Century Bancorp Inc. Annual Report 2018

FY2018 Annual Report · Century Bancorp Inc.

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2018 Annual Report

Century Bank at half a century.

Chairman’s Message

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Dear Fellow Shareholders & Customers:

As I prepare to celebrate my 93rd birthday, I fondly recall how my father taught me
business fundamentals which positioned me well to succeed in the banking industry.
I learned how to judge the character of my customers and coworkers, how much
service to others goes into an honest day’s work, and how much a sound business
deal can improve the lives of everyone involved.

I got my start in banking because my father acquired a closed bank building in
Magoun Square. We stored furniture on the second floor, but never touched a thing
in the first floor bank branch. He envisioned a bank in that space again as a tenant
but, unfortunately, he died at a young age and wouldn’t see it occupied by a bank.
I never forgot his dream.

I was 28 years old when I phoned the Banking Commissioner to inquire about starting
a bank. It was my first foray into banking, but wouldn’t be my last. My father’s dream
of a bank in that old space was achieved and I’m sure he would be surprised to know
that I was the banker.

Banking to me has always been about growth and innovation. Century was an early
adopter of technology. You could say “Century innovated its way up” and that would
not be far from the truth. Today, banking continues to evolve and is now conducted
whenever and wherever you want: right from your phone and soon by the power
of your voice. We will continue to embrace technology to meet our customers’
expectations and enhance productivity in our back-office. Technology is not, and
has never been, a replacement for personal interaction. It’s the merging of old and
new practices to achieve efficiency and speed of delivery. At the end of the day, it’s
about protecting our customers’ money, privacy and trust.

I started Century in a rented trailer on May 1, 1969. As we prepare to celebrate our
50th Anniversary, I’m excited to tell you we’ve surpassed the milestone of $5 billion in
assets, have 27 branch locations and had another year of record earnings. I’m grateful
for our accomplishments over the last 50 years but also for the loyalty of the people
who have been part of the Century Bank team that built the bank. I’m thankful for our
customers and shareholders. It’s because of them we continue profitable growth and
achieve significant milestones almost every year.

At Century, our business is not about checks, statements, rates and loans. It’s about
getting to know each customer, providing every individual and business we serve with
all the resources to achieve their goals - their way. It’s about working hard for, and
with, our customers for the betterment of our surrounding communities. It’s a mission
I set for the Bank when I founded it 50 years ago and it’s one we continue to this day.

I am still honored to say, “I’m your Banker.”

Marshall M. Sloane
Founder and Chairman

President’s Message

Dear Fellow Shareholders:

2018 was a year of excellent financial results, setting records for the 9th consecutive year.
As we approach the 50th Anniversary of our founding on May 1, 1969, we are proud that
the last decade has been among the best financial performance in our history. So many
factors have contributed to our success, but most importantly the unwavering strategic
discipline devised and implemented by our Founder and Chairman, Marshall M. Sloane.

All three principal business units again performed extremely well in 2018.

Through up and down business and interest rate cycles of varying duration and severity,
we have produced consistent and superior results. We continued that trend in 2018:

Net earnings and core earnings were $36.2 million, an increase of 17.8% over 2017 core
earnings, and our capital grew to $300 million. We ended 2018 at a milestone: $5.2 billion
in assets due to growth of 7.9%, a size that vaults us firmly into the realm of regional banks.
Century earned $6.50 per share in 2018, as compared to $4.01 in 2017. Our stock closed
the year at $67.73, a decline of 13% over the year, a reduction along with most of our
peers. CNBKA has a three-year cumulative total return of 60% and a five-year cumulative
total return of 114%.

50$5.2

Billion in Assets

Our slogan translates into our devotion to treat our clients, as we, as a family and a
business, would wish to be treated. It means fair products, rates, and fees, quick credit
decisions and closings, transparency of process, and respect for the continuity and loyalty
of our clients. Yet we also appreciate the frailty of life and business conditions, and try to
support our clients through those inevitable undulations.

We particularly tried to assist those families who suffered due to the partial federal government
shutdown in January. Several programmatic supports were created for federal employees, and
we are utilizing a resourceful attitude toward those business customers who were unable to
proceed due to the SBA closure. Let’s hope that such an impasse does not recur.

Celebrating Our Family’s Bank. And Yours.

The following examines the multiple elements of Century’s results that have contributed to our

success in 2018:

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

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Banking is a business of temperament and daily routine. We are steadfast in
our centralized control and transparency of management. Our Loan Committee
is a weekly institution that approves in open forum every loan over $500,000.
So-called Deal of the Day meets almost every afternoon to approve all other
loans and lines of credit. I participate in virtually every one. It is a level of
centralized credit approval that ensures we know the risks we take, makes sure
we reward customer loyalty, and connects us to our clients and communities.

Our Management Committee is composed of the 10 most senior sector
executives at Century. This bi-weekly, half-day meeting follows an agenda
that covers officer hirings, contracts, leases, audits, marketing campaigns,
significant complaints, policy changes, donations, and pipelines of all new
business. MANCOM, as we call it, sets our cultural tone of centralized,
yet participatory, management engagement. Opinions and dialogue are
encouraged; the wisdom of our collective executive team is shared. All have
a stake in decisions made. It works.

g Celebrating Centralized Hands On Management
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Celebrating Core Earnings Growth and Return on Equity

Core earnings increased by 17.8% to $36.2 million, for the year
ended December 31, 2018, as compared to core earnings of $30.7 million
for 2017. Century’s return on average equity (ROE) was 13.05% for 2018,
as compared to 2017’s 8.75%. The ROE is the primary building block of our
financial goal setting. It reflects our priority to grow shareholder value as the
key driver of our strategic plan, our annual budget, and our tactical decisions.
We can’t control the equity markets, but we can have a high level of
confidence that if we continue to produce a double digit ROE, the share
price will follow over time. It is why we believe Standard and Poor’s/CFRA
continues for the fourth year to rate Century’s shares an “A”.

In addition, our efficiency ratio of overhead to revenue, the key comparative
metric of non-interest expense increased slightly from 58% in 2017 to 59%
in 2018. This increase is due to the effect of the lower income tax rate on our
calculation of interest income on a fully taxable equivalent basis. We watch our
expenses carefully, and are very proud of the efficiency ratio remaining below
60%, an industry threshold target for the last three years.

Total Assets (in thousands)

Earnings per Class A share, diluted

Net Income (in thousands)

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Century Bank is proud to support the Archdiocese of Boston
Pictured from left: Linda Sloane Kay; Cardinal Sean P. O’Malley, Marshall M. Sloane; and Barry R. Sloane

Celebrating Significant Asset Growth

Total assets grew 8% to a record of $5.2 billion on December 31, 2018, up
from $4.8 billion on December 31, 2017, an increase of $378 million. We
experienced significant growth in 2018 for all three of our business lines:
consumer, business, and institutional services. We are proud to have dozens
of depositors who each routinely keep tens of millions at Century with
confidence in our high performing earnings and asset growth. Being one of
the 22 S&P/CFRA “A” quality rated banks in America, and one of only four
in Massachusetts, is a strong external contributing confidence factor.

50Celebrating Record Capital

Total equity was $300.4 million on December 31, 2018, an increase of
$40 million or 15.4% from $260.3 million on December 31, 2017. Book
value per share increased to $53.96 at December 31, 2018, up by $7.21
from $46.75 at December 31, 2017. Century is “well capitalized” by all
regulatory standards, and we have passed all “Basel III” requirements
through organic capital generation from earnings.

S&P/CFRA
Quality Ranking

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

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Century Bank is proud to support the Visiting Nurse Association
Pictured from left: Barry R. Sloane; Linda Sloane Kay; Marshall M. Sloane; Shipley C. Mason,
SVP, Century Bank; and Linda S. Cornell, President & CEO, Visiting Nurse Association

Celebrating Record Loan Portfolio Size

Our unique loan portfolio strategy continues to work exceptionally well. Total loans
grew by $110 million or 5% to a record $2.3 billion on December 31, 2018; our
largest loan portfolio ever, and a loan to deposit ratio of 51.9%. Non-performing
assets continued to be a minimal number for a portfolio of our size, increasing
from $1.7 million at December 31, 2017 to $3.5 million at December 31, 2018.
The education and healthcare sectors continue to anchor our loan portfolio. We
are, by any standard, one of the leading experts in tax-exempt financing in New
England. We believe the magnetism and quality of Massachusetts’ colleges and
universities validate our decade-long strategic conclusion that education and
healthcare were, and are, the future of our region.

Much has been written about the failure of four Massachusetts area colleges in
recent months. We will evaluate industry developments to look for warning signs
for our portfolio and be vigilant in our loan approval and monitoring discipline.

Our calling officers are seeking new middle market business prospects every day.
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, but it’s
not easy as many of our peers have lower underwriting and pricing standards than
we do. The middle business market is an exceptionally competitive environment.

Loan quality is religion to us; our portfolio continues to be well diversified with
emphasis on quality underwriting and effective ongoing monitoring of the loan
portfolio. 2018 was a productive year in which we closed $82 million in
residential first mortgages, and $183 million in home equity loans. We
extended 241 energy conservation loans through the Mass Save loan program,
which helped us do our part for conservation while originating many new long
term relationships.

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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Celebrating Results in our Branch System

Celebrating Record Growth in Institutional Services

We are proud that five of our twenty-seven branches hold over $100 million in
deposits, and total branch deposits exceed $2.3 billion. We are very discerning
in the search for our next branch, #28. We are on the lookout for further high
visibility market-extending locations; small size and manageable cost is
paramount. In addition, we now operate 51 ATMs, processing over 500,000
annual transactions.

We are in the early stages of implementing a CRM (customer relationship
management) system across all of our client facing businesses. When fully
operational it will assist our communication and responsiveness to our
thousands of clients.

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Branches
and Growing

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 the highest among Massachusetts
chartered banks, and we have expanded our client set significantly in Rhode Island
and New Hampshire.

We processed over 36 million check and payment items in 2018, with exceptional
quality control and customer service. The lockbox function remains a time tested
magnet for corporate and institutional clients. 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.

For the sixth consecutive year, the audit of our automated lockbox services and its
operative effectiveness of controls was without any finding of deficiency.

In 2018 we implemented the largest and most complex corporate lockbox
relationship in our history. Proving that our service, execution, and reputation is
without peer in New England. We will do our utmost to ensure it is always true.

Beth Israel Deaconess Medical Center Ribbon Cutting

Chairman’s Spirit Award Recipients
The Century Bank Lockbox Team received the Spirit Award based on their dedication, team work and Century spirit

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Celebrating Record Size in Wealth Management

2018 was the fourth full year of our wealth management function. Our assets
under management grew 4.1% to over $130.7 million in 2018. Our wealth
management business is a great opportunity to serve the generational transition
challenges of our private clients while providing our not-for-profit clients an
institutional quality offering that embraces industry best practices. We specialize
in growth and income “defensive” portfolios that we believe are particularly
relevant when equity markets continue to behave with meaningful volatility.

Celebrating our Brand

It’s easy to be different in this realm as there is no other family managed and
controlled bank of our size in New England. Our advertising, in print, radio, and
now regional television, 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 thanking all new clients of Century.
This level of personal touch is unique from all others in the industry.

Celebrating Results in Information Systems

We pride ourselves on a technology platform of redundancy and expertise that our
clients can rely on for financial inquiry, transactions, and high quality service. We
are proud to say that Information Systems met all of its operational and service
goals in 2018. We are constantly monitoring our systems reliability, and when
customers encounter problems at night or on weekends, we’re always reachable.

Celebrating the Digital Services Platform Transformation

A metamorphosis is underway in banking from face to face to digital customer
service. A most effective partnership of our Marketing and Information Systems
departments began two years ago to create a strategic plan and analytic agenda
of the full realm of digital banking services. Our goal is to offer the menu of digital
services offered by our most advanced giant competitors, yet ALWAYS provide
for the intervention of live bankers to assist and educate customers in their
relationship needs. We are well down this new road, with the offering of 10 digital
services, on a par with our largest peers. The challenge is to seamlessly integrate
these new services into our highly reliable legacy platform systems. It’s what we
call a “digitally enhanced relationship.” We believe it’s our version of the future
of banking. More to come.

Celebrating Our 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. We
support the Community Reinvestment Act function with staff, resources, and
management commitment. We are proud that our most recent completed
Massachusetts CRA audit was ranked a “High Satisfactory.” We diligently try to
better serve our minority and lower income communities with home ownership
opportunities and access to traditional banking services. We are very proud that

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Senior Vice Presidents
Standing, pictured from left: Kenneth A. Samuelian; Anthony C. LaRosa; James M. Flynn, Jr.; Timothy L. Glynn;
William J. Gambon, Jr.; Richard L. Billig; Jason J. Melius; Peter R. Castiglia; and Thomas E. Piemontese
Sitting, pictured from left: Deborah R. Rush; Shipley C. Mason; Yasmin D. Whipple; Gerald S. Algere; and Bradford J. Buckley

Celebrating our People and our Values

we are the lead lender to a new affordable housing project in Jamaica Plain of
four two-family homes to be occupied in 2019. We are also proud to be one of
the leaders raising the endowment to construct the new Medford Public Library.

Over

50450

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Associates

We can’t say enough about the commitment and capability of our over 450
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
2019 another year of superior results through our diligence and resourcefulness.

Gratefully,

Barry R. Sloane

President and CEO

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This year, we continued to invest in our communities, supporting 316 organizations.

2020 Women on Boards
ACT Lawrence
Adopt-A-Student Foundation
AFSCME Council 93
Alzheimer’s Association
Alzheimer’s Foundation of America
American Foundation for Suicide Prevention
Andover Business Community Association
Andover Rotary Club
Andover Youth Foundation
Animal Rescue League of Boston
Apple Orchard School

Cambridge Montessori School
Cambridge YMCA
Cambridge YWCA
Camp Harbor View Foundation, Inc.
Cardinal Cushing Centers, Inc.
Cardinal Spellman High School
Caritas Communities
Catholic Charities of Boston
Catholic Schools Foundation, Inc./Inner-City

Scholarship Fund

Challenge Me, Inc.
Challenge Unlimited

Century Bank hosted The Evolution of Women’s Entrepreneurship with a panel of Senior Executives
and Business Owners
Pictured from left: Tami Bonnell; Jacquelyn Redmond; Desiree Patno; Linda Sloane Kay; and Betsy Magnuson

Chelsea Housing Authority
Children’s Trust
Christians and Jews United for Israel
City of Beverly
City of Chicopee
City of Everett

Epstein Hillel School
ESSCO-MGH Breast Cancer Research Fund
Essex Chamber Music Players
Everett Chamber of Commerce
Everett Rotary Club
Facing Cancer Together
FAR OUT Rocketry
Federazione Associazione
Fisher Center for Alzheimer’s Research Fund
Foundation for MetroWest
Foundation for Racial, Ethnic & Religious Harmony
Franciscan Children’s
Friends of Christopher Columbus Park
Friends of the Middlesex Fells Reservation
Friends of the North End Branch Library
Gann Academy
German International School Boston
Granara-Skerry Trust
Greater Beverly Chamber of Commerce
Greater Lawrence Family Health Center
Greater Lynn Senior Services
Greater Medford Visiting Nurse Association
Greater Newburyport Chamber of Commerce
& Industry
Habitat for Humanity Greater Boston
Hebrew College
Hebrew SeniorLife
Hospitality Homes, Inc.
I.B.E.W. Local 103
Initiative for a Competitive Inner City
Irish International Immigrant Center
James L. McKeown Boys & Girls Club of Woburn
Jewish Big Brothers Big Sisters
Jewish Cemetery Association of Massachusetts
Jewish Community Centers of Greater Boston
Jewish Family Service
John M. Barry Boys & Girls Club of Newton
John T. Forcellese Memorial Fund
Joseph N. Hermann Youth Center
Joslin Diabetes Center
Jubilee Christian Church
Juvenile Diabetes Research Foundation

Archdiocese of Boston
Asian Community Development Corporation
Associazione Gizio
Back Bay Association
Bais Yaakov of Boston High School for Girls
Bay State Chapter Freedoms Foundation
Beacon Academy
Best Buddies
Beth Israel Deaconess Medical Center-Milton
Beth Menachem Chabad of Newton
Bike MS
Bishop Fenwick High School
Boston Architectural College
Boston Ballet
Boston Children’s Hospital
Boston Chinatown Neighborhood Center, Inc.
Boston College
Boston College High School
Boston Harbor Association
Boston Jewish Film Festival
Boston Landmarks Orchestra
Boston POPS
Boston University
Braintree Catholic Womens Club
Bread of Life
Brookline Chamber of Commerce
Brookline High School Innovation Fund
Burbage Theatre Company
Burlington Community Scholarship Foundation/Dollars
for Scholars
Burlington Recreation Department
Cambridge Camping

Team Century participates at the New England
Museum Association Expo

Century Bank Newton Centre Associates educated students from The Carroll Center For
The Blind on money management

City of Medford
City of Peabody
City of Quincy
City of Somerville
Colleen E. Ritzer Memorial Scholarship Fund
Combined Jewish Philanthropies
Community Dispute Settlement Center
Coolidge Corner Community Chorus
Coolidge Corner Merchants’ Association
Courageous Sailing
Covenant Christian Academy
Cristo Rey Boston High School
Cyrus E. Dallin Art Museum, Inc.
Cystic Fibrosis Foundation
Dana-Farber Cancer Institute
Dante Alighieri Society of Massachusetts
Deutsches Altenheim, Inc.
Dimock Community Health Centers
DONNE 2000
Dr. Enzinger Esophageal/Stomach Research Fund
Dr. Thomas Abrams Research Fund for GI Cancer
East Middlesex Association for Children
Eliot School
Emerson College

Koleinu Boston’s Jewish Community Chorus
Kollel of Greater Boston
Kosher Dental Study
Krystle Campbell Memorial Fund
Ladies Ancient Order of Hibernians
Lawrence CommunityWorks
Lazarus House Ministries
Leonard P. Zakim Center for Integrative Therapies
Little Sisters of the Poor
LUNGevity Foundation
Lynn Chamber of Commerce
Lynn Housing Authority & Neighborhood Development
Lynn Museum & Historical Society
Malden Babe Ruth League
Malden Chamber of Commerce
Marine Corps League
Mary Ann Brett Food Pantry - Dorchester Catholic
Massachusetts Adoption Resource Exchange
Massachusetts Association for Mental Health
Massachusetts Eye and Ear Infirmary
Massachusetts General Hospital
Massachusetts Law Reform Institute
Massachusetts Mortgage Bankers Foundation, Inc.
Massachusetts Network of Foster Care Alumni
Matignon High School
May Institute
Medford Chamber of Commerce

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Roman W. DeSanctis MD Legacy Endowed Fund
Run for the Troops
Sacred Heart School
Sail Cape Cod
Saint Anthony’s Society
Saint Gennaro Foundation of Boston
Saint John School
Saint Leonard Parish
Saint Peter School
Salem Chamber of Commerce
Salem Rotary Club
Salve Regina University
Sancta Maria Hospital, Inc.
Save the Children

Temple Sinai Sharon
The A.C.D.K. Hope Foundation
The American Legion - Medford Post 45
The Andover Village Improvement Society
The Angel Fund
The Arc of the South Shore
The Brookline Center for Community Mental Health
The Carroll Center For The Blind
The E Club
The Genesis Fund
The Gifford School
The Gloucester Fund, Inc.
The Greater Boston Food Bank
The Jimmy Fund

Medford Citizen of the Year Alumni Benevolent Fund
Medford Girl Scouts
Medford High School
Medford Jingle Bell Festival
Medford Little League
Medford Public Library
Medford Rotary Club
Medford Youth Center
Melanoma Education Foundation
Mental Health Programs, Inc. (MHPI)
Merrimack Valley Chamber of Commerce
Merrimack Valley YMCA
Morgan Memorial Goodwill Industries
My Life My Choice
Mystic Valley Branch of the NAACP
Mystic Valley Elder Services
Mystic Valley Public Health Coalition
Mystic Wellington Yacht Club
NAIOP Massachusetts
Nashua Senior Activity Center
National Brain Tumor Society
National Kidney Foundation
National Tay-Sachs & Allied Diseases Association
Nativity Preparatory School
Nazzarro Recreation Center
Needham History Center & Museum
Neighborhood House Charter School
New Art Center
New England Center for Children
New England Conservatory
New England Disabled Sports
Newbury Street League
Newton North High School
Newton-Needham Chamber of Commerce
Newton-Wellesley Hospital Charitable Foundation
Norman B. Leventhal Map Center
North Andover Housing Authority
North Andover Scholarship Foundation
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 Youth Football

Team Century joins the Medford Day celebration

Sergeant Michael Chesna Family Fund
Shakespeare & Company
Sisterhood Temple Emanuel of Newton
Sisters of St. Joseph of Boston
Society of Jesus of New England
Solomon Schechter Day School
Somerville Chamber of Commerce
Somerville Council on Aging

