U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2001
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COMMISSION FILE NUMBER: 0-25251
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CENTRAL BANCORP, INC.
---------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MASSACHUSETTS
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(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
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- -----
Class Outstanding at November 8, 2001
- ----------------------------- --------------------------------
Common Stock, $1.00 par value 1,671,626
CENTRAL BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition at March 31,
2001 and September 30, 2001 (unaudited)
Consolidated Statements of Income for the three and six month
periods ended September 30, 2001 and 2000 (unaudited)
Consolidated Statements of Cash Flows for the six month
periods ended September 30, 2001 and 2000 (unaudited)
Consolidated Statements of Changes in Stockholders' Equity for
the six month periods ended September 30, 2001 and 2000
(unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the three and six month periods
ended September 30, 2001 and 2000
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, 2001)
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)
September 30, March 31,
2001 2001
- -------------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Cash and due from banks $ 7,921 $ 5,351
---------------------------------------
Short-term investments 16,423 34,529
Investments available for sale:
Investment securities 51,134 31,263
Mortgage-backed securities 21,038 19,314
Stock in Federal Home Loan Bank of Boston, at cost 6,150 6,150
The Co-operative Central Bank Reserve Fund 1,576 1,576
---------------------------------------
Total investments 96,321 92,832
---------------------------------------
Loans:
Mortgage loans 310,945 338,898
Other loans 7,315 6,895
---------------------------------------
318,260 345,793
Less allowance for loan losses (3,210) (3,106)
---------------------------------------
Net loans 315,050 342,687
---------------------------------------
Accrued interest receivable 2,473 2,426
Office properties and equipment, net 1,950 2,018
Deferred tax asset, net 852 801
Goodwill, net 2,376 2,520
Other assets 533 702
---------------------------------------
Total assets $ 427,476 $ 449,337
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 270,868 $ 287,167
Advances from Federal Home Loan Bank of Boston 108,000 121,000
Advance payments by borrowers for taxes and insurance 1,253 1,220
Accrued interest payable 520 608
Accrued expenses and other liabilities 8,084 1,130
---------------------------------------
Total liabilities 388,725 411,125
---------------------------------------
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 1,990,424 and 1,970,000 shares(outstanding 1,669,151 and
1,684,164) at September 30, 2001 and March 31, 2001 respectively 1,990 1,970
Additional paid-in capital 11,602 11,190
Retained income 31,708 30,950
Treasury stock (321,273 shares and 285,836 shares at September 30,
2001, and March 31, 2001, respectively), at cost (5,959) (5,230)
Accumulated other comprehensive income (loss) (note 4) (418) (431)
Unearned compensation - ESOP (172) (237)
---------------------------------------
Total stockholders' equity 38,751 38,212
---------------------------------------
Total liabilities and stockholders' equity $ 427,476 $ 449,337
=======================================
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 Six Months Ended
September 30, September 30,
2001 2000 2001 2000
------------------------ ----------------------------
Interest and dividend income:
Mortgage loans $ 5,797 $ 6,533 $ 11,946 $ 12,546
Other loans 182 162 364 288
Short-term investments 329 64 801 149
Investment securities 597 616 1,086 1,226
Mortgage-backed securities 251 359 539 735
The Co-operative Central Bank Reserve Fund 24 25 43 45
---------------------- ------------------------
Total interest and dividend income 7,180 7,759 14,779 14,989
---------------------- ------------------------
Interest expense:
Deposits 2,177 2,476 4,814 4,819
Advances from Federal Home Loan Bank of Boston 1,643 1,821 3,369 3,271
---------------------- ------------------------
Total interest expense 3,820 4,297 8,183 8,090
---------------------- ------------------------
Net interest and dividend income 3,360 3,462 6,596 6,899
Provision for loan losses -- -- -- --
---------------------- ------------------------
Net interest and dividend income after
provision for loan losses 3,360 3,462 6,596 6,899
---------------------- ------------------------
Non-interest income:
Deposit service charges 105 112 229 216
Net gains from sales of investment securities 121 193 324 376
Other income 111 49 193 100
---------------------- ------------------------
Total non-interest income 337 354 746 692
---------------------- ------------------------
Operating expenses:
Salaries and employee benefits 1,515 1,311 3,048 2,628
Occupancy and equipment 277 286 595 565
Advertising 79 103 198 329
Data processing service fees 220 163 490 291
Professional fees 362 245 554 513
Goodwill amortization 72 72 144 144
Other expense 281 260 589 546
---------------------- ------------------------
Total operating expenses 2,806 2,440 5,618 5,016
---------------------- ------------------------
Income before income taxes 891 1,376 1,724 2,575
Income tax expense 327 499 630 933
---------------------- ------------------------
Net income $ 564 877 $ 1,094 $ 1,642
====================== ========================
Earnings per common share $ 0.34 $ 0.51 $ 0.66 $ 0.93
====================== ========================
Earnings per common share, diluted $ 0.34 $ 0.51 $ 0.65 $ 0.93
====================== ========================
Weighted average common shares outstanding 1,666 1,731 1,664 1,759
Weighted average common shares outstanding, diluted 1,683 1,733 1,678 1,760
See accompanying notes to unaudited consolidated financial statements.
