Century Bancorp (CNBKA) 10-Q 2004 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2004.

or

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

For the transition period from  .

Commission file number  0-15752.

CENTURY BANCORP, INC. .

(Exact name of registrant as specified in its charter)

COMMONWEALTH OF MASSACHUSETTS
(State or other jurisdiction of incorporation or organization) 04-2498617
(I.R.S. Employer Identification No.)

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

[X] Yes   [  ] No

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

[X] Yes   [  ] No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of September 30, 2004:

Class A Common Stock, $1.00 par value	3,426,698 Shares
Class B Common Stock, $1.00 par value	2,099,740 Shares

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Century Bancorp, Inc.

		Page
Index		Number
Part I	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets: September 30, 2004 and December 31, 2003		3
	Consolidated Statements of Income: Three (3) and Nine (9) months ended September 30, 2004 and 2003.		4
	Consolidated Statements of Changes in Stockholders’ Equity: Nine (9) months ended September 30, 2004 and 2003.		5
	Consolidated Statements of Cash Flows: Nine (9) months ended September 30, 2004 and 2003.		6
	Notes to Consolidated Financial Statements	7 - 10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11 - 17
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		17
Item 4.	Controls and Procedures		18
Part II.	Other Information
	Item 1 through Item 6	18 - 19
Signatures			19
Exhibits
EX-31.1 Section 302 CEO Certification
EX-31.2 Section 302 CFO Certification
EX-32.1 Section 906 CEO Certification
EX-32.2 Section 906 CFO Certification

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PART I -

Item 1

Century Bancorp, Inc. - Consolidated Balance Sheets (unaudited)

                         (000’s, except share data)

	September 30,			December 31,
	2004			2003
Assets
Cash and due from banks	$	39,341		$	64,299
Federal funds sold and interest-bearing deposits in other banks		69,057			161,022
Total cash and cash equivalents		108,398			225,321
Securities available-for-sale, amortized cost $508,133 and $701,444, respectively		505,016			703,335
Securities held-to-maturity, market value $363,296 and $198,790, respectively		364,457			197,872
Loans, net:
Commercial & industrial		73,930			39,742
Construction & land development		32,933			34,121
Commercial real estate		272,408			293,781
Residential real estate		113,234			86,780
Consumer & other		9,258			8,508
Home equity		68,669			49,382
Total loans, net		570,432			512,314
Less: allowance for loan losses		8,863			8,769
Net loans		561,569			503,545
Bank premises and equipment		25,119			21,589
Accrued interest receivable		7,607			8,450
Goodwill		2,714			2,714
Core deposit intangible		2,932			3,223
Other assets		28,919			22,862
Total assets	$	1,606,731		$	1,688,911
Liabilities
Deposits:
Demand deposits	$	267,348		$	270,115
Savings and NOW deposits		290,638			291,950
Money market accounts		421,605			417,171
Time deposits		224,717			359,617
Total deposits		1,204,308			1,338,853
Securities sold under agreements to repurchase		38,210			40,050
Federal Home Loan Bank (FHLB) borrowings and other borrowed funds		210,285			136,329
Investments purchased payable		5,077			29,330
Other liabilities		13,897			10,982
Long term debt		29,639			29,639
Total liabilities		1,501,416			1,585,183
Commitments and contingencies
Stockholders’ equity
Class A common stock, $1.00 par value per share; authorized 10,000,000 shares; issued 3,810,298 shares and 3,792,938 shares, respectively		3,810			3,793
Class B common stock, $1.00 par value per share; authorized 5,000,000 shares; issued 2,147,290 shares and 2,162,650 shares, respectively		2,148			2,163
Additional paid-in capital		11,267			11,227
Retained earnings		96,671			91,427
Treasury stock, Class A, 383,600 shares, each period, at cost		(5,941	)		(5,941	)
Treasury stock, Class B, 47,550 shares, each period, at cost		(41	)		(41	)
		107,914			102,628
Accumulated other comprehensive income (loss), net of taxes		(2,599	)		1,100
Total stockholders’ equity		105,315			103,728
Total liabilities and stockholders’ equity	$	1,606,731		$	1,688,911

See accompanying Notes to unaudited Consolidated Financial Statements.

