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

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

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and to general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The Company’s Quarterly report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed with the Securities and Exchange Commission.

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

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

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

		September 30, 2007
						Weighted
						Average
		Amount				Exercise Price
Shares under option:
Outstanding at beginning of year			122,737			$	27.20
Granted			—				—
Cancelled			(21,884	)			26.18
Exercised			(2,616	)			19.20
Outstanding at end of period			98,237			$	27.64
Exercisable at end of period			98,237			$	27.64
Available to be granted at end of period			173,309

On September 30, 2007, the outstanding options to purchase 98,237 shares of Class A common stock have exercise prices between $15.063 and $35.010, with a weighted average exercise price of $27.64 and a weighted average remaining contractual life of 4.4 years. The weighted average intrinsic value of options exercised for the nine-month period ended September 30, 2007 was $4.90 per share with an aggregate value of $12,800. The average intrinsic value of options exercisable at September 30, 2007 had an aggregate value of $72,000.

The Company uses the fair value method to account for stock options. All of the Company’s stock options are vested and there were no options granted during the first nine months of 2007.

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

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

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

Components of Net Periodic Benefit Cost for the Three Months Ending September 30,

										Supplemental Insurance/
		Pension Benefits								Retirement Plan
		2007				2006				2007				2006
		(In thousands)
Service cost		$	217			$	221			$	27			$	27
Interest			270				249				189				191
Expected return on plan assets			(277	)			(254	)			—				—
Recognized prior service (cost) benefit			(29	)			(29	)			16				16
Recognized net actuarial losses			99				93				20				28
Net periodic benefit cost		$	280			$	280			$	252			$	262

Components of Net Periodic Benefit Cost for the Nine Months Ending September 30,

										Supplemental Insurance/
		Pension Benefits								Retirement Plan
		2007				2006				2007				2006
		(In thousands)
Service cost		$	651			$	663			$	80			$	81
Interest			810				747				568				573
Expected return on plan assets			(832	)			(762	)			—				—
Recognized prior service (cost) benefit			(87	)			(87	)			48				48
Recognized net actuarial losses			299				279				61				83
Net periodic benefit cost		$	841			$	840			$	757			$	785

Contributions

The Company previously disclosed in its financial statements for the year ended December 31, 2006 that it expected to contribute $1,560,000 to the Pension Plan in 2007. As of September 30, 2007, $1,170,000 of the contribution had been made. The Company expects to contribute an additional $390,000 by the end of the year.

Effective December 31, 2006, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106, and 132(R),” which requires the Company to recognize the overfunded or underfunded status of a single employer defined benefit pension or postretirement plan as an asset or liability on its balance sheet and to recognize changes in the funded status in comprehensive income in the year in which the change occurred. However, gains or losses, prior service costs or credits, and transition assets or obligations that have not yet been included in net periodic benefit cost as of the end of 2006, the fiscal year in which the Statement is initially applied are to be recognized as components of the ending balance of accumulated other comprehensive income, net of tax. During 2006, the Company recorded an additional $2,158,000 pension liability adjustment, net of tax, through stockholders’ equity, as a result of the adoption of SFAS 158. The Company recognized $189,000, net of tax during the first nine months of 2007, as amortization of amounts previously recognized in accumulated other comprehensive income.

SFAS 158 also requires the Company to measure plan assets and benefit obligations as of the date of the Company’s fiscal year end effective for fiscal years ending after December 15, 2008.

On August 17, 2007, the Company sold the building which houses one of its branches located at 55 High Street, Medford, Massachusetts for $1.5 million at market terms. This property was sold to C&S Capital Properties, LLC, an entity affiliated with Joseph J. Senna, Esq., who is a director of the Company. The Bank financed $1.0 million of this purchase at market terms. This sale resulted in a pre-tax gain of $1.3 million.

