Century Bancorp Inc. Annual Report 2011

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FY2011 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.CenturyBank.com

Annual Report

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A pillar of strength.

A pillar of the community.

Equal Housing Lender/Member FDIC

002-CSN0443

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20Our family’s bank. And yours.

Century Bancorp, Inc. is a $2.7 billion banking and financial services company headquartered in Medford,

Massachusetts. The Company operates 24 banking offices in 17 cities and towns in Massachusetts and

provides a full range of business, personal, and institutional services.

About Century

Headquarters

Coming Soon

Allston Branch

Andover Branch

Beverly Branch

Braintree Branch

Brookline Branch

Burlington Branch

Cambridge Branch

Coolidge Corner Branch

Everett Branch

Federal Street Branch

Fellsway Branch

Kenmore Square Branch

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

Doric is one of the three original Greek architectural pillar designs. The Doric is symbolic of strength. The ancient Parthenon on the Acropolis, the largest

temple in classical Athens, was built using Doric pillars and still stands today. The Doric pillar was popular in North America for use in construction of

official and bank buildings due to its uncomplicated structure yet strong design projecting strength, durability and productivity.

Our family’s bank. And yours.

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Dear Fellow Shareholders:

2011 was the second consecutive record year for Century Bank. As we approach our

43rd anniversary, assets, deposits, earnings, and loans all reached record levels. We

ended 2011 at over $2.7 billion in assets and $16.7 million of annual earnings. In a

year when bank stock prices generally declined, ours rose 5.4% to close at $28.24;

a three-year increase of 79%. 2011 was a stunning year of performance, by almost

any measure.

Over the course of 2011, our bank was examined by multiple regulatory authorities,

securities analysts, and investment banks. The single adjective that described Century

in almost every report was “strong.” We obviously like that description, and know that

we strive to be a strong bank for all the right reasons.

Pictured from left:

Executive Vice President
Linda Sloane Kay

Founder & Chairman
Marshall M. Sloane

President & CEO
Barry R. Sloane

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Strong Net Earnings Growth:
Strong net earnings growth

Net income grew by 23% to a record $16.7 million, or $3.01 per diluted share, for
the year ended December 31, 2011, as compared to net income of $13.6 million, or
$2.45 per diluted share, for 2010. Century’s return on average equity (ROE) is now
10.7%, up from 2010’s 9.5%. Our ROE is within the top quartile of our regional peer
group. Many elements contribute to a successful “bottom line,” and efficiency is one
of the most important. We’re particularly proud that our 2011 average efficiency ratio,
the measure of how well we utilize our resources, fell to 62.2%, down from 65% in
2010, and below the median (lower is favorable) within our regional peer group.

Strong asset growth

Strong Asset Growth:

Total assets increased 12.3% to a record $2.74 billion on December 31, 2011,
up from $2.44 billion on December 31, 2010, an increase of $302 million. Century’s
consistent, measured growth as a metric of safety has attracted record deposits from
all three of our client sectors: consumer, business, and institutional. With great
frequency, governmental units, charitable institutions, and fiduciary accounts are
attracted to our reputation and performance.

Strong capital growth

Strong Capital Growth:

Total equity rose to $161 million on December 31, 2011, an increase of 10.8% from
$145 million on December 31, 2010. Book value per share increased to $28.98 at
December 31, 2011, up from $26.18 at December 31, 2010. Century is “well
capitalized” by regulatory standards, and unlike many of our peers, we have generated
the capital growth organically without utilizing capital market activities that dilute
existing shareholders.

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
$

5
2
2
,
3
4
7
,
2
$

1
0
.
3
$

5
4
.
2
$

4
8
.
1
$

3
9
6
,
6
1
$

4
7
5
,
3
1
$

0
6
1
,
0
1
$

’09

’10

’11

’09

’10

’11

’09

’10

’11

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Strong loan growth

Strong Loan Growth:

Total loans grew by 8.6% to $984 million on December 31, 2011. Nonperforming
assets again fell from the previous year, now $7.0 million, as we addressed our few
remaining problem loans of size. The growth of our loans is in large measure the
result of our focus on financing the two engines of growth in New England, higher
education and healthcare. Massachusetts is regarded by many as the “intellectual
capital of the world,” and we have grown our lending activity by bonding the capital
and plant needs of the not-for-profit institutions that make up such a large part of the
regional economy. We have doubled the headcount in our institutional lending team
and become a significant factor in that market. In 2011 we continued to add resources
and capital to our business and consumer lending efforts. We are again a top
preferred lender of the SBA and also proud to have been named the Top SBA Lender
to Veterans in Massachusetts in 2011.

Loan growth is a hollow achievement if a bank’s risk management structure allows
nonperforming loans to rise. We have mastered that challenge by managing our
lending very carefully, lending near our home base, and utilizing a centralized and
highly structured loan approval process for credits of all sizes. Despite the controls,
it is a transparent and highly collegial team that encourages diverse opinions and
market intelligence from colleagues of wide seniority. Local market knowledge is
still the essence of successful risk management. We pride ourselves on our market
expertise; it has rarely failed us.

Strong branch system
Strong Branch System:

In 2011 we opened the long-planned Newton Centre branch, our 24th. Located at
32 Langley Road, it was met with a vibrant reception from the community, as our roots
in Newton are deep and of long tenure. We’re proud of the Newton Centre branch

Newton Centre Grand Opening Ribbon Cutting
Mayor Setti D. Warren of Newton, Radio and TV personality, Jim Braude and others, join the Sloane family in cutting the ribbon
during the Newton Centre grand opening.

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as a design standard for our branches in the future. The Andover branch, at 15 Elm
Street, will open in late summer 2012, becoming #25. In 2012 we will also upgrade
our Malden branch, our second oldest, and we are actively exploring additional
branch locations that will continue to “fill in” our network in Eastern Massachusetts.

Strong Institutional Services client additions
Strong Institutional Services Client Additions:

The Institutional Services Group, which includes our government, financial service,
and not-for-profit banking teams, had an excellent year of client growth. While our
government banking market share in Massachusetts is consistently among the top
three, we added governmental relationships to our growing business in Rhode Island.
Century also added several large regional insurance companies, which are some of
the most complex relationships in our transactional environment. We processed over
36 million check and payment items in 2011, with superb quality control and near
faultless customer service. We fully recognize the revolutionary transition from paper
to electronic transactions. Although it is clear that billions of checks will need to be
processed for decades to come, we have entered into a contractual partnership
with a firm that we believe to have the most functional and effective electronic bill
presentment and payment system available. Century will take further steps in that
direction as the demand and technology dictate.

Strong Branding Program:
Strong branding program

Our corporate marketing efforts increased in scope and scale in 2011. Century’s
“family” advertising campaign has attracted widespread attention as a differentiator
in the Greater Boston market. We have improved branch signage, point-of-sale
materials, customer communication and have proudly introduced new customer
thank-you cards signed by senior management. In all external communication, we are
diligent to preserve our message of local, approachable management and continuity.
Our advertising campaign is in its third year, a successful investment that has resulted
in our marketplace understanding who we are, what we care about, and what makes
us different. The consistent daily growth of new accounts and broadened relationships
proves it’s working.

Pictured from left:

Executive Vice President
Brian J. Feeney, Executive Vice
President David B. Woonton,
Chief Financial Officer & Treasurer
William P. Hornby, and Executive
Vice President Paul A. Evangelista

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Strong information systems platform

Strong Information Systems Platform:
Century has always prided itself on utilizing the most functional and reliable systems
platform available to banks of our size. Investments in technology, redundancy, and
communications have consistently been a management priority. In 2011 we
completed a successful transition to the next generation of systems operation. We
migrated to a fully outsourced core processing environment, one that allows unlimited
data storage, provides improved and timely customer system upgrades, and enhances
our disaster recovery resources. We understand the challenges of “cloud computing,”
and are keeping pace with the evolution.

Strong commitment to the community

Strong Commitment to the Community:

Century was founded for the “public need and convenience” of the people of
Somerville. Although our geographic reach now includes branches in 17 communities
and our clients are throughout New England, our strategy to understand and support
our communities and their people has never wavered. We still take the greatest pride
assisting a first-time homebuyer, contributing to the success of a local business, or
financing of a new school. We have earned the trust of our communities by being

Team Century, with the bank smart car, joins the Beverly community in a holiday parade celebration.

Barry R. Sloane and Gerald S. Algere join
The Voices of Renaissance Choir in a celebration concert
at the Boston Renaissance Charter Public School.

Throughout 2011, Century Bank hosted several
community celebrations in the Rose Sloane
Garden in Medford Square.

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responsible employers, thoughtful lenders, community advocates, and a source of
hundreds of relationship-driven charitable donations.

Our strong performance won us industry accolades in 2011; again, Century is a
member of both the elite Keefe, Bruyette & Woods “Bank Honor Roll” and the
Sandler O’Neill + Partners, Top 25 U.S. Bank and Thrift “Sm-All Stars” among others.

2011 Bank & Thrift
SM-ALL STARS

S A N D L E R O ’ N E I L L + P A R T N E R S

Lender to
Veterans

Yet the economy, especially nationally, is anything but strong. Lackluster is perhaps
the best description of an economy whose sluggish, yet recovering, performance is
paced by a still suffering, and often depressed, housing market. Century has focused
its investments in market sectors where we forsee regional growth, but it’s hard to
discern where net national growth will evolve. No real progress has been made on
reducing the federal deficit or debt, and the downgrade of the U.S. credit rating was a

Senior Vice Presidents
Opposite page pictured from left

Front row: Bradford J. Buckley, William J. Gambon, Jr., Susan B. Delahunt,
Anthony C. LaRosa, Peter R. Castiglia, Janice A. Brandano, Thomas E. Piemontese,
Deborah R. Rush, Phillip A. Gallagher, and Shipley C. Mason

Back row: Timothy L. Glynn, Jason J. Melius, James M. Flynn, Jr., Yasmin D. Whipple,
Richard L. Billig, Nancy Lindstrom, Gerald S. Algere, and Kenneth A. Samuelian

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sad day. Many risks lie ahead, and we do not yet know how the euro-zone condition
will cross the Atlantic. Even though we are directly shielded from European exposure,
it’s ironic that many of Century’s institutional borrowers have a higher credit rating
than most of the nations of Europe. Let’s hope that the leaders of the free world will
find the inspiration to solve the fiscal crisis before us.

Strong people and values

The success of Century began with a founder, our Chairman Marshall M. Sloane,
a family, and set of family values. Those founding values have built a strong
platform for financial success. We will remain true to our founding credo of valuing
relationships, preserving a conservative balance sheet, relentless risk management,
and doing the right thing by our clients and their communities.

None of our achievements would have been possible without the teamwork and
devotion of our 400 colleagues, people who understand and embrace the principles
of our bank and wish to be a lifelong part of its future. We thank them for their
service and dedication, and we thank our clients and shareholders for their
confidence and the stewardship of their assets. We will do all we can to generate
another successful year as we navigate our way down the winding road ahead.

Linda Sloane Kay, with
her mother, Barbara J.G.
Sloane are featured in
Boston, Inspirational
Women, a book about
people who are making
a difference in this city
and in the world, by
Bill and Kerry Brett.

Sincerely,

Barry R. Sloane
President and CEO

Senior Vice Presidents

Opposite page pictured from left

Front row: Bradford J. Buckley, William J. Gambon, Jr., Susan B. Delahunt,

Anthony C. LaRosa, Peter R. Castiglia, Janice A. Brandano, Thomas E. Piemontese,

Deborah R. Rush, Phillip A. Gallagher, and Shipley C. Mason

Back row: Timothy L. Glynn, Jason J. Melius, James M. Flynn, Jr., Yasmin D. Whipple,

Richard L. Billig, Nancy Lindstrom, Gerald S. Algere, and Kenneth A. Samuelian

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Century Bank continued our proud family tradition of community service by providing financial and
leadership support to these charitable and civic organizations in 2011:

2020 Women on Boards
A Child’s Light, Inc.
Action for Boston Community Development, Inc.
Adopt-A-Student Foundation
Aid For Cancer Research
Allston Village Main Streets
Alzheimer’s Association
American Cancer Society, Relay for Life
American Heart Association
American Lung Association

Team Century participates in the Heart Break
Hill 5K Run & Walk for the benefit of the
Franciscan Hospital for Children.

American Parkinson Disease Association, Inc.
Ancient Order of Hibernians
Anti-Defamation League
Apollo Club of Boston
Archdiocese of Boston
Arlington High School Boys & Girls
Hockey Program
Associazione Gizio
Avon Walk for Breast Cancer
Bais Yaakov of Boston High School for Girls
Bay State Chapter Freedoms Foundation
Beacon Academy
Beth Israel Deaconess Medical Center
Beverly Holiday Parade
Beverly Main Streets
Big Brothers Big Sisters of MA Bay
Bnai Zion Foundation
Boston Harbor Association

More than a year
of doing well.

Boston Jewish Film Festival
Boston Minuteman Council, Boy Scouts
of America
Boston Renaissance Charter Public School
Boston University
Boston YWCA
BostonGives, Inc.
Brandeis University
Bread of Life
Brendan M. Curtin Scholarship Fund
Brookline Chamber of Commerce
Brookline First Light Festival
Brookline Senior Center
Burlington Chamber of Commerce
Burlington Community Scholarship Foundation/

Dollars for Scholars

Burlington D.A.R.E.
Burlington Recreation Department
Burlington Rotary Club
Cambridge & Somerville Program for Alcoholism

and Drug Abuse Rehabilitation (CASPAR)

Cambridge College
Cardinal Cushing Centers, Inc.
Cardinal Spellman High School
Cathedral High School
Catholic Charities North
Catholic Charities of Boston
Cerebral Palsy Association of Eastern

Massachusetts, Inc.

Children Affected by AIDS Foundation
Citizens for Affordable Housing in Newton

Development Organization, Inc.

City of Chicopee
City of Malden
City of Medford
City of Newton
City of Somerville
Combined Jewish Philanthropies
Communities United, Inc.
Community Action Agency of Somerville, Inc.

