NEWS RELEASE
FOR IMMEDIATE RELEASE
Contact: Paul S. Feeley
Senior Vice President, Treasurer
and Chief Financial Officer
(617) 628-4000
CENTRAL BANCORP, INC. ANNOUNCES IMPAIRMENT OF
FANNIE MAE AND FREDDIE MAC PREFERRED STOCK
Somerville, Massachusetts -- September 12, 2008 -- Central Bancorp,
Inc. (NASDAQ Global MarketSM: CEBK) (the "Company"), parent company of Central
Co-Operative Bank (the "Bank"), announced today that the U.S. government's
actions with respect to the Federal Home Loan Mortgage Corporation ("Freddie
Mac") and Federal National Mortgage Association ("Fannie Mae") will adversely
impact the value of the Company's perpetual preferred stock investments in
Fannie Mae and Freddie Mac.
On September 7, 2008, the U.S. Treasury, the Federal Reserve, and the
Federal Housing Finance Agency ("FHFA") announced that the FHFA was putting
Fannie Mae and Freddie Mac under conservatorship and giving management control
to their regulator, the FHFA. Key provisions of the U.S. Government's plan
announced to date are as follows:
o Dividends on Fannie Mae and Freddie Mac common and preferred stock were
eliminated;
o Fannie Mae and Freddie Mac will be required to reduce their mortgage
portfolios over time;
o The U.S. Government agreed to provide equity capital to cover mortgage
defaults in return for $1.0 billion of senior preferred stock in Fannie
Mae and Freddie Mac and warrants for the purchase of 79.9% of the
common stock of Fannie Mae and Freddie Mac; and
o The U.S. Government also announced that the U.S. Treasury would provide
secured loans to Fannie Mae and Freddie Mac as needed until the end of
2009 and that the U.S. Treasury plans to purchase mortgage backed
securities from Fannie Mae and Freddie Mac in the open market.
At June 30, 2008, the Company had five securities totaling $10.1
million of perpetual preferred stock of Fannie Mae and Freddie Mac which had an
unrealized loss of $799,000. The impact of the above actions and concerns in the
marketplace about the future value of the perpetual preferred stock of Fannie
Mae and Freddie Mac have caused the values of these investments to decrease
materially and it is unclear when or if the value of the investments will
improve in the future. Given the above developments, on September 11, 2008, the
Company concluded that it will record a non-cash other than temporary impairment
on these investments for the quarter ending September 30, 2008, the amount of
which is expected to equal the difference between the net book value of the
securities at September 30, 2008 and the market value of the securities at
September 30, 2008. As of the closing price on September 11, 2008, the market
value of these securities was approximately $890,600.
If the investments were valued at zero and if the Company was not able
to record a tax benefit for the loss, the resulting capital ratios would render
the Bank adequately capitalized because the Bank's total risk-based capital
ratio would fall below 10%. The impact on the Company's and Bank's capital
ratios would be as follows:
(UNAUDITED)
AT
JUNE 30, 2008
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REGULATORY REGULATORY
THRESHOLD THRESHOLD
FOR WELL FOR ADEQUATELY
ACTUAL PRO FORMA CAPITALIZED CAPITALIZED
-------------- ------------------- -------------- ----------------------
Central Bancorp:
Tier 1 Leverage 8.36% 6.66% 5.0% 4.0%
Tier 1 Risk-Based Ratio 11.38% 9.28% 6.0% 4.0%
Total Risk-Based Ratio 12.30% 10.22% 10.0% 8.0%
Central Co-operative Bank:
Tier 1 Leverage 7.01% 5.30% 5.0% 4.0%
Tier 1 Risk-Based Ratio 9.55% 7.40% 6.0% 4.0%
Total Risk-Based Ratio 10.47% 8.34% 10.0% 8.0%
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.
THIS NEWS RELEASE MAY CONTAIN FORWARD-LOOKING STATEMENTS ABOUT CENTRAL BANCORP,
INC., WHICH THE COMPANY INTENDS TO BE COVERED UNDER THE SAFE HARBOR PROVISIONS
CONTAINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. STATEMENTS
THAT ARE NOT HISTORICAL OR CURRENT FACTS, INCLUDING STATEMENTS ABOUT BELIEFS AND
EXPECTATIONS, ARE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS
COVER, AMONG OTHER THINGS, ANTICIPATED FUTURE REVENUE AND EXPENSES AND THE
FUTURE PLANS AND PROSPECTS OF THE COMPANY. THESE STATEMENTS OFTEN INCLUDE THE
WORDS "MAY," "COULD," "WOULD," "SHOULD," "BELIEVES," "EXPECTS," "ANTICIPATES,"
"ESTIMATES," "INTENDS," "PLANS," "TARGETS," "POTENTIALLY," "PROBABLY,"
"PROJECTS," "OUTLOOK" OR SIMILAR EXPRESSIONS. YOU ARE CAUTIONED THAT
FORWARD-LOOKING STATEMENTS INVOLVE UNCERTAINTIES, AND IMPORTANT FACTORS COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED, INCLUDING
CHANGES IN GENERAL BUSINESS AND ECONOMIC CONDITIONS, CHANGES IN INTEREST RATES,
LEGAL AND REGULATORY DEVELOPMENTS, INCREASED COMPETITION FROM BOTH BANKS AND
NON-BANKS, CHANGES IN CUSTOMER BEHAVIOR AND PREFERENCES, AND EFFECTS OF CRITICAL
ACCOUNTING POLICIES AND JUDGMENTS. FOR DISCUSSION OF THESE AND OTHER RISKS THAT
MAY CAUSE ACTUAL RESULTS TO DIFFER FROM EXPECTATIONS, REFER TO OUR ANNUAL REPORT
ON FORM 10-K AND OUR QUARTERLY REPORTS ON FORM 10-Q ON FILE WITH THE SEC,
INCLUDING THE SECTIONS ENTITLED "RISK FACTORS." THESE RISKS AND UNCERTAINTIES
SHOULD BE CONSIDERED IN EVALUATING FORWARD-LOOKING STATEMENTS AND UNDUE RELIANCE
SHOULD NOT BE PLACED ON SUCH STATEMENTS. FORWARD-LOOKING STATEMENTS SPEAK ONLY
AS OF THE DATE THEY ARE MADE, AND THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE
THEM IN LIGHT OF NEW INFORMATION OR FUTURE EVENTS.