Century Bancorp Inc. Annual Report 2012

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FY2012 Annual Report · Century Bancorp Inc.

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44 years of

Stability

Our family’s bank. And yours.

in our financial performance

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

in our client service

in our leadership

in our communities

in our values

Equal Housing Lender/Member FDIC

002-CSN0443

2012 Annual Report

Pictured from left: Executive Vice President Linda Sloane Kay, Founder & Chairman Marshall M. Sloane, and President & CEO Barry R. Sloane

Much has been said in the media of late regarding the financial industry. Let me affirm

that Century Bank’s integrity has not diminished in any way. Our dedication to our community,

“

our customers and our shareholders is unwavering. I charted a course for Century based on

making character count, and we remain true to our strategy. Our solid financial performance

and stability have positioned us for growth well into the future.

“

Marshall M. Sloane, Founder and Chairman

2012

Dear Fellow Shareholders:

2012 was the third consecutive record year for Century Bank. As we approach our

44th anniversary, assets, deposits, earnings, and loans all reached record levels.

We ended 2012 at $3.09 billion in assets and $19.04 million of annual earnings.

In a year when bank stock prices generally declined, ours rose 17% to close at

$32.95; a three-year increase of 50%. 2012 was another solid year of achievements

in the midst of a banking industry in transition.

Our theme this year is “ability,” and its many derivatives. It takes a combination of

skills to achieve a sustainable and stable platform for growth. Century continues

to prove that the pathway set nearly 44 years ago by our intrepid Founder and

Chairman, Marshall M. Sloane, a man with many different abilities, resonates

equally well in 2013.

Dependability: Double-Digit Net Earnings Growth

Net income grew by 14% to a record $19.04 million, or $3.43 per Class A

share diluted, for the year ended December 31, 2012, as compared to net

income of $16.7 million, or $3.01 per Class A share diluted, for 2011.

Century’s return on average equity (ROE) is now 11.1%, up from 2011’s

10.7%. Our ROE is within the top quartile of our regional peer group. Our

average efficiency ratio of overhead to revenue improved to 62.1%, down

from 62.2% in 2011, and below the median (lower is favorable) within our

regional peer group. This achievement proves that, while we have grown, we

have lost no increment of control over expenses. Senior management

continues to review and sign every expense invoice.

SUSTAINAbILITY

Credibility: Significant Asset Growth

Total assets increased 12.5% to a record $3.09 billion on December 31, 2012,

up from $2.74 billion on December 31, 2011, an increase of $343 million.

Century has added record numbers of new client acquisitions in all three

segments: consumer, business, and institutional. Clients seek a stable banking

environment, free of event risk, and predicated on the three markers of

consistent growth of earnings, assets, and capital. We continue to produce

all three, and client originations follow. We are proud to cite an increasing

number of the most established educational and governmental institutions

in New England as our clients.

Sustainability: Consistent Capital Growth

Total equity rose to $180 million on December 31, 2012, an increase of
11.8% from $161 million on December 31, 2011. Book value per share

Total Assets (in thousands)

Earnings Per Class A Share, Diluted

Net Income (in thousands)

$3,086,209

$2,743,225

$3.43

$3.01

$2,441,684

$2.45

$19,039

$16,693

$13,574

’12

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’10

’12

’11

’10

’12

’11

’10

increased to $32.40 at December 31, 2012, up from $28.98 at

December 31, 2011. Century is “well capitalized” by all regulatory standards,

and we foresee no difficulty passing all proposed “Basel III” standards with

organic capital generation from earnings.

Quality: Sound Loan Growth

Total loans grew by 12.9% to $1.1 billion on December 31, 2012, marking

the first time we passed the billion-dollar loan milestone. Nonperforming

assets fell from the previous year, to $4.5 million. The education and

healthcare sectors continue to drive our loan growth, increasing some 27%,

as a mirror image of the dynamic economic engine of Southern New England.

Century has earned the right to be known as the expert in not-for-profit

tax-exempt bond finance.

Business lending is always a core focus; we have a dozen business

development officers in the field, a talented group of energized underwriters,

and a daily loan review and approval process that ensures speedy and thoughtful

decisions by experienced senior managers. We utilize the SBA lending

programs wherever possible to increase credit availability and minimize risk.

2012 was a record year in which we closed $117 million in residential first

mortgages and $67 million in home equity loans. We extended 307 energy

conservation loans through the Mass Save loan program, which helped us do

our part for conservation and build new long-term relationships.

Risk management is in our blood, and the results show it. We make loans

in our geographic footprint to organizations and families of character and

promise who see us as the center of their banking relationship. Every loan is

reviewed and approved by senior management, who receive robust and

collegial input from our bankers in the field. Decisions are made swiftly with

an eye to the macro and micro risks present in every loan. We know the loans

that we do – and do not – want in our portfolio. The decisions are clear, and

the analysis is thorough and respectful to all. Borrowers are not just credit

scores to Century; they are families and companies, hopes and dreams. We

try to bring value to all types of applicants in their search for financing.

Cambridge College Inaugural Celebration

Pictured from left: Barry R. Sloane,
Deborah C. Jackson, President of Cambridge College,
Gerald S. Algere, SVP, Century Bank,
Barbara J. G. Sloane, and Marshall M. Sloane

Pictured from left:

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

Wellesley Grand Opening Ribbon Cutting

Pictured from left: Fraser Lemley, Chairman and CEO of Sentry Auto Group and Director, Century Bank, Linda Sloane Kay,
Barbara J. G. Sloane, Marshall M. Sloane, Professor Marshall I. Goldman, Wellesley College and Founding Director of Century Bank,
Barry R. Sloane, Melissa A. Murphy, Wellesley Branch Manager, and Patricia Galindo, Wellesley College

Capability: Growing Branch System

In 2012, we opened two new branches: #24 in Andover, at 15 Elm Street,

and #25 in Wellesley at 35 Central Street. Both are prestigious communities

where we are already off to strong starts. In 2012, we also remodeled and

rededicated our second-oldest and busiest branch in Malden.

Accountability: Additional Clients in Institutional Services

The Institutional Services Group, which includes our government, cash

management, and not-for-profit banking teams, had a record year of client

growth. Our share of government banking deposits is now reported to be the

highest among Massachusetts chartered banks, and we have made promising

inroads into the Rhode Island and New Hampshire markets.

We processed over 20 million check and payment items in 2012, with

exceptional quality control and customer service. The “giant” item processors

Malden Remodeling Ribbon Cutting

Pictured from left: State Representative Paul J. Donato, James M. Flynn, Jr., SVP, Century Bank,
Barbara J. G. Sloane, Linda Sloane Kay, Marshall M. Sloane, Malden Mayor Gary Christenson,
Malden City Councillor Neal Anderson, Janice D. Taylor, VP and Malden Branch Manager,
Barry R. Sloane, Dr. Candace Lapidus Sloane, and Gabriella Snyder, Bread of Life

continue to contract in services and entry points of deposits; we are filling

several of those gaps in our region. The lockbox function remains a time-tested

magnet for corporate and institutional deposits. We are proud of the most

stable operational management team in the industry, combining an advanced

technology platform with live and experienced customer service personnel.

Visibility: Widely Recognized Branding Program

Our best-in-class corporate marketing programs promote our message of

local family control, permanence, approachability, and personal service.

This message has molded an identity that resonates with our communities

and drives favorability. Marshall, Linda, and I personally sign welcome

notes to thank all new clients of Century. This level of personal touch

differentiates us from others in the industry.

We are proud to be recognized
as 74 on the Boston Globe 100
best performing companies
in Massachusetts

CAPAbILITY

Reliability: Information Systems

2012 marked a year when we experienced no unplanned outage in information

systems. We pride ourselves on a technology platform of redundancy and

expertise that our clients can rely on for financial inquiry, transactions, and

high-quality service. We are proud to say that Information Systems met all

of its operational and service goals in 2012. Mobile banking “apps” are a

revolutionary and popular channel that our clients are increasingly using to

bank and communicate with us.

Andover Grand Opening Ribbon Cutting

Pictured from left: James M. Flynn, Jr., SVP, Century Bank, Brian J. Feeney, EVP, Century Bank,
Linda Sloane Kay, Holly Nahabedian, VP and Andover Branch Manager, Barry R. Sloane,
Barbara J. G. Sloane, Marshall M. Sloane, State Senator Barry R. Finegold, and Alexander J. Vispoli,
Vice Chairman, Andover Board of Selectmen

Fidelity: Commitment to the Community and ESG

To describe the ethical orientation of a public company, the investment

industry has adopted the Environmental, Societal, and Governance (ESG)

Index. We find this term especially appropriate to the way we run Century.

Our environmental responsibility, the “E” in ESG, is highlighted by our 2012

deployment of electric hybrid fleet cars for our couriers and installation of

community electric car-charging stations in Medford. As a result, we were

awarded the 2012 Medford Energy Committee “Green Award.”

We are focused on our social responsibility, the “S” in ESG. Led by our

imperative for locally controlled enterprise, community development, and

relationship-based philanthropy, we live our social mission every day. In

2012, we greatly expanded our Community Reinvestment Act (CRA)

capabilities, in staff, resources, and management commitment. We are

utilizing these resources to better serve our minority and lower-income

communities with opportunities for home ownership and access to

traditional banking services.

Century Bank Electric Vehicle
Charging Station Dedication

Pictured from left: Linda Sloane Kay,
Marshall M. Sloane, Medford Mayor
Michael J. McGlynn, Jason J. Melius,
SVP, Century Bank, and Barry R. Sloane

RELIAbILITY

Sound corporate governance, the “G” in ESG, has been a watchword for

Century since its inception. Our governance philosophy is evident in a vibrant

and independent Board of Directors, a long history of sound and valued

relationships with regulators and auditors, and a long-term view of share

ownership and control. We expect to continue to be well regarded by all who

utilize the ESG metric in their investing.

Capacity: Pay Down the Federal Debt and Deficit

We’re terribly concerned about the trend lines of the country’s debt and

deficit. We all have a share in our nation’s financial future; we worry so much

about how our economy, no matter how productive, can survive the mountain

of debt, which will approach 90% of GDP in a decade. The optimists among

us rely on the likelihood that a return to boom-time levels of economic growth

Senior Vice Presidents
Opposite page pictured from left.
Front row: William J. Gambon, Jr., Yasmin D. Whipple, Kenneth A. Samuelian, Nancy Lindstrom,
Susan B. Delahunt, and James M. Flynn, Jr.
Middle row: Thomas E. Piemontese, Deborah R. Rush, Gerald S. Algere, Jason J. Melius,
Janice A. Brandano, and Peter R. Castiglia
Back row: Bradford J. Buckley, Richard L. Billig, Anthony C. LaRosa, Timothy L. Glynn, Shipley C. Mason,
and Phillip A. Gallagher

will reduce the deficit and debt to reasonable levels. Frankly, we see that as a

combination of hope and speculation. One can run neither a company nor a

country on that foundation. We budget first the things we can control, namely

expenses. We implore our elected leaders to make 2013 the year that they

cut expenditures to balance the budget and rely on revenue growth to further

reduce the debt. We must balance the budget and pay down the debt…by

trillions, not billions. Now.

Sincerity: People and Values

We can’t say enough about the commitment and capability of our 400

Century Associates. When foul weather, family calamity, or industry changes

bring challenges, our colleagues faultlessly respond with time, ability and

ingenuity. A great many of them have worked together for decades, a rare

condition in our industry that makes our teamwork superb. Most of the

achievements described above are the result of the talent and resourcefulness

of the Century team.

Finally, we see so clearly our family and corporate values of industry, fairness,

and community. The more we watch the revealed unethical behavior of many

of our “giant” competitors, through their government fines and settlements,

the more pride we bring every day to our mission. We thank our shareholders,

our clients, our associates, and our communities, for their confidence and

relationships. We will endeavor to make 2013 another year of achievement

through ability.

Gratefully,

Barry R. Sloane
President and CEO

ACCOUNTAbILITY

In 2012, we continued to invest in our communities, supporting over 267 organizations.

A Brighter Way
ACCESO
Action for Boston Community Development, Inc.
Advocates, Inc.
American Cancer Society
American Heart Association
American Jewish Committee
American Red Cross of Northeast Massachusetts
Andover Senior Center
Andover Youth Foundation
Angela & Patrick Palmer Research Fund for
Brain Cancer
Anti-Defamation League
Apollo Club of Boston
Archdiocese of Boston
Associazione Gizio
Bais Yaakov of Boston High School for Girls
Beacon Academy
Best Buddies
Beth Israel Deaconess Medical Center
Beverly Hockey Alumni Association
Birthday Wishes
Bishop Fenwick High School
Boston Architectural College
Boston Ballet
Boston Harbor Association
Boston Minuteman Council, Boy Scouts of America
Boston Renaissance Charter Public School
Boy Scouts of America
Braintree High School
Brandeis University
Bread of Life
Brendan M. Curtin Scholarship Fund
Brewster Academy
Brookline Chamber of Commerce
Brookline Literacy Partnership
Brookline Music School
Brookline Senior Center
Burlington Community Scholarship Foundation/

Dollars for Scholars

Burlington D.A.R.E.
Burlington High School Scholarship Program
Burlington Recreation Department
Cambridge & Somerville Program for Alcoholism

and Drug Abuse Rehabilitation (CASPAR)

Cambridge College
Cambridge YWCA
Camp Harbor View Foundation, Inc.
Cape Ann Animal Aid
Cardinal Cushing Centers, Inc.
Cardinal Spellman High School
Cathedral High School
Catholic Charities North
Catholic Charities, Archdiocese of Boston
Cheverus School Sacred Hearts Parish

Citizens for Affordable Housing in Newton

Development Organization, Inc.

