NEWS RELEASE
Contact: Paul S. Feeley For Release: Immediately
Senior Vice President, Treasurer &
Chief Financial Officer
(617) 628-4000
CENTRAL BANCORP, INC. REPORTS FINANCIAL
RESULTS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2008
SOMERVILLE, MASSACHUSETTS, November 4, 2008 - Central Bancorp, Inc.
(NASDAQ Global MarketSM:CEBK) (the "Company") today reported its financial
results for the three and six month periods ended September 30, 2008. These
financial results were significantly impacted by the September conservatorship
of the Federal National Mortgage Association ("Fannie Mae") and Federal Home
Loan Mortgage Corporation ("Freddie Mac") that caused a substantial write down
of the value of the Company's investment in the preferred stock of these
companies as previously announced. Net loss for the quarter ended September 30,
2008 was $9.5 million, or $6.80 per diluted share, as compared to net income of
$465,000, or $0.33 per diluted share, for the comparable prior year quarter. The
Company's loss for the six months ended September 30, 2008 was $9.1 million, or
$6.53 per diluted share, as compared to net income of $690,000, or $0.49 per
diluted share, for the corresponding period in 2007.
The non-cash charges to record the other than temporary impairment of
the Fannie Mae and Freddie Mac preferred stocks reduced earnings by $9.4 million
or $6.75 and $6.77 per diluted share for the quarter and year-to-date periods
ending September 2008 respectively. No tax benefit was recorded during the
periods as the losses were considered capital losses and there were no available
capital gains to offset such losses. However, in the quarter ending December 31,
2008, the Company will recognize a tax benefit of approximately $3.2 million or
$2.34 per share on the Fannie Mae and Freddie Mac impairment charges due to the
October 3, 2008 enactment of the Emergency Economic Stabilization Act of 2008,
which permits the Company to treat losses incurred on the Fannie Mae and Freddie
Mac preferred stock as ordinary losses for federal income tax purposes. In our
press release issued on September 12, 2008, we disclosed projections of certain
regulatory capital ratios. As of September 30, 2008, the Company and the Bank
remained well capitalized in all such measures except total risk based capital
which would be considered adequately capitalized at the Bank level. A summary of
regulatory capital ratios at September 30, 2008 follows:
At September 30, 2008
--------------------------------------------------
REGULATORY REGULATORY
THRESHOLD THRESHOLD
FOR WELL FOR ADEQUATELY
ACTUAL CAPITALIZED CAPITALIZED
------------- ---------------- ----------------
Central Bancorp:
Tier 1 Leverage 6.44% 5.0% 4.0%
Tier 1 Risk-Based Ratio 9.32% 6.0% 4.0%
Total Risk-Based Ratio 10.54% 10.0% 8.0%
Central Co-operative Bank:
Tier 1 Leverage 5.45% 5.0% 4.0%
Tier 1 Risk-Based Ratio 7.90% 6.0% 4.0%
Total Risk-Based Ratio 9.12% 10.0% 8.0%
Note: above ratios include tax benefits allowed by regulatory authorities.
For the quarter ended September 30, 2008, when compared to the quarter
ended September 30, 2007, net interest and dividend income of $4.2 million
represents an increase of $945,000, from $3.3 million. This increase was
primarily driven by a decline in net interest expense of $1.1 million. The net
interest rate spread and the net interest margin improved from 1.95% and 2.43%,
respectively, for the quarter ended September 30, 2007 to 2.82% and 3.14%,
respectively, for the 2008 comparable period. These increases were primarily
due to a 95 basis point decrease in the cost of funds, mainly due to decreases
in the average rates paid on deposits, as a result of aggressive liability
management, and Federal Home Loan Bank (FHLB) advances. During the quarter
ended September 30, 2008 as compared to the quarter ended September 30, 2007,
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 $171.8 million during the
quarter ended September 30, 2008, compared to $187.1 million for the same
period in 2007, a decline of $15.3 million. The average balance of FHLB
borrowings totaled $146.2 million during the quarter ended September 30, 2008,
compared to $135.6 million for the same period in 2007, an increase of $10.6
million. Additionally, the average balance of lower-costing non-maturity
deposits increased by $8.9 million to $185.9 million for the quarter ended
September 30, 2008, as compared to an average balance of $177.0 million during
the same period of 2007. The yield on interest-earning assets declined by 8
basis points.
The provision for loan losses totaled $900,000 for the quarter ended
September 30, 2008, compared to a negative provision for loan losses of $300,000
during the same period of 2007. The increase in the provision for the quarter
was primarily related to one customer relationship. 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.
Net gains (losses) from sales or write downs of investment securities
other than Fannie Mae or Freddie Mac write downs declined by $287,000, from a
gain of $172,000 during the comparable quarter last year to a loss of $115,000
this year, reflecting impairment of several securities that were deemed to be
other than temporary in the current stock market environment. Other income
increased by $75,000 primarily as a result of an investment in Bank Owned Life
Insurance. Non-interest operating expenses increased $223,000 or 6.6% primarily
due to increases in salaries and benefits and marketing expenses.
