U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2000
------------------
COMMISSION FILE NUMBER: 0-25251
CENTRAL BANCORP, INC.
---------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MASSACHUSETTS
-------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
I.R.S. EMPLOYER IDENTIFICATION NO. 04-3447594
----------
399 HIGHLAND AVENUE, SOMERVILLE, MA. 02144
------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER
(617) 628-4000
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Class Outstanding at November 10, 2000
-------------------------------------- --------------------------------
Common Stock, $1.00 par value 1,728,667
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition at March 31,
2000 and September 30, 2000 (unaudited)
Consolidated Statements of Income for the three and six
month periods ended September 30, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows for the six month
periods ended September 30, 2000 and 1999 (unaudited)
Consolidated Statements of Changes in Stockholders' Equity
for the six month periods ended September 30, 2000 and 1999
(unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the three and six month
periods ended September 30, 2000 and 1999
Item 3. Quantitative and Qualitative Disclosures about Market Risk
(Incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 2000)
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
Item 1-Financial Statements:
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
-------------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 5,156 $ 6,588
---------------------------------------
Short-term investments 4,112 14,802
Investments available for sale:
Investment securities 34,093 32,135
Mortgage-backed securities 21,301 23,308
Stock in Federal Home Loan Bank of Boston, at cost 6,150 5,800
The Co-operative Central Bank Reserve Fund 1,576 1,576
---------------------------------------
Total investments 67,232 77,621
---------------------------------------
Loans:
Mortgage loans 344,677 314,966
Other loans 6,816 5,047
---------------------------------------
351,493 320,013
Less allowance for loan losses (3,034) (2,993)
---------------------------------------
Net loans 348,459 317,020
---------------------------------------
Accrued interest receivable 2,314 2,036
Office properties and equipment, net 2,089 2,218
Deferred tax asset, net 886 1,071
Goodwill, net 2,664 2,808
Other assets 313 195
---------------------------------------
Total assets $ 429,113 $ 409,557
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 268,200 $ 258,339
Advances from Federal Home Loan Bank of Boston 119,000 111,000
Advance payments by borrowers for taxes and insurance 1,479 1,053
Accrued interest payable 599 542
Accrued income taxes 655 --
Accrued expenses and other liabilities 1,132 1,226
---------------------------------------
Total liabilities 391,065 372,160
---------------------------------------
Commitments and Contingencies (Note 2)
Stockholders' equity:
Preferred stock $1.00 par value; authorized 5,000,000 shares;
none issued or outstanding -- --
Common stock $1.00 par value; authorized 15,000,000 shares;
Issued 1,970,000 shares (outstanding 1,748,667 and
1,810,450) at September 30, 2000 and March 31, 2000 respectively 1,970 1,970
Additional paid-in capital 11,190 11,190
Retained income 29,824 28,538
Treasury stock (221,333 shares and 159,550 shares at September 30,
2000, and March 31, 2000, respectively), at cost (4,091) (3,043)
Accumulated other comprehensive income (loss) (note 4) (477) (825)
Unearned compensation - ESOP (368) (433)
---------------------------------------
Total stockholders' equity 38,048 37,397
---------------------------------------
Total liabilities and stockholders' equity $ 429,113 $ 409,557
=======================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------ --------------------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Mortgage loans $ 6,533 $ 5,268 $ 12,546 $ 10,343
Other loans 162 147 288 284
Short-term investments 64 48 149 255
Investment securities 616 472 1,226 857
Mortgage-backed securities 359 352 735 752
The Co-operative Central Bank Reserve Fund 25 27 45 50
----------------------- ---------------------------
Total interest and dividend income 7,759 6,314 14,989 12,541
----------------------- ---------------------------
Interest expense:
Deposits 2,476 2,161 4,819 4,488
Advances from Federal Home Loan Bank of Boston 1,821 877 3,271 1,647
----------------------- ---------------------------
Total interest expense 4,297 3,038 8,090 6,135
----------------------- ---------------------------
Net interest and dividend income 3,462 3,276 6,899 6,406
Provision for loan losses -- -- -- --
----------------------- ---------------------------
Net interest and dividend income after
provision for loan losses 3,462 3,276 6,899 6,406
----------------------- ---------------------------
Non-interest income:
Deposit service charges 112 99 216 207
Net gains from sales of investment securities 193 494 376 612
Other income 49 67 100 119
----------------------- ---------------------------
Total non-interest income 354 660 692 938
----------------------- ---------------------------
Operating expenses:
Salaries and employee benefits 1,311 1,216 2,628 2,407