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Century Bancorp, Inc. - Consolidated Statements of Income (unaudited)

(000’s except share data)

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
Interest income
Loans	$	8,315	$	8,150	$	24,519	$	25,070
Securities held-to-maturity		3,438		1,780		8,945		5,103
Securities available-for-sale		4,276		6,921		14,236		22,315
Federal funds sold and interest-bearing deposits in other banks		48		111		441		323
Total interest income		16,077		16,962		48,141		52,811
Interest expense
Savings and NOW deposits		598		592		1,723		2,017
Money market accounts		1,127		1,222		3,551		3,933
Time deposits		1,467		1,920		4,869		5,641
Securities sold under agreements to repurchase		79		105		230		369
FHLB borrowings, other borrowed funds and long term debt		2,290		2,041		6,695		6,442
Total interest expense		5,561		5,880		17,068		18,402
Net interest income		10,516		11,082		31,073		34,409
Provision for loan losses		150		0		150		450
Net interest income after provision for loan losses		10,366		11,082		30,923		33,959
Other operating income
Service charges on deposit accounts		1,457		1,202		3,915		3,548
Lockbox fees		695		733		2,277		2,451
Brokerage commissions		120		140		472		402
Net gains on sales of securities		0		0		121		1
Other income		229		267		1,214		1,090
Total other operating income		2,501		2,342		7,999		7,492
Operating expenses
Salaries and employee benefits		5,989		5,359		17,544		16,737
Occupancy		790		626		2,330		1,927
Equipment		629		445		1,782		1,226
Other		2,179		1,858		6,555		6,070
Total operating expenses		9,587		8,288		28,211		25,960
Income before income taxes		3,280		5,136		10,711		15,491
Income tax expense
Provision for income taxes		1,147		1,939		3,857		5,827
Retroactive REIT settlement		0		0		0		1,183
Total income tax expense (benefit)		1,147		1,939		3,857		7,010
Net income	$	2,133	$	3,197	$	6,854	$	8,481
Share data:
Weighted average number of shares outstanding, basic		5,526,438		5,520,025		5,525,594		5,518,587
Weighted average number of shares outstanding, diluted		5,552,202		5,553,470		5,553,997		5,543,722
Net income per share, basic	$	0.39	$	0.58	$	1.24	$	1.54
Net income per share, diluted	$	0.38	$	0.58	$	1.23	$	1.53
Cash dividends paid:
Class A common stock	$	0.1200	$	0.1100	$	0.3600	$	0.3300
Class B common stock	$	0.0600	$	0.0550	$	0.1800	$	0.1650

See accompanying Notes to unaudited Consolidated Financial Statements.

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Century Bancorp, Inc. - Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

		Class A		Class B			Additional					Treasury			Treasury			Accumulated Other			Total
		Common		Common			Paid-In		Retained			Stock			Stock			Comprehensive			Stockholders’
		Stock		Stock			Capital		Earnings			Class A			Class B			Income (Loss)			Equity
	(000’s)
2003
Balance at December 31, 2002		$	3,781	$	2,168		$	11,123	$	81,755		($	5,941	)	($	41	)	$	7,411		$	100,256
Net income			—		—			—		8,481			—			—			—			8,481
Other comprehensive income, net of tax:
Change in unrealized (loss) gain on securities available-for-sale			—		—			—		—			—			—			(3,517	)		(3,517	)
Comprehensive income																						4,964
Conversion of Class B common stock to Class A common stock, 5,010 shares			5		(5	)		—		—			—			—			—			—
Stock Options Exercised, 3,213 shares			3		—			52		—			—			—			—			55
Cash dividends paid, Class A common stock, $.33 per share			—		—			—		(1,123	)		—			—			—			(1,123	)
Cash dividends paid, Class B common stock, $.165 per share			—		—			—		(349	)		—			—			—			(349	)
Balance at September 30, 2003		$	3,789	$	2,163		$	11,175	$	88,764		($	5,941	)	($	41	)	$	3,894		$	103,803
2004
Balance at December 31, 2003		$	3,793	$	2,163		$	11,227	$	91,427		($	5,941	)	($	41	)	$	1,100		$	103,728
Net income			—		—			—		6,854			—			—			—			6,854
Other comprehensive income, net of tax:
Unrealized holding losses arising during period			—		—			—		—			—			—			(2,941	)		(2,941	)
less: reclassification adjustment for gains included in net income			—		—			—		—			—			—			(70	)		(70	)
Minimum pension liability adjustment			—		—			—		—			—			—			(688	)		(688	)
Comprehensive income																						3,155
Conversion of Class B common stock to Class A common stock, 15,360 shares			15		(15	)		—		—			—			—			—			—
Stock Options Exercised, 2,000 shares			2		—			40		—			—			—			—			42
Cash dividends paid, Class A common stock, $.36 per share			—		—			—		(1,230	)		—			—			—			(1,230	)
Cash dividends paid, Class B common stock, $.18 per share			—		—			—		(380	)		—			—			—			(380	)
Balance at September 30, 2004		$	3,810	$	2,148		$	11,267	$	96,671		($	5,941	)	($	41	)	($	2,599	)	$	105,315

See accompanying Notes to unaudited Consolidated Financial Statements.

