<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 8-K12G3
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 8, 1999
CENTRAL BANCORP, INC.
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(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
Massachusetts Requested upon filing 04-3447594
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State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
</TABLE>
399 Highland Avenue, Somerville, Massachusetts 01144
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 628-4000
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Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
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On January 8, 1999, the Registrant completed the acquisition of Central Co-
operative Bank (the "Bank") pursuant to a Plan of Reorganization and
Acquisition, dated August 13, 1998, pursuant to which the Bank became a wholly
owned subsidiary of the Registrant, a newly formed holding company incorporated
by the Bank for that purpose. Under the terms of the Plan of Reorganization and
Acquisition, each outstanding share of the common stock, $1.00 par value per
share, of the Bank (the "Bank's Common Stock") was converted into one share of
the common stock, $1.00 par value per share, of the Registrant (the "Common
Stock") and the former holders of the Bank's Common Stock became the holders of
all the outstanding Common Stock. The Registrant has thereby become the
successor issuer to the Bank.
DESCRIPTION OF CAPITAL STOCK
The Articles of Organization of the Registrant authorize the issuance of up
to 15,000,000 shares of Common Stock and up to 20,000,000 shares of serial
preferred stock, $1.00 par value per share. Effective upon consummation of the
holding company reorganization there were 1,965,000 shares of Common Stock
outstanding. Each share of the Common Stock has the same relative rights and is
identical in all respects with every other share of Common Stock.
COMMON STOCK
Voting Rights. The holders of the Common Stock possess exclusive voting
rights in the Registrant, except to the extent that shares of serial preferred
stock issued in the future may have voting rights, if any. Each holder of
shares of the Common Stock is entitled to one vote for each share held of record
on all matters submitted to a vote of holders of shares of the Common Stock,
without any right to cumulate voting in the election of directors.
The Articles of Organization of the Registrant require the holders of at
least two-thirds of the Registrant's outstanding shares of voting stock to
approve certain "Business Combinations," as defined therein, and related
transactions. The approval of the holders of at least two-thirds of the
outstanding voting stock of the Registrant is required in connection with any
such transaction involving a "Related Person," except in cases where the
proposed transaction has been approved in advance by a majority of those members
of the Registrant's Board of Directors who were directors prior to the time when
the "Related Person" became a "Related Person" and are unaffiliated with the
"Related Person." The term "Related Person" is defined to include any
individual, corporation, partnership or other entity which together with its
affiliates owns beneficially or controls, directly or indirectly, 10% or more of
the outstanding shares of voting stock of the Registrant. These provisions apply
to any "Business Combination" which is defined to include (1) any merger or
consolidation of the Registrant with or into any Related Person; (2) any sale,
lease, exchange, transfer or other disposition, including without limitation a
mortgage, or any other security device, of all or any substantial part of the
assets of the Registrant (including without limitation any voting securities of
a subsidiary) or of a subsidiary, to a "Related Person" (the term "substantial
part" is defined to include more than 25% of the fair market value of the
Registrant's total assets as of the end of its most recent fiscal year); (3) any
merger or consolidation of a "Related Person" with or into
<PAGE>
the Registrant or a subsidiary of the Registrant; (4) any sale, lease, exchange,
or transfer or other disposition of all or a substantial part of the assets of a
"Related Person" to the Registrant or a subsidiary of the Registrant; (5) the
issuance of any securities of the Registrant or a subsidiary of the Registrant
to a Related Person; (6) the acquisition by the Registrant or a subsidiary of
the Registrant of any securities of the "Related Person"; (7) any
reclassification of the Common Stock or any recapitalization involving Stock;
and (8) any agreement, contract or other arrangement providing for any of the
previously described transactions.
Amendments to certain provisions of the Registrant's Articles of
Organization require the affirmative vote of at least two-thirds of the
outstanding shares entitled to vote thereon.
Amendments to the Registrant's Bylaws require the affirmative vote of at
least two-thirds of the outstanding shares entitled to vote thereon.
Additionally, the Bylaws may be amended by the Registrant's Board of Directors
upon the affirmative vote of not less than two-thirds of the directors then in
office.
Limitations on Actions by Stockholders. The Registrant's Articles of
Organization provide that special meetings of the stockholders may only be
called by the Board of Directors, the President or a duly constituted committee
of the board, and no action may be taken by consent of the stockholders without
a meeting, unless all of the stockholders entitled to vote on the matter consent
in writing and the written consents are filed with the records of the meetings
of stockholders. The Articles of Organization provide that stockholder
nominations for directors must be delivered to the Clerk of the Registrant, not
less than 30 nor more than 60 days prior to a meeting of stockholders to elect
directors.
Classified Board of Directors. The Articles of Organization of the
Registrant provide for a classified Board of Directors, consisting of three
substantially equal classes of directors, each serving for a three-year term.
Removal of Directors. The Registrant's Articles of Organization provide
generally that a director may be removed for cause as defined therein only by
the affirmative vote of the holders of at least two-thirds of the outstanding
shares of stock entitled to vote generally in the election of directors at a
meeting of stockholders called for that purpose.
Dividends. The Registrant may, from time to time, declare dividends out of
funds legally available therefor to the holders of the Common Stock who will be
entitled to share equally in any such dividends.
Preemptive Rights. The stockholders of the Registrant will not have
preemptive rights.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Registrant, each holder of shares of the Common Stock would be entitled to
receive, after payment of all debts and liabilities of the Registrant, a pro
rata portion of the remaining assets of the Registrant available for
distribution, in cash or in kind, to holders of the Common Stock. If any shares
of serial preferred stock are issued, the holders thereof may have a priority in
liquidation or dissolution over the holders of the Common Stock.
<PAGE>
Rights Plan. On January 8, 1999 the Board of Directors of the Registrant
adopted and approved a substantially identical rights agreement ("Rights
Agreement") to that of its wholly-owned subsidiary Central Co-Operative Bank's
rights agreement, under which a dividend was declared of one right (the "Right")
for each share of Common Stock outstanding as of the close of business on
January 8, 1999 (the "Record Time"), as well as, for those newly issued shares
of Common Stock after the Record Time. Each Right entitles the holder of
Common Stock to purchase, after the "Separation Time" (generally the tenth day
following the date on which any person commences a tender or exchange offer in
which such person becomes an "acquiring person" or such later date as the Board
of Directors may fix by resolution adopted prior to the Separation Time), one
share of Common Stock at the exercise price of $22.00. The Right may be
exercised upon (i) a public announcement by the Registrant or by a Schedule 13D
filed with the SEC that a person has become an "Acquiring Person" (generally
defined as any person who has acquired 10% or more of the outstanding shares of
Common Stock) or (ii) the date the Registrant announces that a person acquiring
Common Stock is an "Adverse Person" (generally, a person who becomes the owner
of 10% or more of the outstanding shares of Common Stock and the Board of
Directors determines by a majority vote that such acquisition of Common Stock is
likely to have an adverse material impact upon the Registrant). Under the
Rights Agreement the Board of Directors may approve, by majority vote, the
acquisition of Common Stock by a person acquiring up to 10% of Common Stock
without triggering the Rights. There is no monetary value presently assigned to
the Rights, except for a redemption value of $.01 per share, and the Rights do
not trade separately from the share of the Common Stock. The Rights Agreement
may have a certain antitakeover effect, although it is not intended to preclude
any prospective offer for all outstanding shares of Common Stock at a fair price
and otherwise in the best interest of the Registrant and its stockholders as
determined by the Board of Directors. The Rights Agreement will expire in
October of 2001.
Other Characteristics. The Common Stock is not subject to call for
redemption, and, assuming receipt of sufficient consideration by the Registrant,
the shares of the Common Stock are fully paid and nonassessable.
Transfer Agent and Registrar. Registrar and Transfer Company acts as
transfer agent and registrar for the Common Stock.
SERIAL PREFERRED STOCK
The Board of Directors of the Registrant is authorized to issue up to
5,000,000 shares of preferred stock (which may be issued in series) and to fix
the powers, designations and preferences, or other rights, of the shares of each
series and the qualifications, limitations and restrictions thereof. Each share
of each series of serial preferred stock must have the same relative rights as
and be identical in all respects with all the other shares of the same series.
The serial preferred stock may rank prior to the Common Stock as to dividend
rights, liquidation preferences, or both, and may have full or limited voting
rights (including multiple voting rights and voting rights as a class), and may
be convertible into shares of Common Stock. None of the 5,000,000 authorized
shares of serial preferred stock of the Registrant has been issued.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
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Listed below are the financial statements filed as a part of this report.
(a)(1) Financial Statements of Business Acquired.