Occupancy and equipment 286 293 565 589
Advertising 103 100 329 143
Data processing service fees 163 144 291 281
Professional fees 245 198 513 412
Goodwill amortization 72 72 144 144
Other expense 260 245 546 525
----------------------- ---------------------------
Total operating expenses 2,440 2,268 5,016 4,501
----------------------- ---------------------------
Income before income taxes 1,376 1,668 2,575 2,843
Income tax expense 499 636 933 1,098
----------------------- ---------------------------
Net Income before cumulative effect of change in
accounting principle 877 1,032 1,642 1,745
Cumulative effect of change in accounting principle -- -- -- (234)
----------------------- ---------------------------
Net income $ 877 1,032 $ 1,642 $ 1,511
======================= ===========================
Earnings per common share before cumulative effect of
change in accounting principle $ 0.51 $ 0.54 $ 0.93 $ 0.91
======================= ===========================
Earnings per common share before cumulative effect of
change in accounting principle, diluted $ 0.51 $ 0.54 $ 0.93 $ 0.91
======================= ===========================
Earnings per common share after cumulative effect of
change in accounting principle $ 0.51 $ 0.54 $ 0.93 $ 0.79
======================= ===========================
Earnings per common share after cumulative effect of
change in accounting principle, diluted $ 0.51 $ 0.54 $ 0.93 $ 0.78
======================= ===========================
Weighted average common shares outstanding 1,731 1,907 1,759 1,920
Weighted average common shares outstanding, diluted 1,733 1,914 1,760 1,926
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
(In Thousands) 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,642 $ 1,511
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 221 238
Amortization of premiums, fees and discounts 45 65
Amortization of goodwill 144 144
Net gains from sales of investment securities (376) (612)
Decrease (increase) in deferred tax asset 185 (436)
Increase in accrued interest receivable (278) (284)
(Increase) decrease in other assets (118) 257
Increase (decrease) in advance payments by borrowers for taxes and insurance 426 (259)
Increase in accrued interest payable 57 49
Increase in accrued income taxes 655 446
(Decrease) increase in accrued expenses and other liabilities (94) 267
-----------------------------------
Net cash provided by operating activities 2,509 1,386
-----------------------------------
Cash flows from investing activities:
Principal collected on loans 31,224 41,716
Loan originations (62,663) (59,579)
Principal payments on mortgage-backed securities available for sale 2,021 6,315
Purchase of investment securities available for sale (3,169) (13,022)
Maturities of investment securities available for sale -- 2,000
Proceeds from sales of investment securities available for sale 1,876 4,402
Net decrease in short-term investments 10,690 11,297
Purchase of Stock in Federal Home Loan Bank of Boston (350) (314)
Purchase of office properties and equipment (92) (32)
-----------------------------------
Net cash (used in) provided by investing activities (20,463) (7,217)
-----------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 9,861 (10,116)
Proceeds from advances from FHLB of Boston 119,000 29,435
Payments on advances from FHLB of Boston (111,000) (12,000)
Purchase of Treasury stock (1,048) (1,094)
Payments of dividends on common stock (356) (313)
Amortization of unearned compensation - ESOP 65 66
-----------------------------------
Net cash provided by (used in) financing activities 16,522 5,978
-----------------------------------
Net (decrease) increase in cash and due from banks (1,432) 147
Cash and due from banks at beginning of period 6,588 4,964
-----------------------------------
Cash and due from banks at end of period $ 5,156 $ 5,111
===================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 8,033 $ 6,086
Income taxes 278 652
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
(In Thousands) Stock Capital Income Stock
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six Months Ended September 30, 1999
-------------------------------------
Balance at March 31, 1999 $1,967 $11,171 $25,894 $ --
------ ------- ------- -------
Net income -- -- 1,511 --
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) -- -- -- --
------ ------- ------- -------
Comprehensive income (loss) -- -- 1,511 --
------ ------- ------- -------
Purchase of treasury stock -- -- -- (1,094)
Dividends Paid -- -- (313) --
Amortization of unearned compensation - ESOP -- -- -- --
------ ------- ------- -------
Balance at September 30, 1999 $1,967 $11,171 $27,092 $(1,094)
====== ======= ======= =======
Six Months Ended September 30, 2000
-------------------------------------
Balance at March 31, 2000 $1,970 $11,190 $28,538 $(3,043)
------ ------- ------- -------
Net income -- -- 1,642 --
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) -- -- -- --
------ ------- ------- -------
Comprehensive income (loss) -- -- 1,642 --
------ ------- ------- -------
Purchase of treasury stock -- -- -- (1,048)
Dividends Paid -- -- (356) --
Amortization of unearned compensation - ESOP -- -- -- --
------ ------- ------- -------
