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, 2000
-----------------
Commission File Number: 0-25251
CENTRAL BANCORP, INC.
---------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MASSACHUSETTS
-------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
I.R.S. Employer Identification No. 04-3447594
399 HIGHLAND AVENUE, SOMERVILLE, MA. 02144
------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER
(617) 628-4000
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Class Outstanding at February 13, 2001
- ----------------------------- --------------------------------
Common Stock, $1.00 par value 1,689,164
CENTRAL BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition at March 31,
2000 and December 31, 2000 (unaudited)
Consolidated Statements of Income for the three and nine
month periods ended December 31, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows for the nine month
periods ended December 31, 2000 and 1999 (unaudited)
Consolidated Statements of Changes in Stockholders' Equity
for the nine month periods ended December 31, 2000 and 1999
(unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the three and nine month periods
ended December 31, 2000 and 1999
Item 3. Quantitative and Qualitative Disclosures about Market Risk
(Incorporated by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 2000)
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Item 1-Financial Statements:
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in Thousands)
December 31, March 31,
2000 2000
- -------------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
Cash and due from banks $ 5,997 $ 6,588
---------------------------------------
Short-term investments 6,664 14,802
Investments available for sale:
Investment securities 35,644 32,135
Mortgage-backed securities 20,315 23,308
Stock in Federal Home Loan Bank of Boston, at cost 6,150 5,800
The Co-operative Central Bank Reserve Fund 1,576 1,576
---------------------------------------
Total investments 70,349 77,621
---------------------------------------
Loans:
Mortgage loans 342,954 314,966
Other loans 7,812 5,047
---------------------------------------
350,766 320,013
Less allowance for loan losses (3,082) (2,993)
---------------------------------------
Net loans 347,684 317,020
---------------------------------------
Accrued interest receivable 2,416 2,036
Office properties and equipment, net 2,089 2,218
Deferred tax asset, net 793 1,071
Goodwill, net 2,592 2,808
Other assets 473 195
---------------------------------------
Total assets $ 432,393 $ 409,557
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 273,673 $ 258,339
Advances from Federal Home Loan Bank of Boston 117,000 111,000
Advance payments by borrowers for taxes and insurance 1,287 1,053
Accrued interest payable 624 542
Accrued income taxes 468 --
Accrued expenses and other liabilities 1,367 1,226
---------------------------------------
Total liabilities 394,419 372,160
---------------------------------------
Commitments and Contingencies (Note 2)
Stockholders' equity:
Preferred stock $1.00 par value; authorized 5,000,000 shares;
none issued or outstanding -- --
Common stock $1.00 par value; authorized 15,000,000 shares;
Issued 1,970,000 shares (outstanding 1,689,164 and
1,810,450) at December 31, 2000 and March 31, 2000 respectively 1,970 1,970
Additional paid-in capital 11,190 11,190
Retained income 30,550 28,538
Treasury stock (280,836 shares and 159,550 shares at December 31,
2000, and March 31, 2000, respectively), at cost (5,135) (3,043)
Accumulated other comprehensive income (loss) (note 4) (265) (825)
Unearned compensation - ESOP (336) (433)
---------------------------------------
Total stockholders' equity 37,974 37,397
---------------------------------------
Total liabilities and stockholders' equity $ 432,393 $ 409,557
=======================================
See accompanying notes to unaudited consolidated financial statements.
