UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 0-25251

                  CENTRAL BANCORP, INC.            

(Exact name of registrant as specified in its charter)

Massachusetts	04-3447594
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
399 Highland Avenue, Somerville, Massachusetts	02144
(Address of principal executive offices)	(Zip Code)

                                 (617) 628-4000                                

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Accelerated filer o     Non-Accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Common Stock, $1.00 par value	1,639,951
Class	Outstanding at November 12, 2007

CENTRAL BANCORP, INC.

Form 10-Q

Table of Contents

	Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition at September 30, 2007 and March 31, 2007		1
Consolidated Statements of Income for the Three and Six Months Ended September 30, 2007 and 2006		2
Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended September 30, 2007		3
Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2007 and 2006		4
Notes to Unaudited Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results Of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		19
Item 4. Controls and Procedures		20
Part II. Other Information
Item 1. Legal Proceedings		21
Item 1A. Risk Factors		21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3. Defaults Upon Senior Securities		21
Item 4. Submission of Matters to a Vote of Security Holders		21
Item 5. Other Information		21
Item 6. Exhibits		21
Signatures
EX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
EX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER
EX-32 SECTION 1350 CERTIFICATIONS

Part I. Financial Information

Item 1. Financial Statements

CENTRAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Financial Condition

(Unaudited)

(Dollars in Thousands, Except Share Data)	September 30, 2007			March 31, 2007
ASSETS
Cash and due from banks	$	6,932		$	6,147
Short-term investments		5,872			14,470
Cash and cash equivalents		12,804			20,617
Investment securities available for sale (amortized cost of $62,915 at September 30, 2007 and $66,033 at March 31, 2007)		63,013			65,763
Stock in Federal Home Loan Bank of Boston, at cost		7,786			7,366
The Co-operative Central Bank Reserve Fund, at cost		1,576			1,576
Total investments		72,375			74,705
Loans held for sale		—			575
Loans (Note 2)		458,200			460,542
Less allowance for loan losses		3,378			3,881
Loans, net		454,822			456,661
Accrued interest receivable		2,353			2,415
Banking premises and equipment, net		4,318			4,756
Deferred tax asset, net		1,967			2,212
Goodwill, net		2,232			2,232
Other assets		1,839			1,967
Total assets	$	552,710		$	566,140
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits (Note 3)	$	358,996		$	388,573
Short-term borrowings		823			712
Federal Home Loan Bank advances		140,000			125,000
Subordinated debenture (Note 4)		11,341			11,341
Advanced payments by borrowers for taxes and insurance		1,401			1,229
Accrued expenses and other liabilities		1,599			1,583
Total liabilities		514,160			528,438
Commitments and Contingencies (Note 6)
Stockholders’ equity (Note 7):
Preferred stock $1.00 par value; 5,000,000 shares authorized; and none issued or outstanding		—			—
Common stock $1.00 par value; 15,000,000 shares authorized; and 1,639,951 shares issued at September 30, 2007 and March 31, 2007, respectively		1,591			1,591
Additional paid-in capital		3,622			3,528
Retained income		40,578			40,394
Accumulated other comprehensive loss (Note 5)		206			(20	)
Unearned compensation – ESOP		(7,447	)		(7,791	)
Total stockholders’ equity		38,550			37,702
Total liabilities and stockholders’ equity	$	552,710		$	566,140

See accompanying notes to unaudited consolidated financial statements.

1

CENTRAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

(In Thousands, Except Per Share Data)

(Unaudited)

