Century Bancorp Inc. Annual Report 2019

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FY2019 Annual Report · Century Bancorp Inc.

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

Customer centric.
Digitally enhanced.

Equal Housing Lender/Member FDIC

002CSNA6CF

2019 Annual Report

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About Century

Century Bancorp, Inc. is a $5.5 billion banking and fnancial services company headquartered in Medford,
Massachusetts. The Company operates 28 banking offces and provides a full range of business, personal,
and institutional services.

Headquarters – Medford
400 Mystic Avenue
(781) 393-4160

Allston
300 Western Avenue
(617) 562-1700

Andover
15 Elm Street
(978) 474-4191

Back Bay
437 Boylston Street
(617) 424-1644

Beverly
428 Rantoul Street
(978) 921-2300

Braintree
703 Granite Street
(781) 356-3400

Chestnut Hill Square
210 Boylston Street/Rte 9
(617) 582-0920

Coolidge Corner
1354 Beacon Street
(617) 713-1890

North End
275 Hanover Street
(617) 557-2950

Peabody
12 Peabody Square
(978) 977-4900

Everett
1763 Revere Beach Parkway/Rte 16
(617) 381-6300

Quincy
651 Hancock Street
(617) 376-8100

Federal Street
24 Federal Street
(617) 423-1490

Fellsway
503 Riverside Avenue
(781) 393-6520

Lynn
2 State Street
(781) 586-8700

Brookline
1184-1186 Boylston Street/Rte 9
(617) 713-4910

Malden
140 Ferry Street at Eastern Avenue
(781) 388-2100

Burlington
134 Cambridge Street/Rte 3A
(781) 238-8700

Cambridge
2309 Massachusetts Avenue
(617) 349-5300

Medford Square
One Salem Street
(781) 391-9830

Newton Centre
32 Langley Road
(617) 641-2300

Salem, MA
37 Central Street
(978) 740-6900

Salem, NH (Coming Soon)
365 South Broadway

Somerville
102 Fellsway West at Mystic Avenue
(617) 629-0929

State Street
136 State Street
(617) 367-3712

Wellesley
258 Washington Street
(781) 235-6500

Winchester
522 Main Street
(781) 756-3480

Woburn
299 Mishawum Road
(781) 932-5612

“Boston has lost a one-of-a-kind leader who was always looking to do good and bring people together.“
In Remembrance
~ Louis J. Woolf, President & CEO of Hebrew SeniorLife

“Marshall Sloane was a role model for everyone in the way he lived his life and gave back to the community.”
~ President Antoinette M. Hays, Regis College

“Marshall Sloane exemplifed the best qualities of a person dedicated to his family, his friends,
including the people of the Century Bank family, and his local community.”
~ Cardinal Sean P. O’Malley, Archbishop of Boston

“Massachusetts lost a banking icon… remembered for his philanthropy, his relentless work
ethic and his contributions to the industry.”
~ Banker & Tradesman

“A great example of what a community banker should be.”
~ Former Comptroller of the Currency Thomas J. Curry

“He was an incredible gentleman and he ran a very, very well-run community bank.”
~ Neal J. Curtin, Veteran Boston Banking Attorney

Marshall M. Sloane was much more than the visionary architect of Century Bank. He was our Dad. He taught us the

value of working hard, doing the right thing, and serving the community. He always wanted the bank he founded to live

long beyond his generation — and he insisted we do it in a way he would be proud of. Dad’s wisdom, compassion,

generosity and kindness will be remembered by his family, the thousands of employees who worked at Century over the

past 50 years, and the countless people whose lives he touched over his long and extraordinary life.

Barry R. Sloane

Linda Sloane Kay

Marshall M. Sloane
Founder & Chairman
April 15, 1926 – April 6, 2019

Chairman’s Message

Dear Fellow Shareholders:

2019 was a year of excellent fnancial results but much sadness with the death in April of my Dad and our

Founder, Marshall, at age 92. He had a life of profound accomplishments, and we begin every day with a devotion

to building on his superb legacy. He would have been very proud to know that 2019 was the tenth consecutive year

of record setting for assets, earnings, and loans, and the record size of capital. Dad missed the celebration of our

50th Anniversary of our founding on May 1, 1969. It was a much subdued event without him. So many factors

have contributed to our success, but most importantly the unwavering strategic discipline devised and implemented

by our Founder.

Net earnings were $39.7 million, an increase of 10% over 2018 earnings, and our capital grew to $333 million.

We ended 2019 at a milestone: $5.5 billion in assets, signifcant growth of 6.4%, achieved when many of our

peers were fat. Century earned $7.13 per share in 2019, as compared to $6.50 in 2018. Our stock closed the

year at $89.96, an increase of 33% over the prior year, outpacing our peers. Our stock, symbol CNBKA, has a

three-year cumulative total return of 52%, and a fve-year cumulative total return of 131%.

All three principal business units again performed extremely well in 2019.

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 2019.

Our Family’s Bank. And Yours.

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.

Our theme this year is “Customer Centric/Digitally

Enhanced.” It represents the essential challenge

of regional and community banks, to utilize the

power of the digital platform to improve customer

relationship management through offcer contact,

rather than the reverse strategy practiced by

our giant competitors to substitute computers

for people.

The following examines the multiple elements

of Century’s results that have contributed to our

success in 2019:

Vice Chair Linda Sloane Kay and
Chairman, President & CEO Barry R. Sloane

S&P/CFRA
Quality Ranking

Customer Centric through Centralized Hands on Management

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 offcer hirings, contracts, leases, audits, marketing campaigns,
signifcant 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.

Net Earnings Growth and Return on Equity

Net earnings increased by 10% to $39.7 million, for the year ended December
31, 2019, as compared to earnings of $36.2 million for 2018. Century’s return
on average equity (ROE) was 12.44% for 2019, as compared to 2018’s 13.05%.
The ROE is the primary building block of our fnancial goal setting. It refects 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 confdence that if we continue to produce a
double-digit ROE, the share price will follow over time. We received an S&P/CFRA
“A” quality rating, one of 49 banks in America, and one of only four in
Massachusetts, to receive this rating or higher. It is a strong external contributing
confdence factor.

Our family’s bank. And yours.

LOCATIONS

CONTACT % RATES

$5.5

Billion in Assets

2019

Total Assets (in thousands)

Net Income (in thousands)

$5,492,424

$39,699

Earnings per Class A share,
diluted
$7.13

Medford Public Library
Ground Breaking Ceremony
Pictured from left: Senator Patricia D.
Jehlen; Erin DiBenedetto; Mayor Breanna
Lungo-Koehn; Ann Frenning Kossuth;
Former Mayor Stephanie M. Burke;
Councillor Michael J. Marks;
Barry R. Sloane; Linda Sloane Kay;
Council President John C. Falco, Jr.;
Representative Sean Garballey;
Representative Paul J. Donato; Councillor
Adam Knight; Council Vice President
Richard Caraviello and Representative
Christine Barber

In addition, our effciency ratio of overhead to revenue, the key comparative metric of non-interest expense
decreased slightly from 59% in 2018 to 58% in 2019. We watch our expenses carefully and are very proud of
the effciency ratio remaining below 60%, an industry threshold target, for the past three years.

Customer Centric Signifcant Asset Growth

Total assets grew 6.4% to a record of $5.5 billion on December 31, 2019, up from $5.2 billion on December 31,
2018, an increase of $328 million. We experienced signifcant growth in 2019 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 confdence in our high performing earnings and asset growth.

Customer Centric Record Capital

Total equity was $332.6 million on December 31, 2019, an increase of $32 million or 10.7% from $300.4
million on December 31, 2018. Book value per share increased to $59.73 at December 31, 2019, up by
$5.77 from $53.96 at December 31, 2018. Century is “well capitalized” by all regulatory standards, and we
have passed all “Basel III” requirements through organic capital generation from earnings.

Customer Centric Record Loan Portfolio Size

Our unique loan portfolio strategy continues to work exceptionally well. Total loans grew by $141 million or
6% to a record $2.4 billion on December 31, 2019, our largest loan portfolio ever, and a loan to deposit ratio
of 55.1%. Non-performing assets continued to be minimal for a portfolio of our size, decreasing from $3.5
million at December 31, 2018 to $2.0 million at December 31, 2019. The education and healthcare
sectors continue to anchor our loan portfolio. We are, by any standard, one of the leading experts in
tax-exempt fnancing 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.

Linda Sloane Kay elected as the Chair of the
Newton-Needham Chamber of Commerce

We constantly evaluate industry developments to look for warning signs for our portfolio. We constantly incorporate
risk management techniques in our loan approval and monitoring discipline.

Our calling offcers 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 satisfed 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 diversifed with emphasis on quality underwriting
and effective ongoing monitoring of the loan portfolio. 2019 was a productive year in which we closed $84 million
in residential frst mortgages, and $198 million in home equity loans. We extended 290 energy conservation loans
through the Mass Save loan program, which helped us do our part for conservation while originating many new
long-term relationships. In addition, we have begun a residential solar energy lending program. We acknowledge the
important role of solar energy in our generating future and will attempt to grow that business line.

Customer Centric Results in our Branch System

We are proud that fve of our twenty-seven branches hold over $100 million in deposits, and total branch deposits
exceed $2.3 billion. In late 2020 we will open branch #28, our frst branch in southern New Hampshire in Salem.
The New Hampshire market is an important geographic expansion for our consumer business, as it is only 10 miles
north of our Andover branch. The low tax climate of New Hampshire makes it particularly attractive to closely held
businesses, and we expect to see signifcant relationship originations
in Salem.

We are very discerning in the search for our next branch, #29. 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.

In 2020, we’ll expand our geographic footprint by
opening a branch in Salem, NH

Customer Centric Record Growth in Institutional Services

The Institutional Services Group, which includes our government, cash
management, and not-for-proft 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
signifcantly in Rhode Island and New Hampshire.

We processed over 43 million check and payment items in 2019, 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 seventh consecutive year, the audit of our automated lockbox services
and its operative effectiveness of controls was without any fnding of defciency.

We believe our service, execution, and reputation is without peer in
New England. We will do our utmost to ensure it is always true.

Customer Centric Record Size in Wealth Management

2019 was the ffth full year of our wealth management function. Our
assets under management grew 20.2% to over $157 million. Our wealth
management business is a great opportunity to serve the generational
transition challenges of our private clients while providing our not-for-proft
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.

Customer Centric - 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.
Linda and I keep taking the time to personally sign each welcome note
thanking every new client of Century. This level of personal touch is
unique from all others in the industry.

Pictured from top:
Gerald S. Algere, EVP; Richard L. Billig, SVP; Bradford J.
Buckley, SVP; Peter R. Castiglia, SVP; Gracine Copithorne,
SVP; Susan B. Delahunt, SVP; Paul A. Evangelista, EVP;
Brian J. Feeney, EVP; James M. Flynn, Jr., SVP; William J.
Gambon, Jr., SVP; Timothy L. Glynn, SVP; Anna M. Gorska,
SVP; William P. Hornby, CFO & Treasurer; Anthony C. LaRosa,
SVP; Cary E. Lynch, SVP; Shipley C. Mason, SVP; Jason J.
Melius, SVP; Nancy R. Miller, SVP; Thomas E. Piemontese,
SVP; Deborah R. Rush, SVP; Kenneth A. Samuelian, SVP;
Yasmin D. Whipple, SVP; and David B. Woonton, EVP

Customer Centric Digitally Enhanced Results in Information Systems

We pride ourselves on a technology platform of redundancy and expertise that our
clients can rely on for fnancial inquiry, transactions, and high-quality service. We
are proud to say that Information Systems met all of its operational and service
goals in 2019. We are constantly monitoring our systems’ reliability, and when
customers encounter problems at night or on weekends, we’re always reachable.

In connection to storm and food resiliency, in 2019 we took the important step
of moving our backup internet servers from Quincy to a level three data center at
high elevation in Northborough. We believe this step signifcantly strengthens our
backup redundancy and reliability.

Customer Centric 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 perform a strategic analysis of the full realm
of digital banking services. Our goal is to provide the menu of digital services
offered by our most advanced giant competitors, yet ALWAYS enable the
intervention of live bankers to assist and educate customers in their relationship
needs. We are well down this 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. The next step in the digital enhancement process is what’s
called the “conversation” (shown on the cover of this report). Using this capability, a
client would, through our mobile app, touch an icon of their favorite banker. Once
activated, a live conversation would ensue by voice, email, or text with the
customer. If the banker was unavailable, the app would default to the next in the
chain. The “conversation” could redefne client communication in banking. We
have purchased the system and will debut the frst elements later this year.

Century Celebrates Rosalie A. Cunio
Our frst employee retired after working more than
50 years at the Bank

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

Century’s commitment to sustainability continues to grow. In
addition to electric messenger vehicles and highly effcient
HVAC systems throughout our network, we ensured that all
effcient measures were implemented in the construction of
our new operations building on Hicks Avenue in Medford.
These included repurposing an existing foundation system and
constructing the new building shell in full compliance with the
enhanced 2015 IECC energy code.

Our Commitment to Sustainability
We use electric vehicles for our courier services and extend
use of our charging station to our customers and local
residents for free.

Celebrating our Customer Centric People and our Values

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 confdence and relationships.
We will endeavor to make 2020 another year of superior results through our diligence and resourcefulness,
in Dad’s memory.

Sincerely,

Barry R. Sloane

Chairman, President & CEO

This year, we continued to invest in our communities, supporting 286 organizations.