(CAAS)

Community Servings
Congregation Or Atid
Cristo Rey Boston High School
Cub Scouts Pack 79
Currier Museum of Art
Cystic Fibrosis Foundation
Dana-Farber Cancer Institute
Diamond Posse

Boston Renaissance Charter Public School
Ribbon Cutting
Pictured from left: Marvin E. Gilmore,
Marshall M. Sloane, Mayor Thomas M. Menino
of Boston, Barry R. Sloane and Gerald S. Algere

Diane K. Trust Center for Early Education of

Temple Ohabei Shalom

Dimock Community Health Centers
Disabled American Veterans
Don Guanella Center
DONNE 2000
Edward M. Kennedy Institute for the United

States Senate

Elizabeth Peabody House
Everett Chamber of Commerce
Everett Huskies Athletic Association, Inc.
Everett Kiwanis Club
Exceptional Women
Facing Cancer Together
Fayerweather Street School
Fisher Center for Alzheimer’s Research

Foundation

Foundation for Faces of Children
Fourth Presbyterian Church of South Boston
Franciscan Hospital for Children
Friends of Jim Young
Friends of Steve Martinelli, Jr.
Friends of the New England Holocaust Memorial
Friends of Winchester Hockey
Girl Scouts of the USA
Greater Lynn Senior Services
Greater Medford Visiting Nursing Association
Harry Langburd Scholarship Fund
Hebrew SeniorLife
Homes for Our Troops
HOPE worldwide
Hospitality Homes, Inc.
Housing Families
I.B.E.W. Local 103
Interfaithfamily.com
Italia Unita
Italian Home for Children
Jewish Big Brothers Big Sisters
Jewish Community Centers of Greater Boston
Jewish Family & Children’s Service
Jewish Family Service of the North Shore
Jewish Women International
John M. Barry Boys & Girls Club of Newton
Koleinu Boston’s Jewish Community Chorus
Lexington Rotary Club
Liberty Belle Chorus of Sweet Adelines
LIFT
Little Sisters of the Poor
Lowell Adult Education Center
Lynn Museum & Historical Society
Lynn Police Relief Association
Lynn Shelter Association
Lynn Vocational & Technical Institute
Malden Chamber of Commerce
Malden Rotary Club
Malden YMCA
Malden YWCA
MASCO
Massachusetts Eye and Ear Infirmary
Matignon High School
May Institute
Medford Chamber of Commerce

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The Japan Society of Boston
The Lenny Zakim Fund
The Lustgarten Foundation for Pancreatic
Cancer Research

Marshall M. Sloane receives an honorary
Doctor of Business Administration degree
from Suffolk University for his innovative
financial skills and tireless support of
the community.

The Public Library of Brookline
The Shadow Fund
Top Banana Education Foundation
Town of Brookline
Town of Georgetown
Town of Wayland
Town of Wenham
Town of Weymouth
Tri-City Community Action Program, Inc.
U.S. Naval Academy Parents Club
University of Massachusetts Boston
Ward 7 Improvement Association
Watertown Youth Baseball
West Suburban YMCA
Wheelock College
William H. Lincoln School
Winchester Chamber of Commerce
Winchester Rotary Club
WORK, Inc.
World Unity
Xaverian Brothers High School
Zion Church Ministries

A year
of doing good.

Medford Community Housing
Medford Family Network
Medford Farmers Market
Medford High School
Medford Jingle Bell Festival
Medford Mustangs Football
Medford Police Association
Mental Health Programs, Inc. (MHPI)
Merrimack Valley Chamber of Commerce
Merrimack Valley Striders
MetroCast Foundation
MetroWest Jewish Day School
Mil Milagros, Inc.
Milan Moosavizadeh Trust
Milton Hospital

Century Bank received the Leading
Business Award from the Newton-Needham
Chamber of Commerce

Pictured from left: Marshall M. Sloane,
Linda Sloane Kay and Chamber Ambassador
David O’Neil

Morgan Memorial Goodwill Industries
Muscular Dystrophy Association
NAIOP Massachusetts
National Brain Tumor Society
National Hydrocephalus Foundation
Nativity Preparatory School
Nazzaro Recreation Center
Neighborhood House Charter School
Neurofibromatosis, Inc., Northeast
New England Aquarium
New England B.A.L.L.A.S.
Newton South High School
Newton-Needham Chamber of Commerce
North Bennet Street School
North Cambridge Senior Center
North End Against Drugs, Inc.
North End Beautification Committee
North End Christmas Fund
North Reading Little League
North Shore Medical Center Cancer Walk
Our Lady of the Cedars of Lebanon Church
Pan-Mass Challenge
Peabody Chamber of Commerce
Project Bread
Prospect Hill Academy Charter School
Quincy Public Schools
Rashi School
Rodman Ride for Kids
Sacred Heart School
Saint John School
Saint Peter School

SCM Community Transportation
Shakespeare & Company
Silent Spring Institute
Societa di San Giuseppe
Somerville Chamber of Commerce
Somerville Council on Aging
Somerville High School
Somerville Highlander Hockey
Somerville Historic Preservation Commission
Somerville Homeless Coalition
Somerville Housing Authority
Somerville Kiwanis Club
Somerville Museum
Somerville Pop Warner
Somerville Rotary Club
Somerville Veterans’ Services
South Shore YMCA
Special Olympics of Massachusetts
Springstep
St. Catherine’s Church Restoration Fund
St. John the Baptist Church
St. John the Evangelist Church
St. John’s Catholic Church
St. Jude Children’s Research Hospital
St. Leonard Parish of Boston
St. Mary’s High School
St. Patrick’s Shelter for Homeless Women
Stone Family Adoption Assistance Fund
Susan G. Komen for the Cure
Suzuki School of Newton
Synagogue Council of Massachusetts
Teamsters Local 25
Temple Beth Elohim
Temple Beth Shalom
Temple Beth Zion
Temple Emmanuel of Newton
Temple Sinai of Sharon
The Angel Fund
The Cambridge School of Weston
The David Project
The Friends of Burlington Basketball
The Genesis Fund
The Gifford School
The Home for Little Wanderers

Students from Suzuki School of
Newton perform during the Newton
Centre grand opening.

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Century Bancorp, Inc.
Directors

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

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 4,5,6,7
Executive Vice President
Century Bank and Trust Company

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

Joseph P. Mercurio 2,4,7*
CEO, TJAC Development
Higher Education Business Consultant

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*,5,6

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

Richard L. Billig
Senior Vice President

James M. Flynn, Jr.
Senior Vice President

Jason J. Melius
Senior Vice President

Senior Vice Presidents

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

First Vice Presidents

T. Daniel Kausel
David J. Waryas

Vice Presidents

Barry M. Aldorisio
Michael D. Ballard
Jean P. Belcher-Scarpa
Robert A. Bennett
John S. Bosco, Jr.
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
Thatcher L. Freeborn

Howard N. Gold
Anna M. Gorska
Lisa Gosling
Kristine M. Holopainen
Michael F. Long
Nancy M. Marsh
Karen M. Martin
Carl M. Mattos
Patricia M. Moran
Sarah A. O’Toole
Cornelius C. Prioleau
Bernice A. Shuman
Paul A. Sughrue
Janice D. Taylor
Tuesday N. Thomas
Lawrence H. Tsoi

Assistant Vice Presidents

Tina M. Bohondoney
Valerie R. Bosse
Cynthia A. Davidson
Laura A. DiFava
John R. Ferguson
Marissa L. Fitzgerald
Janice D. Hallinan
Michelle L. Haughton
Ashkon Hedvat
James J. Jordan
William B. Keefe
Malcolm I. Maloon
Ann E. Mannion
Kathleen McGillicuddy
Carol A. Melisi
Karen J. Pessia
Scott M. Rembis
Laurie A. Rizzo
William F. Shutt, Jr.
Richard A. Thimble
Jose I. Umana
Christina Welch-Matthews

Officers

Leonard A. Adjetey
Zubin C. Bagwadia
Roberta M. Byington
John J. Ferren
Sara A. Gaudet
Paula A. Grimaldi
Amelia N. Iocco
Joseph P. Kelley
Brian Kelly
Earl K. Kishida
Brandon N. Letellier
Melissa A. Michaud
Robson G. Miguel
Anne M. Milczarek
Nancy R. Miller
Jennifer A. Nickerson
John L. Norris III
Marie A. Nugent
Meredith O’Keefe
Samantha A. Petrou
Emmanuella Renelique
Judith A. Shannon
Krzysztof A. Sikorski
Jeremy P. Styles
Elizabeth A. Theriault
Julie A. Walker
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

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Century Bancorp, Inc. AR ’11

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

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Financial Highlights

Century Bancorp, Inc. AR ’11

(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

2011

2010

2009

2008

2007

78,065
22,766

55,299
4,550

50,749
16,240
48,742

18,247
1,554

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

16,693

13,574

10,160

9,046

7,864

5,540,644
5,541,794
5,542,697

$
$

3.01
3.01
13.1 %

$ 2,743,225
984,492
2,124,584
160,649
28.98

0.63 %
10.72 %
2.48 %

0.21 %

5.88 %
62.2 %

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

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

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

$
$

1.84
1.84
21.4 %

$
$

1.63
1.63
24.0 %

$
$

1.42
1.42
27.6 %

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

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

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

0.50 %
7.98 %
2.69 %

0.63 %

6.26 %
68.5 %

0.54 %
7.43 %
3.00 %

0.38 %

7.23 %
70.6 %

0.49 %
7.05 %
2.65 %

0.22 %

6.97 %
77.5 %

420854.10K.CS5.indd 1

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Per Share Data

2011, Quarter Ended

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

2010, Quarter Ended

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

Financial Highlights

Century Bancorp, Inc. AR ’11

December 31,

September 30,

June 30,

March 31,

$ 28.80
20.50
0.12
0.06

$ 28.91
21.96
0.12
0.06

$ 27.80
23.25
0.12
0.06

$ 28.38
24.75
0.12
0.06

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

The stock performance graph below compares the cumulative total shareholder return of the Company’s Class A Common Stock from December 31, 2006 to
December 31, 2011 with the cumulative total return of the NASDAQ Market Index (U.S. Companies) and the NASDAQ Bank Stock Index. The lines in the graph
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 U.S.

Century Bancorp, Inc.

NASDAQ Banks

2006

2007

2008

2009

2010

2011

Value of $100 Invested on
December 31, 2006 at:

2007

2008

2009

2010

2011

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

$ 75.47
79.26
108.47

$ 60.62
57.79
66.35

$ 87.05
48.42
95.38

$ 108.12
57.29
113.19

$ 116.09
51.19
113.81

* Assumes that the value of the investment in the Company’s Common Stock and each index was $100 on
December 31, 2006 and that all dividends were reinvested.

420854.10K.CS5.indd 2

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

Century Bancorp, Inc. AR ’11

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 continues to face unprecedented challenges
in the aftermath of the recent national and global economic crisis. Since
June 2009, the U.S. economy has been recovering from the most severe
recession and financial crisis since the Great Depression. There have been some
improvements in private-sector employment, industrial production and U.S.
exports; nevertheless, the pace of economic recovery has been extremely slow.
The housing markets continue to be depressed. Financial markets have improved
since the depths of the crisis but are still unsettled and volatile. Investors
have pulled back from risky assets. Lower equity prices and wider spreads on
corporate bonds and other debt instruments and greater pressures on financial
institutions have resulted. At the same time, heightened demand for safe assets
has put downward pressure on yields. There is continued concern about the
U.S. economic outlook and the potential effects of the continued crisis in the
European financial markets.

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 Act broadens the base for FDIC assessments
to average consolidated assets less tangible equity of financial institutions and
also permanently raises the current standard maximum FDIC deposit insurance
amount to $250,000. The Act extends unlimited deposit insurance on non-
interest bearing transaction accounts through December 31, 2012.

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
$4.3 million as of December 31, 2011. 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.

On September 30, 2011, the Massachusetts Department of Revenue issued a
draft directive prohibiting a corporation from pledging more than 50 percent of
security corporation stock it owns to secure a borrowing, effective for tax years
beginning on or after October 2012. Century Bank currently utilizes the stock
of two of its security corporations to secure Federal Home Loan Bank of Boston
(“FHLBB”) advances. Should this draft directive become effective, Century Bank
would have fewer assets available to secure FHLBB advances, or would have a
higher tax rate if it chose to utilize security corporations to a lesser extent.

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,
2011, the Company had total assets of $2.7 billion. Currently, the Company
operates 24 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
188 (54%) of the 351 cities and towns in Massachusetts.

The Company had net income of $16,693,000 for the year ended
December 31, 2011, compared with net income of $13,574,000 for the year
ended December 31, 2010, and net income of $10,160,000 for the year
ended December 31, 2009. Diluted earnings per share were $3.01 in 2011,
compared to $2.45 in 2010 and $1.84 in 2009.

420854.10K.CS5.indd 3

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

Century Bancorp, Inc. AR ’11

2.44%

On December 31, 2011, stockholders’ equity totaled $160,649,000,
compared with $145,025,000 on December 31, 2010. Book value per
share increased to $28.98 at December 31, 2011, from $26.18 on
December 31, 2010.

2.81%

3.20 %
The trends in the net interest margin are illustrated in the graph below:
3.00 %
2.64%
Net Interest Margin
2.80 %
2.57%
2.60 %
2.40 %
2.20 %
2.00 %

2.39%

2.63%

2.55%

2.64%

2.58%

2.55%

2.43%

2.42%

Q3 Q4

2009

2010

2011

The primary factor accounting for the general increase in the net interest margin
for 2009 was pricing discipline. The primary factor accounting for the general
decrease in the net interest margin for 2010 was a large influx of deposits,
primarily from municipalities, and a corresponding increase in short-term
investments. The net interest margin fell somewhat during the second quarter
of 2011 mainly as a result of increased deposits and corresponding lower-yield
short-term investments. During the third quarter, management stabilized the net
interest margin by continuing to lower cost of funds and by deploying excess
liquidity through expansion of the investment portfolio.

While management will continue its efforts to improve the net interest margin,
there can be no assurance that certain factors beyond its control, such as the
prepayment of loans and changes in market interest rates, will continue to
5.00 %
positively impact the net interest margin.