Independent Auditors' Report
Consolidated Balance Sheets as of March
31, 1998 and 1997
Consolidated Statements of Income for the Fiscal Years
Ended March 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Fiscal Years
Ended March 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders'
Equity for the Fiscal Years Ended March 31, 1998, 1997
and 1996
Notes to Consolidated Financial Statements for the Fiscal
Years Ended March 31, 1998, 1997 and 1996
Consolidated Balance Sheets as of March 31, 1998
and the Six Months Ended September 30, 1998 (unaudited)
Consolidated Statements of Income for the Three
and Six Month Periods Ended September 30, 1998 and 1997
(unaudited)
Consolidated Statements of Cash Flows for the Six
Month Periods Ended September 30, 1998 and 1997
(unaudited)
Consolidated Statements of Changes in Stockholders'
Equity for and the Six Month Periods Ended September 30,
1998 and 1997 (unaudited)
Notes to Consolidated Financial Statements for the
Six Month Periods Ended September 30, 1998 and 1997
(unaudited)
Prior to the consummation of the holding company reorganization, the
Registrant did not have any significant assets or liabilities. Accordingly no
financial statements of the Registrant are presented and the pro forma
consolidated financial statements of the Registrant would reflect no material
differences from the consolidated financial statements of the Bank for the years
ended March 31, 1998, 1997 and 1996 and the six months ended September 30, 1998
set forth below.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Central Co-operative Bank
We have audited the accompanying balance sheets of Central Co-operative Bank
as of March 31, 1998 and 1997, and the related statements of income, changes
in stockholders' equity and cash flows for each of the years in the three-
year period ended March 31, 1998. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Central Co-
operative Bank as of March 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended March 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
April 28, 1998
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<CAPTION>
Balance Sheets
March 31,
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(In Thousands) 1998 1997
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<S> <C> <C>
ASSETS
Cash and due from banks $ 5,718 $ 3,995
Short-term investments 3,321 3,038
Investments available for sale:
Investment securities (amortized cost of $23,536 in
1998 and $35,815 in 1997) (notes 3 and 13) 24,524 36,030
Mortgage-backed securities (amortized cost of $45,263 in
1998 and $28,180 in 1997) (note 3) 45,182 27,809
Investments held to maturity:
Investment securities (market value of $3,963 in
1998 and $3,846 in 1997) (notes 3 and 13) 4,000 4,000
Stock in Federal Home Loan Bank of Boston, at cost (note 9) 3,150 2,332
The Co-operative Central Bank Reserve Fund (note 10) 1,576 1,576
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Total investments 81,753 74,785
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Loans:
Mortgage loans (notes 4 and 6) 277,025 229,716
Other loans (notes 5 and 6) 4,699 5,219
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281,724 234,935
Less allowance for loan losses (note 7) 2,886 2,900
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Net loans 278,838 232,035
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Accrued interest receivable 1,910 1,909
Real estate acquired by foreclosure, net (note 8) -- 13
Office properties and equipment, net (note 11) 2,942 2,873
Deferred tax asset, net (note 14) 1,286 1,261
Goodwill, net 3,384 3,672
Other assets 232 407
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Total assets $376,063 $320,950
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 12) $276,364 $259,093
Advances from Federal Home Loan Bank of Boston (note 13) 59,000 25,000
Advance payments by borrowers for taxes and insurance 1,229 1,124
Accrued interest payable 483 316
Accrued income taxes (note 14) 1,053 771
Accrued expenses and other liabilities 1,148 1,101
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Total liabilities 339,277 287,405
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Commitments and contingencies (notes 11, 15 and 18)
Stockholders' equity (notes 16 and 17):
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 and outstanding, 1,965,000 shares 1,965 1,965
Additional paid-in capital 11,159 11,159
Retained income 23,841 21,423
Unearned compensation - ESOP (note 17) (723) (846)
Unrealized gain(loss) on securities available for sale, net of tax
(note 3) 544 (156)
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Total stockholders' equity 36,786 33,545
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Total liabilities and stockholders' equity $376,063 $320,950
=====================
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
Statements of Income
Fiscal Years Ended March 31,
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(In Thousands, Except Per Share Data) 1998 1997 1996
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<S> <C> <C> <C>
Interest and dividend income:
Mortgage loans $19,326 $17,917 $17,124
Other loans 444 469 517
Short-term investments 251 262 383
Investment securities 2,443 3,400 4,147
Mortgage-backed securities 2,659 1,150 762
Co-operative Central Bank Reserve Fund 99 111 113
------------------------------------------
Total interest and dividend income 25,222 23,309 23,046
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Interest expense:
Deposits 11,084 10,182 10,666
Advances from Federal Home Loan Bank of Boston 2,440 1,504 1,305
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Total interest expense 13,524 11,686 11,971
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Net interest and dividend income 11,698 11,623 11,075
Provision for loan losses (note 7) -- -- 120
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Net interest and dividend income after
provision for loan losses 11,698 11,623 10,955
------------------------------------------
Non-interest income:
Deposit service charges 493 525 618
Net gains from sales of investment and
mortgage-backed securities (note 3) 1,051 48 197
Other income 270 315 532
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Total non-interest income 1,814 888 1,347
------------------------------------------
Operating expenses:
Salaries and employee benefits 4,200 4,300 4,504
Occupancy and equipment (note 11) 1,195 1,236 1,539
Data processing service fees 397 375 440
Professional fees 900 825 1,060
Foreclosure expenses, net 2 125 234
Goodwill amortization 288 288 288
Restructure expenses (note 2) -- -- 560
Other expense 1,489 1,837 2,041
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Total operating expenses 8,471 8,986 10,666
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Income before income taxes 5,041 3,525 1,636
Income tax expense 1,994 688 410
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Net income $ 3,047 $ 2,837 $ 1,226
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Earnings per common share (note 1) $1.57 $1.46 $0.64
==========================================
Earnings per common share, assuming dilution
(note 1) $1.56 $1.46 $0.64
==========================================
Weighted average common shares outstanding
(note 1) 1,937 1,937 1,924
Weighted average common shares outstanding,
assuming dilution (note 1) 1,948 1,940 1,926
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Statements of Cash Flows
Fiscal Years Ended March 31,
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(In Thousands) 1998 1997 1996
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<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,047 $ 2,837 $ 1,226
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 447 467 503
Amortization of premiums, fees and discounts 209 18 69
Amortization of goodwill 288 288 288
Provision for loan losses -- -- 120
(Increase)decrease in deferred tax asset (388) 257 (558)
Net gains from sales of investment and mortgage-backed securities (1,051) (48) (197)
Proceeds from sales of loans 193 1,160 1,047
Proceeds from sales of real estate acquired by foreclosure 141 1,916 2,122
(Increase)decrease in accrued interest receivable (1) (43) 51
Decrease in other assets 175 9 298
Increase(decrease) in advance payments by borrowers
for taxes and insurance 105 171 (103)
Increase(decrease) in accrued interest payable 167 60 (59)
Increase(decrease) in accrued income taxes 282 (515) 964
Increase(decrease) in accrued expenses and other liabilities 47 (1,173) 1,273
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Net cash provided by operating activities 3,661 5,404 7,044
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Cash flows from investing activities:
Principal collected on loans 62,384 38,457 35,336
Loan originations (109,736) (60,692) (39,291)
Principal payments on mortgage-backed securities, held to maturity -- -- 161
Principal payments on mortgage-backed securities, available for sale 12,454 2,709 1,586
Purchase of mortgage-backed securities, available for sale (29,528) (21,745) (8,980)
Proceeds from sales of mortgage-backed securities, available for sale -- 3,872 8,066
Purchase of investment securities, available for sale (3,915) (12,479) (23,054)
Proceeds from sales of investment securities, available for sale 3,955 17,112 9,635
Maturities of investment securities, held to maturity -- 1,650 4,113
Maturities of investment securities, available for sale 13,300 11,400 23,690
Net (increase)decrease in short-term investments (283) 6,745 (4,835)
Purchase of stock in Federal Home Loan Bank of Boston (818) -- --
Purchase of premises and equipment, net (516) (476) (489)
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Net cash (used in) provided by investing activities (52,703) (13,447) 5,938
--------------------------------------
(Continued)
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<TABLE>
<CAPTION>
Statements of Cash Flows
(Continued)
Fiscal Years Ended March 31,
------------------------------------
(In Thousands) 1998 1997 1996
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<S> <C> <C> <C>
Cash flows from financing activities:
Net increase(decrease) in deposits 17,271 1,997 (4,025)
Proceeds from advances from FHLB of Boston 95,000 28,000 --
Payments on advances from FHLB of Boston (61,000) (21,000) (10,000)
Proceeds from exercise of stock options -- -- 363
Payments of dividends on common stock (629) (315) --
Increase in common stock acquired for ESOP -- -- (280)
Amortization of unearned compensation - ESOP 123 96 96
---------------------------------------
Net cash provided by (used in) financing activities 50,765 8,778 (13,846)
---------------------------------------
Net increase(decrease) in cash and due from banks 1,723 735 (864)
Cash and due from banks at beginning of year 3,995 3,260 4,124
---------------------------------------
Cash and due from banks at end of year $ 5,718 $ 3,995 $ 3,260
=======================================
Supplemental disclosure of cash flow information:
Cash paid during the fiscal year for:
Interest $ 13,357 $ 11,626 $ 12,030
Income taxes 2,100 946 2
Schedule of noncash investing activities:
Transfer of investments and mortgage-backed securities from
held to maturity to available for sale $ -- $ -- $ 43,040
Transfer of mortgage loans to real estate acquired by foreclosure 128 391 923
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
Statements of Changes in Stockholders' Equity
(In Thousands)
Unrealized
Gain (Loss)
on Securities
Common Stock Additional Unearned Available Total
Par Value Paid-in Retained Compensation for sale Stockholders'
$1.00 per share Capital Income - ESOP Net of Taxes Equity
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<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 $1,917 $10,844 $17,675 $( 758) $( 572) $29,106
Net income -- -- 1,226 -- -- 1,226
Proceeds from exercise of stock options 48 315 -- -- -- 363
Common stock acquired for ESOP -- -- -- (280) -- (280)
Amortization of unearned
compensation - ESOP -- -- -- 96 -- 96
Change in unrealized gain
on securities available for sale, net
of taxes -- -- -- -- 573 573
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Balance at March 31, 1996 1,965 11,159 18,901 (942) 1 31,084
Net income -- -- 2,837 -- -- 2,837
Dividends paid ($0.16 per share) -- -- (315) -- -- (315)
Amortization of unearned
compensation - ESOP -- -- -- 96 -- 96
Change in unrealized loss
on securities available for sale, net
of taxes -- -- -- -- (157) (157)
--------------------------------------------------------------------------------------
Balance at March 31, 1997 1,965 11,159 21,423 (846) (156) 33,545
Net income -- -- 3,047 -- -- 3,047
Dividends paid ($0.32 per share) -- -- (629) -- -- (629)
Amortization of unearned
compensation - ESOP -- -- -- 123 -- 123
Change in unrealized gain
on securities available for sale, net
of taxes -- -- -- -- 700 700
--------------------------------------------------------------------------------------
Balance at March 31, 1998 $1,965 $11,159 $23,841 $( 723) $ 544 $36,786
======================================================================================
See accompanying notes to financial
statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED MARCH 31, 1998 and 1997 and 1996
NOTE ONE. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Central Bank (the "Bank") is a state chartered stock co-operative bank
headquartered in Somerville, Massachusetts. The Bank provides a variety of loan
and deposit services to its customers. The Bank is subject to competition from
other financial institutions. The Bank is also subject to the regulations of,
and periodic examination by, the Federal Deposit Insurance Corporation ("FDIC")
and the Massachusetts Division of Banks. The Bank's deposits are insured by the
Bank Insurance Fund of the FDIC for deposits up to $100,000 and the Share
Insurance Fund (SIF) for deposits in excess of $100,000.
The financial statements have been prepared in conformity with generally
accepted accounting principles. 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 income and expenses for the year. Actual results could differ from those
estimates, if the conditions change.
Material estimates that are particularly susceptible to change relate to
the determination of the allowance for loan losses and the valuation of real
estate acquired by foreclosure. In connection with the determination of the
allowance for loan losses and the valuation of real estate acquired by
foreclosure, management obtains independent appraisals for significant
properties.
Certain prior fiscal year amounts have been reclassified to conform to the
current year's presentation.
The following is a summary of the significant accounting policies adopted
by the Bank:
CASH AND DUE FROM BANKS. The Bank is required to maintain cash and reserve
balances with the Federal Reserve Bank. Such reserve is calculated based upon
deposit levels and amounted to approximately $1,100,000 at March 31, 1998.
INVESTMENT AND MORTGAGE-BACKED SECURITIES. Investments are classified as either
held to maturity, available for sale or trading. Investments classified as
trading securities are reported at fair value, with unrealized gains and losses
included in earnings. Investments classified as available for sale are reported
at fair value, with unrealized gains and losses reported as a separate component
of stockholders' equity. Securities that the Bank has the positive intent and
ability to hold to maturity are classified as held to maturity and reported at
amortized cost.
Gains and losses on sales of securities are recognized when realized with
the cost basis of investments sold determined on a specific-identification
basis. Premiums and discounts on investment and mortgage-backed securities are
amortized or accreted to interest income over the actual or expected lives of
the securities using the level-yield method.
If a decline in fair value below the amortized cost basis of an investment
or mortgage-backed security is judged to be other than temporary, the cost basis
of the investment is written down to fair value as a new cost basis and the
amount of the write-down is included as a charge against gain on sale of
investment and mortgage-backed securities.
LOANS. Loans are reported at the principal amount outstanding, adjusted by
unamortized discounts, premiums, and net deferred loan origination fees. Loans
classified as held for sale in the secondary market are stated at the lower of
aggregate cost or market value. Market value is estimated based on outstanding
investor commitments or, in the absence of cash commitments, current investor
yield requirements. Net unrealized losses, if any, are provided for in a
valuation allowance by charges to operations.
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Accrual of interest on loans and amortization of net
deferred loan fees or costs are discontinued either when reasonable doubt exists
as to the full and timely collection of interest or principal, or when a loan
becomes contractually past due 90 days with respect to interest or principal.
The accrual on some loans, however, may continue even though they are more than
90 days past due if management deems it appropriate, provided that the loans are
well secured and in the process of collection. When a loan is placed on
nonaccrual status, all interest previously accrued but not collected is reversed
against current period interest income. Interest accruals are resumed on such
loans only when they are brought fully current with respect to interest and
principal and when, in the judgment of management, the loans are estimated to be
fully collectible as to both principal and interest. The Bank records interest
income on nonaccrual and impaired loans on the cash basis of accounting.
<PAGE>
Loan origination fees, net of certain direct loan origination costs, are
considered adjustments of interest rate yield and are amortized into interest
income over the loan term using the level-yield method. When loans are sold in
the secondary market, the remaining balance of the amount deferred is included
in determining the gain or loss on the sale.