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
September 30,
(In Thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,094 $ 1,642
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 205 221
Amortization of premiums, fees and discounts 68 45
Amortization of goodwill 144 144
Net gains from sales of investment securities (324) (376)
Decrease in deferred tax asset -- 185
Increase in accrued interest receivable (33) (278)
Decrease (increase) in other assets 169 (118)
Increase in advance payments by borrowers for taxes and insurance 33 426
(Decrease) increase in accrued interest payable (88) 57
(Decrease) increase in accrued income taxes (541) 655
Increase (decrease) in accrued expenses and other liabilities 342 (94)
-----------------------------------
Net cash provided by operating activities 1,069 2,509
-----------------------------------
Cash flows from investing activities:
Principal collected on loans 62,550 31,224
Loan originations (34,913) (62,663)
Principal payments on mortgage-backed securities available for sale 3,573 2,021
Purchase of investment securities available for sale (39,106) (3,169)
Maturities and calls of investment securities available for sale 20,000 --
Proceeds from sales of investment securities available for sale 1,295 1,876
Net decrease in short-term investments 18,106 10,690
Purchase of Stock in Federal Home Loan Bank of Boston -- (350)
Purchase of office properties and equipment (137) (92)
-----------------------------------
Net cash provided by (used in) investing activities 31,368 (20,463)
-----------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits (16,299) 9,861
Proceeds from advances from FHLB of Boston -- 119,000
Payments on advances from FHLB of Boston (13,000) (111,000)
Earned ESOP shares charged to expense 95 --
Proceeds from exercise of stock options 337 --
Purchase of Treasury stock (729) (1,048)
Payments of dividends on common stock (336) (356)
Amortization of unearned compensation - ESOP 65 65
-----------------------------------
Net cash (used in) provided by financing activities (29,867) 16,522
-----------------------------------
Net increase (decrease) in cash and due from banks 2,570 (1,432)
Cash and due from banks at beginning of period 5,351 6,588
-----------------------------------
Cash and due from banks at end of period $ 7,921 $ 5,156
===================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 8,271 $ 8,033
Income taxes 868 278
See accompanying notes to unaudited consolidated financial statements.