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

	2004			2003
	Nine months ended
	September 30,
	(000’s)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,854		$	8,481
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		150			450
Deferred income taxes		(162	)		(507	)
Net depreciation and amortization		1,512			1,270
Decrease in accrued interest receivable		843			664
Increase in other assets		(3,443	)		(6,460	)
Loans originated for sale		—			(270	)
Proceeds from sales of loans		—			267
Gain on sales of loans		—			3
Gain on sale of securities available-for-sale		(121	)		(1	)
Increase (decrease) in other liabilities		1,769			(6,840	)
Net cash provided by (used in) operating activities		7,402			(2,943	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale		331,405			535,642
Proceeds from sales of securities available-for-sale		49,223			—
Purchase of securities available-for-sale		(187,029	)		(566,875	)
Proceeds from maturities of securities held-to-maturity		37,805			105,081
Purchase of securities held-to-maturity		(204,309	)		(161,719	)
Decrease in payable for investments purchased		(24,253	)		(43,069	)
Net (increase) decrease in loans		(58,086	)		12,318
Capital expenditures		(5,084	)		(6,475	)
Net cash used in investing activities		(60,328	)		(125,097	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in time deposits		(134,900	)		5,939
Net increase in demand, savings, money market and NOW deposits		355			61,304
Net proceeds from the exercise of stock options		42			55
Cash dividends		(1,610	)		(1,472	)
Net decrease in securities sold under agreements to repurchase		(1,840	)		(2,790	)
Net increase (decrease) in FHLB borrowings and other borrowed funds		73,956			(4,926	)
Net cash (used in) provided by financing activities		(63,997	)		58,110
Net decrease in cash and cash equivalents		(116,923	)		(69,930	)
Cash and cash equivalents at beginning of period		225,321			122,205
Cash and cash equivalents at end of period	$	108,398		$	52,275
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	17,222		$	18,573
Income taxes		4,270			13,862
Change in unrealized gains on securities available-for-sale, net of taxes	($	3,011	)	($	3,517	)

See accompanying Notes to unaudited Consolidated Financial Statements.

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Century Bancorp, Inc.

Notes to Consolidated Financial Statements

Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of Century Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary, Century Bank and Trust Company (the “Bank”). The consolidated financial statements also include the accounts of the Bank’s wholly-owned subsidiaries, Century Subsidiary Investments, Inc. (CSII), Century Subsidiary Investments, Inc. II (CSII II), Century Subsidiary Investments, Inc. III (CSII III) and Century Financial Services, Inc. (CSFI). CSII, CSII II, CSII III are engaged in buying, selling and holding investment securities. CSFI has the power to engage in financial agency, securities brokerage and investment and financial advisory services and related securities credit. 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 Board of Governors of the Federal Reserve System (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 types and amounts of loans that may be made and the interest that may be charged thereon, and limitations on 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 for financial reporting purposes.

In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary to present a fair statement of the results for the interim period presented of the Company and its wholly-owned subsidiary, the Bank. The results of operations for the interim period ended September 30, 2004, are not necessarily indicative of results for the entire year. All significant intercompany accounts and transactions have been eliminated in consolidation. These statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

The 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.

A material estimate that is susceptible to change in the near-term is to the allowance for losses on loans. Management believes that the allowance for losses on loans is adequate based on independent appraisals of collateral and management’s review of other factors associated with the assets. While management uses available information to recognize losses on loans, future additions to the allowance for loans may be

Page 7 of 19

necessary based on changes in economic conditions. In addition, regulatory agencies periodically review the Company’s allowance for losses on loans. Such agencies may require the Company to recognize additions to the allowance for loans based on their judgments about information available to them at the time of their examination.

Summary of Critical Accounting Policies

Accounting policies involving significant judgments and assumptions by management, which had, or could have in the future, a material impact on the carrying value of certain assets and impact income, are considered critical accounting policies. The Company considers the following to be its critical accounting policies: allowance for loan losses, impairment of investment securities and deferred income taxes. There have been no significant changes since December 31, 2003 in the methods or assumptions used in the accounting policies that require material estimates and assumptions.

