<PAGE>
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED
SEPTEMBER 30, 1999
- -------------------
COMMISSION FILE NUMBER: 0-25251
-------
CENTRAL BANCORP, INC.
--------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MASSACHUSETTS
--------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
I.R.S. EMPLOYER IDENTIFICATION NO. 04-3447594
399 HIGHLAND AVENUE, SOMERVILLE, MA. 02144
----------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER
(617) 628-4000
--------------
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 such shorter period that the Company was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Class Outstanding at November 12, 1999
- ----------------------------- --------------------------------
Common Stock, $1.00 par value 1,871,650
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CENTRAL BANCORP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of financial condition at
March 31, 1999 and September 30, 1999 (unaudited)
Consolidated Statements of Income for the three and
six month periods ended September 30, 1999 and 1998
(unaudited)
Consolidated Statements of Cash Flow for the three
and six month periods ended September 30, 1999 and
1998 (unaudited)
Consolidated Statements of Changes in Stockholders'
Equity for the three and six month periods ended
September 30, 1999 and 1998 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
For the three and six month periods ended September
30, 1999 and 1998
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
(Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended March
31, 1999)
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<PAGE>
Item 1-Financial Statements
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, March 31,
(Dollars in Thousands) 1999 1999
- ----------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,111 $ 4,964
---------- ----------
Short-term investments 5,642 16,939
Investments available for sale:
Investment securities 28,582 21,943
Mortgage-backed securities 23,494 29,999
Stock in Federal Home Loan Bank of Boston,
at cost 3,664 3,350
The Co-operative Central Bank Reserve Fund 1,576 1,576
---------- ----------
Total investments 62,958 73,807
---------- ----------
Loans:
Mortgage loans 291,254 274,146
Other loans 6,992 6,200
---------- ----------
298,246 280,346
Less allowance for loan losses (2,950) (2,913)
---------- ----------
Net loans 295,296 277,433
---------- ----------
Accrued interest receivable 1,898 1,614
Office properties and equipment, net 2,344 2,550
Deferred tax asset, net 1,180 744
Goodwill, net 2,952 3,096
Other assets 231 488
---------- ----------
Total assets $ 371,970 $ 364,696
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 256,347 $ 266,463
Advances from Federal Home Loan Bank of Boston 74,435 57,000
Advance payments by borrowers for taxes and
insurance 1,130 1,389
Accrued interest payable 340 291
Accrued income taxes 446 --
Accrued expenses and other liabilities 1,078 811
---------- ----------
Total liabilities 333,776 325,954
---------- ----------
Commitments and Contingencies (Note 2)
Stockholders' equity:
Preferred stock $1.00 par
value; authorized 5,000,000 shares;
none issued or outstanding -- --
Common stock $1.00 par value;
authorized 15,000,000 shares;
issued 1,967,000 shares(outstanding
1,914,500 at September 30, 1999 and
1,967,000 shares at March 31, 1999) 1,967 1,967
Additional paid-in capital 11,171 11,171
Retained income 27,092 25,894
Treasury stock (52,500 shares and 0 shares
at September 30, 1999, and March 31,
1999, respectively), at cost (1,094) --
Accumulated other comprehensive income
(loss) (note 4) (391) 327
Unearned compensation - ESOP (551) (617)
---------- ----------
Total stockholders' equity 38,194 38,742
---------- ----------
Total liabilities and stockholders' equity $ 371,970 $ 364,696
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial
statements.
