UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2018.~~March 31, 2019.

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number:0-15752

CENTURY BANCORP, INC.

(Exact name of registrant as specified in its charter)

COMMONWEALTH OF MASSACHUSETTS

04-2498617

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


400 MYSTIC AVENUE, MEDFORD, MA		02155
(Address of principal executive offices)		(Zip Code)

(781)391-4000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

(Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). ☐ Yes ☒ No

Securities registered pursuant to Section 12(b) of the Act:


Class A Common Stock, $1.00 par value	CNBKA	Nasdaq Global Market
(Title of class)	Trading Symbol(s)	(Name of Exchange)

As of ~~October 31, 2018,~~April 30, 2019, the Registrant had outstanding:


Class A Common Stock, $1.00 par value			~~3,608,329~~3,610,329 Shares
Class B Common Stock, $1.00 par value			~~1,959,580~~1,957,580 Shares

Century Bancorp, Inc.

Index


			Page Number
Part I	~~Financial Information~~
	~~Forward Looking Statements~~Financial Information			3
~~Item 1.~~	~~Financial~~Forward Looking Statements ~~(unaudited)~~

~~Consolidated Balance Sheets:~~Item 1.	Financial Statements (unaudited)

	~~September 30, 2018~~Consolidated Balance Sheets: March 31, 2019 and December 31, ~~2017~~2018			4
	Consolidated Statements of Income:
	Three Months Ended March 31, 2019 and ~~Nine Months Ended September 30,~~ 2018 ~~and 2017~~			5
	Consolidated Statements of Comprehensive Income:
	Three Months Ended March 31, 2019 and ~~Nine Months Ended September 30,~~ 2018 ~~and 2017~~			6
	Consolidated Statements of Changes in Stockholders’ Equity:
	~~Nine~~ Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~			7
	Consolidated Statements of Cash Flows:
	~~Nine~~ Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~			8

	Notes to Consolidated Financial Statements			~~9-33~~9 - 32

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			~~34-45~~33 - 42

Item 3.	Quantitative and Qualitative Disclosures About Market Risk			45
~~Item 4.~~	~~Controls and Procedures~~			4542

~~Part II.~~ Item 4.	Controls and Procedures			42

Part II.	Other Information
Item 1.	Legal Proceedings			4643
Item 1A.	Risk Factors			4643
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			4643
Item 3.	Defaults Upon Senior Securities			4643
Item 4.	Mine Safety Disclosures			4643
Item 5.	Other Information			4643
Item 6.	Exhibits			4743

Signatures		48		44

Exhibits	Ex-31.1
	Ex-31.2
	Ex-32.1
	Ex-32.2
	Ex-101 Instance Document
	Ex-101 Schema Document
	Ex-101 Calculation Linkbase Document
	Ex-101 Labels Linkbase Document
	Ex-101 Presentation Linkbase Document
	Ex-101 Definition Linkbase Document

Forward Looking Statements

Except for the historical information contained herein, this Quarterly Report on Form10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, including, without limitation, (i) the fact that the Company’s success is dependent to a significant extent upon general economic conditions in New England, (ii) the fact that the Company’s earnings depend to a great extent upon the level of net interest income (the difference between interest income earned on loans and investments and the interest expense paid on deposits and other borrowings) generated by the Bank and thus the Bank’s results of operations may be adversely affected by increases or decreases in interest rates, (iii) the fact that the banking business is highly competitive and the profitability of the Company depends upon the Bank’s ability to attract loans and deposits within its market area, where the Bank competes with a variety of traditional banking and other institutions such as credit unions and finance companies, and (iv) the fact that a significant portion of the Company’s loan portfolio is comprised of commercial loans, exposing the Company to the risks inherent in loans based upon analyses of credit risk, the value of underlying collateral, including real estate, and other more intangible factors, which are considered in making commercial loans. Accordingly, the Company’s profitability may be negatively impacted by errors in risk analyses, and by loan defaults, and the ability of certain borrowers to repay such loans may be adversely affected by any downturn in general economic conditions. These factors, as well as general economic and market conditions, may materially and adversely affect the market price of shares of the Company’s common stock. Because of these and other factors, past financial performance should not be considered an indicator of future performance. The forward-looking statements contained herein represent the Company’s judgment as of the date of this Form10-Q, and the Company cautions readers not to place undue reliance on such statements.

Page 3 of 4844

PART I – Item 1

Century Bancorp, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands, except share data)


							March 31, 2019			December 31, 2018
Assets	September 30, 2018			December 31, 2017
Cash and due from banks	$	68,945		$	77,199		$	77,121		$	89,540
Federal funds sold and interest-bearing deposits in other banks		142,345			279,231			301,240			252,963

Total cash and cash equivalents		211,290			356,430			378,361			342,503
Securitiesavailable-for-sale, amortized cost $366,385 and $395,947, respectively		366,503			395,831
Securitiesheld-to-maturity, fair value $1,795,117 and $1,668,827, respectively		1,875,752			1,701,233
Securitiesavailable-for-sale, amortized cost $345,709 and $336,751, respectively								345,089			336,759
Securitiesheld-to-maturity, fair value $2,074,443 and $1,991,421, respectively								2,110,555			2,046,647
Federal Home Loan Bank of Boston, stock at cost		22,743			21,779			14,244			17,974
Equity securities, amortized cost $1,616 and $1,616, respectively		1,616			1,663
Equity securities, amortized cost $1,635 and $1,635, respectively								1,649			1,596
Loans, net:
Construction and land development		12,434			18,931			13,305			13,628
Commercial and industrial		783,960			763,807			767,436			761,625
Municipal		94,532			106,599			105,288			97,290
Commercial real estate		730,265			732,491			746,703			750,362
Residential real estate		335,114			287,731			349,966			348,250
Consumer		20,677			18,458			21,562			21,359
Home equity		283,818			247,345			305,839			292,340
Overdrafts		539			582			561			724

Total loans, net		2,261,339			2,175,944			2,310,660			2,285,578
Less: allowance for loan losses		28,545			26,255			28,848			28,543

Net loans		2,232,794			2,149,689			2,281,812			2,257,035
Bank premises and equipment		24,023			23,527			24,494			23,921
Accrued interest receivable		12,878			11,179			14,464			14,406
Goodwill		2,714			2,714			2,714			2,714
Other assets		120,110			121,527			132,684			120,380

Total assets	$	4,870,423		$	4,785,572		$	5,306,066		$	5,163,935

Liabilities
Deposits:
Demand deposits	$	731,095		$	736,020		$	764,545		$	813,478
Savings and NOW deposits		1,359,334			1,367,358			1,783,987			1,707,019
Money market accounts		1,294,092			1,188,228			1,359,016			1,325,888
Time deposits		579,886			625,361			542,079			560,579

Total deposits		3,964,407			3,916,967			4,449,627			4,406,964
Securities sold under agreements to repurchase		140,490			158,990			164,500			154,240
Other borrowed funds		372,606			347,778			257,148			202,378
Subordinated debentures		36,083			36,083			36,083			36,083
Due to broker		897			—			11,740			—
Other liabilities		69,063			65,457			77,644			63,831

Total liabilities		4,583,546			4,525,275			4,996,742			4,863,496
Stockholders’ Equity
Preferred Stock – $1.00 par value; 100,000 shares authorized; no shares issued and outstanding		—			—			—			—
Common stock, Class A, $1.00 par value per share; authorized 10,000,000 shares; issued 3,608,329 shares and 3,605,829 shares, respectively		3,608			3,606
Common stock, Class B, $1.00 par value per share; authorized 5,000,000 shares; issued 1,959,580 shares and 1,962,080 shares respectively		1,960			1,962
Common stock, Class A, $1.00 par value per share; authorized 10,000,000 shares; issued 3,610,329 shares and 3,608,329 shares, respectively								3,610			3,608
Common stock, Class B, $1.00 par value per share; authorized 5,000,000 shares; issued 1,957,580 shares and 1,959,580 shares respectively								1,958			1,960
Additionalpaid-in capital		12,292			12,292			12,292			12,292
Retained earnings		292,114			263,666			310,356			301,488

		309,974			281,526			328,216			319,348
Unrealized losses on securitiesavailable-for-sale, net of taxes		92			(62	)		(456	)		6
Unrealized losses on securities transferred toheld-to-maturity, net of taxes		(2,779	)		(3,050	)		(2,349	)		(2,565	)
Pension liability, net of taxes		(20,410	)		(18,117	)		(16,087	)		(16,350	)

Total accumulated other comprehensive loss, net of taxes		(23,097	)		(21,229	)		(18,892	)		(18,909	)

Total stockholders’ equity		286,877			260,297			309,324			300,439

Total liabilities and stockholders’ equity	$	4,870,423		$	4,785,572		$	5,306,066		$	5,163,935

See accompanying notes to unaudited consolidated interim financial statements.

Page 4 of 4844

Century Bancorp, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except share data)


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2018		2017		2018		2017		2019			2018
Interest income
Loans	$	20,167	$	16,658	$	57,613	$	48,668	$	21,309		$	18,267
Securitiesheld-to-maturity		11,507		9,447		32,930		28,806		13,788			10,288
Securitiesavailable-for-sale		2,500		1,809		6,821		5,143		2,631			1,992
Federal funds sold and interest-bearing deposits in other banks		591		607		2,239		1,349		1,349			883

Total interest income		34,765		28,521		99,603		83,966		39,077			31,430

Interest expense
Savings and NOW deposits		2,972		1,727		7,778		4,454		5,466			2,223
Money market accounts		3,652		1,395		9,039		3,903		5,343			2,453
Time deposits		2,571		2,095		7,465		5,648		2,793			2,363
Securities sold under agreements to repurchase		288		129		657		352		385			181
Other borrowed funds and subordinated debentures		2,078		1,822		5,793		5,695		1,652			1,742

Total interest expense		11,561		7,168		30,732		20,052		15,639			8,962

Net interest income		23,204		21,353		68,871		63,914		23,438			22,468
Provision for loan losses		—		450		900		1,340		375			450

Net interest income after provision for loan losses		23,204		20,903		67,971		62,574		23,063			22,018
Other operating income
Service charges on deposit accounts		2,137		2,089		6,268		6,179		2,209			2,067
Lockbox fees		892		735		2,304		2,367		1,089			791
Net gains on sales of securities		105		47		302		47		—			197
Gains on sales of mortgage loans		—		—		—		370		15			—
Other income		1,035		1,071		3,210		3,179		1,114			1,138

Total other operating income		4,169		3,942		12,084		12,142		4,427			4,193

Operating expenses
Salaries and employee benefits		10,570		9,933		32,331		31,097		11,035			11,225
Occupancy		1,481		1,427		4,579		4,663		1,701			1,637
Equipment		781		782		2,355		2,245		783			794
FDIC assessments		368		340		1,110		1,218		373			383
Other		4,148		3,723		12,133		11,904		4,298			3,962

Total operating expenses		17,348		16,205		52,508		51,127		18,190			18,001

Income before income taxes		10,025		8,640		27,547		23,589		9,300			8,210
Provision for income taxes		444		617		1,259		1,313
(Benefit) provision for income taxes										(118	)		501

Net income	$	9,581	$	8,023	$	26,288	$	22,276	$	9,418		$	7,709

Share data:
Weighted average number of shares outstanding, basic
Class A		3,608,329		3,605,829		3,608,129		3,603,429		3,610,329			3,608,029
Class B		1,959,580		1,962,080		1,959,780		1,964,480		1,957,580			1,959,880
Weighted average number of shares outstanding, diluted
Class A		5,567,909		5,567,909		5,567,909		5,567,909		5,567,909			5,567,909
Class B		1,959,580		1,962,080		1,959,780		1,964,480		1,957,580			1,959,880
Basic earnings per share:
Class A	$	2.09	$	1.75	$	5.73	$	4.86	$	2.05		$	1.68
Class B	$	1.04	$	0.87	$	2.86	$	2.43	$	1.03		$	0.84
Diluted earnings per share
Class A	$	1.72	$	1.44	$	4.72	$	4.00	$	1.69		$	1.38
Class B	$	1.04	$	0.87	$	2.86	$	2.43	$	1.03		$	0.84

See accompanying notes to unaudited consolidated interim financial statements.

Page 5 of 4844

Century Bancorp, Inc.

Consolidated Statements of Comprehensive Income (unaudited)

(In thousands)

   Three months ended
September 30,
   2018 2017
Net income
   $ 9,581 $ 8,023
Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on securities:

Unrealized (losses) gains arising during period
   (88 ) 122
Less: reclassification adjustment for gains included in net income
   (76 ) (28 )


Total unrealized (losses) gains on securities
   (164 ) 94
Accretion of net unrealized losses transferred
   238 223
Defined benefit pension plans:

Amortization of prior service cost and loss included in net periodic benefit cost
   292 233


Other comprehensive income
   366 550


Comprehensive income
   $ 9,947 $ 8,573


	Nine months ended September 30,						Three months ended March 31,
	2018			2017			2019			2018
Net income	$	26,288		$	22,276		$	9,418		$	7,709
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Unrealized (losses) gains arising during period		412			455			(462	)		213
Less: reclassification adjustment for gains included in net income		(217	)		(28	)		—			(142	)

Total unrealized (losses) gains on securities		195			427			(462	)		71
Accretion of net unrealized losses transferred		872			856			216			381
Defined benefit pension plans:
Amortization of prior service cost and loss included in net periodic benefit cost		877			698			263			293

Other comprehensive income		1,944			1,981			17			745

Comprehensive income	$	28,232		$	24,257		$	9,435		$	8,454

See accompanying notes to unaudited consolidated interim financial statements.

Page 6 of 4844

Century Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~

   Class A
Common
Stock    Class B
Common
Stock Additional
Paid-In
Capital    Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
Stockholders’
Equity
   (In thousands)
Balance at December 31, 2016
   $ 3,601    $ 1,967 $ 12,292    $ 243,565 $ (21,384 ) $ 240,041
Net income
   —      —   —      22,276 —   22,276
Other comprehensive income, net of tax:

Unrealized holding (losses) gains arising during period, net of $282 in taxes and $47 in realized gains
   —      —   —      —   427 427
Accretion of unrealized losses on securities transferred toheld-to-maturity, net of $1,022 in taxes
   —      —   —      —   856 856
Pension liability adjustment, net of $465 in taxes
   —      —   —      —   698 698
Conversion of Class B Common Stock to Class A Common Stock, 5,100 shares
   5    (5 ) —      —   —   —
Cash dividends paid, Class A common stock, $.36 per share
   —      —   —      (1,297 ) —   (1,297 )
Cash dividends paid, Class B common stock, $.18 per share
   —      —   —      (353 ) —   (353 )






Balance at September 30, 2017
   $ 3,606    $ 1,962 $ 12,292    $ 264,191 $ (19,403 ) $ 262,648






Balance at December 31, 2017
   $ 3,606    $ 1,962 $ 12,292    $ 263,666 $ (21,229 ) $ 260,297
Net income
   —      —   —      26,288 —   26,288
Other comprehensive income, net of tax:

Unrealized holding (losses) gains arising during period, net of $39 in taxes, and $302 in realized gains
   —      —   —      —   195 195
Accretion of unrealized losses on securities transferred toheld-to-maturity, net of $314 in taxes
   —      —   —      —   872 872
Pension liability adjustment, net of $342 in taxes
   —      —   —      —   877 877
Adoption of ASU2018-2, Income Statement – Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from AOCI
   —      —   —      3,783 (3,783 ) —
Adoption of ASU2016-1, Financial Instruments – Overall (Subtopic825-10) Recognition and Measurement of Financial Assets and Financial Liabilities
   —      —   —      29 (29 ) —
Conversion of Class B Common Stock to Class A Common Stock, 2,500 shares
   2    (2 ) —      —   —   —
Cash dividends paid, Class A common stock, $.36 per share
   —      —   —      (1,299 ) —   (1,299 )
Cash dividends paid, Class B common stock, $.18 per share
   —      —   —      (353 ) —   (353 )






Balance at September 30, 2018
   $ 3,608    $ 1,960 $ 12,292    $ 292,114 $ (23,097 ) $ 286,877


	Class A Common Stock		Class B Common Stock			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	(In thousands)
Balance at December 31, 2017	$	3,606	$	1,962		$	12,292	$	263,666		$	(21,229	)	$	260,297
Net income		—		—			—		7,709			—			7,709
Other comprehensive income, net of tax:
Unrealized holding (losses) gains arising during period, net of $9 in taxes, and $197 in realized gains		—		—			—		—			71			71
Accretion of unrealized losses on securities transferred toheld-to-maturity, net of $139 in taxes		—		—			—		—			381			381
Pension liability adjustment, net of $114 in taxes		—		—			—		—			293			293
Adoption of ASU2018-2, Income Statement-Reporting Comprehensive Income (Topic 220)-Reclassification of Certain Tax Effects from AOCI		—		—			—		3,783			(3,783	)		—
Adoption of ASU2016-1, Financial Instruments-Overall (Subtopic825-10) Recognition and Measurement of Financial Assets and Financial Liabilities		—		—			—		29			(29	)		—
Conversion of Class B Common Stock to Class A Common Stock, 2,200 shares		2		(2	)		—		—			—			—
Cash dividends paid, Class A common stock, $.12 per share		—		—			—		(434	)		—			(434	)
Cash dividends paid, Class B common stock, $.06 per share		—		—			—		(117	)		—			(117	)

Balance at March 31, 2018	$	3,608	$	1,960		$	12,292	$	274,636		$	(24,296	)	$	268,200

Balance at December 31, 2018	$	3,608	$	1,960		$	12,292	$	301,488		$	(18,909	)	$	300,439
Net income		—		—			—		9,418			—			9,418
Other comprehensive income, net of tax:
Unrealized holding (losses) gains arising during period, net of $166 in taxes		—		—			—		—			(462	)		(462	)
Accretion of unrealized losses on securities transferred to held-to-maturity, net of $78 in taxes		—		—			—		—			216			216
Pension liability adjustment, net of $103 in taxes		—		—			—		—			263			263
Conversion of Class B Common Stock to Class A Common Stock, 2,300 shares		2		(2	)		—		—			—			—
Cash dividends paid, Class A common stock, $0.12 per share		—		—			—		(433	)		—			(433	)
Cash dividends paid, Class B common stock, $0.06 per share		—		—			—		(117	)		—			(117	)

Balance at March 31, 2019	$	3,610	$	1,958		$	12,292	$	310,356		$	(18,892	)	$	309,324

See accompanying notes to unaudited consolidated interim financial statements.

