Century Bancorp (CNBKA) 10-Q 2010 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2010.

or

o 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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yeso No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yeso No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filero Accelerated filerþ Non-accelerated filero(Do not check if a smaller reporting company) Smaller reporting companyo

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yesþ No

As of October 31, 2010, the Registrant had outstanding:

Class A Common Stock, $1.00 par value	3,525,667 Shares
Class B Common Stock, $1.00 par value	2,011,380 Shares

Century Bancorp, Inc.

		Page
	Index	Number
Part I	Financial Information
	Forward Looking Statements		3
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets:
	September 30, 2010 and December 31, 2009		4
	Consolidated Statements of Income:
	Three months and Nine months ended September 30, 2010 and 2009		5
	Consolidated Statements of Changes in Stockholders’ Equity: Nine months ended September 30, 2010 and 2009		6
	Consolidated Statements of Cash Flows:
	Nine months ended September 30, 2010 and 2009		7
	Notes to Consolidated Financial Statements		8-22
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22-33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		33
Item 4.	Controls and Procedures		33-34
Part II.	Other Information
Item 1.	Legal Proceedings		34
Item 1A.	Risk Factors		34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 3.	Defaults Upon Senior Securities		34
Item 5.	Other Information		34
Item 6.	Exhibits		34-35
Signatures			36
Exhibits
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Page 2 of 36

Forward Looking Statements

Except for the historical information contained herein, this Quarterly Report on Form 10-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 Form 10-Q, and the Company cautions readers not to place undue reliance on such statements.

Page 3 of 36

PART I — Item 1

Century Bancorp, Inc.
Consolidated Balance Sheets (unaudited)
(In thousands, except share data)

	September 30,			December 31,
	2010			2009
Assets
Cash and due from banks	$	52,855		$	42,627
Federal funds sold and interest-bearing deposits in other banks		242,517			356,015
Total cash and cash equivalents		295,372			398,642
Short-term investments		123,890			18,518
Securities available-for-sale, amortized cost $816,424 and $641,010, respectively		830,939			647,796
Securities held-to-maturity, fair value $235,026 and $221,413, respectively		228,226			217,643
Federal Home Loan Bank of Boston stock, at cost		15,531			15,531
Loans, net:
Commercial and industrial		102,397			141,061
Construction and land development		54,193			60,349
Commercial real estate		383,490			361,823
Residential real estate		198,352			188,096
Home equity		118,296			118,076
Consumer and other		7,108			7,720
Total loans, net		863,836			877,125
Less: allowance for loan losses		13,827			12,373
Net loans		850,009			864,752
Bank premises and equipment		21,345			21,015
Accrued interest receivable		6,045			5,806
Goodwill		2,714			2,714
Core deposit intangible		605			896
Other assets		59,574			60,722
Total assets	$	2,434,250		$	2,254,035
Liabilities
Deposits:
Demand deposits	$	311,256		$	279,874
Savings and NOW deposits		683,105			575,592
Money market accounts		509,335			553,883
Time deposits		379,151			292,638
Total deposits		1,882,847			1,701,987
Securities sold under agreements to repurchase		108,430			118,745
Other borrowed funds		230,481			234,024
Subordinated debentures		36,083			36,083
Due to broker		765			—
Other liabilities		29,726			30,466
Total liabilities		2,288,332			2,121,305
Stockholders’ Equity
Preferred stock — $1.00 par value; 100,000 shares authorized; no shares issued and outstanding		—			—
Class A common stock, $1.00 par value per share; authorized 10,000,000 shares; issued 3,525,417 shares and 3,515,767 shares, respectively		3,526			3,516
Class B common stock, $1.00 par value per share; authorized 5,000,000 shares; issued 2,011,380 and 2,014,530 shares, respectively		2,011			2,014
Additional paid-in capital		11,467			11,376
Retained earnings		128,146			120,125
		145,150			137,031
Unrealized gains on securities available-for-sale, net of taxes		8,832			4,129
Pension liability, net of taxes		(8,064	)		(8,430	)
Total accumulated other comprehensive income (loss), net of taxes		768			(4,301	)
Total stockholders’ equity		145,918			132,730
Total liabilities and stockholders’ equity	$	2,434,250		$	2,254,035

See accompanying notes to unaudited consolidated interim financial statements.

Page 4 of 36

Century Bancorp, Inc.
Consolidated Statements of Income (unaudited)
(In thousands, except share data)

	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Interest income
Loans	$	11,900	$	12,118	$	36,084	$	35,933
Securities held-to-maturity		1,645		1,927		5,501		6,330
Securities available-for-sale		4,618		5,486		14,630		15,740
Federal funds sold and interest-bearing deposits in other banks		465		506		1,246		1,811
Total interest income		18,628		20,037		57,461		59,814
Interest expense
Savings and NOW deposits		940		1,139		3,254		3,872
Money market accounts		876		1,266		3,189		4,919
Time deposits		2,162		2,297		5,746		7,465
Securities sold under agreements to repurchase		116		98		466		423
Other borrowed funds and subordinated debentures		1,946		2,563		6,351		7,707
Total interest expense		6,040		7,363		19,006		24,386
Net interest income		12,588		12,674		38,455		35,428
Provision for loan losses		1,200		1,250		4,225		4,150
Net interest income after provision for loan losses		11,388		11,424		34,230		31,278
Other operating income
Service charges on deposit accounts		2,003		2,032		5,878		6,060
Lockbox fees		745		660		2,193		2,154
Net gain on sales of investments		—		137		1,027		1,115
Other income		664		570		2,678		2,280
Total other operating income		3,412		3,399		11,776		11,609
Operating expenses
Salaries and employee benefits		6,844		6,753		21,619		20,182
Occupancy		937		931		3,003		3,071
Equipment		454		544		1,537		1,826
FDIC assessments		785		638		2,175		2,754
Other		2,293		2,362		7,143		7,128
Total operating expenses		11,313		11,228		35,477		34,961
Income before income taxes		3,487		3,595		10,529		7,926
Provision for income taxes		220		413		879		851
Net income	$	3,267	$	3,182	$	9,650	$	7,075
Share data:
Weighted average number of shares outstanding, basic		5,535,548		5,530,297		5,532,067		5,532,907
Weighted average number of shares outstanding, diluted		5,537,120		5,533,622		5,534,457		5,534,364
Net income per share, basic	$	0.59	$	0.58	$	1.74	$	1.28
Net income per share, diluted	$	0.59	$	0.58	$	1.74	$	1.28
Cash dividends paid:
Class A common stock	$	0.12	$	0.12	$	0.36	$	0.36
Class B common stock	$	0.06	$	0.06	$	0.18	$	0.18

See accompanying notes to unaudited consolidated interim financial statements.

Page 5 of 36

Century Bancorp, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
For the Three Months Ended September 30, 2010 and 2009

													Accumulated
	Class A			Class B			Additional						Other			Total
	Common			Common			Paid-In			Retained			Comprehensive			Stockholders’
	Stock			Stock			Capital			Earnings			Income (Loss)			Equity
							(In thousands)
Balance at December 31, 2008	$	3,511		$	2,027		$	11,475		$	112,135		$	(8,645	)	$	120,503
Net income		—			—			—			7,075			—			7,075
Other comprehensive income, net of tax:
Unrealized holding losses arising during period, net of $3,384 in taxes and $1,115 in realized net gains		—			—			—			—			4,940			4,940
Pension liability adjustment, net of $245 in taxes		—			—			—			—			369			369
Comprehensive income																	12,384
Conversion of class B common stock to class A common stock, 10,800 shares		11			(11	)		—			—			—			—
Stock repurchased, 8,110 shares		(8	)		—			(99	)		—			—			(107	)
Cash dividends paid, Class A common stock, $.36 per share		—			—			—			(1,262	)		—			(1,262	)
Cash dividends paid, Class B common stock, $.18 per share		—			—			—			(365	)		—			(365	)
Balance at September 30, 2009	$	3,514		$	2,016		$	11,376		$	117,583		$	(3,336	)	$	131,153
Balance at December 31, 2009	$	3,516		$	2,014		$	11,376		$	120,125		$	(4,301	)	$	132,730
Net income		—			—			—			9,650			—			9,650
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of $3,026 in taxes and $1,027 in realized net gains		—			—			—			—			4,703			4,703
Pension liability adjustment, net of $247 in taxes		—			—			—			—			366			366
Comprehensive income																	14,719
Conversion of class B common stock to class A common stock, 3,150 shares		3			(3	)		—			—			—			—
Stock options exercised, 6,500 shares		7						91			—			—			98
Cash dividends paid, Class A common stock, $.36 per share		—			—			—			(1,266	)		—			(1,266	)
Cash dividends paid, Class B common stock, $.18 per share		—			—			—			(363	)		—			(363	)
Balance at September 30, 2010	$	3,526		$	2,011		$	11,467		$	128,146		$	768		$	145,918

See accompanying notes to unaudited consolidated interim financial statements.