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CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
-------------------- -------------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Mortgage loans $5,268 $5,476 $10,343 $10,825
Other loans 147 97 284 201
Short-term investments 48 102 255 182
Investment securities 472 389 857 787
Mortgage-backed securities 352 558 752 1,168
The Co-operative Central Bank
Reserve Fund 27 27 50 49
------ ------ ------- -------
Total interest and dividend
income 6,314 6,649 12,541 13,212
------ ------ ------- -------
Interest expense:
Deposits 2,161 2,816 4,488 5,656
Advances from Federal Home
Loan Bank of Boston 877 872 1,647 1,693
------ ------ ------- -------
Total interest expense 3,038 3,688 6,135 7,349
------ ------ ------- -------
Net interest and dividend
income 3,276 2,961 6,406 5,863
Provision for loan losses -- -- -- --
------ ------ ------- -------
Net interest and dividend
income after provision
for loan losses 3,276 2,961 6,406 5,863
------ ------ ------- -------
Non-interest income:
Deposit service charges 99 106 207 213
Net gains from sales of
investment securities 494 21 612 184
Other income 67 61 119 122
------ ------ ------- -------
Total non-interest income 660 188 938 519
------ ------ ------- -------
Operating expenses:
Salaries and employee benefits 1,216 1,081 2,407 2,171
Occupancy and equipment 293 340 589 637
Data processing service fees 144 143 281 271
Professional fees 198 191 412 363
Goodwill amortization 72 72 144 144
Other expense 345 383 668 735
------ ------ ------- -------
Total operating expenses 2,268 2,210 4,501 4,321
------ ------ ------- -------
Income before income taxes 1,668 939 2,843 2,061
Income tax expense 636 375 1,098 826
------ ------ ------- -------
Net Income before cumulative
effect of change in
accounting principle 1,032 564 1,745 1,235
Cumulative effect of change in
accounting principle -- -- (234) --
------ ------ ------- -------
Net income $1,032 $ 564 $ 1,511 $ 1,235
====== ====== ======= =======
Earnings per common share before
cumulative effect of change
in accounting principle $ 0.54 $ 0.29 $ 0.91 $ 0.64
====== ====== ======= =======
<PAGE>
Earnings per common share before
cumulative effect of change
in accounting principle,
diluted $ 0.54 $ 0.29 $ 0.91 $ 0.63
====== ====== ======= =======
Earnings per common share after
cumulative effect of change
in accounting principle $ 0.54 $ 0.29 $ 0.79 $ 0.64
====== ====== ======= =======
Earnings per common share after
cumulative effect of change
in accounting principle,
diluted $ 0.54 $ 0.29 $ 0.78 $ 0.63
====== ====== ======= =======
Weighted average common shares
outstanding 1,907 1,937 1,920 1,937
Weighted average common shares
outstanding, diluted 1,914 1,945 1,926 1,950
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
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CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
(In Thousands) 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,511 $ 1,235
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 238 284
Amortization of premiums, fees and discounts 65 110
Amortization of goodwill 144 144
Net gains from sales of investment securities (612) (184)
Decrease(increase) in accrued interest receivable (284) (99)
(Increase) in deferred tax asset (436) 0
Decrease in other assets 257 14
Increase(decrease) in advance payments by borrowers for
taxes and insurance (259) 253
Increase(decrease) in accrued interest payable 49 (183)
Increase (decrease) in accrued income taxes 446 (902)
Increase in accrued expenses and other liabilities 267 137
-------- --------
Net cash provided by operating activities 1,386 809
-------- --------
Cash flows from investing activities:
Principal collected on loans 41,716 56,868
Loan originations (59,579) (70,724)
Principal payments on mortgage-backed securities
available for sale 6,315 8,288
Purchase of investment securities available for sale (13,022) (572)
Maturities of investment securities available for sale 2,000 6,100
Proceeds from sales of investment securities
available for sale 4,402 470
Maturities of investment securities held to maturity 0 2,000
Net (increase) decrease in short-term investments 11,297 (5,256)
Purchase of Stock in Federal Home Loan Bank of Boston (314) (150)
Purchase of office properties and equipment (32) (456)
-------- --------
Net cash used by investing activities (7,217) (3,432)
-------- --------
Cash flows from financing activities:
Net (decrease)increase in deposits (10,116) 661
Proceeds from advances from FHLB of Boston 29,435 38,000
Payments on advances from FHLB of Boston (12,000) (37,000)
Purchase of Treasury stock (1,094) 0
Payments of dividends on common stock (313) (314)
Amortization of unearned compensation - ESOP 66 6
-------- --------
Net cash provided by financing activities 5,978 1,353
-------- --------
Net (decrease)increase in cash and due from banks 147 (1,270)
