UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-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, ~~2019.~~2020.

☐	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)

Securities registered pursuant to Section 12(b) of the Act:

Title of class

Trading

Symbol(s)

Name of exchange

Class A Common Stock, $1.00 par value

CNBKA

Nasdaq Global Market

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 every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-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 Rule12b-2 of the Exchange Act). ☐ Yes ☒ No

~~Securities registered pursuant to Section 12(b) of the Act:~~


~~Class A Common Stock, $1.00 par value~~	~~CNBKA~~	~~Nasdaq Global Market~~
~~(Title of class)~~	~~Trading Symbol(s)~~	~~(Name of Exchange)~~

As of April 30, ~~2019,~~2020, the Registrant had outstanding:


Class A Common Stock, $1.00 par value			~~3,610,329~~3,652,349 Shares
Class B Common Stock, $1.00 par value			~~1,957,580~~1,915,560 Shares

Century Bancorp, Inc.

Index


		Page
		Number
Part I	Financial Information		3
	Forward Looking Statements

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets: March 31, ~~2019~~2020 and December 31, ~~2018~~2019		4
	Consolidated Statements of Income: Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019		5
	Consolidated Statements of Comprehensive Income: Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019		6
	Consolidated Statements of Changes in Stockholders’ Equity: Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019		7
	Consolidated Statements of Cash Flows: Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019		8

	Notes to Consolidated Financial Statements		9 - 3229

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3329 - 4240

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4240

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

~~Part II.~~	~~Other Information~~
~~Item 1.~~	~~Legal Proceedings~~		43
~~Item 1A.~~	~~Risk Factors~~		43
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~		43
~~Item 3.~~	~~Defaults Upon Senior Securities~~		43
~~Item 4.~~	~~Mine Safety Disclosures~~		43
~~Item 5.~~	~~Other Information~~		43
~~Item 6.~~	~~Exhibits~~		43

~~Signatures~~			44

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 onForm10-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.~~conditions, (v) the fact that the the Company’s business, financial condition and results of operation have been or may be negatively impacted by the extent and duration of theCOVID-19 pandemic. 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 thisForm10-Q, and the Company cautions readers not to place undue reliance on such statements.

Page 3 of 4442

PART I – Item 1

Century Bancorp, Inc.

Consolidated Balance Sheets (unaudited)

(In thousands, except share data)


							March 31,			December 31,
	March 31, 2019			December 31, 2018			2020			2019
Assets
Cash and due from banks	$	77,121		$	89,540		$	64,523		$	44,420
Federal funds sold and interest-bearing deposits in other banks		301,240			252,963			218,488			214,273

Total cash and cash equivalents		378,361			342,503			283,011			258,693
Securitiesavailable-for-sale, amortized cost $345,709 and $336,751, respectively		345,089			336,759
Securitiesheld-to-maturity, fair value $2,074,443 and $1,991,421, respectively		2,110,555			2,046,647
Securitiesavailable-for-sale, amortized cost $280,520 and $260,924, respectively								278,019			260,502
Securitiesheld-to-maturity, fair value $2,365,027 and $2,361,304, respectively								2,304,074			2,351,120
Federal Home Loan Bank of Boston, stock at cost		14,244			17,974			17,241			19,471
Equity securities, amortized cost $1,635 and $1,635, respectively		1,649			1,596			1,609			1,688
Loans, net:
Construction and land development		13,305			13,628			6,493			8,992
Commercial and industrial		767,436			761,625			867,599			812,417
Municipal		105,288			97,290			141,588			120,455
Commercial real estate		746,703			750,362			761,464			786,102
Residential real estate		349,966			348,250			393,338			371,897
Consumer		21,562			21,359
Consumer and overdrafts								21,039			21,893
Home equity		305,839			292,340			307,373			304,363
Overdrafts		561			724

Total loans, net		2,310,660			2,285,578			2,498,894			2,426,119
Less: allowance for loan losses		28,848			28,543			30,804			29,585

Net loans		2,281,812			2,257,035			2,468,090			2,396,534
Bank premises and equipment		24,494			23,921			36,238			33,952
Accrued interest receivable		14,464			14,406			12,998			13,110
Goodwill		2,714			2,714			2,714			2,714
Other assets		132,684			120,380			158,292			154,640

Total assets	$	5,306,066		$	5,163,935		$	5,562,286		$	5,492,424

Liabilities
Deposits:
Demand deposits	$	764,545		$	813,478		$	797,570		$	712,842
Savings and NOW deposits		1,783,987			1,707,019			1,662,414			1,678,250
Money market accounts		1,359,016			1,325,888			1,489,679			1,453,572
Time deposits		542,079			560,579			612,849			555,447

Total deposits		4,449,627			4,406,964			4,562,512			4,400,111
Securities sold under agreements to repurchase		164,500			154,240			219,995			266,045
Other borrowed funds		257,148			202,378			312,120			370,955
Subordinated debentures		36,083			36,083			36,083			36,083
Due to broker		11,740			—			5,500			—
Other liabilities		77,644			63,831			85,389			86,649

Total liabilities		4,996,742			4,863,496			5,221,599			5,159,843
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 3,610,329 shares and 3,608,329 shares, respectively		3,610			3,608
Common stock, Class B, $1.00 par value per share; authorized 5,000,000 shares; issued 1,957,580 shares and 1,959,580 shares respectively		1,958			1,960
Common stock, Class A, $1.00 par value per share; authorized 10,000,000 shares; issued 3,652,349 shares and 3,650,949 shares, respectively								3,652			3,651
Common stock, Class B, $1.00 par value per share; authorized 5,000,000 shares; issued 1,915,560 shares and 1,916,960 shares respectively								1,916			1,917
Additionalpaid-in capital		12,292			12,292			12,292			12,292
Retained earnings		310,356			301,488			348,093			338,980

		328,216			319,348			365,953			356,840
Unrealized losses on securitiesavailable-for-sale, net of taxes		(456	)		6			(1,839	)		(308	)
Unrealized losses on securities transferred toheld-to-maturity, net of taxes		(2,349	)		(2,565	)		(1,648	)		(1,812	)
Pension liability, net of taxes		(16,087	)		(16,350	)		(21,779	)		(22,139	)

Total accumulated other comprehensive loss, net of taxes		(18,892	)		(18,909	)		(25,266	)		(24,259	)

Total stockholders’ equity		309,324			300,439			340,687			332,581

Total liabilities and stockholders’ equity	$	5,306,066		$	5,163,935		$	5,562,286		$	5,492,424

See accompanying notes to unaudited consolidated interim financial statements.

Page 4 of 4442

Century Bancorp, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except share data)


						Three months ended
	Three months ended March 31,					March 31,
	2019			2018		2020		2019
Interest income
Loans	$	21,309		$	18,267	$	22,199	$	21,309
Securitiesheld-to-maturity		13,788			10,288		15,293		13,788
Securitiesavailable-for-sale		2,631			1,992		1,693		2,631
Federal funds sold and interest-bearing deposits in other banks		1,349			883		610		1,349

Total interest income		39,077			31,430		39,795		39,077

Interest expense
Savings and NOW deposits		5,466			2,223		3,725		5,466
Money market accounts		5,343			2,453		5,572		5,343
Time deposits		2,793			2,363		3,172		2,793
Securities sold under agreements to repurchase		385			181		626		385
Other borrowed funds and subordinated debentures		1,652			1,742		1,499		1,652

Total interest expense		15,639			8,962		14,594		15,639

Net interest income		23,438			22,468		25,201		23,438
Provision for loan losses		375			450		1,075		375

Net interest income after provision for loan losses		23,063			22,018		24,126		23,063
Other operating income
Service charges on deposit accounts		2,209			2,067		2,296		2,209
Lockbox fees		1,089			791		930		1,089
Net gains on sales of securities		—			197
Gains on sales of mortgage loans		15			—		—		15
Other income		1,114			1,138		1,084		1,114

Total other operating income		4,427			4,193		4,310		4,427

Operating expenses
Salaries and employee benefits		11,035			11,225		11,371		11,035
Occupancy		1,701			1,637		1,515		1,701
Equipment		783			794		837		783
FDIC assessments		373			383
FDIC Assessments							—		373
Other		4,298			3,962		4,450		4,298

Total operating expenses		18,190			18,001		18,173		18,190

Income before income taxes		9,300			8,210		10,263		9,300
(Benefit) provision for income taxes		(118	)		501
(Benefit) Provision for income taxes							597		(118	)

Net income	$	9,418		$	7,709	$	9,666	$	9,418

Share data:
Weighted average number of shares outstanding, basic
Class A		3,610,329			3,608,029		3,652,349		3,610,329
Class B		1,957,580			1,959,880		1,915,560		1,957,580
Weighted average number of shares outstanding, diluted
Class A		5,567,909			5,567,909		5,567,909		5,567,909
Class B		1,957,580			1,959,880		1,915,560		1,957,580
Basic earnings per share:
Class A	$	2.05		$	1.68	$	2.10	$	2.05
Class B	$	1.03		$	0.84	$	1.05	$	1.03
Diluted earnings per share
Class A	$	1.69		$	1.38	$	1.74	$	1.69
Class B	$	1.03		$	0.84	$	1.05	$	1.03

See accompanying notes to unaudited consolidated interim financial statements.

Page 5 of 4442

Century Bancorp, Inc.

Consolidated Statements of Comprehensive Income (unaudited)

(In thousands)


	Three months ended March 31,						Three months ended March 31,
	2019			2018			2020			2019
Net income	$	9,418		$	7,709		$	9,666		$	9,418
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Unrealized (losses) gains arising during period		(462	)		213			(1,531	)		(462	)
Less: reclassification adjustment for gains included in net income		—			(142	)		—			—

Total unrealized (losses) gains on securities		(462	)		71			(1,531	)		(462	)
Accretion of net unrealized losses transferred		216			381			164			216
Defined benefit pension plans:
Amortization of prior service cost and loss included in net periodic benefit cost		263			293			360			263

Other comprehensive income		17			745
Other comprehensive (loss) income								(1,007	)		17

Comprehensive income	$	9,435		$	8,454		$	8,659		$	9,435

See accompanying notes to unaudited consolidated interim financial statements.

Page 6 of 4442

Century Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

For the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019


	Class A Common Stock		Class B Common Stock			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity													Accumulated
	(In thousands)																Class A		Class B			Additional					Other			Total
Balance at December 31, 2017	$	3,606	$	1,962		$	12,292	$	263,666		$	(21,229	)	$	260,297
Net income		—		—			—		7,709			—			7,709
Other comprehensive income, net of tax:
Unrealized holding (losses) gains arising during period, net of $9 in taxes, and $197 in realized gains		—		—			—		—			71			71
Accretion of unrealized losses on securities transferred toheld-to-maturity, net of $139 in taxes		—		—			—		—			381			381
Pension liability adjustment, net of $114 in taxes		—		—			—		—			293			293
Adoption of ASU2018-2, Income Statement-Reporting Comprehensive Income (Topic 220)-Reclassification of Certain Tax Effects from AOCI		—		—			—		3,783			(3,783	)		—
Adoption of ASU2016-1, Financial Instruments-Overall (Subtopic825-10) Recognition and Measurement of Financial Assets and Financial Liabilities		—		—			—		29			(29	)		—
Conversion of Class B Common Stock to Class A Common Stock, 2,200 shares		2		(2	)		—		—			—			—
Cash dividends paid, Class A common stock, $.12 per share		—		—			—		(434	)		—			(434	)
Cash dividends paid, Class B common stock, $.06 per share		—		—			—		(117	)		—			(117	)
																	Common		Common			Paid-In		Retained			Comprehensive			Stockholders’
Balance at March 31, 2018	$	3,608	$	1,960		$	12,292	$	274,636		$	(24,296	)	$	268,200
																	Stock		Stock			Capital		Earnings			Income (Loss)			Equity
																	(In thousands)
Balance at December 31, 2018	$	3,608	$	1,960		$	12,292	$	301,488		$	(18,909	)	$	300,439		$	3,608	$	1,960		$	12,292	$	301,488		$	(18,909	)	$	300,439
Net income		—		—			—		9,418			—			9,418			—		—			—		9,418			—			9,418
Other comprehensive income, net of tax:																															—
Unrealized holding (losses) gains arising during period, net of $166 in taxes		—		—			—		—			(462	)		(462	)		—		—			—		—			(462	)		(462	)
Accretion of unrealized losses on securities transferred to held-to-maturity, net of $78 in taxes		—		—			—		—			216			216			—		—			—		—			216			216
Pension liability adjustment, net of $103 in taxes		—		—			—		—			263			263			—		—			—		—			263			263
Conversion of Class B Common Stock to Class A Common Stock, 2,300 shares		2		(2	)		—		—			—			—			2		(2	)		—		—			—			—
Cash dividends paid, Class A common stock, $0.12 per share		—		—			—		(433	)		—			(433	)		—		—			—		(433	)		—			(433	)
Cash dividends paid, Class B common stock, $0.06 per share		—		—			—		(117	)		—			(117	)		—		—			—		(117	)		—			(117	)

Balance at March 31, 2019	$	3,610	$	1,958		$	12,292	$	310,356		$	(18,892	)	$	309,324		$	3,610	$	1,958		$	12,292	$	310,356		$	(18,892	)	$	309,324

Balance at December 31, 2019																	$	3,651	$	1,917		$	12,292	$	338,980		$	(24,259	)	$	332,581
Net income																		—		—			—		9,666			—			9,666
Other comprehensive income, net of tax:
Unrealized holding (losses) gains arising during period, net of $548 in taxes																		—		—			—		—			(1,531	)		(1,531	)
Accretion of unrealized losses on securities transferred toheld-to-maturity, net of $58 in taxes																		—		—			—		—			164			164

Pension liability adjustment, net of $141 in taxes																		—		—			—		—			360			360

Conversion of Class B Common Stock to Class A Common Stock, 1,400 shares																		1		(1	)		—		—			—			—
Cash dividends paid, Class A common stock, $0.12 per share																		—		—			—		(438	)		—			(438	)
Cash dividends paid, Class B common stock, $0.06 per share																		—		—			—		(115	)		—			(115	)

Balance at March 31, 2020																	$	3,652	$	1,916		$	12,292	$	348,093		$	(25,266	)	$	340,687

See accompanying notes to unaudited consolidated interim financial statements.

Page 7 of 4442

Century Bancorp, Inc.