Page 6 of 36

Century Bancorp, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)

	Nine months ended September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,650		$	7,075
Adjustments to reconcile net income to net cash provided by operating activities:
Mortgage loans originated for sale		—			(374	)
Proceeds from mortgage loans sold		—			379
Gain on sales of loans		—			(5	)
Net gain on sales of investments		(1,027	)		(1,115	)
Provision for loan losses		4,225			4,150
Deferred income taxes		(1,364	)		(1,346	)
Net depreciation and amortization		3,528			4,553
(Increase) decrease in accrued interest receivable		(239	)		177
Increase in other assets		(799	)		(2,775	)
(Decrease) increase in other liabilities		(95	)		1,771
Net cash provided by operating activities		13,879			12,490
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of short-term investments		117,150			159,168
Purchase of short-term investments		(222,522	)		(184,367	)
Proceeds from maturities of securities available-for-sale		488,823			235,521
Proceeds from sales of securities available-for-sale		34,625			46,044
Purchase of securities available-for-sale		(698,415	)		(400,429	)
Proceeds from maturities of securities held-to-maturity		136,407			74,339
Purchase of securities held-to-maturity		(147,386	)		(67,818	)
Net decrease (increase) in loans		10,553			(39,991	)
Capital expenditures		(1,854	)		(653	)
Net cash used in investing activities		(282,619	)		(178,186	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time deposits		86,513			(22,094	)
Net increase in demand, savings, money market and NOW deposits		94,347			289,414
Net payments for the repurchase of stock		—			(107	)
Net proceeds from exercise of stock options		98			—
Cash dividends		(1,630	)		(1,627	)
Net decrease in securities sold under agreements to repurchase		(10,315	)		(21,300	)
Net decrease in other borrowed funds		(3,543	)		(33,109	)
Net cash provided by financing activities		165,470			211,177
Net (decrease) increase in cash and cash equivalents		(103,270	)		45,481
Cash and cash equivalents at beginning of period		398,642			156,168
Cash and cash equivalents at end of period	$	295,372		$	201,649
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	24,551		$	24,760
Income taxes		3,010			1,883
Change in unrealized gains on securities available-for-sale, net of taxes		4,703			4,940
Pension liability adjustment, net of taxes		366			369
Due to broker		765			25,000

See accompanying notes to unaudited consolidated interim financial statements.

Page 7 of 36

Century Bancorp, Inc.

Notes to Unaudited Consolidated Interim Financial Statements
Three and Nine Months Ended September 30, 2010 and 2009

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”); and Century Subsidiary Investments, Inc. III (“CSII III”). CSII, CSII II, CSII III are engaged in buying, selling and holding investment securities. The Company also owns 100% of Century Bancorp Capital Trust II (“CBCT II”). The entity is an unconsolidated subsidiary of the Company.

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

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and to 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 Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, 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 associated with the loans. 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.

Whenever necessary prior period amounts were reclassified to conform with the current period presentation.

Page 8 of 36

Note 2. Recent Market Developments

The financial services industry is facing unprecedented challenges in the face of the current national and global economic crisis. The global and U.S. economies are experiencing significantly reduced business activity. Dramatic declines in the housing market during the past two years, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative securities, have caused many financial institutions to seek additional capital; to merge with larger and stronger institutions; and, in some cases, to fail. The Company is fortunate that the markets it serves have been impacted to a lesser extent than many areas around the country.

In response to the financial crises affecting the banking system and financial markets, there have been several announcements of federal programs designed to purchase assets from, provide equity capital to, and guarantee the liquidity of the industry.

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the “EESA”) was signed into law. The EESA authorizes the U.S. Treasury to, among other things, purchase up to $750 billion of mortgages, mortgage-backed securities, and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. The Company does not expect to participate in the sale of any of our assets into these programs.

On October 14, 2008, the U.S. Treasury announced that it would purchase equity stakes in a wide variety of banks and thrifts. Under this program, known as the Troubled Assets Relief Program Capital Purchase Program (the “TARP Capital Purchase Program”), the U.S. Treasury made $250 billion of capital available (from the $750 billion authorized by the EESA) to U.S. financial institutions in the form of preferred stock. In conjunction with the purchase of preferred stock, the U.S. Treasury received warrants to purchase common stock with an aggregate market price equal to 15% of the preferred investment. Participating financial institutions were required to adopt the U. S. Treasury’s standards for executive compensation, dividend restrictions and corporate governance for the period during which the Treasury holds equity issued under the TARP Capital Purchase Program. The U.S. Treasury also announced that nine large financial institutions had already agreed to participate in the TARP Capital Purchase Program. Subsequently, a number of smaller institutions had participated in the TARP Capital Purchase Program. On December 18, 2008, the Company announced in a press release, it had received preliminary approval from the U.S. Treasury to participate in the TARP Capital Purchase Program, in an amount up to $30 million in the form of Century Bancorp, Inc. preferred stock and warrants to purchase Class A common stock. In light of uncertainty surrounding additional restrictions that may be imposed on participants under pending legislation, the Company, on January 14, 2009, informed the U.S. Treasury that it would not be closing on the transaction on January 16, 2009, as originally scheduled. The Company subsequently withdrew its application.

On October 14, 2008, the U.S. Treasury and the FDIC jointly announced a new program, known as the Temporary Liquidity Guarantee Program (“TLGP”), to strengthen confidence and encourage liquidity in the nation’s banking system. The TLGP consists of two programs: the Debt Guarantee Program (“DGP”) and the Transaction Account Guarantee Program (“TAGP”). Under the DGP, as amended, the FDIC will guarantee certain newly issued senior unsecured debt of participating banks, thrifts and certain holding companies issued from October 14, 2008 through October 31, 2009, which debt matures on or prior to December 31, 2012, up to a fixed maximum amount per participant. In addition, under the TAGP, the FDIC will fully guarantee deposits in noninterest bearing transaction accounts without dollar limitation through December 31, 2009. Institutions opting to participate in the DGP will be charged a 50-, 75- or 100-

Page 9 of 36

basis point fee (depending on maturity) for the guarantee of eligible debt, and a 10-basis point assessment will be applicable to deposits in noninterest bearing transaction accounts at institutions participating in the TAGP that exceed the existing deposit insurance limit of $250,000. The Company opted to participate in both the DGP and the TAGP. The annual assessment rate that will apply during the extension period will be either 15, 20 or 25 basis points, depending on the risk category assigned to the institution under the FDIC’s risk-based premium system. On April 13, 2010 the FDIC approved an interim rule to extend the TAGP to December 31, 2010. The Company will continue to participate in the TAGP through December 31, 2010. The interim rule gives the FDIC discretion to extend the program to the end of 2011, without additional rulemaking, if it determines that economic conditions warrant such an extension.

On May 22, 2009, the FDIC announced a special assessment on insured institutions as part of its efforts to rebuild the Deposit Insurance Fund and help maintain public confidence in the banking system. The special assessment is five basis points of each FDIC-insured depository institution’s assets minus Tier 1 capital, as of June 30, 2009. The Company recorded a pre-tax charge of approximately $1.0 million in the second quarter of 2009 in connection with the special assessment.

On September 29, 2009, the FDIC adopted a Notice of Proposed Rulemaking (NPR) that would require insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC Board voted to adopt a uniform three-basis point increase in assessment rates effective on January 1, 2011, and extend the restoration period from seven to eight years. This rule was finalized on November 2, 2009. As a result, the Company is carrying a prepaid asset of $6.8 million as of September 30, 2010. The Company’s quarterly risk-based deposit insurance assessments will be paid from this amount until the amount is exhausted or until December 30, 2014, when any amount remaining would be returned to the Company.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act became law. The Act was intended to address many issues arising in the recent financial crisis and is exceedingly broad in scope affecting many aspects of bank and financial market regulation. The Act requires, or permits by implementing regulation, enhanced prudential standards for banks and bank holding companies inclusive of capital, leverage, liquidity, concentration and exposure measures. In addition, traditional bank regulatory principles such as restrictions on transactions with affiliates and insiders were enhanced. The Act also contains reforms of consumer mortgage lending practices and creates a Bureau of Consumer Financial Protection which is granted broad authority over consumer financial practices of banks and others. It is expected as the specific new or incremental requirements applicable to the company become effective that the costs and difficulties of remaining compliant with all such requirements will increase. The Dodd-Frank Wall Street Reform and Consumer Protection Act also permanently raises the current standard maximum FDIC deposit insurance amount to $250,000.