Impaired loans are commercial and commercial real estate loans for which it
is probable that the Bank will not be able to collect all amounts due in
accordance with the contractual terms of the loan agreement. Impaired loans,
except those loans that are accounted for at fair value or at lower of cost or
fair value, are accounted for at the present value of the expected future cash
flows discounted at the loan's effective interest rate or as a practical
expedient in the case of collateral dependent loans, the lower of the fair value
of the collateral or the recorded amount of the loan. Management considers the
payment status, net worth and earnings potential of the borrower, and the value
and cash flow of the collateral as factors to determine if a loan will be paid
in accordance with its contractual terms. Management does not set any minimum
delay of payments as a factor in reviewing for impaired classification. Impaired
loans are charged off when management believes that the collectibility of the
loan's principal is remote.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is maintained at a
level which management considers adequate to provide for inherent probable
losses based on an evaluation of known and inherent risks in the portfolio. Such
evaluation includes identification of adverse situations which may affect the
ability of certain borrowers to repay, a review of overall portfolio size,
quality and composition, and an assessment of existing and anticipated economic
conditions. While management uses available information in establishing the
allowance for losses, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making the
evaluations. Additions to the allowance are charged to earnings; realized
losses, net of recoveries, are charged to the allowance. Management believes
that the allowance for loan losses is adequate.
Various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance based on their
judgments of information available to them at their examination date.
REAL ESTATE ACQUIRED BY FORECLOSURE. Real estate acquired by foreclosure
includes those properties acquired through foreclosure or deed in lieu of
foreclosure which are carried at the lower of fair value, less costs to dispose,
or the balance of the loan on the property at the date of foreclosure. Costs
relating to the development and improvement of property are capitalized, whereas
those relating to holding the property are charged to expense. Losses realized
subsequent to foreclosure are charged to operations as incurred or when it is
determined that the investment in the property is greater than its estimated net
fair value.
The Bank maintains an allowance for losses on real estate acquired by
foreclosure, which management believes to be adequate to provide for potential
losses on properties held. Additions to the allowance are charged to operations;
realized losses, net of recoveries and write-downs, are charged to the
allowance. Gains upon sale of foreclosed assets are recognized in income.
INCOME TAXES. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the accounting basis and
the tax basis of the Bank's assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
realized or settled. The Bank's deferred tax asset is reviewed periodically and
adjustments to such asset are recognized as deferred income tax expense or
benefit based on management's judgments relating to the realizability of such
asset.
OFFICE PROPERTIES AND EQUIPMENT. Office properties and equipment are stated at
cost, less allowances for depreciation and amortization. Depreciation and
amortization are computed on the straight-line method over the estimated useful
lives of the assets or terms of the leases, if shorter.
GOODWILL. Goodwill arising from acquisitions is amortized on a straight-line
basis over 15 years.
PENSION AND OTHER BENEFITS. The Bank provides pension benefits for its employees
in a multi-employer pension plan through membership in the Co-operative Banks
Employees Retirement Association. The pension costs are funded as they are
accrued.
EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings Per Share. The Statement is effective for periods ending after December
31, 1997, and requires re-statement of all prior-period Earnings Per Share
("EPS") data presented. The Statement establishes standards for computing and
presenting EPS, and requires dual presentation of basic and diluted EPS on the
face of the income statement. Basic EPS is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Bank adopted the statement as of
December 31, 1997. Management has determined that the implementation of SFAS No.
128 is not material to the Bank's financial statements.
<PAGE>
ACCOUNTING PRONOUNCEMENTS. In June 1996, the FASB issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. SFAS 125 establishes, among other things, new criteria for
determining whether a transfer of financial assets in exchange for cash or other
consideration should be accounted for as a sale or as a pledge of collateral in
a secured borrowing. SFAS 125 also establishes new accounting requirements for
pledged collateral. SFAS 125 is effective for most transactions occurring after
December 31, 1996 and must be applied prospectively. However, SFAS 127, Deferral
of the Effective Date of Certain Provisions of SFAS 125, requires the deferral
of implementation as it relates to repurchase agreements, dollar-rolls,
securities lending and similar transactions in the years beginning after
December 31, 1997. The Bank adopted the provisions of SFAS No. 125 on April 1,
1997. The Bank has determined that the adoption of SFAS 125 was not material to
the Bank's financial statements. The Bank has determined that the adoption of
SFAS No. 127 will not have a material impact on its financial statements.
NOTE TWO. RESTRUCTURING CHARGES
On March 14, 1996, the Bank announced a restructuring plan intended to improve
the Bank's profitability and enhance stockholder value. Implementation of the
plan resulted from a comprehensive review of the Bank's business strategies.
The plan was completed by the third quarter of fiscal 1997.
During the fourth quarter of fiscal 1996, the Bank recorded restructuring
charges amounting to $560,000. A summary of the charges is as follows:
<TABLE>
<S> <C>
Separation and benefits ......................$203,000
Lease termination penalties................... 214,000
Obsolete equipment............................ 135,000
Miscellaneous................................. 8,000
-------
Total.......................................$560,000
========
</TABLE>
NOTE THREE. INVESTMENT AND MORTGAGE-BACKED SECURITIES (Dollars in Thousands)
The amortized cost and fair value of investment and mortgage-backed securities
available for sale are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998
----------------------------------------------
Gross Unrealized
Amortized ------------------ Fair
Cost Gains Losses Value
----------------------------------------------
<S> <C> <C> <C> <C>
Common and preferred stocks.................. $ 5,026 $ 1,045 $ ( 61) $ 6,010
U.S. Government and federal agency
obligations................................. 18,510 27 ( 23) 18,514
------- ----- ------
$23,536 $ 1,072 $ ( 84) $24,524
======= ===== ====== ======
Mortgage-backed securities:
GNMA....................................... $ 1,218 $ 10 $ ( --) $ 1,228
FNMA....................................... 29,622 82 (202) 29,502
FHLMC...................................... 9,050 41 ( 22) 9,069
CMOs.......................................
5,373 13 ( 3) 5,383
------- ----- ------ -------
Totals.................................... $45,263 $ 146 $ (227) $45,182
======= ===== ====== =======
<CAPTION>
March 31, 1997
------------------------------------
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value
------- ----- -------- -------
<S> <C> <C> <C> <C>
Common and preferred stocks ................. $ 4,004 $ 934 $ (231) $ 4,707
U.S. Government and federal agency
obligations ................................ 31,811 1 (489) 31,323
------- ----- ------- -------
$35,815 $ 935 $ (720) $36,030
======= ===== ======== =======
Mortgage-backed securities:
GNMA....................................... $ 1,501 $ 1 $ ( 5) $ 1,497
FNMA....................................... 11,414 3 (206) 11,211
FHLMC...................................... 12,901 17 (116) 12,802
CMOs....................................... 2,364 -- ( 65) 2,299
------- ----- ------- -------
Totals................................... $28,180 $ 21 $ (392) $27,809
======= ===== ======= =======
</TABLE>
<PAGE>
The maturity distribution (based on contractual maturities) and annual yields
of mortgage-backed securities at March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
March 31, 1998
--------------------------------
Amortized Fair Annual
Cost Value Yield
------------ --------- --------
<S> <C> <C> <C>
Due within one year......................... $ 266 $ 259 6.50%
Due after one year but within five years.... 4,055 4,035 6.70
Due after five years but within ten years... 968 957 5.92
Due after ten years......................... 39,974 39,931 7.16
------- -------
Total..................................... $45,263 $45,182 7.09%
======= =======
Weighted average remaining life (in years).. 20.69
<CAPTION>
March 31, 1997
--------------------------
Amortized Fair Annual
Cost Value Yield
--------------------------
<S> <C> <C> <C>
Due within one year......................... $ 420 $ 408 5.08%
Due after one year but within five years.... 3,658 3,581 7.13
Due after five years but within ten years... 4,020 3,937 6.87
Due after ten years......................... 20,082 19,883 7.35
------- -------
Total..................................... $28,180 $27,809 7.22%
======= =======
Weighted average remaining life (in years).. 21.06
</TABLE>
Maturities on mortgage-backed securities are based on contractual maturities and
do not take into consideration scheduled amortization or prepayments. Actual
maturities will differ from contractual maturities due to scheduled amortization
and prepayments.
The amortized cost and fair value of adjustable-rate federal agency
obligations and mortgage-backed securities classified as available for sale
amounted to $14,282 and $14,303, respectively, in 1998. The amortized cost and
fair value of adjustable-rate federal agency obligations and mortgage-backed
securities classified as available for sale amounted to $22,213 and $22,025,
respectively, in 1997.
As of March 31, 1998, the Bank had securities classified as available for
sale with callable features that can be called prior to final maturity with an
amortized cost of $5,996 and a fair value of $5,993 at March 31, 1998.
Net realized gains on sales of investment securities classified as available
for sale for the fiscal years ended March 31, 1998, 1997 and 1996 amounted to
$1,051, $41 and $118, respectively.
Net realized gains on sales of mortgage-backed securities classified as
available for sale for the fiscal years ended March 31, 1997 and 1996 amounted
to $7 and $79, respectively. There were no sales of mortgage-backed securities
classified as available for sale during the fiscal year ended March 31, 1998.
The amortized cost and fair value of investment securities classified as held
to maturity are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998
------------------------------------
Gross Unrealized
Amortized ----------------- Fair
Cost Gains Losses Value
--------- ------- -------- ------
<S> <C> <C> <C>
U.S. Government and federal agency
obligations ..................... $4,000 $ -- $( 37) $3,963
========= ======= ======= ======
<CAPTION>
March 31, 1997
-----------------------------------
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value
--------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Government and federal agency
obligations .................... $4,000 $ -- $ (154) $ 3,846
========= ====== ======= =======
</TABLE>
The amortized cost and fair value of adjustable-rate federal agency
obligations classified as held to maturity amounted to $4,000 and $3,963,
respectively, in 1998 and $4,000 and $3,846, respectively, in 1997.
<PAGE>
The maturity distribution (based on contractual maturities) and annual yields
of investment securities (excluding common and preferred stocks) at March 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
March 31, 1998
---------------------------------
Amortized Fair Annual
Cost Value Yield
---------- ------- ------
<S> <C> <C> <C>
Due within one year...................................... $12,001 $11,966 4.97%
Due after one year but within five years................. 8,509 8,508 6.23
Due after five years but within ten years................ 2,000 2,003 6.59
------- -------
Total.................................................. $22,510 $22,477 5.59%
======= =======
Weighted average remaining life (in years)............... 2.24
<CAPTION>
March 31, 1997
---------------------------------
Amortized Fair Annual
Cost Value Yield
--------- -------- ------
<S> <C> <C> <C>
Due within one year..................................... $ 2,310 $ 2,302 5.11%
Due after one year but within five years................ 24,495 24,052 5.49
Due after five years but within ten years............... 9,006 8,815 6.69
------- -------
Total................................................. $35,811 $35,169 5.76%
======= =======
3.28
Weighted average remaining life (in years)..............
</TABLE>
A Federal Home Loan Bank bond with an amortized cost of $2,000 and fair value
of $1,971 at March 31, 1998 and a U.S. Treasury bill with an amortized cost and
fair value of $295 at March 31, 1997 were pledged to provide collateral for
customers and for the Bank's employee tax withholdings that are to be remitted
to the federal government in excess of the $100 of withholdings insured by the
FDIC.