The Bank is relocating this branch to 1 Salem Street (formerly 3 Salem Street), Medford, Massachusetts. As previously disclosed in the Company’s June 30, 2007 Form 10-Q, this property will be leased from Sloane Enterprises, LLC, an entity affiliated with Marshall M. Sloane, Chairman of the Board of the Company. The lease will be for a period of fifteen years. The annual base rent amount will be $28,500 with annual increases based on the consumer price index, but not less than 2% per year. The Company is also required to pay 25% of all real estate taxes and operating costs. The lease contains options to extend the lease for three additional five year periods. The lease was effective on September 1, 2007. The terms of the lease were based on an independent appraisal of the property and are considered to be market terms.

Until such time as 1 Salem Street is opened as a branch, 55 High Street will be leased to the Bank as a tenant-at-will at market terms. It is anticipated that the new branch will be opened during the second or third quarter of 2008. The relocation of the branch is subject to customary regulatory approvals.

The Company classifies interest resulting from underpayment of income taxes as income tax expense in the first period the interest would begin accruing according to the provisions of the relevant tax law.

The Company classifies penalties resulting from underpayment of income taxes as income tax expense in the period for which the Company claims or expects to claim an uncertain tax position or in the period in which the Company’s judgment changes regarding an uncertain tax position.

In July 2006 the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. The Company adopted FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a material impact on the Company’s results of operation or its financial position.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements”, which among other things, requires enhanced disclosures about financial instruments carried at fair value. SFAS 157 is effective for fiscal years beginning after November 15, 2007. SFAS 157 establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value. The three broad levels defined by the SFAS 157 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 certain commercial mortgage loans, certain private equity investments, distressed debt, non-investment grade residual interests in securitizations, as well as certain highly structured OTC derivative contracts.

The Company is currently evaluating the impact SFAS 157 will have upon adoption.

In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities, which gives entities the option to measure eligible financial assets, and financial liabilities at fair value on an instrument by instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability. Subsequent changes in fair value must be recorded in earnings. This statement is effective as of the beginning of a company’s first fiscal year after November 15, 2007. The Company continues to analyze the impact of SFAS 159 upon adoption on January 1, 2008.

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

Century Bancorp, Inc. (together with its bank subsidiary, unless the context otherwise requires, the “Company”) is a Massachusetts state chartered bank holding company headquartered in Medford, Massachusetts. The Company is a Massachusetts corporation formed in 1972 and has one banking subsidiary (the “Bank”): Century Bank and Trust Company formed in 1969. The Company had total assets of approximately $1.5 billion as of September 30, 2007. The Company presently operates 22 banking offices in 16 cities and towns in Massachusetts ranging from Braintree in the south to Beverly in the north. The Bank’s customers consist primarily of small and medium-sized businesses and retail customers in these communities and surrounding areas, as well as local governments and institutions throughout Massachusetts. During the quarter ended June 30, 2006, the Company closed its branch on Atlantic Avenue in Boston and transferred its customers to the nearby State Street branch. As discussed in Note 4. Banking Premises and Equipment, the Company is currently in the process of relocating its Medford Square branch.

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

The Company offers a wide range of services to commercial enterprises, state and local governments and agencies, non-profit organizations and individuals. It emphasizes service to small and medium-sized businesses and retail customers in its market area. The Company makes commercial loans, real estate and construction loans and consumer loans, and accepts savings, time, and demand deposits. In addition, the Company offers to its corporate and institutional customers automated lock box collection services, cash management services and account reconciliation services, and actively promotes the marketing of these services to the municipal market. Also, the Company provides full service securities brokerage services through its division, Investment Services at Century Bank, in conjunction with Independent Financial Marketing Group, a full service securities brokerage business.

The Company is also a provider of financial services, including cash management, transaction processing and short term financing to municipalities in Massachusetts and Rhode Island. The Company has deposit relationships with approximately 35% of the 351 cities and towns in Massachusetts.