Cash and due from banks at beginning of period 4,964 5,718
-------- --------
Cash and due from banks at end of period $ 5,111 $ 4,448
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 6,086 $ 7,532
Income taxes 652 1,728
Schedule of noncash investing activities:
Transfer of mortgage loans to real estate
acquired by foreclosure 0 0
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional Other
Common Paid-in Retained Comprehensive
(In Thousands) Stock Capital Income Income
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six Months Ended September 30, 1998
- -------------------------------------
Balance at March 31, 1998 $1,965 $11,159 $23,841 $ 544
------ ------- -------- --------
Net income -- -- 1,235 --
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) -- -- -- (181)
------ ------- -------- -------
Comprehensive income (loss) -- -- 1,235 (181)
------ ------- -------- -------
Dividends Paid -- -- (314) --
Amortization of unearned compensation - ESOP -- -- -- --
------ ------- -------- -------
Balance at September 30, 1998 $1,965 $11,159 $24,762 $ 363
====== ======= ======= =======
Six Months Ended September 30, 1999
- -----------------------------------
Balance at March 31, 1999 $1,967 $11,171 $25,894 $ 327
------ ------- -------- -------
Net Income -- -- 1,511 --
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) -- -- -- (718)
------ ------- -------- -------
Comprehensive income (loss) -- -- 1,511 (718)
------ ------- -------- -------
Purchase of treasury stock -- -- -- --
Dividends Paid -- -- (313) --
Amortization of unearned compensation - ESOP -- -- -- --
------ ------- -------- -------
Balance at September 30, 1999 $1,967 $11,171 $ 27,092 $ (391)
====== ======= ======== =======
<CAPTION>
Unearned Total
Treasury Compensation Stockholders'
(In Thousands) Stock ESOP Equity
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Six Months Ended September 30, 1998
- -----------------------------------
Balance at March 31, 1998 $ -- $ (723) $ 36,786
----- ------- --------
Net Income -- -- 1,235
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) -- -- (181)
----- ------- --------
Comprehensive income (loss) -- -- 1,054
----- ------- --------
Dividends paid -- -- (314)
Amortization of unearned compensation - ESOP -- 6 6
----- ------- --------
Balance at September 30, 1998 $ -- $ (717) $ 37,532
===== ======= ========
Six Months Ended September 30, 1999
- -----------------------------------
Balance at March 31, 1999 $ -- $ (617) $ 38,742
------- ------- --------
Net income -- -- 1,511
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) -- -- (718)
------- ------- --------
Comprehensive income (loss) -- -- 793
------- ------- --------
Purchase of treasury stock (1,094) -- (1,094)
Dividends Paid -- -- (313)
Amortization of unearned compensation - ESOP -- 66 66
------- ------- --------
Balance at September 30, 1999 $(1,094) $ (551) $ 38,194
======= ======= ========
</TABLE>
<PAGE>
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) BASIS OF PRESENTATION
The consolidated financial statements of the Company for
September 30, 1999 and the Bank for September 30, 1998
presented herein should be read in conjunction with the
financial statements of the Company as of and for the year
ended March 31, 1999, included in the Company's Annual
Report on Form 10-K. In the opinion of management, the
accompanying unaudited consolidated financial statements
reflect all adjustments, consisting of normal recurring
adjustments, necessary to fairly present the results for
the interim periods presented. Interim results are not
necessarily indicative of results to be expected for the
entire year.
(2) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Commitments to originate loans, unused lines of credit and
unadvanced portions of construction loans are agreements to
lend to a customer, provided there is no violation of any
condition established in the contract. Commitments
generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of
the commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent
future cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management's
credit evaluation of the borrower.
Commitments at September 30, 1999 follow:
Unused lines of credit...................... $ 9,522,000
Unadvanced portions of construction loans... 3,696,000
Unadvanced portions of commercial loans..... 10,939,000
Commitments to originate residential
mortgage loans:
Fixed rate........................ 619,000
Adjustable rate................... 2,140,000
<PAGE>
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) INCOME TAXES
The Company accounts for income taxes using the asset and
liability tax method. Deferred tax assets and liabilities
are established for the temporary differences between the
financial reporting basis and the tax basis of the Company's
assets and liabilities at enacted tax rates expected to be
in effect when such amounts are realized or settled.