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
- ------------------------------------------------------------------------------------------------------------
Six Months Ended September 30, 2000
- ------------------------------------
Balance at March 31, 2000 $ 1,970 $ 11,190 $ 28,538 $ (3,043)
-------- -------- -------- --------
Net Income -- -- 1,642 --
Other Comprehensive Income, net of tax
Unrealized gain on securities, net of
reclassification adjustment (note 4) -- -- -- --
-------- -------- -------- --------
Comprehensive income (loss) -- -- 1,642 --
-------- -------- -------- --------
Purchase of treasury stock -- -- -- (1,048)
Dividends paid -- -- (356) --
Amortization of unearned compensation - ESOP -- -- -- --
-------- -------- -------- --------
Balance at September 30, 2000 $ 1,970 $ 11,190 $ 29,824 $ (4,091)
======== ======== ======== ========
Six Months Ended September 30, 2001
- -----------------------------------
Balance at March 31, 2001 $ 1,970 $ 11,190 $ 30,950 $ (5,230)
-------- -------- -------- --------
Net Income -- -- 1,094 --
Other Comprehensive Income, net of tax
Unrealized (losses) on securities, net of
reclassification adjustment (note 4) -- -- -- --
-------- -------- -------- --------
Comprehensive income -- -- 1,094 --
-------- -------- -------- --------
Earned ESOP shares charged to expense -- 95 -- --
Proceeds from exercise of stock options 20 317 -- --
Purchase of treasury stock -- -- -- (729)
Dividends paid -- -- (336) --
Amortization of unearned compensation - ESOP -- -- -- --
-------- -------- -------- --------
Balance at September 30, 2001 $ 1,990 $ 11,602 $ 31,708 $ (5,959)
======== ======== ======== ========
Accumulated
Other Unearned Total
Comprehensive Compensation Stockholders'
(In Thousands) Income (Loss) ESOP Equity
- ------------------------------------------------------------------------------------------------------------
Six Months Ended September 30, 2000
- -----------------------------------
Balance at March 31, 2000 $ (825) $ (433) $ 37,397
------ ------- --------
Net Income -- -- 1,642
Other Comprehensive Income, net of tax
Unrealized gain on securities, net of
reclassification adjustment (note 4) 348 -- 348
------ ------- --------
Comprehensive income (loss) 348 -- 1,990
------ ------- --------
Purchase of treasury stock -- -- (1,048)
Dividends paid -- -- (356)
Amortization of unearned compensation - ESOP -- 65 65
------ ------- --------
Balance at September 30, 2000 $ (477) $ (368) $ 38,048
====== ======= ========
Six Months Ended September 30, 2001
- -----------------------------------
Balance at March 31, 2001 $ (431) $ (237) $ 38,212
------ ------- --------
Net Income -- -- 1,094
Other Comprehensive Income, net of tax
Unrealized (losses) on securities, net of
reclassification adjustment (note 4) 13 -- 13
------ ------- --------
Comprehensive income 13 -- 1,017
------ ------- --------
Earned ESOP shares charged to expense -- -- 95
Proceeds from exercise of stock options -- -- 337
Purchase of treasury stock -- -- (729)
Dividends paid -- -- (336)
Amortization of unearned compensation - ESOP -- 65 65
------ ------- --------
Balance at September 30, 2001 $ (418) $ (172) $ 38,751
====== ======= ========
See accompanying notes to unaudited consolidated financial statements.
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
(1) BASIS OF PRESENTATION
---------------------
The consolidated financial statements of the Registrant for September 30,
2001 and 2000 presented herein should be read in conjunction with the
financial statements of the Company as of and for the year ended March 31,
2001, 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 September 30, 2001 follow: (In Thousands)
Unused lines of credit.................................... $ 10,566
Unadvanced portions of construction loans................. 7,376
Unadvanced portions of commercial loans................... 6,411
Commitments to originate commercial loans................. 535
Commitments to originate commercial mortgage loans........ 14,846
Commitments to originate residential mortgage loans:
Fixed rate........................................... 1,080
Adjustable rate...................................... 710
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 2001
(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 Six Months Ended
(In Thousands) September 30, 2001
--------------------------------------------------------------------------------------------------------
Before-
Tax Tax (Benefit) After-Tax
Amount Expense Amount
------ ------------- ---------
Unrealized gains (losses) on securities:
Unrealized holding gains arising during period $ 286 $ 67 $ 219
Less: reclassification adjustment for
gains realized in net income 324 118 206
--------------------------------------
Other comprehensive income (loss) $ (38) $ (51) $ 13
======================================
For the Six Months Ended
September 30, 2000
----------------------------------------
Before-
Tax Tax After-Tax
Amount Expense Amount
------ ------------ ---------
Unrealized gains on securities:
Unrealized holding gains arising during period $ 909 $ 321 $ 588
Less: reclassification adjustment for
gains realized in net income 376 136 240
--------------------------------------
Other comprehensive income $ 533 $ 185 $ 348
======================================
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SEPTEMBER 30, 2001
(UNAUDITED)
(5) DIRECTORS DEFERRED COMPENSATION PLAN
------------------------------------
In fiscal 2001, the Company established a deferred compensation plan for
its directors. The Plan allows the Company's directors to defer receipt of
all or a portion of their compensation. The plan requires that the
compensation deferred be invested in Company stock held in an irrevocable
trust. At September 30, 2001 the trust held 1,311 shares of Central Bancorp
stock that the Company has classified as treasury stock. The treasury
shares are considered outstanding in the computation of earnings per share
and book value per share.