Page 10 of 36

Note 3. Stock Option Accounting

Stock option activity under the Company’s stock option plan for the nine months ended September 30, 2010 is as follows:

				Weighted
				Average
	Amount			Exercise Price
Shares under option:
Outstanding at beginning of year		68,637		$	26.09
Exercised		(6,500	)		15.06
Cancelled		(19,975	)		27.18
Outstanding at end of period		42,162		$	27.27
Exercisable at end of period		42,162		$	27.27
Available to be granted at end of period		222,884

On September 30, 2010, the outstanding options to purchase 42,162 shares of Class A common stock have exercise prices between $15.06 and $35.01, with a weighted average exercise price of $27.27 and a weighted average remaining contractual life of 2.8 years. The intrinsic value of options exercisable at September 30, 2010 had an aggregate value of $46,460. The intrinsic value of options exercised at September 30, 2010 had an aggregate value of $41,236.

The Company uses the fair value method to account for stock options. All of the Company’s stock options are vested and there were no options granted during the first nine months of 2010.

Note 4. Securities Available-for-Sale

	September 30, 2010								December 31, 2009
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
	( In thousands)
U.S. Treasury	$	1,999	$	9	$	—	$	2,008	$	1,998	$	5	$	—	$	2,003
U.S. Government Sponsored Enterprises		208,252		696		8		208,940		192,942		374		952		192,364
Small Business Administration		9,855		13		—		9,568		—		—		—		—
U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities		551,623		13,739		203		565,159		410,181		8,855		524		418,512
Privately Issued Residential Mortgage Backed Securities		4,506		—		221		4,285		5,383		—		473		4,910
Privately Issued Commercial Mortgage Backed Securities		323		4		—		327		537		7		—		544
Obligations Issued by States and Political Subdivisions		36,478		131		283		36,326		26,627		130		468		26,289
Other Debt Securities		2,300		—		31		2,269		2,300		—		41		2,259
Equity Securities		1,088		669		—		1,757		1,042		71		198		915
Total	$	816,424	$	15,261	$	746	$	830,939	$	641,010	$	9,442	$	2,656	$	647,796

Included in U.S. Government Sponsored Enterprise Securities and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities are securities at fair value pledged to secure public deposits and repurchase agreements amounting to $309,300,000 and $322,064,000 at September 30, 2010 and December 31, 2009, respectively. Also included in securities available-for-sale are securities pledged for borrowing at the Federal Home Loan Bank amounting to $143,845,000 and $172,497,000 at September 30, 2010 and December 31, 2009, respectively. The Company realized gross gains of $1,027,000 from the proceeds of $34,625,000 from the sales of available-for-sale

Page 11 of 36

securities for the nine months ended September 30, 2010. The Company realized gross gains of $1,115,000 from the proceeds of $46,044,000 from the sales of available-for-sale securities for the nine months ended September 30, 2009.

The following table shows the maturity distribution of the Company’s securities available-for-sale at September 30, 2010.

	Amortized		Fair
	Cost		Value
	( In thousands)
Within one year	$	58,962	$	59,953
After one but within five years		663,442		675,856
After five but within ten years		73,139		73,905
More than 10 years		18,193		17,998
Non-maturing		2,688		3,227
Total	$	816,424	$	830,939

The weighted average remaining life of investment securities available-for-sale at September 30, 2010 was 3.5 years. Included in the weighted average remaining life calculation at September 30, 2010 was $202,315,000 of U.S. Government Sponsored Enterprise obligations that are callable at the discretion of the issuer. These call dates were not utilized in computing the weighted average remaining life. The contractual maturities, which were used in the table above, of mortgage-backed securities will differ from the actual maturities, due to the ability of the issuers to prepay underlying obligations.

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at September 30, 2010. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and longer. There are 8 and 6 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 289 holdings at September 30, 2010.

	September 30, 2010
	Less than 12 months				12 months or longer				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Temporarily Impaired Investments*	(In thousands)
U.S. Government Sponsored Enterprises	$	19,988	$	8	$	—	$	—	$	19,988	$	8
U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities		14,583		203		—		—		14,583		203
Privately Issued Residential Mortgage Backed Securities		1,597		40		2,687		181		4,284		221
Obligations Issued by States and Political Subdivisions		150		1		4,393		282		4,543		283
Other Debt Securities		99		1		1,470		30		1,569		31
Total temporarily impaired securities	$	36,417	$	253	$	8,550	$	493	$	44,967	$	746

* At September 30, 2010, the Company does not intend to sell any of its debt securities and it is not likely that it will be required to sell the debt securities before the anticipated recovery of their remaining amortized cost. The unrealized losses on Obligations Issued by States and Political Subdivisions were considered by management to be temporary in nature. Full collection of those debt securities is expected because the financial condition of the obligors is considered to be sound, there has been no default in scheduled payment and the debt securities are rated investment grade. The unrealized loss on U.S. Government Sponsored Enterprises and U.S. Government Sponsored Enterprises Mortgage Backed Securities related primarily to interest rates and not credit quality and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2010.

As of September 30, 2010, management has concluded that the unrealized losses of its investment securities are temporary in nature since they are not related to the

Page 12 of 36

underlying credit quality of the issuers, and the Company does not intend to sell any of its debt securities with unrealized losses and it is not likely that it will be required to sell the debt securities before the anticipated recovery of their remaining amortized cost. In making its other-than-temporary impairment evaluation, the Company considered the fact that the principal and interest on these securities are from issuers that are investment grade. The change in the unrealized losses on the state and municipal securities and the nonagency mortgage-backed securities were primarily caused by changes in credit spreads and liquidity issues in the marketplace.

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’s available-for-sale portfolio at December 31, 2009. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and longer. There are 41 and 17 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 287 holdings at December 31, 2009. The Company believes that the investments are temporarily impaired.

	December 31, 2009
	Less than 12 months				12 months or longer				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Temporarily Impaired Investments*	(In thousands)
U.S. Government Sponsored Enterprises	$	127,259	$	952	$	—	$	—	$	127,259	$	952
U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities		51,903		428		11,752		96		63,655		524
Privately Issued Residential Mortgage Backed Securities		—		—		4,910		473		4,910		473
Obligations Issued by States and Political Subdivisions		3,427		187		4,393		281		7,820		468
Other Debt Securities		—		—		1,459		41		1,459		41
Equity Securities		—		—		495		198		495		198
Total temporarily impaired securities	$	182,589	$	1,567	$	23,009	$	1,089	$	205,598	$	2,656

* At December 31, 2009, the Company does not intend to sell any of its debt securities and it is not likely that it will be required to sell the debt securities before the anticipated recovery of their remaining amortized cost. The unrealized losses on Obligations Issued by States and Political Subdivisions were considered by management to be temporary in nature. Full collection of those debt securities is expected because the financial condition of the obligors is considered to be sound, there has been no default in scheduled payment and the debt securities are rated investment grade. The unrealized loss on U.S. Government Sponsored Enterprises and U.S. Government Sponsored Enterprises Mortgage Backed Securities related primarily to interest rates and not credit quality and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2009.

Page 13 of 36

Note 5. Investment Securities Held-to-Maturity

			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
	(In thousands)
	September 30, 2010								December 31, 2009
U.S. Government Sponsored Enterprises	$	79,548	$	541	$	—	$	80,089	$	69,555	$	36	$	707	$	68,884
U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities		148,678		6,259		—		154,937		148,088		4,490		49		152,529
Total	$	228,226	$	6,800	$	—	$	235,026	$	217,643	$	4,526	$	756	$	221,413

Included in U.S. Government and Agency Securities are securities pledged to secure public deposits and repurchase agreements at fair value amounting to $19,919,000 and $9,036,000 at September 30, 2010 and December 31, 2009, respectively. Also included are securities pledged for borrowing at the Federal Home Loan Bank at fair value amounting to $86,211,000 and $83,693,000 at September 30, 2010 and December 31, 2009, respectively.

At September 30, 2010 and December 31, 2009, all mortgage-backed securities are obligations of U.S. Government Agencies and Government Sponsored Enterprises. Government Sponsored Enterprises primarily refer to debt securities of Fannie Mae and Freddie Mac.