1
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,
2000 1999 2000 1999
------------------------ ----------------------------
Interest and dividend income:
Mortgage loans $ 6,596 $ 5,525 $ 19,142 $ 15,868
Other loans 252 164 540 448
Short-term investments 127 67 276 322
Investment securities 780 648 2,006 1,505
Mortgage-backed securities 350 354 1,085 1,106
The Co-operative Central Bank Reserve Fund 17 21 63 71
------------------------ ----------------------------
Total interest and dividend income 8,122 6,779 23,112 19,320
------------------------ ----------------------------
Interest expense:
Deposits 2,589 2,027 7,408 6,515
Advances from Federal Home Loan Bank of Boston 1,883 1,275 5,154 2,922
------------------------ ----------------------------
Total interest expense 4,472 3,302 12,562 9,437
------------------------ ----------------------------
Net interest and dividend income 3,650 3,477 10,550 9,883
Provision for loan losses -- -- -- --
------------------------ ----------------------------
Net interest and dividend income after
provision for loan losses 3,650 3,477 10,550 9,883
------------------------ ----------------------------
Non-interest income:
Deposit service charges 118 113 334 320
Net gains from sales of investment securities 275 231 651 843
Other income 51 50 151 169
------------------------ ----------------------------
Total non-interest income 444 394 1,136 1,332
------------------------ ----------------------------
Operating expenses:
Salaries and employee benefits 1,517 1,148 4,145 3,555
Occupancy and equipment 304 276 869 865
Advertising 107 67 437 210
Data processing service fees 243 135 534 416
Professional fees 142 234 655 646
Goodwill amortization 72 72 216 216
Other expense 300 316 846 841
------------------------ ----------------------------
Total operating expenses 2,685 2,248 7,702 6,749
------------------------ ----------------------------
Income before income taxes 1,409 1,623 3,984 4,466
Income tax expense 509 603 1,442 1,701
------------------------ ----------------------------
Net Income before cumulative effect of change in
accounting principle 900 1,020 2,542 2,765
Cumulative effect of change in accounting principle -- -- -- (234)
------------------------ ----------------------------
Net income $ 900 1,020 $ 2,542 $ 2,531
======================== ============================
Earnings per common share before cumulative effect of
change in accounting principle $ 0.53 $ 0.55 $ 1.46 $ 1.45
======================== ============================
Earnings per common share before cumulative effect of
change in accounting principle, diluted $ 0.53 $ 0.55 $ 1.46 $ 1.45
======================== ============================
Earnings per common share after cumulative effect of
change in accounting principle $ 0.53 $ 0.55 $ 1.46 $ 1.33
======================== ============================
Earnings per common share after cumulative effect of
change in accounting principle, diluted $ 0.53 $ 0.55 $ 1.46 $ 1.33
======================== ============================
Weighted average common shares outstanding 1,690 1,865 1,736 1,901
Weighted average common shares outstanding, diluted 1,692 1,868 1,738 1,906
See accompanying notes to unaudited consolidated financial statements.
2
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
December 31,
(In Thousands) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 2,542 $ 2,531
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 331 355
Amortization of premiums, fees and discounts 65 92
Amortization of goodwill 216 216
Net gains from sales of investment securities (651) (843)
Decrease in deferred tax asset 278 234
Increase in accrued interest receivable (380) (202)
(Increase) decrease in other assets (278) 342
Increase (decrease) in advance payments by borrowers for taxes and insurance 234 (143)
Increase in accrued interest payable 82 212
Increase in accrued income taxes 468 244
Increase in accrued expenses and other liabilities 141 136
-----------------------------
Net cash provided by operating activities 3,048 3,174
-----------------------------
Cash flows from investing activities:
Principal collected on loans 39,806 55,640
Loan originations (70,470) (90,167)
Principal payments on mortgage-backed securities available for sale 3,058 8,351
Purchase of investment securities available for sale (5,470) (17,693)
Maturities of investment securities available for sale -- 2,500
Proceeds from sales of investment securities available for sale 2,692 4,376
Net decrease in short-term investments 8,138 12,920
Purchase of Stock in Federal Home Loan Bank of Boston -- (1,955)
Purchase of office properties and equipment (202) (77)
-----------------------------
Net cash (used in) provided by investing activities (22,448) (26,105)
-----------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 15,334 (21,880)
Proceeds from advances from FHLB of Boston 127,000 106,420
Payments on advances from FHLB of Boston (121,000) (53,500)
Proceeds from exercise of stock options -- 22
Purchase of Treasury stock (2,092) (2,027)
Payments of dividends on common stock (530) (503)
Amortization of unearned compensation - ESOP 97 98
-----------------------------
Net cash provided by (used in) financing activities 18,809 28,630
-----------------------------
Net (decrease) increase in cash and due from banks (591) 5,699
Cash and due from banks at beginning of period 6,588 4,964
-----------------------------
Cash and due from banks at end of period $ 5,997 $ 10,663
=============================
Supplemental disclosure of cash flow information: Cash paid during the
period for:
Interest $ 12,480 $ 9,225
Income taxes 974 1,457
See accompanying notes to unaudited consolidated financial statements.
