CENTURY BANCORP INC - FORM 10-Q

CENTURY BANCORP INC - FORM 10-Q - May 8, 2012

Attached files

Attached files

Stock widget

Investing forum

CENTURY BANCORP INC Reports

file	filename
EXCEL - IDEA: XBRL DOCUMENT - CENTURY BANCORP INC	Financial_Report.xls
EX-32.1 - CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER (SECTION 1350) - CENTURY BANCORP INC	d334927dex321.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER (SECTION 1350) - CENTURY BANCORP INC	d334927dex322.htm
EX-31.1 - CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER - CENTURY BANCORP INC	d334927dex311.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - CENTURY BANCORP INC	d334927dex312.htm

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 March 31, 2012.

¨	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. x Yes ¨ 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). x Yes ¨ 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):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

As of April 30, 2012, the Registrant had outstanding:


Class A Common Stock, $1.00 par value			3,556,429 Shares
Class B Common Stock, $1.00 par value			1,991,880 Shares

Century Bancorp, Inc.


		Page Number
Index
Part I	Financial Information

	Forward Looking Statements		3

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets: March 31, 2012 and December 31, 2011		4

	Consolidated Statements of Income: Three months ended March 31, 2012 and 2011		5

	Consolidated Statements of Comprehensive Income Three months ended March 31, 2012 and 2011		6

	Consolidated Statements of Changes in Stockholders’ Equity: Three months ended March 31, 2012 and 2011		7

	Consolidated Statements of Cash Flows: Three months ended March 31, 2012 and 2011		8

	Notes to Consolidated Financial Statements		9-26

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26-34

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		34

Item 4.	Controls and Procedures		34-35

Part II.	Other Information

Item 1.	Legal Proceedings		35
Item 1A.	Risk Factors		35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		35
Item 3.	Defaults Upon Senior Securities		35
Item 5.	Other Information		35
Item 6.	Exhibits		36

Signatures			37

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

Page 2 of 37

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 37

PART I - Item 1

Century Bancorp, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands, except share data)


	March 31, 2012			December 31, 2011
Assets
Cash and due from banks	$	43,266		$	50,187
Federal funds sold and interest-bearing deposits in other banks		87,996			157,579

Total cash and cash equivalents		131,262			207,766

Short-term investments		13,303			18,351
Securities available-for-sale, amortized cost $1,297,282 and $1,244,972, respectively		1,313,839			1,258,676
Securities held-to-maturity, fair value $321,917 and $184,822, respectively		316,223			179,368
Federal Home Loan Bank of Boston stock, at cost		15,146			15,531
Loans, net:
Commercial and industrial		81,882			82,404
Construction and land development		36,937			56,819
Commercial real estate		502,413			487,495
Residential real estate		249,981			239,307
Home equity		109,817			110,786
Consumer and other		6,946			7,681

Total loans, net		987,976			984,492
Less: allowance for loan losses		17,434			16,574

Net loans		970,542			967,918

Bank premises and equipment		21,848			21,757
Accrued interest receivable		6,094			6,022
Goodwill		2,714			2,714
Core deposit intangible		23			120
Other assets		64,978			65,002

Total assets	$	2,855,972		$	2,743,225

Liabilities
Deposits:
Demand deposits	$	360,308		$	365,854
Savings and NOW deposits		746,741			708,988
Money market accounts		645,143			616,241
Time deposits		439,474			433,501

Total deposits		2,191,666			2,124,584

Securities sold under agreements to repurchase		142,230			143,320
Other borrowed funds		241,143			244,143
Subordinated debentures		36,083			36,083
Due to broker		44,423			—
Other liabilities		34,490			34,446

Total liabilities		2,690,035			2,582,576

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 3,556,429 shares and 3,548,317 shares, respectively		3,556			3,548
Class B common stock, $1.00 par value per share; authorized 5,000,000 shares; issued 1,991,880 and 1,994,380 shares, respectively		1,992			1,994
Additional paid-in capital		11,708			11,587
Retained earnings		149,302			146,039

		166,558			163,168
Unrealized gains on securities available-for-sale, net of taxes		10,055			8,319
Pension liability, net of taxes		(10,676	)		(10,838	)

Total accumulated other comprehensive income(loss), net of taxes		(621	)		(2,519	)

Total stockholders’ equity		165,937			160,649

Total liabilities and stockholders’ equity	$	2,855,972		$	2,743,225

See accompanying notes to unaudited consolidated interim financial statements.

Page 4 of 37

Century Bancorp, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except share data)


	Three months ended March 31,
	2012		2011
Interest income
Loans	$	12,048	$	12,105
Securities held-to-maturity		1,463		1,773
Securities available-for-sale		5,715		5,353
Federal funds sold and interest-bearing deposits in other banks		139		347

Total interest income		19,365		19,578

Interest expense
Savings and NOW deposits		534		712
Money market accounts		605		705
Time deposits		1,681		2,279
Securities sold under agreements to repurchase		92		110
Other borrowed funds and subordinated debentures		2,051		1,845

Total interest expense		4,963		5,651

Net interest income		14,402		13,927
Provision for loan losses		1,100		1,200

Net interest income after provision for loan losses		13,302		12,727
Other operating income
Service charges on deposit accounts		1,988		1,887
Lockbox fees		699		737
Net gain on sales of investments		148		164
Other income		784		747

Total other operating income		3,619		3,535

Operating expenses
Salaries and employee benefits		8,141		7,341
Occupancy		1,122		1,251
Equipment		583		558
FDIC assessments		407		735
Other		2,547		2,325

Total operating expenses		12,800		12,210

Income before income taxes		4,121		4,052
Provision for income taxes		313		327

Net income	$	3,808	$	3,725

Share data:
Weighted average number of shares outstanding, basic		5,544,748		5,540,583
Weighted average number of shares outstanding, diluted		5,545,711		5,541,927
Net income per share, basic	$	0.69	$	0.67
Net income per share, diluted	$	0.69	$	0.67
Cash dividends paid:
Class A common stock	$	0.12	$	0.12
Class B common stock	$	0.06	$	0.06

See accompanying notes to unaudited consolidated interim financial statements.

Page 5 of 37

Century Bancorp, Inc.

Consolidated Statements of Comprehensive Income (unaudited)

(In thousands, except share data)


	Three months ended March 31,
	2012			2011
Net income	$	3,808		$	3,725
Other comprehensive income, net of tax:
Unrealized gains(losses) on securities:
Unrealized holding gains(losses) arising during period		1,884			(523	)
Less: reclassification adjustment for gains included in net income		(148	)		(164	)

		1,736			(687	)
Defined benefit pension plans:
Amortization of prior service cost and loss included in net periodic benefit cost		162			95

Other comprehensive income (loss)		1,898			(592	)

Comprehensive income	$	5,706		$	3,133

See accompanying notes to unaudited consolidated interim financial statements.

