Century Bancorp Inc. Annual Report 2014

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FY2014 Annual Report · Century Bancorp Inc.

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2014 Annual Report

Differentiation

Our family’s bank. And yours.

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

in everything we do.

Equal Housing Lender/Member FDIC

002-CSN45FF

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2014

“2014 was another stand out year for Century Bank. We continue to remain true to my

founding principles and my belief that character counts. I was born and raised in Somerville,

Massachusetts, and it is where I founded Century Bank 45 years ago. At its heart Century

Bank has always been a community bank. And the word community is more descriptive and

meaningful today than at any time in the recent past. I recognize the importance of supporting

our neighbors who are less fortunate, encountering life-altering events or need support to

overcome obstacles. It is why we view each party as an individual and not simply as a credit

score. Century Bank is visible with educational institutions, health care organizations, religious

and not-for-profit groups in all of the communities we serve. It’s what differentiates us. My

children, Barry and Linda, represent the next generation of bankers who were raised

on these principles, and I know they will continue to stress them as Century Bank moves into

2015 and beyond. I’m pleased that Century Bank is the largest family-run bank in all of

New England and I am confident it is well positioned to continue this mission going forward.”

Marshall M. Sloane, Founder and Chairman

About Century

Century Bancorp, Inc. is a $3.6 billion banking and financial services company headquartered in

Medford, Massachusetts. The Company operates 26 banking offices in 20 cities and towns in

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

Headquarters

Allston

Andover

Beverly

Braintree

Brookline

Burlington

Cambridge

Chestnut Hill Square

Coolidge Corner

Everett

Federal Street

Fellsway

Lynn

Malden

Medford Square

Newton Centre

North End

Peabody

Quincy

Salem

Somerville

State Street

Wellesley

Winchester

Woburn

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

Our family’s bank. And yours.

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Dear Fellow Shareholders:

We are so proud that 2014 was the fifth consecutive record year for

Century Bank. As we approach age 46, middle age is treating Century very

well. Capital, assets, deposits, earnings, and loans all again reached record

annual levels. We ended 2014 at $3.6 billion in assets and $21.9 million

of annual earnings. Our stock rose 20.5% during the year to a milestone

level of $40.06; a three-year cumulative total return of 48% and a five-year

cumulative total return of 98%. Virtually all elements of our business

performed at or above expectations in 2014. So much is working well for us.

One of the words that comes to mind when we try and explain our success is

differentiation. It begins with the differentiation of our core strategy, to build

an institution on the legacy of our Founder and Chairman, Marshall M. Sloane,

and see it prosper through the generations…a unique perspective in regional

banking in New England.

We are so different in so many ways.

Differentiation in our centralized control of lending, which leads to quick, fully

reviewed and careful credit decisions, that take into account life circumstances

and customer loyalty. Differentiation in customer service, where senior

management advertises direct dial phone numbers and email addresses,

to solve customer problems and seize opportunities directly and without time

delays. Differentiation in our recognition and concentration in the key growth

markets of education and healthcare. A sectoral emphasis that has

yielded superior growth and great benefit. Differentiation in how we refer to our

branches as banks, and not stores, and our managers as bankers, not sales

people. Differentiation in community involvement, taking a proactive

role in the charities of our home cities and towns, following our donations

with advice and oversight.

Most of all, differentiation in our view of business lines and pricing so we sell

no product or service that we would not buy ourselves as a bank or a family.

It is the golden rule of finance and life. We follow it every day. 2014 has been

another sad year for the compliance and regulatory history of our industry.

We’re not perfect, but we are proud to say our clients’ interests are never

forgotten; we cherish that we have a shared economic interest with our clients:

our assets grow together.

Let’s examine some of the tactical places where differentiation matters:

20.5%

increase in stock price

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$3.6

billion in total assets

Differentiation
shows in net earnings growth

Differentiation
results in significant asset growth

Total assets grew 5.6% to a record
$3.6 billion on December 31, 2014,
up from $3.4 billion on December 31,
2013, an increase of $193 million.
All three business lines: consumer,
business, and institutional services
grew smartly in 2014. Depositor
confidence is predicated on a stable
banking environment and the markers
of consistent growth of earnings and
assets. We produce consistent high
performing earnings and asset growth
without the turbulence of event risk
and speculation found in many of our
competitors. Depositor confidence
builds assets over time without
excessive interest expense.

Net income grew by 9% to a record
$21.9 million, or $3.93 per Class
A share diluted, for the year ended
December 31, 2014, as compared
to net income of $20.0 million, or
$3.61 per Class A share diluted, for
2013. Century’s return on average
equity (ROE) is now a consistent
11.57%, as compared to 2013’s
11.58%. Our ROE remains within
the top decile of our regional peer
group. Century’s average efficiency
ratio of overhead to revenue
decreased slightly to 62%, down
from 63% in 2013, and still below
the median (lower is favorable)
within our regional peer group.
We have added significant resources
to our business platform in 2014,
yet maintain intense control over
expenses. I continue to review and
sign every expense invoice.

Total Assets (in thousands)

Earnings per Class A share,

Net Income (in thousands)

diluted

9
0
2
,
6
8
0
,
3

4
5
1
,
1
3
4
,
3

6
3
0
,
4
2
6
,
3

3
4
.
3

1
6
.
3

3
9
.
3

9
3
0
,
9
1

6
4
0
,
0
2

0
6
8
,
1
2
$

‘12

‘13

‘14

‘12

‘13

‘14

‘12

‘13

‘14

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$1.33

billion in total loans

Differentiation
spurs confidence through capital adequacy

Total equity was $192.5 million on December 31, 2014, an increase of
$16 million or 9% from $176.5 million on December 31, 2013. Book value
per share increased to $34.57 at December 31, 2014, up by $2.81 from
$31.76 at December 31, 2013. The increase in book value was limited by
a significant increase in our pension liability due to the new, mortality tables
and the lower discount rate. Century is “well capitalized” by all regulatory
standards, and we foresee no difficulty passing all proposed “Basel III”
standards with future organic capital generation from earnings.

Differentiation
grows our loan portfolio

Total loans grew by $67 million or 5.3% to $1.33 billion on
December 31, 2014, another record. Non-performing assets grew
from the previous year to $4.1 million, a minimal number for a portfolio
of our size. Our loan portfolio is “pristine,” as described by many outside
observers. The education and healthcare sectors continue to anchor our
loan growth, increasing some 20.3%, as 2014 saw many quality
not-for-profit institutions expanding and refinancing older “swapped”
debt with simpler and less expensive “direct purchase” loan placements.
We are, by any standard, one of the leading experts in tax-exempt financing
in New England. Our not-for-profit client pipeline has regionally diversified,
the quality and credit worthiness of the prospects are topnotch.

Pictured from left: Chief Financial Officer & Treasurer William P. Hornby; Executive Vice President Paul A. Evangelista;
Executive Vice President David B. Woonton; and Executive Vice President Brian J. Feeney

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A-

S&P Quality Ranking

Business middle market lending will always be a key priority. Our calling
officers are seeking new prospects every day, fuelled by a professional phone
marketing service. We combine expert market knowledge with extraordinary
product expertise, leading to some of the longest duration satisfied relationships
in commercial banking. The process goes on, every day, pushing up our market
share. Our loan underwriting team manages a daily loan review and approval
process that ensures speedy and thoughtful decisions by experienced
senior managers.

2014 was a record year in which we closed $45 million in residential first
mortgages, and $71 million in home equity loans. We extended 355 energy
conservation loans through the Mass Save loan program, which helped us do
our part for conservation and originate many new long term relationships.

I grew up discussing a pure form of enterprise risk management at the family
dinner table. It paces our planning, our thought process, and our results. We
make loans 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, with robust and collegial input by 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, the analysis 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.

Beth Israel Deaconess Medical Center Ribbon Cutting

Pictured from left: Jayne Carvelli-Sheehan, SVP, BIDMC; Doug Karp, EVP, New England Development;
The Honorable Setti Warren, Mayor of Newton; Kevin Tabb, M.D.; Walter Armstrong, SVP, BIDMC;
and Linda Sloane Kay

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2014 Bank & Thrift
SM-ALL STARS

Differentiation
in our branch system

In 2014 we opened a new branch
#26, at 299 Mishawum Road in
Woburn, a community where we
had long coveted a high visibility
site. Woburn is also the branch where
we installed our first “Live Teller”
automated, communicating, teller
machine. The Live Teller is the next
evolution in branch customer servicing,
and we are on the forefront of that
advance. In the first quarter of
2015, we will open branch #27 at
437 Boylston Street in Boston’s
Back Bay, a busy priority neighborhood
in our expansion plans for years. Our
branches ring Greater Boston in an
efficient semi-circle that gives great
synergy to our marketing campaigns.
We are on the lookout for further high
visibility market-extending locations.

Differentiation
results in record growth
in Institutional Services

The Institutional Services Group,
which includes our government,
cash management, and not-for-profit
banking teams, had another 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 expanded our client set in
Rhode Island and New Hampshire.

We processed over 41 million check
and payment items in 2014, with
exceptional quality control and
customer service. We have prospered
through the “electronification”
of repetitive payments, with our
electronic activity increasing by the
month. 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.

Beth Israel Deaconess Medical Center Ribbon Cutting

Woburn Grand Opening Ribbon Cutting
Pictured from left: Linda Sloane Kay; Joseph J. Senna, Esq., and Director, Century Bank; Jane C. Gilberti, Vice President
and Branch Manager, Century Bank; Barry R. Sloane; The Honorable Scott Galvin, Mayor of Woburn; Marshall M. Sloane;
and Barbara J.G. Sloane

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Differentiation
in branding

It’s easy to be different in this realm
as there is no other family managed
and controlled bank of size in New
England. Our advertising, in print and
on radio, promotes our consistent
message of local family control,
permanence, approachability, and
personal service. Dad, Linda, and I
keep taking the time to personally
sign each welcome note of thanks to
all new clients of Century. This level
of personal touch differentiates us
from others in the industry.

Differentiation
in information systems
means reliability

2014 marked another year when
we experienced no unplanned
information system outage. 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 2014.

Differentiation
in commitment to the community

We are focused on our social
responsibility to our home
communities. Led by our imperative
for locally controlled enterprise,
community development, and
relationship based philanthropy,
we live our social mission every day.
In 2014 we received a Community
Reinvestment Act (CRA) rating of
“high satisfactory.” We support that
function with staff, resources, and
management commitment. We are
utilizing these resources to better
serve our minority and lower income
communities with home ownership
opportunities and access to traditional
banking services.

Differentiation
in regulatory attitude
and temperament

We are very proud of our reciprocal
relationships of respect and teamwork
with our three principal regulatory
agencies. When we read news
reports quoting other bankers
deriding the state of their regulatory
oversight, we wonder if they have the
appropriate temperament to function
in our highly regulated industry. If
an institution obeys the letter, and
spirit, of our charters and governing
regulations, it will likely prosper with
pride. Too many of our competitors
violate the law, admit their misdeeds
and pay massive fines, writing them

Senior Vice Presidents
Pictured from left: Timothy L. Glynn; Janice A. Brandano; William J. Gambon, Jr.; Deborah R. Rush; Nancy Lindstrom; Richard L. Billig; Anthony C. LaRosa;
Susan B. Delahunt; and Peter R. Castiglia

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Sharon Memorial Park Ribbon Cutting
Pictured from left: Louis Grossman, Chairman of the Board,
Knollwood Cemetery; Barry R. Sloane; Frederick Lappin,
President, Knollwood Cemetery; Bradford J. Buckley,
SVP, Century Bank; Marshall M. Sloane; David Seibert,
BKA Architects; Linda Sloane Kay; David B. Woonton,
EVP, Century Bank; Valerie R. Bosse, AVP, Century Bank;
Len Cubellis, CM&B Construction; and Barry Koretz,
BKA Architects

400

Century Bank Associates

off as a cost of doing business. It’s not our way. Frankly, we hope that those
organizations and their managers who have been convicted of felonious behavior
pay a higher price in the future.

Differentiation
of people and our values

We can’t say enough about the commitment and capability of our 400 Century
Associates. When bad weather, family calamity, or industry changes bring
challenges, our colleagues faultlessly respond with time, ability and ingenuity. So
many of our colleagues 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. Thank you to our shareholders, our clients, our associates,
and our communities, for their confidence and relationships. We will endeavor
to make 2015 another year of achievement through differentiation.

Gratefully,

Barry R. Sloane

President and CEO

Senior Vice Presidents
Pictured from left: Shipley C. Mason; James M. Flynn, Jr.; Yasmin D. Whipple; Kenneth A. Samuelian; Gerald S. Algere; Jason J. Melius; Thomas E. Piemontese;
Christine D. Scarafoni; and Bradford J. Buckley

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2014

This year, we continued to invest in our communities, supporting over 270 organizations.

2020 Women on Boards
Aberdeen Home Care, Inc.
Action for Boston Community Development, Inc.
Allston Board of Trade
American Cancer Society
American Jewish Committee
Andover Garden Club
Andover Rotary Club
Andover Youth Foundation
Anti-Defamation League
Apollo Club of Boston
Archdiocese of Boston
Arlington Community Trabajando
Armenian Heritage Foundation
Armstrong Family Scholarship Fund
Association of Latino Professionals in Finance
& Accounting
Associazione Gizio
Bais Yaakov of Boston High School for Girls
Bay State Chapter Freedoms Foundation
Beacon Academy
Berklee College of Music
Best Buddies
Beth Israel Deaconess Medical Center - Milton
Birthday Wishes
Birthright Israel Foundation
Bishop Fenwick High School
B’nai B’rith Housing
Boston Architectural College
Boston Ballet
Boston Baroque
Boston Children’s Hospital
Boston Jewish Film Festival
Boston Minuteman Council, Boy Scouts of America
Boston Renaissance Charter Public School
Boston Senior Home Care
Boston Skyline Chorus
Boston Symphony Orchestra
BostonGives, Inc.
Boy Scouts of America
Boys & Girls Clubs of Middlesex County
Brandeis University
Breast Cancer Research Foundation
Brendan M. Curtin Scholarship Fund
British Soldiers Fund
Brookline Chamber of Commerce
Brookline Library Foundation
Brookline Poet Laureate
Brookline-Quezalguaque Sister City Project
Bunker Hill Community College

Burlington Community Scholarship Foundation/

Dollars for Scholars

Burlington High School Scholarship Program
Burr Elementary School
Cambridge & Somerville Program for Alcoholism

and Drug Abuse Rehabilitation (CASPAR)

Cambridge School of Weston
Cambridge YWCA
Camp Harbor View Foundation, Inc.

Cardinal Cushing Centers
Pictured from left: Marshall M. Sloane;
Linda Sloane Kay; and Michael Cochrane

Cardinal Cushing Centers, Inc.
Cardinal Spellman High School
Cathedral High School
Catholic Charities of Boston
Catholic Schools Foundation, Inc./Inner-City

Scholarship Fund

Cheverus School Sacred Hearts Parish
Christians and Jews United for Israel
Citizens for Affordable Housing in Newton

Development Organization, Inc.

City of Chicopee
City of Malden
City of Medford
Clark School
Cohen Hillel Academy
Combined Jewish Philanthropies
Community Development Corporation of

Boston, Inc.