	Three Months Ended					Six Months Ended
	September 30,					September 30,
	2007			2006		2007			2006
Interest and dividend income:
Mortgage loans	$	6,753		$	6,630	$	13,562		$	12,771
Other loans		235			146		385			273
Short-term investments		65			121		258			216
Investments		880			1,344		1,766			2,470
Total interest and dividend income		7,933			8,241		15,971			15,730
Interest expense:
Deposits		2,746			2,877		5,599			5,409
Advances from Federal Home Loan Bank of Boston		1,727			1,329		3,351			2,557
Other borrowings		207			159		428			310
Total interest expense		4,680			4,365		9,378			8,276
Net interest and dividend income		3,253			3,876		6,593			7,454
Provision for loan losses		(300	)		—		(300	)		50
Net interest and dividend income after provision for loan losses		3,553			3,876		6,893			7,404
Non-interest income:
Deposit service charges		251			249		503			505
Net gains from sales of investment securities		172			116		288			228
Net gains on sales of loans		25			25		77			59
Other income		86			57		191			145
Total non-interest income		534			447		1,059			937
Non-interest expenses:
Salaries and employee benefits		1,939			2,177		4,038			4,356
Occupancy and equipment		526			543		1,076			1,047
Data processing fees		219			254		442			487
Professional fees		198			220		402			457
Advertising and marketing		3			100		7			322
Other expenses		498			493		934			964
Total non-interest expenses		3,383			3,787		6,899			7,633
Income before income taxes		704			536		1,053			708
Provision for income taxes		239			185		363			244
Net income	$	465		$	351	$	690		$	464
Earnings per common share — basic (Note 8)	$	0.33		$	0.24	$	0.50		$	0.32
Earnings per common share — diluted (Note 8)	$	0.33		$	0.24	$	0.49		$	0.32
Weighted average common shares outstanding — basic		1,394			1,444		1,393			1,442
Weighted average common and equivalent shares outstanding — diluted		1,399			1,457		1,400			1,455

See accompanying notes to unaudited consolidated financial statements.

2

CENTRAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

									Accumulated
			Additional						Other			Unearned			Total
	Common		Paid-In			Retained			Comprehensive			Compensation			Stockholders’
(In Thousands)	Stock		Capital			Income			Loss			ESOP			Equity
Six Months Ended September 30, 2007
Balance at March 31, 2007	$	1,591	$	3,528		$	40,394		$	(20	)	$	(7,791	)	$	37,702
Net income							690									690
Other comprehensive income net of tax:
Unrealized loss on securities, net of reclassification adjustment (Note 5)										226						226
Comprehensive income																916
Dividends paid ($0.36 per share)							(506	)								(506	)
Stock option expense (Note 9)				161												161
Amortization of unearned compensation — ESOP				(67	)								344			277
Balance at September 30, 2007	$	1,591	$	3,622		$	40,578		$	206		$	(7,447	)	$	38,550

See accompanying notes to unaudited consolidated financial statements.

3

CENTRAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	September 30,
(In thousands)	2007			2006
Cash flows from operating activities:
Net income	$	690		$	464
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		483			379
Amortization of premiums		34			49
Provision for loan losses		(300	)		50
Stock-based compensation		438			256
Net gains from sales of investment securities		(288	)		(228	)
Gain on sales of loans held for sale		(77	)		(59	)
Originations of loans held for sale		(5,814	)		(5,266	)
Proceeds from sale of loans originated for sale		6,466			5,370
Decrease in accrued interest receivable		62			123
Decrease in other assets, net		231			76
Increase in advance payments by borrowers for taxes and insurance		172			94
Increase (decrease) in accrued expenses and other liabilities, net		16			(344	)
Net cash provided by (used by) operating activities		2,113			964
Cash flows from investing activities:
Decrease (increase) in loans		2,139			(19,370	)
Principal payments on mortgage-backed securities		3,110			4,430
Purchases of restricted equity-FHLB		(420	)		(385	)
Proceeds from sales of restricted equity-FHLB		—			2,367
Proceeds from sales of investment securities		3,145			3,550
Purchases of investment securities		(2,883	)		(10,020	)
Maturities and calls of investment securities		—			6,900
Purchase of banking premises and equipment		(45	)		(1,429	)
Net cash provided by (used in) investing activities		5,046			(13,957	)
Cash flows from financing activities:
Decrease in deposits		(29,577	)		(4,666	)
Proceeds from advances from FHLB of Boston		90,000			56,000
Repayment of advances from FHLB of Boston		(75,000	)		(43,000	)
Increase in short-term borrowings		111			6
Repayment of ESOP loan		—			(195	)
Proceeds from exercise of stock options		—			13
Tax benefit from exercise of stock options		—			4
Dividends paid, net		(506	)		(518	)
Net cash (used by) provided by financing activities		(14,972	)		7,644
Net decrease in cash and cash equivalents		(7,813	)		(5,349	)
Cash and cash equivalents at beginning of year		20,617			15,263
Cash and cash equivalents at end of period	$	12,804		$	9,914
Supplementary disclosure of cash flows information:
Cash paid during the period for:
Interest	$	8,862		$	8,287
Income taxes	$	340		$	578

See accompanying notes to unaudited consolidated financial statements.