NOTE FOUR. MORTGAGE LOANS (IN THOUSANDS)
Mortgage loans at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Mortgage loans:
Residential
Fixed.................................. $ 47,584 $ 22,710
Adjustable............................. 160,276 153,607
Commercial................................ 52,491 41,822
Construction.............................. 8,256 3,095
Second mortgage and home equity........... 8,369 8,397
FHA and VA................................ 49 85
-------- --------
$277,025 $229,716
======== ========
</TABLE>
At March 31, 1998 and 1997, net deferred loan costs of $334 and $444,
respectively, are reflected as an addition to the appropriate loan categories.
Mortgage and other loans on which the accrual of interest had been
discontinued at March 31, 1998, 1997 and 1996 were $357, $2,145, and $758,
respectively. Interest income not recognized on such loans amounted to $11,
$93, and $30 in fiscal 1998, 1997 and 1996, respectively.
At March 31, 1998 and 1997, total impaired loans were $1,306 and $2,396,
respectively. In the opinion of management, no impaired loans required a
specific valuation allowance at March 31, 1998 or 1997. All impaired loans have
been measured using the fair value of the collateral method. The average
recorded value of impaired loans was $1,582 during fiscal 1998 and $367 during
fiscal 1997. The Bank follows the same policy for recognition of income on
impaired loans as it does for all other loans. During fiscal 1998 and 1997 there
was no interest forgone on impaired loans that were not non-accrual loans.
Mortgage loans serviced by the Bank for others amounted to $10,806 and
$13,646 at March 31, 1998 and 1997, respectively.
<PAGE>
The Bank's lending activities are conducted principally in communities in the
suburban Boston area. The Bank grants mortgage loans on residential property,
commercial real estate, construction of residential homes, second mortgages,
home equity and other loans. Substantially all loans granted by the Bank are
secured by real estate collateral. The ability and willingness of residential
mortgage borrowers to honor their repayment commitments are generally impacted
by the level of overall economic activity within the borrowers' geographic areas
and real estate values. The ability and willingness of commercial real estate
and construction loan borrowers to honor their repayment commitments are
generally impacted by the health of the real estate market in the borrowers'
geographic area and the general economy.
NOTE FIVE. OTHER LOANS (IN THOUSANDS)
Other loans at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Other loans:
Commercial............................................. $1,596 $2,431
Education.............................................. 31 28
Secured by deposits.................................... 1,357 1,063
Consumer............................................... 489 579
Unsecured.............................................. 1,226 1,118
------ ------
$4,699 $5,219
====== ======
</TABLE>
NOTE SIX. LOANS TO DIRECTORS AND OFFICERS (IN THOUSANDS)
The following summarizes the activity with respect to loans included in mortgage
and other loans made to directors and officers and their related interests for
the fiscal years ended March 31:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Balance at beginning of period.......................... $ 823 $1,140
New loans............................................. 125 3
Repayment of principal................................ ( 48) (320)
----- ------
Balance at end of period................................ $ 900 $ 823
===== ======
</TABLE>
Loans included above were made in the Bank's ordinary course of business, on
substantially the same terms, including interest rates and collateral
requirements, as those prevailing at the time for comparable transactions with
unrelated persons. All loans included above are performing in accordance with
the terms of the respective loan.
NOTE SEVEN. ALLOWANCE FOR LOAN LOSSES (IN THOUSANDS)
An analysis of the allowance for loan losses for the fiscal years ended March 31
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of period.................... $2,900 $3,032 $2,954
Provision charged to expense..................... -- -- 120
Less:
Amounts charged-off............................. 97 224 166
Recoveries on accounts previously charged-off... ( 83) ( 92) (124)
------ ------ ------
Net charge-offs................................ 14 132 42
------ ------ ------
Balance at end of period.......................... $2,886 $2,900 $3,032
====== ====== ======
</TABLE>
<PAGE>
NOTE EIGHT. REAL ESTATE ACQUIRED BY FORECLOSURE (IN THOUSANDS)
Real estate acquired by foreclosure at March 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
Residential homes......................................... $ -- $ 74
Valuation allowance....................................... -- (61)
----- -------
$ -- $ 13
===== =======
</TABLE>
An analysis of real estate acquired by foreclosure for the fiscal years ended
March 31 follows:
<TABLE>
<CAPTION>
1998 1997
----- -------
<S> <C> <C>
Balance at beginning of period, net....................... $ 13 $ 1,538
Foreclosures and properties substantively repossessed... -- 448
Reduction through sales, net of recoveries and losses... (13) (1,973)
----- -------
Balance at end of period, net............................. $ -- $ 13
===== =======
</TABLE>
NOTE NINE. STOCK IN FEDERAL HOME LOAN BANK OF BOSTON (IN THOUSANDS)
As a member of the Federal Home Loan Bank of Boston ("FHLB of Boston"), the Bank
is required to invest in $100 par value stock of the FHLB of Boston in an amount
equal to 1% of its outstanding home loans or 1/20th of its outstanding advances
from the FHLB of Boston, whichever is higher. The Bank's investment exceeded
the required level by $200 and $176 at March 31, 1998 and 1997, respectively.
If such stock is redeemed, the Bank will receive from the FHLB of Boston an
amount equal to the par value of the stock.
NOTE TEN. THE CO-OPERATIVE CENTRAL BANK RESERVE FUND
The Co-operative Central Bank Reserve Fund was established for liquidity
purposes and consists of deposits required of all insured co-operative banks in
Massachusetts. The Fund is used by The Co-operative Central Bank to advance
funds to member banks or to make other investments.
NOTE ELEVEN. OFFICE PROPERTIES AND EQUIPMENT (In Thousands)
A summary of cost, accumulated depreciation and amortization of office
properties and equipment at March 31 follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Land.................................................. $ 691 $ 691
Buildings............................................. 2,420 2,403
Furniture, fixtures and equipment..................... 4,761 4,955
Leasehold improvements................................ 439 433
------ ------
8,311 8,482
Less accumulated depreciation and amortization........ (5,369) (5,609)
------ ------
$2,942 $2,873
====== ======
</TABLE>
A summary of minimum rentals for future periods under noncancellable
operating leases follows:
<TABLE>
<CAPTION>
Minimum
Rentals
-------
<S> <C>
Years Ending March 31,
1999 ................................................. $ 92
2000 ................................................. 92
2001 ................................................. 92
2002 ................................................. 92
2003 ................................................. 78
Thereafter ........................................... 78
</TABLE>
Rent expense for the fiscal years ended March 31, 1998, 1997 and 1996 was
$119, $137 and $310, respectively.
<PAGE>
NOTE TWELVE. DEPOSITS (DOLLARS IN THOUSANDS)
Deposits at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- -------------------------
Amount Interest Rates Amount Interest Rates
---------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Demand (non interest-bearing)........................................ $ 14,747 --% $ 11,818 --%
NOW accounts......................................................... 27,163 1.00-1.50 23,164 1.00-1.50
Regular, club and 90-day notice accounts............................. 58,471 2.50 61,116 2.50
Money market deposit accounts........................................ 22,317 2.60-3.10 22,188 2.60-3.10
-------- --------
122,698 118,286
-------- --------
Term deposit certificates:
Six-month money market............................................ 11,973 5.50-5.25 16,204 5.00
Other............................................................. 141,693 2.50-7.00 124,603 5.75-6.00
-------- --------
Total term deposit certificates................................. 153,666 140,807
-------- --------
$276,364 $259,093
======== ========
Weighted average interest rate....................................... 4.14% 4.04%
======== ========
</TABLE>
Contractual maturities of term deposit certificates at March 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Years Ending March 31,
<S> <C>
1999............................................................ $102,520
2000............................................................ 38,896
2001............................................................ 8,491
2002............................................................ 2,522
2003............................................................ 1,237
--------
$153,666
========
</TABLE>
The aggregate amount of individual term deposit certificates with a minimum
denomination of $100 or more was $24,687 and $19,064 at March 31, 1998 and 1997,
respectively. Interest expense on these deposits was $1,351, $1,157 and $1,169
for fiscal years ended March 31, 1998, 1997 and 1996, respectively.
NOTE THIRTEEN. ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON (DOLLARS IN
THOUSANDS)
Advances from FHLB of Boston, by year of maturity, at March 31 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
-------- -------
Interest Rate Due in Year Ending March 31,
<S> <C> <C> <C>
4.73%--6.77% 1998............................... $ -- $21,000
4.99%--5.81% 1999............................... 26,000 1,000
6.05% 2000............................... 2,000 --
6.24% 2001............................... 1,000 --
6.35%--6.67% 2002............................... 4,000 3,000
5.19%--5.71% 2003............................... 12,000 --
4.89%--4.99% 2008............................... 14,000 --
------- -------
$59,000 $25,000
======= =======
Weighted average interest rate...................... 5.51% 6.03%
======= =======
</TABLE>
<PAGE>
The FHLB of Boston is authorized to make advances to its members subject to
such regulations and limitations as the Federal Home Loan Bank Board may
prescribe. The advances are secured by FHLB of Boston stock and a blanket lien
on certain qualified collateral, defined principally as 90% of the fair value of
U.S. Government and federal agency obligations and 75% of the carrying value of
first mortgage loans on owner-occupied residential property. Applying these
ratios, the Bank's overall borrowing capacity was approximately $138,000 and
$141,000 at March 31, 1998 and 1997, respectively.
The highest month-end balance of FHLB of Boston advances outstanding was
$63,000, $33,000, and $28,000 for fiscal years ended March 31, 1998, 1997 and
1996, respectively.
NOTE FOURTEEN. INCOME TAXES (DOLLARS IN THOUSANDS)
The objective of the asset and liability method is to establish deferred tax
assets and liabilities for the temporary differences between the financial
reporting basis and the tax basis of the Bank's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled.
The components of income taxes accrued and deferred at March 31 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Current:
Federal payable............................................................ $ 970 $ 475
State payable.............................................................. 83 296
------ ------
Total current liability.................................................. $1,053 $ 771
====== ======
Deferred tax asset............................................................ $1,286 $1,261
====== ======
</TABLE>
The components of income tax expense (benefit) for the fiscal years ended
March 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................................... $1,701 $ 289 $ 649
State...................................................................... 681 142 319
------ ------ ------
Total current expense.................................................... 2,382 431 968
Deferred tax expense (benefit)................................................ (266) 310 (81)
Change in valuation allowance................................................. (122) (53) (477)
------ ------ ------
Total income tax expense................................................. $1,994 $ 688 $ 410
====== ====== ======
</TABLE>
Income tax expense for the periods presented is different from the amounts
computed by applying the statutory Federal income tax rate to income before
income taxes. The differences between expected tax rates and effective tax
rates for the fiscal years ended March 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ------- -----
<S> <C> <C> <C>
Statutory Federal income tax rate.............................................. 34.0% 34.0% 34.0%
Items affecting Federal income tax rate:
Restructuring charges....................................................... -- -- 3.8
Dividends received deduction................................................ (.9) (2.1) (5.0)
Goodwill amortization....................................................... 1.9 2.8 6.0
Bad debts................................................................... -- (6.8) --
Partnerships................................................................ -- (11.0) --
Effect of state tax rate change............................................. -- -- 3.4
State income taxes, net of Federal
income tax benefit....................................................... 8.0 4.2 10.4
Other....................................................................... (1.0) (.1) 1.5
Change in valuation reserve................................................. (2.4) (1.5) (29.1)
---- ---- -----
39.6% 19.5% 25.0%
==== ===== ====
</TABLE>
<PAGE>
The components of gross deferred tax assets and gross deferred tax
liabilities that have been recognized as of March 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Gross deferred tax assets:
Loan losses.............................................. $1,173 $1,202
Deferred loan origination fees........................... 227 --
Depreciation............................................. 153 102
Capital loss carryforward................................ -- 5
Unrealized depreciation on securities.................... -- 64
Post-employee retirement benefit accrual................. -- 183
Restructure charges...................................... -- 22
Other.................................................... 116 65
------ ------
Total gross deferred tax assets........................ 1,669 1,643
Valuation allowance for deferred tax assets................. -- ( 185)
------ ------
Total deferred tax assets after valuation allowance.... 1,669 1,458
------ ------
Gross deferred tax liabilities:
Deferred loan origination costs.......................... -- 182
Accrued dividend receivable.............................. 20 15
Unrealized appreciation on securities.................... 363 --
------ ------
Total gross deferred tax liabilities................... 383 197
------ ------
Net deferred tax asset................................. $1,286 $1,261
====== ======
</TABLE>
Of the total valuation reserve of $185 at March 31, 1997, $64 is attributable
to the unrealized loss on securities available for sale and consequently has not
been recorded through the statement of income.
