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CNBKA Century Bancorp

Filed: 7 May 21, 9:00am
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021.
or
 
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 Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
(Check one):
 
Large accelerated filer   Accelerated filer 
    
Non-accelerated
filer
   Smaller reporting company 
    
     Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act.  ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    ☐  Yes    ☒  No
As of April 30, 2021, the Registrant had outstanding:
 
Class A Common Stock, $1.00 par value
   3,658,569 Shares 
Class B Common Stock, $1.00 par value
   1,909,340 Shares 
 
 
 

Century Bancorp, Inc.
 

Forward Looking Statements
Except for the historical information contained herein, this quarterly report on Form
10-Q
may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, including, without limitation, (i) the fact that the Company’s business, financial condition and results of operation have been or may be negatively impacted by the extent and duration of the
COVID-19
pandemic, (iii) the fact that consumer behavior may change due to changing political, business and economic conditions, including increased unemployment, or legislative or regulatory initiatives, (iv) the fact that the Company’s success is dependent to a significant extent upon general economic conditions in New England, (v) 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, (vi) failure to obtain the approval of our shareholders in connection with our proposed merger with Eastern Bankshares, Inc. (“Eastern”); (vii) the timing to consummate the proposed merger; (viii) the risk that a condition to closing of the proposed merger may not be satisfied; (ix) the risk that a regulatory approval that may be required for the proposed merger is not obtained or is obtained subject to conditions that are not anticipated; (x) the effect of the announcement of the proposed merger on our ability to maintain relationships with our key partners, customers and employees, and on our operating results and business generally; (xi) the fact that the Bank’s participation in the Paycheck Protection Program involves reputational risks, (xii) 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, (xiii) the fact that our operations are subject to risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics, (xiv) the fact that future credit losses may be higher than currently expected due to changes in economic assumptions and adverse economic developments, and (xvi) the fact that a significant portion of the Company’s loan portfolio is comprised of commercial loans, exposing the Company to the risks inherent in loans based upon analyses of credit risk, the value of underlying collateral, including real estate, and other more intangible factors, which are considered in making commercial loans. Accordingly, the Company’s profitability may be negatively impacted by errors in risk analyses, and by loan defaults, and the ability of certain borrowers to repay such loans may be adversely affected by any downturn in general economic conditions, these factors, as well as general economic and market conditions, may materially and adversely affect the market price of shares of the Company’s common stock. Because of these and other factors, past financial performance should not be considered an indicator of future performance. You should not place undue reliance on our forward-looking statements. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to significant risks, uncertainties and other factors which are, in some cases, beyond the Company’s control. The forward-looking statements contained herein represent the Company’s judgment as of the date of this quarterly report on from
10-Q,
and the Company cautions readers not to place undue reliance on such statements.
 
 
Page 3 of 45

PART I – Item 1
Century Bancorp, Inc.
Consolidated Balance Sheets (unaudited)
(In thousands, except share data)
 
   
March 31,
2021
   December 31,
2020
 
Assets
        
Cash and due from banks
  
$
116,242
 
  $136,735 
Federal funds sold and interest-bearing deposits in other banks
  
 
500,521
 
   237,265 
           
Total cash and cash equivalents
  
 
616,763
 
   374,000 
Securities
available-for-sale,
amortized cost $263,089 and $282,273, respectively
  
 
263,898
 
   282,448 
Securities
held-to-maturity,
fair value $3,222,903 and $2,579,103, respectively
  
 
3,217,176
 
   2,509,088 
Federal Home Loan Bank of Boston, stock at cost
  
 
13,361
 
   13,361 
Equity securities, amortized cost $1,635 and $1,635, respectively
  
 
1,722
 
   1,668 
Loans, net:
          
Construction and land development
  
 
7,854
 
   10,909 
Commercial and industrial
  
 
1,315,295
 
   1,314,245 
Municipal
  
 
137,073
 
   137,607 
Commercial real estate
  
 
796,660
 
   789,836 
Residential real estate
  
 
460,123
 
   448,436 
Consumer and overdrafts
  
 
19,987
 
   20,439 
Home equity
  
 
255,770
 
   274,357 
           
Total loans, net
  
 
2,992,762
 
   2,995,829 
Less: allowance for loan losses
  
 
34,952
 
   35,486 
           
Net loans
  
 
2,957,810
 
   2,960,343 
Bank premises and equipment
  
 
39,750
 
   39,062 
Accrued interest receivable
  
 
13,981
 
   13,283 
Goodwill
  
 
2,714
 
   2,714 
Other assets
  
 
162,149
 
   162,867 
           
Total assets
  
$
7,289,324
 
  $6,358,834 
           
Liabili1ties
        
Deposits:
          
Demand deposits
  
$
1,321,084
 
  $1,103,878 
Savings and NOW deposits
  
 
2,269,617
 
   1,728,092 
Money market accounts
  
 
2,324,557
 
   2,074,108 
Time deposits
  
 
480,784
 
   546,143 
           
Total deposits
  
 
6,396,042
 
   5,452,221 
Securities sold under agreements to repurchase
  
 
228,755
 
   232,090 
Other borrowed funds
  
 
151,769
 
   177,009 
Subordinated debentures
  
 
36,083
 
   36,083 
Due to broker
  
 
1,310
 
   
 
 
Other liabilities
  
 
94,033
 
   91,022 
           
Total liabilities
  
 
6,907,992
 
   5,988,425 
Stockholders’ Equity
        
Preferred Stock – $1.00 par value; 100,000 shares authorized;
0 shares issued and outstanding
  
 
0—  
 
   0—   
Common stock, Class A, $1.00 par value per share; authorized
10,000,000 shares; issued 3,656,469 shares and 3,655,469 shares, respectively
  
 
3,657
 
   3,656 
Common stock, Class B, $1.00 par value per share; authorized
5,000,000 shares; issued 1,911,440 shares and 1,912,440 shares respectively
  
 
1,911
 
   1,912 
Additional
paid-in
capital
  
 
12,292
 
   12,292 
Retained earnings
  
 
388,638
 
   378,699 
           
   
406,498
   396,559 
Unrealized
gains
on securities
available-for-sale,
net of taxes
  
 
594
 
   130 
Unrealized losses on securities transferred to
held-to-maturity,
net of taxes
  
 
(1,107
   (1,221
Pension liability, net of taxes
  
 
(24,653
   (25,059
           
Total accumulated other comprehensive loss, net of taxes
  
 
(25,166
   (26,150
           
Total stockholders’ equity
  
 
381,332
 
   370,409 
           
Total liabilities and stockholders’ equity
  
$
7,289,324
 
  $6,358,834 
           
See accompanying notes to unaudited consolidated interim financial statements.
 
Page 4 of 45

Century Bancorp, Inc.
Consolidated Statements of Income (unaudited)
(In thousands, except share data)
 
   
Three months ended
March 31,
 
   
2021
   2020 
Interest income
          
Loans
  
$
21,605
 
  $22,199 
Securities
held-to-maturity
  
 
13,117
 
   15,293 
Securities
available-for-sale
  
 
630
 
   1,693 
Federal funds sold and interest-bearing deposits in other banks
  
 
179
 
   610 
           
Total interest income
  
 
35,531
 
   39,795 
           
Interest expense
          
Savings and NOW deposits
  
 
1,118
 
   3,725 
Money market accounts
  
 
2,886
 
   5,572 
Time deposits
  
 
1,581
 
   3,172 
Securities sold under agreements to repurchase
  
 
141
 
   626 
Other borrowed funds and subordinated debentures
  
 
1,238
 
   1,499 
           
Total interest expense
  
 
6,964
 
   14,594 
           
Net interest income
  
 
28,567
 
   25,201 
(Credit) provision for loan losses
  
 
(550
   1,075 
           
Net interest income after (credit) provision for loan losses
  
 
29,117
 
   24,126 
Other operating income
          
Service charges on deposit accounts
  
 
2,218
 
   2,296 
Lockbox fees
  
 
996
 
   930 
Other income
  
 
989
 
   1,084 
           
Total other operating income
  
 
4,203
 
   4,310 
           
Operating expenses
          
Salaries and employee benefits
  
 
12,250
 
   11,371 
Occupancy
  
 
1,702
 
   1,515 
Equipment
  
 
949
 
   837 
Other
  
 
5,970
 
   4,450 
           
Total operating expenses
  
 
20,871
 
   18,173 
           
Income before income taxes
  
 
12,449
 
   10,263 
Provision for income taxes
  
 
1,679
 
   597 
           
Net income
  
$
10,770
 
  $9,666 
           
Share data:
          
Weighted average number of shares outstanding, basic
          
Class A
  
 
3,656,469
 
   3,652,349 
Class B
  
 
1,911,440
 
   1,915,560 
Weighted average number of shares outstanding, diluted
          
Class A
  
 
5,567,909
 
   5,567,909 
Class B
  
 
1,911,440
 
   1,915,560 
Basic earnings per share:
          
Class A
  
$
2.34
 
  $2.10 
Class B
  
$
1.17
 
  $1.05 
Diluted earnings per share
          
Class A
  
$
1.93
 
  $1.74 
Class B
  
$
1.17
 
  $1.05 
See accompanying notes to unaudited consolidated interim financial statements.
 
Page 5 of 45

Century Bancorp, Inc.
Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)
 
   
Three months ended
March 31,
 
   
2021
   2020 
Net income
  
$
10,770
 
  $9,666 
Other comprehensive income
,
 net of tax:
          
Unrealized gains (losses) on securities:
          
Unrealized gains (losses) arising during period
  
 
464
 
   (1,531
Less: reclassification adjustment for gains included in net income
  
 
—  
 
   —   
           
Total unrealized gains (losses) on securities
  
 
464
 
   (1,531
Accretion of net unrealized losses transferred
  
 
114
 
   164 
Defined benefit pension plans:
          
Amortization of prior service cost and loss included
in net periodic benefit cost
  
 
406
 
   360 
           
Other comprehensive income (loss)
  
 
984
 
   (1,007
           
Comprehensive income
  
$
11,754
 
  $8,659 
           
See accompanying notes to unaudited consolidated interim financial statements.
 
Page 6 of 45

Century Bancorp, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
For the Three Months Ended March 31, 2021 and 2020
 
   
Class A
Common
Stock
   
Class B
Common
Stock
  
Additional
Paid-In

Capital
   
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Total
Stockholders’
Equity
 
   (In thousands) 
Balance at December 31, 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 gains (losses) arising during period, net of $548 in taxes
   —      —     —      —     (1,531  (1,531
Accretion of unrealized losses on securities transferred to
held-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, $.12 per share
   —      —     —      (438  —     (438
Cash dividends paid, Class B common stock, $.06 per share
   —      —     —      (115  —     (115
                            
Balance at March 31, 2020
  $3,652   $1,916  $12,292   $348,093  $(25,266 $340,687 
                            
Balance at December 31, 2020
  $3,656   $1,912  $12,292   $378,699  $(26,150 $370,409 
Net income
   —      —     —      10,770   —     10,770 
Other comprehensive income, net of tax:
                           
Unrealized holding
gains (losses) 
arising during period, net of $170 in taxes
   —      —     —      —     464   464 
Accretion of unrealized losses on securities transferred to
held-to-maturity,
net of $41 in taxes
   —      —     —      —     114   114 
Pension liability adjustment, net of $159 in taxes
   —      —     —      —     406   406 
Conversion of Class B Common Stock to Class A Common Stock, 1,000 shares
   1    (1  —      —     —     —   
Cash dividends paid, Class A common stock, $0.18 per share
   —      —     —      (658  —     (658
Cash dividends paid, Class B common stock, $0.09 per share
   —      —     —      (173  —     (173
                            
Balance at March 31, 2021
  
$
3,657
 
  
$
1,911
 
 
$
12,292
 
  
$
388,638
 
 
$
(25,166
 
$
381,332
 
                            
See accompanying notes to unaudited consolidated interim financial statements.
 