4

CENTRAL BANCORP AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

September 30, 2007

(1) Basis of Presentation

     The unaudited consolidated financial statements of Central Bancorp, Inc. and its wholly owned subsidiary, Central Co-operative Bank (the “Bank”) (collectively referred to as “the Company”), presented herein should be read in conjunction with the consolidated financial statements of the Company as of and for the year ended March 31, 2007, included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on June 22, 2007. The accompanying unaudited consolidated financial statements were prepared in accordance with the instructions to Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations, changes in stockholders’ equity or cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, the accompanying unaudited consolidated financial statements reflect all normal recurring adjustments that are necessary for a fair presentation. The results for the six months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2008 or any other period.

     The Company owns 100% of the common stock of Central Bancorp Capital Trust I (“Trust I”) and Central Bancorp Statutory Trust II (“Trust II”), which have issued trust preferred securities to the public in private placement offerings. In accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46 “Consolidation of Variable Interest Entities – an Interpretation of Accounting Research Bulletin No. 51,” as revised by FIN No. 46R (“FIN 46R”), issued in December 2002, neither Trust I nor Trust II are included in the Company’s consolidated financial statements (See Note 4).

     The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended March 31, 2007. For interim reporting purposes, the Company follows the same significant accounting policies.

(2) Loans

     Loans, excluding loans held for sale, as of September 30, 2007 and March 31, 2007 are summarized below (unaudited, in thousands):

	September 30,			March 31,
	2007			2007
Real estate loans:
Residential real estate (1-4 family)	$	175,180		$	175,259
Commercial real estate		237,333			235,535
Construction		26,017			35,011
Home equity lines of credit		6,922			6,901
Total real estate loans		445,452			452,706
Commercial loans		11,634			6,605
Consumer loans		1,114			1,231
Total loans		458,200			460,542
Less: allowance for loan losses		(3,378	)		(3,881	)
Total loans, net	$	454,822		$	456,661

     There were 6 loans on non-accrual status totaling $9.3 million as of September 30, 2007 and two loans on non-accrual status totaling $330,000 as of March 31, 2007.

5

     At September 30, 2007, and March 31, 2007, there were no impaired loans other than non-accrual loans. Impaired loans are measured using the fair value of collateral.

     A summary of changes in the allowance for loan losses for the three and six months ended September 30, 2007 and 2006 follows. Included in charge-offs for both the three and six months ended September 30, 2007 is a $173,000 transfer to establish a reserve for unfunded loan commitments, which is included the other liabilities section of the balance sheet. (The data in the following tables are unaudited, in thousands):

	Three Months Ended
	September 30,
	2007			2006
Balance at beginning of period	$	3,848		$	3,843
Provision charged to expense		(300	)		—
Less: charge-offs		(187	)		(12	)
Add: recoveries		17			19
Balance at end of period	$	3,378		$	3,850

	Six Months Ended
	September 30,
	2007			2006
Balance at beginning of period	$	3,881		$	3,788
Provision charged to expense		(300	)		50
Less: charge-offs		(233	)		(20	)
Add: recoveries		30			32
Balance at end of period	$	3,378		$	3,850

(3) Deposits

     Deposits at September 30, 2007 and March 31, 2007 are summarized as follows (unaudited, in thousands):

