<PAGE>
Central
annual report 2000
Bancorp, Inc.
[PHOTO ILLUSTRATION]
"My parents financed their
first home in the 1950s
using a Central Bank Loan...
My wife and I are going to
maintain the family tradition
by also financing our first
home through Central Bank."
<PAGE>
Profile
In 1999, Central Bancorp, Inc. became the holding company for Central Bank,
whose legal name is Central Co-operative Bank. The Bank was founded in 1915 as a
Massachusetts chartered co-operative bank to provide savings deposits and
originate mortgage loans. Between 1970 and 1982, the Bank grew through mergers
with six other Massachusetts co-operative banks. In 1994, Central Bank acquired
Metro Bancorp, Inc., the parent company of Metropolitan Bank and Trust Company.
In October 1986, Central Bank became a public company by converting to a capital
stock co-operative bank.
Central Bank is a full-service community banking operation that provides a
variety of deposit and lending services -- including savings and checking
accounts for retail and business customers, mortgage loans for constructing,
purchasing and refinancing residential and commercial properties, and loans for
home improvement and other purposes. The Bank operates eight full-service
offices in the Massachusetts communities of Somerville, Arlington, Burlington,
Chestnut Hill, Malden, Melrose, and Woburn (two branches).
[FOOTER APPEARS BELOW]
Making a Difference Somerville Arlington
<PAGE>
Central
Bancorp, Inc.
Our Mission
To The Communities annual report 2000
We Serve
As the pace of mergers and consolidations of large banking institutions
intensifies, the management and board of directors of Central Bancorp want to
reaffirm their commitment to serve the long-term interests of our stockholders,
employees and communities.
Many people are frustrated and angry by the changes that oftentimes result from
large bank mergers, including higher fees and less accessibility to decision
makers. Community banks like ours have the flexibility and the motivation to
consistently provide the service that customers want and expect.
We have always believed community banks make a tremendous difference in terms of
providing customers with higher quality services at lower costs. We pride
ourselves at having established excellent relationships in the communities we
serve - relationships that have endured for decades. We have many customers who
have been banking with us for their entire lives.
We don't ever want to lose this personal touch. To that end, we will continue to
do what we do best -- respond to the needs of our customers by offering
competitive, value-based products and personalized service.
[FOOTER APPEARS BELOW]
Burlington Chestnut Hill Malden Melrose Woburn
<PAGE>
Central
Bancorp real estate lending
2000
Central Bank has served the real estate needs of our community for more than 100
years. Central BankEand We lent over $100 million to homeowners, investors and
business owners in the year ended March 31, 2000. We have cautiously expanded
our lending for development projects and resolve whatever I permanent commercial
real estate activities. The Bank believes a balanced mix of wholesale, retail,
commercial and construction mortgage lending is a winning need very quicklyE
combination for the community and our stockholders.
[PHOTO ILLUSTRATIONS]
Making a Difference Somerville Arlington
Dear Stockholder
Central Bancorp had another year of improved financial performance. Since I've
been reporting positive news to you about our Company for some time now, this
may sound like a broken record. I must admit, however, that I enjoy sharing good
news with you.
Our net income of $3,333,000 for the fiscal year ended March 31, 2000,
represented Central Bancorp's best performance since becoming a public company
in 1986. Earnings for the year increased by $651,000, up more than 24% over the
prior fiscal year - fueled by increases in loan income and lower interest
expense resulting from an asset-liability strategy to fund some of fiscal year
2000's growth with additional levels of borrowing. The Company's net income for
the fiscal year ended March 31, 2000, would have been $234,000 higher had
accounting rules not changed requiring the Company to incur a one-time charge
for unamortized organization costs associated with the establishment of Central
Bancorp, Inc., as the holding company for Central Bank in January 1999.
<PAGE>
small business activity
Central Bank's lending activity to the small business community has expanded
over the past few years as the healthy local economy has created greater
opportunities for companies to grow and prosper. Our market is broad-based,
encompassing distributors, the service industry, manufacturers and a multitude
of other commercial establishments. Because of our excellent reputation for
personalized service and our many years of experience, the Bank is viewed as a
very viable option for businesses seeking loans for working capital and other
purposes. Moving forward, we will expand our commercial product base to include
related cash management products and services.
[PHOTO ILLUSTRATIONS]
"Whenever I have a question or a problem, I know I can go into Central Bank's
Woburn office and resolve whatever I need to very quickly. The Customer Service
Representative, Florence Daley, has been working there for 20 years and always
greets me with a smile, making me feel welcome and special. It's nice to know
there is someone who truly cares about helping people.
Burlington Chestnut Hill Malden Melrose Woburn
[STOCKHOLDERS LETTER CONTINUES BELOW]
For the fiscal year ended March 31, 2000, our return on average assets of
0.93% and our return on average stockholders' equity of 9.53% were significantly
above the prior year's levels and also represented their best performances in
more than five years.
Central Bancorp's overall financial position strengthened between March 31,
1999 and March 31, 2000, as total loans grew more than 14% to $320,013,000,
primarily reflecting higher residential, commercial and construction mortgage
loans, and assets rose over 12% to $409,557,000.
Total loans and assets both ended the fiscal year at record levels.
Additionally, our capital-to-assets ratio continued to remain well above
regulatory guidelines.
In May 2000, we announced our intention to repurchase another 5% of Central
Bancorp's outstanding common stock following the completion of our second
repurchase program. Through June 7, 2000, the Company had repurchased 191,933,
or 9.7%, of the 1.9 million shares of common stock outstanding prior to the
implementation of our first stock repurchase program in April 1999.
<PAGE>
central community package
Our Central Community Package is considerably more attractive and less
restrictive than personal account products offered by many other banks,
especially the larger institutions. It features a no-fee checking account, a
premium savings account, a MasterMoney(TM) debt/ATM card permitting unlimited
free ATM withdrawals, and a Reserve Line of Credit. The minimum balance required
to avoid fees is only $1,000. Customers are also eligible for premium rates on
certificates of deposit, free telephone banking and discounts on safe deposit
boxes. Based on feedback from our depositors, the Central Community Package is
certainly meeting their everyday banking needs.
[PHOTO ILLUSTRATION]
"As the parent of a nine-year old child, I'm thrilled that Central Bank offers
the Savings Makes Cents program. My son has learned so much about handling money
and already has his own savings account."
[STOCKHOLDERS LETTER CONTINUES BELOW]
The board of directors of Central Bancorp initiated the three repurchase
programs because it believed the common stock represented an attractive
investment. The reduction in the number of outstanding shares is expected to
benefit our stockholders by increasing Central Bancorp's earnings per share and
book value per share. As you know, the stock market has been very volatile over
the past year, with technology stocks experiencing unprecedented price increases
and more traditional stocks, especially those perceived to be sensitive to rate
changes such as banks, performing weakly despite excellent fundamentals. This
uncertainty surrounding interest rates also has put a damper on the prices of
bank stocks, which impacted Central Bancorp's stock price. As of March 31, 2000,
the closing price of Central Bancorp was $14.88 per share, below its book value
of $20.66 per share.
These developments occurred even though our earnings and financial position
have remained strong for many years, and we achieved record earnings for our
most recent fiscal year. We are very good at what we do, we have an excellent
reputation within the communities we serve, and we are well positioned for
future growth and profitability. The members of your board of directors and
management continue to believe the Company's common stock is undervalued. When
the interest-rate situation stabilizes and the financial markets reexamine the
fundamental values of those companies that are now out of favor, our stock price
should respond positively.
Our board of directors and management remain very optimistic about the
Company's prospects, based in part on our solid customer base, strong community
presence and competitive position. The board's decision to raise our cash
dividend by 25% to 10 cents a share in November 1999 reflected its confidence in
Central Bancorp's future. Moving forward, we will continue to responsibly manage
your Company and provide first-rate service to our customers. We look forward to
serving you in the months and years ahead.
Sincerely,
/s/ John D. Doherty
John D. Doherty
President & Chief Executive Officer
<PAGE>
financial highlights
<TABLE>
<CAPTION>
March 31,
--------------------------------------------------------------------
(In Thousands, Except Per Share Data and Selected Ratios) 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheets
Total assets ............................................. $409,557 $364,696 $375,233 $320,950 $310,949
Total loans .............................................. 320,013 280,346 281,724 234,935 214,421
Investments:
Available for sale .................................... 70,245 68,881 73,027 63,839 64,796
Held to maturity ...................................... -- -- 4,000 4,000 5,651
Deposits ................................................. 258,339 266,463 276,364 259,093 257,096
Borrowings ............................................... 111,000 57,000 59,000 25,000 18,000
Total stockholders' equity ............................... 37,397 38,742 36,786 33,545 31,084
Shares outstanding ....................................... 1,810 1,967 1,965 1,965 1,965
Statements of Operations
Net interest and dividend income ......................... $ 13,375 $ 11,947 $ 11,698 $ 11,623 $ 11,075
Provision for loan losses ................................ -- -- -- -- 120
Total non-interest income ................................ 1,669 1,368 1,814 888 1,347
Total operating expenses ................................. 9,345 8,773 8,471 8,986 10,666
Net income before cumulative effect of
accounting change ..................................... 3,567 2,682 3,047 2,837 1,226
Net income ............................................... 3,333 2,682 3,047 2,837 1,226
Earnings per common share - assuming dilution:
Before cumulative effect of accounting change ......... 1.89 1.38 1.56 1.46 0.64
After cumulative effect of accounting change .......... 1.77 1.38 1.56 1.46 0.64
Selected Ratios
Interest rate spread ..................................... 3.33% 2.97% 3.11% 3.45% 3.37%
Net yield on interest-earning assets ..................... 3.64 3.29 3.45 3.78 3.64
Equity-to-assets ......................................... 9.13 10.62 9.80 10.45 10.00
Return on average assets ................................. 0.93 0.72 0.88 0.89 0.39
Return on average stockholders' equity ................... 9.53 7.12 8.64 8.67 3.96
</TABLE>
5 Central Bancorp 2000 Annual Report
<PAGE>
management's discussion and analysis of
financial condition and results of operations
General
Central Bancorp, Inc. (the "Company") is a bank holding company headquartered in
Somerville, Massachusetts. The Company is the holding company for its wholly
owned subsidiary, Central Bank (the "Bank"), a state chartered co-operative bank
with the legal name of Central Co-operative Bank. Substantially all of the
Company's operations are the operations of the Bank. Therefore, the majority of
the discussion that follows is a discussion of the Bank's operations. Through
the Bank, the Company acquires funds in the form of deposits and borrowings, and
uses the funds to make mortgage loans for the construction, purchase and
refinancing of residential properties, and to make loans on commercial real
estate and business loans in its market area. The Bank also makes a limited
amount of consumer loans including home improvement and secured and unsecured
personal loans. The Bank has used excess funds to purchase investment and
mortgage-backed securities.