Consolidated Statements of Cash Flows (unaudited)

For the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019


	Three months ended March 31,						Three months ended March 31,
	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,418		$	7,709		$	9,666		$	9,418
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Gain on sales of mortgage loans		(15	)		—			—			(15	)
Net gains on sales of securities		—			(197	)
Net (gain) loss on equity securities		(53	)		9
Net loss (gain) on equity securities								79			(53	)
Provision for loan losses		375			450			1,075			375
Deferred income taxes		104			(680	)		(114	)		104
Net depreciation and amortization		(468	)		592			(578	)		(468	)
(Increase) decrease in accrued interest receivable		(58	)		335
Decrease in other assets		2,187			3,076
(Decrease) increase in other liabilities		(458	)		2,926
Decrease (increase) in accrued interest receivable								112			(58	)
(Increase) decrease in other assets								2,359			2,187
Increase in other liabilities								(336	)		(458	)

Net cash provided by operating activities		11,032			14,220			12,263			11,032

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemptions of Federal Home Loan Bank of Boston stock		4,777			3,464			6,831			4,777
Purchase of Federal Home Loan Bank of Boston stock		(1,047	)		(1,735	)		(4,601	)		(1,047	)
Proceeds from calls/maturities of securitiesavailable-for-sale		34,927			31,527			20,734			34,927
Proceeds from sales of securitiesavailable-for-sale		—			17,871
Purchase of securitiesavailable-for-sale		(34,031	)		(19,336	)		(39,719	)		(34,031	)
Proceeds from calls/maturities of securitiesheld-to-maturity		88,027			59,409			123,723			88,027
Purchase of securitiesheld-to-maturity		(148,500	)		(169,974	)		(70,171	)		(148,500	)
Proceeds from life insurance policies		—			375
Net increase in loans		(25,811	)		(11,198	)		(72,621	)		(25,811	)
Proceeds from sales of portfolio loans		685			—			—			685
Bank owned life insurance purchases								(6,000	)		—
Capital expenditures		(1,344	)		(508	)		(3,084	)		(1,344	)

Net cash used in investing activities		(82,317	)		(90,105	)		(44,908	)		(82,317	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits		(18,500	)		(9,539	)
Net increase (decrease) in time deposits								57,402			(18,500	)
Net increase in demand, savings, money market and NOW deposits		61,163			28,368			104,999			61,163
Cash dividends		(550	)		(551	)		(553	)		(550	)
Net increase (decrease) in securities sold under agreements to repurchase		10,260			(17,430	)
Net increase (decrease) in other borrowed funds		54,770			(30,724	)
Net (decrease) increase in securities sold under agreements to repurchase								(46,050	)		10,260
Net (decrease) increase in other borrowed funds								(58,835	)		54,770

Net cash provided by (used in) financing activities		107,143			(29,876	)
Net cash provided by financing activities								56,963			107,143

Net increase (decrease) in cash and cash equivalents		35,858			(105,761	)
Net increase in cash and cash equivalents								24,318			35,858
Cash and cash equivalents at beginning of period		342,503			356,430			258,693			342,503

Cash and cash equivalents at end of period	$	378,361		$	250,669		$	283,011		$	378,361

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest	$	15,462		$	9,008		$	14,711		$	15,462
Income taxes		(1,265	)		225			300			(1,265	)
Change in unrealized gains (losses) on securitiesavailable-for-sale, net of taxes		(462	)		71			(1,531	)		(462	)
Change in unrealized losses on securities transferred toheld-to-maturity, net of taxes		216			381			164			216
Pension liability adjustment, net of taxes		263			293			360			263
Change in due to (from) to broker		11,740			10,011			5,500			11,740

See accompanying notes to unaudited consolidated interim financial statements.

Page 8 of 4442

Century Bancorp, Inc.

Notes to Unaudited Consolidated Interim Financial Statements

Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019

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, New Hampshire, Rhode Island, Connecticut, and New York. 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 Form10-Q should be read in conjunction with the Company’s Annual Report on Form10-K for the fiscal year ended December 31, ~~2018,~~2019, as filed with the Securities and Exchange Commission. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The CARES Act allows certain companies to delay FASB ASU2016-13, Measurement of Credit Losses on Financial Instruments (CECL), including the current expected credit losses methodology for estimating allowances for credit losses. The Company has elected to delay FASB ASU2016-13. This ASU will be delayed until the date on which the national emergency concerning the COVID–19 outbreak declared by the President on March 15, 2020 terminates or December 31, 2020, with an effective retrospective implementation date of January 1, 2020.

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~~a review of ~~other~~ factors, including historicalcharge-off rates with additional allocations based on qualitative 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. Certain risks and uncertainties remain in the allowance for loan losses as a result of theCOVID-19 pandemic that occurred during the first quarter of 2020. Future provision levels will be dependent upon the length of the economic disruption and the effectiveness of government programs to mitigate the economic impact. 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.

~~Note 2. Recent Accounting Developments~~

~~Recently Adopted Accounting Standards Updates~~

~~In July 2017, FASB issued ASU2017-11,~~ Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest with a Scope Exception. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2018. The effect of this update did not have a material impact on the Company’s consolidated financial position.

~~In March 2017, the FASB issued ASU2017-08,~~ ~~Receivables — Nonrefundable Fees and Other Costs (Subtopic310-20)~~ Premium Amortization of 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. The effect of this update did not have a material impact on the Company’s consolidated financial position.

Page 9 of 4442

~~In February 2016, the FASB issued ASU2016-02,~~ 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. The Company also reviewed contracts to determine if they contain embedded leases. The Company’s balance sheet impact was $15.1 million as of January 1, 2019. This amount was recorded as a right of use asset with a corresponding lease liability.

~~In July 2018, ASU2018-10,~~ ~~“Codification Improvements to Topic 842, Leases” (“ASU2018-10”)~~ ~~was issued to provide more detailed guidance and additional clarification for implementing ASU2016-02.~~ ~~Also in July 2018, ASU2018-11,~~ ~~“Targeted Improvements” (“ASU2018-11”)~~ was issued and allows for an optional transition method in which the provisions of Topic 842 would be applied upon the adoption date and would not have to be retroactively applied to the earliest reporting period presented in the consolidated financial statements.” The Company used this optional transition method for the adoption of Topic 842.

~~Accounting Standards Issued but not yet Adopted~~

~~The following list identifies ASUs applicable to the Company that have been issued by the FASB but are not yet effective:~~

~~In August 2018, FASB issued ASU2018-15,~~ ~~Intangibles-Goodwill and Other-Internal Use Software (Subtopic350-40):~~ Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain~~internal-use~~ software (and hosting arrangements that include an internal use software license).This ASU is effective for annual reporting periods beginning after December 15, 2019. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

~~In August 2018, FASB issued ASU2018-14,~~ ~~Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic715-20):~~ Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit plans. The amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. This ASU is effective for annual reporting periods beginning after December 15, 2020. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

~~In August 2018, FASB issued ASU2018-13,~~ Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. This ASU is effective for annual reporting periods beginning after December 15, 2019. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

~~In January 2017, the FASB issued ASU2017-04,~~ 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. The effect of this update is not expected to have a material impact on the Company’s consolidated financial position.

~~In June 2016, the FASB issued ASU2016-13,~~ 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 in the process of analyzing this ASU, has purchased a software solution and is capturing information needed to implement this update. The Company has started to input information and is in the beginning stages of running the software program. The Company has not determined the impact, if any, as of March 31, 2019.

~~Page 10 of 44~~

~~Securities and Exchange Commission (SEC) ruling:~~

In August 2018, the SEC issued a final rule that amends certain of the Commission’s disclosure requirements “that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other Commission disclosure requirements, U.S. GAAP, or changes in the information environment.” The financial reporting implications of the final rule’s amendments may vary by company, but the changes are generally expected to reduce or eliminate some of an SEC registrant’s disclosure requirements. In limited circumstances, however, the amendments may expand those requirements, including those related to interim disclosures about changes in stockholders’ equity. Under the requirements, registrants must now analyze changes in stockholders’ equity, in the form of a reconciliation, for “the current and comparative~~year-to-date~~ ~~periods, with subtotals for each interim period.” Beginning with its March 31, 2019 filing, the Company included a reconciliation for the current quarter andyear-to-date~~ ~~interim periods as well as the comparative periods of the prior years (i.e., a reconciliation covering each period for which an income statement is presented).~~

Note 3.2. SecuritiesAvailable-for-Sale


	March 31, 2019								December 31, 2018								March 31, 2020								December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value				Gross		Gross						Gross		Gross
	(in thousands)																Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
U.S. Treasury	$	2,000	$	—	$	2	$	1,998	$	2,000	$	—	$	8	$	1,992
U.S. Government Sponsored Enterprises		3,950		—		8		3,942		3,946		—		31		3,915
																	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
																	(in thousands)
SBA Backed Securities		72,906		—		318		72,588		70,477		1		284		70,194	$	50,722	$	25	$	132	$	50,615	$	54,331	$	23	$	143	$	54,211
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		194,549		228		572		194,205		162,604		536		250		162,890		208,596		157		2,538		206,215		184,580		139		532		184,187
Privately Issued Residential Mortgage-Backed Securities		653		4		8		649		679		3		10		672		378		—		44		334		397		1		2		396
Obligations Issued by States and Political Subdivisions		68,051		56		—		68,107		93,445		58		—		93,503		17,224		—		—		17,224		18,016		60		—		18,076
Other Debt Securities		3,600		41		41		3,600		3,600		37		44		3,593		3,600		42		11		3,631		3,600		51		19		3,632

Total	$	345,709	$	329	$	949	$	345,089	$	336,751	$	635	$	627	$	336,759	$	280,520	$	224	$	2,725	$	278,019	$	260,924	$	274	$	696	$	260,502

Included in SBA Backed ~~Securities, 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 ~~$188,887,000~~$185,943,000 and ~~$197,304,000~~$186,245,000 at March 31, ~~2109~~2020 and December 31, ~~2018,~~2019, respectively. Also included in securitiesavailable-for-sale are securities at fair value pledged for borrowing at the Federal Home Loan Bank of Boston amounting to ~~$35,852,000~~$30,619,000 and ~~$34,787,000~~$32,297,000 at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Also included in securitiesavailable-for-sale are securities at fair value pledged for borrowing at the Federal Reserve Bank discount window $9,706,000 and $0 at March 31, 2020 and December 31, 2019, respectively. There were no sales ofavailable-for-sale securities for the three months ended March 31, ~~2019. The Company realized gross gains of $197,000 from the proceeds of $17,871,000 from the sales ofavailable-for-sale~~ ~~securities for the three months ended~~2020 and March 31, ~~2018.~~2019, respectively.

Debt securities of ~~U.S. Government Sponsored Enterprises and~~ U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities primarily refer to debt securities of Fannie Mae and Freddie Mac.

The following table shows the maturity distribution of the Company’s securitiesavailable-for-sale at March 31, ~~2019.~~2020.

   Amortized
Cost    Fair
Value
   (in thousands)
Within one year
   $ 66,419    $ 66,413
After one but within five years
   101,922    101,815
After five but within ten years
   133,284    132,854
More than 10 years
   44,084    44,007




Total
   $ 345,709    $ 345,089

~~Page 11 of 44~~


	Amortized		Fair
	Cost		Value
	(in thousands)
Within one year	$	18,618	$	18,568
After one but within five years		149,846		148,675
After five but within ten years		107,266		105,995
More than 10 years		4,790		4,781

Total	$	280,520	$	278,019

The weighted average remaining life of investment securitiesavailable-for-sale at March 31, ~~2019~~2020 was ~~5.2~~5.0 years. ~~Included in the weighted average remaining life calculation at March 31, 2019 were $3,950,000 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. Also ~~$273,776,000~~$260,560,000 of the securities are floating rate or adjustable rate and reprice prior to maturity.

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, 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 Obligations Issued by States and Political Subdivisions, Privately Issued Residential Mortgage-Backed Securities and Other Debt 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 related primarily to interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, ~~2019~~2020 or December 31, ~~2018.~~2019.

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.

Page 10 of 42

The following table shows the temporarily impaired securities of the Company’savailable-for-sale portfolio at March 31, 2020. 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 56 and 25 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 124 holdings at March 31, 2020.


	March 31, 2020
	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Temporarily Impaired Investments	Value		Losses		Value		Losses		Value		Losses
					(in thousands)
SBA Backed Securities	$	12,806	$	25	$	20,687	$	107	$	33,493	$	132
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		131,960		1,846		43,274		692		175,234		2,538
Privately Issued Residential Mortgage-Backed Securities		334		44		—		—		334		44
Obligations Issued by States and Political Subdivisions										—		—
Other Debt Securities		800		—		489		11		1,289		11

Total temporarily impaired securities	$	145,900	$	1,915	$	64,450	$	810	$	210,350	$	2,725

The following table shows the temporarily impaired securities of the Company’savailable-for-sale portfolio at December 31, 2019. 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 2145 and 3118 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of ~~183~~122 holdings at ~~March~~December 31, 2019.

   March 31, 2019
   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. Treasury
   $ —      $ —      $ 1,998    $ 2    $ 1,998    $ 2
U.S. Government Sponsored Enterprises
   —      —      3,942    8    3,942    8
SBA Backed Securities
   19,409    40    53,180    278    72,589    318
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities
   70,530    278    43,656    294    114,186    572
Privately Issued Residential Mortgage-Backed Securities
   —      —      479    8    479    8
Obligations Issued by States and Political Subdivisions
   —      —      —      —      —      —
Other Debt Securities
   —      —      459    41    459    41












Total temporarily impaired securities
   $ 89,939    $ 318    $ 103,714    $ 631    $ 193,653    $ 949

~~Page 12 of 44~~

~~The following table shows the temporarily impaired securities of the Company’savailable-for-sale~~ portfolio at December 31, 2018. 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 10 and 30 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 190 holdings at December 31, 2018.


													December 31, 2019
	December 31, 2018												Less than 12 months				12 months or longer				Total
	Less than 12 months				12 months or longer				Total				Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Temporarily Impaired Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Value		Losses		Value		Losses		Value		Losses
	(in thousands)																(in thousands)
U.S. Treasury	$	—	$	—	$	1,992	$	8	$	1,992	$	8
U.S. Government Sponsored Enterprises		3,914		31		—		—		3,914		31
SBA Backed Securities		17,950		28		44,323		256		62,273		284	$	14,560	$	30	$	22,092	$	113	$	36,652	$	143
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		19,244		21		45,782		229		65,026		250
U.S. Government Agency and Sponsored Enterprise Mortgage- Backed Securities														108,806		379		29,178		153		137,984		532
Privately Issued Residential Mortgage-Backed Securities		—		—		495		10		495		10		252		2		—		—		252		2
Obligations Issued by States and Political Subdivisions		—		—		—		—		—		—		—		—		—		—		—		—
Other Debt Securities		—		—		455		44		455		44		800		1		481		18		1,281		19

Total temporarily impaired securities	$	41,108	$	80	$	93,047	$	547	$	134,155	$	627	$	124,418	$	412	$	51,751	$	284	$	176,169	$	696

Note 4.3. Investment SecuritiesHeld-to-Maturity


	March 31, 2019								December 31, 2018								March 31, 2020								December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value				Gross		Gross						Gross		Gross
	(in thousands)																Amortized		Unrealized		Unrealized		Estimated		Amortized		Unrealized		Unrealized		Estimated
U.S. Treasury	$	—	$	—	$	—	$	—	$	9,960	$	—	$	2	$	9,958
																	Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
																	(in thousands)
U.S. Government Sponsored Enterprises		201,327		453		417		201,363		234,228		336		803		233,761	$	89,419	$	1,113	$	—	$	90,532	$	98,867	$	527	$	96	$	99,298
SBA Backed Securities		50,797		—		1,295		49,502		52,051		—		2,065		49,986		42,856		492		69		43,279		44,379		182		303		44,258
U.S. Government Agency and Sponsored Enterprises Mortgage-Backed Securities		1,858,431		5,306		40,159		1,823,578		1,750,408		2,324		55,016		1,697,716
U.S. Government Sponsored Enterprises Mortgage-Backed Securities																		2,171,799		61,037		1,620		2,231,216		2,207,874		20,720		10,846		2,217,748

Total	$	2,110,555	$	5,759	$	41,871	$	2,074,443	$	2,046,647	$	2,660	$	57,886	$	1,991,421	$	2,304,074	$	62,642	$	1,689	$	2,365,027	$	2,351,120	$	21,429	$	11,245	$	2,361,304

Included in ~~U.S. Government and Agency Securities~~total investment securitiesheld-to-maturity are securities pledged to secure public deposits and repurchase agreements at fair value amounting to ~~$1,499,836,000~~$1,916,047,000 and ~~$1,441,059,000~~$1,776,399,000 at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Also included are securities pledged for borrowing at the Federal Home Loan Bank of Boston at fair value amounting to ~~$305,776,000~~$383,904,000 and ~~$291,190,000~~$399,646,000 at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Also included in securitiesavailable-for-sale are securities at fair value pledged for borrowing at the Federal Reserve Bank discount window $196,469,000 and $0 at March 31, 2020 and December 31, 2019, respectively. There were no sales ofheld-to-maturity securities for the three months ended March 31, ~~2019~~2020 and March 31, ~~2018~~2019, respectively.