The following table shows the maturity distribution of the Company’s securities held-to-maturity at September 30, 2010.

	Amortized		Fair
	Cost		Value
	( In thousands)
Within one year	$	10,207	$	10,467
After one but within five years		147,859		153,911
After five but within ten years		69,864		70,339
More than ten years		296		309
Total	$	228,226	$	235,026

The weighted average remaining life of investment securities held-to-maturity at September 30, 2010 was 4.1 years. Included in the weighted average remaining life calculation at September 30, 2010 were $79,548,000 of U.S. Government Sponsored Enterprises obligations that are callable at the discretion of the issuer. The actual maturities, which were used in the table above, of mortgage-backed securities, will differ from the contractual maturities, due to the ability of the issuers to prepay underlying obligations.

There are no unrealized losses in investment securities held-to-maturity at September 30, 2010.

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at December 31, 2009. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and longer. There are 12 and 0 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 94 holdings at December 31, 2009.

Page 14 of 36

	December 31, 2009
	Less Than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized				Unrealized
Temporarily Impaired Investments*	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
					( In thousands)
U.S. Government Sponsored Enterprises	$	49,848	$	707	$	—	$	—	$	49,848	$	707
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		11,152		49		—		—		11,152		49
Total temporarily impaired securities	$	61,000	$	756	$	—	$	—	$	61,000	$	756

* The unrealized loss on U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities related primarily to interest rates and not credit quality and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2009.

Note 6. 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. Individual life insurance policies, which are owned by the Company, are purchased covering the lives of each participant.

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

							Supplemental Insurance/
	Pension Benefits						Retirement Plan
	2010			2009			2010		2009
				(In thousands)
Service cost	$	213		$	196		$	147	$	113
Interest		333			308			207		233
Expected return on plan assets		(342	)		(281	)		—		—
Recognized prior service cost (benefit)		(26	)		(29	)		28		27
Recognized net actuarial losses		159			171			17		35
Net periodic benefit cost	$	337		$	365		$	399	$	408

Page 15 of 36

Components of Net Periodic Benefit Cost for the Nine Months Ended September 30,

							Supplemental Insurance/
	Pension Benefits						Retirement Plan
	2010			2009			2010		2009
				(In thousands)
Service cost	$	638		$	588		$	441	$	339
Interest		1,000			924			673		699
Expected return on plan assets		(1,025	)		(843	)		—		—
Recognized prior service cost (benefit)		(78	)		(87	)		83		81
Recognized net actuarial losses		476			514			103		106
Net periodic benefit cost	$	1,011		$	1,096		$	1,300	$	1,225

Contributions

The Company previously disclosed in its financial statements for the year ended December 31, 2009 that it expected to contribute $1,275,000 to the Pension Plan in 2010. As of September 30, 2010, $956,250 of the contribution had been made. The Company expects to contribute an additional $318,750 by the end of the year.

Note 7. Fair Value Measurements

The Company follows FASB ASC 820-10,Fair Value Measurements and Disclosures, (formerly SFAS 157, “Fair Value Measurements,”) which among other things, requires enhanced disclosures about assets and liabilities carried at fair value. ASC 820-10 establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value. The three broad levels of the hierarchy are as follows:

Level I – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The type of financial instruments included in Level I are highly liquid cash instruments with quoted prices such as G-7 government, agency securities, listed equities and money market securities, as well as listed derivative instruments.

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

Level III – Instruments that have little to no pricing observability as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. Instruments that are included in this category generally include certain commercial mortgage loans, certain private equity investments, distressed debt, non-investment grade residual interests in securitizations, as well as certain highly structured OTC derivative contracts.

Page 16 of 36

The results of the fair value hierarchy as of September 30, 2010 are as follows:

Financial Instruments Measured at Fair Value on a Recurring Basis:

	Securities AFS Fair Value Measurements Using
			Quoted Prices
			In Active				Significant
			Markets for		Significant		Other
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Carrying Value		(Level 1)		(Level 2)		(Level 3)
			(In thousands)
U.S. Treasury	$	2,008	$	—	$	2,008	$	—
U.S. Government Sponsored Enterprises		208,940		—		208,940		—
SBA Backed Securities		9,868		—		9,868		—
U.S. Government Agency and Sponsored Mortgage Backed Securities		565,159		—		565,159		—
Privately Issued Residential Mortgage Backed Securities		4,285		—		4,285		—
Privately Issued Commercial Mortgage Backed Securities		327		—		327		—
Obligations Issued by States and Political Subdivisions		36,326		—		16,446		19,880
Other Debt Securities		2,269		—		2,269		—
Equity Securities		1,757		1,478		—		279
Total	$	830,939	$	1,478	$	809,302	$	20,159

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

Impaired Loans 5,781 — — 5,781

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. Specific provisions relate to impaired loans recognized for the three and nine-month periods ended September 30, 2010 amounted to $200,000 and $1.9 million, respectively. The Company uses appraisals, discounted as appropriate, based on management’s observations of the local real estate market for loans in this category. There were no transfers of financial instruments to or from Level 1 and Level 2 classifications.

The changes in Level 3 securities for the nine-month period ended September 30, 2010 are shown in the table below:

				Obligations Issued
				by States &
	Auction Rate			Political			Equity
	Securities			Subdivisions			Securities			Total
				(In thousands)
Balance at December 31, 2009	$	7,820		$	5,623		$	234		$	13,677
Purchases		—			21,037			64			21,101
Maturities and calls		(3,427	)		(11,173	)		(19	)		(14,619	)
Balance at September 30, 2010	$	4,393		$	15,487		$	279		$	20,159

The amortized cost of Level 3 securities was $20.4 million with an unrealized loss of $283,000. The securities in this category are generally equity investments, municipal

Page 17 of 36

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.

The changes in Level 3 securities for the nine-month period ended September 30, 2009, are shown in the table below:

				Obligations Issued by
	Auction Rate			States & Political			Equity
	Securities			Subdivisions			Securities		Total
				(In thousands)
Balance at December 31, 2008	$	—		$	3,300		$	170	$	3,470
Purchases		—	��		5,838			64		5,902
Maturities		(5,000	)		(3,467	)		—		(8,467	)
Reclassification		21,061			—			—		21,061
Changes in fair value		(661	)		—			—		(661	)
Balance at September 30, 2009	$	15,400		$	5,671		$	234	$	21,305

There was a $21.1 million reclassification of failed auction rate securities to Level 3 during the first quarter of 2009 due to the lack of an active market. The amortized cost of Level 3 securities was $24.2 million with an unrealized loss of $2.9 million. The securities in this category are generally equity investments, municipal securities with no readily determinable fair value or failed auction rate securities. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity.

Note 8. Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating fair values of its financial instruments. Excluded from this disclosure are all nonfinancial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Cash and Cash Equivalents

The carrying amounts reported in the balance sheet for cash and cash equivalents approximate the fair values of these assets because of the short-term nature of these financial instruments.

Short-term Investments

The fair value of short-term investments is estimated using the discounted value of contractual cash flows. The discount rate used is estimated based on the rates currently offered for short-term investments of similar remaining maturities.

Securities Held-to-Maturity and Securities Available-for-Sale

The majority of the Company’s securities AFS are classified as Level 2. The fair values of these securities are obtained from a pricing service, which provides the Company with a description of the inputs generally utilized for each type of security. These inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. Market indicators and industry and economic events are also monitored.

Securities available-for-sale totaling $20.2 million, or 0.83% of assets are classified as Level 3. These securities are generally failed auction rate securities, equity investments

Page 18 of 36

or obligations of states and political subdivisions with no readily determinable fair value. Failed auction rate securities were reclassified from Level 2 to Level 3 at the end of the first quarter of 2009 due to the lack of an active market. Level 3 securities have little or no pricing observability as of the reported date. Fair values for Level 3 securities are generally arrived at based upon a review of market trades of similar instruments, if any, as well as an analysis of the security based upon an evaluation of the underlying issuer, market liquidity and prevailing market interest rates.

Loans

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

Accrued Interest Receivable and Payable

The carrying amounts for accrued interest receivable and payable approximate fair values because of the short-term nature of these financial instruments.

Deposits

The fair value of deposits, with no stated maturity, is equal to the carrying amount. The fair value of time deposits is based on the discounted value of contractual cash flows, applying interest rates currently being offered on the deposit products of similar maturities. The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of alternative forms of funding (“deposit base intangibles”).

