UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2006.

or

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

For the transition period from                                         .

Commission file number 0-15752.

CENTURY BANCORP, INC.

(Exact name of registrant as specified in its charter)

COMMONWEALTH OF MASSACHUSETTS		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)

(Registrant’s telephone number, including area code)

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

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

Large accelerated filer o            Accelerated filer þ           Non-accelerated filer o

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

As of July 31, 2006, the Registrant had outstanding:

Class A Common Stock, $1.00 par value Class B Common Stock, $1.00 par value		3,489,938 Shares 2,051,150 Shares

 

 

Century Bancorp, Inc.

		Page
Index		Number
Part I            Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets: June 30, 2006 and December 31, 2005.			3
Consolidated Statements of Income: Three (3) months and Six (6) months ended June 30, 2006 and 2005.			4
Consolidated Statements of Changes in Stockholders’ Equity: Six (6) months ended June 30, 2006 and 2005.			5
Consolidated Statements of Cash Flows: Six (6) months ended June 30, 2006 and 2005.			6
Notes to Consolidated Financial Statements			7-12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12-21
Item 3. Quantitative and Qualitative Disclosure About Market Risk			21
Item 4. Controls and Procedures			21
Part II. Other Information
Item 1. Legal Proceedings.			22
Item 1A. Risk Factors.			22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			22
Item 3. Defaults Upon Senior Securities.			22
Item 4. Submission of Matters to a Vote of Securities Holders.			22
Item 5. Other Information.			22
Item 6. Exhibits.			22
Signatures			23
Exhibits
EX-31.1 SECT. 302 CERTIFICATION OF CO-C.E.O.
EX-31.2 SECT. 302 CERTIFICATION OF CO-C.E.O.
EX-31.3 SECT. 302 CERTIFICATION OF THE VICE PRESIDENT
EX-32.1 SECT. 906 CERTIFICATION OF CO-C.E.O.
EX-32.2 SECT. 906 CERTIFICATION OF CO-C.E.O.
EX-32.3 SECT. 906 CERTIFICATION OF THE VICE PRESIDENT

PART I — Item 1

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

 

		June 30,				December 31,
(000’s, except share data)		2006				2005
Assets
Cash and due from banks		$	51,669			$	47,626
Federal funds sold and interest-bearing deposits in other banks			38,219				105,053
Total cash and cash equivalents			89,888				152,679
Securities available-for-sale, amortized cost $495,864 and $546,524, respectively			480,318				532,982
Securities held-to-maturity, market value $264,007 and $277,769, respectively			275,585				286,578
Loans, net:
Commercial & industrial			109,078				94,139
Construction & land development			69,090				58,846
Commercial real estate			320,410				302,279
Residential real estate			159,823				146,355
Consumer & other			15,036				11,316
Home equity			71,694				76,710
Total loans, net			745,131				689,645
Less: allowance for loan losses			9,551				9,340
Net loans			735,580				680,305
Bank premises and equipment			23,888				25,228
Accrued interest receivable			6,927				7,127
Goodwill			2,714				2,714
Core deposit intangible			2,253				2,447
Other assets			42,679				38,709
Total assets		$	1,659,832			$	1,728,769
Liabilities
Deposits:
Demand deposits		$	273,543			$	296,696
Savings and NOW deposits			283,410				239,326
Money market accounts			332,322				279,245
Time deposits			358,598				401,773
Total deposits			1,247,873				1,217,040
Securities sold under agreements to repurchase			139,460				50,010
Federal Home Loan Bank (FHLB) borrowings and other borrowed funds			114,324				304,722
Other liabilities			18,698				17,713
Subordinated debentures			36,083				36,083
Total liabilities			1,556,438				1,625,568
Stockholders’ equity
Class A common stock, $1.00 par value per share; authorized 10,000,000 shares; issued 3,483,638 shares and 3,453,202 shares, respectively			3,484				3,453
Class B common stock, $1.00 par value per share; authorized 5,000,000 shares; issued 2,057,450 shares and 2,082,240 shares, respectively			2,057				2,082
Additional paid-in capital			11,504				11,416
Retained earnings			98,657				97,338
			115,702				114,289
Unrealized losses on securities available-for-sale, net of taxes			(9,490	)			(8,270	)
Additional minimum pension liability, net of taxes			(2,818	)			(2,818	)
Total accumulated other comprehensive loss, net of taxes			(12,308	)			(11,088	)
Total stockholders’ equity			103,394				103,201
Total liabilities and stockholders’ equity		$	1,659,832			$	1,728,769

See accompanying Notes to unaudited Consolidated Financial Statements.