Congregation Mishkan Tefila
Cristo Rey Boston High School
Cystic Fibrosis Foundation
Dana-Farber Cancer Institute
Dante Alighieri Society of Massachusetts

Development Corporation for Israel
Dimock Community Health Centers
DONNE 2000
Dorothy C. Gabriel Foundation
Dreamfar High School Marathon
East Middlesex Association for Children
Eliot School
ESSCO-MGH Breast Cancer Research Fund
Essex North Shore Agricultural Technical
Foundation Inc.
Everett Chamber of Commerce
Everett Public Schools
Everyone’s A Player
Facing Cancer Together
Family Promise Metrowest
First Providence Troop
Fisher Center for Alzheimer’s Research Foundation
Fourth Presbyterian Church of South Boston
Franciscan Hospital for Children
Friends of Christopher Columbus Park
Friends of Medford Softball
Friends of Post Office Square
Generations Incorporated
Golf Fights Cancer
Governor Maggie Hassan Inaugural Committee
Greater Lawrence Family Health Center
Greater Lynn Senior Services
Greater Medford Visiting Nursing Association
Hebrew SeniorLife
Homes for Our Troops
Hospitality Homes, Inc.
I.B.E.W. Local 103
Intimate Partner Violence Project, Inc.
Irish International Immigrant Center
Italian Home for Children
Jennifer’s Gift of Hope
Jewish Big Brothers Big Sisters
Jewish Community Centers of Greater Boston
John T. Forcellese Memorial Fund
Joseph N. Hermann Youth Center
Knights of Pythias, Lodge 158
Koleinu Boston’s Jewish Community Chorus
Ladies Ancient Order of Hibernians
Little Sisters of the Poor
Lowell Adult Education Center
Lu Lingzi Memorial Scholarship Fund
Lynn Chamber of Commerce
Lynn Housing Authority & Neighborhood

Development

Lynn Museum & Historical Society
Lynn Vocational & Technical Institute
Malden Chamber of Commerce
Malden Rotary Club
Malden YMCA
Massachusetts Early Intervention Consortium
Massachusetts Eye and Ear Infirmary
Massachusetts General Hospital
Matignon High School
McDonough Scholarship Foundation
Medford Chamber of Commerce
Medford Chamber Scholarship Fund
Medford High School
Medford Kiwanis Club
Medford Mustangs Football
Medford Police Association

Special Olympics and WROR Radio Holiday Promotion
Pictured from left: Loren Owens, WROR Morning Show Host; Mary Beth McMahon, President and CEO,
Special Olympics MA; Marshall M. Sloane; Linda Sloane Kay; Barry R. Sloane; WROR Morning Show
Hosts, Lauren Beckham Falcone; Hank Morse; and Wally Brine

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This year, we continued to invest in our communities, supporting over 270 organizations.

Sacred Heart School
Saint Joseph Parish
Saint Leonard Parish
Saint Matthias Parish
Saint Peter School
Salem Chamber of Commerce
Salve Regina University
Santa Rosalia Di Palermo Society Boston
Shakespeare & Company
Sharsheret
Silent Spring Institute
Sisters of St. Joseph of Boston
Societa di San Giuseppe
Society of Jesus of New England
Solomon Schechter Day School
Somerville Chamber of Commerce
Somerville Council on Aging
Somerville High School
Somerville Homeless Coalition
Somerville Housing Authority
Somerville Museum
Somerville Pop Warner
Somerville Rotary Club
South End Community Health Center
Special Olympics Massachusetts
St. John the Baptist Parish
St. John’s Preparatory School
St. Leonard Parish of Boston
St. Mary’s Education Fund
St. Paul’s Parish
Suzuki School of Newton
Synagogue Council of Massachusetts
Teamsters Local 25, Autism Fund Inc.
Temple Beth Avodah
Temple Beth Shalom
Temple Beth Zion
Temple B’nai Brith
Temple Emanuel Andover
Temple Emanuel Newton
Temple Israel of Boston
Temple Ner Tamid
Temple Reyim
The Andona Society
The Angel Fund
The ARC of the South Shore
The Carroll Center For The Blind
The Community Family
The David Project
The E Club
The Foundation for Racial, Ethnic &
Religious Harmony
The Fund for Wellesley
The Genesis Fund

Medford Rotary Club
Merrimack Valley Chamber of Commerce
MetroCast Foundation
MetroWest Jewish Day School
Morgan Memorial Goodwill Industries
MSPCA-Angell
Muscular Dystrophy Association
Mystic River Watershed Association
Mystic Valley Elder Services
National Brain Tumor Society
Nativity Preparatory School
Nazzaro Recreation Center
Needham Police Union
Neighborhood House Charter School
Neurofibromatosis, Inc., Northeast
New England Center for Children
New England Conservatory
Newton Community Pride
Newton Cultural Alliance
Newton South High School

Regis College Commencement
Antoinette M. Hays, PhD., R.N., President, Regis
College presents Marshall M. Sloane with an
Honorary Doctor of Law degree.

Newton-Needham Chamber of Commerce
Newton-Wellesley Hospital Charitable Foundation
North Andover Scholarship Foundation
North Cambridge Senior Center
North End Against Drugs, Inc.
North End Christmas Fund
North End Music and Performing Arts Center
North End Waterfront Health
North Reading Little League
North Reading Middle School
North Shore Chamber of Commerce
Northeast Animal Shelter
Northeast Public Power Association
On The Rise
Our Lady of the Cedars Lebanon Church
Pan-Mass Challenge
Precision Athletic Training
Project STEP
Prospect Hill Academy Charter School
Quincy Parks Conservancy
Rashi School
Redemptoris Mater Seminary
Regis College
RESPOND, Inc.
Riverside Community Care
Sacred Heart Parish

Eagle Air Freight, Family Owned Business
Pictured from left: Nick O’Brien; Mike O’Brien;
Gerald S. Algere, SVP, Century Bank; and
Mike O’Brien, Jr.

The Gifford School
The Jimmy Fund
The Lenny Zakim Fund
The Leukemia & Lymphoma Society
The Lustgarten Foundation for Pancreatic

Cancer Research

The New England Council
The Salem Partnership
The Welcome Project
Town of Barnstable
Town of Brookline
Town of Weymouth
Tri-City Community Action Program, Inc.
UNICO Merrimack Valley
United Parish of Auburndale
United Way
University of Massachusetts Boston
UWUA Local 369
Vento Chiaro
VFW Medford Post 1012
Village in Focus
Vilna Shul
Ward 7 Improvement Association
Watertown Youth Baseball
Wellesley Chamber of Commerce
Winchester Cooperative Nursery School
Winchester Foundation for
Educational Excellence
Winchester Rotary Club
Winchester Sports Foundation
World Unity
Yoga Reaches Out
Young Israel of Brookline
Youth Advocacy Foundation
Zonta Club of Malden

Catholic Charities Spring Celebration
Pictured from left: Barry R. Sloane; Meb Keflezighi, Boston Marathon Winner; Linda Sloane Kay;
Marshall M. Sloane; and Barbara J.G. Sloane

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Century Bancorp, Inc.
Directors

George R. Baldwin4,6*
President & CEO
Baldwin & Company

Stephen R. Delinsky, Esq.1,3*,7
Attorney
Clark, Hunt, Ahearn & Embry

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*,3,4,5
Chairman & CEO
Sentry Auto Group

Joseph P. Mercurio 2,4,7*
Vice President
Administration & Finance
Quincy College

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, 5*

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

Linda Sloane Kay
Executive Vice President

William P. Hornby, CPA
Chief Financial Officer & Treasurer

Rosalie A. Cunio
Clerk

Judith Sinclair
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

Christine D. Scarafoni
Senior Vice President

Senior Vice Presidents

Gerald S. Algere
Janice A. Brandano
Bradford J. Buckley
Peter R. Castiglia
Susan B. Delahunt
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

Ann E. Mannion
Kathleen McGillicuddy
Carol A. Melisi
Nancy R. Miller
Melissa A. Murphy
Jennifer A. Nickerson, CPA
John L. Norris III
Karen J. Pessia
Scott M. Rembis
William F. Shutt, Jr.
Krzysztof A. Sikorski
Jeremy P. Styles
Jose I. Umana
Julie A. Walker
Jeanne A. Wood

Officers

Andrew Agyei
Angela L. Barahona
Cindy Cohen
Marie D. Costello
Margaret M. DiCeglie
James R. Ellis
Sara A. Gaudet
Paula A. Grimaldi
Jill A. Holak
Amelia N. Iocco
Joseph P. Kelley
Brian Kelly
Earl K. Kishida
Brandon N. Letellier
Paula Malley
Yasunori Matsumoto
Eileen Messier
Robson G. Miguel
Marie A. Nugent
Laura Paranay
Nancy K. Politis
Cynthia Sarnie
Kathleen Schroeder
Michael Serieka
Maria R. Serrentino
Judith Sinclair
Lisa M. Smith
Olga Sudakova
Oliver Sun
Elizabeth A. Theriault

First Vice Presidents

Michael D. Ballard
T. Daniel Kausel
David J. Waryas

Vice Presidents

Jean P. Belcher-Scarpa
Robert A. Bennett
John S. Bosco, Jr.
Gerald Bovardi
Pasqualina Buttiri
Toni M. Chardo
Gracine Copithorne
Derek J. Craig
Rosalie A. Cunio
Barbara J. Cunningham
Anthony O. Daniels
Laura A. DiFava
Sandra R. Edey
Paul C. Eldredge, CPA, CIA
Michele English
Judith A. Fallon
Thatcher L. Freeborn
Eliana C. Gibble
Jane C. Gilberti
Howard N. Gold
Anna M. Gorska
Lisa Gosling
Ashkon Hedvat
Kristine M. Holopainen
Darlene Joyce
Michael F. Long
Nancy M. Marsh
Karen M. Martin
Carl M. Mattos
Patricia M. Moran
Holly E. Nahabedian
Carol A. O’Flaherty
Meredith O’Keefe
Sarah A. O’Toole
Cornelius C. Prioleau
Neil H. Saveriano
Bernice A. Shuman
Mary V. Spadoni
Tuesday N. Thomas
Lawrence H. Tsoi

Assistant Vice Presidents

Zubin C. Bagwadia
Valerie R. Bosse
Roberta M. Byington
Cynthia A. Davidson
Tracy E. Dunn
John R. Ferguson
Marissa L. Fitzgerald
Adam S. Glick
Janice D. Hallinan
Michelle L. Haughton
Saida Idouahmane
Linda M. Johns
James J. Jordan
William B. Keefe
Malcolm I. Maloon

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

450849 ANNUAL Editorial.cc2014.indd 10

2/26/15 11:57 AM

Century Bancorp, Inc. AR ’14

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

450849 CENTURY Tx CC2014.indd 1

2/19/15 3:00 PM

Financial Highlights

Century Bancorp, Inc. AR ’14

(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

2014

2013

2012

2011

2010

85,371
19,136

66,235
2,050

64,185
15,271
56,730

22,726
866

79,765
18,805

60,960
2,710

58,250
18,615
55,812

21,053
1,007

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

21,860

20,046

19,039

16,693

13,574

3,591,732
1,969,030
5,562,209
1,969,030
5,567,909

$
$
$
$

4.78
2.39
3.93
2.39
10.1 %

$ 3,624,036
1,331,366
2,737,591
192,500
34.57

0.61 %
11.57 %
2.22 %

0.05 %

5.27 %
62.0 %

3,575,683
1,980,855
5,557,693
1,980,855
5,556,584

$
$
$
$

4.39
2.19
3.61
2.19
10.9 %

$ 3,431,154
1,264,763
2,715,839
176,472
31.76

0.60 %
11.58 %
2.21 %

0.08 %

5.22 %
63.0 %

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 %

450849 CENTURY Tx CC2014.indd 1

2/19/15 3:00 PM

Per Share Data

2014, Quarter Ended

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

2013, Quarter Ended

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

Financial Highlights

Century Bancorp, Inc. AR ’14

December 31,

September 30,

June 30,

March 31,

$ 40.50
34.26
0.12
0.06

$ 38.88
34.10
0.12
0.06

$ 37.68
33.05
0.12
0.06

$ 37.00
32.95
0.12
0.06

December 31,

September 30,

June 30,

March 31,

$ 35.98
29.67
0.12
0.06

$ 37.80
31.22
0.12
0.06

$ 35.75
31.11
0.12
0.06

$ 35.40
30.41
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, 2009 to
December 31, 2014 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
$250
Cumulative Total Return*

NASDAQ U.S.

Century Bancorp, Inc.

NASDAQ Banks

$200

$150

$100

$50

2009

2010

2011

2012

2013

2014

Value of $100 Invested on
December 31, 2009 at:

2010

2011

2012

2013

2014

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

$ 124.20
111.35
118.02

$ 133.36
83.04
117.04

$ 158.08
111.88
137.47

$ 161.79 $ 197.55
170.93
221.02

152.85
192.62

* Assumes that the value of the investment in the Company’s Common Stock and each index was $100 on
December 31, 2009 and that all dividends were reinvested.

450849 CENTURY Tx CC2014.indd 2

2/19/15 3:00 PM

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

Century Bancorp, Inc. AR ’14

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 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 slow. Financial markets have improved since
the depths of the crisis but are still unsettled and volatile. There is continued
concern about the U.S. economic outlook.

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 that
as the specific new or incremental requirements applicable to the Company
become effective, 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.
In addition, the Act added a new Section 13 to the Bank Holding Company
Act, the so-called “Volcker Rule,” (the “Rule”) which generally restricts certain
banking entities such as the Company and its subsidiaries or affiliates, from
engaging in proprietary trading activities and owning equity in or sponsoring any
private equity or hedge fund. The Rule became effective July 21, 2012. The final
implementing regulations for the Rule were issued by various regulatory agencies
in December, 2013 and under an extended conformance regulation compliance,
must be achieved by July 21, 2015 and with the covered funds restrictions by
July 21, 2017. Under the Rule, the Company may be restricted from engaging
in proprietary trading, investing in third party hedge or private equity funds

or sponsoring new funds unless it qualifies for an exemption from the rule. The
Company has little involvement in prohibited proprietary trading or investment
activities in covered funds and the Company does not expect that complying
with the requirements of the Rule will have any material effect on the Company’s
financial condition or results of operation.

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. The Company’s quarterly risk-based deposit insurance
assessments were paid from this amount until June 30, 2013. The Company
received a refund of $2.4 million of prepaid FDIC assessments in June 2013.

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”). The
Federal Reserve Board has finalized its rule implementing the Basel III regulatory
capital framework. The rule, that came into effect in January 2015, sets the
Basel III minimum regulatory capital requirements for all organizations. It includes
a new common equity Tier I ratio of 4.5 percent of risk-weighted assets, raises
the minimum Tier I capital ratio from 4 percent to 6 percent of risk-weighted
assets and would set a new conservation buffer of 2.5 percent of risk-weighted
assets. The Company has analyzed the final rules; the implementation of the
framework will not have a material impact on the Company’s financial condition
or results of operations.

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,
2014, the Company had total assets of $3.6 billion. Currently, the Company
operates 26 banking offices in 20 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 interest paid on deposits and borrowings. The results of
operations are also affected by the level of income and fees from loans,
deposits, as well as operating expenses, the provision for loan losses, the impact
of federal and state income taxes and the relative levels of interest rates and
economic activity.

The Company offers a wide range of services to commercial enterprises, state
and local governments and agencies, non-profit organizations and individuals. It
emphasizes service to small and medium sized businesses and retail customers
in its market area. The Company makes commercial loans, real estate and
construction loans and consumer loans, and accepts savings, time, and demand
deposits. In addition, the Company offers to its corporate and institutional
customers automated lock box collection services, cash management services
and account reconciliation services, and actively promotes the marketing of
these services to the municipal market. Also, the Company provides full service
securities brokerage services through a program called Investment Services at
Century Bank, which is supported by LPL Financial, a third party full-service
securities brokerage business.

450849 CENTURY Tx CC2014.indd 3

2/19/15 3:00 PM

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

Century Bancorp, Inc. AR ’14

The Company has client engagements in Massachusetts, New Hampshire
and Rhode Island with approximately 235 government entities throughout
the region.

The Company had net income of $21,860,000 for the year ended
December 31, 2014, compared with net income of $20,046,000 for the year
ended December 31, 2013, and net income of $19,039,000 for the year
ended December 31, 2012. Class A diluted earnings per share were $3.93 in
2014, compared to $3.61 in 2013 and $3.43 in 2012.