Based on the Bank's historical and current pretax earnings, management
believes it is more likely than not that the Bank will realize the net deferred
tax asset existing at March 31, 1998. Further, management believes the existing
net deductible temporary differences will reverse during periods in which the
Bank generates net taxable income. At March 31, 1998, recoverable income taxes,
plus estimated taxes for fiscal 1999, exceed the amount of the net deferred tax
asset. There can be no assurance, however, that the Bank will generate any
earnings or any specific level of continuing earnings.
The unrecaptured base year tax bad debt reserves will not be subject to
recapture as long as the institution continues to carry on the business of
banking. In addition, the balance of the pre-1988 bad debt reserves continues to
be subject to provision of present law that require recapture in the case of
certain excess distributions to shareholders. The tax effect of pre-1988 bad
debt reserves subject to recapture in the case of certain excess distributions
is approximately $1,300.
NOTE FIFTEEN. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (IN THOUSANDS)
The Bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include unused lines of credit, unadvanced portions of
commercial and construction loans, and commitments to originate loans. The
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amounts recognized in the balance sheets. The amounts of
those instruments reflect the extent of the Bank's involvement in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to its financial instruments is represented by the contractual
amount of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
<PAGE>
Financial instruments with off-balance sheet risk as of March 31 follow:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Unused lines of credit................................... $10,142 $9,598
Unadvanced portions of construction loans................ 2,025 295
Unadvanced portions of commercial loans.................. 1,893 670
Commitments to originate residential mortgage loans:
Fixed rate............................................ 5,444 276
Adjustable rate....................................... 5,813 1,883
</TABLE>
Commitments to originate loans, unused lines of credit and unadvanced
portions of commercial and 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 Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the borrower.
NOTE SIXTEEN. STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
The Bank may not declare or pay cash dividends on its common stock if the effect
thereof would cause its equity to be reduced below regulatory capital
requirements, or if such declaration and payment would otherwise violate
regulatory requirements.
On October 24, 1991, the Bank adopted a Shareholder Rights Plan. The plan
entitles each shareholder to purchase the Bank's stock at a discount price in
the event any person or group of persons exceeds predetermined ownership
limitations of the Bank's outstanding common stock and, in certain
circumstances, engages in specific activities deemed adverse to the interests of
the Bank's shareholders. This plan expires on October 24, 2001.
The minimum core (leverage) capital ratio (stockholders' equity divided by
total assets) required for banks with a 1 Camel rating is 3.00% and 4.00%-5.00%
for all others. The Bank must have a minimum total risk-based capital ratio of
8.00% (of which 4.00% must be Tier 1 capital, consisting of common stockholders'
equity). At March 31, 1998 and 1997, the Bank's capital ratios were in excess
of all required standards.
The Bank is subject to various regulatory capital requirements administered
by the federal banking services. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulations that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of risk-weighted, core and tangible capital (as defined).
Management represents, as of March 31, 1998, that the Bank meets all capital
adequacy requirements to which it is subject.
The most recent notification from the FDIC categorized the Bank as "well
capitalized" under the regulatory framework for prompt corrective action. To be
categorized as "well capitalized" the Bank must maintain minimum risk-weighted
capital, core capital and tangible ratios as set forth in the table. As of March
31, 1998, the Bank is categorized as "well capitalized" based on its ratios of
risk-weighted core and tangible capital.
The Bank's actual capital amounts and ratios are presented in the table. No
deduction was taken from capital for interest-rate risk.
<PAGE>
The Bank's core/leverage, Tier 1 risk-based and total risk-based capital
together with related regulatory minimum requirements are summarized below:
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------
Core Tier 1 Total
Leverage Risk-based Risk-based
Capital Capital Capital
----------- ---------- ----------
<S> <C> <C> <C>
Regulatory capital measure:
Amount.............................. $36,786 $33,402 $36,274
Ratio............................... 9.78% 14.54% 15.79%
Adequately capitalized requirement:
Amount.............................. $15,043 $ 9,190 $18,380
Ratio............................... 4.00% 4.00% 8.00%
Well capitalized requirement:
Amount.............................. $18,803 $13,785 $22,975
Ratio............................... 5.00% 6.00% 10.00%
<CAPTION>
March 31, 1997
-----------------------------------
Core Tier 1 Total
Leverage Risk-based Risk-based
Capital Capital Capital
----------- ---------- ----------
<S> <C> <C> <C>
Regulatory capital measure:
Amount.............................. $33,545 $29,873 $32,367
Ratio............................... 10.45% 14.97% 16.22%
Adequately capitalized requirement:
Amount.............................. $12,838 $ 7,980 $15,960
Ratio............................... 4.00% 4.00% 8.00%
Well capitalized requirement:
Amount.............................. $16,048 $11,970 $19,951
Ratio............................... 5.00% 6.00% 10.00%
</TABLE>
NOTE SEVENTEEN. EMPLOYEE BENEFITS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PENSION PLAN
As a participating employer in the Co-operative Banks Employees' Retirement
Association ("CBERA"), a multi-employer plan, the Bank has in effect a
noncontributory defined benefit plan ("Pension Plan") and a defined contribution
plan ("Savings Plan") covering substantially all eligible officers and
employees.
Benefits under the Pension Plan are determined at the rate of 1% and 1.5%,
respectively, of certain elements of final average pay times years of credited
service and are generally provided at age 65 based on years of service and the
average of the participant's three highest consecutive years of compensation
from the Bank. Employee contributions are made to a revised Savings Plan which
qualifies under section 401(k) of the Internal Revenue Code of 1986, as amended.
Such contributions are matched on a one half-for-one basis by the Bank up to a
maximum of 5% of each employee's salary. Pension benefits and employer
contributions to the Savings Plan become vested over six years.
Expenses for the Pension Plan and the Savings Plan were $350, $365 and $300
for the fiscal years ended March 31, 1998, 1997 and 1996, respectively.
Forfeitures are used to reduce expenses of the plans.
STOCK OPTION PLAN
The Bank has adopted a Stock Option Plan for the benefit of officers and other
employees and reserved 184,000 shares of authorized but unissued common stock
for issuance under the Plan. The exercise price of any option granted will not
be less than the fair market value of the common stock on the date of grant of
the option. During fiscal 1995, the Bank granted 25,000 additional options at
$16.25 per share and 36,667 options were exercised. The exercise of these
options resulted in an additional $275 of capital being recorded. During fiscal
1996, 48,333 options were exercised resulting in an additional $363 of capital
being recorded. Of the 30,000 options outstanding at March 31, 1998, all were
exercisable with an average exercise price per share of $14.729.
EMPLOYEE STOCK OWNERSHIP PLAN
During fiscal 1991, the Bank established an Employee Stock Ownership Plan (ESOP)
which is authorized to purchase shares of outstanding common stock of the Bank
from time to time in the open market or in negotiated transactions. The ESOP is
a tax-qualified defined contribution plan established for the exclusive benefit
of the Bank's employees.
<PAGE>
During fiscal 1995 and fiscal 1996, the ESOP purchased
10,000 shares and 18,000 shares of the Bank's outstanding common stock,
respectively. The ESOP is repaying its loan to the Bank with funds from the
Bank's contributions to the plan and earnings from the ESOP's assets.
Repayments of $185, $34 and $54 were made during fiscal 1998, 1997 and 1996,
respectively. The scheduled repayment of the amount outstanding at March 31,
1998 is as follows:
- --------------------------------------------------------------------------------
Fiscal Year Ending March 31,
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $130
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334
Compensation expense is recognized as the ESOP shares are allocated to
participants in the plan and was $68, $96 and $96 for fiscal 1998, 1997 and
1996, respectively.
EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS
The Bank has entered into an employment agreement with an executive officer. The
employment agreement generally provides for payment of specific minimum levels
of compensation and benefits to the officer for specified periods after
termination, unless the termination was for "cause," as defined in the
employment agreement. In addition, the Bank entered into a special termination
agreement with this officer, which provides for the payment, under certain
circumstances, of lump-sum amounts upon termination following a "change of
control," which is generally defined to mean a person or group acquiring
ownership of 25% or more of the common stock of the Bank.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The FASB issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions". Statement 106 changed the Bank's method of accounting for
these benefits from the cash method to the accrual method. Statement 106
significantly changed the current practice of accounting for postretirement
benefits on a pay-as-you-go (cash) basis by requiring accrual, during the years
that the employee renders the necessary service, of the expected cost of
providing those benefits to the employee and the employee's beneficiaries and
covered dependents.
The funded status of the plan for the years ended March 31, 1998 and 1997
follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------
Life Plan Medical Plan Life Plan Medical Plan
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Transition obligation................................ $ (130) $ (372) $ (138) $ (397)
Prior service cost................................... (25) -- (42) --
Unrecognized gain (loss)............................. 35 (172) 62 (114)
Accrued expense...................................... (119) (186) (91) (150)
------ ------ ------ ------
Accumulated postretirement benefit obligation..... $ (239) $ (730) $ (209) $ (661)
====== ====== ====== ======
Net periodic cost
Service cost...................................... $ -- $ -- $ 1 $ 6
Interest cost..................................... $ 17 $ 53 $ 16 $ 58
Amortization of transition obligation............. $ 9 $ 25 $ 9 $ 25
Amortization of prior service cost................ $ 17 $ -- $ 17 $ --
Amortization of (gains)/losses.................... $ (3) $ 3 $ (1) $ 13
------ ------ ------ ------
Total.......................................... $ 40 $ 81 $ 42 $ 102
====== ====== ====== ======
Estimated benefit payments........................... $ 11 $ 45 $ 11 $ 45
</TABLE>
The components of postretirement benefits as of March 31, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------
Life Plan Medical Plan Total Life Plan Medical Plan Total
--------- ------------ ----- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Current retirees..................................... $ 192 $ 498 $ 690 $ 172 $ 469 $ 641
Fully eligible actives............................... 47 232 279 37 192 229
Other actives........................................ -- -- 0 -- -- 0
------ ------ ----- ------ ------ -----
Total postretirement benefits..................... $ 239 $ 730 $ 969 $ 209 $ 661 $ 870
====== ====== ===== ====== ====== =====
</TABLE>
The summary of actuarial methods and assumptions as of March 31, 1998 and 1997
follows:
1998
- ----------------------------------------------------------------------------
Valuation date..........................March 31, 1998
Discount rate...........................7.00% per annum compounded annually.
The medical trend rate begins at 9.5% at March 31, 1998, and grades downward to
5.5%, remaining constant thereafter.
1997
- ----------------------------------------------------------------------------
Valuation date..........................March 31, 1997
Discount rate...........................8.00% per annum compounded annually.
The medical trend rate begins at 9.5% at March 31, 1997, and grades downward to
5.5%, remaining constant thereafter.
If the medical trend rates were increased by 1% in each year, the medical
accumulated postretirement benefit obligation would increase by 10%, and the
medical service cost and interest cost would increase by 10%.
<PAGE>
NOTE EIGHTEEN. LEGAL PROCEEDINGS
The Bank is a party to certain litigation in the normal course of business.