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

(000’s except share data)		Three months ended June 30,								Six months ended June 30,
		2006				2005				2006				2005
Interest income
Loans		$	12,912			$	10,086			$	24,847			$	19,284
Securities held-to-maturity			2,555				2,988				5,168				6,184
Securities available-for-sale			4,215				4,999				8,824				9,934
Federal funds sold and interest-bearing deposits in other banks			51				9				81				332
Total interest income			19,733				18,082				38,920				35,734
Interest expense
Savings and NOW deposits			1,159				933				2,082				1,648
Money market accounts			2,361				1,769				4,139				3,480
Time deposits			3,731				1,938				6,912				3,995
Securities sold under agreements to repurchase			785				130				1,200				230
Other borrowed funds and subordinated debentures			2,620				2,957				6,183				5,477
Total interest expense			10,656				7,727				20,516				14,830
Net interest income			9,077				10,355				18,404				20,904
Provision for loan losses			225				150				375				300
Net interest income after provision for loan losses			8,852				10,205				18,029				20,604
Other operating income
Service charges on deposit accounts			1,702				1,537				3,218				2,965
Lockbox fees			762				786				1,437				1,495
Brokerage commissions			30				139				78				292
Other income			279				457				1,167				832
Total other operating income			2,773				2,919				5,900				5,584
Operating expenses
Salaries and employee benefits			6,001				5,951				12,249				12,054
Occupancy			921				943				1,966				1,929
Equipment			785				714				1,520				1,496
Other			2,418				2,508				4,555				4,671
Total operating expenses			10,125				10,116				20,290				20,150
Income before income taxes			1,500				3,008				3,639				6,038
Provision for income taxes			527				973				1,236				1,961
Net income		$	973			$	2,035			$	2,403			$	4,077
Share data:
Weighted average number of shares outstanding, basic			5,541,088				5,535,317				5,540,807				5,534,986
Weighted average number of shares outstanding, diluted			5,550,784				5,548,674				5,551,746				5,549,519
Net income per share, basic		$	0.18			$	0.37			$	0.43			$	0.74
Net income per share, diluted		$	0.18			$	0.37			$	0.43			$	0.73
Cash dividends paid:
Class A common stock		$	0.12			$	0.12			$	0.24			$	0.24
Class B common stock		$	0.06			$	0.06			$	0.12			$	0.12

See accompanying Notes to unaudited Consolidated Financial Statements.

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

																		Accumulated
		Class A				Class B				Additional								Other				Total
		Common				Common				Paid-In				Retained				Comprehensive				Stockholders’
		Stock				Stock				Capital				Earnings				Income (Loss)				Equity
										(000’s)
2005
Balance at December 31, 2004		$	3,434			$	2,099			$	11,395			$	92,611			($	4,766	)		$	104,773
Net income			—				—				—				4,077				—				4,077
Other comprehensive income, net of tax:
Unrealized holding losses arising during period net of $998 in taxes			—				—				—				—				(1,556	)			(1,556	)
Minimum pension liability adjustment			—				—				—				—				163				163
Comprehensive income																							2,684
Stock Options Exercised, 1,229 shares			2				—				18				—				—				20
Cash dividends paid, Class A common stock, $.24 per share			—				—				—				(824	)			—				(824	)
Cash dividends paid, Class B common stock, $.12 per share			—				—				—				(253	)			—				(253	)
Balance at June 30, 2005		$	3,436			$	2,099			$	11,413			$	95,611			($	6,159	)		$	106,400
2006
Balance at December 31, 2005		$	3,453			$	2,082			$	11,416			$	97,338			($	11,088	)		$	103,201
Net income			—				—				—				2,403				—				2,403
Other comprehensive income, net of tax:
Unrealized holding losses arising during period net of $784 in taxes			—				—				—				—				(1,220	)			(1,220	)
Comprehensive income																							1,183
Conversion of Class B Common Stock to Class A Common Stock			25				(25	)			—				—				—				0
Stock Options Exercised, 5,646 shares			6				—				88				—				—				94
Cash dividends paid, Class A common stock, $.24 per share			—				—				—				(836	)			—				(836	)
Cash dividends paid, Class B common stock, $.12 per share			—				—				—				(248	)			—				(248	)
Balance at June 30, 2006		$	3,484			$	2,057			$	11,504			$	98,657			($	12,308	)		$	103,394

See accompanying Notes to unaudited Consolidated Financial Statements.

