U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED
DECEMBER 31, 1999
- -----------------
COMMISSION FILE NUMBER: 0-25251
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CENTRAL BANCORP, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MASSACHUSETTS
--------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
I.R.S. EMPLOYER IDENTIFICATION NO. 04-3447594
399 HIGHLAND AVENUE, SOMERVILLE, MA. 02144
----------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER
(617) 628-4000
--------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or such shorter period that the Company was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Class Outstanding at February 11, 2000
- ----------------------------- --------------------------------
Common Stock, $1.00 par value 1,856,350
CENTRAL BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
March 31, 1999 and December 31, 1999 (unaudited)
Consolidated Statements of Income for the three
and nine month periods ended December 31, 1999 and
1998 (unaudited)
Consolidated Statements of Cash Flow for the nine
month periods ended December 31, 1999 and 1998
(unaudited)
Consolidated Statements of Changes in
Stockholders' Equity for the nine month periods
ended December 31, 1999 and 1998 (unaudited)
Notes to Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the three
and nine month periods ended December 31, 1999 and
1998
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
(Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
March 31, 1999)
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Item 1-Financial Statements:
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, March 31,
(Dollars in Thousands) 1999 1999
- ----------------------------------------------------------------------------
ASSETS (Unaudited)
Cash and due from banks $ 10,663 $ 4,964
-------------------------
Short-term investments 4,019 16,939
Investments available for sale:
Investment securities 30,397 21,943
Mortgage-backed securities 23,375 29,999
Stock in Federal Home Loan Bank of Boston,
at cost 5,305 3,350
The Co-operative Central Bank Reserve Fund 1,576 1,576
-------------------------
Total investments 64,672 73,807
-------------------------
Loans:
Mortgage loans 307,845 274,146
Other loans 7,089 6,200
-------------------------
314,934 280,346
Less allowance for loan losses (2,974) (2,913)
-------------------------
Net loans 311,960 277,433
-------------------------
Accrued interest receivable 1,816 1,614
Office properties and equipment, net 2,272 2,550
Deferred tax asset, net 1,159 744
Goodwill, net 2,880 3,096
Other assets 146 488
-------------------------
Total assets $395,568 $364,696
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $244,583 $266,463
Advances from Federal Home Loan Bank of Boston 109,920 57,000
Advance payments by borrowers for taxes and
insurance 1,246 1,389
Accrued interest payable 503 291
Accrued income taxes 244 --
Accrued expenses and other liabilities 947 811
-------------------------
Total liabilities 357,443 325,954
-------------------------
Commitments and Contingencies (Note 2)
Stockholders' equity:
Preferred stock $1.00 par value; authorized
5,000,000 shares; none issued or outstanding -- --
Common stock $1.00 par value; authorized
15,000,000 shares; Issued 1,970,000 and
1,967,000 shares (outstanding 1,871,650 and
1,967,000) at December 31, 1999 and March 31,
1999 respectively) 1,970 1,967
Additional paid-in capital 11,190 11,171
Retained income 27,922 25,894
Treasury stock (98,350 shares and 0 shares
at December 31, 1999, and March 31, 1999,
respectively), at cost (2,027) --
Accumulated other comprehensive income
(loss) (note 4) (411) 327
Unearned compensation - ESOP (519) (617)
-------------------------
Total stockholders' equity 38,125 38,742
-------------------------
Total liabilities and stockholders' equity $395,568 $364,696
=========================
See accompanying notes to unaudited consolidated financial
statements.