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 12/31/2009
U.S. Treasury Yield Curve 12/31/2010
U.S. Treasury Yield Curve 12/31/2011

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. Since December 31, 2009, longer-term rates have
declined resulting in a flatter yield curve.

During 2011, 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 2011, 2010 and 2009, the U.S. economy experienced
a lower short-term rate environment. The lower short-term rates negatively
impacted the net interest margin for 2011, 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 $2,743,225,000 at December 31, 2011, an increase of
12.3% from total assets of $2,441,684,000 on December 31, 2010.

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 opened
on June 20, 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 first half of 2012.

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.

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.

420854.10K.CS5.indd 4

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

Century Bancorp, Inc. AR ’11

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 Note 1 of the “Notes to Consolidated 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, 2011 totaled $1,258,676,000 and included gross unrealized gains of $16,842,000 and
gross unrealized losses of $3,138,000. A year earlier, securities available-for-sale were $909,391,000 including gross unrealized gains of $12,450,000 and gross
unrealized losses of $6,615,000. In 2011, the Company recognized gains of $1,940,000 on the sale of available-for-sale securities. In 2010 and 2009, the
Company recognized gains of $1,851,000 and $2,734,000, respectively.

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, 2011 are carried at their amortized cost of $179,368,000 and exclude gross unrealized gains of $5,471,000 and gross unrealized
losses of $17,000. A year earlier, securities held-to-maturity totaled $230,116,000, excluding gross unrealized gains of $5,394,000 and gross unrealized losses
of $1,986,000.
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,

2011

2010

2009

(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

2,012

174,957

8,801

0.2 %

13.9 %

0.7 %

$ 2,005

175,663

9,732

0.2 %

19.3 %

1.1 %

$ 2,003

192,364

—

0.3 %

29.7 %

—

1,035,838

82.3 %

680,898

74.9 %

418,512

64.6 %

3,198

—

20,642

12,610

618

0.3 %

0.0 %

1.6 %

1.0 %

0.0 %

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 %

$ 1,258,676

100.0 %

$ 909,391

100.0 %

$ 647,796

100.0 %

Included in Obligations Issued by States and Political Subdivisions as of December 31, 2011, is $3,724,000 of an auction rate municipal obligation (“ARS”) with an
unrealized loss of $957,000. This debt security was issued by a governmental entity but is not a debt obligation of the issuing entity. This ARS is the obligation of
a large nonprofit entity. This obligation is a variable rate security with long-term maturity whose interest rate is set periodically through an auction process for ARS.
As the auctions have not attracted sufficient bidders, the interest rate adjusts to the default rate defined in the obligation’s underlying documents. Although many of
these issuers have bond insurance, the Company purchased the security 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 the failed ARS. As of December 31, 2011, the Company’s
ARS was purchased subsequent to its failure with a fair value of $3,724,000 and an amortized cost of $4,681,000.

As of December 31, 2011, the weighted average taxable equivalent yield on this security was 0.31%.

420854.10K.CS5.indd 5

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

Century Bancorp, Inc. AR ’11

The majority of the Company’s securities AFS are classified as Level 2, as defined in Note 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.
Management’s understanding of a pricing service’s pricing methodologies includes obtaining an understanding the valuation risks, assessing its qualification, verification
of sources of information and processes used to develop prices and identifying, documenting, and testing controls. Management’s validation of a vendor’s pricing
methodology include establishing internal controls to determine that the pricing information received by a pricing service and used by management in the valuation
process is relevant and reliable. 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, 2011.

Securities available-for-sale totaling $18,914,000, or 0.69% of assets, are classified as Level 3, as defined in Note 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 refer primarily 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,

2011

2010

2009

(dollars in thousands)

U.S. Government Sponsored Enterprises

U.S. Government Sponsored Enterprise
Mortgage-Backed Securities

Amount

Percent

Amount

Percent

Amount

Percent

$ 26,979

15.0 %

$ 84,534

36.7 %

$ 69,555

32.0 %

152,389

85.0 %

145,582

63.3 %

148,088

68.0 %

Total

$ 179,368

100.0 %

$ 230,116

100.0 %

$ 217,643

100.0 %

Fair Value of Securities Available-for-Sale
The following two tables set forth contractual maturities of the Bank’s securities portfolio at December 31, 2011. 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

—

0.0 %

0.00 %

$ 2,012

0.2 %

0.67 %

—

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 %

52,357

4.2 %

0.95 %

122,600

9.7 %

2.40 %

—

0.0 % 0.00 %

0.0 %

0.00 %

1,706

0.1 %

0.70 %

1,517

0.1 %

0.92 %

5,578

0.4 % 0.91 %

Mortgage-Backed
Securities

Privately Issued
Residential Mortgage-

Backed Securities

Obligations of States
and Political
Subdivisions

Other Debt Securities

Equity Securities

65,380

5.2 %

3.02 %

907,264 72.1 %

1.95 %

53,838

4.3 %

1.92 %

9,356

0.7 % 3.20 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

3,198

0.3 %

2.94 %

—

0.0 % 0.00 %

15,128

1.2 %

1.32 %

1,789

0.1 %

2.82 %

—

0.0 %

0.00 %

3,725

0.3 % 0.31 %

100

0.0 %

1.25 %

700

0.1 %

1.57 %

10,342

0.8 %

4.00 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

—

0.0 % 0.00 %

Total

$ 80,608

6.4 %

2.70 %

$ 965,828 76.8 %

1.89 %

$ 191,495 15.2 %

2.35 % $ 18,659

1.4 % 1.94 %

420854.10K.CS5.indd 6

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

Century Bancorp, Inc. AR ’11

Non-

Maturing

% of

Total

Weighted

Average

Yield

Total

Weighted

Average

Yield

% of

Total

(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

Obligations of States and Political Subdivisions

—

Other Debt Securities

Equity Securities

Total

Amortized Cost of Securities Held-to-Maturity
Amounts Maturing

0.0 %

0.00 %

2,012

0.2 %

0.67 %

0.0 %

0.00 %

174,957

13.9 %

1.97 %

0.0 %

0.00 %

8,801

0.7 %

0.87 %

0.0 %

0.00 %

1,035,838

82.3 %

2.03 %

0.0 %

0.00 %

0.0 %

0.00 %

1,468

0.1 %

4.63 %

3,198

20,642

12,610

0.3 %

2.94 %

1.6 %

1.19 %

1.0 %

3.92 %

618

0.1 %

1.26 %

618

0.0 %

1.26 %

$ 2,086

0.2 %

3.63 %

$ 1,258,676

100.0 %

2.02 %

Within

One

Year

Weighted

One Year

Weighted

Five Years

Weighted

Over

% of

Total

Average

to Five

Yield

Years

% of

Total

Average

Yield

to Ten

Years

% of

Total

Average

Yield

Ten

Years

% of

Total

Weighted

Average

Yield

Total

Weighted

Average

Yield

% of

Total

$ —

0.0 %

0.00 % $

—

0.0 %

0.00 % $ 26,979 15.0 %

1.60 %

$ —

0.0 %

0.00 % $ 26,979 15.0 % 1.60 %

(dollars in thousands)

U.S. Government

Sponsored Enterprise

Mortgage-Backed

Securities

7,133

4.0 %

4.00 % 128,398 71.6 %

3.35 %

16,573

9.2 %

2.77 %

285

0.2 %

2.89 % 152,389 85.0 % 3.32 %

Total

$ 7,133

4.0 %

4.00 % $ 128,398 71.6 %

3.35 % $ 43,552 24.2 %

2.05 %

$ 285

0.2 %

2.89 % $ 179,368 100.0 % 3.06 %

At December 31, 2011 and 2010, the Bank had no investments in obligations of individual states, counties, municipalities or nongovernment corporate entities which
exceeded 10% of stockholders’ equity. In 2011, sales of securities totaling $75,615,000 in gross proceeds resulted in a net realized gain of $1,940,000. There were
no sales of state, county or municipal securities during 2011 and 2010. In 2010, sales of securities totaling $41,251,000 in gross proceeds resulted in net realized
gains of $1,851,000. In 2009, sales of securities totaling $94,142,000 in gross proceeds resulted in net realized gains 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.

420854.10K.CS5.indd 7

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

Century Bancorp, Inc. AR ’11

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,

2011

2008

2010

2009

2007

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

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

Amount

$ 56,819

82,404

487,495

239,307

(dollars in thousands)

Construction and

land development

Commercial and industrial

Commercial real estate

Residential real estate

Consumer

Home equity

Overdrafts

Total

5.7 %

8.4 %

$ 53,583

5.9 %

$ 60,349

6.9 % $ 59,511

7.1 % $ 62,412

8.6 %

90,654

10.0 %

141,061

16.1 %

141,373

16.9 %

117,332

16.2 %

49.5 %

433,337

47.8 %

361,823

41.2 %

332,325

39.8 %

299,920

41.3 %

24.3 %

207,787

22.9 %

188,096

21.4 %

194,644

23.3 %

168,204

23.2 %

6,197

0.6 %

5,957

0.7 %

7,105

0.8 %

8,246

1.0 %

8,359

110,786

11.3 %

114,209

12.6 %

118,076

13.5 %

98,954

11.8 %

68,585

1,484

0.2 %

637

0.1 %

615

0.1 %

1,012

0.1 %

1,439

1.1 %

9.4 %

0.2 %

$ 984,492

100.0 %

$ 906,164

100.0 %

$ 877,125

100.0 % $ 836,065 100.0 % $ 726,251 100.0 %

At December 31, 2011, 2010, 2009, 2008 and 2007, loans were carried net of discounts of $550,000, $598,000, $645,000, $692,000 and $3,000,
respectively. Net deferred loan fees of $666,000, $186,000, $71,000, $81,000 and $38,000 were carried in 2011, 2010, 2009, 2008 and 2007, respectively.

The following table summarizes the remaining maturity distribution of certain components of the Company’s loan portfolio on December 31, 2011. 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, 2011

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, 2011

$ 11,702
32,111
23,770

$ 67,583

$
110
25,993
142,754

$ 45,007
24,300
320,971

$ 56,819
82,404
487,495

$ 168,857

$ 390,278

$ 626,718

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

$ 102,209
66,648

$ 110,971
279,307

$ 213,180
345,955

$ 168,857

$ 390,278

$ 559,135

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

420854.10K.CS5.indd 8

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

Century Bancorp, Inc. AR ’11

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 $12,269,000 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, 2011, the Company was obligated to advance a total of $16,819,000 to complete projects under
construction.
December 31,

2011

2010

2009

2008

2007

(dollars in thousands)
The composition of nonperforming assets is as follows:
Total nonperforming loans
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

$ 5,827
1,182

$ 7,009

$ 4,634
18
0.59 %
0.26 %

2011

$ 516
4,561
1,500
1,525

$ 8,102

$ 8,068
—

$ 8,068

$ 1,248
50
0.89 %
0.33 %

2010

$ —
2,492
4,000
1,471

$ 7,963

$ 12,311
—

$ 12,311

521
—
1.40 %
0.55 %

2009

—
$
4,260
4,900
1,356

$ 10,516

$ 3,661
—

$ 3,661

$ —
89
0.44 %
0.20 %

$ 1,312
452

$ 1,764

$ —
122
0.18 %
0.10 %

2008

$ 194
1,175
—
1,329

$ 2,698

2007

$ —
—
—
196

$ 196

At December 31, 2011, 2010, 2009, 2008 and 2007, impaired loans had specific reserves of $741,000, $317,000, $745,000, $600,000 and
$75,000 respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $18,220,000, $983,000, $1,127,000, $768,000 and $559,000
at December 31, 2011, 2010, 2009, 2008 and 2007, respectively. Additionally, the Company services mortgage loans sold to others with limited recourse. The
outstanding balance of these loans with limited recourse was approximately $24,000, $36,000, $47,000, $56,000 and $65,000 at December 31, 2011, 2010,
2009, 2008 and 2007, respectively. The Company had $3,389,000 of loans held for sale at December 31, 2011.

Servicing assets are recorded at fair value and recognized as separate assets when rights are acquired through sale of loans with servicing rights retained. Mortgage
servicing assets are amortized into non-interest income in proportion to, and over the period of, the estimated net servicing income. Upon sale, the mortgage servicing
asset (“MSA”) is established, which represents the then-current estimated fair value based on market prices for comparable mortgage servicing contracts, when
available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates
assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary
income, prepayment speeds and default rates and losses. Servicing rights are recorded in other assets and are amortized in proportion to, and over the period of
estimated net servicing income and are assessed for impairment based on fair value at each reporting date. MSAs are reported in other assets in the consolidated
balance sheets. MSAs totaled $123,000 at December 31, 2011 and $0 for December 31, 2007, through December 31, 2010.

420854.10K.CS5.indd 9

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

Century Bancorp, Inc. AR ’11

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

Nonaccrual loans decreased during 2011, primarily as a result of $1,200,000 in charge-offs from two construction loans as well as the subsequent foreclosure of
$1,300,000 of one of the construction loans.

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.

The Company continues to monitor closely $20,906,000 and $32,905,000 at December 31, 2011 and 2010, 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, 2011, 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
(dollars in thousands)
allowance for loan losses for the years indicated.
Year-end loans outstanding

2011

2009

2010

2008

2007

(net of unearned discount and deferred loan fees)

$ 984,492

$ 906,164

$ 877,125

$ 836,065

$ 726,251

Average loans outstanding

(net of unearned discount and deferred loan fees)

$ 948,883

$ 877,858

$ 853,422

$ 775,337

$ 725,903

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

$ 14,053

$ 12,373

$ 11,119

9,633

9,713

676
1,200
—
341
607

2,824

293
—
35
467

795

2,029
4,550

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

Balance at end of year

$ 16,574

$ 14,053

$ 12,373

$ 11,119

9,633

Ratio of net charge-offs during the year

to average loans outstanding

Ratio of allowance for loan losses to loans outstanding

0.21 %

1.68 %

0.44 %

1.55 %

0.63 %

1.41 %

0.38 %

1.33 %

0.22 %

1.33 %

The amount of the allowance for loan losses results from management’s evaluation of the quality of the loan portfolio considering such factors as loan status, specific
reserves on impaired loans, collateral values, financial condition of the borrower, the state of the economy and other relevant information. The pace of the charge-offs
depends on many factors, including the national and regional economy. Cyclical lagging factors may result in charge-offs being higher than historical levels. Charge-
offs increased during 2007 through 2009 due to an increase in commercial loan charge-offs and construction loan charge-offs for 2009 as a result of the weakening
of the overall economy and real estate market. Charge-offs declined in 2010 and 2011 as a result of the overall decrease in the level of nonaccrual loans. The dollar
amount of the allowance for loan losses and the level of the allowance for loan losses to total loans increased primarily as a result of an increase in the historical loss
factor on construction loans, increases in specific reserves associated with impaired loans as well as an increase in commercial real estate loans.