	September 30,		March 31,
	2007		2007
Demand deposit accounts	$	38,474	$	40,026
NOW accounts		29,310		28,591
Passbook and other savings accounts		51,696		56,495
Money market deposit accounts		58,444		45,586
Total non-certificate accounts		177,924		170,698
Term deposit certificates:
Certificates of $100,000 and above		67,467		82,159
Certificates of less than $100,000		113,605		135,716
Total term deposit certificates		181,072		217,875
Total deposits	$	358,996	$	388,573

(4) Subordinated Debentures

     On September 16, 2004, the Company completed a trust preferred securities financing in the amount of $5.1 million. In connection with the transaction, the Company formed a Delaware statutory trust, known as Central Bancorp Capital Trust I (“Trust I”). Trust I issued and sold $5.1 million of trust preferred securities in a private placement and issued $158,000 of trust common securities to the Company. Trust I used the proceeds of these issuances to purchase $5.3 million of the Company’s floating rate junior subordinated debentures due September 16, 2034 (the “Trust I Debentures”). The interest rate on the Trust I Debentures and the trust preferred securities is variable and adjustable quarterly at 2.44% over three-month LIBOR. At September 30, 2007, the interest rate was 8.134%. The Trust I Debentures are the sole assets of Trust I and are subordinate to all of the Company’s existing and future obligations for borrowed money.

6

     On January 31, 2007, the Company completed a second trust preferred securities financing in the amount of $5.9 million. In connection with the transaction, the Company formed a Connecticut statutory trust, known as Central Bancorp Statutory Trust II (“Trust II”). Trust II issued and sold $5.9 million of trust preferred securities in a private placement and issued $183,000 of trust common securities to the Company. Trust II used the proceeds of these issuances to purchase $6.1 million of the Company’s floating rate junior subordinated debentures due March 15, 2037 (the “Trust II Debentures”). From January 31, 2007 until March 15, 2017 (the “Fixed Rate Period”), the interest rate on the Trust II Debentures and the trust preferred securities is fixed at 7.015% per annum. Upon the expiration of the Fixed Rate Period, the interest rate on the Trust II Debentures and the trust preferred securities will be at a variable per annum rate, reset quarterly, equal to three month LIBOR plus 1.65%. The Trust II Debentures are the sole assets of Trust II. The Trust II Debentures and the trust preferred securities each have 30-year lives. The trust preferred securities and the Trust II Debentures will each be callable by the Company or Trust II, at their respective option, after ten years, and sooner in certain specific events, including in the event that the securities are not eligible for treatment as Tier 1 capital, subject to prior approval by the Federal Reserve Board, if then required. Interest on the trust preferred securities and the Trust II Debentures may be deferred at any time or from time to time for a period not exceeding 20 consecutive quarterly payments (five years), provided there is no event of default.

     The trust preferred securities generally rank equal to the trust common securities in priority of payment, but will rank prior to the trust common securities if and so long as the Company fails to make principal or interest payments on the Trust I and the Trust II Debentures. Concurrently with the issuance of the Trust I and Trust II Debentures and the trust preferred securities, the Company issued a guarantee related to the trust securities for the benefit of the holders and pursuant to which the Company unconditionally guarantees the financial obligations of Trust I and Trust II.

(5) Other Comprehensive Income (Loss)

     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 for the six months ended September 30, 2007 and 2006 are as follows (unaudited, in thousands):

	For the Six Months Ended
	September 30, 2007
	Before-Tax		Tax		After-Tax
	Amount		Effect		Amount
Unrealized gains (losses) on securities:
Unrealized net holding gains during period	$	656	$	241	$	415
Less: reclassification adjustment for net gains included in net income		288		99		189
Other comprehensive gain	$	368	$	142	$	226

	For the Six Months Ended
	September 30, 2006
	Before-Tax		Tax		After-Tax
	Amount		Effect		Amount
Unrealized gains (losses) on securities:
Unrealized net holding gains during period	$	1,311	$	469	$	842
Less: reclassification adjustment for net gains included in net income		228		79		149
Other comprehensive gain	$	1,083	$	390	$	693

7

(6) Contingencies

     Legal Proceedings. The Company from time to time is involved in various legal actions incident to its business. None of these actions are believed to be material, either individually or collectively, to the results of operations and financial condition of the Company.