Page 7 of 45

 
Century Bancorp, Inc.
Consolidated Statements of Cash Flows (unaudited)
 
  
For the Three Months
 
Ended
 
March 31,
 
   
2021
   2020 
CASH FLOWS FROM OPERATING ACTIVITIES:
          
Net income
  
$
10,770
 
  $9,666 
Adjustments to reconcile net income to net cash provided by operating activities:
          
Net (gain) loss on equity securities
  
 
(54
   79 
(Credit) provision for loan losses
  
 
(550
   1,075 
Deferred income taxes
  
 
(1,007
   (114
Net depreciation and amortization (accretion)
  
 
528
 
   (578
(Increase) decrease in accrued interest receivable
  
 
(699
   112 
Decrease in other assets
  
 
898
 
   2,359 
Increase (decrease) in other liabilities
  
 
5,325
 
   (336
           
Net cash provided by operating activities
  
 
15,211
 
   12,263 
           
CASH FLOWS FROM INVESTING ACTIVITIES:
          
Proceeds from redemptions of Federal Home Loan Bank of Boston stock
  
 
—  
 
   6,831 
Purchase of Federal Home Loan Bank of Boston stock
  
 
—  
 
   (4,601
Proceeds from calls/maturities of securities
available-for-sale
  
 
25,993
 
   20,734 
Purchase of securities
available-for-sale
  
 
(6,770
   (39,719
Proceeds from calls/maturities of securities
held-to-maturity
  
 
257,255
 
   123,723 
Purchase of securities
held-to-maturity
  
 
(964,868
   (70,171
Net decrease (increase) in loans
  
 
3,092
 
   (72,621
Bank owned life insurance purchases
  
 
—  
 
   (6,000
Capital expenditures
  
 
(1,565
   (3,084
           
Net cash used in investing activities
  
 
(686,863
   (44,908
           
CASH FLOWS FROM FINANCING ACTIVITIES:
          
Net (decrease) increase in time deposits
  
 
(65,359
   57,402 
Net increase in demand, savings, money market and NOW deposits
  
 
1,009,180
 
   104,999 
Cash dividends
  
 
(831
   (553
Net decrease in securities sold under agreements to repurchase
  
 
(3,335
   (46,050
Net decrease in other borrowed funds
  
 
(25,240
   (58,835
           
Net cash provided by financing activities
  
 
914,415
 
   56,963 
           
Net increase in cash and cash equivalents
  
 
242,763
 
   24,318 
Cash and cash equivalents at beginning of period
  
 
374,000
 
   258,693 
           
Cash and cash equivalents at end of period
  
$
616,763
 
  $283,011 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
          
Cash paid (received) during the period for:
          
Interest
  
$
7,127
 
  $14,711 
Income taxes
  
 
1,075
 
   300 
Change in unrealized gains (losses) on securities
available-for-sale,
net of taxes
  
 
464
 
   (1,531
Change in unrealized losses on securities transferred to
held-to-maturity,
net of taxes
  
 
114
 
   164 
Pension liability adjustment, net of taxes
  
 
406
 
   360 
Change in due to broker
  
 
1,310
 
   5,500 
See accompanying notes to unaudited consolidated interim financial statements.
 
Page 8 of 45

Century Bancorp, Inc.
Notes to Unaudited Consolidated Interim Financial Statements
Three Months Ended March 31, 2021 and 2020
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, New York, Virginia, Washington D.C, and Pennsylvania. As a bank holding company, the Company is subject to the regulation and supervision of the Board of Governors of the Federal Reserve System (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 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 1 reportable operating segment.
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The Company’s Quarterly Report on Form
10-Q
should be read in conjunction with the Company’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission and which provides a summary of the Company’s significant accounting principles. The interim results of consolidated operations are not necessarily indicative of the results for the entire year. Certain reclassifications are made to prior-year amounts whenever necessary to conform with the current-year presentation.
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 a review of factors, including historical
charge-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 the
COVID-19
pandemic that occurred during 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.
 
Page 9 of 45

Note 2. Securities
Available-for-Sale
 
   
March 31, 2021
   December 31, 2020 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
 
   (in thousands) 
SBA Backed Securities
  
$
43,154
 
  
$
0  
 
  
$
299
 
  
$
42,855
 
  $44,328   $0     $289   $44,039 
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities
  
 
165,846
 
  
 
1,097
 
  
 
132
 
  
 
166,811
 
   177,239    819    317    177,741 
Privately Issued Residential Mortgage-Backed Securities
  
 
321
 
  
 
5
 
  
 
0  
 
  
 
326
 
   330    2    4    328 
Obligations Issued by States and Political Subdivisions
  
 
45,668
 
  
 
0  
 
  
 
0  
 
  
 
45,668
 
   52,276    0      0      52,276 
Other Debt Securities
  
 
8,100
 
  
 
178
 
  
 
40
 
  
 
8,238
 
   8,100    24    60    8,064 
                                         
Total
  
$
263,089
 
  
$
1,280
 
  
$
471
 
  
$
263,898
 
  $282,273   $845   $670   $282,448 
                                         
Included in SBA Backed 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 $172,427,000 and $183,269,000 at March 31, 2021 and December 31, 2020, respectively. Also included in securities
available-for-sale
are securities at fair value pledged for borrowing at the Federal Home Loan Bank of Boston (“FHLBB”) amounting to $28,830,000 and $29,885,000 at March 31, 2021 and December 31, 2020, respectively. There were 0 sales of
available-for-sale
securities for the three months ended March 31, 2021 and March 31, 2020, respectively.
Debt securities of 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 securities
available-for-sale
at March 31, 2021.
 
   
Amortized
Cost
   
Fair
Value
 
   
(in thousands)
 
Within one year
  
$
48,041
 
  
$
48,047
 
After one but within five years
  
 
104,714
 
  
 
105,250
 
After five but within ten years
  
 
89,033
 
  
 
89,484
 
More than 10 years
  
 
21,301
 
  
 
21,117
 
           
Total
  
$
263,089
 
  
$
263,898
 
           
The weighted average remaining life of investment securities
available-for-sale
at March 31, 2021 was 5.0 years. 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 $210,125,000 of the securities are floating rate or adjustable rate and reprice prior to maturity.
As of March 31, 2021 and December 31, 2020, 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 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, 2021 or December 31, 2020.
 
Page 10 of 45

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.
The following table shows the temporarily impaired securities of the Company’s
available-for-sale
portfolio at March 31, 2021. 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 3 and 27 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 151 holdings at March 31, 2021.
 
   
March 31, 2021
 
   
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)
 
SBA Backed Securities
  
$
0  
 
  
$
 0  
 
  
$
42,856
 
  
$
299
 
  
$
42,856
 
  
$
299
 
U.S. Government Agency and Sponsored Enterprise
Mortgage-Backed
Securities
  
 
346
 
  
 
5
 
  
 
17,288
 
  
 
127
 
  
 
17,634
 
  
 
132
 
Privately Issued Residential
Mortgage-Backed
Securities
  
 
—  
 
  
 
—  
 
  
 
0  
 
  
 
0  
 
  
 
0  
 
  
 
0  
 
Obligations Issued by States and Political Subdivisions
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Other Debt Securities
  
 
2,461
 
  
 
39
 
  
 
1,299
 
  
 
1
 
  
 
3,760
 
  
 
40
 
                               
Total temporarily impaired securities
  
$
 2,807
 
  
$
 44
 
  
$
 61,443
 
  
$
 427
 
  
$
 64,250
 
  
$
 471
 
                               
The following table shows the temporarily impaired securities of the Company’s
available-for-sale
portfolio at December 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 13 and 21 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 153 holdings at December 31, 2020.
 
   December 31, 2020 
   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) 
SBA Backed Securities
  $13,839   $42   $30,200   $247   $44,039   $289 
U.S. Government Agency and Sponsored Enterprise
Mortgage-Backed
Securities
   18,188    50    33,617    267    51,805    317 
Privately Issued Residential Mortgage-Backed Securities
   —      —      210    4    210    4 
Obligations Issued by States and Political Subdivisions
   —      —      —      —      —      —   
Other Debt Securities
   3,942    58    1,298    2    5,240    60 
                               
Total temporarily impaired securities
  $ 35,969   $ 150   $ 65,325   $ 520   $ 101,294   $ 670 
                               
 
Page 11 of 45

Note 3. Investment Securities
Held-to-Maturity
 
   
March 31, 2021
   December 31, 2020 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair Value
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   
Estimated
Fair
 
Value
 
   (in thousands) 
U.S. Government Sponsored Enterprises
  
$
381,077
 
  
$
218
 
  
$
9,017
 
  
$
372,278
 
  $244,220   $389   $866   $243,743 
SBA Backed Securities
  
 
36,330
 
  
 
1,142
 
  
 
0  
 
  
 
37,472
 
   37,783    2,002    —      39,785 
U.S. Government Sponsored Enterprises
Mortgage- Backed 
Securities
  
 
2,799,769
 
  
 
45,772
 
  
 
32,388
 
  
 
2,813,153
 
   2,227,085    69,522    1,032    2,295,575 
                                         
Total
  
$
 3,217,176
 
  
$
 47,132
 
  
$
 41,405
 
  
$
 3,222,903
 
  $ 2,509,088   $ 71,913   $ 1,898   $ 2,579,103 
                                         
Included in total investment securities
held-to-maturity
are securities pledged to secure public deposits and repurchase agreements at fair value amounting to $2,038,453,000 and $1,866,989,000 at March 31, 2021 and December 31, 2020, respectively. Also included are securities pledged for borrowing at the FHLBB at fair value amounting to $484,029,000 and $537,367,000 at March 31, 2021 and December 31, 2020, respectively. There were 0 sales of
held-to-maturity
securities for the three months ended March 31, 2021 or March 31, 2020, respectively.
At March 31, 2021 and December 31, 2020, all mortgage-backed securities are obligations of U.S. Government Sponsored Enterprises. Debt securities of U.S. Government Sponsored Enterprises and U.S. Government Sponsored Enterprises 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 securities
held-to-maturity
at March 31, 2021.
 
   
Amortized
Cost
   
Fair
Value
 
   
(in thousands)
 
Within one year
  
$
84,709
 
  
$
85,698
 
After one but within five years
  
 
1,707,454
 
  
 
1,738,266
 
After five but within ten years
  
 
1,425,013
 
  
 
1,398,939
 
More than ten years
  
 
0  
 
  
 
0  
 
           
Total
  
$
 3,217,176
 
  
$
 3,222,903
 
           
The weighted average remaining life of investment securities
held-to-maturity
at March 31, 2021 was 3.6 years. Included in the weighted average remaining life calculation at March 31, 2021 were $320,611,000 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 $81,000 of the securities are floating rate or adjustable rate and reprice prior to maturity.
As of March 31, 2021 and December 31, 2020, 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.
 