City of Chicopee
City of Malden
City of Medford
City of Newton
City of Taunton
Clark School
Combined Jewish Philanthropies
Cops for Kids with Cancer
Covenant Christian Academy
Cristo Rey Boston High School
Currier Museum of Art
Cystic Fibrosis Foundation
Dana-Farber Cancer Institute

Century Bank Holiday Card

Designer - Payton Gordinier, 6 years old,
Acute Lymphoblastic Leukemia at age 3,
Survivor, Dana-Farber Cancer Institute

Dimock Community Health Centers
Don Guanella Center
Dorothy C. Gabriel Foundation
Dreamfar High School Marathon
Edward M. Kennedy Institute for the
United States Senate
Eliot School
Elizabeth Peabody House
Emerald Necklace Conservancy
English At Large
Essex Chamber Music Players
Essex Park Rehabilitation and Nursing Center
Everett Chamber of Commerce
Everett High School
Everett Kiwanis Club
Facing Cancer Together
Facing History and Ourselves
Family Service, Inc.
Fayerweather Street School
Fisher Center for Alzheimer’s Research Foundation
Fontbonne Academy
Foundation for Faces of Children
Fourth Presbyterian Church of South Boston
Franciscan Hospital for Children
Friends of Christopher Columbus Park
Gann Academy
Greater Lynn Senior Services

Greater Medford Visiting Nursing Association
Harry Langburd Scholarship Fund
Hebrew SeniorLife
Help Serena Trust
Historic Somerville
Homes for Our Troops
Horizons for Homeless Children
Housing Families
I.B.E.W. Local 103
Innovation Academy Charter School
Interfaithfamily.com
It Happened to Alexa Foundation
Italia Unita
Italian Home for Children
Jesuits of the New England Province
Jewish Big Brothers Big Sisters
Jewish Cemetery Association of Massachusetts
Jewish National Fund
Jewish Women International
John J. Shea Memorial Scholarship Fund
John M. Barry Boys & Girls Club of Newton
Junior Aid Association of Malden
Knights of Pythias, Lodge 158
Koleinu Boston’s Jewish Community Chorus
Ladies Ancient Order of Hibernians
Lexington Rotary Club
Liberty Belle Chorus of Sweet Adelines
Literacy Volunteers of Massachusetts
Little Sisters of the Poor
Longwood Giving
Lowell Adult Education Center
Lynn Chamber of Commerce
Lynn Community Elder Services
Lynn Heritage State Park
Lynn Housing Authority & Neighborhood

Development

Lynn Museum & Historical Society
Lynn Vocational & Technical Institute

Innovation Academy Charter School
New Track & Field Ground Breaking

Pictured from left: Gerald S. Algere, SVP, Century Bank,
Barry R. Sloane, Oliver Renau, Athletic Director, and
Walter Landberg, PhD., Executive Director, Innovation
Academy Charter School

The Sloane Family/Century Bank Primary & Specialty Care Center Ribbon Cutting
at Hebrew SeniorLife

Pictured from left: Dr. Jennifer Rhodes-Kropf, Medical Director, Louis Woolf, President & CEO,
HSL, Hon. Dorothy Kelly Gay of HSL, Kitty Dukakis, Former Governor Michael S. Dukakis,
Marshall M. Sloane, Barbara J. G. Sloane, Barry R. Sloane, Linda Sloane Kay, Jonathan Kay,
Len Fishman, Former CEO, HSL, and Jennifer K. Silver, Board of Directors Chair, HSL

Malden Chamber of Commerce
Malden Rotary Club
Malden YWCA
MASCO
Massachusetts Eye and Ear Infirmary
Massachusetts General Hospital Research Fund for

Dr. Cristina Ferrone

Massachusetts Mortgage Bankers Foundation, Inc.
Massachusetts School of Law
Matignon High School
Medford Chamber of Commerce
Medford Community Housing
Medford Family Network
Medford Farmers Market
Medford Jingle Bell Festival
Medford Mustangs Football
Medford Police Association
Medford Public Schools
Mental Health Programs, Inc. (MHPI)
MetroCast Foundation
MetroWest Jewish Day School
Milton Hospital
Muscular Dystrophy Association
Museum of Science
Mystic Valley Elder Services
Mystic Valley Regional Charter School
NAIOP Massachusetts
National Brain Tumor Society
National Tay-Sachs & Allied Diseases Association
Neighborhood House Charter School
Neurofibromatosis, Inc., Northeast
Newton at Home
Newton Centre Green
Newton Cultural Alliance
Newton-Needham Chamber of Commerce
North Bennet Street School
North Cambridge Senior Center
North End Chamber of Commerce
North End Community Health Center
North Reading Little League
North Shore Chamber of Commerce
North Shore Medical Center Cancer Walk
North Shore Technical High School
On The Rise
Operation A.B.L.E. of Greater Boston
Our Lady of the Cedars of Lebanon Church
Pan-Mass Challenge
Parish of Sacred Heart
Peabody Chamber of Commerce
Peabody High School Soccer Boosters
Peabody Veterans’ Services
Pescosolido Family Scholarship Foundation, Inc.
Pine Street Inn
Project Bread
Rashi School
Redemptoris Mater Seminary

RESPOND, Inc.
Rogerson Communities
Ron Burton Training Village
Sacred Heart School
Sail Cape Cod
Saint Agrippina di Mineo
Saint Joseph School
Saint Michael School
Saint Peter School
Saint Tarcisius Parish
Salem Chamber of Commerce
Salem Main Streets
Salve Regina University
Save the Children
SCM Community Transportation
Shakespeare & Company
Silent Spring Institute
Societa di San Giuseppe
Solomon Schechter Day School
Somerville Chamber of Commerce
Somerville Council on Aging
Somerville Historic Preservation Commission
Somerville Housing Authority
Somerville Mental Health
Somerville Museum
Somerville Rotary Club
Somerville Youth Hockey
Special Olympics of Massachusetts
Springstep
St. Bonaventure Monastery
St. Clement Parish
St. Francis House
St. John School
St. John the Evangelist Church
St. John’s Catholic Church
St. Mary’s High School
Stone Family Adoption Assistance Fund
Straight Ahead Ministries
Suzuki School of Newton
Synagogue Council of Massachusetts
Teamsters Local 25
Temple Aliyah
Temple Beth Elohim
Temple Beth Shalom
Temple Ohabei Shalom
Temple Shalom of Newton
The Angel Fund
The ARC of the South Shore
The Boston Minstrel Company
The David Project
The Home for Little Wanderers
The Jimmy Fund
The Lustgarten Foundation for Pancreatic
Cancer Research
The Marshall I. Goldman Endowed Professorship

Fund at Wellesley College

The Michael Joyce Memorial Playground
The New England Council
The Professional Center for Child

Development

The Second Step, Inc.
Town of Beverly
Town of Brookline
Town of Littleton
Town of Seekonk
Town of Swampscott
Town of Weymouth
United Way
University of New Hampshire School of Law
Urban League of Eastern Massachusetts
UWUA Local 369
Wachusett Area Rotary Club
Ward 7 Improvement Association
Watertown Youth Baseball
We Are Boston
Winchester Chamber of Commerce
Winchester Foundation for Educational

Excellence

Winchester Rotary Charitable Fund, Inc.
Winchester Rotary Club
Winter Hill Yacht Club
Women & Wishes
World Unity
Wounded Warrior Project
Xaverian Brothers High School
YMCA of Metro North
Young Israel of Brookline

Franciscan Hospital for Children
Community Leadership Award Ceremony

Pictured in front, Korey T. Foley, Profile in
Children’s Courage Award recipient is joined by,
from left: Linda Sloane Kay, Marshall M. Sloane,
Barry R. Sloane, John D. Nash, President & CEO
of Franciscan Hospital for Children, and
Robert K. Sheridan, Former President & CEO
of SBLI

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

James P. McDonough 4,7
Private Investor

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*
President
Sonesta Collection

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, CPA, CIA
Michele English
Judith A. Fallon
Thatcher L. Freeborn
Howard N. Gold
Anna M. Gorska
Lisa Gosling
Kristine M. Holopainen

Darlene Joyce
Michael F. Long
Nancy M. Marsh
Karen M. Martin
Carl M. Mattos
Patricia M. Moran
Holly E. Nahabedian
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

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
Anne M. Milczarek
Meredith O’Keefe
Karen J. Pessia
Scott M. Rembis
William F. Shutt, Jr.
Mary V. Spadoni
Jeremy P. Styles
Jose I. Umana
Julie A. Walker

Officers

Leonard A. Adjetey
Andrew Agyei
Zubin C. Bagwadia
Roberta M. Byington
Cindy Cohen
Marie D. Costello
John J. Ferren
Sara A. Gaudet
Adam S. Glick
Paula A. Grimaldi
Jill A. Holak
Saida Idouahmane
Amelia N. Iocco
Linda M. Johns
Joseph P. Kelley
Brian Kelly
Brianna L. Kennedy
Earl K. Kishida
Brandon N. Letellier
Robson G. Miguel
Nancy R. Miller
Melissa A. Murphy
Jennifer A. Nickerson
John L. Norris III
Marie A. Nugent
Samantha A. Petrou
Emmanuella Renelique
Krzysztof A. Sikorski
Anandha Subramanian, ACA, CPA, CIA
Oliver Sun
Elizabeth A. Theriault
Jeanne A. Wood

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

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 Comprehensive 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

Century Bancorp, Inc. AR ’12(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 Class A, basic
Average shares outstanding Class B, basic
Average shares outstanding Class A, diluted
Average shares outstanding Class B, diluted
Total shares outstanding at year-end
Earnings per share:
Basic, Class A
Basic, Class B
Diluted, Class A
Diluted, Class B
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

2012

2011

2010

2009

2008

81,494
19,540

61,954
4,150

57,804
15,865
53,238

20,431
1,392

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

19,039

16,693

13,574

10,160

9,046

3,557,693
1,990,474
5,549,191
1,990,474
5,554,959

$
$
$
$

4.18
2.09
3.43
2.09
11.5 %

$ 3,086,209
1,111,788
2,445,073
179,990
32.40

0.65 %
11.06 %
2.51 %

0.15 %

5.85 %
62.1 %

3,543,233
1,997,411
5,541,794
1,997,411
5,542,697

$
$
$
$

3.68
1.84
3.01
1.84
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 %

3,521,179
2,012,327
5,535,742
2,012,327
5,540,247

$
$
$
$

3.00
1.50
2.45
1.50
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 %

3,509,931
2,022,318
5,534,340
2,022,318
5,530,297

$
$
$
$

2.25
1.12
1.84
1.12
21.4 %

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

0.50 %
7.98 %
2.69 %

0.63 %

6.26 %
68.5 %

3,514,883
2,027,100
5,543,702
2,027,100
5,538,407

$
$
$
$

2.00
1.00
1.63
1.00
24.0 %

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

0.54 %
7.43 %
3.00 %

0.38 %

7.23 %
70.6 %

Century Bancorp, Inc. AR ’12Financial Highlights

Per Share Data

2012, Quarter Ended

Market price range (Class A)

High
Low
Dividends Class A
Dividends Class B

2011, Quarter Ended

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

Dividends Class B

December 31,

September 30,

June 30,

March 31,

$ 34.00
28.02
0.12
0.06

$ 33.00
28.46
0.12
0.06

$ 30.24
25.00
0.12
0.06

$ 29.50
23.51
0.12
0.06

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

The stock performance graph below compares the cumulative total shareholder return of the Company’s Class A Common Stock from December 31, 2007 to
December 31, 2012 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*

Century Bancorp, Inc.

NASDAQ U.S.

NASDAQ Banks

$175

$150

$125

$100

$75

$50

$25

2007

2008

2009

2010

2011

2012

Value of $100 Invested on
December 31, 2007 at:

2008

2009

2010

2011

2012

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

$ 80.32
72.91
61.17

$ 115.35
60.66
87.93

$ 143.27
72.13
104.35

$ 153.83
64.51
104.92

$ 182.35
77.18
123.85

* Assumes that the value of the investment in the Company’s Common Stock and each index was $100 on
December 31, 2007 and that all dividends were reinvested.

Century Bancorp, Inc. AR ’12Financial Highlights

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. 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 (the “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 extended 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
$2.8 million as of December 31, 2012. 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 have become effective, Century
Bank would have had fewer assets available to secure FHLBB advances, or would
have had a higher tax rate if it chose to utilize security corporations to a lesser
extent. On April 6, 2012, the Massachusetts Department of Revenue issued an
updated draft directive allowing a corporation to pledge up to 100% of security
corporation stock it owns to secure a borrowing. This revised draft directive
would allow Century Bank to continue to utilize existing assets to secure FHLBB
advances without pledging limitations. On May 24, 2012, the Massachusetts
Department of Revenue issued Directive 12-2. The directive states that
the pledge by a shareholder of shares of stock of a corporation as security
or collateral for a loan to the shareholder, in and of itself, will not preclude
classification of the corporation as a security corporation or result in revocation
of a corporation’s existing security corporation classification.