The Joey Fund
The Kennek Foundation
The Shadow Fund NE
The Skating Club of Boston
The Soldiers Fund
The Somerville Mathematics Fund
The Thursday Fortnightly Club
The United States Conference of Mayors
The Welcome Project
The Wildcat Fund
Torah Academy
Town of Acton
Town of Burlington
Town of Swampscott
UNICO Merrimack Valley
University of Massachusetts Boston
Veterans of Foreign Wars
Vilna Shul
Visiting Nurse Association of Eastern Massachusetts
VNA Hospice Care
Ward 7 Improvement Association
Wellesley Chamber of Commerce
Wellesley Rotary Club
Whittier Street Health Center
Winchester Historical Society
Winchester Hospital
Winchester Pop Warner
Winchester Rotary Club
Woburn Middlesex Lions Club
Woburn Public Library
Woburn Rotary Club
Women’s Bar Association of Massachusetts
Yeshiva Ohr Yisrael

Team Century participating in Step Up for
Colleen 5K

Brandeis University business students read and discuss the book “Character Counts”
by Marshall M. Sloane

North Shore Chamber of Commerce
North Shore Community Action Programs, Inc.
North Shore Latino Business Association, Inc.
Northeast Arc
Northern Light Productions
On the Rise
Our Lady of Cedars of Lebanon Church
P.A.W.S. Preschool of Wellesley Schools
Pan-Mass Challenge
Partners HealthCare at Home
Peabody Chamber of Commerce
Peabody Institute Library Foundation
Peabody Main Streets
Prospect Hill Academy Charter School
Public Broadcasting Service
Quincy Asian Resources, Inc.
Quincy Chamber of Commerce
Quincy College
Quincy School Community Partnership
Raymond J. Reilly, MD Innovation Fund
Red Sox Foundation/Run to Home Base
Redemptoris Mater Seminary
Regis College
Right at Home
Rodman Ride for Kids
ROFEH International

Somerville Ed Foundation
Somerville High School
Somerville Kiwanis Club
Somerville Museum
Somerville Pop Warner
Somerville Rotary Club
Sophia Academy
South End Community Health Center
South Shore Chamber of Commerce
Special Olympics Massachusetts
Spirit of Adventure Council, Boy Scouts of America
Sportsmen’s Tennis & Enrichment Center
St. John the Evangelist Church
St. Joseph Parish
St. Jude Children’s Research Hospital
Steps to Success
Stonehill College
Suzuki School of Newton
Teamsters Local 25, Autism Fund Inc.
Temple Beth Avodah
Temple Beth Shalom
Temple Beth Zion
Temple Emanuel Andover
Temple Emanuel Newton
Temple Reyim

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Roberta M. Byington
Anel J. Cetina-Santos
Cindy Cohen
Ray DeBarros
Jeana A. DeBenedetto
John R. Ferguson
Jill A. Holak, CIA
Linda M. Johns
Brandon N. Letellier
Ann E. Mannion
Carol A. Melisi
Robson G. Miguel
Marie A. Nugent
Karen J. Pessia
Kathleen E. Schroeder
Krzysztof A. Sikorski
Jeanne A. Wood

First Vice Presidents

Assistant Vice Presidents

Century Bancorp, Inc.
Directors

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

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

Louis J. Grossman 4,7
Chairman
The Grossman Companies, Inc.

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

Michael D. Ballard
Gracine Copithorne
Anna M. Gorska
Carl R. Hall
T. Daniel Kausel
Nancy M. Marsh
Carl M. Mattos
Nancy R. Miller
Jennifer A. Nickerson, CPA
David J. Waryas

Officers

Vice Presidents

Senior Vice Presidents

Richard L. Billig
Senior Vice President

Jason J. Melius
Senior Vice President

James M. Flynn, Jr.
Senior Vice President

Linda Sloane Kay
Executive Vice President

Brian J. Feeney
Executive Vice President

Russell B. Higley, Esq.6,7
Attorney

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

David B. Woonton
Executive Vice President

Jo Ann Simons 1,5,6
CEO
Northeast ARC

Fraser Lemley 2*,3,4,5
Chairman & CEO
Sentry Auto Group

Jackie Jenkins-Scott 4,5*
President Emeritus
Wheelock College

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

Joseph P. Mercurio2,7*
Independant Consultant
Higher Administration & Education

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

Susan A. Cabral
Heather J. Donnellan
Jeanette E. duMee
Joseph R. Ferreira
Richard Forrest
Sara A. Gaudet
Lisa M. Glynn
Fatima M. Goncalves
Paula A. Grimaldi
Simohammed Hakkaoui
Stephanie M. Jean-Baptiste
Joshua L. Jick
Earl K. Kishida
Amanda A. Leitz
David M. Leung
Paula A. Malley
Kimberly J. Matsumoto
Sambo Mean
Cheryl L. Miller
Lisa M. Ramos
Christopher M. Ross
Jessica E. Rozzo
Cynthia E. Sarnie
Biljana Savic
Michael E. Serieka
Maria R. Serrentino
Robert J. Silva
Judith Sinclair
Lyndsey H. Starks
Elizabeth A. Theriault

Zubin C. Bagwadia
Jean P. Belcher-Scarpa
Robert A. Bennett
John S. Bosco, Jr.
Jeffrey R. Bradbury
Pasqualina Buttiri
James W. Clark
Derek J. Craig
Rosalie A. Cunio
Anthony Daniels
Dara L. Delaney
Brian J. DeVenne
James P. Dever III
Laura A. DiFava
Sandra R. Edey
Michele English
Judith A. Fallon
Marissa L. Fitzgerald
Jane C. Gilberti
Howard N. Gold
Lisa Gosling
Michelle L. Haughton
Ashkon Hedvat
James J. Jordan
Darlene Joyce
William B. Keefe
Brian Kelly
Emma M. Lindsay
Michael F. Long
Karen M. Martin
Kathleen McGillicuddy
Lois M. McGinness
John L. Norris III
Meredith O’Keefe
Sarah A. O’Toole
Patricia A. Pace
Keith M. Pauletti
Scott M. Piccolo
Cornelius C. Prioleau
Scott M. Rembis
Danielle G. Sheehan
Youyi Shi
Mary Spadoni
Rita C. Spitz
Jeremy P. Styles
Tuesday N. Thomas
Valerie R. Trevisone
Lawrence H. Tsoi
Jose I. Umana
Calvin M. Wong

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

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

William P. Hornby, CPA
Chief Financial Officer & Treasurer

Jon Westling 1,2,3
President Emeritus
Boston University

Linda Sloane Kay
Executive Vice President

Marshall M. Sloane
Founder and Chairman

Barry R. Sloane
President & CEO

George F. Swansburg 4*,5,6

Officers

Rosalie A. Cunio
Clerk

Judith Sinclair
Assistant Clerk

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

35553 Editorial CC2018.indd 10

2/27/19 6:48 AM

Century Bancorp, Inc. AR ’18

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

35553 Financials 2019.indd 1

2/21/19 6:22 AM

Financial Highlights

Century Bancorp, Inc. AR ’18

(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

Core earnings — Non-GAAP (1)

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 — Non-GAAP (1)

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 (recoveries) charge-offs as a percent of

average loans

Average stockholders’ equity to average assets
Efficiency ratio — Non-GAAP (1)

2018

2017

2016

2015

2014

$
$
$
$

137,056
44,480
92,576
1,350
91,226
16,248
69,693
37,781
1,568
36,213

36,213

3,608,179
1,959,730
5,567,909
1,959,730
5,567,909

7.89
3.95
6.50
3.95

6.1 %

$
$
$
$

113,436
27,820
85,616
1,790
83,826
16,552
67,119
33,259
10,958
22,301

30,749

3,604,029
1,963,880
5,567,909
1,963,880
5,567,909

4.86
2.43
4.01
2.43

9.9 %

$
$
$
$

96,699
22,617
74,082
1,375
72,707
16,222
64,757
24,172
(362)
24,534

24,534

3,600,729
1,967,180
5,567,909
1,967,180
5,567,909

5.35
2.68
4.41
2.68

9.0 %

$
$
$
$

90,093
20,134
69,959
200
69,759
15,993
62,198
23,554
533
23,021

23,021

3,600,729
1,967,180
5,567,909
1,967,180
5,567,909

5.02
2.51
4.13
2.51

9.6 %

$
$
$
$

85,371
19,136
66,235
2,050
64,185
15,271
56,730
22,726
866
21,860

21,860

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

4.78
2.39
3.93
2.39
10.0 %

$ 5,163,935
2,285,578
4,406,964
300,439
53.96

$ 4,785,572
2,175,944
3,916,967
260,297
46.75

$ 4,462,608
1,923,933
3,653,218
240,041
43.11

$ 3,947,441
1,731,536
3,075,060
214,544
38.53

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

0.74 %
13.05 %
2.18 %

(0.04) %
5.71 %
59.2 %

0.48 %
8.75 %
2.25 %

0.00 %
5.50 %
57.8 %

0.57 %
10.80 %
2.12 %

0.00 %
5.29 %
62.7 %

0.59 %
11.26 %
2.18 %

(0.04) %
5.25 %
64.1 %

0.61 %
11.57 %
2.22 %

0.05 %
5.27 %
62.0 %

(1)

2018

2017

2016

2015

2014

Non-GAAP Financial Measures are reconciled in the following tables:

Calculation of Efficiency Ratio:
Total Operating Expenses (numerator)
Net Interest Income
Total Other Operating Income
Tax Equivalent Adjustment
Total Income (denominator)

69,693
92,576
16,248
8,854
117,678

67,119
85,616
16,552
13,979
116,147

64,757
74,082
16,222
12,917
103,221

62,198
69,959
15,993
11,140
97,092

56,730
66,235
15,271
10,033
91,539

Efficiency Ratio, Year — Non-GAAP

59.2 %

57.8 %

62.7 %

64.1 %

62.0 %

Calculation of Dividend Payout Ratio:
Dividends Paid (numerator)
Net Income (denominator)
Dividend Payout Ratio – Non-GAAP

Calculation of core earnings:
Net Income
Add: Deferred Tax Remeasurement Charge

Core earnings — Non-GAAP

2018

2017

2016

2015

2014

$
$

2,203
36,213

$
$

2,200
22,301

$
$

2,201
24,534

$
$

2,200
23,021

$
$

2,196
21,860

6.1 %

9.9 %

9.0 %

9.6 %

10.0 %

2018

2017

2016

2015

2014

36,213
—
36,213

22,301
8,448
30,749

24,534
—
24,534

23,021
—
23,021

21,860
—
21,860

35553 Financials 2019.indd 1

2/27/19 5:20 AM

Financial Highlights

Century Bancorp, Inc. AR ’18

The stock performance graph below compares the cumulative total shareholder return of the Company’s Class A Common Stock from December 31, 2013 to
December 31, 2018 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
$300
Cumulative Total Return*

Century Bancorp, Inc.

NASDAQ U.S.

NASDAQ Banks

$250

$200

$150

$100

$50

2013

2014

2015

2016

2017

2018

Value of $100 Invested on
December 31, 2013 at:

2014

2015

2016

2017

2018

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

$ 122.10
111.83
114.75

$ 134.02
114.30
122.74

$ 186.98
144.63
133.62

$ 245.54 $ 213.92
143.15
168.30

171.24
173.22

* Assumes that the value of the investment in the Company’s Common Stock and each index was $100 on
December 31, 2013 and that all dividends were reinvested.

35553 Financials 2019.indd 2

2/21/19 6:02 AM

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

Century Bancorp, Inc. AR ’18

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

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the “D-F Act”) became law. The D-F 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 D-F 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 D-F Act also contains reforms of consumer mortgage lending
practices and creates a Bureau of Consumer Financial Protection, which is
granted broad authority over consumer financial practices of banks and others.
It is expected as the specific new or incremental requirements applicable to
the Company become effective that the costs and difficulties of remaining
compliant with all such requirements will increase. The D-F Act broadened 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 D-F 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 was required to be achieved by July 21, 2015. The conformance
period for investments in and relationships with certain “legacy covered funds”
was extended to 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. The federal
banking agencies have issued notices of proposed rulemaking to make certain
amendments to the Rule to simplify and tailor compliance requirements and to
conform the Rule to the EGRRCPA (discussed below).

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 included a new
common equity Tier I ratio of 4.5 percent of risk-weighted assets, raised 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 implementation of the framework did not have a material impact on the
Company’s financial condition or results of operations.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted,
which represents the most comprehensive reform to the U.S. tax code in
over thirty years. The majority of the provisions of the Tax Act took effect on
January 1, 2018. The Tax Act lowered the Company’s federal tax rate from 34%
to 21%. Also, for tax years beginning after December 31, 2017, the corporate
Alternative Minimum Tax (“AMT”) has been repealed. For 2018 through 2021,
the AMT credit carryforward can offset regular tax liability and is refundable
in an amount equal to 50% (100% for 2021) of the excess of the minimum
tax credit for the tax year over the amount of the credit allowable for the year
against regular tax liability. Accordingly, it is anticipated that the full amount of
the alternative minimum tax credit carryforward will be recovered in tax years
beginning before 2022. The Tax Act also contains other provisions that may
affect the Company currently or in future years. Among these are changes to
the deductibility of meals and entertainment, the deductibility of executive
compensation, the dividend received deduction and net operating loss
carryforwards. Tax Act changes for individuals include lower tax rates, mortgage
interest and state and local tax limitations as well as an increase in the standard
deduction, among others.

On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer
Protection Act, or the EGRRCPA, became law. This is arguably the most significant
financial institution legislation since the D-F Act. The EGRRCPA changes certain
of the regulatory requirements of the D-F Act and includes provisions intended
to relieve the regulatory burden on “community banks.” Among other things,
for qualifying community banks with less than $10 billion in total consolidated
assets, the EGRRCPA contains a safe harbor from the D-F Act “ability to repay”
mortgage requirements, an exemption from the Volcker Rule, may permit filing
of simplified Call Reports, and potentially will result in some alleviation of the
D-F Act and U.S. Basel III capital mandates. The EGRRCPA requires the federal
banking agencies to develop a community bank leverage ratio (defined as the
ratio of tangible equity capital to average total consolidated assets) for banks
and holding companies with total consolidated assets of less than $10 billion
and an appropriate risk profile. The required regulations must specify a minimum
community bank leverage ratio of not less than 8% and not more than 10%. The
federal banking agencies jointly issued a notice of proposed rulemaking which
would set the minimum ratio at 9%. Qualifying banks that exceed the minimum
community bank leverage ratio will be deemed to be in compliance with all other
capital and leverage requirements including the capital ratio requirements that are
required to be considered well capitalized under Section 38 of Federal Deposit
Insurance Act.

35553 Financials 2019.indd 3

2/21/19 6:02 AM

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

Century Bancorp, Inc. AR ’18

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,
2018, the Company had total assets of $5.2 billion. Currently, the Company
operates 27 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
large healthcare and higher education institutions throughout Massachusetts,
New Hampshire, Rhode Island, Connecticut and New York.

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. In recent years, the Company has increased business to larger
institutions, specifically, healthcare and higher education. 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 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.

The Company has municipal cash management client engagements in
Massachusetts, New Hampshire and Rhode Island comprised of approximately
250 government entities.

The Company had net income of $36,213,000 for the year ended
December 31, 2018, compared with net income of $22,301,000 for the
year ended December 31, 2017, and net income of $24,534,000 for the year
ended December 31, 2016. Class A diluted earnings per share were $6.50 in
2018 compared to $4.01 in 2017 and compared to $4.41 in 2016.

During 2017, the Company’s earnings were negatively impacted by a reduction
in the value of its net deferred tax asset resulting in a charge of $8.4 million
to income tax expense. This was the result of the enactment of the Tax Act on
December 22, 2017, which lowered the Company’s federal tax rate from 34% to
21%. During 2018 and 2017, 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 2016, the U.S. economy experienced a low
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.

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

2018

$ 7.89
$ 3.95
$ 6.50
$ 3.95

2017

$ 4.86
$ 2.43
$ 4.01
$ 2.43

2016

$ 5.35
$ 2.68
$ 4.41
$ 2.68

Diluted EPS – Class A common

Diluted EPS – Class B common

The trends in the net interest margin are illustrated in the graph below:
2.40 %
Net Interest Margin
2.30 %
2.18%
2.15%

2.16%

2.31%

2.26%

2.19% 2.20% 2.19%

2.20 %

2.12%

2.13%

2.10 %

2.00 %

2.04%

Q3 Q4

2016

2017

2018

The net interest margin decreased during the second, third, and fourth quarters
of 2016 primarily as a result of a decrease in rates on earning assets. The margin
increased during 2017 primarily as a result of an increase in rates on earning
assets. This increase was primarily the result of the yield on floating rate assets
increasing as a result of recent increases in short term interest rates as well as
an increase in prepayment penalties collected during the second quarter of
2017. Prepayment penalties collected amounted to $825,000 and contributed
approximately seven basis points to the net interest margin for the second
quarter of 2017. During 2017, the Company did not see a corresponding increase
in short term rates on interest bearing liabilities. The margin decreased for 2018
mainly as a result of a decrease in the corporate tax rate from 34% to 21%. This
decrease results in a lower tax equivalent yield on tax-exempt assets. During the
fourth quarter of 2018, the Company increased its interest-bearing deposits.
These deposits increased net interest income, but decreased the net interest
margin. 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.
3.50 %

Historical U.S. Treasury Yield Curve
3.00 %

2.50 %

2.00 %

1.50 %

1.00 %

0.00 %

3 Month 6 Month 2 Year 3 Year

5 Year 10 Year 30 Year

U.S. Treasury Yield Curve 12/31/2018
U.S. Treasury Yield Curve 12/31/2017
U.S. Treasury Yield Curve 12/31/2016

35553 Financials 2019.indd 4

2/27/19 5:20 AM

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

Century Bancorp, Inc. AR ’18

A yield curve 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
2017 and 2018, short-term rates increased more than longer-term rates resulting
in a flattening of the yield curve. This flattening of the yield curve became more
pronounced during 2017 and 2018.

Total assets were $5,163,935,000 at December 31, 2018, an increase of 7.9%
from total assets of $4,785,572,000 at December 31, 2017.

On December 31, 2018, stockholders’ equity totaled $300,439,000, compared
with $260,297,000 on December 31, 2017. Book value per share increased to
$53.96 at December 31, 2018, from $46.75 on December 31, 2017.

During June 2016, the Company entered into a lease agreement to open a new
branch located in Wellesley, Massachusetts. The Company closed its existing
Wellesley branch and transferred the accounts to the new Wellesley branch
which opened on December 19, 2016. On September 25, 2017 the Company
purchased the new Wellesley location.

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 allowance for loan losses and income taxes to be its
critical accounting policies.

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 specific allowances, if
appropriate, for identified problem loans, formula allowance, and possibly an
unallocated allowance. Arriving at an appropriate level of allowance for loan
losses necessarily involves a high degree of judgment.

Specific allowances for loan losses entail the assignment of allowance amounts
to individual loans on the basis of loan impairment. Under this method, loans are
selected for evaluation based upon a change in internal risk rating, occurrence
of delinquency, loan classification or nonaccrual status. The formula allowances
are based on evaluations of homogenous loans to determine the allocation
appropriate within each portfolio segment. Formula allowances are based on
internal risk ratings or credit ratings from external sources. After considering
the above components, an unallocated component may be generated to cover
uncertainties that could affect management’s estimate of probable losses.
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”.

During 2017 and 2018, the Company further enhanced its methodology to the
allowance for loan losses by including additional metrics for qualitative factors
on certain loan portfolios. Further enhancements and refinements include
adding qualitative factors to certain loan portfolios to enhance granularity.
The Company also updated and added data sources to measure present and
forecasted economic conditions. 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”), securities held-to-maturity (“HTM”), and equity securities.

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

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, 2018 totaled
$336,759,000 and included gross unrealized gains of $635,000 and gross
unrealized losses of $627,000. A year earlier, the fair value of securities available-
for-sale was $395,830,000 including gross unrealized gains of $673,000 and
gross unrealized losses of $790,000. In 2018, the Company recognized gains
of $302,000 on the sale of available-for-sale securities. In 2017 and 2016, the
Company recognized gains of $47,000 and $52,000, respectively.

Securities classified as held-to-maturity consist of U.S. Government Sponsored
Enterprises, SBA Backed Securities, and U.S. Government Sponsored Enterprise
mortgage-backed securities. Securities held-to-maturity as of December 31,
2018 are carried at their amortized cost of $2,046,647,000. A year earlier,
securities held-to-maturity totaled $1,701,233,000. In 2018, 2017, and 2016,
the company recognized gains of $0 and $0, and $12,000 respectively, on the
sale of held-to-maturity securities. The sales from securities held-to-maturity
relate to certain mortgage-backed securities for which the Company had
previously collected a substantial portion of its principal investment.

