-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JNIGCokN3eMHpOqEkCnk5cyo0Ck2gHNcFFsUlcY7tnzBFMg50PSk9uYjptnH0zDi ZQxTC1S47w4YhRbIf1YP+w== 0000904280-00-000037.txt : 20000215 0000904280-00-000037.hdr.sgml : 20000215 ACCESSION NUMBER: 0000904280-00-000037 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL BANCORP INC /MA/ CENTRAL INDEX KEY: 0001076394 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 043447594 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25251 FILM NUMBER: 540311 BUSINESS ADDRESS: STREET 1: 399 HIGHLAND AVENUE CITY: SOMERVILLE STATE: MA ZIP: 01144 BUSINESS PHONE: 6176284000 MAIL ADDRESS: STREET 1: 399 HIGHLAND AVENUE CITY: SOMERVILLE STATE: MA ZIP: 01144 10-Q 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 31, 1999 - ----------------- COMMISSION FILE NUMBER: 0-25251 ------- CENTRAL BANCORP, INC. -------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) MASSACHUSETTS -------------------------------------------------------------- (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) I.R.S. EMPLOYER IDENTIFICATION NO. 04-3447594 399 HIGHLAND AVENUE, SOMERVILLE, MA. 02144 ---------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER (617) 628-4000 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Class Outstanding at February 11, 2000 - ----------------------------- -------------------------------- Common Stock, $1.00 par value 1,856,350 CENTRAL BANCORP, INC. AND SUBSIDIARY TABLE OF CONTENTS PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements Consolidated Statements of Financial Condition at March 31, 1999 and December 31, 1999 (unaudited) Consolidated Statements of Income for the three and nine month periods ended December 31, 1999 and 1998 (unaudited) Consolidated Statements of Cash Flow for the nine month periods ended December 31, 1999 and 1998 (unaudited) Consolidated Statements of Changes in Stockholders' Equity for the nine month periods ended December 31, 1999 and 1998 (unaudited) Notes to Consolidated Financial Statements (unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the three and nine month periods ended December 31, 1999 and 1998 Item 3. Quantitative and Qualitative Disclosures about Market Risk (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999) PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES Item 1-Financial Statements: CENTRAL BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition
December 31, March 31, (Dollars in Thousands) 1999 1999 - ---------------------------------------------------------------------------- ASSETS (Unaudited) Cash and due from banks $ 10,663 $ 4,964 ------------------------- Short-term investments 4,019 16,939 Investments available for sale: Investment securities 30,397 21,943 Mortgage-backed securities 23,375 29,999 Stock in Federal Home Loan Bank of Boston, at cost 5,305 3,350 The Co-operative Central Bank Reserve Fund 1,576 1,576 ------------------------- Total investments 64,672 73,807 ------------------------- Loans: Mortgage loans 307,845 274,146 Other loans 7,089 6,200 ------------------------- 314,934 280,346 Less allowance for loan losses (2,974) (2,913) ------------------------- Net loans 311,960 277,433 ------------------------- Accrued interest receivable 1,816 1,614 Office properties and equipment, net 2,272 2,550 Deferred tax asset, net 1,159 744 Goodwill, net 2,880 3,096 Other assets 146 488 ------------------------- Total assets $395,568 $364,696 ========================= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $244,583 $266,463 Advances from Federal Home Loan Bank of Boston 109,920 57,000 Advance payments by borrowers for taxes and insurance 1,246 1,389 Accrued interest payable 503 291 Accrued income taxes 244 -- Accrued expenses and other liabilities 947 811 ------------------------- Total liabilities 357,443 325,954 ------------------------- Commitments and Contingencies (Note 2) Stockholders' equity: Preferred stock $1.00 par value; authorized 5,000,000 shares; none issued or outstanding -- -- Common stock $1.00 par value; authorized 15,000,000 shares; Issued 1,970,000 and 1,967,000 shares (outstanding 1,871,650 and 1,967,000) at December 31, 1999 and March 31, 1999 respectively) 1,970 1,967 Additional paid-in capital 11,190 11,171 Retained income 27,922 25,894 Treasury stock (98,350 shares and 0 shares at December 31, 1999, and March 31, 1999, respectively), at cost (2,027) -- Accumulated other comprehensive income (loss) (note 4) (411) 327 Unearned compensation - ESOP (519) (617) ------------------------- Total stockholders' equity 38,125 38,742 ------------------------- Total liabilities and stockholders' equity $395,568 $364,696 =========================