420854.10K.CS5.indd 10

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

Century Bancorp, Inc. AR ’11

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, 2011 is $56,819,000. A major factor in nonaccrual loans is one
construction loan. Based on this fact, and the general local construction conditions, the management closely monitors all construction loans and considers this type of
loan to be higher risk.

Higher-balance loans — Loans greater than $1.0 million are considered “high-balance loans.” The balance of these loans is $489,114,000 at December 31, 2011,
as compared to $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
$189,222,000 at December 31, 2011, as compared to $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 $44,020,000 at December 31, 2011. 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
2010
economic conditions. Although the allowance is allocated between categories, the entire allowance is available to absorb losses attributable to all loan categories. At
December 31 of each year listed below, the allowance is comprised of the following:

2011

2008

2009

2007

Percent
of Loans
in Each
Category
to Total
Loans

Amount

(dollars in thousands)

Construction and land development

$ 2,893

5.7 %

$ 1,752

5.9 %

362

6.9 %

677

7.1 %

$ 583

8.6 %

Commercial and industrial

Commercial real estate

Residential real estate

Consumer and other

Home equity

Unallocated

Total

3,139

8.4

3,163 10.0

4,972 16.1

5,125 16.9

6,566 49.5

5,671 47.8

2,983 41.2

2,620 39.8

1,886 24.3

1,718 22.9

1,304 21.4

356

0.8

704 11.3

298

0.8

1,753

0.9

725 12.6

761 13.5

1,527 11.8

1,030

726

238

778 23.3

342

1.1

4,645

2,548

637

392

686

142

16.2

41.3

23.2

1.3

9.4

$ 16,574 100.0 %

$ 14,053 100.0 %

$ 12,373 100.0 %

$ 11,119 100.0 %

$ 9,633 100.0 %

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. Further information regarding the allocation of the allowance is contained within Note 6 of the “Notes to
Consolidated Financial Statements.”

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.

420854.10K.CS5.indd 11

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

Century Bancorp, Inc. AR ’11

2011

2010

2009

Amount
The following table sets forth the average balances of the Bank’s deposits for the periods indicated.
(dollars in thousands)

Percent

Amount

Percent

Demand Deposits

$ 326,102

15.3 %

$ 298,825

15.8 %

$ 277,300 17.8 %

Savings and Interest Checking

735,022

34.6 %

696,232

36.7 %

528,974 34.0 %

Money Market

584,059

27.4 %

543,432

28.7 %

432,159 27.8 %

Time Certificates of Deposit

484,142

22.7 %

356,457

18.8 %

318,412 20.4 %

Total

$ 2,129,325 100.0 %

$ 1,894,946 100.0 %

$ 1,556,845 100.0 %

(dollars in thousands)
Time Deposits of $100,000 or more as of December 31, are as follows:
Three months or less
Three months through six months
Six months through twelve months
Over twelve months

$ 58,443
45,255
55,170
121,340

2011

$ 280,208

Borrowings

The Bank’s borrowings consisted primarily of Federal Home Loan Bank of Boston (“FHLBB”) borrowings collateralized by a blanket pledge agreement on the Bank’s
FHLBB stock, certain qualified investment securities, deposits at the FHLBB and residential mortgages held in the Bank’s portfolios. The Bank’s borrowings from the
FHLBB totaled $244,000,000, an increase of $23,000,000 from the prior year. The Bank’s remaining term borrowing capacity at the FHLBB at December 31, 2011,
was approximately $197,505,000. 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 on
January 10, 2005.

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

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
$143,320,000, an increase of $34,770,000 from the prior year. See Note 11, “Securities Sold Under Agreements to Repurchase,” for a schedule, including their
interest rates and other information.

RESULTS OF OPERATIONS

Net Interest Income

The Company’s operating results depend primarily on net interest income and fees received for providing services. Net interest income on a fully taxable equivalent
basis increased 9.1% in 2011 to $62,081,000, compared with $56,893,000 in 2010. The increase in net interest income for 2011 was mainly due to a 10.7%
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 four 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 2.48% in 2011 from
2.52% in 2010 and decreased from 2.69% in 2009.

Additional information about the decreased 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.

420854.10K.CS5.indd 12

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

Century Bancorp, Inc. AR ’11

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

2011

2010

2009

(dollars in thousands)

ASSETS
Interest-earning assets:
Loans(2)
Taxable
Tax-exempt

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

Securities held-to-maturity:
Taxable

Interest-bearing deposits

in other banks

$ 703,491
245,392

$ 36,772
17,996

5.23 %
7.33 %

$ 711,422
166,436

$ 40,163
13,193

5.65 %
7.93 %

$ 752,013
101,409

$ 43,113
8,061

5.73 %
7.95 %

1,076,689
22,410

22,828
321

2.12
1.43

756,544
32,407

18,958
596

2.51
1.84

562,899
48,347

20,439
1,061

3.63
2.19

178,659

5,816

3.26

222,154

7,158

3.22

193,520

8,093

4.18

276,413

1,114

0.40

371,665

1,642

0.44

245,002

2,171

0.87

Total interest-earning assets

2,503,054

$ 84,847

3.39 %

2,260,628

81,710

3.61 %

1,903,190

82,938

4.36 %

Noninterest-earning assets

Allowance for loan losses

158,297

(15,767)

Total assets

$ 2,645,584

155,956

(13,686)

$ 2,402,898

143,984

(13,331)

$ 2,033,843

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

$ 476,807
258,215
584,059
484,142

$ 1,715
824
2,706
9,356

0.36 %
0.32
0.46
1.93

$ 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

Total interest-bearing deposits

1,803,223

14,601

0.81

1,596,121

15,928

1.00

1,279,545

20,796

1.63

Securities sold under
agreements to repurchase

Other borrowed funds
and subordinated debentures

129,137

379

0.29

133,080

573

0.43

98,635

576

0.58

202,209

7,786

3.85

201,273

8,316

4.13

219,713

10,351

4.71

Total interest-bearing liabilities

2,134,569

22,766

1.07 %

1,930,474

24,817

1.29 %

1,597,893

31,723

1.99 %

Noninterest-bearing liabilities
Demand deposits
Other liabilities

Total liabilities

Stockholders’ equity
Total liabilities and

326,102
29,253

2,489,924

155,660

stockholders’ equity

$ 2,645,584

Net interest income on a fully
taxable equivalent basis

Less taxable equivalent adjustment

Net interest income

Net interest spread

Net interest margin

(1)

298,825
31,074

2,260,373

142,525

$ 2,402,898

277,300
31,289

1,906,482

127,361

$ 2,033,843

$ 62,081

(6,782)

$ 55,299

$ 56,893

(5,127)

$ 51,766

$ 51,215

(3,338)

$ 47,877

2.32 %

2.48 %

2.32 %

2.52 %

2.37 %

2.69 %

(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.

420854.10K.CS5.indd 13

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

Century Bancorp, Inc. AR ’11

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.

2011 Compared with 2010
Increase/(Decrease)
Due to Change in

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

(dollars in thousands)

Interest income:

Loans

Taxable
Tax-exempt

Securities available-for-sale:

Taxable
Tax-exempt

Securities held-to-maturity:

Taxable

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

$ (443)
5,854

$ (2,948)
(1,051)

$(3,391)
4,803

$(2,299)
5,155

$ (651)
(23)

$(2,950)
5,132

7,117
(160)

(1,415)
(393)

(3,247)
(115)

73
(135)

10,560

(7,423)

284
(79)
276
2,565

3,046
(17)
40

3,069

(1,073)
(665)
(1,512)
(1,123)

(4,373)
(177)
(570)

(5,120)

3,870
(275)

(1,342)
(528)

3,137

(789)
(744)
(1,236)
1,442

(1,327)
(194)
(530)

(2,051)

5,885
(312)

1,090
822

(7,366)
(153)

(2,025)
(1,351)

(1,481)
(465)

(935)
(529)

10,341

(11,569)

(1,228)

999
241
1,306
1,036

3,582
171
(825)

2,928

(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)

$ 7,491

$ (2,303)

$ 5,188

$ 7,413

$(1,735)

$ 5,678

Average earning assets were $2,503,054,000 in 2011, an increase of $242,426,000 or 10.7% from the average in 2010, which was 18.8% higher than the
average in 2009. Total average securities, including securities available-for-sale and securities held-to-maturity, were $1,277,758,000, an increase of 26.4% from the
average in 2010. The increase in securities volume was mainly attributable to an increase in taxable securities. An increase in securities balances offset, somewhat, by
lower securities returns resulted in higher securities income, which increased 8.4% to $28,965,000 on a fully tax equivalent basis. Total average loans increased 8.1%
to $948,883,000 after increasing $24,436,000 in 2010. 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 mortgage lending. The increase in loan volume offset, somewhat, by a decrease in loan rates resulted in higher loan income,
which increased by 2.6% or $1,412,000 to $54,768,000. Total loan income was $51,174,000 in 2009.

The Company’s sources of funds include deposits and borrowed funds. On average, deposits increased 12.4%, or $234,379,000, in 2011 after increasing by 21.7%,
or $338,101,000, in 2010. Deposits increased in 2011, primarily as a result of increases in demand deposits, money market, NOW and time deposit accounts.
Deposits increased in 2010, primarily as a result of increases in demand deposits, savings, money market, NOW and time deposit accounts. Borrowed funds and
subordinated debentures decreased by 0.9% in 2011, following an increase of 5.0% in 2010. The majority of the Company’s borrowed funds are borrowings from
the FHLBB and retail repurchase agreements. Average borrowings from the FHLBB increased by approximately $936,000, and average retail repurchase agreements
decreased by $3,943,000 in 2011. Interest expense totaled $22,766,000 in 2011, a decrease of $2,051,000, or 8.26%, from 2010 when interest expense
decreased 21.8% from 2009. The decrease in interest expense is primarily due to market decreases in deposit rates and continued deposit pricing discipline.

420854.10K.CS5.indd 14

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

Century Bancorp, Inc. AR ’11

Provision for Loan Losses

The provision for loan losses was $4,550,000 in 2011, compared with
$5,575,000 in 2010 and $6,625,000 in 2009. 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 2011 and 2010,
primarily as a result of decreased provisions related to nonaccrual loans as well
as management’s quantitative analysis of the loan portfolio.

The allowance for loan losses was $16,574,000 at December 31, 2011,
compared with $14,053,000 at December 31, 2010. Expressed as a
percentage of outstanding loans at year-end, the allowance was 1.68% in 2011
and 1.55% in 2010. This ratio increased primarily as a result of decreased levels
of charge-offs, an increase in the historical loss factor on construction loans, and
an increase in required specific reserves associated with impaired loans.

Nonperforming loans, which include all nonaccruing loans, totaled $5,827,000
on December 31, 2011, compared with $8,068,000 on December 31,
2010. Nonperforming loans decreased primarily as a result of $1,200,000 in
charge-offs from two construction loans as well as the subsequent foreclosure of
$1,300,000 of one of the construction loans.

Other Operating Income

During 2011, 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 2011 was $16,240,000, an increase of
$241,000, or 1.5%, compared to 2010. This increase followed a decrease of
$471,000 or 2.9% in 2010, compared to 2009. Included in other operating
income are net gains on sales of securities of $1,940,000, $1,851,000
and $2,734,000 in 2011, 2010 and 2009, respectively. Service charge
income, which continues to be a major area of other operating income, totaling
$7,885,000 in 2011, increased $9,000 compared to 2010. This followed a
decrease of $127,000 compared to 2009. Service charges on deposit accounts
increased during 2011, mainly because of increases in fees collected. The
increase in fees collected was mainly attributable to an increase in overdraft fees
and debit card fees, which was offset, somewhat, by a decrease in fees collected
from processing activities. 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. Lockbox revenues totaled
$2,770,000, down $141,000 in 2011 following an increase of $97,000 in
2010. Other income totaled $3,204,000, up $73,000 in 2011 following an
increase of $352,000 in 2010. The increase in 2011 was mainly attributable
to net gains on sales of loans of $660,000. This was offset, somewhat, by a
decrease of $514,000 in the growth of cash surrender values on life insurance
policies, which was attributable to lower returns on life insurance policies. 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 20-year
anniversary during the first quarter of 2010.

Operating Expenses

Total operating expenses were $48,742,000 in 2011, compared to
$47,372,000 in 2010 and $46,379,000 in 2009.

Salaries and employee benefits expenses increased by $1,232,000 or 4.3%
in 2011, after increasing by 5.5% in 2010. The increase in 2011 was mainly
attributable to increases in staff levels, merit increases in salaries and increases
in health insurance costs. 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.

Occupancy expense increased by $374,000, or 9.3%, in 2011, following a
decrease of $67,000, or 1.6%, in 2010. The increase in 2011 was primarily
attributable to an increase in rent expense, depreciation expense and building
maintenance costs associated with branch expansion. 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.

Equipment expense increased by $103,000, or 4.8%, in 2011, following
a decrease of $240,000, or 10.1%, in 2010. The increase in 2011 was
primarily attributable to an increase in service contracts and depreciation
expense. The decrease in 2010 was primarily attributable to a decrease in
depreciation expense. Other operating expenses increased by $601,000 in
2011, which followed a $192,000 increase in 2010. The increase in 2011
was primarily attributable to an increase in customer expenses, other real estate
owned expense and contributions offset somewhat by decreases in marketing
expense. The increase in 2010 was primarily attributable to an increase in
marketing expense and software maintenance offset somewhat by decreases in
legal expense.