3
CENTRAL BANCORP, INC. AND SUBSIDIARY
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, 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 December 31, 1999 $1,970 $11,190 $27,922 $(2,027)
====== ======= ======= =======
Nine Months Ended December 31, 2000
- -----------------------------------
Balance at March 31, 2000 $1,970 $11,190 $28,538 $(3,043)
------ ------- ------- -------
Net income -- -- 2,542 --
Other Comprehensive Income (loss), net of tax
Unrealized gains on securities,
net of reclassification adjustment (note 4) -- -- -- --
------ ------- ------- -------
Comprehensive income (loss) -- -- 2,542 --
------ ------- ------- -------
Purchase of treasury stock -- -- -- (2,092)
Dividends Paid -- -- (530) --
Amortization of unearned compensation - ESOP -- -- -- --
------ ------- ------- -------
Balance at December 31, 2000 $1,970 $11,190 $30,550 $(5,135)
====== ======= ======= =======
Accumulated
Other Unearned Total
Comprehensive Compensation Stockholders'
(In Thousands) Income (Loss) ESOP Equity
- ------------------------------------------------------------------------------------------------------------------
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 December 31, 1999 $(411) $ (519) $ 38,125
===== ====== ========
Nine Months Ended December 31, 2000
- -----------------------------------
Balance at March 31, 2000 $(825) $ (433) $ 37,397
----- ------ -------
Net income -- -- 2,542
Other Comprehensive Income (loss), net of tax
Unrealized gains on securities,
net of reclassification adjustment (note 4) 560 -- 560
----- ------ -------
Comprehensive income (loss) 560 -- 3,102
----- ------ -------
Purchase of treasury stock -- -- (2,092)
Dividends Paid -- -- (530)
Amortization of unearned compensation - ESOP -- 97 97
----- ------ --------
Balance at December 31, 2000 $(265) $ (336) $ 37,974
===== ====== ========
See accompanying notes to unaudited consolidated financial statements.
4
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(UNAUDITED)
(1) BASIS OF PRESENTATION
---------------------
The consolidated financial statements of the Registrant for December
31, 2000 and 1999 presented herein should be read in conjunction with
the financial statements of the Company as of and for the year ended
March 31, 2000, included in the Company's Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments, consisting of normal
recurring adjustments, necessary to fairly present the results for the
interim periods presented. Interim results are not necessarily
indicative of results to be expected for the entire year.
(2) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
-------------------------------------------------
Commitments to originate loans, unused lines of credit and unadvanced
portions of construction loans are agreements to lend to a customer,
provided there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management's credit
evaluation of the borrower.
Commitments at December 31, 2000 follow: (In Thousands)
Unused lines of credit...................................$10,528
Unadvanced portions of construction loans................ 8,926
Unadvanced portions of commercial loans.................. 889
Commitments to originate commercial loans................ 16,661
Commitments to originate residential mortgage loans:
Fixed rate......................................... 1,728
Adjustable rate.................................... 101
5
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 2000
(UNAUDITED)
(3) Income Taxes
------------
The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are established for the
temporary differences between the financial reporting basis and the
tax basis of the Company's assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or settled.
(4) REPORTING COMPREHENSIVE INCOME
------------------------------
The Company has established standards for reporting and displaying
comprehensive income, which is defined as all changes to equity except
investments by, and distributions to, shareholders. Net income is a
component of comprehensive income, with all other components referred
to in the aggregate as other comprehensive income.
The Company's other comprehensive income (loss) and related tax
effect is as follows:
For the Nine Months Ended
(In Thousands) December 31, 2000
------------------------------------------------------------------------------------------------------------------
Before-
Tax Tax After-Tax
Amount Expense Amount
------ ------- ---------
Unrealized gains on securities:
Unrealized holding gains arising during period $ 1,488 $ 512 $ 976
Less: reclassification adjustment for
gains realized in net income 651 235 416
----------------------------------------------
Other comprehensive income $ 837 $ 277 $ 560
==============================================
For the Nine Months Ended
December 31, 1999
----------------------------------------------------
Before-
Tax Tax (Benefit) After-Tax
Amount Expense Amount
------ ------------- ---------
Unrealized (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)
==============================================
6
CENTRAL BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL:
- -------
On January 8, 1999, the Registrant, Central Bancorp, Inc. became the
holding company of Central Co-operative Bank when the Bank completed its
holding company reorganization. Because substantially all of the business
of the Registrant is the business of the Bank, the discussion below
focuses on the business of the Bank. For more information, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Holding Company" included in the Company's Annual Report on
Form 10-K as of and for the year ended March 31, 2000.
Net income amounted to $900,000, or $0.53 per diluted share for the three
months ended December 31, 2000 as compared to net income of $1,020,000, or
$0.55 per diluted share in the corresponding quarter ended December 31,
1999.