Repurchase Agreements and Other Borrowed Funds

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

Subordinated Debentures

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

Off-Balance Sheets Instruments

The fair values of the Company’s unused lines of credit and unadvanced portions of construction loans, commitments to originate and sell loans and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

Page 19 of 36

The carrying amounts and fair values of the Company’s financial instruments are as follows:

	September 30, 2010				December 31, 2009
	Carrying				Carrying
	Amounts		Fair Value		Amounts		Fair Value
			(In thousands)
Financial assets:
Cash and cash equivalents	$	295,372	$	295,372	$	398,642	$	398,642
Short-term investments		123,890		123,890		18,518		18,665
Securities available-for-sale		830,939		830,939		647,796		647,796
Securities held-to-maturity		228,226		235,026		217,643		221,413
Net loans		850,009		888,605		864,752		876,197
Accrued interest receivable		6,045		6,045		5,806		5,806
Financial liabilities:
Deposits		1,882,847		1,889,383		1,701,987		1,706,271
Repurchase agreement and other borrowed funds		338,911		352,363		352,769		359,989
Subordinated debentures		36,083		41,036		36,083		36,136
Accrued interest payable		951		951		1,116		1,116
Standby letters of credit		—		55		—		93

Limitations

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

Note 9. Recent Accounting Developments

FASB ASC 860,Transfers and Servicing(formerly Statement of Financial Accounting Standards No.166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140”). In June 2009, the FASB issued FASB ASC 860. FASB ASC 860 was issued to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Specifically to address: (1) practices that have developed since the issuance of FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” that are not consistent with the original intent and key requirements of that Statement and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements

Page 20 of 36

of transferors. This Statement must be applied to transfers occurring on or after the effective date. Additionally, on or after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. FASB ASC 860 must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter with early application prohibited. The adoption of this Statement did not have a material effect on the Company’s financial statements at the date of adoption, January 1, 2010.

FASB ASC 810,Consolidation(formerly Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R)”). In June 2009, the FASB issued FASB ASC 810. FASB ASC 810 was issued to improve financial reporting by enterprises involved with variable interest entities, specifically to address: (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” as a result of the elimination of the qualifying special-purpose entity concept in FASB ASC 860 and (2) constituent concerns about the application of certain key provisions of FASB ASC 860, including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. FASB ASC 810 must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter with early application prohibited. The adoption of this Statement did not have a material effect on the Company’s financial statements at the date of adoption, January 1, 2010.

In January 2010, the FASB issued an amendment to the Fair Value Measurements and Disclosures topic of the ASC. This amendment requires disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This amendment is effective for periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements, which will be effective for fiscal years beginning after December 15, 2010. The adoption of this Statement did not have a material effect on the Company’s financial statements at the date of adoption, January 1, 2010.

In July, 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-20,“Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses .”This Statement will significantly increase disclosures that entities must make about the credit quality of financing receivables and the allowance for credit losses. The Statement will require reporting entities to make new disclosures about (a) the nature of credit risk inherent in the entity’s portfolio of financing receivables (loans), (b) how that risk is analyzed and assessed in determining the allowance for credit (loan) losses and (c) the reasons for changes in the allowance for credit losses.

The Statement will require disclosures related to the allowance for credit losses on a “portfolio segment” basis instead of on an aggregate basis. “Portfolio segment” is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. The Statement also establishes the concept of a “class of financing receivables”. A class is generally a disaggregation of a portfolio segment. The Statement requires numerous disclosures at the class level including (a) delinquency and nonaccrual information and related significant accounting policies, (b) impaired financing receivables and related significant accounting policies, (c) a description of credit quality indicators used to

Page 21 of 36

monitor credit risk and (d) modifications of financing receivables that meet the definition of a troubled debt restructuring. The Statement will expand disclosure requirements to include all financing receivables that are individually evaluated for impairment and determined to be impaired, and require the disclosures at the class level.

Entities will be required to disclose the activity within the allowance for credit losses, including the beginning and ending balance of the allowance for each portfolio segment, as well as current-period provisions for credit losses, direct write-downs charged against the allowance and recoveries of any amounts previously written off. Entities will also be required to disclose the effect on the provision for credit losses due to changes in accounting policies or methodologies from prior periods.

Public entities will need to provide disclosures related to period-end information (e.g., credit quality information and the ending financing receivables balance segregated by impairment method) in all interim and annual reporting periods ending on or after December 15, 2010. Disclosures of activity that occurs during a reporting period (e.g., modifications and the rollforward of the allowance for credit losses by portfolio segment) are required in interim and annual periods beginning on or after December 15, 2010. As this Statement amends only the disclosure requirements for loans and the allowance, adoption will have no impact on the Company’s financial statements.

Item 2. 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. The Company had total assets of approximately $2.4 billion as of September 30, 2010. The Company presently operates 23 banking offices in 17 cities and towns in Massachusetts ranging from Braintree in the south to Beverly in the north. The Bank’s customers consist primarily of small and medium-sized businesses and retail customers in these communities and surrounding areas, as well as local governments and institutions throughout Massachusetts.

During October 2008, the Company received regulatory approval to close a branch on Albany Street in Boston, Massachusetts. This branch closed in January 2009.

During August 2009, the Company entered into a lease agreement to open a branch located at Coolidge Corner in Brookline, Massachusetts. The branch opened on April 27, 2010.

During July 2010, the Company entered into a lease agreement to open a branch located at Newton Centre in Newton, Massachusetts. The branch is scheduled to open during the first half of 2011.

During September 2010, the Company entered into a lease agreement to open a branch located in Andover, Massachusetts. The branch is scheduled to open during the fourth quarter of 2011.

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

Page 22 of 36

provision for loan losses, the impact of federal and state income taxes and the relative levels of interest rates and economic activity.

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

The Company is also a provider of financial services, including cash management, transaction processing and short term financing to municipalities in Massachusetts and Rhode Island. The Company has deposit relationships with approximately 50% of the 351 cities and towns in Massachusetts.

Earnings for the third quarter ended September 30, 2010 were $3,267,000, or $0.59 per share diluted, compared to net income of $3,182,000, or $0.58 per share diluted, for the third quarter ended September 30, 2009. For the first nine months of 2010, net income totaled $9,650,000, or $1.74 per share diluted, compared to net income of $7,075,000, or $1.28 per share diluted, for the same period a year ago.

Net interest income totaled $38.5 million for the first nine months of 2010 compared to $35.4 million for 2009. The 8.5% increase in net interest income for the period is mainly due to a 20.7% increase in the average balances of earning assets, combined with a similar increase in deposits. The increased volume was partially offset by a decrease of seventeen basis points in the net interest margin. The net interest margin decreased from 2.68% on a fully taxable equivalent basis in 2009 to 2.51% on the same basis for 2010.

Throughout 2008, the Company had seen improvement in its net interest margin; however, the first quarter of 2009 reflected a decrease in the net interest margin with a modest increase during the second quarter and third quarter of 2009 followed by a general decline through the third quarter of 2010 as illustrated in the graph below:

     

The primary factors accounting for the increase in the net interest margin for 2008 are:

• a continuing decline in the cost of funds as a result of increased pricing discipline related to deposits,

• an increase in average loans outstanding during 2008,

• the maturity of lower-yielding investment securities,

Page 23 of 36

• an increase in the slope of the yield curve,

• an increase in investment yields due, in part, to taking advantage of elevated yields in the municipal auction rate securities market, particularly in the third quarter of 2008.

The primary factor accounting for the general decrease in the net interest margin during 2009 and 2010 was a large influx of deposits, primarily from municipalities, and a corresponding increase in short-term investments.

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.

For the three months ended September 30, 2010, the loan loss provision was $1.2 million compared to a provision of $1.3 million for the same period last year for a decrease of $50,000. The decrease in the provision was due to reduced allocations related to impaired loans. During the third quarter of 2009 provisions were made for two impaired loans that were subsequently charged off during the fourth quarter of 2009. The provision for loan losses was $4.2 million for both of the nine month periods. The $75,000 increase was primarily the result of additional allocations related to impaired loans. Nonperforming loans decreased to $9.5 million at September 30, 2010 from $17.0 million on September 30, 2009. This was primarily the result of charge-offs of loans that occurred during the fourth quarter of 2009 as well as resolutions of loans made throughout the period.