Earnings for the third quarter ended September 30, 2007 were $2,864,000, or $0.52 per share diluted, compared to net income of $1,197,000, or $0.22 per share diluted, for the third quarter ended September 30, 2006. Included in income for the third quarter of 2007 is the previously announced $1,321,000 pre-tax gain on the sale of the building which houses the Company’s Medford Square branch. Included in income for the third quarter of 2006 was approximately $354,000 of Federal Home Loan Bank (FHLB) stock dividend income. This dividend was for the second and third quarter of 2006 because the FHLB did not declare a dividend in the second quarter of 2006. For the first nine months of 2007, net income totaled $5,491,000, or $0.99 per share diluted, compared to net income of $3,600,000, or $0.65 per share diluted, for the same period a year ago. Included in income for the nine months ended September 30, 2006 is a pre-tax gain of $600,000 from the sale of the Company’s rights to future royalty payments for a portion of its Merchant Credit Card customer base.

Throughout 2007, the Company has seen improvement in its net interest margin as illustrated in the graph below:

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

	•		a continuing decline in the cost of funds as a result of increased pricing discipline related to deposits,
	•		an increase in the loan yield due to an increase in prepayment fees, particularly in the second quarter of 2007, and
	•		the maturity of lower-yielding investment securities

While management will continue its efforts to improve the net interest margin, there can be no assurance that certain factors beyond its control, such as the prepayment of

loans and changes in market interest rates, will continue to positively impact the net interest margin.

In addition, a great deal of emphasis has been placed on cost control during 2007 as demonstrated by the decrease of just over 1% in operating expenses for the quarter ended September 30, 2007 and the increase of 0.5% for the year-to-date period ended September 30, 2007 as compared to the comparable 2006 period.

Loans

On September 30, 2007, total loans outstanding, net of unearned discount, were $737.0 million, an increase of 0.03% from the total on December 31, 2006. At September 30, 2007, commercial real estate loans accounted for 41.4% and residential real estate loans, including home equity credit lines, accounted for 31.4% of total loans.

Commercial and industrial loans increased to $122.3 million at September 30, 2007 from $117.5 million on December 31, 2006. Construction loans increased to $60.7 million at September 30, 2007 from $49.7 million on December 31, 2006.

The primary reason for the stability in loans was due in large part to an increase in loan payoffs offset by loan originations.

Allowance for Loan Losses

The allowance for loan losses was 1.30% of total loans on September 30, 2007 compared with 1.32% on December 31, 2006. The ratio has remained relatively stable. Net charge-offs for the nine months ended September 30, 2007 were $1,022,000 compared to net charge-offs of $156,000 for the same period in 2006. The increase in charge-offs was mainly attributable to small business loans. Increased provision for loan losses in 2007 as compared to 2006 have been made due primarily to an increase in net charge-offs and an increase in nonaccruing loans.

During 2007, the Company has experienced increased levels of charge-offs and nonaccruing loans. Due to current uncertainties in the economy, this trend may continue if borrowers are negatively impacted by future 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:

		September 30, 2007				December 31, 2006
		(Dollars in thousands)
Nonaccruing loans		$	531			$	135
Loans past due 90 days or more and still accruing		$	846			$	789
Other real estate owned		$	453			$	—
Nonaccruing loans as a percentage of total loans			.07	%			.02	%

Cash and Cash Equivalents

Cash and cash equivalents decreased mainly as a result of decreases in time deposits. Time deposits decreased mainly because of a decreased reliance on higher rate time deposits.

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.

		September 30, 2007				December 31, 2006
		(In thousands)
Securities Available-for-Sale (at Fair Market Value)
U.S. Government and U.S.Government Sponsored Enterprises		$	183,555			$	223,027
Other Bonds and Equity Securities			14,175				13,378
Mortgage-backed Securities			156,594				179,076
Total Securities Available-for-Sale		$	354,324			$	415,481
Securities Held-to-Maturity (at Amortized Cost)
U.S. Government Sponsored Enterprises		$	149,983			$	159,969
Mortgage-backed Securities			92,349				105,743
Total Securities Held-to-Maturity		$	242,332			$	265,712

Securities Available-for-Sale

The securities available-for-sale portfolio totaled $354.3 million at September 30, 2007, a decrease of 14.7% from December 31, 2006. The portfolio decreased mainly because of a reduction in the size of the balance sheet. Purchases of securities available-for-sale totaled $70.1 million for the nine months ended September 30, 2007. These purchases were made to take advantage of rising rates and the somewhat steeper yield curve. The portfolio is concentrated in United States Government Sponsored Enterprises and Mortgage-backed Securities and had an estimated weighted average remaining life of 1.9 years. Included in U.S. Government and U.S. Government Sponsored Enterprises is one U.S. Government security totaling $2 million.