The operations of the Bank are generally influenced by overall economic
conditions, the related monetary and fiscal policies of the federal government
and the regulatory policies of financial institution regulatory authorities,
including the Banking Commissioner of Massachusetts, the Federal Reserve Board
and the Federal Deposit Insurance Corporation ("FDIC").
The Bank monitors its exposure to earnings fluctuations resulting from
market interest rate changes. Historically the Bank's earnings have been
vulnerable to changing interest rates due to differences in the terms to
maturity or repricing of its assets and liabilities. For example, in a rising
interest rate environment, the Bank's net interest income and net income could
be negatively affected as interest-sensitive liabilities (deposits and
borrowings) could adjust more quickly to rising interest rates than the Bank's
interest-sensitive assets (loans and investments).
The following is a discussion and analysis of the Bank's results of
operations for the last three fiscal years and its financial condition at the
end of fiscal years 2000 and 1999. Management's discussion and analysis of
financial condition and results of operations should be read in conjunction with
the consolidated financial statements and accompanying notes.
Results of Operations
The Company reported net income of $3.3 million or $1.77 per diluted share after
cumulative effect of change in accounting principle for fiscal 2000, as compared
to $2.7 million or $1.38 per diluted share for fiscal 1999 and $3.0 million or
$1.56 per diluted share for fiscal 1998.
The earnings increase for fiscal 2000 was primarily the result of higher
net interest income and sales of investment securities, partially offset by an
increase in operating expenses. The Company was able to increase net interest
and dividend income during this period despite a fiercely competitive market for
loans and deposits. The decrease in the cost of deposits resulted from
management's decision to not aggressively price deposits in a declining interest
rate environment, which caused the overall cost of funds to decrease.
Fiscal 2000 results were reduced by a one-time charge of $234,000, net of
taxes, for costs associated with establishing, on January 8, 1999, Central
Bancorp, Inc. as the holding company for Central Bank. This charge represented
the balance of unamortized organization costs outstanding as of April 1, 1999,
that were required to be written off in accordance with a new accounting rule
regarding reporting costs of organization activities. Excluding this cumulative
effect of a change in accounting principle, the Company's net income for the
fiscal year ended March 31, 2000, was $3.6 million or $1.89 per diluted share.
Interest Rate Spread
The Bank's operating results are significantly affected by its net interest
spread, which is the difference between the yield on loans and investments and
the interest cost of deposits and borrowings. The interest spread is affected by
economic conditions and market factors that influence interest rates, loan
demand and deposit flows.
6 Central Bancorp 2000 Annual Report
<PAGE>
The following table presents the Bank's income yield and cost of funds by their
primary components for the fiscal years ended March 31:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
(Dollars In Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans ........... $293,126 $ 21,806 7.44% $282,631 $ 21,250 7.52% $245,339 $ 19,326 7.88%
Other loans .............. 6,963 599 8.60 4,882 423 8.66 4,990 444 8.90
Short-term investments ... 8,197 421 5.14 13,128 650 4.95 4,495 251 5.58
Investment securities ....... 32,632 2,039 6.25 23,375 1,481 6.34 38,836 2,443 6.29
Mortgage-backed
securities ............. 25,035 1,465 5.85 37,676 2,097 5.57 44,073 2,659 6.03
The Cooperative Central
Bank Reserve Fund ...... 1,576 94 5.96 1,576 95 6.03 1,576 99 6.28
-------- ------- -------- -------- -------- --------
Total interest-earning
assets ................ $367,529 26,424 7.19 $363,268 25,996 7.16 $339,309 25,222 7.43
======== ------- ======== -------- ======== --------
Interest-bearing liabilities:
Deposits ................. $257,536 8,553 3.32 $275,135 10,770 3.91 $270,650 11,084 4.10
Advances from Federal Home
Loan Bank of Boston ... 80,907 4,496 5.56 59,901 3,279 5.47 42,130 2,440 5.79
-------- ------- -------- -------- -------- --------
Total interest-bearing
liabilities ........ $338,443 13,049 3.86 $335,036 14,049 4.19 $312,780 13,524 4.32
======== ------- ======== -------- ======== --------
Net interest and dividend
income .................... $ 13,375 $ 11,947 $ 11,698
======== ======== ========
Interest rate spread ........ 3.33% 2.97% 3.11%
==== ==== ====
Net yield on interest-
earning assets ........... 3.64% 3.29% 3.45%
==== ==== ====
</TABLE>
Rate/Volume Analysis
The effect on net interest income of changes in interest rates and changes in
the amounts of interest-earning assets and interest-bearing liabilities is shown
in the following table. Information is provided on changes for the fiscal years
indicated attributable to (i) changes in the interest rates; (ii) changes in
volume; and (iii) the combined changes in interest rates and volume.
<TABLE>
<CAPTION>
2000 vs. 1999 1999 vs. 1998
-------------------------------------------------------------------------------------------
Change due to Increase (Decrease) in: Change due to Increase (Decrease) in:
-------------------------------------------------------------------------------------------
Rate/ Rate/
(In Thousands) Volume Rate Volume Total Volume Rate Volume Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Mortgage loans ................... $ 789 $ (226) $ (7) $ 556 $ 2,939 $ (883) $ (132) $ 1,924
Other loans ...................... 180 (3) (1) 176 (10) (12) 1 (21)
------- ------- ------- ------- ------- ------- ------- -------
Total income from loans ........ 969 (229) (8) 732 2,929 (895) (131) 1,903
------- ------- ------- ------- ------- ------- ------- -------
Short-term investments .............. (244) 25 (10) (229) 482 (28) (55) 399
Investment securities ............... 587 (21) (8) 558 (972) 19 (9) (962)
Mortgage-backed securities .......... (704) 105 (33) (632) (386) (203) 27 (562)
The Co-operative Central Bank
Reserve Fund ................. -- (1) -- (1) -- (4) -- (4)
------- ------- ------- ------- ------- ------- ------- -------
Total income from investments .... (361) 108 (51) (304) (876) (216) (37) (1,129)
------- ------- ------- ------- ------- ------- ------- -------
Total interest and dividend
income ......................... 608 (121) (59) 428 2,053 (1,111) (168) 774
------- ------- ------- ------- ------- ------- ------- -------
Interest expense:
Deposits ......................... (688) (1,623) 94 (2,217) 184 (514) 16 (314)
Advances from Federal Home Loan
Bank of Boston ............... 1,149 54 14 1,217 1,029 (135) (55) 839
------- ------- ------- ------- ------- ------- ------- -------
Total interest expense ........... 461 (1,569) 108 (1,000) 1,213 (649) (39) 525
------- ------- ------- ------- ------- ------- ------- -------
Net interest and dividend income .... $ 147 $ 1,448 $ (167) $ 1,428 $ 840 $ (462) $ (129) $ 249
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
7 Central Bancorp 2000 Annual Report
<PAGE>
Interest and Dividend Income
The Bank experienced a $428 thousand overall increase in interest and dividend
income for the fiscal year ended March 31, 2000 compared to fiscal 1999.
Interest income on loans increased by $732 thousand to $22.4 million due to a
$12.6 million increase in average loan balances. Total loans increased by $39.7
million from March 31, 1999 to March 31, 2000 and the yield on these loans
decreased by 7 basis points. The Bank originated new loans amounting to $108.4
million, of which $78.5 million were adjustable-rate loans. Additionally,
interest and dividend income on investments decreased by $304 thousand due
primarily to an $8.3 million decrease in average total balances of investments,
partly offset by a 25 basis point increase in the rate earned on investments
during fiscal 2000. The overall total average balance of interest-earning assets
increased by $4.3 million from fiscal 1999 to fiscal 2000, and the average yield
on all interest-earning assets increased by 3 basis points between the two
fiscal years.
The Bank experienced a $774 thousand overall increase in interest and
dividend income for the fiscal year ended March 31, 1999 compared to fiscal
1998. Interest income on loans increased by $1.9 million to $21.7 million due to
a $37.2 million increase in average loan balances, although total loans
decreased by $1.4 million from March 31, 1998 to March 31, 1999. Partly
offsetting the increase in average loans outstanding was a 36 basis point
decrease in the average yield on these loans. The Bank originated new loans
amounting to $111.2 million, of which $51.1 million were adjustable-rate loans.
Additionally, interest and dividend income on investments decreased by $1.1
million due primarily to a $13.2 million decrease in average total balances of
investments and by a 42 basis point decrease in the rate earned on investments
during fiscal 1999. The overall total average balance of interest-earning assets
increased by $24.0 million from fiscal 1998 to fiscal 1999, while the average
yield on all interest-earning assets decreased by 27 basis points between the
two fiscal years.
Interest Expense
Interest expense on deposits decreased during the fiscal year ended March 31,
2000 by $2.2 million, from $10.8 million in fiscal 1999 to $8.6 million in
fiscal 2000. The decrease can be attributed to a decrease of 59 basis points in
the interest rate paid on deposits, from 3.91% during fiscal 1999 to 3.32 %
during fiscal 2000, as well as a decrease in the average balance of deposits to
$257.5 million during fiscal 2000 from $275.1 million during fiscal 1999.
Interest expense on borrowings increased as the average balance of borrowings
rose to $80.9 million during fiscal 2000 from $59.9 million during fiscal 1999
and the average rate paid on borrowed funds increased 9 basis points from 5.47%
in fiscal 1999 to 5.56% in fiscal 2000. Both factors combined to cause a $1.2
million increase in interest expense on borrowings during fiscal 2000. There was
an overall increase in the average balance of interest-bearing liabilities of
$3.4 million during fiscal 2000 compared to fiscal 1999 while the cost of those
liabilities declined by 33 basis points, to 3.86% in fiscal 2000.
For fiscal 1999, interest expense on deposits decreased by $314 thousand
from $11.1 million in fiscal 1998 to $10.8 million in fiscal 1999. The decrease
can be attributed primarily to a decrease of 19 basis points in the interest
rate paid on deposits from 4.10% during fiscal 1998 to 3.91% in fiscal 1999,
which was partly offset by an increase in the average total balance of deposits
to $275.1 million during fiscal 1999 from $270.7 million in the prior period.
Interest expense on borrowings increased as the average balance of borrowings
rose to $59.9 million during fiscal 1999 from $42.1 million during fiscal 1998.
Partly offsetting the increase in the average balance was a 32 basis point
decrease in the rate paid on these borrowings to 5.47% in fiscal 1999 from 5.79%
in fiscal 1998. Both factors combined to cause an $839 thousand increase in
interest expense on borrowings during fiscal 1999. There was an overall increase
in the average balance of interest-bearing liabilities of $22.3 million during
fiscal 1999 compared to fiscal 1998.