(7) Subsequent Events

     On October 18, 2007, the Company’s Board of Directors approved the payment of a quarterly cash dividend of $0.18 per share. The dividend is payable on November 16, 2007 to stockholders of record as of November 2, 2007.

(8) Earnings per Share (EPS)

     Unallocated Central Co-operative Bank Employee Stock Ownership Plan Trust (the “ESOP”) shares are not treated as being outstanding in the computation of either basic or diluted earnings per share (“EPS”). At September 30, 2007 and 2006, there were approximately 246,000 and 145,000 unallocated ESOP shares, respectively.

     The following depicts a reconciliation of earnings per share (unaudited):

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
	(Amounts in thousands, except per share amounts)
Net income available to common shareholders	$	465		$	351		$	690		$	464
Weighted average number of common shares outstanding		1,640			1,591			1,640			1,591
Weighted average number of unallocated ESOP shares		(246	)		(147	)		(247	)		(149	)
Weighted average number of common shares outstanding used in calculation of basic earnings per share		1,394			1,444			1,393			1,442
Incremental shares from the assumed exercise of dilutive stock options		5			13			7			13
Weighted average number of common shares outstanding used in calculating diluted earnings per share		1,399			1,457			1,400			1,455
Earnings per share
Basic	$	0.33		$	0.24		$	0.50		$	0.32
Diluted	$	0.33		$	0.24		$	0.49		$	0.32

     At September 30, 2007 and 2006, respectively, 91,396 and 0 stock option shares were anti-dilutive and were excluded from the above calculation for both the quarter and six-month periods.

(9) Stock-Based Compensation

     Effective April 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), Share-Based Payment, (“SFAS 123R”), using the statement’s modified prospective application method. Prior to April 1, 2006, the Company followed SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, an amendment to FASB Statement No. 123, which required entities to recognize as expense over the vesting period the fair value of stock-based awards on the date of grant or measurement date. For employee stock-based awards, however, SFAS Nos. 123 and 148 allowed entities to continue to apply the intrinsic value method under the provisions of Accounting Principles Board (“APB”) Opinion No. 25 and provide pro forma net earnings disclosures as if the fair-value-based method defined in SFAS No. 123 had been applied. The

8

Company elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures of SFAS Nos. 123 and 148 for periods as required prior to April 1, 2006.

     The Company uses the Black-Scholes option pricing model as its method for determining fair value of stock option grants, which was also used by the Company for its pro forma information disclosures of the stock-based compensation expense prior to the adoption of SFAS No. 123. The Company has previously adopted two qualified stock options plans for the benefit of officers and other employees under which an aggregate of 281,500 shares have been reserved for issuance. One of these plans expired in 1997 and the other plan expires in 2009. All awards under the plan that expires in 2009 were granted by the end of 2005. However, awards may become available again if any participants forfeit awards under the plan prior to its expiration in 2009. As of September 30, 2007, a total of 903 shares had been forfeited and were available for reissue. However, awards outstanding at the time the plans expire will continue to remain outstanding according to their terms.

     On July 31, 2006, the Company’s stockholders approved the Central Bancorp, Inc. 2006 Long-Term Incentive Plan (the “Incentive Plan”) at the annual meeting of stockholders. Under the Incentive Plan, 150,000 shares have been reserved for issuance as options to purchase stock, restricted stock, or other stock awards. The exercise price of an option may not be less than the fair market value of the Company’s common stock on the date of grant of the option and may not be exercisable more than ten years after the date of grant. As of September 30, 2007, 91,000 shares remained unissued under the Incentive Plan.

     SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates in order to derive the Company’s best estimate of awards ultimately expected to vest. Forfeitures represent only the unvested portion of a surrendered option and are typically estimated based on historical experience. Based on an analysis of the Company’s historical data, the Company applied a forfeiture rate of 0% to stock options outstanding in determining its SFAS 123(R) stock compensation expense for the year ended March 31, 2007, which it believes is a reasonable forfeiture estimate for the period. In the Company’s pro forma information required under SFAS 123(R) for the periods prior to 2006, the Company accounted for forfeitures as they occurred.