Balance at September 30, 2000 $1,970 $11,190 $29,824 $(4,091)
====== ======= ======= =======
<CAPTION>
Accumulated
Other Unearned Total
Comprehensive Compensation Stockholders'
(In Thousands) Income (loss) ESOP Equity
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Six Months Ended September 30, 1999
-----------------------------------
Balance at March 31, 1999 $ 327 $ (617) $ 38,742
----- ------ -------
Net Income -- -- 1,511
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) (718) -- (718)
----- ------ -------
Comprehensive income (loss) (718) -- 793
----- ------ -------
Purchase of treasury stock -- -- (1,094)
Dividends Paid -- -- (313)
Amortization of unearned compensation - ESOP -- 66 66
----- ------ --------
Balance at September 30, 1999 $(391) $ (551) $ 38,194
===== ====== ========
Six Months Ended September 30, 2000
-----------------------------------
Balance at March 31, 2000 $(825) $ (433) $ 37,397
----- ------ -------
Net income -- -- 1,642
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) 348 -- 348
----- ------ -------
Comprehensive income (loss) 348 -- 1,990
----- ------ -------
Purchase of treasury stock -- -- (1,048)
Dividends Paid -- -- (356)
Amortization of unearned compensation - ESOP -- 65 65
----- ------ --------
Balance at September 30, 2000 $(477) $ (368) $ 38,048
===== ====== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
(1) BASIS OF PRESENTATION
---------------------
The consolidated financial statements of the Registrant for September
30, 2000 and 1999 presented herein should be read in conjunction with
the financial statements of the Company as of and for the year ended
March 31, 2000, included in the Company's Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments, consisting of normal
recurring adjustments, necessary to fairly present the results for the
interim periods presented. Interim results are not necessarily
indicative of results to be expected for the entire year.
(2) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
-------------------------------------------------
Commitments to originate loans, unused lines of credit and unadvanced
portions of construction loans are agreements to lend to a customer,
provided there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management's credit
evaluation of the borrower.
<TABLE>
<CAPTION>
Commitments at September 30, 2000 follow: (In Thousands)
<S> <C>
Unused lines of credit...............................................$ 10,894
Unadvanced portions of construction loans............................ 6,418
Unadvanced portions of commercial loans.............................. 5,377
Commitments to originate commercial loans............................ 14,517
Commitments to originate residential mortgage loans:
Fixed rate..................................................... 882
Adjustable rate................................................ 841
</TABLE>
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 2000
(UNAUDITED)
(3) INCOME TAXES
------------
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are established for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled.
(4) REPORTING COMPREHENSIVE INCOME
------------------------------
The Company has established standards for reporting and displaying
comprehensive income, which is defined as all changes to equity except
investments by, and distributions to, shareholders. Net income is a
component of comprehensive income, with all other components referred to in
the aggregate as other comprehensive income.
The Company's other comprehensive income (loss) and related tax effect is
as follows:
<TABLE>
<CAPTION>
For the Six Months Ended
(In Thousands) September 30, 2000
------------------------------------------------------------------------------------------------------------------
Before-
Tax Tax After-Tax
Amount Expense Amount
------ ------- ---------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period $ 909 $ 321 $ 588
Less: reclassification adjustment for
gains realized in net income 376 136 240
----------------------------------------------
Other comprehensive income $ 533 $ 185 $ 348
==============================================
<CAPTION>
For the Six Months Ended
September 30, 1999
----------------------------------------------------
Before-
Tax Tax After-Tax
Amount Expense Amount
------ ------- ---------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding losses arising during period $ (542) $ (200) $ (342)
Less: reclassification adjustment for
gains realized in net income 612 236 376
----------------------------------------------
Other comprehensive loss $(1,154) $ (436) $ (718)
==============================================
</TABLE>
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL:
-------
On January 8, 1999, the Registrant, Central Bancorp, Inc. became the
holding company of Central Co-operative Bank when the Bank completed its
holding company reorganization. Because substantially all of the business
of the Registrant is the business of the Bank, the discussion below
focuses on the business of the Bank. For more information, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Holding Company" included in the Company's Annual Report on
Form 10-K as of and for the year ended March 31, 2000.