Provision for Loan Losses
Due to the Bank's stable and relatively high level of asset quality, there was
no provision for loan losses during fiscal 2000, 1999 and 1998. At March 31,
2000, 1999 and 1998, problem assets totaled $235 thousand, $420 thousand and
$1.7 million, representing 0.1%, 0.1% and 0.4% of total assets, respectively.
Problem assets are loans 90 days or more past due, real estate acquired by
foreclosure and impaired loans. Loans 90 days or more past due amounted to $235
thousand at March 31, 2000, a decrease of $184 thousand from $419 thousand at
March 31, 1999. There were no impaired loans at March 31, 2000 and March 31,
1999. At March 31, 1998, impaired loans amounted to $1.3 million, all performing
within the term of the current agreements. There was no real estate acquired by
foreclosure at March 31, 2000, 1999 or 1998.
8 Central Bancorp 2000 Annual Report
<PAGE>
Non-interest Income
Total non-interest income for fiscal 2000 was $1.7 million, compared to $1.4
million during fiscal 1999. The primary reason for the $301 thousand increase
was an increase in gains from the sales of investment and mortgage-backed
securities during fiscal 2000 of $1.0 million compared to $580 thousand during
fiscal 1999.
Total non-interest income for fiscal 1999 was $1.4 million, compared to
$1.8 million during fiscal 1998. The primary reason for the $446 thousand
decline was a decrease in gains from the sale of investments and mortgage-backed
securities during fiscal 1999 of $580 thousand compared to $1.1 million during
fiscal 1998. In addition, during fiscal 1999, the Bank sold a non-banking
facility, realizing a net gain on sale of $105 thousand.
Operating Expenses
Operating expenses increased $572 thousand during the fiscal year ended March
31, 2000, as compared to the fiscal year ended March 31, 1999. This increase was
primarily attributable to increases in salaries and benefits of $638 thousand,
in professional fees of $119 thousand and other expenses of $132 thousand. These
increases were partially offset by a reduction in occupancy and equipment
expenses during fiscal 2000 of $301 thousand.
Operating expenses increased $302 thousand during the fiscal year ended
March 31, 1999, as compared to the fiscal year ended March 31, 1998. This
increase was primarily attributable to increases in salaries and benefits of
$179 thousand, in occupancy and equipment of $273 thousand and in data
processing service fees of $146 thousand. These increases were partially offset
by a reduction in professional fees during fiscal 1999 of $144 thousand due to
consulting fees incurred during fiscal 1998 relating to a change in computer
processing systems. Other expenses decreased during fiscal 1999 by $151 thousand
due to decreased advertising and promotional activities as compared to fiscal
1998.
Income Taxes
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.
During fiscal 1999 and 1998, the Bank's effective income tax expense
increased substantially to approximately the statutory rate. The Company
implemented certain tax-saving strategies in fiscal 2000 that resulted in a
decline in the effective tax rate. The effective rates of income tax expense for
the fiscal years ended March 31, 2000, 1999 and 1998 were 37.4%, 41.0% and
39.6%, respectively.
Financial Condition
Total assets at March 31, 2000 amounted to $409.6 million, an increase of $44.9
million from $364.7 million at March 31, 1999. Total assets at March 31, 1999
decreased $10.5 million from $375.2 million at March 31, 1998. During fiscal
2000, increased borrowed funds were used to fund the increase in loans and
investments and the decline in the Bank's deposits.
Net loans increased $39.6 million to $317.0 million at March 31, 2000 from
$277.4 million at March 31, 1999. At March 31, 2000, mortgage loans were $315.0
million, a $40.8 million increase from March 31, 1999. During the fiscal year
ended March 31, 2000, the Bank originated loans totaling $108.4 million, of
which $29.9 million were fixed-rate loans and $78.5 million were adjustable-rate
loans. Total loans originated during the fiscal year ended March 31, 1999,
totaled $111.2 million, of which $60.1 million were fixed-rate loans and $51.1
million were adjustable-rate loans.
Risk Elements
The improvement in the Bank's real estate portfolio continued through fiscal
2000, which resulted in a $184 thousand overall decrease in its problem assets
to $235 thousand at March 31, 2000 as compared to $420 thousand at March 31,
1999. Any reversal of the favorable economic conditions experienced during
fiscal 2000 could result in the Bank experiencing increases in problem assets
that would negatively affect the Bank's results of operations.
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 that may affect the ability of
certain borrowers to repay, a review of overall portfolio size, quality,
composition and an assessment of existing and anticipated economic conditions.
9 Central Bancorp 2000 Annual Report
<PAGE>
While management uses available information in establishing the allowance for
loan losses, future adjustments to the allowance may be necessary if economic
conditions differ substantially from the assumptions used in making current
evaluations. Any such adjustments to the allowance could negatively affect the
Bank's net income. Additions to the allowance are charged to earnings; realized
losses, net of recoveries, are charged to the allowance.
Investment Activities
The Bank's management believes it prudent to maintain an investment portfolio
that provides not only a source of income but also a source of liquidity to meet
lending demands and fluctuations in deposit flows.
Deposits
Total deposits at March 31, 2000 were $258.3 million, an $8.1 million decrease
from $266.5 million one year earlier. Savings accounts and other types of
deposits have traditionally been an important source of funds for lending,
investment purchases, and for other general business purposes. The decrease in
deposits resulted from management's decision to not aggressively price deposits
in a declining interest rate environment, which caused the overall cost of funds
to decrease.
Advances from the Federal Home Loan Bank of Boston
Advances from the Federal Home Loan Bank of Boston increased to $111.0 million
at March 31, 2000 from $57.0 million at March 31, 1999. This was the result of
an asset-liability strategy to fund some of fiscal year 2000's growth with
additional levels of borrowing.
Asset/Liability Management and Market Risk
The Bank's earnings are largely dependent on its net interest income, which is
the difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities. The Bank seeks to reduce its exposure to changes
in interest rate, or market risk, through active monitoring and management of
its interest-rate risk exposure. The policies and procedures for managing both
on- and off-balance sheet activities are established by the Bank's
asset/liability management committee ("ALCO"). The Board of Directors reviews
and approves the ALCO policies annually and monitors related activities on an
ongoing basis.
Market risk is the risk of loss from adverse changes in market prices and
rates. The Bank's market risk arises primarily from interest rate risk inherent
in its lending and deposit taking activities.
The main objective in managing interest rate risk is to minimize the
adverse impact of changes in interest rates on the Bank's net interest income
and preserve capital, while adjusting the Bank's asset/liability structure to
control interest-rate risk. However, a sudden and substantial increase or
decrease in interest rates may adversely impact earnings to the extent that the
interest rates borne by assets and liabilities do not change at the same speed,
to the same extent, or on the same basis.
The following two tables reflect different methods of disclosing the
Bank's exposure to a change in interest rates and its potential impact on the
Bank's net interest income. The gap analysis uses contractual maturities and
next repricing dates, while the market risk simulation measures changes in net
interest income as a result of changes in market interest rates. The interest
rate sensitivity of the Bank's assets and liabilities in both tables would vary
substantially if different assumptions were used or if actual experience differs
from the assumptions provided.
The following table sets forth maturity and repricing information
concerning the Bank's interest-sensitive assets and liabilities at March 31,
2000. The table does not reflect partial or full prepayment of loans or
mortgage-backed securities prior to contractual maturity.
10 Central Bancorp 2000 Annual Report
<PAGE>
<TABLE>
<CAPTION>
(Dollars In Thousands) Time Interval from March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 1-3 3-5
Days Days Days Days Years Years Thereafter Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets:
Short-term
investments ............... $ 14,802 $ -- $ -- $ -- $ -- $ -- $ -- $ 14,802
Investment securities
(including stock in the
Federal Home Loan
Bank of Boston) ........... 7,145 5,800 -- 994 -- 6,869 17,127 37,935
Adjustable-rate loans (a) .... 11,233 2,423 10,807 16,756 41,942 126,408 10,212 219,781
Fixed-rate loan
amortization (b) .......... 8,086 159 464 1,002 7,914 10,267 72,340 100,232
Mortgage-backed securities
amortization (b) .......... 6,969 1,791 1,988 1,403 896 7,263 2,998 23,308
The Co-Operative Central
Bank Reserve Fund ......... -- -- 1,576 -- -- -- -- 1,576
-------- --------- --------- --------- --------- --------- --------- ----------
Total interest-
sensitive assets .......... 48,235 10,173 14,835 20,155 50,752 150,807 102,677 397,634
-------- --------- --------- --------- --------- --------- --------- ----------
Interest-sensitive liabilities:
NOW accounts (c) ............ 8,054 -- -- -- -- -- 24,164 32,218
Regular, club, and 90-day
notice accounts (c) ....... 15,369 6 -- -- -- -- 46,100 61,475
Money market
deposit accounts .......... 19,045 -- -- -- -- -- -- 19,045
Term deposit certificates ... 5,388 14,311 33,782 25,891 44,207 3,388 -- 126,967
Advances from
FHLB of Boston ............ 10,000 7,000 -- 1,000 4,000 5,000 84,000 111,000
-------- --------- --------- --------- --------- --------- --------- ----------
Total interest-sensitive
liabilities .............. 57,856 21,317 33,782 26,891 48,207 8,388 154,264 350,705
-------- --------- --------- --------- --------- --------- --------- ----------
Interest-sensitivity
gap (assets minus
liabilities) ............... $ (9,621) $ (11,144) $ (18,947) $ (6,736) $ 2,545 $ 142,419 $ (51,587) $ 46,929
======== ========= ========= ========= ========= ========= ========= ==========
Cumulative gap .............. $ (9,621) $ (20,765) $ (39,712) $ (46,448) $ (43,903) $ 98,516 $ 46,929
======== ========= ========= ========= ========= ========= =========
Cumulative interest-
sensitive assets as a
percent of cumulative
interest-sensitive
liabilities ................ 83.4% 73.8% 64.8% 66.8% 76.7% 150.1% 113.4%
Cumulative gap as
a percent of
total assets ............... (2.3)% (5.1)% (9.7)% (11.3)% (10.7)% 24.1% 11.5%
</TABLE>
(a) Adjustable-rate mortgage loan amounts and other loans subject to repricing
are accumulated as if the entire balance came due on the repricing date.
(b) Amortization is shown in the time period corresponding to the contractual
amortization or, when such information was not available, the computed
principal amortization based on weighted average maturities and weighted
average rates. Fixed-rate demand loans are shown in the "0-30 Days"
category and are usually amortized over longer periods and can be repriced
at the option of the Bank.
