CENTURY BANCORP INC - FORM 10-Q

CENTURY BANCORP INC - FORM 10-Q - May 8, 2017

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EX-32.2 - EX-32.2 - CENTURY BANCORP INC	d515137dex322.htm
EX-32.1 - EX-32.1 - CENTURY BANCORP INC	d515137dex321.htm
EX-31.2 - EX-31.2 - CENTURY BANCORP INC	d515137dex312.htm
EX-31.1 - EX-31.1 - CENTURY BANCORP INC	d515137dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2017.

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

Commission file number: 0-15752

CENTURY BANCORP, INC.

(Exact name of registrant as specified in its charter)


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

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

(781) 391-4000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically 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). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

(Check one):

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

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

As of April 30, 2017, the Registrant had outstanding:


Class A Common Stock, $1.00 par value			3,603,729 Shares
Class B Common Stock, $1.00 par value			1,964,180 Shares

Century Bancorp, Inc.


	Index	Page Number
Part I	Financial Information Forward Looking Statements	3
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets: March 31, 2017 and December 31, 2016	4
	Consolidated Statements of Income: Three Months Ended March 31, 2017 and 2016	5
	Consolidated Statements of Comprehensive Income: Three Months Ended March 31, 2017 and 2016	6
	Consolidated Statements of Changes in Stockholders’ Equity: Three Months Ended March 31, 2017 and 2016	7
	Consolidated Statements of Cash Flows: Three Months Ended March 31, 2017 and 2016	8
	Notes to Consolidated Financial Statements	9 - 29

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29 - 39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	40

Part II.	Other Information
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	41

Signatures		42

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

Forward Looking Statements

Except for the historical information contained herein, this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, including, without limitation, (i) the fact that the Company’s success is dependent to a significant extent upon general economic conditions in New England, (ii) the fact that the Company’s earnings depend to a great extent upon the level of net interest income (the difference between interest income earned on loans and investments and the interest expense paid on deposits and other borrowings) generated by the Bank and thus the Bank’s results of operations may be adversely affected by increases or decreases in interest rates, (iii) the fact that the banking business is highly competitive and the profitability of the Company depends upon the Bank’s ability to attract loans and deposits within its market area, where the Bank competes with a variety of traditional banking and other institutions such as credit unions and finance companies, and (iv) the fact that a significant portion of the Company’s loan portfolio is comprised of commercial loans, exposing the Company to the risks inherent in loans based upon analyses of credit risk, the value of underlying collateral, including real estate, and other more intangible factors, which are considered in making commercial loans. Accordingly, the Company’s profitability may be negatively impacted by errors in risk analyses, and by loan defaults, and the ability of certain borrowers to repay such loans may be adversely affected by any downturn in general economic conditions. These factors, as well as general economic and market conditions, may materially and adversely affect the market price of shares of the Company’s common stock. Because of these and other factors, past financial performance should not be considered an indicator of future performance. The forward-looking statements contained herein represent the Company’s judgment as of the date of this Form 10-Q, and the Company cautions readers not to place undue reliance on such statements.

Page 3 of 42

PART I - Item 1

Century Bancorp, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands, except share data)


	March 31, 2017			December 31, 2016
Assets
Cash and due from banks	$	65,100		$	62,400
Federal funds sold and interest-bearing deposits in other banks		2,358			173,751

Total cash and cash equivalents		67,458			236,151
Short-term investments		2,101			3,183
Securities available-for-sale, amortized cost $510,600 and $500,220, respectively		509,900			499,297
Securities held-to-maturity, fair value $1,788,653 and $1,635,808, respectively		1,809,608			1,653,986
Federal Home Loan Bank of Boston, stock at cost		20,328			21,042
Loans, net:
Construction and land development		10,773			14,928
Commercial and industrial		649,326			612,503
Municipal		153,447			135,418
Commercial real estate		732,151			696,173
Residential real estate		264,442			241,357
Consumer		11,125			11,013
Home equity		218,782			211,857
Overdrafts		448			684

Total loans, net		2,040,494			1,923,933
Less: allowance for loan losses		24,827			24,406

Net loans		2,015,667			1,899,527
Bank premises and equipment		23,471			23,417
Accrued interest receivable		10,187			9,645
Goodwill		2,714			2,714
Other assets		115,951			113,646

Total assets	$	4,577,385		$	4,462,608

Liabilities
Deposits:
Demand deposits	$	680,751		$	689,286
Savings and NOW deposits		1,410,229			1,304,394
Money market accounts		1,132,021			1,181,179
Time deposits		520,461			478,359

Total deposits		3,743,462			3,653,218
Securities sold under agreements to repurchase		189,920			182,280
Other borrowed funds		301,500			293,000
Subordinated debentures		36,083			36,083
Other liabilities		60,092			57,986

Total liabilities		4,331,057			4,222,567
Stockholders’ Equity
Preferred Stock – $1.00 par value; 100,000 shares authorized; no shares issued and outstanding		—			—
Common stock, Class A, $1.00 par value per share; authorized 10,000,000 shares; issued 3,600,729 shares and 3,600,729 shares, respectively		3,601			3,601
Common stock, Class B, $1.00 par value per share; authorized 5,000,000 shares; issued 1,967,180 shares and 1,967,180 shares respectively		1,967			1,967
Additional paid-in capital		12,292			12,292
Retained earnings		249,112			243,565

		266,972			261,425
Unrealized losses on securities available-for-sale, net of taxes		(432	)		(567	)
Unrealized losses on securities transferred to held-to-maturity, net of taxes		(3,711	)		(4,084	)
Pension liability, net of taxes		(16,501	)		(16,733	)

Total accumulated other comprehensive loss, net of taxes		(20,644	)		(21,384	)

Total stockholders’ equity		246,328			240,041

Total liabilities and stockholders’ equity	$	4,577,385		$	4,462,608

See accompanying notes to unaudited consolidated interim financial statements.

Page 4 of 42

Century Bancorp, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except share data)


	Three months ended March 31,
	2017		2016
Interest income
Loans	$	15,100	$	14,172
Securities held-to-maturity		9,535		7,812
Securities available-for-sale		1,611		964
Federal funds sold and interest-bearing deposits in other banks		393		315

Total interest income		26,639		23,263

Interest expense
Savings and NOW deposits		1,227		838
Money market accounts		1,274		795
Time deposits		1,651		1,358
Securities sold under agreements to repurchase		103		115
Other borrowed funds and subordinated debentures		1,928		2,307

Total interest expense		6,183		5,413

Net interest income		20,456		17,850
Provision for loan losses		400		450

Net interest income after provision for loan losses		20,056		17,400
Other operating income
Service charges on deposit accounts		2,016		1,937
Lockbox fees		771		789
Gains on sales of mortgage loans		101		—
Other income		1,021		928

Total other operating income		3,909		3,654

Operating expenses
Salaries and employee benefits		11,143		9,776
Occupancy		1,741		1,579
Equipment		706		636
FDIC assessments		438		568
Other		3,697		3,124

Total operating expenses		17,725		15,683

Income before income taxes		6,240		5,371
Provision for income taxes		144		64

Net income	$	6,096	$	5,307

Share data:
Weighted average number of shares outstanding, basic
Class A		3,600,729		3,600,729
Class B		1,967,180		1,967,180
Weighted average number of shares outstanding, diluted
Class A		5,567,909		5,567,909
Class B		1,967,180		1,967,180
Basic earnings per share:
Class A	$	1.33	$	1.16
Class B	$	0.66	$	0.58
Diluted earnings per share
Class A	$	1.09	$	0.95
Class B	$	0.66	$	0.58

See accompanying notes to unaudited consolidated interim financial statements.

Page 5 of 42

Century Bancorp, Inc.

Consolidated Statements of Comprehensive Income (unaudited)

(In thousands)


	Three months ended March 31,
	2017		2016
Net income	$	6,096	$	5,307
Other comprehensive income (loss), net of tax:
Unrealized (losses) gains arising during period		135		314
Accretion of net unrealized losses transferred		373		984
Defined benefit pension plans:
Amortization of prior service cost and loss included in net periodic benefit cost		232		242

Other comprehensive income		740		1,540

Comprehensive income	$	6,836	$	6,847

See accompanying notes to unaudited consolidated interim financial statements.