2014

2013

2012

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

$ 4.78
$ 2.39
$ 3.93
$ 2.39

$ 4.39
$ 2.19
$ 3.61
$ 2.19

$ 4.18
$ 2.09
$ 3.43
$ 2.09

2.73%

3.00 %
The trends in the net interest margin are illustrated in the graph below:
2.80 %
2.52%
2.48%
Net Interest Margin
2.60 %
2.40 %
2.20 %
2.00 %

2.25%

2.16%

2.21%

2.20%

2.30%

2.27% 2.20% 2.22% 2.18%

2012

2013

2014

From the beginning of 2012 through the third quarter of 2012, management
stabilized the net interest margin by continuing to lower the cost of funds, and
by deploying excess liquidity through expansion of the investment portfolio.
Also, the Company collected approximately $3,253,000 of prepayment
penalties during 2012. The primary factor accounting for the decrease in the
net interest margin for the fourth quarter of 2012 and through the fourth
quarter of 2013 was an additional large influx of deposits. Management invested
the funds in shorter term securities. The net interest margin has declined slightly
throughout 2014.

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.
5.00 %

Historical U.S. Treasury Yield Curve
4.00 %

3.00 %

2.00 %

1.00 %

0.00 %

3 Month 6 Month 2 Year 3 Year

5 Year 10 Year 30 Year

U.S. Treasury Yield Curve 12/31/2012
U.S. Treasury Yield Curve 12/31/2013
U.S. Treasury Yield Curve 12/31/2014

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. During 2013, longer-term rates increased resulting in
a steepening of the yield curve. During 2014, longer-term rates decreased
resulting in a flattening of the yield curve.

During 2014, 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 2013, the Company’s earnings were positively impacted
primarily by an increase in other operating income and a decrease in provision
for loan losses. This increase in other operating income was primarily due to
an increase in net gains on sales of loans and net gains on sales of securities.
The decrease in the provision for loan losses was primarily attributable to a
lower level of charge-off activity and changes in portfolio composition. During
2014, 2013 and 2012, the U.S. economy experienced a lower short-term rate
environment. The lower short-term rates negatively impacted the net interest
margin as the rate at which short-term deposits could be invested declined more
than the rates offered on those deposits. The net interest margin was positively
impacted in 2012 as a result of prepayment penalties that were collected during
the year.

Total assets were $3,624,036,000 at December 31, 2014, an increase of
5.6% from total assets of $3,431,154,000 at December 31, 2013.

On December 31, 2014, stockholders’ equity totaled $192,500,000,
compared with $176,472,000 on December 31, 2013. Book value per
share increased to $34.57 at December 31, 2014, from $31.76 on
December 31, 2013.

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 opened
on November 7, 2013 and the majority of the accounts that were temporarily
moved to the Brookline, Massachusetts branch were moved to the new branch at
Chestnut Hill in Newton, Massachusetts.

During December 2013, the Company entered into a lease agreement to
open a branch located in Woburn, Massachusetts. The branch opened on
November 3, 2014.

During March 2014, the Company entered into a lease agreement to open a
branch located on Boylston Street in Boston, Massachusetts. This property is
leased from an entity affiliated with Marshall M. Sloane, Chairman of the Board
of the Company. This agreement was approved by the Board of Directors in the
absence of the Chairman of the Board. The branch is scheduled to open during
the first quarter of 2015. The deposits from the Kenmore Square, Boston
Massachusetts branch, which closed on September 30, 2014, will be moved to
the new Boylston Street branch.

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.

450849 CENTURY Tx CC2014.indd 4

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

Century Bancorp, Inc. AR ’14

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 more likely than not 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 factors, including business and economic conditions, delinquency trends, charge-off experience and other qualitative 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, 2014 totaled $448,390,000 and included gross unrealized gains of $1,630,000 and gross
unrealized losses of $1,450,000. A year earlier, the fair value of securities available-for-sale was $464,245,000 including gross unrealized gains of $821,000 and
gross unrealized losses of $2,519,000. In 2014, the Company recognized gains of $450,000 on the sale of available-for-sale securities. In 2013 and 2012, the
Company recognized gains of $3,019,000 and $1,843,000, respectively.

Securities classified as held-to-maturity consist of U.S. Government Sponsored Enterprises and mortgage-backed securities. Securities held-to-maturity as of
December 31, 2014 are carried at their amortized cost of $1,406,792,000. A year earlier, securities held-to-maturity totaled $1,487,884,000.

During the third quarter of 2013, $987,037,000 of securities available-for-sale with unrealized losses of $25,333,000 were transferred to securities held-to-
maturity. This was done in response to rising interest rates and an assessment of liquidity needs.
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,

2014

2013

2012

(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

2,000

—

6,717

337,093

1,874

96,784

3,524

398

0.4 %

0.0 %

1.5 %

75.2 %

0.4 %

21.6 %

0.8 %

0.1 %

1,998

10,004

7,302

0.4 %

2.2 %

1.6 %

2,004

130,340

8,156

0.1 %

9.1 %

0.6 %

403,189

86.8 %

1,233,357

86.0 %

2,277

36,723

2,176

576

0.5 %

7.9 %

0.5 %

0.1 %

2,947

55,174

2,253

570

0.2 %

3.8 %

0.2 %

0.0 %

$ 448,390

100.0 %

$ 464,245

100.0 %

$ 1,434,801

100.0 %

450849 CENTURY Tx CC2014.indd 5

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

Century Bancorp, Inc. AR ’14

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 more likely than not 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, 2014.

Securities available-for-sale totaling $96,886,000, or 2.67% 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.
Amortized Cost of Securities Held-to-Maturity
The following table sets forth the amortized cost and percentage distribution of securities held-to-maturity at the dates indicated.
At December 31,

2014

2013

2012

(dollars in thousands)

U.S. Government Sponsored Enterprises

U.S. Government Sponsored Enterprise
Mortgage-Backed Securities

Amount

Percent

Amount

Percent

Amount

Percent

$ 251,617

17.9 %

$ 291,779

19.6 %

$ 17,747

6.4 %

1,155,175

82.1 %

1,196,105

80.4 %

257,760

93.6 %

Total

$ 1,406,792

100.0 %

$ 1,487,884

100.0 %

$ 275,507

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, 2014. 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

$ 2,000

0.4 %

0.23 %

SBA Backed Securities

—

0.0 %

0.00 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

$ —

0.0 % 0.00 %

0.0 %

0.00 %

4,560

1.0 %

0.84 %

2,157

0.5 % 0.93 %

U.S. Government Agency

and Sponsored Enterprise

Mortgage-Backed
Securities

344

0.1 %

3.74 %

205,354 45.8 %

0.60 %

131,173 29.3 %

0.55 %

222

0.1 % 2.21 %

1,874

0.4 %

1.54 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

—

0.0 % 0.00 %

Other Debt Securities

200

0.1 %

0.98 %

900

0.2 %

1.11 %

90,700

20.2 %

0.68 %

2,264

0.5 %

2.73 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

—

0.0 %

0.00 %

3,820

0.8 % 0.59 %

0.0 %

0.00 %

1,025

0.2 % 6.00 %

0.0 %

0.00 %

—

0.0 % 0.00 %

Privately Issued Residential
Mortgage-Backed
Securities

Obligations of States and
Political Subdivisions

Equity Securities

Total

450849 CENTURY Tx CC2014.indd 6

$ 95,118

21.2 %

0.70 %

$ 208,518 46.5 %

0.63 %

$ 135,733 30.3 %

0.56 %

$ 7,224

1.6 % 1.51 %

2/19/15 3:00 PM

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

Century Bancorp, Inc. AR ’14

Non-

Maturing

% of

Total

Weighted

Average

Yield

Total

Weighted

Average

Yield

% of

Total

(dollars in thousands)

U.S. Treasury

SBA Backed Securities

U.S. Government Agency and Sponsored

Enterprise Mortgage-Backed Securities

Privately Issued Residential Mortgage-Backed Securities

Obligations of States and Political Subdivisions

Other Debt Securities

Equity Securities

Total

Amortized Cost of Securities Held-to-Maturity
Amounts Maturing

—

0.0 %

0.00 %

0.0 %

0.00 %

2,000

6,717

0.4 %

0.23 %

1.5 %

0.87 %

0.0 %

0.00 %

337,093

75.2 %

0.59 %

0.0 %

0.00 %

0.0 %

0.00 %

1,399

0.3 %

3.24 %

398

0.1 %

3.09 %

1,874

0.4 %

1.54 %

96,784

21.6 %

0.72 %

3,524

398

0.8 %

2.08 %

0.1 %

3.09 %

$ 1,797

0.4 %

3.21 %

$ 448,390

100.0 %

0.64 %

Within

One

Year

Weighted

One Year

Weighted

Five Years

Weighted

Over

% of

Total

Average

Yield

to Five

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 % $ 103,044

7.3 %

1.19 % $ 148,573 10.6 % 1.85 % $

—

0.0 % 0.00 % $ 251,617

17.9 % 1.58 %

(dollars in thousands)

U.S. Government

Sponsored Enterprise

Mortgage-Backed

Securities

3,837 0.3 % 3.16 %

992,434 70.5 %

2.34 %

157,117 11.2 % 2.31 %

1,787

0.1 %

3.36 %

1,155,175

82.1 % 2.34 %

Total

$ 3,837 0.3 % 3.16 % $ 1,095,478 77.8 %

2.23 % $ 305,690 21.8 % 2.09 % $ 1,787

0.1 % 3.36 % $ 1,406,792 100.0 % 2.20 %

At December 31, 2014 and 2013, the Bank had no investments in obligations of individual states, counties, municipalities or nongovernment corporate entities which
exceeded 10% of stockholders’ equity. In 2014, sales of securities totaling $40,285,000 in gross proceeds resulted in a net realized gain of $450,000. There were
no sales of state, county or municipal securities during 2014 and 2013. In 2013, sales of securities totaling $224,045,000 in gross proceeds resulted in net realized
gains of $3,019,000. In 2012, sales of securities totaling $294,881,000 in gross proceeds resulted in net realized gains of $1,843,000.

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.

450849 CENTURY Tx CC2014.indd 7

2/19/15 3:00 PM

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

Century Bancorp, Inc. AR ’14

Loans

The Company’s lending activities are conducted principally in Massachusetts, New Hampshire, and Rhode Island. The Company grants single-family and multi-family
residential loans, commercial and commercial real estate loans, municipal 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,

2014

2013

2012

2011

2010

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

22,744

1.7 %

33,058

2.6 %

38,618

3.5 % $ 56,819

5.7 % $ 53,583

5.9 %

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer

Home equity

Overdrafts

Total

149,732

41,850

696,272

257,305

10,925

151,275

1,263

11.2 %

3.1 %

52.3 %

19.3 %

0.8 %

11.4 %

0.2 %

76,675

32,737

6.1 %

2.6 %

88,475

8.0 %

82,404

8.4 %

90,654

10.0 %

1,446

0.1 %

—

0.0 %

—

0.0 %

696,317

55.0 %

575,019

51.7 %

487,495

49.5 %

433,337

47.8 %

286,041

22.6 %

281,857

25.3 %

239,307

24.3 %

207,787

22.9 %

8,824

0.7 %

6,823

0.6 %

6,197

0.6 %

5,957

0.7 %

130,277

10.3 %

118,923

10.7 %

110,786

11.3 %

114,209

12.6 %

834

0.1 %

627

0.1 %

1,484

0.2 %

637

0.1 %

$ 1,331,366

100.0 %

$ 1,264,763 100.0 %

$ 1,111,788

100.0 % $ 984,492 100.0 % $ 906,164 100.0 %

At December 31, 2014, 2013, 2012, 2011 and 2010, loans were carried net of discounts of $407,000, $454,000, $498,000, $550,000 and $598,000,
respectively. Net deferred loan fees of $908,000, $174,000, $369,000, $666,000 and $186,000 were carried in 2014, 2013, 2012, 2011 and
2010, respectively.

The following table summarizes the remaining maturity distribution of certain components of the Company’s loan portfolio on December 31, 2014. 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, 2014

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, 2014

$ 7,229
24,902
27,455

$ 59,586

440
$
24,129
70,144

$ 15,075
100,701
598,673

$ 94,713

$ 714,449

$ 22,744
149,732
696,272

$ 868,748

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

$ 50,223
44,490

$ 238,012
476,437

$ 288,235
520,927

$ 94,713

$ 714,449

$ 809,162

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 Massachusetts, 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 thirty years.

450849 CENTURY Tx CC2014.indd 8

2/19/15 3:00 PM

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

Century Bancorp, Inc. AR ’14

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 $20,766,000 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, 2014, the Company was obligated to advance a total of $3,035,000 to complete projects
under construction.
2014
December 31,

2013

2011

2012

2010

(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
Municipals

Total impaired loans

$ 4,146
—

$ 4,146

$ 3,296
—
0.31 %
0.11 %

2014

$ 1,054
4,318
103
852
—

$ 6,327

$ 2,549
—

$ 2,549

$ 5,969
—
0.20 %
0.07 %

2013

$ 1,293
4,520
608
1,367
—

$ 7,788

$ 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 %

$ 8,068
—

$ 8,068

$ 1,248
50
0.89 %
0.33 %

2011

$ 516
4,561
1,500
1,525
—

$ 8,102

2010

$ —
2,492
4,000
1,471
—

$ 7,963

At December 31, 2014, 2013, 2012, 2011 and 2010, impaired loans had specific reserves of $904,000, $1,019,000, $1,732,000, $741,000 and
$317,000 respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $143,696,000, $109,301,000, $26,786,000, $18,196,000
and $983,000 at December 31, 2014, 2013, 2012, 2011, and 2010, respectively. The Company had no loans held for sale at December 31, 2014 and
December 31, 2013, $9,378,000 at December 31, 2012, $3,389,000 at December 31, 2011, and none for 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 $941,000 at December 31, 2014, $703,000 for December 31, 2013, and $137,000 for December 31, 2012.

450849 CENTURY Tx CC2014.indd 9

2/19/15 3:00 PM

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

Century Bancorp, Inc. AR ’14

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

Nonaccrual loans increased during 2014 primarily as a result of a large commercial real estate loan. Nonaccrual loans decreased during 2013 primarily as a result of
a charge-off of a construction loan and a decrease in residential real estate nonperforming loans. 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.

The Company continues to monitor closely $14,558,000 and $16,918,000 at December 31, 2014 and 2013, 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, 2014, 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
loan losses for the years indicated.
(dollars in thousands)

2014

2012

2013

2011

2010

Year-end loans outstanding

(net of unearned discount and deferred loan fees)

$ 1,331,366

$ 1,264,763

$ 1,111,788

$ 984,492

$ 906,164

Average loans outstanding

(net of unearned discount and deferred loan fees)

$ 1,307,888

$ 1,184,912

$ 1,036,296

$ 948,883

$ 877,858

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

20,941

19,197

16,574

$ 14,053

$ 12,373

333
500
—
24
525

1,382

201
—
117
391

709

673
2,050

234
1,000
—
—
579

1,813

389
—
31
427

847

966
2,710

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

Balance at end of year

22,318

20,941

19,197

$ 16,574

$ 14,053

Ratio of net charge-offs during the year

to average loans outstanding

Ratio of allowance for loan losses to loans outstanding

0.05 %

1.68 %

0.08 %

1.66 %

0.15 %

1.73 %

0.21 %

1.68 %

0.44 %

1.55 %

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 declined in 2011, 2012, 2013, and 2014 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.

450849 CENTURY Tx CC2014.indd 10

2/19/15 3:00 PM

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

Century Bancorp, Inc. AR ’14

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, 2014 is $22,744,000. 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 $785,521,000 at December 31, 2014,
as compared to $701,103,000 at December 31, 2013. 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
$482,624,000 at December 31, 2014, as compared to $377,915,000 at December 31, 2013. 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. Also included in high-balance loans are loans greater than $25.0 million.
The balance of these loans is $211,519,000 at December 31, 2014, as compared to $131,834,000 at December 31, 2013. 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 and $10.0 million allocation.