See accompanying notes to unaudited consolidated financial statements. CENTRAL BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Income (In Thousands, Except Per Share Data) (Unaudited)
Three Months Ended Nine Months Ended December 31, December 31, 1999 1998 1999 1998 -------------------- ------------------- Interest and dividend income: Mortgage loans $5,525 $5,329 $15,868 $16,154 Other loans 164 103 448 304 Short-term investments 67 202 322 384 Investment securities 648 466 1,505 1,253 Mortgage-backed securities 354 497 1,106 1,665 The Co-operative Central Bank Reserve Fund 21 22 71 71 -------------------- ------------------- Total interest and dividend income 6,779 6,619 19,320 19,831 -------------------- ------------------- Interest expense: Deposits 2,027 2,696 6,515 8,352 Advances from Federal Home Loan Bank of Boston 1,275 825 2,922 2,518 -------------------- ------------------- Total interest expense 3,302 3,521 9,437 10,870 -------------------- ------------------- Net interest and dividend income 3,477 3,098 9,883 8,961 Provision for loan losses -- -- -- -- -------------------- ------------------- Net interest and dividend income after provision for loan losses 3,477 3,098 9,883 8,961 -------------------- ------------------- Non-interest income: Deposit service charges 113 118 320 331 Net gains from sales of investment securities 231 177 843 361 Other income 50 63 169 185 -------------------- ------------------- Total non-interest income 394 358 1,332 877 -------------------- ------------------- Operating expenses: Salaries and employee benefits 1,148 1,120 3,555 3,291 Occupancy and equipment 276 390 865 1,027 Data processing service fees 135 152 416 423 Professional fees 234 218 646 581 Goodwill amortization 72 72 216 216 Other expense 383 379 1,051 1,114 -------------------- ------------------- Total operating expenses 2,248 2,331 6,749 6,652 -------------------- ------------------- Income before income taxes 1,623 1,125 4,466 3,186 Income tax expense 603 454 1,701 1,280 Net Income before cumulative effect of change in Accounting principle 1,020 671 2,765 1,906 Cumulative effect of change in accounting principle -- -- (234) -- -------------------- ------------------- Net income $1,020 $ 671 $ 2,531 $ 1,906 ==================== =================== Earnings per common share before cumulative effect of change in accounting principle $ 0.55 $ 0.35 $ 1.45 $ 0.98 ==================== =================== Earnings per common share before cumulative effect of change in accounting principle, diluted $ 0.55 $ 0.35 $ 1.45 $ 0.98 ==================== =================== Earnings per common share after cumulative effect of change in accounting principle $ 0.55 $ 0.35 $ 1.33 $ 0.98 ==================== =================== Earnings per common share after cumulative effect of change in accounting principle, diluted $ 0.55 $ 0.35 $ 1.33 $ 0.98 ==================== =================== Weighted average common shares outstanding 1,865 1,938 1,901 1,937 Weighted average common shares outstanding, diluted 1,868 1,942 1,906 1,947
See accompanying notes to unaudited consolidated financial statements. CENTRAL BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended December 31, (In Thousands) 1999 1998 - ------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 2,531 $ 1,906 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 355 474 Amortization of premiums, fees and discounts 92 228 Amortization of goodwill 216 216 Net gains from sales of investment securities (843) (361) Cumulative effect of change in accounting principle 234 0 (Increase) decrease in accrued interest receivable (202) 322 Decrease (increase) in other assets 342 (177) (Decrease) increase in advance payments by borrowers for taxes and insurance (143) 252 Increase (decrease) in accrued interest payable 212 (200) Increase(decrease) in accrued income taxes 244 (677) Increase in accrued expenses and other liabilities 136 468 -------------------- Net cash provided by operating activities 3,174 2,451 -------------------- Cash flows from investing activities: Principal collected on loans 55,640 89,696 Loan originations (90,167) (93,431) Principal payments on mortgage-backed securities available