Page 6 of 42

Century Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

For the Three Months Ended March 31, 2017 and 2016


	Class A Common Stock		Class B Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	(In thousands)
Balance at December 31, 2015	$	3,601	$	1,967	$	12,292	$	221,232		$	(24,548	)	$	214,544
Net income		—		—		—		5,307			—			5,307
Other comprehensive income, net of tax:
Unrealized holding (losses) gains arising during period, net of $170 in taxes		—		—		—		—			314			314
Accretion of unrealized losses on securities transferred to held-to-maturity, net of $527 in taxes		—		—		—		—			984			984
Pension liability adjustment, net of $161 in taxes		—		—		—		—			242			242
Cash dividends paid, Class A common stock, $.12 per share		—		—		—		(433	)		—			(433	)
Cash dividends paid, Class B common stock, $.06 per share		—		—		—		(117	)		—			(117	)

Balance at March 31, 2016	$	3,601	$	1,967	$	12,292	$	225,989		$	(23,008	)	$	220,841

Balance at December 31, 2016	$	3,601	$	1,967	$	12,292	$	243,565		$	(21,384	)	$	240,041
Net income		—		—		—		6,096			—			6,096
Other comprehensive income, net of tax:
Unrealized holding (losses) gains arising during period, net of $88 in taxes		—		—		—		—			135			135
Accretion of unrealized losses on securities transferred to held-to-maturity, net of $287 in taxes		—		—		—		—			373			373
Pension liability adjustment, net of $155 in taxes		—		—		—		—			232			232
Cash dividends paid, Class A common stock, $.12 per share		—		—		—		(432	)		—			(432	)
Cash dividends paid, Class B common stock, $.06 per share		—		—		—		(117	)		—			(117	)

Balance at March 31, 2017	$	3,601	$	1,967	$	12,292	$	249,112		$	(20,644	)	$	246,328

See accompanying notes to unaudited consolidated interim financial statements.

Page 7 of 42

Century Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)

For the Three Months Ended March 31, 2017 and 2016


	Three months ended March 31,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,096		$	5,307
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Gain on sales of mortgage loans		(101	)		—
Provision for loan losses		400			450
Deferred income taxes		(1,165	)		(1,098	)
Net depreciation and amortization		887			729
(Increase) decrease in accrued interest receivable		(542	)		478
Increase in other assets		(1,690	)		(744	)
Increase in other liabilities		2,493			901

Net cash provided by (used in) operating activities		6,378			6,023

CASH FLOWS FROM INVESTING ACTIVITIES:

Maturity (purchase) of short-term investments		1,082			(8	)
Proceeds from redemptions of Federal Home Loan Bank of Boston stock		714			4,898
Proceeds from calls/maturities of securities available-for-sale		41,155			47,099
Purchase of securities available-for-sale		(51,606	)		(21,095	)
Proceeds from calls/maturities of securities held-to-maturity		62,537			113,454
Purchase of securities held-to-maturity		(217,463	)		(85,654	)
Net increase in loans		(124,327	)		(79,070	)
Proceeds from sales of portfolio loans		7,899			—
Capital expenditures		(897	)		(396	)

Net cash used in investing activities		(280,906	)		(20,772	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time deposits		42,102			(27,241	)
Net increase in demand, savings, money market and NOW deposits		48,142			118,086
Cash dividends		(549	)		(550	)
Net increase in securities sold under agreements to repurchase		7,640			20,380
Net increase (decrease) in other borrowed funds		8,500			(12,000	)

Net cash provided by financing activities		105,835			98,675

Net (decrease) increase in cash and cash equivalents		(168,693	)		83,926
Cash and cash equivalents at beginning of period		236,151			220,724

Cash and cash equivalents at end of period	$	67,458		$	304,650

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:
Interest	$	6,232		$	5,405
Income taxes		210			210
Change in unrealized gains (losses) on securities available-for-sale, net of taxes		135			314
Change in unrealized losses on securities transferred to held-to-maturity, net of taxes		373			984
Pension liability adjustment, net of taxes		232			242
Change in due to (from) to broker		—			1,336
Transfer of loans to Loans held-for-sale		—			48,180

See accompanying notes to unaudited consolidated interim financial statements.

Page 8 of 42

Century Bancorp, Inc.

Notes to Unaudited Consolidated Interim Financial Statements

Three Months Ended March 31, 2017 and 2016

Note 1. Basis of Financial Statement Presentation

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

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

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The Company’s quarterly report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission.

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

Page 9 of 42

Note 2. Securities Available-for-Sale


	March 31, 2017								December 31, 2016
	Amortized Cost		Gross Unrelaized Gains		Gross Unrelaized Losses		Fair Value		Amortized Cost		Gross Unrelaized Gains		Gross Unrelaized Losses		Fair Value
	(in thousands)
U.S. Treasury	$	2,000	$	—	$	—	$	2,000	$	2,000	$	—	$	—	$	2,000
U.S. Government Sponsored Enterprises		20,000		—		16		19,984		25,000		—		48		24,952
SBA Backed Securities		74,472		11		247		74,236		57,899		14		146		57,767
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		244,104		397		551		243,950		243,703		293		671		243,325
Privately Issued Residential Mortgage-Backed Securities		1,066		3		14		1,055		1,121		2		14		1,109
Obligations Issued by States and Political Subdivisions		163,742		—		405		163,337		165,281		—		405		164,876
Other Debt Securities		5,100		80		199		4,981		5,100		18		194		4,924
Equity Securities		116		241		—		357		116		228		—		344

Total	$	510,600	$	732	$	1,432	$	509,900	$	500,220	$	555	$	1,478	$	499,297

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 $197,682,000 and $210,780,000 at March 31, 2017 and December 31, 2016, respectively. Also included in securities available-for-sale are securities at fair value pledged for borrowing at the Federal Home Loan Bank of Boston amounting to $51,698,000 and $53,396,000 at March 31, 2017 and December 31, 2016, respectively. There were no sales of available-for-sale securities for the three months ended March 31, 2017 and March 31, 2016, respectively.

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

The following table shows the maturity distribution of the Company’s securities available-for-sale at March 31, 2017.


	Amortized Cost		Fair Value
	(in thousands)
Within one year	$	171,890	$	171,877
After one but within five years		120,417		120,374
After five but within ten years		134,399		134,176
More than 10 years		82,278		81,766
Non-maturing		1,616		1,707

Total	$	510,600	$	509,900

The weighted average remaining life of investment securities available-for-sale at March 31, 2017 was 4.7 years. Included in the weighted average remaining life calculation at March 31, 2017 were $10,000,000 of U.S. Government Sponsored Enterprises obligations that are callable at the discretion of the issuer. 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.

Page 10 of 42

As of March 31, 2017 and December 31, 2016, management concluded that the unrealized losses of its investment securities are temporary in nature since they are not related to the underlying credit quality of the issuers, and the Company does not intend to sell these debt securities and it is not more likely than not that it will be required to sell these debt securities before the anticipated recovery of its remaining amortized cost. In making its other-than-temporary impairment evaluation, the Company considered that the principal and interest on these securities are from issuers that are investment grade. The change in the unrealized losses on the state and municipal securities and the non-agency mortgage-backed securities was primarily caused by changes in credit spreads and liquidity issues in the marketplace.

The unrealized loss on SBA Backed Securities, U.S. Government Agency and Sponsored Enterprise Mortgage Backed Securities, and Obligations Issued by States and Political Subdivisions, 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.

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

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at March 31, 2017. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for less than 12 months and a continuous loss position for 12 months or longer. There are 40 and 19 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 270 holdings at March 31, 2017.

March 31, 2017

Less than 12 months

12 months or longer

Total

Temporarily Impaired Investments

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(in thousands)

U.S. Government Sponsored Enterprises

19,984

—

19,984

SBA Backed Securities

69,345

246

932

70,277

247

U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities

101,820

313

42,246

238

144,066

551

Privately Issued Residential Mortgage-Backed Securities

—

732

Obligations issued by States and Political Subdivisions

—

4,297

405

4,297

405

Other Debt Securities

452

1,549

151

2,001

199

Total temporarily impaired securities

191,601

623

49,756

809

241,357

1,432

Page 11 of 42

The following table shows the temporarily impaired securities of the Company’s available-for-sale portfolio at December 31, 2016. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for less than 12 months and a continuous loss position for 12 months or longer. There are 49 and 15 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 270 holdings at December 31, 2016.


	December 31, 2016
	Less than 12 months				12 months or longer				Total
Temporarily Impaired Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Government Sponsored Enterprises	$	24,952	$	48	$	—	$	—	$	24,952	$	48
SBA Backed Securities		52,346		145		951		1		53,297		146
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		135,612		485		31,504		186		167,116		671
Privately Issued Residential Mortgage-Backed Securities		—		—		757		14		757		14
Obligations Issued by States and Political Subdivisions		—		—		4,298		405		4,298		405
Other Debt Securities		453		47		1,553		147		2,006		194

Total temporarily impaired securities	$	213,363	$	725	$	39,063	$	753	$	252,426	$	1,478

Note 3. Investment Securities Held-to-Maturity


	March 31, 2017								December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
U.S. Government Sponsored Enterprises	$	170,077	$	1,003	$	463	$	170,617	$	148,326	$	1,066	$	527	$	148,865
SBA Backed Securities		55,774		—		979		54,795		46,140		—		1,088		45,052
U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities		1,583,757		4,826		25,342		1,563,241		1,459,520		4,948		22,577		1,441,891

Total	$	1,809,608	$	5,829	$	26,784	$	1,788,653	$	1,653,986	$	6,014	$	24,192	$	1,635,808

Included in U.S. Government and Agency Securities are securities pledged to secure public deposits and repurchase agreements at fair value amounting to $1,140,730,000 and $1,147,207,000 at March 31, 2017 and December 31, 2016, respectively. Also included are securities pledged for borrowing at the Federal Home Loan Bank of Boston at fair value amounting to $317,845,000 and $424,353,000 at March 31, 2017 and December 31, 2016, respectively. There were no sales of held-to-maturity securities for the three months ended March 31, 2017 and March 31, 2016, respectively.