Management and counsel are of the opinion that the aggregate liability, if any,
resulting from such litigation would not be material to the Bank's financial
position.
NOTE NINETEEN. FAIR VALUES OF FINANCIAL INSTRUMENTS (IN THOUSANDS)
The FASB issued SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," which requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet, for which
it is practicable to estimate that value. Fair value estimates are based on
existing on- and off-balance sheet financial instruments without attempting to
estimate the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
Other significant assets and liabilities that are not considered financial
assets or liabilities include real estate acquired by foreclosure and office
properties and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair values and have not been considered in any of the estimates. Accordingly,
the aggregate fair value amounts presented do not represent the underlying value
of the Bank.
The following methods and assumptions were used by the Bank in estimating
fair values of its financial instruments:
Cash and due from banks
The carrying values reported in the balance sheet for cash and due from banks
approximate their fair value because of the short maturity of these instruments.
Short-Term Investments
The carrying values reported in the balance sheet for short-term investments
approximate fair value because of the short maturity of these investments.
Investment and Mortgage-Backed Securities
The fair values presented for investment and mortgage-backed securities are
based on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans
The fair values of loans are estimated using discounted cash flow analysis,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The incremental credit risk for
nonperforming loans has been considered in the determination of the fair value
of loans.
Accrued Interest Receivable
The carrying value reported in the balance sheet for accrued interest receivable
approximates its fair value because of the short maturity of these accounts.
<PAGE>
Stock in FHLB of Boston
The carrying amount reported in the balance sheet for FHLB stock approximates
its fair value. If redeemed, the Bank will receive an amount equal to the par
value of the stock.
The Co-operative Central Bank Reserve Fund
The carrying amount reported in the balance sheet for the Co-operative Central
Bank Reserve Fund approximates its fair value.
Deposits
The fair values of deposits (excluding term deposit certificates) are, by
definition, equal to the amount payable on demand at the reporting date. Fair
values for term deposit certificates are estimated using a discounted cash flow
technique that applies interest rates currently being offered on certificates to
a schedule of aggregated monthly maturities on time deposits with similar
remaining maturities.
Off-balance-Sheet Instruments
The Bank's commitments for unused lines of credit and unadvanced portions of
loans are at floating rates, which approximate current market rates, and,
therefore, no fair value adjustment has been made.
Advances from FHLB of Boston
Fair values of advances from FHLB of Boston are estimated using a discounted
cash flow technique that applies interest rates currently being offered on
advances to a schedule of aggregated monthly maturities on FHLB advances.
Advance Payments by Borrowers for Taxes and Insurance and Accrued Interest
Payable.
The carrying values reported in the balance sheet for advance payments by
borrowers for taxes and insurance and accrued interest payable approximate
their fair value because of the short maturity of these accounts.
The estimated carrying amounts and fair values of the Bank's financial
instruments are as follows:
<TABLE>
<CAPTION>
At March 31, 1998 At March 31, 1997
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks.................. $ 5,718 $ 5,718 $ 3,995 $ 3,995
Short-term investments................... 3,321 3,321 3,038 3,038
Investments available for sale:
Investment securities.................. 24,524 24,524 36,030 36,030
Mortgage-backed securities............. 45,182 45,182 27,809 27,809
Investments held to maturity:
Investment securities.................. 4,000 3,963 4,000 3,846
Loans, net............................... 278,838 279,878 232,035 233,211
Accrued interest receivable.............. 1,910 1,910 1,909 1,909
Stock in FHLB of Boston.................. 3,150 3,150 2,332 2,332
The Co-operative Central Bank
Reserve Fund........................... 1,576 1,576 1,576 1,576
Liabilities:
Deposits................................. $276,364 $ 276,546 $259,093 $259,148
Advances from FHLB of Boston............. 59,000 58,177 25,000 24,957
Advance payments by borrowers
for taxes and insurance................ 1,229 1,229 1,124 1,124
Accrued interest payable................. 483 483 316 316
</TABLE>
<PAGE>
NOTE TWENTY. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1998 Quarters
------------------------------
(In thousands, except per share data) First Second Third Fourth
- ---------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest and dividend income.................. $5,805 $6,213 $6,602 $6,602
Interest expense.............................. 2,993 3,363 3,561 3,607
------ ------ ------ ------
Net interest and dividend income........... 2,812 2,850 3,041 2,995
Non-interest income........................... 195 526 204 889
Operating expenses............................ 2,025 2,145 2,156 2,145
------ ------ ------ ------
Income before income taxes................. 982 1,231 1,089 1,739
Income tax expense............................ 376 486 426 706
------ ------ ------ ------
Net income................................. $ 606 $ 745 $ 663 $1,033
====== ====== ====== ======
Earnings per common share..................... $ 0.31 $ 0.38 $ 0.34 $ 0.53
====== ====== ====== ======
Earnings per common share-assuming dilution... $ 0.31 $ 0.38 $ 0.34 $ 0.53
====== ====== ====== ======
<CAPTION>
1997 Quarters
------------------------------
(In thousands, except per share data) First Second Third Fourth
- ---------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest and dividend income.................. $5,608 $5,821 $6,049 $5,831
Interest expense.............................. 2,790 2,916 3,045 2,935
------ ------ ------ ------
Net interest and dividend income........... 2,818 2,905 3,004 2,896
Non-interest income........................... 251 239 197 201
Operating expenses............................ 2,326 2,332 2,207 2,121
------ ------ ------ ------
Income before income taxes................. 743 812 994 976
Income tax expense............................ 142 160 192 194
------ ------ ------ ------
Net income................................. $ 601 $ 652 $ 802 $ 782
====== ====== ====== ======
Earnings per common share..................... $ 0.31 $ 0.34 $ 0.41 $ 0.40
====== ====== ====== ======
Earnings per common share-assuming dilution... $ 0.31 $ 0.34 $ 0.41 $ 0.40
====== ====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Sept. 30, March 31,
(In Thousands) 1998 1998
- --------------------------------------------------- -----------------------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 4,448 $ 5,718
Investments:
Short-term investments 8,577 3,321
Investments available for sale:
Investment securities 18,297 24,524
Mortgage-backed securities 37,003 45,182
Investments held to maturity:
Investment securities 2,000 4,000
Stock in Federal Home Loan Bank of Boston, at cost 3,300 3,150
The Co-operative Central Bank Reserve Fund 1,576 1,576
----------------------------
Total investments 70,753 81,753
----------------------------
Loans:
Mortgage loans 290,959 277,025
Other loans 4,556 4,699
----------------------------
295,515 281,724
Less allowance for loan losses 2,928 2,886
----------------------------
Net loans 292,587 278,838
----------------------------
Accrued interest receivable 2,009 1,910
Office properties and equipment, net 3,114 2,942
Deferred tax asset, net 1,406 1,286
Goodwill, net 3,240 3,384
Other assets 218 232
----------------------------
Total assets $ 377,775 $ 376,063
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 277,025 $ 276,364
Advances from Federal Home Loan Bank of Boston 60,000 59,000
Advance payments by borrowers for taxes and insurance 1,482 1,229
Accrued interest payable 300 483
Accrued income taxes 151 1,053
Accrued expenses and other liabilities 1,285 1,148
----------------------------
Total liabilities 340,243 339,277
----------------------------
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; 1,965,000 shares issued and outstanding 1,965 1,965
Additional paid-in capital 11,159 11,159
Retained income 24,762 23,841
Accumulated other comprehensive income (note 4) 363 544
Unearned compensation - ESOP (717) (723)
----------------------------
Total stockholders' equity 37,532 36,786
----------------------------
Total liabilities and stockholders' equity $ 377,775 $ 376,063
============================
See accompanying notes to unaudited consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
(In Thousands Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
--------------------------------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Mortgage loans $ 5,476 $ 4,605 $ 10,825 $ 9,148
Other loans 97 115 201 227
Short-term investments 102 74 182 170
Investment securities 389 580 787 1,201
Mortgage-backed securities 558 814 1,168 1,221
Co-operative Central Bank Reserve Fund 27 25 49 51
--------------------------------------
Total interest and dividend income 6,649 6,213 13,212 12,018
--------------------------------------
Interest expense:
Deposits 2,816 2,768 5,656 5,383
Advances from Federal Home Loan Bank of
Boston 872 595 1,693 973
--------------------------------------
Total interest expense 3,688 3,363 7,349 6,356
--------------------------------------
Net interest and dividend income 2,961 2,850 5,863 5,662
Provision for loan losses -- -- -- --
--------------------------------------
Net interest and dividend income after
provision for loan losses 2,961 2,850 5,863 5,662
--------------------------------------
Non-interest income:
Deposit service charges 106 116 213 232
Net gains from sales of investment securities 21 344 184 344
Other income 61 66 122 145
--------------------------------------
Total non-interest income 188 526 519 721
--------------------------------------
Operating expenses:
Salaries and employee benefits 1,081 1,090 2,171 2,144
Occupancy and equipment 340 315 637 618
Data processing service fees 143 91 271 187
Professional fees 191 188 363 329
Foreclosure expenses, net -- 1 -- 2
Goodwill amortization 72 72 144 144
Other expense 383 388 735 746
--------------------------------------
Total operating expenses 2,210 2,145 4,321 4,170
--------------------------------------
Income before income taxes 939 1,231 2,061 2,213
Income tax expense 375 486 826 862
--------------------------------------
Net income $ 564 $ 745 $ 1,235 $ 1,351
======================================
Earnings per common share $ 0.29 $ 0.38 $ 0.64 $ 0.70
======================================
Earnings per common share - assuming dilution $ 0.29 $ 0.38 $ 0.63 $ 0.70
======================================
Weighted average common shares outstanding 1,937 1,937 1,937 1,937
Weighted average common shares outstanding -
assuming dilution 1,945 1,945 1,950 1,943
See accompanying notes to unaudited consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
September 30,
(In Thousands) 1998 1997
- ----------------------------------------------------------- ----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,235 $ 1,351
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 284 232
Amortization of premiums, fees and discounts 110 101
Amortization of goodwill 144 144
Net gains from sales of investment securities (184) (344)
Proceeds from sales of loans -- 193
Proceeds from sales of real estate acquired by foreclosure -- 141
Increase in accrued interest receivable (99) (90)
Decrease in other assets 14 158
Increase in advance payments by borrowers for taxes and insurance 253 77
(Decrease)increase in accrued interest payable (183) 63
Decrease in accrued income taxes (902) (213)
Increase(decrease) in accrued expenses and other liabilities 137 (430)
----------------- ------------------
Net cash provided by operating activities 809 1,383
---------------- ------------------
Cash flows from investing activities:
Principal collected on loans 56,868 21,739
Loan originations (70,724) (35,907)
Purchase of mortgage-backed securities available for sale -- (26,528)
Principal payments on mortgage-backed securities available 8,288 4,301
for sale
Purchase of investment securities available for sale (572) (1,142)
Maturities of investment securities available for sale 6,100 3,300
Proceeds from sales of investment securities available for sale 470 1,082
Maturities of investment securities held to maturity 2,000 --
Net (increase)decrease in short-term investments (5,256) 1,908
Purchase of Stock in Federal Home Loan Bank of Boston (150) --
Purchase of office properties and equipment (456) (409)
---------------- ------------------
Net cash used by investing activities (3,432) (31,656)
---------------- ------------------
Cash flows from financing activities:
Net increase in deposits 661 20,050
Proceeds from advances from FHLB of Boston 38,000 44,000
Payments on advances from FHLB of Boston (37,000) (28,000)
Payments of dividends on common stock (314) (314)
Amortization of unearned compensation - ESOP 6 54
---------------- ------------------
Net cash provided by financing activities 1,353 35,790
---------------- ------------------
Net (decrease)increase in cash and due from banks (1,270) 5,517
Cash and due from banks at beginning of period 5,718 3,995
---------------- ------------------
Cash and due from banks at end of period $ 4,448 $ 9,512
================ ==================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 7,532 $ 6,293
Income taxes 1,728 1,075
Schedule of noncash investing activities:
Transfer of mortgage loans to real estate acquired by foreclosure -- 128
See accompanying notes to unaudited consolidated financial
statements.