Page 6 of 37

Century Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

For the Three Months Ended March 31, 2012 and 2011


	Class A Common Stock		Class B Common Stock			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	(In thousands)
Balance at December 31, 2010	$	3,529	$	2,011		$	11,537	$	131,526		$	(3,578	)	$	145,025
Net income		—		—			—		3,725			—			3,725
Unrealized holding losses arising during period, net of $482 in taxes and $164 in realized net gains		—		—			—		—			(687	)		(687	)
Pension liability adjustment, net of $63 in taxes		—		—			—		—			95			95
Comprehensive income
Conversion of class B common stock to class A common stock, 14,500 shares		14		(14	)		—		—			—			—
Stock options exercised, 350 shares		1		—			5		—			—			6
Cash dividends paid, Class A common stock, $.12 per share		—		—			—		(424	)		—			(424	)
Cash dividends paid, Class B common stock, $.06 per share		—		—			—		(120	)		—			(120	)

Balance at March 31, 2011	$	3,544	$	1,997		$	11,542	$	134,707		$	(4,170	)	$	147,620

Balance at December 31, 2011	$	3,548	$	1,994		$	11,587	$	146,039		$	(2,519	)	$	160,649
Net income		—		—			—		3,808			—			3,808
Unrealized holding gains arising during period, net of $1,117 in taxes and $148 in realized net gains		—		—			—		—			1,736			1,736
Pension liability adjustment, net of $189 in taxes		—		—			—		—			162			162
Comprehensive income
Conversion of class B common stock to class A common stock, 2,500 shares		2		(2	)		—		—			—			—
Stock options exercised, 5,612 shares		6		—			121		—			—			127
Cash dividends paid, Class A common stock, $.12 per share		—		—			—		(425	)		—			(425	)
Cash dividends paid, Class B common stock, $.06 per share		—		—			—		(120	)		—			(120	)

Balance at March 31, 2012	$	3,556	$	1,992		$	11,708	$	149,302		$	(621	)	$	165,937

See accompanying notes to unaudited consolidated interim financial statements.

Page 7 of 37

Century Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)


	Three months ended March 31,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,808		$	3,725
Adjustments to reconcile net income to net cash provided by operating activities:
Net gain on sales of investments		(148	)		(164	)
Provision for loan losses		1,100			1,200
Deferred income taxes		(444	)		(421	)
Net depreciation and amortization		1,505			1,411
Decrease (increase) in accrued interest receivable		(72	)		33
Increase in other assets		(785	)		596
Increase (decrease) in other liabilities		325			748

Net cash provided by operating activities		5,289			7,128

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of short-term investments		11,101			37,098
Purchase of short-term investments		(6,053	)		(34,131	)
Proceeds from maturities of securities available-for-sale		144,891			99,533
Proceeds from sales of securities available-for-sale		72,198			12,642
Purchase of securities available-for-sale		(249,934	)		(175,589	)
Proceeds from maturities of securities held-to-maturity		24,776			25,918
Purchase of securities held-to-maturity		(137,000	)		—
Net (increase) decrease in loans		(3,712	)		(38,981	)
Capital expenditures		(634	)		(319	)

Net cash used in investing activities		(144,367	)		(73,829	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in time deposits		5,973			82,436
Net increase in demand, savings, money market and NOW deposits		61,109			47,919
Net proceeds from exercise of stock options		127			6
Cash dividends		(545	)		(544	)
Net increase (decrease) in securities sold under agreements to repurchase		(1,090	)		11,040
Net decrease in other borrowed funds		(3,000	)		(23,975	)

Net cash provided by financing activities		62,574			116,882

Net (decrease) increase in cash and cash equivalents		(76,504	)		50,181
Cash and cash equivalents at beginning of period		207,766			188,552

Cash and cash equivalents at end of period	$	131,262		$	238,733

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	5,016		$	5,533
Income taxes		190			434
Change in unrealized gains on securities available-for-sale, net of taxes		1,736			(687	)
Pension liability adjustment, net of taxes		162			95
Due to broker		44,423			1,250

See accompanying notes to unaudited consolidated interim financial statements.

Page 8 of 37

Century Bancorp, Inc.

Notes to Unaudited Consolidated Interim Financial Statements

Three Months Ended March 31, 2012 and 2011

Note 1. Basis of Financial Statement Presentation

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

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

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The Company’s quarterly report on 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, 2011, as filed with the Securities and Exchange Commission.

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

Page 9 of 37

Note 2. Recent Market Developments

The financial services industry continues to face unprecedented challenges in the aftermath of the recent national and global economic crisis. Since June 2009, the US economy has been recovering from the most severe recession and financial crisis since the Great Depression. There have been some improvements in private sector employment, industrial production and US exports; nevertheless, the pace of economic recovery has been extremely slow. The housing markets continue to be depressed. Financial markets have improved since the depths of the crisis, but are still unsettled and volatile. Investors have pulled back from risky assets. Lower equity prices and wider spreads on corporate bonds and other debt instruments and greater pressures on financial institutions have resulted. At the same time, heightened demand for safe assets has put downward pressure on yields. There is continued concern about the US economic outlook and the potential effects of the continued crisis in the European financial markets.

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 Act broadens the base for FDIC assessments to average consolidated assets less tangible equity of financial institutions and also permanently raises the current standard maximum FDIC deposit insurance amount to $250,000. The Act extends unlimited deposit insurance on non-interest bearing transaction accounts through December 31, 2012.

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 $4.3 million as of December 31, 2011. 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 September 30, 2011, the Massachusetts Department of Revenue issued a Draft Directive prohibiting a corporation from pledging more than 50 percent of security corporation stock it owns to secure a borrowing, effective for tax years beginning on or after October, 2012. Century Bank currently utilizes the stock of two of its security corporations to secure Federal Home Loan Bank of Boston (“FHLBB”) advances. Should this draft directive have become effective, Century Bank would have had fewer assets available to secure FHLBB advances, or would have had a higher tax rate if it chose to utilize security corporations to a lesser extent. On April 6, 2012, the Massachusetts Department of Revenue issued an updated Draft Directive allowing a corporation to pledge up to 100% of security corporation stock it owns to secure a borrowing. This revised Draft Directive would allow Century Bank to continue to utilize existing assets to secure FHLBB advances without pledging limitations.

Page 10 of 37

Note 3. Stock Option Accounting

Stock option activity under the Company’s stock option plan for the three months ended March 31, 2012 is as follows:


	Amount			Weighted Average Exercise Price
Shares under option:
Outstanding at beginning of year		36,062		$	28.90
Exercised		(5,612	)		22.61
Forfeited		(450	)		22.50

Outstanding at end of period		30,000		$	30.17

Exercisable at end of period		30,000		$	30.17

Available to be granted at end of period		223,534

On March 31, 2012, the outstanding options to purchase 30,000 shares of Class A common stock have exercise prices between $26.68 and $31.83, with a weighted average exercise price of $30.17 and a weighted average remaining contractual life of 2.0 years. The intrinsic value of options exercisable at March 31, 2012 had an aggregate value of $5,952. The intrinsic value of options exercised at March 31, 2012 had an aggregate value of $26,311.