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, 2001.
Net income amounted to $564,000, or $0.34 per diluted share for the three
months ended September 30, 2001 as compared to net income of $877,000, or
$0.51 per diluted share in the corresponding quarter ended September 30,
2000.
The earnings decline for the September 30, 2001 quarter was in part due to
a $102,000 decrease in net interest and dividend income compared to the
year earlier quarter. This decrease was attributable to an acceleration in
residential loan pay-offs as borrowers sought to refinance their loans at
lower rates, a slowing of long-term, fixed-rate loan originations due to
the uncertain interest rate environment, and a determination by the Company
to slow its lending activities in anticipation of the slowdown in the
national economy and especially in the local real estate markets. The
increased liquidity maintained through most of the quarter following the
decision to slow lending activities and the drop in short-term rates as a
result of Federal Reserve actions led to a compression in the Company's
interest rate spread and margin.
In addition, the Company's operating expenses increased by $366,000 during
the September 30, 2001 quarter over the September 30, 2000 quarter. The
higher operating expenses for new personnel and data processing also
contributed to the decline in net income in the year-to-year comparisons.
The increase in personnel costs included the addition of staff to sell
non-deposit investment products, including mutual funds, annuities and
insurance products, to generate fee income in future periods. Additionally,
the Company increased its loan administration and commercial origination
staff to better monitor and develop the commercial loan area. During fiscal
2001, the Company converted to a new computer processing system that will
allow it to continue to improve its products offerings and services to both
individual and business customers. Although more costly, the new system
will allow the Company to be more competitive with other financial services
providers by allowing it to offer the same types of products offered by
larger competitors. The Bank introduced a complete internet banking product
in August 2001.
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, 2001, to
September 30, 2001.
Total assets decreased from $449.3 million at March 31, 2001 to $427.5
million at September 30, 2001 primarily as a result of net loan payoffs and
amortization. Funds generated from the reduction in loans were used to fund
deposit outflows and maturities of advances from FHLB of Boston.
The Company's loan balance declined by $27.5 million or 8.0% as a result of
a higher level of amortization and payoffs than originations, as the
Company made a decision to slow down long-term
fixed-rate residential loan originations because of the low rate
environment for such loans. Loan originations amounted to $34.9 million.
Loan amortization and pay-offs amounted to $62.6 million. The Company's
investment portfolio increased by $3.5 million, primarily as a result of an
increase in investment securities offset by a decrease in short term
investments.
Deposits decreased during the period by $16.3 million primarily due to a
decrease in term deposit certificates, offset by increases in savings and
transaction accounts.
During the period, the Company continued its fourth common stock buyback
program. An additional 34,126 shares were purchased during the period at an
average price of $21.36. At September 30, 2001, 45,332 shares remained
authorized by that program. The shares repurchased since the first buyback
program was adopted in April 1999 total 319,962 at an average cost of
$18.59 per share, representing 16.24% of the common stock issued and
outstanding prior to the adoption of the first buyback program.
NON-PERFORMING ASSETS:
- ---------------------
The Company had no non-accruing loans at September 30, 2001. There was no
interest income not recognized on non-accruing loans for the first six
months of fiscal 2001.
The following table sets forth information with respect to the Company's
non-performing assets for the dates indicated:
Sept. 30, March 31, Sept. 30,
2001 2001 2000
-------- --------- --------
(Dollars in thousands)
Loans accounted for on a
non-accrual basis, (non-accruing loans) $ -- $ -- $ --
Impaired loans, accruing -- -- --
Non-accruing loans as a percentage of
total loans 0.00% 0.00% 0.00%
Non-accruing loans as a percentage of
total assets 0.00% 0.00% 0.00%
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2001, AND 2000:
- --------------------
Net income for the three months ended September 30, 2001, and 2000,
amounted to $564,000 or $0.34 per diluted share and $877,000 or $0.51 per
diluted share, respectively.
Interest income from the Company's loan portfolio decreased $716,000 in the
second quarter of fiscal 2002. This decrease was primarily the result of a
$24.2 million decrease in the average loan balance combined with a 31 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) increased by
$137,000 during the second quarter of fiscal 2002 when compared to the same
fiscal 2001 period. The yield on these assets decreased by 151 basis points
while the average balance increased by $32.1 million during the fiscal 2002
quarter.