FDIC assessments decreased by $940,000, or 31.7%, in 2011, following a
decrease of $371,000, or 11.1%, in 2010. FDIC assessments decreased in
2011 mainly as a result of a decrease in the assessment rate. 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. 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.

420854.10K.CS5.indd 15

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

Century Bancorp, Inc. AR ’11

Provision for Income Taxes

Liquidity and Capital Resources

Income tax expense was $1,554,000 in 2011, $1,244,000 in 2010 and
$1,183,000 in 2009. The effective tax rate was 8.5% in 2011, 8.4% in 2010
and 10.4% in 2009. The decreases in the effective tax rate for 2011 and
2010 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
2011, 2010 and 2009.

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 $226,117,000 on December 31, 2011,
compared with $302,470,000 on December 31, 2010. In each of these two
years, deposit and borrowing activity has generally been adequate to support
asset activity.

The sources of funds for dividends paid by the Company are 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 $160,649,000 at December 31, 2011,
compared with $145,025,000 at December 31, 2010. The increase in 2011
was primarily the result of earnings and a decrease in accumulated other
comprehensive loss, net of taxes, offset by dividends paid. The decrease in
accumulated other comprehensive loss was mainly attributable to an increase
of $4,726,000 in the net unrealized gains on the Company’s available-for-sale
portfolio, net of taxes, offset by an increase of $3,667,000 in the additional
pension liability, net of taxes

Federal banking regulators have issued risk-based capital guidelines, which
assign risk factors to asset categories and off-balance-sheet items. The current
guidelines require a Tier 1 capital-to-risk assets ratio of at least 4.00% and
a total capital-to-risk assets ratio of at least 8.00%. The Company and the
Bank exceeded these requirements with a Tier 1 capital-to-risk assets ratio
of 14.73% and 12.84%, respectively, and total capital-to-risk assets ratio of
15.98% and 14.09%, respectively, at December 31, 2011. 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, 2011, the Company and the
Bank exceeded this requirement with leverage ratios of 7.12% and 6.20%,
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.

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

(6.2) %
(4.1) %
(3.1) %
(2.0) %
0.4 %
5.7 %

(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.

420854.10K.CS5.indd 16

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

Century Bancorp, Inc. AR ’11

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, 2011.

Payments Due—By Period

CONTRACTUAL OBLIGATIONS

FHLBB advances
Subordinated debentures
Retirement benefit obligations
Lease obligations
Customer repurchase agreements

Total contractual cash obligations

OTHER COMMITMENTS

Lines of credit
Standby and commercial letters of credit
Other commitments

Total commitments

Total

$ 244,000
36,083
30,626
9,809
143,320

$ 463,838

Total

$ 195,181
4,645
34,062

$ 233,888

Less Than
One Year

$ 81,500
—
2,305
1,890
143,320

$ 229,015

One to
Three Years

$ 41,000
—
4,787
3,013
—

$ 48,800

Amount of Commitment Expiring—By Period

Less Than
One Year

$ 110,081
3,514
16,383

$ 129,978

One to
Three Years

$ 16,207
1,131
12

$ 17,350

Three to
Five Years

$ 74,500
—
5,425
2,091
—

$ 82,016

Three to
Five Years

$ 1,892
—
510

$ 2,402

After Five
Years

$ 47,000
36,083
18,109
2,815
—

$ 104,007

After Five
Years

$ 67,001
—
17,157

$ 84,158

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 notional 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-
2010
Contract or Notional 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

2011

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

$ 12,638
4,645
195,181
16,819
4,605

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

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 $39,000 and $68,000 for 2011 and 2010, respectively.

Recent Accounting Developments

In July 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2010-20, Receivables (Topic 310),
Disclosures about the Credit Quality of Financing Receivables and the Allowance
for Credit Losses. This Update requires an entity to provide disclosures that
facilitate financial statement users’ evaluation of (1) the nature of credit risk
inherent in the entity’s loan portfolio (2) how that risk is analyzed and assessed
in arriving at the allowance for loan and lease losses and (3) the changes
and reasons for those changes in the allowance for loan and lease losses.
The disclosures as of the end of a reporting period were effective for interim
and annual reporting periods ending on or after December 15, 2010. The
disclosures about activity that occurs during a reporting period are effective for
interim and annual reporting periods beginning on or after December 15, 2010.
The Company has provided the required disclosures in Note 6.

In December 2010, the FASB issued ASU 2010-29, Business Combinations
(Topic 805), Disclosure of Supplementary Pro Forma Information for Business
Combinations to address diversity in practice in interpreting the pro forma
revenue and earnings disclosure requirements for business combinations. This
ASU specifies that if a public entity presents comparative financial statements,
the entity should disclose revenue and earnings of the combined entity as
though the current year business combination(s) had occurred as of the
beginning of the comparable prior annual reporting period. This update is
effective prospectively for business combinations for which the acquisition date

420854.10K.CS5.indd 17

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

Century Bancorp, Inc. AR ’11

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income
(Topic 220), Presentation of Comprehensive Income. This ASU amends the
disclosure requirements for the presentation of comprehensive income. The
amended guidance eliminates the option to present components of other
comprehensive income (OCI) as part of the consolidated statement of changes
in stockholders’ equity. Under the amended guidance, all changes in OCI are
to be presented either in a single continuous statement of comprehensive
income or in two separate but consecutive financial statements. The changes
are effective for fiscal years, and interim periods within those years, ending after
December 15, 2011, with retrospective application required. Early application
is permitted. There will be no impact on the Company’s consolidated financial
results as the amendments relate only to changes in financial statement
presentation. In December 2011, the FASB elected to defer the effective
date of those changes in ASU 2011-05 that relate only to the presentation
of reclassification adjustments in the statement of income by issuing
ASU 2011-12, Comprehensive Income (Topic 220), Deferral of the Effective
Date for Amendments to the Presentation of Reclassifications of Items Out of
Accumulated Other Comprehensive Income in Accounting Standards Update
No. 2011-05.

In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill
and Other (Topic 350), Testing Goodwill for Impairment. This ASU is intended
to reduce the complexity and cost of performing an evaluation of impairment
of goodwill. Under the new guidance, an entity will have the option of first
assessing qualitative factors (events and circumstances) to determine whether
it is more likely than not (meaning a likelihood of more than 50 percent)
that the fair value of a reporting unit is less than its carrying amount. If, after
considering all relevant events and circumstances, an entity determines it is not
more likely than not that the fair value of a reporting unit is less than its carrying
amount, then performing the two-step impairment test will be unnecessary. The
amendments will be effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011. Early adoption
is permitted. The Company will implement the provisions of ASU 2011-08 as
of January 1, 2012.

In September 2011, the FASB issued ASU 2011-09, Compensation –
Retirement Benefits – Multiemployer Plans (Subtopic 715-80), Disclosures
about an Employer’s Participation in a Multiemployer Plan. This ASU requires
new and expanded disclosures for individually material multiemployer pension
plans. The changes are effective for fiscal years ending after December 15,
2011. Early application is permitted. There will be no impact to the
consolidated financial results as the Company does not participate in any
multiemployer retirement plans.

is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2010. The adoption of this update did not have a material
impact on the Company’s financial condition or results of operations.

In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310),
A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt
Restructuring. This Update provides additional guidance and clarification to
help creditors in determining whether a creditor has granted a concession and
whether a debtor is experiencing financial difficulties for purposes of determining
whether a restructuring constitutes a troubled debt restructuring (“TDR”).
This Update is effective for the first interim or annual period beginning on or
after June 15, 2011, with retrospective application to the beginning of the
annual period of adoption. The measurement of impairment should be done
prospectively in the period of adoption for loans that are newly identified as
TDRs upon adoption of this Update. In addition, the TDR disclosures required
by ASU 2010-20, Receivables (Topic 310), Disclosures about the Credit
Quality of Financing Receivables and the Allowance for Credit Losses are
required beginning in the period of adoption of this Update. The Company
adopted this Update in the second quarter of 2011. The Company has provided
the disclosures required in Note 6.

In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing
(Topic 860), Reconsideration of Effective Control for Repurchase Agreements.
This update revises the criteria for assessing effective control for repurchase
agreements and other agreements that both entitle and obligate a transferor to
repurchase or redeem financial assets before their maturity. The determination
of whether the transfer of a financial asset subject to a repurchase agreement
is a sale is based, in part, on whether the entity maintains effective control
over the financial asset. This update removes from the assessment of effective
control: the criterion requiring the transferor to have the ability to repurchase
or redeem the financial asset on substantially the agreed terms, even in the
event of default by the transferee, and the related requirement to demonstrate
that the transferor possesses adequate collateral to fund substantially all
the cost of purchasing replacement financial assets. The amendments in this
update will be effective for interim and annual reporting periods beginning on
or after December 15, 2011. The amendments will be applied prospectively to
transactions or modifications of existing transactions that occur on or after the
effective date and early adoption is permitted. The adoption of this guidance is
not expected to have a material impact on the Company’s financial condition or
results of operations.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement
(Topic 820), Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRS. The guidance clarifies and
expands the disclosures pertaining to unobservable inputs used in Level 3
fair value measurements, including the disclosure of quantitative information
related to (1) the valuation processes used, (2) the sensitivity of the fair value
measurement to changes in unobservable inputs and the interrelationships
between those unobservable inputs, and (3) use of a nonfinancial asset in a way
that differs from the asset’s highest and best use. The guidance also requires,
for public entities, disclosure of the level within the fair value hierarchy for assets
and liabilities not measured at fair value in the statement of financial position but
for which the fair value is disclosed. The amendments in this Update are to be
applied prospectively. The amendments are effective during interim and annual
periods beginning after December 15, 2011. Early application is not permitted.
The Company does not expect this pronouncement to have a material effect on
its consolidated financial statements.

420854.10K.CS5.indd 18

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Consolidated Balance Sheets

Century Bancorp, Inc. AR ’11
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 $1,244,972 in 2011 and $903,556

in 2010 (Notes 3 and 9)

Securities held-to-maturity, fair value $184,822 in 2011 and $233,524

in 2010 (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 3,548,317 shares in 2011 and

3,528,867 shares in 2010

Common stock, Class B,

$1.00 par value per share; authorized 5,000,000 shares; issued
1,994,380 shares in 2011 and 2,011,380 shares in 2010

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.”

2011

2010

50,187
157,579

207,766

18,351

1,258,676

179,368
15,531
984,492
16,574

967,918
21,757
6,022
4,335
63,501

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

$ 2,743,225

$ 2,441,684

$ 365,854
708,988
616,241
433,501

2,124,584

143,320
244,143
36,083
34,446

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

1,902,023

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

2,582,576

2,296,659

3,548

3,529

1,994
11,587
146,039

163,168

8,319
(10,838)

(2,519)

160,649

2,011
11,537
131,526

148,603

3,593
(7,171)

(3,578)

145,025

$ 2,743,225

$ 2,441,684

420854.10K.CS5.indd 19

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Year Ended December 31,

(dollars in thousands except share data)

INTEREST INCOME
Loans, taxable

Loans, non-taxable

Securities available-for-sale, taxable

Securities available-for-sale, non-taxable

Federal Home Loan Bank of Boston dividends

Securities held-to-maturity

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

Total interest income

INTEREST EXPENSE
Savings and NOW deposits

Money market accounts

Time deposits (Note 8)

Securities sold under agreements to repurchase

Other borrowed funds and subordinated debentures

Total interest expense

Net interest income

Provision for loan losses (Note 6)

Net interest income after provision for loan losses

OTHER OPERATING INCOME
Service charges on deposit accounts

Lockbox fees

Brokerage commissions

Net gains on sales of securities

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

2011

2010

Century Bancorp, Inc. AR ’11

2009

36,772

40,163

43,113

11,324

22,782

211

5,816

1,114

78,065

2,539

2,706

9,356

379

7,786

22,766

55,299

4,550

50,749

7,885

2,770

441

1,940

3,204

16,240

29,630

4,411

2,235

2,025

10,441

48,742

18,247

1,554

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

5,086

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

16,693

13,574

10,160

5,540,644

5,541,794

3.01

5,533,506

5,535,742

2.45

5,532,249

5,534,340

1.84

420854.10K.CS5.indd 20

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Consolidated Statements of Changes in Stockholders’ Equity

Century Bancorp, Inc. AR ’11

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, 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

Net income
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of $3,143 in taxes

and $1,940 in realized net gains

Pension liability adjustment, net of $2,439 in taxes

Comprehensive income
Conversion of Class B Common Stock to Class A Common Stock, 17,000 shares
Stock options exercised, 2,450 shares
Cash dividends, Class A Common Stock, $0.48 per share
Cash dividends, Class B Common Stock, $0.24 per share

—

—
—

17
2
—
—

—

—
—

(17)
—
—
—

—

16,693

—

16,693

—
—

—
50
—
—

—
—

4,726
(3,667)

—
—
(1,701)
(479)

—
—
—
—

4,726
(3,667)

17,752
—
52
(1,701)
(479)

BALANCE, DECEMBER 31, 2011

$ 3,548

$ 1,994

$ 11,587

$ 146,039

$ (2,519)

$ 160,649

See accompanying “Notes to Consolidated Financial Statements.”

420854.10K.CS5.indd 21

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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

2011

2010

Century Bancorp, Inc. AR ’11

2009

16,693

$ 13,574

$ 10,160

Mortgage loans originated for sale
Proceeds from mortgage loans sold
Gain on sales of mortgage loans held for sale
Gain on sale of loans
Gain on sale of fixed assets
Net gains on sales of securities
Provision for loan losses
Deferred tax benefit
Net depreciation and amortization
Decrease (increase) in accrued interest receivable
Decrease (increase) in prepaid FDIC assessments
Loss (gain) 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
Proceeds from sales of loans
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 increase (decrease) in securities sold under agreements to repurchase
Net increase (decrease) in other borrowed funds

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

(22,664)
19,697
(422)
(238)
—
(1,940)
4,550
(953)
5,558
579
1,794
8
117
(4,456)
503

18,826

121,106
(25,539)
722,403
75,615
(1,140,194)
119,315
(68,863)
4,000
(82,793)
802
—
(2,692)

(276,840)

16,241
206,320
—
52
(2,180)
34,770
22,025

277,228

19,214
188,552

Cash and cash equivalents at end of year

$ 207,766

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

Transfer of loans to other real estate owned

See accompanying “Notes to Consolidated Financial Statements.”