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
-------------------- -------------------
Interest and dividend income:
Mortgage loans $5,525 $5,329 $15,868 $16,154
Other loans 164 103 448 304
Short-term investments 67 202 322 384
Investment securities 648 466 1,505 1,253
Mortgage-backed securities 354 497 1,106 1,665
The Co-operative Central Bank
Reserve Fund 21 22 71 71
-------------------- -------------------
Total interest and dividend
income 6,779 6,619 19,320 19,831
-------------------- -------------------
Interest expense:
Deposits 2,027 2,696 6,515 8,352
Advances from Federal Home Loan
Bank of Boston 1,275 825 2,922 2,518
-------------------- -------------------
Total interest expense 3,302 3,521 9,437 10,870
-------------------- -------------------
Net interest and dividend
income 3,477 3,098 9,883 8,961
Provision for loan losses -- -- -- --
-------------------- -------------------
Net interest and dividend
income after provision
for loan losses 3,477 3,098 9,883 8,961
-------------------- -------------------
Non-interest income:
Deposit service charges 113 118 320 331
Net gains from sales of
investment securities 231 177 843 361
Other income 50 63 169 185
-------------------- -------------------
Total non-interest income 394 358 1,332 877
-------------------- -------------------
Operating expenses:
Salaries and employee benefits 1,148 1,120 3,555 3,291
Occupancy and equipment 276 390 865 1,027
Data processing service fees 135 152 416 423
Professional fees 234 218 646 581
Goodwill amortization 72 72 216 216
Other expense 383 379 1,051 1,114
-------------------- -------------------
Total operating expenses 2,248 2,331 6,749 6,652
-------------------- -------------------
Income before income taxes 1,623 1,125 4,466 3,186
Income tax expense 603 454 1,701 1,280
Net Income before cumulative
effect of change in
Accounting principle 1,020 671 2,765 1,906
Cumulative effect of change in
accounting principle -- -- (234) --
-------------------- -------------------
Net income $1,020 $ 671 $ 2,531 $ 1,906
==================== ===================
Earnings per common share before
cumulative effect of change
in accounting principle $ 0.55 $ 0.35 $ 1.45 $ 0.98
==================== ===================
Earnings per common share before
cumulative effect of change
in accounting principle, diluted $ 0.55 $ 0.35 $ 1.45 $ 0.98
==================== ===================
Earnings per common share after
cumulative effect of change in
accounting principle $ 0.55 $ 0.35 $ 1.33 $ 0.98
==================== ===================
Earnings per common share after
cumulative effect of change in
accounting principle, diluted $ 0.55 $ 0.35 $ 1.33 $ 0.98
==================== ===================
Weighted average common shares
outstanding 1,865 1,938 1,901 1,937
Weighted average common shares
outstanding, diluted 1,868 1,942 1,906 1,947
See accompanying notes to unaudited consolidated financial
statements.
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
December 31,
(In Thousands) 1999 1998
- ------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 2,531 $ 1,906
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 355 474
Amortization of premiums, fees and discounts 92 228
Amortization of goodwill 216 216
Net gains from sales of investment securities (843) (361)
Cumulative effect of change in accounting principle 234 0
(Increase) decrease in accrued interest receivable (202) 322
Decrease (increase) in other assets 342 (177)
(Decrease) increase in advance payments by borrowers for
taxes and insurance (143) 252
Increase (decrease) in accrued interest payable 212 (200)
Increase(decrease) in accrued income taxes 244 (677)
Increase in accrued expenses and other liabilities 136 468
--------------------
Net cash provided by operating activities 3,174 2,451
--------------------
Cash flows from investing activities:
Principal collected on loans 55,640 89,696
Loan originations (90,167) (93,431)
Principal payments on mortgage-backed securities
available for sale 8,351 11,692
Purchase of investment securities available for sale (17,693) (1,534)
Maturities of investment securities available for sale 2,500 13,100
Proceeds from sales of investment securities available
for sale 4,376 1,396
Maturities of investment securities held to maturity 0 4,000
Net decrease (increase) in short-term investments 12,920 (21,798)
Purchase of Stock in Federal Home Loan Bank of Boston (1,955) (200)
Purchase of office properties and equipment (77) (500)
--------------------
Net cash (used in) provided by investing activities (26,105) 2,421
--------------------
Cash flows from financing activities:
Net (decrease) in deposits (21,880) (3,948)
Proceeds from advances from FHLB of Boston 106,420 43,000
Payments on advances from FHLB of Boston (53,500) (45,000)
Proceeds from exercise of stock options 22 14
Purchase of Treasury stock (2,027) 0
Payments of dividends on common stock (503) (472)
Amortization of unearned compensation - ESOP 98 63
--------------------
Net cash provided by (used in) financing activities 28,630 (6,343)
--------------------
Net increase (decrease) in cash and due from banks 5,699 (1,471)
Cash and due from banks at beginning of period 4,964 5,718
--------------------
Cash and due from banks at end of period $ 10,663 $ 4,247
====================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 9,225 $ 11,069
Income taxes 1,457 1,956
Schedule of noncash investing activities:
Transfer of mortgage loans to real estate
acquired by foreclosure 0 0
See accompanying notes to unaudited consolidated financial
statements.
CENTRAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Additional
Common Paid-in Retained Treasury
(In Thousands) Stock Capital Income Stock
- ------------------------------------------------------------------------------------------------------------------
Nine Months Ended December 31, 1998
- -------------------------------------
Balance at March 31, 1998 $1,965 $11,159 $23,841 $ --
------ ------- ------- -------
Net income -- -- 1,906 --
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) -- -- -- --
------ ------- ------- -------
Comprehensive income (loss) -- -- 1,906 --
------ ------- ------- -------
Proceeds from exercise of stock options 2 12 -- --
Dividends Paid -- -- (472) --
Amortization of unearned compensation - ESOP -- -- -- --
------ ------- ------- -------
Balance at December 31, 1998 $1,967 $11,171 $25,275 $ --
====== ======= ======= =======
Nine Months Ended December 31, 1999
- -----------------------------------
Balance at March 31, 1999 $1,967 $11,171 $25,894 $ --
------ ------- -------- -------
Net Income -- -- 2,531 --
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) -- -- -- --
------ ------- -------- -------
Comprehensive income (loss) -- -- 2,531 --
------ ------- -------- -------
Proceeds from exercise of stock options 3 19 -- --
Purchase of treasury stock -- -- -- (2,027)
Dividends Paid -- -- (503) --
Amortization of unearned compensation - ESOP -- -- -- --
------ ------- -------- -------
Balance at September 30, 1999 $1,970 $11,190 $ 27,922 $(2,027)
====== ======= ======== =======
Accumulated
Other Unearned Total
Comprehensive Compensation Stockholders'
(In Thousands) Income (Loss) ESOP Equity
- ------------------------------------------------------------------------------------------------------------------
Nine Months Ended December 31, 1998
- -------------------------------------
Balance at March 31, 1998 $ 544 $ (723) $36,786
------ ------- -------
Net income -- -- 1,906
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) (145) -- (145)
------ ------- -------
Comprehensive income (loss) (145) -- 1,761
------ ------- -------
Proceeds from exercise of stock options -- -- 14
Dividends Paid -- -- (472)
Amortization of unearned compensation - ESOP -- 63 63
------ ------- -------
Balance at December 31, 1998 $ 399 $ (660) $38,152
====== ======= =======
Nine Months Ended December 31, 1999
- -----------------------------------
Balance at March 31, 1999 $ 327 $ (617) $38,742
------ ------- --------
Net Income -- -- 2,531
Other Comprehensive Income (loss), net of tax
Unrealized (losses) on securities,
net of reclassification adjustment (note 4) (738) -- (738)
------ ------- --------
Comprehensive income (loss) (738) -- 1,793
------ ------- --------
Proceeds from exercise of stock options -- -- 22
Purchase of treasury stock -- -- (2,027)
Dividends Paid -- -- (503)
Amortization of unearned compensation - ESOP -- 98 98
------ ------- --------
Balance at September 30, 1999 $ (411) $ (519) $ 38,125
====== ======= ========
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
(1) BASIS OF PRESENTATION
---------------------
The consolidated financial statements of the Registrant for
December 31, 1999 and 1998 presented herein should be read
in conjunction with the financial statements of the Company
as of and for the year ended March 31, 1999, included in the
Company's Annual Report on Form 10-K. In the opinion of
management, the accompanying unaudited consolidated
financial statements reflect all adjustments, consisting of
normal recurring adjustments, necessary to fairly present
the results for the interim periods presented. Interim
results are not necessarily indicative of results to be
expected for the entire year.
(2) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
-------------------------------------------------
Commitments to originate loans, unused lines of credit and
unadvanced portions of construction loans are agreements to
lend to a customer, provided there is no violation of any
condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the commitments
may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit
evaluation of the borrower.
Commitments at December 31, 1999 follow:
Unused lines of credit................ $ 9,893,000
Unadvanced portions of construction
loans.............................. 3,545,000
Unadvanced portions of commercial
loans.............................. 14,247,000
Commitments to originate residential mortgage
loans:
Fixed rate............................ 325,000
Adjustable rate....................... 4,588,000
Commitments to originate commercial loans.. 13,552,000
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1999
(UNAUDITED)
(3) INCOME TAXES
------------
The Company accounts for income taxes using the asset and
liability method. Deferred tax assets and liabilities are
established for the temporary differences between the
financial reporting basis and the tax basis of the Company's
assets and liabilities at enacted tax rates expected to be
in effect when such amounts are realized or settled.