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 quarter of 2012.

Note 4. Securities Available-for-Sale


	March 31, 2012								December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	( In thousands)
U.S. Treasury	$	1,999	$	9	$	—	$	2,008	$	1,999	$	13	$	—	$	2,012
U.S. Government Sponsored Enterprises		116,957		165		21		117,101		174,657		311		11		174,957
Small Business Administration		8,430		94		—		8,524		8,714		87		—		8,801
U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities		1,121,934		17,909		781		1,139,062		1, 020,752		16,262		1,176		1,035,838
Privately Issued Residential Mortgage Backed Securities		3,392		—		167		3,225		3,509		—		311		3,198
Obligations Issued by States and Political Subdivisions		30,802		76		958		29,920		21,515		84		957		20,642
Other Debt Securities		13,258		165		44		13,379		13,293		—		683		12,610
Equity Securities		510		110		—		620		533		85		—		618

Total	$	1,297,282	$	18,528	$	1,971	$	1,313,839	$	1,244,972	$	16,842	$	3,138	$	1,258,676

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 $476,920,000 and $488,690,000 at March 31, 2012 and December 31, 2011, respectively. Also included in securities available-for-sale are securities pledged for borrowing at the Federal Home Loan Bank of Boston amounting to $265,267,000 and $246,036,000 at March 31, 2012 and December 31, 2011, respectively. The Company realized gross gains of $148,000 from the proceeds of $72,198,000 from the sales of available-for-sale securities for the three months ended March 31, 2012. The Company realized gross gains of $164,000 from the proceeds of $12,642,000 from the sales of available-for-sale securities for the three months ended March 31, 2011.

Page 11 of 37

Debt securities of 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 available-for-sale at March 31, 2012.


	Amortized Cost		Fair Value
	( In thousands)
Within one year	$	83,590	$	84,599
After one but within five years		963,384		977,449
After five but within ten years		233,396		235,375
More than 10 years		14,902		14,339
Non-maturing		2,010		2,077

Total	$	1,297,282	$	1,313,839

The weighted average remaining life of investment securities available-for-sale at March 31, 2012 was 3.9 years. Included in the weighted average remaining life calculation at March 31, 2012 was $106,957,000 of U.S. Government Sponsored Enterprises 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.

As of March 31, 2012 and December 31, 2011, management concluded that the unrealized losses of its investment securities are temporary in nature since they are not related to the underlying credit quality of the issuers, and the Company does not intend to sell these debt securities and it is not likely that it will be required to sell these debt securities before the anticipated recovery of its remaining amortized cost. In making its other-than-temporary impairment evaluation, the Company considered the fact that the principal and interest on these securities are from issuers that are investment grade. The change in the unrealized losses on the state and municipal securities and the nonagency mortgage-backed securities was primarily caused by changes in credit spreads and liquidity issues in the marketplace.

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. 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.

Page 12 of 37

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at March 31, 2012. 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 65 and 6 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 419 holdings at March 31, 2012.

March 31, 2012

Less than 12 months

12 months or longer

Total

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

(In thousands)

Temporarily Impaired Investments

U.S. Government Sponsored Enterprises

19,976

—

19,976

U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities

368,548

781

—

368,548

781

Privately Issued Residential Mortgage Backed Securities

—

3,225

167

3,225

167

Obligations Issued by States and Political Subdivisions

—

3,725

958

3,725

958

Other Debt Securities

5,538

1,457

6,995

Total temporarily impaired securities

394,062

803

8,407

1,168

402,469

1,971

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at December 31, 2011. 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 60 and 6 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 393 holdings at December 31, 2011.


	December 31, 2011
	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
Temporarily Impaired Investments
U.S. Government Sponsored Enterprises	$	14,989	$	11	$	—	$	—	$	14,989	$	11
U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities		331,469		1,176		—		—		331,469		1,176
Privately Issued Residential Mortgage Backed Securities		—		—		3,198		311		3,198		311
Obligations Issued by States and Political Subdivisions		—		—		3,725		957		3,725		957
Other Debt Securities		10,542		652		1,468		31		12,010		683
Equity Securities		—		—		—		—		—		—

Total temporarily impaired securities	$	357,000	$	1,839	$	8,391	$	1,299	$	365,391	$	3,138

Note 5. Investment Securities Held-to-Maturity


	March 31, 2012								December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
U.S. Government Sponsored Enterprises	$	24,665	$	9	$	44	$	24,620	$	26,979	$	36	$	2	$	27,013
U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities		291,568		6,115		386		297,297		152,389		5,435		15		157,809

Total	$	316,223	$	6,124	$	430	$	321,917	$	179,368	$	5,471	$	17	$	184,822

Included in U.S. Government and Agency Securities are securities pledged to secure public deposits and repurchase agreements at fair value amounting to $24,377,000 and $8,885,000 at March 31, 2012 and December 31, 2011, respectively. Also included are securities pledged for borrowing at the Federal Home Loan Bank of Boston at fair value amounting to $114,692,000 and $49,345,000 at March 31, 2012 and December 31, 2011, respectively.

Page 13 of 37

At March 31, 2012 and December 31, 2011, 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 March 31, 2012.


	Amortized Cost		Fair Value
	( In thousands)
Within one year	$	6,311	$	6,440
After one but within five years		239,130		244,509
After five but within ten years		70,499		70,682
More than ten years		283		286

Total	$	316,223	$	321,917

The weighted average remaining life of investment securities held-to-maturity at March 31, 2012 was 4.3 years. Included in the weighted average remaining life calculation at March 31, 2012 were $19,655,000 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.

As of March 31, 2012 and December 31, 2011, management concluded that the unrealized losses of its investment securities are temporary in nature since they are not related to the underlying credit quality of the issuers, and the Company does not intend to sell these debt securities and it is not likely that it will be required to sell these debt securities before the anticipated recovery of their remaining amortized costs. In making its other-than-temporary impairment evaluation, the Company considered the fact that the principal and interest on these securities are from issuers that are investment grade.

The unrealized loss on U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities related primarily to interest rates and not credit quality, and because the Company does not intend to sell any of these securities and it is not likely that it will be required to sell these securities before the anticipated recovery of the remaining amortized cost, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2012 and December 31, 2011.

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at March 31, 2012. 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 1 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 107 holdings at March 31, 2012.

Page 14 of 37


	March 31, 2012
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
Temporarily Impaired Investments
U.S. Government Sponsored Enterprises	$	12,698	$	44	$	—	$	—	$	12,698	$	44
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		34,068		369		5,368		17		39,436		386

Total temporarily impaired securities	$	46,766	$	413	$	5,368	$	17	$	52,314	$	430

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at December 31, 2011. 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 2 and 0 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 92 holdings at December 31, 2011.


