Edgar Filing: CENTURY BANCORP INC

e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2010.


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

Commission file number: 0-15752

CENTURY BANCORP, INC.

(Exact name of registrant as specified in its charter)


COMMONWEALTH OF MASSACHUSETTS		04-2498617

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

400 MYSTIC AVENUE, MEDFORD, MA		02155

(Address of principal executive offices)		(Zip Code)

(781) 391-4000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

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


Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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

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


Class A Common Stock, $1.00 par value		3,524,917 Shares
Class B Common Stock, $1.00 par value		2,011,380 Shares

Century Bancorp, Inc.


		Page
	Index	Number
Part I	Financial Information

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets:
	June 30, 2010 and December 31, 2009		3

	Consolidated Statements of Income:
	Three months and Six months ended June 30, 2010 and 2009		4

	Consolidated Statements of Changes in Stockholders’ Equity: Six months ended June 30, 2010 and 2009		5

	Consolidated Statements of Cash Flows:
	Six months ended June 30, 2010 and 2009		6

	Notes to Consolidated Financial Statements		7-20

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21-32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32

Item 4.	Controls and Procedures		32

Part II.	Other Information

Item 1.	Legal Proceedings		33

Item 1A.	Risk Factors		33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		33

Item 3.	Defaults Upon Senior Securities		33

Item 5.	Other Information		33

Item 6.	Exhibits		33
Signatures			35
Exhibits
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Page 2 of 35

PART I — Item 1

Century Bancorp, Inc.

Consolidated Balance Sheets (unaudited)
(In thousands, except share data)


	June 30,			December 31,
	2010			2009
Assets

Cash and due from banks	$	49,410		$	42,627
Federal funds sold and interest-bearing deposits in other banks		306,859			356,015

Total cash and cash equivalents		356,269			398,642


Short-term investments		140,999			18,518

Securities available-for-sale, amortized cost $763,991 and $641,010, respectively		778,660			647,796
Securities held-to-maturity, fair value $185,104 and $221,413, respectively		178,731			217,643
Federal Home Loan Bank of Boston stock, at cost		15,531			15,531

Loans, net:
Commercial and industrial		112,017			141,061
Construction and land development		55,992			60,349
Commercial real estate		381,671			361,823
Residential real estate		193,635			188,096
Home equity		117,486			118,076
Consumer and other		7,546			7,720

Total loans, net		868,347			877,125
Less: allowance for loan losses		14,350			12,373

Net loans		853,997			864,752


Bank premises and equipment		21,482			21,015
Accrued interest receivable		5,776			5,806
Goodwill		2,714			2,714
Core deposit intangible		702			896
Other assets		64,347			60,722

Total assets	$	2,419,208		$	2,254,035


Liabilities

Deposits:
Demand deposits	$	308,398		$	279,874
Savings and NOW deposits		627,421			575,592
Money market accounts		536,067			553,883
Time deposits		356,550			292,638

Total deposits		1,828,436			1,701,987


Securities sold under agreements to repurchase		124,080			118,745
Other borrowed funds		229,994			234,024
Subordinated debentures		36,083			36,083
Due to broker		27,859			—
Other liabilities		29,722			30,466

Total liabilities		2,276,174			2,121,305


Stockholders’ Equity

Preferred stock — $1.00 par value; 100,000 shares authorized; no shares issued and outstanding		—			—
Class A common stock, $1.00 par value per share; authorized 10,000,000 shares; issued 3,518,917 shares and 3,515,767 shares, respectively		3,519			3,516
Class B common stock, $1.00 par value per share; authorized 5,000,000 shares; issued 2,011,380 and 2,014,530 shares, respectively		2,011			2,014
Additional paid-in capital		11,376			11,376
Retained earnings		125,423			120,125

		142,329			137,031
Unrealized gains on securities available-for-sale, net of taxes		8,891			4,129
Pension liability, net of taxes		(8,186	)		(8,430	)

Total accumulated other comprehensive income (loss), net of taxes		705			(4,301	)

Total stockholders’ equity		143,034			132,730

Total liabilities and stockholders’ equity	$	2,419,208		$	2,254,035

See accompanying notes to unaudited consolidated interim financial statements.

Page 3 of 35

Century Bancorp, Inc.

Consolidated Statements of Income (unaudited)
(In thousands, except share data)


	Three months ended June 30,				Six months ended June 30,
	2010		2009		2010		2009
Interest income
Loans	$	12,068	$	12,026	$	24,180	$	23,815
Securities held-to-maturity		1,875		2,180		3,860		4,403
Securities available-for-sale		4,979		5,225		10,012		10,254
Federal funds sold and interest-bearing deposits in other banks		403		763		781		1,305

Total interest income		19,325		20,194		38,833		39,777


Interest expense
Savings and NOW deposits		1,093		1,337		2,314		2,733
Money market accounts		1,089		1,718		2,313		3,653
Time deposits		1,876		2,561		3,584		5,168
Securities sold under agreements to repurchase		131		117		350		325
Other borrowed funds and subordinated debentures		1,994		2,499		4,405		5,144

Total interest expense		6,183		8,232		12,966		17,023


Net interest income		13,142		11,962		25,867		22,754

Provision for loan losses		1,450		1,050		3,025		2,900


Net interest income after provision for loan losses		11,692		10,912		22,842		19,854

Other operating income
Service charges on deposit accounts		1,952		2,006		3,875		4,028
Lockbox fees		748		753		1,448		1,494
Net gain on sales of investments		649		—		1,027		978
Other income		756		781		2,014		1,710

Total other operating income		4,105		3,540		8,364		8,210


Operating expenses
Salaries and employee benefits		7,850		6,541		14,775		13,429
Occupancy		998		995		2,066		2,140
Equipment		533		654		1,083		1,282
FDIC assessments		740		1,623		1,390		2,116
Other		2,477		2,470		4,850		4,766

Total operating expenses		12,598		12,283		24,164		23,733


Income before income taxes		3,199		2,169		7,042		4,331

Provision for income taxes		238		162		659		438


Net income	$	2,961	$	2,007	$	6,383	$	3,893


Share data:
Weighted average number of shares outstanding, basic		5,530,297		5,530,724		5,530,297		5,534,233
Weighted average number of shares outstanding, diluted		5,532,980		5,531,329		5,533,025		5,534,345
Net income per share, basic	$	0.54	$	0.36	$	1.15	$	0.70
Net income per share, diluted	$	0.54	$	0.36	$	1.15	$	0.70
Cash dividends paid:
Class A common stock	$	0.12	$	0.12	$	0.12	$	0.12
Class B common stock	$	0.06	$	0.06	$	0.06	$	0.06

See accompanying notes to unaudited consolidated interim financial statements.