(4) REPORTING COMPREHENSIVE INCOME
------------------------------
The Company has established standards for reporting and
displaying comprehensive income, which is defined as all
changes to equity except investments by, and distributions
to, shareholders. Net income is a component of
comprehensive income, with all other components referred to
in the aggregate as other comprehensive income.
The Company's other comprehensive income (loss) and related
tax effect is as follows:
For the Nine Months Ended
(In Thousands) December 31, 1999
- ----------------------------------------------------------------------------------
Before- Tax
Tax (Benefit) After-Tax
Amount Expense Amount
------ --------- ---------
Unrealized gains (losses) on securities
Unrealized holding losses arising during
period $ (309) $ (93) $ (216)
Less: reclassification adjustment for
gains realized in net income 843 321 522
------------------------------
Other comprehensive loss $(1,152) $(414) $ (738)
==============================
For the Nine Months Ended
December 31, 1998
--------------------------------
Before- Tax
Tax (Benefit) After-Tax
Amount Expense Amount
------ --------- ---------
Unrealized gains (losses) on securities
Unrealized holding gains arising during
period $ 120 $ 48 $ 72
Less: reclassification adjustment for
gains realized in net income 361 144 217
------------------------------
Other comprehensive loss $ (241) $ (96) $(145)
==============================
CENTRAL BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL:
- -------
On January 8, 1999, the Registrant, Central Bancorp, Inc.
became the holding company of Central Co-operative Bank when
the Bank completed its holding company reorganization. Because
substantially all of the business of the Registrant is the
business of the Bank, the discussion below focuses on the
business of the Bank. For more information, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations Holding Company" included in the Company's Annual
Report on Form 10-K as of and for the year ended March 31,
1999.
Net income amounted to $1,020,000, or $0.55 per diluted share
for the three months ended December 31, 1999 as compared to net
income of $671,000, or $0.35 per diluted share in the
corresponding quarter ended December 31, 1998.
Net income for the current quarter was higher than net income
for the same period in 1998 primarily due to an increase in net
interest income of $379,000, an increase of $54,000 in net
gains from sales of investment securities and a decline in
operating expenses of $83,000 offset by an increase of $149,000
in income tax expense.
YEAR 2000 COMPLIANCE ISSUES:
- ---------------------------
The Year 2000 issue has posed business risks to most business
organizations, including the Company. In response, the Company
formed a Year 2000 committee, consisting of senior officers
within the Company's operations, information systems, financial
and management areas, to ensure that the Company attained Year
2000 compliance. All date sensitive systems were evaluated for
Year 2000 compliance, with complete upgrading and testing of
systems completed well in advance of the Year 2000 date change.
The Company also developed contingency plans for its computer
processes, including the use of alternative systems and the
manual processing of certain critical operations. In addition,
the Company had undertaken extensive efforts to ensure that
significant vendor and customer relationships are Year 2000
compliant. The Company's business has continued as normal
without adverse impact to the Company during the critical Year
2000 date change. In coming months, the Company will continue
monitoring external entities to assure that they have not
experienced any Year 2000 problems that could impact their
relationship with the Company.
The Company estimates that its total Year 2000 compliance costs
have aggregated approximately $57,000.
FINANCIAL CONDITION:
- -------------------
The following is a discussion of the major changes and trends
in financial condition from the end of the preceding fiscal
year, March 31, 1999, to December 31, 1999.
Total assets increased from $364.7 million at March 31, 1999 to
$395.6 million at December 31, 1999 primarily as a result of an
increase in borrowings which were invested in the Company's
loan portfolio, offset by a decrease in investments.
The Company's loan balance grew by $34.6 million or 12.3% as a
result of loan originations amounting to $90.2 million, of
which $64.2 were in residential real estate loans. Loan
amortization and pay-offs amounted to $55.6 million. The
Company's investment portfolio decreased by $9.1 million,
primarily as a result of pay-downs of mortgage-backed
securities and a decline in short term investments, offset by
purchases of investment securities. Funds from the decline in
the Company's investment portfolio were primarily used to fund
the increase in the loan portfolio.