Page 12 of 45

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, 2021 or December 31, 2020. 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.
The following table shows the temporarily impaired securities of the Company’s
held-to-maturity
portfolio March 31, 2021. 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 156 and 0 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 655 holdings at March 31, 2021.
 
   
March 31, 2021
 
   
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)
 
US Government Sponsored Enterprises
  
$
346,560
 
  
$
9,017
 
  
$
 0  
 
  
$
0  
 
  
$
346,560
 
  
$
9,017
 
SBA Backed Securities
  
 
0  
 
  
 
0  
 
  
 
0  
 
  
 
0  
 
  
 
0  
 
  
 
0  
 
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities
  
 
1,332,059
 
  
 
32,388
 
  
 
0  
 
  
 
0  
 
  
 
1,332,059
 
  
 
32,388
 
                               
Total temporarily impaired securities
  
$
 1,678,619
 
  
$
 41,405
 
  
$
 0  
 
  
$
 0  
 
  
$
 1,678,619
 
  
$
 41,405
 
                               
The following table shows the temporarily impaired securities of the Company’s
held-to-maturity
portfolio at December 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 53 and 0 securities that are temporarily impaired for less than 12 months and for 12 months or longer, respectively, out of a total of 600 holdings at December 31, 2020.
 
   December 31, 2020 
   Less Than 12 Months   12 Months or Longer   Total 
Temporarily Impaired Investments  Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
 
   (in thousands) 
U.S. Government Sponsored Enterprises
  $ 162,870   $866   $0     $ 0     $162,870   $866 
SBA Backed Securities
   0      0      0      0      0      0   
U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities
   302,401    1,032    0      0      302,401    1,032 
                               
Total temporarily impaired securities
  $    465,271   $   1,898   $ 0     $0     $    465,271   $   1,898 
                               
 
Page 13 of 45

Note 4. Allowance for Loan Losses
The Company maintains an allowance for loan losses in an amount determined by management on the basis of the character of the loans, loan performance, financial condition of borrowers, the value of collateral securing loans and other relevant factors.
The following table summarizes the changes in the Company’s allowance for loan losses for the periods indicated.
 
   Three months ended
March 31,
 
   
2021
   2020 
   (in thousands) 
Allowance for loan losses, beginning of period
  
$
 35,486
 
  $ 29,585 
Loans charged off
  
 
(67
   (62
Recoveries on loans previously
charged-off
  
 
83
 
   206 
           
Net recoveries (charge-offs)
  
 
16
 
   144 
(Credit) provision charged to expense
  
 
(550
   1,075 
           
Allowance for loan losses, end of period
  
$
34,952
 
  $30,804 
           
Further information pertaining to the allowance for loan losses for the three months ending March 31, 2021 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, 2020
 
$
429
 
 
$
16,713
 
 
$
2,804
 
 
$
11,751
 
 
$
2,111
 
 
$
241
 
 
$
1,208
 
 
$
229
 
 
$
35,486
 
Charge-offs
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
(67
 
 
—  
 
 
 
—  
 
 
 
(67
Recoveries
 
 
—  
 
 
 
3
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
80
 
 
 
—  
 
 
 
—  
 
 
 
83
 
(Credit) provision
 
 
(136
 
 
(246
 
 
33
 
 
 
(96
 
 
(44
 
 
(60
 
 
(159
 
 
158
 
 
 
(550
                                     
Ending balance at
 
March 31, 2021
 
$
293
 
 
$
16,470
 
 
$
2,837
 
 
$
11,655
 
 
$
2,067
 
 
$
194
 
 
$
1,049
 
 
$
387
 
 
$
34,952
 
                                     
Amount of allowance for loan losses
for loans deemed to be impaired
 
$
—  
 
 
$
125
 
 
$
—  
 
 
$
74
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
199
 
                                     
Amount of allowance for loan losses
for loans not deemed to be impaired
 
$
293
 
 
$
16,345
 
 
$
2,837
 
 
$
11,581
 
 
$
2,067
 
 
$
194
 
 
$
1,049
 
 
$
 387
 
 
$
34,753
 
                                     
Loans:
                                    
Ending balance
 
$
 7,854
 
 
$
 1,315,295
 
 
$
 137,073
 
 
$
 796,660
 
 
$
 460,123
 
 
$
 19,987
 
 
$
 255,770
 
 
$
—  
 
 
$
 2,992,762
 
                                     
Loans deemed to be impaired
 
$
—  
 
 
$
357
 
 
$
—  
 
 
$
2,300
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
—  
 
 
$
2,657
 
                                     
Loans not deemed to be impaired
 
$
7,854
 
 
$
1,314,938
 
 
$
137,073
 
 
$
794,360
 
 
$
460,123
 
 
$
19,987
 
 
$
255,770
 
 
$
—  
 
 
$
2,990,105
 
                                     
 
Page 14 of 45

Further information pertaining to the allowance for loan losses for the three months ending March 31, 2020 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, 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 
                                     
There was a credit to the provision for losses of $550,000 for the quarter ended March 31, 2021, compared to a provision of $1,075,000 for the quarter ended March 31, 2020. The credit provision for the first quarter of 2021 was primarily attributable to a decline in loan balances exclusive of U.S. Small Business Administration (“SBA”) Payroll Protection Program (“PPP”) loans and a reduction in specific allocations to the allowance for loan losses. As of March 31, 2021, PPP loans totaled approximately 1,117 loans for approximately $213,000,000. These types of loans are categorized as commercial and industrial and are 100% guaranteed by the SBA and require 0 allowance for loan losses. The provision for the first quarter of 2020 was primarily the result of provisions related to the onset of the
COVID-19
pandemic
The Company utilizes a six grade internal loan rating system for commercial real estate, construction, commercial, and municipal loans as follows:
Loans rated
1-3
(Pass):
Loans in this category are considered “pass” rated loans with low to average risk.
Loans rated 4 (Monitor):
These loans represent classified loans that management is closely monitoring for credit quality. These loans have had or may have minor credit quality deterioration as of March 31, 2021 and December 31, 2020.
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, 2021 and December 31, 2020.
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, 2021 and December 31, 2020 and full 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.
 
Page 15 of 45

The following table presents the Company’s loans by risk rating at March 31, 2021.
 
   
Construction and
Land Development
   
Commercial
and Industrial
   
Municipal
   
Commercial
Real Estate
 
Grade:
  
(in thousands)
 
1-3
(Pass)
  
$
 7,854
 
  
$
 1,310,993
 
  
$
 137,073
 
  
$
 770,872
 
4 (Monitor)
  
 
—  
 
  
 
3,945
 
  
 
—  
 
  
 
23,488
 
5 (Substandard)
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
6 (Doubtful)
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Impaired
  
 
—  
 
  
 
357
 
  
 
—  
 
  
 
2,300
 
                     
Total
  
$
7,854
 
  
$
1,315,295
 
  
$
137,073
 
  
$
796,660
 
                     
The following table presents the Company’s loans by risk rating at December 31, 2020.
 
   Construction and
Land Development
   Commercial
and Industrial
   Municipal   Commercial
Real Estate
 
Grade:  (in thousands) 
1-3
(Pass)
  $ 10,909   $ 1,309,861   $ 137,607   $ 761,101 
4 (Monitor)
   —      3,945    —      23,795 
5 (Substandard)
   —      —      —      —   
6 (Doubtful)
   —      —      —      —   
Impaired
   —      439    —      4,940 
                     
Total
  $ 10,909   $1,314,245   $137,607   $789,836 
                     
Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at March 31, 2021 and are included within the total loan portfolio.
 
   
Commercial
and Industrial
   
Municipal
   
Commercial
Real Estate
   
Total
 
   
(in thousands)
 
Credit Rating:
                    
Aaa – Aa3
  
$
705,387
 
  
$
73,758
 
  
$
36,519
 
  
$
815,664
 
A1 – A3
  
 
182,559
 
  
 
7,103
 
  
 
145,096
 
  
 
334,758
 
Baa1 – Baa3
  
 
50,000
 
  
 
51,132
 
  
 
146,930
 
  
 
248,062
 
Ba2
  
 
—  
 
  
 
5,080
 
  
 
—  
 
  
 
5,080
 
                     
Total
  
$
 937,946
 
  
$
 137,073
 
  
$
 328,545
 
  
$
 1,403,564
 
                     
Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at December 31, 2020.
 
   Commercial
and Industrial
   Municipal   Commercial
Real Estate
   Total 
   (in thousands) 
Credit Rating:
     
Aaa – Aa3
  $710,955   $74,291   $38,035   $823,281 
A1 – A3
   183,123    7,103    145,583    335,809 
Baa1 – Baa3
   50,000    51,133    140,905    242,038 
Ba2
   —      5,080    —      5,080 
                     
Total
  $ 944,078   $ 137,607   $ 324,523   $ 1,406,208 
                     
 
Page 16 of 45

The Company utilized payment performance as credit quality indicators for the loan types listed below.
Further information pertaining to the allowance for loan losses at March 31, 2021 follows:
 
   
Accruing
30-89 Days

Past Due
   
Non
Accrual
   
Accruing
Greater than
90 Days
   
Total
Past Due
   
Current
Loans
   
Total
 
   
(in thousands)
 
Construction and land development
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
7,854
 
  
$
7,854
 
Commercial and industrial
  
 
0  
 
  
 
297
 
  
 
0  
 
  
 
297
 
  
 
1,314,998
 
  
 
1,315,295
 
Municipal
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
137,073
 
  
 
137,073
 
Commercial real estate
  
 
—  
 
  
 
261
 
  
 
—  
 
  
 
261
 
  
 
796,399
 
  
 
796,660
 
Residential real estate
  
 
1,373
 
  
 
188
 
  
 
—  
 
  
 
1,561
 
  
 
458,562
 
  
 
460,123
 
Consumer and overdrafts
  
 
12
 
  
 
7
 
  
 
—  
 
  
 
19
 
  
 
19,968
 
  
 
19,987
 
Home equity
  
 
1,325
 
  
 
189
 
  
 
—  
��
  
 
1,514
 
  
 
254,256
 
  
 
255,770
 
                               
Total
  
$
 2,710
 
  
$
 942
 
  
$
 0  
 
  
$
 3,652
 
  
$
2,989,110
 
  
$
2,992,762
 
                               
Further information pertaining to the allowance for loan losses at December 31, 2020 follows:
 
   Accruing
30-89 Days

Past Due
   Non
Accrual
   Accruing
Greater than
90 Days
   Total
Past Due
   Current
Loans
   Total 
   (in thousands) 
Construction and land development
  $—     $—     $—     $—     $10,909   $10,909 
Commercial and industrial
   56    297    90    443    1,313,802    1,314,245 
Municipal
   —      —      —      —      137,607    137,607 
Commercial real estate
   —      2,881    —      2,881    786,955    789,836 
Residential real estate
   390    527    —      917    447,519    448,436 
Consumer and overdrafts
   21    1    —      22    20,417    20,439 
Home equity
   1,001    290    —      1,291    273,066    274,357 
                               
Total
  $ 1,468   $ 3,996   $ 90   $ 5,554   $ 2,990,275   $ 2,995,829 
                               
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 are
charged-off
when management believes that the collectability of the loan’s principal is not probable. The specific factors that management considers in making the determination that the collectability of the loan’s principal is not probable include: the delinquency status of the loan, the fair value of the collateral, if secured, and the financial strength of the borrower and/or guarantors. For collateral dependent loans, the amount of the recorded investment in a loan that exceeds the fair value of the collateral is
charged-off
against the allowance for loan losses in lieu of an allocation of a specific allowance amount when such an amount has been identified definitively as uncollectible. The Company’s policy for recognizing interest income on impaired loans is contained within Note 1 of the consolidated financial statements contained in the Company’s Annual Report for the fiscal year ended December 31, 2020.
 