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

		Six months ended
		June 30,
		(000’s)
		2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	2,403			$	4,077
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			375				300
Deferred income taxes			(395	)			(93	)
Net depreciation and amortization			1,829				1,534
Decrease (increase) in accrued interest receivable			200				(2	)
Increase in other assets			(2,824	)			(2,588	)
Increase in other liabilities			1,010				495
Net cash provided by operating activities			2,598				3,723
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale			50,842				141,823
Purchase of securities available-for-sale			(348	)			(111,678	)
Proceeds from maturities of securities held-to-maturity			11,047				43,549
Purchase of securities held-to-maturity			—				(2,022	)
Net increase in loans			(55,650	)			(75,694	)
Capital expenditures			(175	)			(1,662	)
Net cash provided by (used in) investing activities			5,716				(5,684	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits			(43,175	)			(82,006	)
Net increase (decrease) in demand, savings, money market and NOW deposits			74,008				(78,784	)
Net proceeds from the exercise of stock options			94				20
Cash dividends			(1,084	)			(1,077	)
Net increase (decrease) in securities sold under agreements to repurchase			89,450				(6,380	)
Net (decrease) increase in FHLB borrowings and other borrowed funds			(190,398	)			13,679
Decrease in subordinated debentures			—				(29,639	)
Net cash used in financing activities			(71,105	)			(184,187	)
Net decrease in cash and cash equivalents			(62,791	)			(186,148	)
Cash and cash equivalents at beginning of period			152,679				238,235
Cash and cash equivalents at end of period		$	89,888			$	52,087
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	20,492			$	15,123
Income taxes			1,931				1,941
Change in unrealized gains on securities available-for-sale, net of taxes	(	$	1,220	)	(	$	1,556	)

See accompanying Notes to unaudited Consolidated Financial Statements.

Century Bancorp, Inc.

Notes to Consolidated Financial Statements (unaudited)

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). CSII, CSII II, CSII III are engaged in buying, selling and holding investment securities. The Company also owns 100% of Century Bancorp Capital Trust II (CBCT II). The entity is an unconsolidated subsidiary of the Company.
		All significant intercompany accounts and transactions have been eliminated in consolidation. The Company provides a full range of banking services to individual, business and municipal customers in Massachusetts. As a bank holding company, the Company is subject to the regulation and supervision of the Federal Reserve Board. The Bank, a state chartered financial institution, is subject to supervision and regulation by applicable state and federal banking agencies, including the Federal Reserve Board, the Federal Deposit Insurance Corporation (the “FDIC”) and the Commonwealth of Massachusetts Commissioner of Banks. The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy. All aspects of the Company’s business are highly competitive. The Company faces aggressive competition from other lending institutions and from numerous other providers of financial services. The Company has one reportable operating segment.
		The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and to general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates.
		Material estimates that are susceptible to change in the near-term relate to the allowance for loan losses. Management believes that the allowance for loan losses is adequate based on independent appraisals and review of other factors associated with the loans. While management uses available information to recognize loan losses, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, regulatory agencies periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination.
		Whenever necessary prior year amounts were reclassified to conform with the current year presentation.

Summary of Critical Accounting Policies

Accounting policies involving significant judgments and assumptions by management, which have, or could have, a material impact on the carrying value of certain assets and impact income, are considered critical accounting policies. The Company considers the following to be its critical accounting policies: allowance for loan losses and impairment of investment securities. There have been no significant changes since December 31, 2005 in these methods or assumptions used in the accounting policies that require material estimates and assumptions.