Deposits decreased during the nine month period by $21.9
million. Because of the competitive deposit rate environment
in the Bank's primary market area, the Bank chose to allow some
volatile, interest rate sensitive deposits to run off and to
utilize favorably priced FHLB advances to offset this deposit
loss and to fund the loan growth. Advances from the Federal
Home Loan Bank of Boston increased from $57.0 million to $109.9
million. Substantially all of these advances were used to fund
new loan originations.
As previously announced, the Company's Board of Directors in
January 2000, approved a new stock repurchase program,
authorizing the Company to repurchase up to 93,583 shares of
the Company's common stock over the next twelve months. This
represents about 5% of the Company's outstanding shares.
Completion of the new program will depend on market conditions
and there is no guaranty of the exact number of shares the
Company will repurchase. The Company's first stock repurchase
program, which was adopted in April 1999 to re-acquire up to
98,350 shares, was completed in November 1999 through the
acquisition of 98,350 shares, which represented approximately
5% of the outstanding shares of common stock at the time of the
adoption of the program.
NON-PERFORMING ASSETS:
- ---------------------
The Company had non-accruing loans totaling $38 thousand at
December 31, 1999, a decrease of $381 thousand or 90.9% from
$419 thousand on March 31, 1999. Interest income not
recognized on non-accruing loans amounted to approximately $2
thousand for the first nine months of fiscal 2000.
The following table sets forth information with respect to the
Company's non-performing assets for the dates indicated:
Dec.31, March 31, Dec. 31,
1999 1999 1998
---- ---- ----
(Dollars in thousands)
Loans accounted for on a
non-accrual basis, (non-accruing loans) $ 38 $ 419 $ 110
Impaired loans, accruing 0 0 1,291
Non-accruing loans as a percentage of
total loans 0.01% 0.15% 0.04%
Non-accruing loans as a percentage of
total assets 0.01% 0.11% 0.03%
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1999,
- --------------------- AND 1998:
Net income for the three months ended December 31, 1999, and
1998, amounted to $1.0 million or $0.55 per diluted share and
$671 thousand or $0.35 per diluted share, respectively.
Average earning assets increased by $6.7 million while the rate
earned on these assets increased 10 basis points to 7.30%
during the third quarter of fiscal 2000 when compared to the
third quarter of fiscal 1999. The average balance of interest-
bearing liabilities increased $7.4 million while the rates paid
on these liabilities decreased by 35 basis points during the
quarter ended December 31, 1999 when compared to the same
period one year ago. Together these developments resulted in
a $160 thousand increase in interest and dividend income and a
decrease of $219 thousand in interest expense. The combination
resulted in a $379 thousand increase in net interest and
dividend income from the fiscal 1999 quarter to the fiscal 2000
quarter.
Interest income from the Company's loan portfolio increased
$257 thousand in the third quarter of fiscal 2000. This
increase was primarily the result of a $14.5 million increase
in the average loan balance offset by a 2 basis point decrease
in average rates earned on these loans.
Income from the Company's investment portfolio (which includes
income on short term investments, investment securities,
mortgage-backed securities, FHLB stock and The Co-operative
Central Bank Reserve Fund) decreased by $97 thousand during the
third quarter of fiscal 2000 when compared to the same fiscal
1999 period. The yield on these assets increased by 19 basis
points while the average balance decreased by $7.8 million
during the fiscal 2000 quarter.
The Company's cost of deposits decreased by $669 thousand
during the third quarter of fiscal 2000 when compared to the
same fiscal 1999 quarter. The rate paid on deposits decreased
80 basis points from 4.03% during the quarter ended December
31, 1998 to 3.23% during the quarter ended December 31, 1999.
The average balance of these deposits decreased $23.8 million
to $251.2 million during the third quarter of fiscal 2000 from
$275.0 million during the fiscal 1999 third quarter.
The average balance of borrowed funds increased by $31.3
million to $91.5 million in the fiscal 2000 third quarter
compared to $60.2 million in the same fiscal 1999 quarter.
These advances were used to fund loan growth. The rate paid on
borrowings increased by 12 basis points in the fiscal 2000
quarter to 5.57% from 5.45% in the fiscal 1999 quarter. The
combined effect of these changes resulted in an increase of
$450 thousand in interest expense on borrowings to $1.3 million
in the third quarter of fiscal 2000 compared to $825 thousand
in fiscal 1999's third quarter.
