NEWS RELEASE
Contact: Paul S. Feeley For Release: Immediately
Senior Vice President, Treasurer &
Chief Financial Officer
(617) 628-4000
CENTRAL BANCORP REPORTS
QUARTERLY EARNINGS
SOMERVILLE, MASSACHUSETTS, November 6, 2007 - Central Bancorp, Inc.
(NASDAQ Global MarketSM:CEBK) (the "Company") today reported that its net income
for the quarter ended September 30, 2007 increased to $465,000, or $0.33 per
diluted share, from net income of $351,000, or $0.24 per diluted share, in the
comparable prior year quarter. The Company's earnings for the six months ended
September 30, 2007 improved to $690,000, or $0.49 per diluted share, from
$464,000, or $.32 per diluted share, for the corresponding period of 2006.
The increase in net income for the September 2007 quarter primarily
resulted from a $404,000 decrease in non-interest expenses, mainly for personnel
and marketing costs, and a $300,000 negative provision for loan losses during
the current quarter. Partially offsetting the foregoing improvements was a
$623,000 decline in net interest and dividend income, which reflected the impact
of the continuing flat to inverted yield curve during much of the quarter and
strong local competition for deposits and loans in the Company's market area,
which resulted in an increase in the cost of funds and a decline in the yield on
interest-earning assets.
The net interest rate spread and the net interest margin declined from
2.45% and 2.91%, respectively, for the quarter ended September 30, 2006 to 1.95%
and 2.43%, respectively, for the 2007 comparable period. While the cost of funds
increased by 22 basis points, the yield on interest-earning assets declined by
28 basis points. Interest-bearing liabilities continued to re-price upward
faster than interest-earning assets, primarily due to the combined effect of the
prolonged flat to inverted yield curve environment and continued strong
competition for both
(continued)
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Central Bancorp, Inc.
Page 2 of 5
deposits and loans in the Company's market area. Although there was some
steepening of the Treasury yield curve near the end of the quarter, competitive
pressures have a more direct impact on the Company's asset yields and deposit
costs. Notwithstanding the Federal Reserve interest rate cut near the end of the
quarter, there is a lag time before we can expect to see a significant impact of
the rate cuts on the earnings stream of the Company.
The provisions for loan losses were $(300,000) and $0, respectively, for
the quarters ended September 30, 2007 and 2006. The Company provides for loan
losses in order to maintain the allowance for loan losses at a level that
management estimates is adequate to absorb probable losses based on an
evaluation of known and inherent risks in the portfolio. In determining the
appropriate level of the allowance for loan losses, the Company considers past
and anticipated loss experience, evaluations of underlying collateral,
prevailing economic conditions, the nature and volume of the loan portfolio and
the levels of non-performing and other classified loans. Based on recent Company
loan loss experience and trends in the various categories of loans made by the
Company, and following revised guidance from Federal regulatory authorities,
management deemed it appropriate to record a reduction in the allowance for loan
and lease losses during the quarter ended September 30, 2007 as compared to no
provision during the corresponding prior year period. Management evaluates the
level of the loan loss reserve on a regular basis and considered the allowance
for loan losses to be adequate during both periods.
Non-interest expense declined by $404,000 as compared to the same quarter
last year due primarily to lower levels of staffing, the fact that no raises
were granted as would normally have been the case as of April 1, 2007, and a
substantial decrease in marketing costs.
Higher pre-tax income caused income tax expense for the September 30, 2007
quarter to increase $54,000 from the corresponding 2006 period.
The improved net income for the six months ended September 30, 2007
primarily resulted from a $734,000 decrease in non-interest expenses, mostly for
employee costs and marketing, and a $350,000 decrease in the provision for loan
losses, mainly attributable to the $300,000 reduction recorded in the September
2007 quarter, as discussed above. These improvements were partially offset by an
$861,000 decline in net interest and dividend income.
(continued)
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Central Bancorp, Inc.
Page 3 of 5
The net interest rate spread and the net interest margin declined from
2.38% and 2.82%, respectively, for the six months ended September 30, 2006 to
1.97% and 2.44%, respectively, for the 2007 comparable period. While the cost of
funds increased by 36 basis points, the yield on interest-earning assets
declined by 5 basis points.
The provision for income taxes for the six months ended September 30, 2007
rose to $363,000, compared to the $244,000 provision for the six months ended
September 30, 2006, reflecting the higher pre-tax income reported in the 2007
period.