Equity securities are reported at fair value with unrealized gains and losses
included in earnings. The fair value of equity securities at December 31,
2018 and December 31, 2017, amounted to $1,596,000 and
$1,663,000, respectively.

35553 Financials 2019.indd 5

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

Fair Value of Securities Available-for-Sale

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

2017

2018

Century Bancorp, Inc. AR ’18

2016

(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

Total

Amount

Percent

Amount

Percent

Amount

Percent

1,992

3,915

0.6 %

1.2 %

1,984

—

0.5 %

0.0 %

70,194

20.9 %

80,950

20.5 %

162,890

672

93,503
3,593

48.4 %

0.2 %

27.7 %
1.0 %

225,775

892

82,600
3,629

57.0 %

0.2 %

20.9 %
0.9 %

2,000

24,952

57,767

243,325

1,109

164,876
3,569

0.4 %

5.0 %

11.6 %

48.9 %

0.2 %

33.2 %
0.7 %

$ 336,759

100.0 %

395,830

100.0 %

497,598

100.0 %

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, 2018.

The increase in SBA Backed Securities in 2017 was primarily the result of an increased investment return combined with a lower risk rating in these types of securities.
The decrease in Obligations Issued by States and Political Subdivisions was primarily the result of increased competition in the bidding process for these types
of securities.

Securities available-for-sale totaling $88,728,000, or 1.7% of assets, are classified as Level 3, as defined in Note 1 of the “Notes to Consolidated Financial Statements.”
These securities are generally municipal securities with no readily determinable fair value. The Company also utilizes internal pricing analysis on various municipal
securities using market rates on comparable securities. 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,

2017

2018

2016

(dollars in thousands)

U.S. Treasury

U.S. Government Sponsored Enterprises

SBA Backed Securities

U.S. Government Sponsored Enterprise

Mortgage-Backed Securities

Amount

Percent

Amount

Percent

Amount

Percent

9,960

234,228

52,051

0.5 %

11.5 %

2.5 %

—

104,653

57,235

0.0 %

6.2 %

3.4 %

—

148,326

46,140

0.0 %

9.0 %

2.8 %

1,750,408

85.5 %

1,539,345

90.4 %

1,459,520

88.2 %

Total

$ 2,046,647

100.0 %

$ 1,701,233

100.0 %

$ 1,653,986

100.0 %

35553 Financials 2019.indd 6

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

Century Bancorp, Inc. AR ’18

Fair Value of Securities Available-for-Sale
The following two tables set forth contractual maturities of the Bank’s securities portfolio at December 31, 2018. Actual maturities may differ from contractual maturities
Amounts Maturing
because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Weighted

Five Years

Weighted

One Year

Weighted

Within

Over

One

Year

% of

Average

to Five

% of

Average

to Ten

% of

Average

Ten

% of

Average

% of

Average

Total

Yield

Years

Total

Yield

Years

Total

Yield

Years

Total

Yield

Total

Yield

(dollars in thousands)

U.S. Treasury

$ 1,992

0.6 % 1.28 % $

— 0.0 % 0.00 % $

1,992

0.6 % 1.28 %

U.S. Government

Sponsored Enterprises

24,915

1.2 % 2.11 %

209,313 10.2 % 2.71 %

— 0.0 % 0.00 %

234,228 11.4 % 2.64 %

SBA Backed Securities

— 0.0 % 0.00 %

52,051

2.5 % 2.28 %

— 0.0 % 0.00 %

52,051

2.5 % 2.28 %

U.S. Government Sponsored
Enterprise Mortgage-
Backed Securities

6,279

0.3 % 2.21 % 1,229,590 60.1 % 2.63 % 506,654 24.8 % 2.54 %

7,885 0.4 % 2.92 % 1,750,408 85.6 % 2.60 %

Total

$ 41,154

2.0 % 2.17 % $ 1,490,954 72.8 % 2.63 % $ 506,654 24.8 % 2.54 % $ 7,885 0.4 % 2.92 % $ 2,046,647 100.0 % 2.60 %

At December 31, 2018 and 2017, the Bank had no investments in obligations of individual states, counties, municipalities or nongovernment corporate entities which
exceeded 10% of stockholders’ equity. In 2018, sales of securities totaling $27,517,000 in gross proceeds resulted in a net realized gain of $302,000. In 2017, sales of
securities totaling $18,180,000 in gross proceeds resulted in a net realized gain of $47,000. There were no sales of state, county or municipal securities during 2018
and 2017.

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.

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

Century Bancorp, Inc. AR ’18

Loans

The Company’s lending activities are conducted principally in Massachusetts, New Hampshire, Rhode Island, Connecticut and New York. 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,

2017

2016

2015

2014

2018

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

Amount

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

(dollars in thousands)

Construction and

land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer

Home equity

Overdrafts

Total

13,628
761,625
97,290
750,362
348,250
21,359
292,340
724

0.6 % $

33.3 %
4.3 %
32.8 %
15.2 %
0.9 %
12.9 %
0.0 %

18,931
763,807
106,599
732,491
287,731
18,458
247,345
582

0.9 % $

35.1 %
4.9 %
33.7 %
13.2 %
0.8 %
11.4 %
0.0 %

14,928
612,503
135,418
696,173
241,357
11,013
211,857
684

0.8 % $

31.8 %
7.0 %
36.2 %
12.5 %
0.6 %
11.0 %
0.1 %

27,421
452,235
85,685
721,506
255,346
10,744
178,020
579

1.6 % $

26.1 %
4.9 %
41.7 %
14.7 %
0.6 %
10.3 %
0.1 %

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

1.7 %
11.2 %
3.1 %
52.3 %
19.3 %
0.8 %
11.4 %
0.2 %

$ 2,285,578 100.0 % $ 2,175,944

100.0 % $ 1,923,933

100.0 % $ 1,731,536

100.0 % $ 1,331,366

100.0 %

At December 31, 2018, 2017, 2016, 2015 and 2014, loans were carried net of (premiums) discounts of $(364,000), $46,000, $313,000, $360,000 and $407,000,
respectively. Net deferred loan fees of $496,000, $588,000, $641,000, $988,000 and $908,000 were carried in 2018, 2017, 2016, 2015 and 2014, respectively.

The following table summarizes the remaining maturity distribution of certain components of the Company’s loan portfolio on December 31, 2018. The table excludes
loans secured by 1–4 family residential real estate, loans for household and family personal expenditures, and municipal loans. Maturities are presented as if scheduled
One to Five Years
principal amortization payments are due on the last contractual payment date.

Remaining Maturities of Selected Loans at December 31, 2018

Over Five Years

One Year or Less

Total

(dollars in thousands)

Construction and land development

Commercial and industrial

Commercial real estate

Total

—
36,546
21,342

$ 57,888

—
44,682
102,411

$ 147,093

13,628
680,397
626,609

$ 1,320,634

13,628
761,625
750,362

$ 1,525,615

December 31, 2018

One to Five Years

Over Five Years

Total

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

Floating or adjustable interest rates

Total

$ 94,201
52,892

$ 147,093

$ 334,753
985,881

$ 1,320,634

$ 428,954
1,038,773

$ 1,467,727

The Company’s commercial and industrial (“C&I”) loan customers include large healthcare and higher education institutions. During 2017, the Company increased its
lending activities to these types of organizations. This increase may expose the Company to concentration risks inherent in financings based upon analysis of credit
risk, the value of underlying collateral, and other more intangible factors, which are considered in originating commercial loans. The percentage of these types of
organizations to total C&I loans has decreased to 86% at December 31, 2018, compared to 87% at December 31, 2017.

C&I loan customers also include 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 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. Also included in commercial real estate loans are loans 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.

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

Century Bancorp, Inc. AR ’18

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.

Municipal loans customers include loans to municipalities or related interests, primarily for infrastructure projects. The Company had increased its lending activities to
municipalities through 2016. Municipal loans decreased during 2017 and 2018 as a result of loan payoffs.

Residential real estate (1–4 family) includes two categories of loans. Included in residential real estate are approximately $41,726,000 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, 2018, the Company was obligated to advance a total of $28,746,000 to complete projects
under construction.
2018
December 31,

2016

2015

2017

2014

(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 is as follows:
Home equity

Commercial real estate

Construction and land development

Commercial and industrial

Total impaired loans

$ 1,313
2,225
$ 3,538

$ 2,559
—
0.15 %
0.07 %

2018

—
—
2,650
—
401

$ 3,051

$ 1,684
—
$ 1,684

$ 2,749
—
0.08 %
0.04 %

2017

$ 4,212
—
2,554
—
348

$ 7,114

$ 1,084
—
$ 1,084

$ 3,526
—
0.06 %
0.02 %

2016

198
—
3,149
94
389

$ 2,336
—
$ 2,336

$ 2,893
—
0.13 %
0.06 %

2015

916
90
1,678
98
443

$ 4,146
—
$ 4,146

$ 3,296
—
0.31 %
0.11 %

2014

962
92
4,318
103
852

$ 3,830

$ 3,225

$ 6,327

At December 31, 2018, 2017, 2016, 2015 and 2014 impaired loans had specific reserves of $145,000, $164,000, $173,000, $250,000 and $904,000, respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $209,160,000, $229,533,000, $229,730,000, $185,299,000 and
$143,696,000 at December 31, 2018, 2017, 2016, 2015 and 2014, respectively. The Company had no loans held for sale at December 31, 2018, 2017, 2016, 2015
and 2014.

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 assessed for impairment based on fair value at each reporting date. MSAs are
reported in other assets in the consolidated balance sheets. MSAs totaled $1,226,000 at December 31, 2018, $1,525,000 at December 31, 2017, $1,629,000 at
December 31, 2016, $1,305,000 at December 31, 2015 and $941,000 at December 31, 2014.

35553 Financials 2019.indd 9

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

Century Bancorp, Inc. AR ’18

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 remained relatively stable from 2016 through 2018. Nonaccrual loans decreased during 2016, primarily as a result of a decrease in home equity and
residential real estate nonperforming loans. Nonaccrual loans decreased during 2015 primarily due to the sale and partial charge-off of the property securing a large
commercial real estate loan subsequent to foreclosure.

The Company continues to monitor closely $31,728,000 and $37,184,000 at December 31, 2018 and 2017, 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, 2018, although such values may fluctuate with changes in the economy and the real estate market. The decrease is primarily attributable
to two loan relationships secured by real estate.

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
(dollars in thousands)
losses for the years indicated.
Year-end loans outstanding

2018

2017

2016

2015

2014

(net of unearned discount and deferred loan fees)

$ 2,285,578

$ 2,175,944

$ 1,923,933

$ 1,731,536

$ 1,331,366

Average loans outstanding

(net of unearned discount and deferred loan fees)

$ 2,222,946

$ 2,059,797

$ 1,838,136

$ 1,507,546

$ 1,307,888

Balance of allowance for

loan losses at the beginning of year

Loans charged-off:

Commercial and industrial

Construction

Commercial real estate

Residential real estate

Consumer

Total loans charged-off

Recovery of loans previously charged-off:

Commercial and industrial

Construction

Real estate

Consumer

Total recoveries of loans previously charged-off:

Net loan (recoveries) charge-offs

Provision charged to operating expense

Reclassification to other liabilities

26,255

24,406

23,075

22,318

20,941

67
—
—
450
316

833

57
1,436
75
203

1,771

(938)
1,350
—

49
—
—
—
341

390

110
—
84
255

449

(59)
1,790
—

—
—
—
27
362

389

132
—
6
296

434

(45)
1,375
(89)

—
172
298
—
311

781

212
780
91
255

1,338

(557)
200
—

333
500
—
24
525

1,382

201
—
117
391

709

673
2,050
—

Balance at end of year

28,543

26,255

24,406

23,075

22,318

Ratio of net (recoveries) charge-offs during the year

to average loans outstanding

Ratio of allowance for loan losses to loans outstanding

(0.04) %

1.25 %

0.00 %

1.21 %

0.00 %

1.27 %

(0.04) %

1.33 %

0.05 %

1.68 %

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 level 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 2015 and 2016 as a result of the overall decrease in the level of nonaccrual loans. Charge-offs increased in 2018 primarily as a result of one residential
real estate loan. The dollar amount of the allowance for loan losses increased primarily as a result of an increase in loan balances offset, somewhat, by lower historical
loss factors.

During 2015, the Company enhanced its approach to the development of the historical loss factors and qualitative factors used on certain loan portfolios. The
methodology enhancement was in response to the changes in the risk characteristics of the Company’s new loan originations, as the Company has continued to increase
its exposure to larger loan originations to large institutions with strong credit quality. The Company has limited internal loss history experience with these types of loans,

35553 Financials 2019.indd 10

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

Century Bancorp, Inc. AR ’18

and has determined a more appropriate representation of loss expectation is to utilize external historical loss factors based on public credit ratings, as there is a great
deal of default and loss data available on these types of loans from the credit rating agencies. As of June 30, 2015, the Company incorporated this information into
the development of the historical loss rates for these loan types. The combination of the enhancements made to the allowance methodology to address the changing
risk profile of the Company’s new loan originations and the increase in these loan types as a percentage of the overall portfolio, has resulted in a decrease in the ratio
of allowance for loan losses to total loans for 2015. For 2016 and 2017, the change in the ratio of the allowance for loan losses to loans outstanding, was primarily
due to changes in portfolio composition, lower historical loss rates, and qualitative factor adjustments. For 2018, the ratio increased, primarily as a result of changes in
qualitative factors related to general economic factors pertaining to certain industries.

In addition, the Company monitors the outlook for the industries in which these institutions operate. Healthcare and higher education are the primary industries. The
Company also monitors the volatility of the losses within the historical data.

By combining the credit rating, the industry outlook and the loss volatility, the Company arrives at the quantitative loss factor for each credit grade.

Commercial
and Industrial

Municipal

Commercial
Real Estate

Total

Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at December 31, 2018.
(in thousands)

Credit Rating:

Aaa-Aa3

A1-A3

Baa1-Baa3

Ba2

Total

$ 491,247
172,472
—
—

54,105
7,605
26,970
6,810

42,790
151,381
118,197
—

$ 588,142
331,458
145,167
6,810

$ 663,719

95,490

$ 312,368

$ 1,071,577

Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at December 31, 2017.
(in thousands)

Commercial
and Industrial

Municipal

Commercial
Real Estate

Total

Credit Rating:

Aaa-Aa3

A1-A3

Baa1-Baa3

Ba2

Total

$ 478,905
195,599
—
—

62,029
7,635
26,970
8,165

45,066
128,554
122,000
—

$ 586,000
331,788
148,970
8,165

$ 674,504

$ 104,799

$ 295,620

$ 1,074,923

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

Percent
of Loans
in Each
Category
to Total
Loans

Amount

2018

2016

2015

2017

2014

(dollars in thousands)

Construction and land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer and other

Home equity

Unallocated

Total

$ 1,092
10,998
1,838
10,663
2,190
365
1,111

286

0.6 % $ 1,645
9,651
1,720
9,728
1,873
373
989

33.3 %
4.3 %
32.8 %
15.2 %
0.9 %
12.9 %

0.9 % $ 1,012
6,972
1,612
11,135
1,698
582
1,102

35.1 %
4.9 %
33.7 %
13.2 %
0.8 %
11.4 %

0.8 % $ 2,041
5,899
994
10,589
1,320
644
1,077

31.8 %
7.1 %
36.2 %
12.5 %
0.6 %
11.0 %

1.6 % $ 1,592
4,757
1,488
11,199
776
810
599

26.1 %
4.9 %
41.7 %
14.7 %
0.7 %
10.3 %

1.7 %
11.2 %
3.1 %
52.3 %
19.3 %
1.0 %
11.4 %

276

293

511

1,097

$ 28,543

100.0 % $ 26,255

100.0 % $ 24,406

100.0 % $ 23,075

100.0 % $ 22,318

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. The enhancements described above have resulted in a lower level of unallocated allowance for loan losses. Further
information regarding the allocation of the allowance is contained within Note 6 of the “Notes to Consolidated Financial Statements.”

35553 Financials 2019.indd 11

2/21/19 6:02 AM

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

Century Bancorp, Inc. AR ’18

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 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.

2017

2016

2018

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

Amount

Percent

Amount

Percent

Amount

Percent

Demand Deposits

Savings and Interest Checking

Money Market

Time Certificates of Deposit

Total

$ 753,604
1,514,259
1,230,010
577,975

18.5 %
37.1 %
30.2 %
14.2 %

687,853
1,457,872
1,105,072
566,940

18.0 %
38.2 %
28.9 %
14.9 %

609,159
1,322,714
1,041,404
452,562

17.8 %
38.6 %
30.4 %
13.2 %

$ 4,075,848

100.0 %

$ 3,817,737

100.0 %

$ 3,425,839

100.0 %

2018

2017

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

$ 141,500
110,189
100,446
107,182

$ 459,317

$ 107,649
137,260
123,468
135,426

$ 503,803

Three months through six months

Six months through twelve months

Over twelve months

Total

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 $202,378,000, a decrease of $145,400,000 from the prior year. The Bank’s remaining term borrowing capacity at the FHLBB at December 31, 2018,
was approximately $508,861,000. 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. The coupon
rate on these securities was 4.66% at December 31, 2018. The Company is using the proceeds primarily for general business purposes.

Securities Sold Under Agreements to Repurchase

The Bank’s remaining borrowings consist primarily of securities sold under agreements to repurchase. Securities sold under agreements to repurchase totaled
$154,240,000, a decrease of $4,750,000 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 1.8% in 2018 to $101,430,000, compared with $99,595,000 in 2017. The increase in net interest income for 2018 was mainly due to a 5.1% increase in
the average balances of earning assets, combined with a similar increase in deposits. The increase in net interest income for 2017 was mainly due to an 8.1% increase in
the average balances of earning assets, combined with a similar increase in deposits. The level of interest rates, the ability of the Company’s earning assets and liabilities
to adjust to changes in interest rates and the mix of the Company’s earning assets and liabilities affect net interest income. The net interest margin on a fully taxable
equivalent basis decreased to 2.18% in 2018 and increased to 2.25% in 2017 from 2.12% in 2016. The decrease in the net interest margin for 2018 was primarily the
result of a decrease in the federal corporate tax rate from 34% to 21% as well as lower prepayment penalties collected during 2018. The decrease in the tax rate results
in a lower tax equivalent yield on tax-exempt assets. The increase in the net interest margin for 2017 was primarily attributable to an increase in rates on earning assets
and prepayment penalties collected. The Company collected approximately $39,000, $907,000 and $416,000, respectively, of prepayment penalties, which are
included in interest income on loans, for 2018, 2017 and 2016, 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.

35553 Financials 2019.indd 12

2/21/19 6:02 AM

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

Century Bancorp, Inc. AR ’18

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
Year Ended December 31,
equivalent basis for each of the years indicated.

2018

2017

2016

Average
Balance

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

Average
Balance

Interest
Income/
Expense(2)

Rate
Earned/
Paid(2)

Average
Balance

Interest
Income/
Expense(2)

Rate
Earned/
Paid(2)

(dollars in thousands)

ASSETS

Interest-earning assets:
Loans(3)

Taxable

Tax-exempt

Securities available-for-sale:(4)

Taxable

Tax-exempt

Securities held-to-maturity:

Taxable

Interest-bearing deposits

in other banks

$ 1,102,390
1,120,556

$ 46,615
40,439

4.23 % $ 978,593
1,081,204
3.61 %

$ 39,103
40,420

4.00 % $ 866,180
971,956
3.74 %

$ 34,324
35,943

3.96 %
3.70 %

310,071
90,027

7,864
1,938

2.54 %
2.15 %

354,918
106,717

5,859
1,588

1.65 %
1.49 %

349,023
149,631

3,969
1,465

1.14 %
0.98 %

1,854,328

45,556

2.46 %

1,725,280

38,348

2.22 %

1,533,032

32,679

2.13 %

183,903

3,498

1.90 %

189,193

2,097

1.11 %

235,339

1,236

0.53 %

Total interest-earning assets

4,661,275

145,910

3.13 %

4,435,905

127,415

2.87 %

4,105,161

109,616

2.67 %

Noninterest-earning assets

Allowance for loan losses

229,244

(27,531)

Total assets

$ 4,862,988

221,628

(25,329)

$ 4,632,204

210,203

(23,872)

$ 4,291,492

LIABILITIES AND
STOCKHOLDERS’ EQUITY

Interest-bearing deposits:

NOW accounts

Savings accounts

Money market accounts

Time deposits

$ 926,143
588,116
1,230,010
577,975

6,579
5,178
13,922
10,208

0.71 % $ 949,924
507,948
0.88 %
1,105,071
1.13 %
566,941
1.77 %

3,669
2,627
5,626
7,919

0.39 % $ 904,892
0.52 %
417,822
1,041,404
0.51 %
452,562
1.40 %

2,311
1,709
3,542
5,706

0.26 %
0.41 %
0.34 %
1.26 %

Total interest-bearing deposits

3,322,244

35,887

1.08 %

3,129,884

19,841

0.63 %

2,816,680

13,268

0.47 %

Securities sold under agreements to

repurchase

Other borrowed funds and subordinated

debentures

147,944

976

0.66 %

189,684

496

0.26 %

222,956

472

0.21 %

291,674

7,617

2.61 %

309,102

7,483

2.42 %

357,974

8,877

2.48 %

Total interest-bearing liabilities

3,761,862

44,480

1.18 %

3,628,670

27,820

0.77 %

3,397,610

22,617

0.67 %

Noninterest-bearing liabilities

Demand deposits

Other liabilities

Total liabilities

Stockholders’ equity

Total liabilities and

stockholders’ equity

Net interest income on a fully
taxable equivalent basis

Less taxable equivalent adjustment

Net interest income

Net interest spread

Net interest margin

(1)

753,604
70,020

4,585,486

277,502

687,853
60,925

4,377,448

254,756

609,159
57,602

4,064,371

227,121

$ 4,862,988

$ 4,632,204

$ 4,291,492

$ 101,430

(8,854)

$ 92,576

$ 99,595

(13,979)

$ 85,616

$ 86,999

(12,917)

$ 74,082

1.95 %

2.18 %

2.11 %

2.25 %

2.00 %

2.12 %

(2)

(3)

(4)

On a fully taxable equivalent basis calculated using a federal tax rate of 21%.
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.