Federal banking regulators have issued risk-based capital guidelines, which assign
risk factors to asset categories and off-balance-sheet items. Also, the Basel
Committee has issued capital standards entitled “Basel III: A global regulatory
framework for more resilient banks and banking systems” (“Basel III”). Although
the Company is not currently subject to these requirements, if adopted in their
current form by U.S. banking regulators, the Basel III rules could increase the
capital requirements of the Company. If enacted, the new Basel III requirements
would be phased-in over a ten year timeframe, resulting in an increase in
capital requirements along with the restriction of certain items in Tier 1 capital.
Restricted items from Tier 1 capital would include trust preferred securities
along with certain levels of deferred tax assets and mortgage servicing assets.
Federal banking regulators then issued a notice of proposed rulemaking (NPR,
proposal, or proposed rule) to revise the general risk-based capital rules to
incorporate certain revisions by the Basel Committee on Banking Supervision to
the Basel capital framework (Basel III). The Company is currently analyzing the
proposed rules and the impact on the Company’s capital requirements.

The Governor of Massachusetts has proposed a tax plan that would
modify existing income tax rules. The governor’s plan is part of his budget
recommendations for fiscal year 2014, and will subject security corporations
to the same tax base and rate as regular business corporations. The proposed
tax changes would take effect as of January 1, 2014. The Company is currently
analyzing the financial impact of the proposed changes.

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,
2012, the Company had total assets of $3.1 billion. Currently, the Company
operates 25 banking offices in 19 cities and towns in Massachusetts, ranging
from Braintree in the south to Andover 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

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Conditiondeposits, 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 third party 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
192 (55%) of the 351 cities and towns in Massachusetts.

The Company had net income of $19,039,000 for the year ended
December 31, 2012, compared with net income of $16,693,000 for the year
ended December 31, 2011, and net income of $13,574,000 for the year
ended December 31, 2010. Class A diluted earnings per share were $3.43 in
2012, compared to $3.01 in 2011 and $2.45 in 2010.

2012

2011

2010

Earnings per share (EPS) for each class of stock and for each year ended
Basic EPS – Class A common
December 31, is as follows:
Basic EPS – Class B common
Diluted EPS – Class A common
Diluted EPS – Class B common

$ 4.18
$ 2.09
$ 3.43
$ 2.09

$ 3.68
$ 1.84
$ 3.01
$ 1.84

$ 3.00
$ 1.50
$ 2.45
$ 1.50

5.00 %

4.00 %
Historical U.S. Treasury Yield Curve

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 12/31/2010
U.S. Treasury Yield Curve 12/31/2011
U.S. Treasury Yield Curve 12/31/2012

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, 2010, longer-term rates have
declined resulting in a flatter yield curve.

During 2012, 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 2012, 2011 and 2010, the U.S. economy experienced
a lower short-term rate environment. The lower short-term rates negatively
impacted the net interest margin for 2011 and 2010 as the rate at which
short-term deposits could be invested declined more than the rates offered on
those deposits. The net interest margin also increased in 2012 as a result of
prepayment penalties that were collected during the year.

Total assets were $3,086,209,000 at December 31, 2012, an increase of
12.5% from total assets of $2,743,225,000 on December 31, 2011.

On December 31, 2012, stockholders’ equity totaled $179,990,000, compared
with $160,649,000 on December 31, 2011. Book value per share increased to
$32.40 at December 31, 2012, from $28.98 on December 31, 2011.

The trends in the net interest margin are illustrated in the graph below:
3.20 %
3.00 %
Net Interest Margin
2.80 %
2.58%
2.55%
2.60 %
2.40 %
2.20 %
2.00 %

2.48%

2.64%

2.43%

2.39%

2.42%

2.55%

2.44%

2.52%

2.73%

Q3 Q4

2010

2011

2012

The primary factor accounting for the general level of 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 of 2011 through the third quarter of 2012, management stabilized the
net interest margin by continuing to lower cost of funds and by deploying excess
liquidity through expansion of the investment portfolio. Also, the Company
collected approximately $3,000,000 of prepayment penalties during the first
three quarters of 2012. The primary factor accounting for the decrease in the
net interest margin for the fourth quarter of 2012 was an additional large influx
of deposits, primarily from municipalities. Management invested the funds in
shorter term securities.

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
positively impact the net interest margin.

2.30%

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 opened on July 16, 2012.

During June 2012, the Company entered into a lease agreement to open
a branch located in Wellesley, Massachusetts. The branch opened on
November 26, 2012.

During July 2012, the Company received state regulatory approval to close
a branch at Chestnut Hill in Newton, Massachusetts. The branch closed
on September 21, 2012 and the accounts were temporarily moved to the
Brookline, Massachusetts branch. During July 2012, the Company entered into
a lease agreement and received regulatory approval to open a branch at a new
location at Chestnut Hill in Newton, Massachusetts. The branch is scheduled to
open during the fourth quarter of 2013 and the majority of the accounts that
were temporarily moved to the Brookline, Massachusetts branch will be moved
to the new branch at Chestnut Hill in Newton, Massachusetts.

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.

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

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.

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; other 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, 2012 totaled $1,434,801,000 and included gross unrealized gains of $21,477,000 and gross
unrealized losses of $1,271,000. A year earlier, the fair value of securities available-for-sale was $1,258,676,000 including gross unrealized gains of $16,842,000
and gross unrealized losses of $3,138,000. In 2012, the Company recognized gains of $1,843,000 on the sale of available-for-sale securities. In 2011 and 2010,
the Company recognized gains of $1,940,000 and $1,851,000, 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, 2012 are carried at their amortized cost of $275,507,000 and exclude gross unrealized gains of $6,499,000 and gross unrealized
losses of $82,000. A year earlier, securities held-to-maturity totaled $179,368,000, excluding gross unrealized gains of $5,471,000 and gross unrealized losses
of $17,000.
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,

2012

2011

2010

(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

Obligations Issued by States and Political Subdivisions

Other Debt Securities

Equity Securities

Total

Amount

Percent

Amount

Percent

Amount

Percent

2,004

130,340

8,156

0.1 %

9.1 %

0.6 %

2,012

0.2 %

174,957

13.9 %

8,801

0.7 %

$ 2,005

175,663

9,732

0.2 %

19.3 %

1.1 %

1,233,357

86.0 %

1,035,838

82.3 %

680,898

74.9 %

2,947

55,174

2,253

570

0.2 %

3.8 %

0.2 %

0.0 %

3,198

20,642

12,610

618

0.3 %

1.6 %

1.0 %

0.0 %

3,968

34,074

2,253

798

0.4 %

3.7 %

0.2 %

$ 1,434,801

100.0 %

$ 1,258,676

100.0 %

$ 909,391

100.0 %

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

Included in Obligations Issued by States and Political Subdivisions as of December 31, 2012, is $3,963,000 of an auction rate municipal obligation (“ARS”) with an
unrealized loss of $722,000. 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, i.e., failed, 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, 2012, the Company’s
ARS was purchased subsequent to its failure with a fair value of $3,963,000 and an amortized cost of $4,685,000. As of December 31, 2012, the taxable equivalent
yield on this security was 0.36%.

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 of 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 includes 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, 2012.

Securities available-for-sale totaling $53,782,000, or 1.74% 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
Amortized Cost of Securities Held-to-Maturity
over by the U.S. Government in the third quarter of 2008.

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

2012

2011

2010

(dollars in thousands)

U.S. Government Sponsored Enterprises

U.S. Government Sponsored Enterprise
Mortgage-Backed Securities

Amount

Percent

Amount

Percent

Amount

Percent

$ 17,747

6.4 %

$ 26,979

15.0 %

$ 84,534

36.7 %

257,760

93.6 %

152,389

85.0 %

145,582

63.3 %

Total

$ 275,507

100.0 %

$ 179,368

100.0 %

$ 230,116

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, 2012. 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

Weighted

One Year

Weighted

Five Years

Weighted

Over

Weighted

One

Year

% of

Total

Average

Yield

to Five

Years

% of

Total

Average

Yield

to Ten

Years

% of

Total

Average

Yield

Ten

Years

% of

Average

Total

Yield

(dollars in thousands)

U.S. Treasury

$ 2,004

0.1 %

0.63 % $

—

0.0 %

0.00 %

—

0.0 %

0.00 % $

—

0.0 % 0.00 %

U.S. Government
Sponsored Enterprises

SBA Backed Securities

U.S. Government Agency

and Sponsored Enterprise

—

0.0 %

0.00 %

30,077

2.1 %

0.92 %

100,263

7.0 %

1.63 %

—

0.0 % 0.00 %

0.0 %

0.00 %

—

0.0 %

0.00 %

4,548

0.3 %

0.81 %

3,608

0.3 % 0.93 %

17,027

1.2 %

3.36 %

1,057,605 73.7 %

1.76 %

155,757 10.8 %

1.66 %

2,968

0.2 % 4.14 %

—

0.0 %

0.00 %

2,144

0.1 %

2.56 %

803

0.1 %

3.14 %

—

0.0 % 0.00 %

Other Debt Securities

200

0.0 %

1.32 %

600

0.1 %

1.71 %

50,083

3.4 %

0.98 %

1,128

0.1 %

3.82 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

3,963

0.3 % 0.36 %

0.0 %

0.00 %

0.0 %

0.00 %

—

0.0 % 0.00 %

$ 69,314

4.7 %

1.55 % $ 1,091,554 76.1 %

1.74 %

$ 261,371 18.2 %

1.64 % $ 10,539

0.8 % 1.72 %

Mortgage-Backed
Securities

Privately Issued Residential
Mortgage-Backed
Securities

Obligations of States and
Political Subdivisions

Equity Securities

Total

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

Non-

Maturing

% of

Total

Weighted

Average

Yield

Total

Weighted

Average

Yield

% of

Total

0.0 %

0.00 %

2,004

0.1 %

0.63 %

0.0 %

0.00 %

130,340

9.1 %

1.46 %

0.0 %

0.00 %

8,156

0.6 %

0.86 %

0.0 %

0.00 %

1,233,357

85.9 %

1.78 %

0.0 %

0.00 %

0.0 %

0.00 %

1,453

0.1 %

4.16 %

570

0.1 %

1.47 %

2,947

55,174

2,253

570

0.2 %

2.72 %

3.8 %

0.98 %

0.2 %

3.27 %

0.1 %

1.47 %

$ 2,023

0.2 %

3.40 %

$ 1,434,801

100.0 %

1.72 %

(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

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 % $ 17,747 6.4 %

2.13 %

$ —

0.0 %

0.00 % $ 17,747

6.4 % 2.13 %

(dollars in thousands)

U.S. Government

Sponsored Enterprise

Mortgage-Backed

Securities

6,780

2.5 %

3.80 % 205,981 74.8 %

2.44 %

44,725 16.2 %

2.38 %

274

0.1 %

2.60 % 257,760 93.6 % 2.47 %

Total

$ 6,780

2.5 %

3.80 % $ 205,981 74.8 %

2.44 % $ 62,472 22.6 %

2.31 %

$ 274

0.1 %

2.60 % $ 275,507 100.0 % 2.44 %

At December 31, 2012 and 2011, the Bank had no investments in obligations of individual states, counties, municipalities or nongovernment corporate entities which
exceeded 10% of stockholders’ equity. In 2012, sales of securities totaling $294,881,000 in gross proceeds resulted in a net realized gain of $1,843,000. There
were no sales of state, county or municipal securities during 2012 and 2011. In 2011, sales of securities totaling $75,615,000 in gross proceeds resulted in net
realized gains of $1,940,000. In 2010, sales of securities totaling $41,251,000 in gross proceeds resulted in net realized gains of $1,851,000.

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.

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

Loans

The Company’s lending activities are conducted principally in Massachusetts. The Company grants single-family 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,

2012

2011

2010

2009

2008

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

(dollars in thousands)

Construction and

land development

38,618

Commercial and industrial

Commercial real estate

Residential real estate

88,475

576,465

281,857

3.5 %

8.0 %

$ 56,819

82,404

5.7 %

$ 53,583

5.9 % $ 60,349

6.9 % $ 59,511

7.1 %

8.4 %

90,654

10.0 %

141,061

16.1 %

141,373

16.9 %

51.8 %

487,495

49.5 %

433,337

47.8 %

361,823

41.2 %

332,325

39.8 %

25.3 %

239,307

24.3 %

207,787

22.9 %

188,096

21.4 %

194,644

23.3 %

Consumer

Home equity

Overdrafts

Total

6,823

0.6 %

6,197

0.6 %

5,957

0.7 %

7,105

0.8 %

8,246

1.0 %

118,923

10.7 %

110,786

11.3 %

114,209

12.6 %

118,076

13.5 %

98,954

11.8 %

627

0.1 %

1,484

0.2 %

637

0.1 %

615

0.1 %

1,012

0.1 %

$ 1,111,788

100.0 %

$ 984,492

100.0 %

$ 906,164

100.0 % $ 877,125 100.0 % $ 836,065 100.0 %

At December 31, 2012, 2011, 2010, 2009 and 2008, loans were carried net of discounts of $498,000, $550,000, $598,000, $645,000 and $692,000,
respectively. Net deferred loan fees of $369,000, $666,000, $186,000, $71,000 and $81,000 were carried in 2012, 2011, 2010, 2009 and 2008, respectively.