</TABLE>
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Unearned Total
Common Paid-in Retained Comprehensive Compensation- Stockholders'
(In Thousands) Stock Capital Income Income ESOP Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended September 30, 1997
- -----------------------------------
Balance at March 31, 1997 $1,965 $11,159 $21,423 $(156) $(846) $33,545
--------------------------------------------------------------------------------
Net income -- -- 1,351 -- -- 1,351
Other comprehensive income, net of tax:
Unrealized gains on securities (note 4) -- -- -- 836 -- 836
------------
Comprehensive income 2,187
------------
Dividends paid -- -- (314) -- -- (314)
Amortization of unearned compensation - ESOP -- -- -- -- 54 54
------------------------------------------------------------------------------
Balance at September 30, 1997 $1,965 $11,159 $22,460 $ 680 $(792) $35,472
==============================================================================
Six Months Ended September 30, 1998
- -----------------------------------
Balance at March 31, 1998 $1,965 $11,159 $23,841 $ 544 $(723) $36,786
---------------------------------------------------------------------------
Net income -- -- 1,235 -- -- 1,235
Other comprehensive loss, net of tax:
Unrealized losses on securities, net of
reclassification adjustment (note 4) -- -- -- (181) -- (181)
------------
Comprehensive income 1,054
------------
Dividends paid -- -- (314) -- -- (314)
Amortization of unearned compensation - ESOP -- -- -- -- 6 6
---------------------------------------------------------------------------
Balance at September 30, 1998 $1,965 $11,159 $24,762 $ 363 $(717) $37,532
===========================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
---------------------
The consolidated financial statements of Central Co-Operative Bank and
Subsidiary ("Central Bank" or "Bank") presented herein reflect the
operations of Central Co-operative Bank and its subsidiary Central
Securities Corporation, a Massachusetts security corporation, which began
operations April 1, 1998. The information in this report should be read in
conjunction with the financial statements of the Bank as of and for the
year ended March 31, 1998, included in the Bank'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 Bank
evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation of the
borrower.
Commitments at September 30, 1998 follow:
<TABLE>
<CAPTION>
<S> <C>
Unused lines of credit.............................................. $11,318,000
Unadvanced portions of construction loans........................... 2,829,000
Commitments to originate residential mortgage loans:
Fixed rate...................................................... 2,214,000
Adjustable rate................................................. 2,392,000
</TABLE>
(3) INCOME TAXES
------------
The Bank accounts for income taxes under 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 Bank's assets and liabilities at enacted tax rates expected to
be in effect when such amounts are realized or settled.
<PAGE>
(4) REPORTING COMPREHENSIVE INCOME
Effective April 1, 1998, the Bank adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income". SFAS 130 establishes 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 Bank's other comprehensive income and related tax effect is as
follows:
<TABLE>
<CAPTION>
For the Six Months Ended
(In Thousands) September 30, 1997
------------------------------------------------ ---------------------------------
Before-Tax Tax After-Tax
Amount Expense Amount
---------- ------- ---------
<S> <C> <C> <C>
Unrealized gains on securities
Unrealized holding gains arising during period $ 1,715 $ 669 $ 1,046
Less: reclassification adjustment for
gains realized in net income 344 134 210
---------- ------- ---------
Other comprehensive income $ 1,371 $ 535 $ 836
========== ======= =========
<CAPTION>
For the Six Months Ended
September 30, 1998
------------------------------------
Before-Tax Tax (Benefit) After-Tax
Amount Expense Amount
---------- ------------- ---------
<S> <C> <C> <C>
Unrealized gains on securities
Unrealized holding losses 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>
c. The following exhibits are filed with this Report:
-------------------------------------------------
Number Description
- ------ -----------
4 Form of Specimen Common Stock Certificate of
Central Bancorp, Inc.
99.1 Central Co-operative Bank Plan of Reorganization
and Acquisition
99.2 Press Release
<PAGE>
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.
DATE: January 7, 1999 By: /s/John D. Doherty
-----------------------------------
John D. Doherty
President and Chief Executive Officer
<PAGE>
Exhibit 4
NUMBER _____ _____ SHARES
CENTRAL BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MA OR NEW YORK, NY
Common Stock CUSIP No.: 152418 10 9
Par Value $1.00 SEE REVERSE FOR CERTAIN
RESTRICTIONS ON TRANSFER
This certifies that
is the owner of
fully paid and non-assessable shares of common stock of the par
value of $1.00 each of
Central Bancorp, Inc. (the "Company") transferable on the books of the Company
by the holder hereof in person or by duly authorized attorney upon surrender of
this certificate duly endorsed or assigned. This certificate and the shares of
common stock represented hereby are issued and shall be held subject to the laws
of The Commonwealth of Massachusetts and to the Articles of Organization and By-
Laws of the Company, as in effect and as amended from time to time hereafter.
Such shares are not deposit accounts and are not insured by the Federal Deposit
Insurance Corporation, the Co-operative Central Bank or any other insurer. This
certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Company and the facsimile signatures
of its duly authorized officers.
Dated: ______________
<TABLE>
<S> <C>
/s/ Paul S. Feeley /s/ John D. Doherty
- --------------------------------------- --------------------
Paul S. Feeley John D. Doherty
Sr. Vice President and President and Chief
Treasurer/CFO Executive Officer
</TABLE>
Countersigned and Registered:
STATE STREET BANK AND TRUST COMPANY
(SEAL)
----------------------------------
Transfer Agent and Registrar
By:
----------------------------------
Authorized Signature
<PAGE>
(FORM OF STOCK CERTIFICATE - BACK SIDE)
A list of the preferences, voting powers, qualifications and special and
relative rights associated with the Company's Common Stock may be obtained from
the Company's Secretary upon written request to the Company's principal
executive office located at 399 Highland Avenue, Somerville, Massachusetts
02144.
Until the Separation Time (as defined in the Rights Agreement referred to
below), this certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement, dated as of the date the
holding company reorganization is consummated (as such may be amended from time
to time, the "Rights Agreement"), between Central Bancorp, Inc. (the "Company")
and State Street Bank and Trust Company, the Rights Agent, the terms of which
are hereby incorporated herein by reference and a copy of which is on file at
the principal executive offices of the Company. Under certain circumstances, as
set forth in the Rights Agreement, such Rights may be redeemed, may be exchanged
for shares of Common Stock or other securities or assets of the Company, may
expire, may become void (if they are "Beneficially Owned" by an "Acquiring
Person" or "Adverse Person" or an Affiliate or Associate thereof, as such terms
are defined in the Rights Agreement, or by any transferee of any of the
foregoing) or may be evidenced by separate certificates and may no longer be
evidenced by this certificate. The Company will mail or arrange for the mailing
of a copy of the Rights Agreement to the holder of this certificate without
charge within five days after the written request therefor.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - ...........................Custodian........................
(Cust) (Minor)
under Uniform Gifts to Minors Act................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND
-------------------------------
TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------
/ /
- -----------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------SHARES OF THE STOCK
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT ATTORNEY, TO TRANSFER THE SAID SHARES
----------------------------------
ON THE BOOKS OF THE WITHIN-NAMED COMPANY, WITH FULL POWER OF SUBSTITUTION IN THE
PREMISES.
DATED
---------------------
---------------------------------------
Notice: The signature to this
assignment must correspond with
the name of the stockholder(s)
as written upon the face of the
certificate in every
particular, without alteration
or enlargement or any change
whatever.
----------------------------------------
Witness
SIGNATURE(S) GUARANTEED:
--------------------------------------------------------
The signature(s) should be guaranteed by an eligible
guarantor Institution (banks, stockbrokers, savings and
loan associations and credit unions with membership in
an approved signature guarantee medallion program),
pursuant to SEC Rule 17Ad-15.
<PAGE>
EXHIBIT 99.1
PLAN OF REORGANIZATION AND ACQUISITION
Pursuant to Section 26B of Chapter 172 of the General Laws of
Massachusetts:
This Plan of Reorganization and Acquisition (the "Plan") is dated as of
August 13, 1998, and made between Central Co-operative Bank, a Massachusetts co-
operative bank (the "Bank"), and Central Bancorp, Inc., a Massachusetts
corporation (the "Holding Company"), pursuant to Section 26B of Chapter 172 of
the General Laws of Massachusetts (the "MGL").
The Bank is a stock co-operative bank, duly organized and validly existing
under the laws of the Commonwealth of Massachusetts, with its principal office
at 399 Highland Avenue, Somerville, Massachusetts 02144. The authorized capital
stock of the Bank consists of (1) 15,000,000 shares of common stock, par value
$1.00 per share (the "Bank Common Stock"), of which 1,965,000 shares are issued
and outstanding as of the date hereof, and (2) 5,000,000 shares of serial
preferred stock, par value $1.00 per share, none of which shares are issued and
outstanding as of the date hereof.
The Holding Company is a corporation, duly organized and validly existing
under the laws of the State of Massachusetts, with its principal office at 399
Highland Avenue, Somerville, Massachusetts 02144. The authorized capital stock
of the Holding Company consists of 15,000,000 shares of common stock, par value
$1.00 per share (the "Holding Company Common Stock"), none of which shares are
issued and outstanding as of the date hereof, and 5,000,000 shares of serial
preferred stock, par value $1.00 per share, none of which shares are issued and
outstanding as of the date hereof.
The Bank and the Holding Company have agreed that the Holding Company will
acquire all of the issued and outstanding shares of Bank Common Stock in
exchange for shares of Holding Company Common Stock pursuant to the provisions
of Section 26B of Chapter 172 of the General Laws of Massachusetts and of this
Plan. The Plan has been adopted and approved by a vote of a majority of all of
the members of the board of directors of the Bank, and by a vote of a majority
of all the members of the board of directors of the Holding Company. The
officers of the Bank and of the Holding Company whose respective signatures
appear below have been duly authorized to execute and deliver this Plan.
1
<PAGE>
NOW, THEREFORE, in consideration of the premises, the Bank and the Holding
Company agree as follows:
Section 1. Approval and Filing of Plan
---------------------------------------
1.1 The Plan shall be submitted for approval by the holders of Bank Common
Stock at a meeting to be called and held in accordance with the Bank's bylaws
and the provisions of Section 26B of Chapter 172 of the General Laws of
Massachusetts. Notice of such meeting shall be published at least once a week
for two successive weeks in a newspaper of general circulation in the County of
Middlesex, Commonwealth of Massachusetts. Both of said publications shall be at
least fifteen days prior to the date of the meeting.
1.2 Upon approval of the Plan by a vote of the holders of two-thirds of
the outstanding shares of Bank Common Stock as required by law, the Bank and the
Holding Company shall submit the Plan to the Commissioner of Banks of the
Commonwealth of Massachusetts (the "Bank Commissioner") for his approval and
filing in accordance with the provisions of Section 26B of Chapter 172 of the
General Laws of Massachusetts. The Plan shall be accompanied by such
certificates of the respective officers of the Bank and the Holding Company as
may be required by law and a written request by the Bank that the Plan not be
filed by the Bank Commissioner until such future time as the Bank Commissioner
shall have received from the Bank and the Holding Company the written notice
described in Subsection 2.1.