Page 17 of 45

The following is information pertaining to impaired loans for March 31, 2021:
 
   
Carrying
Value
   
Unpaid
Principal
Balance
   
Required
Reserve
   
Average
Carrying
 Value
for 3
 Months
Ending 3/31/21
   
Interest
 Income
Recognized
for 3 
Months
Ending 3/31/21
 
   
(in thousands)
 
With no required reserve recorded:
                         
Construction and land development
  
$
—  
 
  
$
—  
 
  
$
0  
 
  
$
—  
 
  
$
 —  
 
Commercial and industrial
  
 
4
 
  
 
5
 
  
 
0  
 
  
 
7
 
  
 
0  
 
Municipal
  
 
—  
 
  
 
—  
 
  
 
0  
 
  
 
—  
 
  
 
—  
 
Commercial real estate
  
 
261
 
  
 
296
 
  
 
0  
 
  
 
267
 
  
 
—  
 
Residential real estate
  
 
—  
 
  
 
—  
 
  
 
0  
 
  
 
0  
 
  
 
—  
 
Consumer
  
 
—  
 
  
 
—  
 
  
 
0  
 
  
 
—  
 
  
 
—  
 
Home equity
  
 
—  
 
  
 
—  
 
  
 
0  
 
  
 
—  
 
  
 
—  
 
                          
Total
  
$
265
 
  
$
301
 
  
$
0  
 
  
$
274
 
  
$
0  
 
                          
With required reserve recorded:
     
Construction and land development
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
Commercial and industrial
  
 
353
 
  
 
373
 
  
 
125
 
  
 
374
 
  
 
1
 
Municipal
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Commercial real estate
  
 
2,039
 
  
 
2,169
 
  
 
74
 
  
 
3,354
 
  
 
20
 
Residential real estate
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Consumer
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Home equity
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
                          
Total
  
$
 2,392
 
  
$
 2,542
 
  
$
 199
 
  
$
 3,728
 
  
$
 21
 
                          
Total:
                         
Construction and land development
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
  
$
—  
 
Commercial and industrial
  
 
357
 
  
 
378
 
  
 
125
 
  
 
381
 
  
 
1
 
Municipal
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Commercial real estate
  
 
2,300
 
  
 
2,465
 
  
 
74
 
  
 
3,621
 
  
 
20
 
Residential real estate
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
0  
 
  
 
—  
 
Consumer
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
Home equity
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
                          
Total
  
$
2,657
 
  
$
2,843
 
  
$
199
 
  
$
4,002
 
  
$
21
 
                          
 
Page 18 of 45

The following is information pertaining to impaired loans for March 31, 2020:
 
   Carrying
Value
   Unpaid
Principal
Balance
   Required
Reserve
   
Average
Carrying 
Value
for 3 
Months
Ending
3/31/20
   
Interest
 Income
Recognized
for 3
 Months
Ending
3/31/20
 
   (in thousands) 
With no required reserve recorded:
     
Construction and land development
  $—     $—     $ 0     $—     $ —   
Commercial and industrial
   623    641    0      582    1 
Municipal
   —      —      0      —      —   
Commercial real estate
   155    185    0      157    —   
Residential real estate
   —      —      0      —      —   
Consumer
   —      —      0      —      —   
Home equity
   —      —      0      —      —   
                          
Total
  $778   $826   $0     $739   $1 
                          
With required reserve recorded:
     
Construction and land development
  $—     $—     $—     $—     $—   
Commercial and industrial
   0      0      0      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    0      695    2 
Municipal
   —      —      —      —      —   
Commercial real estate
   2,322    2,475    85    2,333    22 
Residential real estate
   —      —      —      0      0   
Consumer
   —      —      —      —      —   
Home equity
   —      —      —      —      —   
                          
Total
  $2,945   $3,116   $ 85   $ 3,028   $ 24 
                          
Troubled debt restructurings (“TDR”) are identified as 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 modifications did not result in an increase in the allowance for these loans beyond any previously established allocations.
There was no TDR made during the three-month period ended March 31, 2021. Also, there were no commitments to lend additional funds to TDR borrowers. There were no TDRs that subsequently defaulted during the first three months of 2021.
Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for
COVID-19
modifications. The Company can then suspend the requirements under GAAP for loan modifications related to
COVID-19
that would otherwise be categorized as a TDR and suspend any determination of a loan modified as a result of
COVID-19
as being a TDR, including the requirement to determine impairment for accounting purposes.
 
Page 19 of 45

As of March 31, 2021, and as a result of
COVID-19
loan modifications, the Company had modifications of 8 loans aggregating $36,152,000, primarily consisting of short-term payment deferrals. Of these modifications, $36,152,000, or 100%, were performing in accordance with their modified terms.
There was no TDR made during the three-month period ended March 31, 2020. Also, there were no commitments to lend additional funds to TDR borrowers. There were no TDRs that subsequently defaulted during the first three months of 2020.
Note 5. Reclassifications Out of Accumulated Other Comprehensive Income
(a)
Amount Reclassified from Accumulated Other Comprehensive Income
 
Details about Accumulated Other
Comprehensive Income
Components
  
Three
Months Ended
March 31, 2021
  Three
Months Ended
March 31, 2020
  
Affected Line Item in the Statement
where Net Income is Presented
   (in thousands) 
Accretion of unrealized losses transferred
  $(155 $(222 
Interest on securities
held-to-maturity
    41   58  Provision for income taxes
            
   
$
(114
 $(164 Net income
            
Amortization of defined benefit pension items
           
Prior-service costs
  $(54
)
(b)
 $(29)(b) Salaries and employee benefits
Actuarial gains (losses)
   (511
)
(b)
  (472)(b) Salaries and employee benefits
            
Total before tax
  
 
(565
  (501 Income before taxes
            
Tax (expense) or benefit
  
 
159
 
  141  Provision for income taxes
            
Net of tax
  
$
(406
 $(360 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).
Note 6. Earnings per Share (“EPS”)
Class A and Class B shares participate equally in undistributed earnings. Under the Company’s Articles of Organization, the holders of Class A Common Stock are entitled to receive dividends per share equal to at least 200% of dividends paid, if any, from time to time, on each share of Class B Common Stock.
Diluted EPS includes the dilutive effect of common stock equivalents 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, 2021 and 2020.
 
Page 20 of 45

The following table is a reconciliation of basic EPS and diluted EPS.
 
   Three Months Ended
March 31,
 
(in thousands except share and per share data)  
2021
   2020 
Basic EPS Computation:
          
Numerator:
          
Net income, Class A
  
$
8,538
 
  $7,658 
Net income, Class B
  
 
2,232
 
   2,008 
Denominator:
          
Weighted average shares outstanding, Class A
  
 
3,656,469
 
   3,652,349 
Weighted average shares outstanding, Class B
  
 
1,911,440
 
   1,915,560 
Basic EPS, Class A
  
$
2.34
 
  $2.10 
Basic EPS, Class B
  
 
1.17
 
   1.05 
           
Diluted EPS Computation:
          
Numerator:
          
Net income, Class A
  
$
8,538
 
  $7,658 
Net income, Class B
  
 
2,232
 
   2,008 
           
Total net income, for diluted EPS, Class A computation
  
 
10,770
 
   9,666 
Denominator:
          
Weighted average shares outstanding, basic, Class A
  
 
3,656,469
 
   3,652,349 
Weighted average shares outstanding, Class B
  
 
1,911,440
 
   1,915,560 
           
Weighted average shares outstanding diluted, Class A
  
 
5,567,909
 
   5,567,909 
Weighted average shares outstanding, Class B
  
 
1,911,440
 
   1,915,560 
Diluted EPS, Class A
  
$
1.93
 
  $1.74 
Diluted EPS, Class B
  
 
1.17
 
   1.05 
           
Note 7. Employee Benefits
The Company provides pension benefits to its employees under a noncontributory, defined benefit plan which is funded on a current basis in compliance with the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) and recognizes costs over the estimated employee service period.
The Company also has the Century Bancorp, Inc. Supplemental Executive Retirement and Insurance 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 21 of 45

Components of Net Periodic Benefit Cost for the Three Months Ended March 31,
 
   Pension Benefits   Supplemental Insurance/
Retirement Plan
 
   
2021
   2020   
2021
   2020 
   (in thousands) 
Service cos
t
  
$
379  
 
  $344   
$
363
 
  $353 
Interest
  
 
434  
 
   450   
 
434
 
   466 
Expected return on plan assets
  
 
(1,062
)   (952  
 
—  
 
   —   
Recognized prior service cost (benefit)
  
 
—  
 
  
 
—  
 
  
 
54
 
   29 
Recognized net actuarial losses
  
 
241  
 
   261   
 
269
 
   211 
                     
Net periodic benefit (credit) cost
  
$
(8
)  $103   
$
1,120
 
  $1,059 
                     
Approximately $371,000 and $465,000 of costs other than service costs, from the table above, are included in other expenses with the remaining cost included in salaries and employee benefits, for the three months ended March 31, 2021 and 2020, respectively.
Contributions
The Company has contributed $1,302,000 to the Defined Benefit Pension Plan in 2021.
Note 8. Fair Value Measurements
The Company follows FASB ASC
820-10,
Fair Value Measurements and Disclosures and ASU
2016-1,
“Financial Instruments-Overall”
(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. ASC
820-10
establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value. The three broad levels of the hierarchy are as follows:
Level I – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The type of financial instruments included in Level I are highly liquid cash instruments with quoted prices such as
G-7
government, agency securities, listed equities and money market securities, as well as listed derivative instruments.
Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Instruments which are generally included in this category are corporate bonds and loans, mortgage whole loans, municipal bonds, and OTC derivatives.
Level III – Instruments that have little to no pricing observability as of the reported date. These financial instruments do not have
two-way
markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. Instruments that are included in this category generally include 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.
 