Allowance for Loan Losses

		Arriving at an appropriate level of allowance for loan losses necessarily involves a high degree of judgment. Management maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. The allowance is based on assessments of the probable estimated losses inherent in the loan portfolio. Managements’ methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowances for identified problem loans and the unallocated allowance. The formula allowance evaluates groups of loans to determine the allocation appropriate within each portfolio segment. Individual loans within the commercial and industrial, commercial real estate and real estate construction loan portfolio segments are assigned internal risk ratings to group them with other loans possessing similar risk characteristics. Changes in risk grades affect the amount of the formula allowance. Risk grades are determined by reviewing current collateral value, financial information, cash flow, payment history and other relevant facts surrounding the particular credit. Allowance for losses on the commercial and commercial real estate loans are based on pools of similar loans using a combination of historical loss experience and qualitative adjustments. For the residential real estate and consumer loan portfolios, the reserves are calculated by applying historical charge-off and recovery experience and qualitative adjustments to the current outstanding balance in each loan category.
		Specific allowances for loan losses entails the assignment of allowance amounts to individual loans on the basis of loan impairment. Certain loans are evaluated individually and are judged to be impaired when management believes it is probable that the Company will not collect all the contractual interest and principal payments as scheduled in the loan agreement. A specific allowance amount is allocated to an individual loan when such loan has been deemed impaired and when the amount of a probable loss is able to be estimated on the basis of: (a.) fair value of collateral, (b.) present value of anticipated future cash flows or (c.) the loan’s observable fair market price.
		The unallocated allowance recognizes the model and estimation risk associated with the formula allowance and specific allowances, as well as management’s evaluation of various conditions, including business and economic conditions, delinquency trends, charge-off experience and other quality factors, the effects of which are not directly measured in the determination of the formula and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits.
		Management has identified certain risk factors, which could impact the degree of loss sustained within the portfolio. These include: (a.) market risk factors, such as the effects of economic variability on the entire portfolio, and (b.) unique portfolio risk factors that are inherent characteristics of the Company’s loan portfolio. Market risk factors may consist of changes to general economic and business conditions that may impact the Company’s loan portfolio customer base in terms of ability to repay and that may result in changes in value of

underlying collateral. Unique portfolio risk factors may include industry concentrations and geographic concentrations or trends that may exacerbate losses resulting from economic events which the Company may not be able to fully diversify out of its portfolio. Management believes that the allowance for loan losses is adequate. In addition, various regulatory agencies, as part of the examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

Impaired Investment Securities

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

Stock Option Accounting

		During 2000 and 2004, common stockholders of the Company approved stock option plans (the “Option Plans”) that provides for granting of options for not more than 150,000 shares of Class A common stock per plan. Under the Option Plans, all officers and key employees of the Company are eligible to receive non-qualified or incentive stock options to purchase shares of Class A common stock. The Option Plans are administered by the Compensation Committee of the Board of Directors, whose members are ineligible to participate in the Option Plans. Based on management’s recommendations, the Committee submits its recommendations to the Board of Directors as to persons to whom options are to be granted, the number of shares granted to each, the option price (which may not be less than 85% of the fair market value for non-qualified stock options, or the fair market value for incentive stock options, of the shares on the date of grant) and the time period over which the options are exercisable (not more than ten years from the date of grant). There were 123,237 options to purchase shares of Class A common stock exercisable at June 30, 2006.
		On December 30, 2005 the Board of Directors approved the acceleration and immediate vesting of all unvested options with an exercise price of $31.60 or greater per share. As a consequence, options to purchase 23,950 shares of Class A common stock became exercisable immediately. The average of the high and low price at which the Class A common stock traded on December 30, 2005, the date of the acceleration and vesting, was $29.28 per share. The Company estimates that, as a result of this accelerated vesting, approximately $190,000 of 2006 non-cash compensation expense was eliminated that would otherwise have been recognized in the Company’s earnings.
		In December 2004, the FASB issued a revised Statement No. 123, (revised 2004) (SFAS 123R) , “Share-Based Payment”. This Statement replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award period which is usually the vesting period. SFAS 123R is effective as of the beginning of

the first annual reporting period that begins after June 15, 2005. The Company accelerated the vesting of certain unvested “out-of-the-money” stock options awarded to Bank employees pursuant to the Option Plans so that they immediately vested as of December 30, 2005. In connection with this acceleration the Board of Directors approved a technical amendment to each of the Option Plans to eliminate the possibility that the terms of any outstanding or future stock option would require a cash settlement on the occurrence of any circumstance outside the control of the Company. These amendments avoid classification of the Company’s stock options as liabilities under SFAS 123R. On January 1, 2006 the Company adopted SFAS 123R for all share based payments.