Net income amounted to $877,000, or $0.51 per diluted share for the three
months ended September 30, 2000 as compared to net income of $1,032,000,
or $0.54 per diluted share in the corresponding quarter ended September
30, 1999.
Net income for the current quarter was lower than net income for the same
period in 1999 primarily due to a $301,000 decrease in net gain from sales
of investment securities. Net interest and dividend income increased
$186,000 in the September 30, 2000 quarter over the prior years quarter,
reflecting significantly higher income from mortgage loans. The Company's
operating expenses increased by $172,000 during the September 30, 2000
quarter over the September 30, 1999 quarter principally due to higher
salaries and employee benefits.
FINANCIAL CONDITION:
-------------------
The following is a discussion of the major changes and trends in financial
condition from the end of the preceding fiscal year, March 31, 2000, to
September 30, 2000.
Total assets increased from $409.5 million at March 31, 2000 to $429.1
million at September 30, 2000 primarily as a result of an increase in
deposits and advances from the Federal Home Loan Bank of Boston which were
invested in the Company's loan portfolio, offset by a decrease in
investments.
The Company's loan balance grew by $31.5 million or 9.8% as a result of
loan originations amounting to $62.7 million, of which $27.3 were in
residential real estate loans. Loan amortization and pay-offs amounted to
$31.2 million. The Company's investment portfolio decreased by $10.4
million, primarily as a result of pay-downs of mortgage-backed securities
and a decline in short term investments, offset by purchases of investment
securities. Proceeds generated from the decline in the Company's
investment portfolio were primarily used to partially fund the increase in
the loan portfolio.
Deposits increased during the six month period by $9.9 million primarily
due to an increase of $8.7 million in term deposit certificates and were
also used to fund the increase in the loan portfolio.
<PAGE>
During the quarter ended September 30, 2000 the Company repurchased 23,200
of Central Bancorp's common stock in connection with the previously
announced third buy back program authorized by the Board of Directors. So
far we have repurchased 221,333 shares at an average cost of $18.48 per
share. This amounts to 11.24% of the common stock issued and outstanding
prior to the adoption of the first buyback program in April of 1999. At
September 30, 2000, there were remaining 59,503 shares authorized under
the third stock repurchase program. Completion of the new program will
depend on market conditions and there is no guaranty of the exact number
of shares the Company will repurchase.
NON-PERFORMING ASSETS:
---------------------
The Company had no non-accruing loans at September 30, 2000, a decrease of
$235 thousand or 100.0% from March 31, 2000. There was no interest income
not recognized on non-accruing loans for the first six months of fiscal
2001.
The following table sets forth information with respect to the Company's
non-performing assets for the dates indicated:
<TABLE>
<CAPTION>
Sept. 30, March 31, Sept. 30,
2000 2000 1999
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Loans accouted for on a
non-accrual basis, (non-accruing loans) $ 0 $ 235 $ 38
Impaired loans, accruing 0 0 0
Non-accruing loans as a percentage of
total loans 0.00% 0.07% 0.01%
Non-accruing loans as a percentage of
total assets 0.00% 0.06% 0.01%
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2000, AND 1999:
--------------------
Net income for the three months ended September 30, 2000, and 1999,
amounted to $877,000 or $0.51 per diluted share and $1,032,000 or $0.54
per diluted share, respectively.
Interest income from the Company's loan portfolio increased $1.3 million
in the second quarter of fiscal 2001. This increase was primarily the
result of a $53.0 million increase in the average loan balance in addition
to a 35 basis point increase in average rates earned on these loans.
<PAGE>
Income from the Company's investment portfolio (which includes income on
short term investments, investment securities, mortgage-backed securities,
FHLB stock and The Co-operative Central Bank Reserve Fund) increased by
$165,000 during the second quarter of fiscal 2001 when compared to the same
fiscal 2000 period. The yield on these assets increased by 68 basis points
while the average balance increased by $3.5 million during the fiscal 2001
quarter.
Average earning assets increased by $56.5 million while the rate earned on
these assets increased 43 basis points to 7.50% during the second quarter
of fiscal 2001 when compared to the second quarter of fiscal 2000.
The Company's cost of deposits increased by $315,000 during the second
quarter of fiscal 2001 when compared to the same fiscal 2000 quarter. The
rate paid on deposits increased 12 basis points from 3.57% during the
quarter ended September 30, 1999 to 3.69% during the quarter ended
September 30, 2000. The average balance of these deposits increased $26.4
million to $268.2 million during the second quarter of fiscal 2001 from
$241.9 million during the fiscal 2000 second quarter.