Page 11 of 42

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, all mortgage-backed securities are obligations of U.S. ~~Government Agencies and~~ Government Sponsored Enterprises. Debt securities of U.S. Government Sponsored Enterprises and U.S. Government ~~Agency and~~ Sponsored ~~Enterprise~~Enterprises Mortgage-Backed Securities primarily refer to debt securities of Fannie Mae and Freddie Mac.

~~Page 13 of 44~~

The following table shows the maturity distribution of the Company’s securitiesheld-to-maturity at March 31, ~~2019.~~2020.


					Amortized		Fair
	Amortized Cost		Fair Value		Cost		Value
	(in thousands)				(in thousands)
Within one year	$	37,216	$	37,070	$	90,437	$	91,896
After one but within five years		1,723,841		1,696,173		1,921,419		1,971,224
After five but within ten years		336,847		328,635		280,016		289,074
More than ten years		12,651		12,565		12,202		12,833

Total	$	2,110,555	$	2,074,443	$	2,304,074	$	2,365,027

The weighted average remaining life of investment securitiesheld-to-maturity at March 31, ~~2019~~2020 was ~~4.0~~3.4 years. Included in the weighted average remaining life calculation at March 31, ~~2019~~2020 were ~~$116,160,000~~$19,000,000 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. Also ~~$120,000~~$102,000 of the securities are floating rate or adjustable rate and reprice prior to maturity.

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, 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 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, SBA Backed Securities, and U.S. Government Sponsored Enterprises Mortgage-Backed Securities related primarily to interest rates and not credit quality, and because the Company does not intend to sell any of these securities and it is not more likely than not that it will be required to sell these securities before the anticipated recovery of the remaining amortized cost, the Company does not consider these investments to be other-than-temporarily impaired at March 31, ~~2019~~2020 or December 31, ~~2018.~~2019.

The following table shows the temporarily impaired securities of the Company’sheld-to-maturity portfolio March 31, ~~2019.~~2020. 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 1234 and ~~304~~19 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of ~~487~~533 holdings at March 31, ~~2019.~~2020.


													March 31, 2020
	March 31, 2019												Less Than 12 Months				12 Months or Longer				Total
	Less Than 12 Months				12 Months or Longer				Total				Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Temporarily Impaired Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Value		Losses		Value		Losses		Value		Losses
	(in thousands)																(in thousands)
U.S. Treasury	$	—	$	—	$	—	$	—	$	—	$	—
U.S. Government Sponsored Enterprises		—		—		74,876		417		74,876		417
SBA Backed Securities		—		—		49,502		1,295		49,502		1,295	$	12,725	$	69	$	—	$	—	$	12,725	$	69
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		59,831		439		1,237,048		39,720		1,296,879		40,159		197,134		911		53,703		709		250,837		1,620

Total temporarily impaired securities	$	59,831	$	439	$	1,361,426	$	41,432	$	1,421,257	$	41,871	$	209,859	$	980	$	53,703	$	709	$	263,562	$	1,689

Page 1412 of 4442

The following table shows the temporarily impaired securities of the Company’sheld-to-maturity portfolio at December 31, ~~2018.~~2019. 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 56114 and ~~315~~103 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of ~~475~~531 holdings at December 31, ~~2018.~~2019.


													December 31, 2019
	December 31, 2018												Less Than 12 Months				12 Months or Longer				Total
	Less Than 12 Months				12 Months or Longer				Total				Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Temporarily Impaired Investments	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Value		Losses		Value		Losses		Value		Losses
	(in thousands)																(in thousands)
U.S. Treasury	$	9,958	$	2	$	—	$	—	$	9,958	$	2	$	—	$	—	$	—	$	—	$	—	$	—
U.S. Government Sponsored Enterprises		9,849		42		69,499		761		79,348		803		24,420		72		9,976		24		34,396		96
SBA Backed Securities		—		—		49,987		2,065		49,987		2,065		25,251		303		—		—		25,251		303
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities		188,125		2,032		1,249,689		52,984		1,437,814		55,016		613,905		3,949		389,919		6,897		1,003,824		10,846

Total temporarily impaired securities	$	207,932	$	2,076	$	1,369,175	$	55,810	$	1,577,107	$	57,886	$	663,576	$	4,324	$	399,895	$	6,921	$	1,063,471	$	11,245

Note 5.4. 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
	Three months ended March 31,						March 31,
	2019			2018			2020			2019
	(in thousands)						(in thousands)
Allowance for loan losses, beginning of period	$	28,543		$	26,255		$	29,585		$	28,543
Loans charged off		(142	)		(87	)		(62	)		(142	)
Recoveries on loans previouslycharged-off		72			77			206			72

Net charge-offs		(70	)		(10	)
Net recoveries (charge-offs)								144			(70	)
Provision charged to expense		375			450			1,075			375

Allowance for loan losses, end of period	$	28,848		$	26,695		$	30,804		$	28,848

Further information pertaining to the allowance for loan losses for the three months ending March 31, 2020 is as follows:


	Construction			Commercial
	and Land			and					Commercial			Residential					Home
	Development			Industrial			Municipal		Real Estate			Real Estate		Consumer			Equity		Unallocated		Total
									(in thousands)
Allowance for loan losses:
Balance at December 31, 2019	$	331		$	11,596		$	2,566	$	11,464		$	2,194	$	312		$	1,065	$	57	$	29,585
Charge-offs		—			(5	)		—		—			—		(57	)		—		—		(62	)
Recoveries		—			164			—		—			—		37			5		—		206
Provision		(85	)		673			323		(343	)		255		4			67		181		1,075

Ending balance at March 31, 2020	$	246		$	12,428		$	2,889	$	11,121		$	2,449	$	296		$	1,137	$	238	$	30,804

Amount of allowance for loan losses for loans deemed to be impaired	$	—		$	—		$	—	$	85		$	—	$	—		$	—	$	—	$	85

Amount of allowance for loan losses for loans not deemed to be impaired	$	246		$	12,428		$	2,889	$	11,036		$	2,449	$	296		$	1,137	$	238	$	30,719

Loans:
Ending balance	$	6,493		$	867,599		$	141,588	$	761,464		$	393,338	$	21,039		$	307,373	$	—	$	2,498,894

Loans deemed to be impaired	$	—		$	623		$	—	$	2,322		$	—	$	—		$	—	$	—	$	2,945

Loans not deemed to be impaired	$	6,493		$	866,976		$	141,588	$	759,142		$	393,338	$	21,039		$	307,373	$	—	$	2,495,949

Page 1513 of 4442

Further information pertaining to the allowance for loan losses for the three months ending March 31, 2019 is as 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, 2018
$ 1,092 $ 10,998 $ 1,838 $ 10,663 $ 2,190 $ 365 $ 1,111 $ 286 $ 28,543
Charge-offs
—   (43 ) —   —   —   (99 ) —   —   (142 )
Recoveries
—   18 —   —   —   54 —   —   72
Provision
(81 ) 183 160 104 (55 ) 22 (10 ) 52 375

Ending balance at March 31, 2019
$ 1,011 $ 11,156 $ 1,998 $ 10,767 $ 2,135 $ 342 $ 1,101 $ 338 $ 28,848

Amount of allowance for loan losses for loans deemed to be impaired
$ —   $ 6 $ —   $ 94 $ —   $ —   $ —   $ —   $ 100

Amount of allowance for loan losses for loans not deemed to be impaired
$ 1,011 $ 11,150 $ 1,998 $ 10,673 $ 2,135 $ 342 $ 1,101 $ 338 $ 28,748

Loans:

Ending balance
$ 13,305 $ 767,436 $ 105,288 $ 746,703 $ 349,966 $ 22,123 $ 305,839 $ —   $ 2,310,660

Loans deemed to be impaired
$ —   $ 320 $ —   $ 2,946 $ —   $ —   $ —   $ —   $ 3,266

Loans not deemed to be impaired
$ 13,305 $ 767,116 $ 105,288 $ 743,757 $ 349,966 $ 22,123 $ 305,839 $ —   $ 2,307,394

Further information pertaining to the allowance for loan losses for the three months ending March 31, 2018 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, 2107
$ 1,645 $ 9,651 $ 1,720 $ 9,728 $ 1,873 $ 373 $ 989 $ 276 $ 26,255
Charge-offs
—   (5 ) —   —   —   (82 ) —   —   (87 )
Recoveries
—   23 —   —   —   54 —   —   77
Provision
(207 ) (5 ) —   59 586 (24 ) 78 (37 ) 450

Ending balance at March 31, 2018
$ 1,438 $ 9,664 $ 1,720 $ 9,787 $ 2,459 $ 321 $ 1,067 $ 239 $ 26,695

Amount of allowance for loan losses
for loans deemed to be impaired
$ —   $ 12 $ —   $ 94 $ 580 $ —   $ —   $ —   $ 686

Amount of allowance for loan losses for loans not deemed to be impaired
$ 1,438 $ 9,652 $ 1,720 $ 9,693 $ 1,879 $ 321 $ 1,067 $ 239 $ 26,009

Loans:

Ending balance
$ 17,583 $ 758,621 $ 104,044 $ 726,440 $ 300,941 $ 19,339 $ 260,179 $ —   $ 2,187,147

Loans deemed to be impaired
$ —   $ 522 $ —   $ 2,528 $ 2,774 $ —   $ —   $ —   $ 5,824

Loans not deemed to be impaired
$ 17,583 $ 758,099 $ 104,044 $ 723,912 $ 298,167 $ 19,339 $ 260,179 $ —   $ 2,181,323

~~Page 16 of 44~~


	Construction			Commercial
	and Land			and					Commercial		Residential						Home
	Development			Industrial			Municipal		Real Estate		Real Estate			Consumer			Equity			Unallocated		Total
	(in thousands)
Allowance for loan losses:
Balance at December 31, 2018	$	1,092		$	10,998		$	1,838	$	10,663	$	2,190		$	365		$	1,111		$	286	$	28,543
Charge-offs		—			(43	)		—		—		—			(99	)		—			—		(142	)
Recoveries		—			18			—		—		—			54			—			—		72
Provision		(81	)		183			160		104		(55	)		22			(10	)		52		375

Ending balance at March 31, 2019	$	1,011		$	11,156		$	1,998	$	10,767	$	2,135		$	342		$	1,101		$	338	$	28,848

Amount of allowance for loan losses for loans deemed to be impaired	$	—		$	6		$	—	$	94	$	—		$	—		$	—		$	—	$	100

Amount of allowance for loan losses for loans not deemed to be impaired	$	1,011		$	11,150		$	1,998	$	10,673	$	2,135		$	342		$	1,101		$	338	$	28,748

Loans:
Ending balance	$	13,305		$	767,436		$	105,288	$	746,703	$	349,966		$	22,123		$	305,839		$	—	$	2,310,660

Loans deemed to be impaired	$	—		$	320		$	—	$	2,946	$	—		$	—		$	—		$	—	$	3,266

Loans not deemed to be impaired	$	13,305		$	767,116		$	105,288	$	743,757	$	349,966		$	22,123		$	305,839		$	—	$	2,307,394

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

Loans rated1-3 (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, ~~2019~~2020 and December 31, ~~2018.~~2019.

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, ~~2019~~2020 and December 31, ~~2018.~~2019.

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, ~~2019~~2020 and December 31, ~~2018~~2019 and ~~are doubtful for~~ full ~~collection.~~collectability is doubtful.

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, ~~2019.~~2020.


									Construction		Commercial
									and Land		and				Commercial
	Construction and Land Development		Commercial and Industrial		Municipal		Commercial Real Estate		Development		Industrial		Municipal		Real Estate
	(in thousands)										(in thousands)
Grade:
1-3 (Pass)	$	13,305	$	762,991	$	105,288	$	719,367	$	6,493	$	863,026	$	141,588	$	734,992
4 (Monitor)		—		4,125		—		24,390		—		3,950		—		24,150
5 (Substandard)		—		—		—		—		—		—		—		—
6 (Doubtful)		—		—		—		—		—		—		—		—
Impaired		—		320		—		2,946		—		623		—		2,322

Total	$	13,305	$	767,436	$	105,288	$	746,703	$	6,493	$	867,599	$	141,588	$	761,464

Page 14 of 42

The following table presents the Company’s loans by risk rating at December 31, ~~2018.~~2019.

   Construction
and Land
Development    Commercial
and
Industrial    Municipal    Commercial
Real Estate
   (in thousands)
Grade:

1-3 (Pass)
   $ 13,628    $ 757,089    $ 97,290    $ 723,170
4 (Monitor)
   —      4,135    —      24,542
5 (Substandard)
   —      —      —      —
6 (Doubtful)
   —      —      —      —
Impaired
   —      401    —      2,650








Total
   $ 13,628    $ 761,625    $ 97,290    $ 750,362

~~Page 17 of 44~~


	Construction		Commercial
	and Land		and				Commercial
	Development		Industrial		Municipal		Real Estate
	(in thousands)
Grade:
1-3 (Pass)	$	8,992	$	807,486	$	120,455	$	759,402
4 (Monitor)		—		4,025		—		24,354
5 (Substandard)		—		—		—		—
6 (Doubtful)		—		—		—		—
Impaired		—		906		—		2,346

Total	$	8,992	$	812,417	$	120,455	$	786,102

Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at March 31, ~~2019~~2020 and are included within the total loan portfolio.


									Commercial				Commercial
									and				Real
	Commercial and Industrial		Municipal		Commercial Real Estate		Total		Industrial		Municipal		Estate		Total
	(in thousands)										(in thousands)
Credit Rating:
Aaa – Aa3	$	482,374	$	62,103	$	41,335	$	585,812	$	568,173	$	74,406	$	38,955	$	681,534
A1 – A3		181,409		7,605		151,031		340,045		185,819		7,354		147,953		341,126
Baa1 – Baa3		—		26,970		118,868		145,838		—		51,133		143,302		194,435
Ba2		—		6,810		—		6,810		—		5,895		—		5,895

Total	$	663,783	$	103,488	$	311,234	$	1,078,505	$	753,992	$	138,788	$	330,210	$	1,222,990

Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at December 31, ~~2018.~~2019.