Allowance for Loan Losses

Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. Management maintains an allowance for credit losses to absorb losses inherent in the loan portfolio. The allowance is based on assessments of the probable estimated losses inherent in the loan portfolio. Management’s methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowances for identified problem loans and the unallocated allowance.

The formula allowance is calculated by applying loss factors to outstanding loans, in each case based on the internal risk grade of such loans. Changes in risk grades affect the amount of the formula allowance. Risk grades are determined by reviewing current collateral value, financial information, cash flow, payment history and other relevant facts surrounding the particular credit. Provisions for losses on the remaining commercial and commercial real estate loans are based on pools of similar loans using a combination of historical loss experience and qualitative adjustments. For the residential real estate and consumer loan portfolios, the reserves are calculated by applying historical charge-off and recovery experience and qualitative adjustments to the current outstanding balance in each loan category. Loss factors are based on the Company’s historical loss experience as well as regulatory guidelines.

Specific allowances are established in cases where management has identified significant conditions related to a credit and management believes that there is the probability that a loss has been incurred in excess of the amount determined by the application of the formula allowance.

The unallocated allowance recognizes the model and estimated risk associated with the formula allowance and specific allowances as well as management’s evaluation of various conditions, including the business and economic conditions, delinquency trends, charge-off experience and other asset quality factors, the effects of which are not directly measured in the determination of the formula and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits.

Management believes that the allowance for loan losses is adequate. In addition, various regulatory agencies, as part of the examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

Deferred Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of

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existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Impaired Investment Securities

If a material decline in fair value below the amortized cost basis of an investment security is judged to be “other than temporary,” generally six months or longer, the cost basis of the investment is written down to fair value. The amount of the write-down is included as a charge to earnings. An “other than temporary” impairment exists for debt securities if it is probable that the Company will be unable to collect all amounts due according to contractual terms of the security. Some factors considered for “other than temporary” impairment related to a debt security include an analysis of yield which results in a decrease in expected cash flows, whether an unrealized loss is issuer specific, whether the issuer has defaulted on scheduled interest and principal payments, whether the issuer’s current financial condition hinders its ability to make future scheduled interest and principal payments on a timely basis or whether there was downgrade in ratings by rating agencies.

Stock Option Accounting

The Company currently accounts for employee stock options using the intrinsic value method. Under the intrinsic value method, no compensation cost is recognized related to options if the exercise price of the option is greater than or equal to the fair market value of the underlying stock on the date of grant. Under an alternative method, the fair value method, the “fair value” of the option at the grant date is estimated using an option valuation model and recognized as compensation expense over the vesting period of the option. The Company generally awards stock options annually with a grant date in January.

Had compensation cost for the Company’s stock option plans been determined based on the fair value at the grant date, the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
				(Dollars in Thousands)
Net income
As reported	$	2,133			3,197			6,854		$	8,481
Less: Pro forma stock based Compensation (net of tax)		(64	)		(37	)		(196	)		(118	)
Pro forma net income		2,069			3,160			6,658			8,363
Basic income per share
As reported		0.39			0.58			1.24			1.54
Pro forma		0.37			0.58			1.20			1.52
Diluted income per share
As reported		0.38			0.58			1.23			1.53
Pro forma		0.37			0.57			1.20			1.51

In determining the pro forma amounts, the fair value of each option grant was estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2004			2003
Dividend yields		1.83	%		1.37	%
Expected life	7 years			7 years
Expected volatility		34	%		31	%
Risk-free interest rate		3.76	%		3.41	%

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Employee Benefits

The Company has a qualified Defined Benefit Pension Plan (the “Plan”) which is offered to all employees reaching minimum age and service requirements. The Company also has a Supplemental Insurance/Retirement Plan (the “Supplemental Plan”), which is limited to certain officers and employees of the Company.

Components of Net Periodic Benefit Cost for the Nine Month Period Ending September 30,

					Supplemental Insurance/
	Pension Benefits				Retirement Plan
	2004		2003		2004		2003
	(Dollars in Thousands)
Service Cost	$	536	$	519	$	9	$	75
Interest		651		616		651		608
Expected Return on Plan Assets		-447		-460		0		0
Recognized Prior Service Cost		-3		83		48
Recognized Net Losses		166		114		131		196
Net Periodic Benefit Cost	$	903	$	872	$	839	$	879

Contributions

The Company previously disclosed in its financial statements for the year ended December 31,2003, that it expected to contribute $1,590,000 to its pension plan in 2004. As of September 30, 2004, $1,125,000 of contributions has been made.