		The Company decided to accelerate the vesting of certain stock options primarily to reduce the non-cash compensation expense that would otherwise be expected to be recorded in conjunction with the Company’s required adoption of SFAS 123R in 2006. There was no earnings impact for the first six months of 2006 due to the Company’s adoption of SFAS 123R.
		Had compensation cost for the Company’s stock option plans been determined based on the fair value at the grant date, the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below:

		Three Months Ended June 30,				Six Months Ended June 30,
		2005				2005
		(Dollars in Thousands)
Net income
As reported		$	2,035			$	4,077
Less: Pro forma stock based Compensation (net of tax)			41				81
Pro forma net income			1,994				3,966
Basic income per share
As reported			0.37				0.74
Pro forma			0.36				0.72
Diluted income per share
As reported			0.37				0.73
Pro forma			0.36				0.72

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

Dividend yield			1.59	%
Expected life		9 years
Expected volatility			28	%
Risk-free interest rate			3.95	%

Stock option activity under the plan is as follows:

		June 30, 2006
						Weighted
						Average
		Amount				Exercise Price
Shares under option:
Outstanding at beginning of year			130,133			$	26.74
Granted			—				—
Cancelled			(1,250	)			28.20
Exercised			(5,646	)			16.57
Outstanding at end of period			123,237			$	27.19
Exercisable at end of period			123,237			$	27.19
Available to be granted at end of period			151,025

		At June 30, 2006, the outstanding options to purchase 123,237 shares of Class A common stock have exercise prices between $15.063 and $35.010, with a weighted average exercise price at $27.19 and a weighted average remaining contractual life of 6 years. The intrinsic value of options exercised for the period ended June 30, 2006 was $7.93 with an aggregate value of $44,773. The intrinsic value of options exercisable at June 30, 2006 was $3.49 with an aggregate value of $151,505.
		The Company uses the fair value method to account for stock options. All of the Company’s stock options are vested and there were no options granted during the first six months of 2006.

Employee Benefits

		The Company has a qualified Defined Benefit Pension Plan (the “Plan”) which is offered to all employees reaching minimum age and service requirements. The Company also has a Supplemental Insurance/Retirement Plan (the “Supplemental Plan”), which is limited to certain officers and employees of the Company. In the second quarter of 2006, the Company amended the Pension Plan by closing participation in their plan to new employees.
		Components of Net Periodic Benefit Cost for the Three Month Period Ending June 30,

										Supplemental Insurance/
		Pension Benefits								Retirement Plan
		2006				2005				2006				2005
		(Dollars in Thousands)
Service Cost		$	221			$	190			$	27			$	32
Interest			249				229				191				186
Expected Return on Plan Assets			(254	)			(214	)			0				0
Recognized Prior Service (Cost) Benefit			(29	)			(5	)			16				16
Recognized Net Actuarial Losses			93				64				28				13
Net Periodic Benefit Cost		$	280			$	264			$	262			$	247

Components of Net Periodic Benefit Cost for the Six Month Period Ending June 30,

										Supplemental Insurance/
		Pension Benefits								Retirement Plan
		2006				2005				2006				2005
		(Dollars in Thousands)
Service Cost		$	442			$	380			$	54			$	64
Interest			498				458				382				372
Expected Return on Plan Assets			(508	)			(428	)			0				0
Recognized Prior Service (Cost) Benefit			(58	)			(10	)			32				32
Recognized Net Actuarial Losses			186				128				55				26
Net Periodic Benefit Cost		$	560			$	528			$	523			$	494

		Contributions
		The Company previously disclosed in its financial statements for the year ended December 31, 2005 that it expected to contribute $1,480,000 to its pension plan in 2006. As of June 30, 2006, $740,000 of the contribution had been made.

Recent Accounting Developments

In July, 2006 the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently analyzing the effects of FIN 48.

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

Forward Looking Statements

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

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

Executive Overview

Century Bancorp, Inc. (together with its bank subsidiary, unless the context otherwise requires, the “Company”), is a Massachusetts state chartered bank holding company headquartered in Medford, Massachusetts. The Company is a Massachusetts corporation formed in 1972 and has one banking subsidiary (the “Bank”): Century Bank and Trust Company formed in 1969. The Company had total assets of approximately $1.7 billion as of June 30, 2006. The Company presently operates 22 banking offices in 16 cities and towns in Massachusetts ranging from Braintree in the south to Beverly in the north. The Bank’s customers consist primarily of small and medium-sized businesses and retail customers in these communities and surrounding areas, as well as local governments and institutions throughout Massachusetts. During the second quarter the Company closed its branch on Atlantic Avenue in Boston and transferred its customers to the nearby State Street branch.