The Company capitalized on favorable market conditions for the nine months ended September 30, 2010 and realized net gains on sales of investments of $1.0 million, compared to $1.1 million for the same period in 2009. Included in operating expenses for the third quarter and first nine months of 2010 are FDIC assessments of $785,000 and $2.2 million, respectively, as compared to $638,000 and $2.8 million for the same periods in 2009. FDIC assessments decreased primarily as a result of the special assessment charge of approximately $1.0 million during the second quarter of 2009. This was offset, somewhat, by an increase in assessment rate as well as an increase in the deposit base during 2010.

For the third quarter of 2010, the Company’s effective income tax was 6.3% compared to 11.5% for last year’s corresponding quarter. For the first nine months of 2010, the Company’s effective income tax was 8.3% compared to 10.7% for last year’s corresponding period. The effective income tax rate decreased primarily as a result of increased levels of tax-exempt income.

Financial Condition

Loans

On September 30, 2010, total loans outstanding, net, were $863.8 million, a decrease of 1.5% from the total on December 31, 2009. At September 30, 2010, commercial real estate loans accounted for 44.4% and residential real estate loans, including home equity loans, accounted for 36.7% of total loans.

Commercial and industrial loans decreased to $102.4 million at September 30, 2010, from $141.1 million on December 31, 2009, primarily as a result of loan payoffs. Construction loans decreased to $54.2 million at September 30, 2010 from $60.3 million on December 31, 2009, primarily as a result of loan payoffs.

Page 24 of 36

Allowance for Loan Losses

The allowance for loan loss at September 30, 2010 was $13.8 million as compared to $12.4 million at December 31, 2009. This increase was due to quantitative and qualitative factors associated with the loan loss reserve requirement. Also, the level of the allowance for loan losses to total loans increased from 1.41% at December 31, 2009 to 1.60% at September 30, 2010. In evaluating the allowance for loan losses the Company considered the following categories to be higher risk:

• Construction loans: The outstanding loan balance of construction loans at September 30, 2010 is $54.2 million. A major factor in nonaccrual loans is two large construction loans. Based on this fact, and the general local conditions facing construction, management closely monitors all construction loans and considers this type of loans to be higher risk.

• Higher balance loans: Loans greater than $1.0 million are considered “high balance loans”. The balance of these loans is $306.3 million at September 30, 2010. These loans are considered higher risk due to the concentration in individual loans. Additional allowance allocations are made based upon the level of high balance loans. Included in high balance loans are loans greater than $10.0 million. The balance of these loans is $86.5 million at September 30, 2010. Additional allowance allocations are made based upon the level of this type of high balance loans that is separate and greater than the $1.0 million allocation.

• Small business loans: The outstanding loan balances of small business loans is $46.7 million at September 30, 2010. These are considered higher risk loans because small businesses have been negatively impacted by the current economic conditions. In a liquidation scenario, the collateral, if any, is often not sufficient to fully recover the outstanding balance of the loan. As a result, the Company often seeks additional collateral prior to renewing maturing small business loans. In addition, the payment status of the loans is monitored closely in order to initiate collection efforts in a timely fashion.

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
	(In thousands)
Allowance for loan losses, beginning of period	$	14,350		$	13,364		$	12,373		$	11,119
Loans charged off		(1,891	)		(496	)		(3,174	)		(1,511	)
Recoveries on loans previously charged-off		168			98			403			458
Net charge-offs		(1,723	)		(398	)		(2,771	)		(1,053	)
Provision charged to expense		1,200			1,250			4,225			4,150
Allowance for loan losses, end of period	$	13,827		$	14,216		$	13,827		$	14,216

Due to current economic conditions, 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.

Page 25 of 36

Nonperforming Assets

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

	September 30, 2010			December 31, 2009
	(Dollars in thousands)
Nonaccruing loans	$	9,472		$	12,311
Loans past due 90 days or more and still accruing	$	130		$	—
Other real estate owned	$	379		$	—
Nonaccruing loans as a percentage of total loans		1.10	%		1.40	%
Accruing troubled debt restructures	$	1,252		$	521

Cash and Cash Equivalents

Cash and cash equivalents remained relatively stable during the third quarter of 2010.

Short-term Investments

Short-term investments increased mainly as a result of increases in interest bearing deposits. Interest bearing deposits increased mainly because of increases in savings and NOW deposits and time deposits. The increase was primarily from deposits from municipalities.

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.

Securities Available-for-Sale (at Fair Value)

	September 30, 2010		December 31, 2009
	(In thousands)
U.S Treasury	$	2,008	$	2,003
U.S. Government Sponsored Enterprises		208,940		192,364
Small Business Administration		9,868		—
U.S. Government Agency and Sponsored Enterprise Mortgage-backed Securities		565,159		418,512
Privately Issued Residential Mortgage-backed Securities		4,285		4,910
Privately Issued Commercial Mortgage-backed Securities		327		544
Obligations issued by States and Political Subdivisions		36,326		26,289
Other Debt Securities		2,269		2,259
Equity Securities		1,757		915
Total Securities Available-for-Sale	$	830,939	$	647,796

Page 26 of 36

During the first nine months of 2010 the Company capitalized on favorable market conditions and realized $1,027,000 of gains on sales of investments. The sales of investments represented seven U.S. Government Sponsored Enterprise bonds totaling $34.6 million.

Debt securities of Government Sponsored Enterprises primarily refer to debt securities of Fannie Mae and Freddie Mac. Control of these enterprises was directly taken over by the U.S. Government in the 3^rd quarter of 2008.

Securities Held-to-Maturity (at Amortized Cost)

	September 30, 2010		December 31, 2009
	(In thousands)
U.S. Government Sponsored Enterprises	$	79,548	$	69,555
U.S. Government Agency and Sponsored Enterprise Mortgage-backed Securities		148,678		148,088
Obligations Issued by States and Political Subdivisions		—		—
Total Securities Held-to-Maturity	$	228,226	$	217,643

At September 30, 2010 and December 31, 2009, 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.

Securities Available-for-Sale

The securities available-for-sale portfolio totaled $830.9 million at September 30, 2010, an increase of 28.3% from December 31, 2009. Purchases of securities available-for-sale totaled $698.4 million for the nine months ended September 30, 2010. 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 3.5 years.

The majority of the Company’s securities AFS are classified as Level 2. The fair values of these securities are obtained from a pricing service, which provides the Company with a description of the inputs generally utilized for each type of security. These inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. Market indicators and industry and economic events are also monitored.

Securities available-for-sale totaling $20.2 million, or 0.83% of assets are classified as Level 3. These securities are generally failed auction rate securities, equity investments or obligations of states and political subdivisions with no readily determinable fair value. Failed auction rate securities were reclassified to level 3 during the first quarter of 2009 due to the lack of an active market. Fair values for Level 3 securities are generally arrived at based upon a review of market trades of similar instruments, if any, as well as an analysis of the security based upon market liquidity and prevailing market interest rates.

Securities Held-to-Maturity

The securities held-to-maturity portfolio totaled $228.2 million on September 30, 2010, a increase of 4.9% from the total on December 31, 2009. The portfolio is

Page 27 of 36

concentrated in United States Government Sponsored Enterprises and Mortgage-backed Securities and had an estimated weighted average remaining life of 4.1 years.

Federal Home Loan Bank of Boston Stock

The Company owns Federal Home Loan Bank of Boston (“FHLBB”) stock which is considered a restricted equity security. As a voluntary member of the FHLBB, the Company is required to invest in stock of the FHLBB in an amount equal to 4.5% of its outstanding advances from the FHLBB. Stock is purchased at par value. As and when such stock is redeemed, the Company would receive from the FHLBB an amount equal to the par value of the stock. At its discretion, the FHLBB may declare dividends on the stock. On April 10, 2009, the FHLBB reiterated to its members that, while it currently meets all its regulatory capital requirements, it is focusing on preserving capital in response to ongoing market volatility, and accordingly, has suspended its quarterly dividend and has extended the moratorium on excess stock repurchases. It also announced that it had taken a write-down of $381.7 million in other-than-temporary impairment charges on its private-label mortgage-backed securities for the year ended December 31, 2008. This resulted in a net loss of $115.8 million. For the year ended December 31, 2009, the FHLBB reported a net loss of $186.8 million resulting from the recognition of $444.1 million of impairment losses which were recognized through income. For the first nine months of 2010, the FHLBB reported net income of $83.0 million. In the future, if additional unrealized losses are deemed to be other-than-temporary, the associated impairment charges could exceed the FHLBB’s current level of retained earnings and possibly put into question whether the fair value of the FHLBB stock owned by the Company is less than par value. The FHLBB has stated that it expects and intends to hold its private-label mortgage-backed securities to maturity. Despite these negative trends, the FHLBB exceeded the regulatory capital requirements promulgated by the Federal Home Loan Banks Act and the Federal Housing Financing Agency. The FHLBB has the capacity to issue additional debt if necessary to raise cash. If needed, the FHLBB also has the ability to secure funding available to U.S. Government Sponsored Enterprises through the U.S. Treasury. Based on the capital adequacy and the liquidity position of the FHLBB, management believes there is no other-than-temporary impairment related to the carrying amount of the Company’s FHLBB stock as of September 30, 2010. The Company will continue to monitor its investment in FHLBB stock.