Page 4 of 35

Century Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
For the Three Months Ended June 30, 2010 and 2009


													Accumulated
	Class A			Class B			Additional						Other			Total
	Common			Common			Paid-In			Retained			Comprehensive			Stockholders’
	Stock			Stock			Capital			Earnings			Income			Equity
							(In thousands)
Balance at December 31, 2008	$	3,511		$	2,027		$	11,475		$	112,135		$	(8,645	)	$	120,503

Net income		—			—			—			3,893			—			3,893

Other comprehensive income, net of tax:
Unrealized holding losses arising during period, net of $1,256 in taxes and $978 in realized net gains		—			—			—			—			1,772			1,772

Pension liability adjustment, net of $163 in taxes		—			—			—			—			246			246

Comprehensive income																	5,911

Stock repurchased, 8,110 shares		(8	)		—			(99	)		—			—			(107	)

Cash dividends paid, Class A common stock, $.24 per share		—			—			—			(842	)		—			(842	)
Cash dividends paid, Class B common stock, $.12 per share		—			—			—			(243	)		—			(243	)

Balance at June 30, 2009	$	3,503		$	2,027		$	11,376		$	114,943		$	(6,627	)	$	125,222


Balance at December 31, 2009	$	3,516		$	2,014		$	11,376		$	120,125		$	(4,301	)	$	132,730

Net income		—			—			—			6,383			—			6,383

Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of $3,122 in taxes and $1,027 in realized net gains		—			—			—			—			4,762			4,762

Pension liability adjustment, net of $162 in taxes		—			—			—			—			244			244

Comprehensive income																	11,389

Conversion of class B common stock to class A common stock, 3,150 shares		3			(3	)		—			—			—			—

Cash dividends paid, Class A common stock, $.24 per share		—			—			—			(844	)		—			(844	)

Cash dividends paid, Class B common stock, $.12 per share		—			—			—			(241	)		—			(241	)

Balance at June 30, 2010	$	3,519		$	2,011		$	11,376		$	125,423		$	705		$	143,034

See accompanying notes to unaudited consolidated interim financial statements.

Page 5 of 35

Century Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)
(In thousands)


	Six months ended June 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,383		$	3,893
Adjustments to reconcile net income to net cash provided by operating activities:
Mortgage loans originated for sale		—			(374	)
Proceeds from mortgage loans sold		—			379
Gain on sales of loans		—			(5	)
Net gain on sales of investments		(1,027	)		(978	)
Provision for loan losses		3,025			2,900
Deferred income taxes		(1,050	)		(1,137	)
Net depreciation and amortization		2,487			2,826
Decrease (increase) in accrued interest receivable		30			(48	)
Increase in other assets		(5,889	)		(2,756	)
(Decrease) increase in other liabilities		(314	)		1,814

Net cash provided by operating activities		3,645			6,514


CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of short-term investments		43,518			79,816
Purchase of short-term investments		(165,999	)		(176,887	)
Proceeds from maturities of securities available-for-sale		322,556			178,780
Proceeds from sales of securities available-for-sale		34,625			32,158
Purchase of securities available-for-sale		(452,239	)		(359,662	)
Proceeds from maturities of securities held-to-maturity		101,982			56,314
Purchase of securities held-to-maturity		(63,342	)		(67,818	)
Net decrease in loans		7,753			11
Capital expenditures		(1,541	)		(539	)

Net cash used in investing activities		(172,687	)		(257,827	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time deposits		63,912			(2,612	)
Net increase in demand, savings, money market and NOW deposits		62,537			261,268
Net payments for the repurchase of stock		—			(107	)
Cash dividends		(1,085	)		(1,085	)
Net increase (decrease) in securities sold under agreements to repurchase		5,335			(45,858	)
Net (decrease) increase in other borrowed funds		(4,030	)		7,430

Net cash provided by financing activities		126,669			219,036


Net decrease in cash and cash equivalents		(42,373	)		(32,277	)
Cash and cash equivalents at beginning of period		398,642			156,168

Cash and cash equivalents at end of period	$	356,269		$	123,891


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	13,126		$	17,448
Income taxes		2,532			1,677
Change in unrealized gains on securities available-for-sale, net of taxes		4,762			1,772
Pension liability adjustment, net of taxes		244			246
Due to broker		27,859			10,050

See accompanying notes to unaudited consolidated interim financial statements.

Page 6 of 35

Century Bancorp, Inc.

Notes to Unaudited Consolidated Interim Financial Statements
Three and Six Months Ended June 30, 2010 and 2009

Note 1. Basis of Financial Statement Presentation

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

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

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and to general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The Company’s Quarterly report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as filed with the Securities and Exchange Commission.

Material estimates that are susceptible to change in the near-term relate to the allowance for loan losses. Management believes that the allowance for loan losses is adequate based on independent appraisals and review of other factors associated with the loans. While management uses available information to recognize loan losses, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, regulatory agencies periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination.

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

Page 7 of 35

Note 2. Recent Market Developments

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

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

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

On July 21, 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, which, in part, permanently raises the current standard maximum FDIC deposit insurance amount to $250,000.

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

On October 14, 2008, the U. S. Treasury and the FDIC jointly announced a new program, known as the Temporary Liquidity Guarantee Program (“TLGP”), to strengthen confidence and encourage liquidity in the nation’s banking system. The TLGP consists of two programs: the Debt Guarantee Program (“DGP”) and the Transaction Account Guarantee Program (“TAGP”). Under the DGP, as amended, the FDIC will guarantee certain newly issued senior unsecured debt of participating banks, thrifts and certain holding companies issued from October 14, 2008 through October 31, 2009,

Page 8 of 35

which debt matures on or prior to December 31, 2012, up to a fixed maximum amount per participant. In addition, under the TAGP, the FDIC will fully guarantee deposits in noninterest bearing transaction accounts without dollar limitation through December 31, 2009. Institutions opting to participate in the DGP will be charged a 50-, 75- or 100-basis point fee (depending on maturity) for the guarantee of eligible debt, and a 10-basis point assessment will be applicable to deposits in noninterest bearing transaction accounts at institutions participating in the TAGP that exceed the existing deposit insurance limit of $250,000. The Company opted to participate in both the DGP and the TAGP. The annual assessment rate that will apply during the extension period will be either 15, 20 or 25 basis points, depending on the risk category assigned to the institution under the FDIC’s risk-based premium system. On April 13, 2010 the FDIC approved an interim rule to extend the TAGP to December 31, 2010. The Company will continue to participate in the TAGP through December 31, 2010. The interim rule gives the FDIC discretion to extend the program to the end of 2011, without additional rulemaking, if it determines that economic conditions warrant such an extension.

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

On September 29, 2009, the FDIC adopted a Notice of Proposed Rulemaking (NPR) that would require insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC Board voted to adopt a uniform three-basis point increase in assessment rates effective on January 1, 2011, and extend the restoration period from seven to eight years. This rule was finalized on November 2, 2009. As a result, the Company is carrying a prepaid asset of $7.5 million as of June 30, 2010. The Company’s quarterly risk-based deposit insurance assessments will be paid from this amount until the amount is exhausted or until December 30, 2014, when any amount remaining would be returned to the Company.