Small business loans — The outstanding loan balances of small business loans is $35,312,000 at December 31, 2014. 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
2013
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:

2014

2011

2012

2010

Percent
of Loans
in Each
Category
to Total
Loans

Amount

(dollars in thousands)

Construction and land development

$ 1,592

1.7 %

$ 2,174

2.6 %

$ 3,041

3.5 %

$ 2,893

5.7 %

$ 1,752

5.9 %

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer and other

Home equity

Unallocated

Total

4,757 11.2

2,617

1,488

3.1

655

6.1

2.6

3,118

8.0

0.1

3,139

—

8.4

0.0

11,199 52.3

10,935 55.0

9,041 51.7

6,566 49.5

776 19.3

810

1.0

599 11.4

2,006 22.6

1,994 25.3

1,886 24.3

432

0.8

959 10.3

333

0.7

886 10.7

356

0.8

704 11.3

1,097

1,163

760

1,030

3,163

10.0

—

5,671

1,718

298

725

726

0.0

47.8

22.9

0.8

12.6

$ 22,318 100.0 %

$ 20,941 100.0 %

$ 19,197 100.0 %

$ 16,574 100.0 %

$ 14,053 100.0 %

Management believes that the allowance for loan losses is adequate. In addition, various regulatory agencies, as part of the examination process, periodically
review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination. Further information regarding the allocation of the allowance is contained within Note 6 of the “Notes to
Consolidated Financial Statements.”

Deposits

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

Interest rates on deposits are set twice per month 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.

450849 CENTURY Tx CC2014.indd 11

2/25/15 9:56 PM

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

Century Bancorp, Inc. AR ’14

2014

2013

2012

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

Percent

Amount

Percent

Demand Deposits

$ 481,035

16.8 %

$ 441,193

16.6 %

$ 386,863 16.5 %

Savings and Interest Checking

1,096,303

38.2 %

1,037,320

38.9 %

870,046 37.1 %

Money Market

920,485

32.1 %

800,052

30.0 %

666,949 28.5 %

Time Certificates of Deposit

372,699

12.9 %

387,514

14.5 %

418,789 17.9 %

Total

$ 2,870,522 100.0 %

$ 2,666,079 100.0 %

$ 2,342,647 100.0 %

2014

(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

$ 66,690
50,150
30,320
111,808

Total

$ 258,968

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 $395,500,000, an increase of $140,500,000 from the prior year. The Bank’s remaining term borrowing capacity at the FHLBB at
December 31, 2014, was approximately $221,384,000. 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, including related 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
paid dividends at an annualized rate of 6.65% for the first ten years and then converted to the three-month LIBOR rate plus 1.87% for the remaining 20 years.

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
$212,360,000, a decrease of $2,080,000 from the prior year. See Note 11, “Securities Sold Under Agreements to Repurchase,” for a schedule, including related
interest rates and other information.

RESULTS OF OPERATIONS

Net Interest Income

The Company’s operating results depend primarily on net interest income and fees received for providing services. Net interest income on a fully taxable equivalent
basis increased 9.0% in 2014 to $76,268,000, compared with $69,944,000 in 2013. The increase in net interest income for 2014 was mainly due to an 8.5%
increase in the average balances of earning assets, combined with a similar increase in deposits. The increase in net interest income for 2013 was mainly due to an
13.6% increase in the average balances of earning assets, combined with a similar increase in deposits. This was offset, somewhat, by prepayment penalties that
were collected during the prior year. 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 2.22% in
2014 from 2.21% in 2013 and decreased from 2.51% in 2012. The increase in the net interest margin, for 2014, was primarily the result of a decrease in rates
paid on deposits and borrowed funds. The decrease in the net interest margin, for 2013, was primarily the result of a decrease in asset yields. The Company collected
approximately $693,000, $491,000, and $3,253,000 respectively, of prepayment penalties, which are included in interest income on loans, for 2014, 2013, and
2012, 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.

450849 CENTURY Tx CC2014.indd 12

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

Century Bancorp, Inc. AR ’14

Year Ended December 31,
The following table sets forth the distribution of the Company’s average assets, liabilities and stockholders’ equity, and average rates earned or paid on a fully taxable
equivalent basis for each of the years indicated.
Average
Balance

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

Average
Balance

2014

2013

2012

(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

$ 757,088
550,800

$ 32,198
27,798

4.25 %
5.05

$ 760,435
424,477

$ 33,214
24,918

4.37 %
5.87

$ 715,553
320,743

$ 34,983
24,220

4.89 %
7.55

445,656
55,272

2,883
428

0.65
0.77

951,757
46,226

13,083
434

1.37
0.94

1,214,352
49,023

22,363
516

1.84
1.05

1,499,995

31,745

2.12

812,448

16,615

2.05

270,525

6,746

2.49

129,472

352

0.27

174,264

485

0.28

219,540

630

0.29

Total interest-earning assets

3,438,283

$ 95,404

2.77 %

3,169,607

$ 88,749

2.80 %

2,789,736

$ 89,458

3.21 %

Noninterest-earning assets

Allowance for loan losses

166,792

(21,876)

Total assets

$ 3,583,199

167,000

(20,452)

$ 3,316,155

172,748

(18,039)

$ 2,944,445

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

$ 762,280
334,023
920,485
372,699

$ 1,677
862
2,715
4,421

0.22 %
0.26
0.29
1.19

$ 713,677
323,643
800,052
387,514

$ 1,673
912
2,472
4,777

0.23 %
0.28
0.31
1.23

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

$ 1,561
689
2,373
6,250

0.27 %
0.24
0.36
1.49

Total interest-bearing deposits

2,389,487

9,675

0.40

2,224,886

9,834

0.44

1,955,784

10,873

0.56

Securities sold under
agreements to repurchase

Other borrowed funds
and subordinated debentures

216,937

391

0.18

203,888

361

0.18

174,624

367

0.21

271,710

9,070

3.34

231,032

8,610

3.73

217,542

8,300

3.82

Total interest-bearing liabilities

2,878,134

$ 19,136

0.66 %

2,659,806

$ 18,805

0.71 %

2,347,950

$ 19,540

0.83 %

Noninterest-bearing liabilities
Demand deposits
Other liabilities

Total liabilities

Stockholders’ equity
Total liabilities and

481,035
35,033

3,394,202

188,997

stockholders’ equity

$ 3,583,199

Net interest income on a fully
taxable equivalent basis

Less taxable equivalent adjustment

Net interest income

Net interest spread

Net interest margin

(1)

441,193
42,017

3,143,016

173,139

$ 3,316,155

386,863
37,497

2,772,310

172,135

$ 2,944,445

$ 76,268

(10,033)

$ 66,235

$ 69,944

(8,984)

$ 60,960

$ 69,918

(7,964)

$ 61,954

2.11 %

2.22 %

2.09 %

2.21 %

2.38 %

2.51 %

(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.

450849 CENTURY Tx CC2014.indd 13

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

Century Bancorp, Inc. AR ’14

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.

2014 Compared with 2013
Increase/(Decrease)
Due to Change in

2013 Compared with 2012
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

$ (146)
6,709

$ (870)
(3,829)

$ (1,016)
2,880

$ 2,108
6,800

$ (3,877)
(6,102)

$ (1,769)
698

(5,112)
77

14,531
(123)

(5,088)
(83)

(10,200)
(6)

599
(10)

15,130
(133)

(4,271)
(28)

11,283
(127)

(5,009)
(54)

(1,414)
(18)

15,936

(9,281)

6,655

15,765

(16,474)

110
29
359
(179)

319
23
1,418

1,760

(106)
(79)
(116)
(177)

(478)
7
(958)

(1,429)

4
(50)
243
(356)

(159)
30
460

331

307
111
436
(442)

412
57
506

975

(195)
112
(337)
(1,031)

(1,451)
(63)
(196)

(1,710)

(9,280)
(82)

9,869
(145)

(709)

112
223
99
(1,473)

(1,039)
(6)
310

(735)

$ 14,176

$ (7,852)

$ 6,324

$ 14,790

$ (14,764)

$ 26

Average earning assets were $3,438,283,000 in 2014, an increase of $268,676,000 or 8.5% from the average in 2013, which was 13.6% higher than the average
in 2012. Total average securities, including securities available-for-sale and securities held-to-maturity, were $2,000,923,000, an increase of 10.5% from the
average in 2013. The increase in securities volume was mainly attributable to an increase in taxable securities. An increase in securities balances resulted in higher
securities income, which increased 16.3% to $35,056,000 on a fully tax equivalent basis. Total average loans increased 10.4% to $1,307,888,000 after increasing
$148,616,000 in 2013. The primary reason for the increase in loans was due in large part to an increase in tax-exempt lending as well as residential second mortgage
lending. The increase in loan volume resulted in higher loan income. Loan income increased by 3.2% or $1,864,000 to $59,132,000. Total loan income was
$59,203,000 in 2012. Prepayment penalties collected were $693,000, $491,000, and $3,253,000 for 2014, 2013, and 2012, respectively.

The Company’s sources of funds include deposits and borrowed funds. On average, deposits increased 7.7%, or $204,443,000, in 2014 after increasing by 13.8%,
or $323,432,000, in 2013. Deposits increased in 2014, primarily as a result of increases in demand deposits, savings, money market, and NOW accounts. Deposits
increased in 2013, primarily as a result of increases in demand deposits, savings, money market, and NOW accounts. Borrowed funds and subordinated debentures
increased by 12.4% in 2014, following an increase of 10.9% in 2013. 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 $40,678,000, and average retail repurchase agreements increased by
$13,049,000 in 2014. Interest expense totaled $19,136,000 in 2014, an increase of $331,000, or 1.8%, from 2013 when interest expense decreased 3.8% from
2012. The increase in interest expense, for 2014, is primarily due to increases in the average balances of both borrowed funds and money market balances, this was
offset, somewhat, by a decrease in rates paid on deposits and other borrowed funds. The decrease in interest expense, for 2013, 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 $2,050,000 in 2014, compared with $2,710,000 in 2013 and $4,150,000 in 2012. These provisions are the result of
management’s evaluation of the amounts and credit 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 2014, primarily as a result of a lower level of
charge-off activity, changes in the portfolio composition, and changes in qualitative economic and other risk factors. The provision for loan losses decreased during
2013, primarily as a result of a lower level of charge-off activity and changes in the portfolio composition.

450849 CENTURY Tx CC2014.indd 14

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

Century Bancorp, Inc. AR ’14

The allowance for loan losses was $22,318,000 at December 31, 2014,
compared with $20,941,000 at December 31, 2013. Expressed as a
percentage of outstanding loans at year-end, the allowance was 1.68% in 2014
and 1.66% in 2013. The allowance for loan losses increased despite a decrease
in the provision for loan losses due to the increase in the size and composition
changes of the loan portfolio.

Nonperforming loans, which include all non-accruing loans, totaled $4,146,000
on December 31, 2014, compared with $2,549,000 on December 31, 2013.
Nonperforming loans increased primarily as a result of an increase in commercial
real estate nonperforming loans.

Other Operating Income

During 2014, the Company continued to experience strong 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 2014 was $15,271,000, a decrease of
$3,344,000, or 18.0%, compared to 2013. This decrease followed an
increase of $2,750,000, or 17.3%, in 2013, compared to 2012. Included
in other operating income are net gains on sales of securities of $450,000,
$3,019,000 and $1,843,000 in 2014, 2013 and 2012, respectively. Service
charge income, which continues to be a major source of other operating income,
totaling $8,063,000 in 2014, decreased $50,000 compared to 2013. This
followed an increase of $233,000 in 2013 compared to 2012. The decrease
in fees, in 2014, was mainly attributable to a decrease in overdraft fees offset,
somewhat, by an increase in fees collected from processing activities as well
as an increase in debit card fees. The increase in fees, in 2013, was mainly
attributable to an increase in fees collected from processing activities as well
as an increase in debit card fees, which was offset, somewhat, by a decrease in
overdraft fees. Lockbox revenues totaled $3,099,000, up $20,000 in 2014
following an increase of $149,000 in 2013. Gains on sales of mortgage
loans totaled $757,000, down $807,000 in 2014 following an increase of
$1,267,000 in 2013. Other income totaled $2,600,000, down $17,000 in
2014 following a decrease of $32,000 in 2013. The decrease in 2013 was
mainly attributable to a decrease in ATM fees.

attributable to increases in staff levels and merit increases in salaries and
increases in health insurance costs.

Occupancy expense increased by $503,000, or 10.1%, in 2014, following an
increase of $305,000, or 6.5%, in 2013. The increase in 2014 and 2013 was
primarily attributable to an increase in rent expense, depreciation expense and
building maintenance associated with branch expansion.

Equipment expense increased by $31,000, or 1.3%, in 2014, following an
increase of $43,000, or 1.9%, in 2013. The increase in 2014 and 2013 was
primarily attributable to an increase in service contracts.

FDIC assessments increased by $180,000, or 10.1%, in 2014, following an
increase of $53,000, or 3.1%, in 2013. FDIC assessments increased in 2014
and 2013 mainly as a result of deposit growth.

Other operating expenses increased by $352,000 in 2014, which followed a
$128,000 decrease in 2013. The increase in 2014 was primarily attributable
to an increase in debit card losses, consultants expense, and software
maintenance fees. The decrease in 2013 was primarily attributable to a decrease
in charitable contributions and marketing expense offset somewhat by an
increase in software maintenance.

Provision for Income Taxes

Income tax expense was $866,000 in 2014, $1,007,000 in 2013 and
$1,392,000 in 2012. The effective tax rate was 3.8% in 2014, 4.8% in
2013 and 6.8% in 2012. The decrease in the effective tax rate for 2014 and
2013 was mainly attributable to an increase in tax-exempt interest income as
a percentage of taxable income offset slightly by a decrease in tax credits. The
federal tax rate was 34% in 2014, 2013 and 2012.

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

(9.4)
(6.0)
(4.3)
(2.1)
0.7
0.1

Operating Expenses

(1)

Total operating expenses were $56,730,000 in 2014, compared to
$55,812,000 in 2013 and $53,238,000 in 2012.

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.

Salaries and employee benefits expenses decreased by $148,000 or 0.4% in
2014, after increasing by 7.0% in 2013. The decrease in 2014 was mainly
attributable to decreases in pension costs, mostly offset by increases in
staff levels and merit increases in salaries. The increase in 2013 was mainly

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.

450849 CENTURY Tx CC2014.indd 15

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

Century Bancorp, Inc. AR ’14

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 $307,489,000 on December 31, 2014, compared with $99,295,000 on December 31, 2013. 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 $192,500,000 at December 31, 2014, compared with $176,472,000 at December 31, 2013. The Company’s equity increased
primarily as a result of earnings, offset somewhat by an increase in other comprehensive loss, net of taxes, and dividends paid. Other comprehensive loss, net of taxes,
increased as a result of an increase in the additional pension liability. The pension liability increased as a result of an increase in the discount rate utilized and the
impact of recently updated mortality tables. This was offset somewhat by a decrease in unrealized losses on securities available-for-sale and securities transferred from
available-for-sale to held-to-maturity. During the third quarter of 2013, $987,037,000 of securities available-for-sale with unrealized losses of $25,333,000 million
were transferred to securities held-to-maturity. This was done in response to rising interest rates.

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 13.87% and 13.13%, respectively, and total capital-to-risk assets ratio of 15.12% and 14.38%, respectively,
at December 31, 2014. 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, 2014, the Company and the Bank exceeded this requirement with leverage
ratios of 6.91% and 6.52%, 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, 2014.