First District of Omega Psi Phi Fraternity, Inc.
AbilityPLUS Adaptive Sports
Action for Boston Community Development, Inc.
Adopt-A-Student Foundation
AFSCME Council 93
Alzheimer’s Association
American Foundation for Suicide Prevention
Andover Business Community Association
Andover Center for History & Culture
Andover Rotary Club
Andover Senior Community Friends
Andover Youth Foundation
Animal Rescue League of Boston
Archdiocese of Boston
Armenian Heritage Foundation
Asian Community Development Corporation
Associazione Gizio
At Home on the Sound
Babson College
Back Bay Association
Bais Yaakov of Boston High School for Girls
Best Buddies
Beth Israel Deaconess Medical Center-Milton
Bigelow Middle School
Billerica Pop Warner
Bishop Fenwick High School
Boston Architectural College
Boston Ballet
Boston Children’s Hospital
Boston Chinatown Neighborhood Center, Inc.
Boston College High School
Boston Harbor Now
Boston Jewish Film Festival
Boston Landmarks Orchestra
Boy Scout Troop 205 Newton
Boy Scout Troop 513 Stoneham
Boy Scout Troop 9 Weymouth
Boys & Girls Club of Greater Salem
Boys & Girls Clubs of Boston
Boys and Girls Clubs of Stoneham & Wakefeld
Brandeis University
Bread of Life
Brendan M. Curtin Scholarship Fund
Brookline Chamber of Commerce
Brookline Community Foundation
Brookline Food Pantry
Brookline High School Innovation Fund
Brookline Senior Center
Cam Coye Memorial Scholarship Fund
Cambridge Athletic Hall of Fame
Cambridge Camping
Cambridge College
Cambridge Montessori School
Cambridge School Volunteers
Cambridge YWCA
Camp Harbor View Foundation, Inc.
Cardinal Cushing Centers, Inc.
Cardinal Spellman High School
Catholic Charities of Boston
Catholic Schools Foundation, Inc./Inner-City

Scholarship Fund
Challenge Unlimited
Children’s Trust
Christians and Jews United for Israel
City of Beverly
City of Chicopee
City of Everett
City of Medford
City of Peabody
City of Somerville
Colby-Sawyer College
Colleen E. Ritzer Memorial Scholarship Fund

Combined Jewish Philanthropies
Community Dispute Settlement Center
Congregation B’nai B’rith
Congregation Kehillath Israel
Congregation Shirat Hayam
Coolidge Corner Community Chorus
Creative Living Inc.
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
Eliot School
Elizabeth Peabody House
Emerge
Epstein Hillel School
Essex North Shore Agricultural Technical

Foundation, Inc.
Facing Cancer Together
Fisher Center for Alzheimer’s Research Fund
Fontbonne Academy

James L. McKeown Boys & Girls Club of Woburn
Jeanne Geiger Crisis Center
Jewish Big Brothers Big Sisters
Jewish Cemetery Association of Massachusetts
Jewish Community Centers of Greater Boston
Jewish Family Service
John T. Forcellese Memorial Fund
Joseph N. Hermann Youth Center
Joslin Diabetes Center
Knights of Pythias, Local 158
Koleinu Boston’s Jewish Community Chorus
Kosher Dental Study
Ladies Ancient Order of Hibernians
Lawrence CommunityWorks
Lazarus House Ministries
LimmudBoston
Lynn Chamber of Commerce
Lynn Housing Authority & Neighborhood

Development

Lynn Museum & Historical Society
Lynn Police Association
Malden YMCA
Mary Ann Brett Food Pantry-Dorchester Catholic
Massachusetts Association of Mental Health
Massachusetts Eye and Ear Infrmary

Team Century participated in the Rodman Ride for Kids

Foundation for MetroWest
Foundation for Racial, Ethnic & Religious

Harmony

Francis X. Irwin Class of 1952 Scholarship

Fund

Franciscan Children’s
Friends of Christopher Columbus Park
Gann Academy
German International School Boston
Girl Scouts of Eastern Massachusetts
Greater Beverly Chamber of Commerce
Greater Boston Real Estate Board
Greater Lawrence Family Health Center
Habitat for Humanity Greater Boston
Harvard Club of Boston
Heart Warrior Foundation
Hebrew SeniorLife
Hillel House at Boston University
Hospice & Palliative Care Federation of

Massachusetts

Hospitality Homes, Inc.
Housing Families, Inc.
Independence House, Inc.
Initiative for a Competitive Inner City
Interfaithfamily.com
Irish International Immigrant Center
Italian American Association
Italian Home for Children

Massachusetts General Hospital
Massachusetts Network of Foster Care Alumni
Massachusetts Production Coalition
Matignon High School
May Institute
Medford Babe Ruth Baseball
Medford Chamber of Commerce
Medford Jingle Bell Festival
Medford Public Library Foundation
Medford Public Schools
Medford Rotary Club
Medical Mission Sisters and Associates
Merrimack Valley Catholic Charities
Merrimack Valley YMCA
MetroWest Jewish Day School
Monsignor Neagle Apartments
Morgan Memorial Goodwill Industries
My Brother’s Table
Mystic Learning Center, Inc.
Mystic Valley Elder Services
NAIOP Massachusetts
Nashua Senior Activity Center
National Brain Tumor Society
National Institute for Children’s Heath Quality
National Kidney Foundation
National Tay-Sachs & Allied Diseases

Association

Nativity Preparatory School
Needham History Center & Museum
Neighborhood House Charter School
Neighbors in Need
New England Commission of Higher

Education

New England Conservatory
New England Friends of Bosnia and

Herzegovina

New England Yachad
Newbury Street League
Newton Little League
Newton North High School
Newton-Needham Chamber of Commerce
Newton-Wellesley Hospital Charitable

Foundation

North Andover Housing Authority
North End Against Drugs, Inc.
North End Beautifcation Committee
North End Music and Performing Arts Center
North End Waterfront Health
North Reading Little League
North Shore Chamber of Commerce
North Shore Community Action Programs, Inc.
Northeast Arc
Northern Essex Community College
On the Rise
Our Lady of Cedars of Lebanon Church
Pan-Mass Challenge
Parenting Journey
Parkinson’s Foundation
Peabody Institute Library Foundation
Plummer Youth Promise
Prospect Hill Academy Charter School
Quincy College
Quincy School Community Partnership
Redemptoris Mater Seminary
Regis College
RESPOND, Inc.
Ridgefeld Academy
Rodman Ride for Kids
Rosie’s Place
Run for the Troops
Sacred Heart Parish
Sacred Heart School
Sail Cape Cod
Saint Anthony’s Society
Saint John School
Saint Leonard Parish
Saint Peter School
Salem Academy Charter School
Salem Rotary Club
Salve Regina University
Save the Children

Scholar Athletes
Service Club of Andover
Shakespeare & Company
Sisterhood Temple Emanuel of Newton

Suzuki School of Newton
Teamsters Local 25, Autism Fund Inc.
Temple Beth Shalom
Temple Beth Zion

The Sloane Family and Associates celebrated the Bank’s 50th anniversary

Sisters of St. Joseph of Boston
Social Law Library
Somerville Chamber of Commerce
Somerville Council on Aging
Somerville High School
Somerville Media Center
Somerville Museum
Somerville Police Department
Somerville Pop Warner
Somerville Rotary Club
South End Community Health Center
South Shore Chamber of Commerce
Spirit of Adventure Council, Boy Scouts of

America

Sportsmen’s Tennis & Enrichment Center
St. Anthony Shrine
St. John the Evangelist Church
St. Joseph Parish
St. Vincent DePaul Society
Stonehill College

Temple Emanuel Andover
Temple Emanuel Newton
Temple Israel Boston
Temple Ohabei Shalom
Temple Reyim
Temple Sinai Sharon
The Arc of the South Shore
The Cam Neely Foundation
The Carroll Center For The Blind
The Forest Park Project
The Genesis Fund
The Jimmy Fund
The Joey Fund
The Kennek Foundation
The Progeria Research Foundation
The Skating Club of Boston
The Soldiers Fund
Threads Unbroken
Torah Academy
Town of Acton
Town of Burlington
Town of Groveland
Town of Swampscott
Town of Winchester
Travis Roy Foundation
Tufts University Dental Alumni Association
UNICO Merrimack Valley
Usher Syndrome Society
USS Constitution Museum
Visiting Nurse & Community Care
VNA Hospice Care
Ward 7 Improvement Association
Wellesley Rotary Club
Whittier Street Health Center
Winchester Rotary Club
Woburn Kiwanis Club
Woburn Middlesex Lions Club
Wounded Warrior Project
YouthConnect

Century Bank presented the Marshall M. Sloane Memorial Scholarship

Century Bancorp, Inc.
Directors

Century Bank and Trust
Company Officers

Management Committee

Barry R. Sloane
Chairman, President & CEO

Linda Sloane Kay
Vice Chair

William P. Hornby, CPA
Chief Financial Officer & Treasurer

Gerald S. Algere
Executive Vice President

Paul A. Evangelista
Executive Vice President

Brian J. Feeney
Executive Vice President

David B. Woonton
Executive Vice President

Richard L. Billig
Senior Vice President

James M. Flynn, Jr.
Senior Vice President

Jason J. Melius
Senior Vice President

Senior Vice Presidents

Bradford J. Buckley
Peter R. Castiglia
Gracine Copithorne
Susan B. Delahunt
William J. Gambon, Jr.
Timothy L. Glynn
Anna M. Gorska
Anthony C. LaRosa, CPA
Cary E. Lynch
Shipley C. Mason
Nancy R. Miller
Thomas E. Piemontese
Deborah R. Rush
Kenneth A. Samuelian
Yasmin D. Whipple

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

Stephen R. Delinsky, Esq.1,3*,7
Attorney

Louis J. Grossman 3,4,7
Chairman
The Grossman Companies, Inc.

Russell B. Higley, Esq.6,7
Attorney

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

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

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

Joseph P. Mercurio1,2,7*
Independent Consultant
Higher Education and
Administration

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

Jo Ann Simons 1,2,5
CEO
Northeast ARC

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

George F. Swansburg 4*,5,6

Officers

Barry R. Sloane
Chairman, President & CEO

Linda Sloane Kay
Vice Chair

William P. Hornby, CPA
Chief Financial Officer & Treasurer

Judith Sinclair
Clerk

First Vice Presidents

Assistant Vice Presidents

Anel J. Cetina-Santos
Jeana A. DeBenedetto
Jeanette E. duMee
John R. Ferguson
Joshua L. Jick
Linda M. Johns
Brandon N. Letellier
Ann E. Mannion
Carol A. Melisi
Robson G. Miguel
Marie A. Nugent
Kathleen E. Schroeder
Krzysztof A. Sikorski
Jeanne A. Wood

Officers

Zabi Abhar
Scott Atkinson
Susan A. Cabral
Heather J. Donnellan
Sarah K. Doracaj
Paul A. Ennis
Joseph R. Ferreira
Richard Forrest
Sara A. Gaudet
Lisa M. Glynn
Fatima M. Goncalves
Paula A. Grimaldi
Simohammed Hakkaoui
Earl K. Kishida
Amanda A. Leitz
David M. Leung
Paula A. Malley
Kimberly J. Matsumoto
Phil McManus
Sambo Mean
Cheryl L. Miller
Lisa M. Ramos
Pratik Rana
Christopher M. Ross
Cynthia E. Sarnie
Biljana Savic
Michael E. Serieka
Maria R. Serrentino
Robert J. Silva
Judith Sinclair
Lyndsey H. Starks
Matthew Sullivan
Elizabeth A. Theriault

Michael D. Ballard
Jeffrey R. Bradbury
T. Daniel Kausel
Nancy M. Marsh
Carl M. Mattos
Jennifer A. Nickerson, CPA
Meredith O’Keefe

Vice Presidents

Zubin C. Bagwadia
Robert A. Bennett
John S. Bosco, Jr.
Pasqualina Buttiri
Roberta M. Byington
James W. Clark
Cindy Cohen
Derek J. Craig
Anthony Daniels
Ray DeBarros
Brian J. DeVenne
James P. Dever III
Laura A. DiFava
Margaret DiMasco
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
Sarah A. O’Toole
Patricia A. Pace
Keith M. Pauletti
Karen Pessa
Scott M. Piccolo
Cornelius C. Prioleau
Scott M. Rembis
Danielle G. Sheehan
Youyi Shi
Daisy S. Siddiqui
Mary Spadoni
Rita C. Spitz
Jeremy P. Styles
Valerie R. Trevisone
Lawrence H. Tsoi
Jose I. Umana
Calvin M. Wong

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

Financial Highlights

1
FINAN C IAL STATEMENTS
3

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

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm

Management’s Report on Internal Control Over Financial Reporting

Century Bancorp, Inc. AR ’19

2019

2018

2017

2016

2015

(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)

$
$
$
$

159,139
63,350
95,789
1,250
94,539
18,399
72,129
40,809
1,110
39,699

39,699

3,633,044
1,934,865
5,567,909
1,934,865
5,567,909

8.63
4.31
7.13
4.31

5.6 %

$
$
$
$

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 %

AT YEAR-END
Assets
Loans
Deposits
Stockholders’ equity
Book value per share

SELECTED FINANCIAL PERCENTAGES
Return on average assets
Return on average stockholders’ equity
Net interest margin, taxable equivalent
Net charge-offs (recoveries) as a percent of

average loans

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

$ 5,492,424
2,426,119
4,400,111
332,581
59.73

$ 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

0.76 %
12.44 %
2.10 %

0.01 %
6.12 %
58.4 %

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 %

(1)

2019

2018

2017

2016

2015

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

Calculation of Efficiency Ratio:
Total Operating Expenses
Less: Other Real Estate Owned Expenses
Total Adjusted Operating Expenses (numerator)
Net Interest Income
Total Other Operating Income
Tax Equivalent Adjustment
Total Income (denominator)

72,129
(134)
71,995
95,789
18,399
9,068
123,256

69,693
(59)
69,634
92,576
16,248
8,854
117,678

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

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

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

Efficiency Ratio, Year—Non-GAAP

58.4 %

59.2 %

57.8 %

62.7 %

64.1 %

2019

2018

2017

2016

2015

$
$

2,207
39,699

$
$

2,203
36,213

$
$

2,200
22,301

$
$

2,201
24,534

$
$

2,200
23,021

5.6 %

6.1 %

9.9 %

9.0 %

9.6 %

2019

2018

2017

2016

2015

39,699
—
39,699

36,213
—
36,213

22,301
8,448
30,749

24,534
—
24,534

23,021
—
23,021

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

Century Bancorp, Inc. AR ’19Financial Highlights

The stock performance graph below compares the cumulative total shareholder return of the Company’s Class A Common Stock from ecember 31, 2014 to
ecember 31, 2019 with the cumulative total return of the NAS AQ Market Index (U.S. Companies) and the NAS AQ 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

2014

2015

2016

2017

2018

2019

Value of $100 Invested on
December 31, 2014 at:

2015

2016

2017

2018

2019

Century Bancorp, Inc.

NASDAQ Banks

NASDAQ U.S.

$ 109.76
102.21
106.96

$ 153.14
129.34
116.45

$ 201.10
153.13
150.96

$ 175.20
128.02
146.67

$ 234.04
175.61
200.49

*Assumes that the value of the investment in the Company’s Common Stock and each index was $100 on
ecember 31, 2014 and that all dividends were reinvested.

Century Bancorp, Inc. AR ’19Financial Highlights

FORWARD-LOOKING STATE ENTS

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 ARKET DEVELOP ENTS

On July 21, 2010, the odd-Frank Wall Street Reform and Consumer Protection
Act (the “ -F Act”) became law. The -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 -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 -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 -F Act broadened the
base for F IC assessments to average consolidated assets less tangible equity of
financial institutions and also permanently raises the current standard maximum
F IC deposit insurance amount to $250,000. The Act extended unlimited
deposit insurance on non-interest bearing transaction accounts through
ecember 31, 2012.