Securities Held-to-Maturity

The securities held-to-maturity portfolio totaled $242.3 million on September 30, 2007, a decrease of 8.8% from the total on December 31, 2006. The portfolio decreased mainly because of a reduction in the size of the balance sheet. The portfolio is concentrated in United States Government Sponsored Enterprises and Mortgage-backed Securities and had an estimated weighted average remaining life of 1.7 years.

Other Assets

Other assets increased by $3.1 million or 7.5%. Other assets increased mainly because of an increase in the cash surrender value of life insurance policies.

Deposits and Borrowed Funds

On September 30, 2007, deposits totaled $1.11 billion, representing a 12.5% decrease in total deposits from December 31, 2006. Total deposits decreased primarily as a result of decreases in time deposits, money market deposits and demand deposits, offset somewhat by increases in savings and NOW deposits. Time deposits and money market deposits decreased mainly because of decreases in higher rate deposits. The Company competed less aggressively for these types of deposits. Demand deposits decreased mainly because of a decrease in the amount of customer balances necessary to offset service charges. Savings and NOW deposits increased mainly because the Company competed more aggressively for these types of deposits during the first nine months of the year. Borrowed funds totaled $260.0 million compared to $210.0 million at December 31, 2006. Borrowed funds remained relatively stable during the quarter.

Net Interest Income

For the three months ended September 30, 2007, net interest income totaled $10.1 million compared to $9.4 million for the same period in 2006, an increase of $738,000 or 7.9%. This increase in net interest income is due to an increase of 29 basis points in the net interest margin, from 2.48% on a fully taxable equivalent basis in 2006 to 2.77% on the same basis for 2007. Included in income for the third quarter of 2006 was approximately $354,000 of FHLB stock dividend income. This dividend was for the second and third quarter of 2006 because the FHLB did not declare a dividend in the second quarter of 2006.

For the nine months ended September 30, 2007, net interest income totaled $29.1 million compared to $27.8 million for the same period in 2006, an increase of $1,325,000 or 4.8%. This increase in net interest income is due to an increase of 18 basis points in the net interest margin, from 2.43% on a fully taxable equivalent basis in 2006 to 2.61% on the same basis for 2007. Included in interest income for the nine months ended September 30, 2007 was $432,000 of prepayment fees collected on loans as compared to $95,000 for the comparable 2006 period.

There can be no assurance that certain factors beyond its control, such as the prepayment of loans and changes in market interest rates, will continue to positively impact the net interest margin. Management believes that the relatively flat yield curve environment will continue to present challenges as deposit and borrowing costs may have the potential to increase at a faster rate than corresponding asset categories.