Recent Accounting Developments

In November 2003 and March 2004, the FASB’s EITF issued consensuses on EITF Issue 03-1. EITF 03-1 contains new guidance on other-than-temporary impairments of investment securities. The guidance dictates when impairment is deemed to exist, provides guidance on determining if impairment is other than temporary, and directs how to calculate impairment loss. Issue 03-1 also details expanded annual disclosure rules. In September 2004, the FASB’s EITF issued EITF 03-1-1 “Effective Date of Paragraphs 10-2- of EITF Issue 03-1The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”, which delays the effective date of those paragraphs to be concurrent with the final issuance of EITF 03-1-a “Implementation Guidance for the Application of Paragraph 16 of EITF 03-1The Meaning of Other-Than-Temporary impairment and Its Application to Certain Investments.” EITF 03-1-a is currently being debated by the FASB in regards to final guidance and effective date with a comment period that ended October 29,2004. EITF 03-1, as issued, was originally effective for periods beginning after June 15, 2004.The adoption of the original EITF 03-1 (excluding paragraphs 10-20) did not have a material impact on the Company’s financial position or results of operations. The Company also does not anticipate that the adoption of EITF 03-1-1 or EITF 03-1-a will have a material impact on the Company’s financial position or results of operations.

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Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 and Section 21E of the Securities Exchange Act of 1934. 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, 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.

Executive Overview

Century Bancorp, Inc. (together with its bank subsidiary, unless the context otherwise requires, the “Company”), is a holding company headquartered in Medford, Massachusetts. The Company is a Massachusetts corporation formed in 1972 and has one banking subsidiary, Century Bank and Trust Company, A Massachusetts state chartered trust company formed in 1969 (the “Bank”). The Company had total assets of approximately $1.6 billion on September 30, 2004. The Company presently operates 22 banking offices in 16 cities and towns in Massachusetts ranging from Braintree, south of Boston, to Peabody, north of Boston. 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 throughout Massachusetts.

The Company offers a wide range of services to commercial enterprises, state and local governments and agencies, 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, consumer loans, and accepts savings, time, and demand deposits. In addition, the Company offers to its corporate 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 its subsidiary, Century Financial Services, Inc. in conjunction with Commonwealth Equity Services, Inc., a full service securities brokerage business. The Company is also a provider of financial services including cash management, transaction processing, short term financing and intermediate term leasing to

Page 11 of 19

Management’s Discussion and Analysis of Financial Condition and Results of Operation (con’t.)

municipalities in Massachusetts. The Company has deposit relationships with approximately 30% of the 351 cities and towns in Massachusetts.

During February 2003 the Company began construction of an addition to its corporate headquarters building. The property is located adjacent to its current headquarters in Medford, Massachusetts and will provide additional corporate office space and an expanded branch banking floor. The building is scheduled to be substantially completed during the fourth quarter of 2004 and the current cost estimate including land costs is $13.8 million. As of September 30, 2004, $11.9 million has been expended. The capital expenditure will provide a five story addition containing approximately 50 thousand square feet of office and branch space. Occupancy costs are expected to increase by approximately $250 thousand per quarter when the addition is fully occupied.

Earnings for the third quarter ended September 30, 2004 were $2.1 million, a decrease of $1.1 million when compared with the third quarter 2003 earnings of $3.2 million. Diluted earnings per share for the third quarter 2004 were $0.38 versus $0.58 for the third quarter of 2003.

Earnings for the first nine months of 2004 totaled $6.9 million, compared to $8.5 million for the same period a year ago. Diluted earnings per share for the first nine months of 2004 were $1.23 versus $1.53 for the same period a year ago. Included in income for the first nine months of 2003 is the previously announced net tax charge of $1.2 million associated with the Real Estate Investment Trust (“REIT”) settlement. This change was the result of an agreement with the Massachusetts Department of Revenue (“DOR”) settling a dispute related to taxes that the DOR claimed were owed from the Company’s REIT.

On March 21, 2003, the Company completed the acquisition of Capital Crossing Bank’s branch office at 1220 Boylston Street, Chestnut Hill, Massachusetts, and substantially all of the retail deposits at Capital Crossing’s main office at 101 Summer Street, Boston, Massachusetts. The Company closed the Chestnut Hill branch and transferred all customers of the branch to its nearby branch office at 1184 Boylston Street, Brookline, Massachusetts. In addition, the Company transferred all of the retail deposits from Capital Crossing’s Summer Street branch to its branch at 24 Federal Street, Boston, Massachusetts. The acquisition included $192.7 million in deposits. The acquisition also included a premium paid to Capital Crossing of approximately $3.9 million. This premium was subsequently reduced by a gain of $395 thousand from the sale of the acquired Chestnut Hill branch.