Net interest and dividend income increased $173,000 in the December 31,
2000 quarter over the prior years quarter, reflecting significantly higher
income from mortgage loans. The Company's operating expenses increased by
$437,000 during the December 31, 2000 quarter over the December 31, 1999
quarter principally due to higher salaries and employee benefits,
including an expenditure relating to the settlement of a severance claim,
and to an increase in data processing costs associated with the conversion
to a new computer system.
Financial Condition:
- -------------------
The following is a discussion of the major changes and trends in financial
condition from the end of the preceding fiscal year, March 31, 2000, to
December 31, 2000.
Total assets increased from $409.6 million at March 31, 2000 to $432.4
million at December 31, 2000 primarily as a result of an increase in
deposits and advances from the Federal Home Loan Bank of Boston which were
invested in the Company's loan portfolio, offset by a decrease in
investments.
The Company's loan balance grew by $30.7 million or 9.7% as a result of
loan originations amounting to $70.4 million, of which $30.9 were in
residential real estate loans. Loan amortization and pay-offs amounted to
$39.8 million. The Company's investment portfolio decreased by $7.3
million, primarily as a result of pay-downs of mortgage-backed securities
and a decline in short term investments, offset by purchases of investment
securities. Proceeds generated from the decline in the Company's
investment portfolio were primarily used to partially fund the increase in
the loan portfolio.
Deposits increased during the nine month period by $15.3 million primarily
due to an increase of $15.1 million in term deposit certificates and were
also used to fund the increase in the loan portfolio.
7
During the quarter ended December 31,2000,the Company completed the
previously announced third buyback of Central Bancorp's common stock by
repurchasing 59,503 shares. The shares repurchased since the first buyback
program was adopted in April 1999 total 280,836, at an average cost of
$18.29 per share. This amounts to 14.3% of the common stock issued and
outstanding prior to the adoption of the first buyback program. In
December 2000, the Board announced the intention to begin a fourth buyback
program to repurchase up to 5% of the stock currently issued and
outstanding through privately negotiated and/or open market purchases.
Completion of the new program will depend on market conditions and there
is no guaranty of the exact number of shares the Company will repurchase.
NON-PERFORMING ASSETS:
- ---------------------
The Company had non-accruing loans totaling $16,000 at December 31, 2000,
a decrease of $219,000 or 93.2% from March 31, 2000. Interest income not
recognized on non-accruing loans amounted to $1,000 for the first nine
months of fiscal 2001.
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,
2000 2000 1999
---- ---- ----
(Dollars in thousands)
Loans accouted for on a
non-accrual basis, (non-accruing loans) $ 16 $ 235 $ 38
Impaired loans, accruing 0 0 0
Non-accruing loans as a percentage of
total loans 0.00% 0.07% 0.01%
Non-accruing loans as a percentage of
total assets 0.00% 0.06% 0.01%
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 2000, AND 1999:
- ---------------------
Net income for the three months ended December 31, 2000, and 1999,
amounted to $900,000 or $0.53 per diluted share and $1,020,000 or $0.55
per diluted share, respectively.
Interest income from the Company's loan portfolio increased $1.1 million
in the third quarter of fiscal 2001. This increase was primarily the
result of a $41.6 million increase in the average loan balance in addition
to a 44 basis point increase in average rates earned on these loans.
8
Income from the Company's investment portfolio (which includes income on
short term investments, investment securities, mortgage-backed securities,
FHLB stock and The Co-operative Central Bank Reserve Fund) increased by
$184,000 during the third quarter of fiscal 2001 when compared to the same
fiscal 2000 period. The yield on these assets increased by 41 basis points
while the average balance increased by $6.6 million during the fiscal 2001
quarter.
Average earning assets increased by $48.2 million while the rate earned on
these assets increased 44 basis points to 7.74% during the third quarter
of fiscal 2001 when compared to the third quarter of fiscal 2000.
The Company's cost of deposits increased by $562,000 during the third
quarter of fiscal 2001 when compared to the same fiscal 2000 quarter. The
rate paid on deposits increased 58 basis points from 3.23% during the
quarter ended December 31, 1999 to 3.81% during the quarter ended December
31, 2000. The average balance of these deposits increased $20.7 million to
$271.9 million during the third quarter of fiscal 2001 from $251.2 million
during the fiscal 2000 third quarter.
The average balance of borrowed funds increased by $26.6 million to $118.1
million in the fiscal 2001 third quarter compared to $91.5 million in the
same fiscal 2000 quarter. These advances were used to fund loan growth.