22,799
3,109
4,726
(3,667)
2,110

—
—
—
—
(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)
—

420854.10K.CS5.indd 22

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

1. Summary of Significant Accounting Policies

FAIR VALUE MEASUREMENTS

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.

In determining fair values a hierarchal disclosure framework is used 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 over the counter (“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.

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, 2010 and 2011, short-term investments include highly
liquid certificates of deposit with original maturities of more than 90 days but
less than one year.

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.

420854.10K.CS5.indd 23

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

FEDERAL HOME LOAN BANK STOCK

TRANSFERS OF FINANCIAL ASSETS

The Bank, as a member of the Federal Home Loan Bank of Boston (“FHLBB”)
system, is required to maintain an investment in capital stock of the FHLBB.
Based on redemption provisions, the stock has no quoted market value and is
carried at cost. At its discretion, the FHLBB may declare dividends on the stock.
The Company reviews for impairment based on the ultimate recoverability of
the cost basis in the stock. For the year ended December 31, 2011, the FHLBB
reported preliminary net income of $159.6 million. The FHLBB also declared
a dividend equal to an annual yield of 0.49%. As of December 31, 2011, no
impairment has been recognized.

LOANS HELD FOR SALE

Loans originated and intended for sale in the secondary market are carried at the
lower of cost or estimated fair value in the aggregate. Net unrealized losses, if
any, are recognized through a valuation allowance by charges to income.

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
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.

Transfers of financial assets, typically residential mortgages and loan
participations for the Company, are accounted for as sales when control over
the assets has been surrendered. Control over transferred assets is deemed
to be surrendered when (1) the assets have been isolated from the Company,
(2) the transferee obtains the right (free of conditions that constrain it from
taking advantage of that right) to pledge or exchange the transferred assets, and
(3) the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.

ACQUIRED LOANS

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

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

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

NONPERFORMING ASSETS

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

420854.10K.CS5.indd 24

2/23/12 2:53 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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. Arriving at an appropriate level of
allowance for loan losses necessarily involves a high degree of judgment.

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. Also included are loans to educational institutions, hospitals and
other non-profit organizations. 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.

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

420854.10K.CS5.indd 25

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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.

SERVICING

The Company services mortgage loans for others. Mortgage servicing assets
are recognized as separate assets when rights are acquired through purchase or
through sale of financial assets. Fair value is determined using prices for similar
assets with similar characteristics, when available, or based upon discounted
cash flows using market-based assumptions. The valuation model incorporates
assumptions that market participants would use in estimating future net
servicing income, such as the cost to service, the discount rate, an inflation rate,
ancillary income, prepayment speeds and default rates and losses. Capitalized
servicing rights are reported in other assets and are amortized into loan servicing
fee income in proportion to, and over the period of, the estimated future
net servicing income of the underlying financial assets. Servicing assets are
evaluated for impairment based upon the fair value of the rights as compared to
amortized cost. Impairment is determined by stratifying rights by predominant
risk characteristics, such as interest rates and terms. Impairment is recognized
through a valuation allowance for an individual stratum, to the extent that
fair value is less than the capitalized amount for the stratum. Changes in the
valuation allowance are reported in loan servicing fee income.

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 36,062 shares of Class A common stock
exercisable at December 31, 2011.

On December 30, 2005, the Board of Directors approved the acceleration
and immediate vesting of all unvested options with an exercise price of $31.60
or greater per share. As a consequence, options to purchase 23,950 shares
of Class A common stock became exercisable immediately. The average of the
high and low price at which the Class A common stock traded on December 30,
2005, the date of the acceleration and vesting, was $29.28 per share. In
connection with this acceleration, the Board of Directors approved a technical

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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
2011 and 2010.

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.

The Company accounts for uncertain tax positions in accordance with
FASB ASC 740.

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
judgement changes regarding an uncertain tax position.

TREASURY STOCK

Effective July 1, 2004, companies incorporated in Massachusetts became
subject to Chapter 156D of the Massachusetts Business Corporation Act,
provisions of which eliminate the concept of treasury stock and provide that
shares reacquired by a company are to be treated as authorized but unissued
shares.

PENSION

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

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

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

420854.10K.CS5.indd 26

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

RECENT ACCOUNTING DEVELOPMENTS

In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing
(Topic 860), Reconsideration of Effective Control for Repurchase Agreements.
This update revises the criteria for assessing effective control for repurchase
agreements and other agreements that both entitle and obligate a transferor to
repurchase or redeem financial assets before their maturity. The determination
of whether the transfer of a financial asset subject to a repurchase agreement is
a sale is based, in part, on whether the entity maintains effective control over the
financial asset. This update removes from the assessment of effective control: the
criterion requiring the transferor to have the ability to repurchase or redeem the
financial asset on substantially the agreed terms, even in the event of default by
the transferee, and the related requirement to demonstrate that the transferor
possesses adequate collateral to fund substantially all the cost of purchasing
replacement financial assets. The amendments in this update will be effective for
interim and annual reporting periods beginning on or after December 15, 2011.
The amendments will be applied prospectively to transactions or modifications
of existing transactions that occur on or after the effective date and early
adoption is permitted. The adoption of this guidance is not expected to have a
material impact on the Company’s financial condition or results of operations.

In September 2011, the FASB issued ASU 2011-09, Compensation –
Retirement Benefits – Multiemployer Plans (Subtopic 715-80), Disclosures
about an Employer’s Participation in a Multiemployer Plan. This ASU requires
new and expanded disclosures for individually material multiemployer pension
plans. The changes are effective for fiscal years ending after December 15,
2011. Early application is permitted. There will be no impact to the consolidated
financial results as the Company does not participate in any multiemployer
retirement plans.

420854.10K.CS5.indd 27

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2. Cash and Due from Banks

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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 $4,684,000 at December 31, 2011, and $3,543,000 at December 31, 2010.

December 31, 2011
Gross
Unrealized
Losses

Gross
Unrealized
Gains

Estimated
Fair
Value

December 31, 2010
Gross
Gross
Unrealized
Losses

Gains

Amortized Unrealized

Cost

Estimated
Fair
Value

3. Securities Available-for-Sale

Amortized
Cost

(dollars in thousands)

U.S. Treasury
U.S. Government Sponsored Enterprises
SBA Backed Securities
U.S. Government Agency and Sponsored

1,999
174,657
8,714

13
311
87

$ —
11
—

2,012
174,957
8,801

$
2,000
175,842
9,735

5
386
1

$ —
565
4

$
2,005
175,663
9,732

Enterprises Mortgage-Backed Securities

1,020,752

16,262

1,176

1,035,838

674,481

11,842

5,425

680,898

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

3,509

—

21,515
13,293
533

—

84
—
85

311

—

957
683
—

3,198

—

20,642
12,610
618

4,247

285

34,271
2,300
395

—

98
—
116

279

3,968

—

295
47
—

287

34,074
2,253
511

Total

$ 1,244,972

$ 16,842

$ 3,138

$ 1,258,676

$ 903,556

$ 12,450

$ 6,615

$ 909,391

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 $488,690,000 and $363,240,000 at December 31, 2011 and
2010, respectively. Also included in securities available-for-sale at fair value are securities pledged for borrowing at the Federal Home Loan Bank amounting to
$246,036,000 and $124,189,000 at December 31, 2011 and 2010, respectively. The Company realized gains on sales of securities of $1,940,000, $1,851,000
and $2,734,000 from the proceeds of sales of available-for-sale securities of $75,615,000, $41,251,000 and $94,142,000 for the years ended December 31,
2011, 2010, and 2009, respectively.

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

Fair
Value

The following table shows the estimated maturity distribution of the Company’s securities available-for-sale at December 31, 2011.
(dollars in thousands)

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

Total

79,863
952,351
191,667
19,058
2,033

80,608
965,828
191,495
18,659
2,086

$ 1,244,972

$ 1,258,676

The weighted average remaining life of investment securities available-for-sale at December 31, 2011, was 3.9 years. An auction rate municipal obligation (“ARS”)
is included in Obligations Issued by States and Political Subdivisions. Included in the weighted average remaining life calculation at December 31, 2011, was
$154,657,000 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, 2011. This table shows the unrealized 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 60 and
6 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 393 holdings at December 31, 2011.

As of December 31, 2011, 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.

420854.10K.CS5.indd 28

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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
financial performance are considered.
Less Than 12 Months

12 Months or Longer

December 31, 2011

Total

(dollars in thousands)

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

Total temporarily impaired securities

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

$ 14,989

—

$ 14,989

331,469
—
—
10,542
—

$ 357,000

1,176
—
—
652
—

$ 1,839

—
3,198
3,725
1,468
—

—
311
957
31
—

331,469
3,198
3,725
12,010
—

1,176
311
957
683
—

8,391

$ 1,299

$ 365,391

$ 3,138

At December 31, 2011, 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, 2011. Excluded from the table above are two equity securities that were written down in 2008 by $76,000. The fair value
is $141,000 with an unrealized gain of $32,000 at December 31, 2011. 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, 2010. This table shows the unrealized loss
Temporarily Impaired Investments
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.
Less Than 12 Months
Unrealized
Losses

Unrealized
Losses

12 Months or Longer

December 31, 2010

Fair Value

Total

(dollars in thousands)

U.S. Government Sponsored Enterprises
SBA Backed Securities
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

Total temporarily impaired securities

$ 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.

420854.10K.CS5.indd 29

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

4. Investment Securities Held-to-Maturity

Amortized
Cost

(dollars in thousands)

December 31, 2011
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

December 31, 2010
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

Amortized
Cost

U.S. Government Sponsored Enterprise

$ 26,979

$ 27,013

$ 84,534

$ 148

488

$ 84,194

U.S. Government Sponsored Enterprise
Mortgage-Backed Securities

Total

152,389

$ 179,368

5,435

$ 5,471

157,809

$ 184,822

145,582

5,246

1,498

149,330

$ 230,116

$ 5,394

$ 1,986

$ 233,524

Included in U.S. Government and Agency Securities are securities pledged to secure public deposits and repurchase agreements at fair value amounting to $8,885,000
and $10,000,000 at December 31, 2011, and 2010, respectively. Also included are securities pledged for borrowing at the Federal Home Loan Bank at fair value
amounting to $49,345,000 and $79,844,000 at December 31, 2011, and 2010, respectively.

At December 31, 2011 and 2010, 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, 2011.
(dollars in thousands)

Amortized
Cost

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

7,133 $

$
128,398
43,552
285

7,269
133,231
44,034
288

Total

$ 179,368 $ 184,822

The weighted average remaining life of investment securities held-to-maturity at December 31, 2011, was 4.0 years. Included in the weighted average remaining life
calculation at December 31, 2011, were $24,979,000 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, 2011. 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 2 and 0
securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 92 holdings at December 31, 2011.

As of December 31, 2011, 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 quality 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, 2011

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

$ 4,994

5,367

$ 10,361

—

$ 4,994

5,367

$ 10,361

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, 2011.

420854.10K.CS5.indd 30

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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.
Temporarily Impaired Investments
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.

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 these investments to be other-than-temporarily impaired at December 31, 2010.

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,

2011

2010

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

$ 56,819
82,404
487,495
239,307
6,197
110,786
1,484

$ 984,492

$ 53,583
90,654
433,337
207,787
5,957
114,209
637

$ 906,164

Net deferred fees included in loans at December 31, 2011, and December 31, 2010, were $666,000 and $186,000, respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $18,220,000 and $983,000 at December 31, 2011, and
December 31, 2010, respectively. The Company had $3,389,000 of loans held for sale at December 31, 2011.

As of December 31, 2011 and 2010, the Company’s recorded investment in impaired loans was $8,102,000 and $7,963,000, 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 and 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, 2011, there were $6,073,000 of impaired loans
with a specific reserve of $741,000. At December 31, 2010, there were $2,110,000 of impaired loans with a specific reserve of $317,000.

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
materially less than those contractually established at the loan’s origination. Restructured loans are included in the impaired loan category.

420854.10K.CS5.indd 31

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

December 31,

2011

2010

2009

(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

$ 5,827
18
3,468
8,102
10,284
4,634

846
—
155

$ 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

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, $47,000 and $46,000 of the discount during 2011, 2010 and 2009, respectively.

Directors and officers of the Company and their associates are customers of, and have other transactions with, the Company in the normal course of business. All loans
and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and do not involve more than normal risk of collection or present other unfavorable features.
Balance at
Balance at
December 31, 2011
December 31, 2010
The following table shows the aggregate amount of loans to directors and officers of the Company and their associates during 2011.
(dollars in thousands)

Repayments
and Deletions

Additions

$ 3,798

$ 1,229

$ 801

$ 4,226

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.

2011

2010

2009

(dollars in thousands)
An analysis of the allowance for loan losses for each of the three years ending December 31, 2011, 2010 and 2009 are as follows:
Allowance for loan losses, beginning of year
Loans charged-off
Recoveries on loans previously charged-off

$ 12,373
(4,443)
548

$ 14,053
(2,824)
795

$ 11,119
(6,070)
699

Net charge-offs
Provision charged to expense

(2,029)
4,550

(3,895)
5,575

(5,371)
6,625

Allowance for loan losses, end of year

$ 16,574

$ 14,053

$ 12,373

420854.10K.CS5.indd 32

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

ALLOWANCE FOR LOAN LOSSES AND AMOUNT OF INVESTMENTS IN LOANS

Construction Commercial

Further information pertaining to the allowance for loan losses at December 31, 2011 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, 2010
Charge-offs
Recoveries
Provision

$ 1,752
(1,200)
—
2,341

$ 3,163
(676)
293
359

$ 5,671
—
6
889

$ 1,718
(337)
27
478

$ 298
(607)
467
198

Ending balance at December 31, 2011

$ 2,893

$ 3,139

$ 6,566

$ 1,886

$ 356

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

—

335

282

124

$ —

for loans not deemed to be impaired

$ 2,893

$ 2,804

$ 6,284

$ 1,762

$ 356

725
(4)
2
(19)

$ 726
—
—
304

$ 14,053
(2,824)
795
4,550

704

$ 1,030

$ 16,574

—

$ —

741

704

$ 1,030

$ 15,833

Loans:

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

$ 56,819
$ 1,500
$ 55,319

$ 82,404
$ 1,525
$ 80,879

$ 487,495
$ 4,561
$ 482,934

$ 239,307
$
516
$ 238,791

$ 7,681
$ —
$ 7,681

$ 110,786
$
—
$ 110,786

$ —
$ —
$ —

$ 984,492
$ 8,102
$ 976,390

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

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, 2011.