The average balance of borrowed funds increased by $44.6 million to $115.5
million in the fiscal 2001 second quarter compared to $70.9 million in the
same fiscal 2000 quarter. These advances were used to fund loan growth. The
rate paid on borrowings increased by 136 basis points in the fiscal 2001
quarter to 6.31% from 4.95% in the fiscal 2000 quarter. The combined effect
of these changes resulted in an increase of $944,000 in interest expense on
borrowings to $1.8 million in the second quarter of fiscal 2001 compared to
$877,000 in fiscal 2000's second quarter.
The average balance of total interest-bearing liabilities increased $71.0
million while the rates paid on these liabilities increased by 59 basis
points during the quarter ended September 30, 2000 when compared to the
same period one year ago.
These developments resulted in a $1.4 million increase in interest and
dividend income and an increase of $1.3 million in interest expense. The
combination resulted in a $186,000 increase in net interest and dividend
income from the fiscal 2000 quarter to the fiscal 2001 quarter.
The provision for loan losses is made to maintain the allowance for loan
losses at a level which management considers adequate to provide for
probable losses based on an evaluation of known and inherent risks in the
loan portfolio. Consistent with the current evaluation of the loan
portfolio, the Company did not make any provision for the second quarter of
fiscal 2001 or fiscal 2000.
Non-interest income decreased by $306,000 to $354,000 in the second quarter
of fiscal 2001 from $660,000 in the second fiscal 2000 quarter. The Company
recorded $193,000 and $494,000 in net gains from sales of investment
securities during the second quarter of fiscal 2001 and fiscal 2000,
respectively. This $301,000 decrease in net gains from the sale of
investment securities is the primary reason for the decrease in
non-interest income between the two quarters.
Operating expenses increased $172,000 in the second quarter of fiscal 2001
compared to the same quarter of fiscal 2000. This increase is primarily
attributable to an increase of $95,000 in salaries and employee benefits
and an increase of $47,000 in professional fees due to the implementation
of a tax planning strategy during fiscal 2000.
The provision for Federal and state income taxes amounted to $499,000 and
$636,000 during the second quarter of fiscal 2001 and fiscal 2000,
respectively. The decreased expense relates primarily to the decreased
level of pre-tax income and by a decrease in the effective tax rate due to
the implementation of the tax planning strategy.
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 2000, AND 1999:
---------------------
Net income for the six months ended September 30, 2000, and 1999, amounted
to $1.6 million or $0.93 per diluted share and $1.5 million or $0.78 per
diluted share, respectively.
Interest income from the Company's loan portfolio increased $2.2 million
for the six months ended September 30, 2000. This increase was primarily
the result of a $48.6 million increase in the average loan balance in
addition to a 25 basis point increase in average rates earned on these
loans.
Income from the Company's investment portfolio (which includes income on
short term investments, investment securities, mortgage-backed securities,
FHLB stock and The Co-operative Central Bank Reserve Fund) increased by
$241,000 during the six months ended September 30, 2000 when compared to
the same fiscal 2000 period. The yield on these assets increased by 103
basis points while the average balance decreased by $4.1 million during the
six months ended September 30, 2000.
Average earning assets increased by $44.5 million while the rate earned on
these assets increased 44 basis points to 7.42% during the six months ended
September 30, 2000 when compared to the same period of fiscal 2000.
The Company's cost of deposits increased by $331,000 during the six months
ended September 30, 2000 when compared to the same fiscal 2000 period. The
rate paid on deposits increased 10 basis points from 3.51% during the six
months ended September 30, 1999 to 3.61% during the six months ended
September 30, 2000. The average balance of these deposits increased $11.1
million to $266.8 million during the six months ended September 30, 2000
from $255.7 million during the fiscal 2000 six month period.
The average balance of borrowed funds increased by $43.1 million to $107.0
million in the six months ended September 30, 2000 compared to $63.9
million in the same period in fiscal 2000. These advances were used to fund
loan growth. The rate paid on borrowings increased by 96 basis points in
the fiscal 2001 quarter to 6.11% from 5.15% in the same six months period
in fiscal 2000. The combined effect of these changes resulted in an
increase of $1.7 million in interest expense on borrowings to $3.3 million
in the six months ended September 30, 2000 compared to $1.6 million for the
six months ended September 30, 1999.