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

$ 395,500
36,083
35,579
12,751
212,360

$ 692,273

Total

$ 298,279
8,057
23,436

$ 329,772

Less Than
One Year

$ 169,500
—
2,322
2,279
212,360

$ 386,461

One to
Three Years

$ 100,000
—
6,186
3,782
—

$ 109,968

Amount of Commitment Expiring—By Period

Less Than
One Year

$ 26,706
6,912
3,456

$ 37,074

One to
Three Years

$ 128,542
918
1,205

$ 130,665

Three to
Five Years

$ 70,000
—
6,803
2,743
—

$ 79,546

Three to
Five Years

$ 13,640
59
350

$ 14,049

After Five
Years

$ 56,000
36,083
20,268
3,947
—

$ 116,298

After Five
Years

$ 129,391
168
18,425

$ 147,984

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:

450849 CENTURY Tx CC2014.indd 16

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

creditor to satisfy that loan through completion of a deed in lieu of foreclosure
or through a similar legal agreement. The amendments in this update are
effective for annual periods, and interim periods within those annual periods,
beginning after December 15, 2014. The Company has assessed the impact
of ASU 2014-04 and the adoption of this amendment will not have a material
impact on the Company’s financial statements.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing
(Topic 860) Repurchase-to-Maturity Transactions, Repurchase Financings, and
Disclosures. This ASU eliminates sale accounting for repurchase-to-maturity
transactions and supersedes the guidance under which a transfer of a financial
asset and a contemporaneous repurchase financing could be accounted for on
a combined basis as a forward agreement. In addition, the ASU requires a new
disclosure for transactions economically similar to repurchase agreements in
which the transferor retains substantially all of the exposure to the economic
return on the transferred financial assets throughout the term of the transaction.
The ASU is effective for annual periods beginning after December 15, 2014
and interim periods beginning after December 15, 2015; early application is
not permitted. The Company has assessed the impact of ASU 2014-11 and the
adoption of this amendment will not have a material impact on the Company’s
financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables-Troubled Debt
Restructurings by Creditors (Subtopic 310-40) Classification of Certain
Government-Guaranteed Mortgage Loans upon Foreclosure. This ASU which will
require creditors to derecognize certain foreclosed government-guaranteed
mortgage loans and to recognize a separate other receivable that is measured
at the amount the creditor expects to recover from the guarantor, and to treat
the guarantee and the receivable as a single unit of account. ASU 2014-14
is effective for public business entities for annual periods, and interim periods
within those annual periods, beginning after December 15, 2014. For
entities other than public business entities, the ASU is effective for annual
periods ending after December 15, 2015, and interim periods beginning
after December 15, 2015. An entity can elect a prospective or a modified
retrospective transition method, but must use the same transition method
that it elected under FASB ASU No. 2014-04, Reclassification of Residential
Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. Early
adoption, including adoption in an interim period, is permitted if the entity
already adopted ASU 2014-04. The Company has assessed the impact of ASU
2014-14 and the adoption of this amendment will not have a material impact
on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-15, Disclosures of Uncertainties
About an Entity’s Ability to Continue as a Going Concern. This ASU provides
guidance on determining when and how reporting entities must disclose going
concern uncertainties in their financial statements. The new standard requires
management to perform interim and annual assessments of an entity’s ability
to continue as a going concern within one year of the date of issuance of the
entity’s financial statements. Further, an entity must provide certain disclosures
if there is “substantial doubt about the entity’s ability to continue as a going
concern.” The ASU is effective for interim and annual periods beginning after
December 15, 2016; early application is permitted. The Company has chosen
not to early adopt ASU 2014-15.

Century Bancorp, Inc. AR ’14
Contract or Notional Amount

(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

2014

2013

3,215
8,057
298,279
3,035
17,186

$ 3,373
7,930
249,941
7,026
17,750

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 $62,000 and $69,000 for 2014 and 2013, respectively.

Recent Accounting Developments

In December 2011, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“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 implemented the provisions
of ASU 2011-11 as of January 1, 2013. The adoption of this pronouncement
did not have a material effect on the consolidated financial statements.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income
(Topic 220) Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income. ASU 2013-02 requires an entity to report the effect of
significant reclassifications out of accumulated other comprehensive income on
the respective line items in net income or as a separate disclosure in the notes
to the financial statements. The new standard is effective for annual periods
beginning January 1, 2013, and interim periods within those annual periods.
The Company has presented a separate footnote (Note 13) as a result of this
pronouncement.

450849 CENTURY Tx CC2014.indd 17

2/19/15 3:00 PM

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 $448,210 in 2014 and $465,943

in 2013 (Notes 3, 9 and 11)

Securities held-to-maturity, fair value $1,413,603 in 2014 and $1,464,449

in 2013 (Notes 4 and 11)

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

Less: allowance for loan losses (Note 6)

Net loans

Bank premises and equipment (Note 7)
Accrued interest receivable
Prepaid FDIC assessments
Other assets (Notes 8 and 16)

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, 18 and 19)

Stockholders’ equity (Note 15):

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 3,600,729 shares in 2014 and

3,580,404 shares in 2013

Common stock, Class B,

$1.00 par value per share; authorized 5,000,000 shares; issued
1,967,180 shares in 2014 and 1,976,180 shares in 2013

Additional paid-in capital
Retained earnings

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

Total accumulated other comprehensive loss, net of taxes (Notes 3, 13 and 15)

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying “Notes to Consolidated Financial Statements.”

Consolidated Balance Sheets

2014

Century Bancorp, Inc. AR ’14

2013

43,367
261,990

305,357

2,131

59,956
34,722

94,678

4,617

448,390

464,245

1,406,792
24,916
1,331,366
22,318

1,309,048
24,182
6,241
—
96,979

$ 3,624,036

$ 484,928
978,619
890,899
383,145

2,737,591

212,360
395,500
36,083
50,002

1,487,884
18,072
1,264,763
20,941

1,243,822
23,400
6,539
—
87,897

$ 3,431,154

$ 475,862
992,796
864,957
382,224

2,715,839

214,440
255,144
36,083
33,176

3,431,536

3,254,682

—

3,601

3,580

1,967
12,292
200,411

218,271

77
(10,479)
(15,369)

(25,771)

192,500

1,976
11,932
180,747

198,235

(1,045)
(13,667)
(7,051)

(21,763)

176,472

$ 3,624,036

$ 3,431,154

450849 CENTURY Tx CC2014.indd 18

2/19/15 3:00 PM

Consolidated Statements of Income

Century Bancorp, Inc. AR ’14
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

Gains on sales of mortgage loans

Other income

Total other operating income

OPERATING EXPENSES

Salaries and employee benefits (Note 17)

Occupancy

Equipment

FDIC assessments

Other (Note 20)

Total operating expenses

Income before income taxes

Provision for income taxes (Note 16)

Net income

SHARE DATA (Note 14)

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.”

2014

2013

2012

32,198

33,214

34,983

17,910

2,601

282

283

31,745

352

85,371

2,539

2,715

4,421

391

9,070

19,136

66,235

2,050

64,185

8,063

3,099

302

450

757

2,600

15,271

35,096

5,503

2,329

1,970

11,832

56,730

22,726

866

16,082

13,024

286

16,615

485

79,765

2,585

2,472

4,777

361

8,610

18,805

60,960

2,710

58,250

8,113

3,079

257

3,019

1,564

2,583

18,615

35,244

5,000

2,298

1,790

11,480

55,812

21,053

1,007

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

297

2,551

15,865

32,943

4,695

2,255

1,737

11,608

53,238

20,431

1,392

21,860

20,046

19,039

3,591,732
1,969,030

5,562,209
1,969,030

$
$

4.78
2.39

3.93
2.39

3,575,683
1,980,855

5,557,693
1,980,855

$
$

4.39
2.19

3.61
2.19

3,557,693
1,990,474

5,549,191
1,990,474

$
$

4.18
2.09

3.43
2.09

450849 CENTURY Tx CC2014.indd 19

2/19/15 3:00 PM

Year Ended December 31,

(dollars in thousands)

NET INCOME

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on securities:

Consolidated Statements of Comprehensive Income

2014

2013

Century Bancorp, Inc. AR ’14

2012

21,860

20,046

19,039

Unrealized holding gains (losses) arising during period

Less: reclassification adjustment for gains included in net income

Total unrealized gains (losses) on securities

Accretion of net unrealized losses transferred during period

Defined benefit pension plans:

Pension liability adjustment:

Net (loss) gain

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

Total pension liability adjustment

Other comprehensive (loss) income

Comprehensive income (loss)

See accompanying “Notes to Consolidated Financial Statements.”

1,572

(450)

1,122

3,188

(8,544)

226

(8,318)

(4,008)

17,852

(25,909)

(3,019)

(28,928)

1,886

4,932

694

5,626

(21,416)

(1,370)

5,854

(1,843)

4,011

—

(2,488)

649

(1,839)

2,172

21,211

450849 CENTURY Tx CC2014.indd 20

2/19/15 3:00 PM

Consolidated Statements of Changes in Stockholders’ Equity

Century Bancorp, Inc. AR ’14

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, 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
Cashless stock options exercised, 6,750 shares
Cash dividends, Class A Common Stock, $0.48 per share
Cash dividends, Class B Common Stock, $0.24 per share

—

—
—

8
12
—
—
—

—

—
—

(8)
—
—
—
—

—

19,039

—

19,039

—
—

—
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

Net income
Other comprehensive income, net of tax:
Unrealized holding losses arising during period, net of $8,527 in taxes

and $3,019 in realized net gains

Unrealized losses on securities transferred to held-to-maturity,

net of $9,781 in taxes

Accretion of net unrealized losses transferred during the period,

net of $1,191 in taxes

Pension liability adjustment, net of $3,741 in taxes

Conversion of Class B Common Stock to Class A
Common Stock, 10,700 shares
Stock options exercised, 1,625 shares
Cash dividends, Class A Common Stock, $0.48 per share
Cash dividends, Class B Common Stock, $0.24 per share

—

—
—

10
2
—
—

—

—
—

(10)
—
—
—

—

20,046

—

20,046

—

—
—

—
41
—
—

—

(13,375)

—

(15,553)

—
—

1,886
5,626

—
—
(1,716)
(475)

—
—
—
—

1,886
5,626

—
43
(1,716)
(475)

BALANCE, DECEMBER 31, 2013

$ 3,580

$ 1,976

$ 11,932

$ 180,747

$ (21,763)

$ 176,472

Net income
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of $756 in taxes

and $450 in realized net gains

Accretion of net unrealized losses transferred during the period, net of

$2,004 in taxes

Pension liability adjustment, net of $5,532 in taxes
Conversion of Class B Common Stock to Class A Common Stock, 9,000 shares
Stock options exercised, 11,325 shares
Cashless stock options exercised, 7,700 shares
Cash dividends, Class A Common Stock, $0.48 per share
Cash dividends, Class B Common Stock, $0.24 per share

—

—
—
9
12
—
—
—

—

21,860

—

21,860

—

—
—
(9)
—
—
—
—

—

—
—
—
349
11
—
—

—

1,122

—
—
—
—
—
(1,723)
(473)

3,188
(8,318)
—
—
—
—
—

3,188
(8,318)
—
361
11
(1,723)
(473)

BALANCE, DECEMBER 31, 2014

$ 3,601

$ 1,967

$ 12,292

$ 200,411

$ (25,771)

$ 192,500

See accompanying “Notes to Consolidated Financial Statements.”

450849 CENTURY Tx CC2014.indd 21

2/19/15 3:00 PM

Year Ended December 31,

(dollars in thousands)

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

Consolidated Statements of Cash Flows

2014

2013

Century Bancorp, Inc. AR ’14

2012

$ 21,860

$ 20,046

$ 19,039

Gain on sales of mortgage loans held for sale
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 on sales of other real estate owned

Increase in other assets
Increase 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 call of Federal Home Loan Bank of Boston stock
Purchase 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 portfolio loans
Net increase in loans
Proceeds from sales of other real estate owned
Proceeds from sales of fixed assets
Capital expenditures

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time deposit accounts
Net increase in demand, savings, money market and NOW deposits
Net proceeds from the exercise of stock options
Cash dividends
Net (decrease) increase in securities sold under agreements to repurchase
Net increase (decrease) in other borrowed funds

Net cash provided by financing activities

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

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
Change in unrealized losses on securities transferred to held-to-maturity, net of taxes
Pension liability adjustment, net of taxes

Transfer of loans to other real estate owned
Transfer of securities available-for-sale to held-to-maturity

See accompanying “Notes to Consolidated Financial Statements.”

(757)
(5)
(450)
2,050
(3,613)
2,937
298
—
(60)
(2,849)
2,976

22,387

4,617
(2,131)
680
(7,524)
153,832
40,285
(176,224)
267,486
(181,411)
44,501
(111,528)
615
5
(3,104)

30,099

921
20,831
361
(2,196)
(2,080)
140,356

158,193

210,679
94,678

$ 305,357

$ 19,168
4,493
1,122
3,188
(8,318)
555
—

(1,564)
(1)
(3,019)
2,710
(2,929)
5,358
(728)
2,773
—
(5,693)
4,043

20,996

22,367
(9,617)
284
(3,210)
256,420
224,045
(543,072)
121,121
(344,455)
93,337
(245,670)
—
1
(1,820)

(430,269)

(37,759)
308,525
43
(2,191)
23,050
60,000

351,668

(57,605)
152,283

$ 94,678

$ 18,812
4,008
(13,375)
(13,667)
5,626
—
987,037

(297)
(1)
(1,843)
4,150
(2,104)
6,445
211
1,562
(1)
(3,113)
1,070

25,118

38,397
(37,413)
385
—
532,734
294,881
(998,955)
88,628
(185,346)
14,457
(143,332)
1,584
1
(4,300)

(398,279)

(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
—

450849 CENTURY Tx CC2014.indd 22

2/19/15 3:00 PM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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, New Hampshire
and Rhode Island. 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.

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 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, 2014 and 2013, 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.

450849 CENTURY Tx CC2014.indd 23

2/19/15 3:00 PM

The transfer of a security between categories of investments shall be accounted
for at fair value. For a debt security transferred into the held-to-maturity
category from the available-for-sale category, the unrealized holding gain or
loss at the date of the transfer shall continue to be reported in a separate
component of shareholders’ equity but shall be amortized over the remaining
life of the security as an adjustment of yield in a manner consistent with the
amortization of any premium or discount. The amortization of an unrealized
holding gain or loss reported in equity will offset or mitigate the effect on
interest income of the amortization of the premium or discount for that held-
to-maturity security.

FEDERAL HOME LOAN BANK STOCK

The Bank, as a member of the Federal Home Loan Bank of Boston (“FHLBB”),
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. As of December 31, 2014, 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. For collateral dependent
loans, the amount of the recorded investment in a loan that exceeds the fair
value of the collateral is charged-off against the allowance for loan losses in
lieu of an allocation of a specific allowance when such an amount has been
identified definitively as uncollectible. 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

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

not probable. The specific factors that management considers in making the
determination that the collectibility of the loan’s principal is not probable
include the delinquency status of the loan, the fair value of the collateral, if
secured, and, the financial strength of the borrower and/or guarantors. 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

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, the 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.

450849 CENTURY Tx CC2014.indd 24

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is based on management’s evaluation of the quality
of the loan portfolio and is used to provide for losses resulting from loans that
ultimately prove uncollectible. In determining the level of the allowance, periodic
evaluations are made of the loan portfolio, which takes into account such factors
as the character of the loans, loan status, financial strength 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 specific factors that management
considers in making the determination that the collectibility of the loan’s
principal is not probable include the delinquency status of the loan, the fair value
of the collateral and the financial strength of the borrower and/or guarantors.
For collateral dependent loans, the amount of the recorded investment in a loan
that exceeds the fair value of the collateral is charged-off against the allowance
for loan losses in lieu of an allocation of a specific allowance when such an
amount has been identified definitively as uncollectible.

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 qualitative factors.

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

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

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

Residential real estate — The Company generally does not originate loans
with a loan-to-value ratio greater than 80 percent. 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.

450849 CENTURY Tx CC2014.indd 25

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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.

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
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 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.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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 no options to purchase shares of Class A common stock exercisable at
December 31, 2014.

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.

The Company uses the fair value method to account for stock options. There
were no options granted during 2014 and 2013.

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.

450849 CENTURY Tx CC2014.indd 26

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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.