									Commercial				Commercial
									and				Real
	Commercial and Industrial		Municipal		Commercial Real Estate		Total		Industrial		Municipal		Estate		Total
	(in thousands)										(in thousands)
Credit Rating:
Aaa – Aa3	$	491,247	$	54,105	$	42,790	$	588,142	$	523,644	$	53,273	$	40,437	$	617,354
A1 – A3		172,472		7,605		151,381		331,458		186,044		7,354		148,346		341,744
Baa1 – Baa3		—		26,970		118,197		145,167		—		51,133		144,711		195,844
Ba2		—		6,810		—		6,810		—		5,895		—		5,895

Total	$	663,719	$	95,490	$	312,368	$	1,071,577	$	709,688	$	117,655	$	333,494	$	1,160,837

Page 1815 of 4442

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, ~~2019~~2020 follows:


																	Accruing
													Accruing				Greater		Total
													30-89 Days		Non		than		Past		Current
	Accruing 30-89 Days Past Due		Non Accrual		Accruing Greater than 90 Days		Total Past Due		Current Loans		Total		Past Due		Accrual		90 Days		Due		Loans		Total
	(in thousands)																(in thousands)
Construction and land development	$	—	$	—	$	—	$	—	$	13,305	$	13,305	$	—	$	—	$	—	$	—	$	6,493	$	6,493
Commercial and industrial		138		31		—		169		767,267		767,436		337		374		—		711		866,888		867,599
Municipal		—		—		—		—		105,288		105,288		—		—		—		—		141,588		141,588
Commercial real estate		422		182		—		604		746,099		746,703		2,322		238		—		2,560		758,904		761,464
Residential real estate		2,202		119		—		2,321		347,645		349,966		2,455		890		—		3,345		389,993		393,338
Consumer and overdrafts		2		6		—		8		22,115		22,123		17		6		—		23		21,016		21,039
Home equity		1,659		1,164		—		2,823		303,016		305,839		1,450		193		—		1,643		305,730		307,373

Total	$	4,423	$	1,502	$	—	$	5,925	$	2,304,735	$	2,310,660	$	6,581	$	1,701	$	—	$	8,282	$	2,490,612	$	2,498,894

Further information pertaining to the allowance for loan losses at December 31, ~~2018~~2019 follows:


																	Accruing
													Accruing				Greater		Total
													30-89 Days		Non		than		Past		Current
	Accruing 30-89 Days Past Due		Non Accrual		Accruing Greater than 90 Days		Total Past Due		Current Loans		Total		Past Due		Accrual		90 Days		Due		Loans		Total
	(in thousands)																(in thousands)
Construction and land development	$	—	$	—	$	—	$	—	$	13,628	$	13,628	$	—	$	—	$	—	$	—	$	8,992	$	8,992
Commercial and industrial		187		115		—		302		761,323		761,625		227		400		—		627		811,790		812,417
Municipal		—		—		—		—		97,290		97,290		—		—		—		—		120,455		120,455
Commercial real estate		774		190		—		964		749,398		750,362		840		492		—		1,332		784,770		786,102
Residential real estate		2,554		569		—		3,123		345,127		348,250		1,563		683		—		2,246		369,651		371,897
Consumer and overdrafts		24		14		—		38		22,045		22,083		18		4		—		22		21,871		21,893
Home equity		1,108		425		—		1,533		290,807		292,340		603		435		—		1,038		303,325		304,363

Total	$	4,647	$	1,313	$	—	$	5,960	$	2,279,618	$	2,285,578	$	3,251	$	2,014	$	—	$	5,265	$	2,420,854	$	2,426,119

Impaired loans

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 arecharged-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 ischarged-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, ~~2018.~~2019.

Page 1916 of 4442

The following is information pertaining to impaired loans for March 31, 2020:


							Average		Interest
							Carrying		Income
							Value		Recognized
							for 3		for 3
			Unpaid				Months		Months
	Carrying		Principal		Required		Ending		Ending
	Value		Balance		Reserve		3/31/20		3/31/20
					(in thousands)
With no required reserve recorded:
Construction and land development	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		623		641		—		582		1
Municipal		—		—		—		—		—
Commercial real estate		155		185		—		157		—
Residential real estate		—		—		—		—		—
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	778	$	826	$	—	$	739	$	1

With required reserve recorded:
Construction and land development	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		113		1
Municipal		—		—		—		—		—
Commercial real estate		2,167		2,290		85		2,176		22
Residential real estate		—		—		—		—		—
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	2,167	$	2,290	$	85	$	2,289	$	23

Total:
Construction and land development	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		623		641		—		695		2
Municipal		—		—		—		—		—
Commercial real estate		2,322		2,475		85		2,333		22
Residential real estate		—		—		—		—		—
Consumer		—		—		—		—		—
Home equity		—		—		—		—		—

Total	$	2,945	$	3,116	$	85	$	3,028	$	24

Page 17 of 42

The following is information pertaining to impaired loans for March 31, 2019:

   Carrying
Value    Unpaid
Principal
Balance    Required
Reserve    Average
Carrying
Value
for 3 Months
Ending
3/31/19    Interest
Income
Recognized
for 3 Months
Ending
3/31/19
   (in thousands)
With no required reserve recorded:

Construction and land development
   $ —      $ —    $ —      $ —      $ —
Commercial and industrial
   93    306    —      87    2
Municipal
   —      —      —      —      —
Commercial real estate
   182    206    —      188    —
Residential real estate
   —      —      —      —      —
Consumer
   —      —      —      —      —
Home equity
   —      —      —      —      —










Total
   $ 275    $ 512    $ —      $ 275    $ 2










With required reserve recorded:

Construction and land development
   $ —      $ —      $ —      $ —      $ —
Commercial and industrial
   227    228    6    262    3
Municipal
   —      —      —      —      —
Commercial real estate
   2,764    2,881    94    2,694    24
Residential real estate
   —      —      —      —      —
Consumer
   —      —      —      —      —
Home equity
   —      —      —      —      —










Total
   $ 2,991    $ 3,109    $ 100    $ 2,956    $ 27










Total:

Construction and land development
   $ —      $ —      $ —      $ —      $ —
Commercial and industrial
   320    534    6    349    5
Municipal
   —      —      —      —      —
Commercial real estate
   2,946    3,087    94    2,882    24
Residential real estate
   —      —      —      —      —
Consumer
   —      —      —      —      —
Home equity
   —      —      —      —      —










Total
   $ 3,266    $ 3,621    $ 100    $ 3,231    $ 29

~~Page 20 of 44~~

~~The following is information pertaining to impaired loans for December 31, 2018:~~


																	Average		Interest
																	Carrying		Income
																	Value		Recognized
													Unpaid				for 3 Months		for 3 Months
											Carrying		Principal		Required		Ending		Ending
	Carrying Value		Unpaid Principal Balance		Required Reserve		Average Carrying Value for 3 Months Ending 3/31/18		Interest Income Recognized for 3 Months Ending 3/31/18		Value		Balance		Reserve		3/31/19		3/31/19
	(in thousands)										(in thousands)
With no required reserve recorded:
Construction and land development	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		87		291		—		49		—		93		306		—		87		2
Municipal		—		—		—		—		—		—		—		—		—		—
Commercial real estate		189		212		—		265		—		182		206		—		188		—
Residential real estate		—		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—		—		—

Total	$	276	$	503	$	—	$	314	$	—	$	275	$	512	$	—	$	275	$	2

With required reserve recorded:
Construction and land development	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		314		315		54		388		5		227		228		6		262		3
Municipal		—		—		—		—		—		—		—		—		—		—
Commercial real estate		2,461		2,575		91		2,278		23		2,764		2,881		94		2,694		24
Residential real estate		—		—		—		3,827		6		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—		—		—

Total	$	2,775	$	2,890	$	145	$	6,493	$	34	$	2,991	$	3,109	$	100	$	2,956	$	27

Total:
Construction and land development	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		401		606		54		437		5		320		534		6		349		5
Municipal		—		—		—		—		—		—		—		—		—		—
Commercial real estate		2,650		2,787		91		2,543		23		2,946		3,087		94		2,882		24
Residential real estate		—		—		—		3,827		6		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—		—
Home equity		—		—		—		—		—		—		—		—		—		—

Total	$	3,051	$	3,393	$	145	$	6,807	$	34	$	3,266	$	3,621	$	100	$	3,231	$	29

Troubled debt restructurings (“TDR”) are identified as ~~a modification~~modifications in which a concession was granted to a customer who was having financial difficulties. This concession may be below market rate, longer amortization/term, or a lower payment amount. The present value calculation of the modification did not result in an increase in the allowance for these loans beyond any previously established allocations.

There was no TDR that occurred during the three-month period ended March 31, 2020. Also, there were no commitments to lend additional funds to troubled debt restructuring borrowers. There were no troubled debt restructurings that subsequently defaulted during the first three months of 2020.

Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current forCOVID-19 modifications. The Company can then suspend the requirements under GAAP for loan modifications related toCOVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result ofCOVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes.

As of March 31, 2020, and as a result ofCOVID-19 loan modification, the Company had modified 58 loans aggregating $32,073,000, primarily consisting of the deferral of principal and/or the extension of the maturity date. Of these modifications, $32,073,000, or 100%, were performing in accordance with their modified terms.

Page 18 of 42

There was no troubled debt restructuring that occurred during the ~~three month~~three-month period ended March 31, 2019. Also, there were no commitments to lend additional funds to troubled debt restructuring borrowers. There were no troubled debt restructurings that subsequently defaulted during the first three months of 2019.

There was one residential real estate loan and one consumer loan that were modified during the first quarter of 2018. The loans were modified by reducing the interest rates as well as extending the terms on both loans. The~~pre-modification~~ ~~and post-modification outstanding recorded investment was $2,675,000 for the residential real estate loan that was not accruing interest and had a specific reserve of $575,000. Thepre-modification~~ and post-modification outstanding recorded investment was $17,000 for the consumer loan that was accruing and had a specific reserve of $1,000. The financial impact for the modifications was not material. There were no troubled debt restructurings that subsequently defaulted during the first three months of 2018.

~~Page 21 of 44~~

Note 6.5. 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 March 31, 2019			Three Months Ended March 31, 2018			Affected Line Item in the Statement where Net Income is Presented
	(in thousands)								Three			Three			Affected Line Item in the
Unrealized gains and losses onavailable-for-sale securities	$	—		$	197		Net gains on sales of investments
Tax (expense) or benefit		—			(55	)	Provision for income taxes

Net of tax	$	—		$	142		Net income

Details about Accumulated Other									Months Ended			Months Ended			Statement where Net Income is
Comprehensive Income Components									March 31, 2020			March 31, 2019			Presented
(in thousands)								(in thousands)
Accretion of unrealized losses transferred	$	(294	)	$	(520	)	Interest on securitiesheld-to-maturity		$	(222	)	$	(294	)	Securitiesheld-to-maturity
Tax (expense) or benefit		78			139		Provision for income taxes			58			78		Provision for income taxes

Net of tax	$	(216	)	$	(381	)	Net income		$	(164	)	$	(216	)	Net income

Amortization of defined benefit pension items

Prior-service costs	$	(29	) (b)	$	(4	) (b)	Salaries and employee benefits		$	(29	)(b)	$	(29	)(b)	Salaries and employee benefits
Actuarial gains (losses)		(337	) (b)		(403	) (b)	Salaries and employee benefits			(472	)(b)		(337	)(b)	Salaries and employee benefits

Total before tax		(366	)		(407	)	Income before taxes			(501	)		(366	)	Income before taxes

Tax (expense) or benefit		103			114		Provision for income taxes			141			103		Provision for income taxes

Net of tax	$	(263	)	$	(293	)	Net income		$	(360	)	$	(263	)	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 19 of 42

Note 7.6. 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;~~equivalents and assumes the conversion of all Class B common stock; basic EPS excludes all common stock equivalents. The Company had no common stock equivalents outstanding for the periods ended March 31, ~~2019~~2020 and ~~2018.~~2019.

~~Page 22 of 44~~

The following table is a reconciliation of basic EPS and diluted EPS.


						Three Months Ended
		Three Months Ended March 31,				March 31,
(in thousands except share and per share data)		2019		2018		2020		2019
Basic EPS Computation:
Numerator:
Net income, Class A		$	7,409	$	6,062	$	7,658	$	7,409
Net income, Class B			2,009		1,647		2,008		2,009
Denominator:
Weighted average shares outstanding, Class A			3,610,329		3,608,029		3,652,349		3,610,329
Weighted average shares outstanding, Class B			1,957,580		1,959,880		1,915,560		1,957,580
Basic EPS, Class A		$	2.05	$	1.68	$	2.10	$	2.05
Basic EPS, Class B			1.03		0.84		1.05		1.03

Diluted EPS Computation:
Numerator:
Net income, Class A		$	7,409	$	6,062	$	7,658	$	7,409
Net income, Class B			2,009		1,647		2,008		2,009

Total net income, for diluted EPS, Class A computation			9,418		7,709		9,666		9,418
Denominator:
Weighted average shares outstanding, basic, Class A			3,610,329		3,608,029		3,652,349		3,610,329
Weighted average shares outstanding, Class B			1,957,580		1,959,880		1,915,560		1,957,580

Weighted average shares outstanding diluted, Class A			5,567,909		5,567,909		5,567,909		5,567,909
Weighted average shares outstanding, Class B	��		1,957,580		1,959,880		1,915,560		1,957,580
Diluted EPS, Class A		$	1.69	$	1.38	$	1.74	$	1.69
Diluted EPS, Class B			1.03		0.84		1.05		1.03

Note 8.7. 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 2320 of 4442

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


																	Supplemental Insurance/
	Pension Benefits						Supplemental Insurance/ Retirement Plan				Pension Benefits						Retirement Plan
	2019			2018			2019		2018		2020			2019			2020		2019
	(in thousands)													(in thousands)
Service cost	$	276		$	353		$	256	$	277	$	344		$	276		$	353	$	256
Interest		473			370			482		346		450			473			466		482
Expected return on plan assets		(819	)		(954	)		—		—		(952	)		(819	)		—		—
Recognized prior service cost (benefit)		—			(25	)		28		29		—			—			29		28
Recognized net actuarial losses		229			227			109		176		261			229			211		109

Net periodic benefit (credit) cost	$	159		$	(29	)	$	875	$	828	$	103		$	159		$	1,059	$	875

Approximately ~~$502,000~~$465,000 and ~~$169,000~~$502,000 of costs other than service costs, from the table above, are included in other expenses for the three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively.

~~Contributions~~

The Company does not intend to contribute to the Defined Benefit Pension Plan in ~~2019.~~2020.

Note 9.8. Fair Value Measurements

The Company follows FASB ASC820-10, Fair Value Measurements and Disclosures and ASU2016-1, “Financial Instruments-Overall” ~~(Subtopic~~(Subtopic 825-10)Recognition and Measurement of Financial Assets and Financial Liabilities, which among other things, requires enhanced disclosures about assets and liabilities carried at fair value. ASC820-10 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 asG-7 government, agency securities, listed equities and money market securities, as well as listed derivative instruments.

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

Level III – Instruments that have little to no pricing observability as of the reported date. These financial instruments do not havetwo-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,~~municipal securities with no observable fair value with an average life of one year or less. The securities are carried at cost which approximates fair value. A periodic review of underlying financial statements and ~~distressed debt andnon-investment~~ ~~grade residual interests in securitizations, as well as certain highly structured OTC derivative contracts.~~credit ratings is performed to assess the appropriateness of these valuations.

Page 2421 of 4442

The results of the fair value hierarchy as of March 31, ~~2019,~~2020, are as follows:

Financial Instruments Measured at Fair Value on a Recurring Basis:

   Securities AFS Fair Value Measurements Using
   Carrying
Value    Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)    Significant
Observable
Inputs
(Level 2)    Significant
Other
Unobservable
Inputs
(Level 3)
   (in thousands)
U.S. Treasury
   $ 1,998    $ —      $ 1,998    $ —
U.S. Government Sponsored Enterprises
   3,942    —      3,942    —
SBA Backed Securities
   72,588    —      72,588    —
U.S. Government Agency and Sponsored Mortgage-Backed Securities
   194,205    —      194,205    —
Privately Issued Residential Mortgage-Backed Securities
   649    —      649    —
Obligations Issued by States and Political Subdivisions
   68,107    —      4,775    63,332
Other Debt Securities
   3,600    —      3,600    —








Total
   $ 345,089    $ —      $ 281,757    $ 63,332








Other Real Estate Owned
   $ 2,225    $ —      $ —      $ 2,225
Financial Instruments Measured at Fair Value on a Recurring Basis Equity Securities
   $ 1,649    $ 328    $ 1,321    $ —
Financial Instruments Measured at Fair Value on aNon-recurring Basis Impaired Loans
   $ 195    $ —      $ —      $ 195


	Securities AFS Fair Value Measurements Using
			Quoted Prices
			In Active				Significant
			Markets for		Significant		Other
			Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
			(in thousands)
SBA Backed Securities	$	50,615	$	—	$	50,615	$	—
U.S. Government Agency and Sponsored Mortgage-Backed Securities		206,215		—		206,215		—
Privately Issued Residential Mortgage- Backed Securities		334		—		334		—
Obligations Issued by States and Political Subdivisions		17,224		—		—		17,224
Other Debt Securities		3,631		—		3,631		—

Total Debt Securities	$	278,019	$	—	$	260,795	$	17,224

Equity Securities	$	1,609	$	243	$	1,366	$	—

Financial Instruments Measured at Fair Value on aNon-recurring Basis

Impaired Loans	$	608	$	—	$	—	$	608

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~~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 ~~(credits)~~ provisions ~~relate~~related to impaired loans recognized for the ~~three month~~three-month period ended March 31, ~~2019~~2020 amounted to ($~~2,000)~~9,000).