     Under the provisions of SFAS 123R, the Company recognizes the estimated fair value of stock based compensation in the consolidated statement of operations over the requisite service period of each option granted. Under the modified prospective application method of SFAS 123R, the Company applies the provisions of SFAS 123R to all awards granted or modified after April 1, 2006 as well as unvested awards issued in a prior period. The Company had no unvested stock options outstanding at March 31, 2006 and awarded options to purchase 10,000 shares and stock grants for 49,000 restricted shares in the year ended March 31, 2007. The options and restricted shares granted in fiscal 2007 vest over a five-year life. Compensation expense recorded for the year ended March 31, 2007 totaled $134,000. The fair value of the options granted in fiscal 2007 was $9.04 per share and the fair value of the restricted stock granted in fiscal 2007 was $31.20 per share. Total compensation expense for stock based compensation was $81,000 and $0 for the three months ended September 30, 2007 and September 30, 2006, respectively, and $161,000 and $0 for the six months ended September 30, 2007 and September 30, 2006, respectively.

9

     Stock option activity was as follows for the six months ended September 30, 2007:

	Number of			Weighted
	Shares			Exercise Price
Balance at March 31, 2007		69,121		$	25.411
Exercised		0
Cancelled		(903	)		28.990
Granted		0
Balance at September 30, 2007		68,218			25.364

     The range of exercise prices, weighted average remaining contractual lives of outstanding stock options and aggregate intrinsic value at September 30, 2007 were as follows:

						Weighted
						Average
						Remaining		Weighted
			Number			Contractual		Average		Aggregate
	Exercise		of Shares			Life		Exercise		Intrinsic
	Price		Outstanding			(Years)		Price		Value (1)
	$	16.625		12,077	(2)		3.2	$	16.625	$	76,991
		20.250		13,745	(2)		2.1		20.250		37,799
		28.990		32,396	(2)		7.4		28.990		—
		31.200		10,000	(3)		8.9		31.200		—
Average/Total	$	25.364		68,218			5.9	$	25.364	$	114,790

(1)	Represents the total intrinsic value, based on the Company’s closing stock price of $23.00 on September 30, 2007, which would have been received by the option holders had all option holders exercised their options as of that date.
(2)	Fully vested and exercisable at the time of grant.
(3)	Subject to vesting over five years, 0% vested at September 30, 2007.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Management’s discussion and analysis of the financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of Central Bancorp, Inc. (the “Company” or “Central Bancorp”). The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and footnotes appearing in Part I, Item 1 of this Form 10-Q.

Forward-Looking Statements

     This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Bank’s market area, changes in real estate market values in the Bank’s market area, and changes in relevant accounting principles and guidelines. Additionally, other risks and uncertainties may be described in the Company’s Annual Report on Form 10-K as filed with the Securities and

10

Exchange Commission on June 22, 2007, which is available through the SEC’s website at www.sec.gov, as well as under “Part II—Item 1A. Risk Factors” of this Form 10-Q. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

General

     The Company is a Massachusetts holding company established in 1998 to be the holding company for Central Co-operative Bank (the “Bank”). The Company’s primary business activity is the ownership of the outstanding capital stock of the Bank. Accordingly, the information set forth in this report, including the consolidated financial statements and related data, relates primarily to the Bank.

     The Bank is a Massachusetts co-operative bank headquartered in Somerville, Massachusetts with nine full-service facilities, a limited service high school branch in suburban Boston, and a stand-alone 24-hour automated teller machine in Somerville. The Company primarily generates funds in the form of deposits and uses the funds to make mortgage loans for construction, purchase and refinancing of residential properties and to make loans on commercial real estate in its market area.

     The operations of the Company and its subsidiary are generally influenced by overall economic conditions, the related monetary and fiscal policies of the federal government and the regulatory policies of financial institution regulatory authorities, including the Massachusetts Commissioner of Banks, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the Federal Deposit Insurance Corporation.