At March 31, 2017 and December 31, 2016, all mortgage-backed securities are obligations of U.S. Government Agencies and Government Sponsored Enterprises. U.S. Government Sponsored Enterprises primarily refer to debt securities of Fannie Mae and Freddie Mac.

Page 12 of 42

The following table shows the maturity distribution of the Company’s securities held-to-maturity at March 31, 2017.


	Amortized Cost		Fair Value
	(in thousands)
Within one year	$	25,844	$	25,915
After one but within five years		1,238,317		1,227,264
After five but within ten years		542,305		532,543
More than ten years		3,142		2,931

Total	$	1,809,608	$	1,788,653

The weighted average remaining life of investment securities held-to-maturity at March 31, 2017 was 4.4 years. Included in the weighted average remaining life calculation at March 31, 2017 were $76,346,000 of U.S. Government Sponsored Enterprises obligations that are callable at the discretion of the issuer. The actual maturities, which were used in the table above, of mortgage-backed securities, will differ from the contractual maturities, due to the ability of the issuers to prepay underlying obligations.

As of March 31, 2017 and December 31, 2016, management concluded that the unrealized losses of its investment securities are temporary in nature since they are not related to the underlying credit quality of the issuers, and the Company does not intend to sell these debt securities and it is not likely that it will be required to sell these debt securities before the anticipated recovery of their remaining amortized costs. In making its other-than-temporary impairment evaluation, the Company considered the fact that the principal and interest on these securities are from issuers that are investment grade.

The unrealized loss on U.S. Government Sponsored Enterprises and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities related primarily to interest rates and not credit quality, and because the Company does not intend to sell any of these securities and it is not likely that it will be required to sell these securities before the anticipated recovery of the remaining amortized cost, the Company does not consider these investments to be other-than-temporarily impaired March 31, 2017 and December 31, 2016.

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at March 31, 2017. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for 12 months or less and a continuous loss position for 12 months or longer. There are 219 and 18 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 400 holdings at March 31, 2017.

March 31, 2017

Less Than 12 Months

12 Months or Longer

Total

Temporarily Impaired Investments

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(in thousands)

U.S. Government Sponsored Enterprises

80,882

463

—

80,882

463

SBA Backed Securities

54,795

979

—

54,795

979

U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities

1,143,145

23,267

63,986

2,075

1,207,131

25,342

Total temporarily impaired securities

1,278,822

24,709

63,986

2,075

1,342,808

26,784

Page 13 of 42

The following table shows the temporarily impaired securities of the Company’s held-to-maturity portfolio at December 31, 2016. This table shows the unrealized market loss of securities that have been in a continuous unrealized loss position for less than 12 months and a continuous loss position for 12 months or longer. There are 194 and 16 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 375 holdings at December 31, 2016.


	December 31, 2016
	Less Than 12 Months				12 Months or Longer				Total
Temporarily Impaired Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Government Sponsored Enterprises	$	59,219	$	527	$	—	$	—	$	59,219	$	527
SBA Backed Securities		45,052		1,088		—		—		45,052		1,088
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		1,008,960		20,725		58,535		1,852		1,067,495		22,577

Total temporarily impaired securities	$	1,113,231	$	22,340	$	58,535	$	1,852	$	1,171,766	$	24,192

Note 4. Allowance for Loan Losses

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

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


	Three months ended March 31,
	2017			2016
	(in thousands)
Allowance for loan losses, beginning of period	$	24,406		$	23,075
Loans charged off		(96	)		(69	)
Recoveries on loans previously charged-off		117			88

Net recoveries (charge-offs)		21			19
Provision charged to expense		400			450

Allowance for loan losses, end of period	$	24,827		$	23,544

Page 14 of 42

Further information pertaining to the allowance for loan losses for the three months ending March 31, 2017 follows:


	Construction and Land Development			Commercial and Industrial		Municipal		Commercial Real Estate		Residential Real Estate			Consumer			Home Equity			Unallocated		Total
	(in thousands)
Allowance for loan losses:
Balance at December 31, 2106	$	1,012		$	6,972	$	1,612	$	11,135	$	1,698		$	582		$	1,102		$	293	$	24,406
Charge-offs		—			—		—		—		—			(96	)		—			—		(96	)
Recoveries		—			19		—		—		2			96			—			—		117
Provision		(139	)		378		287		81		(29	)		(130	)		(52	)		4		400

Ending balance at March 31, 2017	$	873		$	7,369	$	1,899	$	11,216	$	1,671		$	452		$	1,050		$	297	$	24,827

Amount of allowance for loan losses for loans deemed to be impaired	$	2		$	21	$	—	$	130	$	6		$	—		$	—		$	—	$	159

Amount of allowance for loan losses for loans not deemed to be impaired	$	871		$	7,348	$	1,899	$	11,086	$	1,665		$	452		$	1,050		$	297	$	24,668

Loans:
Ending balance	$	10,773		$	649,326	$	153,447	$	732,151	$	264,442		$	11,573		$	218,782		$	—	$	2,040,494

Loans deemed to be impaired	$	93		$	378	$	—	$	3,123	$	190		$	—		$	—		$	—	$	3,784

Loans not deemed to be impaired	$	10,680		$	648,948	$	153,447	$	729,028	$	264,252		$	11,573		$	218,782		$	—	$	2,036,710

Further information pertaining to the allowance for loan losses for the three months ending March 31, 2016 follows:


	Construction and Land Development			Commercial and Industrial		Municipal			Commercial Real Estate			Residential Real Estate			Consumer			Home Equity		Unallocated			Total
	(in thousands)
Allowance for loan losses:
Balance at December 31, 2105	$	2,041		$	5,899	$	994		$	10,589		$	1,320		$	644		$	1,077	$	511		$	23,075
Charge-offs		—			—		—			—			—			(69	)		—		—			(69	)
Recoveries		—			35		—			—			2			51			—		—			88
Provision		(68	)		759		(4	)		(56	)		(73	)		67			108		(283	)		450

Ending balance at March 31, 2016	$	1,973		$	6,693	$	990		$	10,533		$	1,249		$	693		$	1,185	$	228		$	23,544

Amount of allowance for loan losses for loans deemed to be impaired	$	7		$	17	$	—		$	89		$	27		$	—		$	89	$	—		$	229

Amount of allowance for loan losses for loans not deemed to be impaired	$	1,966		$	6,676	$	990		$	10,444		$	1,222		$	693		$	1,096	$	228		$	23,315

Loans:
Ending balance	$	26,572		$	529,168	$	85,227		$	715,248		$	215,040		$	12,826		$	178,377	$	—		$	1,762,458

Loans deemed to be impaired	$	98		$	429	$	—		$	1,665		$	905		$	—		$	89	$	—		$	3,186

Loans not deemed to be impaired	$	26,474		$	528,739	$	85,227		$	713,583		$	214,135		$	12,826		$	178,288	$	—		$	1,759,272

Page 15 of 42

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

Loans rated 1-3 (Pass):

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

Loans rated 4 (Monitor):

These loans represent classified loans that management is closely monitoring for credit quality. These loans have had or may have minor credit quality deterioration as of March 31, 2017 and December 31, 2016.

Loans rated 5 (Substandard):

Substandard loans represent classified loans that management is closely monitoring for credit quality. These loans have had more significant credit quality deterioration as of March 31, 2017 and December 31, 2016.

Loans rated 6 (Doubtful):

Doubtful loans represent classified loans that management is closely monitoring for credit quality. These loans had more significant credit quality deterioration as of March 31, 2017 and December 31, 2016 and are doubtful for full collection.

Impaired:

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

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


	Construction and Land Development		Commercial and Industrial		Municipal		Commercial Real Estate
	(in thousands)
Grade:
1-3 (Pass)	$	10,680	$	648,948	$	153,447	$	695,466
4 (Monitor)		—		—		—		33,562
5 (Substandard)		—		—		—		—
6 (Doubtful)		—		—		—		—
Impaired		93		378		—		3,123

Total	$	10,773	$	649,326	$	153,447	$	732,151

The following table presents the Company’s loans by risk rating at December 31, 2016.


	Construction and Land Development		Commercial and Industrial		Municipal		Commercial Real Estate
	(in thousands)
Grade:
1-3 (Pass)	$	14,834	$	612,114	$	135,418	$	661,271
4 (Monitor)		—		—		—		31,753
5 (Substandard)		—		—		—		—
6 (Doubtful)		—		—		—		—
Impaired		94		389		—		3,149

Total	$	14,928	$	612,503	$	135,418	$	696,173

Page 16 of 42

The Company has increased its exposure to larger loans to large institutions with publically available credit ratings beginning in 2015. These ratings are tracked as a credit quality indicator for these loans. Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at March 31, 2017 and are included within the total loan portfolio.

Commercial
and
Industrial

Municipal

Commercial
Real
Estate

Total

(in thousands)

Credit Rating:

Aaa – Aa3

337,487

66,652

45,858

449,997

A1 – A3

218,472

33,365

129,109

380,946

Baa1 – Baa3

—

50,580

126,608

177,188

Ba2

—

Total

555,959

150,597

301,575

1,008,131

Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at December 31, 2016.