	December 31, 2011
	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
Temporarily Impaired Investments
U.S. Government Sponsored Enterprises	$	4,994	$	2	$	—	$	—	$	4,994	$	2
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		5,367		15		—		—		5,367		15

Total temporarily impaired securities	$	10,361	$	17	$	—	$	—	$	10,361	$	17

Note 6. Allowance for Loan Losses

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

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


	Three months ended March 31,
	2012			2011
Allowance for loan losses, beginning of period	$	16,574		$	14,053
Loans charged off		(424	)		(589	)
Recoveries on loans previously charged-off		184			294

Net charge-offs		(240	)		(295	)
Provision charged to expense		1,100			1,200

Allowance for loan losses, end of period		17,434		$	14,958

Further information pertaining to the allowance for loan losses for the three months ending March 31, 2012 follows:

Page 15 of 37


	Construction and land development		Commercial and industrial			Commercial real estate		Residential real estate			Consumer and other			Home Equity		Unallocated		Total
	(Dollars in thousands)
Allowance for loan losses:
Balance at December 31, 2011	$	2,893	$	3,139		$	6,566	$	1,886		$	356		$	704	$	1,030	$	16,574
Charge-offs		—		(111	)		—		(159	)		(154	)		—		—		(424	)
Recoveries		—		42			1		5			136			—		—		184
Provision		27		150			774		52			(21	)		37		81		1,100

Balance at March 31, 2012	$	2,920	$	3,220		$	7,341	$	1,784		$	317		$	741	$	1,111	$	17,434

Amount of allowance for loan losses for loans deemed to be impaired	$	1,000	$	493		$	525	$	93		$	—		$	—	$	—	$	2,111
Amount of allowance for loan losses for loans not deemed to be impaired	$	1,920	$	2,727		$	6,816	$	1,691		$	317		$	741	$	1,111	$	15,323
Loans:
Ending balance	$	36,937	$	81,882		$	502,413	$	249,981		$	6,946		$	109,817	$	—	$	987,976
Loans deemed to be impaired	$	1,500	$	1,721		$	4,541	$	515		$	—		$	—	$	—	$	8,277
Loans not deemed to be impaired	$	35,437	$	80,161		$	497,872	$	249,466		$	6,946		$	109,817	$	—	$	979,699

Further information pertaining to the allowance for loan losses at March 31, 2011 follows:


	Construction and Land Development		Commercial and Industrial			Commercial Real Estate		Residential Real Estate			Consumer			Home Equity			Unallocated			Total
	(Dollars in thousands)
Allowance for loan losses:
Balance at December 31, 2010	$	1,752	$	3,163		$	5,671	$	1,718		$	298		$	725		$	726		$	14,053
Charge-offs		—		(156	)		—		(279	)		(154	)		—			—			(589	)
Recoveries		—		146			—		14			134			—			—			294
Provision		226		479			350		348			8			(18	)		(193	)		1,200

Ending balance at March 31, 2011	$	1,978	$	3,632		$	6,021	$	1,801		$	286		$	707		$	533		$	14,958

Amount of allowance for loan losses for loans deemed to be impaired	$	—	$	709		$	351	$	1		$	—		$	—		$	—			1,061
Amount of allowance for loan losses for loans not deemed to be impaired	$	1,978	$	2,923		$	5,670	$	1,800		$	286		$	707		$	533		$	13,897
Loans:
Ending balance	$	54,027	$	90,696		$	448,772	$	231,876		$	6,340		$	113,151		$	—		$	944,862
Loans deemed to be impaired	$	4,000	$	1,430		$	6,069	$	34		$	—		$	—		$	—		$	11,533
Loans not deemed to be impaired	$	50,027	$	89,266		$	442,703	$	231,842		$	6,340		$	113,151		$	—		$	933,329

Page 16 of 37

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

Loans rated 1-3 (Pass):

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

Loans rated 4 (Monitor):

These loans represent classified loans that management is closely monitoring for credit quality. These loans have had or may have minor credit quality deterioration as of March 31, 2012 and December 31, 2011.

Loans rated 5 (Substandard):

Substandard loans represent classified loans that management is closely monitoring for credit quality. These loans have had more significant credit quality deterioration as of March 31, 2012 and December 31, 2011.

Loans rated 6 (Doubtful):

Doubtful loans represent classified loans that management is closely monitoring for credit quality. These loans had more significant credit quality deterioration as of March 31, 2012 and are doubtful for full collection.

Impaired:

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

The following table presents the Company’s loans by risk rating at March 31, 2012.

Construction
and land
development

Commercial
and
industrial

Commercial
real
estate

(Dollars in thousands)

Grade:

1-3 (Pass)

28,047

79,652

493,543

4 (Monitor)

7,390

509

4,329

5 (Substandard)

—

6 (Doubtful)

—

Impaired

1,500

1,721

4,541

Total

36,937

81,882

502,413

The following table presents the Company’s loans by risk rating at December 31, 2011.


	Construction and land development		Commercial and industrial		Commercial real estate
	(Dollars in thousands)
Grade:
1-3(Pass)	$	48,298	$	80,140	$	478,186
4 (Monitor)		7,021		739		4,748
5 (Substandard)		—		—		—
6 (Doubtful)		—		—		—
Impaired		1,500		1,525		4,561

Total	$	56,819	$	82,404	$	487,495

The Company utilized payment performance as credit quality indicators for residential real estate, consumer and overdrafts, and the home equity portfolio. The indicators are depicted in the table “aging of past due loans,” below.

Page 17 of 37

Further information pertaining to the allowance for loan losses at March 31, 2012 follows:

Accruing
30-89 Days
Past Due

Non Accrual

Accrual
Greater
Than
90 Days

Total
Past Due

Current Loans

Total

(Dollars in thousands)

Construction and land development

—

1,500

—

1,500

35,437

36,937

Commercial and industrial

600

1,026

447

2,073

79,809

81,882

Commercial real estate

2,128

719

296

3,143

499,270

502,413

Residential real estate

2,612

1,219

—

3,831

246,150

249,981

Consumer and overdrafts

243

—

253

6,693

6,946

Home equity

1,140

—

1, 239

108,578

109,817

Total

6,723

4,573

743

12,039

975,937

987,976

Further information pertaining to the allowance for loan losses at December 31, 2011 follows:


	Accruing 30-89 Days Past Due		Non Accrual		Accrual Greater Than 90 Days		Total Past Due		Current Loans		Total
	(Dollars in thousands)
Construction and land development	$	—	$	1,500	$	—	$	1,500	$	55,319	$	56,819
Commercial and industrial		1,417		763		18		2,198		80,206		82,404
Commercial real estate		2,528		736		—		3,264		484,231		487,495
Residential real estate		2,635		2,324		—		4,959		234,348		239,307
Consumer and overdrafts		519		9		—		528		7,153		7,681
Home equity		171		495		—		666		110,120		110,786

Total	$	7,270	$	5,827	$	18	$	13,115	$	971,377	$	984,492

A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is impaired, The Company measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company measures impairment based on a loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. The Company’s policy for recognizing interest income on impaired loans is contained within Note 1 of the consolidated financial statements.