Average earning assets increased by $7.9 million while the rate earned on
these assets decreased 69 basis points to 6.81% during the second quarter
of fiscal 2002 when compared to the second quarter of fiscal 2001.
The Company's cost of deposits decreased by $299,000 during the second
quarter of fiscal 2002 when compared to the same fiscal 2001 quarter. The
rate paid on deposits decreased 54 basis points from 3.69% during the
quarter ended September 30, 2000 to 3.15% during the quarter ended
September 30, 2001. The average balance of these deposits increased $8.6
million to $276.8 million during the second quarter of fiscal 2002 from
$268.2 million during the fiscal 2001 second quarter.
The average balance of borrowed funds decreased by $3.2 million to $112.3
million in the fiscal 2002 second quarter compared to $115.5 million in the
same fiscal 2001 quarter. The rate paid on borrowings decreased by 45 basis
points in the fiscal 2002 quarter to 5.85% from 6.31% in the fiscal 2001
quarter. The combined effect of these changes resulted in an decrease of
$178,000 in interest expense on borrowings to $1.6 million in the second
quarter of fiscal 2002 compared to $1.8 million in fiscal 2001's second
quarter.
The average balance of interest-bearing liabilities increased $5.4 million
while the rates paid on these liabilities decreased by 55 basis points
during the quarter ended September 30, 2002 when compared to the same
period one year ago.
These developments resulted in a $579,000 decrease in interest and dividend
income and a decrease of $477,000 in interest expense. The combination
resulted in a $102,000 decrease in net interest and dividend income from
the fiscal 2001 quarter to the fiscal 2002 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. Due to the Bank's stable and relatively high level of asset
quality, and, consistent with the current evaluation of the loan portfolio,
the Company did not make any provision for the second quarter of fiscal
2002 or fiscal 2001.
Non-interest income decreased by $17,000 to $337,000 in the second quarter
of fiscal 2002 from $354,000 in the second fiscal 2001 quarter. The Company
recorded $121,000 and $193,000 in net gains from sales of investment
securities during the second quarter of fiscal 2002 and fiscal 2001,
respectively. Service charges on deposit accounts decreased by $7,000 to
$105,000 during fiscal 2002 and other income, including fees from non
deposit investment products, increased by $62,000 to $111,000 in fiscal
2002.
Operating expenses increased $366,000 in the second quarter of fiscal 2002
compared to the same quarter of fiscal 2001. This increase is primarily
attributable to an increase of $204,000 in salaries and employee benefits,
an increase of $57,000 in data processing service fees and an increase in
professional fees of $117,000 as a result of added personnel, a new
computer processing system and increased legal and consulting fees, offset
by a reduction in advertising expense of $24,000 for the recent quarter due
to a decision by management to slow the growth of both deposits and
residential loans.
The provision for Federal and state income taxes amounted to $327,000 and
$499,000 during the second quarter of fiscal 2002 and fiscal 2001,
respectively. The decreased expense relates primarily to the decreased
level of pre-tax income.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 2001, AND 2000:
- ---------------------
Net income for the six months ended September 30, 2001, and 2000, amounted
to $1.1 million or $0.65 per diluted share and $1.6 million or $0.93 per
diluted share, respectively.
Interest income from the Company's loan portfolio decreased $524,000 for
the six months ended September 30, 2001. This decrease was the result of a
$4.5 million decrease in the average loan balance in addition to a 21 basis
point decrease in average rates earned on these loans.
Incomefrom 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
$314,000 during the six months ended September 30, 2001 when compared to
the same fiscal 2001 period. The yield on these assets decreased by 127
basis points while the average balance increased by $29.3 million during
the six months ended September 30, 2001.
Average earning assets increased by $24.8 million while the rate earned on
these assets decreased 53 basis points to 6.89% during the six months ended
September 30, 2001 when compared to the same period of fiscal 2001.
The Company's cost of deposits decreased by $5,000 during the six months
ended September 30, 2001 when compared to the same fiscal 2001 period. The
rate paid on deposits decreased 19 basis points from 3.61% during the six
months ended September 30, 2000 to 3.42% during the six months ended
September 30, 2001. The average balance of these deposits increased $14.6
million to $281.4 million during the six months ended September 30, 2001
from $266.8 million during the fiscal 2001 six month period.
