NEWS RELEASE
Contact: Paul S. Feeley For Release: Immediately
Senior Vice President, Treasurer &
Chief Financial Officer
(617) 628-4000
CENTRAL BANCORP REPORTS
EARNINGS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2007
SOMERVILLE, MASSACHUSETTS, February 6, 2008 - Central Bancorp, Inc.
(NASDAQ Global MarketSM:CEBK) (the "Company") today reported that its net income
for the quarter ended December 31, 2007 increased to $656,000, or $0.48 per
diluted share, from net income of $514,000, or $0.35 per diluted share, for the
comparable prior year quarter. The Company's earnings for the nine months ended
December 31, 2007 improved to $1.3 million, or $0.99 per diluted share, from
$978,000, or $.67 per diluted share, for the corresponding period in 2006.
The increase in net income for the December 2007 quarter primarily
resulted from a $228,000 increase in net gains from the sales of investment
securities, which was offset partially by a $163,000 decline in net interest and
dividend income. The lower net interest and dividend income continued to reflect
the strong local competition for deposits and loans in the Company's market area
and the effect of non-accrual loans.
The net interest rate spread and the net interest margin declined from
2.16% and 2.66%, respectively, for the quarter ended December 31, 2006 to 2.11%
and 2.58%, respectively, for the 2007 comparable period. The cost of funds
decreased by 8 basis points as some high-cost certificates of deposit were
replaced with more cost-effective Federal Home Loan Bank (FHLB) borrowings and
lower-costing deposits. The average balance of certificates of deposit totaled
$181.1 million during the quarter ended December 31, 2007, compared to $222.1
million for the same period in 2006, a decline of $41.0 million. The average
balance of FHLB borrowings totaled $138.7 million during the quarter ended
December 31, 2007,
Central Bancorp, Inc.
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compared to $123.8 million for the same period in 2006, an increase of $14.9
million. Additionally, the average balance of lower-costing non-maturity
deposits increased by $17.3 million to $139.6 million for the quarter ended
December 31, 2007, as compared to an average balance of $122.3 million during
the same period of 2006. The yield on interest-earning assets declined by 12
basis points primarily due to foregone interest income on non-accrual loans,
which totaled $131,000.
There were no provisions for loan losses for the quarters ended
December 31, 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. 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.
Pre-tax income of $903,000 for the quarter ended December 31, 2007 was
$118,000 higher than pre-tax income of $785,000 for the same period in 2006.
However, the effective tax rate was reduced because of tax-advantaged
transactions during the quarter which resulted in a $24,000 reduction in the
provision for income taxes. This expense amounted to $247,000 for the quarter
ended December 31, 2007 compared to $271,000 for the same period of 2006.
The improved net income for the nine months ended December 31, 2007
primarily resulted from a $705,000 decrease in non-interest expenses, mostly
attributable to a $624,000 decrease in employee costs and marketing; a $350,000
decrease in the provision for loan losses, mainly attributable to the $300,000
negative provision recorded in the September 2007 quarter that reflected our
loan-loss experience and trends in the various categories of the Company's
loans; a $288,000 increase in net gains on sales of investment securities; and a
$59,000 increase in gains on sales of loans. These improvements were partially
offset by a $1.0 million decline in net interest and dividend income primarily
as a result of the increased cost of funds and the impact of non-accrual loans.
Central Bancorp, Inc.
Page 3 of 5
The net interest rate spread and the net interest margin declined from
2.29% and 2.74%, respectively, for the nine months ended December 31, 2006 to
2.01% and 2.48%, respectively, for the 2007 comparable period. The cost of funds
increased by 21 basis points primarily due to increases in the average rates
paid on money market deposit accounts and certificates of deposit, which were
3.79% and 4.40%, respectively, for the nine months ended December 31, 2007,
compared to 2.01% and 4.29%, respectively, for the same period in 2006. The
yield on interest-earning assets declined by 7 basis points primarily due to
foregone interest income on non-accrual loans, which totaled $369,000 for the
nine months ended December 31, 2007.
The provision for income taxes for the nine months ended December 31,
2007 rose to $610,000, compared to the $515,000 provision for the nine months
ended December 31, 2006, reflecting the higher pre-tax income reported in the
2007 period, partially offset by the lower effective tax rate that resulted from
tax-advantaged transactions that occurred during the quarter ended December 31,
2007.