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, 2011.

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, 2011, 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.

The percentage of the allowance for loan losses allocated to construction and land development loans to total construction and land development loans increased from
3.3%, at December 31, 2010, to 5.1%, at December 31, 2011, mainly as a result of an increase in the historical loss factor. This factor was increased to account for
the incremental risk in the portfolio.

420854.10K.CS5.indd 33

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Construction Commercial

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

The following table presents the Company’s loans by risk rating at December 31, 2011.

and Land
Development

and
Industrial

Commercial
Real Estate

(dollars in thousands)

Grade:

1-3 (Pass)
4 (Monitor)

5 (Substandard)
6 (Doubtful)
Impaired

Total

$ 48,298
7,021
—
—
1,500

$ 80,140
739
—
—
1,525

$ 478,186
4,748
—
—
4,561

$ 56,819

$ 82,404

$ 487,495

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, 2011 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

$ —
1,417
2,528
2,635
519
171

$ 1,500
763
736
2,324
9
495

Total

$ 7,270

$ 5,827

$ —
18
—
—
—
—

$ 18

$ 1,500
2,198
3,264
4,959
528
666

$ 55,319
80,206
484,231
234,348
7,153
110,120

$ 56,819
82,404
487,495
239,307
7,681
110,786

$ 13,115

$ 971,377

$ 984,492

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

Accruing
30-89 Days
Past Due

Non Accrual

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

$ —
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

420854.10K.CS5.indd 34

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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 “Notes to
Consolidated Financial Statements.”

The following is information pertaining to impaired loans at December 31, 2011:

Carrying
Value

Unpaid
Balance
Principal

Required
Reserve

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

$ 1,500
313
183
33
—
—

$ 3,292
537
203
33
—
—

Total

$ 2,029

$ 4,065

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

$ —
1,212
4,378
483
—
—

$
—
1,240
4,409
483
—
—

Total

$ 6,073

$ 6,132

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

$ 1,500
1,525
4,561
516
—
—

$ 3,292
1,777
4,612
516
—
—

Total

$ 8,102

$ 10,197

$ —
—
—
—
—
—

$ —

$ —
335
282
124
—
—

$ 741

$ —
335
282
124
—
—

$ 741

Average
Carrying Value

$ 2,377
404
368
3
—
—

$ 3,152

$
926
1,105
4,894
207
—
—

$ 7,132

$ 3,303
1,509
5,262
210
—
—

$ 10,284

$ —
3
—
—
—
—

$ 3

$ —
18
133
1
—
—

$ 152

$ —
21
133
1
—
—

$ 155

420854.10K.CS5.indd 35

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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 ’11

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

Troubled Debt Restructurings occurring during the year ended December 31, 2011:

Number of
Contracts

Pre-modification
Outstanding
Recorded Investment

Post-modification
Outstanding
Recorded Investment

(dollars in thousands)

Construction and land development
Commercial and industrial
Commercial real estate

Total

1
13
6

39
960
3,199

$ 4,198

$ —
909
3,195

$ 4,104

There was one troubled debt restructuring, totaling $11,000, during the year ended December 31, 2011, that subsequently defaulted.

Troubled Debt Restructurings were identified as a modification where a concession was granted to a customer who is having financial difficulties. This concession may
be below market rate, longer amortization/term, and a lower payment amount. The present value calculation of the modification did not result in an increase in the
allowance for these loans beyond any previously established allocations. The loans were modified, for the construction, commercial and industrial, and commercial real
estate loans, by reducing interest rates as well as extending terms on the loans. The financial impact of the modifications for performing commercial and industrial loans
were a $38,000 reduction in principal and a $1,000 reduction in interest payments for the year ended December 31, 2011. The financial impact of the modifications
for performing commercial real estate were a $30,000 reduction in principal and a $44,000 reduction in interest payments for the year ended December 31, 2011.
The financial impact of the modifications for nonperforming loans was a $11,000 reduction in the carrying value of the loans as a result of payments received under
the modified terms of the loans.

420854.10K.CS5.indd 36

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

December 31,

7. Bank Premises and Equipment

(dollars in thousands)

Land
Bank premises
Furniture and equipment
Leasehold improvements

Accumulated depreciation and amortization

Total

2011

2010

Estimated Useful Life

$ 3,478
18,349
28,874
8,079

58,780
(37,023)

$ 21,757

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

56,089
(34,861)

$ 21,228

—
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 $2,007,000, $1,730,000 and $1,673,000 for the years ended December 31, 2011, 2010 and 2009, respectively. Rental
income approximated $455,000, $438,000 and $418,000 in 2011, 2010 and 2009, 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, 2011, were as follows:

2012
2013
2014
2015
2016
Thereafter

$ 1,890
1,579
1,434
1,125
966
2,815

$ 9,809

8. Goodwill and Identifiable Intangible Assets

During the second half of 2009 and the full year of 2010 and the full year of 2011, the Company’s Class A common stock traded close to or above book value per
share. Accordingly, at December 31, 2009, 2010 and 2011, management measured for impairment utilizing the fair value of the reporting unit based on the recent
stock price of the Company. Management determined that the Company’s goodwill is not considered to be impaired at December 31, 2011.
Carrying Amount of Goodwill and Intangibles

Goodwill

Total

The changes in goodwill and identifiable intangible assets for the years ended December 31, 2011 and 2010 are shown in the table below.
(dollars in thousands)

Core Deposit
Intangibles

Balance at December 31, 2009
Amortization Expense

Balance at December 31, 2010
Amortization Expense

Balance at December 31, 2011

2,714
—

$ 2,714

896
(388)

508
(388)

$ 3,610
(388)

$ 3,222
(388)

120

$ 2,834

Core Deposit Intangibles

Year

Amount

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

2012

$ 120

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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.

Fair Value Measurements Using

The results of the fair value hierarchy as of December 31, 2011, are as follows:
Carrying
Value

Quoted Prices
in Active Markets
for Identical Assets Observable Inputs

Significant

(Level 1)

(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
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

Other Real Estate Owned

2,012
174,957
8,801

1,035,838
3,198
—
20,642
12,610
618

$ 1,258,676

$
$

1,439
1,183

$ —
—
—

—
—
—
—
—
201

$ 201

$ —
$ —

2,012
174,957
8,801

1,035,838
3,198
—
2,145
12,610
—

$ 1,239,561

—
—
—

—
—
—
18,497
—
417

$ 18,914

$
$

—
—

$ 1,439
$ 1,183

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 2011 for the estimated credit
loss amounted to $1,699,000. The Company uses discounts to appraisals, as necessary, based on management’s observations of the local real estate market for loans in
this category. Other real estate owned is carried at fair value less costs to sell, based on the expected realizable fair value of collateral.

420854.10K.CS5.indd 38

2/23/12 2:54 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

The changes in Level 3 securities for the year ended December 31, 2011, are shown in the table below:

Auction Rate
Securities

Obligations
Issued by States
and Political
Subdivisions

(dollars in thousands)

Balance at December 31, 2010
Purchases
Maturities
Amortization
Change in fair value

Balance at December 31, 2011

$ 4,393
—
—
—
(668)

$ 3,725

$ 15,988
25,314
(26,528)
(2)
—

$ 14,772

Equity
Securities

$ 279
145
(7)
—
—

$ 417

Total

$ 20,660
25,459
(26,535)
(2)
(668)

$ 18,914

The amortized cost of Level 3 securities was $19,864,000 with an unrealized loss of $950,000 at December 31, 2011. 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.

Fair Value Measurements Using

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

Carrying
Value

2,005
$
175,663
9,732

680,898
3,968
287
34,073
2,254
511

$ 909,391

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

Significant
Observable Inputs
(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
—

$ 888,499

—
—
—

—
—
—
20,381
—
279

$ 20,660

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.

Obligations
Issued by States
The changes in Level 3 securities for the year ended December 31, 2010, are shown in the table below:
and Political
Subdivisions

Auction Rate
Securities

(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

420854.10K.CS5.indd 39

2/23/12 2:54 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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.

10. Deposits

2011

Percent

2010

Percent

(dollars in thousands)
The following is a summary of remaining maturities or repricing of time deposits as of December 31,
Within one year
Over one year to two years
Over two years to three years
Over three years to five years

$ 231,099
111,752
48,014
42,636

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

53 %
26 %
11 %
10 %

65 %
13 %
17 %
5 %

Total

$ 433,501

100 %

$ 417,260

100 %

Time deposits of $100,000 or more totaled $280,208,000 and $264,474,000 in 2011 and 2010, respectively.

11. Securities Sold Under Agreements to Repurchase

2011

2010

2009

(dollars in thousands)
The following is a summary of securities sold under agreements to repurchase as of December 31,
Amount outstanding at December 31
$ 108,550
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

$ 239,830
$ 133,080

$ 152,267
$ 129,137

$ 143,320

0.29 %

0.24 %

0.36 %

0.43 %

$ 118,745

0.52 %

$ 122,521
$ 98,635

0.58 %

Amounts outstanding at December 31, 2011, 2010 and 2009 carried maturity dates of the next business day. U.S. Government Sponsored Enterprise securities
with a total amortized cost of $140,891,000, $107,030,000 and $115,792,000 were pledged as collateral and held by custodians to secure the agreements
at December 31, 2011, 2010 and 2009, respectively. The approximate fair value of the collateral at those dates was $143,212,000, $108,200,000 and
$118,186,000, respectively.

12. Other Borrowed Funds and Subordinated Debentures

2011

2010

2009

(dollars in thousands)
The following is a summary of other borrowed funds and subordinated debentures as of December 31,
Amount outstanding at December 31
Weighted average rate at December 31
Maximum amount outstanding at any month end
Daily average balance outstanding during the year
Weighted average rate during the year

$ 266,564
$ 201,273

$ 280,226
$ 202,209

$ 258,201

$ 280,226

2.85 %

3.85 %

4.13 %

2.88 %

$ 270,107

3.63 %

$ 272,071
$ 219,713

4.71 %

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,
2011, was approximately $197,505,000. In addition, the Bank has a $14,500,000 line of credit with the FHLBB. A schedule of the maturity distribution of FHLBB
Weighted
advances with the weighted average interest rates is as follows:
Average
Rate

Weighted
Average
Rate

Amount

2011

2010

2009

(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

420854.10K.CS5.indd 40

$ 81,500
23,500
17,500
74,500
47,000

$ 244,000

0.42 %
3.34 %
3.01 %
2.90 %
4.38 %

2.41 %

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

$ 221,000

0.39 %
1.98 %
3.82 %
2.70 %
4.55 %

2.28 %

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

$ 232,500

2.72 %
1.81 %
2.08 %
3.65 %
4.55 %

3.18 %

2/23/12 2:54 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

Included in the table above are $35,000,000, $35,000,000 and $82,000,000 of FHLBB advances at December 31, 2011, 2010 and 2009, respectively, that are
putable at the discretion of FHLBB. These put dates were not utilized in the table above.

During 2011, the Company restructured $18,000,000 of FHLBB advances. Prior to restructure, the weighted average rate on these advances was 4.45% and the
weighted average remaining maturity was 25 months. Subsequent to restructure, the weighted average rate was 3.50% and the weighted average maturity was
60 months. The restructures were accounted for as a modification.

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 restructure was accounted for as a modification.

SUBORDINATED DEBENTURES

Subordinated debentures totaled $36,083,000 at December 31, 2011 and 2010. 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.

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, 2011 and 2010.

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 $0 and $975,000 at December 31, 2011 and 2010, respectively.

The Bank also has an outstanding loan in the amount of $143,000 at December 31, 2011 and 2010, 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 2011, 2010 and 2009 was an increase of 1,149, 2,236 and 2,091
shares, respectively.

STOCK REPURCHASE PLAN

During 2011, 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 2010, which also authorized the Company to repurchase up to 300,000, or less than 9%, of Century Bancorp Class A Common Stock.

The stock buyback 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 36,062 options exercisable at December 31, 2011.

420854.10K.CS5.indd 41

2/27/12 2:01 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

December 31, 2011

December 31, 2010

December 31, 2009

Stock option activity under the plan is as follows:

Shares under option:
Outstanding at beginning of year
Forfeited
Exercised

Outstanding at end of year

Exercisable at end of year

Weighted
Average
Exercise Price

Amount

38,712
(200)
(2,450)

$ 28.36
15.06
21.44

36,062

$ 28.90

36,062

$ 28.90

Available to be granted at end of year

223,084

Weighted
Average
Exercise Price

$ 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

202,909

Amount

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

38,712

222,884

At December 31, 2011, 2010 and 2009, the options outstanding have exercise prices between $15.063 and $31.83, and a weighted average remaining contractual
life of two years for 2011 and three years for 2010 and 2009. The weighted average intrinsic value of options exercised for the period ended December 31,
2011, was $6.80 per share with an aggregate value of $16,666. The average intrinsic value of options exercisable at December 31, 2011, 2010 and 2009 had an
aggregate value of $49,145, $41,895 and $74,056, respectively.

CAPITAL RATIOS

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, 2011, that the Bank and the Company meet all capital adequacy requirements to which they are subject.

