—

$ 8,504
1,092
969
—
—
—

Total

$ 5,853

$ 10,565

With required reserve recorded:
Construction and land development
Commercial and industrial
Commercial real estate
Residential real estate
Consumer
Home equity

$ —
578
1,532
—
—
—

—
588
1,532
—
—
—

Total

$ 2,110

$ 2,120

Total
Construction and land development
Commercial and industrial
Commercial real estate
Residential real estate
Consumer
Home equity

$ 4,000
1,471
2,492
—
—
—

$ 8,504
1,680
2,501
—
—
—

Total

$ 7,963

$ 12,685

$ —
—
—
—
—
—

$ —

$ —
292
25
—
—
—

$ 317

$ —
292
25
—
—
—

$ 317

$ 2,262
826
2,013
—
—
—

$ 5,101

$ 2,500
842
1,163
—
—
—

$ 4,505

$ 4,762
1,668
3,176
—
—
—

$ 9,606

$ —
83
122
—
—
—

$ 205

$ —
31
20
—
—
—

$ 51

$ —
114
142
—
—
—

$ 256

December 31,

7. Bank Premises and Equipment

(dollars in thousands)

Land

Bank premises

Furniture and equipment

Leasehold improvements

Accumulated depreciation and amortization

Total

2010

2009

Estimated Useful Life

$ 3,478
18,270
27,472
6,869

56,089
(34,861)

$ 21,228

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

53,891
(32,876)

$ 21,015

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

The Company and its subsidiaries are obligated under a number of noncancelable operating leases for premises and equipment expiring in various years through 2026.
Total lease expense approximated $1,730,000, $1,673,000 and $1,533,000 for the years ended December 31, 2010, 2009 and 2008, respectively. Rental
income approximated $438,000, $418,000 and $399,000 in 2010, 2009 and 2008, respectively.

Amount

Year

(dollars in thousands)
Future minimum rental commitments for noncancelable operating leases with initial or remaining terms of one year or more at December 31, 2010, were as follows:

2011
2012
2013
2014
2015
Thereafter

$ 1,856
1,447
1,083
987
778
2,401

$ 8,552

410991.Financial.CS5.indd 34

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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 and the full year of 2010, the Company’s Class A common stock traded closer to or above book value per share. Accordingly, at
December 31, 2009 and 2010, management measured for impairment utilizing the fair value of the reporting unit based on the recent stock price of the Company.
Total
Carrying Amount of Goodwill and Intangibles
Management determined that the Company’s goodwill is not considered to be impaired at December 31, 2010.

Goodwill

Core Deposit
Intangibles

The changes in goodwill and identifiable intangible assets for the years ended December 31, 2010 and 2009 are shown in the table below.
(dollars in thousands)

Balance at December 31, 2008

Amortization Expense

Balance at December 31, 2009

Amortization Expense

Balance at December 31, 2010

2,714
—

$ 2,714

1,283
(387)

896
(388)

$ 3,997
(387)

$ 3,610
(388)

508

$ 3,222

Core Deposit Intangibles

Year

Amount

(dollars in thousands)
The following table sets forth the estimated annual amortization expense of the identifiable intangible assets.

2011
2012

$ 388
120

$ 508

9. Fair Value Measurements

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.

410991.Financial.CS5.indd 35

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The results of the fair value hierarchy as of December 31, 2010 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

SBA Backed Securities

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

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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)

$ —
—
—

—
—
—
—
—

232

$ 232

$
2,005
175,663
9,732

680,898
3,968
287
13,692
2,254

—

—
—
—

—
—
—
20,381
—

279

$ 888,499

$ 20,660

Carrying
Value

$
2,005
175,663
9,732

680,898
3,968
287
34,073
2,254

511

$ 909,391

5,026

$ —

—

$ 5,026

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 2010 for the estimated credit
loss amounted to $2,378,000. The Company uses discounts to appraisals, as necessary, 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, 2010 are shown in the table below:

Auction Rate
Securities

Obligations
Issued by States
and Political
Subdivisions

(dollars in thousands)

Balance at December 31, 2009

Purchases

Maturities

Change in fair value

Balance at December 31, 2010

$ 7,820
—
(3,427)
—

$ 4,393

$ 5,623
25,194
(14,790)
(39)

$ 15,988

Equity
Securities

$ 234
64
(19)
—

$ 279

Total

$ 13,677
25,258
(18,236)
(39)

$ 20,660

The amortized cost of Level 3 securities was $20,956,000 with an unrealized loss of $296,000 at December 31, 2010. 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.