(c) Although NOW and regular accounts are subject to immediate withdrawal and
repricing, management considers these accounts to have significantly longer
effective maturities and repricing terms; therefore, the majority of such
accounts have been included in the "Thereafter" category. If NOW and
regular accounts had been assumed to be subject to repricing within one
year, the cumulative excess of interest-sensitive liabilities over
interest-sensitive assets would have been $116,714 or 28.5% of total
assets.
The Bank quantifies its interest-rate risk exposure using a sophisticated
simulation model. Simulation analysis is used to measure the exposure of net
interest income to changes in interest rates over a specific time horizon.
11 Central Bancorp 2000 Annual Report
<PAGE>
Simulation analysis involves projecting future interest income and expense
under various rate scenarios. The simulation is based on actual cash flows and
assumptions of management about the future changes in interest rates and levels
of activity (loan originations, loan prepayments, deposit flows, etc). The
assumptions are inherently uncertain and, therefore, actual results will differ
from simulated results due to timing, magnitude and frequency of interest rate
changes as well as changes in market conditions and strategies. The net interest
income projection resulting from use of actual cash flows and management's
assumptions is compared to net interest income projections based on an immediate
shift of 300 basis points upward and 200 basis points downward in the first year
of the model.
The following table indicates the estimated exposure as a percentage of
estimated net interest income for the next twelve and twenty-four month periods:
Percentage Change in Estimated
Net Interest Income Over
------------------------------
12 months 24 months
------------------------------
300 basis point increase in rates ............. (13.8)% (14.8)%
200 basis point decrease in rates ............. (0.9) (3.2)
Based on the scenario above, net interest income of the Company would be
adversely affected in both the twelve and twenty-four month periods, although
the negative impact would likely be substantially greater in a rising interest
rate environment.
Liquidity
The Bank's principal sources of liquidity are customer deposits, amortization
and repayments of loan and mortgage-backed security principal, FHLB of Boston
advances and maturities of various other investments. These various sources of
liquidity, as well as the Bank's ability to sell residential mortgage loans in
the secondary market, are used to fund deposit withdrawals, loan originations
and investments.
Deposits have been a relatively stable source of funds for the Bank despite
the continued competition in recent years. During fiscal 2000, deposit balances
decreased by $8.2 million to $258.3 million from $266.5 million at March 31,
1999.
The Bank is a member of the FHLB of Boston and has the ability to borrow
from the FHLB of Boston for any sound business purpose for which the Bank has
legal authority, subject to such regulations and limitations as may be
prescribed. At March 31, 2000 and 1999, the Bank had outstanding FHLB of Boston
advances of $111.0 million and $57.0 million, respectively. The deposits and
FHLB advances were used to fund the Bank's lending and investing activities
during the year. The FHLB of Boston advances are secured by a blanket lien on
residential first mortgage loans, investment securities and all stock in the
FHLB of Boston.
As a member of The Co-operative Central Bank, the Bank also has the right
to borrow from that organization for short-term cash needs, by pledging certain
assets. The Bank also may obtain funds from the Federal Reserve Bank of Boston
by pledging certain of the Bank's notes and drafts. The Bank has not exercised
these rights.
Loan originations, including purchases, totaled $108.4 million, $111.2
million, and $109.7 million for the fiscal years ended March 31, 2000, 1999 and
1998, respectively. At March 31, 2000, outstanding commitments to originate
mortgage loans totaled $21.6 million, and commitments for unadvanced funds on
home equity, commercial and construction loans totaled $17.5 million. Currently,
the Bank does not have any mortgage loans available for sale in the secondary
market. Management believes that the Bank has adequate sources of liquidity to
fund these commitments.
Capital Resources
Massachusetts chartered co-operative banks that are insured by the FDIC, such as
the Bank, are required to maintain minimum capital ratios pursuant to banking
regulations. The first standard establishes a risk-adjusted ratio relating
capital to different categories of balance sheet assets and off-balance sheet
obligations. Two categories of capital are defined: Tier 1 or core capital
(stockholders' equity) and Tier 2 or supplementary capital. Total capital is the
sum of both Tier 1 and Tier 2. According to the standards, Tier 1 capital must
represent at least 50% of qualifying total capital. At March 31, 2000, the
minimum total risk-based capital ratio required was 8.00%. The Bank's risk-based
total capital ratio at March 31, 2000, was 14.52%.
To complement the risk-based standards, the FDIC adopted a leverage ratio
(stockholders' equity divided by total assets) of 3% for the most highly rated
banks and 4%-5% for all others. The leverage ratio is to be used in tandem with
the risk-based capital ratios as the minimum standards for banks. The Bank's
leverage ratio was 8.85% at March 31, 2000.
12 Central Bancorp 2000 Annual Report
12
<PAGE>
consolidated balance sheets
<TABLE>
<CAPTION>
March 31,
------------------------
(Dollars in Thousands) 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and due from banks .............................................................................. $ 6,588 $ 4,964
Short-term investments ............................................................................... 14,802 16,939
Investments available for sale:
Investment securities (amortized cost of $32,839 in 2000 and $21,182 in 1999) (notes 2 and 11) .... 32,135 21,943
Mortgage-backed securities (amortized cost of $23,862 in 2000 and $30,190 in 1999) (note 2) ....... 23,308 29,999
Stock in Federal Home Loan Bank of Boston, at cost (note 7) .......................................... 5,800 3,350
The Co-operative Central Bank Reserve Fund (note 8) .................................................. 1,576 1,576
--------- ---------
Total investments .............................................................................. 77,621 73,807
--------- ---------
Loans:
Mortgage loans (notes 3, 5 and 11) ................................................................ 314,966 274,146
Other loans (notes 4 and 5) ....................................................................... 5,047 6,200
--------- ---------
320,013 280,346
Less allowance for loan losses (note 6) ........................................................... 2,993 2,913
--------- ---------
Net loans ...................................................................................... 317,020 277,433
--------- ---------
Accrued interest receivable .......................................................................... 2,036 1,614
Office properties and equipment, net (note 9) ........................................................ 2,218 2,550
Deferred tax asset, net (note 12) .................................................................... 1,071 744
Goodwill, net ........................................................................................ 2,808 3,096
Other assets ......................................................................................... 195 488
--------- ---------
Total assets ................................................................................... $ 409,557 $ 364,696
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 10) ................................................................................ $ 258,339 $ 266,463
Advances from Federal Home Loan Bank of Boston (note 11) .......................................... 111,000 57,000
Advance payments by borrowers for taxes and insurance ............................................. 1,053 1,389
Accrued interest payable .......................................................................... 542 291
Accrued expenses and other liabilities ............................................................ 1,226 811
--------- ---------
Total liabilities .............................................................................. 372,160 325,954
========= =========
Commitments and contingencies (notes 9, 13 and 16)
Stockholders' equity (note 14):
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 and
1,967,000 shares (outstanding 1,810,450 and 1,967,000) at March 31, 2000 and
1999, respectively ............................................................................. 1,970 1,967
Additional paid-in capital ........................................................................ 11,190 11,171
Retained income ................................................................................... 28,538 25,894
Treasury stock (159,550 and 0 shares of common at March 31, 2000 and 1999, respectively),
at cost ........................................................................................ (3,043) --
Accumulated other comprehensive (loss) income ..................................................... (825) 327
Unearned compensation - ESOP (note 15) ............................................................ (433) (617)
--------- ---------
Total stockholders' equity ..................................................................... 37,397 38,742
--------- ---------
Total liabilities and stockholders' equity ..................................................... $ 409,557 $ 364,696
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
13 Central Bancorp 2000 Annual Report
<PAGE>
consolidated statements of income
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
-------------------------------------
(In Thousands, Except Per Share Data) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Mortgage loans ....................................................................... $ 21,806 $ 21,250 $ 19,326
Other loans .......................................................................... 599 423 444
Short-term investments ............................................................... 421 650 251
Investment securities ................................................................ 2,039 1,481 2,443
Mortgage-backed securities ........................................................... 1,465 2,097 2,659
The Co-operative Central Bank Reserve Fund ........................................... 94 95 99
-------- -------- --------
Total interest and dividend income ................................................ 26,424 25,996 25,222
-------- -------- --------
Interest expense:
Deposits ............................................................................. 8,553 10,770 11,084
Advances from Federal Home Loan Bank of Boston ....................................... 4,496 3,279 2,440
-------- -------- --------
Total interest expense ............................................................ 13,049 14,049 13,524
-------- -------- --------
Net interest and dividend income .................................................. 13,375 11,947 11,698
Provision for loan losses (note 6) ...................................................... -- -- --
-------- -------- --------
Net interest and dividend income after provision for loan losses .................. 13,375 11,947 11,698
-------- -------- --------
Non-interest income:
Deposit service charges .............................................................. 414 431 493
Net gain from sales of investment securities (note 2) ................................ 1,013 580 1,051
Gain on sale of building ............................................................. -- 105 --
Other income ......................................................................... 242 252 270
-------- -------- --------
Total non-interest income ......................................................... 1,669 1,368 1,814
-------- -------- --------
Operating expenses:
Salaries and employee benefits ....................................................... 5,017 4,379 4,200
Occupancy and equipment (note 9) ..................................................... 1,167 1,468 1,195
Data processing service fees ......................................................... 534 543 397
Professional fees .................................................................... 875 756 900
Foreclosure expenses, net ............................................................ (6) 1 2
Goodwill amortization ................................................................ 288 288 288
Other expenses ....................................................................... 1,470 1,338 1,489
-------- -------- --------
Total operating expenses .......................................................... 9,345 8,773 8,471
-------- -------- --------
Income before income taxes ........................................................ 5,699 4,542 5,041
Income tax expense (note 12) ............................................................ 2,132 1,860 1,994
-------- -------- --------
Net income before cumulative effect of change in accounting principle ............. 3,567 2,682 3,047
Cumulative effect of change in accounting principle, net of taxes........................ (234) -- --
-------- -------- --------
Net income ........................................................................ $ 3,333 $ 2,682 $ 3,047
======== ======== ========
Earnings per common share (note 1):
Before cumulative effect of change in accounting principle ........................... $ 1.90 $ 1.38 $ 1.57
======== ======== ========
Before cumulative effect of change in accounting principle - assuming dilution ....... $ 1.89 $ 1.38 $ 1.56
======== ======== ========
After cumulative effect of change in accounting principle ............................ $ 1.77 $ 1.38 $ 1.57
======== ======== ========
After cumulative effect of change in accounting principle - assuming dilution ........ $ 1.77 $ 1.38 $ 1.56
======== ======== ========
Weighted average common shares outstanding .............................................. 1,882 1,938 1,937
======== ======== ========
Weighted average common shares outstanding, diluted ..................................... 1,885 1,946 1,948
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
14 Central Bancorp 2000 Annual Report
14
<PAGE>
consolidated statements of changes in stockholders' equity
<TABLE>
<CAPTION>
Accumulated
Additional Other Unearned Total
Common Paid-in Retained Treasury Comprehensive Compensation Stockholders'
(In Thousands, Except Per Share Data) Stock Capital Income Stock (Loss) Income ESOP Equity
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 ................ $ 1,965 $ 11,159 $ 21,423 $ -- $ (156) $ (846) $ 33,545
Net income ............................... -- -- 3,047 -- -- -- 3,047
Other comprehensive income, net of tax:
Unrealized gain on securities, net of
reclassification adjustment ......... -- -- -- -- 700 -- 700
Comprehensive income ................ 3,747
--------
Dividends paid ($0.32 per share) ......... -- -- (629) -- -- -- (629)
Amortization of unearned