35553 Financials 2019.indd 13

2/21/19 6:02 AM

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

Century Bancorp, Inc. AR ’18

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,
2018 Compared with 2017
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
Increase/(Decrease)
proportion to the relationship of the absolute dollar amounts of each change.
Due to Change in

2017 Compared with 2016
Increase/(Decrease)
Due to Change in

Volume

Rate

Total

Volume

Rate

Total

(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

$ 5,144
1,445

$ 2,368
(1,426)

$ 7,512
19

$ 4,490
4,080

289
397

$ 4,779
4,477

(816)
(277)

2,994
(61)

8,429

(94)
468
702
157

1,233
(130)
(437)

666

2,821
627

4,214
1,462

10,066

3,004
2,083
7,594
2,132

14,813
610
571

15,994

2,005
350

7,208
1,401

18,495

2,910
2,551
8,296
2,289

16,046
480
134

16,660

68
(498)

4,229
(283)

12,086

120
412
228
1,551

2,311
(77)
(1,187)

1,047

1,822
621

1,440
1,144

5,713

1,238
506
1,856
662

4,262
101
(207)

4,156

1,890
123

5,669
861

17,799

1,358
918
2,084
2,213

6,573
24
(1,394)

5,203

$ 7,763

$ (5,928)

$ 1,835

$ 11,039

$ 1,557

$ 12,596

Average earning assets were $4,661,275,000 in 2018, an increase of $225,370,000 or 5.1% from the average in 2017, which was 8.1% higher than the average in
2016. Total average securities, including securities available-for-sale and securities held-to-maturity, were $2,254,426,000, an increase of 3.1% from the average in
2017. The increase in securities volume was mainly attributable to an increase in taxable securities held-to-maturity. An increase in securities volume and short term rates
resulted in higher securities income, which increased 20.9% to $55,358,000 on a fully tax equivalent basis. Total average loans increased 7.9% to $2,222,946,000
after increasing $221,661,000 in 2017. The primary reason for the increase in loans was due in large part to an increase in taxable residential mortgage and commercial
lending and tax-exempt lending. The increase in loan volume resulted in higher loan income. Loan income increased by 9.5% or $7,531,000 to $87,054,000 in 2018
compared to 2017. This was mainly the result of an increase in average balances. Loan income also benefited from an increase in rates. Also, there was a decrease in
rates earned on tax exempt lending. This was primarily attributable to the decrease in the federal tax rate which lowers the tax equivalent yield. Total loan income was
$70,267,000 in 2016.

The Company’s sources of funds include deposits and borrowed funds. On average, deposits increased 6.8%, or $258,111,000, in 2018 after increasing by 11.4%, or
$391,898,000, in 2017. Deposits increased in 2018, primarily as a result of increases in time deposits, savings, demand deposits, and money market accounts. Deposits
increased in 2017, primarily as a result of increases in time deposits, savings, demand deposits, money market, and NOW accounts. Borrowed funds and subordinated
debentures decreased by 11.9% in 2018, following a decrease of 14.1% in 2017. The majority of the Company’s borrowed funds are borrowings from the FHLBB and
retail repurchase agreements. Average borrowings from the FHLBB decreased by approximately $17,428,000, and average retail repurchase agreements decreased by
$41,740,000 in 2018. Interest expense totaled $44,480,000 in 2018, an increase of $16,660,000, or 59.9%, from 2017 when interest expense increased 23.0% from
2016. The increase in interest expense, for 2018, is primarily due to increases in the rates on deposits as well as an increase in average balances of deposits. The increase
in interest expense, for 2017, is primarily due to increases in the rates on deposits as well as an increase in average balances of deposits offset, somewhat, by a decrease
in borrowed funds.

35553 Financials 2019.indd 14

2/21/19 6:02 AM

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

Century Bancorp, Inc. AR ’18

Provision for Loan Losses

Operating Expenses

Total operating expenses were $69,693,000 in 2018, compared to $67,119,000
in 2017 and $64,757,000 in 2016.

Salaries and employee benefits expenses increased by $2,193,000 or 5.4%
in 2018, after increasing by 5.2% in 2017. The increase in 2018 was mainly
attributable to merit increases in salaries. The increase in 2017 was mainly
attributable to merit increases in salaries and bonus, and health insurance costs.

Occupancy expense decreased by $48,000, or 0.8%, in 2018, following a
decrease of $7,000, or 0.1%, in 2017. The decrease in 2018 was primarily
attributable to a decrease in depreciation expense. The decrease in 2017 was
primarily attributable to a decrease in rent expense.

Equipment expense increased by $240,000, or 8.3%, in 2018, following an
increase of $47,000, or 1.7%, in 2017. The increase in 2018 was primarily
attributable to an increase in depreciation expense. The increase in 2017 was
primarily attributable to an increase in service contracts.

FDIC assessments decreased by $110,000, or 7.0%, in 2018, following a
decrease of $321,000, or 16.9%, in 2017. FDIC assessments decreased in 2018
and 2017 mainly as a result of a decrease in the assessment rate.

Other operating expenses increased by $299,000 in 2018, which followed a
$642,000 increase in 2017. The increase in 2018 was primarily attributable to an
increase in consultants’ expense and software maintenance expense. The increase
in 2017 was primarily attributable to an increase in contributions, legal expenses,
and marketing expenses.

Provision for Income Taxes

Income tax expense was $1,568,000 in 2018, $10,958,000 in 2017, and
$(362,000) in 2016. The effective tax rate was 4.2% in 2018, 32.9% in
2017, and (1.5%) in 2016. The decrease for 2018 was primarily as a result of
a reduction in the value of its net deferred tax asset resulting in a charge of
$8,448,000 to 2017 income tax expense as a result of the Tax Act as previously
discussed. The increase in the effective tax rate for 2017 was primarily the result
of a reduction in the value of the deferred tax asset resulting in a charge of
$8,448,000 to income tax expense. On December 22, 2017, the Tax Act was
enacted, which lowered the Company’s federal tax rate from 34% to 21%. As a
result of the rate reduction, the Company recorded a reduction in the value of its
net deferred tax asset. The federal tax rate was 21% in 2018, and 34% in 2017
and 2016.

The provision for loan losses was $1,350,000 in 2018, compared with
$1,790,000 in 2017 and $1,375,000 in 2016. 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 2018, primarily as a result of net
recoveries of $938,000 offset by changes in qualitative factors. The provision
for loan losses increased during 2017, primarily as a result of an increase in loan
balances offset, somewhat, by changes in historical loss factors.

Other Operating Income

During 2018, 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, utilities, 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 2018 was $16,248,000, a decrease of
$304,000, or 1.9%, compared to 2017. This decrease followed an increase of
$330,000, or 2.0%, in 2017, compared to 2016. Included in other operating
income are net gains on sales of securities of $302,000, $47,000 and $64,000
in 2018, 2017 and 2016, respectively. Also included in other operating income
are net gains on sales of mortgage loans of $0, $370,000 and $1,331,000
in 2018, 2017 and 2016, respectively. Service charge income, which continues
to be a major source of other operating income, totaling $8,560,000 in 2018,
decreased $26,000 compared to 2017. This followed an increase of $679,000
in 2017 compared to 2016. The decrease in fees, in 2018, was mainly attributable
to an increase earnings credit rates that are used to offset fees collected from
processing activities, this was offset somewhat by an increase in debit card
fees. The increase in fees, in 2017, was mainly attributable to an increase in fees
collected from processing activities and debit card fees. Lockbox revenues totaled
$3,274,000, down $16,000 in 2018 following an increase of $126,000 in
2017. Other income totaled $3,764,000, down $142,000 in 2018 following an
increase of $465,000 in 2017. The decrease in 2018 was primarily the result of
decreases in the returns on life insurance policies offset, somewhat by increase in
wealth management fees, and merchant card sales royalties. The increase in 2017
was primarily the result of increases in wealth management fees and merchant
card sales royalties.

35553 Financials 2019.indd 15

2/27/19 5:18 AM

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

Century Bancorp, Inc. AR ’18

Market Risk and Asset Liability Management

Liquidity and Capital Resources

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

(8.4)
(6.5)
(5.0)
(2.4)
2.1
2.0

(1)

The percentage change in this column represents net interest income for 12 months in various
rate scenarios versus the net interest income in a stable interest rate environment.

The changes in the table above are within the Company’s policy parameters.

The Company’s primary objective in managing interest rate risk is to minimize the
adverse impact of changes in interest rates on the Company’s net interest income
and capital, while structuring the Company’s asset-liability structure to obtain the
maximum yield-cost spread on that structure. The Company relies primarily on
its asset-liability structure to control interest rate risk.

Liquidity is provided by maintaining an adequate level of liquid assets that
includes cash and due from banks, federal funds sold and other temporary
investments. Liquid assets totaled $342,503,000 on December 31, 2018,
compared with $356,430,000 on December 31, 2017. 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 $300,439,000 at December 31, 2018, compared
with $260,297,000 at December 31, 2017. The Company’s equity increased
primarily as a result of earnings and a decrease in other comprehensive loss,
net of taxes, offset somewhat by dividends paid. Other comprehensive loss, net
of taxes, decreased primarily as a result of a decrease in unrealized losses on
securities transferred from available-for-sale to held-to-maturity, a decrease in
unrealized losses on securities available-for-sale, and a decrease in the pension
liability, net of taxes.

Federal banking regulators have issued risk-based capital guidelines, which assign
risk factors to asset categories and off-balance-sheet items. The following table
reflects capital ratios computed utilizing the recently implemented Basel III
regulatory capital framework:
Leverage ratios
Common equity tier 1

Minimum
Capital Ratios

Company

4.00 %

6.68 %

6.91 %

Bank

risk weighted capital ratios
Tier 1 risk weighted capital ratios
Total risk weighted capital ratios

4.50 %
6.00 %
8.00 %

12.21 %
12.21 %
13.24 %

11.32 %
12.59 %
13.62 %

35553 Financials 2019.indd 16

2/21/19 6:02 AM

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

Century Bancorp, Inc. AR ’18

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, 2018.

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

$ 202,378
36,083
50,610
9,863
154,240

$ 453,174

Total

$ 553,045
4,258
54,126

$ 611,429

Less Than
One Year

$ 63,000
—
3,971
2,490
154,240

$ 223,701

One to
Three Years

$ 53,000
—
8,430
3,864
—

$ 65,294

Three to
Five Years

$ 33,500
—
9,152
2,435
—

$ 45,087

Amount of Commitment Expiring — By Period

Less Than
One Year

$ 84,608
3,459
10,626

$ 98,693

One to
Three Years

$ 59,064
512
6,217

$ 65,793

Three to
Five Years

$ 91,426
236
2,327

$ 93,989

After Five
Years

$ 52,878
36,083
29,057
1,074
—

$ 119,092

After Five
Years

$ 317,947
51
34,956

$ 352,954

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-
2017
Contract or Notional Amount
balance-sheet instruments. Financial instruments with off-balance-sheet risk at
(dollars in thousands)
December 31 are as follows:
Financial instruments whose contract amount

2018

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

$ 5,075
4,258
553,045
28,746

$ 5,748
5,520
434,618
15,152

20,305

35,602

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 $51,000 and $66,000 for 2018 and 2017, respectively.

Recent Accounting Developments

See Note 1 to the Notes to Consolidated Financial Statements for details of
recent accounting developments and their expected impact on the Company’s
financial statements.

35553 Financials 2019.indd 17

2/21/19 6:02 AM

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

Securities available-for-sale, amortized cost $336,751 in 2018 and $395,947 in 2017

(Notes 3, 9 and 11)

Securities held-to-maturity, fair value $1,991,421 in 2018 and $1,668,827 in 2017

(Notes 4 and 11)

Federal Home Loan Bank of Boston, stock at cost

Equity securities, amortized cost $1,635 in 2018 and $1,616 in 2017, respectively

Loans, net (Note 5)

Less: allowance for loan losses (Note 6)

Net loans

Bank premises and equipment (Note 7)

Accrued interest receivable

Other assets (Notes 5, 6, 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 3,608,329 shares in 2018 and 3,605,829 shares in 2017

Common stock, Class B,

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

issued 1,959,580 in 2018 and 1,962,080 shares in 2017

Additional paid-in capital

Retained earnings

Unrealized gain (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

2018

Century Bancorp, Inc. AR ’18

2017

89,540
252,963

342,503

77,199
279,231

356,430

336,759

395,830

2,046,647

17,974
1,596
2,285,578
28,543

2,257,035
23,921
14,406
123,094

1,701,233

21,779
1,663
2,175,944
26,255

2,149,689
23,527
11,179
124,242

$ 5,163,935

$ 4,785,572

813,478
1,707,019
1,325,888
560,579

4,406,964

154,240
202,378
36,083
63,831

736,020
1,367,358
1,188,228
625,361

3,916,967

158,990
347,778
36,083
65,457

4,863,496

4,525,275

—

3,608

3,606

1,960
12,292
301,488

319,348
6
(2,565)
(16,350)

(18,909)

300,439

1,962
12,292
263,666

281,526
(62)
(3,050)
(18,117)

(21,229)

260,297

$ 5,163,935

$ 4,785,572

35553 Financials 2019.indd 18

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Consolidated Statements of Income

Century Bancorp, Inc. AR ’18
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.”

2018

2017

2016

46,615

31,936

6,748

1,587

1,116

45,556
3,498

39,103

26,910

4,987

1,119

872

38,348
2,097

137,056

113,436

11,757

13,922

10,208

976
7,617

44,480

92,576

1,350

91,226

8,560

3,274

348

302

—
3,764

16,248

42,710

6,092

3,132

1,471
16,288

69,693

37,781
1,568

6,296

5,626

7,919

496
7,483

27,820

85,616

1,790

83,826

8,586

3,290

353

370
3,906

16,552

40,517

6,140

2,892

1,581
15,989

67,119

33,259
10,958

34,324

23,440

3,003

1,051

966

32,679
1,236

96,699

4,020

3,542

5,706

472
8,877

22,617

74,082

1,375

72,707

7,907

3,164

315

1,331
3,441

16,222

38,516

6,147

2,845

1,902
15,347

64,757

24,172
(362)

36,213

22,301

24,534

3,608,179
1,959,730

5,567,909
1,959,730

$
$

7.89
3.95

6.50
3.95

3,604,029
1,963,880

5,567,909
1,963,880

$
$

4.86
2.43

4.01
2.43

3,600,729
1,967,180

5,567,909
1,967,180

$
$

5.35
2.68

4.41
2.68

35553 Financials 2019.indd 19

2/21/19 6:02 AM

Year Ended December 31,

(dollars in thousands)

NET INCOME

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on securities:

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 income

Comprehensive income (loss)

See accompanying “Notes to Consolidated Financial Statements.”

Consolidated Statements of Comprehensive Income

2018

2017

Century Bancorp, Inc. AR ’18

2016

36,213

22,301

24,534

326
(217)

109

1,086

3,770
1,167

4,937

6,132

533
(28)

505

1,034

(2,315)
931

(1,384)

155

(289)
(32)

(321)

2,812

(297)
970

673

3,164

42,345

22,456

27,698

35553 Financials 2019.indd 20

2/21/19 6:02 AM

Consolidated Statements of Changes in Stockholders’ Equity

Century Bancorp, Inc. AR ’18

Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Total
Stockholders’
Equity

(dollars in thousands except share data)

BALANCE, DECEMBER 31, 2015

$ 3,601

$ 1,967

$ 12,292

$ 221,232

$ (24,548)

$ 214,544

Net income

Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of $248 in taxes

and $52 in realized net gains

Accretion of net unrealized losses transferred during the period,

net of $1,505 in taxes

Pension liability adjustment, net of $448 in taxes

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

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

—

24,534

—

24,534

—

(1,729)

(472)

(321)

2,812

673

—

2,812

673

(1,729)

(472)

BALANCE, DECEMBER 31, 2016

$ 3,601

$ 1,967

$ 12,292

$ 243,565

$ (21,384)

$ 240,041

Net income

Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of $331 in taxes

and $47 in realized net gains

Accretion of net unrealized losses transferred during the period,

net of $1,258 in taxes

Pension liability adjustment, net of $286 in taxes
Conversion of Class B Common Stock to Class A

Common Stock, 5,100 shares

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

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

—

(5)

—

22,301

—

22,301

—

(1,729)

(471)

505

1,034

(1,384)

—

1,034

(1,384)

—

(1,729)

(471)

BALANCE, DECEMBER 31, 2017

$ 3,606

$ 1,962

$ 12,292

$ 263,666

$ (21,229)

$ 260,297

Net income

Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of $16 in taxes

and $302 in realized net gains

Accretion of net unrealized losses transferred during the period,

net of $391 in taxes

Pension liability adjustment, net of $1,930 in taxes
Adoption of ASU 2018-2, Income Statement-Reporting Comprehensive
Income (Topic 220)-Reclassification of Certain Tax Effects from AOCI
Adoption of ASU 2016-1, Financial Instruments-Overall (Subtopic 825-10)

Recognition and Measurement of Financial Assets and Financial Liabilities

Conversion of Class B Common Stock to Class A Common Stock,

2,500 shares

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

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

—

(2)

—

36,213

—

36,213

—

109

1,086

4,937

3,783

(3,783)

—

(1,732)

(471)

(29)

—

109

1,086

4,937

—

(1,732)

(471)

BALANCE, DECEMBER 31, 2018

$ 3,608

$ 1,960

$ 12,292

$ 301,488

$ (18,909)

$ 300,439

See accompanying “Notes to Consolidated Financial Statements.”

35553 Financials 2019.indd 21

2/21/19 6:02 AM

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:

Gain on sales of portfolio loans

Gain on sale of fixed assets

Net gains on sales of securities

Net loss on equity securities

Provision for loan losses

Deferred tax (expense)benefit

Net depreciation and amortization

Increase in accrued interest receivable

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 redemptions 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

Proceeds from sales of securities held-to-maturity

Purchase of securities held-to-maturity

Proceeds from life insurance policies

Proceeds from sales of portfolio loans

Net increase in loans

Proceeds from sales of fixed assets

Capital expenditures

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net (decrease) increase in time deposit accounts

Net increase in demand, savings, money market and NOW deposits

Cash dividends

Net decrease in securities sold under agreements to repurchase

Net (decrease) increase in other borrowed funds

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:

Interest

Income taxes

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

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

See accompanying “Notes to Consolidated Financial Statements.”

Consolidated Statements of Cash Flows

2018

2017

Century Bancorp, Inc. AR ’18

2016

36,213

22,301

24,534

—
—
(302)
67
1,350
(1,766)
885
(3,227)
2,326
5,242

40,788

—
—
18,388
(14,583)
215,406
27,517
(183,588)
234,741
—
(576,140)
375
—
(110,874)
—
(3,601)

(392,359)

(64,782)
554,779
(2,203)
(4,750)
(145,400)

337,644

(13,927)
356,430

(370)
(11)
(47)
—
1,790
6,918
3,047
(1,534)
(16,310)
5,802

21,586

5,284
(2,101)
10,127
(10,864)
259,388
18,180
(175,147)
293,221
—
(337,773)
115
26,701
(278,242)
11
(3,244)

(194,344)

147,002
116,747
(2,200)
(23,290)
54,778

293,037

120,279
236,151

(1,331)
—
(64)
—
1,375
(4,676)
3,561
(1,643)
(2,953)
3,203

22,006

3,233
(3,183)
10,381
(2,616)
277,657
2,376
(375,608)
416,599
192
(627,670)
—
74,668
(265,732)
—
(2,263)

(491,966)

4,933
573,225
(2,201)
(15,570)
(75,000)

485,387

15,427
220,724

342,503

356,430

236,151

$
$
$
$
$
$

44,289
590
109
1,086
4,937
2,225

$
$
$
$
$
$

27,731
5,330
505
1,034
(1,384)
—

$
$
$
$
$
$

22,668
3,730
(321)
2,812
673
—

35553 Financials 2019.indd 22

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

1. Summary of Significant Accounting Policies

BASIS OF FINANCIAL STATEMENT PRESENTATION

The consolidated financial statements include the accounts of Century Bancorp,
Inc. (the “Company”) and its wholly owned subsidiary, Century Bank and Trust
Company (the “Bank”). The consolidated financial statements also include
the accounts of the Bank’s wholly owned subsidiaries, Century Subsidiary
Investments, Inc. (“CSII”), Century Subsidiary Investments, Inc. II (“CSII II”),
Century Subsidiary Investments, Inc. III (“CSII III”) and Century Financial
Services Inc. (“CFSI”). CSII, CSII II, and CSII III are engaged in buying, selling and
holding investment securities. CFSI has the power to engage in financial agency,
securities brokerage, and investment and financial advisory services and related
securities credit. The Company also owns 100% of Century Bancorp Capital
Trust II (“CBCT II”). The entity is an unconsolidated subsidiary of the Company.