The average balance of borrowed funds increased by $8.8 million to $115.9
million in the six months ended September 30, 2001 compared to $107.1
million in the same period in fiscal 2001. The rate paid on borrowings
decreased by 30 basis points in the fiscal 2002 period to 5.81% from 6.11%
in the same six month period in fiscal 2001. The combined effect of these
changes resulted in an increase of $98,000 in interest expense on
borrowings to $3.4 million in the six months ended September 30, 2001
compared to $3.3 million for the six months ended September 30, 2000.
The average balance of total interest-bearing liabilities increased $23.4
million while the rates paid on these liabilities decreased by 21 basis
points during the six months ended September 30, 2001 when compared to the
same period one year ago.
These developments resulted in a $210,000 decrease in interest and dividend
income and an increase of $93,000 in interest expense. The combination
resulted in a $303,000 decrease in net interest and dividend income from
the six months ended September 30, 2000 to the same period in fiscal 2002.
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 six months ended
September 30, 2001 or 2000.
Non-interest income increased by $54,000 to $746,000 in the six months
ended September 30, 2001 from $692,000 in the same period in fiscal 2001.
The Company recorded $324,000 and $376,000 in net gains from sales of
investment securities during the six months ended September 30, 2001 and
2000, respectively.
Operating expenses increased $602,000 in the six months ended September 30,
2001 compared to the same period of fiscal 2001. This increase is primarily
attributable to an increase of $420,000 in salaries and employee benefits,
an increase of $199,000 in data processing service fees and an increase in
professional fees of $41,000 as a result of added personnel, a new computer
processing system and increased legal and consulting fees.
The provision for Federal and state income taxes amounted to $630,000 and
$933,000 during the six months ended September 30, 2001 and 2000,
respectively. The decreased expense relates primarily to the decreased
level of pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES:
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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 9.07% on September 30, 2001, which exceeded
regulatory requirements.
NEW ACCOUNTING PRONOUNCEMENT:
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In July, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, "Business
Combinations" and SFAS 142, "Goodwill and Other Intangible Assets." SFAS
141 requires the use of purchase method of accounting for all business
combinations initiated after June 30, 2001, thereby eliminating the use of
the pooling of interests method. It also provides new criteria that
determine whether an acquired intangible asset should be recognized
separately from goodwill. The Company does not expect the adoption of this
statement to have a material impact on its financial statements.
SFAS 142 requires that upon adoption of the Statement, any goodwill
recorded on an entity's balance sheet would no longer be amortized. This
would include existing goodwill (i.e., recorded goodwill at the date the
statements are issued), as well as goodwill arising subsequent to the
effective date of the Statement. Goodwill will not be amortized but will be
reviewed for impairment periodically or upon the occurrence of certain
triggering events. This Statement is effective for fiscal years beginning
after December 15, 2001 which for the Company will commence on April 1,
2002. At September 30, 2001, the Company had $2.4 million of goodwill on
its balance sheet that was being amortized at a rate of $288,000 annually.
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, 2001.
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
On October 10, 2001, the Company's ESOP received
clearance from the Federal Reserve Board to purchase
an additional 5% of the Company's outstanding shares.
The ESOP will borrow funds from the Company to
acquire the additional shares which it intends to
purchase from time to time on the open market. Until
allocated to participants, shares acquired by the
ESOP with borrowed funds will be deducted from
stockholders' equity as unearned compensation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the quarter ended September 30, 2001,
the Registrant filed the following Current
Reports on Form 8-K:
Date Items Reported
-------------------------------
7/26/01 Item 5 - Registrant's response
to the filing of a Schedule 13D
by the PL Capital Group.
8/1/01 Item 5 - Registrant's response
to a letter dated 7/31/01 from
the PL Capital Group.
No financial statements were filed with the
foregoing Current Reports 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
------------------------------------
11/13/01 /s/ John D. Doherty
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Date John D. Doherty
President and Chief Executive Officer
11/13/01 /s/ Paul S. Feeley
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Date Paul S. Feeley
Senior Vice President, Treasurer
and Chief Financial Officer