The following table summarizes the remaining maturity distribution of certain components of the Company’s loan portfolio on December 31, 2012. 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, 2012

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, 2012

$ 8,899
16,098
23,935

$ 48,932

$ 4,786
24,872
127,480

$ 24,933
47,505
425,050

$ 157,138

$ 497,488

$ 38,618
88,475
576,465

$ 703,558

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

$ 92,616
64,522

$ 125,554
371,934

$ 218,170
436,456

$ 157,138

$ 497,488

$ 654,626

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, Southern New Hampshire, and Rhode Island. 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

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

years. Amortization schedules are long term and thus a balloon payment is generally due at maturity. Under most circumstances, the Bank will offer to rewrite or
otherwise extend the loan at prevailing interest rates. During recent years, the Bank has emphasized nonresidential-type owner-occupied properties. This complements
our C&I emphasis placed on the operating business entities and will continue. The regional economic environment affects the risk of both nonresidential and
residential mortgages.

Residential real estate (1–4 family) includes two categories of loans. Included in residential real estate are approximately $12,460,000 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, 2012, the Company was obligated to advance a total of $17,609,000 to complete projects under
construction.
December 31,

2012

2011

2010

2009

2008

(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

$ 4,471
—

$ 4,471

$ 3,048
—
0.40 %
0.14 %

2012

$ 862
2,281
1,500
1,282

$ 5,925

$ 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 %

$ 3,661
—

$ 3,661

$ —
89
0.44 %
0.20 %

2009

$ —
4,260
4,900
1,356

$ 10,516

2008

$ 194
1,175
—
1,329

$ 2,698

At December 31, 2012, 2011, 2010, 2009 and 2008, impaired loans had specific reserves of $1,732,000, $741,000, $317,000, $745,000 and $600,000
respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $26,786,000, $18,196,000, $983,000, $1,127,000 and $768,000
at December 31, 2012, 2011, 2010, 2009, and 2008, respectively. The Company had $9,378,000 of loans held for sale at December 31, 2012, $3,389,000 at
December 31, 2011, and $0 for December 31, 2008, through December 31, 2010.

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 (“MSA”) 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 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 $137,000 at December 31, 2012, $123,000 for December 31, 2011, and $0 for December 31, 2008, through December 31, 2010.

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

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 2012, primarily as a result of a decrease in home equity and residential real estate nonperforming loans.

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.

The Company continues to monitor closely $18,645,000 and $20,906,000 at December 31, 2012 and 2011, 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, 2012, 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, financial
Year Ended December 31,
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
(dollars in thousands)
loan losses for the years indicated.
Year-end loans outstanding

2012

2011

2010

2009

2008

(net of unearned discount and deferred loan fees)

$ 1,111,788

$ 984,492

$ 906,164

$ 877,125

$ 836,065

Average loans outstanding

(net of unearned discount and deferred loan fees)

$ 1,036,296

$ 948,883

$ 877,858

$ 853,422

$ 775,337

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

16,574

$ 14,053

$ 12,373

$ 11,119

9,633

1,253
—
—
351
697

2,301

307
—
45
422

774

1,527
4,150

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

Balance at end of year

19,197

$ 16,574

$ 14,053

$ 12,373

$ 11,119

Ratio of net charge-offs during the year

to average loans outstanding

Ratio of allowance for loan losses to loans outstanding

0.15 %

1.73 %

0.21 %

1.68 %

0.44 %

1.55 %

0.63 %

1.41 %

0.38 %

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 2009 due to an increase in commercial loan charge-offs and construction loan charge-offs as a result of the weakening of the overall economy
and real estate market. Charge-offs declined in 2010, 2011, and 2012 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 a lower level of charge-off activity combined with
changes in the portfolio composition.

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

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, 2012 is $38,618,000. A major portion in nonaccrual loans is one
construction loan. Based on this fact, and the general local construction conditions, 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 $567,306,000 at December 31, 2012,
as compared to $489,114,000 at December 31, 2011. 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
$245,198,000 at December 31, 2012, as compared to $189,222,000 at December 31, 2011. 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 $42,032,000 at December 31, 2012. 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
2011
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:

2012

2009

2010

2008

Percent
of Loans
in Each
Category
to Total
Loans

Amount

(dollars in thousands)

Construction and land development

$ 3,041

3.5 %

$ 2,893

5.7 %

$ 1,752

5.9 %

362

6.9 %

677

7.1 %

Commercial and industrial

Commercial real estate

Residential real estate

Consumer and other

Home equity

Unallocated

Total

3,118

8.0

3,139

8.4

3,163 10.0

4,972 16.1

9,065 51.8

6,566 49.5

5,671 47.8

2,983 41.2

1,994 25.3

1,886 24.3

1,718 22.9

1,304 21.4

333

0.7

886 10.7

760

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

$ 19,197 100.0 %

$ 16,574 100.0 %

$ 14,053 100.0 %

$ 12,373 100.0 %

$ 11,119 100.0 %

5,125

2,620

778

342

16.9

39.8

23.3

1.1

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.

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

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

Percent

Amount

Percent

2012

2011

2010

Demand Deposits

$ 386,863

16.5 %

$ 326,102

15.3 %

$ 298,825 15.8 %

Savings and Interest Checking

870,046

37.1 %

735,022

34.6 %

696,232 36.7 %

Money Market

666,949

28.5 %

584,059

27.4 %

543,432 28.7 %

Time Certificates of Deposit

418,789

17.9 %

484,142

22.7 %

356,457 18.8 %

Total

$ 2,342,647 100.0 %

$ 2,129,325 100.0 %

$ 1,894,946 100.0 %

2012

(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

$ 99,957
57,643
59,972
69,476

Total

$ 287,048

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 $195,000,000, a decrease of $49,000,000 from the prior year. The Bank’s remaining term borrowing capacity at the FHLBB at December 31, 2012,
was approximately $280,598,000. 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 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
$191,390,000, an increase of $48,070,000 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 12.6% in 2012 to $69,918,000, compared with $62,081,000 in 2011. The increase in net interest income for 2012 was mainly due to an 11.5%
increase in the average balances of earning assets, combined with a similar increase in deposits. 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 increased to 2.51% in 2012 from 2.48% in 2011 and decreased from 2.52% in 2010. The Company collected approximately
$3,253,000, $158,000, and $102,000, respectively, of prepayment penalties, which are included in interest income on loans, for 2012, 2011, and 2010,
respectively.

Additional information about the 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.

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

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.

2012

2011

2010

Average
Balance

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

Average
Balance

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

Average
Balance

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

(dollars in thousands)

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

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

Securities held-to-maturity:
Taxable

Interest-bearing deposits

in other banks

$ 715,553
320,743

$ 34,983
24,220

4.89 %
7.55

$ 703,491
245,392

$ 36,772
17,996

5.23 %
7.33

$ 711,422
166,436

$ 40,163
13,193

5.65 %
7.93

1,214,352
49,023

22,363
516

1.84
1.05

1,076,689
22,410

22,828
321

2.12
1.43

756,544
32,407

18,958
596

2.51
1.84

270,525

6,746

2.49

178,659

5,816

3.26

222,154

7,158

3.22

219,540

630

0.29

276,413

1,114

0.40

371,665

1,642

0.44

Total interest-earning assets

2,789,736

$ 89,458

3.21 %

2,503,054

$ 84,847

3.39 %

2,260,628

$ 81,710

3.61 %

Noninterest-earning assets

Allowance for loan losses

172,748

(18,039)

Total assets

$ 2,944,445

158,297

(15,767)

$ 2,645,584

155,956

(13,686)

$ 2,402,898

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

$ 588,500
281,546
666,949
418,789

$ 1,561
689
2,373
6,250

0.27 %
0.24
0.36
1.49

$ 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

Total interest-bearing deposits

1,955,784

10,873

0.56

1,803,223

14,601

0.81

1,596,121

15,928

1.00

Securities sold under
agreements to repurchase

Other borrowed funds
and subordinated debentures

174,624

367

0.21

129,137

379

0.29

133,080

573

0.43

217,542

8,300

3.82

202,209

7,786

3.85

201,273

8,316

4.13

Total interest-bearing liabilities

2,347,950

$ 19,540

0.83 %

2,134,569

$ 22,766

1.07 %

1,930,474

$ 24,817

1.29 %

Noninterest-bearing liabilities
Demand deposits
Other liabilities

Total liabilities

Stockholders’ equity
Total liabilities and

386,863
37,497

2,772,310

172,135

stockholders’ equity

$ 2,944,445

Net interest income on a fully
taxable equivalent basis

Less taxable equivalent adjustment

Net interest income

Net interest spread

Net interest margin

(1)

326,102
29,253

2,489,924

155,660

$ 2,645,584

298,825
31,074

2,260,373

142,525

$ 2,402,898

$ 69,918

(7,964)

$ 61,954

$ 62,081

(6,782)

$ 55,299

$ 56,893

(5,127)

$ 51,766

2.38 %

2.51 %

2.32 %

2.48 %

2.32 %

2.52 %

(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.

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

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.

2012 Compared with 2011
Increase/(Decrease)
Due to Change in

2011 Compared with 2010
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

$ 622
5,675

$ (2,411)
549

$(1,789)
6,224

$ (443)
5,854

$(2,948)
(1,051)

$(3,391)
4,803

2,730
299

2,510
(202)

11,634

352
70
350
(1,156)

(384)
113
586

315

(3,195)
(104)

(1,580)
(282)

(7,023)

(506)
(205)
(683)
(1,950)

(3,344)
(125)
(72)

(3,541)

(465)
195

930
(484)

4,611

(154)
(135)
(333)
(3,106)

(3,728)
(12)
514

(3,226)

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)

$ 11,319

$ (3,482)

$ 7,837

$ 7,491

$(2,303)

$ 5,188

Average earning assets were $2,789,736,000 in 2012, an increase of $286,682,000 or 11.5% from the average in 2011, which was 10.7% higher than the
average in 2010. Total average securities, including securities available-for-sale and securities held-to-maturity, were $1,533,900,000, an increase of 20.0% from
the average in 2011. 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 2.3% to $29,625,000 on a fully tax equivalent basis. Total average loans increased
9.2% to $1,036,296,000 after increasing $71,025,000 in 2011. 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 was offset, somewhat, by a decrease in loan rates resulted in
higher loan income, which increased by 8.1% or $4,435,000 to $59,203,000. Total loan income was $53,356,000 in 2010.

The Company’s sources of funds include deposits and borrowed funds. On average, deposits increased 10.0%, or $213,322,000, in 2012 after increasing by
12.4%, or $234,379,000, in 2011. Deposits increased in 2012, primarily as a result of increases in demand deposits, savings, money market, NOW and time
deposit accounts. Deposits increased in 2011, primarily as a result of increases in demand deposits, money market savings and NOW accounts. Borrowed funds
and subordinated debentures increased by 18.4% in 2012, following a decrease of 0.9% in 2011. 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 $15,633,000, and average retail repurchase
agreements increased by $45,487,000 in 2012. Interest expense totaled $19,540,000 in 2012, a decrease of $3,226,000, or 14.2%, from 2011 when interest
expense decreased 8.3% from 2010. The decrease in interest expense is primarily due to market decreases in deposit rates and continued deposit pricing discipline.
Interest expense on time deposits accounted for a majority of this decrease.

Provision for Loan Losses

The provision for loan losses was $4,150,000 in 2012, compared with $4,550,000 in 2011 and $5,575,000 in 2010. 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 2012 and 2011, 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 $19,197,000 at December 31, 2012, compared with $16,574,000 at December 31, 2011. Expressed as a percentage of
outstanding loans at year-end, the allowance was 1.73% in 2012 and 1.68% in 2011. The allowance for loan losses increased despite a decrease in the provision for
loan losses due to a lower level of charge-off activity combined with changes in the portfolio composition.

Nonperforming loans, which include all non-accruing loans, totaled $4,471,000 on December 31, 2012, compared with $5,827,000 on December 31, 2011.
Nonperforming loans decreased primarily as a result of a decrease in home equity and residential real estate nonperforming loans.

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

Other Operating Income

During 2012, 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 2012 was $15,865,000, a decrease
of $375,000, or 2.3%, compared to 2011. This decrease followed an
increase of $241,000, or 1.5%, in 2011, compared to 2010. Included in
other operating income are net gains on sales of securities of $1,843,000,
$1,940,000 and $1,851,000 in 2012, 2011 and 2010, respectively. Service
charge income, which continues to be a major area of other operating income,
totaling $7,880,000 in 2012, decreased $5,000 compared to 2011. This
followed an increase of $9,000 compared to 2010. The decrease in fees was
mainly attributable to a decrease in overdraft fees, which was offset, somewhat,
by an increase in debit card fees and fees collected from processing activities.
Service charges on deposit accounts increased during 2011. The increase in
fees 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. Lockbox revenues totaled $2,930,000, up $160,000 in 2012
following a decrease of $141,000 in 2011. Other income totaled $3,212,000,
down $433,000 in 2012 following an increase of $284,000 in 2011. The
decrease in 2012 was mainly attributable to a decrease in net gains on sales of
loans of $363,000 as well as a decrease in brokerage commissions. The increase
in 2011 was mainly attributable to net gains on sales of loans of $660,000 and
an increase in brokerage commissions. 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.