Page 7 of 4844

Century Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~


	Nine months ended September 30,						Three months ended March 31,
	2018			2017			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	26,288		$	22,276		$	9,418		$	7,709
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sales of mortgage loans		—			(370	)		(15	)		—
Net gains on sales of securities		(302	)		(47	)		—			(197	)
Net loss on equity securities		47			—
Net (gain) loss on equity securities								(53	)		9
Provision for loan losses		900			1,340			375			450
Deferred income taxes		(1,270	)		(3,477	)		104			(680	)
Net depreciation and amortization		1,116			2,444			(468	)		592
Increase in accrued interest receivable		(1,699	)		(281	)
Decrease (increase) in other assets		1,542			(1,478	)
Increase in other liabilities		4,825			4,076
(Increase) decrease in accrued interest receivable								(58	)		335
Decrease in other assets								2,187			3,076
(Decrease) increase in other liabilities								(458	)		2,926

Net cash provided by operating activities		31,447			24,483			11,032			14,220

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of short-term investments		—			3,183
Proceeds from redemptions of Federal Home Loan Bank of Boston stock		13,619			7,175			4,777			3,464
Purchase of Federal Home Loan Bank of Boston stock		(14,583	)		(8,070	)		(1,047	)		(1,735	)
Proceeds from calls/maturities of securitiesavailable-for-sale		111,922			211,576			34,927			31,527
Proceeds from sales of securitiesavailable-for-sale		27,517			18,133			—			17,871
Purchase of securitiesavailable-for-sale		(108,871	)		(111,777	)		(34,031	)		(19,336	)
Proceeds from calls/maturities of securitiesheld-to-maturity		187,009			231,953			88,027			59,409
Purchase of securitiesheld-to-maturity		(358,824	)		(230,813	)		(148,500	)		(169,974	)
Proceeds from life insurance policies		375			—			—			375
Net increase in loans		(83,967	)		(215,063	)		(25,811	)		(11,198	)
Proceeds from sales of portfolio loans		—			26,701			685			—
Capital expenditures		(2,900	)		(2,881	)		(1,344	)		(508	)

Net cash used in investing activities		(228,703	)		(69,883	)		(82,317	)		(90,105	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in time deposits		(45,475	)		128,920
Net (decrease) increase in demand, savings, money market and NOW deposits		92,915			(176,456	)
Net decrease in time deposits								(18,500	)		(9,539	)
Net increase in demand, savings, money market and NOW deposits								61,163			28,368
Cash dividends		(1,652	)		(1,650	)		(550	)		(551	)
Net (decrease) increase in securities sold under agreements to repurchase		(18,500	)		46,568
Net increase in other borrowed funds		24,828			65,000
Net increase (decrease) in securities sold under agreements to repurchase								10,260			(17,430	)
Net increase (decrease) in other borrowed funds								54,770			(30,724	)

Net cash provided by financing activities		52,116			62,382
Net cash provided by (used in) financing activities								107,143			(29,876	)

Net (decrease) increase in cash and cash equivalents		(145,140	)		16,982
Net increase (decrease) in cash and cash equivalents								35,858			(105,761	)
Cash and cash equivalents at beginning of period		356,430			236,151			342,503			356,430

Cash and cash equivalents at end of period	$	211,290		$	253,133		$	378,361		$	250,669

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Cash paid (received) during the period for:
Interest	$	30,680		$	20,255		$	15,462		$	9,008
Income taxes		590			4,830			(1,265	)		225
Change in unrealized gains (losses) on securitiesavailable-for-sale, net of taxes		195			427			(462	)		71
Change in unrealized losses on securities transferred toheld-to-maturity, net of taxes		872			856			216			381
Pension liability adjustment, net of taxes		877			698			263			293
Change in due to (from) to broker		897			5,911			11,740			10,011

See accompanying notes to unaudited consolidated interim financial statements.

Page 8 of 4844

Century Bancorp, Inc.

Notes to Unaudited Consolidated Interim Financial Statements

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~

Note 1. Basis of Financial Statement Presentation

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

All significant intercompany accounts and transactions have been eliminated in consolidation. The Company provides a full range of banking services to individual, business and municipal customers in Massachusetts, New Hampshire, Rhode Island, Connecticut, and New York. As a bank holding company, the Company is subject to the regulation and supervision of the Federal Reserve Board. The Bank, a state chartered financial institution, is subject to supervision and regulation by applicable state and federal banking agencies, including the Federal Reserve Board, the Federal Deposit Insurance Corporation (the “FDIC”) and the Commonwealth of Massachusetts Commissioner of Banks. The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy. All aspects of the Company’s business are highly competitive. The Company faces aggressive competition from other lending institutions and from numerous other providers of financial services. The Company has one reportable operating segment.

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The Company’s quarterly report on Form10-Q should be read in conjunction with the Company’s Annual Report on Form10-K for the fiscal year ended December 31, ~~2017,~~2018, as filed with the Securities and Exchange Commission.

Material estimates that are susceptible to change in the near term relate to the allowance for loan losses. Management believes that the allowance for loan losses is adequate based on independent appraisals and review of other factors, including historicalcharge-off rates with additional allocations based on risk factors for each category and general economic factors. While management uses available information to recognize loan losses, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, regulatory agencies periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination. Certain reclassifications are made to prior-year amounts whenever necessary to conform with the current-year presentation.

Note 2. Recent Accounting Developments

Recently Adopted Accounting Standards Updates

In July 2017, FASB issued ASU2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest with a Scope Exception. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2018. The effect of this update did not have a material impact on the Company’s consolidated financial position.

In March 2017, the FASB issued ASU2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic310-20) Premium Amortization of Purchased Callable Debt. The FASB is issuing this ASU to amend the amortization period for certain purchased callable debt securities held at a premium. The FASB is shortening the amortization period for the premium to the earliest call date. Under current generally accepted accounting principles (GAAP), entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The effect of this update did not have a material impact on the Company’s consolidated financial position.

Page 9 of 4844

In February 2016, the FASB issued ASU2016-02, Leases. This ASU requires lessees to put most leases on their balance sheet but recognize expenses on their income statements in a manner similar to today’s accounting. This ASU also eliminates today’s real estate-specific provisions for all companies. For lessors, this ASU modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. 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 with a corresponding lease liability.

In July 2018, ASU2018-10, “Codification Improvements to Topic 842, Leases” (“ASU2018-10”) was issued to provide more detailed guidance and additional clarification for implementing ASU2016-02. Also in July 2018, ASU2018-11, “Targeted Improvements” (“ASU2018-11”) 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.

Accounting Standards Issued but not yet Adopted

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

In August 2018, FASB issued ASU2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic350-40): 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 obtaininternal-use software (and hosting arrangements that include an internal use software license).This ASU is effective for annual reporting periods beginning after December 15, 2019. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

In August 2018, FASB issued ASU2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit plans. The amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. This ASU is effective for annual reporting periods beginning after December 15, 2020. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

In August 2018, FASB issued ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. This ASU is effective for annual reporting periods beginning after December 15, 2019. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

In January 2017, the FASB issued ASU2017-04, Intangibles — Goodwill and Other (Topic 350). This ASU was issued to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. For public entities, this ASU is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted and application should be on a prospective basis. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

In June 2016, the FASB issued ASU2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is in the process of analyzing this ASU, has purchased a software solution and is capturing information needed to implement this update. The Company has started to input information and is in the beginning stages of running the software program. The Company has not determined the impact, if any, as of March 31, 2019.

Page 10 of 44

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 comparativeyear-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 andyear-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).

Note 2.3. SecuritiesAvailable-for-Sale


	September 30, 2018								December 31, 2017								March 31, 2019								December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)																(in thousands)
U.S. Treasury	$	1,999	$	—	$	13	$	1,986	$	1,999	$	—	$	15	$	1,984	$	2,000	$	—	$	2	$	1,998	$	2,000	$	—	$	8	$	1,992
U.S. Government Sponsored Enterprises		3,942		—		53		3,889		—		—		—		—		3,950		—		8		3,942		3,946		—		31		3,915
SBA Backed Securities		71,417		—		293		71,124		81,065		46		161		80,950		72,906		—		318		72,588		70,477		1		284		70,194
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		168,760		666		211		169,215		225,537		556		317		225,776		194,549		228		572		194,205		162,604		536		250		162,890
Privately Issued Residential Mortgage-Backed Securities		720		4		9		715		897		4		9		892		653		4		8		649		679		3		10		672
Obligations Issued by States and Political Subdivisions		115,947		62		—		116,009		82,849		—		249		82,600		68,051		56		—		68,107		93,445		58		—		93,503
Other Debt Securities		3,600		21		56		3,565		3,600		68		39		3,629		3,600		41		41		3,600		3,600		37		44		3,593

Total	$	366,385	$	753	$	635	$	366,503	$	395,947	$	674	$	790	$	395,831	$	345,709	$	329	$	949	$	345,089	$	336,751	$	635	$	627	$	336,759

Included in SBA Backed Securities, U.S. Government Sponsored Enterprise Securities and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities are securities at fair value pledged to secure public deposits and repurchase agreements amounting to ~~$210,362,000~~$188,887,000 and ~~$216,353,000~~$197,304,000 at ~~September 30, 2018~~March 31, 2109 and December 31, ~~2017,~~2018, respectively. Also included in securitiesavailable-for-sale are securities at fair value pledged for borrowing at the Federal Home Loan Bank of Boston amounting to $35,852,000 and ~~$67,780,000~~$34,787,000 at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. There were no sales ofavailable-for-sale securities for the three months ended March 31, 2019. The Company realized gross gains of ~~$302,000~~$197,000 from the proceeds of ~~$27,517,000~~$17,871,000 from the sales ofavailable-for-sale securities for the ~~nine~~three months ended ~~September 30,~~March 31, 2018. ~~The Company realized gross gains of $47,000 from the proceeds of $18,133,000 from the sales ofavailable-for-sales~~ ~~securities for the nine months ended September 30, 2017.~~

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

The following table shows the maturity distribution of the Company’s securitiesavailable-for-sale at ~~September 30, 2018.~~March 31, 2019.


	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in thousands)				(in thousands)
Within one year	$	115,302	$	115,282	$	66,419	$	66,413
After one but within five years		60,862		60,682		101,922		101,815
After five but within ten years		156,425		156,782		133,284		132,854
More than 10 years		33,796		33,757		44,084		44,007

Total	$	366,385	$	366,503	$	345,709	$	345,089

Page 11 of 44

The weighted average remaining life of investment securitiesavailable-for-sale at ~~September 30, 2018~~March 31, 2019 was ~~4.9~~5.2 years. Included in the weighted average remaining life calculation at ~~September 30, 2018~~March 31, 2019 were ~~$3,942,000~~$3,950,000 of U.S. Government Sponsored Enterprises obligations that are callable at the discretion of the issuer. The ~~actual~~contractual maturities, which were used in the table above, of mortgage-backed securities, will differ from the ~~contractual~~actual maturities, due to the ability of the issuers to prepay underlying obligations.

~~Page 10~~ Also $273,776,000 of 48the securities are floating rate or adjustable rate and reprice prior to maturity.

As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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 that the principal and interest on these securities are from issuers that are investment grade. The change in the unrealized losses on the Obligations Issued by States and Political Subdivisions, Privately Issued Residential Mortgage-Backed Securities and Other Debt Securities was primarily caused by changes in credit spreads and liquidity issues in the marketplace.

The unrealized loss on ~~U.S. Treasury,~~ SBA Backed Securities, ~~U.S. Government Sponsored Enterprises,~~ U.S. Government Agency and Sponsored Enterprise Mortgage-Backed ~~Securities, Privately Issued Residential Mortgage-Backed Securities, Obligations Issued by States and Political Subdivisions, and Other Debt~~ Securities related primarily to interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily ~~impaired.~~impaired at March 31, 2019 or December 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. ~~In the case of marketable equity securities, the severity of the unrealized loss, the length of time the unrealized loss has existed, and the issuer’s financial performance are considered.~~

The following table shows the temporarily impaired securities of the Company’savailable-for-sale portfolio at ~~September 30,~~March 31, 2019. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for less than 12 months and a continuous loss position for 12 months or longer. There are 21 and 31 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 183 holdings at March 31, 2019.


	March 31, 2019
	Less than 12 months				12 months or longer				Total
Temporarily Impaired Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury	$	—	$	—	$	1,998	$	2	$	1,998	$	2
U.S. Government Sponsored Enterprises		—		—		3,942		8		3,942		8
SBA Backed Securities		19,409		40		53,180		278		72,589		318
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		70,530		278		43,656		294		114,186		572
Privately Issued Residential Mortgage-Backed Securities		—		—		479		8		479		8
Obligations Issued by States and Political Subdivisions		—		—		—		—		—		—
Other Debt Securities		—		—		459		41		459		41

Total temporarily impaired securities	$	89,939	$	318	$	103,714	$	631	$	193,653	$	949

Page 12 of 44

The following table shows the temporarily impaired securities of the Company’savailable-for-sale portfolio at December 31, 2018. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for less than 12 months and a continuous loss position for 12 months or longer. There are 1310 and 2530 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of ~~195 holdings at September 30, 2018.~~

   September 30, 2018
   Less than 12 months    12 months or longer    Total
Temporarily Impaired Investments    Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
Losses
   (in thousands)
U.S. Treasury
   $ —      $ —      $ 1,986    $ 13    $ 1,986    $ 13
U.S. Government Sponsored Enterprises
   3,889    53    —      —      3,889    53
SBA Backed Securities
   25,567    42    45,557    251    71,124    293
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities
   31,311    60    26,032    151    57,343    211
Privately Issued Residential Mortgage-Backed Securities
   —      —      524    9    524    9
Obligations Issued by States and Political Subdivisions
   —      —      —      —      —      —
Other Debt Securities
   —      —      744    56    744    56












Total temporarily impaired securities
   $ 60,767    $ 155    $ 74,843    $ 480    $ 135,610    $ 635

~~Page 11 of 48~~

~~The following table shows the temporarily impaired securities of the Company’savailable-for-sale~~ portfolio at December 31, 2017. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for less than 12 months and a continuous loss position for 12 months or longer. There are 16 and 28 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 249190 holdings at December 31, ~~2017.~~2018.


	December 31, 2017												December 31, 2018
	Less than 12 months				12 months or longer				Total				Less than 12 months				12 months or longer				Total
Temporarily Impaired Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)												(in thousands)
U.S. Treasury	$	1,984	$	15	$	—	$	—	$	1,984	$	15	$	—	$	—	$	1,992	$	8	$	1,992	$	8
U.S. Government Sponsored Enterprises		—		—		—		—		—		—		3,914		31		—		—		3,914		31
SBA Backed Securities		18,378		54		40,911		107		59,289		161		17,950		28		44,323		256		62,273		284
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		40,394		123		59,336		194		99,730		317		19,244		21		45,782		229		65,026		250
Privately Issued Residential Mortgage-Backed Securities		—		—		633		9		633		9		—		—		495		10		495		10
Obligations Issued by States and Political Subdivisions		—		—		4,458		249		4,458		249		—		—		—		—		—		—
Other Debt Securities		400		1		461		38		861		39		—		—		455		44		455		44

Total temporarily impaired securities	$	61,156	$	193	$	105,799	$	597	$	166,955	$	790	$	41,108	$	80	$	93,047	$	547	$	134,155	$	627

Note 3.4. Investment SecuritiesHeld-to-Maturity


	September 30, 2018								December 31, 2017								March 31, 2019								December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)																(in thousands)
U.S. Treasury	$	9,903	$	—	$	3	$	9,900	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	9,960	$	—	$	2	$	9,958
U.S. Government Sponsored Enterprises		167,968		—		2,152		165,816		104,653		341		472		104,522		201,327		453		417		201,363		234,228		336		803		233,761
SBA Backed Securities		53,576		—		2,759		50,817		57,235		20		1,271		55,984		50,797		—		1,295		49,502		52,051		—		2,065		49,986
U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities		1,644,305		139		75,860		1,568,584		1,539,345		2,261		33,285		1,508,321		1,858,431		5,306		40,159		1,823,578		1,750,408		2,324		55,016		1,697,716

Total	$	1,875,752	$	139	$	80,774	$	1,795,117	$	1,701,233	$	2,622	$	35,028	$	1,668,827	$	2,110,555	$	5,759	$	41,871	$	2,074,443	$	2,046,647	$	2,660	$	57,886	$	1,991,421

Included in U.S. Government and Agency Securities are securities pledged to secure public deposits and repurchase agreements at fair value amounting to ~~$1,267,793,000~~$1,499,836,000 and ~~$1,262,708,000~~$1,441,059,000 at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. Also included are securities pledged for borrowing at the Federal Home Loan Bank of Boston at fair value amounting to ~~$515,979,000~~$305,776,000 and ~~$382,120,000~~$291,190,000 at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. There were no sales ofheld-to-maturity securities for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and March 31, 2018 ~~and September 30, 2017~~ respectively.

At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, all mortgage-backed securities are obligations of U.S. Government Agencies and Government Sponsored Enterprises. Debt securities of U.S. Government Sponsored Enterprises and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities primarily refer to debt securities of Fannie Mae and Freddie Mac.

Page 1213 of 4844

The following table shows the maturity distribution of the Company’s securitiesheld-to-maturity at ~~September 30, 2018.~~March 31, 2019.


	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in thousands)				(in thousands)
Within one year	$	39,091	$	38,932	$	37,216	$	37,070
After one but within five years		1,210,561		1,163,813		1,723,841		1,696,173
After five but within ten years		622,996		589,508		336,847		328,635
More than ten years		3,104		2,864		12,651		12,565

Total	$	1,875,752	$	1,795,117	$	2,110,555	$	2,074,443

The weighted average remaining life of investment securitiesheld-to-maturity at ~~September 30, 2018~~March 31, 2019 was ~~4.5~~4.0 years. Included in the weighted average remaining life calculation at ~~September 30, 2018~~March 31, 2019 were ~~$82,990,000~~$116,160,000 of U.S. Government Sponsored Enterprises obligations that are callable at the discretion of the issuer. The ~~actual~~contractual maturities, which were used in the table above, of mortgage-backed securities, will differ from the ~~contractual~~actual maturities, due to the ability of the issuers to prepay underlying obligations. Also $120,000 of the securities are floating rate or adjustable rate and reprice prior to maturity.

As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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 their remaining amortized costs. In making its other-than-temporary impairment evaluation, the Company considered the fact that the principal and interest on these securities are from issuers that are investment grade.

The unrealized loss on U.S. Government Sponsored Enterprises, SBA Backed Securities, and U.S. Government ~~Agency and~~ Sponsored ~~Enterprise~~Enterprises Mortgage-Backed Securities related primarily to ~~the rise in~~ 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 ~~September 30, 2018 and~~at March 31, 2019 or December 31, ~~2017.~~2018.