In addition, the -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
egula
tory
final implementing regulations for the Rule were issued by various r
agencies in ecember 2013 and under an extended conformance r
egulation
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 amendments to the Rule to provide greater clarity and
certainty about what activities are prohibited and to improve the effective
allocation of compliance resources, and to conform the Rule to the EGRRCPA
(discussed below). The federal banking agencies have also issued a notice of
proposed rulemaking to liberalize the covered fund rules.

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-w
and would set a new conservation buffer of 2.5 percent of risk-w
The implementation of the framework did not have a material impact on the
Company’s financial condition or results of operations.

ed assets
eight
eighted assets.

On ecember 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 ecember 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 -F Act. The EGRRCPA changes certain
of the regulatory requirements of the -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 -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
-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 final rule, effective January 1, 2020,
which 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 eposit
Insurance Act.

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

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 ecember 31,
2019, the Company had total assets of $5.5 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 comprising of approximately
298 government entities.

The Company had net income of $39,699,000 for the year ended
ecember 31, 2019, compared with net income of $36,213,000 for the year
ended ecember 31, 2018, and net income of $22,301,000 for the year ended
ecember 31, 2017. Class A diluted earnings per share were $7.13 in 2019
compared to $6.50 in 2018 and compared to $4.01 in 2017.

uring 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
ecember 22, 2017, which lowered the Company’s federal tax rate from 34% to
21%. uring 2019 and 2018, 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.

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

2019

$ 8.63
$ 4.31
$ 7.13
$ 4.31

2018

$ 7.89
$ 3.95
$ 6.50
$ 3.95

2017

$ 4.86
$ 2.43
$ 4.01
$ 2.43

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 %
2.30 %
Net Interest Margin
2.20 %

2.19% 2.20% 2.19%

2.26% 2.26%

2.31%

2.13%

2.11%

2.06% 2.08%

2.14%

2.10 %

2.16%

2.00 %

2017

2018

2019

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. uring 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. uring the
fourth quarter of 2018 and first and second quarters of 2019, the Company
increased its average interest-bearing deposits. These deposits increased net
interest income but decreased the net interest margin. uring the third quarter
of 2019, the net interest margin increased mainly as a result of deposit rate
decreases. These deposits increased net interest income and the net interest
margin. uring the fourth quarter of 2019, the net interest margin increased
mainly as a result of prepayment penalties collected. Prepayment penalties
collected amounted to $1.4 million and contributed approximately eleven
basis points to the net interest margin for the fourth quarter of 2019. 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
3.50 %
the net interest margin.

3.00 %
Historical U.S. Treasury Yield Curve
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 12/31/2019
U.S. Treasury Yield Curve 12/31/2018
U.S. Treasury Yield Curve 12/31/2017

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

A yield curve typically plots the interest rates of U.S. Treasury ebt, 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. uring
2018, short-term rates increased more than longer-term rates resulting in a
flattening of the yield curve. uring 2019, short-term rates decreased more than
longer-term rates resulting in a steepening of the yield curve.

Total assets were $5,492,424,000 at ecember 31, 2019, an increase of 6.4%
from total assets of $5,163,935,000 at ecember 31, 2018.

uring 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.

On ecember 31, 2019, stockholders’ equity totaled $332,581,000, compared
with $300,439,000 on ecember 31, 2018. Book value per share increased to
$59.73 at ecember 31, 2019, from $53.96 on ecember 31, 2018.

FINANCIAL CONDITION

Investment Securities

uring the third quarter of 2019, the Company purchased the existing Brookline
branch location that the Company was leasing. Also, during the third quarter,
the Company purchased a future branch location in Salem, New Hampshire. The
Company plans to open this branch during the fourth quarter of 2020.

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 to be its critical
accounting policy.

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.

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”.

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
ecember 31, 2019 totaled $260,502,000 and included gross unrealized
gains of $274,000 and gross unrealized losses of $696,000. A year earlier,
the fair value of securities available-for-sale was $336,759,000 including gross
unrealized gains of $635,000 and gross unrealized losses of $627,000. In 2019,
the Company recognized gains of $13,000 on the sale of available-for-sale
securities. In 2018 and 2017, the Company recognized gains of $302,000 and
$47,000, 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 ecember 31,
2019 are carried at their amortized cost of $2,351,120,000. A year earlier,
securities held-to-maturity totaled $2,046,647,000. In 2019, 2018, and 2017,
the company recognized gains of $48,000 and $0, and $0 respectively, on the
sale of held-to-maturity securities. The sale 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 ecember 31,
2019 and ecember 31, 2018, amounted to $1,688,000 and
$1,596,000, respectively.

Century Bancorp, Inc. AR ’19Management’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,

2018

2019

2017

(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

—

0.0 %

1,992

3,915

0.6 %

1.2 %

1,984

—

0.5 %

0.0 %

54,211

20.8 %

70,194

20.9 %

80,950

20.5 %

184,187

70.7 %

396

18,076
3,632

0.2 %

6.9 %
1.4 %

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 %

$ 260,502

100.0 %

336,759

100.0 %

395,830

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 ecember 31, 2019.

Securities available-for-sale totaling $13,301,000, or 0.2% 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.

ebt 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,

2018

2019

2017

(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

—

98,867

44,379

0.0 %

4.2 %

1.9 %

9,960

234,228

52,051

0.5 %

11.5 %

2.5 %

—

104,653

57,235

0.0 %

6.2 %

3.4 %

2,207,874

93.9 %

1,750,408

85.5 %

1,539,345

90.4 %

Total

$ 2,351,120

100.0 %

$ 2,046,647

100.0 %

$ 1,701,233

100.0 %

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

Fair Value of Securities Available-for-Sale
The following two tables set forth contractual maturities of the Bank’s securities portfolio at ecember 31, 2019. Actual maturities may differ from contractual
Amounts Maturing
maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Within

One

Year

Weighted One Year

Weighted Five Years

Weighted

Over

Weighted

% of

Average

to Five

% of

Average

to Ten

% of

Average

Ten

% of Average

Total

Yield

Years

Total

Yield

Years

Total

Yield

Years

Total

Yield

Total

Weighted

Average

Yield

% of

Total

(dollars in thousands)

U.S. Treasury

— 0.0 %

0.00 % $

— 0.0 %

0.00 % $

— 0.0 %

0.00 % $

— 0.0 %

0.00 % $

—

0.0 %

0.00 %

U.S. Government

Sponsored Enterprises

34,934 1.5 %

2.33 %

63,933 2.7 %

2.48 %

— 0.0 %

0.00 %

— 0.0 %

0.00 %

98,867

4.2 %

2.43 %

SBA Backed Securities
U.S. Government Sponsored
Enterprise Mortgage-
Backed Securities

— 0.0 %

0.00 %

6,782 0.3 %

1.82 %

37,597 1.6 %

2.40 %

— 0.0 %

0.00 %

44,379

1.9 %

2.31 %

38,642 1.6 %

2.51 % 1,820,328 77.5 %

2.60 % 336,474 14.3 %

2.60 % 12,430 0.5 %

2.81 % 2,207,874 93.9 %

2.60 %

Total

$ 73,576 3.1 %

2.42 % $ 1,891,043 80.5 %

2.59 % $ 374,071 15.9 %

2.58 % $ 12,430 0.5 %

2.81 % $ 2,351,120 100.0 %

2.59 %

At ecember 31, 2019 and 2018, the Bank had no investments in obligations of individual states, counties, municipalities or nongovernment corporate entities which
exceeded 10% of stockholders’ equity. In 2019, sales of securities totaling $17,478,000 in gross proceeds resulted in a net realized gain of $61,000. In 2018, sales of
securities totaling $27,517,000 in gross proceeds resulted in a net realized gain of $302,000. There were no sales of state, county or municipal securities during 2019,
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.

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

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

2019

2018

2016

2017

2015

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

8,992
812,417
120,455
786,102
371,897
21,071
304,363
822

0.4 % $

33.5 %
5.0 %
32.4 %
15.3 %
0.9 %
12.5 %
0.0 %

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 %

$ 2,426,119 100.0 % $ 2,285,578 100.0 % $ 2,175,944 100.0 % $ 1,923,933 100.0 % $ 1,731,536 100.0 %

At ecember 31, 2019, 2018, 2017, 2016 and 2015, loans were carried net of (premiums) discounts of $(292,000), $(364,000), $46,000, $313,000 and $360,000,
respectively. Net deferred loan fees of $220,000, $496,000, $588,000, $641,000 and $988,000 were carried in 2019, 2018, 2017, 2016 and 2015, respectively.

The following table summarizes the remaining maturity distribution of certain components of the Company’s loan portfolio on ecember 31, 2019. 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, 2019

One Year or Less

Over Five Years

Total

(dollars in thousands)

Construction and land development

Commercial and industrial

Commercial real estate

Total

568
45,963
31,485

$ 78,016

—
33,963
105,580

$ 139,543

8,424
732,491
649,037

8,992
812,417
786,102

$ 1,389,952

$ 1,607,511

December 31, 2019

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

$ 99,014
40,529

$ 139,543

$ 378,347
1,011,605

$ 1,389,952

$ 477,361
1,052,134

$ 1,529,495

The Company’s commercial and industrial (“C&I”) loan customers include large healthcare and higher education institutions. uring 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 remained stable at 87% at ecember 31, 2019, compared to 86% at ecember 31, 2018.

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.

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

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. uring 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. Municipal loans increased during 2019 as a result of increased
loan originations.

Residential real estate (1–4 family) includes two categories of loans. Included in residential real estate are approximately $48,023,000 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 ecember 31, 2019, the Company was obligated to advance a total of $11,062,000 to complete projects
under construction.

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 irectors of the Bank.

Nonaccrual loans remained relatively stable from 2016 through 2019. Nonaccrual loans decreased during 2016, primarily as a result of a decrease in home equity
and residential real estate nonperforming loans.
December 31,

2019

2016

2017

2018

2015

(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

$ 2,014
—
$ 2,014

$ 2,361
—
0.08 %
0.04 %

2019

—
—
2,346
—
906

$ 1,313
2,225
$ 3,538

$ 2,559
—
0.15 %
0.07 %

2018

—
—
2,650
—
401

$ 1,684
—
$ 1,684

$ 2,749
—
0.08 %
0.04 %

2017

4,212
—
2,554
—
348

$ 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

$ 3,252

$ 3,051

$ 7,114

$ 3,830

$ 3,225

At ecember 31, 2019, 2018, 2017, 2016 and 2015 impaired loans had specific reserves of $102,000, $145,000, $164,000, $173,000 and
$250,000, respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $204,690,000, $209,160,000, $229,533,000, $229,730,000 and
$185,299,000 at ecember 31, 2019, 2018, 2017, 2016 and 2015, respectively. The Company had no loans held for sale at ecember 31, 2019, 2018, 2017,
2016 and 2015.

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

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 $1,202,000 at ecember 31, 2019, $1,226,000 at ecember 31, 2018, $1,525,000 at
ecember 31, 2017, $1,629,000 at ecember 31, 2016 and $1,305,000 at ecember 31, 2015.

The Company continues to monitor closely $31,631,000 and $31,728,000 at ecember 31, 2019 and 2018, 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 ecember 31, 2019, 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 securi
ny’s allowance for
loan losses for the years indicated.
(dollars in thousands)

ant factors. The followi

ng loans and other relev

ng table summarizes the

changes in the Compa

2019

2018

2017

2016

2015

Year-end loans outstanding

(net of unearned discount and deferred loan fees)

$ 2,426,119

$ 2,285,578

$ 2,175,944

$ 1,923,933

$ 1,731,536

Average loans outstanding

(net of unearned discount and deferred loan fees)

$ 2,341,190

$ 2,222,946

$ 2,059,797

$ 1,838,136

$ 1,507,546

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 charge-offs (recoveries)

Provision charged to operating expense

Reclassification to other liabilities

28,543

26,255

24,406

23,075

22,318

137
—
—
22
295

454

60
—
—
186

246

208
1,250
—

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
—

Balance at end of year

29,585

28,543

26,255

24,406

23,075

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

to average loans outstanding

Ratio of allowance for loan losses to loans outstanding

0.01 %

1.22 %

(0.04) %

1.25 %

0.00 %

1.21 %

0.00 %

1.27 %

(0.04) %

1.33 %

The amount of the allowance for loan losses results from management’s evaluation of the quality of the loan portfolio considering such factors as loan status, specific
ge-offs
reserves on impaired loans, collateral values, financial condition of the borrower, the state of the economy and other relevant information. The level of the char
ge-offs
depends on many factors, including the national and regional economy. Cyclical lagging factors may result in charge-offs being higher than historical levels. Char
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. uring 2018, there was also a large recovery of a construction loan that was previously charged-off. 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.

uring 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,

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

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. 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. For 2019, the ratio
decreased primarily as a result of improvements in historical loss factors.

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 ecember 31, 2019.
(in thousands)

Credit Rating:

Aaa-Aa3

A1-A3

Baa1-Baa3

Ba2

Total

$ 523,644
186,044
—
—

53,273
7,354
51,133
5,895

40,437
148,346
144,711
—

$ 617,354
341,744
195,844
5,895

$ 709,688

$ 117,655

$ 333,494

$ 1,160,837

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

Commercial
and Industrial

Municipal

Commercial
Real Estate

Total

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 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
ecember 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

2019

2016

2017

2018

2015

(dollars in thousands)

Construction and land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer and other

Home equity

Unallocated

Total

331
11,596
2,566
11,464
2,194
312
1,065

0.4 % $ 1,092
10,998
1,838
10,663
2,190
365
1,111

33.5 %
5.0 %
32.4 %
15.3 %
0.9 %
12.5 %

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

286

276

293

511

$ 29,585

100.0 % $ 28,543

100.0 % $ 26,255

100.0 % $ 24,406

100.0 % $ 23,075

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.”

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

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.

2019

2018

2017

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

$ 760,420
1,810,481
1,273,389
519,761

17.4 %
41.5 %
29.2 %
11.9 %

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 %

$ 4,364,051

100.0 %

$ 4,075,848

100.0 %

$ 3,817,737

100.0 %

2019

2018

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

$ 84,940
94,562
146,830
130,719

$ 457,051

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

$ 459,317

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 $370,955,000, an increase of $168,577,000 from the prior year. The Bank’s remaining term borrowing capacity at the FHLBB at ecember 31,
2019, was approximately $245,138,000. In addition, the Bank has a $14,500,000 line of credit with the FHLBB. See Note 12 of the notes to consolidated financial
statements, “Other Borrowed Funds and Subordinated ebentures,” for a schedule, including related interest rates and other information.