Deposits and Borrowed Funds

On September 30, 2010, deposits totaled $1.89 billion, representing a 10.6% increase in total deposits from December 31, 2009. Total deposits increased primarily as a result of increases in savings and NOW and time deposits. Savings and NOW and time deposits increased as the Company continued to offer attractive rates for these types of deposits during the first nine months of the year. Borrowed funds totaled $338.9 million compared to $352.8 million at December 31, 2009. Borrowed funds remained relatively stable.

Stockholders’ Equity

At September 30, 2010, total equity was $145.9 million compared to $132.7 million at December 31, 2009. The Company’s equity increased as a result of earnings and a decrease in accumulated other comprehensive loss, net of taxes, offset somewhat by dividends paid. The Company’s leverage ratio stood at 7.13% at September 30, 2010, compared to 8.02% at September 30, 2009. This decline in the leverage ratio is due to an increase in assets, offset by an increase in stockholders’ equity. The Company’s Tier 1 capital-to-risk assets and total capital-to-risk assets stood at 14.95% and 16.13%, respectively, at September 30, 2010. Book value as of September 30, 2010 was $26.35 per share.

Page 28 of 36

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
	September 30, 2010									September 30, 2009
	( In thousands)
							Average									Average
	Average						Yield/			Average						Yield/
	Balance			Interest(1)			Rate			Balance			Interest(1)			Rate
ASSETS
Interest-earning assets:
Loans(2)	$	871,471		$	13,169			6.00	%	$	860,683		$	13,107			5.92	%
Securities available-for-sale(5):
Taxable		768,231			4,534			2.36			600,929			5,336			3.55
Tax-exempt		35,796			126			1.41			49,087			229			1.87
Securities held-to-maturity:
Taxable		210,984			1,645			3.12			185,998			1,927			4.14
Interest-bearing deposits in other banks		420,903			465			0.43			211,780			505			0.93
Total interest-earning assets		2,307,385			19,939			3.44	%		1,908,477			21,104			4.34	%
Non interest-earning assets		159,210									142,214
Allowance for loan losses		(13,920	)								(13,777	)
Total assets	$	2,452,675								$	2,036,914
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits:
NOW accounts	$	464,267		$	610			0.52	%	$	280,927		$	549			0.78	%
Savings accounts		275,797			330			0.47			264,902			590			0.88
Money market accounts		546,031			876			0.64			428,292			1,266			1.17
Time deposits		370,606			2,162			2.32			316,154			2,296			2.88
Total interest-bearing deposits		1,656,701			3,978			0.95			1,290,275			4,701			1.45
Securities sold under agreements to repurchase		122,028			116			0.38			89,568			99			0.44
Other borrowed funds and subordinated debentures		191,584			1,946			4.03			221,279			2,563			4.60
Total interest-bearing liabilities		1,970,313			6,040			1.22	%		1,601,122			7,363			1.83	%
Non interest-bearing liabilities
Demand deposits		305,912									276,300
Other liabilities		31,546									31,156
Total liabilities		2,307,771									1,908,578
Stockholders’ equity		144,904									128,336
Total liabilities & stockholders’ equity	$	2,452,675								$	2,036,914
Net interest income on a fully taxable equivalent basis					13,899									13,741
Less taxable equivalent adjustment					(1,311	)								(1,067	)
Net interest income				$	12,588								$	12,674
Net interest spread (3)								2.22	%								2.51	%
Net interest margin (4)								2.39	%								2.81	%

(1)	On a fully taxable equivalent basis calculated using a federal tax rate of 34%.
(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 securities available-for-sale calculated utilizing amortized cost.

Page 29 of 36

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 nine-month periods indicated.

	Nine Months Ended
				September 30, 2010									September 30, 2009
							( In thousands)
							Average									Average
	Average						Yield/			Average						Yield/
	Balance			Interest(1)			Rate			Balance			Interest(1)			Rate
ASSETS
Interest-earning assets:
Loans(2)	$	875,759		$	39,614			6.04	%	$	846,895		$	38,039			5.94	%
Securities available-for-sale(5):
Taxable		730,392			14,313			2.61			541,820			15,122			3.72
Tax-exempt		32,130			485			2.01			52,808			939			2.37
Securities held-to-maturity:
Taxable		219,137			5,501			3.35			201,484			6,330			4.19
Interest-bearing deposits in other banks		391,527			1,246			0.42			220,625			1,811			1.08
Total interest-earning assets		2,248,945			61,159			3.63	%		1,863,632			62,241			4.43	%
Non interest-earning assets		155,395									143,844
Allowance for loan losses		(13,545	)								(12,843	)
Total assets	$	2,390,795								$	1,994,633
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits:
NOW accounts	$	420,217		$	1,975			0.63	%	$	257,580		$	1,665			0.86	%
Savings accounts		272,840			1,279			0.63			239,613			2,207			1.23
Money market accounts		550,412			3,189			0.77			434,330			4,919			1.51
Time deposits		344.036			5,746			2.23			325,255			7,465			3.07
Total interest-bearing deposits		1,587,505			12,189			1.03			1,256,778			16,256			1.73
Securities sold under agreements to repurchase		138,263			466			0.45			93,935			423			0.60
Other borrowed funds and subordinated debentures		201,976			6,351			4.20			214,122			7,707			4.81
Total interest-bearing liabilities		1,927,744			19,006			1.32	%		1,564,835			24,386			2.08	%
Non interest-bearing liabilities
Demand deposits		291,210									274,025
Other liabilities		30,922									30,677
Total liabilities		2,249,876									1,869,537
Stockholders’ equity		140,919									125,096
Total liabilities & stockholders’ equity	$	2,390,795								$	1,994,633
Net interest income on a fully taxable equivalent basis					42,153									37,855
Less taxable equivalent adjustment					(3,698	)								(2,427	)
Net interest income				$	38,455								$	35,428
Net interest spread (3)								2.31	%								2.34	%
Net interest margin (4)								2.51	%								2.68	%

(1)	On a fully taxable equivalent basis calculated using a federal tax rate of 34%.
(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 securities available-for-sale calculated utilizing amortized cost.

Page 30 of 36

The following table presents certain information on a fully-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 September 30, 2010									Nine Months Ended September 30, 2010
				Compared with									Compared with
	Three Months Ended September 30, 2009									Nine Months Ended September 30, 2009
				Increase/(Decrease)									Increase/(Decrease)
				Due to Change in									Due to Change in
	Volume			Rate			Total			Volume			Rate			Total
							(In thousands)
Interest income:
Loans	$	605		$	(543	)	$	62		$	2449		$	(874	)	$	1,575
Securities available-for-sale
Taxable		1,260			(2,062	)		(802	)		4,417			(5,228	)		(809	)
Tax-exempt		(54	)		(49	)		(103	)		(328	)		(126	)		(454	)
Securities held-to-maturity
Taxable		236			(518	)		(282	)		522			(1,349	)		(829	)
Interest-bearing deposits in other banks		318			(358	)		(40	)		923			(1,488	)		(565	)
Total interest income		2,365			(3,530	)		(1,165	)		7,983			(9,065	)		(1,082	)
Interest expense:
Deposits:
NOW accounts		280			(219	)		61			851			(541	)		310
Savings accounts		23			(283	)		(260	)		273			(1,201	)		(928	)
Money market accounts		288			(678	)		(390	)		1,088			(2,818	)		(1,730	)
Time deposits		359			(493	)		(134	)		411			(2,130	)		(1,719	)
Total interest-bearing deposits		950			(1,673	)		(723	)		2,623			(6,690	)		(4,067	)
Securities sold under agreements to repurchase		32			(15	)		17			167			(124	)		43
Other borrowed funds and subordinated debentures		(322	)		(295	)		(617	)		(420	)		(936	)		(1,356	)
Total interest expense		660			(1,983	)		(1,323	)		2,370			(7,750	)		(5,380	)
Change in net interest income	$	1,705		$	(1,547	)	$	158		$	5,613		$	(1,315	)	$	4,298

Net Interest Income

For the three months ended September 30, 2010, net interest income on a fully taxable equivalent basis totaled $13.9 million compared to $13.7 million for the same period in 2009, an increase of $158,000 or 1.1%. This increase in net interest income for the period is mainly due to a 20.9% increase in the average balances of earning assets, combined with a similar increase in deposits. The increased volume was almost entirely offset by a decrease of forty-two basis points in the net interest margin. The net interest margin decreased from 2.81% on a fully taxable equivalent basis in 2009 to 2.39% on the same basis for 2010.