The provision for loan losses is made to maintain the allowance
for loan losses at a level which management considers adequate
to provide for probable losses based on an evaluation of known
and inherent risks in the loan portfolio. Consistent with the
current evaluation of the loan portfolio, the Company did not
make any provision for the third quarter of fiscal 2000 or
fiscal 1999.
Non-interest income increased by $36 thousand to $394 thousand
in the third quarter of fiscal 2000 from $358 thousand in the
third fiscal 1999 quarter. The Company recorded $231 thousand
and $177 thousand in net gains from sales of investment
securities during the third quarter of fiscal 2000 and fiscal
1999, respectively. This $54 thousand increase in net gains
from the sale of investment securities is the primary reason
for the increase in non-interest income between the two
quarters.
Operating expenses decreased $83 thousand in the third quarter
of fiscal 2000 compared to the same quarter of fiscal 1999.
This decrease is primarily attributable to a decrease of $114
thousand in
occupancy and equipment due to non recurring expenses related
to a computer conversion in the prior period.
The provision for Federal and state income taxes amounted to
$603 thousand and $454 thousand during the third quarter of
fiscal 2000 and fiscal 1999, respectively. The increased
expense relates primarily to the increased level of pre-tax
income offset by a decrease in the effective tax rate due to
the implementation of a tax planning strategy during the second
quarter of fiscal 2000.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1999, AND
- --------------------- 1998:
Net income for the nine months ended December 31, 1999, and
1998, amounted to $2.5 million or $1.33 per diluted share and
$1.9 million or $0.98 per diluted share, respectively. Net
income for the nine month period ended December 31, 1999
included a one-time charge of $234,000, net of taxes, for costs
associated with establishing Central Bancorp, Inc., as the
holding company for Central Bank on January 8, 1999. This
charge, which was previously reported, represented the balance
of unamortized organization costs outstanding as of April 1,
1999, that were required to be written off in accordance with
a new accounting pronouncement. Net income before the
cumulative effect of this change in accounting principle for
the nine months ended December 31, 1999, was $2.8 million or
$1.45 per diluted share.
The average balance of earning assets decreased by $1.8 million
during the first nine months of fiscal 2000 while the rate
earned on these assets decreased 15 basis points when compared
to the first nine months of fiscal 1999. Average interest-
bearing liabilities decreased $991 thousand while the rates
paid on these liabilities decreased by 57 basis points during
the first nine months of fiscal 2000 when compared to the same
period one year ago. The combination of these developments
resulted in a $511 thousand decrease in interest and dividend
income and a decrease of $1.4 million in interest expense which
caused net interest and dividend income to increase by $922
thousand in the first nine months of fiscal 2000 from the same
fiscal 1999 nine month period.
Total interest and dividend income in the nine months ended
December 31, 1999 amounted to $19.3 million compared to $19.8
million in the first nine months of fiscal 1999. The decrease
resulted from a decrease in the average balance of interest
earning assets from $365.2 million in the first nine months of
fiscal 1999 to $363.4 million in the first nine months of
fiscal 2000. The yield on interest earning assets decreased by
15 basis points to 7.09% in the first nine months of fiscal
2000 from 7.24% in the comparable fiscal 1999 period.
The decrease of $142 thousand in interest income from the
Bank's loan portfolio during the first nine months of fiscal
2000 was primarily the result of a reduction of 21 basis points
in the average rates earned on these loans from 7.62% during
the first nine months of fiscal 1999 to 7.41% during the
current nine month period offset by an increase in the average
loan balance of $5.3 million from the first nine months of
fiscal 1999 to the first nine months of fiscal 2000.
Interest and dividend income from the Bank's investment
portfolio decreased by $369 thousand during the first nine
months of fiscal 2000 when compared to the same fiscal 1999
period. The decrease in income was a result of the average
balance decreasing by $9.7 million and an 11 basis point yield
increase during the first nine months of fiscal 2000 as
compared to the same fiscal 1999 period.