compensation - ESOP ................... -- -- -- -- -- 123 123
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1998 ................ 1,965 11,159 23,841 -- 544 (723) 36,786
Net income ............................... -- -- 2,682 -- -- -- 2,682
Other comprehensive income, net of tax:
Unrealized (loss) on securities, net of
reclassification adjustment ......... -- -- -- -- (217) -- (217)
--------
Comprehensive income ................ 2,465
--------
Proceeds from exercise of stock options .. 2 12 -- -- -- -- 14
Dividends paid ($0.32 per share) ......... -- -- (629) -- -- -- (629)
Amortization of unearned
compensation - ESOP ................. -- -- -- -- -- 106 106
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1999 ................ 1,967 11,171 25,894 -- 327 (617) 38,742
Net income ............................... -- -- 3,333 -- -- -- 3,333
Other comprehensive income, net of tax:
Unrealized (loss) on securities, net of
reclassification adjustment ......... -- -- -- -- (1,152) -- (1,152)
--------
Comprehensive income ................ 2,181
--------
Proceeds from exercise of stock options .. 3 19 -- -- -- -- 22
Purchase of treasury stock ............... -- -- -- (3,043) -- -- (3,043)
Dividends paid ($0.36 per share) ......... -- -- (689) -- -- -- (689)
Amortization of unearned
compensation - ESOP ................... -- -- -- -- -- 184 184
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 2000 ................ $ 1,970 $ 11,190 $ 28,538 $ (3,043) $ (825) $ (433) $ 37,397
======== ======== ======== ======== ======== ======== ========
</TABLE>
The Bank's other comprehensive income (loss) and related tax effect for the
fiscal years ending March 31 are as follows:
<TABLE>
<CAPTION>
2000
----------------------------------------
Before-tax Tax (Benefit) After-Tax
(In Thousands) Amount Expense Amount
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding (losses) during period ....................................... $ (815) $ (297) $ (518)
Less: reclassification adjustment for (gains) realized in net income ............ (1,013) (379) (634)
------- ------- -------
Other comprehensive loss ...................................................... $(1,828) $ (676) $(1,152)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1999
----------------------------------------
Before-tax Tax (Benefit) After-Tax
(In Thousands) Amount Expense Amount
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains during period .......................................... $ 199 $ 85 $ 114
Less: reclassification adjustment for (gains) realized in net income ............ (580) (249) (331)
------- ------- -------
Other comprehensive loss ...................................................... $ (381) $ (164) $ (217)
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
15 Central Bancorp 2000 Annual Report
15
<PAGE>
consolidated statements of cash flows
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
---------------------------------------
(In Thousands) 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................................................... $ 3,333 $ 2,682 $ 3,047
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................... 462 729 447
Amortization of premiums and discounts .......................................... 132 461 209
Amortization of goodwill ........................................................ 288 288 288
Increase in deferred tax assets ................................................. (327) (175) (388)
Net gains from sales of investment and mortgage-backed securities ............... (1,013) (580) (1,051)
Net gain from sale of building .................................................. -- (105) --
Cumulative effect of change in accounting principle ................................ 234 -- --
Proceeds from sales of loans ....................................................... -- -- 193
Proceeds from sales of real estate acquired by foreclosure ......................... -- -- 141
(Increase) decrease in accrued interest receivable ................................. (422) 296 (1)
Decrease (increase) in other assets ................................................ 59 (256) 175
(Decrease) increase in advance payments by borrowers for taxes and insurance ....... (336) 160 105
Increase (decrease) in accrued interest payable .................................... 251 (192) 167
Increase (decrease) in accrued expenses and other liabilties ....................... 415 (560) 329
--------- --------- ---------
Net cash provided by operating activities ....................................... 3,076 2,748 3,661
========= ========= =========
Cash flows from investing:
Principal collected on loans ....................................................... 68,641 112,825 62,384
Loan originations .................................................................. (108,363) (111,231) (109,736)
Principal payments on mortgage-backed securities available for sale ................ 9,420 14,942 12,454
Purchase of mortgage-backed securities available for sale .......................... (3,216) -- (29,528)
Purchase of investment securities available for sale ............................... (18,500) (16,622) (3,915)
Proceeds from sales of investment securities available for sale .................... 6,159 4,049 3,955
Maturities of investment securities held to maturity ............................... -- 4,000 --
Maturities of investment securities available for sale ............................. 2,500 15,100 13,300
Net decrease (increase) in short-term investments .................................. 2,137 (13,618) (283)
Purchase of stock in Federal Home Loan Bank of Boston .............................. (2,450) (200) (818)
Proceeds from sale of land and building ............................................ -- 239 --
Purchase of office properties and equipment, net ................................... (130) (576) (516)
--------- --------- ---------
Net cash (used) provided by investing activities ................................ (43,802) 8,908 (52,703)
--------- --------- ---------
</TABLE>
Continued
16 Central Bancorp 2000 Annual Report
16
<PAGE>
Continued
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
---------------------------------------
(In Thousands) 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net (decrease) increase in deposits ................................................ (8,124) (9,901) 17,271
Proceeds from advances from FHLB of Boston ......................................... 155,500 43,495 95,000
Payments on advances from FHLB of Boston ........................................... (101,500) (45,495) (61,000)
Proceeds from exercise of stock options ............................................ 22 14 --
Purchase of Treasury stock ......................................................... (3,043) -- --
Payments of dividends on common stock .............................................. (689) (629) (629)
Payments on ESOP note payable ...................................................... 184 106 123
--------- --------- ---------
Net cash provided (used) by financing activities ................................ 42,350 (12,410) 50,765
--------- --------- ---------
Net increase (decrease) in cash and due from banks .............................. 1,624 (754) 1,723
Cash and due from banks at beginning of year .................................... 4,964 5,718 3,995
--------- --------- ---------
Cash and due from banks at end of year .......................................... $ 6,588 $ 4,964 $ 5,718
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ........................................................................ $ 12,798 $ 14,241 $ 13,357
Income taxes .................................................................... 2,094 2,413 2,100
Schedule of non-cash investing activities:
Transfer from mortgage loans to real estate acquired by foreclosure ................ $ -- $ -- $ 128
</TABLE>
See accompanying notes to consolidated financial statements.
17 Central Bancorp 2000 Annual Report
<PAGE>
notes to consolidated financial statements
March 31, 2000
1 Summary of Significant Accounting Policies
Central Bancorp, Inc. (the "Company"), a Massachusetts corporation, was
organized by Central Bank (the "Bank") to be a bank holding company. The Company
was organized at the direction of the Bank on September 30, 1998, to acquire all
of the capital stock of the Bank upon the consummation of the reorganization of
the Bank into the holding company form of ownership, which was completed on
January 8, 1999. The Company's common stock, par value $1.00 per share (the
"Common Stock"), became registered under the Securities Exchange Act of 1934 on
January 8, 1999. The Company has no significant assets other than the common
stock of the Bank and various other liquid assets that it invests in the
ordinary course of business. For that reason, substantially all of the
discussion in these consolidated financial statements relates to the operations
of the Bank and its subsidiaries.
Central Bank (the "Bank") was organized as a Massachusetts chartered
co-operative bank in 1915 and converted from mutual to stock form in 1986. The
primary business of the Bank is to acquire funds in the form of deposits and use
the funds to make mortgage loans for the construction, purchase and refinancing
of residential properties, and to a lesser extent, to make loans on commercial
real estate in its market area. The Bank also makes a limited amount of consumer
loans, including home improvement and secured and unsecured personal loans. The
Bank is subject to competition from other financial institutions. The Company is
subject to the regulations of, and periodic examinations by, the Federal Reserve
Bank ("FRB"). 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 Company conducts its business through one operating segment, the Bank.
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. In
preparing the consolidated 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. 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 reserves are calculated based upon deposit levels and
amounted to approximately $1,891,000 at March 31, 2000.
Investment
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 other comprehensive income within 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.
18 Central Bancorp 2000 Annual Report
<PAGE>
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.
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 collectiblity 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 that 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
loan 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.
19 Central Bancorp 2000 Annual Report
<PAGE>
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. On an ongoing basis, management evaluates the valuation of the remaining
balance of goodwill.
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. Pension costs are funded as accrued.
Earnings Per Share
Basic earnings per share ("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.
New Accounting Pronouncements
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.
20 Central Bancorp 2000 Annual Report
<PAGE>
2 Investments and Mortgage-Backed Securities (Dollars in Thousands)
The amortized cost and fair value of investments and mortgage-backed securities
available for sale are summarized as follows:
<TABLE>
<CAPTION>
March 31, 2000
---------------------------------------------------------
Gross Unrealized
Amortized ------------------------ Fair
Cost Gains Losses Value
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common and preferred stocks ................................... $ 6,847 $ 929 $ (631) $ 7,145
U.S. Government and federal agency obligations ................ 23,962 -- (1,009) 22,953
Other bonds and obligations ................................... 2,030 7 -- 2,037
------- ------- ------- -------
Total ................................................... $32,839 $ 936 $(1,640) $32,135
======= ======= ======= =======
Mortgage-backed securities:
GNMA ....................................................... $ 434 $ -- $ (14) $ 420
FNMA ....................................................... 17,091 5 (400) 16,696
FHLMC ...................................................... 4,185 -- (50) 4,135
CMOs ....................................................... 2,152 -- (95) 2,057
------- ------- ------- -------
Total ................................................... $23,862 $ 5 $ (559) $23,308
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------------
Gross Unrealized
Amortized ------------------------ Fair
Cost Gains Losses Value
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common and preferred stocks ................................... $ 5,682 $ 844 $ (105) $ 6,421
U.S. Government and federal agency obligations ................ 15,500 22 -- 15,522
------- ------- ------- -------
Total ................................................... $21,182 $ 866 $ (105) $21,943
======= ======= ======= =======
Mortgage-backed securities:
GNMA ....................................................... $ 698 $ 2 $ (7) $ 693
FNMA ....................................................... 19,988 99 (194) 19,893
FHLMC ...................................................... 4,588 10 (73) 4,525
CMOs ....................................................... 4,916 1 (29) 4,888
------- ------- ------- -------
Total ................................................... $30,190 $ 112 $ (303) $29,999
======= ======= ======= =======
</TABLE>
The maturity distribution (based on contractual maturities) and annual yields of
mortgage-backed securities at March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
March 31, 2000
--------------------------------------------
Amortized Fair Annual
Cost Value Yield
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due within one year .................................................. $ -- $ -- --%
Due after one year but within five years ............................. 687 410 6.56
Due after five years but within ten years ............................ 6,469 6,376 7.01
Due after ten years .................................................. 16,706 16,522 6.26
------- -------
Total .......................................................... $23,862 $23,308 5.57%
======= =======
Weighted average remaining life (in years) ........................... 18.33
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
--------------------------------------------
Amortized Fair Annual
Cost Value Yield
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due within one year .................................................. $ 942 $ 925 6.13%
Due after one year but within five years ............................. 943 946 6.57
Due after five years but within ten years ............................ 4,656 4,687 7.19
Due after ten years .................................................. 23,649 23,441 6.87
------- -------
Total .......................................................... $30,190 $29,999 6.80%
======= =======
Weighted average remaining life (in years) ........................... 17.90
</TABLE>
21 Central Bancorp 2000 Annual Report
<PAGE>
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 $12,809 and $12,467, respectively, in 2000. The amortized cost and
fair value of adjustable-rate federal agency obligations and mortgage-backed
securities classified as available for sale amounted to $16,309 and $16,072,
respectively, in 1999.