Page 18 of 37

The following is information pertaining to impaired loans for March 31, 2012:


	Carrying Value		Unpaid Principal Balance		Required Reserve		Average Carrying Value		Interest Income Recognized
	(Dollars in thousands)
With no required reserve recorded:
Construction and land development	$	—	$	—	$	—	$	1,125	$	—
Commercial and industrial		214		259		—		357		—
Commercial real estate		179		202		—		181		—
Residential real estate		32		32		—		145		—
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	425	$	493	$	—	$	1,808	$	—

With required reserve recorded:
Construction and land development	$	1,500	$	3,292	$	1,000	$	375	$	—
Commercial and industrial		1,507		1,730		493		1,285		14
Commercial real estate		4,362		4,394		525		4,002		34
Residential real estate		483		482		93		789		1
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	7,852	$	9,898	$	2,111	$	6,451	$	49

Total
Construction and land development	$	1,500	$	3,292	$	1,000	$	1,500	$	—
Commercial and industrial		1,721		1,989		493		1,642		14
Commercial real estate		4,541		4,596		525		4,183		34
Residential real estate		515		514		93		934		1
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	8,277	$	10,391	$	2,111	$	8,259	$	49

The following is information pertaining to impaired loans at March 31, 2011:


	Carrying Value		Unpaid Principal Balance		Required Reserve		Average Carrying Value		Interest Income Recognized
	(Dollars in thousands)
With no required reserve recorded:
Construction and land development	$	4,000	$	8,504	$	—	$	3,087	$	—
Commercial and industrial		343		531		—		731		86
Commercial real estate		192		192		—		1,727		122
Residential real estate		—		—		—		—		—
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	4,535	$	9,227	$	—	$	5,545	$	208

With required reserve recorded:
Construction and land development	$	—	$	—	$	—	$	1,531	$	—
Commercial and industrial		1,087		1,098		709		810		44
Commercial real estate		5,877		5,905		351		1,491		42
Residential real estate		34		34		1		—		—
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	6,998	$	7,037	$	1,061	$	3,832	$	86

Total
Construction and land development	$	4,000	$	8,504	$	—	$	4,618	$	—
Commercial and industrial		1,430		1,629		709		1,541		130
Commercial real estate		6,069		6,097		351		3,218		164
Residential real estate		34		34		1		—		—
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	11,533	$	16,264	$	1,061	$	9,377	$	294

Page 19 of 37

There were no troubled debt restructurings occurring during the three month period ended March 31, 2012.

Troubled Debt Restructurings occurring during the three month period ended March 31, 2011:


	Number of Contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
	(Dollars in thousands)
Commercial and industrial		1	$	34	$	33
Commercial real estate		1		440		436

Total		2	$	474	$	469

Troubled Debt Restructurings were identified as a modification where a concession was granted to a customer who is having financial difficulties. This concession may be below market rate, longer amortization/term, and a lower payment amount. The present value calculation of the modification did not result in an increase in the allowance for these loans beyond any previously established allocations. The loans were modified, for both the commercial and industrial and commercial real estate loans, by reducing interest rates as well as extending terms on the loans. The financial impact of the modifications for performing commercial and industrial loans were $1,349 reduction in principal and $275 reduction in interest payments for the quarter ended March 31, 2011. The financial impact of the modifications for performing commercial real estate were $530 reduction in principal and $2,394 reduction in interest payments for the quarter ended March 31, 2011.

Note 7. Employee Benefits

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

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

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

Page 20 of 37

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


	Pension Benefits						Supplemental Insurance/ Retirement Plan
	2012			2011			2012		2011
	(In thousands)
Service cost	$	274		$	211		$	356	$	170
Interest		324			355			231		233
Expected return on plan assets		(410	)		(399	)		—		—
Recognized prior service cost (benefit)		(26	)		(26	)		29		28
Recognized net actuarial losses		184			123			84		32

Net periodic benefit cost	$	346		$	264		$	700	$	463

Contributions

The Company previously disclosed in its financial statements for the year ended December 31, 2011 that it expected to contribute $1,800,000 to the Pension Plan in 2012. As of March 31, 2012, $450,000 of the contribution had been made. The Company expects to contribute an additional $1,350,000 by the end of the year.

Note 8. 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 21 of 37

The results of the fair value hierarchy as of March 31, 2012, are as follows:

Financial Instruments Measured at Fair Value on a Recurring Basis:

Securities AFS Fair Value Measurements Using

Carrying
Value

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

Significant
Observable
Inputs
(Level 2)

Significant
Other
Unobservable
Inputs
(Level 3)

(In thousands)

U.S. Treasury

2,008

—

2,008

—

U.S. Government Sponsored Enterprises

117,102

—

117,102

—

SBA Backed Securities

8,524

—

8,524

—

U.S. Government Agency and Sponsored Mortgage Backed Securities

1,139,062

—

1,139,062

—

Privately Issued Residential Mortgage Backed Securities

3,225

—

3,225

—

Obligations Issued by States and Political Subdivisions

29,920

—

2,138

27,782

Other Debt Securities

13,378

—

13,378

—

Equity Securities

620

226

—

394

Total

1,313,839

226

1,285,437

28,176

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

Impaired Loans

3,848

—

3,848

Other Real Estate Owned

1,183

—

1,183

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-month period ended March 31, 2012 amounted to $1.4 million. 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 between level 1 and 2 for the three months ended March 31, 2012. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the three month period ended March 31, 2012.

The following table presents additional information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands).


Asset	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Securities AFS	$	28,176	Discounted cash flow	Discount rate	0% -1% (3)
Impaired Loans		3,848	Appraisal of collateral (1)	Appraisal adjustments (2)	0% - 25% discount
Other real estate owned		1,183	Appraisal of collateral (1)	Appraisal adjustments (2)	0%

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

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

(3)	Weighted averages

Page 22 of 37

The changes in Level 3 securities for the three-month period ended March 31, 2012 are shown in the table below:

Auction Rate
Securities

Obligations
Issued by States
& Political
Subdivisions

Equity
Securities

Total

(In thousands)

Balance at December 31, 2011

3,725

14,772

417

18,914

Purchases

—

12,730

—

12,730

Maturities and calls

—

(3,434

)

(23

)

(3,457

)

Amortization

—

(11

)

—

(11

)

Changes in fair value

—

Balance at March 31, 2012

3,725

24,057

394

28,176

The amortized cost of Level 3 securities was $29,135,000 at March 31, 2012 with an unrealized loss of $959,000. 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.

The changes in Level 3 securities for the three-month period ended March 31, 2011, are shown in the table below:


	Auction Rate Securities		Obligations Issued by States & Political Subdivisions			Equity Securities		Total
	(In thousands)
Balance at December 31, 2010	$	4,393	$	15,988		$	279	$	20,660
Purchases		—		4,296			—		4,296
Maturities and calls		—		(3,300	)		—		(3,300	)
Amortization		—		—			—		—
Changes in fair value		—		—			—		—

Balance at March 31, 2011	$	4,393	$	16,984		$	279	$	21,656

The amortized cost of Level 3 securities was $21,945,000 at March 31, 2011 with an unrealized loss of $289,000. 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 9. 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.