(4) REPORTING COMPREHENSIVE INCOME
The Company has established standards for reporting and
displaying comprehensive income, which is defined as all
changes to equity except investments by, and distributions
to, shareholders. Net income is a component of
comprehensive income, with all other components referred to
in the aggregate as other comprehensive income.
The Company's other comprehensive income (loss) and related
tax effect is as follows:
<TABLE>
<CAPTION>
For the Six Months Ended
(In Thousands) September 30, 1999
- ----------------------------------------------------------------------------------
Before- Tax
Tax (Benefit) After-Tax
Amount Expense Amount
------ --------- ---------
<S> <C> <C> <C>
Unrealized gains (losses) on securities
Unrealized holding gains arising during
period $ (542) $(200) $ (342)
Less: reclassification adjustment for
gains realized in net income 612 236 376
------------------------------
Other comprehensive income (loss) $(1,154) $(436) $ (718)
==============================
<CAPTION>
For the Six Months Ended
(In Thousands) September 30, 1998
- ----------------------------------------------------------------------------------
Before- Tax
Tax (Benefit) After-Tax
Amount Expense Amount
------ --------- ---------
<S> <C> <C> <C>
Unrealized gains (losses) on securities
Unrealized holding gains arising during
period $ (108) $ (41) $ (67)
Less: reclassification adjustment for
gains realized in net income 184 70 114
------------------------------
Other comprehensive loss $ (292) $(111) $(181)
==============================
</TABLE>
<PAGE>
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL:
- -------
On January 8, 1999, the Registrant, Central Bancorp, Inc.
became the holding company of Central Co-operative Bank when
the Bank completed its holding company reorganization.
Because substantially all of the business of the Registrant
is the business of the Bank, the discussion below focuses on
the business of the Bank. For more information, see
"Management's Discussion and Analysis of Financial Condition
and Results of Operations Holding Company" included in the
Company's Annual Report on Form 10-K as of and for the year
ended March 31, 1999.
Net income amounted to $1,032,000, or $0.54 per diluted share
for the three months ended September 30, 1999 as compared to
net income of $564,000, or $0.29 per diluted share in the
corresponding quarter ended September 30, 1998.
Net income for the current quarter was higher than net income
for the same period in 1998 primarily due to an increase in net
interest income of $315,000 and an increase of $473,000 in net
gains from sales of investment securities offset by an increase
of $261,000 in income tax expense.
YEAR 2000 READINESS DISCLOSURE:
- ------------------------------
The statements in this section include "Year 2000 Readiness
Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act. The following "Year 2000" discussion
contains forward looking statements which represent the
Company's beliefs or expectations regarding future events.
Forward-looking statements include, without limitation, the
Company's expectations as to when it will complete the phases
of the Plan, its estimated costs, and its belief that its
statements involve a number of risks and uncertainties that
could cause the actual results to differ materially from the
projected results. Factors that may cause these differences
include, but are not limited to, the availability of qualified
personnel and other information technology resources, the
ability to identify and remediate all date sensitive lines of
computer code, and the actions of governmental agencies or
other third parties with respect to Year 2000 problems. This
disclosure should be read in conjunction with the Year 2000
Readiness Disclosure contained in the Company's Annual Report
on Form 10-K as of and for the year ended March 31, 1999.
The impact of computer systems ability to process dates beyond
1999 creates a significant business challenge for the Company.
The Company has dedicated significant resources to this issue.
The Company has formed a committee with members from all
departments of the Company to address Year 2000 readiness. The
committee has developed plans based upon the Federal Financial
Institutions Examination Council ("FFIEC") to address this and
related issues. The components of the Company's plan focus on;
software and hardware utilized by the Company, communication
equipment and other equipment and facilities utilized by the
Company, including security and environmental systems.
Additionally, the plan includes analysis of other risks posed
by this issue such as liquidity, cash requirements, credit
risk, supplier risk, borrower readiness, etc.