for sale 8,351 11,692 Purchase of investment securities available for sale (17,693) (1,534) Maturities of investment securities available for sale 2,500 13,100 Proceeds from sales of investment securities available for sale 4,376 1,396 Maturities of investment securities held to maturity 0 4,000 Net decrease (increase) in short-term investments 12,920 (21,798) Purchase of Stock in Federal Home Loan Bank of Boston (1,955) (200) Purchase of office properties and equipment (77) (500) -------------------- Net cash (used in) provided by investing activities (26,105) 2,421 -------------------- Cash flows from financing activities: Net (decrease) in deposits (21,880) (3,948) Proceeds from advances from FHLB of Boston 106,420 43,000 Payments on advances from FHLB of Boston (53,500) (45,000) Proceeds from exercise of stock options 22 14 Purchase of Treasury stock (2,027) 0 Payments of dividends on common stock (503) (472) Amortization of unearned compensation - ESOP 98 63 -------------------- Net cash provided by (used in) financing activities 28,630 (6,343) -------------------- Net increase (decrease) in cash and due from banks 5,699 (1,471) Cash and due from banks at beginning of period 4,964 5,718 -------------------- Cash and due from banks at end of period $ 10,663 $ 4,247 ==================== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 9,225 $ 11,069 Income taxes 1,457 1,956 Schedule of noncash investing activities: Transfer of mortgage loans to real estate acquired by foreclosure 0 0
See accompanying notes to unaudited consolidated financial statements. CENTRAL BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Additional Common Paid-in Retained Treasury (In Thousands) Stock Capital Income Stock - ------------------------------------------------------------------------------------------------------------------ Nine Months Ended December 31, 1998 - ------------------------------------- Balance at March 31, 1998 $1,965 $11,159 $23,841 $ -- ------ ------- ------- ------- Net income -- -- 1,906 -- Other Comprehensive Income (loss), net of tax Unrealized (losses) on securities, net of reclassification adjustment (note 4) -- -- -- -- ------ ------- ------- ------- Comprehensive income (loss) -- -- 1,906 -- ------ ------- ------- ------- Proceeds from exercise of stock options 2 12 -- -- Dividends Paid -- -- (472) -- Amortization of unearned compensation - ESOP -- -- -- -- ------ ------- ------- ------- Balance at December 31, 1998 $1,967 $11,171 $25,275 $ -- ====== ======= ======= ======= Nine Months Ended December 31, 1999 - ----------------------------------- Balance at March 31, 1999 $1,967 $11,171 $25,894 $ -- ------ ------- -------- ------- Net Income -- -- 2,531 -- Other Comprehensive Income (loss), net of tax Unrealized (losses) on securities, net of reclassification adjustment (note 4) -- -- -- -- ------ ------- -------- ------- Comprehensive income (loss) -- -- 2,531 -- ------ ------- -------- ------- Proceeds from exercise of stock options 3 19 -- -- Purchase of treasury stock -- -- -- (2,027) Dividends Paid -- -- (503) -- Amortization of unearned compensation - ESOP -- -- -- -- ------ ------- -------- ------- Balance at September 30, 1999 $1,970 $11,190 $ 27,922 $(2,027) ====== ======= ======== ======= Accumulated Other Unearned Total Comprehensive Compensation Stockholders' (In Thousands) Income (Loss) ESOP Equity - ------------------------------------------------------------------------------------------------------------------ Nine Months Ended December 31, 1998 - ------------------------------------- Balance at March 31, 1998 $ 544 $ (723) $36,786 ------ ------- ------- Net income -- -- 1,906 Other Comprehensive Income (loss), net of tax Unrealized (losses) on securities, net of reclassification adjustment (note 4) (145) -- (145) ------ ------- ------- Comprehensive income (loss) (145) -- 1,761 ------ ------- ------- Proceeds from exercise of stock options -- -- 14 Dividends Paid -- -- (472) Amortization of unearned compensation - ESOP -- 63 63 ------ ------- ------- Balance at December 31, 1998 $ 399 $ (660) $38,152 ====== ======= ======= Nine Months Ended December 31, 1999 - ----------------------------------- Balance at March 31, 1999 $ 327 $ (617) $38,742 ------ ------- -------- Net Income -- -- 2,531 Other Comprehensive Income (loss), net of tax Unrealized (losses) on securities, net of reclassification adjustment (note 4) (738) -- (738) ------ ------- -------- Comprehensive income (loss) (738) -- 1,793 ------ ------- -------- Proceeds from exercise of stock options -- -- 22 Purchase of treasury stock -- -- (2,027) Dividends Paid -- -- (503) Amortization of unearned compensation - ESOP -- 98 98 ------ ------- -------- Balance at September 30, 1999 $ (411) $ (519) $ 38,125 ====== ======= ========
CENTRAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 (UNAUDITED) (1) BASIS OF PRESENTATION --------------------- The consolidated financial statements of the Registrant for December 31, 1999 and 1998 presented herein should be read in conjunction with the financial statements of the Company as of and for the year ended March 31, 1999, included in the Company's Annual Report on Form 10-K. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to fairly present the results for the interim periods presented. Interim results are not necessarily indicative of results to be expected for the entire year. (2) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK ------------------------------------------------- Commitments to originate loans, unused lines of credit and unadvanced portions of construction loans are agreements to lend to a customer, provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower. Commitments at December 31, 1999 follow: Unused lines of credit................ $ 9,893,000 Unadvanced portions of construction loans.............................. 3,545,000 Unadvanced portions of commercial loans.............................. 14,247,000 Commitments to originate residential mortgage loans: Fixed rate............................ 325,000 Adjustable rate....................... 4,588,000 Commitments to originate commercial loans.. 13,552,000 CENTRAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED DECEMBER 31, 1999 (UNAUDITED) (3) INCOME TAXES ------------ The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. (4) REPORTING COMPREHENSIVE INCOME ------------------------------ The Company has established standards for reporting and displaying comprehensive income, which is defined as all changes to equity except investments by, and distributions to, shareholders. Net income is a component of comprehensive income, with all other components referred to in the aggregate as other comprehensive income. The Company's other comprehensive income (loss) and related tax effect is as follows:
For the Nine Months Ended (In Thousands) December 31, 1999 - ---------------------------------------------------------------------------------- Before- Tax Tax (Benefit) After-Tax Amount Expense Amount ------ --------- --------- Unrealized gains (losses) on securities Unrealized holding losses arising during period $ (309) $ (93) $ (216) Less: reclassification adjustment for gains realized in net income 843 321 522 ------------------------------ Other comprehensive loss $(1,152) $(414) $ (738) ============================== For the Nine Months Ended December 31, 1998 -------------------------------- Before- Tax Tax (Benefit) After-Tax Amount Expense Amount ------ --------- --------- Unrealized gains (losses) on securities Unrealized holding gains arising during period $ 120 $ 48 $ 72 Less: reclassification adjustment for gains realized in net income 361 144 217 ------------------------------ Other comprehensive loss $ (241) $ (96) $(145) ==============================
CENTRAL BANCORP, INC. AND SUBSIDIARY Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL: - ------- On January 8, 1999, the Registrant, Central Bancorp, Inc. became the holding company of Central Co-operative Bank when the Bank completed its holding company reorganization. Because substantially all of the business of the Registrant is the business of the Bank, the discussion below focuses on the business of the Bank. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Holding Company" included in the Company's Annual Report on Form 10-K as of and for the year ended March 31, 1999. Net income amounted to $1,020,000, or $0.55 per diluted share for the three months ended December 31, 1999 as compared to net income of $671,000, or $0.35 per diluted share in the corresponding quarter ended December 31, 1998. Net income for the current quarter was higher than net income for the same period in 1998 primarily due to an increase in net interest income of $379,000, an increase of $54,000 in net gains from sales of investment securities and a decline in operating expenses of $83,000 offset by an