For the nine months ended September 30, 2010, net interest income on a fully taxable equivalent basis totaled $42.2 million compared to $37.9 million for the same period in 2009, an increase of $4.3 million or 11.4%. This increase in net interest income for the period is mainly due to a 20.7% increase in the average balances of earning assets, combined with a similar increase in deposits. The increased volume was somewhat offset by a decrease of seventeen basis points in the net interest margin. The net interest margin decreased from 2.68% on a fully taxable equivalent basis in 2009 to 2.51% on the same basis for 2010.

Page 31 of 36

Provision for Loan Losses

For the three months ended September 30, 2010, the loan loss provision was $1.20 million compared to a provision of $1.25 million for the same period last year for a decrease of $50,000. The decrease in the provision was due to reduced allocations related to impaired loans. During the third quarter of 2009 provisions were made for two impaired loans that were subsequently charged off during the fourth quarter of 2009. For the nine months ended September 30, 2010, the loan loss provision was $4.23 million compared to a provision of $4.15 for the same period last year for an increase of $75,000. The $75,000 increase was primarily the result of additional allocations related to impaired loans. The level of the allowance for loan losses to total loans increased from 1.41% at December 31, 2009 to 1.60% at September 30, 2010. This increase was due to the provision for loan losses exceeding net loan charge offs for the nine months ended September 30, 2010.

Non-Interest Income and Expense

Other operating income for the quarter ended September 30, 2010 was $3.4 million, consistent for the same period last year. Other operating income remained relatively stable. There was a decrease in service charges on deposit accounts of $29,000 which was mainly attributable to a decrease in overdraft fees. Lockbox fees increased by $85,000 as a result of increased customer volume. Other income decreased by $94,000 mainly as a result of a decrease in the growth of cash surrender values on life insurance policies.

Other operating income for the nine months ended September 30, 2010 was $11.8 million compared to $11.6 million for the same period last year. The changes in other operating income, which increased by $167,000, was mainly attributable to an increase in other income of $398,000, partially offset by a decrease in service charges on deposit accounts of $182,000. The increase in other income consisted primarily of $374,000 increase in the growth of cash surrender values on life insurance policies. Cash surrender values increased mainly as a result of additional earnings as a result of certain policies reaching their twenty year anniversary during the first quarter of 2010. This was partially offset by life insurance proceeds received during the first quarter of 2009. Lockbox fees increased by $39,000 as a result of increased customer volume. Service charges on deposit accounts decreased by $182,000 mainly as a result of a decrease in overdraft fees.

For the quarter ended September 30, 2010, operating expenses increased by $85,000 or 0.8% to $11.3 million, from the same period last year. The increase in operating expenses for the quarter was mainly attributable to an increase of $147,000 in FDIC assessments and $91,000 in salaries and employee benefits; this was partially offset by a decrease of $90,000 in equipment expense and $69,000 in other expenses. FDIC assessments increased primarily as a result of by an increase in the assessment rate as well as an increase in the deposit base during 2010. Salaries and employee benefits increased mainly as a result of merit increases. Other expenses decreased primarily as a result of a decrease in marketing related expenses. Occupancy expenses increased by $6,000. Equipment expenses decreased mainly as a result of decreases in depreciation expense.

For the nine months ended September 30, 2010, operating expenses increased by $516,000 or 1.5% to $35.5 million, from the same period last year. The increase in operating expenses for the nine months was mainly attributable to an increase of $1.4 million in salaries and employee benefits, this was partially offset by a decrease of $579,000 in FDIC assessments. Salaries and employee benefits increased mainly as a result of $916,000 due Jonathan G. Sloane, former Co-CEO, in accordance with his separation agreement as previously announced. FDIC assessments decreased primarily as a result of the special assessment charge of approximately $1.0 million during the second quarter of 2009. This was offset, somewhat, by an increase in the assessment

Page 32 of 36

rate as well as an increase in the deposit base during 2010. Other expenses increased by $15,000. Occupancy expenses decreased by $68,000 and equipment expense decreased by $289,000. Occupancy expenses decreased mainly as a result of decreases in building maintenance expense. Equipment expenses decreased mainly as a result of decreases in depreciation expense. Other expenses increased mainly as a result of increased marketing related expenses.

Income Taxes

For the third quarter of 2010, the Company’s income tax expense totaled $220,000 on pretax income of $3.5 million for an effective tax rate of 6.3%. For last year’s corresponding quarter, the Company’s income tax expense totaled $413,000 on pretax income of $3.6 million for an effective tax rate of 11.5%. For the first nine months of 2010, the Company’s income tax expense totaled $879,000 on pretax income of $10.5 million for an effective tax rate of 8.3%. For last year’s corresponding period, the Company’s income tax expense totaled $851,000 on pretax income of $7.9 million for an effective tax rate of 10.7%. The effective income tax rate decreased for the current quarter and nine month period mainly as a result of an increase in tax exempt income as a percentage of taxable income compared to the same periods last year.

Item 3.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 Form 10-K for the fiscal year ended December 31, 2009, filed with the Securities and Exchange Commission. The information is contained in the Form 10-K within the Market Risk and Asset Liability Management section of Management’s Discussion and Analysis of Results of Operations and Financial Condition.

Item 4.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, have concluded that the Company’s disclosure controls and procedures 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 officers 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 quarter of 2010 there has been no change in its internal control over financial reporting that has

Page 33 of 36

materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II — Other Information

Item 1  Legal proceedings — At the present time, the Company is not engaged in any legal proceedings which, if adversely determined to the Company, would have a material adverse impact on the Company’s financial condition or results of operations. From time to time, the Company is party to routine legal proceedings within the normal course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the Company’s financial condition and results of operation.

Item 1A Risk Factors — Please read “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009. There have been no material changes since this 10-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 effect the Company’s business, financial condition and operating results.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds —

(a) — (b) Not applicable.

(c) The following table sets forth information with respect to any purchase made by or on behalf of Century Bancorp, Inc. or any “affiliated purchaser,” as defined in 204.10b-18(a)(3) under the Exchange Act, of shares of Century Bancorp, Inc. Class A common stock during the indicated periods:

	Issuer Purchases of Equity Securities
					Total number of shares		Maximum number of
			Weighted		purchased as part of		shares that may yet be
	Total number of		Average price paid		publicly announced plans		purchased under the
Period	shares purchased		per share		or programs		plans or programs (1)
July 30 — July 30, 2010		—	$	—		—		300,000
August 31 — August 31, 2010		—	$	—		—		300,000
September 30 — September 30, 2010		—	$	—		—		300,000

(1) On July 13, 2010, the Company announced a reauthorization of the Class A common stock repurchase program to repurchase up to 300,000 shares. The Company placed no deadline on the repurchase program. There were no shares purchased other than through a publicly announced plan or program.

Item 3 Defaults Upon Senior Securities — None

Item 5 Other Information — None

Item 6 Exhibits

3.1 Certificate of Incorporation of Century Bancorp, Inc., incorporated by reference previously filed with registrant’s initial registration statement on Form S-1 dated May 20, 1987 (Registration No. 33-13281).

3.2 Bylaws of Century Bancorp, Inc. amended on October 9, 2007, incorporated by reference previously filed with the September 30, 2007 10-Q.

Page 34 of 36

3.3 Articles of Amendment of Century Bancorp, Inc. Articles of Organization effective January 9, 2009, incorporated by reference previously filed with an 8-K filed on April 29, 2009.

31.1 Certification of President and Chief Executive Officer of the Company Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14.

31.2 Certification of Chief Financial Officer of the Company Pursuant to Securities Exchange Act Rules 13a-14 and 15d-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.

+ 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.

Page 35 of 36

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.

Date: November 5, 2010	Century Bancorp, Inc.
/s/ Barry R. Sloane
Barry R. Sloane
President and Chief Executive Officer
/s/ William P. Hornby
William P. Hornby, CPA
Chief Financial Officer and Treasurer (Principal Accounting Officer)

Page 36 of 36