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

Page 9 of 35

Note 3. Stock Option Accounting

Stock option activity under the Company’s stock option plan is as follows:


	June 30,
	2010
				Weighted
				Average
	Amount			Exercise Price
Shares under option:
Outstanding at beginning of year		68,637		$	26.09
Cancelled		(975	)		25.70

Outstanding at end of period		67,662		$	26.09

Exercisable at end of period		67,662		$	26.09

Available to be granted at end of period		203,884

On June 30, 2010, the outstanding options to purchase 67,662 shares of Class A common stock have exercise prices between $15.06 and $35.01, with a weighted average exercise price of $26.09 and a weighted average remaining contractual life of 2.7 years. The intrinsic value of options exercisable at June 30, 2010 had an aggregate value of $73,290.

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 six months of 2010.

Note 4. Securities Available-for-Sale


	June 30, 2010								December 31, 2009
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
	( In thousands)
U.S. Treasury	$	1,999	$	10	$	—	$	2,009	$	1,998	$	5	$	—	$	2,003
U.S. Government Sponsored Enterprises		245,057		907		4		245,960		192,942		374		952		192,364
Small Business Administration		10,280		—		61		10,219		—		—		—		—
U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities		460,288		13,638		120		473,806		410,181		8,855		524		418,512
Privately Issued Residential Mortgage Backed Securities		4,753		14		201		4,566		5,383		—		473		4,910
Privately Issued Commercial Mortgage Backed Securities		361		5		—		366		537		7		—		544
Obligations Issued by States and Political Subdivisions		37,929		128		282		37,775		26,627		130		468		26,289
Other Debt Securities		2,300		—		20		2,280		2,300		—		41		2,259

Equity Securities		1,024		655		—		1,679		1,042		71		198		915

Total	$	763,991	$	15,357	$	688	$	778,660	$	641,010	$	9,442	$	2,656	$	647,796

Included in U.S. Government Sponsored Enterprise Securities and U. S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities are securities at fair value pledged to secure public deposits and repurchase agreements amounting to $312,178,000 and $322,064,000 at June 30, 2010 and December 31, 2009, respectively. Also included in securities available-for-sale are securities pledged for borrowing at the Federal Home Loan Bank amounting to $158,287,000 and $172,497,000 at June 30, 2010 and December 31, 2009 respectively. The Company realized gross gains of $1,027,000 from the proceeds of $34,625,000 from the sales of available-for-sale securities for the six

Page 10 of 35

months ended June 30, 2010. The Company realized gross gains of $978,000 from the proceeds of $32,158,000 from the sales of available-for-sale securities for the six months ended June 30, 2009.

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


	Amortized		Fair
	Cost		Value
	( In thousands)
Within one year	$	66,637	$	67,798
After one but within five years		582,406		593,771
After five but within ten years		89,381		90,943
More than 10 years		23,043		22,987
Non-maturing		2,524		3,161

Total	$	763,991	$	778,660

The weighted average remaining life of investment securities available-for-sale at June 30, 2010 was 3.0 years. Included in the weighted average remaining life calculation at June 30, 2010 was $240,060,000 of U.S. Government Sponsored Enterprise obligations that are callable at the discretion of the issuer. These call dates were not utilized in computing the weighted average remaining life. The contractual maturities, which were used in the table above, of mortgage-backed securities will differ from the actual maturities, due to the ability of the issuers to prepay underlying obligations.

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at June 30, 2010. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and longer. There are 14 and 6 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 333 holdings at June 30, 2010.

As of June 30, 2010, management has 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 any of its debt securities with unrealized losses and it is not likely that it will be required to sell the debt securities before the anticipated recovery of their remaining amortized cost. In making its other-than-temporary impairment evaluation, the Company considered the fact that the principal and interest on these securities are from issuers that are investment grade. The change in the unrealized losses on the state and municipal securities and the nonagency mortgage-backed securities were primarily caused by changes in credit spreads and liquidity issues in the marketplace.

In evaluating the underlying credit quality of a security, management considers several factors such as the credit rating of the obligor and the issuer, if applicable. Internal reviews of issuer financial statements are performed as deemed necessary. In the case of privately issued mortgage-backed securities, the performance of the underlying loans is analyzed as deemed necessary to determine the estimated future cash flows of the securities. Factors considered include the level of subordination, current and estimated future default rates, current and estimated prepayment rates, estimated loss severity rates, geographic concentrations and origination dates of underlying loans. In the case of marketable equity securities, the severity of the unrealized loss, the length of time the unrealized loss has existed, and the issuer’s financial performance are considered.

Page 11 of 35

June 30, 2010

Less than 12 months

12 months or longer

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Temporarily Impaired Investments*

(In thousands)

U.S. Government Sponsored Enterprises

9,996

—

9,996

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

15,620

119

3,183

18,803

120

Privately Issued Residential Mortgage Backed Securities

—

2,832

200

2,832

200

Obligations Issued by States and Political Subdivisions

150

4,393

282

4,543

283

SBA Backed Securities

10,219

—

10,219

Other Debt Securities

1,482

1,580

Total temporarily impaired securities

36,083

187

11,890

501

47,973

688


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

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


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

Total temporarily impaired securities	$	182,589	$	1,567	$	23,009	$	1,089	$	205,598	$	2,656


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

Page 12 of 35

Note 5. Investment Securities Held-to-Maturity


			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
	(In thousands)
	June 30, 2010								December 31, 2009
U.S. Government Sponsored Enterprises	$	40,846	$	66	$	—	$	40,912	$	69,555	$	36	$	707	$	68,884
U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities		128,931		6,350		43		135,238		148,088		4,490		49		152,529
Obligations Issued By States and Political Subdivisions		8,954		—		—		8,954		—		—		—		—

Total	$	178,731	$	6,416	$	43	$	185,104	$	217,643	$	4,526	$	756	$	221,413

Included in U.S. Government and Agency Securities are securities pledged to secure public deposits and repurchase agreements at fair value amounting to $5,020,000 and $9,036,000 at June 30, 2010 and December 31, 2009, respectively. Also included are securities pledged for borrowing at the Federal Home Loan Bank at fair value amounting to $98,975,000 and $83,693,000 at June 30, 2010 and December 31, 2009, respectively.

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

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


	Amortized		Fair
	Cost		Value
	( In thousands)
Within one year	$	9,000	$	9,124
After one but within five years		140,161		146,389
After five but within ten years		20,319		20,328
More than ten years		9,251		9,263

Total	$	178,731	$	185,104

The weighted average remaining life of investment securities held-to-maturity at June 30, 2010 was 3.0 years. Included in the weighted average remaining life calculation at June 30, 2010 were $40,846,000 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.