	Commercial and Industrial		Municipal		Commercial Real Estate		Total
	(in thousands)
Credit Rating:
Aaa – Aa3	$	334,674	$	66,245	$	6,596	$	407,515
A1 – A3		188,777		33,365		129,423		351,565
Baa1 – Baa3		—		26,970		127,366		154,336
Ba2		—		3,610		—		3,610

Total	$	523,451	$	130,190	$	263,385	$	917,026

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

Further information pertaining to the allowance for loan losses at March 31, 2017 follows:


	Accruing 30-89 Days Past Due		Non Accrual		Accruing Greater than 90 Days		Total Past Due		Current Loans		Total
	(in thousands)
Construction and land development	$	—	$	93	$	—	$	93	$	10,680	$	10,773
Commercial and industrial		484		60		—		544		648,782		649,326
Municipal		—		—		—		—		153,447		153,447
Commercial real estate		589		144		—		733		731,418		732,151
Residential real estate		6,172		405		—		6,577		257,865		264,442
Consumer and overdrafts		9		—		—		9		11,564		11,573
Home equity		684		108		—		792		217,990		218,782

Total	$	7,938	$	810	$	—	$	8,748	$	2,031,746	$	2,040,494

Page 17 of 42

Further information pertaining to the allowance for loan losses at December 31, 2016 follows:


	Accruing 30-89 Days Past Due		Non Accrual		Accruing Greater than 90 Days		Total Past Due		Current Loans		Total
	(in thousands)
Construction and land development	$	—	$	94	$	—	$	94	$	14,834	$	14,928
Commercial and industrial		37		65		—		102		612,401		612,503
Municipal		—		—		—		—		135,418		135,418
Commercial real estate		597		150		—		747		695,426		696,173
Residential real estate		245		656		—		901		240,456		241,357
Consumer and overdrafts		—		11		—		11		11,686		11,697
Home equity		735		108		—		843		211,014		211,857

Total	$	1,614	$	1,084	$	—	$	2,698	$	1,921,235	$	1,923,933

A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company measures impairment based on a loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Loans are charged-off when management believes that the collectability of the loan’s principal is not probable. The specific factors that management considers in making the determination that the collectability of the loan’s principal is not probable include: the delinquency status of the loan, the fair value of the collateral, if secured, and the financial strength of the borrower and/or guarantors. For collateral dependent loans, the amount of the recorded investment in a loan that exceeds the fair value of the collateral is charged-off against the allowance for loan losses in lieu of an allocation of a specific allowance amount when such an amount has been identified definitively as uncollectible. The Company’s policy for recognizing interest income on impaired loans is contained within Note 1 of the consolidated financial statements contained in the Company’s Annual Report for the fiscal year ended December 31, 2016.

Page 18 of 42

The following is information pertaining to impaired loans for March 31, 2017:


	Carrying Value		Unpaid Principal Balance		Required Reserve		Average Carrying Value for 3 Months Ending 3/31/17		Interest Income Recognized for 3 Months Ending 3/31/17
	(in thousands)
With no required reserve recorded:
Construction and land development	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		41		229		—		43		—
Municipal		—		—		—		—		—
Commercial real estate		588		588		—		589		9
Residential real estate		84		174		—		87		2
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	713	$	991	$	—	$	719	$	11

With required reserve recorded:
Construction and land development	$	93	$	108	$	2	$	93	$	—
Commercial and industrial		337		352		21		339		4
Municipal		—		—		—		—		—
Commercial real estate		2,535		2,642		130		2,548		23
Residential real estate		106		106		6		107		1
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	3,071	$	3,208	$	159	$	3,087	$	28

Total:
Construction and land development	$	93	$	108	$	2	$	93	$	—
Commercial and industrial		378		581		21		382		4
Municipal		—		—		—		—		—
Commercial real estate		3,123		3,230		130		3,137		32
Residential real estate		190		280		6		194		3
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	3,784	$	4,199	$	159	$	3,806	$	39

Page 19 of 42

The following is information pertaining to impaired loans for March 31, 2016:


	Carrying Value		Unpaid Principal Balance		Required Reserve		Average Carrying Value for 3 Months Ending 3/31/16		Interest Income Recognized for 3 Months Ending 3/31/16
	(in thousands)
With no required reserve recorded:
Construction and land development	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		56		243		—		58		—
Municipal		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Residential real estate		109		195		—		111		2
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	165	$	438	$	—	$	169	$	2

With required reserve recorded:
Construction and land development	$	98	$	108	$	7	$	98	$	—
Commercial and industrial		373		388		17		378		5
Municipal		—		—		—		—		—
Commercial real estate		1,665		1,763		89		1,671		15
Residential real estate		796		797		27		799		—
Consumer		—		—		—		—		—
Home equity		89		89		89		90		—

Total	$	3,021	$	3,145	$	229	$	3,036	$	20

Total:
Construction and land development	$	98	$	108	$	7	$	98	$	—
Commercial and industrial		429		631		17		436		5
Municipal		—		—		—		—		—
Commercial real estate		1,665		1,763		89		1,671		15
Residential real estate		905		992		27		910		2
Consumer		—		—		—		—		—
Home equity		89		89		89		90		—

Total	$	3,186	$	3,583	$	229	$	3,205	$	22

There was no troubled debt restructuring during the three month periods ended March 31, 2017 or March 31, 2016.

Page 20 of 42

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

Amount Reclassified from Accumulated Other Comprehensive Income


Details about Accumulated Other Comprehensive Income Components	Three Months Ended			Three Months Ended			Affected Line Item in the Statement where Net Income is Presented
	March 31, 2017			March 31, 2016
	(in thousands)
Accretion of unrealized losses transferred	$	(662	)	$	(1,511	)	Interest on securities held-to-maturity
Tax (expense) or benefit		289			527		Provision for income taxes

Net of tax	$	(373	)	$	(984	)	Net income

Amortization of defined benefit pension items
Prior-service costs	$	(3	) (b)	$	(2	) (b)	Salaries and employee benefits
Actuarial gains (losses)		(384	) (b)		(401	) (b)	Salaries and employee benefits

Total before tax		(387	)		(403	)	Income before taxes

Tax (expense) or benefit		155			161		Provision for income taxes

Net of tax	$	(232	)	$	(242	)	Net income

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

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

Page 21 of 42

Note 6. Earnings per Share (“EPS”)

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

Diluted EPS includes the dilutive effect of common stock equivalents; basic EPS excludes all common stock equivalents. The Company had no common stock equivalents outstanding for the periods ended March 31, 2017 and 2016.

The following table is a reconciliation of basic EPS and diluted EPS for the three months ended March 31, 2017.


	Three Months Ended March 31,
(in thousands except share and per share data)	2017		2016
Basic EPS Computation:
Numerator:
Net income, Class A	$	4,788	$	4,168
Net income, Class B		1,308		1,139
Denominator:
Weighted average shares outstanding, Class A		3,600,729		3,600,729
Weighted average shares outstanding, Class B		1,967,180		1,967,180
Basic EPS, Class A	$	1.33	$	1.16
Basic EPS, Class B		0.66		0.58

Diluted EPS Computation:
Numerator:
Net income, Class A	$	4,788	$	4,168
Net income, Class B		1,308		1,139

Total net income, for diluted EPS, Class A computation		6,096		5,307
Denominator:
Weighted average shares outstanding, basic, Class A		3,600,729		3,600,729
Weighted average shares outstanding, Class B		1,967,180		1,967,180

Weighted average shares outstanding diluted, Class A		5,567,909		5,567,909
Weighted average shares outstanding, Class B		1,967,180		1,967,180
Diluted EPS, Class A	$	1.09	$	0.95
Diluted EPS, Class B		0.66		0.58

Note 7. Employee Benefits

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

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

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

Page 22 of 42

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


	Pension Benefits						Supplemental Insurance/ Retirement Plan
	2017			2016			2017		2016
	(in thousands)
Service cost	$	310		$	318		$	395	$	455
Interest		362			340			345		334
Expected return on plan assets		(746	)		(694	)		—		—
Recognized prior service cost (benefit)		(26	)		(26	)		29		29
Recognized net actuarial losses		226			200			159		200

Net periodic benefit cost	$	126		$	138		$	928	$	1,018

Contributions

The company intends to contribute $1,000,000 to the Pension Plan in 2017. As of March 31, 2017, $250,000 has been contributed.

Note 8. Fair Value Measurements

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

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

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

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, and distressed debt and non-investment grade residual interests in securitizations.