Operating Expenses

Total operating expenses were $53,238,000 in 2012, compared to
$48,742,000 in 2011 and $47,372,000 in 2010.

Salaries and employee benefits expenses increased by $3,313,000 or 11.2%
in 2012, after increasing by 4.3% in 2011. The increase in 2012 was mainly
attributable to increases in pension costs, staff levels, merit increases in salaries
and increases in health insurance costs. The increase in pension costs was mainly
attributable to a decrease in the discount rate. The increase in 2011 was mainly
attributable to increases in staff levels, merit increases in salaries and increases in
health insurance costs.

Occupancy expense increased by $284,000, or 6.4%, in 2012, following an
increase of $374,000, or 9.3%, in 2011. The increase in 2012 was primarily
attributable to an increase in rent expense and depreciation expense associated
with branch expansion. The increase in 2011 was primarily attributable to an
increase in rent expense, depreciation expense and building maintenance costs
associated with branch expansion.

Equipment expense increased by $20,000, or 0.9%, in 2012, following an
increase of $103,000, or 4.8%, in 2011. The increase in 2012 was primarily
attributable to an increase in service contracts. The increase in 2011 was
primarily attributable to an increase in service contracts and depreciation
expense.

FDIC assessments decreased by $288,000, or 14.2%, in 2012, following a
decrease of $940,000, or 31.7%, in 2011. FDIC assessments decreased in
2012 and 2011 mainly as a result of a decrease in the assessment rate.

Other operating expenses increased by $1,167,000 in 2012, which followed a
$601,000 increase in 2011. The increase in 2012 was primarily attributable to
an increase in contributions, software maintenance and marketing expense offset
somewhat by a decrease in core deposit intangible amortization. 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.

Provision for Income Taxes

Income tax expense was $1,392,000 in 2012, $1,554,000 in 2011 and
$1,244,000 in 2010. The effective tax rate was 6.8% in 2012, 8.5% in 2011
and 8.4% in 2010. The decrease in the effective tax rate for 2012 was 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 2012, 2011
and 2010.

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

(17.0) %
(12.4) %
(8.4) %
(4.1) %
1.0 %
4.4 %

(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.

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

Liquidity and Capital Resources

Liquidity is provided by maintaining an adequate level of liquid assets that include cash and due from banks, federal funds sold and other temporary investments. Liquid
assets totaled $169,650,000 on December 31, 2012, compared with $226,117,000 on December 31, 2011. 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 $179,990,000 at December 31, 2012, compared with $160,649,000 at December 31, 2011. The increase in 2012 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 $4,011,000 in the net unrealized gains on the Company’s available-for-sale portfolio, net of taxes, offset
by an increase of $1,839,000 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 14.34% and 12.90%, respectively, and total capital-to-risk assets ratio of 15.59% and 14.15%, respectively,
at December 31, 2012. 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, 2012, the Company and the Bank exceeded this requirement with leverage
ratios of 6.80% and 6.11%, respectively.

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, 2012.

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

$ 195,000
36,083
29,238
12,340
191,390

$ 464,051

Total

$ 217,246
8,411
36,061

$ 261,718

Less Than
One Year

$ 46,000
—
2,089
1,858
191,390

$ 241,337

One to
Three Years

$ 37,000
—
4,315
3,606
—

$ 44,921

Amount of Commitment Expiring—By Period

Less Than
One Year

$ 123,324
7,120
14,793

$ 145,237

One to
Three Years

$ 4,159
1,011
2,920

$ 8,090

Three to
Five Years

$ 90,000
—
5,836
2,645
—

$ 98,481

Three to
Five Years

$ 4,705
75
1,244

$ 6,024

After Five
Years

$ 22,000
36,083
16,998
4,231
—

$ 79,312

After Five
Years

$ 85,058
205
17,104

$ 102,367

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-balance-sheet instruments. Financial instruments with off-balance-sheet risk at December 31
are as follows:

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

Contract or Notional Amount

2012

2011

(dollars in thousands)

Financial instruments whose contract amount

represents credit risk:

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

$ 13,580
8,411
217,246
17,609
4,872

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

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 $36,000 and $39,000 for 2012 and 2011, respectively.

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 were effective for
interim and annual reporting periods beginning on or after December 15, 2011.
The amendments were applied prospectively to transactions or modifications
of existing transactions that occurred on or after the effective date and early
adoption was permitted. The adoption of this guidance did not 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 was permitted.
The Company has presented the requirements for this amendment in Note 9.

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 were effective for
fiscal years, and interim periods within those years, ending after December 15,
2011, with retrospective application required. Early application was permitted.
There was 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 Reclassification of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05. The Company has presented a
separate financial statement as a result of this pronouncement.

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 are effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011. Early adoption
was permitted. The Company implemented the provisions of ASU 2011-08 as
of January 1, 2012. The adoption of this pronouncement did not have a material
effect on the consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210),
Disclosures About Offsetting Assets and Liabilities. ASU 2011-11 requires
an entity to disclose information about offsetting and related arrangements
to enable users of financial statements to understand the effect of those
arrangements on its financial position, and to allow investors to better compare
financial statements prepared under U.S. GAAP with financial statements
prepared under IFRS. The new standards are effective for annual periods
beginning January 1, 2013, and interim periods within those annual periods.
Retrospective application is required. The Company is currently assessing the
impact on the Company’s financial statements and will implement the provisions
of ASU 2011-11 as of January 1, 2013.

In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and
Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment.
This ASU permits an entity to make a qualitative assessment to determine
whether it is more likely than not than an indefinite-lived intangible asset, other
than goodwill, is impaired. Entities are required to test indefinite-lived intangible
assets for impairment at least annually and more frequently if indicators of
impairment exist. If an entity concludes, based on an evaluation of all relevant
qualitative factors, that it is not more likely than not that the fair value of an
indefinite-lived intangible asset is less than its carrying amount, it is not required
to perform the quantitative impairment test for that asset. The ASU applies
to both public and nonpublic entities and is effective for annual and interim
impairment tests performed for fiscal years beginning after September 15,
2012. Early adoption is permitted. The Company evaluated for goodwill
impairment under this standard as of December 31, 2012, and determined no
impairment existed.

Century Bancorp, Inc. AR ’12Management’s Discussion and Analysis of Results of Operations and Financial Condition

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 $1,414,595 in 2012 and $1,244,972

in 2011 (Notes 3, 9 and 11)

Securities held-to-maturity, fair value $281,924 in 2012 and $184,822

in 2011 (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 5, 8 and 15)

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, 17 and 18)

Stockholders’ equity (Note 14):

Preferred Stock – $1.00 par value; 100,000 shares authorized;

no shares issued and outstanding

Common stock, Class A,

$1.00 par value per share; authorized

10,000,000 shares; issued 3,568,079 shares in 2012 and

3,548,317 shares in 2011

Common stock, Class B,

$1.00 par value per share; authorized 5,000,000 shares; issued
1,986,880 shares in 2012 and 1,994,380 shares in 2011

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 14)

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying “Notes to Consolidated Financial Statements.”

Consolidated Balance Sheets

2012

2011

53,646
98,637

152,283

17,367

50,187
157,579

207,766

18,351

1,434,801

1,258,676

275,507
15,146
1,111,788
19,197

1,092,591
23,899
5,811
2,773
66,031

$ 3,086,209

$ 438,429
933,316
653,345
419,983

2,445,073

191,390
195,144
36,083
38,529

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

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

$ 2,743,225

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

2,124,584

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

2,906,219

2,582,576

—

3,568

3,548

1,986
11,891
162,892

180,337

12,330
(12,677)

(347)

179,990

1,994
11,587
146,039

163,168

8,319
(10,838)

(2,519)

160,649

$ 3,086,209

$ 2,743,225

Century Bancorp, Inc. AR ’12

Consolidated Statements of Income

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

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 16)

Occupancy

Equipment

FDIC assessments

Other (Note 19)

Total operating expenses

Income before income taxes

Provision for income taxes (Note 15)

Net income

SHARE DATA (Note 13)

Weighted average number of shares outstanding, basic

Class A

Class B

Weighted average number of shares outstanding, diluted

Class A

Class B

Basic earnings per share

Class A

Class B

Diluted earnings per share

Class A

Class B

See accompanying “Notes to Consolidated Financial Statements.”

2012

2011

2010

34,983

36,772

40,163

16,432

22,286

340

6,746

630

81,494

2,250

2,373

6,250

367

8,300

19,540

61,954

4,150

57,804

7,880

2,930

364

1,843

2,848

15,865

32,943

4,695

2,255

1,737

11,608

53,238

20,431

1,392

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

19,039

16,693

13,574

3,557,693

1,990,474

5,549,191

1,990,474

4.18

2.09

3.43

2.09

3,543,233

1,997,411

5,541,794

1,997,411

3.68

1.84

3.01

1.84

3,521,179

2,012,327

5,535,742

2,012,327

3.00

1.50

2.45

1.50

Century Bancorp, Inc. AR ’12

Year Ended December 31,

(dollars in thousands)

NET INCOME

Other comprehensive income, net of tax:

Unrealized gains on securities:

Unrealized holding gains arising during period

Less: reclassification adjustment for gains included in net income

Total unrealized gains on securities

Defined benefit pension plans:

Pension liability adjustment:

Net gain (loss)

Amortization of prior service cost and loss included in net periodic benefit cost

Total pension liability adjustment

Other comprehensive income

Comprehensive income

See accompanying “Notes to Consolidated Financial Statements.”

Consolidated Statements of Comprehensive Income

2012

2011

2010

19,039

16,693

13,574

5,854

(1,843)

4,011

(2,488)

649

(1,839)

2,172

6,666

(1,940)

4,726

(4,047)

380

(3,667)

1,059

1,315

(1,851)

(536)

771

488

1,259

723

21,211

17,752

14,297

Century Bancorp, Inc. AR ’12

Consolidated Statements of Changes in Stockholders’ Equity

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, 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

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

—
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

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)

—
52
(1,701)
(479)

BALANCE, DECEMBER 31, 2011

$ 3,548

$ 1,994

$ 11,587

$ 146,039

$ (2,519)

$ 160,649

Net income
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of $2,491 in taxes

and $1,843 in realized net gains

Pension liability adjustment, net of $1,223 in taxes

Conversion of Class B Common Stock to Class A Common Stock, 7,500 shares
Stock options exercised, 12,262 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

—

—
—

8
12
—
—
—

—

19,039

—

19,039

—
—

(8)
—
—
—
—

—
—

—
292
12
—
—

—
—

4,011
(1,839)

—
—
—
(1,708)
(478)

—
—
—
—
—

4,011
(1,839)

—
304
12
(1,708)
(478)

BALANCE, DECEMBER 31, 2012

$ 3,568

$ 1,986

$ 11,891

$ 162,892

(347)

$ 179,990

See accompanying “Notes to Consolidated Financial Statements.”

Century Bancorp, Inc. AR ’12

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

2012

2011

2010

$ 19,039

$ 16,693

$ 13,574

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 in prepaid FDIC assessments

(Gain) loss on sales of other real estate owned

Write down 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 redemption of Federal Home Loan Bank of Boston stock
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 (decrease) increase in time deposit accounts
Net increase in demand, savings, money market and NOW deposits
Net proceeds from the exercise of stock options
Cash dividends
Net increase (decrease) in securities sold under agreements to repurchase
Net (decrease) increase in other borrowed funds

Net cash provided by financing activities

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

Cash and cash equivalents at end of year

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:

Interest
Income taxes

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

Transfer of loans to other real estate owned

See accompanying “Notes to Consolidated Financial Statements.”

(20,149)
14,457
(297)
—
(1)
(1,843)
4,150
(2,104)
6,445
211
1,562
(1)
—
(3,113)
1,070

19,426

38,397
(37,413)
385
532,734
294,881
(998,955)
88,628
(185,346)
—
(123,183)
1,584
1
(4,300)

(392,587)

(13,518)
334,007
304
(2,186)
48,070
(48,999)

317,678

(55,483)
207,766

$ 152,283

$ 19,597
3,348
4,011
(1,839)
400

(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

$ 207,766

$ 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

Century Bancorp, Inc. AR ’12

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 — These instruments 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, 2012 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.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial StatementsFEDERAL 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 of the stock. For the year ended December 31, 2012, the FHLBB
reported preliminary net income of $207.1 million. The FHLBB also declared
a dividend equal to an annual yield of 0.37%. As of December 31, 2012, 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 ninety 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.

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.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial StatementsALLOWANCE 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.

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. 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. Land is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets or the terms
of leases, if shorter. It is general practice to charge the cost of maintenance and
repairs to operations when incurred; major expenditures for improvements are
capitalized and depreciated.

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

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

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

Goodwill impairment is evaluated by 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

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statementscircumstances, 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 first step, in the two-step impairment test, 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 23,350 shares of Class A common stock
exercisable at December 31, 2012.

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

connection with this acceleration, the Board of Directors approved a technical
amendment to each of the Option Plans to eliminate the possibility that the
terms of any outstanding or future stock option would require a cash settlement
on the occurrence of any circumstance outside the control of the Company.
Effective as of January 1, 2006, the Company adopted FASB ASC 718 for
all share-based payments. The Company estimates that, as a result of this
accelerated vesting, approximately $190,000 of 2006 noncash compensation
expense was eliminated that would otherwise have been recognized in the
Company’s earnings.