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.

Unobservable Input

Asset

Fair Value

Valuation Technique

Unobservable Input

Unobservable Input
Value or Range

Fair Value

Valuation Technique

Unobservable Input

Value or Range

Securities AFS (4)

63,332

Discounted cash flow

Discount rate

2.1%-3.8% (3)

Other Real Estate Owned

2,225

Appraisal of collateral (1)

Appraisal adjustments (2)

30% discount

Securities AFS

17,224

Discounted cash flow

Discount rate

0%-1% (3)

Impaired Loans

195

Appraisal of collateral (1)

Appraisal adjustments (2)

0%-30% discount

608

Appraisal of collateral (1)

Appraisal adjustments (2)

(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.~~

Page 2522 of 4442

The changes in Level 3 securities for the three-month period ended March 31, 2020 are shown in the table below:


	Obligations
	Issued by States
	& Political
	Subdivisions
Balance at December 31, 2019	$	13,301
Purchases		9,372
Maturities and calls		(5,449	)
Amortization		—

Balance at March 31, 2020	$	17,224

The amortized cost of Level 3 securities was $17,224,000 at March 31, 2020 with an unrealized loss of $0. The securities in this category are generally municipal securities with no readily determinable fair value. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity.

The fair value of impaired loans decreased by $269,000, for the first three ~~month~~months of 2020, mainly attributable to one loan that was paid down. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the three-month period ended March 31, 2020.

The changes in Level 3 securities for the three-month period ended March 31, 2019, are shown in the table below:


									Obligations
									Issued by States
	Auction Rate Securities		Obligations Issued by States & Political Subdivisions			Total			& Political
	(in thousands)								Subdivisions
Balance at December 31, 2018	$	—	$	88,728		$	88,728		$	88,728
Purchases		—		970			970			970
Maturities and calls		—		(26,352	)		(26,352	)		(26,352	)
Amortization		—		(14	)		(14	)		(14	)
Changes in fair value		—		—			—			—

Balance at March 31, 2019	$	—	$	63,332		$	63,332		$	63,332

Page 23 of 42

The amortized cost of Level 3 securities was $63,332,000 at March 31, 2019 with an unrealized loss of $0. The securities in this category are generally municipal securities with no readily determinable fair value. Management evaluated the fair value of these securities based on an evaluation of the underlying issuer, prevailing rates and market liquidity. There was no change in the fair value of other real estate owned for the first three months of 2019. The fair value of impaired loans decreased by $56,000, for the first three months of 2019, mainly as a result of acharge-off of one loan. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the three month period ended March 31, 2019.

The ~~changes in Level 3 securities for the three month period ended March 31, 2018, are shown in the table below:~~

   Auction Rate
Securities    Obligations
Issued by States
& Political
Subdivisions    Total
   (in thousands)
Balance at December 31, 2017
   $ 4,459    $ 78,141    $ 82,600
Purchases
   —      20,416    20,416
Maturities and calls
   —      (22,068 )    (22,068 )
Transfer to Level 2
   (4,459 )    —      (4,459 )
Amortization
   —      (24 )    (24 )
Changes in fair value
   —      —      —






Balance at March 31, 2018
   $ —      $ 76,465    $ 76,465

The amortized cost of Level 3 securities was $76,465,000 at March 31, 2018 with an unrealized loss of $0. 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.

~~Page 26 of 44~~

~~The~~ results of the fair value hierarchy as of December 31, ~~2018,~~2019, are as follows:

Financial Instruments Measured at Fair Value on a Recurring Basis:


	Securities AFS Fair Value Measurements Using								Securities AFS Fair Value Measurements Using
	Carrying Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)				Quoted Prices
	(in thousands)										In Active				Significant
U.S. Treasury	$	1,992	$	—	$	1,992	$	—
U.S. Government Sponsored Enterprises		3,915		—		3,915		—
											Markets for		Significant		Other
											Identical		Observable		Unobservable
									Carrying		Assets		Inputs		Inputs
									Value		(Level 1)		(Level 2)		(Level 3)
											(in thousands)
SBA Backed Securities		70,194		—		70,194		—	$	54,211	$	—	$	54,211	$	—
U.S. Government Agency and Sponsored Mortgage-Backed Securities		162,890		—		162,890		—		184,187		—		184,187		—
Privately Issued Residential Mortgage-Backed Securities		672		—		672		—		396		—		396		—
Obligations Issued by States and Political Subdivisions		93,503		—		4,775		88,728		18,076		—		4,775		13,301
Other Debt Securities		3,593				3,593				3,632				3,632		—

Total	$	336,759	$	—	$	248,031	$	88,728	$	260,502	$	—	$	247,201	$	13,301

Other Real Estate Owned	$	2,225	$	—	$	—	$	2,225
Financial Instruments Measured at Fair Value on a Recurring Basis Equity Securities	$	1,596	$	293	$	1,303	$	—	$	1,688	$	343	$	1,345	$	—

Financial Instruments Measured at Fair Value on aNon-recurring Basis Impaired Loans	$	251	$	—	$	—	$	251	$	877	$	—	$	—	$	877

Impaired loan balances in the table above represent those collateral dependent loans where management has estimated the credit loss by comparing the loan’s carrying 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 relate to impaired loans recognized for ~~2018~~2019 for the estimated credit loss amounted to ~~$540,000.~~$79,000.

~~There was a transfer of an auction rate security during 2018 from level 3 to level 2. Quoted prices on the auction rate security became available but traded infrequently.~~ There were no ~~other~~ transfers between level 1, 2 and 3 for the year ended December 31, ~~2018.~~2019. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the year ended December 31, ~~2018.~~2019.

Page 2724 of 4442

Unobservable Input

Asset

Fair Value

Valuation Technique

Unobservable Input

Unobservable Input
Value or Range

Fair Value

Valuation Technique

Unobservable Input

Value or Range

Securities AFS (4)

88,728

Discounted cash flow

Discount rate

2.1%-4.1% (3)

Other Real Estate Owned

2,225

Appraisal of collateral (1)

Appraisal adjustments (2)

30% discount

Securities AFS

13,301

Discounted cash flow

Discount rate

1.5%-3.2% (3)

Impaired Loans

251

Appraisal of collateral (1)

Appraisal adjustments (2)

0%-30% discount

877

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.~~

Note ~~10.~~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 allnon-financial 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.

SecuritiesHeld-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

The fair value of loans is estimated using the exit price notion consistent with Topic 820, Fair Value Measurement. Fair value is determined based on a discounted cash flow analysis. The discounted cash flow analysis was based on the contractual maturity of the loan and market indications of rates, prepayment speeds, defaults and credit risk. For certainnon-performing assets, fair value of the underlying collateral is determined based on the estimated values of ~~the underlying collateral of~~ individual ~~analysis of~~ receipts.

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.

Page 2825 of 4442

Subordinated Debentures

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

The following presents (in thousands) the carrying amount, estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. 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 includenon-maturity deposits, short-term borrowings and accrued interest payable.


March 31, 2019	Carrying Amount		Estimated Fair Value		Fair Value Measurements Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
															Fair Value
											Carrying		Estimated		Measurements		Level 2		Level 3
March 31, 2020											Amount		Fair Value		Level 1 Inputs		Inputs		Inputs
	(in thousands)														(in thousands)
Financial assets:
Securitiesheld-to-maturity	$	2,110,555	$	2,074,443	$	—	$	2,074,443	$	—	$	2,304,074	$	2,365,027	$	—	$	2,365,027	$	—
Loans (1)		2,310,660		2,321,747		—		—		2,321,747		2,468,090		2,437,099		—		—		2,437,099
Financial liabilities:
Time deposits		542,079		542,733		—		542,733		—		612,849		621,553		—		621,553		—
Other borrowed funds		257,148		259,045		—		259,045		—		312,120		320,830		—		320,830		—
Subordinated debentures		36,083		36,083		—		36,083		—		36,083		36,083		—		36,083		—

December 31, 2018
December 31, 2019
Financial assets:
Securitiesheld-to-maturity	$	2,046,647	$	1,991,421	$	—	$	1,991,421	$	—	$	2,351,120	$	2,361,304	$	—	$	2,361,304	$	—
Loans (1)		2,257,035		2,279,712		—		—		2,279,712		2,396,534		2,424,770		—		—		2,424,770
Financial liabilities:
Time deposits		560,579		559,988		—		559,988		—		555,447		560,746		—		560,746		—
Other borrowed funds		202,378		203,122		—		203,122		—		370,955		374,531		—		374,531		—
Subordinated debentures		36,083		36,083		—		36,083		—		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.

Limitations

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

~~Page 29 of 44~~

Note ~~11.~~10. Revenue from Contracts with Customers

Revenue from contracts with customers in the scope of ASC Topic 606 is measured based on the consideration specified in the contract with a customer, and excludes amounts collected on behalf of third parties. The Company recognizes revenue from contracts with customers when it satisfies its performance obligations.

The Company’s performance obligations are typically satisfied as services are rendered, and our contracts do not include multiple performance obligations. Payment is generally collected at the time services are rendered, or monthly. Unsatisfied performance obligations at the report date are not material to our consolidated financial statements.

Page 26 of 42

The Company pays sales commissions to its employees in accordance with certain incentive plans. The Company expenses sales commissions when incurred if we do not expect to recover these costs from the terms of the contract with the customer. Sales commissions are included in compensation expense.

In certain cases, other parties are involved with providing products and services to our customers. If the Company is a principal in the transaction (providing goods or services itself), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in noninterest expense. If the Company is an agent in the transaction (arranging for another party to provide goods or services), the Company reports its net fee or commission retained as revenue.

Waivers and reversals are recorded as a reduction of revenue either when the revenue is recognized by the Company or at the time the waiver or reversal is earned by the customer.

A. ~~Change in accounting policy~~

~~The Company adopted Topic 606~~~~Revenue from Contracts with Customers~~ with a date of initial application of January 1, 2018 through the first quarter of 2019 and has applied the guidance to all contracts within the scope of Topic 606 as of that date . As a result, the Company has changed its accounting policy for revenue recognition as detailed in this footnote.

The Company applied Topic 606 using the cumulative effect method. There was no cumulative effect adjustment as of January 1, 2018, and there were no material changes to the financial statements at or for the three months ended March 31, 2018 and March 31, 2019, respectively, as a result of adopting Topic 606.

~~B. Practical Expedients~~

~~The Company applies the practical expedient in paragraph606-10-50-14~~ ~~and does not disclose information about remaining performance obligations that have original expected durations of one year or less.~~

~~The Company applies the practical expedient in paragraph606-10-32-18~~ and does not adjust the consideration from customers for the effects of a significant financing component if at contract inception the period between when the entity transfers the goods or services and when the customer pays for that good or service will be one year or less.

C. Nature of goods and services

The vast majority of the Company’s revenue is specificallyout-of-scope of Topic 606. For the revenuein-scope, the following is a description of principal activities, separated by the timing of revenue recognition, from which the Company generates its revenue from contracts with customers.

Revenue earned at a point in time – Examples of revenue earned at a point in time are ATM transaction fees, wire transfer fees, NSF fees, credit and debit card interchange fees and foreign exchange transaction fees. Revenue is generally derived from transactional information accumulated by our systems and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction. The Company is the principal in each of these contracts, with the exception of credit and debit card interchange fees, in which case we are acting as the agent and record revenue net of expenses paid to the principal.

Revenue earned over time – The Company earns revenue from contracts with customers in a variety of ways in which the revenue is earned over a period of time – generally monthly or quarterly. Examples of this type of revenue are deposit account service fees, lockbox fees, investment management fees, merchant referral services, and safe deposit box fees. Account service charges, management fees and referral fees are recognized on a monthly basis while any transaction based income is recorded as the activity occurs. Revenue is primarily based on the number and type of transactions or assets managed and is generally derived from transactional information accumulated by our systems. Revenue is recorded in the same period as the related transactions occur or services are rendered to the customer.

~~Page 30 of 44~~

D.B. Disaggregation of revenue

The following table presents total revenues as presented in the Consolidated Statements of Income and the related amounts which are from contracts with customers within the scope of Topic 606. As illustrated here, the vast majority of our revenues are specifically excluded from the scope of Topic 606.


	Three Months Ended 3/31/2019		Revenue from Contracts in Scope of Topic 606		Three Months Ended 3/31/2018		Revenue from Contracts in Scope of Topic 606		Three		Revenue from		Three		Revenue from
	(dollars in thousands)								Months		Contracts in		Months		Contracts in
Total net interest income	$	23,438	$	—	$	22,468	$	—
									Ended		Scope of		Ended		Scope of
									3/31/2020		Topic 606		3/31/2019		Topic 606
											(dollars in thousands)
Total interest income									$	25,201	$	—	$	23,438	$	—

Noninterest income:
Service charges on deposit accounts		2,209		2,209		2,067		2,067		2,296		2,296		2,209		2,209
Lockbox fees		1,089		1,089		791		791		930		930		1,089		1,089
Net gains on sales of securities		—		—		197		—
Gains on sales of mortgage loans		15		—		—		—		—		—		15		—
Other income		1,114		800		1,138		719		1,084		599		1,114		800

Total noninterest income		4,427		4,098		4,193		3,577		4,310		3,825		4,427		4,098

Total revenues	$	27,865	$	4,098	$	26,661	$	3,577	$	29,511	$	3,825	$	27,865	$	4,098

Page 27 of 42

The following table provides information about receivables with customers.


					March 31, 2020		December 31, 2019
(dollars in thousands)	March 31, 2019		December 31, 2018
Receivables, which are included in “Other assets”	$	1,343	$	1,205	$	1,236	$	1,200

Note ~~12.~~11. Leases

The Company has operating leases primarily for branch locations as well as data processing centers. The Company’s operating leases have remaining lease terms of 1 year to 32 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. The Company also has one sublease for part of a data processing center that the Company currently leases from a lessor. The sublease expires in ~~2021~~2022 with an option to terminate and no option to extend. Lease income, for the sublease, totaled approximately ~~$10,000~~$9,900 for the three months ended March 31, ~~2019.~~2020. Variable lease costs include costs that are not included in the lease liability.

The components of lease expense were as follows:


	~~Three Months~~ ~~Ended~~ ~~3/31/2019~~
~~(in thousands)~~
~~Operating lease costs including variable costs~~	$	~~711~~


			Three
	Three Months		Months
	Ended		Ended
	3/31/2020		3/31/2019
(in thousands)
Operating lease cost	$	546	$	563
Variable lease cost		133		148

Total lease cost	$	679	$	711

Supplemental cash flow information related to leases was as follows:

   Three Months
Ended
3/31/2019
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases
   $ 538


Right-of-use assets obtained in exchange for lease obligations:

Operating leases
   $ 443

~~Page 31 of 44~~


			Three
	Three Months		Months
	Ended		Ended
	3/31/2020		3/31/2019
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	529	$	538

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	421	$	443

Supplemental balance sheet information related to leases was as follows:

   3/31/2019
(in thousands, except lease term and discount rate)
Operating Leases:

Operating leaseright-of-use assets, included in other assets
   $ 14,496
Operating lease liabilities, included in other liabilities
   $ 14,637
Weighted Average Remaining Lease Term:

Operating Leases
   11 Years
Weighted Average Discount Rate:

Operating Leases
   3.45 %

~~Maturities of lease liabilities were as follows:~~

   Operating
Leases
(in thousands)
Year Ending December 31,

2019 (excluding the three months ended March 31, 2019)
   $ 1,632
2020
   2,120
2021
   1,841
2022
   1,709
2023
   1,671
Thereafter
   8,949


Total lease payments
   17,922
Less imputed interest
   (3,285 )


Total lease payments
   $ 14,637

As of March 31, 2019, we have an additional operating lease with total undiscounted cash payments of $144,000, for a data center, that has not yet commenced. This operating lease will commence in April 2019 with a lease term of 3 years.