410991.Financial.CS5.indd 36

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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

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)

(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

$
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, as necessary, 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:

Auction Rate
Securities

Obligations
Issued by States
and Political
Subdivisions

(dollars in thousands)

Balance at December 31, 2008

Purchases

Maturities

Reclassification

Change in fair value

Balance at December 31, 2009

—
—
(12,580)
21,061
(661)

$ 7,820

$ 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.

10. Deposits

2010

Percent

2009

Percent

Within one year

(dollars in thousands)
The following is a summary of original maturities or repricing of time deposits as of December 31,
$ 180,498
84,395
16,788
10,957

$ 272,940
54,683
70,702
18,935

65 %
13 %
17 %
5 %

Over two years to three years

Over three years to five years

Over one year to two years

61 %
29 %
6 %
4 %

Total

$ 417,260

100 %

$ 292,638

100 %

Time deposits of $100,000 or more totaled $246,474,000 and $151,680,000 in 2010 and 2009, respectively.

410991.Financial.CS5.indd 37

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

11. Securities Sold Under Agreements to Repurchase

2010

2009

2008

(dollars in thousands)
The following is a summary of securities sold under agreements to repurchase as of December 31,
$ 118,745
Amount outstanding at December 31

$ 108,550

$ 112,510

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

0.36 %

0.52 %

1.08 %

$ 239,830
$ 133,080

$ 122,521
$ 98,635

$ 112,510
$ 94,526

0.43 %

0.58 %

1.47 %

Amounts outstanding at December 31, 2010, 2009 and 2008 carried maturity dates of the next business day. U.S. Government Sponsored Enterprise securities
with a total amortized cost of $107,030,000, $115,792,000 and $112,072,000 were pledged as collateral and held by custodians to secure the agreements
at December 31, 2010, 2009 and 2008, respectively. The approximate fair value of the collateral at those dates was $108,200,000, $118,186,000 and
$112,990,000, respectively.

12. Other Borrowed Funds and Subordinated Debentures

2010

2009

2008

(dollars in thousands)
The following is a summary of other borrowed funds and subordinated debentures as of December 31,
Amount outstanding at December 31

$ 270,107

$ 258,201

$ 274,641

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

2.88 %

3.63 %

4.22 %

$ 266,564
$ 201,273

$ 272,071
$ 219,713

$ 293,668
$ 225,743

4.13 %

4.71 %

5.10 %

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,
December 31,
2010, was approximately $73,241,000. 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:

2010

2009

2008

(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

$ 91,500
9,000
41,500
37,000
42,000

$ 221,000

Weighted
Average
Rate

0.39 %
1.98 %
3.82 %
2.70 %
4.55 %

2.28 %

Weighted
Average
Rate

2.72 %
1.81 %
2.08 %
3.65 %
4.55 %

3.18 %

Amount

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

$ 232,500

Amount

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

$ 237,000

Weighted
Average
Rate

2.80 %
5.17 %
4.05 %
4.18 %
4.55 %

3.88 %

Included in the table above are $35,000,000, $82,500,000 and $85,000,000 of FHLBB advances at December 31, 2010, 2009 and 2008, respectively, that are
putable at the discretion of FHLBB. These put dates were not utilized in the table above.

During 2010, the Company restructured $12,500,000 of FHLBB advances. Prior to restructure, the weighted average rate on these advances was 2.40% and the
weighted average remaining maturity was 21 months. Subsequent to restructure, the weighted average rate was 2.52% and the weighted average maturity was 57
months. The restructures were accounted for as a modification.

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, 2010 and 2009. 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.

410991.Financial.CS5.indd 38

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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.

OTHER BORROWED FUNDS

There were no overnight federal funds purchased at December 31, 2010 and 2009.

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 $975,000 and $1,380,000 at December 31, 2010 and 2009,
respectively.

The Bank also has an outstanding loan in the amount of $143,000 and $144,000 at December 31, 2010 and 2009, 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 2010, 2009 and 2008 was an increase of 2,236, 2,091 and 1,719
shares, respectively.

STOCK REPURCHASE PLAN

During 2010, 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 2009, 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 38,712 options exercisable at December 31, 2010.