Page 22 of 45

The results of the fair value hierarchy as of March 31, 2021, are as follows:
 
   
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)
 
SBA Backed Securities
  
$
42,855
 
  
$
—  
 
  
$
42,855
 
  
$
—  
 
U.S. Government Agency and Sponsored Mortgage-Backed Securities
  
 
166,811
 
  
 
—  
 
  
 
166,811
 
  
 
—  
 
Privately Issued Residential
Mortgage- Backed 
Securities
  
 
326
 
  
 
—  
 
  
 
326
 
  
 
—  
 
Obligations Issued by States and Political Subdivisions
  
 
45,668
 
  
 
—  
 
  
 
—  
 
  
 
45,668
 
Other Debt Securities
  
 
8,238
 
  
 
—  
 
  
 
8,238
 
  
 
—  
 
                     
Total
  
$
263,898
 
  
$
—  
 
  
$
218,230
 
  
$
45,668
 
                     
Equity Securities
  
$
1,722
 
  
$
376
 
  
$
1,346
 
  
$
—  
 
Financial Instruments Measured at Fair Value on a Non-recurring Basis
                    
Impaired Loans
  
$
558
 
  
$
—  
 
  
$
—  
 
  
$
558
 
The results of the fair value hierarchy as of December 31, 2020, are as follows:
   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) 
Financial Instruments Measured at Fair Value on a Recurring Basis
     
SBA Backed Securities
  $44,039   $—     $44,039   $—   
U.S. Government Agency and Sponsored Mortgage-Backed Securities
   177,741    —      177,741    —   
Privately Issued Residential
Mortgage- 
Backed Securities
   328    —      328    —   
Obligations Issued by States and Political Subdivisions
   52,276    —      —      52,276 
Other Debt Securities
   8,064    —      8,064    —   
                     
Total
  $282,448   $—     $230,172   $52,276 
                     
Equity Securities
  $1,668   $303   $1,365   $—   
Financial Instruments Measured at Fair Value on a Non-recurring Basis
                    
Impaired Loans
  $3,178   $—     $—     $3,178 
 
Page 23 of 45

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. All impaired loans have been reviewed during the past quarter using either a discounted cash flow analysis, appraisal of collateral or other type of real estate tax assessment. The types of adjustments that are made to specific provisions (credits) related to impaired loans recognized for the three-month period ended March 31, 2021 amounted to ($375,000) and amounted to $501,000 for the year ended December 31, 2020.
There were 0 transfers between level 1, 2 and 3 for the three months ended March 31, 2021 and the year ended December 31, 2020. There were 0 liabilities measured at fair value on a recurring or nonrecurring basis during the three months ended March 31, 2021 and the year ended December 31, 2021.
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) at March 31, 2021. Management continues to monitor the assumptions used to value the assets listed below.
 
Asset
   
Fair Value
   
Valuation Technique
  
Unobservable Input
  
Unobservable Input
Value or Range
Securities AFS (1)
  
$
45,668
   
Discounted cash flow
  
Discount rate
  
0% - 1.0% (2)
Impaired Loans
  
$
558
   
Appraisal of collateral (3)
  
Appraisal adjustments (4)
  
0%—22% discount
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) at December 31, 2020. Management continues to monitor the assumptions used to value the assets listed below.
 
Asset
   
Fair Value
   
Valuation Technique
  
Unobservable Input
  
    Unobservable Input    
Value or Range
Securities AFS (1)  
$
52,276   Discounted cash flow  Discount rate  0% - 1.0% (2)
Impaired Loans  
$
3,178   Appraisal of collateral (3)  Appraisal adjustments (4)  0%-17% discount
 
(1) 
Municipal securities generally have maturities of one year or less and, therefore, the amortized cost equates to the fair value.
(2) 
Weighted averages.
(3) 
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.
(4) 
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated expenses.
 
Page 24 of 45

The changes in Level 3 securities for the three-month period ended March 31, 2021 are shown in the table below:
 
   
Obligations 
Issued by States 
&
 
Political Subdivisions
 
Balance at December 31, 2020
  
$
52,276
 
Purchases
  
 
6,770
 
Maturities and calls
  
 
(13,353
Amortization
  
 
(25
      
Balance at March 31, 2021
  
$
45,668
 
      
The amortized cost of Level 3 securities was $45,668,000 at March 31, 2021 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 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
   0   
Changes in fair value
   —   
      
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 $2,624,000, for the first three months of 2021, mainly attributable to one loan that was paid down. The fair value of impaired loans decreased by $269,000, for the first three months of 2020, mainly attributable to one loan that was paid down. There were 0 liabilities measured at fair value on a recurring or nonrecurring basis during the three-month period ended March 31, 2020.
 
Page 25 of 45

Note 9. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating fair values of its financial instruments. Excluded from this disclosure are all
non-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.
Securities
Held-to-Maturity
The fair values of these securities were based on quoted market prices, where available, as provided by third-party investment portfolio pricing vendors. If quoted market prices were not available, fair values provided by the vendors were based on quoted market prices of comparable instruments in active markets and/or based on a matrix pricing methodology which employs The Bond Market Association’s standard calculations for cash flow and price/yield analysis, live benchmark bond pricing and terms/condition data available from major pricing sources. Management regards the inputs and methods used by third party pricing vendors to be “Level 2 inputs and methods” as defined in the “fair value hierarchy” provided by FASB.
Loans
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 certain
non-performing
assets, fair value of the underlying collateral is determined based on the estimated values of individual 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 26 of 45

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, 2021 and December 31, 2020. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which the fair value approximates carrying value include cash and cash equivalents, short-term investments, FHLBB stock and accrued interest receivable. Financial liabilities for which the fair value approximates carrying value include
non-maturity
deposits, short-term borrowings and accrued interest payable.
 
March 31, 2021
  
Carrying
Amount
   
Estimated
Fair Value
   
Fair Value
Measurements
Level 1 Inputs
   
Level 2
Inputs
   
Level 3
Inputs
 
   
(in thousands)
 
Financial assets:
                         
Securities
held-to-maturity
  
$
3,217,176
 
  
$
3,222,903
 
  
$
—  
 
  
$
3,222,903
 
  
$
—  
 
Loans (1)
  
 
2,957,810
 
  
 
2,877,220
 
  
 
—  
 
  
 
—  
 
  
 
2,877,220
 
Financial liabilities:
                         
Time deposits
  
 
480,784
 
  
 
479,087
 
  
 
—  
 
  
 
479,087
 
  
 
—  
 
Other borrowed funds
  
 
151,769
 
  
 
155,001
 
  
 
—  
 
  
 
155,001
 
  
 
—  
 
Subordinated debentures
  
 
36,083
 
  
 
36,083
 
  
 
—  
 
  
 
36,083
 
  
 
—  
 
      
December 31, 2020
                    
Financial assets:
                         
Securities held-to-maturity
  $2,509,088   $2,579,103   $—     $2,579,103   $—   
Loans (1)
   2,960,343    2,902,390    —      —      2,902,390 
Financial liabilities:
                         
Time deposits
   546,143    556,470    —      556,470    —   
Other borrowed funds
   177,009    183,000    —      183,000    —   
Subordinated debentures
   36,083    36,083    —      36,083    —   
 
(1)
Comprised of loans (including collateral dependent impaired loans), net of deferred loan costs and the allowance for loanlosses.
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.
Note 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 27 of 45

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.
Nature of goods and services
The vast majority of the Company’s revenue is specifically
out-of-scope
of Topic 606. For the revenue
in-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.
 
 a.
Revenue earned at a point in time – Examples of revenue earned at a point in time are ATM transaction fees, wire transfer fees,
“non-sufficient
funds” 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.
 
 b.
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.
 
 
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
3/31/2021
   
Revenue from
Contracts in Scope
of Topic 606
   Three Months
Ended
3/31/2020
   Revenue from
Contracts in Scope
of Topic 606
 
   (dollars in thousands) 
Total net interest income
  
$
28,567
 
  
$
—  
 
  $25,201   $—   
                     
Noninterest income:
                    
Service charges on deposit accounts
  
 
2,218
 
  
 
2,218
 
   2,296    2,296 
Lockbox fees
  
 
996
 
  
 
996
 
   930    930 
Other income
  
 
989
 
  
 
695
 
   1,084    599 
                     
Total noninterest income
  
 
4,203
 
  
 
3,909
 
   4,310    3,825 
                     
Total net revenues
  
$
32,770
 
  
$
3,909
 
  $29,511   $3,825 
                     
 
Page 28 of 45

The following table provides information about receivables with customers.
 
(dollars in thousands)  
March 31, 2021
   December 31, 2020 
Receivables, which are included in “Other assets”
  
$
1,393
 
  $1,397 
Note 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 31 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 2022 with an option to terminate and no option to extend. Lease income, for the sublease, totaled approximately $10,000 for the three months ended March 31, 2021. Variable lease costs include costs that are not included in the lease liability.
The components of lease expense were as follows:
 
(in thousands)
  
Three Months
Ended
3/31/2021
   Three Months
Ended
3/31/2020
 
Operating lease cost
  
$
560
 
  $546 
           
Variable lease cost
  
 
153
 
   133 
           
Total lease cost
  
$
713
 
  $679 
           
Supplemental cash flow information related to leases was as follows:
 
(in thousands)  
(in
thousands) 
Three
Months
Ended
3/31/2021
   Three Months
Ended
3/31/2020
 
Cash paid for amounts included in the measurement of lease liabilities:
          
Operating cash flows from operating leases
  
$
541
 
  $529 
           
Right-of-use
assets obtained in exchange for new lease obligations:
          
Operating leases
  
$
0  
 
  $0   
           
Supplemental balance sheet information related to leases was as follows:
 
   
3/31/2021
  12/31/2020 
(in thousands, except lease term and discount rate)       
Operating Leases:
         
Operating lease
right-of-use
assets
  
$
13,262
 
 $13,713 
Operating lease liabilities
  
$
13,496
 
 $13,935 
Weighted Average Remaining Lease Term:
         
Operating Leases
  
 
10 Years
 
  10 Years 
Weighted Average Discount Rate:
         
Operating Leases
  
 
3.1
  3.1
 
Page 29 of 45

The Company has payment obligations under a number of
non-cancelable
operating leases for premises and equipment expiring in various years through 2030. Total lease expense approximated $713,000 and $679,000 for the quarters ended March 31, 2021 and 2020, respectively. Included in lease expense are amounts paid to a company affiliated with Barry R. Sloane, Chairman, President and CEO, and Linda Sloane Kay, Vice Chair, amounting to $111,000 and $109,000, respectively. Rental income approximated $165,000 and $168,000 in 2021 and 2020, respectively.
A summary of future minimum rental payments under such leases as the dates indicated follows:
 
   Minimum Rental Payments 
   
March 31, 2021
   December 31, 2020 
Year Ending December 31,  (in thousands) 
2021  
$
1,612
 
  $2,156 
2022
  
 
1,995
 
   1,995 
2023
  
 
1,962
 
   1,962 
2024
  
 
1,692
 
   1,692 
2025
  
 
1,471
 
   1,471 
Thereafter
  
 
7,394
 
   7,394 
           
Total lease payments
  
$
16,126
 
  $16,670 
           
Less imputed interest
  
 
(2,630
   (2,735
           
Present value of lease liability
  
$
13,496
 
  $13,935 
           
March 31, 2021 minimum rental payments represent nine months of rental payments remaining in calendar year 2021.
Note 12. Subsequent Events
Proposed Transaction with Eastern Bankshares, Inc.
On April 7, 2021, the Company and Eastern Bankshares, Inc. (“Eastern” ) (NASDAQ: EBC) entered into an Agreement and Plan of Merger pursuant to which, through a series of transactions, Eastern will acquire the Company in a cash transaction for total consideration valued at approximately $642 million. Under the terms of the Agreement and Plan of Merger, (i) each holder of Class A common stock will receive a cash payment of $115.28 per share of Class A common stock and (ii) each holder of Class B common stock will receive a cash payment of $115.28 per share of Class B common stock. The transaction is expected to close in the fourth quarter of 2021 and is subject to customary closing conditions, including approval by the shareholders of the Company and required regulatory approvals.
 