The Company is utilizing both internal and external resources to
test for Year 2000 compliance. The external cost associated
with Year 2000 issues is estimated to be between $50,000 and
$100,000. Included in the estimated cost are such things as
third party proxy testing and other testing of critical
systems, customer awareness programs, any necessary new
equipment or upgrades, and other contingencies that may arise.
To date the Company has recorded external costs amounting to
approximately $50,000. This total does not include internal
costs relating to Year 2000 issues, which are not readily
determinable.
The costs of the Year 2000 project and the date on which the
Company plans to complete any necessary modifications are based
upon management's best estimates, which were derived utilizing
numerous assumptions. However, there can be no guarantee that
these estimates will be achieved and actual results could
differ materially from those plans.
Third party service bureaus provide the majority of the
material data processing of the Company that could be affected
by this problem. During the first quarter of fiscal 1999, the
Company converted its data processing to a service provider
that has represented to the Company that it is Year 2000
compliant. Planned testing has been completed for all critical
systems. Additional testing will continue for the remainder of
the year to ensure that any normal software changes installed
after original testing was completed did not negatively impact
the systems as they relate to the Year 2000 issue.
The Company has initiated an extensive education and
investigation program with regard to the borrowers of the
Company. This effort has been directed at determining the
level of risk to the Company in the loan portfolio from the
failure of borrowers that encounter business problems
relating to Year 2000 compliance. This process has included
questionnaires and interviews with large borrowers to try to
assess this risk. To date no additional loan loss provision
has been deemed necessary. However, this is an ongoing
process and will be evaluated at least quarterly for as long
as necessary.
The Company has prepared a contingency plan of action to address
any business interruption problems arising with regard to Year
2000. This is a dynamic plan and will be updated as deemed
appropriate by management. The plan includes operating in an
off-line mode if our data processing supplier's systems
unexpectedly fail. Additionally, the plan includes operating
alternatives such as the use of paper based records and forms,
alternative power sources and cellular phones should there be
a failure of any critical services utilized by the Company such
as electricity or telephone services.
The Company presently believes that, based on current
information, the Year 2000 problem will not pose significant
operational problems for the Company. However, the majority of
any further modifications, if required, are beyond the direct
control of the Company because the Company's third party data
processing vendor must make them. Therefore, if any further
modifications are not completed in a timely manner, the Year
2000 problem may have a material adverse impact on the
operations of the Company.
FINANCIAL CONDITION:
- -------------------
The following is a discussion of the major changes and trends
in financial condition from the end of the preceding fiscal
year, March 31, 1999, to September 30, 1999.
Total assets increased from $364.7 million at March 31, 1999 to
$372.0 million at September 30, 1999 primarily as a result of
an increase in the Company's loan portfolio, offset by a
decrease in investments.
The Company's loan balance grew by $17.9 million or 6.4% as a
result of loan originations amounting to $59.6 million, $42.4
million of which were in residential real estate loans. Loan
amortization and pay-
<PAGE>
<PAGE>
offs amounted to approximately $41.7 million. The Company's
investment portfolio decreased by $10.8 million, primarily as a
result of net pay-downs of mortgage-backed securities,
maturities, calls, purchases and sales of investment securities
and a decline in short term investments. Funds from the decline
in the Company's investment portfolio were primarily used to
fund the increase in the loan portfolio.
Deposits decreased during the six month period by $10.1 million.
Because of the competitive deposit rate environment in the
Bank's primary market area, the Bank chose to allow some
volatile, interest rate sensitive deposits to run off and to
utilize favorably priced FHLB advances to offset this deposit
loss and to fund the loan growth. Advances from the Federal
Home Loan Bank of Boston increased from $57.0 million to $74.4
million.
As previously announced, the Company has extended for six
months, the stock repurchase program it adopted in April 1999,
whereby it intends to acquire up to 98,350 shares of the
Company's common stock, which represented approximately 5% of
the outstanding shares of common stock at the time of the
adoption of the program. Through September 30, 1999, the
Company had repurchased 52,500 shares of Common Stock.
