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 NINE MONTHS ENDED
DECEMBER 31, 2009
SOMERVILLE, MASSACHUSETTS, January 29, 2010 - Central Bancorp, Inc.
(NASDAQ Global MarketSM:CEBK) (the "Company") today reported that its net
income for the quarter ended December 31, 2009 totaled $366 thousand, or $0.14
per diluted share, as compared to net income of $3.9 million, or $2.76 per
diluted share, for the comparable prior year quarter. The Company's net income
for the nine months ended December 31, 2009 was $1.3 million, or $0.54 per
diluted share, as compared to net loss of $5.1 million, or $3.73 per diluted
share, for the corresponding period in 2008. The financial results for both
2008 periods were significantly impacted by the September 2008 conservatorship
of the Federal National Mortgage Association ("Fannie Mae") and Federal Home
Loan Mortgage Corporation ("Freddie Mac") that resulted in a $9.4 million
impairment of the value of the Company's investment in the preferred stock of
those companies. No tax benefit was recorded during the quarter ended September
2008 in connection with the impairment charge as the losses were initially
considered capital losses and there were insufficient capital gains to offset
such losses. However, during the subsequent quarter ended December 31, 2008,
the Company recognized a tax benefit of approximately $3.5 million 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 permitted
the Company to treat losses incurred on the Fannie Mae and Freddie Mac
preferred stock as ordinary losses for federal income tax purposes.
Central Bancorp, Inc.
Page 2 of 8
Pre-tax income for the quarter ended December 31, 2009 totaled $673
thousand, which represents an increase of $117 thousand or 21.0% when compared
to pre-tax income of $556 thousand for the comparable quarter of 2008. Net
interest and dividend income totaled $4.4 million during the quarter ended
December 31, 2009 compared to $3.9 million during the quarter ended December
31, 2008. Interest income totaled $7.1 million during the quarter ended
December 31, 2009, which represents a decrease of $330 thousand as compared to
interest income of $7.4 million during the quarter ended December 31, 2008.
This decrease in interest income was largely offset by a $792 thousand decrease
in interest expense, which totaled $2.7 million during the quarter ended
December 31, 2009 compared to $3.5 million during the quarter ended December
31, 2008. The aforementioned comparative decreases in interest income and
interest expense are attributable to the following net interest rate spread and
net interest margin discussion as follows. The net interest rate spread and the
net interest margin were 3.06% and 3.35%, respectively, for the quarter ended
December 31, 2009 compared to 2.71% and 3.01%, respectively, for the quarter
ended December 31, 2008, with the changes in these ratios resulting from rate
and volume changes as follows. The cost of funds decreased by 64 basis points
mainly due to a general decline in interest rates and aggressive liability
management. During the quarter ended December 31, 2009, the yield on
interest-earning assets declined by 29 basis points primarily due to a 149
basis point decrease in interest income on investments and a 20 basis point
reduction in the yield on mortgage loans. The reduced yield on investments
during the quarter ended December 31, 2009 was primarily due to the combined
effect of: (1) a change in the mix of investment securities due to management's
strategic decision to purchase U. S. Government-guaranteed Ginnie Mae
mortgage-backed securities with the proceeds of certain maturing, higher-risk
investments; and (2) a reduction of $54 thousand in FHLB stock dividends due to
the FHLB of Boston's elimination of its dividend in February 2009. The reduced
yield on mortgage loans was due to a change in the mix of this portfolio to
residential loans from commercial real estate and construction loans as
management de-emphasized these types of lending as a result of the current
market environment.
Central Bancorp, Inc.
Page 3 of 8
The provision for loan losses for the quarter ended December 31, 2009
totaled $100 thousand compared to a provision for loan losses of $0 during the
quarter ended December 31, 2008. 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, among other things, past and
anticipated loss experience, evaluations of underlying collateral, prevailing
economic conditions, changes in staff depth and experience, 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
the quarter ended December 31, 2009. However, management's ability to predict
future results is inherently uncertain and future increases to the allowance for
loan losses may be necessary due to changes in loan composition or volume,
changes in economic market area conditions, regulatory considerations, or other
factors.
Non-interest income decreased by $53 thousand from $432 thousand during
the quarter ended December 31, 2008 to $379 thousand during the quarter ended
December 31, 2009. The aforementioned decrease was primarily the result of loss
on write-downs on investment securities totaling $81 thousand during the quarter
ended December 31, 2009 compared to $0 during the quarter ended December 31,
2008, partially offset by gains on the sale of loans which increased from $30
thousand during the quarter ended December 31, 2008 to $63 thousand during the
quarter ended December 31, 2009 due to increased loan origination and sale
activity during the 2009 period.
Non-interest expenses increased by $192 thousand to $4.0 million during
the quarter ended December 31, 2009 as compared to $3.8 million during the
quarter ended December 31, 2008. Items primarily contributing to this net
increase were a $473 thousand increase in FDIC insurance premium expense,
partially offset by decreases in foreclosure and collection expenses of $188
thousand, and marketing expenses of $88 thousand.