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
$22,962 and a fair value of $21,959 at March 31, 2000.
Net realized gains on sales of investment securities classified as
available for sale for the fiscal years ended March 31, 2000, 1999 and 1998
amounted to $1,013, $580 and $1,051, respectively.
There were no sales of mortgage-backed securities classified as available
for sale during the fiscal years ended March 31, 2000 and 1999.
The maturity distribution (based on contractual maturities) and annual
yields of investment securities (excluding common and preferred stocks) at March
31, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
March 31, 2000
--------------------------------------------
Amortized Fair Annual
Cost Value Yield
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due within one year ................................................ $ 1,000 $ 994 6.15%
Due after one year but within five years ........................... 9,056 6,869 6.80
Due after five years but within ten years .......................... 15,936 17,127 6.48
------- -------
Total ........................................................ $25,992 $24,990 6.57%
======= =======
Weighted average remaining life (in years) ......................... 5.93
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
--------------------------------------------
Amortized Fair Annual
Cost Value Yield
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due within one year ................................................ $ 505 $ 511 7.75%
Due after one year but within five years ........................... 3,001 3,017 6.39
Due after five years but within ten years .......................... 11,994 11,994 6.22
------- -------
Total ....................................................... $15,500 $15,522 6.30%
======= =======
Weighted average remaining life (in years) ......................... 6.20
</TABLE>
A Federal Home Loan Bank bond with an amortized cost of $1,999 and fair value of
$1,999 at March 31, 1999, was 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. No such
bond was required at March 31, 2000.
22 Central Bancorp 2000 Annual Report
<PAGE>
3 Mortgage Loans (In Thousands)
Mortgage loans as of March 31 are summarized below:
2000 1999
-------------------------------------------------------------------------------
Mortgage loans:
Residential
Fixed ......................................... $ 65,765 $ 72,115
Adjustable .................................... 177,798 140,523
Commercial ....................................... 54,228 48,756
Construction ..................................... 9,765 5,269
Second mortgages and home equity ................. 7,403 7,462
FHA and VA ....................................... 7 21
-------- --------
$314,966 $274,146
========= ========
At March 31, 2000 and 1999, net deferred loan costs of $280 and $81,
respectively, were 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, 2000, 1999 and 1998 were $235, $419, and $357,
respectively. Interest income not recognized on such loans amounted to $7, $16,
and $11 in fiscal 2000, 1999 and 1998, respectively.
At March 31, 2000 and 1999, there were no impaired loans. Impaired loans
are measured using the fair value of collateral. During fiscal 2000, there were
no impaired loans and during fiscal 1999, the average recorded value of impaired
loans was $761. The Bank follows the same policy for recognition of income on
impaired loans as it does for all other loans. During fiscal 2000 and 1999,
there was no interest forgone on impaired loans that were not non-accrual loans.
Mortgage loans serviced by the Bank for others amounted to $5,790 and
$8,676 at March 31, 2000 and 1999, respectively. 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.
4 Other Loans (In Thousands)
Other loans at March 31 are summarized below:
2000 1999
-------------------------------------------------------------------------------
Other loans:
Commercial ....................................... $3,349 $4,391
Secured by deposits .............................. 1,023 1,225
Consumer ......................................... 38 40
Unsecured ........................................ 637 544
------ ------
$5,047 $6,200
====== ======
23 Central Bancorp 2000 Annual Report
<PAGE>
5 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:
2000 1999
---------------
Balance at beginning of period ............................ $ 563 $ 900
New loans .............................................. 11 29
New officers with loans outstanding .................... -- 94
Repayment of principal ................................. (187) (165)
No longer a director ................................... (144) (295)
----- -----
Balance at end of period .................................. $ 243 $ 563
===== =====
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.
6 Allowance for Loan Losses (In Thousands)
<TABLE>
<CAPTION>
March 31,
-------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period .......................... $ 2,913 $ 2,886 $ 2,900
Provision charged to expense ......................... -- -- --
Amounts charged-off .................................. (9) (99) (97)
Recoveries on accounts previously charged-off ........ 89 126 83
------- ------- -------
Balance at end of period ................................ $ 2,993 $ 2,913 $ 2,886
======= ======= =======
</TABLE>
7 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 $250 and $500 at March 31, 2000 and 1999, 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.
8 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.
24 Central Bancorp 2000 Annual Report
<PAGE>
9 Office Properties and Equipment (In Thousands)
A summary of cost, accumulated depreciation and amortization of office
properties and equipment at March 31 follows:
2000 1999
-------------------------------------------------------------------------------
Land .................................................. $ 589 $ 589
Buildings ............................................. 2,287 2,270
Furniture ............................................. 5,376 5,301
Leasehold improvements ................................ 474 459
------- -------
8,726 8,619
Less accumulated depreciation and amortization ........ (6,508) (6,069)
------- -------
$ 2,218 $ 2,550
======= =======
A summary of minimum rentals for future periods under non-cancelable operating
leases follows:
Minimum
Rentals
-------------------------------------------------------------------------------
Years Ending March 31,
2001 ................................................................ $ 92
2002 ................................................................ 92
2003 ................................................................ 78
2004 ................................................................ 59
2005 ................................................................ 14
Thereafter .......................................................... 6
Rental expense for the fiscal years ended March 31, 2000, 1999 and 1998 was
$123, $118 and $119, respectively
10 Deposits (Dollars in Thousands)
Deposits at March 31 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------
Amount Interest Rates Amount Interest Rates
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand (non interest-bearing) ....................... $ 18,634 --% $ 14,949 --%
NOW accounts ........................................ 32,218 1.01-1.52 28,657 1.00-1.50
Regular, club and 90-day notice ..................... 61,475 2.00 61,090 2.00
Money market deposit accounts ....................... 19,045 2.15-2.35 22,846 2.15-2.35
-------- --------
131,372 127,542
-------- --------
Term deposit certificates:
Six-month money market ........................... 16,469 4.00-6.00 16,293 4.00-5.00
Other ............................................ 110,498 4.00-7.00 122,628 2.00-6.81
-------- --------
Total term deposit certificates ............... 126,967 138,921
-------- --------
$258,339 $266,463
======== ========
Weighted average interest rate ...................... 3.37% 3.45%
========= =========
</TABLE>
25 Central Bancorp 2000 Annual Report
<PAGE>
Contractual maturities of term deposit certificates at March 31, 2000 are
summarized as follows:
------------------------------------------------------------------------------
Years Ending March 31,
2001 ............................................................ $ 79,372
2002 ............................................................ 35,120
2003 ............................................................ 9,087
2004 ............................................................ 879
2005 ............................................................ 2,509
---------
$ 126,967
=========
The aggregate amount of individual term deposit certificates with a minimum
denomination of $100 or more was $24,937 and $22,367 at March 31, 2000 and 1999,
respectively. Interest expense on these deposits was $795, $934 and $1,351 for
fiscal years ended March 31, 2000, 1999 and 1998, respectively.
11 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,
2000 1999
------------------------------------------------------------------------------
Interest Rate Due in Year Ending March 31,
6.05% 2000 ............................ $ -- $ 2,000
5.76% - 6.24% 2001 ............................ 18,000 1,000
6.34% - 6.67% 2002 ............................ 4,000 4,000
5.19% - 5.71% 2003 ............................ -- 4,000
4.99% - 5.69% 2004 ............................ 5,000 5,000
4.89% - 5.89% 2008 ............................ 26,000 14,000
4.49% - 5.52% 2009 ............................ 18,000 20,000
5.32% - 6.21% 2010 ............................ 33,000 --
5.49% - 5.69% 2013 ............................ -- 7,000
5.49% 2014 ............................ 2,000 --
5.25% 2015 ............................ 5,000 --
--------- ---------
$ 111,000 $ 57,000
========= =========
Weighted average interest rate ...................... 5.66% 5.34%
========= =========
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 $202,400 and $174,500 at
March 31, 2000 and 1999, respectively.
Some of these advances have call features that allow the FHLB of Boston to
require payment in full prior to the stated maturity.
The highest month-end balance of FHLB of Boston advances outstanding was
$113,000, $64,000, and $63,000 during the fiscal years ended March 31, 2000,
1999 and 1998, respectively.
26 Central Bancorp 2000 Annual Report
26
<PAGE>
12 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.
