Michael K. Devlin
Senior Vice President Immediately
(617) 628-4000
CENTRAL BANCORP REPORTS SECOND QUARTER EARNINGS
SOMERVILLE, MASSACHUSETTS, October 28, 2003-- Central Bancorp, Inc.
(NASDAQ: CEBK) today reported that its net income increased 24% to $830,000, or
$0.53 per diluted share, for the three months ended September 30, 2003, from
$668,000, or $0.42 per diluted share, for the corresponding quarter in the prior
fiscal year. The current quarter's results reflect an insurance recovery of
$214,000, net of related legal fees and taxes, attributable to the dispute with
certain shareholders, which was settled during the quarter. In addition, during
the quarter ended September 30, 2002, the Company incurred substantial costs in
connection with the contested election of directors at the annual meeting,
which, after taxes, reduced net income by approximately $190,000.
Earnings during the quarter ended September 30, 2003 were adversely
affected by a decrease in net interest income of $175,000, as compared to the
same quarter in the prior year. The gradual reduction in interest rates in
recent years had a greater relative impact on the Company's yield on earning
assets in the current fiscal year than on the cost of funds due to the limited
opportunity to reduce deposit rates and the fixed cost of FHLB advances. In
addition, the Company has sold the bulk of its current year fixed-rate
residential mortgage loan originations due to the historically low rates
prevailing during the period and invested the related proceeds on an overnight
basis. These factors led to a reduction in the net interest margin from 3.56% in
the quarter ended September 30, 2002 to 3.39% in the current quarter. In October
2003, the Company commenced a program to reinvest the majority of its overnight
funds in various intermediate-term investments and mortgage-backed securities in
order to increase its yield on earning assets.
For the six months ended September 30, 2003, net income increased 25% to
$2,118,000, or $1.36 per diluted share, from $1,695,000, or $1.05 per diluted
share in the year earlier period. Exclusive of the after-tax impact of $374,000
resulting from the
(continued)
Central Bancorp, Inc.
Page 2 of 3
Company's June 2003 settlement of its REIT-related tax liability with the
Massachusetts Department of Revenue and the aforementioned net insurance
recovery, which increased earnings $276,000 in the first half of the current
year, net income declined $227,000 compared to the year earlier period. This
reduction was largely the result of a $346,000 decrease in net interest income
in the first half of the current year, as compared to the prior year period.
John D. Doherty, Chairman, President & Chief Executive Officer, stated,
"The current interest-rate environment continues to create compression in our
net interest margin. We believe that our strategy of selling nearly all of our
current year originations of fixed-rate residential mortgage loans is sound. We
recently began to reinvest a portion of the nearly $47 million in overnight
investments held at September 30, 2003, which is expected to improve the yield
on our investments during the remainder of the fiscal year. With the increase in
mortgage rates during the current quarter, residential loan refinancing activity
has declined significantly, which is expected to adversely affect the volume of
loan sales in the second half of the year."
During the current quarter, the Company originated $15.2 million in
commercial real estate and construction loans. At September 30, 2003, the
Company had nearly $154 million in outstanding commercial real estate and
construction loans, representing 43% of the total loan portfolio. Loan quality
continued to be outstanding with no loans delinquent in excess of 90 days at
September 30, 2003.
Central Bancorp, Inc. is the holding company for Central Bank, whose legal
name is Central Co-operative Bank, a Massachusetts-chartered co-operative bank
operating eight full-service banking offices and one limited-service high school
branch in suburban Boston.
(See accompanying tables.)
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This press release contains financial information determined by methods other
than in accordance with accounting methods generally accepted in the United
States of America ("GAAP"). The Company's management uses these non-GAAP
measures in its analysis of the Company's performance. These measures typically
adjust GAAP performance measures to exclude the effects of significant gains or
losses that are unusual in nature. Because these items and their impact on the
Company's performance are difficult to predict, management believes that
presentations of financial measures excluding the impact of these items provide
useful supplemental information that is essential to a proper understanding of
the operating results of the Company's business. These disclosures should not be
viewed as a substitute for operating results determined in accordance with GAAP,
nor are they necessarily comparable to non-GAAP performance which may be
presented by other companies.
This press release may contain certain forward-looking statements, which
are based on management's current expectations regarding economic, legislative
and regulatory issues that may impact the Company's earnings in future periods.
Factors that could cause future results to vary materially from current
management expectations include, but are not limited to, general economic
conditions, changes in interest rates, deposit flows, real estate values and
competition; changes in accounting principles, policies or guidelines; changes
in legislation or regulation; and other economic, competitive, governmental,
regulatory and technological factors affecting the Company's operations,
pricing, products and services.
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Central Bancorp, Inc.
Page 3 of 3
CENTRAL BANCORP, INC.
CONSOLIDATED OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended Six Months Ended
September 30, September 30,
-------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------
(Unaudited) (Unaudited)
Net interest and dividend income $3,941 $4,116 $ 8,050 $ 8,396
Provision for loan losses 50 -- 100 --
Net loss on sales and write-downs
of investment securities (130) (221) (135) (210)
Gain on sale of loans 68 1 209 1
Other non-interest income 230 278 503 490
Non-interest expenses 2,761 3,132 5,759 6,023
------ ------ ------- -------
Income before taxes 1,298 1,042 2,768 2,654
Provision for income taxes 468 374 650 959
------ ------ ------- -------
Net income $ 830 $ 668 $ 2,118 $ 1,695
====== ====== ======= =======
Earnings per share:
Basic $ .54 $ 0.42 $ 1.37 $ 1.06
====== ====== ======= ======
Diluted $ .53 $ 0.42 $ 1.36 $ 1.05
====== ====== ======= ======
Weighted average number of
shares outstanding:
Basic 1,549 1,585 1,547 1,592
====== ====== ======= ======
Diluted 1,563 1,600 1,561 1,609
====== ====== ======= ======
RECONCILIATION OF GAAP EARNINGS
TO PRO FORMA EARNINGS:
Net income per GAAP $ 830 $ 668 $ 2,118 $ 1,695
Impact of REIT legislation, net of taxes -- -- (374) --
Impact of litigation and legal fees,
net of insurance and taxes (214) -- (276) --
------ ------ ------- -------
Pro forma earnings $ 616 $ 668 $ 1,468 $ 1,695
====== ====== ======= =======
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
SEPTEMBER 30, MARCH 31,
2003 2003
-------------------------------
(UNAUDITED)
Total assets $ 478,382 $ 477,208
Total loans (1) 354,126 390,464
Allowance for loan losses 3,389 3,284
Deposits 284,515 287,959
Borrowings 144,427 144,576
Stockholders' equity 42,536 39,443
(1) Includes loans held for sale of $4,152 and $647 at September 30, 2003
and March 31, 2003, respectively.