The following table shows the temporarily impaired securities of the Company’sheld-to-maturity portfolio ~~September 30, 2018.~~March 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 or longer. There are ~~176~~12 and ~~232~~304 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of ~~446~~487 holdings at ~~September 30, 2018.~~March 31, 2019.


	September 30, 2018												March 31, 2019
	Less Than 12 Months				12 Months or Longer				Total				Less Than 12 Months				12 Months or Longer				Total
Temporarily Impaired Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)												(in thousands)
U.S. Treasury	$	9,900	$	3	$	—	$	—	$	9,900	$	3	$	—	$	—	$	—	$	—	$	—	$	—
U.S. Government Sponsored Enterprises		135,760		1,171		29,517		981		165,277		2,152		—		—		74,876		417		74,876		417
SBA Backed Securities		2,487		75		48,330		2,684		50,817		2,759		—		—		49,502		1,295		49,502		1,295
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		557,866		13,733		997,268		62,127		1,555,134		75,860		59,831		439		1,237,048		39,720		1,296,879		40,159

Total temporarily impaired securities	$	706,013	$	14,982	$	1,075,115	$	65,792	$	1,781,128	$	80,774	$	59,831	$	439	$	1,361,426	$	41,432	$	1,421,257	$	41,871

Page 1314 of 4844

The following table shows the temporarily impaired securities of the Company’sheld-to-maturity portfolio at December 31, ~~2017.~~2018. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for less than 12 months and a continuous loss position for 12 months or longer. There are ~~117~~56 and ~~168~~315 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of ~~404~~475 holdings at December 31, ~~2017.~~2018.


	December 31, 2017												December 31, 2018
	Less Than 12 Months				12 Months or Longer				Total				Less Than 12 Months				12 Months or Longer				Total
Temporarily Impaired Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)												(in thousands)
U.S. Treasury													$	9,958	$	2	$	—	$	—	$	9,958	$	2
U.S. Government Sponsored Enterprises	$	15,257	$	239	$	14,768	$	233	$	30,025	$	472		9,849		42		69,499		761		79,348		803
SBA Backed Securities		19,457		142		33,750		1,129		53,207		1,271		—		—		49,987		2,065		49,987		2,065
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		519,481		5,920		814,712		27,365		1,334,193		33,285		188,125		2,032		1,249,689		52,984		1,437,814		55,016

Total temporarily impaired securities	$	554,195	$	6,301	$	863,230	$	28,727	$	1,417,425	$	35,028	$	207,932	$	2,076	$	1,369,175	$	55,810	$	1,577,107	$	57,886

Note 4.5. 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 periods indicated.


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018
	(in thousands)												(in thousands)
Allowance for loan losses, beginning of period	$	27,144		$	25,289		$	26,255		$	24,406		$	28,543		$	26,255
Loans charged off		(89	)		(95	)		(247	)		(292	)		(142	)		(87	)
Recoveries on loans previouslycharged-off		1,490			54			1,637			244			72			77

Net recoveries (charge-offs)		1,401			(41	)		1,390			(48	)
Net charge-offs														(70	)		(10	)
Provision charged to expense		—			450			900			1,340			375			450

Allowance for loan losses, end of period	$	28,545		$	25,698		$	28,545		$	25,698		$	28,848		$	26,695

Page 1415 of 4844

Further information pertaining to the allowance for loan losses for the three months ending ~~September 30, 2018~~March 31, 2019 follows:

Construction
and Land
Development Commercial
and
Industrial Municipal Commercial
Real Estate Residential
Real
Estate Consumer Home
Equity Unallocated Total
Allowance for loan losses: (in thousands)
Balance at June 30, 2018
$ 633 $ 10,384 $ 1,704 $ 10,209 $ 2,493 $ 336 $ 1,078 $ 307 $ 27,144
Charge-offs
—   (11 ) —   —   —   (78 ) —   —   (89 )
Recoveries
1,432 16 —   —   —   42 —   —   1,490
Provision
(1,155 ) 895 84 415 (182 ) 32 (28 ) (61 ) —

Ending balance at September 30, 2018
$ 910 $ 11,284 $ 1,788 $ 10,624 $ 2,311 $ 332 $ 1,050 $ 246 $ 28,545

Amount of allowance for loan losses for loans deemed to be impaired
$ —   $ 93 $ —   $ 95 $ 350 $ —   $ —   $ —   $ 538

Amount of allowance for loan losses for loans not deemed to be impaired
$ 910 $ 11,191 $ 1,788 $ 10,529 $ 1,961 $ 332 $ 1,050 $ 246 $ 28,007

Loans:

Ending balance
$ 12,434 $ 783,960 $ 94,532 $ 730,265 $ 335,114 $ 21,216 $ 283,818 $ —   $ 2,261,339

Loans deemed to be impaired
$ —   $ 660 $ —   $ 2,680 $ 2,675 $ —   $ —   $ —   $ 6,015

Loans not deemed to be impaired
$ 12,434 $ 783,300 $ 94,532 $ 727,585 $ 332,439 $ 21,216 $ 283,818 $ —   $ 2,255,324

~~Further information pertaining to the allowance for loan losses for the nine months ending September 30, 2018 follows:~~

Construction
and Land
Development Commercial
and
Industrial Municipal Commercial
Real Estate Residential
Real
Estate Consumer Home
Equity Unallocated Total
Allowance for loan losses: (in thousands)
Balance at December 31, 2017
$ 1,645 $ 9,651 $ 1,720 $ 9,728 $ 1,873 $ 373 $ 989 $ 276 $ 26,255
Charge-offs
—   (16 ) —   —   —   (231 ) —   —   (247 )
Recoveries
1,432 49 —   —   —   156 —   —   1,637
Provision
(2,167 ) 1,600 68 896 438 34 61 (30 ) 900

Ending balance at September 30, 2018
$ 910 $ 11,284 $ 1,788 $ 10,624 $ 2,311 $ 332 $ 1,050 $ 246 $ 28,545

Amount of allowance for loan losses for loans deemed to be impaired
$ —   $ 93 $ —   $ 95 $ 350 $ —   $ —   $ —   $ 538

Amount of allowance for loan losses for loans not deemed to be impaired
$ 910 $ 11,191 $ 1,788 $ 10,529 $ 1,961 $ 332 $ 1,050 $ 246 $ 28,007

Loans:

Ending balance
$ 12,434 $ 783,960 $ 94,532 $ 730,265 $ 335,114 $ 21,216 $ 283,818 $ —   $ 2,261,339

Loans deemed to be impaired
$ —   $ 660 $ —   $ 2,680 $ 2,675 $ —   $ —   $ —   $ 6,015

Loans not deemed to be impaired
$ 12,434 $ 783,300 $ 94,532 $ 727,585 $ 332,439 $ 21,216 $ 283,818 $ —   $ 2,255,324

During the nine months ending September 30, 2018, the Company’s provision was primarily attributable to an increase in residential real estate balances and increased qualitative allocations for commercial and industrial and commercial real estate loans, offset, somewhat by the recovery of a construction loan previously~~charged-off~~ ~~and a decrease in construction balances. During the three months ending September 30, 2018, the Company did not require a provision mainly as a result of recoveries of a construction loan previouslycharged-off~~ and a decrease in construction loan balances offset by increased qualitative allocations for commercial and industrial and commercial real estate loans. The Company monitors the outlook for the industries in which our borrowers operate. Healthcare and higher education are two of the primary industries. In particular the Company utilizes outlooks and forecasts from various sources. Overall a general weakening in the outlook was noted resulting in a general increase in the general economic factors. The Company also monitors the volatility of the losses within the historical data.

~~Page 15 of 48~~

~~Further information pertaining to the allowance for loan losses for the three months ending September 30, 2017 follows:~~

Construction
and Land
Development Commercial
and
Industrial Municipal Commercial
Real Estate Residential
Real Estate Consumer Home
Equity Unallocated Total
Allowance for loan losses: (in thousands)
Balance at June 30, 2017
$ 1,137 $ 7,563 $ 1,859 $ 11,028 $ 2,118 $ 195 $ 1,146 $ 243 $ 25,289
Charge-offs
—   (20 ) —   —   —   (75 ) —   —   (95 )
Recoveries
—   9 —   —   —   45 —   —   54
Provision
323 1,297 265 (1,491 ) (45 ) 220 (103 ) (16 ) 450

Ending balance at September 30, 2017
$ 1,460 $ 8,849 $ 2,124 $ 9,537 $ 2,073 $ 385 $ 1,043 $ 227 $ 25,698

Amount of allowance for loan losses for loans deemed to be impaired
$ —   $ 8 $ —   $ 111 $ 67 $ —   $ —   $ —   $ 186

Amount of allowance for loan losses for loans not deemed to be impaired
$ 1,460 $ 8,841 $ 2,124 $ 9,426 $ 2,006 $ 385 $ 1,043 $ 227 $ 25,512

Loans:

Ending balance
$ 16,779 $ 702,646 $ 128,412 $ 735,844 $ 272,588 $ 19,284 $ 237,094 $ —   $ 2,112,647

Loans deemed to be impaired
$ —   $ 366 $ —   $ 2,583 $ 4,318 $ —   $ —   $ —   $ 7,267

Loans not deemed to be impaired
$ 16,779 $ 702,280 $ 128,412 $ 733,261 $ 268,270 $ 19,284 $ 237,094 $ —   $ 2,105,380

~~Further information pertaining to the allowance for loan losses for the nine months ending September 30, 2017 follows:~~

Construction
and Land
Development Commercial
and
Industrial Municipal Commercial
Real Estate Residential
Real Estate Consumer Home
Equity Unallocated Total
Allowance for loan losses: (in thousands)
Balance at December 31, 2016
$ 1,012 $ 6,972 $ 1,612 $ 11,135 $ 1,698 $ 582 $ 1,102 $ 293 $ 24,406
Charge-offs
—   (49 ) —   —   —   (243 ) —   —   (292 )
Recoveries
—   63 —   —   2 179 —   —   244
Provision
448 1,863 512 (1,598 ) 373 (133 ) (59 ) (66 ) 1,340

Ending balance at September 30, 2017
$ 1,460 $ 8,849 $ 2,124 $ 9,537 $ 2,073 $ 385 $ 1,043 $ 227 $ 25,698

Amount of allowance for loan losses for loans deemed to be impaired
$ —   $ 8 $ —   $ 111 $ 67 $ —   $ —   $ —   $ 186

Amount of allowance for loan losses for loans not deemed to be impaired
$ 1,460 $ 8,841 $ 2,124 $ 9,426 $ 2,006 $ 385 $ 1,043 $ 227 $ 25,512

Loans:

Ending balance
$ 16,779 $ 702,646 $ 128,412 $ 735,844 $ 272,588 $ 19,284 $ 237,094 $ —   $ 2,112,647

Loans deemed to be impaired
$ —   $ 366 $ —   $ 2,583 $ 4,318 $ —   $ —   $ —   $ 7,267

Loans not deemed to be impaired
$ 16,779 $ 702,280 $ 128,412 $ 733,261 $ 268,270 $ 19,284 $ 237,094 $ —   $ 2,105,380

During the nine months ending September 30, 2017, the Company’s provision was primarily attributable to an increase in commercial and industrial, construction and land development, and residential real estate balances offset, somewhat, by changes in historical loss rates and qualitative factors. During the three months ending September 30, 2017 the Company’s provision was primarily attributable to an increase in commercial and industrial loan balances offset, somewhat, by changes in historical loss rates and qualitative factors.


	Construction and Land Development			Commercial and Industrial			Municipal		Commercial Real Estate		Residential Real Estate			Consumer			Home Equity			Unallocated			Total
	(in thousands)
Allowance for loan losses:
Balance at December 31, 2018	$	1,092		$	10,998		$	1,838	$	10,663	$	2,190		$	365		$	1,111		$	286		$	28,543
Charge-offs		—			(43	)		—		—		—			(99	)		—			—			(142	)
Recoveries		—			18			—		—		—			54			—			—			72
Provision		(81	)		183			160		104		(55	)		22			(10	)		52			375

Ending balance at March 31, 2019	$	1,011		$	11,156		$	1,998	$	10,767	$	2,135		$	342		$	1,101		$	338		$	28,848

Amount of allowance for loan losses for loans deemed to be impaired	$	—		$	6		$	—	$	94	$	—		$	—		$	—		$	—		$	100

Amount of allowance for loan losses for loans not deemed to be impaired	$	1,011		$	11,150		$	1,998	$	10,673	$	2,135		$	342		$	1,101		$	338		$	28,748

Loans:
Ending balance	$	13,305		$	767,436		$	105,288	$	746,703	$	349,966		$	22,123		$	305,839		$	—		$	2,310,660

Loans deemed to be impaired	$	—		$	320		$	—	$	2,946	$	—		$	—		$	—		$	—		$	3,266

Loans not deemed to be impaired	$	13,305		$	767,116		$	105,288	$	743,757	$	349,966		$	22,123		$	305,839		$	—		$	2,307,394


Further information pertaining to the allowance for loan losses for the three months ending March 31, 2018 follows:

	Construction and Land Development			Commercial and Industrial			Municipal		Commercial Real Estate		Residential Real Estate			Consumer			Home Equity			Unallocated			Total
	(in thousands)
Allowance for loan losses:
Balance at December 31, 2107	$	1,645		$	9,651		$	1,720	$	9,728	$	1,873		$	373		$	989		$	276		$	26,255
Charge-offs		—			(5	)		—		—		—			(82	)		—			—			(87	)
Recoveries		—			23			—		—		—			54			—			—			77
Provision		(207	)		(5	)		—		59		586			(24	)		78			(37	)		450

Ending balance at March 31, 2018	$	1,438		$	9,664		$	1,720	$	9,787	$	2,459		$	321		$	1,067		$	239		$	26,695

Amount of allowance for loan losses for loans deemed to be impaired	$	—		$	12		$	—	$	94	$	580		$	—		$	—		$	—		$	686

Amount of allowance for loan losses for loans not deemed to be impaired	$	1,438		$	9,652		$	1,720	$	9,693	$	1,879		$	321		$	1,067		$	239		$	26,009

Loans:
Ending balance	$	17,583		$	758,621		$	104,044	$	726,440	$	300,941		$	19,339		$	260,179		$	—		$	2,187,147

Loans deemed to be impaired	$	—		$	522		$	—	$	2,528	$	2,774		$	—		$	—		$	—		$	5,824

Loans not deemed to be impaired	$	17,583		$	758,099		$	104,044	$	723,912	$	298,167		$	19,339		$	260,179		$	—		$	2,181,323

Page 16 of 4844

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

Loans rated1-3 (Pass):

Loans in this category are considered “pass” rated loans with low to average risk.

Loans rated 4 (Monitor):

These loans represent classified loans that management is closely monitoring for credit quality. These loans have had or may have minor credit quality deterioration as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

Loans rated 5 (Substandard):

Substandard loans represent classified loans that management is closely monitoring for credit quality. These loans have had more significant credit quality deterioration as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

Loans rated 6 (Doubtful):

Doubtful loans represent classified loans that management is closely monitoring for credit quality. These loans had more significant credit quality deterioration as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 and are doubtful for full collection.

Impaired:

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

The following table presents the Company’s loans by risk rating at ~~September 30, 2018.~~March 31, 2019.


									Construction and Land Development		Commercial and Industrial		Municipal		Commercial Real Estate
	Construction and Land Development		Commercial and Industrial		Municipal		Commercial Real Estate		(in thousands)
Grade:	(in thousands)
1-3 (Pass)	$	12,434	$	779,165	$	94,532	$	703,039	$	13,305	$	762,991	$	105,288	$	719,367
4 (Monitor)		—		4,135		—		24,546		—		4,125		—		24,390
5 (Substandard)		—		—		—		—		—		—		—		—
6 (Doubtful)		—		—		—		—		—		—		—		—
Impaired		—		660		—		2,680		—		320		—		2,946

Total	$	12,434	$	783,960	$	94,532	$	730,265	$	13,305	$	767,436	$	105,288	$	746,703

The following table presents the Company’s loans by risk rating at December 31, ~~2017.~~2018.


									Construction and Land Development		Commercial and Industrial		Municipal		Commercial Real Estate
	Construction and Land Development		Commercial and Industrial		Municipal		Commercial Real Estate		(in thousands)
Grade:	(in thousands)
1-3 (Pass)	$	18,931	$	758,093	$	106,599	$	705,235	$	13,628	$	757,089	$	97,290	$	723,170
4 (Monitor)		—		5,366		—		24,702		—		4,135		—		24,542
5 (Substandard)		—		—		—		—		—		—		—		—
6 (Doubtful)		—		—		—		—		—		—		—		—
Impaired		—		348		—		2,554		—		401		—		2,650

Total	$	18,931	$	763,807	$	106,599	$	732,491	$	13,628	$	761,625	$	97,290	$	750,362

Page 17 of 4844

The Company has increased its exposure to larger loans to large institutions with publically available credit ratings beginning in 2015. These ratings are tracked as a credit quality indicator for these loans. Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at ~~September 30, 2018~~March 31, 2019 and are included within the total loan portfolio.


									Commercial and Industrial		Municipal		Commercial Real Estate		Total
	Commercial and Industrial		Municipal		Commercial Real Estate		Total		(in thousands)
Credit Rating:	(in thousands)
Aaa – Aa3	$	492,117	$	57,958	$	43,106	$	593,181	$	482,374	$	62,103	$	41,335	$	585,812
A1 – A3		194,465		995		110,191		305,651		181,409		7,605		151,031		340,045
Baa1 – Baa3		—		26,970		119,409		146,379		—		26,970		118,868		145,838
Ba2		—		6,810		—		6,810		—		6,810		—		6,810

Total	$	686,582	$	92,733	$	272,706	$	1,052,021	$	663,783	$	103,488	$	311,234	$	1,078,505

Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at December 31, ~~2017.~~2018.


									Commercial and Industrial		Municipal		Commercial Real Estate		Total
	Commercial and Industrial		Municipal		Commercial Real Estate		Total		(in thousands)
Credit Rating:	(in thousands)
Aaa – Aa3	$	478,905	$	62,029	$	45,066	$	586,000	$	491,247	$	54,105	$	42,790	$	588,142
A1 – A3		195,599		7,635		128,554		331,788		172,472		7,605		151,381		331,458
Baa1 – Baa3		—		26,970		122,000		148,970		—		26,970		118,197		145,167
Ba2		—		8,165		—		8,165		—		6,810		—		6,810

Total	$	674,504	$	104,799	$	295,620	$	1,074,923	$	663,719	$	95,490	$	312,368	$	1,071,577

Page 18 of 44

The Company utilized payment performance as credit quality indicators for the loan types listed below. The indicators are depicted in the table “aging of past due loans,” below.