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

The Company uses the fair value method to account for stock options. All of the
Company’s stock options are vested, and there were no options granted during
2012 and 2011.

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 judgment
changes regarding an uncertain tax position.

TREASURY STOCK

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

PENSION

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

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

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

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial StatementsREVISION OF EPS PRESENTATION

The Company has determined that although the Class A and Class B common
stock have different dividend rates, the Company had not applied the two-class
method when calculating earnings per share (“EPS”) separately for the Class A
and Class B common stock. This resulted in immaterial revisions to previously
For the year ended
reported basic EPS for Class A and Class B common stock and diluted EPS for
December 31, 2011:
the Class B common stock as summarized below:
Basic EPS – Class A common

As previously
reported

As revised

$ 3.01

$ 3.68

Basic EPS – Class B common

Diluted EPS – Class A common

Diluted EPS – Class B common

For the year ended
December 31, 2010:

Basic EPS – Class A common

Basic EPS – Class B common

Diluted EPS – Class A common

Diluted EPS – Class B common

$ 3.01

$ 1.84

$ 3.01

$ 1.84

As previously
reported

As revised

$ 2.45

$ 3.00

$ 1.50

$ 2.45

$ 1.50

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 did not have a material
impact on the Company’s financial condition or results of operations.

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 was 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 Reclassification of Items Out of
Accumulated Other Comprehensive Income in Accounting Standards Update
No. 2011-05. The Company has presented a separate financial statement as a
result of this pronouncement.

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 implemented the provisions of ASU 2011-08 as of
January 1, 2012. The adoption of this pronouncement did not have a material
effect on the consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and
Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment.
This ASU permits an entity to make a qualitative assessment to determine
whether it is more likely than not than an indefinite-lived intangible asset, other
than goodwill, is impaired. Entities are required to test indefinite-lived intangible
assets for impairment at least annually and more frequently if indicators of
impairment exist. If an entity concludes, based on an evaluation of all relevant
qualitative factors, that it is not more likely than not that the fair value of an
indefinite-lived intangible asset is less than its carrying amount, it is not required
to perform the quantitative impairment test for that asset. The ASU applies
to both public and nonpublic entities and is effective for annual and interim
impairment tests performed for fiscal years beginning after September 15,
2012. The Company is currently assessing the impact on the Company’s
financial statements and will implement the provisions of ASU No. 2012-02 as
of January 1, 2013.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements 2. Cash and Due from Banks

The Company is required to maintain a portion of its cash and due from banks as a reserve balance under the Federal Reserve Act. Such reserve is calculated based
upon deposit levels and amounted to $9,608,000 at December 31, 2012, and $4,684,000 at December 31, 2011.

December 31, 2012
Gross
Unrealized
Losses

Gross
Unrealized
Gains

Estimated
Fair
Value

December 31, 2011
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

2,000
130,048
8,043

4
360
113

$ —
68
—

2,004
130,340
8,156

1,999
174,657
8,714

13
311
87

$ — $
11
—

2,012
174,957
8,801

Enterprises Mortgage-Backed Securities

1,212,953

20,816

412

1,233,357

1,020,752

16,262

1,176

1,035,838

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

2,938

55,855
2,300
458

41
—
112

722
47
—

2,947

3,509

55,174
2,253
570

21,515
13,293
533

—

84
—
85

311

957
683
—

3,198

20,642
12,610
618

Total

$ 1,414,595

$ 21,477

$ 1,271

$ 1,434,801

$ 1,244,972

$ 16,842

$ 3,138 $ 1,258,676

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 $665,028,000 and $488,690,000 at December 31, 2012 and
2011, respectively. Also included in securities available-for-sale at fair value are securities pledged for borrowing at the Federal Home Loan Bank amounting to
$220,313,000 and $246,036,000 at December 31, 2012 and 2011, respectively. The Company realized gains on sales of securities of $1,843,000, $1,940,000
and $1,851,000 from the proceeds of sales of available-for-sale securities of $294,881,000, $75,615,000 and $41,251,000 for the years ended December 31,
2012, 2011, and 2010, 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, 2012.
(dollars in thousands)

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

Total

$
69,122
1,073,778
258,646
11,092
1,957

$
69,314
1,091,554
261,371
10,539
2,023

$ 1,414,595

$ 1,434,801

The weighted average remaining life of investment securities available-for-sale at December 31, 2012, was 4.0 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, 2012, was
$105,050,000 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, 2012. 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 20 and
7 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 458 holdings at December 31, 2012.

As of December 31, 2012, 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.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

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, 2012

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

Total temporarily impaired securities

$ 127,973

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

$ 34,967

—

$ 34,967

93,006
—
—
—

383
—
—
—

451

10,169
1,863
3,963
1,453

$ 17,448

29
22
722
47

820

103,175
1,863
3,963
1,453

412
22
722
47

$ 145,421

$ 1,271

At December 31, 2012, 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, 2012. Excluded from the table above are two equity securities that were written down in 2008 by $76,000. The fair value
is $158,000 with an unrealized gain of $49,000 at December 31, 2012. 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, 2011. 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 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.
Less Than 12 Months
Unrealized
Losses

Unrealized
Losses

12 Months or Longer

December 31, 2011

Fair Value

Total

(dollars in thousands)

Total temporarily impaired securities

$ 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.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

4. Investment Securities Held-to-Maturity

Amortized
Cost

(dollars in thousands)

December 31, 2012
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

December 31, 2011
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

Amortized
Cost

U.S. Government Sponsored Enterprise

$ 17,747

$ 17,758

$ 26,979

$ 27,013

U.S. Government Sponsored Enterprise
Mortgage-Backed Securities

Total

257,760

$ 275,507

6,480

$ 6,499

264,166

$ 281,924

152,389

5,435

$ 179,368

$ 5,471

157,809

$ 184,822

Included in U.S. Government and Agency Securities are securities pledged to secure public deposits and repurchase agreements at fair value amounting to $149,366,000
and $8,885,000 at December 31, 2012, and 2011, respectively. Also included are securities pledged for borrowing at the Federal Home Loan Bank at fair value
amounting to $103,617,000 and $49,345,000 at December 31, 2012, and 2011, respectively.

At December 31, 2012 and 2011, 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.

Amortized
Cost

Fair
Value

The following table shows the maturity distribution of the Company’s securities held-to-maturity at December 31, 2012.
(dollars in thousands)

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

6,780 $

$
205,981
62,472
274

6,865
210,897
63,880
282

Total

$ 275,507 $ 281,924

The weighted average remaining life of investment securities held-to-maturity at December 31, 2012, was 3.9 years. Included in the weighted average remaining life
calculation at December 31, 2012, were $17,747,000 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, 2012. 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 3 and 1
securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 96 holdings at December 31, 2012.

As of December 31, 2012, 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, 2012

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

$ 9,994

—

$ 9,994

8,936

$ 18,930

5,371

14,307

$ 24,301

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, 2012.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

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.
Temporarily Impaired Investments
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.

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 these investments to be other-than-temporarily impaired at December 31, 2011.

5. Loans

The majority of the Bank’s lending activities are conducted in 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,

2012

2011

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

land development
Commercial and industrial
Commercial real estate
Residential real estate
Consumer
Home equity
Overdrafts

38,618
88,475
576,465
281,857
6,823
118,923
627

Total

$ 1,111,788

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

$ 984,492

At December 31, 2012, and December 31, 2011, loans were carried net of discounts of $498,000 and $550,000, respectively. Net deferred fees included in loans
at December 31, 2012, and December 31, 2011, were $369,000 and $666,000, respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $26,786,000 and $18,196,000 at December 31, 2012, and
December 31, 2011, respectively. The Company had $9,378,000 of residential real estate loans held for sale at December 31, 2012 and $3,389,000 at
December 31, 2011.

As of December 31, 2012 and 2011, the Company’s recorded investment in impaired loans was $5,925,000 and $8,102,000, 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, 2012, there were $5,223,000 of impaired loans
with a specific reserve of $1,732,000. At December 31, 2011, there were $6,073,000 of impaired loans with a specific reserve of $741,000.

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.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

December 31,

2012

2011

2010

(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

$ 4,471
—
2,878
5,925
7,043
3,048

753
—
180

$ 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

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 $51,000, $47,000 and $47,000 of the discount during 2012, 2011 and 2010, 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, 2012
December 31, 2011
The following table shows the aggregate amount of loans to directors and officers of the Company and their associates during 2012.
(dollars in thousands)

Repayments
and Deletions

Additions

$ 4,226

$ 1,452

$ 1,015

$ 4,663

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, 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.

2012

2011

2010

(dollars in thousands)
An analysis of the allowance for loan losses for each of the three years ending December 31, 2012, 2011 and 2010 is as follows:
Allowance for loan losses, beginning of year
Loans charged-off
Recoveries on loans previously charged-off

$ 14,053
(2,824)
795

$ 16,574
(2,301)
774

$ 12,373
(4,443)
548

Net charge-offs
Provision charged to expense

(1,527)
4,150

(2,029)
4,550

(3,895)
5,575

Allowance for loan losses, end of year

$ 19,197

$ 16,574

$ 14,053

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

ALLOWANCE FOR LOAN LOSSES AND AMOUNT OF INVESTMENTS IN LOANS

Construction Commercial

Further information pertaining to the allowance for loan losses at December 31, 2012 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, 2011
Charge-offs
Recoveries
Provision

$ 2,893
—
—
148

$ 3,139
(1,253)
307
925

$ 6,566
—
9
2,490

$ 1,886
(192)
17
283

$ 356
(697)
422
252

Ending balance at December 31, 2012

$ 3,041

$ 3,118

$ 9,065

$ 1,994

$ 333

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

$ 1,000

104

415

117

$ —

for loans not deemed to be impaired

$ 2,041

$ 3,014

$ 8,650

$ 1,877

$ 333

704
(159)
19
322

$ 1,030 $
—
—
(270)

16,574
(2,301)
774
4,150

886

$ 760

19,197

$ —

1,732

790

$ 760

17,465

Loans:

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

$ 38,618
$ 1,500
$ 37,118

$ 88,475
$ 1,282
$ 87,193

$ 576,465
$ 2,281
$ 574,184

$ 281,857
$
766
$ 281,091

$ 7,450
$ —
$ 7,450

$ 118,923
$
96
$ 118,827

$ —
$ —
$ —

$ 1,111,788
$
5,925
$ 1,105,863

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

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, 2012.

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, 2012.

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, 2012, 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
5.1%, at December 31, 2011, to 7.9%, at December 31, 2012, 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.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

Construction Commercial

Commercial
The following table presents the Company’s loans by risk rating at December 31, 2012.
Real Estate

and Land
Development

and
Industrial

(dollars in thousands)

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

Total

$ 29,719
7,399
—
—
1,500

$ 86,587
606
—
—
1,282

$ 569,760
4,424
—
—
2,281

$ 38,618

$ 88,475

$ 576,465

Construction Commercial

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

and Land
Development

and
Industrial

(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

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, 2012 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

$ —
1,256
3,450
864
32
1,088

$ 1,500
676
674
1,597
24
—

Total

$ 6,690

$ 4,471

$ —
—
—
—
—
—

$ —

$ 1,500
1,932
4,124
2,461
56
1,088

37,118 $
86,543
572,341
279,396
7,394
117,835

38,618
88,475
576,465
281,857
7,450
118,923

$ 11,161

$ 1,100,627 $ 1,111,788

Further information pertaining to the allowance for loan losses at December 31, 2011 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

$ —
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

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

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, 2012:

Carrying
Value

Unpaid
Balance
Principal

Required
Reserve

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

$ —
503
169
30
—
—

—
994
199
31
—
—

$ —
—
—
—
—
—

346
425
176
124
—
—

Total

$ 702

$ 1,224

$ —

$ 1,071

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

$ 1,500
779
2,112
736
—
96

$ 3,292
995
2,158
736
—
96

$ 1,000
104
415
117
—
96

$ 1,154
1,317
2,817
640
—
44

Total

$ 5,223

$ 7,277

$ 1,732

$ 5,972

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

$ 1,500
1,282
2,281
766
—
96

$ 3,292
1,989
2,357
767
—
96

$ 1,000
104
415
117
—
96

$ 1,500
1,742
2,993
764
—
44

Total

$ 5,925

$ 8,501

$ 1,732

$ 7,043

$ —
1
—
—
—
—

$ 1

$ —
40
138
1
—
—

$ 179

$ —
41
138
1
—
—

$ 180

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

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

Carrying
Value

Unpaid
Balance
Principal

Required
Reserve

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

$ 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

$ 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

Troubled Debt Restructurings were identified as a modification in which a concession was granted to a customer who was having financial difficulties. This concession
may be below market rate, longer amortization/term, or 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.
Pre-modification
Outstanding
Recorded Investment

The following is information pertaining to troubled debt restructurings occurring during the year ended December 31, 2012:

Post-modification
Outstanding
Recorded Investment

Number of
Contracts

(dollars in thousands)

Commercial and industrial
Residential real estate
Home equity

Total

1
1
1

$ 750
6
98

$ 854

$ 736
6
96

$ 838

There were no troubled debt restructurings, that subsequently defaulted, during 2012. The loans were modified during 2012, for the commercial and industrial,
and residential real estate loans, by reducing interest rates as well as extending the terms of the loans. The financial impact of the modification for the performing
commercial and industrial loan was a $6,000 reduction in principal payments for the year ended December 31, 2012. The financial impact of the modification for
performing residential real estate loan was an $8,000 reduction in interest payments for the year ended December 31, 2012.