The rate paid on borrowings increased by 81 basis points in the fiscal
2001 quarter to 6.38% from 5.57% in the fiscal 2000 quarter. The combined
effect of these changes resulted in an increase of $608,000 in interest
expense on borrowings to $1.9 million in the third quarter of fiscal 2001
compared to $1.3 million in fiscal 2000's third quarter.
The average balance of total interest-bearing liabilities increased $47.3
million while the rates paid on these liabilities increased by 73 basis
points during the quarter ended December 31, 2000 when compared to the
same period one year ago.
These developments resulted in a $1.3 million increase in interest and
dividend income and an increase of $1.2 million in interest expense. The
combination resulted in a $173,000 increase in net interest and dividend
income from the fiscal 2000 quarter to the fiscal 2001 quarter.
The provision for loan losses is made to maintain the allowance for loan
losses at a level which management considers adequate to provide for
probable losses based on an evaluation of known and inherent risks in the
loan portfolio. Consistent with the current evaluation of the loan
portfolio, the Company did not make any provision for the third quarter of
fiscal 2001 or fiscal 2000.
Non-interest income increased by $50,000 to $444,000 in the third quarter
of fiscal 2001 from $394,000 in the third fiscal 2000 quarter. The Company
recorded $275,000 and $231,000 in net gains from sales of investment
securities during the third quarters of fiscal 2001 and fiscal 2000,
respectively. This $44,000 increase in net gains from the sale of
investment securities is the primary reason for the increase in
non-interest income between the two quarters.
Operating expenses increased $437,000 in the third quarter of fiscal 2001
compared to the same quarter of fiscal 2000. This increase is primarily
attributable to an increase of $369,000 in salaries and employee benefits,
which includes an expenditure relating to the settlement of a severance
claim, and an increase of $108,000 in data processing fees associated with
the conversion to a new computer system.
The provision for Federal and state income taxes amounted to $509,000 and
$603,000 during the third quarter of fiscal 2001 and fiscal 2000,
respectively. The decreased expense relates primarily to the decreased
level of pre-tax income and a decrease in the effective tax rate due to
the implementation of a tax planning strategy during fiscal 2000.
9
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 2000, AND 1999:
- ---------------------
Net income for the nine months ended December 31, 2000, and 1999, amounted
to $2.5 million or $1.46 per diluted share and $2.5 million or $1.33 per
diluted share, respectively.
Interest income from the Company's loan portfolio increased $3.4 million
for the nine months ended December 31, 2000. This increase was primarily
the result of a $46.7 million increase in the average loan balance in
addition to a 30 basis point increase in average rates earned on these
loans.
Income from the Company's investment portfolio (which includes income on
short term investments, investment securities, mortgage-backed securities,
FHLB stock and The Co-operative Central Bank Reserve Fund) increased by
$426,000 during the nine months ended December 31, 2000 when compared to
the same fiscal 2000 period. The yield on these assets increased by 69
basis points while the average balance increased by $1.5 million during the
nine months ended December 31, 2000.
Average earning assets increased by $48.2 million while the rate earned on
these assets increased 39 basis points to 7.53% during the nine months
ended December 31, 2000 when compared to the same period of fiscal 2000.
The Company's cost of deposits increased by $893,000 during the nine
months ended December 31, 2000 when compared to the same fiscal 2000
period. The rate paid on deposits increased 35 basis points from 3.33%
during the nine months ended December 31, 1999 to 3.68% during the nine
months ended December 31, 2000. The average balance of these deposits
increased $7.8 million to $268.5 million during the nine months ended
December 31, 2000 from $260.7 million during the fiscal 2000 nine month
period.
The average balance of borrowed funds increased by $39.8 million to $110.8
million in the nine months ended December 31, 2000 compared to $71.0
million in the same period in fiscal 2000. These advances were used to
fund loan growth. The rate paid on borrowings increased by 71 basis points
in the fiscal 2001 quarter to 6.20% from 5.49% in the same nine months
period in fiscal 2000. The combined effect of these changes resulted in an
increase of $2.2 million in interest expense on borrowings to $5.1 million
in the nine months ended December 31, 2000 compared to $2.9 million for
the nine months ended December 31, 1999.
The average balance of total interest-bearing liabilities increased $47.6
million while the rates paid on these liabilities increased by 62 basis
points during the nine month ended December 31, 2000 when compared to the
same period one year ago.