Subordinated Debentures

In ecember 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 3.76% at ecember 31, 2019. 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
$266,045,000, an increase of $111,805,000 from the prior year. See Note 11 of the notes to consolidated financial statements, “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 3.4% in 2019 to $104,857,000, compared with $101,430,000 in 2018. The increase in net interest income for 2019 was mainly due to a 7.2% increase in
the average balances of earning assets, combined with a similar increase in deposits and prepayment penalties collected. 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 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 2.10% in 2019 and decreased to 2.18% in 2018 from 2.25% in 2017. The decrease in the net
interest margin for 2019 was primarily attributable to an increase in rates paid on deposits. 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 Company collected approximately $1,456,000, $39,000 and $907,000, respectively, of prepayment penalties, which
are included in interest income on loans, for 2019, 2018 and 2017, respectively.

Additional information about the net interest margin is contained in the “Overview” section of this report. Also, there can be no assurance that certain factors beyond
its control, such as the prepayment of loans and changes in market interest rates, will continue to positively impact the net interest margin. Management believes
that the current yield curve environment will continue to present challenges as deposit and borrowing costs may have the potential to increase at a faster rate than
corresponding asset categories.

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

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.

2019

2018

2017

Average
Balance

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

Average
Balance

Interest
Income/
Expense(1)

Rate
Earned/
Paid(1)

Average
Balance

Interest
Income/
Expense(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

$ 1,207,896
1,133,294

$ 54,720
41,998

4.53 % $ 1,102,390
1,120,556
3.71 %

$ 46,615
40,439

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

$ 39,103
40,420

4.00 %
3.74 %

268,516
45,088

8,078
1,324

3.01 %
2.94 %

310,071
90,027

7,864
1,938

2.54 %
2.15 %

354,918
106,717

5,859
1,588

1.65 %
1.49 %

2,152,580

58,036

2.70 %

1,854,328

45,556

2.46 %

1,725,280

38,348

2.22 %

189,710

4,051

2.14 %

183,903

3,498

1.90 %

189,193

2,097

1.11 %

Total interest-earning assets

4,997,084

168,207

3.37 %

4,661,275

145,910

3.13 %

4,435,905

127,415

2.87 %

Noninterest-earning assets

Allowance for loan losses

250,864

(29,004)

Total assets

$ 5,218,944

229,244

(27,531)

$ 4,862,988

221,628

(25,329)

$ 4,632,204

LIABILITIES AND
STOCKHOLDERS’ EQUITY

Interest-bearing deposits:

NOW accounts

Savings accounts

Money market accounts

Time deposits

$ 940,998
869,483
1,273,389
519,761

9,357
11,826
21,170
11,804

0.99 % $ 926,143
588,116
1.36 %
1,230,010
1.66 %
577,975
2.27 %

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

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

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

0.39 %
0.52 %
0.51 %
1.40 %

Total interest-bearing deposits

3,603,631

54,157

1.50 %

3,322,244

35,887

1.08 %

3,129,884

19,841

0.63 %

Securities sold under agreements

to repurchase

Other borrowed funds and

subordinated debentures

224,361

2,347

1.05 %

147,944

976

0.66 %

189,684

496

0.26 %

231,926

6,846

2.95 %

291,674

7,617

2.61 %

309,102

7,483

2.42 %

Total interest-bearing liabilities

4,059,918

63,350

1.56 %

3,761,862

44,480

1.18 %

3,628,670

27,820

0.77 %

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

760,420
79,437

4,899,775

319,169

753,604
70,020

4,585,486

277,502

687,853
60,925

4,377,448

254,756

$ 5,218,944

$ 4,862,988

$ 4,632,204

$ 104,857

(9,068)

$ 95,789

$ 101,430

(8,854)

$ 92,576

$ 99,595

(13,979)

$ 85,616

1.81 %

2.10 %

1.95 %

2.18 %

2.10 %

2.25 %

(1)

(2)

(3)

(4)

able equiv
alent basis calculat
able equivalent basis calculat

y t
On a full ax
y tax
On a full
Nonaccrual loans are included in average amounts outstanding.
At amortized cost.

ed using a feder
al tax rate of 21%.
ed using a federal tax rate of 34%.

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

The following table summarizes the year-to-year changes in the Company’s net interest income resulting from fluctuations in interest rates and volume changes in
earning assets and interest-bearing liabilities. Changes due to rate are computed by multiplying the change in rate by the prior year’s volume. Changes due to volume
2019 Compared with 2018
Year Ended December 31,
are computed by multiplying the change in volume by the prior year’s rate. Changes in volume and rate that cannot be separately identified have been allocated in
Increase/(Decrease)
proportion to the relationship of the absolute dollar amounts of each change.
Due to Change in

2018 Compared with 2017
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

$ 4,644
463

$ 3,461
1,096

$ 8,105
1,559

$ 5,144
1,445

$ 2,368
(1,426)

$ 7,512
19

(1,136)
(1,171)

7,772
113

10,685

107
3,108
507
(1,105)

2,617
642
(1,685)

1,574

1,350
557

4,708
440

11,612

2,671
3,540
6,741
2,701

15,653
729
914

17,296

214
(614)

12,480
553

22,297

2,778
6,648
7,248
1,596

18,270
1,371
(771)

18,870

(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

$ 9,111

$ (5,684)

$ 3,427

$ 7,763

$ (5,928)

$ 1,835

Average earning assets were $4,997,084,000 in 2019, an increase of $335,809,000 or 7.2% from the average in 2018, which was 5.1% higher than the average in
2017. Total average securities, including securities available-for-sale and securities held-to-maturity, were $2,466,184,000, an increase of 9.4% from the average in
2018. The increase in securities volume was mainly attributable to an increase in taxable securities held-to-maturity. An increase in securities volume and rates resulted
in higher securities income, which increased 21.8% to $67,438,000 on a fully taxable equivalent basis. Total average loans increased 5.3% to $2,341,190,000 after
increasing $163,149,000 in 2018. The primary reason for the increase in loans was due in large part to an increase in taxable commercial real estate and residential
mortgage lending. The increase in loan volume resulted in higher loan income. Loan income increased by 11.1% or $9,664,000 to $96,718,000 in 2019 compared
to 2018. This was mainly the result of an increase in rates and average balances. Total loan income was $79,523,000 in 2017.

The Company’s sources of funds include deposits and borrowed funds. On average, deposits increased 7.1%, or $288,203,000, in 2019 after increasing by 6.8%,
or $258,111,000, in 2018. eposits increased in 2019, primarily as a result of increases in savings, NOW, demand deposits, and money market accounts. This was
offset, somewhat, by a decrease in time deposits. eposits increased in 2018, primarily as a result of increases in time deposits, savings, demand deposits, and money
market accounts. Borrowed funds and subordinated debentures decreased by 3.8% in 2019, following a decrease of 11.9% in 2018. 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 $59,748,000,
and average retail repurchase agreements increased by $76,417,000 in 2019. Interest expense totaled $63,350,000 in 2019, an increase of $18,870,000, or
42.4%, from 2018 when interest expense increased 59.9% from 2017. The increase in interest expense, for 2019, is primarily due to increases in the rates on
deposits and borrowed funds as well as an increase in average balances of deposits and repurchase agreements. 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.

Provision for Loan Losses

The provision for loan losses was $1,250,000 in 2019, compared with $1,350,000 in 2018 and $1,790,000 in 2017. 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 2019, primarily as a result improvements in historical loss factors. The
provision for loan losses decreased during 2018, primarily as a result of net recoveries of $938,000 offset by changes in qualitative factors.

Other Operating Income

uring 2019, 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.

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

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,
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 2019 was $18,399,000, an increase of
$2,151,000, or 13.2%, compared to 2018. This increase followed a decrease
of $304,000, or 1.8%, in 2018, compared to 2017. Included in other operating
income are net gains on sales of securities of $61,000, $302,000 and $47,000
in 2019, 2018 and 2017, respectively. Also included in other operating income are
net gains on sales of mortgage loans of $412,000, $0 and $370,000 in 2019,
2018 and 2017, respectively. Service charge income, which continues to be a
major source of other operating income, totaling $9,220,000 in 2019, increased
$660,000 compared to 2018. This followed a decrease of $26,000 in 2018
compared to 2017. The increase in fees, in 2019, was mainly attributable to an
increase processing activities and an increase in debit card fees. The decrease in
fees, in 2018, was mainly attributable to an increase earnings credit rates paid to
customers used to offset fees charged for processing activities. This was offset
somewhat by an increase in debit card fees. Lockbox revenues totaled $3,973,000,
an increase of $699,000 in 2019 following a decrease of $16,000 in 2018.
Lockbox revenues increased during 2019 primarily as a result of the addition
of a large lockbox customer. Other income totaled $4,456,000, up $692,000
in 2019 following a decrease of $142,000 in 2018. The increase in 2019 was
primarily the result of a death benefit received from life insurance policies as well
as increases in wealth management fees. 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.

Operating Expenses

Total operating expenses were $72,129,000 in 2019, compared to
$69,693,000 in 2018 and $67,119,000 in 2017.

Salaries and employee benefits expenses increased by $1,304,000 or 3.1%
in 2019, after increasing by 5.4% in 2018. The increase in 2019 and 2018 was
mainly attributable to merit increases in salaries. Occupancy expense increased
by $154,000, or 2.5%, in 2019, following a decrease of $48,000, or 0.8%, in
2018. The increase in 2019 was primarily attributable to an increase in rent and
real estate tax expense. The decrease in 2018 was primarily attributable to a
decrease in depreciation expense.

Equipment expense increased by $106,000, or 3.4%, in 2019, following an
increase of $240,000, or 8.3%, in 2018. The increase in 2019 was primarily
attributable to an increase in service contracts expense. The increase in 2018
was primarily attributable to an increase in depreciation expense.

F IC assessments decreased by $742,000, or 50.4%, in 2019, following
a decrease of $110,000, or 7.0%, in 2018. F IC assessments decreased in
2019 mainly as a result of F IC assessment credits recognized during 2019.
F IC assessments decreased in 2018 mainly as a result of a decrease in the
assessment rate.

Other operating expenses increased by $1,614,000 in 2019, which followed a
$299,000 increase in 2018. The increase in 2019 was primarily attributable to
an increase in pension and software maintenance expense. The increase in 2018
was primarily attributable to an increase in consultants’ expense and software
maintenance expense.

Provision for Income Taxes

Income tax expense was $1,110,000 in 2019, $1,568,000 in 2018, and
$10,958,000 in 2017. The effective tax rate was 2.7% in 2019, 4.2% in
2018, and 32.9% in 2017. The decrease for 2019 was primarily as a result of a
reduction in tax accruals related to sequestration of the refundable portion of our
alternative minimum tax (AMT) credit carryforward. On January 14, 2019, the IRS
updated its announcement “Effect of Sequestration on the Alternative Minimum
Tax Credit for Corporations” to clarify that refundable AMT credits under
Section 53(e) of the Internal Revenue Code are not subject to sequestration
for taxable years beginning after ecember 31, 2017. Therefore, the full amount
of the AMT credit carryover will be refunded to the Company. 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. On ecember 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 2019 and 2018, and 34%
in 2017.

arket Risk and Asset Liability anagement

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

(13.0)
(10.8)
(6.3)
(4.3)
2.7
4.6

(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.

Liquidit

y and Capital Resources

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 $258,693,000 on ecember 31, 2019,
compared with $342,503,000 on ecember 31, 2018. In each of these two
years, deposit and borrowing activity has generally been adequate to support
asset activity.

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

y the Compan

y are dividends received

y the Company. The Company and the

The sources of funds for dividends paid b
from the Bank and liquid funds held b
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.

available-for-sale, net of taxes, offset somewhat by a decrease in unrealized losses
on securities transferred from available-for-sale to held-to-maturity, 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

Minimum
Capital Ratios

Company

Bank

4.00 %

7.25 %

7.01 %

Capital Adequacy

Total stockholders’ equity was $332,581,000 at ecember 31, 2019, compared
with $300,439,000 at ecember 31, 2018. The Company’s equity increased
primarily as a result of earnings, offset somewhat by an increase in other
comprehensive loss, net of taxes, and by dividends paid. Other comprehensive
loss, net of taxes, increased primarily as a result of an increase in the pension
liability, net of taxes, and an increase in unrealized losses on securities

Common equity tier 1

risk weighted capital ratios

Tier 1 risk weighted capital ratios

Total risk weighted capital ratios

4.50 %
6.00 %
8.00 %

12.57 %
12.57 %
13.57 %

11.80 %
12.98 %
13.97 %

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 ecember 31, 2019.

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

$ 370,955
36,083
56,651
8,446
266,045

$ 738,180

Total

$ 625,524
5,779
40,669

$ 671,972

Less Than
One Year

$ 218,000
—
4,171
2,300
266,045

$ 490,516

One to
Three Years

$ 46,000
—
8,907
3,421
—

$ 58,328

Three to
Five Years

$ 70,000
—
10,551
2,144
—

$ 82,695

Amount of Commitment Expiring—By Period

Less Than
One Year

$ 71,336
4,547
18,277

$ 94,160

One to
Three Years

$ 32,191
371
2,521

$ 35,083

Three to
Five Years

$ 80,346
768
5,804

$ 86,918

After Five
Years

$ 36,955
36,083
33,022
581
—

$ 106,641

After Five
Years

$ 441,651
93
14,067

$ 455,811

Financial Instruments with Off-Balance-Sheet Risk

The Company is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments primarily include commitments to originate and
sell loans, standby letters of credit, unused lines of credit and unadvanced
portions of construction loans. The instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in these
particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments, standby letters
of credit and unadvanced portions of construction loans is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.

Contract or Notional Amount

2019

2018

(dollars in thousands)
Financial instruments with off-balance-sheet risk at ecember 31 are as follows:
Financial instruments whose contract amount

represents credit risk:

Commitments to originate 1–4 family mortgages

Standby and commercial letters of credit

Unused lines of credit

Unadvanced portions of construction loans

Unadvanced portions of other loans

$ 13,806
5,779
625,524
11,062

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

15,801

20,305

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,

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

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 $44,000 and $51,000 for 2019 and 2018, respectively.

Recent Accounting Developments

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 ecember 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes. The amendments in this ASU
simplify the accounting for income taxes by removing certain exceptions to
the general principles in Topic 740. The amendments also improve consistent
application of and simplify GAAP for other areas of Topic 740 by clarifying and
amending existing guidance. The amendments in this ASU are effective for fiscal
years, and interim periods within those fiscal years, beginning after ecember 15,
2020. The effect of this ASU 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 (CECL). 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
ecember 15, 2019, including interim periods within those fiscal years.