		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/fees from loans, deposits, as well as operating expenses, the provision for loan losses, the impact of federal and state income taxes and the relative levels of interest rates and economic activity.
		The Company offers a wide range of services to commercial enterprises, state and local governments and agencies, non-profit organizations and individuals. It emphasizes service to small and medium-sized businesses and retail customers in its market area. The Company makes commercial loans, real estate and construction loans and consumer loans, and accepts savings, time, and demand deposits. In addition, the Company offers to its corporate and institutional customers automated lock box collection services, cash management services and account reconciliation services, and actively promotes the marketing of these services to the municipal market. Also, the Company provides full service securities brokerage services through its division, Investment Services at Century Bank, in conjunction with Independent Financial Marketing Group, a full service securities brokerage business. The Company is also a provider of financial services, including cash management, transaction processing and short term financing to municipalities in Massachusetts and Rhode Island. The Company has deposit relationships with approximately 30% of the 351 cities and towns in Massachusetts.
		During the fourth quarter of 2004, the Company announced that it entered into an Investment Management Agreement with BlackRock Financial Management, Inc. for the Company’s Available-For-Sale securities portfolio. During 2005 the Company began experiencing strong loan growth, and believes that reinvesting the investment cash flows in loans will help to achieve improvements in its yield. The expense related to this contract ended on June 30, 2005 and the contract terminated January 31, 2006.
		Earnings for the second quarter ended June 30, 2006 were $973,000, or $0.18 per share diluted, compared to net income of $2,035,000, or $0.37 per share diluted, for the second quarter of 2005. The earnings were adversely impacted by rising short term interest rates, a flat yield curve and increased deposit competition. Excluded from income for the current quarter is approximately $170,000 of expected Federal Home Loan Bank (FHLB) stock dividend income that was not recorded because the FHLB did not declare the dividend during the second quarter. The dividend is expected to be declared during the third quarter. For the first six months of 2006, net income totaled $2,403,000, or $0.43 per share diluted, compared to net income of $4,077,000, or $0.73 per share diluted, for the same period a year ago. Included in income for 2006 is the previously announced pre-tax gain of $600 thousand from the sale of its rights to future royalty payments for a portion of its Merchant Credit Card customer base.

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

Financial Condition

Loans

		On June 30, 2006, total loans outstanding, net of unearned discount, were $745.1 million, an increase of 8.0% from the total on December 31, 2005. At June 30, 2006, commercial real estate loans accounted for 43.0% and residential real estate loans, including home equity credit lines, accounted for 31.1% of total loans. Commercial and industrial loans increased to $109.1 million from $94.1 million on December 31, 2005. Construction loans increased to $69.1 million at June 30, 2006 from $58.8 million on December 31, 2005.
		The primary reason for the increase in loans across all of the business lines is due, in large part, to the hiring of additional officers as well as increased marketing of small business loans.

Allowance for Loan Losses

The allowance for loan losses was 1.28% of total loans on June 30, 2006 compared with 1.35% on December 31, 2005. The ratio decreased due primarily to growth in the loan portfolio. Net charge-offs for the six-month period ended June 30, 2006 were $164 thousand compared with net recoveries of $144 thousand for the same period in 2005. Provisions to the allowance have been made due primarily to growth in the loan portfolio. 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:

		June 30, 2006				December 31, 2005
		(Dollars in Thousands)
Nonaccruing loans		$	289			$	949
Nonperforming assets		$	289			$	949
Loans past due 90 days or more and still accruing		$	4,163			$	3,512
Nonaccruing loans as a percentage of total loans			.04	%			.14	%

Cash and Cash Equivalents

Cash and cash equivalents decreased mainly as a result of decreases in cyclical time deposits. Time deposits decreased mainly because of a decreased reliance on time deposits greater than $100 thousand.

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.