December 31, 2010

December 31, 2009

December 31, 2008

Stock option activity under the plan is as follows:

Amount

Shares under option:

Outstanding at beginning of year

Forfeited

Exercised

Outstanding at end of year

Exercisable at end of year

68,637
(19,975)
(9,950)

38,712

26.09
27.18
15.06

28.36

Weighted
Average
Exercise Price

27.42
34.77
—

26.09

Amount

81,037
(12,400)
—

68,637

Available to be granted at end of year

222,884

202,909

Weighted
Average
Exercise Price

27.66
29.07
—

27.42

Amount

94,787
(13,750)
—

81,037

190,509

At December 31, 2010, 2009 and 2008, the options outstanding have exercise prices between $15.063 and $35.010, and a weighted average remaining
contractual life of three years for 2010, three years for 2009 and four years for 2008. The weighted average intrinsic value of options exercised for the period
ended December 31, 2010 was $4.14 per share with an aggregate value of $41,236. The average intrinsic value of options exercisable at December 31, 2010,
2009 and 2008 had an aggregate value of $41,895, $74,056 and $7,331, respectively.

410991.Financial.CS5.indd 39

2/23/11 2:05 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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.

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, 2010, that the Bank and the Company meet all capital adequacy requirements to which they are subject.

As of December 31, 2010, 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
To Be Well Capitalized
below. There are no conditions or events since that notification that management believes would cause a change in the Bank’s categorization.
Under Prompt Corrective
Action Provisions

For Capital Adequacy
Purposes

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

Ratio

Amount

Ratio

Amount

Ratio

Actual
Amount

As of December 31, 2010

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, 2009

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

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

$ 162,944

148,891

13.61 %

12.43 %

6.14 %

$ 145,586

133,213

12.76 %

11.68 %

6.23 %

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

Actual
Amount

As of December 31, 2010

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, 2009

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

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

$ 192,387

178,334

16.03 %

14.86 %

7.35 %

$ 177,808

165,435

15.53 %

14.45 %

7.73 %

$ 95,793

47,897

96,945

$ 91,262

45,631

85,466

8.00 %

4.00 %

8.00 %

4.00 %

For Capital Adequacy
Purposes

Amount

Ratio

$ 95,992

47,996

97,089

$ 91,571

45,786

85,619

8.00 %

4.00 %

8.00 %

4.00 %

$ 119,742

10.00 %

71,845

121,182

6.00 %

5.00 %

$ 114,078

10.00 %

68,447

106,832

6.00 %

5.00 %

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

Amount

Ratio

$ 119,990

10.00 %

71,994

121,362

6.00 %

5.00 %

$ 114,464

10.00 %

68,678

107,024

6.00 %

5.00 %

14. Income Taxes

2010

2009

2008

(dollars in thousands)
The current and deferred components of income tax expense for the years ended December 31 are as follows:
Current expense:

Federal

State

Total current expense

Deferred benefit:

Federal

State

Total deferred benefit

Provision for income taxes

$ 2,262
528

$ 3,058
419

$ 3,117
232

2,790

3,477

3,349

(1,223)
(323)

(1,546)

(1,759)
(535)

(2,294)

(954)
(140)

(1,094)

$ 1,244

$ 1,183

$ 2,255

There were no penalties during 2008, 2009, or 2010.

410991.Financial.CS5.indd 40

2/23/11 2:05 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

Income tax accounts included in other assets/liabilities at December 31
(dollars in thousands)
are as follows:
Currently (payable) receivable

2010

2009

Deferred income tax asset, net

Total

$
181
13,465

$
(628)
12,340

$ 13,646

$ 11,712

Differences between income tax expense at the statutory federal income tax rate
and total income tax expense are summarized as follows:
(dollars in thousands)

2010

2009

2008

Federal income tax expense

at statutory rates

State income tax, net of

federal income tax benefit

Insurance income

Effect of tax-exempt interest

Net tax credit

Other

Total

$ 5,038

$ 3,856

$ 3,842

135
(570)
(2,763)
(622)
26

(76)
(442)
(1,965)
(376)
186

$ 1,244

$ 1,183

62
(353)
(1,307)
—
11

$ 2,255

Effective tax rate

8.4 %

10.4 %

20.0 %

2009
The following table sets forth the Company’s gross deferred income tax assets
(dollars in thousands)
and gross deferred income tax liabilities at December 31:
Deferred income tax assets:

2010

Allowance for loan losses

Deferred compensation

Pension and SERP liability

Acquisition premium

Investments writedown

Deferred gain

AMT

Other

Nonaccrual interest

Gross deferred income tax asset

Deferred income tax liabilities:

Depreciation

Limited partnerships

Unrealized gain on securities

available-for-sale

Other

Gross deferred income tax liability

$ 7,078
4,895
4,959
543
31
51
172
77
727

18,533

(250)
(2,576)

(2,242)
—

(5,068)

$ 6,430
4,384
5,795
532
31
71
—
60
444

17,747

(169)
(2,466)

(2,657)
(115)

(5,407)

Deferred income tax asset net

$ 13,465

$ 12,340

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, 2010. 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 2007, 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 2011 to
2015 are $809,000, $931,000, $957,000, $1,014,000 and $1,113,000,
respectively. The aggregate benefits expected to be paid in the five years
from 2016 to 2020 are $6,868,000. The Company plans to contribute
$1,275,000 to the Plan in 2011.

410991.Financial.CS5.indd 41

2/23/11 2:05 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

Asset Category

Percent

Total

Level 1

Level 2

Level 3

(dollars in thousands)
The fair value of plan assets as of December 31, 2010 is as follows:

Collective funds

Equity securities

Mutual funds

Hedge funds

Short term investments

46.1 %
27.8 %
14.7 %
7.1 %
4.3 %

100.0 %

$ 9,186
5,531
2,928
1,431
855

$ 19,931

$ 5,467
5,531
2,928
—
—

$ 13,926

$ 3,719
—
—
—
855

$ 4,574

$ —
—
—
1,431
—

$ 1,431

Asset Category

Percent

Total

Level 1

Level 2

Level 3

(dollars in thousands)
The fair value of plan assets as of December 31, 2009 is as follows:

Collective funds
Equity securities
Mutual funds
Hedge funds
Short term investments

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.
Year Ended December 31,

2010

2009

The changes in Level 3 securities are shown in the table below:
(dollars in thousands)

Balance at beginning of year

Actual return – assets still being held

Actual return – assets sold during year

Purchases

Sales

Maturities

Transfers

Balance at end of year

$ 1,319
112
—
—
—
—
—

$ 1,431

$ 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 2011 to 2015 are $1,115,000, $1,054,000,
$1,053,000, $1,051,000 and $1,037,000, respectively. The aggregate benefits expected to be paid in the five years from 2016 to 2020 are $8,022,000.

410991.Financial.CS5.indd 42

2/28/11 5:09 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

(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

2010

2009

2010

2009

24,247
851
1,334
5
(644)

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

16,906
588
892
(485)
(1,048)

15,768
469
934
782
(1,047)

Projected benefit obligation at end of year

25,793

24,247

16,853

16,906

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

17,087
2,213
1,275
(644)

19,931

(5,862)

23,485

5.50 %
5.50 %
8.00 %
4.00 %

851
1,334
(1,367)
(104)
634

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

(16,853)

15,551

(16,906)

15,030

5.50 %
5.50 %
NA
4.00 %

588
892
—
110
129

5.50 %
5.75 %
NA
4.00%

469
934
—
110
139

1,348

1,487

1,719

1,652

104
(1,475)

(1,371)

113
(519)

(406)

(110)
(614)

(724)

(110)
643

533

(23)

1,081

995

2,185

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

Total

December 31, 2010
Supplemental
Plan

December 31, 2009
Supplemental
Plan

Total

Plan

(dollars in thousands)

Prior service cost

Net actuarial loss

Total

828
(7,823)

(1,330)
(3,658)

(502)
(11,481)

932
(9,298)

$ (1,440)
(4,272)

(508)
(13,570)

(6,995)

(4,988)

$ (11,983)

(8,366)

$ (5,712)

(14,078)

410991.Financial.CS5.indd 43

2/28/11 2:15 PM

The following table summarizes the amounts included in Accumulated Other
Comprehensive Loss at December 31, 2010, expected to be recognized as
components of net periodic benefit cost in the next year:
Amortization of prior service cost to be

Supplemental
Plan

Plan

recognized in 2011

Amortization of loss to be recognized in 2011

(104)
494

110
131

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 $244,000 for 2010, $261,000 for 2009 and $265,000 for 2008.
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 2008, 2009 and 2010. Discretionary bonus
expense amounted to $600,000, $403,000 and $348,000 in 2010, 2009,
and 2008, 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, 2010. 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’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:

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

2010

2009

Contract or Notational Amount

(dollars in thousands)

Financial instruments whose contract

amount represents credit risk:

Commitments to originate

1-4 family mortgages

$ 14,635

$ 1,262

Standby and commercial letters of credit

4,935

8,904

Unused lines of credit

Unadvanced portions

of construction loans

Unadvanced portions

of other loans

169,862

143,556

22,337

22,699

3,337

4,407

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.