The effective income tax rate for the quarter ended December 31, 2009
was 45.6%, which included a $93 thousand provision for income taxes due to a
discrete item related to employee benefits. The benefit for income taxes of $3.4
million during the quarter ended December 31, 2008 was primarily the result of a
tax benefit of approximately $3.5 million on Fannie Mae and Freddie Mac
impairment losses recorded during the quarter ended September 30, 2008, as
previously mentioned.
Central Bancorp, Inc.
Page 4 of 8
In addition to the losses relating to the Fannie Mae and Freddie Mac
preferred stock, items primarily affecting the Company's earnings for the nine
months ended December 31, 2009 when compared to the nine months ended December
31, 2008 were: an increase in net interest income of $372 thousand primarily
resulting from an overall 50 basis point decrease in the cost of
interest-bearing liabilities; a decrease in the provision for loan losses of
$750 thousand primarily resulting from provisions for loan losses related to one
borrower which totaled $1.1 million during the nine months ended December 31,
2008 and the absence of such a provision in the 2009 period; a decrease in net
loss on sales and write-downs of other securities of $63 thousand; an increase
in the gain on sale of loans of $199 thousand; and a decrease in other
non-interest income of $98 thousand primarily due to a $35 thousand decrease in
brokerage income and a $60 thousand loss on the sale of foreclosed property.
Additionally, non-interest expenses increased by $385 thousand primarily due to
a $926 thousand increase in FDIC insurance premiums, partially offset by
decreases in salaries and benefits of $324 thousand, marketing expenses of $93
thousand, and occupancy expenses of $65 thousand.
The net interest rate spread and the net interest margin improved from
2.66% and 3.00%, respectively, for the nine months ended December 31, 2008 to
2.82% and 3.12%, respectively, for the 2009 comparable period, primarily due to
a 50 basis point reduction in the cost of funds, partially offset by a 34 basis
point decrease in the average rate earned on interest-earning assets.
Total assets were $558.4 million at December 31, 2009 compared to
$575.8 million at March 31, 2009, a decrease of $17.4 million. Generally, during
the nine month period, management utilized short-term investments and FHLB
borrowings to fund loans, investment purchases and certain maturing deposits.
Cash on hand decreased by $45 thousand, short-term investments decreased by
$23.9 million, and investment securities increased by $2.6 million. Total loans
increased by $6.9 million as commercial real estate loans decreased by $20.0
million and construction loans declined by $10.4 million as management
de-emphasized these types of lending as a result of the current market
environment. Residential and home equity loans increased by $38.6 million, from
$190.7 million at March 31, 2009 to $229.3 million at December 31, 2009 due to
management's increased emphasis on this type of lending. Commercial and
industrial loans decreased from $4.8 million at March 31, 2009 to $3.8 million
at December 31, 2009. Deposits decreased by $30.6 million due to a decrease in
certificates of deposit of $40.1 million, partially offset by a net increase in
core deposits of $9.5 million. To reduce excess short-term investments,
management strategically did not renew certain maturing certificates of deposit
which included $23.7 million of short-term municipal deposits. FHLB advances
increased by $10.9 million to $155.5 million at December 31, 2009 from $144.6
million at March 31, 2009 as the Company strategically borrowed at favorable
rates to meet current and projected cash flow needs.
Central Bancorp, Inc.
Page 5 of 8
The net increase in stockholders' equity from $40.2 million at March
31, 2009 to $43.6 million at December 31, 2009 is primarily the result of a $2.3
million decrease in accumulated other comprehensive income resulting from net
increases in the market values of available for sale securities, and net income
of $1.3 million.
The Company's and the Bank's capital ratios at December 31, 2009 and
March 31, 2009 were as follows:
---------------------------------------------------
REGULATORY
THRESHOLD
FOR WELL
December 31, 2009 March 31, 2009 CAPITALIZED
------------------ --------------- -------------
Central Bancorp:
Tier 1 Leverage 8.84% 7.77% 5.0%
Tier 1 Risk-Based Ratio 13.26% 11.56% 6.0%
Total Risk-Based Ratio 14.04% 12.41% 10.0%
Central Co-operative Bank:
Tier 1 Leverage 7.65% 6.61% 5.0%
Tier 1 Risk-Based Ratio 11.50% 9.84% 6.0%
Total Risk-Based Ratio 12.27% 10.69% 10.0%
At December 31, 2009, non-performing assets totaled $5.1 million, or
0.92% of total assets, as compared to non-performing assets of $7.8 million, or
1.35% of total assets, at March 31, 2009. This decrease is primarily
attributable to the sales of two parcels of residential other real estate owned
which totaled $2.7 million. At December 31, 2009, other real estate owned
totaled $77 thousand compared to a balance of $3.0 million at March 31, 2009.