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

		June 30, 2006				December 31, 2005
		(Dollars in Thousands)
Securities Available-for-Sale (at Fair Market Value)
U.S. Government and U.S.Government Sponsored Enterprises		$	269,082			$	294,132
Other Bonds and Equity Securities			13,758				20,298
Mortgage-backed Securities			197,478				218,552
Total Securities Available-for-Sale		$	480,318			$	532,982
Securities Held-to-Maturity (at Amortized Cost)
U.S. Government Sponsored Enterprises		$	159,961			$	159,952
Mortgage-backed Securities			115,624				126,626
Total Securities Held-to-Maturity		$	275,585			$	286,578

Securities Available-for-Sale

The securities available-for-sale portfolio totaled $480.3 million at June 30, 2006, a decrease of 9.9% from December 31, 2005. The portfolio decreased mainly because of a contraction in the balance sheet. The contraction is explained within the Deposits and Borrowed Funds section of Management’s Discussion and Analysis of Financial Condition and Results of Operation. The portfolio is concentrated in United States Government Sponsored Enterprise securities and has an estimated weighted average remaining life of 2.1 years. Included in U.S. Government and U.S. Government Sponsored Enterprises is one U.S. Government security totaling $2 million.

Securities Held-to-Maturity

The securities held-to-maturity portfolio totaled $275.6 million on June 30, 2006, a decrease of 3.8% from the total on December 31, 2005. The portfolio decreased mainly because of a contraction in the balance sheet. The contraction is explained within the Deposits and Borrowed Funds section of Management’s Discussion and Analysis of Financial Condition and Results of Operation. The portfolio is concentrated in United States Government Sponsored Enterprises. The mortgage-backed securities have an estimated weighted average remaining life of 2.9 years.

Other Assets

Other Assets increased by $4.0 million or 10.3%. Other Assets increased mainly because of an increase in the cash surrender value of life insurance policies and deferred tax assets associated with the increase in unrealized available-for-sale losses.

Deposits and Borrowed Funds

On June 30, 2006, deposits totaled $1.2 billion, representing a 2.5% increase in total deposits from December 31, 2005. Total deposits increased primarily as a result of increases in savings, NOW and money market deposits, offset somewhat by decreases in time deposits. Savings, NOW and money market deposits increased mainly because of increases in municipal deposits and personal savings balances. The Company

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

competed more aggressively for these types of deposits. Time deposits decreased mainly because the Company competed less aggressively for these types of deposits during the first six months of the year. Borrowed funds totaled $253.8 million compared to $354.7 million at December 31, 2005. Borrowed funds decreased because the Company competed more aggressively for deposit balances. The Company continues to manage deposits in spite of rising short term rates and increased competition.

Results of Operations

Net Interest Income

For the three-month period ended June 30, 2006, net interest income totaled $9.1 million, a decrease of 12.3% from the comparable period in 2005. The decrease in net interest income for the three-month period is mainly due to a 30 basis point decrease in the net interest margin as well as a $17.3 million or 1.1% decrease in average earning assets. Also, excluded from income for the current quarter is approximately $170,000 of expected Federal Home Loan Bank (FHLB) stock dividend income that was not recorded because the FHLB did not declare the dividend during the second quarter. The dividend is expected to be declared during the third quarter. For the six-month period ended June 30, 2006, net interest income totaled $18.4 million, a decrease of 12.0% from the comparable period in 2005. The decrease in net interest income for the six-month period is mainly due to a 27 basis point decrease in the net interest margin as well as a $38.1 million or 2.4% decrease in average earning assets.

The net yield on average earning assets on a fully taxable equivalent basis decreased to 2.40% for the first six months of 2006 from 2.67% during the same period in 2005. The Company believes that the net interest margin will continue to be challenged as rates rise. This is mainly the result of deposit and borrowing pricing that has the potential to increase at a faster rate than corresponding asset categories.