Page 30 of 45

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2021, the Company had total assets of $7.3 billion. Currently, the Company operates 27 banking offices in 20 cities and towns in Massachusetts, ranging from Braintree in the south to Andover in the north. The Bank’s customers consist primarily of small and
medium-sized
businesses and retail customers in these communities and surrounding areas, as well as local governments and large healthcare and higher educational institutions primarily throughout Massachusetts, New Hampshire, Rhode Island, Connecticut, New York, Virginia, Washington D.C., and Pennsylvania.
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 composed of approximately 302 government entities.
Net income for the three months ended March 31, 2021, was $10,770,000 or $1.93 per Class A share diluted, an increase of 11.4% compared to net income of $9,666,000, or $1.74 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 
   March 31, 
   
2021
   2020 
Basic EPS – Class A common
  
$
2.34
 
  $2.10 
Basic EPS – Class B common
  
$
1.17
 
  $1.05 
Diluted EPS – Class A common
  
$
1.93
 
  $1.74 
Diluted EPS – Class B common
  
$
1.17
 
  $1.05 
Net interest income totaled $28,567,000 for the three months ended March 31, 2021 compared to $25,201,000 for the same period in 2020. The 13.4% increase in net interest income for the period is primarily due to a decrease in interest expense as a result of falling interest rates. The net interest margin decreased from 2.11% on a fully
tax-equivalent
basis for the first three months of 2020 to 1.80% for the same period in 2021. This was primarily the result of increased margin pressure during the recent decrease in interest rates across the yield curve.
The average balances of earning assets increased for the first three months of 2021 compared to the same period last year, by $1,608,721,000 or 31.0%, combined with an average yield decrease of 1.03%, resulting in a decrease in interest income of $4,264,000. The average balance of interest-bearing liabilities increased for the first three months of 2021 compared to the same period last year, by $1,191,116,000 or 27.9%, combined with an average interest-bearing liabilities interest cost decrease of 0.86%, resulting in a decrease in interest expense of $7,630,000.
 
Page 31 of 45

The trends in the net interest margin are illustrated in the graph below:
 
The net interest margin decreased during the first quarter of 2020 mainly as a result of decreases in rates on earning assets. This was partially offset by prepayment penalties collected of $874,000 and contributed approximately seven basis points to the net interest margin. The net interest margin decreased during the second, third, and fourth quarters of 2020 primarily as a result of increased margin pressure during the recent decrease in interest rates across the yield curve. This was partially offset by prepayment penalties collected of $453,000 and contributed approximately three basis points to the net interest margin during the fourth quarter of 2020. The net interest margin decreased during the first quarter of 2021 primarily as a result of increased margin pressure during the recent decrease in interest rates across the yield curve. 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 positively impact the net interest margin.
There was a credit to the provision for loan losses of $550,000 for the quarter ended March 31, 2021, compared to a provision of $1,075,000 for the quarter ended March 31, 2020. The credit provision for the first quarter of 2021 was primarily attributable to a decline in loan balances exclusive of PPP loans and a reduction in specific allocations to the allowance for loan losses. The provision for the first quarter of 2020 was primarily as a result of provisions related to the onset of the
COVID-19
pandemic.
The Company’s effective tax rate increased from 5.8% for the quarter ended March 31, 2020 to 13.5% for the same period in 2021. This was primarily as a result of an increase in taxable income relative to total income.
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 second quarter of 2021. During the second quarter of 2020, the Company executed a lease for a future branch location in Needham, Massachusetts. The Company plans to open this branch during the third quarter of 2021.
 
Page 32 of 45

Recent Market Developments
Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), Families First Coronavirus Response Act (“FFCRA”), and Coronavirus Response and Relief Supplemental Appropriations Act of 2021
On March 18, 2020, the FFCRA was signed into law and on March 27, 2020, the 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. Also, as a result of the CARES Act, the full balance of the Company’s AMT credit was refunded in 2020.
The CARES Act, among other things, provides cash payments to certain individuals and has various programs for businesses. In particular, it includes the PPP 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 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. During 2020 and 2021, the Company participated in the PPP. Since the inception of the program, PPP originations totaled approximately 1,860 loans for approximately $325 million. As of March 31, 2021, Century Bank’s PPP loans totaled approximately 1,117 loans for approximately $213 million. The fees collected, from the SBA, amount to approximately $11.9 million. The amount of fees recognized during the first quarter of 2021 amounted to approximately $2.2 million. Total cost deferrals amounted to approximately $1.7 million, since inception. The fees and costs are being amortized over the lives of the loans utilizing the level-yield method.
Under Section 4013 of the CARES Act, from March 1, 2020 through the earlier of January 1, 2022 or 60 days after the termination date of the national emergency declared by the President on March 13, 2020 concerning the
COVID-19
outbreak (the “national emergency”), a financial institution may elect to suspend the requirements under U.S. GAAP for loan modifications related to the
COVID-19
pandemic that would otherwise be categorized as a troubled debt restructured, including impairment accounting. This troubled debt restructuring relief applies for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019.
As of March 31, 2021, and as a result of
COVID-19
loan modifications, the Company has modifications of 8 loans aggregating approximately $36.2 million, primarily consisting of short-term payment deferrals. Of these modifications, $36.2 million, or 100%, were performing in accordance with their modified terms.
The CARES Act also allows companies to delay Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU)
2016-13,
Measurement of Credit Losses on Financial Instruments (CECL), including the current expected credit losses methodology for estimating allowances for credit losses. The Company elected to delay FASB ASU
2016-13.
This ASU was delayed until the earlier of 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. On December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 was signed into law. The law changed the delayed implementation date to the earlier of the Company’s fiscal year that begins after the date on which the national emergency terminates or January 1, 2022.
Recent Accounting Developments
Recently Adopted Accounting Standards Updates
In August 2018, FASB issued ASU
2018-14,
“Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic
715-20)”(“ASU
2018-14”),
to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU
2018-14
is effective for fiscal years beginning after December 15, 2020, for public business entities and for fiscal years beginning after December 15, 2021, for all other entities. Early adoption is permitted. Management has evaluated ASU
2018-14
and as of March 31, 2021, the Company has adopted ASU
2018-14
and determined the impact to be immaterial.
In December 2019, the FASB issued ASU
2019-12,
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 did not have a material impact on the Company’s consolidated financial position.
 
Page 33 of 45

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 March 2020, the FASB issued ASU
2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in the ASU are effective for a limited period and mainly address accounting and reporting challenges due to the transition from LIBOR on existing contracts. The optional expedients may be applied to loans, borrowings, leases and derivatives at any period as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020 up to the date that the financial statements are available to be issued. The ASU simplifies the accounting analyses for contract modifications and simplifies the hedge effectiveness assessment and allows hedging relationships impacted by the LIBOR transition to continue. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is assessing the impact of this standard but does not expect that it will have a material impact on the Company’s consolidated financial statements, or results of operations.
In June 2016, the FASB issued ASU
2016-13,
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 life cycle, behavioral attributes and the economic environment. During the fourth quarter of 2019 and during 2020, the Company tested the two CECL credit models in parallel with the existing incurred loss models. The securities
held-to-maturity
include U.S. Treasury, U.S. Government Sponsored Enterprises, SBA Backed Securities and U.S. Government Agency and Sponsored Enterprise Mortgage-Backed Securities. The CECL standard allows assumption of zero expected credit losses where expectation of
non-payment
is zero for these types of securities. The Company expects no impact from ASU
2016-13
to arise from this portfolio.
Since ASU
2016-13,
the FASB has issued amendments intended on improving the clarification of the amendment, ASU
2018-19
Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU
2019-04
Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging. The amendment in ASU
2018-19
was issued in November 2018 and was intended to clarify that receivables arising from operating leases are not within the scope of Subtopic
326-20.
Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The amendment in ASU
2019-04
was issued in April 2019 and was intended to clarify stakeholders’ specific issues about certain aspects of the amendments in ASU
2016-13.
ASU 2019- 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 to
held-to-maturity
debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics
820-10,
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 in ASU
2016-13.
In November 2019, the FASB issued ASU
2019-11,
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. See discussion below of the deferral of the amendments in this ASU.
 
Page 34 of 45

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 ASU
2016-13,
Measurement of Credit Losses on Financial Instruments (CECL), and subsequent amendments to the ASU noted above, including the current expected credit losses methodology for estimating allowances for credit losses. The Company has elected to delay FASB ASU
2016-13.
This ASU was delayed until the earlier of 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. On December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 was signed into law. The law changed the delayed implementation date to the earlier of the first day of the Company’s fiscal year that begins after the date on which the national emergency terminates or January 1, 2022. The Company does not believe the impact of adoption would have been material to the Company’s consolidated financial statements as of March 31, 2021.
Financial Condition
Loans
On March 31, 2021, total loans outstanding were $2,992,762,000, down by $3,067,000 from the total on December 31, 2020. At March 31, 2021, commercial real estate loans accounted for 26.6%, commercial and industrial accounted for 43.9%, and residential real estate loans, including home equity loans, accounted for 23.9% of total loans.
Commercial and industrial loans increased to $1,315,295,000 on March 31, 2021 from $1,314,245,000 at December 31, 2020. The Company originated approximately $92,800,000 of PPP loans during the first quarter of 2021 and received approximately $76,200,000 of PPP loan payoffs, primarily from loan forgiveness, during the first quarter of 2021. Commercial real estate loans increased to $796,660,000 on March 31, 2021 from $789,836,000 on December 31, 2020 primarily as a result of loan originations. Construction loans decreased to $7,854,000 at March 31, 2021 from $10,909,000 on December 31, 2020, primarily as a result of loan payoffs. Residential real estate loans increased to $460,123,000 on March 31, 2021 from $448,436,000 on December 31, 2020, primarily as a result of loan originations. Home equity loans decreased to $255,770,000 on March 31, 2021 from $274,357,000 on December 31, 2020, primarily as a result of a home equity loan payoffs. Municipal loans decreased slightly to $137,073,000 from $137,607,000.
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 provided in the allowance for loan loss section of the management discussion and analysis. We will closely monitor the concentrations to determine the impact of
COVID-19
upon their short-term and long-term operations.
Allowance for Loan Losses
The allowance for loan loss at March 31, 2021 was $34,952,000 as compared to $35,486,000 at December 31, 2020. The level of the allowance for loan losses to total loans was 1.17% at March 31, 2021 and 1.18% at December 31, 2020. The ratio of the allowance for loan losses to loans outstanding has decreased slightly from December 31, 2020, primarily from the payoff of one large loan and a decrease in general economic factor allocations. 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. 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 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, 2021.
Credit ratings issued by national organizations were utilized as credit quality indicators as presented in the following table at March 31, 2021 and are included within the total loan portfolio.
 
   
Commercial
and
Industrial
   
Municipal
   
Commercial
Real
Estate
   
Total
 
   
(in thousands)
 
Credit Rating:
        
Aaa – Aa3
  
$
705,387
 
  
$
73,758
 
  
$
36,519
 
  
$
815,664
 
A1 – A3
  
 
182,559
 
  
 
7,103
 
  
 
145,096
 
  
 
334,758
 
Baa1 – Baa3
  
 
50,000
 
  
 
51,133
 
  
 
146,930
 
  
 
248,063
 
Ba2
  
 
—  
 
  
 
5,080
 
  
 
—  
 
  
 
5,080
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  
$
937,946
 
  
$
137,074
 
  
$
328,545
 
  
$
1,403,565
 
  
 
 
   
 
 
   
 
 
   
 
 
 
 
Page 35 of 45

Credit ratings issued by national organizations are presented in the following table at December 31, 2020.
 