Further information pertaining to the allowance for loan losses at ~~September 30, 2018~~March 31, 2019 follows:

   Accruing
30-89 Days
Past Due    Non
Accrual    Accruing
Greater
than
90 Days    Total
Past
Due    Current
Loans    Total
   (in thousands)
Construction and land development
   $ —      $ —      $ —      $ —      $ 12,434    $ 12,434
Commercial and industrial
   322    346    —      668    783,292    783,960
Municipal
   —      —      —      —      94,532    94,532
Commercial real estate
   980    196    —      1,176    729,089    730,265
Residential real estate
   1,668    2,678    372    4,718    330,396    335,114
Consumer and overdrafts
   15    10    —      25    21,191    21,216
Home equity
   752    499    99    1,350    282,468    283,818












Total
   $ 3,737    $ 3,729    $ 471    $ 7,937    $ 2,253,402    $ 2,261,339

~~Page 18 of 48~~


	Accruing 30-89 Days Past Due		Non Accrual		Accruing Greater than 90 Days		Total Past Due		Current Loans		Total
	(in thousands)
Construction and land development	$	—	$	—	$	—	$	—	$	13,305	$	13,305
Commercial and industrial		138		31		—		169		767,267		767,436
Municipal		—		—		—		—		105,288		105,288
Commercial real estate		422		182		—		604		746,099		746,703
Residential real estate		2,202		119		—		2,321		347,645		349,966
Consumer and overdrafts		2		6		—		8		22,115		22,123
Home equity		1,659		1,164		—		2,823		303,016		305,839

Total	$	4,423	$	1,502	$	—	$	5,925	$	2,304,735	$	2,310,660

Further information pertaining to the allowance for loan losses at December 31, ~~2017~~2018 follows:

   Accruing
30-89 Days
Past Due    Non
Accrual    Accruing
Greater
than
90 Days    Total
Past
Due    Current
Loans    Total
   (in thousands)
Construction and land development
   $ —      $ —      $ —      $ —      $ 18,931    $ 18,931
Commercial and industrial
   65    44    —      109    763,698    763,807
Municipal
   —      —      —      —      106,599    106,599
Commercial real estate
   672    215    —      887    731,604    732,491
Residential real estate
   4,282    724    —      5,006    282,725    287,731
Consumer and overdrafts
   5    6    —      11    19,029    19,040
Home equity
   618    695    —      1,313    246,032    247,345












Total
   $ 5,642    $ 1,684    $ —      $ 7,326    $ 2,168,618    $ 2,175,944

~~Page 19 of 48~~


	Accruing 30-89 Days Past Due		Non Accrual		Accruing Greater than 90 Days		Total Past Due		Current Loans		Total
	(in thousands)
Construction and land development	$	—	$	—	$	—	$	—	$	13,628	$	13,628
Commercial and industrial		187		115		—		302		761,323		761,625
Municipal		—		—		—		—		97,290		97,290
Commercial real estate		774		190		—		964		749,398		750,362
Residential real estate		2,554		569		—		3,123		345,127		348,250
Consumer and overdrafts		24		14		—		38		22,045		22,083
Home equity		1,108		425		—		1,533		290,807		292,340

Total	$	4,647	$	1,313	$	—	$	5,960	$	2,279,618	$	2,285,578

Impaired loans

A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company measures impairment based on a loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Loans arecharged-off when management believes that the collectability of the loan’s principal is not probable. The specific factors that management considers in making the determination that the collectability 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 ischarged-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 consolidated financial statements contained in the Company’s Annual Report for the fiscal year ended December 31, ~~2017.~~2018.

~~The following is information pertaining to impaired loans for September 30, 2018:~~

   Carrying
Value    Unpaid
Principal
Balance    Required
Reserve    Average
Carrying
Value for
3 Months
Ending
9/30/18    Interest
Income
Recognized
for
3 Months
Ending
9/30/18    Average
Carrying
Value for
9 Months
Ending
9/30/18    Interest
Income
Recognized
for
9 Months
Ending
9/30/18
With no required reserve recorded:    (in thousands)
Construction and land development
   $ —      $ —      $ —      $ —      $ —      $ —      $ —
Commercial and industrial
   84    282    —      56    —      47    —
Municipal
   —      —      —      —      —      —      —
Commercial real estate
   196    219    —      280    —      267    —
Residential real estate
   —      —      —      —      —      —      —
Consumer
   —      —      —      —      —      —      —
Home equity
   —      —      —      —      —      —      —














Total
   $ 280    $ 501    $ —      $ 336    $ —      $ 314    $ —














With required reserve recorded:

Construction and land development
   $ —      $ —      $ —      $ —      $ —      $ —      $ —
Commercial and industrial
   576    593    93    589    5    490    14
Municipal
   —      —      —      —      —      —      —
Commercial real estate
   2,484    2,597    95    2,262    24    2,278    71
Residential real estate
   2,675    2,675    350    2,675    —      3,136    80
Consumer
   —      —      —      —      —      —      —
Home equity
   —      —      —      —      —      —      —














Total
   $ 5,735    $ 5,865    $ 538    $ 5,526    $ 29    $ 5,904    $ 165














Total:

Construction and land development
   $ —      $ —      $ —      $ —      $ —      $ —      $ —
Commercial and industrial
   660    875    93    645    5    537    14
Municipal
   —      —      —      —      —      —      —
Commercial real estate
   2,680    2,816    95    2,542    24    2,545    71
Residential real estate
   2,675    2,675    350    2,675    —      3,136    80
Consumer
   —      —      —      —      —      —      —
Home equity
   —      —      —      —      —      —      —














Total
   $ 6,015    $ 6,366    $ 538    $ 5,862    $ 29    $ 6,218    $ 165

Page 2019 of 4844

The following is information pertaining to impaired loans for ~~September 30, 2017:~~March 31, 2019:


															Carrying Value		Unpaid Principal Balance		Required Reserve		Average Carrying Value for 3 Months Ending 3/31/19		Interest Income Recognized for 3 Months Ending 3/31/19
	Carrying Value		Unpaid Principal Balance		Required Reserve		Average Carrying Value for 3 Months Ending 9/30/17		Interest Income Recognized for 3 Months Ending 9/30/17		Average Carrying Value for 9 Months Ending 9/30/17		Interest Income Recognized for 9 Months Ending 9/30/17		(in thousands)
With no required reserve recorded:	(in thousands)
Construction and land development	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		54		261		—		60		—		49		—		93		306		—		87		2
Municipal		—		—		—		—		—		—		—		—		—		—		—		—
Commercial real estate		91		109		—		45		—		313		—		182		206		—		188		—
Residential real estate		72		163		—		75		2		81		5		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—		—		—		—		—

Total	$	217	$	533	$	—	$	180	$	2	$	443	$	5	$	275	$	512	$	—	$	275	$	2

With required reserve recorded:
Construction and land development	$	—	$	—	$	—	$	—	$	—	$	56	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		312		328		8		319		4		328		12		227		228		6		262		3
Municipal		—		—		—		—		—		—		—		—		—		—		—		—
Commercial real estate		2,492		2,599		111		2,547		22		2,542		69		2,764		2,881		94		2,694		24
Residential real estate		4,246		4,247		67		4,257		19		1,767		36		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—		—		—		—		—

Total	$	7,050	$	7,174	$	186	$	7,123	$	45	$	4,693	$	117	$	2,991	$	3,109	$	100	$	2,956	$	27

Total:
Construction and land development	$	—	$	—	$	—	$	—	$	—	$	56	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		366		589		8		379		4		377		12		320		534		6		349		5
Municipal		—		—		—		—		—		—		—		—		—		—		—		—
Commercial real estate		2,583		2,708		111		2,592		22		2,855		69		2,946		3,087		94		2,882		24
Residential real estate		4,318		4,410		67		4,332		21		1,848		41		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—		—		—		—		—

Total	$	7,267	$	7,707	$	186	$	7,303	$	47	$	5,136	$	122	$	3,266	$	3,621	$	100	$	3,231	$	29

Page 20 of 44

The following is information pertaining to impaired loans for December 31, 2018:


	Carrying Value		Unpaid Principal Balance		Required Reserve		Average Carrying Value for 3 Months Ending 3/31/18		Interest Income Recognized for 3 Months Ending 3/31/18
	(in thousands)
With no required reserve recorded:
Construction and land development	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		87		291		—		49		—
Municipal		—		—		—		—		—
Commercial real estate		189		212		—		265		—
Residential real estate		—		—		—		—		—
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	276	$	503	$	—	$	314	$	—

With required reserve recorded:
Construction and land development	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		314		315		54		388		5
Municipal		—		—		—		—		—
Commercial real estate		2,461		2,575		91		2,278		23
Residential real estate		—		—		—		3,827		6
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	2,775	$	2,890	$	145	$	6,493	$	34

Total:
Construction and land development	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		401		606		54		437		5
Municipal		—		—		—		—		—
Commercial real estate		2,650		2,787		91		2,543		23
Residential real estate		—		—		—		3,827		6
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	3,051	$	3,393	$	145	$	6,807	$	34

Troubled debt restructurings are identified as a modification in which a concession was granted to a customer who was having financial difficulties. This concession may be below market rate, longer amortization/term, or a lower payment amount. The present value calculation of the modification did not result in an increase in the allowance for these loans beyond any previously established allocations.

There was no troubled debt restructuring that occurred during the three month period ended March 31, 2019. Also, there were no commitments to lend additional funds to troubled debt restructuring borrowers. There were no troubled debt restructurings that subsequently defaulted during the first three months of 2019.

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. Thepre-modification and post-modification outstanding recorded investment was $2,675,000 for the residential real estate loan that was not accruing interest and had a specific reserve of ~~$350,000.~~$575,000. Thepre-modification and post-modification outstanding recorded investment was $17,000 for the consumer loan that was accruing and had a specific reserve of $1,000. The financial impact for the modifications was not material. There ~~was one troubled debt restructuring, for $2,675,000, which subsequently defaulted during the first nine months of 2018.~~

There was no troubled debt restructuring that occurred during the nine month period ended September 30, 2017. Also, there were no commitments to lend additional funds to troubled debt restructuring borrowers. There were no troubled debt restructurings that subsequently defaulted during the first ~~nine~~three months of ~~2017.~~2018.

Page 21 of 4844

Note 5. 6.Reclassifications Out of Accumulated Other Comprehensive Income(a)

Amount Reclassified from Accumulated Other Comprehensive Income


Details about Accumulated Other Comprehensive Income Components	Three Months Ended September 30, 2018			Three Months Ended September 30, 2017			Affected Line Item in the Statement where Net Income is Presented	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			Affected Line Item in the Statement where Net Income is Presented
(in thousands)
								(in thousands)
Unrealized gains and losses onavailable-for-sale securities	$	105		$	47		Net gains on sales of investments	$	—		$	197		Net gains on sales of investments
Tax (expense) or benefit		(29	)		(19	)	Provision for income taxes		—			(55	)	Provision for income taxes

Net of tax	$	76		$	28		Net income	$	—		$	142		Net income

Accretion of unrealized losses transferred	$	(323	)	$	(554	)	Interest on securitiesheld-to-maturity	$	(294	)	$	(520	)	Interest on securitiesheld-to-maturity
Tax (expense) or benefit		85			331		Provision for income taxes		78			139		Provision for income taxes

Net of tax	$	(238	)	$	(223	)	Net income	$	(216	)	$	(381	)	Net income

Amortization of defined benefit pension items
Prior-service costs	$	(4	)(b)	$	(3	)(b)	Salaries and employee benefits	$	(29	) (b)	$	(4	) (b)	Salaries and employee benefits
Actuarial gains (losses)		(402	)(b)		(385	)(b)	Salaries and employee benefits		(337	) (b)		(403	) (b)	Salaries and employee benefits

Total before tax		(406	)		(388	)	Income before taxes		(366	)		(407	)	Income before taxes

Tax (expense) or benefit		114			155		Provision for income taxes		103			114		Provision for income taxes

Net of tax	$	(292	)	$	(233	)	Net income	$	(263	)	$	(293	)	Net income


Details about Accumulated Other Comprehensive Income Components	Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017			Affected Line Item in the Statement where Net Income is Presented
(in thousands)
Unrealized gains and losses onavailable-for-sale securities	$	302		$	47		Net gains on sales of investments
Tax (expense) or benefit		(85	)		(19	)	Provision for income taxes

Net of tax	$	217		$	28		Net income

Accretion of unrealized losses transferred	$	(1,186	)	$	(1,878	)	Interest on securitiesheld-to-maturity
Tax (expense) or benefit		314			1,022		Provision for income taxes

Net of tax	$	(872	)	$	(856	)	Net income

Amortization of defined benefit pension items
Prior-service costs	$	(12	)(b)	$	(8	)(b)	Salaries and employee benefits
Actuarial gains (losses)		(1,207	)(b)		(1,155	)(b)	Salaries and employee benefits

Total before tax		(1,219	)		(1,163	)	Income before taxes

Tax (expense) or benefit		342			465		Provision for income taxes

Net of tax	$	(877	)	$	(698	)	Net income

(a)	Amount in parentheses indicates reductions to net income.

(b)	These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Employee Benefits footnote (Note 7) for additional details).

~~Page 22 of 48~~

Note 6.7. Earnings per Share (“EPS”)

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

Diluted EPS includes the dilutive effect of common stock equivalents; basic EPS excludes all common stock equivalents. The Company had no common stock equivalents outstanding for the periods ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.

Page 22 of 44

The following table is a reconciliation of basic EPS and diluted EPS.


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands except share and per share data)	2018		2017		2018		2017			2019		2018
Basic EPS Computation:
Numerator:
Net income, Class A	$	7,535	$	6,307	$	20,674	$	17,505		$	7,409	$	6,062
Net income, Class B		2,046		1,716		5,614		4,771			2,009		1,647
Denominator:
Weighted average shares outstanding, Class A		3,608,329		3,605,829		3,608,129		3,603,429			3,610,329		3,608,029
Weighted average shares outstanding, Class B		1,959,580		1,962,080		1,959,780		1,964,480			1,957,580		1,959,880
Basic EPS, Class A	$	2.09	$	1.75	$	5.73	$	4.86		$	2.05	$	1.68
Basic EPS, Class B		1.04		0.87		2.86		2.43			1.03		0.84

Diluted EPS Computation:
Numerator:
Net income, Class A	$	7,535	$	6,307	$	20,674	$	17,505		$	7,409	$	6,062
Net income, Class B		2,046		1,716		5,614		4,771			2,009		1,647

Total net income, for diluted EPS, Class A computation		9,581		8,023		26,288		22,276			9,418		7,709
Denominator:
Weighted average shares outstanding, basic, Class A		3,608,329		3,605,829		3,608,129		3,603,429			3,610,329		3,608,029
Weighted average shares outstanding, Class B		1,959,580		1,962,080		1,959,780		1,964,480			1,957,580		1,959,880

Weighted average shares outstanding diluted, Class A		5,567,909		5,567,909		5,567,909		5,567,909			5,567,909		5,567,909
Weighted average shares outstanding, Class B		1,959,580		1,962,080		1,959,780		1,964,480	��		1,957,580		1,959,880
Diluted EPS, Class A	$	1.72	$	1.44	$	4.72	$	4.00		$	1.69	$	1.38
Diluted EPS, Class B		1.04		0.87		2.86		2.43			1.03		0.84

Note 7.8. Employee Benefits

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

Page 23 of 4844

Components of Net Periodic Benefit Cost for the Three Months Ended ~~September 30,~~March 31,


	Pension Benefits						Supplemental Insurance/ Retirement Plan				Pension Benefits						Supplemental Insurance/ Retirement Plan
	2018			2017			2018		2017		2019			2018			2019		2018
	(in thousands)										(in thousands)
Service cost	$	353		$	310		$	277	$	395	$	276		$	353		$	256	$	277
Interest		371			362			346		345		473			370			482		346
Expected return on plan assets		(954	)		(746	)		—		—		(819	)		(954	)		—		—
Recognized prior service cost (benefit)		(25	)		(26	)		29		29		—			(25	)		28		29
Recognized net actuarial losses		226			226			176		159		229			227			109		176

Net periodic benefit (credit) cost	$	(29	)	$	126		$	828	$	928	$	159		$	(29	)	$	875	$	828

~~Components of Net Periodic Benefit Cost for the Six Months Ended June 30,~~

   Pension Benefits    Supplemental Insurance/
Retirement Plan
   2018    2017    2018    2017
   (in thousands)
Service cost
   $ 1,059    $ 930    $ 831    $ 1,184
Interest
   1,111    1,087    1,040    1,035
Expected return on plan assets
   (2,863 )    (2,238 )    —      —
Recognized prior service cost (benefit)
   (75 )    (78 )    87    87
Recognized net actuarial losses
   680    678    527    477








Net periodic benefit (credit) cost
   $ (88 )    $ 379    $ 2,485    $ 2,783

~~As a result of the adoption of ASU2017-07,~~ ~~“Compensation-Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Pension Cost~~Approximately $502,000 and Net Periodic Postretirement Benefit Cost”, the Company reclassified approximately $508,000 and $1,047,000 from salaries and employee benefits to other expenses for the nine months ended September 30, 2018 and 2017, respectively. The reclassifications represent$169,000 of costs other than service costs, from the table ~~above.~~above, are included in other expenses for the three months ended March 31, 2019 and 2018, respectively.

Contributions

The Company does not intend to contribute to the Defined Benefit Pension Plan in ~~2018.~~2019.

Note 8.9. Fair Value Measurements

The Company follows FASB ASC820-10, Fair Value Measurements and Disclosures and ASU2016-1, “Financial Instruments-Overall” (Subtopic825-10)Recognition and Measurement of Financial Assets and Financial Liabilities, which among other things, requires enhanced disclosures about assets and liabilities carried at fair value. ASC820-10 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 asG-7 government, agency securities, listed equities and money market securities, as well as listed derivative instruments.

Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Instruments which are generally included in this category are corporate bonds and loans, mortgage whole loans, municipal bonds, and OTC derivatives.

Level III – Instruments that have little to no pricing observability as of the reported date. These financial instruments do not havetwo-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, and distressed debt andnon-investment grade residual interests in securitizations, as well as certain highly structured OTC derivative contracts.