RECENT ACCOUNTING DEVELOPMENTS

In January 2014, the FASB issued ASU 2014-04, Receivables-Troubled Debt
Restructurings by Creditors (Subtopic 310-40) Reclassification of Residential
Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The
amendments in this update clarify that an in substance repossession or
foreclosure occurs, and a creditor is considered to have received physical
possession of residential real estate property collateralizing a consumer
mortgage loan, upon either (1) the creditor obtaining legal title to the
residential real estate property upon completion of a foreclosure or (2) the
borrower conveying all interest in the residential real estate property to the
creditor to satisfy that loan through completion of a deed in lieu of foreclosure
or through a similar legal agreement. The amendments in this update are
effective for annual periods, and interim periods within those annual periods,
beginning after December 15, 2014. The Company has assessed the impact
of ASU 2014-04 and the adoption of this amendment will not have a material
impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled
Debt Restructurings by Creditors (Subtopic 310-40) Classification of Certain
Government-Guaranteed Mortgage Loans upon Foreclosure. This ASU which will
require creditors to derecognize certain foreclosed government-guaranteed
mortgage loans and to recognize a separate other receivable that is measured
at the amount the creditor expects to recover from the guarantor, and to treat
the guarantee and the receivable as a single unit of account. ASU 2014-14
is effective for public business entities for annual periods, and interim periods
within those annual periods, beginning after December 15, 2014. For
entities other than public business entities, the ASU is effective for annual
periods ending after December 15, 2015, and interim periods beginning
after December 15, 2015. An entity can elect a prospective or a modified
retrospective transition method, but must use the same transition method
that it elected under FASB ASU No. 2014-04, Reclassification of Residential
Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. Early
adoption, including adoption in an interim period, is permitted if the entity
already adopted ASU 2014-04. The Company has assessed the impact of
ASU 2014-14 and the adoption of this amendment will not have a material
impact on the Company’s 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 $0 at December 31, 2014, and
$0 at December 31, 2013.

450849 CENTURY Tx CC2014.indd 27

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

3. Securities Available-for-Sale

(dollars in thousands)

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

December 31, 2014
Gross
Unrealized
Losses

Gross
Unrealized
Gains

Estimated
Fair
Value

Amortized
Cost

December 31, 2013
Gross
Gross
Unrealized
Losses

Gains

Amortized Unrealized

Cost

Estimated
Fair
Value

1,999
—
6,684

1
—
33

$ —
—
—

2,000
—
6,717

1,997
9,995
7,270

1
9
32

$ — $
—
—

1,998
10,004
7,302

Enterprises Mortgage-Backed Securities

336,158

1,387

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

1,894

97,657
3,600
218

—
24
180

452

873
100
—

337,093

404,103

588

1,501

403,190

1,874

2,294

96,784
3,524
398

37,578
2,300
406

15
—
170

870
125
—

2,277

36,723
2,175
576

Total

$ 448,210

$ 1,630

$ 1,450

$ 448,390

$ 465,943

821

$ 2,519 $ 464,245

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 $301,038,000 and $368,137,000 at December 31, 2014 and 2013,
respectively. Also included in securities available-for-sale at fair value are securities pledged for borrowing at the Federal Home Loan Bank amounting to $24,810,000
and $12,214,000 at December 31, 2014 and 2013, respectively. The Company realized gains on sales of securities of $450,000, $3,019,000 and $1,843,000
from the proceeds of sales of available-for-sale securities of $40,285,000, $224,045,000 and $294,881,000 for the years ended December 31, 2014, 2013,
and 2012, respectively.

Debt securities of Government Sponsored Enterprises primarily refer to debt securities of Fannie Mae and Freddie Mac.

Amortized
Cost

Fair
Value

The following table shows the estimated maturity distribution of the Company’s securities available-for-sale at December 31, 2014.
(dollars in thousands)

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

Total

95,134
207,506
135,803
8,049
1,718

95,118
208,518
135,733
7,224
1,797

$ 448,210

$ 448,390

The weighted average remaining life of investment securities available-for-sale at December 31, 2014, was 4.1 years. 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. Also,
$346,994,000 of the securities are floating rate or adjustable rate and reprice prior to maturity.

The Company transferred $987,037,000 of securities with unrealized losses of $25,333,000 from available-for-sale to held-to-maturity during 2013.

As of December 31, 2014 and December 31, 2013, 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 these debt securities and it is not more likely than not that it
will be required to sell these debt securities 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 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.

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, 2014 and December 31, 2013.

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 concentrations and origination dates
of underlying loans. In the case of marketable equity securities, the severity of the unrealized loss, the length of time the unrealized loss has existed, and the issuer’s
financial performance are considered.

450849 CENTURY Tx CC2014.indd 28

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at December 31, 2014. 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 3 and 14 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 262 holdings at
December 31, 2014.

Less Than 12 Months

12 Months or Longer

December 31, 2014

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

$ 24,457

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

—

24,457
—
—
—

85
—
—
—

77,585
678
3,820
1,400

367
25
873
100

102,042
678
3,820
1,400

452
25
873
100

$ 83,483

$ 1,365

$ 107,940

$ 1,450

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at December 31, 2013. 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 47 and 7 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 234 holdings at
December 31, 2013.

December 31, 2013

Less Than 12 Months

12 Months or Longer

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

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

—

289,709
1,486
—
—

$ 291,195

1,352
23
—
—

$ 1,375

24,557
—
3,820
1,376

149
—
870
125

314,266
1,486
3,820
1,376

1,501
23
870
125

$ 29,753

$ 1,144

$ 320,948

$ 2,519

4. Investment Securities Held-to-Maturity

Amortized
Cost

(dollars in thousands)

December 31, 2014
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

December 31, 2013
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair
Value

Amortized
Cost

U.S. Government Sponsored Enterprise

$ 251,617

$ 2,707

$ 249

$ 254,075

$ 291,779

$ 185

$ 5,043 $ 286,921

U.S. Government Sponsored Enterprise
Mortgage-Backed Securities

1,155,175

11,185

6,832

1,159,528

1,196,105

2,239

20,816

1,177,528

Total

$ 1,406,792

$ 13,892

$ 7,081

$ 1,413,603

$ 1,487,884

$ 2,424

$ 25,859 $ 1,464,449

Included in U.S. Government and Agency Securities are securities pledged to secure public deposits and repurchase agreements at fair value amounting to
$868,924,000 and $732,144,000 at December 31, 2014, and 2013, respectively. Also included are securities pledged for borrowing at the Federal Home Loan
Bank at fair value amounting to $458,782,000 and $510,060,000 at December 31, 2014, and 2013, respectively.

At December 31, 2014 and 2013, 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.

450849 CENTURY Tx CC2014.indd 29

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

The following table shows the maturity distribution of the Company’s securities held-to-maturity at December 31, 2014.
(dollars in thousands)

Amortized
Cost

Fair
Value

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

Total

$
3,837
1,095,478
305,690
1,787

$
3,912
1,098,958
308,892
1,842

$ 1,406,792

$ 1,413,604

The weighted average remaining life of investment securities held-to-maturity at December 31, 2014, was 4.4 years. Included in the weighted average remaining
life calculation at December 31, 2014, were $178,825,000 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 Company transferred $987,037,000 of securities with unrealized losses of $25,333,000 from available-for-sale to held-to-maturity during 2013.

As of December 31, 2014 and December 31, 2013, 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 these debt securities and it is not more likely than not
that it will be required to sell these debt securities before the anticipated recovery of their remaining amortized costs. 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 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 securities and it is not more likely than not that it will be required to sell these securities 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,
2014 and December 31, 2013.

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at December 31, 2014. 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 34 and 48 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 303 holdings at
Less Than 12 Months
December 31, 2014.

12 Months or Longer

December 31, 2014

Total

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

(dollars in thousands)

U.S. Government Sponsored Enterprises

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

Total temporarily impaired securities

22,414

$ 14,776

$ 224

37,190

249

194,119

1,678

308,526

5,154

502,645

6,832

$ 216,533

$ 1,703

$ 323,302

$ 5,378

$ 539,835

$ 7,081

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at December 31, 2013. 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 191 and 13 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 300 holdings at
Less Than 12 Months
December 31, 2013.

12 Months or Longer

December 31, 2013

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

$ 232,535

$ 5,043

—

$ 232,535

$ 5,043

931,180

18,654

80,362

2,162

1,011,542

20,816

$ 1,163,715

$ 23,697

$ 80,362

$ 2,162

$ 1,244,077

$ 25,859

450849 CENTURY Tx CC2014.indd 30

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

5. Loans

The majority of the Bank’s lending activities are conducted in Massachusetts with other lending activity in New Hampshire and Rhode Island. The Bank originates
construction, commercial and residential real estate loans, commercial and industrial loans, municipal loans, consumer, home equity and other loans for its portfolio.
December 31,

2014

2013

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

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

22,744
149,732
41,850
696,272
257,305
10,925
151,275
1,263

33,058
76,675
32,737
696,317
286,041
8,824
130,277
834

Total

$ 1,331,366

$ 1,264,763

At December 31, 2014, and December 31, 2013, loans were carried net of discounts of $407,000 and $454,000, respectively. Net deferred fees included in loans
at December 31, 2014, and December 31, 2013, were $908,000 and $174,000, respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $143,696,000 and $109,301,000 at December 31, 2014, and
December 31, 2013, respectively. The Company had no residential real estate loans held for sale at December 31, 2014 and December 31, 2013.

As of December 31, 2014 and 2013, the Company’s recorded investment in impaired loans was $6,327,000 and $7,788,000, 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, 2014, there were $5,767,000 of impaired loans
with a specific reserve of $904,000. At December 31, 2013, there were $6,723,000 of impaired loans with a specific reserve of $1,019,000.

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.
December 31,

2014

2013

2012

(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

$ 4,146
—
3,031
6,327
7,434
3,296

123
—
144

$ 2,549
—
1,819
7,788
6,776
5,969

711
—
161

$ 4,471
—
2,878
5,925
7,043
3,048

753
—
180

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, 2013
December 31, 2014
The following table shows the aggregate amount of loans to directors and officers of the Company and their associates during 2014.
(dollars in thousands)

Repayments
and Deletions

Additions

$4,704

$ 2,876

$ 1,085

$ 6,495

450849 CENTURY Tx CC2014.indd 31

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6. Allowance for Loan Losses

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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.

2014

2013

2012

(dollars in thousands)
An analysis of the allowance for loan losses for each of the three years ending December 31, 2014, 2013 and 2012 is as follows:
Allowance for loan losses, beginning of year
Loans charged-off
Recoveries on loans previously charged-off

$ 19,197
(1,813)
847

$ 20,941
(1,382)
709

$ 16,574
(2,301)
774

Net charge-offs
Provision charged to expense

(673)
2,050

(966)
2,710

(1,527)
4,150

Allowance for loan losses, end of year

$ 22,318

$ 20,941

$ 19,197

ALLOWANCE FOR LOAN LOSSES AND AMOUNT OF INVESTMENTS IN LOANS
and Land
Development

Further information pertaining to the allowance for loan losses at December 31, 2014 follows:

Industrial Municipal

Commercial Residential
Real Estate Real Estate Consumer

and

Construction Commercial

Home
Equity

Unallocated

Total

(dollars in thousands)

Allowance for Loan Losses:
Balance at December 31, 2013
Charge-offs
Recoveries
Provision

Ending balance at
December 31, 2014

Amount of allowance for loan
losses for loans deemed to

be impaired
Amount of allowance for loan

losses for loans not deemed
to be impaired

Loans:

$ 2,174
(500)
—
(82)

$ 2,617
(333)
201
2,272

655
—
—
833

$ 10,935
—
7
257

$ 2,006
(24)
27
(1,233)

432
(525)
391
512

959
—
83
(443)

$ 1,163
—
—
(66)

20,941
(1,382)
709
2,050

$ 1,592

$ 4,757

$ 1,488

$ 11,199

$ 776

810

599

$ 1,097

22,318

—

639

—

$ —

904

$ 1,571

$ 4,700

$ 1,488

$ 10,560

681

810

507

$ 1,097

21,414

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

$ 22,744
103
$
$ 22,641

$ 149,732
853
$
$ 148,879

$ 41,850
—
$
$ 41,850

$ 696,272
$ 4,317
$ 691,955

$ 257,305
962
$
$ 256,343

$ 12,188
—
$
$ 12,188

$ 151,275
92
$
$ 151,183

$ —
$ —
$ —

$ 1,331,366
6,327
$
$ 1,325,039

Construction Commercial

Further information pertaining to the allowance for loan losses at December 31, 2013 follows:

Industrial Municipal

and Land
Development

and

Commercial Residential
Real Estate Real Estate

Consumer

Home
Equity

Unallocated

Total

(dollars in thousands)

Allowance for Loan Losses:

Balance at December 31, 2012
Charge-offs
Recoveries
Provision

$ 3,041
(1,000)
—
133

3,118
(234)
389
(656)

24
—
—
631

9,041
—
19
1,875

$ 1,994
—
11
1

333
(579)
427
251

886
—
1
72

$ 760
—
—
403

19,197
(1,813)
847
2,710

Ending balance at
December 31, 2013

Amount of allowance for loan
losses for loans deemed to

be impaired
Amount of allowance for loan

losses for loans not deemed
to be impaired

Loans:

$ 2,174

2,617

655

$ 10,935

$ 2,006

432

959

$ 1,163

20,941

367

—

417

129

—

$ —

1,019

$ 2,162

2,250

655

$ 10,518

$ 1,877

432

865

$ 1,163

19,922

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

$ 33,058
$
608
$ 32,450

$ 76,675
$
1,367
$ 75,308

$ 32,737
$
—
$ 32,737

$ 696,317
$
4,520
$ 691,797

$ 286,041
$ 1,199
$ 284,842

$ 9,658
$
—
$ 9,658

$ 130,277
$
94
$ 130,183

$ —
$ —
$ —

$ 1,264,763
$
7,788
$ 1,256,975

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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, 2014.

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, 2014.

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, 2014, and are doubtful for full collection.

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

Construction Commercial

The following table presents the Company’s loans by risk rating at December 31, 2014.

and Land
Development

and
Industrial

Municipal

Commercial
Real Estate

(dollars in thousands)

Grade:

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

Total

$ 15,515
7,126
—
—
103

$ 148,407
472
—
—
853

$ 41,850
—
—
—
—

$ 691,322
633
—
—
4,317

$ 22,744

$ 149,732

$ 41,850

$ 696,272

The following table presents the Company’s loans by risk rating at December 31, 2013.