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at June 30, 2010. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months and longer. There are 3 and 0 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 95 holdings at June 30, 2010.

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

Page 13 of 35

underlying credit quality of the issuers, and the Company does not intend to sell this debt security and it is not likely that it will be required to sell this debt security 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 this security are from an issuer that is investment grade.

In evaluating the underlying credit quality of a security, management considers several factors such as the credit notary of the obligor and the issuer, if applicable. Internal reviews of issuer financial statements are performed as deemed necessary.


	June 30, 2010
	Less Than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Temporarily Impaired Investments*	(In thousands)
U.S. Government Agency and Sponsored Enterprises Mortgage Backed Securities	$	2,762	$	43	$	—	$	—	$	2,762	$	43

Total temporarily impaired securities	$	2,762	$	43	$	—	$	—	$	2,762	$	43


*		The unrealized loss on U.S. Government Agency and Sponsored Enterprises 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 June 30, 2010.

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


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

Total temporarily impaired securities	$	61,000	$	756	$	—	$	—	$	61,000	$	756


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

Note 6. Employee Benefits

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

Page 14 of 35

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

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

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


							Supplemental Insurance/
	Pension Benefits						Retirement Plan
	2010			2009			2010		2009
	(In thousands)
Service cost	$	213		$	196		$	147	$	113
Interest		333			308			233		233
Expected return on plan assets		(342	)		(281	)		—		—
Recognized prior service cost (benefit)		(26	)		(29	)		27		27
Recognized net actuarial losses		159			171			43		35

Net periodic benefit cost	$	337		$	365		$	450	$	408

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


							Supplemental Insurance/
	Pension Benefits						Retirement Plan
	2010			2009			2010		2009
	(In thousands)
Service cost	$	426		$	392		$	294	$	226
Interest		667			616			466		466
Expected return on plan assets		(684	)		(562	)		—		—
Recognized prior service cost (benefit)		(52	)		(58	)		55		54
Recognized net actuarial losses		317			342			86		70

Net periodic benefit cost	$	674		$	730		$	901	$	816

Contributions

The Company previously disclosed in its financial statements for the year ended December 31, 2009 that it expected to contribute $1,275,000 to the Pension Plan in 2010. As of June 30, 2010, $637,500 of the contribution had been made. The Company expects to contribute an additional $637,500 by the end of the year.

Note 7. Fair Value Measurements

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

Page 15 of 35

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.

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

Financial Instruments Measured at Fair Value on a Recurring Basis:

Securities AFS Fair Value Measurements Using

Quoted Prices

In Active

Significant

Markets for

Significant

Other

Identical

Observable

Unobservable

Carrying

Assets

Inputs

Value

(Level 1)

(Level 2)

(Level 3)

(In thousands)

U.S. Treasury

2,009

—

2,009

—

U.S. Government Sponsored Enterprises

245,960

—

245,960

—

SBA Backed Securities

10,219

—

10,219

—

U.S. Government Agency and Sponsored Mortgage Backed Securities

473,806

—

473,806

—

Privately Issued Residential Mortgage Backed Securities

4,566

—

4,566

—

Privately Issued Commercial Mortgage Backed Securities

366

—

366

—

Obligations Issued by States and Political Subdivisions

37,775

—

16,812

20,963

Other Debt Securities

2,280

—

2,280

—

Equity Securities

1,679

1,464

—

215

Total

778,660

1,464

756,018

21,178

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


Impaired Loans			9,127				—				—				9,127

Impaired loan balances in the table above represent those collateral dependent loans where management has estimated the credit loss by comparing the loan’s carrying

Page 16 of 35

value against the expected realizable fair value of the collateral. Specific provisions relates to impaired loans recognized for the three and six-month periods ended June 30, 2010 for the estimated credit loss amounted to $1.4 million and $1.7 million, respectively. The Company uses appraisals, discounted as appropriate, based on management’s observations of the local real estate market for loans in this category. There were no transfers of financial instruments to or from Level 1 and Level 2 classifications.

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

Obligations

Issued by

States &

Auction Rate

Political

Equity

Securities

Subdivisions

Securities

Total

(In thousands)

Balance at December 31, 2009

7,820

5,623

234

13,677

Purchases

—

16,857

—

16,857

Maturities and calls

(3,427

)

(5,910

)

(19

)

(9,356

)

Balance at June 30, 2010

4,393

16,570

215

21,178

The amortized cost of Level 3 securities was $21.2 million with an unrealized loss of $280,000. 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 six-month period ended June 30, 2009 are shown in the table below:


				Obligations
				Issued by
				States &
	Auction Rate			Political			Equity
	Securities			Subdivisions			Securities		Total
	(In thousands)
Balance at December 31, 2008	$	—		$	3,300		$	170	$	3,470
Purchases		—			5,177			—		5,177
Maturities		—			(922	)		—		(922	)
Reclassification		21,061			—			—		21,061
Changes in fair value		( 911	)		—			—		(911	)

Balance at June 30, 2009	$	20,150		$	7,555		$	170	$	27,875

There was a $21.1 million reclassification of failed auction rate securities to Level 3 during the first quarter of 2009 due to the lack of an active market at June 30, 2010. The amortized cost of Level 3 securities was $31.0 million with an unrealized loss of $3.1 million. The securities in this category are generally equity investments, municipal securities with no readily determinable fair value or failed auction rate securities. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity.

Note 8. Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating fair values of its financial instruments.

Page 17 of 35

Excluded from this disclosure are all nonfinancial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Cash and Cash Equivalents

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

Short-term Investments

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

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

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

Securities available-for-sale totaling $21.2 million, or 0.88% 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 from Level 2 to Level 3 at the end of 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, if any, as well as an analysis of the security based upon market liquidity and prevailing market interest rates.

Loans

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

Accrued Interest Receivable and Payable

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

Deposits

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

Page 18 of 35

Repurchase Agreements and Other Borrowed Funds

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

Subordinated Debentures

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

Off-Balance Sheets Instruments

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

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


	June 30,2010				December 31, 2009
	Carrying				Carrying
	Amounts		Fair Value		Amounts		Fair Value
	( In thousands)
Financial assets:
Cash and cash equivalents	$	356,269	$	356,269	$	398,642	$	398,642
Short-term investments		140,999		140,887		18,518		18,665

Securities available-for-sale		778,660		778,660		647,796		647,796
Securities held-to-maturity		178,731		185,104		217,643		221,413
Net loans		868,347		890,236		877,125		876,197
Accrued interest receivable		5,776		5,776		5,806		5,806
Financial liabilities:
Deposits		1,828,436		1,834,632		1,701,987		1,706,271
Repurchase agreement and other borrowed funds		354,074		365,380		352,769		359,989
Subordinated debentures		36,083		39,710		36,083		36,136
Accrued interest payable		956		956		1,116		1,116
Standby letters of credit		—		35		—		93

Limitations

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

Page 19 of 35

the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered.