The effective income tax rate as calculated under SFAS 109 requires
certain projections to determine the effective tax rate expected for the year.
Those estimates were significantly altered by the actions relating to Fannie Mae
and Freddie Mac which in addition to the other than temporary impairment charges
for which the tax benefit cannot be recognized until the Company's fiscal third
quarter, the cessation of tax advantaged dividends on those securities had the
impact of increasing the projected effective tax rate for the year.
In addition to the losses relating to the Fannie Mae and Freddie Mac
preferred stock, items primarily affecting the earnings for the six months ended
September 30, 2008 when compared to the quarter ended September 30, 2007 were:
an increase in net interest income of $1.5 million; an increase in the provision
for loan losses of $1.4 million; a net change in sales and write-downs on other
securities of $432,000 and an increase in non-interest expenses of $315,000.
The net interest rate spread and the net interest margin improved from
1.97% and 2.44%, respectively, for the six months ended September 30, 2007 to
2.67% and 3.01%, respectively, for the 2008 comparable period.
Total assets were $541.8 million at September 30, 2008 and $571.2
million at March 31, 2008. The decrease in assets for the six months ended
September 30, 2008 relates primarily to a decrease in short-term investments of
$4.5 million and a decrease of $16.5 million in investment securities (including
the reduction in value of investment securities of $9.4 million due to the other
than temporary impairment charge for Fannie Mae and Freddie Mac preferred
stock). Deposits declined by $7.0 million and FHLB borrowings by $12.0 million
during this period. Total loans decreased by $12.2 million. Construction loans
declined by $8.8 million as management de-emphasized this type of lending in the
current market environment. Commercial and industrial loans also declined by
$7.1 million due to pay-offs of such loans, partially offset by an increase in
residential loans of $3.7 million. Deposits declined primarily because of
continuing strong competition for deposits in our market area. FHLB advances
decreased to $144.6 million at September 30, 2008 from $156.7 million at March
31, 2008.
Senior management continued to give high priority to monitoring the
Company's asset quality. At September 30, 2008, non-performing loans totaled
$10.3 million or 1.91% of total assets as compared to $9.3 million or 1.68% of
total assets at the same date in 2007. While bankruptcy filings continue to
extend the time required to resolve some non-performing assets, management
continues to work with borrowers and bankruptcy trustees to resolve these
situations as soon as possible. Management believes that there are adequate
reserves and collateral securing non performing loans to cover losses that may
result from these 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.
CONSOLIDATED OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended Six Months Ended
September 30, September 30,
------------------------------------------------
2008 2007 2008 2007
------------------------------------------------
(Unaudited) (Unaudited)
Net interest and dividend income $ 4,198 $ 3,253 $ 8,123 $6,593
Provision for loan losses 900 (300) 1,100 (300)
Net gain (loss) from sales or write-downs
of investment securities other than
FNMA or FHLMC (115) 172 (144) 288
Net loss from write-downs
of FNMA and FHLMC (9,394) -- (9,394) --
Gains on sales of loans 3 25 15 77
Other non-interest income 412 337 857 694
Non-interest expenses 3,606 3,383 7,214 6,899
------ -------- ------- ------
Income (loss) before taxes (9,402) 704 (8,857) 1,053
Provision for income taxes 64 239 208 363
------ -------- ------- ------
Net income (loss) $ (9,466) $ 465 $(9,065) $ 690
======== ======= ======= ======
Earnings (loss) per share:
Basic $ (6.80) $ .33 $ (6.53) $ .50
======== ======= ======= ======
Diluted $ (6.80) $ .33 $ (6.53) $ .49
======== ======= ======= ======
Weighted average number of
shares outstanding:
Basic 1,391 1,394 1,388 1,393
======== ======= ======= ======
Diluted 1,391 1,399 1,388 1,400
======== ======= ======= ======
Outstanding shares, end of period 1,640 1,640 1,640 1,640
======== ======= ======= ======
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, March 31,
2008 2008
--------------------------------
(Unaudited)
Total assets $541,752 $571,245
Short-term investments 7,429 11,888
Total investments 46,539 63,054
Total loans (1) 463,940 475,137
Allowance for loan losses 4,674 3,613
Deposits 354,061 361,089
Borrowings 144,798 156,832
Subordinated debentures 11,341 11,341
Stockholders' equity 28,588 38,816
Book value per share 17.43 23.67
Book equity to assets 5.28% 6.79%
Non-performing assets to total assets 1.93 1.68
(1) Includes loans held for sale of $1,240 and $195 at September 30, 2008
and March 31, 2008, respectively.
SELECTED FINANCIAL RATIOS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended Six Months Ended
September 30, September 30,
------------------------------------------------
2008 2007 2008 2007
------------------------------------------------
(Unaudited) (Unaudited)
Return on average assets (6.81)% 0.34 % (3.23)% 0.25 %
Return on average equity (99.95) 4.88 (46.57) 3.63
Interest rate spread 2.82 1.95 2.67 1.97
Net interest margin 3.14 2.43 3.01 2.44