The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.

Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of timing, amount of expected future cash flows and the credit standing of the issuer. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In some cases, the fair value estimates cannot be substantiated by comparison to independent markets. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below.

Page 23 of 37

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

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.

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

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

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

The following presents (in thousands) the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2012 and December 31, 2011. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, short-term investments, FHLBB stock and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include non-maturity deposits, short-term borrowings and accrued interest payable.


					Fair Value Measurements
	Carrying Amount		Estimated Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
March 31, 2012
Financial assets:
Securities held-to-maturity	$	316,223	$	321,917	$	—	$	321,917	$	—
Loans (1)		970,542		1,016,776		—		—		1,016,776
Financial liabilities:
Time deposits		439,474		447,532		—		447,532		—
Other borrowed funds		241,143		252,586		—		252,586		—
Subordinated debentures		36,083		41,972		—		—		41,972

December 31, 2011
Financial assets:
Securities held-to-maturity		179,368		184,822		—		184,822		—
Loans (1)		967,918		1,018,822		—		—		1,018,822
Financial liabilities:
Time deposits		433,501		439,711		—		439,711		—
Other borrowed funds		244,143		258,165		—		258,165		—
Subordinated debentures		36,083		43,063		—		—		43,063

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

Page 24 of 37

Note 10. Recent Accounting Developments

In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860), Reconsideration of Effective Control for Repurchase Agreements. This update revises the criteria for assessing effective control for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The determination of whether the transfer of a financial asset subject to a repurchase agreement is a sale is based, in part, on whether the entity maintains effective control over the financial asset. This update removes from the assessment of effective control: the criterion requiring the transferor to have the ability to repurchase or redeem the financial asset on substantially the agreed terms, even in the event of default by the transferee, and the related requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. The amendments in this update will be effective for interim and annual reporting periods beginning on or after December 15, 2011. The amendments will be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date and early adoption is permitted. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The guidance clarifies and expands the disclosures pertaining to unobservable inputs used in Level 3 fair value measurements, including the disclosure of quantitative information related to (1) the valuation processes used, (2) the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, and (3) use of a nonfinancial asset in a way that differs from the asset’s highest and best use. The guidance also requires, for public entities, disclosure of the level within the fair value hierarchy for assets and liabilities not measured at fair value in the statement of financial position but for which the fair value is disclosed. The amendments in this Update are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. Early application was permitted. The Company has presented the requirements for this amendment in footnotes 8 and 9.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This ASU amends the disclosure requirements for the presentation of comprehensive income. The amended guidance eliminates the option to present components of other comprehensive income (OCI) as part of the consolidated statement of changes in stockholders’ equity. Under the amended guidance, all changes in OCI are to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. The changes are effective for fiscal years, and interim periods within those years, ending after December 15, 2011, with retrospective application required. Early application is permitted. There was no impact on the Company’s consolidated financial results as the amendments relate only to changes in financial statement presentation. In December 2011, the FASB elected to defer the effective date of those changes in ASU 2011-05 that relate only to the presentation of reclassification adjustments in the statement of income by issuing ASU 2011-12, Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The Company has presented a separate financial statement as a result of this pronouncement.

In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other (Topic 350), Testing Goodwill for Impairment. This ASU is intended to reduce the complexity and cost of performing an evaluation of impairment of goodwill. Under the new guidance, an entity will have the option of first assessing qualitative factors

Page 25 of 37

(events and circumstances) to determine whether it is more likely than not (meaning a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If, after considering all relevant events and circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test will be unnecessary. The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company implemented the provisions of ASU 2011-08 as of January 1, 2012. The adoption of this pronouncement did not have a material effect on the consolidated 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 $2.9 billion as of March 31, 2012. The Company presently operates 24 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 July 2010, the Company entered into a lease agreement to open a branch located at Newton Centre in Newton, Massachusetts. The branch opened on June 20, 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 second quarter of 2012.

The Company’s results of operations are largely dependent on net interest income, which is the difference between the interest earned on loans and securities and interest paid on deposits and borrowings. The results of operations are also affected by the level of income and fees from loans, deposits, as well as operating expenses, the provision for loan losses, the impact of federal and state income taxes and the relative levels of interest rates and economic activity.

The Company offers a wide range of services to commercial enterprises, state and local governments and agencies, non-profit organizations and individuals. It emphasizes service to small and medium-sized businesses and retail customers in its market area. 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 189 (54%) of the 351 cities and towns in Massachusetts.

Net income for the first quarter ended March 31, 2012 were $3,808,000, or $0.69 per share diluted, compared to net income of $3,725,000, or $0.67 per share diluted, for the first quarter ended March 31, 2011.

Page 26 of 37

Net interest income totaled $14.4 million for the first three months of 2012 compared to $13.9 million for the same period in 2011. The 3.4% increase in net interest income for the period is due to an 11.1% increase in the average balances of earning assets, combined with a similar increase in deposits, offset by a decrease in the net interest margin. The net interest margin decreased from 2.64% on a fully taxable equivalent basis in 2011 to 2.48% on the same basis for 2012.

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

LOGO

The primary factor accounting for the general decrease in the net interest margin for the third quarter of 2010 was a large influx of deposits, primarily from municipalities, and a corresponding increase in short-term investments. Pricing discipline continued through the first quarter of 2011. The net interest margin fell somewhat during the second quarter of 2011 mainly as a result of increased deposits and corresponding lower yield short-term investments. During the third quarter of 2011 through the first quarter of 2012, management stabilized the net interest margin by continuing to lower cost of funds, and by deploying excess liquidity through expansion of the investment portfolio.

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 March 31, 2012, the loan loss provision was $1.1 million compared to a provision of $1.2 million for the same period last year. The decrease in the provision was primarily due to management’s quantitative analysis of the loan portfolio. During the three months ended March 31, 2012, management provided $1.0 million for one large construction loan. Nonperforming loans decreased to $4.6 million at March 31, 2012 from $10.8 million on March 31, 2011.

The Company capitalized on favorable market conditions for the first quarter ended March 31, 2012 and realized net gains on sales of investments of $148,000, compared to $164,000 for the same period in 2011. Other income increased for the first quarter of 2012 compared to the same period last year primarily as a result of increased service charges on deposit accounts. Included in operating expenses for the first quarter ended March 31, 2012 are FDIC assessments of $407,000, compared to $735,000 for the same period in 2011. FDIC assessments decreased primarily as a result of a decrease in the assessment rate, offset somewhat by an increase in the assessment base.

For the first quarter of 2012, the Company’s effective income tax rate was 7.6% compared to 8.1% for last year’s corresponding quarter. The effective income tax rate decreased primarily as a result of an increase in tax-exempt income.