To implement the new standard the Company has purchased a software solution
and has captured the information needed to implement this ASU. As part of
the FASB ASC 326 implementation process, the company is using two models: a
rating migration model and a probability of default model. The ratings migration
model, which will be used for our larger loans made to institutions with available
credit ratings, is designed to estimate loss reserves according to the CECL
standard for rated loans or similar instruments. The model structure follows a
grade migration approach, where the default rate is based on the probabilit
each grade transition which is modelled using historical data. The probabilit
default model, which will be used for our remaining commercial loans and our
consumer loans, is based primarily on four components: loss history, product
lifecycle, behavioural attributes and the economic environment. uring the fourth
quarter of 2019, the Company has been testing the two CECL credit models in
parallel with the existing incurred loss models. The Company is currently refining
the qualitative framework that overlays the two models. In addition, the Company
is continuing to work on finalizing the CECL accounting policies and the CECL
processes and related controls. The Company does not expect a material impact
to the financial statements upon implementation on January 1, 2020; however,
the final impact is subject to change as the Company refines its calculation.

y of
y of

ed Enterprises, BSA Backed Securities and U.S. Government Agency and

The securities held-to-maturity include U.S. Treasury, U.S. Government
Sponsor
Sponsored Enterprise Mortgage-Backed Securities. The Company expects no
impact from ASU 2016-13 to arise from this portfolio.

Since ASU 2016-13, the FASB has issued amendments intended on improving
the clarification of the amendment, ASU 2018-19 Codification Improvements
to Topic 326, Financial Instruments—Credit Losses and ASU 2019-04

Codification Improvements to Topic 326, Financial Instruments—Credit Losses,
Topic 815, erivatives and Hedging. The amendment in ASU 2018-19 was
issued in November 2018 and was intended to clarify that receivables arising
from operating leases are not within the scope of Subtopic 326-20. Instead,
impairment of receivables arising from operating leases should be accounted
for in accordance with Topic 842, Leases. The amendment in ASU 2019-04
was issued in April 2019 and was intended to clarify stakeholders’ specific
issues about certain aspects of the amendments in ASU 2016-13. ASU
2019-05 Financial Instruments—Credit Losses (Topic 326): Targeted Transition
Relief was also issued in May 2019. This ASU provides entities the option to
irrevocably elect the fair value option for certain financial assets previously
measured at amortized costs basis. The fair value option election does not
apply to held-to-maturity debt securities. An entity that elects the fair value
option should subsequently apply the guidance in Subtopics 820-10, Fair Value
Measurement—Overall. The amendments in this ASU should be applied on a
modified-retrospective basis by means of a cumulative-effect adjustment to
the opening balance of retained earnings balance in the statement of financial
position as of the date that an entity early adopted the amendments in
ASU 2016-13. In November 2019, the FASB issued ASU 2019-11, Codification
Improvements to Topic 326, Financial Instruments—Credit Losses. The
amendments in this ASU affect a variety of Topics in the Codification. The
amendments apply to all reporting entities within the scope of the affected
accounting guidance. This ASU is effective for annual reporting periods
beginning after ecember 15, 2019. The effects of these ASUs are not expected
to have a material impact on the Company’s consolidated financial position.

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 ecember 15, 2019. The effect of this ASU is not expected to have a
material impact on the Company’s consolidated financial position.

In August 2018, FASB issued ASU 2018-14, Compensation-Retirement
Benefits- efined Benefit Plans-General (Subtopic 715-20): isclosure Framework-
Changes to the isclosure Requirements for efined Benefit Plans. The amendments
in this ASU remove disclosures that no longer are considered cost beneficial,
clarify the specific requirements of disclosures, and add disclosure requirements
identified as relevant. This ASU is effective for annual reporting periods
beginning after ecember 15, 2020. The effect of this update is not expected to
have a material impact on the Company’s consolidated financial position.

In August 2018, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820),
isclosure Framework-Changes to the isclosure 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 ecember 15,
2019. The effect of this update is not expected to have a material impact on the
Company’s disclosures.

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 ecember 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.

Century Bancorp, Inc. AR ’19Management’s Discussion and Analysis of Results of Operations and Financial Condition

December 31,

(dollars in thousands except share data)

ASSETS

Cash and due from banks (Note 2)

Federal funds sold and interest-bearing deposits in other banks

Total cash and cash equivalents

Securities available-for-sale, amortized cost $260,924 in 2019 and $336,751 in 2018

(Notes 3, 9 and 11)

Securities held-to-maturity, fair value $2,361,304 in 2019 and $1,991,421 in 2018

(Notes 4 and 11)

Federal Home Loan Bank of Boston, stock at cost

Equity securities, amortized cost $1,635 in 2019 and $1,635 in 2018, 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, 16, 23)

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 3,650,949 shares in 2019 and 3,608,329 shares in 2018

Common stock, Class B,

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

issued 1,916,960 in 2019 and 1,959,580 shares in 2018

Additional paid-in capital

Retained earnings

Unrealized (losses) gains 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 and 13)

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying “Notes to Consolidated Financial Statements.”

Consolidated Balance Sheets

2019

2018

44,420
214,273

258,693

89,540
252,963

342,503

260,502

336,759

2,351,120

19,471
1,688
2,426,119
29,585

2,396,534
33,952
13,110
157,354

2,046,647

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

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

$ 5,492,424

$ 5,163,935

712,842
1,678,250
1,453,572
555,447

4,400,111

266,045
370,955
36,083
86,649

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

4,406,964

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

5,159,843

4,863,496

—

3,651

3,608

1,917
12,292
338,980

356,840
(308)
(1,812)
(22,139)

(24,259)

332,581

1,960
12,292
301,488

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

(18,909)

300,439

$ 5,492,424

$ 5,163,935

Century Bancorp, Inc. AR ’19

Consolidated Statements of Income

Year Ended December 31,

(dollars in thousands except share data)

INTEREST INCOME

Loans, taxable

Loans, non-taxable

Securities available-for-sale, taxable

Securities available-for-sale, non-taxable

Federal Home Loan Bank of Boston dividends

Securities held-to-maturity

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

Total interest income

INTEREST EXPENSE

Savings and NOW deposits

Money market accounts

Time deposits

Securities sold under agreements to repurchase

Other borrowed funds and subordinated debentures

Total interest expense

Net interest income

Provision for loan losses (Note 6)

Net interest income after provision for loan losses

OTHER OPERATING INCOME

Service charges on deposit accounts

Lockbox fees

Brokerage commissions

Net gains on sales of securities

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.”

2019

2018

2017

54,720

33,167

7,125

1,087

953

58,036
4,051

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

159,139

137,056

113,436

21,183

21,170

11,804

2,347
6,846

63,350

95,789

1,250

94,539

9,220

3,973

277

412
4,456

18,399

44,014

6,246

3,238

729
17,902

72,129

40,809
1,110

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

39,699

36,213

22,301

3,633,044
1,934,865

5,567,909
1,934,865

$
$

8.63
4.31

7.13
4.31

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

Century Bancorp, Inc. AR ’19

Year Ended December 31,

(dollars in thousands)

NET INCOME

Other comprehensive (loss) income, net of tax:

Unrealized (losses) gains on securities:

Unrealized holding (losses) gains arising during period

Less: reclassification adjustment for gains included in net income

Total unrealized (losses) gains on securities

Accretion of net unrealized losses transferred during period

Defined benefit pension plans:

Pension liability adjustment:

Net (loss) gain

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

Total pension liability adjustment

Other comprehensive (loss) income

Comprehensive income (loss)

See accompanying “Notes to Consolidated Financial Statements.”

Consolidated Statements of Comprehensive Income

2019

2018

2017

39,699

36,213

22,301

(270)
(44)

(314)

753

(6,842)
1,053

(5,789)

(5,350)

326
(217)

109

1,086

3,770
1,167

4,937

6,132

533
(28)

505

1,034

(2,315)
931

(1,384)

155

34,349

42,345

22,456

Century Bancorp, Inc. AR ’19

Consolidated Statements of Changes in Stockholders’ Equity

Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-in
Capital

Accumulated
Other

Total

Retained
Earnings

Comprehensive Stockholders’

Loss

Equity

(dollars in thousands except share data)

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

Net income

Other comprehensive income, net of tax:

Unrealized holding gains arising during period, net of $116 in taxes

and $61 in realized net gains

Accretion of net unrealized losses transferred during the period,

net of $269 in taxes

Pension liability adjustment, net of $2,263 in taxes
Conversion of Class B Common Stock to Class A

Common Stock, 42,620 shares

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

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

—

(43)

—

39,699

—

39,699

—

(1,742)

(465)

(314)

753

(5,789)

—

753

(5,789)

—

(1,742)

(465)

BALANCE, DECEMBER 31, 2019

$ 3,651

$ 1,917

$ 12,292

$ 338,980

$ (24,259)

$ 332,581

See accompanying “Notes to Consolidated Financial Statements.”

Century Bancorp, Inc. AR ’19

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 loss on other real estate owned

Net gains on sales of securities

Net (gain) loss on equity securities

Provision for loan losses

Deferred tax (expense) benefit

Net depreciation and amortization

Decrease (increase) in accrued interest receivable

(Increase) decrease 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

Bank owned life insurance purchases

Proceeds from sales of other real estate owned

Proceeds from sales of fixed assets

Capital expenditures

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net (decrease) increase in time deposit accounts

Net (decrease) increase in demand, savings, money market and NOW deposits

Cash dividends

Net increase (decrease) in securities sold under agreements to repurchase

Net increase (decrease) in other borrowed funds

Net cash provided by financing activities

Net (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 (received) during the year for:

Interest

Income taxes

Change in unrealized losses 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

2019

2018

2017

39,699

36,213

22,301

(412)
—
79
(61)
(92)
1,250
(2,135)
(2,382)
1,296
8,532
2,075

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

47,849

40,788

—
—
14,380
(15,877)
144,739
16,285
(85,123)
458,915
1,193
(757,997)
5,461
22,120
(162,415)
(33,664)
2,146
—
(13,144)

(402,981)

(5,132)
(1,721)
(2,207)
111,805
168,577

271,322

(83,810)
342,503

—
—
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

258,693

342,503

356,430

$
$
$
$
$
$

63,345
(6,504)
(314)
753
(5,789)
—

$
$
$
$
$
$

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

$
$
$
$
$
$

27,731
5,330
505
1,034
(1,384)
—

Century Bancorp, Inc. AR ’19

1. Summary of Significant Accounting Policies

BASIS OF FINANCIAL STATE ENT 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 eposit Insurance Corporation (the “F IC”)
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
agencie
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.

s periodically review the Company’s allowance for loan losses. Such

FAIR VALUE EASURE ENTS

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-TER INVEST ENTS

Short-term investments include highly liquid certificates of deposit with original
maturities of more than 90 days but less than one year.

INVEST ENT SECURITIES

ebt 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
and that it is more likely than not that the Company will not sell or be required

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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
edit por
statement of income and the noncr
tion is recognized in accumulated
other comprehensive income. The cr
edit 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 has been paid. This may be
due either to prepayments on the debt security or to scheduled payments on the
debt security that is payable in equal installments over its term. For variable rate
securities, the scheduled payments need not be equal.

FEDERAL HO E 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 ecember 31, 2019, 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

Loans are stated at the principal amount outstanding, net of amounts charged
off, unamortized premiums or discounts, and deferred loan fees or costs. Interest
on loans is recognized based on the daily principal amount outstanding. Accrual
of interest is discontinued when loans become ninety days delinquent unless
the collateral is sufficient to cover both principal and interest and the loan is
in the process of collection. Past-due status is based on contractual terms of
the loan. Loans, including impaired loans, on which the accrual of interest has
been discontinued, are designated nonaccrual loans. When a loan is placed on
nonaccrual, all income that has been accrued but remains unpaid is reversed
against current period income, and all amortization of deferred loan costs and
fees is discontinued. Nonaccrual loans may be returned to an accrual status when
principal and interest payments are not delinquent, or the risk characteristics
of the loan have improved to the extent that there no longer exists a concern
as to the collectibility of principal and interest. Income received on nonaccrual
loans is either recorded in income or applied to the principal balance of the loan,
depending on management’s evaluation as to the collectibility of principal.

Loan origination fees and related direct loan origination costs are offset, and
the resulting net amount is deferred and amortized over the life of the related
loans using the level-yield method. Prepayments are not initially considered when
amortizing premiums and discounts.

The Bank measures impairment for impaired loans at either the fair value of
the loan, the present value of the expected future cash flows discounted at
the loan’s effective interest rate or the fair value of the collateral if the loan is
collateral dependent. This method applies to all loans, uncollateralized as well
as collateralized, except large groups of smaller-balance homogeneous loans
such as residential real estate and consumer loans that are collectively evaluated
for impairment. 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 ith
Deteriorated Credit Quality (formerly Statement of Position (“SOP”) No. 03-3,
“Accounting for Certain Loans or ebt Securities Acquired in a Transfer”) the
Company reviews acquired loans for differences between contractual cash flows
and cash flows expected to be collected from the Company’s initial investment
in the acquired loans to determine if those differences are attributable, at least
in part, to credit quality. If those differences are attributable to credit quality,
the loan’s contractually required payments received in excess of the amount of
its cash flows expected at acquisition, or nonaccretable discount, is not accreted
into income. FASB ASC 310-30 requires that the Company recognize the excess
of all cash flows expected at acquisition over the Company’s initial investment in
the loan as interest income using the interest method over the term of the loan.
This excess is referred to as accretable discount and is recorded as a reduction of
the loan balance.

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

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

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

NONPERFOR ING 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 ebt Restructuring (“T R”). 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 G P
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 PRE ISES AND EQUIP ENT

Bank premises and equipment are stated at cost less accumulated depreciation
and amortization. Land is stated at cost. epreciation 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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial StatementsGOODWILL 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 it
value including goodwill. If the fair value of a reporting unit exceeds it
s 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.

s carrying

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.

uring 2000 and 2004, common stockholders of the Company approved
stock option plans (the “Option Plans”) that provide for granting of options
to purchase up to 150,000 shares of Class A common stock per plan. Under
the Option Plans, all officers and key employees of the Company are eligible
to receive nonqualified or incentive stock options to purchase shares of Class
A common stock. The Option Plans are administered by the Compensation
Committee of the Board of irectors, whose members are ineligible to participate
in the Option Plans. Based on management’s recommendations, the Committee
submits its recommendations to the Board of irectors 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 ecember 31, 2019.

The Company uses the fair value method to account for stock options. There
were no options granted during 2019 and 2018.

INCO E 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. eferred 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 ecember 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 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.

iluted 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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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.

TREASURY STOCK

Effective July 1, 2004, companies incorporated in Massachusetts became subject
to Chapter 156 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.

Prior to ecember 31, 2018, the Company utilized 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.

Effective ecember 31, 2018, the discount rate is 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.