Total assets were $554.7 million at December 31, 2007 and $566.1
million at March 31, 2007. During the nine months ended December 31, 2007,
short-term investments decreased by $12.6 million and investment securities
decreased by $10.8 million as a result of the redeployment of these funds to
offset the impact of a deposit decline of $33.7 million during this period.
Deposits decreased from $388.6 million at March 31, 2007 to $354.9 million at
December 31, 2007. Deposits declined primarily because of continuing strong
competition for deposits in our market area, particularly with respect to
certificates of deposit, which declined $38.8 million from $217.9 million at
March 31, 2007 to $179.1 million at December 31, 2007. The decrease in
certificates of deposit is primarily the result of the Bank's strategy to
discontinue advertising premium rates on certificates of deposit, realizing a
savings in marketing expense, and to instead utilize more cost-effective FHLB
advances as a funding source. FHLB advances increased to $145.8 million at
December 31, 2007 from $125.0 million at March 31, 2007. Total loans increased
by $6.7 million, including increases in commercial real estate loans of $9.4
million and commercial and industrial loans of $7.2 million, which were
partially offset by decreases in construction loans of $5.9 million and
residential loans of $3.7 million.
Central Bancorp, Inc.
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Senior management continued to give high priority to monitoring the
Company's asset quality during the three and nine months ended December 31,
2007. At December 31, 2007, non-performing loans totaled $9.3 million as
compared to $300,000 at the same date in 2006. While bankruptcy filings have
extended the time to resolve some non-performing assets, management continues to
work with borrowers and bankruptcy trustees to resolve these situations as soon
as possible. The level of non-performing assets, which represented 1.67% of
total assets at December 31, 2007, is virtually unchanged from September 30,
2007. 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
CENTRAL BANCORP, INC.
CONSOLIDATED OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended Nine Months Ended
December 31, December 31,
-----------------------------------------------
2007 2006 2007 2006
-----------------------------------------------
(Unaudited) (Unaudited)
Net interest and dividend income $ 3,457 $ 3,620 $ 10,050 $ 11,080
Provision for loan losses 0 0 (300) 50
Net gain from sales of investment
securities 359 131 647 359
Gains on sales of loans 41 0 118 59
Other non-interest income 386 344 1,080 989
Non-interest expenses 3,340 3,310 10,239 10,944
------- ------- -------- --------
Income before taxes 903 785 1,956 1,493
Provision for income taxes 247 271 610 515
------- ------- -------- --------
Net income $ 656 $ 514 $ 1,346 $ 978
======= ======= ======== ========
Earnings per share:
Basic $ .48 $ .36 $ 1.00 $ .68
======= ======= ======== ========
Diluted $ .48 $ .35 $ .99 $ .67
======= ======= ======== ========
Weighted average number of
shares outstanding:
Basic 1,354 1,448 1,347 1,445
======= ======= ======== ========
Diluted 1,358 1,463 1,354 1,459
======= ======= ======== ========
Outstanding shares, end of period 1,640 1,640 1,640 1,640
======= ======= ======== ========
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31, March 31,
2007 2007
---------------------------
(Unaudited)
Total assets $ 554,671 $ 566,140
Short-term investments 1,893 14,470
Total investments 63,882 74,705
Total loans (1) 467,820 461,117
Allowance for loan losses 3,379 3,881
Deposits 354,867 388,573
Borrowings 146,243 125,712
Subordinated debenture 11,341 11,341
Stockholders' equity 39,177 37,702
Book value per share 23.89 22.99
Equity to assets 7.06% 6.66%
Non-performing assets to total assets 1.67 0.06
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(1) Includes loans held for sale of $0 and $575 at December
31, (2007) and March 31, 2007, respectively.
SELECTED FINANCIAL RATIOS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended Nine Months Ended
December 31, December 31,
------------------------------------------------
2007 2006 2007 2006
------------------------------------------------
(Unaudited) (Unaudited)
Return on average assets 0.48% 0.37% 0.32% 0.24%
Return on average equity 6.76 5.09 4.67 3.26
Interest rate spread 2.11 2.16 2.01 2.29
Net interest margin 2.58 2.66 2.48 2.74