increase of $149,000 in income tax expense. YEAR 2000 COMPLIANCE ISSUES: - --------------------------- The Year 2000 issue has posed business risks to most business organizations, including the Company. In response, the Company formed a Year 2000 committee, consisting of senior officers within the Company's operations, information systems, financial and management areas, to ensure that the Company attained Year 2000 compliance. All date sensitive systems were evaluated for Year 2000 compliance, with complete upgrading and testing of systems completed well in advance of the Year 2000 date change. The Company also developed contingency plans for its computer processes, including the use of alternative systems and the manual processing of certain critical operations. In addition, the Company had undertaken extensive efforts to ensure that significant vendor and customer relationships are Year 2000 compliant. The Company's business has continued as normal without adverse impact to the Company during the critical Year 2000 date change. In coming months, the Company will continue monitoring external entities to assure that they have not experienced any Year 2000 problems that could impact their relationship with the Company. The Company estimates that its total Year 2000 compliance costs have aggregated approximately $57,000. FINANCIAL CONDITION: - ------------------- The following is a discussion of the major changes and trends in financial condition from the end of the preceding fiscal year, March 31, 1999, to December 31, 1999. Total assets increased from $364.7 million at March 31, 1999 to $395.6 million at December 31, 1999 primarily as a result of an increase in borrowings which were invested in the Company's loan portfolio, offset by a decrease in investments. The Company's loan balance grew by $34.6 million or 12.3% as a result of loan originations amounting to $90.2 million, of which $64.2 were in residential real estate loans. Loan amortization and pay-offs amounted to $55.6 million. The Company's investment portfolio decreased by $9.1 million, primarily as a result of pay-downs of mortgage-backed securities and a decline in short term investments, offset by purchases of investment securities. Funds from the decline in the Company's investment portfolio were primarily used to fund the increase in the loan portfolio. Deposits decreased during the nine month period by $21.9 million. Because of the competitive deposit rate environment in the Bank's primary market area, the Bank chose to allow some volatile, interest rate sensitive deposits to run off and to utilize favorably priced FHLB advances to offset this deposit loss and to fund the loan growth. Advances from the Federal Home Loan Bank of Boston increased from $57.0 million to $109.9 million. Substantially all of these advances were used to fund new loan originations. As previously announced, the Company's Board of Directors in January 2000, approved a new stock repurchase program, authorizing the Company to repurchase up to 93,583 shares of the Company's common stock over the next twelve months. This represents about 5% of the Company's outstanding shares. Completion of the new program will depend on market conditions and there is no guaranty of the exact number of shares the Company will repurchase. The Company's first stock repurchase program, which was adopted in April 1999 to re-acquire up to 98,350 shares, was completed in November 1999 through the acquisition of 98,350 shares, which represented approximately 5% of the outstanding shares of common stock at the time of the adoption of the program. NON-PERFORMING ASSETS: - --------------------- The Company had non-accruing loans totaling $38 thousand at December 31, 1999, a decrease of $381 thousand or 90.9% from $419 thousand on March 31, 1999. Interest income not recognized on non-accruing loans amounted to approximately $2 thousand for the first nine months of fiscal 2000. The following table sets forth information with respect to the Company's non-performing assets for the dates indicated:
Dec.31, March 31, Dec. 31, 1999 1999 1998 ---- ---- ---- (Dollars in thousands) Loans accounted for on a non-accrual basis, (non-accruing loans) $ 38 $ 419 $ 110 Impaired loans, accruing 0 0 1,291 Non-accruing loans as a percentage of total loans 0.01% 0.15% 0.04% Non-accruing loans as a percentage of total assets 0.01% 0.11% 0.03%