Construction
and Land
Development

Commercial
and
Industrial

Municipal

Commercial
Real Estate

(dollars in thousands)

Grade:

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

Total

$ 25,138
7,312
—
—
608

$ 74,836
472
—
—
1,367

$ 32,737
—
—
—
—

$ 690,451
1,346
—
—
4,520

$ 33,058

$ 76,675

$ 32,737

$ 696,317

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, 2014 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
Municipal
Commercial real estate
Residential real estate
Consumer and overdrafts
Home equity

Past Due Non Accrual

$ —
905
—
1,046
632
6
576

$ 103
157
—
2,781
846
5
254

Total

$ 3,165

$ 4,146

$ —
—
—
—
—
—
—

$ —

103
1,062
—
3,827
1,478
11
830

22,641 $

148,670
41,850
692,445
255,827
12,177
150,445

22,744
149,732
41,850
696,272
257,305
12,188
151,275

$ 7,311

$ 1,324,055 $ 1,331,366

450849 CENTURY Tx CC2014.indd 33

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Further information pertaining to the allowance for loan losses at December 31, 2013 follows:

Accruing
30-89 Days
Past Due

Non Accrual

Accruing
Greater
Than
90 Days

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

Total
Past Due

Current
Loans

Total

(dollars in thousands)

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

$ —
112
—
1,496
2,232
11
1,710

$ 500
706
—
306
1,034
3
—

Total

$ 5,561

$ 2,549

$ —
—
—
—
—
—
—

$ —

500
818
—
1,802
3,266
14
1,710

32,558 $
75,857
32,737
694,515
282,775
9,644
128,567

33,058
76,675
32,737
696,317
286,041
9,658
130,277

$ 8,110

$ 1,256,653 $ 1,264,763

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. Loans are charged-off when management believes that the collectibility of the loan’s principal is not probable. The specific
factors that management considers in making the determination that the collectibility of the loan’s principal is not probable include; the delinquency status of the loan,
the fair value of the collateral, if secured, and the financial strength of the borrower and/or guarantors. For collateral dependent loans, the amount of the recorded
investment in a loan that exceeds the fair value of the collateral is charged-off against the allowance for loan losses in lieu of an allocation of a specific allowance
amount when such an amount has been identified definitively as uncollectible. 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, 2014:

Carrying
Value

Unpaid
Balance
Principal

Required
Reserve

Average
Carrying Value
Recognized

(dollars in thousands)

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

$ —
31
—
393
136
—
—

—
32
—
396
219
—
—

$ —
—
—
—
—
—
—

173
46
—
225
77
—
—

Total

$ 560

647

$ —

521

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

$ 103
822
—
3,924
826
—
92

$
108
1,063
—
4,018
826
—
92

21
57
—
639
95
—
92

$
222
1,065
—
4,325
1,208
—
93

Total

$ 5,767

$ 6,107

$ 904

$ 6,913

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

$ 103
853
—
4,317
962
—
92

$
108
1,095
—
4,414
1,045
—
92

21
57
—
639
95
—
92

$
395
1,111
—
4,550
1,285
—
93

Total

$ 6,327

$ 6,754

$ 904

$ 7,434

Interest
Income

$ —
—
—
—
9
—
—

$ 9

$ —
31
—
103
1
—
—

$ 135

$ —
31
—
103
10
—
—

$ 144

450849 CENTURY Tx CC2014.indd 34

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

The following is information pertaining to impaired loans at December 31, 2013:

Carrying
Value

Unpaid
Balance
Principal

Required
Reserve

Average
Carrying Value
Recognized

Interest
Income

(dollars in thousands)

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

$ 500
238
—
82
246
—
—

$ 3,292
268
—
82
259
—
—

$ —
—
—
—
—
—
—

—
361
—
132
169
—
—

Total

$ 1,066

$ 3,901

$ —

662

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

$ 108
1,129
—
4,438
953
—
94

$
108
1,371
—
4,527
1,035
—
94

12
367
—
417
129
—
94

$ 1,371
902
—
2,868
878
—
95

Total

$ 6,722

$ 7,135

$ 1,019

$ 6,114

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

$ 608
1,367
—
4,520
1,199
—
94

$ 3,400
1,639
—
4,609
1,294
—
94

12
367
—
417
129
—
94

$ 1,371
1,263
—
3,000
1,047
—
95

Total

$ 7,788

$ 11,036

$ 1,019

$ 6,776

$ —
1
—
—
—
—
—

$ 1

$ 1
37
—
120
2
—
—

$ 160

$ 1
38
—
120
2
—
—

$ 161

Troubled Debt Restructurings are 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, 2014:

Post-modification
Outstanding
Recorded Investment

Number of
Contracts

(dollars in thousands)

Commercial and industrial

Total

The loans were modified for 2014, by extending terms on the commercial and industrial loans. There was one commercial real estate troubled debt restructuring,
totaling $2,191,000, which subsequently defaulted during 2014. The financial impact of the modification for the performing commercial and industrial loans was a
$100 increase in principal payments for the year ended 2014.

450849 CENTURY Tx CC2014.indd 35

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

The following is information pertaining to troubled debt restructurings occurring during the year ended December 31, 2013:

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
Residential real estate

Total

1
2
3
1

$ 108
67
2,376
285

$ 2,836

$ 108
64
2,356
162

$ 2,690

There was one commercial and industrial troubled debt restructuring, that subsequently defaulted amounting to $6,000 during 2013. The loans were modified for
2013, by reducing interest rates as well as extending term on the commercial and industrial loan. The financial impact of the modifications for performing commercial
and industrial loans were $808 reduction in principal and $606 reduction in interest payments for the year ended December 31, 2013. The financial impact of
the modifications for performing commercial real estate loans were $5,246 increase in principal and $23,227 reduction in interest payments for the year ended
December 31, 2013. The financial impact of the modifications for performing construction and land development loans were $1,515 reduction in principal and
$1,098 reduction in interest payments for the year ended December 31, 2013. The financial impact of the modifications for performing residential real estate loans
December 31,
were $4,704 reduction in principal and $4,104 reduction in interest payments for the year ended December 31, 2013.
(dollars in thousands)

Estimated Useful Life

2014

2013

7. Bank Premises and Equipment

Land
Bank premises
Furniture and equipment
Leasehold improvements

Accumulated depreciation and amortization

Total

$ 3,478
19,272
22,796
11,607

57,153
(32,971)

$ 24,182

$ 3,478
19,235
31,965
10,010

64,688
(41,288)

$ 23,400

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

The Company is obligated under a number of non-cancelable operating leases for premises and equipment expiring in various years through 2026. Total lease expense
approximated $2,465,000, $2,094,000 and $2,055,000 for the years ended December 31, 2014, 2013 and 2012, respectively. Rental income approximated
Amount
$307,000, $299,000 and $329,000 in 2014, 2013 and 2012, respectively.
(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, 2014, were as follows:

Year

2015
2016
2017
2018
2019
Thereafter

$ 2,279
2,123
1,659
1,458
1,285
3,947

$ 12,751

8. Goodwill and Identifiable Intangible Assets

At December 31, 2014 and 2013, 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.
Carrying Amount of Goodwill and Intangibles
The changes in goodwill and identifiable intangible assets for the years ended December 31, 2014 and 2013 are shown in the table below.
(dollars in thousands)

Mortgage
Servicing Rights

Goodwill

Total

Balance at December 31, 2012
Additions
Amortization Expense

Balance at December 31, 2013
Additions
Amortization Expense

Balance at December 31, 2014

$ 2,714
—
—

$ 2,714

137
653
(87)

703
424
(186)

941

$ 2,851
653
(87)

$ 3,417
424
(186)

$ 3,655

450849 CENTURY Tx CC2014.indd 36

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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.

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, 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, 2014, 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

2,000
—
6,717

337,093
1,874
96,784
3,524
398

$ —
—
—

—
—
—
—
296

2,000
—
6,717

—
—
—

337,093
1,874
—
3,524
—

—
—
96,784
—
102

Total

$ 448,390

$ 296

$ 351,208

$ 96,886

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

3,410

$ —

—

3,410

Impaired loan balances in the table above represent those collateral dependent loans where management has estimated the credit loss by comparing the loan’s
carrying value against the expected realizable fair value of the collateral. Fair value is generally determined through a review process that includes independent
appraisals, discounted cash flows, or other external assessments of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.
The Company discounts the fair values, as appropriate, based on management’s observations of the local real estate market for loans in this category.

Appraisals, discounted cash flows and real estate tax assessments are reviewed quarterly. There is no specific policy regarding how frequently appraisals will be
updated. Adjustments are made to appraisals and real estate tax assessments based on management’s estimate of changes in real estate values. Within the past twelve
months there have been no updated appraisals, however, all impaired loans have been reviewed during the past quarter using either a discounted cash flow analysis or
other type of real estate tax assessment. The types of adjustments that are made to specific provisions (credits) relate to impaired loans recognized for 2014 for the
estimated credit loss amounted to $947,000.

There were no transfers between level 1, 2 and 3 for the year ended December 31, 2014. There were no liabilities measured at fair value on a recurring or
nonrecurring basis during the year ended December 31, 2014.

450849 CENTURY Tx CC2014.indd 37

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized
Unobservable Input
Level 3 inputs to determine fair value (dollars in thousands) at December 31, 2014. Management continues to monitor the assumptions used to value the assets
Value or Range
Asset
listed below.
Securities AFS(1)

Valuation Technique

Unobservable Input

Discounted cash flow

Fair Value

Discount rate

$ 96,886

0%-1%(2)

Impaired Loans

3,410

Appraisal of collateral(3)

Appraisal adjustments(4)

0%-30% discount

(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.

Obligations
Issued by States
The changes in Level 3 securities for the year ended December 31, 2014 are as shown in the table below:
and Political
Subdivisions

Auction Rate
Securities

(dollars in thousands)

Balance at December 31, 2013
Purchases
Maturities
Amortization
Change in fair value

Balance at December 31, 2014

$ 3,820
—
—
—
—

$ 3,820

$ 32,487
126,571
(66,088)
(6)
—

$ 92,964

Equity
Securities

$ 290
—
(188)
—
—

$ 102

Total

$ 36,597
126,571
(66,276)
(6)
—

$ 96,886

The amortized cost of Level 3 securities was $97,760,000 with an unrealized loss of $874,000 at December 31, 2014. 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, 2013, are as follows:
Carrying
Value

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

Significant
Observable Inputs
(Level 2)

Significant
Other Unobservable
Inputs
(Level 3)

(dollars in thousands)

Financial Instruments Measured at Fair Value
on a Recurring Basis — Securities AFS
U.S. Treasury
U.S. Government Sponsored Enterprises
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

1,998
10,004
7,302

403,189
2,277
36,723
2,176
576

$ 464,245

$ —
—
—

—
—
—
—
286

$ 286

1,998
10,004
7,302

403,189
2,277
416
2,176
—

$ 427,362

—
—
—

—
—
36,307
—
290

$ 36,597

1,747

$ —

—

$ 1,747

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

Appraisals, discounted cash flows and real estate tax assessments are reviewed quarterly. There is no specific policy regarding how frequently appraisals will be
updated. Adjustments are made to appraisals and real estate tax assessments based on management’s estimate of changes in real estate values. Within the past twelve
months there have been no updated appraisals, however, all impaired loans have been reviewed during the past quarter using either a discounted cash flow analysis or
other type of real estate tax assessment. Specific provisions relate to impaired loans recognized for 2013 for the estimated credit loss amounted to $48,000.

There were no transfers between level 1 and 2 for the year ended December 31, 2013. There were no liabilities measured at fair value on a recurring or nonrecurring
basis during the year ended December 31, 2013.

The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized
Unobservable Input
Level 3 inputs to determine fair value (dollars in thousands) at December 31, 2013. Management continues to monitor the assumptions used to value the assets
Value or Range
Asset
listed below.
Securities AFS(1)

Valuation Technique

Unobservable Input

Discounted cash flow

Fair Value

Discount rate

$ 36,597

0%-1%(2)

Impaired Loans

1,747

Appraisal of collateral(3)

Appraisal adjustments(4)

0%-30% discount

(1)

(2)

(3)

(4)

Obligations
Issued by States
The changes in Level 3 securities for the year ended December 31, 2013 are as shown in the table below:
and Political
Subdivisions

Auction Rate
Securities

(dollars in thousands)

Balance at December 31, 2012
Purchases
Maturities
Amortization
Change in fair value

Balance at December 31, 2013

$ 3,963
—
—
—
(143)

$ 3,820

$ 49,477
50,012
(66,976)
(26)
—

$ 32,487

Equity
Securities

$ 342
—
(52)
—
—

$ 290

Total

$ 53,782
50,012
(67,028)
(26)
(143)

$ 36,597

The amortized cost of Level 3 securities was $37,463,000 with an unrealized loss of $866,000 at December 31, 2013. 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

2014

Percent

2013

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

$ 203,125
66,603
31,071
82,346

$ 248,758
41,533
48,357
43,576

53 %
17 %
8 %
22 %

65 %
11 %
13 %
11 %

Total

$ 383,145

100 %

$ 382,224

100 %

Time deposits of $100,000 or more totaled $258,968,000 and $259,665,000 in 2014 and 2013, respectively.

450849 CENTURY Tx CC2014.indd 39

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11. Securities Sold Under Agreements to Repurchase

2014

2013

2012

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

(dollars in thousands)
The following is a summary of securities sold under agreements to repurchase as of December 31,
Amount outstanding at December 31
$ 214,440
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

$ 243,750
$ 216,937

$ 214,440
$ 203,888

$ 212,360

0.18 %

$ 191,390

0.17 %

$ 213,730
$ 174,624

0.21 %

Amounts outstanding at December 31, 2014, 2013 and 2012 carried maturity dates of the next business day. U.S. Government Sponsored Enterprise securities
with a total amortized cost of $213,817,000, $216,747,000 and $187,995,000 were pledged as collateral and held by custodians to secure the agreements
at December 31, 2014, 2013 and 2012, respectively. The approximate fair value of the collateral at those dates was $212,255,000, $213,350,000, and
$191,704,000, respectively.

12. Other Borrowed Funds and Subordinated Debentures

2014

2013

2012

(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

$ 431,583
$ 271,710

$ 291,227
$ 231,032

$ 431,583

$ 291,227

1.91 %

3.34 %

3.04 %

3.73 %

$ 231,227

3.54 %

$ 277,226
$ 217,542

3.82 %

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
December 31,
at December 31, 2014, was approximately $221,384,000. In addition, the Bank has a $14,500,000 line of credit with the FHLBB. A schedule of the maturity
distribution of FHLBB advances with the weighted average interest rates is as follows:

2014

2013

2012

(dollars in thousands)

Within one year
Over one year to two years
Over two years to three years
Over three years to five years
Over five years

Total

Amount

$ 169,500
55,000
45,000
70,000
56,000

$ 395,500

Weighted
Average
Rate

0.51 %
3.07 %
3.18 %
2.43 %
3.16 %

1.89 %

Weighted
Average
Rate

0.40 %
2.42 %
3.07 %
3.05 %
3.39 %

2.52 %

Amount

$ 53,000
19,500
55,000
77,000
50,500

$ 255,000

Amount

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

$ 195,000

Weighted
Average
Rate

1.86 %
3.01 %
2.42 %
3.33 %
4.19 %

2.96 %

Included in the table above are $35,000,000 of FHLBB advances for each of the years at December 31, 2014, 2013 and 2012, respectively, that are putable at the
discretion of FHLBB. These put dates were not utilized in the table above.

During 2013, the Company restructured $14,500,000 of FHLBB advances. Prior to restructure, the weighted average rate on these advances was 3.16% and the
weighted average remaining maturity was 12 months. Subsequent to restructure, the weighted average rate was 3.24% and the weighted average maturity was
68 months. The restructures were accounted for as modifications.

450849 CENTURY Tx CC2014.indd 40

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

SUBORDINATED DEBENTURES

Subordinated debentures totaled $36,083,000 at December 31, 2014 and 2013. 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, 2014 and 2013.

The Bank also has an outstanding loan in the amount of $0 and $144,000 at December 31, 2014 and 2013, borrowed against the cash value of a whole life
insurance policy for a key executive of the Bank.

13. Reclassifications Out of Accumulated Other Comprehensive Income

(a)
Amount Reclassified from Accumulated
Other Comprehensive Income

Details about Accumulated Other
Comprehensive Income Components

Year ended
December 31, 2014

Year ended

December 31, 2013

Affected line item in the Statement
Where Net Income is Presented

Unrealized gains and losses on available-for-sale securities

Accretion of unrealized losses transferred

Amortization of defined benefit pension items
Prior-service costs
Actuarial gains (losses)

Total before tax
Tax (expense) or benefit

Net of tax

Total reclassifications for the period

(a)

450
(171)

279

$ 5,192
(2,004)

$ 3,188

(10)
(367)

(377)
151

(226)

$ 3,241

(a)

$ 3,019
(1,179)

(a)

Net gains on sales of investments

Provision for income taxes

$ 1,840

$ 3,077
(1,191)

$ 1,886

(10)
(1,144)

(1,154)
460

(694)

$ 3,032

Net income

Securities held-to-maturity

Provision for income taxes

Net income

Salaries and employee benefits

(b)

Income before taxes

(b)

Provision for income taxes

Net income

(b)

Amounts in parentheses indicate debits to profit/loss.
These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see employee benefits footnote (Note 17) for additional details).