	3/31/2020			12/31/2019
(in thousands, except lease term and discount rate)
Operating Leases:
Operating leaseright-of-use assets	$	12,085		$	12,521

Operating lease liabilities	$	12,267		$	12,690

Weighted Average Remaining Lease Term:
Operating Leases		11 years			11 years

Weighted Average Discount Rate:
Operating Leases		3.5	%		3.5	%

Page 3228 of 4442

A summary of future minimum rental payments under such leases as the dates indicated follows:


	Minimum Rental Payments
	March 31, 2020			December 31, 2019
	(in thousands)
Year Ending December 31,
2020	$	1,502		$	2,030
2021		1,754			1,754
2022		1,603			1,603
2023		1,545			1,545
2024		1,277			1,277
Thereafter		7,311			7,312

Total lease payments	$	14,992		$	15,521

Less imputed interest		(2,725	)		(2,831	)

Present value of lease liability	$	12,267		$	12,690

March 31, 2020 minimum rental payments represent nine months of rental payments remaining in calendar year 2020.

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, ~~2019,~~2020, the Company had total assets of ~~$5.3~~$5.6 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 andmedium-sized businesses and retail customers in these communities and surrounding areas, as well as local governments and large healthcare and higher educational institutions primarily 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.

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 years, 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~~298 government entities.

During the first quarter of 2020, theCOVID-19 pandemic caused economic turmoil for individuals and businesses throughout the country and, in particular, our market area. Many businesses were required to fully or partially shut down. Many businesses laid off and/or furloughed employees as a result. Unemployment is expected to increase significantly, and GDP is expected to decline significantly. This may cause loan defaults in the future as customers are unable to make their contractual loan payments. The Company has increased its provision for loan losses in response to this increased risk. Future provision levels will be dependent upon the length of the economic disruption and the effectiveness of government programs to mitigate the economic impact of the shutdowns. We also anticipate the Company’s revenue may be negatively impacted as transaction fees will decline due to decreased volume.

In response to the pandemic, on March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The CARES Act, among other things, provides cash payments to certain individuals and has various programs for businesses. In particular, it includes the Payroll Protection Program which provides forgivable loans to qualified small businesses, primarily to allow these businesses to continue to pay their employees. The original amount allocated to the program was $349 billion, which was

Page 29 of 42

exhausted on April 16, 2020. On April 24, 2020, an additional allocation of $310 billion was signed into law. These loans are funded by participating banks and are 100% guaranteed by the SBA. If utilized primarily for payroll, subject to certain other conditions, the loans may be forgiven, in whole or in part, and repaid by the SBA. Subsequent to March 31, 2020, Century Bank received SBA approvals for 1,215 loans totaling approximately $232 million. The fees expected to be collected, from the SBA, should all of the loans close, amount to approximately $7.8 million. The fees will be amortized over the lives of the loans utilizing the level-yield method.

The Company is considered an essential business based on criteria set by the Governor of the Commonwealth of Massachusetts. However, the Company has been and may continue to be affected by a work stoppage, forced quarantine, or other interruption or the unavailability of key employees.

Net income for the three months ended March 31, ~~2019,~~2020, was ~~$9,418,000~~$9,666,000 or ~~$1.69~~$1.74 per Class A share diluted, an increase of ~~22.2%~~2.6% compared to net income of ~~$7,709,000,~~$9,418,000, or ~~$1.38~~$1.69 per Class A share diluted, for the same period a year ago.

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


					Three Months Ended
	Three Months Ended March 31,				March 31,
	2019		2018		2020		2019
Basic EPS – Class A common	$	2.05	$	1.68	$	2.10	$	2.05
Basic EPS – Class B common	$	1.03	$	0.84	$	1.05	$	1.03
Diluted EPS – Class A common	$	1.69	$	1.38	$	1.74	$	1.69
Diluted EPS – Class B common	$	1.03	$	0.84	$	1.05	$	1.03

Net interest income totaled ~~$23,438,000~~$25,201,000 for the quarter ended March 31, ~~2019~~2020 compared to ~~$22,468,000~~$23,438,000 for the same period in ~~2018.~~2019. The ~~4.3%~~7.5% increase in net interest income for the period is primarily due to an increase in average earning ~~assets.~~assets and prepayment penalties collected. Prepayment penalties collected amounted to approximately $874,000 for the first quarter of 2020 compared to $12,000 for the same period last year. The net interest margin ~~decreased from 2.19%~~remained stable at 2.11% on a fully taxable equivalent basis in ~~2018 to 2.11% for the same period in 2019. This was primarily the result of increased rates paid on deposits.~~2019 and 2020.

The average balances of earning assets increased by ~~8.7%~~$244,641,000 or 4.9%, combined with an average yield ~~increase~~decrease of ~~0.40%~~0.14%, resulting in an increase in interest income of ~~$7,647,000.~~$718,000. The average balance of ~~interest bearing~~interest-bearing liabilities increased ~~7.7%~~by $265,767,000 or 6.6%, combined with an average interest-bearing liabilities interest cost decrease of ~~funds increase of 0.61%~~0.21%, resulting in ~~an increase~~a decrease in interest expense of ~~$6,677,000.~~$1,045,000.

~~Page 33 of 44~~

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

LOGO

The margin remained relatively stable for the first three quarters of 2018. During the fourth quarter of 2018 and first and second quarters of 2019, the Company increased its average interest-bearing deposits and average earning assets. This increased net interest income but decreased the net interest margin. During the third quarter of 2019, the net interest margin increased ~~during 2017 primarily~~mainly as a result of ~~an increase in rates on earning assets. This increase was primarily~~deposit rate decreases. These deposits increased net interest income and the ~~result~~net interest margin. During the fourth quarter of 2019, the ~~yield on floating rate assets increasing~~net interest margin increased mainly as a result of ~~recent increases in short term interest rates as well as an increase in~~ prepayment penalties ~~collected during the second quarter of 2017.~~collected. Prepayment penalties collected amounted to ~~$825,000~~$1.4 million and contributed approximately ~~seven~~eleven basis points to the net interest margin for the ~~second~~fourth quarter of ~~2017. During 2017, the Company did not see a corresponding increase in short term rates on~~2019. The net interest ~~bearing liabilities. The~~ margin decreased ~~for 2018~~during the first quarter of 2020, mainly as a result of ~~a decrease~~decreases in ~~the corporate tax rate from 34%~~rates on earning assets. This was partially offset by prepayment penalties collected of $874,000 and contributed approximately seven basis points to ~~21%. This decrease results in a lower tax equivalent yield ontax-exempt~~ ~~assets. During the fourth quarter of 2018 and first quarter of 2019, the Company increased its interest-bearing deposits. These deposits increased net interest income, but decreased~~ the net interest margin. 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.

Page 30 of 42

The provision for loan losses ~~decreased~~increased by ~~$75,000~~$700,000 from ~~$450,000~~$375,000 for the ~~three months~~quarter ended March 31, ~~2018~~2019 to ~~$375,000~~$1,075,000 for the same period in ~~2019.~~2020, primarily due to the increase in economic factors as a result of of the economic impact of the novel coronavirus disease (COVID–19) pandemic. Refer to the allowance for loan loss section of the management discussion and analysis for additional discussion.Non-performing assets totaled ~~$3,727,000~~$1,701,000 at March 31, ~~2019,~~2020, compared to ~~$3,538,000~~$2,014,000 at December 31, ~~2018.~~2019.

The Company’s effective tax rate ~~decreased~~increased from ~~6.1%~~(1.3%) for the quarter ended March 31, ~~2018~~2019 to ~~(1.3%)~~5.8% for the same period in ~~2019.~~2020. This was primarily as a result of a reduction in tax accruals, during 2019, related to sequestration of the refundable portion of our alternative minimum tax (AMT) credit carryforward. On January 14, 2019, the IRS updated its announcement “Effect of Sequestration on the Alternative Minimum Tax Credit for Corporations” to clarify that refundable AMT credits under Section 53(e) of the Internal Revenue Code are not subject to sequestration for taxable years beginning after December 31, 2017. ~~Therefore,~~On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. As a result of the CARES Act, the full ~~amount~~balance of the AMT credit ~~carryover~~ will be refunded in 2020.

During the third quarter of 2019, the Company purchased the existing Brookline branch location that the Company was leasing. Also, during the third quarter of 2019, the Company purchased a future branch location in Salem, New Hampshire. The Company plans to open this branch during the ~~Company.~~fourth quarter of 2020.

Recent Market Developments

Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the“D-F Act”) became law. TheD-F 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. TheD-F 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. TheD-F 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. TheD-F 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~~non-interest-bearing ~~bearing~~ transaction accounts through December 31, 2012.

In addition, theD-F Act added a new Section 13 to the Bank Holding Company Act, theso-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” was 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 federal banking agencies have issued ~~notices of proposed rulemaking to make certain~~ amendments to the Rule to ~~simply~~provide greater clarity and ~~tailor~~certainty about what activities are prohibited and to improve the effective allocation of compliance ~~requirements~~resources, and to conform the Rule to the EGRRCPA (discussed below). The federal banking agencies have also issued a notice of proposed rulemaking to liberalize the covered fund rules.

~~Page 34 of 44~~

~~Federal banking regulators have issued risk-based capital guidelines, which assign risk factors to asset categories~~Tax Cuts 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 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. Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted, which represents the most comprehensive reform to the U.S. tax code in over thirty years. The majority of the provisions of the Tax Act took effect on January 1, 2018. The Tax Act lowered the Company’s federal tax rate from 34% to 21%. Also, for tax years beginning after December 31, 2017, the corporate Alternative Minimum Tax (“AMT”) has been repealed. For 2018 through 2021, the AMT credit carryforward can offset regular tax liability and is refundable in an amount equal to 50% (100% for 2021) of the excess of the minimum tax credit for the tax year over the amount of the credit allowable for the year against regular tax liability. ~~Accordingly, it is anticipated that~~On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. As a result of the CARES Act, the full ~~amount~~balance of the ~~alternative minimum tax~~AMT credit ~~carryforward~~ will be ~~recovered~~refunded in ~~tax years beginning before 2022.~~2020. The Tax Act also contains other provisions that may affect the Company currently or in future years. Among these are changes to the deductibility of meals and entertainment, the deductibility of executive compensation, the dividend received deduction and net operating loss carryforwards. Tax Act changes for individuals include lower tax rates, mortgage interest and state and local tax limitations as well as an increase in the standard deduction, among others.

Page 31 of 42

Economic Growth, Regulatory Relief, and Consumer Protection Act

On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act, or the EGRRCPA, became law. This is arguably the most significant financial institution legislation since theD-F Act. The EGRRCPA changes certain of the regulatory requirements of theD-F Act and includes provisions intended to relieve the regulatory burden on “community banks.” Among other things, for qualifying community banks with less than $10 billion in total consolidated assets, the EGRRCPA contains a safe harbor from theD-F Act “ability to repay” mortgage requirements, an exemption from the Volcker Rule, may permit filing of simplified Call Reports, and potentially will result in some alleviation of theD-F Act and U.S. Basel III capital mandates. The EGRRCPA requires the federal banking agencies to develop a community bank leverage ratio (defined as the ratio of tangible equity capital to average total consolidated assets) for banks and holding companies with total consolidated assets of less than $10 billion and an appropriate risk profile. The required regulations must specify a minimum community bank leverage ratio of not less than 8% and not more than 10%. The federal banking agencies jointly issued a ~~notice of proposed rulemaking~~final rule, effective January 1, 2020, which would set the minimum ratio at 9%. Qualifying banks that exceed the minimum community bank leverage ratio will be deemed to be in compliance with all other capital and leverage requirements including the capital ratio requirements that are required to be considered well capitalized under Section 38 of Federal Deposit Insurance Act.

Coronavirus Aid, Relief and Economic Security (CARES) Act

On March 18, 2020 the Families First Coronavirus Response Act (FFCRA) was signed into law and on March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The FFCRA and the CARES Act provide relief for families and businesses impacted by the coronavirus pandemic. The provisions in this legislation include, among other things, loan programs for businesses, expanded unemployment insurance benefits, stimulus payments to certain taxpayers, new provisions on sick leave and family leave, and funding for a variety of health-related efforts and government programs. The CARES Act also allowed a temporary deferral of FASB ASU2016-13, Measurement of Credit Losses on Financial Instruments. The Company has elected to defer FASB ASU2016-13. Also as a result of the CARES Act, the full balance of the AMT credit will be refunded in 2020.

Recent Accounting Developments

Recently Adopted Accounting Standards Updates

In August 2018, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtaininternal-use software (and hosting arrangements that include an internal use software license). This ASU is effective for annual reporting periods beginning after December 15, 2019. The effect of this ASU did not have a material impact on the Company’s consolidated financial position.

In August 2018, FASB issued ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. This ASU is effective for annual reporting periods beginning after December 15, 2019. The effect of this update did not have a material impact on the Company’s disclosures.

In January 2017, the FASB issued ASU2017-04, 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. The effect of this update did not have a material impact on the Company’s consolidated financial position.

Accounting Standards Issued but not yet Adopted

The following list identifies ASUs applicable to the Company that have been issued by the FASB but are not yet effective:

In December 2019, the FASB issued ASU2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The effect of this ASU is not expected to have a material impact on the Company’s consolidated financial position.

Page 32 of 42

In June 2016, the FASB issued ASU2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL). 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. See discussion below of the deferral of the amendments in this ASU.

To implement the new standard the Company has purchased a software solution and has captured the information needed to implement this ASU. As part of the FASB ASC 326 implementation process, the company is using two models: a rating migration model and a probability of default model. The ratings migration model, which will be used for our larger loans made to institutions with available credit ratings, is designed to estimate loss reserves according to the CECL standard for rated loans or similar instruments. The model structure follows a grade migration approach, where the default rate is based on the probability of each grade transition which is modelled using historical data. The probability of default model, which will be used for our remaining commercial loans and our consumer loans, is based primarily on four components: loss history, product lifecycle, behavioral attributes and the economic environment. During the fourth quarter of 2019, the Company tested the two CECL credit models in parallel with the existing incurred loss models. The securitiesheld-to-maturity include U.S. Treasury, U.S. Government Sponsored Enterprises, BSA Backed Securities and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities. The Company expects no impact from ASU2016-13 to arise from this portfolio.

Since ASU2016-13, the FASB has issued amendments intended on improving the clarification of the amendment, ASU2018-19 Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU2019-04 Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging. The amendment in ASU2018-19 was issued in November 2018 and was intended to clarify that receivables arising from operating leases are not within the scope of Subtopic326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The amendment inASU 2019-04 was issued in April 2019 and was intended to clarify stakeholders’ specific issues about certain aspects of the amendments in ASU2016-13. ASU2019-05 Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief was also issued in May 2019. This ASU provides entities the option to irrevocably elect the fair value option for certain financial assets previously measured at amortized costs basis. The fair value option election does not apply toheld-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics820-10, Fair Value Measurement—Overall. The amendments in this ASU should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings balance in the statement of financial position as of the date that an entity early adopted the amendments inASU 2016-13. In November 2019, the FASB issued ASU2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments in this ASU affect a variety of Topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance. This ASU is effective for annual reporting periods beginning after December 15, 2019.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The CARES Act allows certain companies to delay FASB ASU2016-13, Measurement of Credit Losses on Financial Instruments (CECL), including the current expected credit losses methodology for estimating allowances for credit losses. The Company has elected to delay FASB ASU2016-13. This ASU will be delayed until the date on which the national emergency concerning the COVID–19 outbreak declared by the President on March 15, 2020 terminates or December 31, 2020, with an effective retrospective implementation date of January 1, 2020. The effects of these ASUs will not have a material impact on the Company’s consolidated financial position at January 1, 2020 upon retroactive adoption. The Company does not believe the impact of adoption would have been material to the Company’s consolidated financial position as of March 31, 2020.