All significant intercompany accounts and transactions have been eliminated
in consolidation. The Company provides a full range of banking services to
individual, business and municipal customers in Massachusetts, New Hampshire,
Rhode Island, Connecticut and New York. 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 a review of factors, including historical charge-off rates
with additional allocations based on qualitative risk factors for each category
and general economic factors. While management uses available information
to recognize loan losses, future additions to the allowance for loan losses may
be necessary based on changes in economic conditions. In addition, regulatory
agencies periodically review the Company’s allowance for loan losses. Such
agencies may require the Company to recognize additions to the allowance for
loan losses based on their judgments about information available to them at
the time of their examination. Certain reclassifications are made to prior-year
amounts whenever necessary to conform with the current-year presentation.

FAIR VALUE MEASUREMENTS

The Company follows FASB ASC 820-10, Fair Value Measurements and
Disclosures, 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, 2018 and 2017, 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
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 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. Equity
securities are reported at fair value with unrealized gains and losses included in
earnings. 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. Gains and losses on the sale
of investment securities are recognized on the trade date on a specific
identification basis.

Management also considers the Company’s capital adequacy, interest-rate risk,
liquidity and business plans in assessing whether it is more likely than not that
the Company will sell or be required to sell the investment securities before
recovery. Other-than-temporary-impairment (OTTI) arises when a security’s fair
value is less than its amortized cost and, based on specific factors, the loss is
considered OTTI. If the Company determines that a decline in fair value is OTTI

35553 Financials 2019.indd 23

2/21/19 6:02 AM

and that it is more likely than not that the Company will not sell or be required
to sell the investment security before recovery of its amortized cost, the credit
portion of the impairment loss is recognized in the Company’s consolidated
statement of income and the noncredit portion is recognized in accumulated
other comprehensive income. The credit portion of the OTTI impairment
represents the difference between the amortized cost and the present value
of the expected future cash flows of the investment security. If the Company
determines that a decline in fair value is OTTI and it is more likely than not that
it will sell or be required to sell the investment security before recovery of its
amortized cost, the entire difference between the amortized cost and the fair
value of the security will be recognized in the Company’s consolidated statement
of income.

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.

The sale of a security held-to-maturity may occur after a substantial portion (at
least 85%) of the principal outstanding at acquisition due either to prepayments
on the debt security or to scheduled payments on a debt security payable
in equal installments over its term. For variable rate securities, the scheduled
payments need not be equal.

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, 2018, 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.

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

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 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 effective 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

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

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 the lower of cost or the estimated fair value
less costs to sell. When such assets are acquired, the excess of the loan balance
over the estimated fair value of the asset is charged to the allowance for loan
losses. An allowance for losses on other real estate owned is established by
a charge to earnings when, upon periodic evaluation by management, further
declines in the estimated fair value of properties have occurred.

Such evaluations are based on an analysis of individual properties as well as a
general assessment of current real estate market conditions. Holding costs and
rental income on properties are included in current operations, while certain
costs to improve such properties are capitalized. Gains and losses from the sale
of other real estate owned are reflected in earnings when realized.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is based on management’s evaluation of the
quality of the loan portfolio and is used to provide for losses resulting from
loans that ultimately prove uncollectible. The components of the allowance for
loan losses represent estimates based upon Accounting Standards Codification
(“ASC”) Topic 450, contingencies, and ASC Topic 310 Receivables. ASC
Topic 450 applies to homogenous loan pools such as consumer installment,
residential mortgages, consumer lines of credit and commercial loans that are
not individually evaluated for impairment under ASC Topic 310. In determining
the level of the allowance, periodic evaluations are made of the loan portfolio,
which takes into account factors such as the characteristics 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 specific allowances,
if appropriate, for identified problem loans, formula allowance, and possibly
an 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.

Under ASC Topic 310, a loan is impaired, based upon current information and
in management’s opinion, when it is probable that the loan will not be repaid
according to its original contractual terms, including both principal and interest,
or if a loan is designated as a Troubled Debt Restructuring (“TDR”). Specific
allowances for loan losses entail the assignment of allowance amounts to
individual loans on the basis of loan impairment. 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. 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.

In estimating probable loan loss under ASC Topic 450 management considers
numerous factors, including historical charge-offs and subsequent recoveries. The
formula allowances are based on evaluations of homogenous loans to determine
the allocation appropriate within each portfolio segment. Formula allowances are
based on internal risk ratings or credit ratings from external sources. 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. On these loans, the
formula allowances are based on the risk ratings, the historical loss experience,
and the loss emergence period. Historical loss data and loss emergence periods
are developed based on the Company’s historical experience. For larger loans
with available external credit ratings, these ratings are utilized rather than the
Company’s risk ratings. The historical loss factor and loss emergence periods for
these loans are based on data published by the rating agencies for similar credits
as the Company has limited internal historical data. For the residential real estate
and consumer loan portfolios, the formula allowances are calculated by applying
historical loss experience and the loss emergence period to the outstanding
balance in each loan category. Loss factors and loss emergence periods are based
on the Company’s historical net loss experience.

Additional allowances are added to portfolio segments based on qualitative
factors. Management considers potential factors identified in regulatory
guidance. Management has identified certain qualitative factors, which could
impact the degree of loss sustained within the portfolio. These include market
risk factors and 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, such as unemployment and GDP
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 the outlooks for business segments in which the
Company’s borrowers operate and loan size. The potential ranges for qualitative
factors are based on historical volatility in losses. The actual amount utilized is
based on management’s assessment of current conditions.

After considering the above components, an unallocated component may be
generated 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.

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.

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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 for all share-based payments. The
Company’s method of valuation for share-based awards granted utilizes the
Black-Scholes option-pricing model. The Company will recognize compensation
expense for its awards on a straight-line basis over the requisite service period
for the entire award (straight-line attribution method), ensuring that the amount
of compensation cost recognized at any date at least equals the portion of the
grant-date fair value of the award that is vested at that time.

During 2000 and 2004, common stockholders of the Company approved
stock option plans (the “Option Plans”) that provide for granting of options

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

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 outstanding at December 31, 2018.

The Company uses the fair value method to account for stock options. There
were no options granted during 2018 and 2017.

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.

For tax years beginning after December 31, 2018, the corporate alternative
minimum tax (“AMT”) has been repealed. For 2018 through 2021, the AMT credit
carryforward can offset regular tax liability and is refundable in an amount equal
to 50% (100% for 2021) of the excess of the minimum tax credit for the tax year
over the amount of the credit allowable for the year against regular tax liability.
Accordingly, the full amount of the AMT credit carryforward will be recovered in
tax years beginning before 2022. As a result of the change, the Company has
classified its AMT credit carryforward as currently receivable.

EARNINGS PER SHARE (“EPS”)

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

Diluted EPS includes the dilutive effect of common stock equivalents; basic EPS
excludes all common stock equivalents. The only common stock equivalents for
the Company are stock options.

The company utilizes the two class method for reporting EPS. The two-class
method is an earnings allocation formula that treats Class A and Class B shares as
having rights to earnings that otherwise would have been available only to Class
A shareholders and Class B shareholders as if converted to Class A shares.

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

TREASURY STOCK

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

PENSION

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

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

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

The Company utilizes a full yield curve approach in the estimation of the service
and interest components by applying the specific spot rates along the yield curve
used in the determination of the benefit obligation to the underlying projected
cash flows.

At December 31, 2018, the discount rate was determined by preparing an
analysis of the respective plan’s expected future cash flows and high-quality fixed-
income investments currently available and expected to be available during the
period to maturity of the benefits.

RECENT ACCOUNTING DEVELOPMENTS

Recently Adopted Accounting Standards Updates

Effective January 1, 2018, the following new accounting guidance was adopted by
the Company:

In March 2018 Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) 2018-05: Income Taxes (Topic 740) Amendments to
SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118—Income Tax
Accounting Implications of the Tax Cuts and Jobs Act. This ASU is effective for
fiscal years beginning after December 22, 2017. The effect of this update did not
have a material impact on the Company’s consolidated financial position.

In February 2018, the FASB issued ASU 2018-03, Technical Corrections and
Improvements to Financial Instruments—Overall (Subtopic 825-10) Recognition
and Measurement of Financial Assets and Financial Liabilities. The amendments in
this Update include items brought to the Board’s attention by stakeholders. The
amendments clarify certain aspects of the guidance issued in Update 2016-1.
For public entities, this ASU was effective for the fiscal years beginning after
December 15, 2017, including interim periods within those fiscal years. The effect
of this update did not have a material impact on the Company’s consolidated
financial position.

In February 2018, the FASB issued ASU 2018-02, Income Statement —
Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income. The amendments in this
ASU allow a reclassification from accumulated other comprehensive income to
retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs
Act. Consequently, the amendments eliminate the stranded tax effects resulting
from the Tax Cuts and Jobs Act and will improve the usefulness of information
reported to financial statement users. However, because the amendments only

relate to the reclassification of the income tax effects of the Tax Cuts and Jobs
Act, the underlying guidance that requires that the effect of a change in tax laws
or rates be included in income from continuing operations is not affected. The
amendments in this ASU are effective for all entities for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. Early
adoption of the amendments in this ASU is permitted, including adoption in any
interim period, (1) for public business entities for reporting periods for which
financial statements have not yet been issued and (2) for all other entities for
reporting periods for which financial statements have not yet been made available
for issuance. The amendments in this ASU should be applied either in the period
of adoption or retrospectively to each period (or periods) in which the effect of
the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs
Act is recognized. The Company adopted this update in the first quarter of 2018
and applied the effects of the changes in the period of adoption. The effect of
the changes is approximately $3.8 million that increased retained earnings and a
corresponding decrease to AOCI.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation
(Topic 718): Scope of Modification Accounting. FASB issued this Update to
address the diversity in practice as well as the cost and complexity when applying
the guidance in Topic 718, Compensation — Stock Compensation, to a change
to the terms or conditions of a share-based payment award. For public entities,
this ASU was effective for annual reporting periods beginning after December 15,
2017. The effect of this update did not have a material impact on the Company’s
consolidated financial position.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits
(Topic 715) Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost. The amendments in this ASU require
that an employer disaggregate the service cost component from the other
components of net benefit cost. The amendments also provide explicit guidance
on how to present the service cost component and the other components of net
benefit cost in the income statement and allow only the service cost component
of net benefit cost to be eligible for capitalization. The amendments in this ASU
were effective for fiscal years beginning after December 15, 2017. Early adoption
is permitted. This ASU is for presentation purposes only, accordingly, there
was no impact on the Company’s consolidated financial position. See Note 17,
Employee Benefits, for a further explanation of this ASU.

In February 2017, the FASB issued ASU 2017-05, Other Income Gains and Losses
from the Derecognition of Nonfinancial Assets (Subtopic 610-20). This ASU was
issued to clarify the scope of Subtopic 610-20, and to add guidance for partial
sales of nonfinancial assets. For public entities, this ASU was effective for annual
reporting periods beginning after December 15, 2017. The effect of this update
did not have a material impact on the Company’s consolidated financial position.

Effective January 1, 2018, the Company adopted ASU 2014-09 “Revenue
Recognition (Topic 606): Revenue from Contracts with Customers.” ASU
2014-09 supersedes Topic 605 “Revenue Recognition” and requires an entity
to recognize the amount of revenue to which it expects to be entitled for the
transfer of promised goods or services to customers at an amount that reflects
the consideration to which the entity expects to be entitled to in exchange for
those goods or services.

The vast majority of the Company’s revenue is interest income on loans,
investment securities and deposits at other financial institutions which are
specifically outside the scope of ASU 2014-09. ASU 2014-09 applies primarily
to certain non-interest income items in the Company’s financial statements. We
adopted Topic 606 as of January 1, 2018 using the cumulative effect transition
method. The impact of adopting the new standard was not material. See
Note 22, Revenue from Contracts with Customers, for further details.

35553 Financials 2019.indd 27

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In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows
(Topic 230) Restricted Cash. The amendments of this ASU were issued to require
that a statement of cash flows explain the change during the period in the total
of cash, cash equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. Therefore, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total
amounts shown on the statement of cash flows. For public entities, this ASU was
effective for the fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. The effect of this update did not have a material
impact on the Company’s consolidated financial position.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows
(Topic 326) Classification of Certain Cash Receipts and Cash Payments.
Stakeholders indicated that there is diversity in practice in how certain cash
receipts and cash payments are presented and classified in the statement of
cash flows under Topic 230, Statement of Cash Flows, and other Topics. This
ASU addresses eight specific cash flow issues with the objective of reducing
the existing diversity in practice. The amendments in this update were effective
for public business entities for fiscal years beginning after December 15,
2017, and interim periods within those fiscal years. The effect of this update
required a reclassification of $375,000 and $115,000 for 2018 and 2017,
respectively, of proceeds from life insurance policies to investing activities from
operating activities.

In January 2016, FASB issued ASU 2016-1, “Financial Instruments-Overall”
(Subtopic 825-10) Recognition and Measurement of Financial Assets and
Financial Liabilities. This ASU significantly revises an entity’s accounting related
to (1) the classification and measurement of investments in equity securities
and (2) the presentation of certain fair value changes for financial liabilities
measured at fair value. It also amends certain disclosure requirements associated
with the fair value of financial instruments. The Company used exit price notion
when measuring the fair value of financial instruments for disclosure purposes
(see Note 9 Fair Value of Financial Instruments). This ASU was effective for fiscal
years beginning after December 15, 2017, including interim periods therein.
The Company adopted this update in the first quarter of 2018 and applied the
effects of the changes retrospectively. The effect of the changes is approximately
$29,000, which was reclassified from accumulated other comprehensive income
to retained earnings.

Accounting Standards Issued but not yet Adopted

The following list identifies ASUs applicable to the Company that have been
issued by the FASB but are not yet effective:

In August 2018, FASB issued ASU 2018-15, Intangibles-Goodwill and Other-
Internal Use Software (Subtopic 350-40): Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That Is a
Service Contract (a consensus of the FASB Emerging Issues Task Force) The
amendments in this ASU align the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to develop or obtain
internal-use software (and hosting arrangements that include an internal use
software license).This ASU is effective for annual reporting periods beginning
after December 15, 2019. The Company has not determined the impact, if any, as
of December 31, 2018.

In August 2018, FASB issued ASU 2018-14, Compensation-Retirement Benefits-
Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-
Changes to the Disclosure Requirements for Defined Benefit plans. The
amendments in this ASU remove disclosures that no longer are considered cost

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

beneficial, clarify the specific requirements of disclosures, and add disclosure
requirements identified as relevant. This ASU is effective for annual reporting
periods beginning after December 15, 2020. The Company has not determined
the impact, if any, as of December 31, 2018.

In August 2018, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820),
Disclosure Framework-Changes to the Disclosure Requirements for Fair Value.
The amendments in this ASU modify the disclosure requirements on fair value
measurements in Topic 820, Fair Value Measurement, based on the concepts in
the Concepts Statement, including the consideration of costs and benefits. This
ASU is effective for annual reporting periods beginning after December 15, 2019.
The Company has not determined the impact, if any, as of December 31, 2018.

In July 2017, FASB issued ASU 2017-11, Earnings Per Share (Topic 260),
Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic
815): I. Accounting for Certain Financial Instruments with Down Round Features
II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interest with a Scope Exception. For public entities, this ASU is
effective for annual reporting periods beginning after December 15, 2018. The
effect of this update is not expected to have a material impact on the Company’s
consolidated financial position.

In March 2017, the FASB issued ASU 2017-08, Receivables — Nonrefundable
Fees and Other Costs (Subtopic 310-20) Premium Amortization of Purchased
Callable Debt. The FASB is issuing this ASU to amend the amortization period
for certain purchased callable debt securities held at a premium. The FASB is
shortening the amortization period for the premium to the earliest call date.
Under current generally accepted accounting principles (GAAP), entities
generally amortize the premium as an adjustment of yield over the contractual life
of the instrument. For public business entities, the amendments in this ASU are
effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2018. The effect of this update is not expected to have a
material impact on the Company’s consolidated financial position.

In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and
Other (Topic 350). This ASU was issued to simplify the subsequent measurement
of goodwill by eliminating Step 2 from the goodwill impairment test. For public
entities, this ASU is effective for the fiscal years beginning after December
15, 2019, including interim periods within those fiscal years. Early adoption is
permitted and application should be on a prospective basis. The effect of this
update is not expected to have a material impact on the Company’s consolidated
financial position.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
This ASU was issued to provide financial statement users with more decision-
useful information about the expected credit losses on financial instruments
and other commitments to extend credit held by a reporting entity at each
reporting date. To achieve this objective, the amendments in this ASU replace
the incurred loss impairment methodology in current GAAP with a methodology
that reflects expected credit losses and requires consideration of a broader range
of reasonable and supportable information to inform credit loss estimates. The
amendments in this ASU are effective for fiscal years beginning after December
15, 2019, including interim periods within those fiscal years. The Company is
in the process of analyzing this ASU and has purchased a software solution and
began to capture information needed to implement this update. The Company
has started to input information and is in the beginning stages of running the
software program. The Company has not determined the impact, if any, as of
December 31, 2018.

35553 Financials 2019.indd 28

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The amendments in this ASU align the
implementation date for nonpublic entities’ annual financial statements with the implementation date for their interim financial statements and clarify the scope of the
guidance in the amendments in ASU 2016-13. The Company has not determined the impact, if any, as of December 31, 2018.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU requires lessees to put most leases on their balance sheet but recognize expenses on their income
statements in a manner similar to today’s accounting. This ASU also eliminates today’s real estate-specific provisions for all companies. For lessors, this ASU modifies the
classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years beginning after December 15, 2018, including
interim periods therein. Early adoption is permitted. The Company began analyzing this ASU and assessed the implementation steps. At December 31, 2018, the
Company analyzed the financial impact of real estate leases. The Company also reviewed contracts to determine if they contain embedded leases. The Company has
determined the total balance sheet impact will be approximately $14-$16 million as of December 31, 2018. This amount will be booked as a right of use asset with a
corresponding lease liability.

In July 2018, ASU 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”) was issued to provide more detailed guidance and additional
clarification for implementing ASU 2016-02. Also in July 2018, ASU 2018-11, “Targeted Improvements” (“ASU 2018-11”) was issued and allows for an optional transition
method in which the provisions of Topic 842 would be applied upon the adoption date and would not have to be retroactively applied to the earliest reporting period
presented in the consolidated financial statements.” The Company intends to use this optional transition method for the adoption of Topic 842.

Securities and Exchange Commission (SEC) ruling:

In August 2018, the SEC issued a final rule that amends certain of the Commission’s disclosure requirements “that have become redundant, duplicative, overlapping,
outdated, or superseded, in light of other Commission disclosure requirements, U.S. GAAP, or changes in the information environment.” The financial reporting
implications of the final rule’s amendments may vary by company, but the changes are generally expected to reduce or eliminate some of an SEC registrant’s disclosure
requirements. In limited circumstances, however, the amendments may expand those requirements, including those related to interim disclosures about changes
in stockholders’ equity. Under the requirements, registrants must now analyze changes in stockholders’ equity, in the form of a reconciliation, for “the current and
comparative year-to-date periods, with subtotals for each interim period.” The Company will therefore include a reconciliation for the current quarter and year-to-date
interim periods as well as the comparative periods of the prior years (i.e., a reconciliation covering each period for which an income statement is presented). The final
rule is effective for all filings submitted on or after November 5, 2018.

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, 2018, and $0 at December 31, 2017.