Note 9. Recent Accounting Developments

FASB ASC 860, Transfers and Servicing (formerly Statement of Financial Accounting Standards No.166, “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140”). In June, 2009, the FASB issued FASB ASC 860. FASB ASC 860 was issued to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Specifically to address: (1) practices that have developed since the issuance of FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” that are not consistent with the original intent and key requirements of that Statement and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. This Statement must be applied to transfers occurring on or after the effective date. Additionally, on or after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. FASB ASC 860 must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter with early application prohibited. The adoption of this Statement did not have a material effect on the Company’s financial statements at the date of adoption, January 1, 2010.

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

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

Page 20 of 35

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

Forward Looking Statements

Except for the historical information contained herein, this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 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.

Executive Overview

Century Bancorp, Inc. (together with its bank subsidiary, unless the context otherwise requires, the “Company”) is a Massachusetts state chartered bank holding company headquartered in Medford, Massachusetts. The Company is a Massachusetts corporation formed in 1972 and has one banking subsidiary (the “Bank”): Century Bank and Trust Company formed in 1969. The Company had total assets of approximately $2.4 billion as of June 30, 2010. The Company presently operates 23 banking offices in 17 cities and towns in Massachusetts ranging from Braintree in the south to Beverly in the north. The Bank’s customers consist primarily of small and medium-sized businesses and retail customers in these communities and surrounding areas, as well as local governments and institutions throughout Massachusetts.

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

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

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

Page 21 of 35

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 50% of the 351 cities and towns in Massachusetts.

Earnings for the second quarter ended June 30, 2010 were $2,961,000, or $0.54 per share diluted, compared to net income of $2,007,000, or $0.36 per share diluted, for the second quarter ended June 30, 2009. For the first six months of 2010, net income totaled $6,383,000, or $1.15 per share diluted, compared to net income of $3,893,000, or $0.70 per share diluted, for the same period a year ago.

Net interest income totaled $25.9 million for the first six months of 2010 compared to $22.8 million for 2009. The 13.7% increase in net interest income for the period is mainly due to a 20.6% increase in the average balances of earning assets, combined with a similar increase in deposits. The increased volume was partially offset by a decrease of five basis points in the net interest margin. The net interest margin decreased from 2.62% on a fully taxable equivalent basis in 2009 to 2.57% on the same basis for 2010.

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

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

Page 22 of 35

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

	•		an increase in average loans outstanding during 2008,

	•		the maturity of lower-yielding investment securities,

	•		an increase in the slope of the yield curve,

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

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

While management will continue its efforts to improve the net interest margin, there can be no assurance that certain factors beyond its control, such as the prepayment of loans and changes in market interest rates, will continue to positively impact the net interest margin.

For the three months ended June 30, 2010, the loan loss provision was $1.5 million compared to a provision of $1.1 million for the same period last year for an increase of $400,000. The increase in the provision was due to additional allocations related to impaired loans. For the six months ended June 30, 2010, the loan loss provision was $3.0 million compared to a provision of $2.9 million for the same period last year for an increase of $125,000. The increase in the provision was primarily due to increases in loans and additional allocations related to impaired loans. Nonperforming loans decreased to $10.7 million at June 30, 2010 from $17.1 million on June 30, 2009. This was primarily the result of charge-offs of loans that occurred during the fourth quarter of 2009.

The Company capitalized on favorable market conditions for the second quarter and six months ended June 30, 2010 and realized net gains on sales of investments of $649,000 and $1.0 million, respectively, as compared to $0 and $978,000 million for the same periods in 2009. Included in operating expenses for the second quarter and first six months of 2010 are FDIC assessments of $740,000 and $1.4 million, respectively, as compared to $1.6 million and $2.1 million for the same periods in 2009. FDIC assessments decreased primarily as a result of the special assessment charge of approximately $1.0 million during the second quarter of 2009. This was offset, somewhat, by an increase in assessment rate as well as an increase in the deposit base during 2010.

For the second quarter of 2010, the Company’s effective income tax was 7.4% compared to 7.5% for last year’s corresponding quarter. For the first six months of 2010, the Company’s effective income tax was 9.4% compared to 10.1% for last year’s corresponding quarter. The effective income tax rate decreased primarily as a result of increased levels of tax-exempt income.

Financial Condition

Loans

On June 30, 2010, total loans outstanding, net, were $868.3 million, a decrease of 1.0% from the total on December 31, 2009. At June 30, 2010, commercial real estate loans accounted for 44.0% and residential real estate loans, including home equity loans, accounted for 35.8% of total loans.

Commercial and industrial loans decreased to $112.0 million at June 30, 2010 from $141.1 million on December 31, 2009. Construction loans decreased to $56.0 million at June 30, 2010 from $60.3 million on December 31, 2009.

Page 23 of 35

Allowance for Loan Losses

The allowance for loan loss at June 30, 2010 was $14.4 million as compared to $12.4 million at December 31, 2009. This increase was due to the provision for loan losses exceeding net loan charge offs for the six months ended June 30, 2010 as shown in the table below. The provision for loan losses increased by $125,000 from $2.9 million to $3.0 million; this increase in the provision was due to increases in loans and additional allocations related to impaired loans. Also, the level of the allowance for loan losses to total loans increased from 1.49% at December 31, 2009 to 1.65% at June 30, 2010. This increase was due to the provision for loan losses exceeding net loan charge offs for the six months ended June 30, 2010. In evaluating the allowance for loan losses the Company considered the following categories to be higher risk:

	•		Construction loans: The outstanding loan balance of construction loans at June 30, 2010 is $56.0 million. A major factor in nonaccrual loans is two large construction loans. Based on this fact, and the general local conditions facing construction, the 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 $403.2 million at June 30, 2010. These loans are considered higher risk due to the concentration in individual loans. Additional allowance allocations are made based upon the level of high balance loans. Included in high balance loans are loans greater than $10.0 million. The balance of these loans is $96.5 million at June 30, 2010. Additional allowance allocations are made based upon the level of this type of high balance loans that is separate and greater than the $1.0 million allocation.

	•		Small business loans: The outstanding loan balances of small business loans is $48.5 million at June 30, 2010. These are considered higher risk loans because small businesses have been negatively impacted by the current economic conditions. In a liquidation scenario, the collateral, if any, is often not sufficient to fully recover the outstanding balance of the loan. As a result, the Company often seeks additional collateral prior to renewing maturing small business loans. In addition, the payment status of the loans is monitored closely in order to initiate collection efforts in a timely fashion.