Financial Condition

Loans

On September 30, 2004, total loans outstanding, net of unearned discount, were $570.4 million, an increase of 11.3% from the total on December 31, 2003. At September 30, 2004, commercial real estate loans accounted for 47.8% and residential real estate loans, including home equity credit lines, accounted for 31.9% of total loans. Construction loans decreased slightly to $32.9 million at September 30, 2004 from $34.1 million on December 31, 2003.

The increase in loans was mainly attributable to an increase in commercial and industrial, home equity credit lines and residential real estate loans. Those types of loans increased in part because of a loan campaign that began during the first quarter of 2004.

Page 12 of 19

Management’s Discussion and Analysis of Financial Condition and Results of Operation (con’t.)

Allowance for Loan Losses

The allowance for loan losses was 1.55% of total loans on September 30, 2004 compared with 1.71% on December 31, 2003. Net charge-offs for the nine-month period ended September 30, 2004 were $56 thousand compared with net recoveries of $70 thousand for the same period in 2003. Additional provisions have been made due to growth in the loan portfolio. At the current time, management believes that the allowance for loan losses is adequate. Nonperforming Loans

	September 30, 2004			December 31, 2003
	(Dollars in Thousands)
Nonaccruing loans	$	663		$	1,175
Loans past due 90 days or more and still accruing	$	0		$	0
Nonaccruing loans as a Percentage of total loans		.12	%		.23	%

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 through loan originations, loan purchases or investment acquisitions while funding this growth through a mix of retail deposits, FHLB advances, and retail repurchase agreements.

	September 30, 2004		December 31, 2003
	(Dollars in Thousands)
Securities Available-for-Sale
U.S. Government and Agencies	$	406,395	$	676,494
Other Bonds and Equity Securities		17,757		17,800
Mortgage-backed Securities		80,864		9,041
Total Securities Available-for-Sale	$	505,016	$	703,335
Securities Held-to-Maturity
U.S. Government and Agencies	$	196,313	$	6,400
Other Bonds and Equity Securities		0		25
Mortgage-backed Securities		168,144		191,447
Total Securities Held-to-Maturity	$	364,457	$	197,872

Page 13 of 19

Management’s Discussion and Analysis of Financial Condition and Results of Operation (con’t.)

Securities Available-for-Sale

The securities available-for-sale portfolio totaled $505.0 million at September 30, 2004, a decrease of 28.2% from December 31, 2003. The portfolio decreased mainly because of a movement of matured and called available-for-sale securities to the held-to-maturity portfolio and a contraction in the balance sheet. The portfolio is concentrated in United States Government and Agency securities and has an estimated weighted average maturity of 3.2 years.

Securities Held-to-Maturity

The securities held-to-maturity portfolio totaled $364.5 million on September 30, 2004, an increase of 84.2% from the total on December 31, 2003. The portfolio increased mainly because of a movement of matured and called available-for-sale securities to the held-to-maturity portfolio. The portfolio is concentrated in United States Government Agency Collateralized Mortgage Obligations and has an expected average life of 3.1 years.

Other Assets

Other Assets increased by $6.1 million or 26.5%. Other Assets increased mainly because of an increase in deferred tax assets associated with the increase in unrealized available-for-sale losses.

Deposits and Borrowed Funds

On September 30, 2004, deposits totaled $1.2 billion, representing a 10.0% decrease in total deposits from December 31, 2003. Total deposits decreased primarily as a result of decreases in time deposits. Time deposits decreased because of a relatively higher rate paid on maturing deposits compared to current offering rates. Borrowed funds totaled $248.5 million compared to $176.4 million at December 31, 2003. Borrowed funds increased primarily from the implementation of leveraged balance sheet transactions.

Results of Operations

Net Interest Income

For the three-month period ended September 30, 2004, net interest income totaled $10.5 million, a decrease of 5.1% from the comparable period in 2003. For the nine- month period ended September 30, 2004 net interest income totaled $31.1 million, a decrease of 9.7%. The decrease in net interest income for the nine-month period is mainly due to a thirty-four basis point decrease in the net interest margin.

The net yield on average earning assets on a fully taxable equivalent basis decreased to 2.77% in the first nine months of 2004 from 3.11% during the same period in 2003. The decrease in the net interest margin was mainly attributable to assets continuing to reprice at historically low levels without a corresponding decrease in rates paid on deposits. The Company believes that the net interest margin will continue to be challenged.