December 31, 2018

December 31, 2017

3. Securities Available-for-Sale

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

(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

$ 2,000
3,946
70,477

— $
—
1

8
31
284

$ 1,992
3,915
70,194

$ 1,999
—
81,065

— $
—
46

15
—
161

$ 1,984
—
80,950

162,604

536

250

162,890

225,537

555

317

225,775

Total

$ 336,751

635

627

$ 336,759

$ 395,947

673

679

93,445
3,600

58
37

—
44

672

93,503
3,593

897

82,849
3,600

—
68

249
39

790

892

82,600
3,629

$ 395,830

Included in SBA Backed Securities and U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities are securities at fair value pledged to secure
public deposits and repurchase agreements amounting to $197,304,000 and $216,353,000 at December 31, 2018 and 2017, respectively. Also included in securities
available-for-sale at fair value are securities pledged for borrowing at the Federal Home Loan Bank amounting to $34,787,000 and $67,780,000 at December 31, 2018
and 2017, respectively. The Company realized gains on sales of securities of $302,000, $47,000 and $52,000 from the proceeds of sales of available-for-sale securities
of $27,517,000, $18,180,000 and $2,376,000 for the years ended December 31, 2018, 2017, and 2016, respectively.

Debt securities of U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities primarily refer to debt securities of Fannie Mae and Freddie Mac.

35553 Financials 2019.indd 29

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

Fair
Value
The following table shows the estimated maturity distribution of the Company’s securities available-for-sale at December 31, 2018.
(dollars in thousands)

Amortized
Cost

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

Total

92,935
83,286
136,075
24,455

92,918
83,112
136,244
24,485

$ 336,751

$ 336,759

The weighted average remaining life of investment securities available-for-sale at December 31, 2018, was 4.7 years. Included in the weighted average remaining life
calculation at December 31, 2018 were $3,946,000 of U.S. Government Sponsored Enterprises obligations that are callable at the discretion of the issuer. 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, $231,981,000 of the securities are floating rate or adjustable rate and reprice prior to maturity.

As of December 31, 2018 and December 31, 2017, 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 Obligations Issued by States and Political Subdivisions, Privately Issued Residential Mortgage-Backed Securities and Other Debt Securities was primarily caused by
changes in credit spreads and liquidity issues in the marketplace.

The unrealized loss on SBA Backed Securities and U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities related primarily to interest rates
and not credit quality and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be maturity. The Company
does not consider these investments to be other-than-temporarily impaired at December 31, 2018 and December 31, 2017.

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.

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at December 31, 2018. 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 10 and 30 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 190 holdings at
December 31, 2018.

Less Than 12 Months

12 Months or Longer

December 31, 2018

Total

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

(dollars in thousands)

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

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

—
3,914
17,950

19,244
—
—
—

Total temporarily impaired securities

$ 41,108

—
31
28

21
—
—
—

1,992
—
44,323

45,782
495
—
455

$ 93,047

8
—
256

229
10
—
44

547

1,992
3,914
62,273

65,026
495
—
455

$ 134,155

8
31
284

250
10
—
44

627

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at December 31, 2017. This table shows the unrealized market
loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and longer. There are 16
and 26 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 249 holdings at December 31, 2017.

35553 Financials 2019.indd 30

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18
Temporarily Impaired Investments

December 31, 2017

Less Than 12 Months

12 Months or Longer

Total

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

(dollars in thousands)

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

Mortgage-Backed Securities

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

1,984
—
18,378

40,394
—
—
400

Total temporarily impaired securities

$ 61,156

15
—
54

123
—
—
1

193

—
—
40,911

59,336
633
4,458
461

$ 105,799

—
—
107

194
9
249
38

597

1,984
—
59,289

99,730
633
4,458
861

$ 166,955

15
—
161

317
9
249
39

790

4. Investment Securities Held-to-Maturity

(dollars in thousands)

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

Mortgage-Backed Securities

December 31, 2018
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Amortized
Cost

Estimated
Fair Value

Amortized
Cost

December 31, 2017
Gross
Gross
Unrealized
Unrealized
Losses
Gains

Estimated
Fair Value

9,960 $

— $

2 $

234,228
52,051

336
—

803
2,065

9,958
233,761
49,986

— $

104,653
57,235

341
20

472
1,271

—
104,522
55,984

1,750,408

2,324

55,016

1,697,716

1,539,345

2,261

33,285

1,508,321

Total

$ 2,046,647 $ 2,660 $ 57,886 $ 1,991,421

$ 1,701,233 $

2,622 $ 35,028 $ 1,668,827

Included in U.S. Government Sponsored Enterprises and U.S. Government Sponsored Enterprise Mortgage-Backed Securities are securities pledged to secure public
deposits and repurchase agreements at fair value amounting to $1,441,059,000 and $1,262,708,000 at December 31, 2018, and 2017, respectively. Also included
are securities pledged for borrowing at the Federal Home Loan Bank at fair value amounting to $291,190,000 and $382,120,000 at December 31, 2018, and 2017,
respectively. The Company did not realize any gains of sales of securities for the year ending December 31, 2018, and 2017. The sales from securities held-to-maturity
relate to certain mortgage-backed securities for which the Company had previously collected a substantial portion of its principal investment. The Company realized
gains on sales of securities of $12,000 from the proceeds of sales of held-to-maturity securities of $192,000 for the year ending December 31, 2016.

At December 31, 2018 and 2017, all mortgage-backed securities are obligations of U.S. Government Sponsored Enterprises. Government Sponsored Enterprises
Fair
primarily refer to debt securities of Fannie Mae and Freddie Mac.
Value

Amortized
Cost

The following table shows the maturity distribution of the Company’s securities held-to-maturity at December 31, 2018.
(dollars in thousands)

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

$
41,154
1,490,954
506,654
7,885
$ 2,046,647

$
41,013
1,454,543
488,129
7,736
$ 1,991,421

The weighted average remaining life of investment securities held-to-maturity at December 31, 2018, was 4.3 years. Included in the weighted average remaining life
calculation at December 31, 2018, were $149,156,000 of U.S. Government Sponsored Enterprises obligations that are callable at the discretion of the issuer. 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, $124,000 of the securities are floating rate or adjustable rate and reprice prior to maturity.

The unrealized loss on U.S. Government Sponsored Enterprises, SBA Backed Securities and U.S. Government 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, 2018 and December 31, 2017.

35553 Financials 2019.indd 31

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at December 31, 2018. This table shows the unrealized market
Temporarily Impaired Investments
loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and longer. There are 56
and 315 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 475 holdings at December 31, 2018.
Unrealized
Losses

Unrealized
Losses

Less Than 12 Months

12 Months or Longer

December 31, 2018

Fair Value

Total

(dollars in thousands)

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

Mortgage-Backed Securities

$ 9,958
9,849
—

2
42
—

—
69,499
49,987

—
761
2,065

9,958
79,348
49,987

2
803
2,065

188,125

2,032

1,249,689

52,984

1,437,814

55,016

Total temporarily impaired securities

$ 207,932

$ 2,076

$ 1,369,175

$ 55,810

$ 1,577,107

$ 57,886

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at December 31, 2017. This table shows the unrealized market
Temporarily Impaired Investments
loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and longer. There are 117
and 168 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 404 holdings at December 31, 2017.
Unrealized
Losses

Unrealized
Losses

Less Than 12 Months

12 Months or Longer

December 31, 2017

Fair Value

Total

(dollars in thousands)

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

Mortgage-Backed Securities

$ 15,257
19,457

239
142

14,768
33,750

233
1,129

30,025
53,207

472
1,271

519,481

5,920

814,712

27,365

1,334,193

33,285

Total temporarily impaired securities

$ 554,195

$ 6,301

$ 863,230

$ 28,727

$ 1,417,425

$ 35,028

5. Loans

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

2018

2017

(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

13,628
761,625
97,290
750,362
348,250
21,359
292,340
724

18,931
763,807
106,599
732,491
287,731
18,458
247,345
582

Total

$ 2,285,578

$ 2,175,944

At December 31, 2018, and December 31, 2017, loans were carried net of (premiums) discounts of $(364,000) and $46,000, respectively. Net deferred fees included
in loans at December 31, 2018, and December 31, 2017, were $496,000 and $588,000, respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $209,160,000 and $229,533,000 at December 31, 2018, and
December 31, 2017, respectively. The Company had no residential real estate loans held for sale at December 31, 2018 and December 31, 2017. The Company’s
mortgage servicing rights totaled $1,226,000 and $1,525,000 at December 31, 2018 and December 31, 2017, respectively.

As of December 31, 2018 and 2017, the Company’s recorded investment in impaired loans was $3,051,000 and $7,114,000, 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, 2018, there were $2,774,000 impaired loans with specific
reserves of $145,000. At December 31, 2017, there were $ 6,581,000 impaired loans with specific reserves of $164,000.

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.

35553 Financials 2019.indd 32

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

December 31,

2018

2017

2016

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

Loans on nonaccrual

Loans 90 days past due and still accruing

Impaired loans on nonaccrual included above

Total recorded investment in impaired loans

Average recorded investment of impaired loans

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

$ 1,313
—
296
3,051
5,491
2,559
64
—
196

$ 1,684
—
254
7,114
5,608
2,749
51
—
182

$ 1,084
—
304
3,830
3,661
3,526
37
—
140

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, 2017
December 31, 2018
The following table shows the aggregate amount of loans to directors and officers of the Company and their associates during 2018.
(dollars in thousands)

Repayments
and Deletions

Additions

$ 5,825

$ 7,800

$ 1,078

$ 12,547

6. Allowance for Loan Losses

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

2016

2017

2018

(dollars in thousands)
An analysis of the allowance for loan losses for each of the three years ending December 31, 2018, 2017 and 2016 is as follows:
Allowance for loan losses, beginning of year
Loans charged-off
Recoveries on loans previously charged-off

$ 26,255
(833)
1,771
938
1,350
—
$ 28,543

$ 24,406
(390)
449
59
1,790
—
$ 26,255

$ 23,075
(389)
434
45
1,375
(89)
$ 24,406

Net recoveries (charge-offs)
Provision charged to expense
Reclassification to other liabilities*

Allowance for loan losses, end of year

* The reclassification relates to allowance for loan losses allocations on unused commitments that have been reclassified to other liabilities.

Commercial
Further information pertaining to the allowance for loan losses at December 31, 2018 follows:
Real Estate

Municipal

Residential
Real Estate Consumer

Home
Equity

Unallocated

Total

Construction
and Land
Development

Commercial
and
Industrial

(dollars in thousands)

Allowance for Loan Losses:

Balance at December 31, 2017

Charge-offs

Recoveries
Provision
Ending balance at

$ 1,645
—
1,436
(1,989)

9,651
(67)
57
1,357

$ 1,720 $

—
—
118

9,728
—
—
935

1,873
(450)
75
692

373
(316)
203
105

989
—
—
122

$ 276
—
—
10

26,255
(833)
1,771
1,350

December 31, 2018

$ 1,092

$ 10,998

$ 1,838 $ 10,663

2,190

365

$ 1,111

$ 286

28,543

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:

Ending balance

Loans deemed to be impaired

Loans not deemed to be impaired

— $

—

$ —

145

$ 1,092

$ 10,944

$ 1,838 $ 10,572

2,190

365

$ 1,111

$ 286

28,398

$ 13,628
$
$ 13,628

— $

$ 761,625
401
$ 761,224

$ 97,290 $ 750,362
$
2,650
— $
$ 97,290 $ 747,712

$ 348,250
$
$ 348,250

— $

$ 22,083

$ 292,340
—
$ 292,340

$ —
$ —
$ —

$ 2,285,578
$
3,051
$ 2,282,527

35553 Financials 2019.indd 33

2/21/19 6:02 AM

Commercial
Further information pertaining to the allowance for loan losses at December 31, 2017 follows:
Real Estate

Municipal

Construction
and Land
Development

Commercial
and
Industrial

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

Residential
Real Estate

Consumer

Home
Equity

Unallocated

Total

(dollars in thousands)

Allowance for Loan Losses:

Balance at December 31, 2016

Charge-offs

Recoveries
Provision

Ending balance at
December 31, 2017

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:

Ending balance

Loans deemed to be impaired

Loans not deemed to be impaired

$ 1,012
—
—
633

6,972
(49)
110
2,618

$ 1,612 $ 11,135
—
—
(1,407)

—
—
108

1,698
—
2
173

582
(341)
255
(123)

$ 1,102
—
82
(195)

$ 293
—
—
(17)

24,406
(390)
449
1,790

$ 1,645

9,651

$ 1,720 $

9,728

1,873

373

989

$ 276

26,255

— $

—

$ —

164

$ 1,645

9,644

$ 1,720 $

9,629

1,815

373

989

$ 276

26,091

$ 18,931
$
$ 18,931

— $

$ 763,807
348
$ 763,459

$ 106,599 $ 732,491
$
2,554
— $
$ 106,599 $ 729,937

$ 287,731
$
4,212
$ 283,519

$ 19,040
$
$ 19,040

$ 247,345
—
$ 247,345

— $

$ —
$ —
$ —

$ 2,175,944
$
7,114
$ 2,168,830

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, 2018.

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, 2018.

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, 2018, 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, 2018.

and Land
Development

and
Industrial

Municipal

Commercial
Real Estate

(dollars in thousands)

Grade:

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

Total

$ 13,628
—
—
—
—

$ 757,089
4,135
—
—
401

$ 97,290
—
—
—
—

$ 723,170
24,542
—
—
2,650

$ 13,628

$ 761,625

$ 97,290

$ 750,362

The Company has increased its exposure to larger loans to large institutions with publicly available credit ratings. These ratings are tracked as a credit quality indicator
for these loans.

35553 Financials 2019.indd 34

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

The following table presents the Company’s loans by credit rating at December 31, 2018.

Municipal

Commercial
Real Estate

Total

Commercial
and
Industrial

(dollars in thousands)

Credit Rating:
Aaa-Aa3
A1-A3
Baa1-Baa3
Ba2

Total

$ 491,247
172,472
—
—

$ 54,105
7,605
26,970
6,810

$ 42,790
151,381
118,197
—

$ 588,142
331,458
145,167
6,810

$ 663,719

$ 95,490

$ 312,368

$ 1,071,577

The following table presents the Company’s loans by risk rating at December 31, 2017.

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

$ 18,931
—
—
—
—

$ 758,093
5,366
—
—
348

$ 106,599
—
—
—
—

$ 705,235
24,702
—
—
2,554

$ 18,931

$ 763,807

$ 106,599

$ 732,491

The following table presents the Company’s loans by credit rating at December 31, 2017.

Municipal

Commercial
Real Estate

Total

Commercial
and
Industrial

(dollars in thousands)

Credit Rating:
Aaa-Aa3
A1-A3
Baa1-Baa3
Ba2

Total

$ 478,905
195,599
—
—

$ 62,029
7,635
26,970
8,165

$ 45,066
128,554
122,000
—

$ 586,000
331,788
148,970
8,165

$ 674,504

$ 104,799

$ 295,620

$ 1,074,923

The Company utilized payment performance as credit quality indicators for residential real estate, 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

At December 31, 2018 the aging of past due loans are as follows:

Accruing
30-89 Days
Past Due

(dollars in thousands)

Construction and land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer and overdrafts

Home equity

Total

$ —
187
—
774
2,554
24
1,108

$ 4,647

Accruing
Greater
Than
90 Days

$ —
—
—
—
—
—
—

$ —

Non
Accrual

$ —
115
—
190
569
14
425

$ 1,313

Total
Past Due

Current
Loans

$ —
302
—
964
3,123
38
1,533

13,628
761,323
97,290
749,398
345,127
22,045
290,807

Total

13,628
761,625
97,290
750,362
348,250
22,083
292,340

$ 5,960

$ 2,279,618

$ 2,285,578

35553 Financials 2019.indd 35

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

Accruing
Greater
Than
90 Days

$ —
—
—
—
—
—
—

$ —

Total
Past Due

Current
Loans

$ —
109
—
887
5,006
11
1,313

18,931
763,698
106,599
731,604
282,725
19,029
246,032

Total

18,931
763,807
106,599
732,491
287,731
19,040
247,345

$ 7,326

$ 2,168,618

$ 2,175,944

At December 31, 2017 the aging of past due loans are as follows:

Accruing
30-89 Days
Past Due

(dollars in thousands)

Construction and land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer and overdrafts

Home equity

Total

IMPAIRED LOANS

$ —
65
—
672
4,282
5
618

$ 5,642

Non Accrual

$ —
44
—
215
724
6
695

$ 1,684

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, 2018:

Carrying
Value

Unpaid
Balance
Principal

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

Total

With required reserve recorded:

Construction and land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer

Home equity

Total

Construction and land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer

Home equity

Total

$ —
87
—
189
—
—
—

$ 276

$ —
314
—
2,461
—
—
—

$ 2,775

$ —
401
—
2,650
—
—
—

$ 3,051

$ —
291
—
212
—
—
—

$ 503

$ —
315
—
2,575
—
—
—

$ 2,890

$ —
606
—
2,787
—
—
—

$ 3,393

Required
Reserve

$ —
—
—
—
—
—
—

$ —

$ —
54
—
91
—
—
—

$ 145

$ —
54
—
91
—
—
—

$ 145

—
46
—
249
—
—
—

295

—
462
—
2,322
2,412
—
—

$ 5,196

—
508
—
2,571
2,412
—
—

$ 5,491

Interest
Income

$ —
5
—
—
—
—
—

$ —
13
—
97
81
—
—

$ 191

$ —
18
—
97
81
—
—

$ 196

35553 Financials 2019.indd 36

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

The following is information pertaining to impaired loans at December 31, 2017:

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

Total

With required reserve recorded:

Construction and land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer

Home equity

Total

Construction and land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer

Home equity

Total

$ —
113
—
420
—
—
—

$ 533

$ —
235
—
2,134
4,212
—
—

$ 6,581

$ —
348
—
2,554
4,212
—
—

$ 7,114

$ —
325
—
548
—
—
—

$ 873

$ —
235
—
2,135
4,212
—
—

$ 6,582

$ —
560
—
2,683
4,212
—
—

$ 7,455

$ —
—
—
—
—
—
—

$ —

$ —
7
—
99
58
—
—

$ 164

$ —
7
—
99
58
—
—

$ 164

—
54
—
286
73
—
—

413

43
318
—
2,501
2,333
—
—

$ 5,195

43
372
—
2,787
2,406
—
—

$ 5,608

Interest
Income

$ —
4
—
21
—
—
—

$ —
12
—
72
73
—
—

$ 157

$ —
16
—
93
73
—
—

$ 182

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.

There was one residential real estate loan and one consumer loan that were modified during the first quarter of 2018. The loans were modified by reducing the interest
rates as well as extending the terms on both loans. The pre-modification and post-modification outstanding recorded investment was $2,675,000 for the residential real
estate loan that was not accruing interest. The pre-modification and post-modification outstanding recorded investment was $17,000 for the consumer loan that was
accruing interest. The financial impact for the modifications was not material. Both troubled debt restructurings subsequently defaulted during 2018. The residential real
estate loan was partially charged off for $450,000 and was recorded as other real estate owned for $2,225,000 during the fourth quarter of 2018. Other real estate
owned is included in other assets on the balance sheet. The consumer loan was fully charged off during the fourth quarter of 2018.

There were no troubled debt restructurings occurring during the year ended December 31, 2017. There were no troubled debt restructurings that subsequently
defaulted during 2017.

35553 Financials 2019.indd 37

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

December 31,

2018

2017

Estimated Useful Life

(dollars in thousands)

7. Bank Premises and Equipment

Land
Bank premises
Furniture and equipment
Leasehold improvements

Accumulated depreciation and amortization

$ 3,850
21,659
30,088
12,674

68,271
(44,350)

$ 3,850
21,055
27,117
12,674

64,696
(41,169)

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

Total

$ 23,921

$ 23,527

The Company is obligated under a number of non-cancelable operating leases for premises and equipment expiring in various years through 2028. Total lease expense
approximated $2,601,000, $2,608,000 and $2,834,000 for the years ended December 31, 2018, 2017 and 2016, respectively. Included in lease expense are
amounts paid to a company affiliated with Marshall M. Sloane, Chairman of the Board, amounting to $444,000, $439,000 and $424,000, respectively. Rental income
approximated $373,000, $321,000 and $318,000 in 2018, 2017 and 2016, respectively. Depreciation and amortization amounted to $3,206,000, $3,135,000 and
$2,952,000 at December 31, 2018, 2017 and 2016 respectively.

Amount

Year

(dollars in thousands)
Future minimum rental commitments for non-cancelable operating leases with initial or remaining terms of one year or more at December 31, 2018, were as follows:

2019
2020
2021
2022
2023
Thereafter

$ 2,490
2,170
1,694
1,331
1,104
1,074

$ 9,863

8. Goodwill and Identifiable Intangible Assets

At December 31, 2018 and 2017, 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, 2018 and 2017 are shown in the table below.
(dollars in thousands)

Mortgage
Servicing Rights

Goodwill

Total

Balance at December 31, 2016
Additions
Amortization Expense

Balance at December 31, 2017
Additions
Amortization Expense

Balance at December 31, 2018

9. Fair Value Measurements

$ 2,714
—
—

$ 1,629
276
(380)

$ 1,525
—
(299)

$ 2,714

$ 1,226

$ 4,343
276
(380)

$ 4,239
—
(299)

$ 3,940

The Company follows FASB ASC 820-10, Fair Value Measurements and Disclosures, 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.