2010

2009

2008

18. Other Operating Expenses

(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

$ 1,747
884
1,042
788
874
656
736
691
388
294
290
1,450

$ 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

$ 9,840

$ 9,648

$ 9,680

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.

410991.Financial.CS5.indd 44

2/23/11 2:05 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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.

2010

2009

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

Fair Value

Carrying
Amounts

Fair Value

(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

188,552
113,918
909,391
230,116
892,111
6,601

1,902,023
330,668
36,083
1,003

$ 188,552
114,134
909,391
233,524
913,394
6,601

1,908,125
334,872
38,749
1,003

$ 398,642
18,518
647,796
217,643
864,752
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

410991.Financial.CS5.indd 45

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LIMITATIONS

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

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.
2010 Quarters

Second

Fourth

Third

First

20. Quarterly Results of Operations (unaudited)

(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

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

19,122
5,811

13,311
1,350

11,961
4,223
11,895

4,289
365

18,628
6,040

12,588
1,200

11,388
3,412
11,313

3,487
220

19,325
6,183

13,142
1,450

11,692
4,105
12,598

3,199
238

$ 19,508
6,783

12,725
1,575

11,150
4,259
11,566

3,843
421

3,924

3,267

2,961

3,422

5,537,776

5,539,639

5,535,548

5,537,120

5,530,297

5,532,980

0.71

Fourth

19,786
7,337

12,449
2,475

9,974
4,861
11,418

3,417
332

0.59

Third

20,037
7,363

12,674
1,250

11,424
3,399
11,228

3,595
413

5,530,297

5,533,070

0.62

0.54

Second

First

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

0.56

5,530,297

5,533,622

0.58

5,530,724

5,531,329

0.36

5,537,781

0.34

410991.Financial.CS5.indd 46

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’10

21. Parent Company Financial Statements

The balance sheets of Century Bancorp, Inc. (“Parent Company”) as of December 31, 2010 and 2009 and the statements of income and cash flows for each of the
BALANCE SHEETS
years in the three-year period ended December 31, 2010, are presented below. The statements of changes in stockholders’ equity are identical to the consolidated
December 31,
2010
statements of changes in stockholders’ equity and are therefore not presented here.
(dollars in thousands)

2009

$ 27,352
151,303
2,560

$ 181,215

$
107
36,083
145,025

$ 181,215

$ 29,488
135,459
3,973

$ 168,920

107
36,083
132,730

$ 168,920

2010

2009

2008

—
156
72

228
2,400
172

(2,344)
(797)

1,547
15,121

$ 13,574

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

$ 10,160

$ 9,046

2010

2009

2008

$ 13,574

$ 10,160

$ 9,046

(15,121)
12
1,422
—

(113)

—
150
(2,173)

(2,023)

(2,136)

29,488

$ 27,352

(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

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

Net income

STATEMENTS OF CASH FLOWS
December 31,

(dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

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

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

410991.Financial.CS5.indd 47

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Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ’10

KPMG LLP

Independent Registered Public Accounting Firm
Two Financial Center
60 South Street
Boston, Massachusetts 02111-2759

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, 2010 and 2009 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, 2010. 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, 2010 and 2009 and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2010, 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, 2010, 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 24, 2011, expressed an unqualified opinion on the effectiveness of the company’s
internal control over financial reporting.

Boston, Massachusetts

February 24, 2011

410991.Financial.CS5.indd 48

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Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ’10

KPMG LLP

Independent Registered Public Accounting Firm
Two Financial Center
60 South Street
Boston, Massachusetts 02111-2759

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, 2010, 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 “Managements 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, 2010, 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, 2010 and 2009 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, 2010, and our report dated February 24, 2011, expressed an unqualified opinion on those
consolidated financial statements.

Boston, Massachusetts

February 24, 2011

410991.Financial.CS5.indd 49

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Management’s Report on Internal Control Over Financial Reporting

Century Bancorp, Inc. AR ’10

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, 2010. 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, 2010, 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 49.