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


	Three months ended						Six months ended
	June 30,						June 30,
	2010			2009			2010			2009
	(In thousands)
Allowance for loan losses, beginning of period	$	13,229		$	12,522		$	12,373		$	11,119
Loans charged off		(451	)		(375	)		(1,283	)		(1,015	)
Recoveries on loans previously charged-off		122			167			235			360

Net charge-offs		(329	)		(208	)		(1,048	)		(655	)
Provision charged to expense		1,450			1,050			3,025			2,900

Allowance for loan losses, end of period	$	14,350		$	13,364		$	14,350		$	13,364

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

Page 24 of 35

			Nonperforming Assets

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


	June 30, 2010			December 31, 2009
	(Dollars in thousands)
Nonaccruing loans	$	10,679		$	12,311
Loans past due 90 days or more and still accruing	$	7		$	—
Other real estate owned	$	79		$	—
Nonaccruing loans as a percentage of total loans		1.22	%		1.40	%
Accruing troubled debt restructures	$	1,220		$	521

			Cash and Cash Equivalents

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

			Short-term Investments

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

			Investments

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

			Securities Available-for-Sale (at Fair Value)


	June 30, 2010		December 31, 2009
	(In thousands)
U.S Treasury	$	2,009	$	2,003
U.S. Government Sponsored Enterprises		245,960		192,364
Small Business Administration		10,219		—
U.S. Government Agency and Sponsored Enterprise Mortgage-backed Securities		473,806		418,512
Privately Issued Residential Mortgage-backed Securities		4,566		4,910
Privately Issued Commercial Mortgage-backed Securities		366		544
Obligations issued by States and Political Subdivisions		37,775		26,289
Other Debt Securities		2,280		2,259
Equity Securities		1,679		915

Total Securities Available-for-Sale	$	778,660	$	647,796

Page 25 of 35

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

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

			Securities Held-to-Maturity (at Amortized Cost)


	June 30, 2010		December 31, 2009
	(In thousands)
U.S. Government Sponsored Enterprises	$	40,846	$	69,555
U.S. Government Agency and Sponsored
Enterprise Mortgage-backed Securities		128,931		148,088
Obligations Issued by States and Political Subdivisions		8,954		—

Total Securities Held-to-Maturity	$	178,731	$	217,643

			At June 30, 2010 and December 31, 2009, all mortgage-backed securities are obligations of U.S. Government Sponsored Enterprises.

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

			Securities Available-for-Sale

			The securities available-for-sale portfolio totaled $778.7 million at June 30, 2010, an increase of 20.2% from December 31, 2009. Purchases of securities available-for-sale totaled $452.2 million for the six months ended June 30, 2010. The portfolio is concentrated in United States Government Sponsored Enterprises, Mortgage-backed Securities and Obligations issued by States and Political Subdivisions and had an estimated weighted average remaining life of 3.0 years.

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

			Securities available-for-sale totaling $21.2 million, or 0.88% 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, 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 $178.7 million on June 30, 2010, a decrease of 17.9% from the total on December 31, 2009. The portfolio is

Page 26 of 35

			concentrated in United States Government Sponsored Enterprises and Mortgage-backed Securities and had an estimated weighted average remaining life of 3.0 years.

			Federal Home Loan Bank of Boston Stock

			The Company owns Federal Home Loan Bank of Boston (“FHLBB”) stock which is considered a restricted equity security. As a voluntary member of the FHLBB, the Company is required to invest in stock of the FHLBB in an amount equal to 4.5% of its outstanding advances from the FHLBB. Stock is purchased at par value. As and when such stock is redeemed, the Company would receive from the FHLBB an amount equal to the par value of the stock. At its discretion, the FHLBB may declare dividends on the stock. On April 10, 2009, the FHLBB reiterated to its members that, while it currently meets all its regulatory capital requirements, it is focusing on preserving capital in response to ongoing market volatility, and accordingly, has suspended its quarterly dividend and has extended the moratorium on excess stock repurchases. It also announced that it had taken a write-down of $381.7 million in other-than-temporary impairment charges on its private-label mortgage-backed securities for the year ended December 31, 2008. This resulted in a net loss of $115.8 million. For the year ended December 31, 2009, the FHLBB reported a net loss of $186.8 million resulting from the recognition of $444.1 million of impairment losses which were recognized through income. For the first six months of 2010, the FHLBB reported net income of $41.6 million. In the future, if additional unrealized losses are deemed to be other-than-temporary, the associated impairment charges could exceed the FHLBB’s current level of retained earnings and possibly put into question whether the fair value of the FHLBB stock owned by the Company is less than par value. The FHLBB has stated that it expects and intends to hold its private-label mortgage-backed securities to maturity. Despite these negative trends, the FHLBB exceeded the regulatory capital requirements promulgated by the Federal Home Loan Banks Act and the Federal Housing Financing Agency. The FHLBB has the capacity to issue additional debt if necessary to raise cash. If needed, the FHLBB also has the ability to secure funding available to U.S. Government Sponsored Enterprises through the U.S. Treasury. Based on the capital adequacy and the liquidity position of the FHLBB, management believes there is no other-than-temporary impairment related to the carrying amount of the Company’s FHLBB stock as of June 30, 2010. The Company will continue to monitor its investment in FHLBB stock.

			Deposits and Borrowed Funds

			On June 30, 2010, deposits totaled $1.83 billion, representing a 7.4% increase in total deposits from December 31, 2009. Total deposits increased primarily as a result of increases in savings and NOW and time deposits. Savings and NOW and time deposits increased as the Company continued to offer attractive rates for these types of deposits during the first six months of the year. Borrowed funds totaled $354.1 million compared to $352.8 million at December 31, 2009. Borrowed funds remained relatively stable.

			The Company also participates in the Certificate of Deposit Registry Service (“CDARS”) program. CDARS is a private, patented, for-profit service that breaks up large deposits (from individuals, companies, nonprofits, public funds, etc.) and places them across a network of about 2,700 banks and savings associations around the United States. This allows depositors to deal with a single bank that participates in CDARS but avoid having funds above the FDIC deposit insurance limits in any one bank. The service can place as much as $50 million per customer allowing all of it to qualify for FDIC insurance coverage. As of December 31, 2009 and June 30, 2010, CDARS deposits totaled $216,000.