While bankruptcy filings continue to extend the time required to resolve some
non-performing loans, management continues to work with borrowers and bankruptcy
trustees to resolve these situations as soon as possible. Management currently
believes that there are adequate reserves and collateral securing non-performing
loans to cover losses that may result from these loans. However, management's
ability to predict future results is inherently uncertain and future increases
to the allowance for loan losses may be necessary due to changes in loan
composition or volume, changes in economic market area conditions, regulatory
considerations, or other factors.
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.)
Central Bancorp, Inc.
Page 6 of 8
This press release, as well as other written communications made from
time to time by Central Bancorp, Inc. and Central Co-operative Bank, and oral
communications made from time to time by authorized officers of the Company and
Bank, may contain statements relating to the future results of the Company
(including certain projections, such as earnings projections, necessary tax
provisions, and business trends) that are considered "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995
(the "PSLRA"). Such forward-looking statements may be identified by the use of
such words as "intend," "believe," "expect," "should," "planned," "estimated"
and "potential." For these statements, the Company claims the protection of the
safe harbor for forward-looking statements contained in the PSLRA. The Company's
ability to predict future results is inherently uncertain and the Company
cautions you that a number of important factors could cause actual results to
differ materially from those currently anticipated in any forward-looking
statement. These factors include, among others, changes in market interest rates
and general and regional economic conditions, changes in government regulations,
changes in accounting principles and the quality or composition of the loan and
investment portfolios. Additional factors that may affect our results are
discussed under "Item 1A Risk Factors" in the Company's Quarterly Reports on
Form 10-Q and in its Annual Report on Form 10-K, each filed with the Securities
and Exchange Commission (the "SEC"), which are available at the SEC's website
(www.sec.gov) and to which reference is hereby made. These factors should be
considered in evaluating the forward-looking statements. Stockholders are
cautioned not to place undue reliance on such statements, which speak only as of
the date of those documents. All subsequent written and oral forward-looking
statements attributable to us or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements above. Except to the
extent required by applicable law or regulation, the Company does not undertake
any obligation to update any forward-looking statement to reflect circumstances
or events that occur after the date the forward-looking statements are made.
Central Bancorp, Inc.
Page 7 of 8
CENTRAL BANCORP, INC.
CONSOLIDATED OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------------------------------
2009 2008 2009 2008
--------------------- -----------------------
(Unaudited) (Unaudited)
Net interest and dividend income $ 4,377 $ 3,915 $ 12,410 $ 12,038
Provision for loan losses 100 -- 350 1,100
Net loss from sales or write-downs
of investment securities other than
FNMA or FHLMC (81) -- (81) (144)
Net loss from write-downs
of FNMA and FHLMC -- -- -- (9,394)
Gains on sales of loans 63 30 244 45
Other non-interest income 397 402 1,161 1,259
Non-interest expenses 3,983 3,791 11,390 11,005
------- ------- -------- --------
Income (loss) before taxes 673 556 1,994 (8,301)
Provision (benefit) for income taxes 307 3,361 726 (3,153)
------- ------- -------- --------
Net income (loss) $ 366 $ 3,917 $ 1,268 $ (5,148)
======= ======= ======== ========
Net income (loss) available to common
shareholders $ 213 $ 3,872 $ 809 $ (5,193)
======= ======= ======== ========
Earnings (loss) per share:
Basic $ 0.15 $ 2.76 $ 0.56 $ ( 3.73)
======= ======= ======== ========
Diluted $ 0.14 $ 2.76 $ 0.54 $ ( 3.73)
======= ======= ======== ========
Weighted average number of shares
outstanding:
Basic 1,457 1,404 1,452 1,394
======= ======= ======== ========
Diluted 1,512 1,404 1,487 1,394
======= ======= ======== ========
Outstanding shares, end of period 1,637 1,640 1,637 1,640
======= ======= ======== ========
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER MARCH 31,
2009 2009
---------------------
(Unaudited)
Total assets $558,411 $575,827
Short-term investments 13,420 37,323
Total investments 47,899 45,309
Total loans (1) 470,811 463,878
Allowance for loan losses 2,789 3,191
Other real estate owned 77 2,986
Deposits 344,481 375,074
Borrowings 155,498 145,597
Subordinated debentures 11,341 11,341
Stockholders' equity 43,572 40,239
Book value per common share 20.77 18.76
Book equity to assets 7.80% 6.99%
Non-performing assets to total assets 0.92 1.35
(1) Includes loans held for sale of $3,212 and $3,208 at December 31, 2009
and March 31, 2009, respectively.
SELECTED FINANCIAL RATIOS
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------------------------------
2009 2008 2009 2008
------------------------------------------------
(Unaudited) (Unaudited)
Return on average assets 0.27 % 2.90* % 0.30 % (1.24)%
Return on average equity 3.37 47.02* 3.99 (19.01)
Interest rate spread 3.06 2.71 2.82 2.66
Net interest margin 3.35 3.01 3.12 3.00
* Impacted by tax benefit from prior quarter transaction. See page one of press
release for further information.