Barry R. Sloane
President & CEO

February 24, 2011

William P. Hornby, CPA
Chief Financial Officer
& Treasurer

410991.Financial.CS5.indd 50

2/25/11 2:33 PM

Notes

Century Bancorp, Inc. AR ’10

410991.Financial.CS5.indd 51

2/23/11 2:05 AM

About Century

Century Bancorp, Inc. is a $2.4 billion banking and financial services company headquartered in

Medford, Massachusetts. The Company operates 23 banking offices 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.”

Stockholder Information

Corporate Headquarters

Transfer Agent and Registrar

Century Bank
400 Mystic Avenue
Medford, MA 02155-6316
TEL (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 12, 2011, at 10:00 a.m. The meeting will take
place at Century Bank, 400 Mystic Avenue, Medford, MA.

Headquarters

Stock Listing

Opening this Fall

10-K Report

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.

Allston Branch

Andover Branch

Beverly Branch

Braintree Branch

Brookline Branch

Burlington Branch

Century Bank Locations

Cambridge Branch

Coolidge Corner Branch

Everett Branch

Federal Street Branch

Fellsway Branch

Kenmore Square Branch

Opening this Spring

Lynn Branch

Malden Branch

Medford Square Branch

Newton Branch

Newton Centre Branch

North End Branch

Peabody Branch

Quincy Branch

Salem Branch

Somerville Branch

State Street Branch

Winchester Branch

Offices

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

(617) 562-1700
300 Western Avenue, Allston, MA 02134
OPENING FALL 2011
15 Elm Street, Andover, MA 01810
(978) 921-2300
428 Rantoul Street, Beverly, MA 01915
(617) 424-1644
512 Commonwealth Avenue, Boston, MA 02215
(617) 557-2950
275 Hanover Street, Boston, MA 02113
(617) 423-1490
24 Federal Street, Boston, MA 02110
(617) 367-3712
136 State Street, Boston, MA 02110
(781) 356-3400
703 Granite Street, Braintree, MA 02184
1184-1186 Boylston Street/Rt 9 East, Brookline, MA 02467
(617) 713-4910
1354 Beacon Street, Brookline, MA 02446 (617) 734-1890
(781) 238-8700
134 Cambridge Street/Rt 3A, Burlington, MA 01803
(617) 349-5300
2309 Massachusetts Avenue, Cambridge, MA 02140
(617) 381-6300
1763 Revere Beach Parkway/Rt 16, Everett, MA 02149
(781) 586-8700
2 State Street, Lynn, MA 01901
(781) 388-2100
140 Ferry Street at Eastern Avenue, Malden, MA 02148
(781) 391-9830
1 Salem Street, Medford, MA 02155
(781) 393-4160
400 Mystic Avenue, Medford, MA 02155
(781) 393-6520
503 Riverside Avenue, Medford, MA 02155
31 Boylston Street/Rt 9 West, Newton, MA 02467
(617) 582-0920
32 Langley Road, Newton Centre, MA 02459 OPENING SPRING 2011
(978) 977-4900
12 Peabody Square, Peabody, MA 01960
(617) 376-8100
651 Hancock Street, Quincy, MA 02170
(978) 740-6900
37 Central Street, Salem, MA 01970
(617) 629-0929
102 Fellsway West at Mystic Avenue, Somerville, MA 02145
(781) 756-3480
522 Main Street, Winchester, MA 01890

Free-Standing Cash Dispensers

The Hotel Commonwealth, 500 Commonwealth Avenue, Boston, MA 02215
Boston
CambridgeSide Galleria, 100 CambridgeSide Place, Cambridge, MA 02141
Cambridge
One Kendall Square, Building #100, Cambridge, MA 02139
Cambridge
Sloane Square, 110 Medford Street, Medford, MA 02155
Medford
Milton
Milton Hospital, 199 Reedsdale Road, Milton, MA 02186
North Andover Merrimack College, Volpe Center, 125 Cullan Avenue, North Andover, MA 01845
North Andover Merrimack College, Sakowich Center, 90 Flaherty Extension, North Andover, MA 01845
Weston

Regis College, 235 Wellesley Street, Weston, MA 02493

410991.Cover.CS5.indd 2

2/25/11 1:49 PM

Our family’s bank. And yours.

million in loans

400 Mystic Avenue, Medford, MA 02155 (866) 823-6887 www.AskCentury.com

2010 Annual Report

billion in assets

.442

6.2

million in profits

3.6

For many reasons, this was a

REC RD

year.

Equal Housing Lender/Member FDIC

002-CSI0881

410991.Cover.CS5.indd 1

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