LEASING

A right-of-use (ROU) asset and corresponding lease liability is recognized at the
lease commencement date when the Company is a lessee. ROU lease assets are
included in other assets on the consolidated balance sheet. A ROU asset reflects
the present value of the future minimum lease payments adjusted for any initial
direct costs, incentives, or other payments prior to the lease commencement
date. A lease liability represents a legal obligation to make lease payments
and is determined by the present value of the future minimum lease payments
discounted using the rate implicit in the lease, or the Company’s incremental
borrowing rate. Variable lease payments that are dependent on an index, or rate,
are initially measured using the index or rate at the commencement date and
are included in the measurement of the lease liability. Renewal options are not
included as part of the ROU asset or lease liability unless the option is deemed
reasonably certain to exercise.

For real estate leases, lease components and non-lease components are
accounted for as a single lease component. Operating lease expense is comprised
of operating lease costs and variable lease costs, net of sublease income, and is
reflected as part of occupancy within non-interest expense in the consolidated
statement of income. Operating lease expense is recorded on a straight-line basis.
Refer to Note 23: Leasing for further information.

RECENT ACCOUNTING DEVELOP ENTS

Recently Adopted Accounting Standards Updates

In March 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees
and Other Costs (Subtopic 310-20) Premium Amortization of Purchased Callable
ebt. 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 ecember 15,
2018. The effect of this update did not have a material impact on the Company’s
consolidated financial position.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU required
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
eliminated today’s real estate-specific provisions for all companies. For lessors,
this ASU modified the classification criteria and the accounting for sales-type
and direct financing leases. This ASU is effective for fiscal years beginning
after ecember 15, 2018, including interim periods therein. The Company also
reviewed contracts to determine if they contain embedded leases. The Company’s
balance sheet impact was $15.1 million as of January 1, 2019. This amount was
recorded as a right of use asset, included in other assets, with a corresponding
lease liability, included in other liabilities.

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 used 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.” Beginning with its March 31, 2019 filing, the
Company included 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).

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 ecember 31, 2019, and $0
at ecember 31, 2018.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

3. Securities Available-for-Sale

(dollars in thousands)

U.S. Treasury

U. S. Government Sponsored Enterprises

SBA Backed Securities

U.S. Government Agency and Sponsored

Enterprises Mortgage-Backed Securities

Privately Issued Residential

Mortgage-Backed Securities

Obligations Issued by States and

Political Subdivisions

Other Debt Securities

December 31, 2019

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Amortized
Cost

Estimated
Fair Value

Amortized
Cost

December 31, 2018

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

— $
—
54,331

— $
—
23

— $
—
143

—
—
54,211

$ 2,000 $
3,946
70,477

— $
—
1

8 $ 1,992
3,915
70,194

31
284

184,580

139

532

184,187

162,604

536

250

162,890

397

18,016
3,600

60
51

—
19

396

679

18,076
3,632

93,445
3,600

58
37

—
44

672

93,503
3,593

Total

$ 260,924 $

274 $

696 $ 260,502

$ 336,751 $

635 $

627 $ 336,759

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 $186,245,000 and $197,304,000 at ecember 31, 2019 and 2018, respectively. Also included in securities
available-for-sale at fair value are securities pledged for borrowing at the Federal Home Loan Bank amounting to $32,297,000 and $34,787,000 at ecember 31, 2019
and 2018, respectively. The Company realized gains on sales of securities of $13,000, $302,000 and $47,000 from the proceeds of sales of available-for-sale securities
of $16,285,000, $27,517,000 and $18,180,000 for the years ended ecember 31, 2019, 2018, and 2017, respectively.

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

Fair
Value
The following table shows the estimated maturity distribution of the Company’s securities available-for-sale at ecember 31, 2019.
(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

18,417
113,192
124,489
4,826

18,476
112,935
124,274
4,817

$ 260,924

$ 260,502

The weighted average remaining life of investment securities available-for-sale at ecember 31, 2019, was 5.4 years. The contractual maturities, which were used in the
table above, of mortgage-backed securities, will differ from the actual maturities due to the ability of the issuers to prepay underlying obligations. Also, $244,688,000
of the securities are floating rate or adjustable rate and reprice prior to maturity.

As of ecember 31, 2019 and ecember 31, 2018, 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 ebt 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. 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 ecember 31, 2019 and ecember 31, 2018.

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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at ecember 31, 2019. 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 45 and 18 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 122 holdings at
ecember 31, 2019.

Less Than 12 Months

12 Months or Longer

December 31, 2019

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

—
—
14,560

108,806
252
—
800

Total temporarily impaired securities

$ 124,418

—
—
30

379
2
—
1

412

—
—
22,092

29,178
—
—
481

$ 51,751

—
—
113

153
—
—
18

284

—
—
36,652

137,984
252
—
1,281

$ 176,169

—
—
143

532
2
—
19

696

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at ecember 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
ecember 31, 2018.

December 31, 2018

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

—
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

4. Investment Securities Held-to- aturity

(dollars in thousands)

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

Mortgage-Backed Securities

December 31, 2019
Gross
Gross

December 31, 2018
Gross
Gross

Amortized
Cost

Unrealized Unrealized

Gains

Losses

Estimated
Fair Value

Amortized
Cost

Unrealized Unrealized

Gains

Losses

Estimated
Fair Value

— $

98,867
44,379

527
182

— $
96
303

—
99,298
44,258

9,960 $

— $

2 $

234,228
52,051

336
—

803
2,065

9,958
233,761
49,986

2,207,874

20,720

10,846

2,217,748

1,750,408

2,324

55,016

1,697,716

Total

$ 2,351,120 $ 21,429 $ 11,245 $ 2,361,304

$ 2,046,647 $

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

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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 $1,776,399,000 and $1,441,059,000 at ecember 31, 2019, and 2018, respectively. Also included
are securities pledged for borrowing at the Federal Home Loan Bank at fair value amounting to $399,646,000 and $291,190,000 at ecember 31, 2019, and 2018,
respectively. The Compan ealized gains on sales of securities of $48,000 from the proceeds of sales of held-to-maturity securities of $1,193,000. The sales from
securities held-to-maturit
The Company did not realize any gains of sales of securities for the year ending ecember 31, 2018 and 2017.

y r
y relate to certain mortgage-backed securities for which the Company had previously collected a substantial portion of its principal investment.

At ecember 31, 2019 and 2018, 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 ecember 31, 2019.
(dollars in thousands)

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

Total

73,576
1,891,043
374,071
12,430
$ 2,351,120

73,841
1,900,050
374,688
12,725
$ 2,361,304

The weighted average remaining life of investment securities held-to-maturity at ecember 31, 2019, was 3.7 years. Included in the weighted average remaining life
calculation at ecember 31, 2019, were $33,491,000 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, $107,000 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 ecember 31, 2019 and ecember 31, 2018.

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at ecember 31, 2019. 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 114 and 103 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 531 holdings at
ecember 31, 2019.

Less Than 12 Months

12 Months or Longer

December 31, 2019

Total

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

—
24,420
25,251

—
72
303

—
9,976
—

—
24
—

—
34,396
25,251

—
96
303

613,905

3,949

389,919

6,897

1,003,824

10,846

Total temporarily impaired securities

$ 663,576

$ 4,324

$ 399,895

$ 6,921

$ 1,063,471

$ 11,245

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at ecember 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 ecember 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

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.

2019

2018

(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

Total

8,992
812,417
120,455
786,102
371,897
21,071
304,363
822

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

$ 2,426,119

$ 2,285,578

At ecember 31, 2019, and ecember 31, 2018, loans were carried net of (premiums) discounts of $(292,000) and $(364,000), respectively. Net deferred fees
included in loans at ecember 31, 2019, and ecember 31, 2018, were $220,000 and $496,000, respectively.

The Company was servicing mortgage loans sold to others without recourse of approximately $204,690,000 and $209,160,000 at ecember 31, 2019, and
ecember 31, 2018, respectively. The Company had no residential real estate loans held for sale at ecember 31, 2019 and ecember 31, 2018. The Company’s
mortgage servicing rights totaled $1,202,000 and $1,226,000 at ecember 31, 2019 and ecember 31, 2018, respectively.

As of ecember 31, 2019, and 2018, the Company’s recorded investment in impaired loans was $3,252,000 and $3,051,000, 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 ecember 31, 2019, there were $2,322,000 of impaired loans with
specific reserves of $102,000. At ecember 31, 2018, there were $2,774,000 of impaired loans with specific reserves of $145,000.

Loans are designated as troubled debt restructures when a concession is made on a credit as a result of financial difficulties of the borrower. Typically, such concessions
consist of a reduction in interest rate to a below-market rate, taking into account the credit quality of the note, or a deferment of payments, principal or interest, which
materially alters the Bank’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those
contractually established at the loan’s origination. Restructured loans are included in the impaired loan category.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

December 31,

2019

2018

2017

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

$ 2,014
—
—
3,252
3,161
2,361
67
—
103

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

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

irectors 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, 2019
December 31, 2018
The following table shows the aggregate amount of loans to directors and officers of the Company and their associates during 2019.
(dollars in thousands)

Repayments
and Deletions

Additions

$ 12,547

$ 706

$ 1,222

$ 12,031

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.

2018

2017

2019

(dollars in thousands)
An analysis of the allowance for loan losses for each of the three years ending ecember 31, 2019, 2018 and 2017 is as follows:
Allowance for loan losses, beginning of year
Loans charged-off
Recoveries on loans previously charged-off

$ 28,543
(454)
246
(208)
1,250
$ 29,585

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

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

Net recoveries (charge-offs )
Provision charged to expense

Allowance for loan losses, end of year

Construction Commercial

Further information pertaining to the allowance for loan losses at ecember 31, 2019 follows:

Industrial Municipal Real Estate Real Estate Consumer

and Land
Development

and

Commercial Residential

Home
Equity

Unallocated

Total

(dollars in thousands)

Allowance for Loan Losses:

Ending balance at

December 31, 2018

Charge-offs

Recoveries
Provision
Ending balance at

$ 1,092
—
—
(761)

$ 10,998 $ 1,838 $ 10,663 $

(137)
60
675

—
—
728

—
—
801

2,190 $
—
—
4

365 $ 1,111
(22)
(295)
—
186
(24)
56

$ 286
—
—
(229)

28,543
(454)
246
1,250

December 31, 2019

331

$ 11,596 $ 2,566 $ 11,464 $

2,194 $

312 $ 1,065

$ 57

29,585

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

—

15 $

— $

87 $

— $

—

$ —

102

331

$ 11,581 $ 2,566 $ 11,377 $

2,194 $

312 $ 1,065

$ 57

29,483

Loans:

Ending balance

Loans deemed to be impaired

Loans not deemed to be impaired

$ 8,992
$
—
$ 8,992

$ 812,417 $ 120,455 $ 786,102 $ 371,897 $ 21,893 $304,363
$
—
$ 811,511 $ 120,455 $ 783,756 $ 371,897 $ 21,893 $304,363

— $ 2,346 $

906 $

— $

$ —
$ —
$ —

$ 2,426,119
$
3,252
$ 2,422,867

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

Further information pertaining to the allowance for loan losses at ecember 31, 2018 follows:

Municipal

Commercial Residential
Real Estate Real Estate Consumer

Home
Equity

Unallocated

Total

Construction Commercial

and Land
Development

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 $ 1,720 $

(67)
57
1,357

—
—
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 $ 97,290 $ 750,362 $ 348,250 $ 22,083 $ 292,340
$
—
$ 761,224 $ 97,290 $ 747,712 $ 348,250 $ 22,083 $ 292,340

2,650 $

401 $

— $

$ —
$ —
$ —

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

CREDIT QUALITY INFOR ATION

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

Loans rated 1- (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 ecember 31, 2019.

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 ecember 31, 2019.

Loans rated 6 (Doubtful)— oubtful loans represent classified loans that management is closely monitoring for credit quality. These loans had more significant credit
quality deterioration as of ecember 31, 2019 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 ecember 31, 2019.

and Land
Development

and
Industrial

Municipal

Commercial
Real Estate

(dollars in thousands)

Grade:

1-3 (Pass)

4 (Monitor)

5 (Substandard)

6 (Doubtful)

Impaired

Total

$ 8,992
—
—
—
—

$ 807,486
4,025
—
—
906

$ 120,455
—
—
—
—

$ 759,402
24,354
—
—
2,346

$ 8,992

$ 812,417

$ 120,455

$ 786,102

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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

Commercial
The following table presents the Company’s loans by credit rating at ecember 31, 2019.
Real Estate

Municipal

Commercial
and
Industrial

Total

(dollars in thousands)

Credit Rating:

Aaa-Aa3

A1-A3

Baa1-Baa3

Ba1

Total

$ 523,644
186,044
—
—

$ 53,273
7,354
51,133
5,895

$ 40,437
148,346
144,711
—

$ 617,354
341,744
195,844
5,895

$ 709,688

$ 117,655

$ 333,494

$ 1,160,837

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

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

$ 13,628
—
—
—
—

$ 757,089
4,135
—
—
401

$ 97,290
—
—
—
—

$ 723,170
24,542
—
—
2,650

$ 13,628

$ 761,625

$ 97,290

$ 750,362

Commercial
The following table presents the Company’s loans by credit rating at ecember 31, 2018.
Real Estate

Municipal

Commercial
and
Industrial

Total

(dollars in thousands)

Credit Rating:

Aaa-Aa3

A1-A3

Baa1-Baa3

Ba1

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 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 ecember 31, 2019 the aging of past due loans are as follows:

Accruing
30-89 Days
Past Due

Non
Accrual

Accruing
Greater
Than
90 Days

$ —
—
—
—
—
—
—

Total
Past Due

Current
Loans

$ —
627
—
1,332
2,246
22
1,038

8,992 $

811,790
120,455
784,770
369,651
21,871
303,325

Total

8,992
812,417
120,455
786,102
371,897
21,893
304,363

$ —
227
—
840
1,563
18
603

$ —
400
—
492
683
4
435

(dollars in thousands)

Construction and land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer and overdrafts

Home equity

Total

$ 3,251

$ 2,014

$ —

$ 5,265

$ 2,420,854 $ 2,426,119

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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

Accruing
30-89 Days
Past Due

Non Accrual

Accruing
Greater
Than
90 Days

$ —
—
—
—
—
—
—

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

$ —
187
—
774
2,554
24
1,108

$ —
115
—
190
569
14
425

$ 4,647

$ 1,313

$ —

$ 5,960

$ 2,279,618 $ 2,285,578

(dollars in thousands)

Construction and land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer and overdrafts

Home equity

Total

I PAIRED LOANS

A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual
terms of the loan agreement. When a loan is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the
loan’s effective interest rate, except that as a practical expedient, the Company measures impairment based on a loan’s observable market price or the fair value of the
collateral if the loan is collateral dependent. Loans are charged-off when management believes that the collectibility of the loan’s principal is not probable. The specific
factors that management considers in making the determination that the collectibility of the loan’s principal is not probable include; the delinquency status of the loan,
the fair value of the collateral, if secured, and the financial strength of the borrower and/or guarantors. For collateral dependent loans, the amount of the recorded
investment in a loan that exceeds the fair value of the collateral is charged-off against the allowance for loan losses in lieu of an allocation of a specific allowance amount
when such an amount has been identified definitively as uncollectible. The Company’s policy for recognizing interest income on impaired loans is contained within
Note 1 of the “Notes to Consolidated Financial Statements.”