Total assets were $552.7 million at September 30, 2007 and $566.1 million
at March 31, 2007. During the six months ended September 30, 2007, short-term
investments decreased by $8.6 million and investment securities decreased by
$2.3 million as a result of the redeployment of these funds to offset the impact
of the deposit decline of $29.6 million. Deposits decreased from $388.6 million
at March 31, 2007 to $359.0 million at September 30, 2007. Deposits declined
primarily because of continuing strong competition for deposits in our market
area, particularly for certificates of deposit which declined $36.8 million from
$217.9 million at March 31, 2007 to $181.1 at September 30, 2007. The decrease
in term deposits is primarily the result of the Bank's strategy to discontinue
advertising premium rates on certificates of deposit and to instead utilize more
cost-effective Federal Home Loan Bank ("FHLB") advances as a funding source.
During the current fiscal year, the Company has also taken advantage of
favorable FHLB advance rates to partially offset the decline in certificates of
deposits. FHLB advances increased to $140.0 million at September 30, 2007. The
Company continued to offer lower rates on certificates of deposits than in prior
periods and substantially reduced related marketing costs by discontinuing its
advertising of premium rates on certificates of deposit. Total loans declined by
$2.9 million as the Company continued to sell newly originated residential loans
in the secondary markets that do not meet the Company's rate or underwriting
requirements.
(continued)
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Central Bancorp, Inc.
Page 4 of 5
Senior management continued to give high priority to monitoring the
Company's asset quality by focusing on early detection of potentially problem
loans. At September 30, 2007, non-performing loans totaled $9.3 million as
compared to $1.6 million at the same date in 2006. Net interest income not
recognized on non-accrual loans during the quarter amounted to $162,000. The
increase is primarily the result of two construction loan projects on
non-accrual status that are nearing completion. The borrower on one of these
projects has filed for chapter 11 bankruptcy which will delay the ultimate
repayment of this loan. The other major project represents a construction loan
for two large homes in an affluent suburban location. One property is on the
market and the other is nearing completion and expected to be on the market in
the near future. Management continues to work with the borrowers and the
bankruptcy trustees to resolve these situations as soon as possible. Management
believes that there are adequate reserves and collateral securing these loans to
cover losses that may result from non-performing loans.
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 nine full-service banking offices, a limited service high school
branch in suburban Boston and a standalone 24-hour automated teller machine in
Somerville.
(See accompanying tables.)
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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 5 of 5
<Table>
<Caption>
CENTRAL BANCORP, INC.
CONSOLIDATED OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended Six Months Ended
September 30, September 30,
------------------ ------------------
2007 2006 2007 2006
------------------ ------------------
(Unaudited) (Unaudited)
Net interest and dividend income $3,253 $3,876 $6,593 $7,454
Provision for loan losses (300) 0 (300) 50
Net gain from sales and write-downs
of investment securities 172 116 288 228
Gains on sales of loans 25 25 77 59
Other non-interest income 337 306 694 650
Non-interest expenses 3,383 3,787 6,899 7,633
------ ------- ------- -------
Income before taxes 704 536 1,053 708
Provision for income taxes 239 185 363 244
------ ------- ------- -------
Net income $ 465 $ 351 $ 690 $ 464
------ ------- ------- -------
Earnings per share:
Basic $ .33 $ .24 $ .50 $ .32
------ ------- ------- -------
Diluted $ .33 $ .24 $ .49 $ .32
------ ------- ------- -------
Weighted average number of
shares outstanding:
Basic 1,394 1,444 1,393 1,442
------ ------- ------- -------
Diluted 1,399 1,457 1,400 1,455
------ ------- ------- -------
Outstanding shares, end of period 1,640 1,591 1,640 1,591
------ ------- ------- -------
</Table>
<Table>
<Caption>
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
September 30, March 31,
2007 2007
-------------------------------
(Unaudited)
Total assets $552,710 $566,140
Short-term investments 5,872 14,470
Total investments 72,375 74,705
Total loans (1) 458,200 461,117
Allowance for loan losses 3,378 3,881
Deposits 358,996 388,573
Borrowings 140,823 125,712
Subordinated debenture 11,341 11,341
Stockholders' equity 38,550 37,702
Book value per share 23.51 22.99
Equity to assets 6.97% 6.66%
Non-performing assets to total assets 1.68 0.06
</Table>
(1) Includes loans held for sale of $0 and $575 at September 30, (2007)
and March 31, 2007, respectively.
<Table>
<Caption>
SELECTED FINANCIAL RATIOS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended Six Months Ended
September 30, September 30,
------------------ ------------------
2007 2006 2007 2006
------------------ ------------------
(Unaudited) (Unaudited)
Return on average assets 0.34 % 0.26 % 0.25 % 0.1%
Return on average equity 4.88 3.55 3.63 2.35
Interest rate spread 1.95 2.45 1.97 2.38
Net interest margin 2.43 2.91 2.44 2.82
</Table>