The average balance of total interest-bearing liabilities increased $54.2
million while the rates paid on these liabilities increased by 49 basis
points during the six months ended September 30, 2000 when compared to the
same period one year ago.
These developments resulted in a $2.4 million increase in interest and
dividend income and an increase of $2.0 million in interest expense. The
combination resulted in a $493,000 increase in net interest and dividend
income from the six months ended September 30, 1999 to the same period in
fiscal 2001.
The provision for loan losses is made to maintain the allowance for loan
losses at a level which management considers adequate to provide for
probable losses based on an evaluation of known and inherent risks in the
loan portfolio. Consistent with the current evaluation of the loan
portfolio, the Company did not make any provision for the second quarter of
fiscal 2001 or fiscal 2000.
<PAGE>
Non-interest income decreased by $246,000 to $692,000 in the six months
ended September 30, 2000 from $938,000 in the same period in fiscal 2000.
The Company recorded $376,000 and $612,000 in net gains from sales of
investment securities during the six months ended September 30, 2000 and
1999, respectively. This $236,000 decrease in net gains from the sale of
investment securities is the primary reason for the decrease in
non-interest income between the two periods.
Operating expenses increased $515,000 in the six months ended September 30,
2000 compared to the same period of fiscal 2000. This increase is primarily
attributable to an increase of $221,000 in salaries and employee benefits,
an increase of $101,000 in professional fees due to the implementation of a
tax planning strategy during fiscal 2000 and an increase of $186,000 in
advertising due to a marketing effort to promote deposit and other
products.
The provision for Federal and state income taxes amounted to $933,000 and
$1,098,000 during the six months ended September 30, 2000 and 1999,
respectively. The decreased expense relates primarily to the decreased
level of pre-tax income and by a decrease in the effective tax rate due to
the implementation of the tax planning strategy.
LIQUIDITY AND CAPITAL RESOURCES:
-------------------------------
The Company's principal sources of liquidity are loan amortization, loan
prepayments, increases in deposits and advances from The Federal Home Loan
Bank (FHLB) of Boston. The Company is a voluntary member of the FHLB of
Boston and as such is generally entitled to borrow. Cash from these
liquidity sources is used to fund loan originations, security investments,
deposit maturities and repayment of FHLB of Boston advances. The Company's
capital to assets ratio was 8.87% on September 30, 2000, which exceeded
regulatory requirements.
NEW ACCOUNTING PRONOUNCEMENT:
----------------------------
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Position ("SOP") 98-5, Accounting for Costs of a Start-Up
Entity. SOP 98-5 requires organizational costs, which were being amortized,
to be expensed and accounted for as a cumulative effect of a change in
accounting principle. On April 1, 1999, the Bank expensed unamortized
organizational costs resulting in a charge to earnings, net of taxes, of
$234 thousand.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 established accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 also provides for matching the
timing of gain or loss recognition on the hedged asset or liability that is
attributable to the hedged risk or the earnings effect of the hedged
forecasted transaction. In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133, which defers the effective
date of SFAS No. 133. SFAS No. 133 will be effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The adoption of
this Statement is not expected to have a material impact on the Company's
financial position.
<PAGE>
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, which
supercedes the guidance of SFAS No. 125. The provisions of SFAS No. 140
will become effective for certain transactions occurring after March 31,
2001 and for disclosures relating to certain transactions for fiscal years
ending after December 15, 2000. Management does not expect SFAS No. 140 to
have a material impact on the Company's consolidated financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company has experienced no material changes in market risk since the
discussion of this in the annual report as of March 31, 2000.
FORWARD-LOOKING STATEMENTS
--------------------------
This report includes forward-looking statements that involve inherent risks
and uncertainties. A number of important factors could cause actual results
to differ materially from those in the forward-looking statements. Those
factors include the economic environment, competition, products and pricing
in geographic and business areas in which the Company operates, prevailing
interest rates, changes in government regulations and policies affecting
financial services companies, and credit quality and credit risk
management. Central Bancorp, Inc. undertakes no obligation to release
revisions to these forward-looking statements or reflect events or
circumstances after the date of this report.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27, FDS, Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 2000,
the Registrant did not file a Current Report
on Form 8-K.
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
CENTRAL BANCORP, INC. AND SUBSIDIARY
------------------------------------
11/10/00 S/ John D. Doherty
--------- ------------------
Date John D. Doherty
President and Chief Executive Officer
11/10/00 S/ Paul S. Feeley
--------- -----------------
Date Paul S. Feeley
Senior Vice President, Treasurer
and Chief Financial Officer