Income tax expense (benefit) was allocated as follows:
<TABLE>
<CAPTION>
Fiscal Years ended March 31,
----------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income tax expense:
Federal ............................................................. $ 1,745 $ 1,669 $ 1,101
State ............................................................... 44 366 451
-------- -------- --------
Total current tax expense ........................................ 1,789 2,035 1,552
Deferred income tax expense (benefit) .................................. 343 (175) 564
Change in valuation reserve ............................................ -- -- (122)
-------- -------- --------
Total income tax expense ......................................... $ 2,132 $ 1,860 $ 1,994
======== ======== ========
</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
taxes. The differences between expected tax rates and effective tax rates are as
follows:
<TABLE>
<CAPTION>
Fiscal Years ended March 31,
------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal tax rate ............................................. 34.0% 34.0% 34.0%
Items affecting Federal income tax rate:
Dividends received deduction ........................................ (0.4) (0.6) (0.9)
Goodwill amortization ............................................... 1.8 2.2 1.9
State income taxes, net of Federal income tax benefit ............... 1.6 4.7 8.0
Other ............................................................... 0.4 0.7 (1.0)
Change in valuation reserve ......................................... -- -- (2.4)
---- ---- ----
37.4% 41.0% 39.6%
==== ==== ====
</TABLE>
The components of gross deferred tax assets and gross deferred tax liabilities
that have been recognized as of March 31 are as follows:
2000 1999
------------------------------------------------------------------------------
Deferred tax assets:
Loan losses .......................................... $ 547 $ 545
Deferred loan origination fees ....................... 74 274
Depreciation ......................................... 258 215
Post-employee retirement benefit accrual ............. 201 201
Unrealized depreciation on securities ................ 433 --
Other ................................................ 56 82
------ ------
Gross deferred tax asset ................................ 1,569 1,317
Valuation reserve .................................... -- --
------ ------
Net deferred tax asset ............................ 1,569 1,317
------ ------
Deferred tax liabilities:
Accrued dividend receivable .......................... 44 22
Deferred loan origination fees ....................... 454 308
Unrealized appreciation on securities ................ -- 243
------ ------
Gross deferred tax liability ......................... 498 573
------ ------
Net deferred tax asset ............................ $1,071 $ 744
====== ======
27 Central Bancorp 2000 Annual Report
27
<PAGE>
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, 2000. Further, management believes the existing net
deductible temporary differences will reverse during periods in which the Bank
generates net taxable income. At March 31, 2000, recoverable income taxes, plus
estimated taxes for fiscal 2001, 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 requires 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.
13 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.
Financial instruments with off-balance sheet risk as of March 31 follow:
2000 1999
-------------------------------------------------------------------------------
Unused lines of credit .................................. $10,243 $ 9,873
Unadvanced portions of construction loans ............... 4,427 2,294
Unadvanced portions of commercial loans ................. 3,468 1,998
Commitments to originate commercial loans ............... 15,713 1,775
Commitments to originate residential mortgage loans:
Fixed rate ........................................... 1,104 3,220
Adjustable rate ...................................... 1,270 3,221
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.
28 Central Bancorp 2000 Annual Report
<PAGE>
14 Stockholders' Equity (Dollars in Thousands)
The Company's ability to pay dividends to shareholders is largely dependent on
the ability of the Bank to pay dividends to the Company. 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.
The Company has adopted a Shareholder Rights Plan. The plan entitles each
shareholder to purchase the Company's stock at a discount price in the event any
person or group of persons exceeds predetermined ownership limitations of the
Company's outstanding common stock and, in certain circumstances, engages in
specific activities deemed adverse to the interests of the Company's
shareholders. This plan expires on October 24, 2001.
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 that, as of March 31, 2000, the Bank met 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, 2000, the Bank was categorized as "well capitalized" based on its ratios of
risk-weighted core and tangible capital. There are no conditions or events,
since that notification, that management believes would cause a change in the
Bank's categorization.
The minimum core (leverage) capital ratio (stockholders' equity divided by
total assets) required for banks with a CAMEL rating of 1 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 I capital, consisting of common
stockholders' equity). At March 31, 2000 and 1999, the Bank's capital ratios
were in excess of all required standards.
The Bank's actual capital amounts and ratios are presented in the table. No
deduction was taken from capital for interest-rate risk. The Bank's
core/leverage, Tier 1 risk-based and total risk-based capital together with
related regulatory minimum requirements are summarized below:
March 31, 2000
--------------------------------
Core Tier 1 Total
Leverage Risk-based Risk-based
Capital Capital Capital
-------------------------------------------------------------------------------
Regulatory capital measure:
Amount ................................. $36,251 $34,268 $37,376
Ratio .................................. 8.85% 13.31% 14.52%
Adequately capitalized requirement:
Amount ................................. $16,382 $10,295 $20,591
Ratio .................................. 4.00% 4.00% 8.00%
Well capitalized requirement:
Amount ................................. $20,478 $15,443 $25,739
Ratio .................................. 5.00% 6.00% 10.00%
29 Central Bancorp 2000 Annual Report
<PAGE>
March 31, 2000
--------------------------------
Core Tier 1 Total
Leverage Risk-based Risk-based
Capital Capital Capital
-------------------------------------------------------------------------------
Regulatory capital measure:
Amount ................................. $36,441 $33,115 $35,932
Ratio .................................. 10.00% 15.50% 16.82%
Adequately capitalized requirement:
Amount ................................. $14,578 $ 8,544 $17,088
Ratio .................................. 4.00% 4.00% 8.00%
Well capitalized requirement:
Amount ................................. $18,223 $12,816 $21,360
Ratio .................................. 5.00% 6.00% 10.00%
15 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 participants' 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 $363, $202 and $350
for the fiscal years ended March 31, 2000, 1999 and 1998, respectively.
Forfeitures are used to reduce expenses of the plans.
Stock Option Plan
The Company has adopted two Stock Option Plans for the benefit of officers and
other employees.
Under the first plan, the Company reserved 184,000 shares of authorized but
unissued common stock for issuance under the Plan. During fiscal 1999, 2,000
options were exercised resulting in an additional $14 of capital being recorded.
During fiscal 2000, 3,000 shares were exercised resulting in an additional $22
of capital being recorded. Of the 25,000 options outstanding under the first
plan at March 31, 2000, all were exercisable with an average exercise price per
share of $16.25.
Under the second plan, the Company reserved 97,500 shares of authorized but
unissued common shares for issuance under the plan. During fiscal 2000, options
to purchase 32,499 shares were granted at an average exercise price of $20.25
per share and none of these options were exercised. 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.
Employee Stock Ownership Plan
During fiscal 1991, the Bank established an Employee Stock Ownership Plan
("ESOP") that is authorized to purchase shares of outstanding common stock of
the Company 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 Company's employees.
30 Central Bancorp 2000 Annual Report
<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 $183, $184 and $185 were
made during fiscal 2000, 1999 and 1998, respectively. The scheduled repayment of
the amount outstanding at March 31, 2000 is as follows:
---------------------------------------------------------------------------
2001 ............................................................. $ 130
2002 ............................................................. 130
2003 ............................................................. 130
Thereafter ....................................................... 43
Compensation expense is recognized as the ESOP shares are allocated to
participants in the plan and was $130, $51 and $68 for fiscal 2000, 1999 and
1998, respectively.
The components of the life plan and medical plan for the years ended March 31,
2000 and 1999, respectively, follow:
<TABLE>
<CAPTION>
2000 1999
------------------------------------------------
Life Medical Life Medical
Plan Plan Plan Plan
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefits obligation:
Retirees ................................................................ $(193) $(397) $(206) $(533)
Fully eligible participants ............................................. (40) (283) (50) (248)
Other plan participants ................................................. -- -- -- --
----- ----- ----- -----
Total ................................................................ $(233) $(680) $(256) $(781)
===== ===== ===== =====
Change in projected benefit obligation:
Accumulated benefit obligations at prior year-end ....................... $(256) $(781) $(239) $(730)
Service cost less expense component ..................................... -- -- -- --
Interest cost ........................................................... (17) (48) (17) (51)
Actuarial gain (loss) ................................................... 21 69 (2) (28)
Assumptions ............................................................. 18 46 -- --
Benefits paid ........................................................... 1 34 2 28
----- ----- ----- -----
Accumulated benefit obligation at year-end ........................... $(233) $(680) $(256) $(781)
===== ===== ===== =====
Change in plan assets:
Fair value of plan assets at prior fiscal year-end ...................... $ -- $ -- $ -- $ --
Actual return on plan assets ............................................ -- -- -- --
Employer contribution ................................................... 1 34 2 28
Benefits paid end expenses .............................................. (1) (34) (2) (28)
----- ----- ----- -----
Fair value of plan assets at current fiscal year-end ................. $ -- $ -- $ -- $ --
===== ===== ===== =====
Funded status .............................................................. $(233) $(680) $(256) $(781)
Unrecognized net obligation ................................................ 111 322 121 347
Unrecognized prior year service ............................................ -- -- 8 --
Unrecognized net (loss) gain ............................................... (64) 53 (32) 193
----- ----- ----- -----
(Accrued) benefit cost recognized in financial position .................... $(186) $(305) $(159) $(241)
===== ===== ===== =====
Reconciliation of (accrual) prepaid:
(Accrued) prepaid pension cost at prior year-end ........................ $(159) $(241) $(119) $(186)
Minus net periodic cost ................................................. (28) (98) (41) (83)
Plus employee contributions ............................................. 1 34 1 28
----- ----- ----- -----
(Accrued) prepaid cost ............................................... $(186) $(305) $(159) $(241)
===== ===== ===== =====
Benefit obligation weighted average assumption as of fiscal year-end:
Discount rate ........................................................... 7.75% 7.75% 7.00% 7.00%
Expected return on plan assets .......................................... 7.75% 7.75% 7.00% 7.00%
Rate of compensation increase ........................................... -- -- -- --
</TABLE>
31 Central Bancorp 2000 Annual Report
<PAGE>
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------------
Life Medical Life Medical
Plan Plan Plan Plan
----------------------------------------------------------------------------------------------------------------------------------
1 Percentage Point Increase
-------------------------------------------------
<S> <C> <C> <C> <C>
Impact of 1% change in health care trend rates:
Effect on total service and interest cost components ................ n/a $ (5) n/a $ (9)
Effect on the post retirement benefit obligation .................... n/a $ 72 n/a $ 67
Components of net periodic benefit obligations:
Service cost ........................................................ $ -- $ -- $ -- $ --
Interest cost ....................................................... 17 49 17 51
Expected return on plan assets ...................................... -- -- -- --
Amortization of prior service cost .................................. 17 25 25 25
Recognized actuarial (gain) loss .................................... (6) 24 (1) 7
----- ----- ----- -----
Net periodic benefit cost for fiscal year ending ................. $ 28 $ 98 $ 41 $ 83
===== ===== ===== =====
Periodic benefit cost weighted average assumptions:
Discount rate ....................................................... 7.00% 7.00% 7.00% 7.00%
Expected return on plan assets ...................................... 7.00% 7.00% 7.00% 7.00%
Rate of compensation increase ....................................... -- -- -- --
</TABLE>
For measurement purposes, a 9.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for the fiscal year ended March 31,
1999. The rate was assumed to decrease gradually to 5.5% for the fiscal year
ending March 31, 2003 and remain at that level thereafter.
16 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.
17 Fair Values of Financial Instruments (In Thousands)
Estimated fair value amounts have been determined using available quoted market
information or other appropriate valuation methods. 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.
32 Central Bancorp 2000 Annual Report
<PAGE>
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 nonper-
forming 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.