NON-PERFORMING ASSETS:
- ---------------------
The Company had non-accruing loans totaling $38,000 at
September 30, 1999, a decrease of $381,000 or 90.9% from
$419,000 on March 31, 1999. Interest income not recognized on
non-accruing loans amounted to approximately $1,000 for the
first six months of fiscal 2000.
The following table sets forth information with respect to the
Company's non-performing assets for the dates indicated:
<TABLE>
<CAPTION>
Sept.30, March 31, Sept.30,
1999 1999 1998
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a
non-accrual basis, (non-accruing loans) $ 38 $ 419 $ 204
Impaired loans, accruing 0 0 1,296
Non-accruing loans as a percentage of
total loans 0.01% 0.15% 0.07%
Non-accruing loans as a percentage of
total assets 0.01% 0.11% 0.05%
</TABLE>
<PAGE>
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999,
AND 1998:
Net income for the three months ended September 30, 1999, and
1998, amounted to $1,032,000 or $0.54 per diluted share and
$564,000 or $0.29 per diluted share, respectively.
Average earning assets decreased by $9.4 million while the rate
earned on these assets decreased 13 basis points to 7.07%
during the second quarter of fiscal 2000 when compared to the
second quarter of fiscal 1999. The average balance of
interest-bearing liabilities decreased $12.7 million while the
rates paid on these liabilities decreased by 65 basis points
during the quarter ended September 30, 1999 when compared to
the same period one year ago. Together these developments
resulted in a $335,000 decrease in interest and dividend income
and a corresponding decrease of $650,000 in interest expense.
The combination resulted in a $315,000 increase in net interest
and dividend income from the fiscal 1999 quarter to the fiscal
2000 quarter.
Interest income from the Company's loan portfolio decreased
$158,000 in the second quarter of fiscal 2000. This decrease was
primarily the result of a $4.5 million increase in the average
loan balance offset by a 33 basis point decrease in average
rates earned on these loans.
Income from the Company's investment portfolio (which includes
short term investments, investment securities, mortgage backed
securities and The Co-operative Central Bank Reserve Fund)
decreased by $177,000 during the second quarter of fiscal 2000
when compared to the same fiscal 1999 period. The yield on
these assets increased by 10 basis points while the average
balance decreased by $13.9 million during the fiscal 2000
quarter.
The Company's cost of deposits decreased by $655,000 during the
second quarter of fiscal 2000 when compared to the same fiscal
1999 quarter. The rate paid on deposits decreased 46 basis
points from 4.03% during the quarter ended September 30, 1998
to 3.57% during the quarter ended September 30, 1999. The
average balance of these deposits decreased $21.0 million to
$241.8 million during the second quarter of fiscal 2000 from
$262.8 million during the fiscal 1999 second quarter.
The average balance of borrowed funds increased by $8.3 million
to $70.8 million in the fiscal 2000 second quarter compared to
$62.5 million in the same fiscal 1999 quarter. The rate paid
on borrowings decreased by 50 basis points in the fiscal 2000
quarter to 4.95% from 5.45% in the fiscal 1999 quarter. The
combined effect of these changes resulted in an increase of
$5,000 in interest expense on borrowings to $877,000 in the
second quarter of fiscal 2000 compared to $872,000 in fiscal
1999's second quarter.
The provision for loan losses is made to maintain the allowance
for loan losses at a level which management considers adequate
to provide for probable losses based on an evaluation of known
and inherent risks in the loan portfolio. Consistent with the
current evaluation of the loan portfolio, the Company did not
make any provision for the second quarter of fiscal 2000 or
fiscal 1999.
Non-interest income increased by $472,000 to $660,000 in the
second quarter of fiscal 2000 from $188,000 in the second
fiscal 1999 quarter. The Company recorded $494,000 and $21,000
in net gains from sales of investment securities during the
second quarter of fiscal 2000 and fiscal 1999, respectively.
This $473,000 increase in net gains from the sale of investment
securities is the primary reason for the increase in non-
interest income between the two quarters.