     The Bank monitors its exposure to earnings fluctuations resulting from market interest rate changes. Historically, the Bank’s earnings have been vulnerable to changing interest rates due to differences in the terms to maturity or repricing of its assets and liabilities. For example, in a declining interest rate environment, the Bank’s net interest income and net income could be positively impacted as interest-sensitive liabilities (deposits and borrowings) could adjust more quickly to declining interest rates than the Bank’s interest-sensitive assets (loans and investments). Conversely, in a rising interest rate environment, the Bank’s net interest income and net income could be negatively affected as interest-sensitive liabilities (deposits and borrowings) could adjust more quickly to rising interest rates than the Bank’s interest-sensitive assets (loans and investments).

     The following is a discussion and analysis of the Company’s results of operations for the three and six months ended September 30, 2007 and 2006 and its financial condition at September 30, 2007 compared to March 31, 2007. Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes.

Critical Accounting Policies

     Accounting policies involving significant judgments and assumptions by management, which have, or could have, a material impact on the carrying value of certain assets and impact income, are considered critical accounting policies. The Company considers the allowance for loan losses to be its critical accounting policy. There have been no significant changes in the methods or assumptions used in the accounting policies that require material estimates and assumptions.

     Arriving at an appropriate level of allowance for loan losses necessarily involves a high degree of judgment. The ongoing evaluation process includes a formal analysis of the allowance each quarter, which considers, among other factors, the character and size of the loan portfolio, business and economic conditions, loan growth, delinquency trends, nonperforming loan trends, charge-off experience and other asset quality factors. The Company evaluates specific loan status reports on commercial and commercial real estate loans rated “substandard” or worse. Estimated reserves for each of these credits is determined by reviewing current collateral value, financial information, cash flow, payment history and trends and other relevant facts surrounding the particular credit. Provisions for losses on the remaining commercial and commercial real estate loans are based on pools of similar loans using a combination of historical loss experience, loan to value ratios and qualitative adjustments. For the residential real estate and consumer loan portfolios, the range of reserves is calculated by applying historical charge-

11

off and recovery experience and other pertinent data to the current outstanding balance in each loan category. Although management uses available information to establish the appropriate level of the allowance for loan losses, future additions or reductions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.

Comparison of Financial Condition at September 30, 2007 and March 31, 2007

     Total assets were $552.7 million at September 30, 2007 compared to $566.1 million at March 31, 2007, representing a decrease of $13.4 million or 2.4%. Total loans (excluding loans held for sale) were $458.2 million at September 30, 2007 compared to $460.5 million at March 31, 2007, representing a decrease of $2.3 million or 0.5%. This decrease was the net effect of an increase in commercial real estate loans of $1.8 million and an increase in commercial loans of $5.0 million offset by decreases in construction loans of $9.0 million and residential loans and home equity loans of $0.1 million. The increase in commercial real estate loans represents the Bank’s continuing emphasis on this type of lending. Commercial loans increased during the period primarily as a result of the addition of $5.0 million in loans secured by taxi medallions, a new line of business for the Bank. Construction loans declined because of a decision to limit this type of lending in the current economic environment. Residential real estate loans declined because of the decision by the Bank to sell most newly originated residential loans in the secondary market. The Bank purchases loans from time to time to supplement its loan originations, especially during times of decreased demand for such loans and to assist in meeting Community Reinvestment Act targets. Management regularly assesses the desirability of holding newly originated residential mortgage loans in portfolio or selling such loans in the secondary market. A number of factors are evaluated to determine whether or not to hold such loans in portfolio including current and projected liquidity, current and projected interest rates, projected growth in other interest-earning assets and the current and projected interest rate risk profile. Based on its consideration of these factors, management determined that most long-term residential mortgage loans originated during the six months ended September 30, 2007 should be sold in the secondary market. The decision to sell or hold loans is made at the time the loan commitment is issued and the Bank simultaneously enters into a best efforts forward commitment to sell the loan to manage the interest rate risk associated with the decision to sell the loan. Loans are sold servicing released.