The following is information pertaining to 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

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

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

The loans were modified during 2011, for the construction, commercial and industrial, and commercial real estate loans, by reducing interest rates as well as extending
the terms of the loans. The financial impact of the modifications for performing commercial and industrial loans was 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 loans was 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 an $11,000 reduction in the carrying value of the loans as a result of payments received under the modified terms of the loans.
2011
December 31,

Estimated Useful Life

2012

7. Bank Premises and Equipment

(dollars in thousands)

Land
Bank premises
Furniture and equipment
Leasehold improvements

Accumulated depreciation and amortization

Total

$ 3,478
18,353
31,319
9,930

63,080
(39,181)

$ 23,899

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

58,780
(37,023)

$ 21,757

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

The Company and its subsidiaries are obligated under a number of non-cancelable operating leases for premises and equipment expiring in various years through
2026. Total lease expense approximated $2,055,000, $2,007,000 and $1,730,000 for the years ended December 31, 2012, 2011 and 2010, respectively.
Rental income approximated $329,000, $455,000 and $438,000 in 2012, 2011 and 2010, respectively.

Amount

Year

(dollars in thousands)
Future minimum rental commitments for non-cancelable operating leases with initial or remaining terms of one year or more at December 31, 2012, were as follows:

2013
2014
2015
2016
2017
Thereafter

$ 1,858
1,954
1,652
1,492
1,153
4,231

$ 12,340

8. Goodwill and Identifiable Intangible Assets

At December 31, 2012, the Company concluded that it is not more likely than not that fair value of the reporting unit is less than its carrying value, and goodwill is
not considered to be impaired.

During full years of 2010 and 2011, the Company’s Class A common stock traded close to or above book value per share. Accordingly, at December 31, 2010 and
2011, management measured for impairment utilizing the fair value of the reporting unit based on the recent stock price of the Company.
Carrying Amount of Goodwill and Intangibles

Goodwill

Total

The changes in goodwill and identifiable intangible assets for the years ended December 31, 2012 and 2011 are shown in the table below.
(dollars in thousands)

Core Deposit
Intangibles

Balance at December 31, 2010
Amortization Expense

Balance at December 31, 2011
Amortization Expense

Balance at December 31, 2012

2,714
—

$ 2,714

508
(388)

120
(120)

$ 3,222
(388)

$ 2,834
(120)

—

$ 2,714

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

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. 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.

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, 2012, 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
Obligations Issued by States and Political Subdivisions
Other Debt Securities
Equity Securities

Total

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

2,004
130,340
8,156

1,233,357
2,947
55,174
2,253
570

$ 1,434,801

$ —
—
—

—
—
—
—
228

$ 228

2,004
130,340
8,156

1,233,357
2,947
1,734
2,253
—

$ 1,380,791

—
—
—

—
—
53,440
—
342

$ 53,782

3,587

$ —

—

$ 3,587

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 relate to impaired loans recognized for 2012 for the estimated credit
loss amounted to $1,909,000. The Company uses discounts to appraisals, as necessary, based on management’s observations of the local real estate market for loans in
this category.

There were no transfers between level 1 and 2 for the year ended December 31, 2012. There were no liabilities measured at fair value on a recurring or nonrecurring basis
during the year ended December 31, 2012.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3
Asset
inputs to determine fair value (dollars in thousands) at December 31, 2012. Management continues to monitor the assumptions used to value the assets listed below.
Securities AFS(1)
Impaired Loans

Discount rate
Appraisal adjustments(4)

Discounted cash flow
Appraisal of collateral(3)

0%-1%(2)
0%-25% discount

$ 53,782
3,587

Valuation Technique

Unobservable Input

Fair Value

Unobservable Input
Value or Range

(1)

(2)

(3)

(4)

Municipal securities generally have maturities of one year or less and, therefore, the amortized cost equates to the fair value.
Weighted averages.
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated expenses.

The changes in Level 3 securities for the year ended December 31, 2012 are as shown in the table below:

Auction Rate
Securities

Obligations
Issued by States
and Political
Subdivisions

(dollars in thousands)

Balance at December 31, 2011
Purchases
Maturities
Amortization
Change in fair value

Balance at December 31, 2012

$ 3,725
—
—
—
238

$ 3,963

$ 14,772
90,960
(56,214)
(41)
—

$ 49,477

Equity
Securities

$ 417
—
(75)
—
—

$ 342

Total

$ 18,914
90,960
(56,289)
(41)
238

$ 53,782

The amortized cost of Level 3 securities was $54,504,000 with an unrealized loss of $722,000 at December 31, 2012. 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, 2011, are as follows:

Carrying
Value

2,012
174,957
8,801

1,035,838
3,198
—
20,642
12,610
618

$ 1,258,676

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

Significant
Observable Inputs
(Level 2)

Significant
Other Unobservable
Inputs
(Level 3)

$ —
—
—

—
—
—
—
—
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

$ —

—

$ 1,439

$ 1,183

(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

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

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.

There were no transfers between level 1 and 2 for the year ended December 31, 2011. There were no liabilities measured at fair value on a recurring or nonrecurring
basis during the year ended December 31, 2011.

The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3
Asset
inputs to determine fair value (dollars in thousands) at December 31, 2011. Management continues to monitor the assumptions used to value the assets listed below.
Securities AFS(1)

Valuation Technique

Unobservable Input

Discounted cash flow

Fair Value

Discount rate

$ 18,914
1,439
1,183

Appraisal of collateral(3)

Appraisal adjustments(4)

Unobservable Input
Value or Range

0%-1%(2)
0%-25% discount
0%

Impaired Loans

Other real estate owned

(1)

(2)

(3)

(4)

Obligations
Issued by States
The changes in Level 3 securities for the year ended December 31, 2011, are shown in the table below:
and Political
Subdivisions

Auction Rate
Securities

(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.

10. Deposits

2012

Percent

2011

Percent

(dollars in thousands)
The following is a summary of remaining maturities or re-pricing 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

$ 299,456
67,918
19,834
32,775

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

71 %
16 %
5 %
8 %

53 %
26 %
11 %
10 %

Total

$ 419,983

100 %

$ 433,501

100 %

Time deposits of $100,000 or more totaled $287,048,000 and $280,208,000 in 2012 and 2011, respectively.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

11. Securities Sold Under Agreements to Repurchase

2012

2011

2010

(dollars in thousands)
The following is a summary of securities sold under agreements to repurchase as of December 31,
Amount outstanding at December 31
$ 143,320
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

$ 213,730
$ 174,624

$ 152,267
$ 129,137

$ 191,390

0.21 %

0.17 %

0.24 %

0.29 %

$ 108,550

0.36 %

$ 239,830
$ 133,080

0.43 %

Amounts outstanding at December 31, 2012, 2011 and 2010 carried maturity dates of the next business day. U.S. Government Sponsored Enterprise securities
with a total amortized cost of $187,995,000, $140,891,000 and $107,030,000 were pledged as collateral and held by custodians to secure the agreements
at December 31, 2012, 2011 and 2010, respectively. The approximate fair value of the collateral at those dates was $191,704,000, $143,212,000 and
$108,200,000, respectively.

12. Other Borrowed Funds and Subordinated Debentures

2012

2011

2010

(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

$ 277,226
$ 217,542

$ 280,226
$ 202,209

$ 231,227

$ 280,226

3.82 %

3.54 %

3.85 %

2.85 %

$ 258,201

2.88 %

$ 266,564
$ 201,273

4.13 %

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,
2012, was approximately $280,598,000. 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

2012

2011

2010

(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

$ 46,000
17,500
19,500
90,000
22,000

$ 195,000

1.86 %
3.01 %
2.42 %
3.33 %
4.19 %

2.96 %

$ 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 %

Included in the table above are $35,000,000, $35,000,000 and $35,000,000 of FHLBB advances at December 31, 2012, 2011 and 2010, 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 modifications.

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

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

SUBORDINATED DEBENTURES

Subordinated debentures totaled $36,083,000 at December 31, 2012 and 2011. 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.

OTHER BORROWED FUNDS

There were no overnight federal funds purchased at December 31, 2012 and 2011.

The Bank also has an outstanding loan in the amount of $144,000 and $143,000 at December 31, 2012 and 2011, respectively, borrowed against the cash value
of a whole life insurance policy for a key executive of the Bank.

13. Earnings per share (“EPS”)

Class A and Class B shares participate equally in undistributed earnings. Under the Company’s Articles of Organization, the holders of Class A Common Stock are
entitled to receive dividends per share equal to at least 200% of dividends paid, if any, from time to time, on each share of Class B Common Stock.

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 2012, 2011 and 2010 was an increase of 1,024, 1,149 and 2,236
shares, respectively.
Year Ended December 31,

2012

2011

2010

(in thousands except share and per share data)
The following table is a reconciliation of basic EPS and diluted EPS:

BASIC EPS COMPUTATION

Numerator:

Net income, Class A

Net income, Class B

Denominator:

Weighted average shares outstanding, Class A

Weighted average shares outstanding, Class B

Basic EPS, Class A

Basic EPS, Class B

DILUTED EPS COMPUTATION
Numerator:

Net income, Class A

Net income, Class B

Total net income, for diluted EPS, Class A computation

Denominator:

Weighted average shares outstanding, basic, Class A

Weighted average shares outstanding, Class B

Dilutive effect of Class A stock options

Weighted average shares outstanding diluted, Class A

Weighted average shares outstanding, Class B

Diluted EPS, Class A

Diluted EPS, Class B

14,877

4,162

3,557,693

1,990,474

4.18

2.09

13,023

3,670

3,543,233

1,997,411

3.68

1.84

10,557

3,017

3,521,179

2,012,327

3.00

1.50

14,877

13,023

10,557

4,162

19,039

3,557,693

1,990,474

1,024

5,549,191

1,990,474

3.43

2.09

3,670

16,693

3,543,233

1,997,411

1,150

5,541,794

1,997,411

3.01

1.84

3,017

13,574

3,521,179

2,012,327

2,236

5,535,742

2,012,327

2.45

1.50

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

14. 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.

STOCK REPURCHASE PLAN

During 2012, 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 2011, 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.

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 23,350 options exercisable at December 31, 2012.

December 31, 2012

December 31, 2011

December 31, 2010

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

36,062
(450)
(12,262)

$ 28.90
22.50
24.82

23,350

$ 31.17

23,350

$ 31.17

Available to be granted at end of year

223,534

Weighted
Average
Exercise Price

$ 28.36
15.06
21.44

$ 28.90

Weighted
Average
Exercise Price

$ 26.09
27.18
15.06

$ 28.36

Amount

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

38,712

222,884

Amount

38,712
(200)
(2,450)

36,062

223,084

At December 31, 2012, 2011 and 2010, the options outstanding have exercise prices between $15.063 and $31.83, and a weighted average remaining contractual
life of two years for 2012 and 2011 and three years for 2010. The weighted average intrinsic value of options exercised for the period ended December 31, 2012,
was $8.13 per share with an aggregate value of $99,714. The average intrinsic value of options exercisable at December 31, 2012, 2011 and 2010 had an
aggregate value of $41,549, $49,145 and $41,895, respectively.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

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, 2012, that the Bank and the Company meet all capital adequacy requirements to which they are subject.

As of December 31, 2012, 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, 2012

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, 2011

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

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

$ 206,464

188,226

14.15 %

12.90 %

6.11 %

$ 183,864

167,558

14.09 %

12.84 %

6.20 %

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

Actual
Amount

As of December 31, 2012

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, 2011

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

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

$ 227,945

209,668

15.59 %

14.34 %

6.80 %

$ 208,852

192,516

15.98 %

14.73 %

7.12 %

$ 116,726

58,363

123,202

$ 104,358

52,179

108,033

8.00 %

4.00 %

8.00 %

4.00 %

For Capital Adequacy
Purposes

Amount

Ratio

$ 116,976

58,488

123,377

$ 104,550

52,275

108,179

8.00 %

4.00 %

8.00 %

4.00 %

$ 145,907

10.00 %

87,544

154,002

6.00 %

5.00 %

$ 130,448

10.00 %

78,269

135,042

6.00 %

5.00 %

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

Amount

Ratio

$ 146,220

10.00 %

87,732

154,221

6.00 %

5.00 %

$ 130,687

10.00 %

78,412

135,224

6.00 %

5.00 %

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

15. Income Taxes

2012
The current and deferred components of income tax expense for the years
(dollars in thousands)
ended December 31 are as follows:
Current expense:

2011

2010

Federal

State

$ 3,181
315

$ 2,198
309

Total current expense

3,496

2,507

Deferred (benefit) expense:

Federal

State

Total deferred benefit

(1,833)
(271)

(2,104)

(961)
8

(953)

$ 2,262
528

2,790

(1,223)
(323)

(1,546)

Provision for income taxes

$ 1,392

$ 1,554

$ 1,244

There were no penalties during 2010, 2011, or 2012. There was approximately
$2,000 paid to the Internal Revenue Service for interest during 2012.