Page 27 of 37

Financial Condition

Loans

On March 31, 2012, total loans outstanding were $988.0 million, an increase of 0.4% from the total on December 31, 2011. At March 31, 2012, commercial real estate loans accounted for 50.9% and residential real estate loans, including home equity loans, accounted for 36.4% of total loans. The Company had $6.6 million of loans held for sale at March 31, 2012.

Commercial and industrial loans decreased to $81.9 million at March 31, 2012 from $82.4 million at December 31, 2011. Construction loans decreased to $36.9 million at March 31, 2012 from $56.8 million on December 31, 2011, primarily as a result of a large loan moving into permanent financing.

Allowance for Loan Losses

The allowance for loan loss at March 31, 2012 was $17.4 million as compared to $16.6 million at December 31, 2011. The increase was due to quantitative factors associated with the loan loss reserve requirement. As part of the analysis, management provided $1.0 million for one large construction loan. Also, the level of the allowance for loan losses to total loans increased from 1.68% at December 31, 2011 to 1.76% at March 31, 2012. The dollar amount of the allowance for loan losses and the level of the allowance for loan losses to total loans increased, primarily as a result of increases in required specific reserves associated with impaired loans. 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 March 31, 2012 is $36.9 million. A major factor in nonaccrual loans is one large construction loan. 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 $487.8 million at March 31, 2012. 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, which is included in the loans greater than $1.0 million category, is $186.8 million, at March 31, 2012. 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 $ 43.6 million at March 31, 2012. 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.

Page 28 of 37

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


	Three months ended March 31,
	2012			2011
	(in thousands)
Allowance for loan losses, beginning of period	$	16,574		$	14,053
Loans charged off		(424	)		(589	)
Recoveries on loans previously charged-off		184			294

Net charge-offs		(240	)		(295	)
Provision charged to expense		1,100			1,200

Allowance for loan losses, end of period	$	17,434		$	14,958

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

Nonperforming Assets

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


	March 31, 2012			December 31, 2011
	(Dollars in thousands)
Nonaccruing loans	$	4,573		$	5,827
Loans past due 90 days or more and still accruing	$	743		$	18
Other real estate owned	$	1,183		$	1,183
Nonaccruing loans as a percentage of total loans		0.46	%		0.59	%
Accruing troubled debt restructures	$	4,603		$	4,634

Loans past due greater than 90 days and accruing represent loans that matured and the borrower has continued to make regular principal and interest payments as if the loan had been renewed when, in fact, renewal had not yet taken place. It is expected that the loans will be renewed or paid in full without any loss.

Cash and Cash Equivalents

Cash and cash equivalents remained relatively stable during the first quarter of 2012.

Short-term Investments

Short-term investments decreased mainly as a result of increases in longer term higher yielding investments.

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.

Page 29 of 37

Securities Available-for-Sale (at Fair Value)


	March 31, 2012		December 31, 2011
	(In thousands)
U.S. Treasury	$	2,008	$	2,012
U.S. Government Sponsored Enterprises		117,102		174,957
Small Business Administration		8,524		8,801
U.S Government Agency and Sponsored Enterprise Mortgage-backed Securities		1,139,062		1,035,838
Privately Issued Residential Mortgage-backed Securities		3,225		3,198
Obligations issued by States and Political Subdivisions		29,920		20,642
Other Debt Securities		13,378		12,610
Equity Securities		620		618

Total Securities Available–for-Sale	$	1,313,879	$	1,258,676

During the first three months of 2012 the Company capitalized on favorable market conditions and realized $148,000 of gains on sales of investments. The sales of investments represented ten U.S. Government Sponsored Enterprise bonds totaling $72.2 million.

Debt securities of Government Sponsored Enterprises primarily refer to debt securities of Fannie Mae and Freddie Mac.

Securities Held-to-Maturity (at Amortized Cost)


	March 31, 2012		December 31, 2011
	(In thousands)
U.S. Government Sponsored Enterprises	$	24,655	$	26,979
U.S. Government Agency and Sponsored Enterprise Mortgage-backed Securities		291,568		152,389

Total Securities Held-to-Maturity	$	316,223	$	179,368

At March 31, 2012 and December 31, 2011, 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 $1.3 billion at March 31, 2012, an increase of 4.4% from December 31, 2011. Purchases of securities available-for-sale totaled $249.9 million for the three months ended March 31, 2012. 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 3.9 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.

Page 30 of 37

Securities available-for-sale totaling $28.2 million, or 0.99% 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 $316.2 million on March 31, 2012, an increase of 76.3% from the total on December 31, 2011. The portfolio is concentrated in United States Government Sponsored Enterprises and Mortgage-backed Securities and had an estimated weighted average remaining life of 4.3 years.

Federal Home Loan Bank of Boston Stock

The Bank, as a member of the Federal Home Loan Bank of Boston (“FHLBB”) system, is required to maintain an investment in capital stock of the FHLBB. Based on redemption provisions, the stock has no quoted market value and is carried at cost. At its discretion, the FHLBB may declare dividends on the stock. The Company reviews for impairment based on the ultimate recoverability of the cost basis in the stock. For the quarter ended March 31, 2012, the FHLBB reported preliminary net income of $46.8 million. The FHLBB also declared a dividend equal to an annual yield of 0.52%. As of March 31, 2012, no impairment has been recognized.

Deposits and Borrowed Funds

On March 31, 2012, deposits totaled $2.2 billion, representing a 3.2% increase from December 31, 2011. Total deposits increased primarily as a result of increases in time deposits, money market, savings and NOW. Savings and NOW, money market and time deposits increased as the Company continued to offer attractive rates for these types of deposits during the first three months of the year. Borrowed funds totaled $383.4 million compared to $387.5 million at December 31, 2011. Borrowed funds decreased mainly as a result of matured term borrowings from the FHLBB.

Stockholders’ Equity

At March 31, 2012, total equity was $165.9 million compared to $160.6 million at December 31, 2011. The Company’s equity increased primarily as a result of earnings and other comprehensive income, net of taxes, offset somewhat by dividends paid. The Company’s leverage ratio stood at 7.05% at March 31, 2012, compared to 7.21% at March 31, 2011. 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 14.67% and 15.92%, respectively, at March 31, 2012. Book value as of March 31, 2012 was $29.91 per share.