Total interest expense decreased by $1.4 million during the
first nine months of fiscal 2000 when compared to the same
fiscal 1999 period. Interest expense on deposits decreased by
$1.8 million during the nine months ended December 31, 1999
when compared to fiscal 1999's first nine months. The rate
paid on deposits decreased 77 basis points from 4.10% to 3.33%
while the average balance of these
deposits also decreased by $10.8 million to $260.8 million from
$271.6 million during the first nine months of fiscal 2000 when
compared to the first nine months of fiscal 1999.
The average balance of borrowed funds increased by $9.8 million
to $70.9 million in the fiscal 2000 first nine months compared
to $61.1 million in the same fiscal 1999 nine months. The rate
paid on borrowings decreased by 1 basis point in the fiscal
2000 nine months to 5.49% from 5.50% in fiscal 1999. The
combined effect of these changes resulted in interest expense
on borrowings increasing $404 thousand to $2.9 million in the
first nine months of fiscal 2000 compared to $2.5 million
during the nine months ended December 31, 1998.
The provision for loan losses is made to maintain the allowance
for loan losses at a level which management considers adequate
to provide for probable losses based on an evaluation of known
and inherent risks in the loan portfolio. Consistent with the
current evaluation of the loan portfolio, the Company did not
make any provision for the first nine months of fiscal 2000 or
fiscal 1999.
Non-interest income increased by $455 thousand to $1.3 million
in the first nine months of fiscal 2000 from $877 thousand in
the same period of fiscal 1999. The Company recorded $843
thousand in net gains from sales of investment securities
during the first nine months of fiscal 2000, a $482 thousand
increase from fiscal 1999, which is the primary reason for the
increase in non-interest income between the two periods.
Operating expenses increased $97 thousand during the first nine
months of fiscal 2000 compared to the same period of fiscal
1999. This increase is primarily attributable to increases in
salaries and employee benefits of $264 thousand and $65
thousand in professional fees, offset by a decrease of $162
thousand in occupancy and equipment and $63 thousand in other
expense.
The provision for Federal and state income taxes amounted to
$1.7 million and $1.3 million during the first nine months of
fiscal 2000 and fiscal 1999, respectively. The increased
expense relates primarily to the increased level of pre-tax
income. During the second quarter of fiscal 2000, the Bank
implemented a tax saving strategy that reduced the effective
tax rate from 40.2% for the nine month period ended December
31, 1998 to 38.1% for the nine month period ended December 31,
1999.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
The Company's principal sources of liquidity are loan
amortization, loan prepayments, increases in deposits and
advances from The Federal Home Loan Bank (FHLB) of Boston. The
Company is a voluntary member of the FHLB of Boston and as such
is generally entitled to borrow. Cash from these liquidity
sources is used to fund loan originations, security
investments, deposit maturities and repayment of FHLB of Boston
advances. The Company's capital to assets ratio was 9.64% on
December 31, 1999, which exceeded regulatory requirements.
NEW ACCOUNTING PRONOUNCEMENT:
- ----------------------------
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair market
value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or
an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
The accounting for changes in the fair value of a derivative
(that is gains and losses) depends on the intended use of the
derivative and the resulting designation. In June 1999, the
FASB issued SFAS 137 which delays the effective date of SFAS
133 so that it is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company does not
expect these statements to have a material effect on its
consolidated financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
The Company has experienced no material changes in market risk
since the discussion of this in the annual report as of March
31, 1999.
FORWARD-LOOKING STATEMENTS
- --------------------------
This report includes forward-looking statements that involve
inherent risks and uncertainties. A number of important
factors could cause actual results to differ materially from
those in the forward-looking statements. Those factors include
the economic environment, competition, products and pricing in
geographic and business areas in which the Company operates,
prevailing interest rates, changes in government regulations
and policies affecting financial services companies, and credit
quality and credit risk management. Central Bancorp, Inc.
undertakes no obligation to release revisions to these forward-
looking statements or reflect events or circumstances after the
date of this report.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security
Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27, FDS, Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended December 31,
1999, the Registrant did not file a
Current Report on Form 8-K.
CENTRAL BANCORP, INC. AND SUBSIDIARY
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized
CENTRAL BANCORP, INC. AND SUBSIDIARY
------------------------------------
2/11/00 /s/ John D. Doherty
- ---------- -------------------------------------
Date John D. Doherty
President and Chief Executive Officer
2/11/00 /s/ Paul S. Feeley
- ---------- -------------------------------------
Date Paul S. Feeley
Senior Vice President, Treasurer
and Chief Financial Officer