In August 2018, FASB issued ASU2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. This ASU is effective for annual reporting periods beginning after December 15, 2020. The effect of this update will not have a material impact on the Company’s consolidated financial position.

Page 33 of 42

Financial Condition

Loans

On March 31, ~~2019,~~2020, total loans outstanding were ~~$2,310,660,000~~$2,498,894, up by ~~$25,082,000~~$72,775,000 from the total on December 31, ~~2018.~~2019. At March 31, ~~2019,~~2020, commercial real estate loans accounted for ~~32.3%~~30.5%, commercial and industrial accounted for ~~33.2%~~34.7%, and residential real estate loans, including home equity loans, accounted for ~~28.4%~~28.0% of total loans.

Commercial and industrial loans increased to $867,599,000 at March 31, 2020 from $812,417,000 at December 31, 2019, primarily as a result of loan originations. Commercial real estate loans decreased to ~~$746,703,000~~$761,464,000 from ~~$750,362,000~~$786,102,000 on December 31, ~~2018~~2019 primarily as a result of loan payoffs. ~~Commercial and industrial~~Construction loans decreased to $6,493,000 at March 31, 2020 from $8,992,000 on December 31, 2019, primarily as a result of loan payoffs. Residential real estate loans increased to ~~$767,436,000 at~~$393,338,000 on March 31, ~~2019~~2020 from ~~$761,625,000 at~~$371,897,000 on December 31, ~~2018,~~2019, primarily as a result of loan originations. Construction loans decreased slightly to $13,305,000 at March 31, 2019 from $13,628,000 on December 31, 2018. Residential real estate loans increased slightly to $349,966,000 on March 31, 2019 from $348,250,000 on December 31, 2018, primarily as a result of new loan originations. Home equity loans increased to ~~$305,839,000~~$307,373,000 on March 31, ~~2019~~2020 from ~~$292,340,000~~$304,363,000 at December 31, ~~2018,~~2019, primarily as a result of a home equity loan promotion. Municipal loans increased to ~~$105,288,000~~$141,588,000 from ~~$97,290,000,~~$120,455,000, primarily as a result of ~~new~~ loan originations.

In recent years, 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. We will closely monitor the concentrations to determine the impact ofCOVID-19 upon their short-term and long-term operations.

~~Page 35 of 44~~

Allowance for Loan Losses

The allowance for loan loss at March 31, ~~2019~~2020 was ~~$28,848,000~~$30,804,000 as compared to ~~$28,543,000~~$29,585,000 at December 31, ~~2018.~~2019. The level of the allowance for loan losses to total loans was ~~1.25%~~1.23% at March 31, ~~2019~~2020 and ~~1.25%~~1.22% at December 31, ~~2018.~~2019. The coverage ratio ~~remained stable.~~has increased primarily as a result of increased allocations for economic factors associated with theCOVID-19 pandemic. The Company monitors the outlook for the industries in which our borrowers operate. Healthcare and higher education are two of the primary industries. In particular the Company utilizes outlooks and forecasts from various sources. ~~Overall a general weakening for these industries in the outlook was noted resulting in a general increase in the general economic factors.~~ 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 loss factor for each credit grade. For a large loan to large institutions with ~~publically~~publicly 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, ~~2019.~~2020.


									Commercial				Commercial
									and				Real
	Commercial and Industrial		Municipal		Commercial Real Estate		Total		Industrial		Municipal		Estate		Total
	(in thousands)								(in thousands)
Credit Rating:
Aaa – Aa3	$	482,374	$	62,103	$	41,335	$	585,812	$	568,173	$	74,406	$	38,955	$	681,534
A1 – A3		181,409		7,605		151,031		340,045		185,819		7,354		147,953		341,126
Baa1 – Baa3		—		26,970		118,868		145,838		—		51,133		143,302		194,435
Ba2		—		6,810		—		6,810		—		5,895		—		5,895

Total	$	663,783	$	103,488	$	311,234	$	1,078,505	$	753,992	$	138,788	$	330,210	$	1,222,990

Credit ratings issued by national organizations are presented in the following table at December 31, ~~2018.~~2019.


									Commercial				Commercial
									and				Real
	Commercial and Industrial		Municipal		Commercial Real Estate		Total		Industrial		Municipal		Estate		Total
	(in thousands)								(in thousands)
Credit Rating:
Aaa – Aa3	$	491,247	$	54,105	$	42,790	$	588,142	$	523,644	$	53,273	$	40,437	$	617,354
A1 – A3		172,472		7,605		151,381		331,458		186,044		7,354		148,346		341,744
Baa1 – Baa3		—		26,970		118,197		145,167		—		51,133		144,711		195,844
Ba2		—		6,810		—		6,810		—		5,895		—		5,895

Total	$	663,719	$	95,490	$	312,368	$	1,071,577	$	709,688	$	117,655	$	333,494	$	1,160,837

Page 3634 of 4442

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.

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


							Three months ended
	Three months ended March 31,						March 31,
	2019			2018			2020			2019
	(in thousands)						(in thousands)
Allowance for loan losses, beginning of period	$	28,543		$	26,255		$	29,585		$	28,543
Loans charged off		(142	)		(87	)		(62	)		(142	)
Recoveries on loans previouslycharged-off		72			77			206			72

Net recoveries (charge-offs)		(70	)		(10	)		144			(70	)
Provision charged to expense		375			450			1,075			375

Allowance for loan losses, end of period	$	28,848		$	26,695		$	30,804		$	28,848

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,
2019 December 31,
2018
   (dollars in thousands)
Nonaccruing loans
   $ 1,502 $ 1,313
Total nonperforming assets
   $ 3,727 $ 3,538
Loans past due 90 days or more and still accruing
   $ —   $ —
Nonaccruing loans as a percentage of total loans
   0.07 % 0.06 %
Nonperforming assets as a percentage of total assets
   0.07 % 0.07 %
Accruing troubled debt restructures
   $ 2,542 $ 2,559

~~The increase in nonperforming assets and loans 90 days past due or more and still accruing is primarily the result of residential loans.~~


	March 31,			December 31,
	2020			2019
	(dollars in thousands)
Nonaccruing loans	$	1,701		$	2,014
Total nonperforming assets	$	1,701		$	2,014
Loans past due 90 days or more and still accruing	$	—		$	—
Nonaccruing loans as a percentage of total loans		0.07	%		0.08	%
Nonperforming assets as a percentage of total assets		0.03	%		0.04	%
Accruing troubled debt restructures	$	2,337		$	2,361

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.

SecuritiesAvailable-for-Sale (at Fair Value)

The securitiesavailable-for-sale portfolio totaled ~~$345,089,000~~$278,019,000 at March 31, ~~2019,~~2020, an increase of ~~2.5%~~6.7% from December 31, ~~2018.~~2019. The portfolio increased mainly as a result of purchases of securitiesavailable-for-sale totaling ~~$43,884,000 for the three months ended March 31, 2019.~~$39,719,000. The purchases include ~~$9,853,000~~$9,372,000 of ~~purchases~~securities that are ~~due to brokers. They were~~obligations issued by States and Political Subdivisions. This was offset, somewhat by calls/maturities ~~sales~~ and scheduled principal payments of ~~$34,927,000.~~$20,734,000. 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 ~~5.2~~5.0 years.

At March 31, ~~2019, 81.6%~~2020, 93.8% of the Company’s securitiesavailable-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.

Page 3735 of 4442

Securitiesavailable-for-sale totaling ~~$63,332,000~~$17,224,000 or ~~18.4%~~6.2% of securitiesavailable-for-sale are classified as Level 3. These securities are generally municipal securities with no observable fair value with an average life of one year or less. 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 ~~2019,~~2020, net unrealized loss on the securitiesavailable-for-sale increased to ~~$620,000~~$2,501,000 from a net unrealized ~~gain~~loss of ~~$8,000~~$422,000 at December 31, ~~2018.~~2019. This was primarily the result of a decrease in the value of floating rate ~~securities and the increase in the value of one obligation which was a states and political subdivisions security.~~securities.

The following table sets forth the fair value of securitiesavailable-for-sale at the dates indicated.


	March 31, 2019		December 31, 2018		March 31,		December 31,
	(in thousands)				2020		2019
U.S. Treasury	$	1,998	$	1,992
U.S. Government Sponsored Enterprises		3,942		3,915
					(in thousands)
Small Business Administration		72,588		70,194	$	50,615	$	54,211
U.S Government Agency and Sponsored Enterprise Mortgage-backed Securities		194,205		162,890		206,215		184,187
Privately Issued Residential Mortgage-backed Securities		649		672		334		396
Obligations issued by States and Political Subdivisions		68,107		93,503		17,224		18,076
Other Debt Securities		3,600		3,593		3,631		3,632

Total SecuritiesAvailable-for-Sale	$	345,089	$	336,759
Total SecuritiesAvailable–for-Sale					$	278,019	$	260,502

There were no ~~sales ofavailable-for-sale~~ ~~securities for the three months ended March 31, 2019. The Company realized gross gains of $197,000 from the proceeds of $17,871,000 from the~~ sales ofavailable-for-sales securities for the three months ended March 31, ~~2018.~~2020.

SecuritiesHeld-to-Maturity (at Amortized Cost)

The securitiesheld-to-maturity portfolio totaled ~~$2,110,555,000~~$2,304,074,000 on March 31, ~~2019, an increase~~2020, a decrease of ~~3.1%~~2.0% from December 31, ~~2018. Purchases of securitiesheld-to-maturity~~2019. Maturities and scheduled principal payments totaled ~~$148,500,000~~$123,723,000 for the three months ended March 31, ~~2019.~~2020. The ~~purchases were offset somewhat, by call,~~ maturities and scheduled principal payments were offset somewhat, by purchases ofheld-to-maturity securities of ~~$88,027,000.~~$70,171,000. The portfolio is concentrated in United States Government Sponsored Enterprises and Mortgage-backed Securities and had an estimated weighted average remaining life of ~~4.0~~3.4 years. ~~Unrealized losses increased during the year primarily as a result of increases in interest rates.~~

The following table sets forth the amortized cost of securitiesheld-to-maturity at the dates indicated.


	March 31, 2019		December 31, 2018		March 31,		December 31,
	(in thousands)				2020		2019
U.S. Treasury	$	—	$	9,960
					(in thousands)
U.S. Government Sponsored Enterprises		201,327		234,228	$	89,419	$	98,867
SBA Backed Securities		50,797		52,051		42,856		44,379
U.S. Government Agency and Sponsored Enterprise Mortgage-backed Securities		1,858,431		1,750,408		2,171,799		2,207,874

Total SecuritiesHeld-to-Maturity	$	2,110,555	$	2,046,647	$	2,304,074	$	2,351,120

There were no sales ofheld-to-maturity securities for the three months ended March 31, ~~2019 and March 31, 2018 respectively.~~2020.

~~Page 38 of 44~~

The net unrealized ~~losses~~gains on investment securitiesheld-to-maturity was ~~$36,112,000 or 1.7% of the total and $55,226,000~~$60,953,000 or 2.7% of the total at March 31, ~~2019~~2020 and the net unrealized gains of $10,184,000 or 0.4% of the total at December 31, ~~2018, respectively.~~2019. The ~~decrease~~increase in the net unrealized ~~losses~~gains on securitiesheld-to-maturity related primarily to a decrease in interest rates. The gross unrealized losses relate 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 as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, all mortgage-backed securities are obligations of U.S. Government Sponsored Enterprises. Debt securities of Government Sponsored Enterprises primarily refer to debt securities of Fannie Mae and Freddie Mac.

Page 36 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 ~~2019,~~2020, the FHLBB redeemed ~~$4,777,000~~$6,831,000 of FHLBB stock and the Company purchased ~~$1,047,000~~$4,601,000 of FHLBB stock. As of March 31, ~~2019,~~2020, no impairment has been recognized.

Equity Securities

At March 31, ~~2019~~2020 equity securities totaled ~~$1,649,000~~$1,609,000 compared to ~~$1,596,000~~$1,688,000 at December 31, ~~2018. Equity securities were reclassified from securitiesavailable-for-sale~~ during the first quarter of 2018. The unrealized gain, of $29,000 on equity securities, at December 31, 2017, was transferred to retained earnings and the change in the unrealized gain for the first quarter of 2018 was classified as other income, in accordance with ASU~~2016-1~~ ~~as previously discussed in Note 10.~~2019.

Deposits and Borrowed Funds

On March 31, ~~2019,~~2020, deposits totaled ~~$4,449,627,000,~~$4,562,512,000 representing a ~~1.0%~~3.7% increase from December 31, ~~2018.~~2019. Total deposits increased primarily as a result of an increase in ~~Savings and NOW~~demand deposits, ~~and~~ money market ~~accounts. This was offset somewhat, by a decrease in demand deposits~~accounts, and time deposits. ~~Money market accounts~~These types of deposits increased ~~mainly~~primarily from ~~deposit gathering services. Savings and NOW~~an increased customer base. Demand deposits increased mainly as a result of increased ~~municipal deposits. Time deposits decreased primarily as a result of decreased~~ corporate checking balances. Savings and ~~personal time deposits. Demand~~NOW deposits decreased mainly as a result of ~~decreased~~a decrease in corporate ~~checking balances.~~

~~Borrowed funds totaled $421,648,000 at March 31, 2019 compared to $356,618,000 at December 31, 2018. Borrowed funds~~and personal savings, offset somewhat, by increases in municipal NOW accounts. Money market accounts increased mainly as a result of an increase in corporate money market accounts as well as increases in deposit gathering services accounts. Time deposits increased primarily as a result of increased personal, corporate and municipal time deposits.

Borrowed funds totaled $532,115,000 at March 31, 2020 compared to $637,000,000 at December 31, 2019. Borrowed funds decreased mainly as a result of a decrease in borrowings from the FHLBB and a decrease in repurchase agreements. This was offset, somewhat, by an increase of $9,400,000 in borrowings from the FRB discount window. FHLBB borrowings decreased mainly as a result of an increase in deposits. Repurchase agreements decreased primarily as a result of short-term ~~FHLBB borrowings.~~customer activity.

Stockholders’ Equity

At March 31, ~~2019,~~2020, total equity was ~~$309,324,000~~$340,687,000 compared to ~~$300,439,000~~$332,581,000 on December 31, ~~2018.~~2019. The Company’s equity increased primarily as a result of earnings, offset, somewhat, by dividends paid. The Company’s leverage ratio stood at ~~6.92%~~7.26% on March 31, ~~2019,~~2020, compared to ~~6.91%~~7.25% at December 31, ~~2018.~~2019. The increase in the leverage ratio was due to an increase in stockholders’ equity, offset somewhat by an increase in quarterly average assets. Book value as of March 31, ~~2019,~~2020, was ~~$55.55~~$61.19 as compared to ~~$53.96~~$59.73 on December 31, ~~2018.~~2019.