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Management’s Discussion and Analysis of Financial Condition and Results of Operation (con’t.)

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.

	September 30, 2004								September 30, 2003
				Interest		Rate						Interest		Rate
	Average			Income/		Earned/			Average			Income/		Earned/
	Balance			Expense(1)		Paid			Balance			Expense(1)		Paid
				(dollars in thousands)
Assets
Interest-earning assets:
Loans (2)	$	536,330		$	24,519		6.11	%	$	500,493		$	25,070		6.70	%
Securities available-for-sale		584,459			14,236		3.25	%		793,337			22,309		3.75	%
Securities held-to-maturity		308,652			8,945		3.86	%		152,133			5,109		4.48	%
Temporary funds		65,709			441		0.89	%		29,516			323		1.13	%
Total interest earning Assets	$	1,495,150		$	48,141		4.29	%	$	1,475,479		$	52,811		4.77	%
Non interest-earning assets		120,550								114,429
Allowance for loan losses		(8,769	)							(8,877	)
Total assets	$	1,606,931							$	1,581,031
Liabilities and Stockholders’ Equity
Interest bearing deposits:
NOW account	$	258,070		$	1,493		0.77	%	$	269,084		$	1,776		0.88	%
Savings accounts		79,996			230		0.38	%		79,122			241		0.41	%
Money market accounts		408,614			3,552		1.16	%		389,610			3,933		1.35	%
Time deposits		232,283			4,869		2.80	%		241,364			5,641		3.08	%
Total interest-bearing Deposits		978,963			10,144		1.39	%		979,180			11,591		1.57	%
Securities sold under Agreements to Repurchase		40,011			230		0.77	%		53,497			369		0.92	%
Other borrowed funds and Long term debt		192,140			6,694		4.66	%		166,961			6,442		5.16	%
Total interest-bearing Liabilities		1,211,114			17,068		1.88	%		1,199,638			18,402		2.04	%
Non interest-bearing Liabilities
Demand deposits		276,824								262,768
Other liabilities		15,417								18,071
Total liabilities		1,503,355								1,480,477
Stockholders’ equity		103,576								100,554
Total liabilities & Stockholders Equity	$	1,606,931							$	1,581,031
Net interest income				$	31,073							$	34,409
Net interest spread							2.41	%							2.72	%
Net yield on earnings Assets							2.77	%							3.11	%

(1)	On a fully taxable equivalent basis calculated using a tax rate of 41.825%.
(2)	Nonaccrual loans are included in average amounts outstanding.

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Management’s Discussion and Analysis of Financial Condition and Results of Operation (con’t.)

	Nine Months Ended September 30, 2004
	Compared with September 30, 2003
	Increase/(Decrease)
	Due to Change in						Income Increase
	Volume			Rate			(Decrease)
	(dollars in thousands)
Interest Income:
Loans	$	1,724		$	(2,275	)		(551	)
Securities available-for-sale		(5,353	)		(2,720	)		(8,073	)
Securities held-to-maturity		4,621			(785	)		3,836
Temporary funds		280			(162	)		118
Total interest income		1,272			(5,942	)		(4,670	)
Interest expense:
Deposits:
NOW accounts		(70	)		(213	)		(283	)
Savings accounts		3			(14	)		(11	)
Money market accounts		185			(566	)		(381	)
Time deposits		(206	)		(566	)		(772	)
Total interest-bearing deposits		(88	)		(1,359	)		(1,447	)
Securities sold under agreements to repurchase		(84	)		(55	)		(139	)
Other borrowed funds and long term debt		914			(662	)		252
Total interest expense		742			(2,076	)		(1,334	)
Change in net interest income		530			(3,866	)		(3,336	)

Provision for Loan Losses

For the nine-month period ended September 30, 2004, the loan loss provision was $150 thousand compared to a provision of $450 thousand for the same period last year. Loan loss provision decreased because of management’s determination of the relative adequacy in the loan loss reserve. The Company’s loan loss allowance as a percentage of total loans outstanding has decreased from 1.71% at December 31, 2003 to 1.55% at September 30, 2004. At the current time, management believes that the loan loss reserve percentage is deemed adequate.