35553 Financials 2019.indd 38

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

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, 2018, are as follows:

(dollars in thousands)

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

U.S. Treasury

U.S. Government Agency 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

Total

Other Real Estate Owned

Financial Instruments Measured at Fair Value
on a Recurring Basis

Equity Securities

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

Impaired Loans

Carrying
Value

1,992
3,915
70,194

162,890
672
93,503
3,593

$ 336,759

2,225

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

Significant
Observable Inputs
(Level 2)

Significant
Other Unobservable
Inputs
(Level 3)

—
—
—

—
—
—
—

—

1,992
3,915
70,194

162,890
672
4,775
3,593

$ 248,031

—

—
—
—

—
—
88,728
—

$ 88,728

$ 2,225

1,596

293

1,303

—

251

—

251

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 relate to impaired loans recognized for 2018 for the estimated credit loss
amounted to $540,000.

There was a transfer of an auction rate security during 2018 from level 3 to level 2. Quoted prices on the auction rate security became available but traded infrequently.
There were no other transfers between level 1, 2 and 3 for the year ended December 31, 2018. There were no liabilities measured at fair value on a recurring or
nonrecurring basis during the year ended December 31, 2018.

The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3
Asset
inputs to determine fair value (dollars in thousands) at December 31, 2018. Management continues to monitor the assumptions used to value the assets listed below.
Securities AFS(1)

Valuation Technique

Unobservable Input

Discounted cash flow

Fair Value

Discount rate

2.1%-4.1%(2)

$ 88,728

Unobservable Input
Value or Range

Other Real Estate Owned

Impaired Loans

2,225

251

Appraisal of collateral(3)

Appraisal adjustments(4)

30% discount

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.

35553 Financials 2019.indd 39

2/27/19 10:38 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

The changes in Level 3 securities for the year ended December 31, 2018 are as shown in the table below:

Auction Rate
Securities

Obligations
Issued by States
and Political
Subdivisions

(dollars in thousands)

Balance at December 31, 2017

Purchases

Maturities/redemptions

Transfer to Level 2

Amortization

Change in fair value

Balance at December 31, 2018

$ 4,459
—
—
(4,459)
—
—

$ —

$ 78,141
132,470
(121,753)
—
(130)
—

$ 88,728

Equity
Securities

$ —
—
—
—
—
—

$ —

Total

$ 82,600
132,470
(121,753)
(4,459)
(130)
—

$ 88,728

The amortized cost of Level 3 securities was $88,728,000 with an unrealized loss of $0 at December 31, 2018. The securities in this category are generally 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, 2017, are as follows:

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 Agency 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

Total

Financial Instruments Measured at Fair Value
on a Recurring Basis

Equity Securities

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

Impaired Loans

Carrying
Value

1,984
—
80,950

225,775
892
82,600
3,629

—
—
—

—
—
—
—

—

1,984
—
80,950

225,775
892
—
3,629

—
—
—

—
—
82,600
—

$ 313,230

$ 82,600

$ 395,830

1,663

321

1,342

—

246

—

246

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 relate to impaired loans recognized for 2017 for the estimated credit loss
amounted to $3,000.

There were no transfers between level 1, 2 and 3 for the year ended December 31, 2017. There were no liabilities measured at fair value on a recurring or nonrecurring
basis during the year ended December 31, 2017.

35553 Financials 2019.indd 40

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3
Asset
inputs to determine fair value (dollars in thousands) at December 31, 2017. Management continues to monitor the assumptions used to value the assets listed below.
Securities AFS(1)

Valuation Technique

Unobservable Input

Discounted cash flow

Fair Value

Discount rate

1.0%-3.5%(2)

$ 82,600

Unobservable Input
Value or Range

Impaired Loans

246

Appraisal of collateral(3)

Appraisal adjustments (4)

0%-30% discount

(1)

(2)

(3)

(4)

The changes in Level 3 securities for the year ended December 31, 2017 are as shown in the table below:

Auction Rate
Securities

(dollars in thousands)

Balance at December 31, 2016

Purchases

Maturities/redemptions

Amortization

Change in fair value

Balance at December 31, 2017

$ 4,298
—
—
—
161

$ 4,459

$ 160,578
99,136
(181,394)
(179)
—

$ 78,141

Obligations
Issued by States
and Political
Subdivisions

Equity
Securities

$ —
—
—
—
—

$ —

Total

$ 164,876
99,136
(181,394)
(179)
161

$ 82,600

The amortized cost of Level 3 securities was $82,849,000 with an unrealized loss of $249,000 at December 31, 2017. The securities in this category are generally
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

2018

Percent

2017

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

Total

$ 413,297
88,815
39,924
18,543

74 %
16 %
7 %
3 %

$ 560,579

100 %

$ 436,911
121,802
30,098
36,550

$ 625,361

70 %
19 %
5 %
6 %

100 %

Time deposits of more than $250,000 totaled $293,046,000 and $345,183,000 in 2018 and 2017, respectively. The decrease was mainly attributable to competitive
market rates for these types of deposits.

Deposits totaling $36,794,000 and $35,667,000 were attributable to related parties at December 31, 2018 and December 31, 2017, respectively.

11. Securities Sold Under Agreements to Repurchase

2018

2017

2016

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

$ 154,240

$ 158,990

Weighted average rate at December 31

Maximum amount outstanding at any month end

Daily average balance outstanding during the year

Weighted average rate during the year

0.82 %

$ 174,150
$ 147,944

0.66 %

0.32 %

$ 228,848
$ 189,684

0.26 %

$ 182,280

0.21 %

$ 241,110
$ 222,956

0.21 %

Amounts outstanding at December 31, 2018, 2017 and 2016 carried maturity dates of the next business day. U.S. Government Sponsored Enterprise securities with a
total amortized cost of $160,576,000, $162,927,000, and $183,829,000 were pledged as collateral and held by custodians to secure the agreements at December 31,
2018, 2017 and 2016, respectively. The approximate fair value of the collateral at those dates was $156,369,000, $159,051,000, and $182,074,000, respectively.

35553 Financials 2019.indd 41

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

12. Other Borrowed Funds and Subordinated Debentures

2018

2017

2016

(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

$ 238,461

2.76 %

$ 542,913
$ 291,674

2.61 %

$ 383,861

2.26 %

$ 491,583
$ 309,102

2.42 %

$ 329,083

2.39 %

$ 467,083
$ 357,974

2.48 %

FEDERAL HOME LOAN BANK BORROWINGS

Federal Home Loan Bank of Boston (“FHLBB”) borrowings are collateralized by a blanket pledge agreement on the Bank’s FHLBB stock, certain qualified investment
securities, deposits at the FHLBB and residential mortgages held in the Bank’s portfolios. The Bank’s remaining term borrowing capacity at the FHLBB at December 31,
2018, was approximately $508,861,000. In addition, the Bank has a $14,500,000 line of credit with the FHLBB. A schedule of the maturity distribution of FHLBB
2018
December 31,
advances with the weighted average interest rates is as follows:

2017

2016

(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

$ 63,000
$ 28,000
$ 25,000
$ 33,500
$ 52,878

$ 202,378

Weighted
Average
Rate

2.17 %
2.29 %
3.34 %
2.23 %
2.47 %

2.42 %

Amount

$ 164,500
$ 63,000
$ 28,000
$ 28,500
$ 63,778

$ 347,778

Weighted
Average
Rate

1.82 %
2.17 %
2.29 %
3.19 %
2.38 %

2.13 %

Amount

$ 77,500
$ 54,500
$ 58,000
$ 58,000
$ 45,000

$ 293,000

Weighted
Average
Rate

2.21 %
2.25 %
1.87 %
2.68 %
2.85 %

2.34 %

Included in the table above are $40,000,000, $20,000,000, and $45,000,000, respectively, of FHLBB advances at December 31, 2018, 2017 and 2016, that are
puttable at the discretion of FHLBB. These put dates were not utilized in the table above.

SUBORDINATED DEBENTURES

Subordinated debentures totaled $36,083,000 at December 31, 2018 and 2017.

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, 2018 and 2017.

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

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, 2018

Year Ended
December 31, 2017

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

(a)

302
(85)

217

$ (1,477)
391

$ (1,086)

(14)
(1,610)

(1,624)
457

$ (1,167)

47
(19)

$ (2,292)
1,258

$ (1,034)

(10)
(1,540)

(1,550)
619

(931)

(a)

Net gains on sales of investments

Provision for income taxes

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 decreases 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).

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.

Diluted EPS includes the dilutive effect of common stock equivalents; basic EPS excludes all common stock equivalents. There were no common stock equivalents for
2018, 2017 and 2016, 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)

2018

2017

2016

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

Weighted average shares outstanding diluted, Class A

Weighted average shares outstanding, Class B

Diluted EPS, Class A

Diluted EPS, Class B

28,479

17,526

19,270

7,734

4,775

5,264

3,608,179

1,959,730

7.89

3.95

3,604,029

1,963,880

4.86

2.43

3,600,729

1,967,180

5.35

2.68

28,479

17,526

19,270

7,734

36,213

3,608,179

1,959,730

5,567,909

1,959,730

6.50

3.95

4,775

22,301

3,604,029

1,963,880

5,567,909

1,963,880

4.01

2.43

5,264

24,534

3,600,729

1,967,180

5,567,909

1,967,180

4.41

2.68

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

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, 2018 and December 31, 2017.

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, 2018, that the Bank and the Company meet all capital adequacy requirements to which they are subject.

The Basel Committee has issued capital standards entitled “Basel III: A global framework for more resilient banks and banking systems” (Basel III). The Federal Reserve
has finalized its rule implementing the Basel III regulatory capital framework. The rule was effective in January 2015 and sets the Basel III minimum Regulatory capital
requirements. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Common Equity tier 1, tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that notification that management believes would cause a change in the Bank’s categorization.

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

For Capital
Adequacy Purposes

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

As of December 31, 2018 (Basel III)

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

Common Equity Tier 1 Capital (to Risk-Weighted Assets)

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

As of December 31, 2017 (Basel III)

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

Common Equity Tier 1 Capital (to Risk-Weighted Assets)

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

Amount

Ratio

Amount

Ratio

Amount

Ratio

$ 364,744

336,201

$ 329,666

303,411

13.24 %

12.21 %

6.68 %

12.70 %

11.69 %

6.55 %

$ 220,335

165,251

123,938

201,228

$ 207,707

155,780

116,835

185,199

8.00 %

6.00 %

4.50 %

4.00 %

8.00 %

6.00 %

4.50 %

4.00 %

$ 275,419

10.00 %

220,335

179,022

251,535

8.00 %

6.50 %

5.00 %

$ 259,633

10.00 %

207,707

168,762

231,499

8.00 %

6.50 %

5.00 %

35553 Financials 2019.indd 44

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

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

Actual

For Capital
Adequacy Purposes

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of December 31, 2018 (Basel III)

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

Common Equity Tier 1 Capital (to Risk-Weighted Assets)

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

As of December 31, 2017 (Basel III)

Total Capital (to Risk-Weighted Assets)

Tier 1 Capital (to Risk-Weighted Assets)

Common Equity Tier 1 Capital (to Risk-Weighted Assets)

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

$ 377,359

348,816

313,816

348,816

$ 341,033

314,778

279,778

314,778

13.62 %

12.59 %

11.32 %

6.91 %

13.05 %

12.05 %

10.71 %

6.78 %

$ 221,690

166,268

124,701

201,913

$ 209,049

156,787

117,590

185,657

8.00 %

6.00 %

4.50 %

4.00 %

8.00 %

6.00 %

4.50 %

4.00 %

$ 277,113

10.00 %

221,690

180,123

252,391

8.00 %

6.50 %

5.00 %

$ 261,312

10.00 %

209,049

169,853

232,072

8.00 %

6.50 %

5.00 %

16. Income Taxes

2018

2017

2016

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

Federal

State

Total current expense

Deferred (benefit) expense:

Federal

State

Valuation Allowance

Total deferred (benefit) expense

Provision for income taxes

$ 2,637
697

3,334

(1,238)
(528)
—

(1,766)

$ 3,628
412

4,040

6,496
422
—

6,918

$ 3,875
439

4,314

(4,450)
(334)
108

(4,676)

$ 1,568

$ 10,958

(362)

2018

2017

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

Deferred income tax asset, net

Total

$ 13,194
20,321

$ 33,515

$ 15,940
20,892

$ 36,832

2018

2017

2016

Insurance income

State income tax, net of federal income tax benefit

(dollars in thousands)
Differences between income tax (benefit) expense at the statutory federal income tax rate and total income tax expense are summarized as follows:
$ 7,934
Federal income tax expense at statutory rates
134
(176)
(6,510)
(349)
—
—
535

$ 11,308
550
(371)
(8,683)
(341)
—
8,448
47

$ 8,218
69
(406)
(8,259)
(395)
108
—
303

Effect of tax-exempt interest

Deferred tax remeasurement

Valuation Allowance

Net tax credit

Other

$ 1,568

$ 10,958

(362)

4.15 %

32.95 %

(1.50) %

Total

Effective tax rate

35553 Financials 2019.indd 45

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

2018

2017

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

Allowance for loan losses

Deferred compensation

Pension and SERP liability

Unrealized losses on securities transferred to held-to-maturity

Depreciation

Accrued bonus

Charitable contributions carryforward

Acquisition premium

Nonaccrual interest

Limited partnerships

Investments write down

Other

Gross deferred income tax asset

Valuation allowance

Gross deferred income tax asset, net of valuation allowance

Deferred income tax liabilities:

Pension liability

Deferred origination costs

Prepaid expenses

Mortgage servicing rights

Unrealized (gains) losses on securities available-for-sale

Gross deferred income tax liability

Deferred income tax asset net

$ 8,058
8,184
6,506
912
908
717
389
—
109
19
17
145

25,964

(108)

25,856

(4,436)
(524)
(228)
(345)
(2)

(5,535)

7,855
7,555
8,436
1,303
631
—
442
17
97
21
17
173

26,547

(108)

26,439

(4,403)
(481)
(248)
(429)
14

(5,547)

$ 20,321

$ 20,892

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, 2018, with the exception of a $108,000 valuation allowance on a charitable contribution carryforward that has a remaining carryforward
period of 3-4 years. 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.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The majority of the provisions of the Tax Act took effect on January 1, 2018. The Tax
Act lowers the Company’s federal tax rate from 34% to 21%. The Company remeasured its deferred taxes at 21% as of the enactment date and recorded additional
tax expense of $8,448,000. Also, for tax years beginning after December 31, 2017, the corporate Alternative Minimum Tax (“AMT”) has been repealed. For 2018
through 2021, the AMT credit carryforward can offset regular tax liability and is refundable in an amount equal to 50% (100% for 2021) of the excess of the minimum
tax credit for the tax year over the amount of the credit allowable for the year against regular tax liability. Accordingly, the full amount of the alternative minimum tax
credit carryforward will be recovered in tax years beginning before 2022. The Tax Act also contains other provisions that may affect the Company currently or in future
years. Among these are changes to the deductibility of meals and entertainment, the deductibility of executive compensation, the dividend received deduction and net
operating loss carryforwards.

The Company is in an Alternative Minimum Tax (“AMT”) credit position. As the AMT has been repealed and the existing credit is refundable, the AMT credit, totaling
$13,415,000, has been reclassified to currently receivable. Of this amount, the Company expects to recover $7,853,000 with the filing of its 2018 federal tax return.
The Company and its subsidiaries file a consolidated federal tax return. The Company is subject to federal and state examinations for tax years after December 31, 2014.

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 25% to 41%.

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.

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

The measurement date for the Plan is December 31 for each year. The benefits expected to be paid in each year from 2019 to 2023 are $1,548,000, $1,697,000,
$1,886,000, $1,985,000, and $2,081,000, respectively. The aggregate benefits expected to be paid in the five years from 2024 to 2028 are $12,525,000.

The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3).
Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The three levels of the fair value hierarchy under
Topic 820 are described as follows:

LEVEL 1

Inputs to the valuation methodology are quoted market prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access
at the measurement date.

LEVEL 2

Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly, such as: quoted prices for similar assets
or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other that quoted prices that are observable for
the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has
specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

LEVEL 3

Inputs that are unobservable inputs for the asset or liability.

Below is a description of the valuation methodologies used for assets measured at fair value.

Collective Funds

Valued at either the closing price reported on the active market on which the individual securities are traded or valued at the net asset value (NAV) of units of a
collective trust. The NAV, as provided by the trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying
investments held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an
amount different than the reported NAV. Participant transactions (purchases and sales) may occur daily. Were SBERA to initiate a full redemption of the collective trust,
the investment advisor reserves the right to temporarily delay withdrawal from the trust in order to ensure that securities liquidations will be carried out in an orderly
business manner.

Equity Securities

Valued at the closing price reported on the active market on which the individual securities are traded.

Mutual Funds

Valued at the daily closing price as reported by the fund. Mutual funds held open-end mutual funds that are registered with the U.S. Securities and Exchange
Commission. The funds are required to publish their daily NAV and to transact at that price.

The mutual funds held are deemed to be actively traded.

Limited Partnerships and Hedge Funds

The funds are valued at NAV, without further adjustment, as calculated by the fund’s manager based upon the terms and conditions of the organization documents of
the underlying investments, with further consideration to portfolio risks.

The following table sets forth by level, within the fair value hierarchy, the plan’s assets at fair value. Classification within the fair value hierarchy table is based upon the
lowest level of any input that is significant to the fair value measurement:
Description

Percent

Level 3

Level 1

Level 2

Total

NAV

(dollars in thousands)
The fair value of plan assets and major categories as of December 31, 2018, is as follows:

Collective Funds

Equity Securities

Diversified Mutual Funds

Short-term investments

Total investments measured in the fair value hierarchy
Investments measured at net asset value(1)

5.6 %
10.9 %
30.7 %
0.1 %

47.3 %
52.7 %

$ 2,504
4,863
13,612
60

21,039
23,398

$ 2,504
4,863
13,612
60

21,039
—

100.0 %

$ 44,437

$ 21,039

—
—
—
—

—
—

—

—
—
—
—

—
—

—

$ 2,504
4,863
13,612
60

21,039
23,398

$ 44,437

(1)

In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.

35553 Financials 2019.indd 47

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

Description

Percent

NAV

Level 1

Level 2

Level 3

Total

(dollars in thousands)
The fair value of plan assets and major categories as of December 31, 2017, is as follows::

Collective Funds

Equity Securities

Diversified Mutual Funds

Short-term investments

Total investments measured in the fair value hierarchy

Investments measured at net asset value(1)

3.6 %
10.7 %
17.8 %
7.9 %

40.0 %
60.0 %

$ 1,741
5,195
8,615
3,836

19,387
29,035

$ 1,741
5,195
8,615
3,836

19,387
—

100.0 %

$ 48,422

$ 19,387

—
—
—
—

—
—

—

—
—
—
—

—
—

—

$ 1,741
5,195
8,615
3,836

19,387
29,035

$ 48,422

(1)

In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.

INVESTMENTS MEASURED USING THE NET ASSET VALUE PER SHARE PRACTICAL EXPEDIENT

The following table summarizes investments for which fair value is measured using the net asset value per share practical expedient.

There are no participant redemption restrictions for these investments.

Percent

Fair Value

(dollars in thousands)
The investments measured using the net asset value per share practical expedient as of December 31, 2018, is as follows:
Collective Funds by Category:
Equity
Diversified
US debt securities

20.8 %
0.0 %
12.1 %
9.7 %

$ 9,204
—
5,386
4,311

International equities

Limited Partnerships by Category:
Emerging markets
Multi-strategy
Hedge Funds by Category:
Multi-strategy(1)
Global opportunities(2)

Private investment entities and/or separately managed accounts(3)

2.9 %
1.9 %

3.6 %
0.3 %
1.4 %

1,289
826

1,593
150
639

52.7 %

$ 23,398

Percent

Fair Value

(dollars in thousands)
The investments measured using the net asset value per share practical expedient as of December 31, 2017, is as follows:
Collective Funds by Category:

Equity
Diversified
US debt securities

International equities

Limited Partnerships by Category:

Emerging markets

Multi-strategy
Hedge Funds by Category:
Multi-strategy(1)
Global opportunities(2)

Private investment entities and/or separately managed accounts(3)

31.6 %
0.7 %
9.4 %
9.1 %

2.8 %
1.5 %

3.5 %
0.7 %
0.7 %

$ 15,304
344
4,569
4,419

1,353
705

1,674
345
322

60.0 %

$ 29,035

(1)

This category includes investments in hedge funds that pursue multiple strategies to diversify risks and reduce volatility. Fund objectives are to seek above-average rates of return and long-term capital
growth through investments, which are fund of funds with a diversified portfolio of private investment entities and/or separately managed accounts managed by investment managers or achieve superior
risk-adjusted capital appreciation over the long-term, generally through an investment, which invests in private investment funds and discretional managed accounts, structured notes, swaps or other similar
(2)
products. The fair values of the investments in this category have been determined using the net asset value per share of the fund(s).