Section 2. Definition of Effective Time
----------------------------------------
2.1 The Plan shall become effective at 12:01 A.M. on the first business
day following the date on which the Bank and the Holding Company advise the Bank
Commissioner in writing (i) that all conditions precedent to the Plan becoming
effective specified in Section 5 have been satisfied and (ii) that the Plan has
not been abandoned by the Bank or the Holding Company in accordance with the
provisions of Section 6. Such time is hereinafter called the "Effective Time."
Section 3. Actions at the Effective Time
-----------------------------------------
3.1 At the Effective Time, the Holding Company shall, without any further
action on its part or on the part of the holders of Bank Common Stock,
automatically and by operation of law acquire and become the owner for all
purposes of all of the then issued and outstanding shares of Bank Common Stock
and shall be entitled to have issued to it by the Bank a certificate or
certificates representing such shares. Thereafter, the Holding Company shall
have full
2
<PAGE>
and exclusive power to vote such shares of Bank Common Stock, to receive
dividends thereon and to exercise all rights of an owner thereof.
3.2 At the Effective Time, the holders of the then issued and outstanding
shares of Bank Common Stock shall, without any further action on their part or
on the part of the Holding Company, automatically and by operation of law cease
to own such shares and shall instead become owners of one share of Holding
Company Common Stock for each share of Bank Common Stock theretofore held by
them. Thereafter, such persons shall have full and exclusive power to vote such
shares of Holding Company Common Stock, to receive dividends thereon and to
exercise all rights of an owner thereof. Notwithstanding any of the foregoing,
any Dissenting Stockholder, as defined in Subsection 8.1, shall have such rights
as are provided by Subsection 8.2 and by the laws of the Commonwealth of
Massachusetts.
3.3 At the Effective Time, all previously issued and outstanding
certificates representing shares of Bank Common Stock (the "Old Certificates")
shall automatically and by operation of law cease to represent shares of Bank
Common Stock or any interest therein and each Old Certificate shall instead
represent the ownership by the holder thereof of an equal number of shares of
Holding Company Common Stock. No holder of an Old Certificate shall be entitled
to vote the shares of Bank Common Stock formerly represented by such
certificate, or to receive dividends thereon, or to exercise any other rights of
ownership in respect thereof.
Section 4. Action After the Effective Time
-------------------------------------------
4.1 From and after the Effective Time, each holder of an Old Certificate
or Certificates shall, upon surrender of the same to the transfer agent for the
Bank and the Holding Company, be entitled to receive, in exchange therefor, a
certificate or certificates representing the aggregate number of shares of
Holding Company Common Stock (the "New Certificates") to which said shareholders
shall be entitled. Until so surrendered, each Old Certificate shall be deemed,
for all corporate purposes, to evidence the ownership of the number of shares of
Holding Company Common Stock into which the shares of Bank Common Stock formerly
represented by such Old Certificate shall have been converted.
Section 5. Conditions Precedent
--------------------------------
This Plan and the acquisition provided for herein shall not become
effective unless all of the following first shall have occurred:
3
<PAGE>
5.1 The Plan shall have been approved by a vote of the holders of two-
thirds of the outstanding shares of Bank Common Stock at a meeting of such
stockholders held for such purpose.
5.2 The Plan shall have been approved by the Bank Commissioner and a copy
of the Plan with his approval endorsed thereon shall have been filed in his
office, all as provided in Section 26B of Chapter 172 of the General Laws of
Massachusetts.
5.3 The Board of Governors of the Federal Reserve System, acting pursuant
to Section 3(a)(1) of the Bank Holding Company Act of 1956, as amended, and (S)
225.17 of Regulation Y shall have approved the notice filed by the Holding
Company with the Federal Reserve Bank of Boston to become a bank holding
company, and a period of thirty days shall have elapsed after receipt of such
notice by the Federal Reserve Bank of Boston.
5.4 The Bank shall have received either a (1) a favorable ruling from the
Internal Revenue Service or (2) a favorable opinion from its tax advisor,
satisfactory in form and substance to the Bank, with respect to the federal
income tax consequences of the Plan and the acquisition contemplated thereby.
5.5 The Holding Company shall have complied with all applicable state
securities or "blue sky" laws relating to the issuance of the Holding Company
Common Stock.
5.6 The number of shares of Bank Common Stock which have elected to
exercise dissenters rights of appraisal shall not exceed 10% of the outstanding
shares.
5.7 The Bank and the Holding Company shall have obtained all other
consents, permissions and approvals and shall have taken all actions required by
law or agreement, or deemed necessary, by the Bank or the Holding Company, prior
to the consummation of the acquisition provided for by the Plan and to the
Holding Company's having and exercising all rights of ownership with respect to
all of the outstanding shares of Bank Common Stock acquired by it thereunder.
Section 6. Termination of Plan
------------------------------
6.1 The Plan may be terminated by either the Bank or the Holding Company
at any time before the Effective Time in the event that:
4
<PAGE>
(a) The number of shares of Bank Common Stock owned by Dissenting
Stockholders, as hereinafter defined, shall make consummation of the acquisition
contemplated by the Plan ill-advised in the opinion of the Bank or the Holding
Company;
(b) Any action, suit, proceeding or claim has been instituted, made
or threatened relating to the Plan that shall make consummation of the
acquisition inadvisable in the opinion of the Bank or the Holding Company; or
(c) For any other reason consummation of the acquisition contemplated
by the Plan is inadvisable in the opinion of the Bank or the Holding Company.
Such termination shall be effected by written notice by either the Bank or
the Holding Company to the other of them, authorized or approved by the board of
directors of the party giving such notice. Upon the giving of such notice, this
Plan shall be terminated and there shall be no liability hereunder or on account
of such termination on the part of the Bank or the Holding Company or the
directors, officers, employees, agents or stockholders of either of them. In the
event of the termination of the Plan, the Bank shall pay the fees and expenses
incurred by itself and the Holding Company in connection with the Plan and the
proposed acquisition. If either party hereto gives written notice of
termination to the other party pursuant to this section, the party giving such
written notice shall simultaneously furnish a copy thereof to the Bank
Commissioner.
Section 7. Amendment of Plan
-----------------------------
7.1 The Plan may be amended or modified at any time by mutual agreement of
the boards of directors of the Holding Company and the Bank (i) prior to the
approval hereof by the stockholders of the Bank, in any respect, and (ii)
subsequent to such approval, in any respect provided that the Bank Commissioner
shall approve of such amendment or modification.
Section 8. Rights of Dissenting Stockholders
---------------------------------------------
8.1 "Dissenting Stockholders" shall mean those holders of Bank Common
Stock who file a written objection to the Plan, with the Bank before the taking
of the vote on the Plan, pursuant to Section 86 of Chapter 156B of the General
Laws of Massachusetts, stating that they intend to demand payment for their
shares of Bank Common Stock if the Plan is consummated and whose shares are not
voted in favor of the Plan.
5
<PAGE>
8.2 Each Dissenting Stockholder who complies with the provisions of
Sections 86 to 98, inclusive, of Chapter 156B of the General Laws of
Massachusetts and all other applicable provisions of law shall be entitled to
receive from the Bank payment of the fair value of his shares of Bank Common
Stock upon surrender by such holder of the certificates that previously
represented shares of Bank Common Stock. Certificates so obtained by the Bank,
upon payment of the fair value of such shares as provided by law, shall be
canceled. Shares of Holding Company Common Stock, to which Dissenting
Stockholders would have been entitled had they not dissented, shall be deemed to
constitute authorized but unissued shares of Holding Company Common Stock and
may be sold or otherwise disposed of by the Holding Company at the discretion
of, and on such terms as may be fixed by, its board of directors.
Section 9. Stock Options
-------------------------
9.1 By voting in favor of this Plan, the Holding Company shall have
approved adoption of the Central Co-operative Bank 1986 Stock Option Plan (the
"Stock Option Plan") of the Bank as the stock option plan of the Holding Company
and shall have agreed to issue Holding Company Common Stock in lieu of Bank
Common Stock pursuant to options currently outstanding, or to be issued, under
the existing Stock Option Plan of the Bank. As of the Effective Time, the Stock
Option Plan shall automatically, by operation of law, be continued as and become
the stock option plan of the Holding Company. Each option to purchase shares of
Bank Common Stock under the Stock Option Plan outstanding at the Effective Time
shall automatically be converted into an identical option, with identical price,
terms and conditions, to purchase an identical number of shares of Holding
Company Common Stock in lieu of shares of Bank Common Stock. The Holding
Company and the Bank may make appropriate amendments to the Stock Option Plan to
reflect the adoption of the Stock Option Plan as the stock option plan of the
Holding Company, without adverse effect upon the options outstanding at the
Effective Time under the Stock Option Plan.
Section 10. Governing Law
--------------------------
10.1 The Plan shall take effect as a sealed instrument and shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
6
<PAGE>
Section 11. Counterparts
-------------------------
11.1 The Plan may be executed in several identical counterparts, each of
which when executed by the parties hereto and delivered shall be an original,
but all of which together shall constitute a single instrument. In making proof
of the Plan, it shall not be necessary to produce or account for more than one
such counterpart.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Plan of
Reorganization and Acquisition to be duly executed this 13/th/ day of August,
1998, and their corporate seals to be hereunto affixed.
<TABLE>
<CAPTION>
CENTRAL BANCORP, INC.
<S> <C>
Corporate Seal By: /s/ John D. Doherty
-----------------------------------
John D. Doherty
Attest: On Behalf of Central Bancorp, Inc.
as Incorporator
/s/ Gladys N. Partamian
- -------------------------------------
Gladys N. Partamian
On Behalf of Central Bancorp, Inc.
CENTRAL CO-OPERATIVE BANK
Corporate Seal By: /s/ John D. Doherty
-----------------------------------
John D. Doherty
Attest: President and Chief
Executive Officer
/s/ Gladys N. Partamian
- -------------------------------------
Gladys N. Partamian
Clerk
I hereby approve this Plan of Reorganization and Acquisition.
December 31, 1998 /s/ Thomas J. Curry
- ------------------------------------ -----------------------------------
Date Thomas J. Curry
Commissioner of Banks
</TABLE>
8
<PAGE>
EXHIBIT 99.2
DRAFT PRESS RELEASE
-------------------
For Release: Immediate CONTACT: John D.Doherty
President
(617) 628-4000
CENTRAL CO-OPERATIVE BANK COMPLETES HOLDING COMPANY
REORGANIZATION
JANUARY 7, 1999; SOMERVILLE, MASSACHUSETTS; Central Co-operative Bank
(NASDAQ National Market: CEBK) today announced that effective on January 8,
1999, it will complete its holding company reorganization. Under the Plan of
Reorganization and Acquisition approved by the stockholders at a special meeting
of stockholders held on November 19, 1998, the Bank will become a subsidiary of
a newly formed Massachusetts holding company, Central Bancorp, Inc., and each
currently outstanding share of the Bank's common stock will be automatically
converted into a share of holding company common stock. The Bank will
continue to conduct business from the same locations and in the same manner as
before the reorganization.
Beginning on Friday, January 8, 1999, shares of Central Bancorp, Inc.
Common Stock will trade on the Nasdaq National Market under the trading symbol
"CEBK", which is the same trading symbol under which shares of Central Co-
operative Bank traded prior to the consummation of the reorganization.
"The holding company reorganization is an important step which will give
the Bank more operating flexibility than it currently has and will facilitate
expansion and diversification", John D. Doherty, President of the Bank,
explained.
Central Bancorp, Inc. will be a Massachusetts-chartered one-bank holding
company which has Central Co-operative Bank as its only subsidiary. Central
Co-operative Bank is a stock-chartered Massachusetts co-operative bank,
headquartered in Somerville, Massachusetts, that maintains seven branch offices
in the Commonwealth of Massachusetts and has its deposits insured by the Federal
Deposit Insurance Corporation (FDIC).