Page 3937 of 4442

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, 2020									March 31, 2019
	Three Months Ended																					Interest			Rate						Interest			Rate
	March 31, 2019									March 31, 2018									Average			Income/			Earned/			Average			Income/			Earned/
	Average Balance			Interest Income/ Expenses (1)			Rate Earned/ Paid (1)			Average Balance			Interest Income/ Expenses (1)			Rate Earned/ Paid (1)			Balance			Expenses (1)			Paid (1)			Balance			Expenses (1)			Paid (1)
	(dollars in thousands)																		(dollars in thousands)
ASSETS
Interest-earning assets:
Loans (2)
Loans taxable	$	1,182,782		$	13,096			4.49	%	$	1,043,345		$	10,685			4.15	%	$	1,275,999		$	13,481			4.25	%	$	1,182,782		$	13,096			4.49	%
Loanstax-exempt		1,109,824			10,411			3.80	%		1,131,825			9,606			3.44	%		1,171,963			10,789			3.70	%		1,109,824			10,411			3.80	%
Securitiesavailable-for-sale (5):
Taxable		273,309			2,182			3.19	%		338,393			1,754			2.07	%		262,332			1,582			2.41	%		273,309			2,182			3.19	%
Tax-exempt		78,560			545			2.77	%		67,694			291			1.72	%		9,640			137			5.68	%		78,560			545			2.77	%
Securitiesheld-to-maturity:
Taxable		2,078,626			13,788			2.65	%		1,741,492			10,288			2.36	%		2,299,750			15,293			2.66	%		2,078,626			13,788			2.65	%
Interest-bearing deposits in other banks		225,870			1,349			2.39	%		230,194			883			1.53	%		173,928			610			1.40	%		225,870			1,349			2.39	%

Total interest-earning assets		4,948,971			41,371			3.37	%		4,552,943			33,507			2.97	%		5,193,612			41,892			3.23	%		4,948,971			41,371			3.37	%
Non interest-earning assets		247,261									228,451									285,422									247,261
Allowance for loan losses		(28,708	)								(26,546	)								(29,765	)								(28,708	)

Total assets	$	5,167,524								$	4,754,848								$	5,449,269								$	5,167,524

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits:
NOW accounts	$	902,321		$	2,156			0.97	%	$	954,608		$	1,353			0.57	%	$	1,016,266		$	2,252			0.89	%	$	902,321		$	2,156			0.97	%
Savings accounts		909,798			3,310			1.48	%		540,311			870			0.65	%		716,569			1,473			0.83	%		909,798			3,310			1.48	%
Money market accounts		1,271,707			5,343			1.70	%		1,180,436			2,453			0.84	%		1,480,399			5,572			1.51	%		1,271,707			5,343			1.70	%
Time deposits		516,781			2,793			2.19	%		604,814			2,363			1.58	%		589,396			3,172			2.16	%		516,781			2,793			2.19	%

Total interest-bearing deposits		3,600,607			13,602			1.53	%		3,280,169			7,039			0.87	%		3,802,630			12,469			1.32	%		3,600,607			13,602			1.53	%
Securities sold under agreements to repurchase		168,447			385			0.93	%		160,223			181			0.46	%		246,272			626			1.02	%		168,447			385			0.93	%
Other borrowed funds and subordinated debentures		231,920			1,652			2.89	%		274,343			1,742			2.58	%		217,839			1,499			2.77	%		231,920			1,652			2.89	%

Total interest-bearing liabilities		4,000,974			15,639			1.59	%		3,714,735			8,962			0.98	%		4,266,741			14,594			1.38	%		4,000,974			15,639			1.59	%

Non-interest-bearing liabilities
Demand deposits		782,794									706,959									758,173									782,794
Other liabilities		79,156									69,218									87,423									79,156

Total liabilities		4,862,924									4,490,912									5,112,337									4,862,924

Stockholders’ equity		304,600									263,936									336,932									304,600
Total liabilities & stockholders’ equity	$	5,167,524								$	4,754,848								$	5,449,269								$	5,167,524

Net interest income on a fully taxable equivalent basis					25,732									24,545									27,298									25,732
Less taxable equivalent adjustment					(2,294	)								(2,077	)								(2,097	)								(2,294	)

Net interest income				$	23,438								$	22,468								$	25,201								$	23,438

Net interest spread (3)								1.79	%								2.00	%								1.85	%								1.79	%

Net interest margin (4)								2.11	%								2.19	%								2.11	%								2.11	%

(1)	On a fully taxable equivalent basis calculated using a federal tax rate of 21%.

(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 securitiesavailable-for-sale calculated utilizing amortized cost.

Page 4038 of 4442

The following table presents certain information on afully-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, 2020
										Compared with
										Three Months Ended March 31, 2019
	Three Months Ended March 31, 2019 Compared with Three Months Ended March 31, 2018												Increase/(Decrease)
	Increase/(Decrease) Due to Change in												Due to Change in
	Volume			Rate			Total			Volume			Rate			Total
	(in thousands)									(in thousands)
Interest income:
Loans
Taxable	$	1,500		$	911		$	2,411		$	1,055		$	(670	)	$	385
Tax-exempt		(190	)		995			805			617			(238	)		379
Securitiesavailable-for-sale
Taxable		(385	)		813			428			(85	)		(515	)		(600	)
Tax-exempt		53			201			254			(707	)		298			(409	)
Securitiesheld-to-maturity
Taxable		2,141			1,359			3,500			1,470			35			1,505
Interest-bearing deposits in other banks		(17	)		483			466			(264	)		(475	)		(739	)

Total interest income		3,102			4,762			7,864			2,086			(1,565	)		521

Interest expense:
Deposits
NOW accounts		(78	)		881			803			269			(173	)		96
Savings accounts		859			1,581			2,440			(596	)		(1,241	)		(1,837	)
Money market accounts		203			2,687			2,890			842			(613	)		229
Time deposits		(380	)		810			430			401			(22	)		379

Total interest-bearing deposits		604			5,959			6,563			916			(2,049	)		(1,133	)
Securities sold under agreements to repurchase		10			194			204			196			45			241
Other borrowed funds and subordinated debentures		(288	)		198			(90	)		(92	)		(61	)		(153	)

Total interest expense		326			6,351			6,677			1,020			(2,065	)		(1,045	)

Change in net interest income	$	2,776		$	(1,589	)	$	1,187		$	1,066		$	500		$	1,566

Net Interest Income

For the three months ended March 31, ~~2019,~~2020, net interest income on a fully taxable equivalent basis totaled ~~$25,732,000~~$27,298,000 compared to ~~$24,545,000~~$25,732,000 for the same period in ~~2018,~~2019, an increase of ~~$1,187,000~~$1,566,000 or ~~4.8%~~6.1%. The increase in net interest income for the period is primarily due to an increase in average earning ~~assets.~~assets and prepayment penalties collected. Prepayment penalties collected amounted to approximately $874,000 for the first quarter of 2020 compared to $12,000 for the same period last year. The net interest margin ~~decreased from 2.19%~~remained stable at 2.11% on a fully taxable equivalent basis in ~~2018 to 2.11% for the same period in 2019. This was primarily the result of increased rates paid on deposits.~~2019 and 2020. The average balances of earning assets increased by ~~8.7%~~$244,641,000 or 4.9%, combined with an average yield ~~increase~~decrease of 0.40%, resulting in an increase in fully taxable equivalent interest income of $7,864,000. The average balance of interest bearing liabilities increased 7.7% combined with an average cost of funds increase of 0.61%0.14%, resulting in an increase in interest income of $521,000 on a fullytax-eqivalent basis. The average balance of interest-bearing liabilities increased by $265,767,000 or 6.6%, combined with an average interest-bearing liabilities interest cost decrease of 0.21%, resulting in a decrease in interest expense of ~~$6,677,000.~~$1,045,000.

As illustrated in the table above, the main contributors to the increase in net interest income were from ~~loans,~~ securitiesheld-to-maturity ~~securities~~and loans. Securitiesavailable-for-sale and interest-bearing deposits in other ~~banks.~~banks decreased during the first three months of 2020 compared to the same period last year. Securitiesheld-to-maturity income increased primarily as a result of an increase in ~~volume as well as rates.~~volume. Loan income increased primarily from an increase in volume and ~~an overall increase in rates.~~prepayment penalties collected. Securitiesavailable-for-sale and interest-bearing deposits in other banks income ~~increased~~decreased primarily from ~~an increase~~a decrease in rates paid on the ~~portfolio.~~portfolios. The Company has a sizable floating rateavailable-for-sale portfolio. These securities reprice as interest rates ~~rise.~~rise or fall. Interest-bearing deposits ~~income increased~~expense decreased primarily from ~~an increase~~a decrease in rates. ~~The increase in interest income was partially offset by an increase in interest expense.~~ This was mainly the result of ~~increased~~decreased rates paid on ~~money market, saving and NOW accounts, and time deposits.~~interest-bearing liabilities. The Company has modestly ~~raised~~decreased interest rates on these products ~~to remain competitive.~~as market rates have decreased.

Page 4139 of 4442

Provision for Loan Losses

For the three months ended March 31, ~~2019,~~2020, the loan loss provision was ~~$375,000~~$1,075,000 compared to a provision of ~~$450,000~~$375,000 for the same period last year. The increase in the provision for the first quarter of 2020 compared to the same period last year was primarily due to the increase in economic factors as a result of the economic impact of the novel coronavirus disease (COVID–19) pandemic. Further discussion relating to changes in portfolio composition is discussed in ~~footnote number four.~~Note 4.

Non-Interest Income and Expense

Other operating income for the quarter ended March 31, ~~2019 increased~~2020 decreased by ~~$234,000~~$117,000 from the same period last year to ~~$4,427,000.~~$4,310,000. This was mainly attributable to ~~an increase~~a decrease in lockbox fees of ~~$298,000~~$159,000 and a decrease in other income of $30,000. This was offset, somewhat, by an increase in service charges on deposit accounts of ~~$142,000 offset, somewhat, by a decrease of $197,000 from the sales of securities.~~$87,000. Lockbox income ~~increased~~decreased as a result of ~~an increase~~a decrease in customer ~~accounts.~~activity due in large part to theCOVID-19 pandemic. We anticipate that lockbox income and transaction fees will continue to decline untilnon-essential businesses are reopened, which have been closed per order of the Governor of the Commonwealth of Massachusetts since March 24, 2020. Service charges on deposit accounts increased primarily as a result of an increase in customer ~~activity.~~activity prior to March 24, 2020. Other income decreased mainly as a result of decreases in gains on insurance policies.

For the quarter ended March 31, ~~2019,~~2020, operating expenses ~~increased~~decreased by ~~$189,000~~$17,000 or ~~1.0%~~0.09% to ~~$18,190,000,~~$18,173,000, from the same period last year. This was primarily attributable to ~~an increase~~decreases in occupancy costs and other ~~expenses of $336,000 and occupancy expenses of $64,000~~expenses. This was offset, somewhat, by ~~decreases~~increases in salaries and employee benefits of ~~$190,000,~~$336,000 and an increase equipment expenses ~~$11,000 and FDIC assessments~~ of $10,000. Other expenses increased primarily as a result of increases in pension expense. Occupancy costs increased primarily as a result of increases in rent expense associated with a new operating facility and other annual rent increases.$54,000. The ~~decrease~~increase in salaries and employee benefits was mainly attributable to ~~a decrease~~merit increases and an increase in ~~bonus accruals. FDIC assessments~~pension costs. Equipment expense increased mainly from an increase in depreciation expense. Occupancy costs decreased primarily as a result of decreases in rent expense and a decrease in building maintenance. Other expenses decreased mainly as a result of FDIC assessment credits recognized during the ~~assessment rate. Equipment expenses remained relatively stable.~~quarter.

Income Taxes

For the first quarter of ~~2019,~~2020, the Company’s income tax ~~benefit~~expense totaled ~~$118,000~~$597,000 on pretax income of $10,263,000 resulting in an effective tax rate of 5.8%. For last year’s corresponding quarter, the Company’s income tax expense totaled ($118,000) on pretax income of $9,300,000 resulting in an effective tax rate of ~~(1.3)%~~(1.3%). For last year’s corresponding quarter, the Company’s income tax expense totaled $501,000 on pretax income of $8,210,000 resulting in an effective tax rate of 6.1%. The decrease in the effective tax rateThis increase was primarily ~~as a~~the result of a reduction in tax accruals, during 2019, related to sequestration of the refundable portion of our alternative minimum tax (AMT) credit carryforward. On January 14, 2019, the IRS updated its announcement “Effect of Sequestration on the Alternative Minimum Tax Credit for Corporations” to clarify that refundable AMT credits under Section 53(e) of the Internal Revenue Code are not subject to sequestration for taxable years beginning after December 31, 2017. ~~Therefore,~~On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. As a result of the CARES Act, the full ~~amount~~balance of the AMT credit ~~carryover~~ will be refunded ~~to the Company.~~in 2020.

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 onForm10-K for the fiscal year ended December 31, ~~2018,~~2019, filed with the Securities and Exchange Commission. The information is contained in theForm10-K within the Market Risk and Asset Liability Management section of Management’s Discussion and Analysis of Results of Operations and Financial Condition.

Item 4.
Controls and Procedures

The Company’s management, with participation of the Company’s principal executive and financial officers, has evaluated its disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, the Company’s management, with participation of its principal executive and financial officers, 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~~three months of ~~2019~~2020 there were no changes that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Page 4240 of 4442

Part II –Other Information

Item 1

A number of legal claims against the Company arising in the normal course of business were outstanding at March 31, ~~2019.~~2020. Management, after reviewing these claims with legal counsel, is of the opinion that their resolution will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

The Company and its subsidiaries are parties to various claims and lawsuits arising in the course of their normal business activities. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that none of these matters, even if it resolved adversely to the Company, will have a material adverse effect on the Company’s consolidated financial position.

~~Item 1A~~ ~~Risk Factors – Please read “Risk Factors” in the Company’s Annual Report on Form10-K~~ ~~for the fiscal year ended December 31, 2018. There~~
Item 1A
Risk Factors – Please read “Risk Factors” in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2019. Except as noted below, there have been no material changes since this10-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.

As a result of theCOVID-19 pandemic, the Company’s business, financial condition and ~~operating results.~~results of operation have been or may be, negatively impacted by the following:

a decline in the demand for products and services;

an increase in loan delinquencies, problem assets and foreclosures;

a decline in collateral value;

a work stoppage, forced quarantine, or other interruption or the unavailability of key employees has occurred in various areas of the Company and may continue to occur;

an increase in the allowance for loan losses has occurred and may continue to occur.

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 Chairman, President and Chief Executive Officer of the Company Pursuant to Securities Exchange ActRules 13a-14 and15d-14.

	31.2			Certification of Chief Financial Officer of the Company Pursuant to Securities Exchange ActRules 13a-14 and15d-14.

	+32.1			Certification of Chairman, 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 regulationS-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 on10-Q for the quarter ended March 31, ~~2019,~~2020, formatted in XBRL: (i) Consolidated Balance Sheets at March 31, ~~2019~~2020 and December 31, ~~2018;~~2019; (ii) Consolidated Statements of Income for the three months ended March 31, ~~2019~~2020 and ~~2018;~~2019; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, ~~2019~~2020 and ~~2018;~~2019; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, ~~2019~~2020 and ~~2018;~~2019; (v) Consolidated Statements of Cash Flows for the three months ended March 31, ~~2019~~2020 and ~~2018;~~2019; and (vi) Notes to Unaudited Consolidated Interim Financial Statements.

Page 4341 of 4442

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.


		~~/s/ Barry R. Sloane~~
		Barry R. Sloane

Chairman, President and Chief Executive Officer


		/s/ William P. Hornby

William P. Hornby, CPA

Chief Financial Officer and Treasurer

(Principal Accounting Officer)

Page 4442 of 4442


	Three Months Ended 3/31/2019
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	538

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	443


	Operating Leases
(in thousands)
Year Ending December 31,
2019 (excluding the three months ended March 31, 2019)	$	1,632
2020		2,120
2021		1,841
2022		1,709
2023		1,671
Thereafter		8,949

Total lease payments		17,922
Less imputed interest		(3,285	)

Total lease payments	$	14,637

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company