Operating expenses increased $58,000 in the second quarter of
fiscal 2000 compared to the same quarter of fiscal 1999. This
increase is primarily attributable to increases in salaries and
employee benefits of $135,000 offset by decreases of $47,000 in
occupancy and equipment and $38,000 in other expense.
<PAGE>
The provision for Federal and state income taxes amounted to
$636,000 and $375,000 during the second quarter of fiscal 2000
and fiscal 1999, respectively. The increased expense relates
primarily to the increased level of pre-tax income. During the
second quarter of fiscal 2000, the Bank implemented a tax
saving strategy that reduced the effective tax rate from 39.9%
for the three month period ended September 30, 1998 to 38.1%
for the three month period ended September 30, 1999.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1999, AND
1998:
Net income for the six months ended September 30, 1999, and
1998, amounted to $1,511,000 or $0.78 per diluted share and
$1,235,000 or $0.63 per diluted share, respectively. Net
income for the six month period ended September 30, 1999,
included a one-time charge of $234,000, net of taxes, for costs
associated with the establishment on January 8, 1999, of
Central Bancorp, Inc., as the holding company for Central Bank.
This charge, which was previously reported, represented the
balance of unamortized organization costs outstanding as of
April 1, 1999, that were required to be written off in
accordance with the American Institute of Certified Public
Accountants' Statement of Position 98-5, Reporting of the Costs
of Start-up Activities. Net income before the cumulative
effect of this change in accounting principle for the six
months ended September 30, 1999, was $1,745,000, or $0.91 per
diluted share.
The average balance of earning assets decreased by $12.5
million during the first six months of fiscal 2000 while the
rate earned on these assets decreased 23 basis points when
compared to the first six months of fiscal 1999. Average
interest-bearing liabilities decreased $18.4 million while the
rates paid on these liabilities decreased by 51 basis points
during the first six months of fiscal 2000 when compared to the
same period one year ago. The combination of these
developments resulted in a $671,000 decrease in interest and
dividend income and a decrease of $1.2 million in interest
expense which caused net interest and dividend income to
increase by $543,000 in the first six months of fiscal 2000
from the same fiscal 1999 six month period.
Total interest and dividend income in the six months ended
September 30, 1999 amounted to $12.5 million compared to $13.2
million in the first six months of fiscal 1999. The decrease
resulted from a decrease in the average balance of interest
earning assets from $366.7 million in the first six months of
fiscal 1999 to $359.6 million in the first six months of fiscal
2000. The yield on interest earning assets decreased by 23
basis points to 6.98% in the first six months of fiscal 2000
from 7.21% in the comparable fiscal 1999 period.
The decrease of $399,000 in interest income from the Bank's
loan portfolio during the first six months of fiscal 2000 was
primarily the result of a reduction of 28 basis points in the
average rates earned on these loans from 7.67% during the first
six months of fiscal 1999 to 7.39% during the current six month
period offset by an increase in the average loan balance of
$445,000 from the first six months of fiscal 1999 to the first
six months of fiscal 2000.
Interest and dividend income from the Bank's investment
portfolio decreased by $272,000 during the first six months of
fiscal 2000 when compared to the same fiscal 1999 period. The
decrease in income was a result of the average balance
decreasing by $7.5 million and a 36 basis points yield decrease
during the first six months of fiscal 2000 as compared to the
same fiscal 1999 period.
Total interest expense decreased by $1.2 million during the
first six months of fiscal 2000 when compared to the same
fiscal 1999 period. Interest expense on deposits decreased by
$1.2 million during the six months ended September 30, 1999
when compared to fiscal 1999's first six months. The rate
<PAGE>
<PAGE>
paid on deposits decreased 56 basis points from 4.07% to 3.51%
while the average balance of these deposits also decreased by
$21.6 million to $255.7 million from $277.3 million during the
first six months of fiscal 2000 when compared to the first six
months of fiscal 1999.
The average balance of borrowed funds increased by $3.1 million
to $63.9 million in the fiscal 2000 first six months compared
to $60.8 million in the same fiscal 1999 six months. The rate
paid on borrowings decreased by 32 basis points in the fiscal
2000 six months to 5.15% from 5.47% in fiscal 1999. The
combined effect of these changes resulted in interest expense
on borrowings decreasing $46,000 to $1.6 million in the first
six months of fiscal 2000 compared to $1.7 million during the
six months ended September 30, 1998.