Non-Interest Income and Expense

Other operating income for the quarter ended September 30, 2004 was $2.5 million compared to $2.3 million for the second quarter of 2003. The increase was mainly attributable to a $255 thousand increase in service charges on deposit accounts. For the nine-month period ending September 30, 2004 other operating income totaled $8.0 million compared to $7.5 million for the same period last year. The increase was mainly attributable to an increase of $367 thousand in service charges on deposit accounts and insurance gains of $140 thousand, somewhat offset by a decrease in lockbox fees.

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Management’s Discussion and Analysis of Financial Condition and Results of Operation (con’t.)

Lock box income decreased by $174 thousand for the nine-month period ended September 30, 2004. This decrease was mainly attributable to a decrease in volume. Service charges on deposit accounts increased mainly because of an increase in deposit activity.

During the quarter ended September 30, 2004, operating expenses increased by $1.3 million or 15.7% to $9.6 million, from the same period last year. The increase in operating expenses was mainly attributable to an increase of $630 thousand in salaries and employee benefits, $321 thousand in other expenses, $184 thousand in equipment expense and $164 thousand in occupancy expense. Salary and employee benefits increased as a result of an increase in staff, merit increases and increased retirement and healthcare costs. Equipment expense increased mainly as a result of depreciation and service contract costs associated with the addition of check and lockbox image systems. Occupancy expense increased mainly because of an increase in expenses associated with new branches that were opened during the third quarter of 2003 and 2004. Other expenses increased mainly as a result of increases in legal, recruiting and marketing costs.

For the nine-month period ended September 30, 2004 operating expenses increased by $2.3 million to $28.2 million. Most of the increase was attributable to equipment expense, salaries and employee benefits and occupancy expense. Equipment expense increased primarily as a result of depreciation associated with the additions of check and lockbox image systems as well as depreciation expense reductions in 2003. Salary and employee benefits increased as a result of an increase in staff levels, merit increases and increased retirement and healthcare costs. Occupancy expense increased mainly because of an increase in expenses associated with new branches that were opened during the third quarter of 2003 and 2004. Other expenses increased mainly as a result of increases in legal, recruiting and marketing costs.

Income Taxes

For the third quarter of 2004, the Company’s income tax expense totaled $1.2 million on pretax income of $3.3 million for an effective tax rate of 35.0%. For last year’s corresponding quarter, the Company’s income tax benefit totaled $1.9 million on pretax income of $5.1 million for an effective tax rate of 37.8%. The tax rate decreased primarily as a result of a decreased level of income at the Bank relative to the lower tax rate at CSII, CSII II and CSII III. The income tax rate decreased mainly because of a decreased in taxable income which lowers the tax rate a certain thresholds. For the nine-month period ended September 30, 2004 the Company’s income taxes totaled $3.9 million on pretax income of $10.7 million for an effective tax rate of 36.0%. For last year’s corresponding period, the Company’s income taxes totaled $7.0 million on pretax income of $15.5 million for an effective tax rate of 45.3%. The tax rate decreased because of the previously announced 2003 tax charge of $1.2 million associated with the REIT settlement. Excluding the REIT charge, the tax rate decreased primarily as a result of a decrease level of income at the Bank relative to the lower tax rate at CSII, CSII II and CSII III.

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

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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. The Company relies primarily on its management control interest rate risk

Item 4 Controls and Procedures

The principal executive officer and principal financial officer have evaluated the disclosure controls and procedures as of the end of the period covered by the quarterly report. Based on this evaluation, the Company has concluded that the 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 Management (including the principal executive officer and the principal financial officer) and is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. In addition, the Company has reviewed its internal controls and there have been no significant changes in its internal controls or in other factors that could significantly affect those controls subsequent to the date of its last evaluation.

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 2	Change in securities – Not applicable
Item 3	Defaults upon senior securities – Not applicable
Item 4	Submission of matters to a vote – None
Item 5	Other information – Not Applicable
Item 6	Exhibits and reports on Form 8 - K
	(a) Exhibits
	31.1 Certification of 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 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.

Page 18 of 19

(b) Reports on Form 8-K

On July 15, 2004, the Company filed a Form 8-K in connection with its issuance of a press release on July 13, 2004 announcing the Company’s results for the quarter ended June 30, 2004.

On July 15, 2004, the Company filed a Form 8-K in connection with its issuance of a press release on July 13, 2004 announcing the that its Board of Directors has approved a stock repurchase program.

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 8, 2004	Century Bancorp, Inc
/s/ Marshall M. Sloane	/s/ Paul V. Cusick, Jr.
Marshall M. Sloane	Paul V. Cusick, Jr.
Chairman, President and CEO	Vice President and Treasurer
(Principal Executive Officer)	(Principal Accounting Officer)

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