The following is information pertaining to impaired loans at ecember 31, 2019:

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

$ —
770
—
160
—
—
—

$ —
976
—
189
—
—
—

930

$ 1,165

$ —
136
—
2,186
—
—
—

$ —
137
—
2,306
—
—
—

$ 2,322

$ 2,443

$ —
906
—
2,346
—
—
—

$ —
1,113
—
2,495
—
—
—

$ 3,252

$ 3,608

$ —
—
—
—
—
—
—

$ —

$ —
15
—
87
—
—
—

$ 102

$ —
15
—
87
—
—
—

$ 102

—
138
—
445
—
—
—

583

—
264
—
2,314
—
—
—

$ 2,578

—
402
—
2,759
—
—
—

$ 3,161

Interest
Income

$ —
6
—
—
—
—
—

$ —
7
—
90
—
—
—

$ —
13
—
90
—
—
—

$ 103

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

The following is information pertaining to impaired loans at ecember 31, 2018:

Carrying
Value

Unpaid
Balance
Principal

Required
Reserve

Average
Carrying Value
Recognized

Interest
Income

(dollars in thousands)

With no required reserve recorded:

Construction and land development

Commercial and industrial

Municipal

Commercial real estate

Residential real estate

Consumer

Home equity

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
—
—
—

$ —
291
—
212
—
—
—

276

503

$ —
314
—
2,461
—
—
—

$ —
315
—
2,575
—
—
—

$ 2,775

$ 2,890

$ —
401
—
2,650
—
—
—

$ —
606
—
2,787
—
—
—

$ 3,051

$ 3,393

$ —
—
—
—
—
—
—

$ —

$ —
54
—
91
—
—
—

$ 145

$ —
54
—
91
—
—
—

$ 145

—
46
—
249
—
—
—

295

—
462
—
2,322
2,412
—
—

$ 5,196

—
508
—
2,571
2,412
—
—

$ 5,491

$ —
5
—
—
—
—
—

$ —
13
—
97
81
—
—

$ 191

$ —
18
—
97
81
—
—

$ 196

Troubled ebt 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 commercial and industrial loan that was modified during the first quarter of 2019. The loan was modified by reducing the interest rates as well as
extending the term on the loan. The pre-modification and post-modification outstanding recorded investment was $39,000. The financial impact for the modification
was not material. This loan was subsequently charged off during the third quarter of 2019. Also, there were no commitments to lend additional funds to troubled debt
restructuring borrowers.

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. This property was
subsequently sold during the third quarter of 2019. 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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

December 31,

2019

2018

Estimated Useful Life

(dollars in thousands)

7. Bank Premises and Equipment

Land

Bank premises

Furniture and equipment

Leasehold improvements

Accumulated depreciation and amortization

$ 7,246
28,175
33,259
12,674

81,354
(47,402)

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

68,271
(44,350)

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

Total

$ 33,952

$ 23,921

epreciation and amortization amounted to $3,235,000, $3,206,000, and $3,135,000 at ecember 31, 2019, 2018 and 2017, respectively.

8. Goodwill and Identifiable Intangible Assets

At ecember 31, 2019 and 2018, 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 ecember 31, 2019 and 2018 are shown in the table below.
(dollars in thousands)

Mortgage
Servicing Rights

Goodwill

Total

Balance at December 31, 2017

Additions

Amortization Expense

Balance at December 31, 2018

Additions

Amortization Expense

Balance at December 31, 2019

9. Fair Value easurements

$ 2,714
—
—

$ 1,525
—
(299)

$ 1,226
237
(261)

$ 2,714

$ 1,202

$ 4,239
—
(299)

$ 3,940
237
(261)

$ 3,916

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.

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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

The results of the fair value hierarchy as of ecember 31, 2019, 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

Equity Securities

Carrying
Value

—
—
54,211

184,187
396
18,076
3,632

$ 260,502

1,688

Fair Value Measurements Using

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

Significant
Observable Inputs
(Level 2)

Significant Other
Unobservable
Inputs
(Level 3)

$ —
—
—

—
—
—
—

$ —

$ 343

—
—
54,211

184,187
396
4,775
3,632

$ 247,201

1,345

—
—
—

—
—
13,301
—

13,301

—

877

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

Impaired Loans

877

$ —

—

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 2019 for the estimated credit loss amounted
to $79,000.

There were no transfers between level 1, 2 and 3 for the year ended ecember 31, 2019. There were no liabilities measured at fair value on a recurring or nonrecurring
basis during the year ended ecember 31, 2019.

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 ecember 31, 2019. Management continues to monitor the assumptions used to value the assets listed below.

Valuation Technique

Unobservable Input

Fair Value

Unobservable Input
Value or Range

Securities AFS(1)

Impaired Loans

(1)

$ 13,301

877

Discounted cash flow

Appraisal of collateral(3)

Discount rate

Appraisal adjustments(4)

1.5%-3.2%(2)

0%-30% discount

(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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

The changes in Level 3 securities for the year ended ecember 31, 2019 are as shown in the table below:

Auction Rate
Securities

(dollars in thousands)

Balance at December 31, 2018

Purchases

Maturities/redemptions

Transfer to Level 2

Amortization

Change in fair value

Balance at December 31, 2019

$ —
—
—
—
—
—

$ —

Obligations
Issued by States
and Political
Subdivisions

$ 88,728
21,408
(96,812)
—
(23)
—

$ 13,301

Total

$ 88,728
21,408
(96,812)
—
(23)
—

$ 13,301

The amortized cost of Level 3 securities was $13,301,000 with an unrealized loss of $0 at ecember 31, 2019. 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 ecember 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

Equity Securities

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

Impaired Loans

Other Real Estate Owned

Carrying
Value

1,992
3,915
70,194

162,890
672
93,503
3,593

$ 336,759

$
$

1,596

251
2,225

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

Significant
Observable Inputs
(Level 2)

Significant Other
Unobservable
Inputs
(Level 3)

$ —
—
—

—
—
—
—

$ —

$ 293

$ —
$ —

1,992
3,915
70,194

162,890
672
4,775
3,593

$ 248,031

1,303

$
$

—
—

$
$

—
—
—

—
—
88,728
—

88,728

—

251
2,225

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 ecember 31, 2018. There were no liabilities measured at fair value on a
recurring or nonrecurring basis during the year ended ecember 31, 2018.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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

Valuation Technique

Unobservable Input

Discounted cash flow

Fair Value

Discount rate

2.1%-4.1%(2)

$ 88,728

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)

Auction Rate
The changes in Level 3 securities for the year ended ecember 31, 2018 are as shown in the table below:
Securities

(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

Total

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

$ 88,728

Obligations
Issued by States
and Political
Subdivisions

The amortized cost of Level 3 securities was $88,728,000 with an unrealized loss of $0 at ecember 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.

10. Deposits

2019

Percent

2018

Percent

(dollars in thousands)
The following is a summary of remaining maturities or re-pricing of time deposits as of ecember 31,
Within one year

Over one year to two years

Over two years to three years

Over three years to five years

Total

$ 383,497
123,016
27,223
21,711

69 %
22 %
5 %
4 %

$ 555,447

100 %

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

$ 560,579

74 %
16 %
7 %
3 %

100 %

Time deposits of more than $250,000 totaled $342,809,000 and $293,046,000 in 2019 and 2018, respectively.

eposits totaling $34,964,000 and $36,794,000 were attributable to related parties at ecember 31, 2019 and ecember 31, 2018, respectively.

11. Securities Sold Under Agreements to Repurchase

2019

2018

2017

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

$ 266,045

$ 154,240

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

0.96 %

$ 307,235
$ 224,361

1.05 %

0.82 %

$ 174,150
$ 147,944

0.66 %

$ 158,990

0.32 %

$ 228,848
$ 189,684

0.26 %

Amounts outstanding at ecember 31, 2019, 2018 and 2017 carried maturity dates of the next business day. U.S. Government Sponsored Enterprise securities with a
total amortized cost of $264,737,000, $160,576,000, and $162,927,000 were pledged as collateral and held by custodians to secure the agreements at ecember 31,
2019, 2018 and 2017, respectively. The approximate fair value of the collateral at those dates was $265,687,000, $156,369,000, and $159,051,000, respectively.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

12. Other Borrowed Funds and Subordinated Debentures

2019

2018

2017

(dollars in thousands)
The following is a summary of other borrowed funds and subordinated debentures as of ecember 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

$ 407,038

2.37 %

$ 487,502
$ 231,926

2.95 %

$ 238,461

2.76 %

$ 542,913
$ 291,674

2.61 %

$ 383,861

2.26 %

$ 491,583
$ 309,102

2.42 %

FEDERAL HO E 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 ecember 31,
2019, was approximately $245,138,000. In addition, the Bank has a $14,500,000 line of credit with the FHLBB. A schedule of the maturity distribution of FHLBB
2019
December 31,
advances with the weighted average interest rates is as follows:

2018

2017

(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

$ 218,000
$ 42,500
$
3,500
$ 70,000
$ 36,955

$ 370,955

Weighted
Average
Rate

1.86 %
2.58 %
2.15 %
2.85 %
2.88 %

2.23 %

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 %

Included in the table above are $40,000,000, $40,000,000, and $20,000,000, respectively, of FHLBB advances at ecember 31, 2019, 2018 and 2017, that are
puttable at the discretion of FHLBB. These put dates were not utilized in the table above.

uring 2019, the Company restructured $15,000,000 of FHLBB advances. Prior to the restructure, the weighted average rate on these advances was 3.33% and the
weighted average maturity was 14 months. Subsequent to the restructure, the weighted average rate was 2.37% and the weighted average maturity was 60 months.

SUBORDINATED DEBENTURES

Subordinated debentures totaled $36,083,000 at ecember 31, 2019 and 2018.

In ecember 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 ecember 31, 2019 and 2018.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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, 2019

Year Ended
December 31, 2018

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)

61
(17)

$ (1,022)
269

(753)

(114)
(1,351)

(1,465)
412

$ (1,053)

302
(85)

217

$ (1,477)
391

$ (1,086)

(14)
(1,610)

(1,624)
457

$ (1,167)

(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.

iluted EPS includes the dilutive effect of common stock equivalents; basic EPS excludes all common stock equivalents. There were no common stock equivalents for
2019, 2018 and 2017, respectively.
Year Ended December 31,

2019

2018

2017

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

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

31,351

28,479

17,526

8,348

7,734

4,775

3,633,044

1,934,865

8.63

4.31

3,608,179

1,959,730

7.89

3.95

3,604,029

1,963,880

4.86

2.43

31,351

28,479

17,526

8,348

39,699

3,633,044

1,934,865

5,567,909

1,934,865

7.13

4.31

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

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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. ividend 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

uring 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 irectors,
whose members are ineligible to participate in the Option Plans. Based on management’s recommendations, the Committee submits its recommendations to the Board
of irectors 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 ecember 31, 2019 and ecember 31, 2018.

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 ecember 31, 2019, 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, 2019 (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, 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)

Amount

Ratio

Amount

Ratio

Amount

Ratio

$ 401,850

372,265

$ 364,744

336,201

13.57 %

12.57 %

7.01 %

13.24 %

12.21 %

6.68 %

$ 236,830

177,622

133,217

212,549

$ 220,335

165,251

123,938

201,228

8.00 %

6.00 %

4.50 %

4.00 %

8.00 %

6.00 %

4.50 %

4.00 %

$ 296,037

10.00 %

236,830

192,424

265,686

8.00 %

6.50 %

5.00 %

$ 275,419

10.00 %

220,335

179,022

251,535

8.00 %

6.50 %

5.00 %

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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, 2019 (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, 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)

$ 415,863

386,308

351,308

386,308

$ 377,359

348,816

313,816

348,816

13.97 %

12.98 %

11.80 %

7.25 %

13.62 %

12.59 %

11.32 %

6.91 %

$ 238,132

178,599

133,949

213,222

$ 221,690

166,268

124,701

201,913

8.00 %

6.00 %

4.50 %

4.00 %

8.00 %

6.00 %

4.50 %

4.00 %

$ 297,665

10.00 %

238,132

193,482

266,528

8.00 %

6.50 %

5.00 %

$ 277,113

10.00 %

221,690

180,123

252,391

8.00 %

6.50 %

5.00 %

16. Income Taxes

2019

2018

2017

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

Federal

State

Total current expense

Deferred (benefit) expense:

Federal

State

Valuation allowance reversal

Total deferred (benefit) expense

Provision for income taxes

$ 2,548
697

3,245

(1,660)
(367)
(108)

(2,135)

$ 2,637
697

3,334

(1,238)
(528)
—

(1,766)

$ 3,628
412

4,040

6,496
422
—

6,918

$ 1,110

$ 1,568

$ 10,958

2019

2018

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

Deferred income tax asset, net

Total

$ 3,446
24,566

$ 28,012

$ 13,194
20,321

$ 33,515

2019

2018

2017

Insurance income

Effect of tax-exempt interest

State income tax, net of federal income tax benefit

(dollars in thousands)
ifferences between income tax expense (benefit) at the statutory federal income tax rate and total income tax expense are summarized as follows:
$ 8,570
Federal income tax expense at statutory rates
261
(265)
(6,737)
(292)
(108)
(438)
—
119

$ 7,934
134
(176)
(6,510)
(349)
—
438
—
97

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

Sequestration (reversal) accrual

Deferred tax remeasurement

Valuation allowance reversal

Net tax credit

Other

Total

Effective tax rate

$ 1,110

$ 1,568

$ 10,958

2.72 %

4.15 %

32.95 %

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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

2019

2018

Allowance for loan losses

Deferred compensation

Pension and SERP liability

Operating lease liabilities

Unrealized losses on securities transferred to held-to-maturity

Depreciation

QZAB credit

Accrued bonus

Charitable contributions carryforward

Nonaccrual interest

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

Other

Gross deferred income tax asset

Valuation allowance

Gross deferred income tax asset, net of valuation allowance

Deferred income tax liabilities:

Pension liability

Operating lease right-of-use assets

Deferred origination costs

Prepaid expenses

Mortgage servicing rights

Gross deferred income tax liability

Deferred income tax asset net

$ 8,354
8,910
8,770
3,567
643
1,060
812
708
276
115
114
206

33,535

—

33,535

(4,258)
(3,520)
(516)
(337)
(338)

(8,969)

8,058
8,184
6,506
—
912
908
—
717
389
109
(2)
181

25,962

(108)

25,854

(4,436)
—
(524)
(228)
(345)

(5,533)

$ 24,566

$ 20,321

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 ecember 31, 2019. uring 2019, the valuation allowance on a charitable contribution carryforward was reversed. 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 ecember 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 ecember 31, 2018, the corporate Alternative Minimum Tax (“AMT”) has been repealed. For 2017
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
$5,664,000, has been reclassified to currently receivable. Of this amount, the Company expects to recover $4,069,000 with the filing of its 2019 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 ecember 31, 2015.