Page 27 of 35

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
	June 30, 2010									June 30, 2009
	( In thousands)
							Average									Average
	Average						Yield/			Average						Yield/
	Balance			Interest(1)			Rate			Balance			Interest(1)			Rate
ASSETS
Interest-earning assets:
Loans(2)	$	877,398		$	13,204			6.03	%	$	844,482		$	12,579			5.96	%
Securities available-for-sale(5):
Taxable		745,150			4,794			2.57			551,508			5,024			3.64
Tax-exempt		32,345			283			3.50			52,728			307			2.33
Securities held-to-maturity:
Taxable		214,545			1,873			3.49			209,028			2,180			4.17
Tax-exempt		2,066			37			7.16			—			—			—
Interest-bearing deposits in other banks		365,965			403			0.44			243,938			763			1.24

Total interest-earning assets		2,237,469			20,594			3.69	%		1,901,684			20,853			4.38	%
Non interest-earning assets		154,644									140,354
Allowance for loan losses		(13,855	)								(12,965	)

Total assets	$	2,378,258								$	2,029,073

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits:
NOW accounts	$	428,139		$	686			0.64	%	$	263,206		$	551			0.84	%
Savings accounts		264,769			407			0.62			248,915			787			1.27
Money market accounts		562,571			1,089			0.78			463,003			1,718			1.49
Time deposits		349,415			1,876			2.15			333,494			2,560			3.08

Total interest-bearing deposits		1,604,894			4,058			1.01			1,308,618			5,616			1.72
Securities sold under agreements to repurchase		120,627			131			0.44			85,824			116			0.54
Other borrowed funds and subordinated debentures		192,393			1,994			4.16			206,306			2,500			4.86

Total interest-bearing liabilities		1,917,914			6,183			1.29	%		1,600,748			8,232			2.06	%

Non interest-bearing liabilities
Demand deposits		288,241									272,304
Other liabilities		31,162									31,157

Total liabilities		2,237,317									1,904,209

Stockholders’ equity		140,941									124,864
Total liabilities & stockholders’ equity	$	2,378,258								$	2,029,073

Net interest income on a fully taxable equivalent basis					14,411									12,621
Less taxable equivalent adjustment					(1,269	)								(659	)

Net interest income				$	13,142								$	11,962

Net interest spread (3)								2.40	%								2.32	%

Net interest margin (4)								2.58	%								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 28 of 35


	Six Months Ended
	June 30, 2010									June 30, 2009
	( In thousands)
							Average									Average
	Average						Yield/			Average						Yield/
	Balance			Interest(1)			Rate			Balance			Interest(1)			Rate
ASSETS
Interest-earning assets:
Loans(2)	$	876,900		$	26,407			6.06	%	$	839,887		$	24,933			5.95	%
Securities available-for-sale(5):
Taxable		711,158			9,777			2.75			511,776			9,786			3.82
Tax-exempt		30,267			359			2.37			54,699			711			2.60
Securities held-to-maturity:
Taxable		223,281			3,858			3.46			209,356			4,403			4.21
Tax-exempt		1,039			37			7.12			—			—			—
Interest-bearing deposits in other banks		376,595			781			0.41			225,121			1,305			1.15

Total interest-earning assets		2,219,240			41,219			3.73	%		1,840,839			41,138			4.48	%
Non interest-earning assets		153,457									144,672
Allowance for loan losses		(13,354	)								(12,369	)

Total assets	$	2,359,343								$	1,973,142

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits:
NOW accounts	$	397,827		$	1,365			0.69	%	$	245,713		$	1,116			0.92	%
Savings accounts		271,337			949			0.71			226,758			1,617			1.44
Money market accounts		552,640			2,313			0.84			437,400			3,653			1.68
Time deposits		330,530			3,584			2.19			329,881			5,168			3.16

Total interest-bearing deposits		1,552,334			8,211			1.07			1,239,752			11,554			1.88
Securities sold under agreements to repurchase		146,515			350			0.48			96,154			325			0.68
Other borrowed funds and subordinated debentures		207,258			4,405			4.29			210,484			5,144			4.93

Total interest-bearing liabilities		1,906,107			12,966			1.37	%		1,546,390			17,023			2.22	%

Non interest-bearing liabilities
Demand deposits		283,737									272,869
Other liabilities		30,605									30,434

Total liabilities		2,220,449									1,849,693

Stockholders’ equity		138,894									123,449
Total liabilities & stockholders’ equity	$	2,359,343								$	1,973,142

Net interest income on a fully taxable equivalent basis					28,253									24,115
Less taxable equivalent adjustment					(2,386	)								(1,361	)

Net interest income				$	25,867								$	22,754

Net interest spread (3)								2.35	%								2.26	%

Net interest margin (4)								2.57	%								2.62	%


(1)		On a fully taxable equivalent basis calculated using a federal tax rate of 34%.

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

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

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

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

Page 29 of 35

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 June 30, 2010									Six Months Ended June 30, 2010
	Compared with									Compared with
	Three Months Ended June 30, 2009									Six Months Ended June 30, 2009
	Increase/(Decrease)									Increase/(Decrease)
	Due to Change in									Due to Change in
	Volume			Rate			Total			Volume			Rate			Total
	(In thousands)
Interest income:
Loans	$	494		$	131		$	625		$	983		$	491		$	1,474
Securities available-for-sale
Taxable		1,482			(1,712	)		(230	)		3,190			(3,199	)		(9	)
Tax-exempt		(145	)		121			(24	)		(294	)		(58	)		(352	)
Securities held-to-maturity
Taxable		56			(363	)		(307	)		279			(824	)		(545	)
Tax-exempt		37			—			37			37			—			37
Interest-bearing deposits in other banks		267			(627	)		(360	)		579			(1,103	)		(524	)

Total interest income		2,191			(2,450	)		(259	)		4,774			(4,693	)		81

Interest expense:
Deposits:
NOW accounts		286			(151	)		135			570			(321	)		249
Savings accounts		47			(427	)		(380	)		273			(941	)		(668	)
Money market accounts		315			(944	)		(629	)		797			(2,137	)		(1,340	)
Time deposits		117			(801	)		(684	)		10			(1,594	)		(1,584	)

Total interest-bearing deposits		765			(2,323	)		(1,558	)		1,650			(4,993	)		(3,343	)
Securities sold under agreements to repurchase		41			(26	)		15			138			(113	)		25
Other borrowed funds and subordinated debentures		(161	)		(345	)		(506	)		(78	)		(661	)		(739	)

Total interest expense		645			(2,694	)		(2,049	)		1,710			(5,767	)		(4,057	)

Change in net interest income	$	1,546		$	244		$	1,790		$	3,064		$	1,074		$	4,138

			Net Interest Income

			For the three months ended June 30, 2010, net interest income on a fully taxable equivalent basis totaled $14.4 million compared to $12.6 million for the same period in 2009, an increase of $1.8 million or 14.2%. This increase in net interest income for the period is mainly due to a 17.7% increase in the average balances of earning assets, combined with a similar increase in deposits. The increased volume was somewhat offset by a decrease of six basis points in the net interest margin. The net interest margin decreased from 2.64% on a fully taxable equivalent basis in 2009 to 2.58% on the same basis for 2010.

			For the six months ended June 30, 2010, net interest income on a fully taxable equivalent basis totaled $28.3 million compared to $24.1 million for the same period in 2009, an increase of $4.1 million or 17.2%. This increase in net interest income for the period is mainly due to a 20.6% increase in the average balances of earning assets, combined with a similar increase in deposits. The increased volume was somewhat offset by a decrease of five basis points in the net interest margin. The net interest margin decreased from 2.62% on a fully taxable equivalent basis in 2009 to 2.57% on the same basis for 2010.