Page 24 of 4844

The results of the fair value hierarchy as of ~~September 30, 2018,~~March 31, 2019, are as follows:

Financial Instruments Measured at Fair Value on a Recurring Basis:


	Securities AFS Fair Value Measurements Using								Securities AFS Fair Value Measurements Using
	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(in thousands)								(in thousands)
U.S. Treasury	$	1,986	$	—	$	1,986	$	—	$	1,998	$	—	$	1,998	$	—
U.S. Government Sponsored Enterprises		3,889		—		3,889		—		3,942		—		3,942		—
SBA Backed Securities		71,124		—		71,124		—		72,588		—		72,588		—
U.S. Government Agency and Sponsored Mortgage-Backed Securities		169,215		—		169,215		—		194,205		—		194,205		—
Privately Issued Residential Mortgage-Backed Securities		715		—		715		—		649		—		649		—
Obligations Issued by States and Political Subdivisions		116,009		—		4,775		111,234		68,107		—		4,775		63,332
Other Debt Securities		3,565		—		3,565		—		3,600		—		3,600		—

Total	$	366,503	$	—	$	255,269	$	111,234	$	345,089	$	—	$	281,757	$	63,332


Financial Instruments Measured at Fair Value on aNon-recurring Basis:
Impaired Loans	$	3,107	$	—	$	—	$	3,107
Other Real Estate Owned									$	2,225	$	—	$	—	$	2,225
Financial Instruments Measured at Fair Value on a Recurring Basis Equity Securities									$	1,649	$	328	$	1,321	$	—
Financial Instruments Measured at Fair Value on aNon-recurring Basis Impaired Loans									$	195	$	—	$	—	$	195

Impaired loan balances 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 observable. 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, appraisal of collateral or other type of real estate tax assessment. The types of adjustments that are made to specific (credits) provisions relate to impaired loans recognized for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 amounted to ~~$(187,000) and $427,000, respectively.~~($2,000).

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 inputs to determine fair value (dollars in thousands). Management continues to monitor the assumptions used to value the assets listed below.

Asset

Fair Value

Valuation Technique

Unobservable Input

Unobservable Input
Value or Range

Fair Value

Valuation Technique

Unobservable Input

Unobservable Input
Value or Range

Securities AFS (4)

111,234

Discounted cash flow

Discount rate

2.0%-4.5% (3)

63,332

Discounted cash flow

Discount rate

2.1%-3.8% (3)

Other Real Estate Owned

2,225

Appraisal of collateral (1)

Appraisal adjustments (2)

30% discount

Impaired Loans

3,107

Appraisal of collateral (1)

Appraisal adjustments (2)

0%-30% discount

195

Appraisal of collateral (1)

Appraisal adjustments (2)

0%-30% discount

(1)	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2)	Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated expenses.

(3)	Weighted averages.

(4)	Municipal securities generally have maturities of one year or less and, therefore, the amortized cost equates to the fair value.

Page 25 of 4844

The changes in Level 3 securities for the ~~nine~~three month period ended ~~September 30, 2018~~March 31, 2019 are shown in the table below:


	Auction Rate Securities			Obligations Issued by States & Political Subdivisions			Total			Auction Rate Securities		Obligations Issued by States & Political Subdivisions			Total
	(in thousands)									(in thousands)
Balance at December 31, 2017	$	4,459		$	78,141		$	82,600
Balance at December 31, 2018										$	—	$	88,728		$	88,728
Purchases		—			105,837			105,837			—		970			970
Maturities and calls		—			(72,640	)		(72,640	)		—		(26,352	)		(26,352	)
Transfer		(4,459	)		—			(4,459	)
Amortization		—			(104	)		(104	)		—		(14	)		(14	)
Changes in fair value		—			—			—			—		—			—
Balance at September 30, 2018	$	—		$	111,234		$	111,234

Balance at March 31, 2019										$	—	$	63,332		$	63,332

The amortized cost of Level 3 securities was ~~$111,234,000~~$63,332,000 at ~~September 30, 2018~~March 31, 2019 with an unrealized loss of $0. The securities in this category are generally municipal securities with no readily determinable fair value. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity. There was ~~one transfer~~no change in the fair value of ~~a security from level 3 to level 2~~other real estate owned for the ~~nine~~first three months ~~ended September 30, 2018~~of 2019. The fair value of impaired loans decreased by $56,000, for the first three months of 2019, mainly as a result of ~~increased trading activity and quoted market prices.~~acharge-off of one loan. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the ~~nine~~three month period ended ~~September 30, 2018.~~March 31, 2019.

The changes in Level 3 securities for the ~~nine~~three month period ended ~~September 30, 2017,~~March 31, 2018, are shown in the table below:


	Auction Rate Securities		Obligations Issued by States & Political Subdivisions			Total			Auction Rate Securities			Obligations Issued by States & Political Subdivisions			Total
	(in thousands)								(in thousands)
Balance at December 31, 2016	$	4,298	$	160,578		$	164,876
Balance at December 31, 2017									$	4,459		$	78,141		$	82,600
Purchases		—		61,393			61,393			—			20,416			20,416
Maturities and calls		—		(146,869	)		(146,869	)		—			(22,068	)		(22,068	)
Transfer to Level 2										(4,459	)		—			(4,459	)
Amortization		—		(155	)		(155	)		—			(24	)		(24	)
Changes in fair value		—		—			—			—			—			—

Balance at September 30, 2017	$	4,298	$	74,947		$	79,245
Balance at March 31, 2018									$	—		$	76,465		$	76,465

The amortized cost of Level 3 securities was ~~$79,655,000~~$76,465,000 at ~~September 30, 2017~~March 31, 2018 with an unrealized loss of ~~$410,000.~~$0. 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.

Page 26 of 4844

The results of the fair value hierarchy as of December 31, ~~2017,~~2018, are as follows:

Financial Instruments Measured at Fair Value on a Recurring Basis:


	Securities AFS Fair Value Measurements Using								Securities AFS Fair Value Measurements Using
	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(in thousands)								(in thousands)
U.S. Treasury	$	1,984	$	—	$	1,984	$	—	$	1,992	$	—	$	1,992	$	—
U.S. Government Sponsored Enterprises		—		—		—		—		3,915		—		3,915		—
SBA Backed Securities		80,950		—		80,950		—		70,194		—		70,194		—
U.S. Government Agency and Sponsored Mortgage-Backed Securities		225,776		—		225,776		—		162,890		—		162,890		—
Privately Issued Residential Mortgage-Backed Securities		892		—		892		—		672		—		672		—
Obligations Issued by States and Political Subdivisions		82,600		—		—		82,600		93,503		—		4,775		88,728
Other Debt Securities		3,629		—		3,629		—		3,593				3,593

Total	$	395,831	$	—	$	313,231	$	82,600	$	336,759	$	—	$	248,031	$	88,728


Financial Instruments Measured at Fair Value on aNon-recurring Basis:
Impaired Loans	$	246	$	—	$	—	$	246
Other Real Estate Owned									$	2,225	$	—	$	—	$	2,225
Financial Instruments Measured at Fair Value on a Recurring Basis Equity Securities									$	1,596	$	293	$	1,303	$	—
Financial Instruments Measured at Fair Value on aNon-recurring Basis Impaired Loans									$	251	$	—	$	—	$	251

Impaired loan balances 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, appraisal of collateral or other type of real estate tax assessment. The types of adjustments that are made to specific provisions ~~(credits)~~ relate to impaired loans recognized for ~~2017~~2018 for the estimated credit loss amounted to ~~$3,000.~~$540,000.

There was a transfer of an auction rate security during 2018 from level 3 to level 2. Quoted prices on the auction rate security became available but traded infrequently. There were no other transfers between level 1, 2 and 3 for the year ended December 31, ~~2017.~~2018. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the year ended December 31, ~~2017.~~2018.

Page 27 of 44

Asset

Fair Value

Valuation Technique

Unobservable Input

Unobservable Input
Value or Range

Fair Value

Valuation Technique

Unobservable Input

Unobservable Input
Value or Range

Securities AFS (4)

82,600

Discounted cash flow

Discount rate

1.0%-3.5% (3)

88,728

Discounted cash flow

Discount rate

2.1%-4.1% (3)

Other Real Estate Owned

2,225

Appraisal of collateral (1)

Appraisal adjustments (2)

30% discount

Impaired Loans

246

Appraisal of collateral (1)

Appraisal adjustments (2)

0%-30% discount

251

Appraisal of collateral (1)

Appraisal adjustments (2)

0%-30% discount

~~Page 27 of 48~~

(1)	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2)	Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated expenses.

(3)	Weighted averages.

(4)	Municipal securities generally have maturities of one year or less and, therefore, the amortized cost equates to the fair value. ~~There was one auction rate security whose fair value is based on the evaluation of the underlying issuer, prevailing interest rates and market liquidity.~~

Note 9.10. Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating fair values of its financial instruments. Excluded from this disclosure are all ~~nonfinancial~~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.

SecuritiesHeld-to-Maturity

The fair values of these securities were based on quoted market prices, where available, as provided by third-party investment portfolio pricing vendors. If quoted market prices were not available, fair values provided by the vendors were based on quoted market prices of comparable instruments in active markets and/or based on a matrix pricing methodology which employs The Bond Market Association’s standard calculations for cash flow and price/yield analysis, live benchmark bond pricing and terms/condition data available from major pricing sources. Management regards the inputs and methods used by third party pricing vendors to be “Level 2 inputs and methods” as defined in the “fair value hierarchy” provided by FASB.

Loans

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 certainnon-performing assets fair value is determined based on the estimated values of the underlying collateral of individual analysis of receipts.

Time Deposits

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

Other Borrowed Funds

The fair value of 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.

Page 28 of 44

Subordinated Debentures

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

The following presents (in thousands) the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. This table excludes financial instruments for which the carrying amount approximates fair ~~value as these assets and liabilities that are due within one year.~~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 includenon-maturity deposits, short-term borrowings and accrued interest payable.


September 30, 2018	Carrying Amount		Estimated Fair Value		Fair Value Measurements Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
March 31, 2019											Carrying Amount		Estimated Fair Value		Fair Value Measurements Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(in thousands)										(in thousands)
Financial assets:
Securitiesheld-to-maturity	$	1,875,752	$	1,795,117	$	—	$	1,795,117	$	—	$	2,110,555	$	2,074,443	$	—	$	2,074,443	$	—
Loans (1)		2,232,794		2,188,606		—		—		2,188,606		2,310,660		2,321,747		—		—		2,321,747
Financial liabilities:
Time deposits		579,886		577,531		—		577,531		—		542,079		542,733		—		542,733		—
Other borrowed funds		372,606		371,531		—		371,531		—		257,148		259,045		—		259,045		—
Subordinated debentures		36,083		36,083		—		—		36,083		36,083		36,083		—		36,083		—

December 31, 2017
December 31, 2018
Financial assets:
Securitiesheld-to-maturity	$	1,701,233	$	1,668,827	$	—	$	1,668,827	$	—	$	2,046,647	$	1,991,421	$	—	$	1,991,421	$	—
Loans (1)		2,149,689		2,094,517		—		—		2,094,517		2,257,035		2,279,712		—		—		2,279,712
Financial liabilities:
Time deposits		625,361		627,517		—		627,517		—		560,579		559,988		—		559,988		—
Other borrowed funds		347,778		349,364		—		349,364		—		202,378		203,122		—		203,122		—
Subordinated debentures		36,083		36,083		—		—		36,083		36,083		36,083		—		36,083		—

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

Limitations

~~Page 28~~Fair value estimates are made at a specific point in time, based on relevant market information and information about the type of 48

~~Note 10. Recent Accounting Developments~~

~~Recently Adopted Accounting Standards Updates~~

~~Effective January 1, 2018,~~financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the ~~following new accounting guidance was adopted by the Company:~~

~~In March 2018 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2018-05:~~ ~~Income Taxes (Topic 740) Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 — Income Tax Accounting Implications~~Bank’s entire holdings of a particular financial instrument. Because no active market exists for some of the ~~Tax Cuts~~Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, cash flows, current economic conditions, risk characteristics and ~~Jobs Act. This ASU is effective for fiscal years beginning after December 22, 2017. The effect~~other factors. These estimates are subjective in nature and involve uncertainties and matters of ~~this update did not have a material impact on~~significant judgment and therefore cannot be determined with precision. Changes in assumptions and changes in the ~~Company’s consolidated financial position.~~

~~In February 2018,~~loan, debt and interest rate markets could significantly affect the ~~FASB issued ASU2018-03,~~ ~~Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic825-10)~~ Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update include items brought to the Board’s attention by stakeholders. The amendments clarify certain aspects of the guidance issued in Update~~2016-1.~~ For public entities, this ASU was effective for the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The effect of this update did not have a material impact on the Company’s consolidated financial position.

~~In February 2018, the FASB issued ASU2018-02,~~ Income Statement — Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification ofestimates. Further, the income tax ~~effects~~ramifications related to the realization of the ~~Tax Cuts~~unrealized gains and ~~Jobs Act,~~losses can have a significant effect on the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018,fair value estimates and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not ~~yet~~ been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company adopted this update in the first quarter of 2018 and applied the effects of the changes in the period of adoption. The effect of the changes is approximately $3.8 million that increased retained earnings and a corresponding decrease to AOCI.

~~In May 2017, the FASB issued ASU2017-09,~~ Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. FASB issued this Update to address the diversity in practice as well as the cost and complexity when applying the guidance in Topic 718, Compensation — Stock Compensation, to a change to the terms or conditions of a share-based payment award. For public entities, this ASU was effective for annual reporting periods beginning after December 15, 2017. The effect of this update did not have a material impact on the Company’s consolidated financial position.

~~In March 2017, the FASB issued ASU2017-07,~~ Compensation-Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this ASU require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. The amendments in this ASU were effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. This ASU is for presentation purposes only, accordingly, there was no impact on the Company’s consolidated financial position. See Note 7 for a further explanation of this ASU.

~~In February 2017, the FASB issued ASU2017-05,~~ ~~Other Income Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic610-20).~~ ~~This ASU was issued to clarify the scope of Subtopic610-20,~~ and to add guidance for partial sales of nonfinancial assets. For public entities, this ASU was effective for annual reporting periods beginning after December 15, 2017. The effect of this update did not have a material impact on the Company’s consolidated financial position.

~~Effective January 1, 2018, the Company adopted ASU2014-09~~ ~~“Revenue Recognition (Topic 606): Revenue from Contracts with Customers.” ASU2014-09~~ supersedes Topic 605 “Revenue Recognition” and requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

~~The vast majority of the Company’s revenue is interest income on loans, investment securities and deposits at other financial institutions which are specifically outside the scope of ASU2014-09.~~ ~~ASU2014-09~~ ~~applies primarily to certainnon-interest~~ income items in the Company’s financial statements. We adopted Topic 606 as of January 1, 2018 using the cumulative effect transition method. The impact of adopting the new standard was not material. See Note 11 Revenue from Contracts with Customers for further details.considered.

Page 29 of 4844

~~In November 2016, the FASB issued ASU2016-18,~~ ~~Statement of Cash Flows (Topic 230)~~~~Restricted Cash.~~ The amendments of this ASU were issued to require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the~~beginning-of-period~~ ~~andend-of-period~~ total amounts shown on the statement of cash flows. For public entities, this ASU was effective for the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The effect of this update did not have a material impact on the Company’s consolidated financial position.

~~In August 2016, the FASB issued ASU2016-15,~~ ~~Statement of Cash Flows (Topic 326)~~~~Classification of Certain Cash Receipts and Cash Payments.~~ Stakeholders indicated that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this update were effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The effect of this update required a reclassification of $375,000 of proceeds from life insurance policies to investing activities from operating activities.

~~In January 2016, FASB issued ASU2016-1,~~ ~~“Financial Instruments-Overall” (Subtopic825-10)~~~~Recognition and Measurement of Financial Assets and Financial Liabilities.~~ This ASU significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. The Company used exit price notion when measuring the fair value of financial instruments for disclosure purposes (see Note 9 Fair Value of Financial Instruments). This ASU was effective for fiscal years beginning after December 15, 2017, including interim periods therein. The Company adopted this update in the first quarter of 2018 and applied the effects of the changes retrospectively. The effect of the changes is approximately $29 thousand, which was reclassified from accumulated other comprehensive income to retained earnings.

~~Accounting Standards Issued but not yet Adopted~~

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

~~In August 2018, FASB issued ASU2018-15,~~ ~~Intangibles-Goodwill and Other-Internal Use Software (Subtopic350-40):~~ Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain~~internal-use~~ software (and hosting arrangements that include an internal use software license).This ASU is effective for annual reporting periods beginning after December 15, 2019. The Company has not determined the impact, if any, as of September 30, 2018.

~~In August 2018, FASB issued ASU2018-14,~~ ~~Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic715-20):~~ Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit plans. The amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. This ASU is effective for annual reporting periods beginning after December 15, 2020. The Company has not determined the impact, if any, as of September 30, 2018.

~~In August 2018, FASB issued ASU2018-13,~~ Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. This ASU is effective for annual reporting periods beginning after December 15, 2019. The Company has not determined the impact, if any, as of September 30, 2018.

~~In July 2017, FASB issued ASU2017-11,~~ Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest with a Scope Exception. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2018. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

~~In March 2017, the FASB issued ASU2017-08,~~ ~~Receivables — Nonrefundable Fees and Other Costs (Subtopic310-20)~~ ~~Premium Amortization of Purchased Callable Debt. The FASB is issuing this ASU to amend the amortization period for certain purchased~~

~~Page 30 of 48~~

callable debt securities held at a premium. The FASB is shortening the amortization period for the premium to the earliest call date. Under current generally accepted accounting principles (GAAP), entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

~~In January 2017, the FASB issued ASU2017-04,~~ Intangibles — Goodwill and Other (Topic 350). This ASU was issued to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. For public entities, this ASU is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted and application should be on a prospective basis. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

~~In June 2016, the FASB issued ASU2016-13,~~ Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is in the process of analyzing this ASU and has purchased a software solution and began to capture information needed to implement this update. The Company has not determined the impact, if any, as of September 30, 2018.

~~In February 2016, the FASB issued ASU2016-02,~~ Leases. This ASU requires lessees to put most leases on their balance sheet but recognize expenses on their income statements in a manner similar to today’s accounting. This ASU also eliminates today’s real estate-specific provisions for all companies. For lessors, this ASU modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. The Company has begun analyzing this ASU and is assessing the implementation steps. During the first quarter of 2018, we established a cross-functional implementation team consisting of representatives from areas related to leasing. During the second quarter of 2018, the Company continued to analyze the potential impact of this ASU by identifying and beginning to quantify the financial impact of real estate leases. The Company also began the process during the quarter to review various contracts to determine if they contain embedded leases. The Company began quantifying the financial impact of potential embedded leases during the third quarter of 2018. The Company has not determined the impact, if any, as of September 30, 2018.