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

$
630
14,551

$
785
13,714

2012

2011

Total

$ 15,181

$ 14,499

2012

2011

2010

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

$ 6,204

$ 6,946

$ 5,038

federal income tax benefit

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

29
(396)
(4,628)
(633)
74

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

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

Total

$ 1,392

$ 1,554

$ 1,244

Effective tax rate

6.8 %

8.5 %

8.4 %

2012

2011
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

$ 8,103
5,643
8,621
541
26
11
1,908
180
151

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

Investments writedown

Deferred gain
AMT
Other
Nonaccrual interest

Gross deferred income tax asset

25,184

21,967

Deferred income tax liabilities:
Depreciation

Limited partnerships

Unrealized gain on securities

available-for-sale

Gross deferred income tax liability

(36)
(2,722)

(7,875)

(10,633)

(201)
(2,667)

(5,385)

(8,253)

Deferred income tax asset net

$ 14,551

$ 13,714

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, 2012. 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, 2008.

16. 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%.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

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.

The measurement date for the Plan is December 31 for each year. The benefits expected to be paid in each year from 2013 to 2017 are $987,000, $1,032,000,
$1,105,000, $1,167,000, and $1,237,000, respectively. The aggregate benefits expected to be paid in the five years from 2018 to 2028 are $7,158,000. The
Company plans to contribute $1,000,000 to the Plan in 2013.
Asset Category

Percent

Level 2

Level 1

Level 3

Total

(dollars in thousands)
The fair value of plan assets and major categories as of December 31, 2012, is as follows:
Collective funds
Equity securities
Mutual funds
Hedge funds
Short-term investments

$ 12,593
5,892
3,370
1,691
437

52.5 %
24.6 %
14.1 %
7.0 %
1.8 %

100.0 %

$ 23,983

$
767
5,892
3,086
—
62

$ 9,807

$ 11,826
—
284
—
375

$ 12,485

$ —
—
—
1,691
—

$ 1,691

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, 2011, is as follows:

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

LEVEL 1

51.1 %
24.1 %
14.2 %
7.4 %
3.2 %

100.0 %

$ 10,491
4,934
2,918
1,522
652

$ 20,517

$ 6,657
4,934
2,918
—
—

$ 14,509

$ 3,834
—
—
—
652

$ 4,486

$ —
—
—
1,522
—

$ 1,522

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,

2012

2011

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

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

Balance at end of year

$ 1,522
152
17

$ 1,691

$ 1,431
—
91

$ 1,522

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

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 2013 to 2017 are $1,102,000, $1,098,000, $1,080,000, $1,494,000 and $1,938,000, respectively. The
aggregate benefits expected to be paid in the five years from 2018 to 2022 are $9,840,000.

Defined Benefit Pension Plan

2012

2011

2012

2011

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

28,784
1,097
1,295
1,401
(667)

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

21,097
1,425
923
3,482
(1,092)

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

Projected benefit obligation at end of year

31,910

28,784

25,835

21,097

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

20,517
2,333
1,800
(667)

23,983

(7,927)

31,773

4.00 %
4.50 %
8.00 %
4.00 %

1,097
1,295
(1,641)
(104)
735

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

(25,835)

22,181

(21,097)

18,567

4.00 %
4.50 %
NA
4.00 %

1,425
923
—
114
336

4.50 %
5.50 %
NA
4.00 %

680
932
—
111
131

1,382

1,057

2,798

1,854

104
(25)

104
2,519

2,623

(114)
3,098

2,984

(111)
3,546

3,435

1,461

3,680

5,782

5,289

December 31, 2012
Supplemental
Plan

Plan

Total

Plan

December 31, 2011
Supplemental
Plan

Total

620
(10,317)

(1,105)
(10,302)

(485)
(20,619)

724
(10,342)

$ (1,219)
(7,204)

(495)
(17,546)

(9,697)

$ (11,407)

$ (21,104)

(9,618)

$ (8,423)

(18,041)

(dollars in thousands)

Prior service cost
Net actuarial loss

Total

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

The following table summarizes the amounts included in Accumulated Other
Comprehensive Loss at December 31, 2012, 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 2013

Amortization of loss to be recognized in 2013

$ (104)
630

$ 114
515

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 $308,000 for 2012, $266,000 for 2011 and $244,000 for 2010.
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 $1,289,000, $1,100,000 and $600,000 in 2012,
2011, and 2010, respectively.

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

17. Commitments and Contingencies

A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 2012. 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.

18. 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.

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)

2012

2011

Financial instruments whose contract
amount represents credit risk:

Commitments to originate
1–4 family mortgages

$ 13,580

$ 12,638

Standby and commercial letters of credit

8,411

4,645

Unused lines of credit

Unadvanced portions

217,246

195,181

of construction loans

17,609

16,819

Unadvanced portions
of other loans

4,872

4,605

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.

2012

2011

2010

19. Other Operating Expenses

(dollars in thousands)

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

$ 1,853
1,256
1,179
1,074
921
890
877
849
750
330
279
120
1,230

$ 1,575
951
1,140
479
865
796
773
868
742
309
275
388
1,280

$ 1,747
874
1,042
355
884
736
788
656
691
290
294
388
1,095

Total

$ 11,608

$ 10,441

$ 9,840

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

20. 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.

The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.

Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates
of timing, amount of expected future cash flows and the credit standing of the issuer. Such estimates do not consider the tax impact of the realization of unrealized
gains or losses. In some cases, the fair value estimates cannot be substantiated by comparison to independent markets. In addition, the disclosed fair value may not
be realized in the immediate settlement of the financial instrument. Care should be exercised in deriving conclusions about our business, its value or financial position
based on the fair value information of financial instruments presented below.

SECURITIES HELD-TO-MATURITY

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

TIME DEPOSITS

The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The
fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have
significant value.

OTHER BORROWED FUNDS

The fair value of 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.

The following presents (in thousands) the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments as
of December 31, 2012 and December 31, 2011. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets
Estimated
for which the fair value approximates carrying value include cash and cash equivalents, short-term investments, FHLBB stock and accrued interest receivable. Financial
Level 3 Inputs
Fair Value
liabilities for which the fair value approximates carrying value include non-maturity deposits, short-term borrowings and accrued interest payable.
(dollars in thousands)

Fair Value Measurements

Carrying Amount

Level 2 Inputs

Level 1 Inputs

December 31, 2012

Financial assets:
Securities held-to-maturity

Loans(1)

Financial liabilities:
Time deposits

Other borrowed funds
Subordinated debentures

December 31, 2011

Financial assets:
Securities held-to-maturity

Loans(1)

Financial liabilities:
Time deposits

Other borrowed funds
Subordinated debentures

(1)

$ 275,507
1,092,591

$ 281,924
1,124,716

419,983
195,144
36,083

179,368
967,918

433,501
244,143
36,083

424,253
205,481
43,423

184,822
1,018,822

439,711
258,165
43,063

—
—

—
—
—

—
—

—
—
—

$ 281,924
—

424,253
205,481
—

184,822
—

439,711
258,165
—

$
—
1,124,716

—
—
43,423

—
1,018,822

—
—
43,063

Comprised of loans (including collateral dependent impaired loans), net of deferred loan costs and the allowance for loan losses.

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

LIMITATIONS

Fair value estimates are made at a specific point in time, based on relevant market information and information about the type of financial instrument. These estimates
do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no
active market exists for some of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, cash flows,
current economic conditions, risk characteristics and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in assumptions and changes in the loan, debt and interest rate markets could significantly affect
the estimates. Further, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates
and have not been considered.
2012 Quarters

Second

Fourth

Third

First

$ 19,365
4,963

14,402
1,100

13,302
3,619
12,800

4,121
313

3,808

3,550,993
1,993,755

5,545,711
1,993,755

$
$

0.84
0.42

0.69
0.42

Second

First

21. 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

Class A
Class B

Average shares outstanding, diluted

Class A
Class B

Earnings per share, basic

Class A
Class B

Earnings per share, diluted

Class A
Class B

2011 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

Class A
Class B

Average shares outstanding, diluted

Class A
Class B
Earnings per share, basic
Class A
Class B
Earnings per share, diluted
Class A
Class B

19,738
4,795

14,943
900

14,043
4,153
13,279

4,917
139

4,778

3,564,145
1,986,880

5,552,121
1,986,880

$
$

1.05
0.52

0.86
0.52

Fourth

19,252
5,233

14,019
950

13,069
4,361
12,702

4,728
539

4,189

3,546,418
1,994,380

5,542,052
1,994,380

$
$

0.92
0.46

0.76
0.46

22,079
4,859

17,220
1,250

15,970
4,105
13,708

6,367
685

5,682

3,559,125
1,989,380

5,549,810
1,989,380

$
$

1.25
0.62

1.02
0.62

Third

19,638
5,800

13,838
1,200

12,638
4,503
12,055

5,086
504

4,582

3,544,967
1,995,630

5,541,646
1,995,630

$
$

1.01
0.50

0.83
0.50

20,312
4,923

15,389
900

14,489
3,988
13,451

5,026
255

4,771

3,556,474
1,991,880

5,548,830
1,991,880

$
$

1.05
0.52

0.86
0.52

19,597
6,082

13,515
1,200

12,315
3,841
11,775

4,381
184

4,197

3,543,717
1,996,880

5,541,595
1,996,880

$
$

0.92
0.46

0.76
0.46

$ 19,578
5,651

13,927
1,200

12,727
3,535
12,210

4,052
327

3,725

3,537,828
2,002,755

5,541,927
2,002,755

$
$

0.82
0.41

0.67
0.41

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

22. Parent Company Financial Statements

The balance sheets of Century Bancorp, Inc. (“Parent Company”) as of December 31, 2012 and 2011 and the statements of income and cash flows for each of the
BALANCE SHEETS
years in the three-year period ended December 31, 2012, are presented below. The statements of changes in stockholders’ equity are identical to the consolidated
December 31,
2012
statements of changes in stockholders’ equity and are therefore not presented here.
(dollars in thousands)

2011

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:

Interest income from deposits in bank

Other income

Total income

Interest expense
Operating expenses

Income before income taxes and equity in undistributed income of subsidiary

Benefit from income taxes

Income before equity in undistributed income of subsidiary

Equity in undistributed income of subsidiary

Net income

STATEMENTS OF CASH FLOWS
December 31,

(dollars in thousands)

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

Undistributed income of subsidiary
Depreciation and amortization

Increase in other assets

Net cash (used in) provided by operating activities

CASH FLOWS FROM FINANCING ACTIVITIES:
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

$ 19,536
193,499
3,145

$ 216,180

$
107
36,083
179,990

$ 216,180

$ 23,467
170,642
2,730

$ 196,839

107
36,083
160,649

$ 196,839

2012

2011

2010

33
72

105
2,400
198

(2,493)
(848)

(1,645)
20,684

$ 19,039

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

$ 13,574

2012

2011

2010

$ 19,039

$ 16,693

$ 13,574

(20,684)
12
(416)

(2,049)

304
(2,186)

(1,882)

(3,931)

23,467

$ 19,536

(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

Century Bancorp, Inc. AR ’12Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

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, 2012 and 2011 and the related
consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2012. 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, 2012 and 2011 and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2012, 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, 2012, 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 21, 2013, expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.

Boston, Massachusetts

February 21, 2013

Century Bancorp, Inc. AR ’12Report of Independent Registered Public Accounting Firm

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, 2012, 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, 2012, 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, 2012 and 2011 and the related consolidated statements of income, comprehensive income, changes in stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated February 21, 2013, expressed an unqualified
opinion on those consolidated financial statements.

Boston, Massachusetts

February 21, 2013

Century Bancorp, Inc. AR ’12Management’s Report on Internal Control Over Financial Reporting

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, 2012. 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, 2012, 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 53.

Barry R. Sloane
President & CEO

February 21, 2013

William P. Hornby, CPA
Chief Financial Officer
& Treasurer

Century Bancorp, Inc. AR ’12
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 9, 2013, 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.

About Century

Headquarters

Century Bancorp, Inc. is a $3.09 billion banking and financial services company headquartered in Medford,
Massachusetts. The Company operates 25 banking offices in 19 cities and towns in Massachusetts and
provides a full range of business, personal, and institutional services.

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

Pictured from left: Executive Vice President Linda Sloane Kay, Founder & Chairman Marshall M. Sloane, and President & CEO Barry R. Sloane

Lynn Branch

Malden Branch

Medford Square Branch

Newton Centre Branch

North End Branch

Peabody Branch

Much has been said in the media of late regarding the financial industry. Let me affirm

that Century Bank’s integrity has not diminished in any way. Our dedication to our community,

“

our customers and our shareholders is unwavering. I charted a course for Century based on

making character count, and we remain true to our strategy. Our solid financial performance

Quincy Branch

Salem Branch

Somerville Branch

State Street Branch

Wellesley Branch

Winchester Branch

and stability have positioned us for growth well into the future.

“

Marshall M. Sloane, Founder and Chairman

Our family’s bank. And yours.

44 years of

Stability

Our family’s bank. And yours.

in our financial performance

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

in our client service

in our leadership

in our communities

in our values

Equal Housing Lender/Member FDIC

002-CSN0443

2012 Annual Report