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14. 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.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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 2014, 2013 and 2012 was an increase of 1,447, 1,155 and 1,024
shares, respectively.
Year Ended December 31,
The following table is a reconciliation of basic EPS and diluted EPS:
(in thousands except share and per share data)

2014

2013

2012

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

17,157

4,703

3,591,732

1,969,030

4.78

2.39

15,698

4,348

3,575,683

1,980,855

4.39

2.19

14,877

4,162

3,557,693

1,990,474

4.18

2.09

17,157

15,698

14,877

4,703

21,860

3,591,732

1,969,030

1,447

5,562,209

1,969,030

3.93

2.39

4,348

20,046

3,575,683

1,980,855

1,155

5,557,693

1,980,855

3.61

2.19

4,162

19,039

3,557,693

1,990,474

1,024

5,549,191

1,990,474

3.43

2.09

450849 CENTURY Tx CC2014.indd 42

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

15. 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 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 no options outstanding at December 31, 2014.

December 31, 2014

December 31, 2013

December 31, 2012

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

$ 31.82
31.83
31.81

$ —

Amount

20,375
(9,050)
(11,325)

—

Available to be granted at end of year

233,934

Weighted
Average
Exercise Price

$ 31.17
26.68
26.76

$ 31.82

Weighted
Average
Exercise Price

$ 28.90
22.50
24.82

$ 31.17

Amount

36,062
(450)
(12,262)

23,350

223,534

Amount

23,350
(1,350)
(1,625)

20,375

224,884

At December 31, 2013 and 2012, the options outstanding had exercise prices between $15.06 and $31.83, and a weighted average remaining contractual life of
one year for 2013 and two years for 2012. The weighted average intrinsic value of options exercised for the period ended December 31, 2014, was $8.76 per share
with an aggregate value of $99,217. The average intrinsic value of options exercisable at December 31, 2013 and 2012 had an aggregate value of $29,136 and
$41,549, respectively.

450849 CENTURY Tx CC2014.indd 43

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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, 2014, that the Bank and the Company meet all capital adequacy requirements to which they are subject.

As of December 31, 2014, 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, 2014

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, 2013

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

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

$ 254,742

232,592

14.38 %

13.13 %

6.52 %

$ 230,038

209,360

13.91 %

12.66 %

6.00 %

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

Actual
Amount

As of December 31, 2014

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, 2013

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

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

$ 269,044

246,798

15.12 %

13.87 %

6.91 %

$ 247,761

227,000

14.92 %

13.67 %

6.50 %

$ 141,747

70,873

142,630

$ 132,338

66,169

139,467

8.00 %

4.00 %

8.00 %

4.00 %

For Capital Adequacy
Purposes

Amount

Ratio

$ 142,366

71,183

142,930

$ 132,870

66,435

139,769

8.00 %

4.00 %

8.00 %

4.00 %

$ 177,183

10.00 %

106,310

178,287

6.00 %

5.00 %

$ 165,422

10.00 %

99,253

174,334

6.00 %

5.00 %

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

Amount

Ratio

$ 177,957

10.00 %

106,774

178,663

6.00 %

5.00 %

$ 166,088

10.00 %

99,653

174,711

6.00 %

5.00 %

450849 CENTURY Tx CC2014.indd 44

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

16. Income Taxes

2014
The current and deferred components of income tax expense for the years
(dollars in thousands)
ended December 31 are as follows:
Current expense:
Federal

2013

2012

$ 3,982
498

$ 3,520
416

$ 3,181
315

State

Total current expense

4,480

3,936

3,496

Deferred (benefit) expense:

Federal

State

Total deferred benefit

(3,179)
(435)

(3,614)

(2,564)
(365)

(2,929)

(1,833)
(271)

(2,104)

Provision for income taxes

866

$ 1,007

$ 1,392

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

$
707
37,251

$
702
30,857

2014

2013

Total

$ 37,958

$ 31,559

2014

2013

2012

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

$ 7,158

$ 7,727

$ 6,946

federal income tax benefit

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

42
(353)
(6,097)
(517)
64

34
(380)
(5,348)
(572)
115

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

Total

866

$ 1,007

$ 1,392

Effective tax rate

3.8 %

4.8 %

6.8 %

2014

2013
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:
Pension and SERP liability
Allowance for loan losses
Deferred compensation
Unrealized losses on securities transferred

$ 7,806
9,550
7,447

$ 4,880
9,199
6,515

to held-to-maturity

AMT credit
Accrued bonus
Depreciation
Acquisition premium
Nonaccrual interest
Limited partnerships
Investments write down

Other

6,586
4,630
613
366
334
148
88
26
136

8,590
3,164
—
109
438
136
(2,769)
26
198

Gross deferred income tax asset

37,730

30,486

Deferred income tax liabilities:
Mortgage servicing rights
Unrealized (gains) losses on securities

available-for-sale

Gross deferred income tax liability

(376)

(103)

(479)

(281)

652

371

Deferred income tax asset net

$ 37,251

$ 30,857

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, 2014. 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”) credit position. The AMT
credit is carried as a deferred asset and has an indefinite life. The Company
has potential tax planning strategies available which support the deferred AMT
credit 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 and state examinations for tax years after
December 31, 2010.

17. 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%.

450849 CENTURY Tx CC2014.indd 45

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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 2015 to 2019 are $1,212,000, $1,277,000,
$1,361,000, $1,398,000, and $1,456,000, respectively. The aggregate benefits expected to be paid in the five years from 2020 to 2024 are $9,124,000. The
Asset Category
Level 3
Percent
Company plans to contribute $1,000,000 to the Plan in 2015.

Level 1

Level 2

Total

(dollars in thousands)
The fair value of plan assets and major categories as of December 31, 2014, is as follows:
$ 18,069
Collective funds
7,797
Equity securities
5,244
Mutual funds
2,360
Hedge funds
342
Short-term investments

53.4 %
23.1 %
15.5 %
7.0 %
1.0 %

100.0 %

$ 33,812

$ 2,757
7,797
4,762
—
342

$ 15,658

$ 15,312
—
482
—
—

$ 15,794

—
—
—
2,360
—

$ 2,360

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, 2013, is as follows:
$ 17,092
Collective funds
8,355
Equity securities
4,250
Mutual funds
2,256
Hedge funds
369
Short-term investments

52.9 %
25.9 %
13.1 %
7.0 %
1.1 %

100.0 %

$ 32,322

856
$
8,355
3,832
—
249

$ 13,292

$ 16,236
—
418
—
120

$ 16,774

$ —
—
—
2,256
—

$ 2,256

LEVEL 1

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

LEVEL 2

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

LEVEL 3

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

The 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
2013
Year Ended December 31,
fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
(dollars in thousands)
The changes in Level 3 securities are shown in the table below:
Balance at beginning of year
Purchases
Redemptions
Actual return – assets still being held

$ 2,256
32
(58)
130

$ 1,691
55
—
510

2014

Balance at end of year

$ 2,360

$ 2,256

There were no transfers in or out of level 3 during the year ended December 31, 2014 and 2013.

450849 CENTURY Tx CC2014.indd 46

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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. 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 2015 to 2019 are $1,110,000, $1,544,000, $2,004,000, $2,012,000 and $2,037,000, respectively. The
aggregate benefits expected to be paid in the five years from 2020 to 2024 are $11,144,000.

Defined Benefit Pension Plan

2014

2013

2014

2013

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

29,879
1,034
1,467
8,398
(767)

31,910
1,196
1,257
(3,734)
(750)

25,502
1,555
1,325
4,650
(1,043)

25,835
1,554
1,072
(1,916)
(1,043)

Projected benefit obligation at end of year

40,011

29,879

31,989

25,502

Change in plan assets

Fair value of plan assets at beginning of year

Actual return on plan assets
Employer contributions

Benefits paid

Fair value of plan assets at end of year

(Unfunded) Funded status

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

32,322
1,337
920
(767)

33,812

(6,199)

40,011

4.00 %
5.00 %
8.00 %
4.00 %

1,034
1,467
(2,543)
(104)
12

23,983
4,619
4,470
(750)

32,322

2,443

29,747

5.00 %
4.00 %
8.00 %
4.00 %

1,196
1,257
(1,880)
(104)
630

(31,989)

29,023

(25,502)

22,278

4.00 %
5.00 %
NA
4.00 %

1,555
1,325
—
114
355

5.00%
4.00%
NA
4.00%

1,554
1,072
—
114
514

(134)

1,099

3,349

3,254

104
9,592

9,696

104
(6,956)

(6,852)

(114)
4,268

4,154

(114)
(2,401)

(2,515)

9,562

(5,753)

7,503

739

December 31, 2014
Supplemental
Plan

Plan

Total

Plan

December 31, 2013
Supplemental
Plan

Total

412
(12,953)

(877)
(12,169)

(465)
(25,122)

516
(3,361)

(991)
(7,901)

(475)
(11,262)

$ (12,541)

$ (13,046)

$ (25,587)

(2,845)

$ (8,892)

(11,737)

(dollars in thousands)

Prior service cost
Net actuarial loss

Total

450849 CENTURY Tx CC2014.indd 47

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The following table summarizes the amounts included in Accumulated Other
Supplemental
Comprehensive Loss at December 31, 2014, expected to be recognized as
Plan
components of net periodic benefit cost in the next year:
Amortization of prior service cost to be

Plan

recognized in 2015

Amortization of loss to be recognized in 2015

$ (104)
812

$ 114
598

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. Mortality assumptions are
based on the RP 2014 Mortality Table projected with Scale MP 2014.

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 $346,000 for 2014, $322,000 for 2013 and $308,000 for 2012.
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 $1,434,000, $1,313,000 and $1,289,000 in 2014,
2013, and 2012, respectively.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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)

2014

2013

Financial instruments whose contract
amount represents credit risk:

Commitments to originate
1–4 family mortgages

$ 3,215

$ 3,373

Standby and commercial letters of credit

8,057

7,930

Unused lines of credit

Unadvanced portions

of construction loans

Unadvanced portions
of other loans

298,279

249,941

3,035

7,026

17,186

17,750

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.

2014

2013

2012

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

20. Other Operating Expenses

(dollars in thousands)

18. Commitments and Contingencies

A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 2014. 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.

19. 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.

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

$ 1,793
1,524
1,072
735
944
964
964
870
753
389
304
—
1,520

$ 1,749
1,417
1,281
673
812
874
939
848
719
373
295
—
1,500

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

Total

$ 11,832

$ 11,480

$ 11,608

450849 CENTURY Tx CC2014.indd 48

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

21. 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 non
financial 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, 2014 and December 31, 2013. 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, 2014

Financial assets:
Securities held-to-maturity

Loans(1)

Financial liabilities:
Time deposits

Other borrowed funds
Subordinated debentures

December 31, 2013

Financial assets:
Securities held-to-maturity

Loans(1)

Financial liabilities:
Time deposits

Other borrowed funds
Subordinated debentures

(1)

$ 1,406,792
1,309,048

$ 1,413,603
1,291,550

383,145

395,500
36,083

387,919

400,196
36,083

$ 1,487,884
1,243,822

$ 1,464,449
1,214,192

382,224
255,144
36,083

386,742
254,736
39,503

—
—

—

—
—

—
—
—

$ 1,413,603
—

$
—
1,291,550

387,919

400,196
—

—

—
36,083

$ 1,464,449
—

$
—
1,214,192

386,742
254,736
—

—
—
39,503

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

450849 CENTURY Tx CC2014.indd 49

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LIMITATIONS

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

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.
2014 Quarters

Second

Fourth

Third

First

22. 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

2013 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

21,062
4,840

16,222
400

15,822
4,428
14,506

5,744
121

5,623

3,600,664
1,967,180

5,567,855
1,976,180

$
$

1.23
0.61

1.01
0.61

Fourth

20,947
4,842

16,105
460

15,645
4,186
14,690

5,141
116

5,025

3,580,404
1,976,180

5,557,419
1,976,180

$
$

1.10
0.55

0.90
0.55

21,624
4,879

16,745
600

16,145
3,758
13,976

5,927
221

5,706

3,594,583
1,967,180

5,563,278
1,967,180

$
$

1.25
0.62

1.03
0.62

Third

20,549
4,751

15,798
750

15,048
4,774
13,995

5,827
308

5,519

3,578,400
1,978,180

5,558,031
1,978,180

$
$

1.21
0.60

0.99
0.60

21,554
4,800

16,754
450

16,304
3,615
14,089

5,830
231

5,599

3,589,125
1,967,580

5,558,032
1,967,580

$
$

1.22
0.61

1.01
0.61

19,132
4,620

14,512
750

13,762
5,221
13,662

5,321
295

5,026

3,574,379
1,982,180

5,557,354
1,982,180

$
$

1.10
0.55

0.90
0.55

$ 21,131
4,617

16,514
600

15,914
3,470
14,159

5,225
293

4,932

3,582,421
1,974,180

5,558,177
1,974,180

$
$

1.08
0.54

0.89
0.54

$ 19,137
4,592

14,545
750

13,795
4,434
13,465

4,764
288

4,476

3,569,546
1,986,880

5,557,365
1,986,880

$
$

0.98
0.49

0.81
0.49

Second

First

450849 CENTURY Tx CC2014.indd 50

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’14

23. Parent Company Financial Statements

The balance sheets of Century Bancorp, Inc. (“Parent Company”) as of December 31, 2014 and 2013 and the statements of income and cash flows for each of the
BALANCE SHEETS
years in the three-year period ended December 31, 2014, are presented below. The statements of changes in stockholders’ equity are identical to the consolidated
December 31,
2014
statements of changes in stockholders’ equity and are therefore not presented here.
(dollars in thousands)

2013

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)

$ 7,674
213,245
7,700

$ 228,619

$
36
36,083
192,500

$ 228,619

$ 12,245
193,783
6,634

$ 212,662

107
36,083
176,472

$ 212,662

2014

2013

2012

21
72

93
2,329
204

(2,440)
(830)

(1,610)
23,470

$ 21,860

28
72

100
2,400
208

(2,508)
(853)

(1,655)
21,701

$ 20,046

33
72

105
2,400
198

(2,493)
(848)

(1,645)
20,684

$ 19,039

2014

2013

2012

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

$ 21,860

$ 20,046

$ 19,039

Undistributed income of subsidiary
Depreciation and amortization

Increase in other assets

Decrease in liabilities

Net cash (used in) 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 (decrease) in cash

Cash at beginning of year

Cash at end of year

(23,470)
12
(1,067)
(71)

(2,736)

361
(2,196)

(1,835)

(4,571)

12,245

$ 7,674

(21,701)
12
(3,500)
—

(5,143)

43
(2,191)

(2,148)

(7,291)

19,536

$ 12,245

(20,684)
12
(416)
—

(2,049)

304
(2,186)

(1,882)

(3,931)

23,467

$ 19,536

450849 CENTURY Tx CC2014.indd 51

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Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ’14

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, 2014 and 2013 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, 2014. 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, 2014 and 2013 and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2014, 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, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 10, 2015, expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.

Boston, Massachusetts

March 10, 2015

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Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ’14

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, 2014, based on criteria established in Internal Control – Integrated
Framework (2013) 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, 2014, based on criteria
established in Internal Control – Integrated Framework (2013) 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, 2014 and 2013 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, 2014, and our report dated March 10, 2015, expressed an unqualified
opinion on those consolidated financial statements.

Boston, Massachusetts

March 10, 2015

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Management’s Report on Internal Control Over Financial Reporting

Century Bancorp, Inc. AR ’14

CENTURY BANCORP, INC.

400 Mystic Avenue
Medford, Massachusetts 02155

We, together with the other members of executive management 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, 2014. 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 (2013). Based on our assessment, we believe that, as of December 31, 2014, 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

March 10, 2015

William P. Hornby, CPA
Chief Financial Officer &
Treasurer

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Stockholder Information

Corporate Headquarters

Transfer Agent and Registrar

Century Bank
400 Mystic Avenue
Medford, MA 02155-6316
TEL (866) 823-6887
CenturyBank.com

Annual Meeting

Computershare Investor Services
P.O. Box 30170
College Station, TX 77842-3170
TEL (781) 575-3400
Computershare.com

The annual meeting of stockholders will be held on Tuesday, April 14, 2015, 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.

450849 CENTURY Tx CC2014.indd 55