17. Employee Benefits

The Company has a Qualified efined 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 efined
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 43% to 57% 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 15% to 31%.

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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

The measurement date for the Plan is ecember 31 for each year. The benefits expected to be paid in each year from 2020 to 2024 are $1,798,000, $2,023,000,
$2,157,000, $2,270,000, and $2,451,000, respectively. The aggregate benefits expected to be paid in the five years from 2025 to 2029 are $15,005,000.

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.

utual 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 1

Level 3

Level 2

NAV

Total

(dollars in thousands)
The fair value of plan assets and major categories as of ecember 31, 2019, is as follows:

Collective Funds

Equity Securities

Diversified Mutual Funds

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

8.3 %
9.7 %
31.1 %

49.1 %
50.9 %

—
—
—

—
26,274

$ 4,289
5,016
16,081

25,386
—

100.0 %

$ 26,274

$ 25,386

—
—
—

—
—

—

—
—
—

—
—

—

$ 4,289
5,016
16,081

25,386
26,274

$ 51,660

(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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

Description

Percent

NAV

Level 1

Level 2

Level 3

Total

(dollars in thousands)
The fair value of plan assets and major categories as of ecember 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 %

—
—
—
—

—
23,398

$ 2,504
4,863
13,612
60

21,039
—

100.0 %

$ 23,398

$ 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.

INVEST ENTS EASURED 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 ecember 31, 2019, is as follows:
Collective Funds by Category:

Equity
US debt securities
International equities

Limited Partnerships by Category:

Emerging markets
Multi-strategy

Hedge Funds by Category:
Global opportunities(2)

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

19.3 %
15.2 %
10.1 %

3.2 %
1.2 %

0.5 %
1.4 %

50.9 %

$ 9,932
7,874
5,208

1,635
644

259
722

$ 26,274

Percent

Fair Value

(dollars in thousands)
The investments measured using the net asset value per share practical expedient as of ecember 31, 2018, 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)

20.8 %
0.0 %
12.1 %
9.7 %

2.9 %
1.9 %

3.6 %
0.3 %
1.4 %

52.7 %

$ 9,204
—
5,386
4,311

1,289
826

1,593
150
639

$ 23,398

(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 in-vestments, 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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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/
The benefits expected to be paid in each year from 2020 to 2024 are $2,373,000, $2,318,000, $2,409,000, $2,692,000 and $3,138,000, respectively. The
Retirement Plan
aggregate benefits expected to be paid in the five years from 2025 to 2029 are $18,017,000.

Defined Benefit Pension Plan

2019

2018

2019

2018

(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 (loss) 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

$ 40,509
1,103
1,892
7,099
(1,169)

$ 49,434

$ 44,437
8,392
—
(1,169)

$ 51,660

$ 2,226

$ 49,434

3.71 %
4.76 %
7.50 %
4.00 %

$ 1,103
1,892
(3,275)
—
916

636

—
1,066

1,066

$ 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)

$ 40,405
1,024
1,926
7,537
(916)

$ 49,976

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

$ 40,405

$ (49,976)

$ 45,238

$ (40,405)

$ 36,984

3.71 %
4.79 %
NA
4.00 %

$ 1,024
1,926
—
114
435

$ 3,499

(114)
7,101

6,987

4.79 %
3.42 %
NA
4.00 %

1,107
1,386
—
114
706

3,313

(114)
(4,298)

(4,412)

$ 1,702

(2,571)

$ 10,486

(1,099)

(dollars in thousands)

Prior service cost
Net actuarial loss

Total

December 31, 2019
Supplemental
Plan

Plan

Total

Plan

December 31, 2018
Supplemental
Plan

Total

—
(12,920)

(307)
(17,971)

(307)
(30,891)

—
(11,854)

(421)
(10,870)

(421)
(22,724)

$ (12,920)

$ (18,278)

$ (31,198)

$ (11,854)

$ (11,291)

(23,145)

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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. iscretionary bonus
expense amounted to $2,364,000, $2,355,000 and $1,859,000 in 2019,
2018, and 2017, 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 ecember 31, 2019. Management, after reviewing
these claims with legal counsel, is of the opinion that their resolution will not
have a material adverse effect on the Company’s consolidated financial position
or results of operations.

19. Financial Instruments with Off-Balance-Sheet Risk

The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers.

These financial instruments primarily include commitments to originate and
sell loans, standby letters of credit, unused lines of credit and unadvanced
portions of construction loans. The instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized
in the consolidated balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in these
particular classes of financial instruments.

2019

2018

Financial instruments whose contract
amount represents credit risk

Commitments to originate

1–4 family mortgages

$ 13,806

5,075

Standby and commercial letters of credit

5,779

4,258

Unused lines of credit

Unadvanced portions of construction loans

Unadvanced portions of other loans

625,524

553,045

11,062

15,801

28,746

20,305

The following table summarizes the amounts included in Accumulated Other
Supplemental
Comprehensive Loss at ecember 31, 2019, 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 2020

Amortization of loss to be recognized in 2020

$ —
1,041

$ 114
$ 849

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.

Prior to ecember 31, 2018, the Company utilized a full yield curve approach
in the estimation of the service and interest components of the net periodic
pensionable cost by applying the specific spot rates along the yield curve used
in the determination of the benefit obligation to their underlying projected
cash flows.

Beginning ecember 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. 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 at ecember 31, 2018.

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 $458,000 for 2019, $454,000 for 2018 and $445,000 for 2017.
Administrative costs associated with the plan are absorbed by the Company.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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.

2019

2018

2017

20. Other Operating Expenses

(dollars in thousands)

Marketing

Software maintenance/amortization

Legal and audit

Contributions

Processing services

Consulting

Postage and delivery

Supplies

Telephone

Directors’ fees

Insurance

Pension

Other

Total

$ 2,132
2,409
1,514
813
1,875
1,552
1,002
985
956
414
456
2,008
1,786

$ 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

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- ATURITY

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.

$ 17,902

$ 16,288

$ 15,989

LOANS

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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

TI E DEPOSITS

SUBORDINATED DEBENTURES

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

OTHER BORROWED FUNDS

The fair value of other borrowed funds is based on the discounted value of
contractual cash flows. The discount rate used is estimated based on the rates
currently offered for other borrowed funds of similar remaining maturities.

Carrying
Amount

Estimated
Fair Value

(dollars in thousands)

December 31, 2019

Financial assets:

Securities held-to-maturity
Loans(1)

$ 2,351,120
2,396,534

$ 2,361,304
2,424,770

Financial liabilities:

Time deposits

Other borrowed funds

Subordinated debentures

December 31, 2018

Financial assets:

555,447
370,955
36,083

560,746
374,531
36,083

Securities held-to-maturity
Loans(1)

$ 2,046,647
2,257,035

$ 1,991,421
2,279,712

Financial liabilities:

Time deposits

Other borrowed funds

Subordinated debentures

(1)

560,579
202,378
36,083

559,988
203,122
36,083

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 ecember 31, 2019 and ecember 31, 2018. 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.

Fair Value Measurements

Level 1
Inputs

Level 2
Inputs

Level 3
Inputs

—
—

—
—
—

—
—

—
—
—

$ 2,361,304
—

—
2,424,770

560,746
374,531
36,083

—
—
—

$ 1,991,421
—

—
2,279,712

559,988
203,122
36,083

—
—
—

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

LI ITATIONS

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.

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

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 ecember 31, 2018, and 2017 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,
2019

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.

1. 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.

2. 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 de-posit 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,
2018

Revenue from
Contracts in
Scope of
Topic 606

Year ended
December 31,
2017

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

$ 95,789

—

$ 92,576

—

$ 85,616

—

9,220
3,973
277
61
412
4,456

9,220
3,973
—
—
—
2,799

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

Total noninterest income

18,399

15,992

16,248

14,370

16,552

14,305

Total revenues

$ 114,188

$ 15,992

$ 108,824

$ 14,370

$ 102,168

$ 14,305

December 31,

2019

2018

2017

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

Receivables, which are included in “Other assets”

$ 1,200

$ 1,205

$ 1,009

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

Year Ended December 31,

2019

Supplemental balance sheet information related to leases was as follows:
(in thousands, except lease term and discount rate)

Operating Leases:

Operating lease right-of-use assets

Operating lease liabilities

Weighted Average Remaining Lease Term:

Operating Leases

Weighted Average Discount Rate:

Operating Leases

$ 12,521
$ 12,690

11 Years

3.5 %

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 $2,744,000, $2,601,000 and $2,608,000 for the
years ended ecember 31, 2019, 2018 and 2017, respectively. Included in lease
expense are amounts paid to a company affiliated with Barry R. Sloane, Chairman,
President and CEO, and Linda Sloane Kay, Vice Chair, amounting to $458,000,
$444,000 and $439,000, respectively. Rental income approximated $419,000,
$373,000 and $321,000 in 2019, 2018 and 2017, respectively.
Year Ending December 31,

2019

2018

(in thousands)
A summary of future payments of lease liabilities were as follows:

2019

2020

2021

2022

2023

2024

Thereafter

Total lease payments

Less imputed interest

Present value of lease liability

—
2,030
1,754
1,603
1,545
1,277
7,312

$ 15,521

(2,831)

$ 12,690

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

$ 9,863

23. Leases

The Company has operating leases primarily for branch locations as well as
data processing centers. The Company’s operating leases have remaining lease
terms of 1 year to 32 years, some of which include options to extend the leases
for up to 10 years, and some of which include options to terminate the leases
within 1 year. The Company also has one sublease for part of a data processing
center that the Company currently leases from a lessor. The sublease expires in
2022 with an option to terminate and no option to extend. Lease income, for
the sublease, totaled approximately $39,000 for the year ended ecember 31,
2019. Variable lease costs include costs that are not included in the lease liability.
2019
Year Ended December 31,

(in thousands)
The components of lease expense were as follows:
Operating lease cost

Variable lease cost

Total lease cost

$ 2,216
528

$ 2,744

Year Ended December 31,

2019

(in thousands)
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement
of lease liabilities:

Operating cash flows from operating leases

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

$ 2,130

$ 1,745

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

2019 Quarters

24. 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

2018 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

Fourth

Third

Second

First

40,518
15,187

25,331
550

24,781
4,689
18,212

11,258
526

39,852
16,082

23,770
75

23,695
4,286
17,462

10,519
435

10,732

10,084

$
$

3,650,949
1,916,960

5,567,909
1,916,960

2.33
1.16

1.93
1.16

Fourth

37,453
13,748

23,705
450

23,255
4,164
17,185

10,234
309

$
$

3,650,449
1,917,460

5,567,909
1,917,460

2.19
1.09

1.81
1.09

Third

34,765
11,561

23,204
—

23,204
4,169
17,348

10,025
444

$
$

9,925

9,581

39,692
16,442

23,250
250

23,000
4,997
18,264

9,733
267

9,466

3,620,449
1,947,460

5,567,909
1,947,460

2.06
1.03

1.70
1.03

Second

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

3,608,329
1,959,580

5,567,909
1,959,580

$
$

2.09
1.04

1.72
1.04

3,608,029
1,959,880

5,567,909
1,959,880

$
$

1.96
0.98

1.62
0.98

39,077
15,639

23,438
375

23,063
4,427
18,190

9,300
(118)

9,418

3,610,329
1,957,580

5,567,909
1,957,580

$
$

2.05
1.03

1.69
1.03

First

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

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

25. Parent Company Financial Statements

The balance sheets of Century Bancorp, Inc. (“Parent Company”) as of ecember 31, 2019 and 2018 and the statements of income and cash flows for each of the years
BALANCE SHEETS
in the three-year period ended ecember 31, 2019, 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)

2019

2018

3,177
353,489
16,325

$ 372,991

4,327
36,083
332,581

$ 372,991

1,263
322,775
16,991

$ 341,029

4,507
36,083
300,439

$ 341,029

2019

2018

2017

5,000
—
65

5,065
1,577
215

3,273

(363)

3,636
36,063

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

$ 39,699

$ 36,213

$ 22,301

2019

2018

2017

$ 39,699

$ 36,213

$ 22,301

(36,063)
665
(180)

4,121

(2,207)

1,914

1,263

(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

3,177

1,263

1,981

ASSETS:

Cash

Investment in subsidiary, at equity

Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY:

Liabilities

Subordinated debentures

Stockholders’ equity

Total liabilities and stockholders’ equity

STATEMENTS OF INCOME
Year Ended December 31,

(dollars in thousands)

Income:

Dividends from subsidiary

Interest income from deposits in bank

Other income

Total income

Interest expense

Operating expenses

Income before income taxes and equity in undistributed income of subsidiary

Benefit from income taxes

Income before equity in undistributed income of subsidiary

Equity in undistributed income of subsidiary

Net income

STATEMENTS OF CASH FLOWS
December 31,

(dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

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

Undistributed income of subsidiary

Decrease (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 increase (decrease) in cash

Cash at beginning of year

Cash at end of year

Century Bancorp, Inc. AR ’19Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

KP G 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 ecember 31, 2019 and 2018, 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
ecember 31, 2019, 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 ecember 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in
the three-year period ended ecember 31, 2019, 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 ecember 31, 2019, based on criteria established in Internal Control—Integrated Frame ork (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission, and our report dated March 13, 2020 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 13, 2020

Century Bancorp, Inc. AR ’19

Report of Independent Registered Public Accounting Firm

KP G 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 ecember 31, 2019, based on criteria
established in Internal Control—Integrated Frame ork (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 ecember 31, 2019, based on criteria established in
Internal Control—Integrated Frame ork (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 ecember 31, 2019 and 2018, 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 ecember 31, 2019, and the related notes, collectively, the consolidated financial statements, and
our report dated March 13, 2020 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 13, 2020

Century Bancorp, Inc. AR ’19

Management’s Report on Internal Control Over Financial Reporting

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 ecember 31, 2019. 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 Frame ork (2013).
Based on our assessment, we believe that, as of ecember 31, 2019, 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
Chairman, President & CEO

William P. Hornby, CPA
Chief Financial Officer & Treasurer

March 13, 2020

Century Bancorp, Inc. AR ’19

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 14, 2020, 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.