This category has an investment strategy to pursue a hybrid absolute return via portfolio managers, secondaries, and co-investments with a flexible and opportunistic mandate tactically allocating capital
to look to capitalize on market dislocations and inefficiencies. The opportunities are expected to fall within the following strategies: Niche Alternatives and Private Credit and Hedge Fund secondaries. The fair
value of the investments in this category have been determined using the last sales price, for listed securities, and in accordance with the agreement terms for portfolio-managed investments, notes, swaps,
(3)
and other similar products.

The Fund’s investment objective is to invest in highly attractive, select investment opportunities by maintaining investments through private investment entities and/or separately managed accounts (each,
an Investment or a Portfolio and collectively, the Investments or the Portfolios) with investment management professionals (each a Manager and collectively, the Managers) specializing in various alternative
investment strategies. The Managers have broad investment experience and the ability to leverage their existing relationships with corporate management teams, investment banks and other institutions to
gain access to certain investment opportunities. As such, the Manager is presented with “best idea” investment opportunities, typically in asset classes where market dislocations or other events have created
attractive investment opportunities. The Managers are not restricted in the investment strategies that they may employ across different asset classes and regions. The Manager anticipates that any number of
strategies will be eligible for consideration for investment by the Fund and the Fund reserves the right to invest in any particular strategy or asset class it deems appropriate.

35553 Financials 2019.indd 48

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

ASSET ALLOCATION

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 a target range of 15% to 25% and other investments including global asset allocation and hedge funds from 25% to 41%.

The Trustees of SBERA, through the Association’s 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 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.

Supplemental Insurance/
Retirement Plan
The benefits expected to be paid in each year from 2019 to 2023 are $2,423,000, $2,470,000, $2,377,000, $2,425,000 and $2,661,000, respectively. The
aggregate benefits expected to be paid in the five years from 2024 to 2028 are $16,532,000.

Defined Benefit Pension Plan

2017

2018

2017

(dollars in thousands)

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

Actuarial (gain)/loss
Benefits paid

Projected benefit obligation at end of year

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 (benefit)

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

$ 47,065
1,411
1,481
(8,263)
(1,185)

$ 40,509

$ 48,422
(2,800)
—
(1,185)

$ 44,437

$ 3,928

$ 40,509

4.76 %
3.49 %
8.00 %
4.00 %

$ 1,411
1,481
(3,813)
(100)
904

(117)

100
(2,554)

(2,454)

(2,571)

$ 42,255
1,241
1,450
3,456
(1,337)

$ 47,065

$ 37,447
5,312
7,000
(1,337)

$ 48,422

1,357

$ 47,065

3.49 %
3.99 %
8.00 %
4.00 %

1,241
1,450
(2,985)
(104)
903

505

104
409

513

1,018

$ 42,579
1,107
1,386
(3,591)
(1,076)

$ 40,405

$ 38,610
1,582
1,382
2,087
(1,082)

$ 42,579

$ (40,405)

$ 36,984

$ (42,579)

$ 40,375

4.79 %
3.42 %
NA
4.00 %

$ 1,107
1,386
—
114
706

$ 3,313

(114)
(4,298)

(4,412)

(1,099)

3.42 %
3.85 %
NA
4.00 %

1,582
1,382
—
114
636

3,714

(114)
1,752

1,638

5,352

December 31, 2018
Supplemental
Plan

Plan

Total

Plan

December 31, 2017
Supplemental
Plan

Total

—
(11,854)

(421)
(10,870)

(421)
(22,724)

100
(14,408)

$
(535)
(15,168)

(435)
(29,576)

$ (11,854)

$ (11,291)

$ (23,145)

$ (14,308)

$ (15,703)

(30,011)

(dollars in thousands)

Prior service cost
Net actuarial loss

Total

35553 Financials 2019.indd 49

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

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 $454,000 for 2018, $445,000 for 2017 and $418,000 for 2016.
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 $2,355,000, $1,859,000 and $1,418,000 in 2018, 2017,
and 2016, respectively.

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

18. Commitments and Contingencies

A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 2018. 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.

On September 7, 2017, Crimson Galeria Limited Partnership, Raj & Raj, LLC,
Harvard Square Holdings LLC, and Charles River Holdings LLC (collectively,
the “Plaintiffs”) filed suit in the United States District Court for the District
of Massachusetts against the Attorney General of the Commonwealth of
Massachusetts, the Massachusetts Department of Public Health, the City of
Cambridge, the Town of Georgetown, as well as against the Bank, Healthy
Pharms, Inc., (“Healthy Pharms”), Timbuktu Real Estate, LLC, Paul Overgaag,
Nathaniel Averill, 4Front Advisors, LLC, 4Front Holdings LLC, Kristopher T. Krane,
3 Brothers Real Estate, LLC, Red Line Management, LLC, unspecified insurance
providers to certain Plaintiffs, and Tomolly, Inc., (collectively, the “Defendants”).

The Plaintiffs allege that they own property in Cambridge, MA, and claim that
the value and use of their property will be impaired by Healthy Pharms decision
to open a registered medicinal marijuana dispensary in abutting or nearby
situated property. The Plaintiffs further allege that the Bank has a banking
relationship with Healthy Pharms and that, by entering into such relationship,
the Bank conspired with Healthy Pharms to violate the Racketeer Influenced
and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. The Plaintiffs seek
unspecified treble damages, and attorney’s costs and fees, as well as injunctive
and declaratory relief.

On November 13, 2018, the complaint was dismissed with prejudice, effectively
barring the plaintiff from ever rebringing the case against the Bank.

The following table summarizes the amounts included in Accumulated Other
Supplemental
Comprehensive Loss at December 31, 2018, 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 2019

Amortization of loss to be recognized in 2019

$ —
916

$ 114
435

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.

Effective January 1, 2016, the Company changed its estimate of the service and
interest components of the net periodic benefit cost. Previously, the Company
estimated the service and interest cost components utilizing a single weighted-
average discount rate derived from the yield curve used to measure the benefit
obligation. The new estimate utilizes a full yield curve approach in the estimation
of these components by applying the specific spot rates along the yield curve
used in the determination of the benefit obligation to their underlying projected
cash flows. The new estimate provided a more precise measurement of service
and interests costs by improving the correlation between projected benefit
cash flows and their corresponding spot rates. The change does not affect the
measurement of the Company’s benefit obligations and it is accounted for as
a change in accounting estimate, which is applied prospectively. For 2016, the
change in estimate reduced periodic plan cost by $859,000 compared to the
prior estimate. Mortality assumptions are based on the RP 2015 Mortality Table
projected with Scale MP 2016.

This methodology more accurately matches yields to the expected benefit
payments than the previous method. The discount rate used is an estimate of
the rate at which the plans could settle their obligations. Rather than using a rate
and curve developed using a bond portfolio, this method selects individual bonds
to match to the expected cash flows of the Plans. This provides a more accurate
depiction of the true cost to the plans to settle the obligations as the Plans
could theoretically go into the marketplace and purchase the specific bonds used
in the analysis in order to settle the obligations of the Plans.

The financial impact of the enhanced estimate to the discount rate amounted to
approximately $6,800,000 decrease in the projected benefit obligations for the
combined plans.

35553 Financials 2019.indd 50

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Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

19. Financial Instruments with Off-Balance-Sheet Risk

20. Other Operating Expenses

(dollars in thousands)

Year ended December 31,

2018

2017

2016

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

2018

2017

Financial instruments whose contract
amount represents credit risk:

Commitments to originate
1–4 family mortgages

$ 5,075

5,748

Standby and commercial letters of credit

4,258

5,520

Unused lines of credit

553,045

434,618

Unadvanced portions of construction loans

28,746

Unadvanced portions of other loans

20,305

15,152

35,602

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.

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

$ 2,346
2,002
1,444
1,077
1,740
1,464
1,021
987
946
438
420
678
1,725

$ 2,315
1,859
1,543
993
1,160
1,199
966
945
1,020
440
308
1,396
1,845

$ 2,185
1,863
1,255
789
1,040
1,168
987
948
1,032
413
323
1,532
1,812

Total

$ 16,288

$ 15,989

$ 15,347

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.

35553 Financials 2019.indd 51

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

LOANS

SUBORDINATED DEBENTURES

The fair value of loans is estimated using the exit price notion consistent
with Topic 820, Fair Value Measurement. Fair value is determined based on a
discounted cash flow analysis. The discounted cash flow analysis was based on
the contractual maturity of the loan and market indications of rates, prepayment
speeds, defaults and credit risk. For certain non-performing assets fair value
is determined based on the estimated values of the underlying collateral of
individual analysis of receipts.

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 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, 2018 and December 31, 2017. This table excludes financial
instruments for which the carrying amount approximates fair value. Financial
assets for which the fair value approximates carrying value include cash and cash
equivalents, short-term investments, FHLBB stock and accrued interest receivable.
Financial liabilities for which the fair value approximates carrying value include
non-maturity deposits, short-term borrowings and accrued interest payable.

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.

Carrying
Amount

Estimated
Fair Value

Fair Value Measurements

Level 1 Inputs

Level 2 Inputs

Level 3 Inputs

(dollars in thousands)

December 31, 2018

Financial assets:

Securities held-to-maturity

Loans(1)

Financial liabilities:

Time deposits

Other borrowed funds

Subordinated debentures

December 31, 2017

Financial assets:

Securities held-to-maturity

Loans(1)

Financial liabilities:

Time deposits

Other borrowed funds

Subordinated debentures

(1)

$ 2,046,647
2,257,035

$ 1,991,421
2,279,712

560,579
202,378
36,083

559,988
203,122
36,083

$ 1,701,233
2,149,689

$ 1,668,827
2,094,517

625,361
347,778
36,083

627,517
349,364
36,083

—
—

—
—
—

—
—

—
—
—

$ 1,991,421
—

—
2,279,712

559,988
203,122
36,083

—
—
—

$ 1,668,827
—

—
2,094,517

627,517
349,364
36,083

—
—
—

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

LIMITATIONS

22. Revenue from Contracts with Customers

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.

Revenue from contracts with customers in the scope of ASC Topic 606
is measured based on the consideration specified in the contract with a
customer, and excludes amounts collected on behalf of third parties. The
Company recognizes revenue from contracts with customers when it satisfies its
performance obligations.

The Company’s performance obligations are typically satisfied as services are
rendered, and our contracts do not include multiple performance obligations.
Payment is generally collected at the time services are rendered, or monthly.
Unsatisfied performance obligations at the report date are not material to our
consolidated financial statements.

The Company pays sales commissions to its employees in accordance with
certain incentive plans. The Company expenses sales commissions when incurred
if we do not expect to recover these costs from the terms of the contract with
the customer. Sales commissions are included in compensation expense.

35553 Financials 2019.indd 52

2/27/19 5:17 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

In certain cases, other parties are involved with providing products and services
to our customers. If the Company is a principal in the transaction (providing
goods or services itself), revenues are reported based on the gross consideration
received from the customer and any related expenses are reported gross in
noninterest expense. If the Company is an agent in the transaction (arranging for
another party to provide goods or services), the Company reports its net fee or
commission retained as revenue.

Waivers and reversals are recorded as a reduction of revenue either when the
revenue is recognized by the Company or at the time the waiver or reversal is
earned by the customer.

A. Change in Accounting Policy

The Company adopted Topic 606 Revenue from Contracts with Customers with
a date of initial application of January 1, 2018 and has applied the guidance
to all contracts within the scope of Topic 606 as of that date. As a result, the
Company has changed its accounting policy for revenue recognition as detailed
in this footnote.

The Company applied Topic 606 using the cumulative effect method. Therefore,
the comparative information has not been adjusted and continues to be reported
under Topic 605. There was no cumulative effect adjustment as of January 1,
2018, and there were no material changes to the financial statements at or for
the years ended December 31, 2018, 2017, and 2016 as a result of adopting
Topic 606.

B. Practical Expedients

The Company applies the practical expedient in paragraph 606-10-50-14 and
does not disclose information about remaining performance obligations that have
original expected durations of one year or less.

The Company applies the practical expedient in paragraph 606-10-32-18 and
does not adjust the consideration from customers for the effects of a significant
financing component if at contract inception the period between when the entity
transfers the goods or services and when the customer pays for that good or
service will be one year or less.

Year ended
December 31,
2018

Revenue from
Contracts
in Scope of
Topic 606

C. Nature of Goods and Services

The vast majority of the Company’s revenue is specifically out-of-scope of
Topic 606. For the revenue in-scope, the following is a description of principal
activities, separated by the timing of revenue recognition, from which the
Company generates its revenue from contracts with customers.

a. Revenue earned at a point in time – Examples of revenue earned at a point
in time are ATM transaction fees, wire transfer fees, NSF fees, credit and debit
card interchange fees and foreign exchange transaction fees. Revenue is generally
derived from transactional information accumulated by our systems and is
recognized as revenue immediately as the transactions occur or upon providing
the service to complete the customer’s transaction. The Company is the
principal in each of these contracts, with the exception of credit and debit card
interchange fees, in which case we are acting as the agent and record revenue net
of expenses paid to the principal.

b. Revenue earned over time – The Company earns revenue from contracts
with customers in a variety of ways in which the revenue is earned over a period
of time – generally monthly or quarterly. Examples of this type of revenue
are deposit account service fees, lockbox fees, investment management fees,
merchant referral services, and safe deposit box fees. Account service charges,
management fees and referral fees are recognized on a monthly basis while
any transaction based income is recorded as the activity occurs. Revenue is
primarily based on the number and type of transactions or assets managed and
is generally derived from transactional information accumulated by our systems.
Revenue is recorded in the same period as the related transactions occur or
services are rendered to the customer.

D. Disaggregation of revenue

The following table presents total revenues as presented in the Consolidated
Statements of Income and the related amounts which are from contracts with
customers within the scope of Topic 606. As illustrated here, the vast majority of
our revenues are specifically excluded from the scope of Topic 606.

Year ended
December 31,
2017

Revenue from
Contracts
in Scope of
Topic 606

Year ended
December 31,
2016

Revenue from
Contracts
in Scope of
Topic 606

(dollars in thousands)

Total net interest income

Noninterest income:

Service charges on deposit accounts

Lockbox fees

Brokerage commissions

Net gains on sales of securities

Gains on sales of mortgage loans

Other income

$ 92,576

—

$ 85,616

—

$ 74,082

—

8,560
3,274
348
302
—
3,764

8,560
3,274
—
—
—
2,536

8,586
3,290
353
47
370
3,906

8,586
3,290
—
—
—
2,429

7,907
3,164
315
64
1,331
3,441

7,907
3,164
—
—
—
1,966

Total noninterest income

16,248

14,370

16,552

14,305

16,222

13,037

Total revenues

$ 108,824

$ 14,370

$ 102,168

$ 14,305

$ 90,304

$ 13,037

December 31,

2018

2017

2016

(dollars in thousands)
The following table provides information about receivables with customers.

Receivables, which are included in “Other assets”

$ 1,205

$ 1,009

$ 340

35553 Financials 2019.indd 53

2/21/19 6:02 AM

2018 Quarters

23. 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

2017 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

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

Fourth

Third

Second

First

37,453
13,748

23,705
450

23,255
4,164
17,185

10,234
309

34,765
11,561

23,204
—

23,204
4,169
17,348

10,025
444

9,925

9,581

33,408
10,209

23,199
450

22,749
3,722
17,159

9,312
314

8,998

3,608,329
1,959,580

5,567,909
1,959,580

2.16
1.08

1.78
1.08

Fourth

29,470
7,768

21,702
450

21,252
4,410
15,992

9,670
9,645

3,605,829
1,962,080

5,567,909
1,962,080

0.01
—

—
—

$
$

3,608,329
1,959,580

5,567,909
1,959,580

2.09
1.04

1.72
1.04

Third

28,521
7,168

21,353
450

20,903
3,942
16,205

8,640
617

8,023

3,605,829
1,962,080

5,567,909
1,962,080

1.75
0.87

1.44
0.87

$
$

3,608,029
1,959,880

5,567,909
1,959,880

1.96
0.98

1.62
0.98

Second

28,806
6,701

22,105
490

21,615
4,291
17,197

8,709
552

8,157

3,603,729
1,964,180

5,567,909
1,964,180

1.78
0.89

1.47
0.89

$
$

31,430
8,962

22,468
450

22,018
4,193
18,001

8,210
501

7,709

3,608,029
1,959,880

5,567,909
1,959,880

1.68
0.84

1.38
0.84

First

26,639
6,183

20,456
400

20,056
3,909
17,725

6,240
144

6,096

3,600,729
1,967,180

5,567,909
1,967,180

1.33
0.66

1.09
0.66

35553 Financials 2019.indd 54

2/21/19 6:02 AM

Notes to Consolidated Financial Statements

Century Bancorp, Inc. AR ’18

24. Parent Company Financial Statements

The balance sheets of Century Bancorp, Inc. (“Parent Company”) as of December 31, 2018 and 2017 and the statements of income and cash flows for each of the years
BALANCE SHEETS
in the three-year period ended December 31, 2018, are presented below. The statements of changes in stockholders’ equity are identical to the consolidated statements
December 31,
of changes in stockholders’ equity and are therefore not presented here.
(dollars in thousands)

2018

2017

ASSETS:

Cash

Investment in subsidiary, at equity

Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY:

Liabilities

Subordinated debentures

Stockholders’ equity

Total liabilities and stockholders’ equity

STATEMENTS OF INCOME
Year Ended December 31,

(dollars in thousands)

Income:

Dividends from subsidiary

Interest income from deposits in bank

Other income

Total income

Interest expense

Operating expenses

Income before income taxes and equity in undistributed income of subsidiary

Benefit from income taxes

Income before equity in undistributed income of subsidiary

Equity in undistributed income of subsidiary

1,263
322,775
16,991

$ 341,029

4,507
36,083
300,439

$ 341,029

1,981
283,881
16,833

$ 302,695

6,315
36,083
260,297

$ 302,695

2018

2017

2016

4,750
—
53

4,803
1,474
225

3,104

(347)

3,451
32,762

2,500
1
34

2,535
1,121
209

1,205

(440)

1,645
20,656

2,000
3
28

2,031
937
220

874

(383)

1,257
23,277

$ 24,534

Net income

$ 36,213

$ 22,301

STATEMENTS OF CASH FLOWS
December 31,

(dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

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

Undistributed income of subsidiary

Increase in other assets

(Decrease) increase in liabilities

Net cash provided by (used in) operating activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Cash dividends paid

Net cash used in financing activities

Net (decrease) in cash

Cash at beginning of year

Cash at end of year

2018

2017

2016

$ 36,213

$ 22,301

$ 24,534

(32,762)
(158)
(1,808)

1,485

(2,203)

(718)

1,981

(20,656)
(6,498)
6,266

1,413

(2,200)

(787)

2,768

(23,277)
(1,527)
9

(261)

(2,201)

(2,462)

5,230

1,263

1,981

2,768

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Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ’18

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.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Century Bancorp, Inc. and its subsidiary (the “Company”) as of December 31, 2018 and 2017, 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, 2018, and the related notes, collectively, the consolidated financial statements. In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 2018, 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) (“PCAOB”), the Company’s internal
control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated March 15, 2019 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.

Basis for Opinion

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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 1982.

Boston, Massachusetts

March 15, 2019

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Report of Independent Registered Public Accounting Firm

Century Bancorp, Inc. AR ’18

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.:

Opinion on Internal Control Over Financial Reporting

We have audited Century Bancorp, Inc. and its subsidiary’s (the “Company”) internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance
sheets of the Company as of December 31, 2018 and 2017, 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, 2018, and the related notes, collectively, the consolidated financial statements, and our
report dated March 15, 2019 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’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 are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.

Definition and Limitations of Internal Control Over Financial Reporting

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.

Boston, Massachusetts

March 15, 2019

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Management’s Report on Internal Control Over Financial Reporting

Century Bancorp, Inc. AR ’18

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, 2018. 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, 2018, 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 57.

Barry R. Sloane
President & CEO

March 15, 2019

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 505000
Louisville, KY 40233
TEL (781) 575-3400
Computershare.com

The annual meeting of stockholders will be held on Tuesday, April 9, 2019, 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.

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About Century

Century Bancorp, Inc. is a $5.2 billion banking and financial services company headquartered in
Medford, Massachusetts. The Company operates 27 banking offices in 20 cities and towns in
Massachusetts and provides a full range of business, personal, and institutional services.

Headquarters

Allston

Andover

Back Bay

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

400 Mystic Avenue, Medford, MA 02155

(866) 823-6887 CenturyBank.com

Equal Housing Lender/Member FDIC

002-CSN9A14