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 and anticipated calls 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, 2000 At March 31, 1999
----------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C>
Cash and due from banks ........................................ $ 6,588 $ 6,588 $ 4,964 $ 4,964
Short-term investments ......................................... 14,802 14,802 16,939 16,939
Investments available for sale:
Investment securities ....................................... 32,135 32,135 21,943 21,943
Mortgage-backed securities .................................. 23,308 23,308 29,999 29,999
Net loans ...................................................... 317,020 310,543 277,433 281,421
Accrued interest receivable .................................... 2,036 2,036 1,614 1,614
Stock in Federal Home Loan Bank of Boston, at cost ............. 5,800 5,800 3,350 3,350
The Co-operative Central Bank Reserve Fund ..................... 1,576 1,576 1,576 1,576
Liabilities
Deposits ....................................................... $258,339 258,332 $266,463 $267,340
Advances from Federal Home Loan Bank of Boston ................. 111,000 110,200 57,000 55,575
Advance payments by borrowers for taxes and insurance .......... 1,053 1,053 1,389 1,389
Accrued interest payable ....................................... 542 542 291 291
</TABLE>
33 Central Bancorp 2000 Annual Report
<PAGE>
18 Parent Company Only Condensed Financial Statements (In Thousands)
The following are the condensed financial statements for Central Bancorp, Inc.
(the "Parent") only:
<TABLE>
<CAPTION>
Balance Sheets March 31,
----------------------
2000 1999
---------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash deposit in subsidiary bank .................................................................. $ 1,046 $ 2,081
Investment in subsidiary, at equity .............................................................. 36,251 36,441
Other assets ..................................................................................... 100 235
------- -------
Total assets .................................................................................. $37,397 $38,757
======= =======
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities ........................................................... $ -- $ 15
Total stockholders' equity ....................................................................... 37,397 38,742
------- -------
Total liabilities and stockholders' equity .................................................... $37,397 $38,757
======= =======
</TABLE>
<TABLE>
<CAPTION>
Statements of Income Fiscal Year Ended March 31,
---------------------------
2000 1999
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dividend income .................................................................................. $ 3,012 $ 2,500
Non-interest expense ............................................................................. 331 62
------- -------
Income before income taxes .................................................................... 2,681 2,438
Income tax benefit ............................................................................... 109 20
------- -------
Net income before cumulative effect of change in accounting principle ......................... 2,790 2,458
Cumulative effect of change in accounting principle, net of taxes ................................ (234) --
------- -------
Net income before equity in net income of subsidiary .......................................... 2,556 2,458
Equity in net income of subsidiary ............................................................... 777 224
------- -------
Net income .................................................................................... $ 3,333 $ 2,682
======= =======
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows Fiscal Year Ended March 31,
---------------------------
2000 1999
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................................... $ 3,333 $ 2,682
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income of subsidiary ............................................... (777) (224)
Increase in other assets ................................................................... (100) (235)
(Decrease) increase in accrued expenses and other liabilities .............................. (15) 15
Cumulative effect of change in accounting principle ........................................ 234 --
------- -------
Net cash provided by operating activities ............................................... 2,675 2,238
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options ....................................................... 22 --
Purchase of Treasury stock .................................................................... (3,043) --
Cash dividends paid ........................................................................... (689) (157)
------- -------
Net cash used by financing activities ................................................... (3,710) (157)
------- -------
Net (decrease) increase in cash deposit in subsidiary bank ....................................... (1,035) 2,081
Cash deposit in subsidiary bank at beginning of year ............................................. 2,081 --
------- -------
Cash deposit in subsidiary bank at end of year ................................................... $ 1,046 $ 2,081
======= =======
</TABLE>
34 Central Bancorp 2000 Annual Report
<PAGE>
19 Quarterly Results of Operations (Unaudited) (In Thousands, Except Per Share
Data)
<TABLE>
<CAPTION>
2000 Quarters
-----------------------------------------------
First Second Third Fourth
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest and dividend income .................................................. $ 6,227 $ 6,314 $ 6,779 $ 7,104
Interest expense .............................................................. 3,097 3,038 3,302 3,612
------- ------- ------- -------
Net interest and dividend income ........................................... 3,130 3,276 3,477 3,492
Non-interest income ........................................................... 278 660 394 337
Operating expenses ............................................................ 2,233 2,268 2,248 2,596
------- ------- ------- -------
Income before income taxes ................................................. 1,175 1,668 1,623 1,233
Income tax .................................................................... 462 636 603 431
------- ------- ------- -------
Net income before cumulative effect of change in accounting principle ...... 713 1,032 1,020 802
Cumulative effect of change in accounting principle, net of taxes ............. (234) -- -- --
------- ------- ------- -------
Net income .................................................................... $ 479 $ 1,032 $ 1,020 $ 802
======= ======= ======= =======
Earnings per common share:
Before cumulative effect of change in accounting principle ................. $ 0.37 $ 0.54 $ 0.55 $ 0.44
======= ======= ======= =======
Before cumulative effect of change in accounting principle-
assuming dilution ....................................................... $ 0.37 $ 0.54 $ 0.55 $ 0.44
======= ======= ======= =======
After cumulative effect of change in accounting principle .................. $ 0.25 $ 0.54 $ 0.55 $ 0.44
======= ======= ======= =======
After cumulative effect of change in accounting principle-
assuming dilution ....................................................... $ 0.25 $ 0.54 $ 0.55 $ 0.44
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 Quarters
-----------------------------------------------
First Second Third Fourth
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest and dividend income .................................................. $ 6,563 $ 6,649 $ 6,619 $ 6,165
Interest expense .............................................................. 3,661 3,688 3,521 3,179
------- ------- ------- -------
Net interest and dividend income ........................................... 2,902 2,961 3,098 2,986
Non-interest income ........................................................... 331 188 358 491
Operating expenses ............................................................ 2,111 2,210 2,331 2,121
------- ------- ------- -------
Income before income taxes ................................................. 1,122 939 1,125 1,356
Income tax .................................................................... 451 375 454 580
------- ------- ------- -------
Net income ................................................................. $ 671 $ 564 $ 671 $ 776
======= ======= ======= =======
Earnings per common share ..................................................... $ 0.35 $ 0.29 $ 0.35 $ 0.40
======= ======= ======= =======
Earnings per common share-assuming dilution ................................... $ 0.34 $ 0.29 $ 0.35 $ 0.40
======= ======= ======= =======
</TABLE>
35 Central Bancorp 2000 Annual Report
<PAGE>
independent auditors' report
The Board of Directors and Stockholders
Central Bancorp, Inc.:
We have audited the consolidated balance sheets of Central Bancorp, Inc. and
subsidiary as of March 31, 2000 and 1999, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended March 31, 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Central
Bancorp, Inc. and subsidiary as of March 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
Boston, Massachusetts
April 26, 2000
36 Central Bancorp 2000 Annual Report
<PAGE>
directors and officers
Board of Directors
Joseph R. Doherty
Chairman
Central Bancorp, Inc.
John D. Doherty
President & Chief Executive Officer
Central Bancorp, Inc.
Gregory W. Boulos
Partner
The Boulos Company
John F. Gilgun, Jr.
President
John F. Gilgun Agency
Terence D. Kenney
Assessor
City of Woburn
Nancy D. Neri
Manager
George L. Doherty Funeral Service, Inc.
John G. Quinn
President
Quinn Printing Company
Marat E. Santini
Consultant
Santini, Inc.
Honorary Director
Philibert L. Pellegrini, Esq.
Executive Officers
Joseph R. Doherty
Chairman
John D. Doherty
President & Chief Executive Officer
Paul S. Feeley
Senior Vice President & Treasurer/
Chief Financial Officer
David W. Kearn
Senior Vice President of Retail &
Lending
William P. Morrissey
Senior Vice President of Public Affairs
The directors and officers of Central Bancorp, Inc.
also serve as directors and officers of Central Bank.
stockholder information
Annual Meeting. The Annual Meeting of Stockholders of Central Bancorp, Inc.,
will be held at 11:00 a.m. on July 27, 2000, in the Main Auditorium of
FleetBoston, 100 Federal Street, Boston, Massachusetts.
Investor Inquiries. Investors and other parties interested in obtaining
information or who have questions about the Bank should contact Gladys N.
Partamian, Vice President, 399 Highland Avenue, Somerville, MA 02144,
(617) 628-4000.
The Bank's Annual Report on Form 10-K for the fiscal year ended March 31,
2000, is available without charge.
Common Stock. On January 8, 1999, Central Bancorp, Inc. became the holding
company for Central Bank, whose legal name is Central Co-operative Bank. The
Bank became a public company on October 24, 1986 by issuing 1,840,000 shares of
common stock at $7.50 a share. Central Bancorp's common stock is traded over-
the-counter on the NASDAQ National Market System under the symbol CEBK. At March
31, 2000, there were 1,810,450 shares of common stock outstanding and
approximately 280 holders of record of the common stock. This total does not
reflect the number of persons or entities who held the stock in nominee or
"street name" through various brokerage firms. In October 1996, the Company
established a quarterly cash dividend policy and made its first dividend
distribution on November 15, 1996; it has paid cash dividends on a quarterly
basis since initiating the dividend program.
The following tables list the high and low prices for Central Bancorp's
common stock during each quarter of fiscal 2000 and fiscal 1999 as reported by
NASDAQ, and the amounts and payable dates of the cash dividends paid during each
quarter of fiscal 2000 and fiscal 1999. The stock quotations constitute
interdealer prices without retail markups, markdowns or commissions, and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Prices Cash Dividends (payable dates)
Fiscal 2000 High Low Fiscal 1999 High Low Fiscal 2000 Amount Fiscal 1999 Amount
----------------------------------- ------------------------------ -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/99 $ 22.000 $ 19.375 6/30/98 $ 32.375 $ 25.000 5/21/99 $ .08 5/23/98 $ .08
9/30/99 22.500 16.500 9/30/98 27.000 19.000 8/20/99 .08 8/21/98 .08
12/31/99 22.250 14.500 12/31/98 20.250 16.734 11/19/99 .10 11/20/98 .08
3/31/00 16.750 14.500 3/31/99 21.000 15.750 2/18/00 .10 2/19/99 .08
</TABLE>
Transfer Agent
State Street Bank and Trust Company
c/o EquiServe Limited Partnership
P.O. Box 8200
Boston, MA 02266-8200
(800) 426-5523
Independent Auditors
KPMG LLP
99 High Street
Boston, MA 02110-2371
Deposit Insurance
Federal Deposit Insurance Corporation (FDIC)
Share Insurance Fund (SIF)
Special Legal Counsel
Stradley Ronon Housley
Kantarian & Bronstein, LLP
1220 19th Street N.W., Suite 700
Washington, DC 20036
Website Home Page
http://www.centralbk.com
<PAGE>
Central Bancorp, Inc. 399 Highland Avenue Somerville Ma 02144 617.628.4000
[Central Bancorp Logo]