   Commercial
and
Industrial
   Municipal   Commercial
Real
Estate
   Total 
   (in thousands) 
Credit Rating:
        
Aaa – Aa3
  $710,955   $74,291   $38,035   $823,281 
A1 – A3
   183,123    7,103    145,583    335,809 
Baa1 – Baa3
   50,000    51,133    140,905    242,038 
Ba2
   —      5,080    —      5,080 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $944,078   $137,607   $324,523   $1,406,208 
  
 
 
   
 
 
   
 
 
   
 
 
 
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
March 31,
 
   
2021
   2020 
   (in thousands) 
Allowance for loan losses, beginning of period
  
$
35,486
 
  $29,585 
Loans charged off
  
 
(67
   (62
Recoveries on loans previously
charged-off
  
 
83
 
   206 
  
 
 
   
 
 
 
Net recoveries
  
 
16
 
   144 
Provision (credit) charged to expense
  
 
(550
   1,075 
  
 
 
   
 
 
 
Allowance for loan losses, end of period
  
$
34,952
 
  $30,804 
  
 
 
   
 
 
 
The Company may experience increased levels of nonaccrual loans if borrowers are negatively impacted by future negative economic conditions. Management continually monitors trends in the loan portfolio to determine the appropriate level of allowance for loan losses. At the current time, management believes that the allowance for loan losses is adequate.
Nonperforming Assets
The following table sets forth information regarding nonperforming assets held by the Bank at the dates indicated:
 
   
March 31,
  December 31, 
   
2021
  2020 
   (dollars in thousands) 
Nonaccruing loans
  
$
942
 
 $3,996 
Total nonperforming assets
  
$
942
 
 $3,996 
Loans past due 90 days or more and still accruing
  
$
—  
 
 $90 
Nonaccruing loans as a percentage of total loans
  
 
0.03
  0.13
Nonperforming assets as a percentage of total assets
  
 
0.01
  0.06
Accruing troubled debt restructures
  
$
2,099
 
 $2,202 
Investments
Management continually evaluates its investment alternatives in order to properly manage the overall balance sheet mix. The timing of purchases, sales and reinvestments, if any, will be based on various factors including expectation of movements in market interest rates, deposit flows and loan demand. Notwithstanding these events, it is the intent of management to grow the earning asset base mainly through loan originations while funding this growth through a mix of retail deposits, FHLB advances, and retail repurchase agreements.
 
Page 36 of 45

Securities
Available-for-Sale
(at Fair Value)
The securities
available-for-sale
portfolio totaled $263,898,000 at March 31, 2021, a decrease of 6.6% from December 31, 2020. The portfolio decreased mainly as a result of maturities of securities
available-for-sale
totaling $25,993,000 offset, somewhat by purchases of $6,770,000. 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 5.0 years.
At March 31, 2021, 82.7% of the Company’s securities
available-for-sale
are classified as Level 2. The fair values of these securities are generally obtained from a pricing service, which provides the Company with a description of the inputs generally utilized for each type of security. These inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads,
two-sided
markets, benchmark securities, bids, offers and reference data. Market indicators and industry and economic events are also monitored.
Securities
available-for-sale
totaling $45,668,000 or 17.3% of securities
available-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 2021, net unrealized gains on the securities
available-for-sale
increased to $809,000 from a net unrealized gain of $175,000 at December 31, 2020. This was primarily the result of an increase in the value of floating rate securities.
The following table sets forth the fair value of securities
available-for-sale
at the dates indicated.
 
   
March 31,
   December 31, 
   
2021
   2020 
   (in thousands) 
Small Business Administration
  
$
42,855
 
  $44,039 
U.S Government Agency and Sponsored Enterprise Mortgage-backed Securities
  
 
166,811
 
   177,741 
Privately Issued Residential Mortgage-backed Securities
  
 
326
 
   328 
Obligations issued by States and Political Subdivisions
  
 
45,668
 
   52,276 
Other Debt Securities
  
 
8,238
 
   8,064 
           
Total Securities
Available–for-Sale
  
$
263,898
 
  $282,448 
           
There were no sales of
available-for-sales
securities for the three months ended March 31, 2021.
Securities
Held-to-Maturity
(at Amortized Cost)
The securities
held-to-maturity
portfolio totaled $3,217,176,000 on March 31, 2021, an increase of 28.2% from December 31, 2020. Purchases of
held-to-maturity
securities totaled $964,868,000 for the three months ended March 31, 2021. The purchases were offset somewhat, by maturities and scheduled principal payments of $257,255,000. The portfolio is concentrated in United States Government Sponsored Enterprises and Mortgage-backed Securities and had an estimated weighted average remaining life of 4.7 years.
The following table sets forth the amortized cost of securities
held-to-maturity
at the dates indicated.
 
   
March 31,
2021
   December 31,
2020
 
   (in thousands) 
U.S. Government Sponsored Enterprises
  
$
381,077
 
  $244,220 
SBA Backed Securities
  
 
36,330
 
   37,783 
U.S. Government Agency and Sponsored Enterprise Mortgage-backed Securities
  
 
2,799,769
 
   2,227,085 
           
Total Securities
Held-to-Maturity
  
$
3,217,176
 
  $2,509,088 
           
There were no sales of
held-to-maturity
securities for the three months ended March 31, 2021.
 
Page 37 of 45

The net unrealized gains on investment securities
held-to-maturity
was $5,727,000 or 0.2% of the total at March 31, 2021 and the net unrealized gains was $70,015,000 or 2.8% of the total at December 31, 2020. The decrease in the net unrealized gains on securities
held-to-maturity
related primarily to an increase 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, 2021 and December 31, 2020.
At March 31, 2021 and December 31, 2020, 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.
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 this investment for impairment based on the ultimate recoverability of the cost basis in the stock. As of March 31, 2021, there have been no indicators of impairment that would require further consideration of potential impairment.
Equity Securities
On March 31, 2021 equity securities totaled $1,722,000 compared to $1,668,000 at December 31, 2020, the increase is primarily the result of changes in fair values.
Deposits and Borrowed Funds
On March 31, 2021, deposits totaled $6,396,042,000 representing a 17.3% increase from December 31, 2020. Total deposits increased primarily as a result of an increase in savings and NOW deposits, demand deposits, and money market accounts. These types of deposits increased primarily from an increased customer base and the cyclical nature of the municipal deposit base. Savings and NOW deposits increased mainly as a result of an increase in municipal NOW accounts, and corporate savings accounts. Demand deposits increased mainly as a result of increased corporate checking balances as a result of PPP loan proceed deposits. Money market accounts increased mainly as a result of an increase in municipal and corporate money market accounts. Time deposits decreased primarily as a result of decreased municipal time deposits.
Borrowed funds totaled $380,524,000 at March 31, 2021 compared to $409,099,000 at December 31, 2020. Borrowed funds decreased mainly as a result of a decrease in borrowings from the FHLBB and a decrease in repurchase agreements. FHLBB borrowings decreased mainly as a result of an increase in deposits. Repurchase agreements decreased primarily as a result of short-term customer activity.
Stockholders’ Equity
At March 31, 2021, total equity was $381,332,000 compared to $370,409,000 on December 31, 2020. The Company’s equity increased primarily as a result of earnings, partially offset by dividends paid. The Company’s leverage ratio stood at 6.16% on March 31, 2021, compared to 6.64% at December 31, 2020. The decrease in the leverage ratio was due to an increase in quarterly average assets, offset somewhat by an increase in stockholders’ equity. Book value as of March 31, 2021, was $68.49 as compared to $66.53 on December 31, 2020.
 
Page 38 of 45

Results of Operations
The following table sets forth the distribution of the Company’s average assets, liabilities and stockholders’ equity, and average annualized rates earned or paid on a fully taxable equivalent basis for each of the three-month periods indicated.
 
   Three Months Ended 
   
March 31, 2021
  March 31, 2020 
   
Average
Balance
  
Interest
Income/
Expenses (1)
  
Rate
Earned/
Paid (1)
  Average
Balance
  Interest
Income/
Expenses (1)
  Rate
Earned/
Paid (1)
 
   (dollars in thousands) 
ASSETS
       
Interest-earning assets:
       
Loans (2)
       
Loans taxable
  
$
1,740,943
 
 
$
15,636
 
 
 
3.64
 $1,275,999  $13,481   4.25
Loans
tax-exempt
  
 
1,241,051
 
 
 
7,582
 
 
 
2.48
  1,171,963   10,789   3.70
Securities
available-for-sale
(5):
       
Taxable
  
 
240,695
 
 
 
539
 
 
 
0.90
  262,332   1,582   2.41
Tax-exempt
  
 
48,274
 
 
 
110
 
 
 
0.91
  9,640   137   5.68
Securities
held-to-maturity:
       
Taxable
  
 
2,816,215
 
 
 
13,117
 
 
 
1.86
  2,299,750   15,293   2.66
Interest-bearing deposits in other banks
  
 
715,155
 
 
 
179
 
 
 
0.10
  173,928   610   1.40
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total interest-earning assets
  
 
6,802,333
 
 
 
37,163
 
 
 
2.19
  5,193,612   41,892   3.23
Non interest-earning assets
  
 
362,917
 
    285,422   
Allowance for loan losses
  
 
(35,734
    (29,765  
  
 
 
    
 
 
   
Total assets
  
$
7,129,516
 
   $5,449,269   
  
 
 
    
 
 
   
LIABILITIES AND STOCKHOLDERS’ EQUITY
       
Interest-bearing deposits:
       
NOW accounts
  
$
1,159,180
 
 
$
647
 
 
 
0.23
 $1,016,266  $2,252   0.89
Savings accounts
  
 
1,068,525
 
 
 
471
 
 
 
0.18
  716,569   1,473   0.83
Money market accounts
  
 
2,296,286
 
 
 
2,886
 
 
 
0.51
  1,480,399   5,572   1.51
Time deposits
  
 
510,287
 
 
 
1,581
 
 
 
1.26
  589,396   3,172   2.16
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total interest-bearing deposits
  
 
5,034,278
 
 
 
5,585
 
 
 
0.45
  3,802,630   12,469   1.32
Securities sold under agreements to repurchase
  
 
234,810
 
 
 
141
 
 
 
0.24
  246,272   626   1.02
Other borrowed funds and subordinated debentures
  
 
188,769
 
 
 
1,238
 
 
 
2.66
  217,839   1,499   2.77
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total interest-bearing liabilities
  
 
5,457,857
 
 
 
6,964
 
 
 
0.52
  4,266,741   14,594   1.38
   
 
 
  
 
 
   
 
 
  
 
 
 
Non-interest-bearing
liabilities
       
Demand deposits
  
 
1,195,863
 
    758,173   
Other liabilities
  
 
99,787
 
    87,423   
  
 
 
    
 
 
   
Total liabilities
  
 
6,753,507
 
    5,112,337   
  
 
 
    
 
 
   
Stockholders’ equity
  
 
376,009
 
    336,932   
Total liabilities & stockholders’ equity
  
$
7,129,516
 
   $5,449,269   
  
 
 
    
 
 
   
Net interest income on a fully taxable equivalent basis
   
 
30,199
 
    27,298  
Less taxable equivalent adjustment
   
 
(1,632
    (2,097 
   
 
 
    
 
 
  
Net interest income
   
$
28,567
 
   $25,201  
   
 
 
  
 
 
   
 
 
  
 
 
 
Net interest spread (3)
    
 
1.67
    1.85
    
 
 
    
 
 
 
Net interest margin (4)
    
 
1.80
    2.11
    
 
 
    
 
 
 
 
(1)
On a fully taxable equivalent basis calculated using a federal tax rate of 21%. Rates are annualized.
(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 weightedaverage cost of interest-bearing liabilities.
(4)
Net interest margin represents net interest income as a percentage of average interest-earning assets.
(5)
Average balances of securities
available-for-sale
calculated utilizing amortized cost.
 