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1999, - --------------------- AND 1998: Net income for the three months ended December 31, 1999, and 1998, amounted to $1.0 million or $0.55 per diluted share and $671 thousand or $0.35 per diluted share, respectively. Average earning assets increased by $6.7 million while the rate earned on these assets increased 10 basis points to 7.30% during the third quarter of fiscal 2000 when compared to the third quarter of fiscal 1999. The average balance of interest- bearing liabilities increased $7.4 million while the rates paid on these liabilities decreased by 35 basis points during the quarter ended December 31, 1999 when compared to the same period one year ago. Together these developments resulted in a $160 thousand increase in interest and dividend income and a decrease of $219 thousand in interest expense. The combination resulted in a $379 thousand increase in net interest and dividend income from the fiscal 1999 quarter to the fiscal 2000 quarter. Interest income from the Company's loan portfolio increased $257 thousand in the third quarter of fiscal 2000. This increase was primarily the result of a $14.5 million increase in the average loan balance offset by a 2 basis point decrease in average rates earned on these loans. Income from the Company's investment portfolio (which includes income on short term investments, investment securities, mortgage-backed securities, FHLB stock and The Co-operative Central Bank Reserve Fund) decreased by $97 thousand during the third quarter of fiscal 2000 when compared to the same fiscal 1999 period. The yield on these assets increased by 19 basis points while the average balance decreased by $7.8 million during the fiscal 2000 quarter. The Company's cost of deposits decreased by $669 thousand during the third quarter of fiscal 2000 when compared to the same fiscal 1999 quarter. The rate paid on deposits decreased 80 basis points from 4.03% during the quarter ended December 31, 1998 to 3.23% during the quarter ended December 31, 1999. The average balance of these deposits decreased $23.8 million to $251.2 million during the third quarter of fiscal 2000 from $275.0 million during the fiscal 1999 third quarter. The average balance of borrowed funds increased by $31.3 million to $91.5 million in the fiscal 2000 third quarter compared to $60.2 million in the same fiscal 1999 quarter. These advances were used to fund loan growth. The rate paid on borrowings increased by 12 basis points in the fiscal 2000 quarter to 5.57% from 5.45% in the fiscal 1999 quarter. The combined effect of these changes resulted in an increase of $450 thousand in interest expense on borrowings to $1.3 million in the third quarter of fiscal 2000 compared to $825 thousand in fiscal 1999's third quarter. The provision for loan losses is made to maintain the allowance for loan losses at a level which management considers adequate to provide for probable losses based on an evaluation of known and inherent risks in the loan portfolio. Consistent with the current evaluation of the loan portfolio, the Company did not make any provision for the third quarter of fiscal 2000 or fiscal 1999. Non-interest income increased by $36 thousand to $394 thousand in the third quarter of fiscal 2000 from $358 thousand in the third fiscal 1999 quarter. The Company recorded $231 thousand and $177 thousand in net gains from sales of investment securities during the third quarter of fiscal 2000 and fiscal 1999, respectively. This $54 thousand increase in net gains from the sale of investment securities is the primary reason for the increase in non-interest income between the two quarters. Operating expenses decreased $83 thousand in the third quarter of fiscal 2000 compared to the same quarter of fiscal 1999. This decrease is primarily attributable to a decrease of $114 thousand in occupancy and equipment due to non recurring expenses related to a computer conversion in the prior period. The provision for Federal and state income taxes amounted to $603 thousand and $454 thousand during the third quarter of fiscal 2000 and fiscal 1999, respectively. The increased expense relates primarily to the increased level of pre-tax income offset by a decrease in the effective tax rate due to the implementation of a tax planning strategy during the second quarter of fiscal 2000. RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1999, AND - --------------------- 1998: Net income for the nine months ended