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The results of the fair value hierarchy as of March 31, 2017, are as follows:

Financial Instruments Measured at Fair Value on a Recurring Basis:

Securities AFS Fair Value Measurements Using

Carrying
Value

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

Significant
Observable
Inputs
(Level 2)

Significant
Other
Unobservable
Inputs
(Level 3)

(in thousands)

U.S. Treasury

2,000

—

2,000

—

U.S. Government Sponsored Enterprises

19,984

—

19,984

—

SBA Backed Securities

74,236

—

74,236

—

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

243,950

—

243,950

—

Privately Issued Residential Mortgage-Backed Securities

1,055

—

1,055

—

Obligations Issued by States and Political Subdivisions

163,337

—

163,337

Other Debt Securities

4,981

—

4,981

—

Equity Securities

357

—

Total

509,900

357

346,206

163,337

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

Impaired Loans

251

—

251

Impaired loan balances represent those collateral dependent loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the collateral. Fair value is generally determined through a review process that includes independent appraisals, discounted cash flows, or other external assessments of the underlying collateral, which generally include various Level 3 inputs which are not observable. The Company discounts the fair values, as appropriate, based on management’s observations of the local real estate market for loans in this category.

Appraisals, discounted cash flows and real estate tax assessments are reviewed quarterly. There is no specific policy regarding how frequently appraisals will be updated. Adjustments are made to appraisals and real estate tax assessments based on management’s estimate of changes in real estate values. Within the past twelve months there have been no updated appraisals, however, all impaired loans have been reviewed during the past quarter using either a discounted cash flow analysis, appraisal of collateral or other type of real estate tax assessment. The types of adjustments that are made to specific provisions (credits) relate to impaired loans recognized for the three month period ended March 31, 2017 amounted to ($9,000).

There were no transfers between level 1, 2 and 3 for the three months ended March 31, 2017. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the three month period ended March 31, 2017.

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


Asset	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Securities AFS (4)	$	163,337	Discounted cash flow	Discount rate	0%-1% (3)
Impaired Loans	$	251	Appraisal of collateral (1)	Appraisal adjustments (2)	0%-30% discount

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

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

(3)	Weighted averages.

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

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

Auction Rate
Securities

Obligations
Issued by States
& Political
Subdivisions

Equity
Securities

Total

(in thousands)

Balance at December 31, 2016

4,298

160,578

—

164,876

Purchases

—

23,088

—

23,088

Maturities and calls

—

(24,565

)

—

(24,565

)

Amortization

—

(62

)

—

(62

)

Changes in fair value

—

Balance at March 31, 2017

4,298

159,039

—

163,337

The amortized cost of Level 3 securities was $163,742,000 at March 31, 2017 with an unrealized loss of $405,000. The securities in this category are generally municipal securities with no readily determinable fair value or failed auction rate securities. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity.

The changes in Level 3 securities for the three month period ended March 31, 2016, are shown in the table below:


	Auction Rate Securities		Obligations Issued by States & Political Subdivisions			Equity Securities			Total
	(in thousands)
Balance at December 31, 2015	$	3,820	$	153,140		$	37		$	156,997
Purchases		—		15,935			—			15,935
Maturities and calls		—		(38,251	)		(37	)		(38,288	)
Amortization		—		(33	)		—			(33	)
Changes in fair value		478		—			—			478

Balance at March 31, 2016	$	4,298	$	130,791		$	—		$	135,089

The amortized cost of Level 3 securities was $135,490,000 at March 31, 2016 with an unrealized loss of $401,000. 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.

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The results of the fair value hierarchy as of December 31, 2016, are as follows:

Financial Instruments Measured at Fair Value on a Recurring Basis:


	Securities AFS Fair Value Measurements Using
	Carrying Value		Quoted Prices In Active Markets for Identitcal Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury	$	2,000	$	—	$	2,000	$	—
U.S. Government Sponsored Enterprises		24,952		—		24,952		—
SBA Backed Securities		57,767		—		57,767		—
U.S. Government Agency and Sponsored Mortgage-Backed Securities		243,325		—		243,325		—
Privately Issued Residential Mortgage-Backed Securities		1,109		—		1,109		—
Obligations Issued by States and Political Subdivisions		164,876		—		—		164,876
Other Debt Securities		4,924		—		4,924		—
Equity Securities		344		344		—		—

Total	$	499,297	$	344	$	334,077	$	164,876


Financial Instruments Measured at Fair Value on a Non-recurring Basis:
Impaired Loans	$	260	$	—	$	—	$	260

Impaired loan balances represent those collateral dependent loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the collateral. Fair value is generally determined through a review process that includes independent appraisals, discounted cash flows, or other external assessments of the underlying collateral, which generally include various Level 3 inputs which are not identifiable. The Company discounts the fair values, as appropriate, based on management’s observations of the local real estate market for loans in this category.

Appraisals, discounted cash flows and real estate tax assessments are reviewed quarterly. There is no specific policy regarding how frequently appraisals will be updated. Adjustments are made to appraisals and real estate tax assessments based on management’s estimate of changes in real estate values. Within the past twelve months there have been no updated appraisals, however, all impaired loans have been reviewed during the past quarter using either a discounted cash flow analysis, appraisal of collateral or other type of real estate tax assessment. The types of adjustments that are made to specific provisions (credits) relate to impaired loans recognized for 2016 for the estimated credit loss amounted to ($135,000).

There were no transfers between level 1, 2 and 3 for the year ended December 31, 2016. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the year ended December 31, 2016.


Asset	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Securities AFS (4)	$	164,876	Discounted cash flow	Discount rate	0%-1% (3)
Impaired Loans	$	260	Appraisal of collateral (1)	Appraisal adjustments (2)	0%-30% discount

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

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

(3)	Weighted averages

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

Note 9. Fair Values of Financial Instruments

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

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

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

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

Loans Held-for-Sale: Fair value is measured using quoted market prices when available. These assets are typically categorized as Level 1. If quoted market prices are not available, comparable market values may be utilized. These assets are typically categorized as Level 2.

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

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

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

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

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The following presents (in thousands) the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2017 and December 31, 2016. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, short-term investments, FHLBB stock and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include non-maturity deposits, short-term borrowings and accrued interest payable.


	Carrying Amount		Estimated Fair Value		Fair Value Measurements Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(in thousands)
March 31, 2017
Financial assets:
Securities held-to-maturity	$	1,809,608	$	1,788,653	$	—	$	1,788,653	$	—
Loans (1)		2,015,667		2,003,811		—		—		2,003,811
Financial liabilities:
Time deposits		520,461		521,053		—		521,053		—
Other borrowed funds		301,500		300,513		—		300,513		—
Subordinated debentures		36,083		36,083		—		—		36,083

December 31, 2016
Financial assets:
Securities held-to-maturity	$	1,653,986	$	1,635,808	$	—	$	1,635,808	$	—
Loans (1)		1,899,527		1,873,703		—		—		1,873,703
Financial liabilities:
Time deposits		478,359		180,133		—		480,133		—
Other borrowed funds		293,000		294,940		—		294,940		—
Subordinated debentures		36,083		36,083		—		—		36,083

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

Note 10. Recent Accounting Developments

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization on Purchased Callable Debt. The FASB is issuing this ASU to amend the amortization period for certain purchased callable debt securities held at a premium. The FASB is shortening the amortization period for the premium to the earliest call date. Under current generally accepted accounting principles (GAAP), entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Management is currently assessing the applicability of this ASU and has not determined the impact, if any, as of March 31, 2017.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement benefits (Topic 715) Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this ASU require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. Management is currently assessing the applicability of this ASU and has not determined the impact, if any, as of March 31, 2017.

In February 2017, the FASB issued ASU 2017-06, Plan Accounting: Defined Benefit Pension Plans (Topic 960) Defined Contribution Pension Plans (Topic 962) Health and Welfare Benefit Plans (Topic 965), Employee Benefit Plan Master Trust Reporting. The FASB has issued this ASU to improve the usefulness of the information reported to users of employee benefit plan financial statements and to provide clarity to preparers and auditors. This ASU relates primarily to the reporting by an employee benefit plan for its interest in a master trust. The amendments in this ASU clarify presentation requirements for a plan’s interest in a master trust and require more detailed disclosures of the plan’s interest in the master trust. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. Management is currently assessing the applicability of this ASU and has not determined the impact, if any, as of March 31, 2017.

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In February 2017, the FASB issued ASU 2017-05, Other Income Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). This ASU was issued to clarify the scope of Subtopic 610-20, and to add guidance for partial sales of nonfinancial assets. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2017. Management believes that this ASU applies and is assessing the impact, if any, as of March 31, 2017.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350). This ASU was issued to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. For public entities, this ASU is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted and application should be on a prospective basis. Management is currently assessing the applicability of this ASU and has not determined the impact, if any, as of March 31, 2017.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently assessing this ASU and has not determined the impact, if any, as of March 31, 2017.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The intention of this ASU is to provide additional clarification on specific issues brought forth by the FASB and the International Accounting Standards Board Joint Transition Resource Group for Revenue Recognition in relation to Topic 606 and revenue recognition. This ASU is to have the same effective date as ASU 2015-14 which deferred the effective date of ASU 2014-09 to December 15, 2017. Management has determined that ASU 2016-12 does apply, but has not determined the impact, if any, as of March 31, 2017. Management assembled a project team to address the changes pursuant to Topic 606. The project team has made an initial scope assessment and additional progress over the topic is expected to be made in the second quarter of 2017.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU requires lessees to put most leases on their balance sheet but recognize expenses on their income statements in a manner similar to today’s accounting. This ASU also eliminates today’s real estate-specific provisions for all companies. For lessors, this ASU modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. The Company is currently assessing the applicability of this ASU and has not determined the impact, if any, as of March 31, 2017.