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

		Three Months Ended
		September 30, 2007												September 30, 2006
		Average								Average				Average								Average
		Balance				Interest(1)				Yield/Rate				Balance				Interest(1)				Yield/Rate
		(dollars in thousands)
Assets
Interest-earning assets:
Loans (2)		$	733,160			$	13,664				7.40	%		$	733,100			$	13,303				7.22	%
Securities available-for-sale
Taxable			356,717				3,554				3.99	%			483,496				4,388				3.63	%
Tax-exempt			91				1				5.68	%			284				4				4.99	%
Securities held-to-maturity
Taxable			252,905				2,299				3.64	%			273,233				2,497				3.66	%
Federal funds sold			111,674				1,452				5.20	%			27,185				361				5.30	%
Interest bearing deposits in other banks			116				1				4.47	%			308				3				3.56	%
Total interest earning assets			1,454,663				20,971				5.73	%			1,517,605				20,556				5.40	%
Non interest-earning assets			129,613												125,594
Allowance for loan losses			(9,583	)											(9,672	)
Total assets		$	1,574,693											$	1,633,528
Liabilities and Stockholders’ Equity
Interest bearing deposits:
NOW account		$	204,215			$	1,089				2.12	%			209,416			$	1,036				1.96	%
Savings accounts			110,306				622				2.24	%			88,474				308				1.38	%
Money market accounts			269,019				2,230				3.29	%			334,657				2,710				3.21	%
Time deposits			309,570				3,606				4.62	%			358,812				4,158				4.60	%
Total interest-bearing deposits			893,110				7,547				3.35	%			991,359				8,212				3.29	%
Securities sold under agreements to repurchase			95,418				884				3.68	%			79,283				795				3.98	%
Other borrowed funds and subordinated debentures			172,185				2,404				5.53	%			151,618				2,163				5.66	%
Total interest-bearing liabilities			1,160,713				10,835				3.70	%			1,222,260				11,170				3.63	%
Non interest-bearing liabilities:
Demand deposits			278,610												285,761
Other liabilities			23,454												20,168
Total liabilities			1,462,777												1,528,189
Stockholders’ equity			111,916												105,339
Total liabilities & stockholders equity		$	1,574,693											$	1,633,528
Less taxable equivalent adjustment							(27	)											(15	)
Net interest income						$	10,109											$	9,371
Net interest spread (3)											2.03	%											1.77	%
Net interest margin (4)											2.77	%											2.48	%

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

		Nine Months Ended
		September 30, 2007												September 30, 2006
		Average								Average				Average								Average
		Balance				Interest(1)				Yield/Rate				Balance				Interest(1)				Yield/Rate
		(dollars in thousands)
Assets
Interest-earning assets:
Loans (2)		$	724,398			$	39,802				7.35	%		$	722,978			$	38,151				7.06	%
Securities available-for-sale
Taxable			372,623				10,557				3.78	%			511,436				13,202				3.44	%
Tax-exempt			36				1				5.74	%			473				17				4.79	%
Securities held-to-maturity
Taxable			258,586				7,044				3.63	%			278,497				7,665				3.67	%
Federal funds sold			132,241				5,178				5.22	%			11,484				440				5.11	%
Interest bearing deposits in other banks			166				6				4.57	%			178				5				3.75	%
Total interest earning assets			1,488,050				62,588				5.61	%			1,525,046				59,480				5.21	%
Non interest-earning assets			129,543												122,442
Allowance for loan losses			(9,723	)											(9,527	)
Total assets		$	1,607,870											$	1,637,961
Liabilities and Stockholders’ Equity
Interest bearing deposits:
NOW account		$	204,814			$	3,265				2.13	%			209,775			$	2,905				1.85	%
Savings accounts			105,592				1,630				2.06	%			79,195				521				0.88	%
Money market accounts			288,192				7,051				3.27	%			323,155				6,849				2.83	%
Time deposits			347,909				12,262				4.71	%			342,384				11,069				4.32	%
Total interest-bearing deposits			946,507				24,208				3.42	%			954,509				21,344				2.99	%
Securities sold under agreements to repurchase			87,582				2,428				3.71	%			70,004				1,995				3.81	%
Other borrowed funds and subordinated debentures			161,994				6,791				5.60	%			206,535				8,347				5.40	%
Total interest-bearing liabilities			1,196,083				33,427				3.74	%			1,231,048				31,686				3.44	%
Non interest-bearing liabilities
Demand deposits			278,451												283,089
Other liabilities			23,378												19,373
Total liabilities			1,497,912												1,533,510
Stockholders’ equity			109,958												104,451
Total liabilities & stockholders equity		$	1,607,870											$	1,637,961
Less taxable equivalent adjustment							(61	)											(19	)
Net interest income						$	29,100											$	27,775
Net interest spread (3)											1.87	%											1.77	%
Net interest margin (4)											2.61	%											2.43	%

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.