December 31, 1999, and 1998, amounted to $2.5 million or $1.33 per diluted share and $1.9 million or $0.98 per diluted share, respectively. Net income for the nine month period ended December 31, 1999 included a one-time charge of $234,000, net of taxes, for costs associated with establishing Central Bancorp, Inc., as the holding company for Central Bank on January 8, 1999. This charge, which was previously reported, represented the balance of unamortized organization costs outstanding as of April 1, 1999, that were required to be written off in accordance with a new accounting pronouncement. Net income before the cumulative effect of this change in accounting principle for the nine months ended December 31, 1999, was $2.8 million or $1.45 per diluted share. The average balance of earning assets decreased by $1.8 million during the first nine months of fiscal 2000 while the rate earned on these assets decreased 15 basis points when compared to the first nine months of fiscal 1999. Average interest- bearing liabilities decreased $991 thousand while the rates paid on these liabilities decreased by 57 basis points during the first nine months of fiscal 2000 when compared to the same period one year ago. The combination of these developments resulted in a $511 thousand decrease in interest and dividend income and a decrease of $1.4 million in interest expense which caused net interest and dividend income to increase by $922 thousand in the first nine months of fiscal 2000 from the same fiscal 1999 nine month period. Total interest and dividend income in the nine months ended December 31, 1999 amounted to $19.3 million compared to $19.8 million in the first nine months of fiscal 1999. The decrease resulted from a decrease in the average balance of interest earning assets from $365.2 million in the first nine months of fiscal 1999 to $363.4 million in the first nine months of fiscal 2000. The yield on interest earning assets decreased by 15 basis points to 7.09% in the first nine months of fiscal 2000 from 7.24% in the comparable fiscal 1999 period. The decrease of $142 thousand in interest income from the Bank's loan portfolio during the first nine months of fiscal 2000 was primarily the result of a reduction of 21 basis points in the average rates earned on these loans from 7.62% during the first nine months of fiscal 1999 to 7.41% during the current nine month period offset by an increase in the average loan balance of $5.3 million from the first nine months of fiscal 1999 to the first nine months of fiscal 2000. Interest and dividend income from the Bank's investment portfolio decreased by $369 thousand during the first nine months of fiscal 2000 when compared to the same fiscal 1999 period. The decrease in income was a result of the average balance decreasing by $9.7 million and an 11 basis point yield increase during the first nine months of fiscal 2000 as compared to the same fiscal 1999 period. Total interest expense decreased by $1.4 million during the first nine months of fiscal 2000 when compared to the same fiscal 1999 period. Interest expense on deposits decreased by $1.8 million during the nine months ended December 31, 1999 when compared to fiscal 1999's first nine months. The rate paid on deposits decreased 77 basis points from 4.10% to 3.33% while the average balance of these deposits also decreased by $10.8 million to $260.8 million from $271.6 million during the first nine months of fiscal 2000 when compared to the first nine months of fiscal 1999. The average balance of borrowed funds increased by $9.8 million to $70.9 million in the fiscal 2000 first nine months compared to $61.1 million in the same fiscal 1999 nine months. The rate paid on borrowings decreased by 1 basis point in the fiscal 2000 nine months to 5.49% from 5.50% in fiscal 1999. The combined effect of these changes resulted in interest expense on borrowings increasing $404 thousand to $2.9 million in the first nine months of fiscal 2000 compared to $2.5 million during the nine months ended December 31, 1998. The provision for loan losses is made to maintain the allowance for loan losses at a level which management considers adequate to provide for probable losses based on an evaluation of known and inherent risks in the loan portfolio. Consistent with the current evaluation of the loan portfolio, the Company did not make any provision for the first nine months of fiscal 2000 or fiscal 1999. Non-interest