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

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

										Three Months Ended
			June 30, 2006											June 30, 2005
						Interest				Rate								Interest				Rate
		Average				Income/				Earned/				Average				Income/				Earned/
		Balance				Expense(1)				Paid				Balance				Expense(1)				Paid
														(dollars in thousands)
Assets
Interest-earning assets:
Loans (2)		$	733,169			$	12,912				7.06	%		$	637,851			$	10,086				6.34	%
Securities available-for-sale Taxable			514,307				4,210				3.27	%			589,441				4,995				3.39	%
Tax-exempt (1)			557				5				5.01	%			749				4				3.47	%
Securities held-to-maturity Taxable			278,428				2,555				3.67	%			318,505				2,988				3.75	%
Temporary funds			3,988				49				4.90	%			1,302				9				2.76	%
Interest bearing deposits in other banks			172				2				4.50	%			46				0				0.36	%
Total interest earning assets		$	1,530,621			$	19,733				5.17	%		$	1,547,894			$	18,082				4.68	%
Non interest-earning assets			120,216												117,074
Allowance for loan losses			(9,510	)											(9,252	)
Total assets		$	1,641,327											$	1,655,716
Liabilities and Stockholders’ Equity
Interest bearing deposits:
NOW account		$	215,295			$	1,013				1.91	%		$	257,581			$	859				1.35	%
Savings accounts			76,993				146				0.76	%			78,816				74				0.38	%
Money market accounts			332,203				2,361				2.88	%			370,332				1,769				1.94	%
Time deposits			344,728				3,731				4.39	%			246,092				1,938				3.19	%
Total interest-bearing deposits			969,219				7,251				3.00	%			952,821				4,640				1.97	%
Securities sold under Agreements to repurchase			78,176				785				4.02	%			33,476				130				1.56	%
Other borrowed funds and Subordinated debentures			190,361				2,620				5.52	%			265,414				2,957				4.67	%
Total interest-bearing liabilities			1,237,756				10,656				3.45	%			1,251,711				7,727				2.48	%
Non interest-bearing Liabilities
Demand deposits			280,602												282,998
Other liabilities			19,470												16,417
Total liabilities			1,537,828												1,551,126
Stockholders’ equity			103,499												104,590
Total liabilities & stockholders equity			1,641,327											$	1,655,716
Net interest income						$	9,077											$	10,355
Net interest spread (3)											1.72	%											2.20	%
Net interest margin (4)											2.38	%											2.68	%

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

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

										Six Months Ended
						June 30, 2006												June 30, 2005
						Interest				Rate								Interest				Rate
		Average				Income/				Earned/				Average				Income/				Earned/
		Balance				Expense(1)				Paid				Balance				Expense(1)				Paid
														(dollars in thousands)
Assets
Interest-earning assets:
Loans (2)		$	717,833			$	24,847				6.97	%		$	614,742			$	19,284				6.32	%
Securities available-for-sale
Taxable			525,637				8,815				3.35	%			592,374				9,926				3.35	%
Tax-exempt (1)			569				9				4.98	%			712				8				3.46	%
Securities held-to-maturity
Taxable			281,173				5,168				3.68	%			328,643				6,184				3.76	%
Temporary funds			3,504				79				4.50	%			30,365				332				2.19	%
Interest bearing deposits in other banks			112				2				2.27	%			46				0				0.62	%
Total interest earning assets		$	1,528,828			$	38,920				5.11	%		$	1,566,882			$	35,734				4.58	%
Non interest-earning assets			120,646												118,189
Allowance for loan losses			(9,453	)											(9,176	)
Total assets		$	1,640,021											$	1,675,895
Liabilities and Stockholders’ Equity
Interest bearing deposits:
NOW account		$	209,958			$	1,870				1.80	%		$	253,300			$	1,503				1.20	%
Savings accounts			74,479				212				0.58	%			77,611				145				0.38	%
Money market accounts			317,309				4,139				2.63	%			398,167				3,480				1.76	%
Time deposits			334,034				6,912				4.17	%			265,699				3,995				3.03	%
Total interest-bearing deposits			935,780				13,133				2.83	%			994,777				9,123				1.85	%
Securities sold under Agreements to repurchase			65,288				1,200				3.71	%			36,004				230				1.29	%
Other borrowed funds and Subordinated debentures			234,448				6,183				5.32	%			239,540				5,477				4.61	%
Total interest-bearing liabilities			1,235,516				20,516				3.35	%			1,270,321				14,830				2.35	%
Non interest-bearing Liabilities
Demand deposits			281,730												284,738
Other liabilities			19,069												16,362
Total liabilities			1,536,315												1,571,421
Stockholders’ equity			103,706												104,474
Total liabilities & stockholders equity		$	1,640,021											$	1,675,895
Net interest income						$	18,404											$	20,904
Net interest spread (3)											1.76	%											2.23	%
Net interest margin (4)											2.40	%											2.67	%