Item 2.

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

Executive Overview

Century Bancorp, Inc. (together with its bank subsidiary, unless the context otherwise requires, the “Company”) is a Massachusetts state-chartered bank holding company headquartered in Medford, Massachusetts. The Company is a Massachusetts corporation formed in 1972 and has one banking subsidiary (the “Bank”): Century Bank and Trust Company formed in 1969. At March 31, 2017, the Company had total assets of $4.6 billion. Currently, the Company operates 27 banking offices in 20 cities and towns in Massachusetts, ranging from Braintree in the south to Andover in the north. The Bank’s customers consist primarily of small and medium-sized businesses and retail customers in these communities and surrounding areas, as well as local governments and institutions throughout Massachusetts, New Hampshire, Rhode Island, Connecticut and New York.

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

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

The Company has municipal cash management client engagements in Massachusetts, New Hampshire and Rhode Island comprising of approximately 250 government entities.

Net income for the quarter ended March 31, 2017 was $6,096,000, or $1.09 per Class A share diluted, compared to net income of $5,307,000, or $0.95 per Class A share diluted, for the quarter ended March 31, 2016.

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


	Three Months Ended
	March 31,
	2017		2016
Basic EPS – Class A common	$	1.33	$	1.16
Basic EPS – Class B common	$	0.66	$	0.58
Diluted EPS – Class A common	$	1.09	$	0.95
Diluted EPS – Class B common	$	0.66	$	0.58

Net interest income totaled $20,456,000 for the three months ended March 31, 2017 compared to $17,850,000 for the same period in 2016. The 14.6% increase in net interest income for the period is primarily due to an increase in average earning assets. The net interest margin decreased from 2.18% on a fully taxable equivalent basis for the first three months of 2016 to 2.16% for the same period in 2017. This was primarily the result of a decrease in rates on earning assets. The average balances of earning assets increased by 15.2% combined with a similar increase in average deposits. Also, interest expense increased 14.2% as a result of an increase in deposit balances.

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

LOGO

During the second and third quarter of 2015 the net interest margin increased primarily as a result of an increase in higher yielding assets as well as prepayment penalties collected. The increase in higher yielding assets was primarily the result of increased purchases of securities held-to-maturity. The margin decreased during the fourth quarter of 2015 primarily as a result of lower yielding loan originations. The margin increased during the first quarter of 2016 primarily as a result of an increase in rates on earning assets. The margin decreased during the second, third, and fourth quarters of 2016 primarily as a result of a decrease in rates on earning assets. The margin increased during the first quarter of 2017 primarily as a result of an increase in rates on earning assets. This increase was primarily the result of the yield on floating rate assets increasing as a result of recent increases in short term interest rates. During the first quarter of 2017, the Company has not seen a corresponding increase in short term rates on interest bearing liabilities.

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

The provision for loan losses decreased by $50,000 from $450,000 for the three months ended March 31, 2016 to $400,000 for the same period in 2017, primarily as a result of changes in historical loss factors offset, somewhat, by an increase in loan balances. Refer to the allowance for loan loss section of the management discussion and analysis for additional discussion. Non-performing assets totaled $810,000 at March 31, 2017, compared to $1,084,000 at December 31, 2016.

For the first three months of 2017, the Company’s effective income tax rate was 2.3% compared to 1.2% for last year’s corresponding period. The effective income tax rate increased primarily as a result of an increase in taxable income.

During June 2016, the Company entered into a lease agreement to open a new branch located in Wellesley, Massachusetts. The Company closed its existing Wellesley branch and transferred the accounts to the new Wellesley branch which opened on December 19, 2016.

Recent Market Developments

The financial services industry continues to face challenges in the aftermath of the recent national and global economic crisis. Since June 2009, the U.S. economy has been recovering from the most severe recession and financial crisis since the Great Depression. There have been improvements in private sector employment, industrial production and U.S. exports; nevertheless, the pace of economic recovery has been slow. Financial markets have improved since the depths of the crisis but are still unsettled and volatile. There is continued concern about the U.S. economic outlook.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) became law. The Act was intended to address many issues arising in the recent financial crisis and is exceedingly broad in scope, affecting many aspects of bank and financial market regulation. The Act requires, or permits by implementing regulation, enhanced prudential standards for banks and bank holding companies inclusive of capital, leverage, liquidity, concentration and exposure measures. In addition, traditional bank regulatory principles such as restrictions on transactions with affiliates and insiders were enhanced. The Act also contains reforms of consumer mortgage lending practices and creates a Bureau of Consumer Financial Protection, which is granted broad authority over consumer financial practices of banks and others. It is expected as the specific new or incremental requirements applicable to the Company become effective that the costs and difficulties of remaining compliant with all such requirements will increase. The Act broadened the base for FDIC assessments to average consolidated assets less tangible equity of financial institutions and also permanently raises the current standard maximum FDIC deposit insurance amount to $250,000. The Act extended unlimited deposit insurance on non-interest bearing transaction accounts through December 31, 2012.

In addition, the Act added a new Section 13 to the Bank Holding Company Act, the so-called “Volcker Rule,” (the “Rule”) which generally restricts certain banking entities such as the Company and its subsidiaries or affiliates, from engaging in proprietary trading activities and owning equity in or sponsoring any private equity or hedge fund. The Rule became effective July 21, 2012. The final implementing regulations for the Rule were issued by various regulatory agencies in December, 2013 and under an extended conformance regulation compliance was required to be achieved by July 21, 2015. The conformance period for investments in and relationships with certain “legacy covered funds” has been extended to July 21, 2017. Under the Rule, the Company may be restricted from engaging in proprietary trading, investing in third party hedge or private equity funds or sponsoring new funds unless it qualifies for an exemption from the rule. The Company has little involvement in prohibited proprietary trading or investment activities in covered funds and the Company does not expect that complying with the requirements of the Rule will have any material effect on the Company’s financial condition or results of operation. The 2016 Presidential election and resulting change to a Republican Administration created the possibility that some of the “reforms” contained in the Act may be repealed or modified. New reforms under discussion include the prospect of some type of regulatory burden relief for small banks which in this context might include the Company. The extent and consequences of any such changes can’t be currently assessed but at the present time the Company does not think it is likely that changes that may be made will have any material effect on the Company’s financial condition and results of operations.

Federal banking regulators have issued risk-based capital guidelines, which assign risk factors to asset categories and off-balance-sheet items. Also, the Basel Committee has issued capital standards entitled “Basel III: A global regulatory framework for more resilient banks and banking systems” (“Basel III”). The Federal Reserve Board has finalized its rule implementing the Basel III regulatory capital framework. The rule that came into effect in January

Page 31 of 42

2015 sets the Basel III minimum regulatory capital requirements for all organizations. It included a new common equity Tier I ratio of 4.5 percent of risk-weighted assets, raised the minimum Tier I capital ratio from 4 percent to 6 percent of risk-weighted assets and would set a new conservation buffer of 2.5 percent of risk-weighted assets. The implementation of the framework did not have a material impact on the Company’s financial condition or results of operations.

Financial Condition

Loans

On March 31, 2017, total loans outstanding were $2,040,494,000, up by $116,561,000 from the total on December 31, 2016. At March 31, 2017, commercial real estate loans accounted for 35.9% and residential real estate loans, including home equity loans, accounted for 23.7% of total loans.

Commercial real estate loans increased to $732,151,000 at March 31, 2017 from $696,173,000, primarily as a result of new loan originations. Residential real estate loans increased to $264,442,000 at March 31, 2017 from $241,357,000 at December 31, 2016, primarily as a result of new loan originations. Home equity loans increased to $218,782,000 at March 31, 2017 from $211,857,000 at December 31, 2016, primarily as a result of a home equity loan promotion.

Commercial and industrial loans increased to $649,326,000 at March 31, 2017 from $612,503,000 at December 31, 2016, primarily as a result of an increase in larger loan originations to large institutions. Construction loans decreased to $10,773,000 at March 31, 2017 from $14,928,000 on December 31, 2016, primarily from payoffs of existing loans. Municipal loans increased to $153,447,000 from $135,418,000, primarily as a result of originations to large municipal organizations. In recent quarters, the Company has increased business to larger institutions, specifically, healthcare, higher education, and municipal organizations. Further discussion relating to changes in portfolio composition is discussed in the allowance for loan loss section of the management discussion and analysis.

Allowance for Loan Losses

The allowance for loan loss at March 31, 2017 was $24,827,000 as compared to $24,406,000 at December 31, 2016. The level of the allowance for loan losses to total loans was 1.22% at March 31, 2017 and 1.27% at December 31, 2016.