income increased by $455 thousand to $1.3 million in the first nine months of fiscal 2000 from $877 thousand in the same period of fiscal 1999. The Company recorded $843 thousand in net gains from sales of investment securities during the first nine months of fiscal 2000, a $482 thousand increase from fiscal 1999, which is the primary reason for the increase in non-interest income between the two periods. Operating expenses increased $97 thousand during the first nine months of fiscal 2000 compared to the same period of fiscal 1999. This increase is primarily attributable to increases in salaries and employee benefits of $264 thousand and $65 thousand in professional fees, offset by a decrease of $162 thousand in occupancy and equipment and $63 thousand in other expense. The provision for Federal and state income taxes amounted to $1.7 million and $1.3 million during the first nine months of fiscal 2000 and fiscal 1999, respectively. The increased expense relates primarily to the increased level of pre-tax income. During the second quarter of fiscal 2000, the Bank implemented a tax saving strategy that reduced the effective tax rate from 40.2% for the nine month period ended December 31, 1998 to 38.1% for the nine month period ended December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES: - ------------------------------- The Company's principal sources of liquidity are loan amortization, loan prepayments, increases in deposits and advances from The Federal Home Loan Bank (FHLB) of Boston. The Company is a voluntary member of the FHLB of Boston and as such is generally entitled to borrow. Cash from these liquidity sources is used to fund loan originations, security investments, deposit maturities and repayment of FHLB of Boston advances. The Company's capital to assets ratio was 9.64% on December 31, 1999, which exceeded regulatory requirements. NEW ACCOUNTING PRONOUNCEMENT: - ---------------------------- In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair market value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative (that is gains and losses) depends on the intended use of the derivative and the resulting designation. In June 1999, the FASB issued SFAS 137 which delays the effective date of SFAS 133 so that it is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not expect these statements to have a material effect on its consolidated financial statements. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ---------------------------------------------------------- The Company has experienced no material changes in market risk since the discussion of this in the annual report as of March 31, 1999. FORWARD-LOOKING STATEMENTS - -------------------------- This report includes forward-looking statements that involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include the economic environment, competition, products and pricing in geographic and business areas in which the Company operates, prevailing interest rates, changes in government regulations and policies affecting financial services companies, and credit quality and credit risk management. Central Bancorp, Inc. undertakes no obligation to release revisions to these forward- looking statements or reflect events or circumstances after the date of this report. Part II. Other Information Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds Not Applicable Item 3. Defaults upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27, FDS, Financial Data Schedule (b) Reports on Form 8-K During the quarter ended December 31, 1999, the Registrant did not file a Current Report on Form 8-K. CENTRAL BANCORP, INC. AND SUBSIDIARY Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized CENTRAL BANCORP, INC. AND SUBSIDIARY ------------------------------------ 2/11/00 /s/ John D. Doherty - ---------- ------------------------------------- Date John D. Doherty President and Chief Executive Officer 2/11/00 /s/ Paul S. Feeley - ---------- ------------------------------------- Date Paul S. Feeley Senior Vice President, Treasurer and Chief Financial Officer EX-27 2 - ARTICLE 9 FIN. DATA SCHEDULE FOR 3RD QTR 10-Q
9 1,000 9-MOS MAR-31-2000 DEC-31-1999 10,663 177 3,842 0 60,653 0 0 314,934 2,974 395,568 244,583 0 2,940 109,920 1,970 0 0 36,155 395,568 16,316 3,004 0 19,320 6,515 9,437 9,883 0 843 6,749 4,466 2,765 (234) 0 2,531 1.33 1.33 3.14 38 0 0 0 2,913 9 70 2,974 0 0 0
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