As of December 31, 2011, 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, 2011

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, 2010

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

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

$ 183,864

167,558

14.09 %

12.84 %

6.20 %

$ 162,944

148,891

13.61 %

12.43 %

6.14 %

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

Actual
Amount

As of December 31, 2011

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, 2010

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

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

$ 208,852

192,516

15.98 %

14.73 %

7.12 %

$ 192,387

178,334

16.03 %

14.86 %

7.35 %

$ 104,358

52,179

108,033

$ 95,793

47,897

96,945

8.00 %

4.00 %

8.00 %

4.00 %

For Capital Adequacy
Purposes

Amount

Ratio

$ 104,550

52,275

108,179

$ 95,992

47,996

97,089

8.00 %

4.00 %

8.00 %

4.00 %

$ 130,448

10.00 %

78,269

135,042

6.00 %

5.00 %

$ 119,742

10.00 %

71,845

121,182

6.00 %

5.00 %

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

Amount

Ratio

$ 130,687

10.00 %

78,412

135,224

6.00 %

5.00 %

$ 119,990

10.00 %

71,994

121,362

6.00 %

5.00 %

420854.10K.CS5.indd 42

2/23/12 2:54 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

14. Income Taxes

2011
The current and deferred components of income tax expense for the years
(dollars in thousands)
ended December 31 are as follows:
Current expense:
Federal

2010

2009

$ 2,198
309

$ 2,262
528

$ 3,058
419

State

Total current expense

2,507

2,790

3,477

Deferred (benefit) expense:

Federal

State

Total deferred benefit

(961)
8

(953)

(1,223)
(323)

(1,546)

Provision for income taxes

$ 1,554

$ 1,244

(1,759)
(535)

(2,294)

$ 1,183

There were no penalties during 2009, 2010, or 2011. There was approximately
$2,000 paid to the Internal Revenue Service for interest during 2011.

Income tax accounts included in other assets/liabilities at December 31 are
(dollars in thousands)
as follows:
Currently receivable
Deferred income tax asset, net

$
785
13,714

$
181
13,465

2011

2010

Total

$ 14,499

$ 13,646

2011

2010

2009

Differences between income tax expense at the statutory federal income tax rate
(dollars in thousands)
and total income tax expense are summarized as follows:
Federal income tax expense
at statutory rates
State income tax, net of

$ 5,038

$ 6,204

$ 3,856

federal income tax benefit

Insurance income
Effect of tax-exempt interest
Net tax credit
Other

209
(396)
(3,801)
(683)
21

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

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

Total

$ 1,554

$ 1,244

$ 1,183

Effective tax rate

8.5 %

8.4 %

10.4 %

2011

2010
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:
Allowance for loan losses
Deferred compensation
Pension and SERP liability
Acquisition premium

$ 7,056
5,009
7,398
596
26
31
1,049
75
727

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

Investments writedown

Deferred gain
AMT
Other
Nonaccrual interest

Gross deferred income tax asset

21,967

18,533

Deferred income tax liabilities:
Depreciation

Limited partnerships

Unrealized gain on securities

available-for-sale

Gross deferred income tax liability

(201)
(2,667)

(5,385)

(8,253)

(250)
(2,576)

(2,242)

(5,068)

Deferred income tax asset net

$ 13,714

$ 13,465

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, 2011. 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 is in an Alternative Minimum Tax (“AMT”) position. The AMT is carried
as a deferred asset and has an indefinite life. The Company has potential tax
planning strategies available which support the deferred AMT and at this time no
valuation allowance is needed.

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.
The Company is subject to federal examinations for tax years after December 31,
2009, and state examinations for tax years after December 31, 2007.

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%.

420854.10K.CS5.indd 43

2/23/12 2:54 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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 2012 to 2016 are $1,223,000, $1,295,000, $1,330,000, $1,366,000 and $1,549,000, respectively. The
aggregate benefits expected to be paid in the five years from 2017 to 2021 are $8,764,000. The Company plans to contribute $1,800,000 to the Plan in 2012.
Asset Category

Percent

Level 1

Level 2

Level 3

Total

(dollars in thousands)
The fair value of plan assets and major categories as of December 31, 2011, is as follows:
$ 10,491
Collective funds
4,934
Equity securities
2,918
Mutual funds
1,522
Hedge funds
652
Short-term investments

51.1 %
24.1 %
14.2 %
7.4 %
3.2 %

100.0 %

$ 20,517

$ 6,657
4,934
2,918
—
—

$ 14,509

$ 3,834
—
—
—
652

$ 4,486

$ —
—
—
1,522
—

$ 1,522

Asset Category

Percent

Total

Level 1

Level 2

Level 3

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

Collective funds
Equity securities
Mutual funds
Hedge funds
Short-term investments

LEVEL 1

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

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

LEVEL 2

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

LEVEL 3

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

The asset or liability’s fair value measurement level within fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Below is a description of the valuation
methodologies used for assets measured at fair value.

The Trust reports bonds and other obligations, short-term investments and equity securities at fair values based on published quotations, Collective funds and hedge
funds (Funds) are valued in accordance with valuations provided by such Funds, which generally value marketable securities at the last reported sales price on the
valuation date and other investments at fair value, as determined by each Fund’s manager.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future values. Furthermore,
although the Trust believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies to determine the
fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Year Ended December 31,

2011

2010

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

Balance at beginning of year
Actual return – assets still being held

Balance at end of year

$ 1,431
91

$ 1,522

$ 1,319
112

$ 1,431

420854.10K.CS5.indd 44

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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. Life insurance policies, which are owned by the Company, are purchased covering the lives of each participant.

The benefits expected to be paid in each year from 2012 to 2016 are $1,082,000, $1,082,000, $1,080,000, $1,065,000 and $1,445,000, respectively. The
aggregate benefits expected to be paid in the five years from 2017 to 2021 are $9,345,000.

Defined Benefit Pension Plan

2011

2010

2011

2010

Supplemental Insurance/
Retirement Plan

(dollars in thousands)

Change projected in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost

Actuarial (gain)/loss
Benefits paid

25,793
843
1,419
1,390
(661)

24,247
851
1,334
5
(644)

16,853
680
932
3,678
(1,046)

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

Projected benefit obligation at end of year

28,784

25,793

21,097

16,853

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

19,931
(28)
1,275
(661)

20,517

(8,267)

28,173

4.50 %
5.50 %
8.00 %
4.00 %

843
1,419
(1,595)
(104)
494

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

(21,097)

18,567

(16,853)

15,551

4.50 %
5.50 %
NA
4.00 %

680
932
—
111
131

5.50 %
5.50 %
NA
4.00 %

588
892
—
110
129

1,057

1,348

1,854

1,719

104
2,519

2,623

104
(1,475)

(1,371)

(111)
3,546

3,435

(110)
(614)

(724)

3,680

(23)

5,289

995

(dollars in thousands)

Prior service cost
Net actuarial loss

Total

December 31, 2011
Supplemental
Plan

Plan

Total

Plan

December 31, 2010
Supplemental
Plan

Total

724
(10,342)

(1,219)
(7,204)

(495)
(17,546)

828
(7,823)

$ (1,330)
(3,658)

(502)
(11,481)

(9,618)

(8,423)

$ (18,041)

(6,995)

$ (4,988)

(11,983)

420854.10K.CS5.indd 45

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The following table summarizes the amounts included in Accumulated Other
Comprehensive Loss at December 31, 2011, 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 2012

Amortization of loss to be recognized in 2012

$ (104)
735

$ 114
335

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 $266,000 for 2011, $244,000 for 2010 and $261,000 for 2009.
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. Discretionary bonus
expense amounted to $1,100,000, $600,000 and $403,000 in 2011, 2010,
and 2009, respectively.

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

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

policies in making commitments and conditional obligations as it does for on-
Contract or Notional Amount
balance-sheet instruments. Financial instruments with off-balance-sheet risk at
December 31 are as follows:
(dollars in thousands)

2011

2010

Financial instruments whose contract

amount represents credit risk:

Commitments to originate
1–4 family mortgages

$ 12,638

$ 14,635

Standby and commercial letters of credit

4,645

4,935

Unused lines of credit

Unadvanced portions

195,181

169,862

of construction loans

16,819

22,337

Unadvanced portions
of other loans

4,605

3,337

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.

2011

2010

2009

16. Commitments and Contingencies

18. Other Operating Expenses

(dollars in thousands)

A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 2011. 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

Marketing
Processing services
Legal and audit
Postage and delivery
Software maintenance/amortization
Supplies
Consulting
Telephone
Core deposit intangible amortization
Insurance
Directors’ fees
Other

$ 1,575
865
1,140
773
951
868
796
742
388
275
309
1,759

$ 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

Total

$ 10,441

$ 9,840

$ 9,648

420854.10K.CS5.indd 46

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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.

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.

2011

2010

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

Carrying
Amounts

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

207,766
18,351
1,258,676
179,368
967,918
6,022

2,124,584
387,463
36,083
970

$ 207,766
18,384
1,258,676
184,822
1,018,822
6,022

2,130,795
401,485
43,063
970

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

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

Standby letters of credit

—

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

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

420854.10K.CS5.indd 47

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LIMITATIONS

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

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.
2011 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

2010 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

19,252
5,233

14,019
950

13,069
4,361
12,702

4,728
539

19,638
5,800

13,838
1,200

12,638
4,503
12,055

5,086
504

19,597
6,082

13,515
1,200

12,315
3,841
11,775

4,381
184

$ 19,578
5,651

13,927
1,200

12,727
3,535
12,210

4,052
327

4,189

4,582

4,197

3,725

5,540,798

5,542,052

5,540,597

5,541,646

5,540,597

5,541,595

0.76

Fourth

19,122
5,811

13,311
1,350

11,961
4,223
11,895

4,289
365

0.83

Third

18,628
6,040

12,588
1,200

11,388
3,412
11,313

3,487
220

5,540,583

5,541,927

0.67

0.76

Second

First

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

0.71

5,535,548

5,537,120

0.59

5,530,297

5,532,980

0.54

5,530,297

5,533,070

0.62

420854.10K.CS5.indd 48

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’11

21. Parent Company Financial Statements

The balance sheets of Century Bancorp, Inc. (“Parent Company”) as of December 31, 2011 and 2010 and the statements of income and cash flows for each of the
BALANCE SHEETS
years in the three-year period ended December 31, 2011, are presented below. The statements of changes in stockholders’ equity are identical to the consolidated
December 31,
2011
statements of changes in stockholders’ equity and are therefore not presented here.
(dollars in thousands)

2010

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)

$ 23,467
170,642
2,730

$ 196,839

$
107
36,083
160,649

$ 196,839

$ 27,352
151,303
2,560

$ 181,215

107
36,083
145,025

$ 181,215

2011

2010

2009

—
100
72

172
2,400
178

(2,406)
(818)

(1,588)
18,281

$ 16,693

—
156
72

228
2,400
172

(2,344)
(797)

(1,547)
15,121

$ 2,766
409
72

3,247
2,400
200

647
(720)

1,367
8,793

$ 13,574

$ 10,160

2011

2010

2009

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

$ 16,693

$ 13,574

$ 10,160

Undistributed income of subsidiary
Depreciation and amortization

Increase in other assets
Increase (decrease) in liabilities

Net cash (used in) 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

(18,281)
12
(182)
—

(1,758)

—
53
(2,180)

(2,127)

(3,885)

27,352

$ 23,467

(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

420854.10K.CS5.indd 49

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Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ’11

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, 2011 and 2010 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, 2011. 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, 2011 and 2010 and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2011, 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, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated February 23, 2012, expressed an unqualified opinion on the effectiveness of the company’s
internal control over financial reporting.

Boston, Massachusetts

February 23, 2012

420854.10K.CS5.indd 50

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Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ’11

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, 2011, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Century Bancorp, Inc.’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying “Management’s Report on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.

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

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

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

In our opinion, Century Bancorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, 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, 2011 and 2010 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, 2011, and our report dated February 23, 2012, expressed an unqualified opinion on those
consolidated financial statements.

Boston, Massachusetts

February 23, 2012

420854.10K.CS5.indd 51

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Management’s Report on Internal Control Over Financial Reporting

Century Bancorp, Inc. AR ’11

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, 2011. 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, 2011, 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 51.

Barry R. Sloane
President & CEO

February 23, 2012

William P. Hornby, CPA
Chief Financial Officer
& Treasurer

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Stockholder Information

Corporate Headquarters

Transfer Agent and Registrar

Century Bank
400 Mystic Avenue
Medford, MA 02155-6316
TEL (866) 823-6887
CenturyBank.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 10, 2012, at 10:00 a.m. The meeting will take
place at Century Bank, 400 Mystic Avenue, Medford, MA.

Stock Listing

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

10-K Report

A copy of the Company’s annual report to the Securities and Exchange Commission on Form 10-K may be obtained
without charge upon written request to: Century Bancorp, Inc., Investor Relations, 400 Mystic Avenue, Medford,
MA 02155 or online at http://www.centurybank.com/about/investorrelations.cfm.

420854.10K.CS5.indd 53

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Our family’s bank. And yours.

About Century

Headquarters

Century Bancorp, Inc. is a $2.7 billion banking and financial services company headquartered in Medford,
Massachusetts. The Company operates 24 banking offices in 17 cities and towns in Massachusetts and
provides a full range of business, personal, and institutional services.

Coming Soon

Allston Branch

Andover Branch

Beverly Branch

Braintree Branch

Brookline Branch

Burlington Branch

Cambridge Branch

Coolidge Corner Branch

Everett Branch

Federal Street Branch

Fellsway Branch

Kenmore Square Branch

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

Doric is one of the three original Greek architectural pillar designs. The Doric is symbolic of strength. The ancient

temple in classical Athens, was built using Doric pillars and still stands today. The Doric pillar was popular in North

official and bank buildings due to its uncomplicated structure yet strong design projecting strength, durability and

Our family’s bank. And yours.

420854.COVER.CS5.indd 2

2/27/12 2:23 PM

Our family’s bank. And yours.

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

Annual Report

pms red _032

pms grey_423

A pillar of strength.

A pillar of the community.

Equal Housing Lender/Member FDIC

002-CSN0443

420854.COVER.CS5.indd 1

2/27/12 2:03 PM