~~In July 2018, ASU2018-10,~~ ~~“Codification Improvements to Topic 842, Leases” (“ASU2018-10”)~~ ~~was issued to provide more detailed guidance and additional clarification for implementing ASU2016-02. Also~~ ~~in July 2018, ASU2018-11,~~ ~~“Targeted Improvements” (“ASU2018-11”)~~ was issued and allows for an optional transition method in which the provisions of Topic 842 would be applied upon the adoption date and would not have to be retroactively applied to the earliest reporting period presented in the consolidated financial statements.” The Company intends to use this optional transition method for the adoption of Topic 842.

~~Securities and Exchange Commission (SEC) ruling:~~

In August 2018, the SEC issued a final rule that amends certain of the Commission’s disclosure requirements “that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other Commission disclosure requirements, U.S. GAAP, or changes in the information environment.” The financial reporting implications of the final rule’s amendments may vary by company, but the changes are generally expected to reduce or eliminate some of an SEC registrant’s disclosure requirements. In limited circumstances, however, the amendments may expand those requirements, including those related to interim disclosures about changes in stockholders’ equity. Under the requirements, registrants must now analyze changes in stockholders’ equity, in the form of a reconciliation, for “the current and comparative~~year-to-date~~ ~~periods, with subtotals for each interim period.” The Company will therefore include a reconciliation for the current quarter andyear-to-date~~ interim periods as well as the comparative periods of the prior years (i.e., a reconciliation covering each period for which an income statement is presented). The final rule is effective for all filings submitted on or after November 5, 2018. The final rule excludes the Company’s third quarter 2018~~10-Q.~~

Note 11. Revenue from Contracts with Customers

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.

~~Page 31 of 48~~

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.

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 606Revenue from Contracts with Customers with a date of initial application of January 1, 2018 through the first quarter of 2019 and has applied the guidance to all contracts within the scope of Topic 606 as of that ~~date.~~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 three ~~month and nine~~ months ended ~~September 30,~~March 31, 2018 and March 31, 2019, respectively, as a result of adopting Topic 606.

B. Practical Expedients

The Company applies the practical expedient in paragraph606-10-50-14 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 paragraph606-10-32-18 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.

C. Nature of goods and services

The vast majority of the Company’s revenue is specificallyout-of-scope of Topic 606. For the revenuein-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.

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.

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

Page 3230 of 4844

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.


	Nine Months Ended 9/30/2018		Revenue from Contracts in Scope of Topic 606		Nine Months Ended 9/30/2017		Revenue from Contracts in Scope of Topic 606		Three Months Ended 3/31/2019		Revenue from Contracts in Scope of Topic 606		Three Months Ended 3/31/2018		Revenue from Contracts in Scope of Topic 606
	(dollars in thousands)								(dollars in thousands)
Total net interest income	$	68,871	$	—	$	63,914	$	—	$	23,438	$	—	$	22,468	$	—

Noninterest income:
Service charges on deposit accounts		6,268		6,268		6,179		6,179		2,209		2,209		2,067		2,067
Lockbox fees		2,304		2,304		2,367		2,367		1,089		1,089		791		791
Net gains on sales of securities		302		—		47		—		—		—		197		—
Gains on sales of mortgage loans		—		—		370		—		15		—		—		—
Other income		3,210		2,215		3,179		2,048		1,114		800		1,138		719

Total noninterest income		12,084		10,787		12,142		10,594		4,427		4,098		4,193		3,577

Total revenues	$	80,955	$	10,787	$	76,056	$	10,594	$	27,865	$	4,098	$	26,661	$	3,577


	Three Months Ended 9/30/2018		Revenue from Contracts in Scope of Topic 606		Three Months Ended 9/30/2017		Revenue from Contracts in Scope of Topic 606
	(dollars in thousands)
Total net interest income	$	23,204	$	—	$	21,353	$	—
Noninterest income:
Service charges on deposit accounts		2,137		2,137		2,089		2,089
Lockbox fees		892		892		735		735
Net gains on sales of securities		105		—		47		—
Gains on sales of mortgage loans		—		—		—		—
Other income		1,035		751		1,071		712

Total noninterest income		4,169		3,780		3,942		3,536

Total revenues	$	27,373	$	3,780	$	25,295	$	3,536

The following table provides information about receivables with customers.


(dollars in thousands)	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Receivables, which are included in “Other assets”	$	1,095	$	1,009	$	1,343	$	1,205

Note 12. 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 2021 with an option to terminate and no option to extend. Lease income, for the sublease, totaled approximately $10,000 for the three months ended March 31, 2019.

The components of lease expense were as follows:


	Three Months Ended 3/31/2019
(in thousands)
Operating lease costs including variable costs	$	711

Supplemental cash flow information related to leases was as follows:


	Three Months Ended 3/31/2019
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	538

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	443

Page 3331 of 4844

Supplemental balance sheet information related to leases was as follows:


	3/31/2019
(in thousands, except lease term and discount rate)
Operating Leases:
Operating leaseright-of-use assets, included in other assets	$	14,496
Operating lease liabilities, included in other liabilities	$	14,637
Weighted Average Remaining Lease Term:
Operating Leases		11 Years
Weighted Average Discount Rate:
Operating Leases		3.45	%

Maturities of lease liabilities were as follows:


	Operating Leases
(in thousands)
Year Ending December 31,
2019 (excluding the three months ended March 31, 2019)	$	1,632
2020		2,120
2021		1,841
2022		1,709
2023		1,671
Thereafter		8,949

Total lease payments		17,922
Less imputed interest		(3,285	)

Total lease payments	$	14,637

As of March 31, 2019, we have an additional operating lease with total undiscounted cash payments of $144,000, for a data center, that has not yet commenced. This operating lease will commence in April 2019 with a lease term of 3 years.

Page 32 of 44

Item2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive 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 ~~September 30, 2018,~~March 31, 2019, the Company had total assets of ~~$4.9~~$5.3 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 andmedium-sized businesses and retail customers in these communities and surrounding areas, as well as local governments and large healthcare and higher educational institutions primarily 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 250 government entities.

Net income for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, was ~~$26,288,000~~$9,418,000 or ~~$4.72~~$1.69 per Class A share diluted, an increase of ~~18.0%~~22.2% compared to net income of ~~$22,276,000,~~$7,709,000, or ~~$4.00~~$1.38 per Class A share diluted, for the same period a year ago.

Earnings per share (EPS) for each class of stock and time period is as follows:


	Three Months Ended September 30,				Three Months Ended March 31,
	2018		2017		2019		2018
Basic EPS – Class A common	$	2.09	$	1.75	$	2.05	$	1.68
Basic EPS – Class B common	$	1.04	$	0.87	$	1.03	$	0.84
Diluted EPS – Class A common	$	1.72	$	1.44	$	1.69	$	1.38
Diluted EPS – Class B common	$	1.04	$	0.87	$	1.03	$	0.84

	Nine Months Ended September 30,
	2018		2017
Basic EPS – Class A common	$	5.73	$	4.86
Basic EPS – Class B common	$	2.86	$	2.43
Diluted EPS – Class A common	$	4.72	$	4.00
Diluted EPS – Class B common	$	2.86	$	2.43

Net interest income totaled ~~$68,871,000~~$23,438,000 for the ~~nine months~~quarter ended ~~September 30, 2018~~March 31, 2019 compared to ~~$63,914,000~~$22,468,000 for the same period in ~~2017.~~2018. The ~~7.8%~~4.3% increase in net interest income for the period is primarily due to an increase in average earning assets. The net interest margin decreased from ~~2.24%~~2.19% on a fully taxable equivalent basis in ~~2017~~2018 to ~~2.19%~~2.11% for the same period in ~~2018.~~2019. This was primarily the result of a decrease in the federal corporate tax rate from 34% to 21% as well as the higher prepayment penalties collected during the second quarter of 2017. The decrease in the tax rate results in a lower tax equivalent yieldincreased rates paid on~~tax-exempt~~ ~~assets.~~ deposits.

~~Page 34 of 48~~

The average balances of earning assets increased by ~~3.8%~~8.7% combined with an average yield increase of ~~0.24%~~0.40%, resulting in an increase in interest income of ~~$15,637,000.~~$7,647,000. The average balance of interest bearing liabilities increased ~~2.7%~~7.7% combined with an average ~~yield~~cost of funds increase of ~~0.36%~~0.61%, resulting in an increase in interest expense of ~~$10,680,000.~~$6,677,000.

Page 33 of 44

The trends in the net interest margin are illustrated in the graph below:

LOGO

The net interest ~~margin decreased during the second, third, and fourth quarters of 2016 primarily as a result of a decrease in rates on earning assets. The~~ margin increased during 2017 primarily as a result of an increase in rates on earning assets. This increase was primarily the result of the yield on floating rate assets increasing as a result of recent increases in short term interest rates as well as an increase in prepayment penalties collected during the second quarter of 2017. Prepayment penalties collected amounted to $825,000 and contributed approximately seven basis points to the net interest margin for the second quarter of 2017. During 2017, the Company did not see a corresponding increase in short term rates on interest bearing liabilities. The margin decreased for ~~the first, second, and third quarters of~~ 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 ontax-exempt assets.

During the fourth quarter of 2018 and first quarter of 2019, the Company increased its interest-bearing deposits. These deposits increased net interest income, but decreased the net interest margin. While management will continue its efforts to improve the net interest margin, there can be no assurance that certain factors beyond its control, such as the prepayment of loans and changes in market interest rates, will continue to positively impact the net interest margin.

The provision for loan losses decreased by ~~$440,000~~$75,000 from ~~$1,340,000~~$450,000 for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 to ~~$900,000~~$375,000 for the same period in ~~2018, primarily as a result of net recoveries of $1,390,000 offset by changes in qualitative factors.~~2019. Refer to the allowance for loan loss section of the management discussion and analysis for additional discussion.Non-performing assets totaled ~~$3,729,000~~$3,727,000 at ~~September 30, 2018,~~March 31, 2019, compared to ~~$1,684,000~~$3,538,000 at December 31, ~~2017.~~2018.

~~For first nine months of 2018, the~~The Company’s effective ~~income~~ tax rate ~~was 4.6% compared~~decreased from 6.1% for the quarter ended March 31, 2018 to ~~5.6%~~(1.3%) for the same period in ~~2017.~~2019. This was primarily ~~the result of a decrease in the federal tax rate from 34% to 21%~~ 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 ~~Cuts and Jobs Act, offset somewhat by an increase in~~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 ~~income.~~

~~During June 2016,~~years beginning after December 31, 2017. Therefore, the ~~Company entered into a lease agreement to open a new branch located in Wellesley, Massachusetts. The Company closed its existing Wellesley branch and transferred~~full amount of the ~~accounts~~AMT credit carryover will be refunded to the ~~new Wellesley branch which opened on December 19, 2016. On September 25, 2017 the Company purchased the new Wellesley location.~~Company.

Recent Market Developments

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

~~Page 35 of 48~~

In addition, theD-F Act added a new Section 13 to the Bank Holding Company Act, theso-called “Volcker Rule,” (the “Rule”) which generally restricts certain banking entities such as the Company and its subsidiaries or affiliates, from engaging in proprietary trading activities and owning equity in or sponsoring any private equity or hedge fund. The Rule became effective July 21, 2012. The final implementing regulations for the Rule were issued by various regulatory agencies in December, 2013 and under an extended conformance regulation compliance was required to be achieved by July 21, 2015. The conformance period for investments in and relationships with certain “legacy covered funds” ~~has been~~was extended to July 21, 2017. Under the Rule, the Company may be restricted from engaging in proprietary trading, investing in third party hedge or private equity funds or sponsoring new funds unless it qualifies for an exemption from the rule. The Company has little involvement in prohibited proprietary trading or investment activities in covered funds and the Company does not expect that complying with the requirements of the Rule will have any material effect on the Company’s financial condition or results of operation. The federal banking agencies have issued notices of proposed rulemaking to make certain amendments to the Rule to simply and tailor compliance requirements and to conform the Rule to the EGRRCPA (discussed below).

Page 34 of 44

Federal banking regulators have issued risk-based capital guidelines, which assign risk factors to asset categories andoff-balance-sheet items. Also, the Basel Committee has issued capital standards entitled “Basel III: A global regulatory framework for more resilient banks and banking systems” (“Basel III”). The Federal Reserve Board has finalized its rule implementing the Basel III regulatory capital framework. The rule that came into effect in January 2015 sets the Basel III minimum regulatory capital requirements for all organizations. It included a new common equity Tier I ratio of 4.5 percent of risk-weighted assets, raised the minimum Tier I capital ratio from 4 percent to 6 percent of risk-weighted assets and would set a new conservation buffer of 2.5 percent of risk-weighted assets. The implementation of the framework did not have a material impact on the Company’s financial condition or results of operations.

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

On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act, or the EGRRCPA, became law. This is arguably the most significant financial institution legislation since theD-F Act. The EGRRCPA changes certain of the regulatory requirements of theD-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 theD-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 theD-F Act and U.S. Basel III capital mandates. The EGRRCPA requires the federal banking agencies to develop a community bank leverage ratio (defined as the ratio of tangible equity capital to average total consolidated assets) for banks and holding companies with total consolidated assets of less than $10 billion and an appropriate risk profile. The required regulations must specify a minimum community bank leverage ratio of not less than 8% and not more than 10%. The federal banking agencies jointly issued a notice of proposed rulemaking which would set the minimum ratio at 9%. Qualifying banks that exceed the minimum community bank leverage ratio will be deemed to be in compliance with all other capital and leverage requirements including the capital ratio requirements that are required to be considered well capitalized under Section 38 of Federal Deposit Insurance Act.

Financial Condition

Loans

On ~~September 30, 2018,~~March 31, 2019, total loans outstanding were ~~$2,261,339,000~~$2,310,660,000 up by ~~$85,395,000~~$25,082,000 from the total on December 31, ~~2017.~~2018. At ~~September 30, 2018,~~March 31, 2019, commercial real estate loans accounted for 32.3%, commercial and industrial accounted for ~~34.7%~~33.2%, and residential real estate loans, including home equity loans, accounted for ~~27.4%~~28.4% of total loans.

Commercial real estate loans decreased ~~slightly~~ to ~~$730,265,000~~$746,703,000 from ~~$732,491,000~~$750,362,000 on December 31, ~~2017~~2018 primarily as a result of loan ~~repayments.~~payoffs. Commercial and industrial loans increased to ~~$783,960,000~~$767,436,000 at ~~September 30, 2018~~March 31, 2019 from ~~$763,807,000~~$761,625,000 at December 31, ~~2017,~~2018, primarily as a result of loan originations. Construction loans decreased slightly to ~~$12,434,000~~$13,305,000 at ~~September 30, 2018~~March 31, 2019 from ~~$18,931,000~~$13,628,000 on December 31, ~~2017, primarily as a result of loan repayments and refinancing of existing loans to other loan categories.~~2018. Residential real estate loans increased slightly to ~~$335,114,000~~$349,966,000 on ~~September 30, 2018~~March 31, 2019 from ~~$287,731,000~~$348,250,000 on December 31, ~~2017,~~2018, primarily as a result of new loan originations. Home equity loans increased to ~~$283,818,000~~$305,839,000 on ~~September 30, 2018~~March 31, 2019 from ~~$247,345,000~~$292,340,000 at December 31, ~~2017,~~2018, primarily as a result of a home equity loan promotion. Municipal loans ~~decreased~~increased to ~~$94,532,000~~$105,288,000 from ~~$106,599,000,~~$97,290,000, primarily as a result of ~~payoffs to existing loans.~~new loan originations.

~~Page 36 of 48~~

In recent years, the Company has increased business to larger institutions, specifically, healthcare, higher education, and municipal organizations. Further discussion relating to changes in portfolio composition is discussed in the allowance for loan loss section of the management discussion and analysis.

Page 35 of 44

Allowance for Loan Losses

The allowance for loan loss at ~~September 30, 2018~~March 31, 2019 was ~~$28,545,000~~$28,848,000 as compared to ~~$26,255,000~~$28,543,000 at December 31, ~~2017.~~2018. The level of the allowance for loan losses to total loans was ~~1.26%~~1.25% at ~~September 30, 2018~~March 31, 2019 and ~~1.21%~~1.25% at December 31, ~~2017.~~2018. The coverage ratio ~~increased by 0.05% mainly as a result of changes in qualitative factors related to general economic factors pertaining to certain industries.~~remained stable. The Company monitors the outlook for the industries in which our borrowers operate. Healthcare and higher education are two of the primary industries. In particular the Company utilizes outlooks and forecasts from various sources. Overall a general weakening for these industries in the outlook was noted resulting in a general increase in the general economic factors. 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 loss factor for each credit grade. For a large loan to large institutions with publically available credit ratings the Company tracks these ratings. These ratings are tracked as a credit quality indicator for these loans. Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at ~~September 30, 2018.~~March 31, 2019.

Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at March 31, 2019 and are included within the total loan portfolio.


									Commercial and Industrial		Municipal		Commercial Real Estate		Total
	Commercial and Industrial		Municipal		Commercial Real Estate		Total		(in thousands)
Credit Rating:	(in thousands)
Aaa – Aa3	$	492,117	$	57,958	$	43,106	$	593,181	$	482,374	$	62,103	$	41,335	$	585,812
A1 – A3		194,465		995		110,191		305,651		181,409		7,605		151,031		340,045
Baa1 – Baa3		—		26,970		119,409		146,379		—		26,970		118,868		145,838
Ba2		—		6,810		—		6,810		—		6,810		—		6,810

Total	$	686,582	$	92,733	$	272,706	$	1,052,021	$	663,783	$	103,488	$	311,234	$	1,078,505

Credit ratings issued by national organizations are presented in the following table at December 31, ~~2017.~~2018.


									Commercial and Industrial		Municipal		Commercial Real Estate		Total
	Commercial and Industrial		Municipal		Commercial Real Estate		Total		(in thousands)
Credit Rating:	(in thousands)
Aaa – Aa3	$	478,905	$	62,029	$	45,066	$	586,000	$	491,247	$	54,105	$	42,790	$	588,142
A1 – A3		195,599		7,635		128,554		331,788		172,472		7,605		151,381		331,458
Baa1 – Baa3		—		26,970		122,000		148,970		—		26,970		118,197		145,167
Ba2		—		8,165		—		8,165		—		6,810		—		6,810

Total	$	674,504	$	104,799	$	295,620	$	1,074,923	$	663,719	$	95,490	$	312,368	$	1,071,577

Page 36 of 44

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.

~~Page 37 of 48~~

The following table summarizes the changes in the Company’s allowance for loan losses for the periods indicated.