Page 31 of 37

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
	March 31, 2012									March 31, 2011
	( In thousands)
	Average Balance			Interest(1)			Average Yield/ Rate			Average Balance			Interest(1)			Average Yield/ Rate
ASSETS
Interest-earning assets:
Loans (2)
Loans taxable	$	700,255		$	8,819			5.07	%	$	702,012		$	9,442			5.45	%
Loans tax-exempt		285,967			5,100			7.17			222,855			4,195			7.63
Securities available-for-sale (5):
Taxable		1,242,091			5,662			1.82			928,632			5,293			2.28
Tax-exempt		22,492			79			1.40			28,199			91			1.30
Securities held-to-maturity:
Taxable		205,538			1,463			2.85			211,658			1,773			3.35
Tax-exempt		—			—			—			—			—			—
Interest-bearing deposits in other banks		186,515			139			0.30			285,590			347			0.49

Total interest-earning assets		2,642,858			21,262			3.23	%		2,378,946			21,141			3.58	%
Non interest-earning assets		167,029									151,717
Allowance for loan losses		(17,079	)								(14,587	)

Total assets	$	2,792,808								$	2,516,076

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits:
NOW accounts	$	522,489		$	371			0.29	%	$	464,560		$	482			0.42	%
Savings accounts		274,160			163			0.24			246,166			230			0.38
Money market accounts		646,618			605			0.38			542,738			705			0.53
Time deposits		416,271			1,681			1.62			445,695			2,279			2.07

Total interest-bearing deposits		1,859,538			2,820			0.61			1,699,159			3,696			0.88
Securities sold under agreements to repurchase		155,193			92			0.24			129,472			110			0.35
Other borrowed funds and subordinated debentures		217,908			2,051			3.79			203,487			1,845			3.68

Total interest-bearing liabilities		2,232,639			4,963			0.89	%		2,032,118			5,651			1.13	%

Non interest-bearing liabilities
Demand deposits		360,249									308,749
Other liabilities		36,151									28,925

Total liabilities		2,629,039									2,369,792

Stockholders’ equity		163,769									146,284
Total liabilities & stockholders’ equity	$	2,792,808								$	2,516,076

Net interest income on a fully taxable equivalent basis					16,299									15,490
Less taxable equivalent adjustment					(1,897	)								(1,563	)

Net interest income				$	14,402								$	13,927

Net interest spread (3)								2.33	%								2.46	%

Net interest margin (4)								2.48	%								2.64	%

(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 32 of 37

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 March 31, 2012
Compared with
Three Months Ended March 31, 2011

Increase/(Decrease)

Due to Change in

Volume

Rate

Total

(in thousands)

Interest income:

Loans

Taxable

(21

)

(602

)

(623

)

Tax-exempt

1,167

(262

)

905

Securities available-for-sale

Taxable

1,562

(1,193

)

369

Tax-exempt

(20

)

(12

)

Securities held-to-maturity

Taxable

(50

)

(260

)

(310

)

Interest-bearing deposits in other banks

(98

)

(110

)

(208

)

Total interest income

2,540

(2,419

)

121

Interest expense:

Deposits:

NOW accounts

(167

)

(111

)

Savings accounts

(91

)

(67

)

Money market accounts

123

(223

)

(100

)

Time deposits

(140

)

(458

)

(598

)

Total interest-bearing deposits

(939

)

(876

)

Securities sold under agreements to repurchase

(38

)

(18

)

Other borrowed funds and subordinated debentures

146

206

Total interest expense

229

(917

)

(688

)

Change in net interest income

2,311

(1,502

)

809

Net Interest Income

For the three months ended March 31, 2012, net interest income on a fully taxable equivalent basis totaled $16.3 million compared to $15.5 million for the same period in 2011, an increase of $809,000 million or 5.2%. This increase in net interest income for the period is due to an 11.1% increase in the average balances of earning assets, combined with a similar increase in deposits, offset by a decrease in the net interest margin. The net interest margin decreased from 2.64% on a fully taxable equivalent basis in 2011 to 2.48% on the same basis for 2012.

Provision for Loan Losses

For the three months ended March 31, 2012, the loan loss provision was $1.1 million compared to a provision of $1.2 million for the same period last year. The decrease in the provision for the three months ended March 31, 2012, was primarily due to management’s quantitative analysis of the loan portfolio. The level of the allowance for loan losses to total loans increased from 1.68% at December 31, 2011 to 1.76% at March 31, 2012. The increase was primarily the result of an increase in required specific reserves associated with impaired loans.

Page 33 of 37

Non-Interest Income and Expense

Other operating income for the quarter ended March 31, 2012 increased by $84,000 to $3.6 million from $3.5 million for the same period last year. There was an increase in service charges on deposit accounts of $101,000, which was mainly attributable to an increase in fees collected and debit card fees. Lockbox fees decreased by $38,000 as a result of decreased customer volume. Other income increased by $37,000 mainly as a result of increases in the growth of cash surrender values on life insurance policies offset by a decrease in brokerage commissions.

For the quarter ended March 31, 2012, operating expenses increased by $590,000 or 4.8% to $12.8 million, from the same period last year. The increase in operating expenses for the quarter was mainly attributable to an increase of $800,000 in salaries and employee benefits, $222,000 in other expenses and $104,000 occupancy and equipment expenses. This was offset somewhat by a decrease of $328,000 in FDIC assessments. Salaries and employee benefits increased mainly as a result of merit increases, increased staffing levels and pension costs. Occupancy and equipment increased mainly as a result of costs associated with the Newton Centre branch opening during the second quarter of 2011. Other expenses increased mainly as a result of increases in software maintenance. FDIC assessments decreased mainly as a result of a decrease in the assessment rate, offset somewhat by an increase in the assessment base.

Income Taxes

For the first quarter of 2012, the Company’s income tax expense totaled $313,000 on pretax income of $4.1 million resulting in an effective tax rate of 7.6%. For last year’s corresponding quarter, the Company’s income tax expense totaled $327,000 on pretax income of $4.1 million resulting in an effective tax rate of 8.1%. The effective income tax rate decreased for the three months ended mainly as a result of an increase in tax exempt income as a percentage of taxable income compared to the same period 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, 2011, 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

Page 34 of 37

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 first quarter of 2012 there has been no change in its internal control over financial reporting that has 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, 2011. 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
Period	Total number of shares purchased		Weighted Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs (1)
January 1 – January 31, 2012		—	$	—		—		300,000
February 1 – February 29, 2012		—	$	—		—		300,000
March 1 – March 31, 2012		—	$	—		—		300,000

(1)	On July 12, 2011, 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

Page 35 of 37

Item 6

Exhibits



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.

++ 101.INS		XBRL Instance Document

++ 101.SCH		XBRL Taxonomy Extension Schema

++ 101.CAL		XBRL Taxonomy Extension Calculation Linkbase

++ 101.LAB		XBRL Taxonomy Extension Label Linkbase

++ 101.PRE		XBRL Taxonomy Extension Presentation Linkbase

++ 101.DEF		XBRL Taxonomy Definition Linkbase

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

As provided in Rule 406T of regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 and consists of the following materials from Century Bancorp Inc.’s Quarterly Report on 10-Q for the quarter ended March 31, 2012, formatted in XBRL: (i) Consolidated Balance Sheets at March 31, 2012 and December 31, 2012; (ii) Consolidated Statements of Income for the three months ended March 31, 2012 and 2011; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2012 and 2011; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011; and (vi) Notes to Unaudited Consolidated Interim Financial Statements.

Page 36 of 37

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:		May 8, 2012				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 37 of 37

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company