Page 39 of 45

The following table presents certain information on a
fully-tax
equivalent basis regarding changes in the Company’s interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to changes in rate and changes in volume.
 
   Three Months Ended March 31, 2021
Compared with
Three Months Ended March 31, 2020
 
   Increase/(Decrease)
Due to Change in
 
   Volume   Rate   Total 
   (in thousands) 
Interest income:
      
Loans
      
Taxable
  $4,371   $(2,216  $2,155 
Tax-exempt
   599    (3,806   (3,207
Securities
available-for-sale
      
Taxable
   (121   (922   (1,043
Tax-exempt
   168    (195   (27
Securities
held-to-maturity
      
Taxable
   2,994    (5,170   (2,176
Interest-bearing deposits in other banks
   541    (972   (431
  
 
 
   
 
 
   
 
 
 
Total interest income
   8,552    (13,281   (4,729
  
 
 
   
 
 
   
 
 
 
Interest expense:
      
Deposits
      
NOW accounts
   290    (1,895   (1,605
Savings accounts
   512    (1,514   (1,002
Money market accounts
   2,173    (4,859   (2,686
Time deposits
   (370   (1,221   (1,591
  
 
 
   
 
 
   
 
 
 
Total interest-bearing deposits
   2,605    (9,489   (6,884
Securities sold under agreements to repurchase
   (25   (460   (485
Other borrowed funds and subordinated debentures
   (186   (75   (261
  
 
 
   
 
 
   
 
 
 
Total interest expense
   2,394    (10,024   (7,630
  
 
 
   
 
 
   
 
 
 
Change in net interest income
  $6,158   $(3,257  $2,901 
  
 
 
   
 
 
   
 
 
 
Net Interest Income
For the three months ended March 31, 2021, net interest income on a fully taxable equivalent basis totaled $30,109,000 compared to $27,298,000 for the same period in 2020, an increase of $2,811,000 or 10.3%. The increase in net interest income for the period is primarily due to a decrease in interest expense as a result of falling interest rates. The net interest margin decreased from 2.11% on a fully
tax-equivalent
basis for first quarter of 2020 to 1.80% for the same period in 2021. This was primarily the result of increased margin pressure during the recent decrease in interest rates across the yield curve. The average balances of earning assets increased by $1,608,721,000 or 31.0%, combined with an average yield decrease of 1.03%, resulting in a decrease in interest income of $4,729,000 on a fully
tax-equivalent
basis. The average balance of interest-bearing liabilities increased by $1,191,116,000 or 27.9%, combined with an average interest-bearing liabilities interest cost decrease of 0.86%, resulting in a decrease in interest expense of $7,630,000.
As illustrated in the table above, the main contributors to the increase in net interest income for the three-month period was a decrease in rates paid on interest-bearing deposits. The Company has decreased interest rates on these products as market rates have decreased. Securities
held-to-maturity
income increased, for the three-month period, primarily as a result of an increase in volume. Securities
available-for-sale,
interest-bearing deposits in other banks, and loan income decreased primarily from a decrease in rates paid on the portfolios. The Company has a sizable floating rate
available-for-sale
and loan portfolio. These portfolios reprice as interest rates rise or fall.
 
Page 40 of 45

Provision for Loan Losses
The provision for loan losses decreased by $1,625,000 from $1,075,000 for the quarter ended March 31, 2020 compared to a credit of $550,000 for the same period in 2021. The provision for the first quarter of 2020 was primarily the result of provisions related to the onset of the
COVID-19
pandemic. The credit provision for the first quarter of 2021 was primarily attributable to a decline in loan balances exclusive of PPP loans and a reduction in specific allocations to the allowance for loan losses.
Further discussion relating to changes in portfolio composition is discussed in Note 4.
Non-Interest
Income and Expense
Other operating income for the quarter ended March 31, 2021 decreased by $107,000 from the same period last year to $4,203,000. This was mainly attributable to a decrease in other income of $95,000 and a decrease in service charges on deposit accounts of $78,000. This was offset, somewhat, by an increase of $66,000 in lockbox fees. Service charges on deposit accounts decreased mainly as a result of a decrease in customer activity due in large part to the
COVID-19
pandemic. Other income decreased mainly as a result of a decrease in insurance gains on life insurance policies. Lockbox fees increased mainly as a result of increased customer activity.
For the quarter ended March 31, 2021, operating expenses increased by $2,698,000 or 14.8% to $20,871,000, from the same period last year. This was primarily attributable to an increase in salaries and employee benefits of $879,000, an increase of $187,000 in occupancy costs, an increase of $112,000 in equipment expenses, an increase of $472,000 in FDIC assessments, and an increase of $1,048,000 in other expenses. The increase in salaries and employee benefits was mainly attributable to merit increases, bonus accruals, and other employee benefits. The increase in FDIC assessments was attributable to credits applied during the first quarter of 2020. The increase in occupancy costs was mainly attributable to an increase in building maintenance. Other expenses increased mainly as a result of expenses related to the previously announced merger, increases in bank security, and increases in contributions. Equipment expense increased mainly from an increase in depreciation expense.
Income Taxes
For the quarter ended March 31, 2021, the Company’s income tax expense totaled $1,679,000 on pretax income of $12,449,000 resulting in an effective tax rate of 13.5%. For last year’s corresponding quarter, the Company’s income tax expense totaled $597,000 on pretax income of $10,263,000 resulting in an effective tax rate of 5.8%. This increase was primarily the result of an increase in taxable income relative to total income.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. To that end, management actively monitors and manages its interest rate risk exposure. The Company’s profitability is affected by fluctuations in interest rates. A sudden and substantial increase or decrease in interest rates may adversely impact the Company’s earnings to the extent that the interest rates tied to specific assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using several tools. The Company’s primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Company’s net interest income and capital, while structuring the Company’s asset-liability structure to obtain the maximum yield-cost spread on that structure. Management believes that there has been no material changes in the interest rate risk reported in the Company’s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission. The information is contained in the
Form 10-K
within the Market Risk and Asset Liability Management section of Management’s Discussion and Analysis of Results of Operations and Financial Condition.
Item 4. Controls and Procedures
The Company’s management, with participation of the Company’s principal executive and financial officers, has evaluated its disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, the Company’s management, with participation of its principal executive and financial officers, 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 three months of 2021 there were no changes that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Page 41 of 45

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, 2021. 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.
 
Item 1A
Risk Factors – Please read “Risk Factors” in the Company’s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2020. Except as noted below, there have been no material changes since this
10-K
was filed. These risks are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and operating results.
If our merger with Eastern Bankshares, Inc. is not completed, we will have incurred substantial expenses without our shareholders realizing the expected benefits.
On April 7, 2021, we entered into an Agreement and Plan of Merger with Eastern Bankshares, Inc. pursuant to which we will merge with and into Eastern, with Eastern as the surviving corporation. Completion of the merger is subject to closing conditions including, but not limited to, various regulatory approvals and the approval of our shareholders. We currently expect that the merger will be completed in the fourth quarter of 2021. It is possible, however, that factors outside of our control could require the parties to complete the merger at a later time, or not to complete the merger at all. In the event that the merger is not consummated for any reason, we will be subject to many risks, including the costs related to the merger, such as legal, accounting and advisory fees, which must be paid even if the merger is not completed, and, potentially, the payment of a termination fee under certain circumstances. If the merger is not consummated, the market price of our common stock could decline. We also could be subject to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against us to perform our obligations under the merger agreement.
We will be subject to business uncertainties and contractual restrictions while the merger is pending.
Uncertainty about the effect of the merger on employees, suppliers and customers may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers, suppliers and others who deal with us to seek to change existing business relationships with us. Our employee retention and recruitment may be particularly challenging prior to the effective time of the merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company.
The pursuit of the merger and the preparation for the integration may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect our financial results. In addition, the merger agreement generally requires that we operate in the usual, regular and ordinary course of business and restricts us from taking certain actions prior to the effective time of the merger or termination of the merger agreement without Eastern’s consent in writing. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the merger.
Regulatory approvals may not be received, may take longer than expected or impose conditions that are not presently anticipated.
Before the merger may be completed, certain approvals or consents must be obtained from the various bank regulatory and other authorities. There can be no assurance as to whether regulatory approval will be received or the timing of the approvals. Eastern is not obligated to complete the merger if the regulatory approvals received in connection with the completion of the merger include any conditions or restrictions that would constitute a “Materially Burdensome Regulatory Condition” as defined in the merger agreement. There can be no assurance that regulatory approvals will not include such conditions or restrictions and such conditions or restrictions could have the effect of delaying completion of the merger.
The termination fee and the restrictions on solicitation contained in the merger agreement may discourage other companies from trying to acquire us.
Until the completion of the merger, we are prohibited from soliciting, initiating, encouraging, or with some exceptions, considering any inquiries or proposals that may lead to a proposal or offer for a merger or other business combination transaction with any person other than Eastern. In addition, we have agreed to pay a termination fee of approximately $25.7 million to Eastern in specified circumstances. These provisions could discourage other companies from trying to acquire us even though those other companies might be willing to offer greater value to our shareholders than Eastern has offered in the merger. The payment of the termination fee also could have a material adverse effect on our results of operations.
 
 
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Litigation may be filed against the board of directors the Company and/or Eastern that could prevent or delay the completion of the merger or result in the payment of damages following completion of the merger.
In connection with the merger, it is possible that our shareholders may file putative class action lawsuits against the boards of directors of the Company and/or Eastern. Among other remedies, these shareholders could seek to enjoin the merger. The outcome of any such litigation would be uncertain. If a dismissal is not granted or a settlement is not reached, such potential lawsuits could prevent or delay completion of the merger and result in substantial costs to Eastern and the Company, including any costs associated with indemnification obligations of the Company and/or Eastern.
 
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Item 2
Unregistered Sales of Equity Securities and Use of Proceeds –
(a) – (b) Not applicable.
(c) None
 
Item 3
Defaults Upon Senior Securities – None
 
Item 4
Mine Safety Disclosures – Not applicable
 
Item 5
Other Information – None
 
Item 6
Exhibits
 
2.1  Agreement and Plan of Merger by and among Eastern Bankshares, Inc., Clarion Acquisition Corp., Century Bancorp, Inc. and Century Bank and Trust Company, dated as of April 7, 2021, incorporated by reference to the Registrant’s 8-K filed on April 8, 2021.
10.1  Form of Voting Agreement, incorporated by reference to the Registrant’s 8-K filed on April 8, 2021.
10.2  Employment letter, dated as of April 6, 1999, from Century Bank and Trust Company to David B. Woonton. 
31.1  Certification of Chairman, President and Chief Executive Officer of the Company Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14.
31.2  Certification of Chief Financial Officer of the Company Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14.
+32.1  Certification of 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
104  Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)
 
+
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
++
As provided in Rule 406T of regulation
S-T,
this information is filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 and consists of the following materials from Century Bancorp Inc.’s Quarterly Report on
10-Q
for the quarter ended March 31, 2021, formatted in XBRL: (i) Consolidated Balance Sheets at March 31, 2021 and December 31, 2020; (ii) Consolidated Statements of Income for the three months ended March 31, 2021 and 2020; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2021 and 2020; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020; and (vi) Notes to Unaudited Consolidated Interim Financial Statements.
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Date: May 7, 2021
  
    Century Bancorp, Inc.
/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)
  
 
 
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