The provision for loan losses is made to maintain the allowance
for loan losses at a level which management considers adequate
to provide for probable losses based on an evaluation of known
and inherent risks in the loan portfolio. Consistent with the
current evaluation of the loan portfolio, the Company did not
make any provision for the second quarter of fiscal 2000 or
fiscal 1999.
Non-interest income increased by $419,000 to $938,000 in the
first six months of fiscal 2000 from $519,000 in the same
period of fiscal 1999. The Company recorded $612,000 and
$184,000 in net gains from sales of investment securities
during the first six months of fiscal 2000 and fiscal 1999,
respectively. This $428,000 increase in net gains from the sale
of investment securities is the primary reason for the increase
in non-interest income between the two periods.
Operating expenses increased $180,000 during the first six
months of fiscal 2000 compared to the same period of fiscal
1999. This increase is primarily attributable to increases in
salaries and employee benefits of $236,000 and in professional
fees of $ 49,000 offset by decreases of $48,000 in occupancy
and equipment and $67,000 in other expense.
The provision for Federal and state income taxes amounted to
$1,098,000 and $826,000 during the first six months of fiscal
2000 and fiscal 1999, respectively. The increased expense
relates primarily to the increased level of pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
The Company's principal sources of liquidity are loan
amortization, loan prepayments, increases in deposits and
advances from The Federal Home Loan Bank (FHLB) of Boston. The
Company is a voluntary member of the FHLB of Boston and as such
is generally entitled to borrow up to 30% of its total assets.
Cash from these liquidity sources is used to fund loan
originations, security investments, deposit maturities and
repayment of FHLB of Boston advances. The Company's capital to
assets ratio was 10.27% on September 30, 1999, which exceeded
regulatory requirements.
NEW ACCOUNTING PRONOUNCEMENT:
- ----------------------------
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair market
value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or
an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted
<PAGE>
transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
The accounting for changes in the fair value of a derivative
(that is gains and losses) depends on the intended use of the
derivative and the resulting designation. In June 1999, the
FASB issued SFAS 137 which delays the effective date of SFAS
133 so that it is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company does not
expect this statement to have a material effect on its
consolidated financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
The Company has experienced no material changes in market risk
since March 31, 1999.
FORWARD-LOOKING STATEMENTS
- --------------------------
This report includes forward-looking statements that involve
inherent risks and uncertainties. A number of important
factors could cause actual results to differ materially from
those in the forward-looking statements. Those factors include
the economic environment, competition, products and pricing in
geographic and business areas in which the Company operates,
prevailing interest rates, changes in government regulations
and policies affecting financial services companies, and credit
quality and credit risk management. Central Bancorp, Inc.
undertakes no obligation to release revisions to these forward-
looking statements or reflect events or circumstances after the
date of this report.
<PAGE>
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security
Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27, FDS, Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30,
1999, the Registrant did not file a
Current Report on Form 8-K.
<PAGE>
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
CENTRAL BANCORP, INC. AND SUBSIDIARY
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
CENTRAL BANCORP, INC. AND SUBSIDIARY
------------------------------------
11/12/99 /s/ John D. Doherty
- ---------- -------------------------------------
Date John D. Doherty
President and Chief Executive Officer
11/12/99 /s/ Paul S. Feeley
- ---------- -------------------------------------
Date Paul S. Feeley
Senior Vice President, Treasurer
and Chief Financial Officer
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 5,111
<INT-BEARING-DEPOSITS> 177
<FED-FUNDS-SOLD> 5,465
<TRADING-ASSETS> 0
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<DEPOSITS> 256,347
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<LONG-TERM> 74,435
<COMMON> 1,967
0
0
<OTHER-SE> 36,227
<TOTAL-LIABILITIES-AND-EQUITY> 371,970
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<INCOME-PRETAX> 2,843
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<EPS-DILUTED> 0.78
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