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2018			2017			2018			2017			2019			2018
	(in thousands)												(in thousands)
Allowance for loan losses, beginning of period	$	27,144		$	25,289		$	26,255		$	24,406		$	28,543		$	26,255
Loans charged off		(89	)		(95	)		(247	)		(292	)		(142	)		(87	)
Recoveries on loans previouslycharged-off		1,490			54			1,637			244			72			77

Net recoveries (charge-offs)		1,401			(41	)		1,390			(48	)		(70	)		(10	)
Provision charged to expense		—			450			900			1,340			375			450

Allowance for loan losses, end of period	$	28,545		$	25,698		$	28,545		$	25,698		$	28,848		$	26,695

The Company may experience increased levels of nonaccrual loans if borrowers are negatively impacted by future negative economic conditions. Management continually monitors trends in the loan portfolio to determine the appropriate level of allowance for loan losses. At the current time, management believes that the allowance for loan losses is adequate.

Nonperforming Assets

The following table sets forth information regarding nonperforming assets held by the Bank at the dates indicated:


	September 30 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(dollars in thousands)						(dollars in thousands)
Nonaccruing loans	$	3,729		$	1,684		$	1,502		$	1,313
Total nonperforming assets	$	3,729		$	1,684		$	3,727		$	3,538
Loans past due 90 days or more and still accruing	$	471		$	—		$	—		$	—
Nonaccruing loans as a percentage of total loans		0.16	%		0.08	%		0.07	%		0.06	%
Nonperforming assets as a percentage of total assets		0.08	%		0.04	%		0.07	%		0.07	%
Accruing troubled debt restructures	$	2,598		$	2,749		$	2,542		$	2,559

The increase in nonperforming assets and loans 90 days past due or more and still accruing is primarily the result of residential loans.

Investments

Management continually evaluates its investment alternatives in order to properly manage the overall balance sheet mix. The timing of purchases, sales and reinvestments, if any, will be based on various factors including expectation of movements in market interest rates, deposit flows and loan demand. Notwithstanding these events, it is the intent of management to grow the earning asset base mainly through loan originations while funding this growth through a mix of retail deposits, FHLB advances, and retail repurchase agreements.

SecuritiesAvailable-for-Sale (at Fair Value)

The securitiesavailable-for-sale portfolio totaled ~~$366,503,000~~$345,089,000 at ~~September 30, 2018, a decrease~~March 31, 2019, an increase of ~~7.4%~~2.5% from December 31, ~~2017.~~2018. The portfolio ~~decreased~~increased mainly as a result of ~~calls,~~ purchases of securitiesavailable-for-sale totaling $43,884,000 for the three months ended March 31, 2019. The purchases include $9,853,000 of purchases that are due to brokers. They were offset, somewhat, by calls/maturities, sales and scheduled principal payments of ~~securitiesavailable-for-sale~~ ~~totaling $139,439,000 for the nine months ended September 30, 2018. They were offset, somewhat, by purchases of $108,871,000.~~$34,927,000. The portfolio is concentrated in United States Government Sponsored Enterprises, Mortgage-backed Securities and Obligations issued by States and Political Subdivisions and had an estimated weighted average remaining life of ~~4.9~~5.2 years.

At ~~September 30, 2018, 69.7%~~March 31, 2019, 81.6% of the Company’s securitiesavailable-for-sale are classified as Level 2. The fair values of these securities are generally 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. Market indicators and industry and economic events are also monitored.

Page 37 of 44

Securitiesavailable-for-sale totaling ~~$111,234,000~~$63,332,000 or ~~30.4%~~18.4% of securitiesavailable-for-sale are classified as Level 3. These securities are generally municipal securities with no observable fair value with an average life of one year or less. The securities are carried at cost which approximates fair value. A periodic review of underlying financial statements and credit ratings is performed to assess the appropriateness of these valuations.

~~Page 38 of 48~~

During the first ~~nine~~three months of ~~2018,~~2019, net unrealized ~~gains~~loss on the securitiesavailable-for-sale increased to ~~$118,000~~$620,000 from a net unrealized ~~loss~~gain of ~~$116,000~~$8,000 at December 31, ~~2017.~~2018. This was primarily the result of ~~an increase~~a decrease in the value of floating rate securities and the increase in the value of one obligation which was a states and political subdivisions security.

The following table sets forth the fair value of securitiesavailable-for-sale at the dates indicated.


	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(in thousands)				(in thousands)
U.S. Treasury	$	1,986	$	1,984	$	1,998	$	1,992
U.S. Government Sponsored Enterprises		3,889		—		3,942		3,915
Small Business Administration		71,124		80,950		72,588		70,194
U.S Government Agency and Sponsored Enterprise Mortgage-backed Securities		169,215		225,776		194,205		162,890
Privately Issued Residential Mortgage-backed Securities		715		892		649		672
Obligations issued by States and Political Subdivisions		116,009		82,600		68,107		93,503
Other Debt Securities		3,565		3,629		3,600		3,593

Total SecuritiesAvailable–for-Sale	$	366,503	$	395,831
Total SecuritiesAvailable-for-Sale					$	345,089	$	336,759

~~The Company realized gross gains of $302,000 from the proceeds of $27,517,000 from the~~There were no sales ofavailable-for-sale securities for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The Company realized gross gains of ~~$47,000~~$197,000 from the proceeds of ~~$18,133,000~~$17,871,000 from the sales ofavailable-for-sales securities for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018.

SecuritiesHeld-to-Maturity (at Amortized Cost)

The securitiesheld-to-maturity portfolio totaled ~~$1,875,752,000~~$2,110,555,000 on ~~September 30, 2018,~~March 31, 2019, an increase of ~~10.3%~~3.1% from December 31, ~~2017.~~2018. Purchases of securitiesheld-to-maturity totaled ~~$358,824,000~~$148,500,000 for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The purchases were offset somewhat, by call, maturities and scheduled principal payments of ~~$187,009,000.~~$88,027,000. The portfolio is concentrated in United States Government Sponsored Enterprises and Mortgage-backed Securities and had an estimated weighted average remaining life of ~~4.5~~4.0 years. Unrealized losses increased during the year primarily as a result of increases in interest rates.

The following table sets forth the amortized cost of securitiesheld-to-maturity at the dates indicated.


	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(in thousands)				(in thousands)
U.S. Treasury	$	9,903	$	—	$	—	$	9,960
U.S. Government Sponsored Enterprises		167,968		104,653		201,327		234,228
SBA Backed Securities		53,576		57,235		50,797		52,051
U.S. Government Agency and Sponsored Enterprise Mortgage-backed Securities		1,644,305		1,539,345		1,858,431		1,750,408

Total SecuritiesHeld-to-Maturity	$	1,875,752	$	1,701,233	$	2,110,555	$	2,046,647

There were no sales ofheld-to-maturity securities for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and March 31, 2018 ~~and September 30, 2017~~ respectively.

Page 38 of 44

The net unrealized losses on investment securitiesheld-to-maturity was ~~$80,635,000~~$36,112,000 or ~~4.3%~~1.7% of the total and ~~$32,406,000~~$55,226,000 or ~~1.9%~~2.7% of the total at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The decrease in the net unrealized ~~loss~~losses on securitiesheld-to-maturity related primarily to ~~the rise~~a decrease in interest rates. The gross unrealized losses relate 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 likely 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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, all mortgage-backed securities are obligations of U.S. Government Sponsored Enterprises. Debt securities of Government Sponsored Enterprises primarily refer to debt securities of Fannie Mae and Freddie Mac.

~~Page 39 of 48~~

Federal Home Loan Bank of Boston 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 in the stock. During the first ~~nine~~three months of ~~2018,~~2019, the FHLBB redeemed ~~$13,619,000~~$4,777,000 of FHLBB stock and the Company purchased ~~$14,583,000~~$1,047,000 of FHLBB stock. As of ~~September 30, 2018,~~March 31, 2019, no impairment has been recognized.

Equity Securities

At ~~September 30, 2018~~March 31, 2019 equity securities totaled ~~$1,616,000~~$1,649,000 compared to ~~$1,663,000~~$1,596,000 at December 31, ~~2017.~~2018. Equity securities were reclassified from securitiesavailable-for-sale during the first quarter of ~~2018 and December 31, 2017, respectively.~~2018. The unrealized gain, of $29,000 on equity securities, at December 31, 2017, was transferred to retained earnings and the change in the unrealized gain for the first ~~nine months~~quarter of 2018 was classified as other income, in accordance with ASU2016-1 as previously discussed in Note 10.

Deposits and Borrowed Funds

On ~~September 30, 2018,~~March 31, 2019, deposits totaled ~~$3,964,407,000,~~$4,449,627,000, representing a ~~1.2%~~1.0% increase from December 31, ~~2017.~~2018. Total deposits increased primarily as a result of an increase in Savings and NOW deposits and money market accounts. This was offset somewhat, by a decrease in ~~savings and NOW, Demand~~demand deposits and ~~Time~~time deposits. Money market accounts increased mainly from ~~municipal deposits.~~deposit gathering services. Savings and NOW deposits ~~decreased~~increased mainly as a result of ~~decreased~~increased municipal deposits. Time deposits decreased primarily as a result of decreased ~~municipal~~corporate and personal time deposits. Demand deposits decreased mainly as a result of decreased corporate checking balances.

Borrowed funds totaled ~~$513,096,000~~$421,648,000 at ~~September 30, 2018~~March 31, 2019 compared to ~~$506,768,000~~$356,618,000 at December 31, ~~2017.~~2018. Borrowed funds increased mainly as a result of an increase in short-term FHLBB ~~borrowings, offset, somewhat by a decrease in securities sold under agreements to repurchase.~~borrowings.

Stockholders’ Equity

At ~~September 30, 2018,~~March 31, 2019, total equity was ~~$286,877,000~~$309,324,000 compared to ~~$260,297,000~~$300,439,000 on December 31, ~~2017.~~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~~ dividends paid. ~~There were reclassifications between retained earnings and other comprehensive loss as a result of both ASU2018-2~~ ~~and ASU2016-1.~~ The reclassifications amounted to $3,812,000 that increased retained earnings and decreased other comprehensive loss. Excluding the reclassifications, in aggregate, other comprehensive loss, net of taxes, decreased as a result of a decrease in unrealized losses on securities~~available-for-sale,~~ ~~unrealized losses on securities transferred fromavailable-for-sale~~ to~~held-to-maturity~~ ~~and amortization of the pension liability.~~ The Company’s leverage ratio stood at ~~7.03%~~6.92% on ~~September 30, 2018,~~March 31, 2019, compared to ~~6.70%~~6.91% at December 31, ~~2017.~~2018. The increase in the leverage ratio was due to an increase in stockholders’ equity, offset somewhat by an increase in quarterly average assets. Book value as of ~~September 30, 2018,~~March 31, 2019, was ~~$51.52~~$55.55 as compared to ~~$46.75~~$53.96 on December 31, ~~2017.~~2018.

Page 4039 of 4844

Results of Operations

The following table sets forth the distribution of the Company’s average assets, liabilities and stockholders’ equity, and average rates earned or paid on a fully taxable equivalent basis for each of the three-month periods indicated.


																			Three Months Ended
	Three Months Ended																		March 31, 2019									March 31, 2018
	September 30, 2018									September 30, 2017									Average Balance			Interest Income/ Expenses (1)			Rate Earned/ Paid (1)			Average Balance			Interest Income/ Expenses (1)			Rate Earned/ Paid (1)
	Average Balance			Interest Income/ Expenses (1)			Rate Earned/ Paid (1)			Average Balance			Interest Income/ Expenses (1)			Rate Earned/ Paid (1)			(dollars in thousands)
ASSETS	(dollars in thousands)
Interest-earning assets:
Loans (2)
Loans taxable	$	1,111,193		$	11,974			4.28	%	$	996,343		$	10,007			3.98	%	$	1,182,782		$	13,096			4.49	%	$	1,043,345		$	10,685			4.15	%
Loanstax-exempt		1,128,742			10,375			3.65	%		1,075,118			10,104			3.73	%		1,109,824			10,411			3.80	%		1,131,825			9,606			3.44	%
Securitiesavailable-for-sale (5):
Taxable		296,315			1,970			2.66	%		335,701			1,560			1.86	%		273,309			2,182			3.19	%		338,393			1,754			2.07	%
Tax-exempt		113,623			647			2.28	%		85,642			353			1.65	%		78,560			545			2.77	%		67,694			291			1.72	%
Securitiesheld-to-maturity:
Taxable		1,858,695			11,507			2.48	%		1,695,355			9,447			2.23	%		2,078,626			13,788			2.65	%		1,741,492			10,288			2.36	%
Interest-bearing deposits in other banks		117,312			591			2.02	%		190,274			607			1.28	%		225,870			1,349			2.39	%		230,194			883			1.53	%

Total interest-earning assets		4,625,880			37,064			3.19	%		4,378,433			32,078			2.92	%		4,948,971			41,371			3.37	%		4,552,943			33,507			2.97	%
Non interest-earning assets		227,410									219,310									247,261									228,451
Allowance for loan losses		(28,204	)								(25,562	)								(28,708	)								(26,546	)

Total assets	$	4,825,086								$	4,572,181								$	5,167,524								$	4,754,848

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits:
NOW accounts	$	910,975		$	1,741			0.76	%	$	938,137		$	1,029			0.44	%	$	902,321		$	2,156			0.97	%	$	954,608		$	1,353			0.57	%
Savings accounts		562,133			1,231			0.87	%		512,521			698			0.54	%		909,798			3,310			1.48	%		540,311			870			0.65	%
Money market accounts		1,231,693			3,652			1.18	%		1,022,148			1,395			0.54	%		1,271,707			5,343			1.70	%		1,180,436			2,453			0.84	%
Time deposits		561,249			2,571			1.82	%		594,193			2,095			1.40	%		516,781			2,793			2.19	%		604,814			2,363			1.58	%

Total interest-bearing deposits		3,266,050			9,195			1.12	%		3,066,999			5,217			0.67	%		3,600,607			13,602			1.53	%		3,280,169			7,039			0.87	%
Securities sold under agreements to repurchase		151,605			288			0.75	%		183,929			129			0.28	%		168,447			385			0.93	%		160,223			181			0.46	%
Other borrowed funds and subordinated debentures		318,829			2,078			2.59	%		311,540			1,822			2.32	%		231,920			1,652			2.89	%		274,343			1,742			2.58	%

Total interest-bearing liabilities		3,736,484			11,561			1.23	%		3,562,468			7,168			0.80	%		4,000,974			15,639			1.59	%		3,714,735			8,962			0.98	%

Non-interest-bearing liabilities
Demand deposits		736,622									689,274									782,794									706,959
Other liabilities		69,724									61,785									79,156									69,218

Total liabilities		4,542,830									4,313,527									4,862,924									4,490,912

Stockholders’ equity		282,256									258,654									304,600									263,936
Total liabilities & stockholders’ equity	$	4,825,086								$	4,572,181								$	5,167,524								$	4,754,848

Net interest income on a fully taxable equivalent basis					25,503									24,910									25,732									24,545
Less taxable equivalent adjustment					(2,299	)								(3,557	)								(2,294	)								(2,077	)

Net interest income				$	23,204								$	21,353								$	23,438								$	22,468

Net interest spread (3)								1.96	%								2.12	%								1.79	%								2.00	%

Net interest margin (4)								2.19	%								2.26	%								2.11	%								2.19	%

(1)	On a fully taxable equivalent basis calculated using a federal tax rate of 21% ~~for 2018 and 34% for 2017.~~.

(2)	Nonaccrual loans are included in average amounts outstanding.

(3)	Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(4)	Net interest margin represents net interest income as a percentage of average interest-earning assets.

(5)	Average balances of securitiesavailable-for-sale calculated utilizing amortized cost.

Page 4140 of 48

   Nine Months Ended
   September 30, 2018 September 30, 2017
   Average
Balance Interest
Income/
Expenses (1) Rate
Earned/
Paid (1) Average
Balance Interest
Income/
Expenses (1) Rate
Earned/
Paid (1)
ASSETS    (dollars in thousands)
Interest-earning assets:

Loans (2)

Loans taxable
   $ 1,076,781 $ 33,902 4.21 % $ 967,482 $ 28,782 3.98 %
Loanstax-exempt
   1,129,413 30,018 3.55 % 1,068,716 29,897 3.74 %
Securitiesavailable-for-sale (5):

Taxable
   317,753 5,719 2.40 % 361,400 4,236 1.56 %
Tax-exempt
   88,269 1,342 2.03 % 120,150 1,280 1.42 %
Securitiesheld-to-maturity:

Taxable
   1,816,745 32,930 2.42 % 1,739,189 28,806 2.21 %
Interest-bearing deposits in other banks
   171,773 2,239 1.74 % 177,233 1,349 1.01 %


Total interest-earning assets
   4,600,734 106,150 3.08 % 4,434,170 94,350 2.84 %
Non interest-earning assets
   227,185 220,194
Allowance for loan losses
   (27,235 ) (25,089 )


Total assets
   $ 4,800,684 $ 4,629,275


LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing deposits:

NOW accounts
   $ 944,879 $ 4,669 0.66 % $ 976,215 $ 2,610 0.36 %
Savings accounts
   550,585 3,109 0.75 % 503,218 1,844 0.49 %
Money market accounts
   1,208,547 9,039 1.00 % 1,100,304 3,903 0.47 %
Time deposits
   587,742 7,465 1.70 % 550,996 5,648 1.37 %


Total interest-bearing deposits
   3,291,753 24,282 0.99 % 3,130,733 14,005 0.60 %
Securities sold under agreements to repurchase
   149,970 657 0.59 % 193,519 352 0.24 %
Other borrowed funds and subordinated debentures
   298,480 5,793 2.59 % 317,180 5,695 2.40 %


Total interest-bearing liabilities
   3,740,203 30,732 1.10 % 3,641,432 20,052 0.74 %


Non-interest-bearing liabilities

Demand deposits
   718,215 676,655
Other liabilities
   69,404 60,274


Total liabilities
   4,527,822 4,378,361


Stockholders’ equity
   272,862 250,914
Total liabilities & stockholders’ equity
   $ 4,800,684 $ 4,629,275


Net interest income on a fully taxable equivalent basis
   75,418 74,298
Less taxable equivalent adjustment
   (6,547 ) (10,384 )


Net interest income
   $ 68,871 $ 63,914


Net interest spread (3)
   1.99 % 2.11 %


Net interest margin (4)
   2.19 % 2.24 %

~~(1)~~

~~On a fully taxable equivalent basis calculated using a federal tax rate of 21% for 2018 and 34% for 2017.~~

~~(2)~~

~~Nonaccrual loans are included in average amounts outstanding.~~

~~(3)~~

~~Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.~~

~~(4)~~

~~Net interest margin represents net interest income as a percentage of average interest-earning assets.~~

~~(5)~~

~~Average balances of securitiesavailable-for-sale~~ ~~calculated utilizing amortized cost.~~

~~Page 42 of 48~~44

The following table presents certain information on afully-tax equivalent basis regarding changes in the Company’s interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to changes in rate and changes in volume.