During 2015, the Company enhanced its approach to the development of the historical loss factors and qualitative factors used on certain loan portfolios. The methodology enhancement was in response to the changes in the risk characteristics of the Company’s new loan originations, as the Company has continued to increase its exposure to larger loan originations to large institutions with strong credit quality. The Company has limited internal loss history experience with these types of loans, and has determined a more appropriate representation of loss expectation is to utilize external historical loss factors based on public credit ratings, as there is a great deal of default and loss data available on these types of loans from the credit rating agencies. As of June 30, 2015, the Company incorporated this information into the development of the historical loss rates for these loan types The combination of the enhancements made to the allowance methodology to address the changing risk profile of the Company’s new loan originations and the increase in these loans types as a percentage of the overall portfolio, has resulted in a decrease in the ratio of allowance for loan losses to total loans for 2016 and has continued into 2017. Also, during 2016 and the first quarter of 2017, the Company’s weighted average risk rating has decreased. Additionally, the Company has continued to increase its lending for large loans to large institutions with publicly available credit ratings. The historical loss allocation for these types of loans is low. This has contributed to the continued decrease in the ratio of allowance for loan losses to total loans for 2017.

In addition, the Company monitors the outlook for the industries in which these institutions operate. Healthcare and higher education are the primary industries. The Company also monitors the volatility of the losses within the historical data.

By combining the credit rating, the industry outlook and the loss volatility, the Company arrives at the quantitative loss factor for each credit grade.

For a large loan to large institutions with publically available credit ratings the Company tracks these ratings. These ratings are tracked as a credit quality indicator for these loans. Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at March 31, 2017.

Page 32 of 42

Commercial
and
Industrial

Municipal

Commercial
Real
Estate

Total

(in thousands)

Credit Rating:

Aaa – Aa3

337,487

66,652

45,858

449,997

A1 – A3

218,472

33,365

129,109

380,946

Baa1 – Baa3

—

50,580

126,608

177,188

Ba2

—

Total

555,959

150,597

301,575

1,008,131

Credit ratings issued by national organizations are presented in the following table at December 31, 2016.


	Commercial and Industrial		Municipal		Commercial Real Estate		Total
	(in thousands)
Credit Rating:
Aaa – Aa3	$	334,674	$	66,245	$	6,596	$	407,515
A1 – A3		188,777		33,365		129,423		351,565
Baa1 – Baa3		—		26,970		127,366		154,336
Ba2		—		3,610		—		3,610

Total	$	523,451	$	130,190	$	263,385	$	917,026

The allowance for loan losses is an estimate of the amount needed for an adequate reserve to absorb losses in the existing loan portfolio. This amount is determined by an evaluation of the loan portfolio, including input from an independent organization engaged to review selected larger loans, a review of loan experience and current economic conditions. Although the allowance is allocated between categories, the entire allowance is available to absorb losses attributable to all loan categories.

Page 33 of 42

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


	Three months ended March 31,
	2017			2016
	(in thousands)
Allowance for loan losses, beginning of period	$	24,406		$	23,075
Loans charged off		(96	)		(69	)
Recoveries on loans previously charged-off		117			88

Net recoveries (charge-offs)		21			19
Provision charged to expense		400			450

Allowance for loan losses, end of period	$	24,827		$	23,544

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

Nonperforming Assets

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


	March 31,			December 31,
	2017			2016
	(dollars in thousands)
Nonaccruing loans	$	810		$	1,084
Total nonperforming assets	$	810		$	1,084
Loans past due 90 days or more and still accruing	$	—		$	—
Nonaccruing loans as a percentage of total loans		0.04	%		0.06	%
Nonperforming assets as a percentage of total assets		0.02	%		0.02	%
Accruing troubled debt restructures	$	3,492		$	3,526

Cash and Cash Equivalents

Cash and cash equivalents decreased from $236,151,000 to $67,458,000 during the first three months of 2017. This decrease was primarily attributable to increased loan originations and increased investment purchases.

Short-term Investments

Short-term investments decreased primarily as a result of maturities during the first three months of 2017.

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)

The securities available-for-sale portfolio totaled $509,900,000 at March 31, 2017, an increase of 2.1% from December 31, 2016. The portfolio increased mainly as a result of purchases of securities available-for-sale totaling $51,606,000 for the three months ended March 31, 2017. The purchases were offset by calls and maturities of $41,155,000. The portfolio is concentrated in United States Government Sponsored Enterprises, Mortgage-backed Securities and Obligations issued by States and Political Subdivisions and had an estimated weighted average remaining life of 4.7 years.

Page 34 of 42

At March 31, 2017, 67.9% of the Company’s securities available-for-sale are classified as Level 2. The fair values of these securities are generally obtained from a pricing service, which provides the Company with a description of the inputs generally utilized for each type of security. These inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. Market indicators and industry and economic events are also monitored.

Securities available-for-sale totaling $163,337,000, or 32.0% of securities available-for-sale are classified as Level 3. These securities are generally municipal securities with no observable fair value. The securities are carried at cost which approximates fair value. A periodic review of underlying financial statements and credit ratings is performed to assess the appropriateness of these valuations.

During the first three months of 2017, net unrealized losses on the securities available-for-sale decreased to $700,000 from a net unrealized loss of $923,000 at December 31, 2016. The following table sets forth the fair value of securities available-for-sale at the dates indicated.


	March 31,		December 31,
	2017		2016
	(in thousands)
U.S. Treasury	$	2,000	$	2,000
U.S. Government Sponsored Enterprises		19,984		24,952
Small Business Administration		74,236		57,767
U.S Government Agency and Sponsored Enterprise Mortgage-backed Securities		243,950		243,325
Privately Issued Residential Mortgage- backed Securities		1,055		1,109
Obligations issued by States and Political Subdivisions		163,337		164,876
Other Debt Securities		4,981		4,924
Equity Securities		357		344

Total Securities Available-for-Sale	$	509,900	$	499,297

There were no sales of investments during the first three months of 2017.

Securities Held-to-Maturity (at Amortized Cost)

The securities held-to-maturity portfolio totaled $1,809,608,000 on March 31, 2017, an increase of 9.4% from December 31, 2016. Purchases of securities held-to-maturity totaled $217,463,000 for the three months ended March 31, 2017. The purchases were offset by calls and maturities of $62,537,000. The portfolio is concentrated in United States Government Sponsored Enterprises and Mortgage-backed Securities and had an estimated weighted average remaining life of 4.4 years. The following table sets forth the fair value of securities held-to-maturity at the dates indicated.


	March, 31 2017		December 31, 2016
	(in thousands)
U.S. Government Sponsored Enterprises	$	170,077	$	148,326
SBA Backed Securities		55,774		46,140
U.S. Government Agency and Sponsored Enterprise Mortgage-backed Securities		1,583,757		1,459,520

Total Securities Held-to-Maturity	$	1,809,608	$	1,653,986

At March 31, 2017 and December 31, 2016, all mortgage-backed securities are obligations of U.S. Government Sponsored Enterprises. There were no sales of investments for the three months ending March 31, 2017.

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

Page 35 of 42

Federal Home Loan Bank of Boston Stock

The Bank, as a member of the Federal Home Loan Bank of Boston (“FHLBB”), is required to maintain an investment in capital stock of the FHLBB. Based on redemption provisions, the stock has no quoted market value and is carried at cost. At its discretion, the FHLBB may declare dividends on the stock. The Company reviews for impairment based on the ultimate recoverability of the cost basis in the stock. During the first three months of 2017, the FHLBB redeemed $714,000 of FHLBB stock. As of March 31, 2017, no impairment has been recognized.

Deposits and Borrowed Funds

On March 31, 2017, deposits totaled $3,743,462,000, representing a 2.5% increase from December 31, 2016. Total deposits increased primarily as a result of increases in savings and NOW deposits, and time deposits. Savings and NOW deposits increased, mainly as a result of corporate and municipal deposits, as the Company continued to offer competitive rates for these types of deposits during the first three months of the year. Time deposits increased primarily as a result of increased personal time deposits as the Company has offered competitive rates for these type of deposits. Demand deposits and money market accounts decreased primarily as a result of decreases in corporate accounts.

Borrowed funds totaled $491,420,000 at March 31, 2017 compared to $475,280,000 at December 31, 2016. Borrowed funds increased mainly as a result of an increase in short-term FHLBB borrowings and an increase in securities sold under agreements to repurchase. Securities sold under agreements to repurchase increased, primarily as a result of increases in corporate accounts.

Stockholders’ Equity

At March 31, 2017, total equity was $246,328,000 compared to $240,041,000 million at December 31, 2016. The Company’s equity increased primarily as a result of earnings and a decrease in other comprehensive loss, net of taxes, offset somewhat by dividends paid. Other comprehensive loss, net of taxes, decreased as a result of a decrease in unrealized losses on securities available-for-sale, unrealized losses on securities transferred from available-for-sale to held-to-maturity and amortization of the pension liability. The Company’s leverage ratio stood at 6.12% at March 31, 2017, compared to 6.28% at December 31, 2016. The decrease in the leverage ratio was due to an increase in quarterly average assets, offset somewhat by an increase in stockholders’ equity. Book value as of March 31, 2017 was $44.24 per share compared to $43.11 at December 31, 2016.