These developments resulted in a $3.8 million increase in interest and
dividend income and an increase of $3.1 million in interest expense. The
combination resulted in a $667,000 increase in net interest and dividend
income from the nine months ended December 31, 1999 to the same period in
fiscal 2001.
The provision for loan losses is made to maintain the allowance for loan
losses at a level which management considers adequate to provide for
probable losses based on an evaluation of known and inherent risks in the
loan portfolio. Consistent with the current evaluation of the loan
portfolio, the Company did not make any provision for the nine months
ended December 31, 2000 and 1999.
10
Non-interest income decreased by $196,000 to $1.1 million in the nine
months ended December 31, 2000 from $1.3 million in the same period in
fiscal 2000. The Company recorded $651,000 and $843,000 in net gains from
sales of investment securities during the nine months ended December 31,
2000 and 1999, respectively. This $192,000 decrease in net gains from the
sale of investment securities is the primary reason for the decrease in
non-interest income between the two periods.
Operating expenses increased $953,000 in the nine months ended December
31, 2000 compared to the same period of fiscal 2000. This increase is
primarily attributable to an increase of $590,000 in salaries and employee
benefits, which includes an expenditure relating to the settlement of a
severance claim, an increase of $227,000 in advertising due to a marketing
effort to promote deposit and other products and an increase of $118,000
in data processing fees associated with the conversion to a new computer
system.
The provision for Federal and state income taxes amounted to $1.4 million
and $1.7 million during the nine months ended December 31, 2000 and 1999,
respectively. The decreased expense relates primarily to the decreased
level of pre-tax income and by a decrease in the effective tax rate due to
the implementation of a tax planning strategy during fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
The Company's principal sources of liquidity are loan amortization, loan
prepayments, increases in deposits and advances from The Federal Home Loan
Bank (FHLB) of Boston. The Company is a voluntary member of the FHLB of
Boston and as such is generally entitled to borrow. Cash from these
liquidity sources is used to fund loan originations, security investments,
deposit maturities and repayment of FHLB of Boston advances. The Company's
capital to assets ratio was 8.78% on December 31, 2000, which exceeded
regulatory requirements.
NEW ACCOUNTING PRONOUNCEMENT:
- ----------------------------
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Position ("SOP") 98-5, Accounting for Costs of a Start-Up
Entity. SOP 98-5 requires organizational costs, which were being
amortized, to be expensed and accounted for as a cumulative effect of a
change in accounting principle. On April 1, 1999, the Bank expensed
unamortized organizational costs resulting in a charge to earnings, net of
taxes, of $234 thousand.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 established accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 also provides for matching the
timing of gain or loss recognition on the hedged asset or liability that
is attributable to the hedged risk or the earnings effect of the hedged
forecasted transaction. In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133, which defers the effective
date of SFAS No. 133. SFAS No. 133 will be effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The adoption of
this Statement is not expected to have a material impact on the Company's
financial position.
11
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities,
which supercedes the guidance of SFAS No. 125. The provisions of SFAS No.
140 will become effective for certain transactions occurring after March
31, 2001 and for disclosures relating to certain transactions for fiscal
years ending after December 15, 2000. Management does not expect SFAS No.
140 to have a material impact on the Company's consolidated financial
statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
The Company has experienced no material changes in market risk since the
discussion of this in the annual report as of March 31, 2000.
FORWARD-LOOKING STATEMENTS
- --------------------------
This report includes forward-looking statements that involve inherent
risks and uncertainties. A number of important factors could cause actual
results to differ materially from those in the forward-looking statements.
Those factors include the economic environment, competition, products and
pricing in geographic and business areas in which the Company operates,
prevailing interest rates, changes in government regulations and policies
affecting financial services companies, and credit quality and credit risk
management. Central Bancorp, Inc. undertakes no obligation to release
revisions to these forward-looking statements or reflect events or
circumstances after the date of this report.
12
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
None
(b) Reports on Form 8-K
On December 18, 2000, the Registrant filed a
Current Report on Form 8-K announcing the
commencement of an open-market stock
repurchase program to repurchase up to
84,458 shares of the Registrant's common
stock, which represents approximately 5% of
the shares currently outstanding.
13
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
------------------------------------
2/13/00 S/ John D. Doherty
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Date John D. Doherty
President and Chief Executive Officer
2/13/00 S/ Paul S. Feeley
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Date Paul S. Feeley
Senior Vice President, Treasurer
and Chief Financial Officer