																		Three Months Ended March 31, 2019 Compared with Three Months Ended March 31, 2018
	Three Months Ended September 30, 2018 Compared with Three Months Ended September 30, 2017									Nine Months Ended September 30, 2018 Compared with Nine Months Ended September 30, 2017								Increase/(Decrease) Due to Change in
	Increase/(Decrease) Due to Change in									Increase/(Decrease) Due to Change in								Volume			Rate			Total
	Volume			Rate			Total			Volume			Rate			Total		(in thousands)
Interest income:	(in thousands)
Loans
Taxable	$	1,205		$	762		$	1,967		$	3,358		$	1,762		$	5,120	$	1,500		$	911		$	2,411
Tax-exempt		496			(225	)		271			1,637			(1,516	)		121		(190	)		995			805
Securitiesavailable-for-sale
Taxable		(200	)		610			410			(562	)		2,045			1,483		(385	)		813			428
Tax-exempt		136			158			294			(395	)		457			62		53			201			254
Securitiesheld-to-maturity
Taxable		957			1,103			2,060			1,323			2,801			4,124		2,141			1,359			3,500
Interest-bearing deposits in other banks		(286	)		270			(16	)		(43	)		933			890		(17	)		483			466

Total interest income		2,308			2,678			4,986		$	5,318		$	6,482		$	11,800		3,102			4,762			7,864

Interest expense:
Deposits
NOW accounts		(31	)		743			712			(86	)		2,145			2,059		(78	)		881			803
Savings accounts		73			460			533			187			1,078			1,265		859			1,581			2,440
Money market accounts		336			1,921			2,257			418			4,718			5,136		203			2,687			2,890
Time deposits		(122	)		598			476			395			1,422			1,817		(380	)		810			430

Total interest-bearing deposits		256			3,722			3,978			914			9,363			10,277		604			5,959			6,563
Securities sold under agreements to repurchase		(26	)		185			159			(94	)		399			305		10			194			204
Other borrowed funds and subordinated debentures		43			213			256			(349	)		447			98		(288	)		198			(90	)

Total interest expense		273			4,120			4,393			471			10,209			10,680		326			6,351			6,677

Change in net interest income	$	2,035		$	(1,442	)	$	593		$	4,847		$	(3,727	)	$	1,120	$	2,776		$	(1,589	)	$	1,187

Net Interest Income

For the three months ended ~~September 30, 2018,~~March 31, 2019, net interest income on a fully taxable equivalent basis totaled ~~$25,503,000~~$25,732,000 compared to ~~$24,910,000~~$24,545,000 for the same period in ~~2017,~~2018, an increase of ~~$593,000~~$1,187,000 or ~~2.4%~~4.8%. ~~This~~The increase in ~~fully tax equivalent~~ net interest income for the period is primarily due to an increase in average earning assets. The net interest margin decreased from ~~2.26%~~2.19% on a fully taxable equivalent basis in ~~2017~~2018 to ~~2.19% on~~2.11% for the same ~~basis for 2018.~~period in 2019. This was primarily the result of ~~a decrease in the federal corporate tax rate from 34% to 21%. This decrease results in a lower tax equivalent yield~~increased rates paid on~~tax-exempt~~ ~~assets.~~ deposits. The average balances of earning assets increased by ~~5.7%~~8.7% combined with an average yield increase of ~~0.27%~~0.40%, resulting in an increase in fully taxable equivalent interest income of ~~$4,986,000 on fully tax equivalent basis.~~$7,864,000. The average balance of interest bearing liabilities increased ~~4.9%~~7.7% combined with an average ~~yield~~cost of funds increase of ~~0.43%~~0.61%, resulting in an increase in interest expense of ~~$4,393,000.~~$6,677,000.

For the nine months ended September 30, 2018, net interest income on a fully taxable equivalent basis totaled $75,418,000 compared to $74,298,000 for the same period in 2017, an increase of $1,120,000 or 1.5%. This increase in fully tax equivalent net interest income for the period is primarily due to an increase in average earning assets. The net interest margin decreased from 2.24% on a fully taxable equivalent basis in 2017 to 2.19% on the same basis for 2018. This was primarily the result of a decrease in the federal corporate tax rate from 34% to 21%. This decrease results in a lower tax equivalent yield on~~tax-exempt~~ assets. The average balances of earning assets increased by 3.8% combined with an average yield increase of 0.24%, resulting in an increase in interest income of $11,800,000 on a fully tax equivalent basis. The average balance of interest bearing liabilities increased 2.7% combined with an average yield increase of 0.36%, resulting in an increase in interest expense of $10,680,000.

~~Page 43 of 48~~

As illustrated in the table above, the main contributors to the increase in net interest income were from loans, securitiesheld-to-maturity, securitiesavailable-for-sale, and interest-bearing deposits in other banks. Securitiesheld-to-maturity income increased primarily as a result of an increase in volume as well as rates. Loan income increased primarily from an increase in volume and an overall increase in rates. Securitiesavailable-for-sale income increased from an increase in rates paid on the portfolio. The Company has a sizable floating rateavailable-for-sale portfolio. These securities reprice as interest rates rise. Interest-bearing deposits income increased primarily from an increase in rates. The increase in interest income was partially offset by an increase in interest expense. This was mainly the result of increased rates paid on money market, saving and NOW accounts, and time deposits. The Company has modestly raised interest rates on these products to remain competitive.

Page 41 of 44

Provision for Loan Losses

For the three months ended ~~September 30, 2018,~~March 31, 2019, the loan loss provision was $0$375,000 compared to a provision of $450,000 for the same period last year. For the nine months ended September 30, 2018, the loan loss provision was $900,000 compared to a provision of $1,340,000 for the same period last year. The loan loss provision decreased primarily as a result of net recoveries of $1,390,000 offset by changes in qualitative factors and loan growth. Further discussion relating to changes in portfolio composition is discussed in footnote number four.

Non-Interest Income and Expense

Other operating income for the quarter ended ~~September 30, 2018~~March 31, 2019 increased by ~~$227,000~~$234,000 from the same period last year to ~~$4,169,000.~~$4,427,000. This was mainly attributable to an increase in lockbox fees of ~~$157,000,~~$298,000 and an increase in service charges on deposit accounts of ~~$48,000, and an increase in gains on~~$142,000 offset, somewhat, by a decrease of $197,000 from the sales of ~~investments of $58,000. Also, other income decreased by $36,000.~~securities. Lockbox income increased as a result of an increase in customer accounts. Service charges on deposit accounts increased primarily as a result of an increase in customer activity. ~~Other income decreased primarily as a result of a smaller increase in the cash surrender values of life insurance policies.~~

Other operating income for the nine months ended September 30, 2018 decreased by $58,000 from the same period last year to $12,084,000. This was mainly attributable to a decrease in net gains on sales of loans of $370,000 and a decrease in lockbox fees of $63,000. This was partially offset by an increase in net gain on sales of securities of $255,000, an increase in service charges on deposit accounts of $89,000, and an increase in other income of $31,000. Other income increased primarily as a result of an increase in wealth management fees, and merchant charge card fees. Also, service charges on deposit accounts increased primarily as a result of an increase in customer activity. Lockbox income decreased as a result of a decrease in customer accounts during the first six months of the year.

For the quarter ended ~~September 30, 2018,~~March 31, 2019, operating expenses increased by ~~$1,143,000~~$189,000 or ~~7.1%~~1.0% to ~~$17,348,000,~~$18,190,000, from the same period last year. This was primarily attributable to an increase in other expenses of $336,000 and occupancy expenses of $64,000 offset, somewhat, by decreases salaries and employee benefits of ~~$637,000, an increase in other~~$190,000, equipment expenses ~~of $425,000, an increase in occupancy expenses of $54,000,~~$11,000 and ~~an increase in~~ FDIC assessments of $28,000. Equipment expenses remained relatively stable. The increase in salaries and employee benefits was mainly attributable to an increase in salaries associated with merit increases and increased bonus accruals.$10,000. Other expenses increased primarily as a result of increases in ~~marketing, postage and delivery, and contributions. FDIC assessments increased primarily as a result of increases in balances.~~pension expense. Occupancy costs increased primarily as a result of increases in ~~building maintenance costs.~~

~~For the nine months ended September 30, 2018,~~rent expense associated with a new operating ~~expenses increased by $1,381,000 or 2.7% to $52,508,000, from the same period last year.~~facility and other annual rent increases. The ~~increase in operating expenses for the period was mainly attributable to an increase of $1,234,000~~decrease in salaries and employee benefits ~~$229,000~~was mainly attributable to a decrease in other expenses, and $110,000 in equipment expenses. This was partially offset by decreases in occupancy expense of $84,000 and FDIC assessments of $108,000. Salaries and employee benefits increased mainly as a result of merit increases. Equipment expenses increased mainly as a result of increased depreciation expense. Other expenses increased primarily as a result of increased consulting and software maintenance costs.bonus accruals. FDIC assessments decreased primarily as a result of a decrease in the assessment rate. ~~Occupancy costs decreased primarily as a result of decreased rent expense associated with a reduction in rent at certain locations.~~Equipment expenses remained relatively stable.

Income Taxes

For the ~~third~~first quarter of ~~2018,~~2019, the Company’s income tax ~~expense~~benefit totaled ~~$444,000~~$118,000 on pretax income of ~~$10,025,000~~$9,300,000 resulting in an effective tax rate of ~~4.4%~~(1.3)%. For last year’s corresponding quarter, the Company’s income tax expense totaled ~~$617,000~~$501,000 on pretax income of ~~$8,640,000~~$8,210,000 resulting in an effective tax rate of ~~7.1%~~6.1%. The decrease in the effective ~~income~~ tax rate was primarily ~~the result of an increase in tax exempt income, as well as a decrease in the corporate tax rate from 34% to 21%~~ as a result of ~~the Tax Cuts and Jobs Act.~~

For the first nine months of 2018, the Company’s income tax expense totaled $1,259,000 on pretax income of $27,547,000 resulting in an effective tax rate of 4.6%. For last year’s corresponding quarter, the Company’s income tax expense totaled $1,313,000 on pretax

~~Page 44 of 48~~

~~income of $23,589,000 resulting in an effective tax rate of 5.6%. The decrease in the effective income tax rate was primarily the result of an increase~~a reduction in tax ~~exempt income, as well as a decrease in the corporate tax rate from 34%~~accruals related to ~~21% as a result~~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 ~~Cuts and Jobs Act.~~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 December 31, 2017. Therefore, the full amount of the AMT credit carryover will be refunded to the Company.

Item3.Quantitative and Qualitative Disclosure about Market Risk

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 increase or decrease in interest rates may adversely impact the Company’s earnings to the extent that the interest rates tied to specific 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. 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. Management believes that there has been no material changes in the interest rate risk reported in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, ~~2017,~~2018, filed with the Securities and Exchange Commission. The information is contained in the Form10-K within the Market Risk and Asset Liability Management section of Management’s Discussion and Analysis of Results of Operations and Financial Condition.

Item4.Controls and Procedures

The Company’s management, with participation of the Company’s principal executive and financial officers, has evaluated its disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, the Company’s management, with participation of its principal executive and financial officers, has concluded that the Company’s disclosure controls and procedures are effective. The disclosure controls and procedures also effectively ensure that information required to be disclosed in the Company’s filings and submissions with the Securities and Exchange Commission under the Exchange Act is accumulated and reported to Company management (including the principal executive officer and the principal financial officer) as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. In addition, the Company has evaluated its internal control over financial reporting and during the ~~third~~first quarter of ~~2018~~2019 there were no changes that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Page 4542 of 4844

Part II –Other Information

Item 1

A number of legal claims against the Company arising in the normal course of business were outstanding at ~~September 30, 2018.~~March 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.

~~On September 7, 2017, Crimson Galeria Limited Partnership, Raj & Raj, LLC, Harvard Square Holdings LLC,~~The Company and ~~Charles River Holdings LLC (collectively, the “Plaintiffs”) filed suit~~its subsidiaries are parties to various claims and lawsuits arising in the ~~United States District Court~~course of their normal business activities. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that none of these matters, even if it resolved adversely to the Company, will have a material adverse effect on the Company’s consolidated financial position.

Item 1A Risk Factors – Please read “Risk Factors” in the Company’s Annual Report on Form10-K for the District of Massachusetts against the Attorney General of the Commonwealth of Massachusetts, the Massachusetts Department of Public Health, the City of Cambridge, the Town of Georgetown, as well as against the Bank, Healthy Pharms, Inc., (“Healthy Pharms”), Timbuktu Real Estate, LLC, Paul Overgaag, Nathaniel Averill, 4Front Advisors, LLC, 4 Front Holdings LLC, Kristopher T. Krane, 3 Brothers Real Estate, LLC, Red Line Management, LLC, unspecified insurance providers to certain Plaintiffs, and Tomolly, Inc., (collectively, the “Defendants”).

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

~~The Company believes that the claims and allegations against the Bank set forth in the complaint are without merit, and the Company and the Bank intend to vigorously defend against them.~~

Onfiscal year ended December ~~15, 2017, the Company filed a motion to dismiss the complaint; the plaintiffs filed an opposition brief, and the Company filed a reply in further support of its motion.~~

On August 21, 2018 the Court granted the Plaintiffs leave to file an amended complaint. The Court also granted motions to dismiss as to the Government defendants, while denying the motions to dismiss (without prejudice) from Healthy Pharms (and several associated individuals and entities) and the Company. The Court emphasized that the remaining Defendants are authorized to~~re-file~~ ~~their motions to dismiss in response to the new allegations in the amended complaint.~~

The Plaintiffs filed their amended complaint on October 5, 2018, alleging claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq., as well as a nuisance claim. The Company’s response is due on November 9,31, 2018. ~~The Company believes that the claims and allegations against it in the amended complaint are without merit, and it intends to vigorously defend against them.~~

~~Item 1A~~

~~Risk Factors – Please read “Risk Factors” in the Company’s Annual Report on Form10-K~~ ~~for the fiscal year ended December 31, 2017.~~ There have been no material changes since this10-K was filed. These risks are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and operating results.

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds –

(a) – (b) Not applicable.

Item 3

Defaults Upon Senior Securities – None

Item 4

Mine Safety Disclosures – Not applicable

Item 5

Other Information – None

~~Page 46 of 48~~

Item 6

Exhibits



	31.1			Certification of President and Chief Executive Officer of the Company Pursuant to Securities Exchange Act Rules~~Rules~~ 13a-14 and15d-14.

	31.2			Certification of Chief Financial Officer of the Company Pursuant to Securities Exchange Act Rules~~Rules~~ 13a-14 and15d-14.

	+32.1			Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	+32.2			Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	++101.			INS XBRL Instance Document

	++101.			SCH XBRL Taxonomy Extension Schema

	++101.			CAL XBRL Taxonomy Extension Calculation Linkbase

	++101.			LAB XBRL Taxonomy Extension Label Linkbase

	++101.			PRE XBRL Taxonomy Extension Presentation Linkbase

	++101.			DEF XBRL Taxonomy Definition Linkbase

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

As provided in Rule 406T of regulationS-T, this information is filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 and consists of the following materials from Century Bancorp Inc.’s Quarterly Report on10-Q for the quarter ended ~~September 30 2018,~~March 31 2019, formatted in XBRL: (i) Consolidated Balance Sheets at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017;~~2018; (ii) Consolidated Statements of Income for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017;~~2018; (iii) Consolidated Statements of Comprehensive Income for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017;~~2018; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017;~~2018; (v) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017;~~2018; and (vi) Notes to Unaudited Consolidated Interim Financial Statements.

Page 4743 of 4844

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		/s/ Barry R. Sloane
		Barry R. Sloane

Chairman, President and Chief Executive Officer


		/s/ William P. Hornby

William P. Hornby, CPA

Chief Financial Officer and Treasurer

(Principal Accounting Officer)

Page 4844 of 4844


	Nine Months Ended
	September 30, 2018									September 30, 2017
	Average Balance			Interest Income/ Expenses (1)			Rate Earned/ Paid (1)			Average Balance			Interest Income/ Expenses (1)			Rate Earned/ Paid (1)
ASSETS	(dollars in thousands)
Interest-earning assets:
Loans (2)
Loans taxable	$	1,076,781		$	33,902			4.21	%	$	967,482		$	28,782			3.98	%
Loanstax-exempt		1,129,413			30,018			3.55	%		1,068,716			29,897			3.74	%
Securitiesavailable-for-sale (5):
Taxable		317,753			5,719			2.40	%		361,400			4,236			1.56	%
Tax-exempt		88,269			1,342			2.03	%		120,150			1,280			1.42	%
Securitiesheld-to-maturity:
Taxable		1,816,745			32,930			2.42	%		1,739,189			28,806			2.21	%
Interest-bearing deposits in other banks		171,773			2,239			1.74	%		177,233			1,349			1.01	%

Total interest-earning assets		4,600,734			106,150			3.08	%		4,434,170			94,350			2.84	%
Non interest-earning assets		227,185									220,194
Allowance for loan losses		(27,235	)								(25,089	)

Total assets	$	4,800,684								$	4,629,275

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits:
NOW accounts	$	944,879		$	4,669			0.66	%	$	976,215		$	2,610			0.36	%
Savings accounts		550,585			3,109			0.75	%		503,218			1,844			0.49	%
Money market accounts		1,208,547			9,039			1.00	%		1,100,304			3,903			0.47	%
Time deposits		587,742			7,465			1.70	%		550,996			5,648			1.37	%

Total interest-bearing deposits		3,291,753			24,282			0.99	%		3,130,733			14,005			0.60	%
Securities sold under agreements to repurchase		149,970			657			0.59	%		193,519			352			0.24	%
Other borrowed funds and subordinated debentures		298,480			5,793			2.59	%		317,180			5,695			2.40	%

Total interest-bearing liabilities		3,740,203			30,732			1.10	%		3,641,432			20,052			0.74	%

Non-interest-bearing liabilities
Demand deposits		718,215									676,655
Other liabilities		69,404									60,274

Total liabilities		4,527,822									4,378,361

Stockholders’ equity		272,862									250,914
Total liabilities & stockholders’ equity	$	4,800,684								$	4,629,275

Net interest income on a fully taxable equivalent basis					75,418									74,298
Less taxable equivalent adjustment					(6,547	)								(10,384	)

Net interest income				$	68,871								$	63,914

Net interest spread (3)								1.99	%								2.11	%

Net interest margin (4)								2.19	%								2.24	%

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company