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			Provision for Loan Losses

			For the three months ended June 30, 2010, the loan loss provision was $1.5 million compared to a provision of $1.1 for the same period last year for an increase of $400,000. The provision increased primarily as a result of increased loan loss reserve requirements associated with specific and qualitative factors offset by a decrease in loans on nonaccrual compared to the same period in 2009. For the six months ended June 30, 2010, the loan loss provision was $3.0 million compared to a provision of $2.9 for the same period last year for an increase of $125,000. The provision increased primarily as a result of increases in loans and additional allocations related to impaired loans. The level of the allowance for loan losses to total loans increased from 1.49% at December 31, 2009 to 1.65% at June 30, 2010. This increase was due to the provision for loan losses exceeding net loan charge offs for the six months ended June 30, 2010.

			Non-Interest Income and Expense

			Other operating income for the quarter ended June 30, 2010 was $4.1 million compared to $3.5 million for the same period last year. The changes in other operating income, which increased by $565,000, was mainly attributable to an increase in net gain on sales of investments of $649,000. There was also a decrease in service charges on deposit accounts of $54,000 which was mainly attributable to a decrease in overdraft fees. Lockbox fees decreased by $5,000 as a result of decreased customer volume. Other income decreased by $25,000 mainly as a result of a decrease in the growth of cash surrender values on life insurance policies.

			Other operating income for the six months ended June 30, 2010 was $8.4 million compared to $8.2 million for the same period last year. The changes in other operating income, which increased by $154,000, was mainly attributable to an increase in other income of $304,000, partially offset by a decrease in service charges on deposit accounts. The increase in other income consisted primarily of $280,000 increase in the growth of cash surrender values on life insurance policies. Cash surrender values increased mainly as a result of additional earnings as a result of certain policies reaching their twenty year anniversary during the first quarter of 2010. This was partially offset by life insurance proceeds received during the first quarter of 2009. Lockbox fees decreased by $46,000 as a result of decreased customer volume. Service charges on deposit accounts decreased by $153,000 mainly as a result of a decrease in overdraft fees.

			For the quarter ended June 30, 2010, operating expenses increased by $315,000 or 2.6% to $12.6 million, from the same period last year. The increase in operating expenses for the quarter was mainly attributable to an increase of $1.3 million in salaries and employee benefits, this was partially offset by a decrease of $883,000 in FDIC assessments. Salaries and employee benefits increased mainly as a result of $916,000 due Jonathan G. Sloane, former Co-CEO, in accordance with his separation agreement as previously announced. FDIC assessments decreased primarily as a result of the special assessment charge of approximately $1.0 million during the second quarter of 2009. This was offset, somewhat, by an increase in the assessment rate as well as an increase in the deposit base during 2010. Other expenses increased by $7,000. Occupancy expenses increased by $3,000 and equipment expense decreased by $121,000. Equipment expenses decreased mainly as a result of decreases in depreciation expense.

			For the six months ended June 30, 2010, operating expenses increased by $431,000 or 1.8% to $24.2 million, from the same period last year. The increase in operating expenses for the six months was mainly attributable to an increase of $1.3 million in salaries and employee benefits, this was partially offset by a decrease of $726,000 in FDIC assessments. Salaries and employee benefits increased mainly as a result of $916,000 due Jonathan G. Sloane, former Co-CEO, in accordance with his separation agreement as previously announced. FDIC assessments decreased primarily as a result

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			of the special assessment charge of approximately $1.0 million during the second quarter of 2009. This was offset, somewhat, by an increase in the assessment rate as well as an increase in the deposit base during 2010. Other expenses increased by $84,000. Occupancy expenses decreased by $74,000 and equipment expense decreased by $199,000. Occupancy expenses decreased mainly as a result of decreases in building maintenance expense. Equipment expenses decreased mainly as a result of decreases in depreciation expense. Other expenses increased mainly as a result of increased marketing expenses.

			Income Taxes

			For the second quarter of 2010, the Company’s income tax expense totaled $238,000 on pretax income of $3.2 million for an effective tax rate of 7.4%. For last year’s corresponding quarter, the Company’s income tax expense totaled $162,000 on pretax income of $2.2 million for an effective tax rate of 7.5%. For the first six months of 2010, the Company’s income tax expense totaled $659,000 on pretax income of $7.0 million for an effective tax rate of 9.4%. For last year’s corresponding period, the Company’s income tax expense totaled $438,000 on pretax income of $4.3 million for an effective tax rate of 10.1%. The effective income tax rate decreased for the current quarter and six month period mainly as a result of an increase in tax exempt income as a percentage of taxable income compared to the same periods last year.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. To that end, management actively monitors and manages its interest rate risk exposure. The Company’s profitability is affected by fluctuations in interest rates. A sudden and substantial increase or decrease in interest rates may adversely impact the Company’s earnings to the extent that the interest rates tied to specific assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using several tools. The Company’s primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Company’s net interest income and capital, while structuring the Company’s asset-liability structure to obtain the maximum yield-cost spread on that structure. Management believes that there has been no material changes in the interest rate risk reported in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the Securities and Exchange Commission. The information is contained in the Form 10-K within the Market Risk and Asset Liability Management section of Management’s Discussion and Analysis of Results of Operations and Financial Condition.

Item 4. Controls and Procedures

The Company’s management, with participation of the Company’s principal executive and financial officers, has evaluated its disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, the Company’s management, with participation of its principal executive and financial officers, have concluded that the Company’s disclosure controls and procedures effectively ensure that information required to be disclosed in the Company’s filings and submissions with the Securities and Exchange Commission under the Exchange Act is accumulated and reported to Company management (including the principal executive officers and the principal financial officer) as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. In addition, the Company has evaluated its internal control over financial reporting and during the second quarter of 2010 there has been no change in its internal control over financial reporting that has

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

Part II — Other Information

Item 1

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

Item 1A

Risk Factors — Please read “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009. There have been no material changes since this 10-K was filed. These risks are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely effect the Company’s business, financial condition and operating results.

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds —

	(a) — (b) Not applicable.

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


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

May 31 — May 31, 2010		—	$	—		—		300,000

June 30 — June 30, 2010		—	$	—		—		300,000


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

Item 3

Defaults Upon Senior Securities — None

Item 5

Other Information — None

Item 6

Exhibits

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

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

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

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

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

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

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


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

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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: August 6, 2010	Century Bancorp, Inc.



	/s/ Barry R. Sloane
	Barry R. Sloane
	President and Chief Executive Officer


	/s/ William P. Hornby
	William P. Hornby, CPA
	Chief Financial Officer and Treasurer (Principal Accounting Officer)

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