Page 36 of 42

Results of Operations

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


	Three Months Ended
	March 31, 2017									March 31, 2016
	Average Balance			Interest Income/ Expenses (1)			Rate Earned/ Paid (1)			Average Balance			Interest Income/ Expenses (1)			Rate Earned/ Paid (1)
	(dollars in thousands)
ASSETS
Interest-earning assets:
Loans (2)
Loans taxable	$	935,122		$	9,034			3.92	%	$	856,643		$	8,390			3.94	%
Loans tax-exempt		1,049,578			9,263			3.58	%		930,266			8,881			3.84	%
Securities available-for-sale (5):
Taxable		382,015			1,264			1.32	%		283,095			776			1.10	%
Tax-exempt		151,471			486			1.28	%		131,388			265			0.81	%
Securities held-to-maturity:
Taxable		1,751,435			9,535			2.18	%		1,434,888			7,812			2.18	%
Interest-bearing deposits in other banks		204,527			393			0.77	%		245,933			315			0.51	%

Total interest-earning assets		4,474,148			29,975			2.70	%		3,882,213			26,439			2.73	%
Non interest-earning assets		220,391									203,547
Allowance for loan losses		(24,580	)								(23,283	)

Total assets	$	4,669,959								$	4,062,477

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits:
NOW accounts	$	966,191		$	700			0.29	%	$	833,514		$	487			0.23	%
Savings accounts		487,108			527			0.44	%		384,339			351			0.37	%
Money market accounts		1,216,690			1,274			0.42	%		976,910			795			0.33	%
Time deposits		501,857			1,651			1.33	%		448,409			1,358			1.22	%

Total interest-bearing deposits		3,171,846			4,152			0.53	%		2,643,172			2,991			0.46	%
Securities sold under agreements to repurchase		200,457			103			0.21	%		222,579			115			0.21	%
Other borrowed funds and subordinated debentures		319,733			1,928			2.45	%		366,369			2,307			2.53	%

Total interest-bearing liabilities		3,692,036			6,183			0.68	%		3,232,120			5,413			0.67	%

Non-interest-bearing liabilities
Demand deposits		675,941									557,116
Other liabilities		58,663									55,639

Total liabilities		4,426,640									3,844,875

Stockholders’ equity		243,319									217,602
Total liabilities & stockholders’ equity	$	4,669,959								$	4,062,477

Net interest income on a fully taxable equivalent basis					23,792									21,026
Less taxable equivalent adjustment					(3,336	)								(3,176	)

Net interest income				$	20,456								$	17,850

Net interest spread (3)								2.02	%								2.06	%

Net interest margin (4)								2.16	%								2.18	%

(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 37 of 42

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

Three Months Ended March 31, 2017
Compared with
Three Months Ended March 31, 2016

Increase/(Decrease)

Due to Change in

Volume

Rate

Total

(in thousands)

Interest income:

Loans

Taxable

693

(49

)

644

Tax-exempt

1,033

(651

)

382

Securities available-for-sale

Taxable

306

182

488

Tax-exempt

176

221

Securities held-to-maturity

Taxable

1,723

—

1,723

Interest-bearing deposits in other banks

(60

)

138

Total interest income

3,740

(204

)

3,536

Interest expense:

Deposits

NOW accounts

130

213

Savings accounts

102

176

Money market accounts

216

263

479

Time deposits

163

130

293

Total interest-bearing deposits

564

597

1,161

Securities sold under agreements to repurchase

(12

)

—

(12

)

Other borrowed funds and subordinated debentures

(298

)

(81

)

(379

)

Total interest expense

254

516

770

Change in net interest income

3,486

(720

)

2,766

Net Interest Income

For the three months ended March 31, 2017, net interest income on a fully taxable equivalent basis totaled $23,792,000 compared to $21,026,000 for the same period in 2016, an increase of $2,766,000 or 13.2%. This increase in net interest income for the period is primarily due to an increase in average interest earning assets; this was partially combined with a two basis point decrease in the net interest margin. The average balance of earning assets increased by 15.2% combined with a similar increase in average deposits. The net interest margin decreased from 2.18% on a fully taxable equivalent basis in 2016 to 2.16% on the same basis for 2017. This was primarily the result of a decrease in rates on earning assets. Also, interest income on a fully taxable equivalent basis increased 13.4%, mainly as a result of an increase in interest earning assets. Interest expense increased 14.2% mainly as a result of an increase in deposit balances. As illustrated in the table above, the main contributors to the increase in net interest income were from securities held-to-maturity, loans and securities available-for-sale. Securities held-to-maturity income increased primarily as a result of an increase in volume. Loans income increased primarily from an increase in volume, this was partially offset by decrease rates on loans from new loan originations. Securities available-for-sale income increased from both an increase in volume and an increase in rates paid on the portfolio. The Company has a sizable floating rate available-for-sale portfolio. These securities reprice as interest rates rise. The increase in net interest income was partially offset by an increase in interest expense. This was mainly the result of increased rates paid on money market, saving and NOW accounts. The Company has modestly raised interest rates on these products to remain competitive.

Page 38 of 42

Provision for Loan Losses

For the three months ended March 31, 2017, the loan loss provision was $400,000 compared to a provision of $450,000 for the same period last year. The decrease in the provision was primarily as a result of changes in historical loss factors offset, somewhat, by an increase in loan balances. During the second quarter of 2015, the Company enhanced its approach to the development of the historical loss factors on certain loans within the portfolio. This was done in response to the changing risk profile of the Company’s new loan originations and related methodology enhancements to address these changes. Additionally, the Company has continued to increase its lending for large loans to large institutions with publicly available credit ratings. The historical loss allocation for these types of loans is low. This has contributed to the decrease in the provision for loan losses for 2017 compared to the same period in 2016. Further discussion relating to changes in portfolio composition is discussed in footnote number four.

Non-Interest Income and Expense

Other operating income for the quarter ended March 31, 2017 increased by $255,000 from the same period last year to $3,909,000. This was mainly attributable to an increase in gains on sales of mortgage loans of $101,000, other income of $93,000, and service charges on deposit accounts of $79,000. This was partially offset by a decrease in lockbox fees of $18,000. Other income increased primarily as a result of an increase in wealth management fees, merchant and charge card fees, and other customer fees. Also, service charges on deposit accounts increased primarily as a result of an increase in fees collected on deposit accounts.

For the quarter ended March 31, 2017, operating expenses increased by $2,042,000 or 13.0% to $17,725,000, from the same period last year. The increase in operating expenses for the quarter was mainly attributable to an increase of $1,367,000 in salaries and employee benefits, $573,000 in other expenses, $162,000 in occupancy expenses, and $70,000 in equipment expenses. This was partially offset by a decrease in FDIC assessments of $130,000. Salaries and employee benefits increased mainly as a result of merit increases and increased bonus accruals. Occupancy cost increased primarily as a result of amortization of leasehold improvements and increased building maintenance costs associated with snow removal. Equipment expenses increased primarily as a result of an increase in service contracts. Other expenses increased primarily as a result of an increase in marketing expenses and increased contributions. FDIC assessments decreased primarily as a result of a decrease in the assessment rate.

Income Taxes

For the first quarter of 2017, the Company’s income tax expense totaled $144,000 on pretax income of $6,240,000 resulting in an effective tax rate of 2.3%. For last year’s corresponding quarter, the Company’s income tax expense totaled $64,000 on pretax income of $5,371,000 resulting in an effective tax rate of 1.2%. The increase in the effective income tax rate was primarily the result of an increase in taxable income.

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, 2016, 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.

Page 39 of 42

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, has concluded that the Company’s disclosure controls and procedures are effective. The disclosure controls and procedures also effectively ensure that information required to be disclosed in the Company’s filings and submissions with the Securities and Exchange Commission under the Exchange Act is accumulated and reported to Company management (including the principal executive officer and the principal financial officer) as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. In addition, the Company has evaluated its internal control over financial reporting and during the first quarter of 2017 there were no changes that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Page 40 of 42

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, 2016. 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 affect the Company’s business, financial condition and operating results.

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds –

(a) — (b) Not applicable.

Item 3

Defaults Upon Senior Securities – None

Item 4

Mine Safety Disclosures – Not applicable

Item 5

Other Information – None

Item 6

Exhibits



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

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

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

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

+ + 101.		INS XBRL Instance Document

+ + 101.		SCH XBRL Taxonomy Extension Schema

+ + 101.		CAL XBRL Taxonomy Extension Calculation Linkbase

+ + 101.		LAB XBRL Taxonomy Extension Label Linkbase

+ + 101.		PRE XBRL Taxonomy Extension Presentation Linkbase

+ + 101.		DEF XBRL Taxonomy Definition Linkbase

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

As provided in Rule 406T of regulation S-T, this information is filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 and consists of the following materials from Century Bancorp Inc.’s Quarterly Report on 10-Q for the quarter ended March 31, 2017, formatted in XBRL: (i) Consolidated Balance Sheets at March 31, 2017 and December 31, 2016; (ii) Consolidated Statements of Income for the three months ended March 31, 2017 and 2016; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2017 and 2016; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016; and (vi) Notes to Unaudited Consolidated Interim Financial Statements.

Page 41 of 42

SIGNATURES

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


Date:	May 8, 2017	Century Bancorp, Inc.

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

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

Page 42 of 42

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