     Cash and cash equivalents totaled $12.8 million at September 30, 2007 compared to $20.6 million at March 31, 2007, representing a decrease of $7.8 million, or 37.9%, comprised of an $8.6 million decrease in short-term investments partially offset by a $0.8 million increase in cash and due from banks. The decrease in cash and cash equivalents is primarily due to the $29.6 million decrease in deposits from March 31, 2007. Investment securities totaled $72.4 million at September 30, 2007 compared to $74.7 million at March 31, 2007, representing a decrease of $2.3 million, or 3.1%. Stock in the Federal Home Loan Bank of Boston totaled $7.8 million at September 30, 2007 compared to $7.4 million at March 31, 2007, representing an increase of $420,000, or 5.7%, due to increased capital stock requirements for outstanding advances. The allowance for loan losses totaled $3.4 million at September 30, 2007 compared to $3.9 million at March 31, 2007, representing a decrease of $503,000, or 12.9%. This decrease was due to net charge-offs of $30,000, a $173,000 transfer to establish a reserve for unfunded loan commitments, and a negative provision for loan losses of $300,000 (see “Provision for Loan Losses”). Management considered the allowance for loan losses to be adequate at both September 30, 2007 and March 31, 2007. Accrued interest receivable remained relatively flat and totaled $2.4 million at both September 30, 2007 and March 31, 2007. Banking premises and equipment, net, totaled $4.3 million at September 30, 2007 compared to $4.8 million at March 31, 2007, representing a decrease of $438,000, or 9.2%, primarily reflecting depreciation for the period.

     Total deposits amounted to $359.0 million at September 30, 2007 compared to $388.6 million at March 31, 2007, representing a decrease of $29.6, million or 7.6%, reflecting the combined effect of a $7.2 million, or 4.2%, increase in core deposits (consisting of all non-certificate accounts) and a $36.8 million, or 16.9%, decrease in certificates of deposit. Overall, deposits declined primarily because of continuing strong competition for deposits in our local market area. The increase in core deposits was primarily related to an increase in money market deposit account balances as the Bank more aggressively priced this type of deposit. The decrease in term deposits is the result of the Bank’s strategy to discontinue advertising premium rates on certificates of deposit and to reduce the

12

rate on premium certificates of deposit and to instead elect to utilize more cost-effective Federal Home Loan Bank advances as a funding source.

     Total borrowings (exclusive of subordinated debentures) amounted to $140.8 million at September 30, 2007 compared to $125.7 million at March 31, 2007, representing an increase of $15.1 million, or 12.0%, due to the increased utilization of FHLB advances as a funding source.

     Accrued expenses and other liabilities remained basically unchanged and totaled $1.6 million at both September 30, 2007 and March 31, 2007. Included in the balance at September 30, 2007 is a $173,000 reserve for unfunded loan commitments, which was established during the quarter ended September 30, 2007.

     Total stockholders’ equity amounted to $38.5 million at September 30, 2007 compared to $37.7 million at March 31, 2007, representing an increase of $847,000, or 2.2%. Increases due to net income of $690,000, other comprehensive income of $226,000, stock option expense of $161,000 and the net amortization of unearned compensation regarding the ESOP of $277,000, were reduced by dividends paid to stockholders of $506,000.

Comparison of Operating Results for the Quarters Ended September 30, 2007 and 2006

     Net income increased from $351,000, or $0.24 per diluted share, for the quarter ended September 30, 2006 to $465,000, or $0.33 per diluted share, for the quarter ended September 30, 2007. The increase in net income for the quarter ended September 30, 2007 compared to the quarter ended September 30, 2006 reflects a decrease in net interest and dividend income from $3.9 million for the 2006 quarter to $3.3 million for the 2007 quarter, a credit (benefit) to the provision for loan losses of $300,000, an $87,000 increase in non-interest income, a decrease in non-interest expenses of $404,000 and an increase of $54,000 in the provision for income taxes.

     Net Interest Income. Net interest income, which decreased by $623,000, or 16.0%, for the three months ended September 30, 2007 compared to the same period of 2006, has been adversely affected by the flat to inverted yield curve during much of the quarter, as well as strong local competition for the products and services we offer. The yield curve and competition have required that the Bank increase the rates it pays on its deposits and borrowings to a greater extent than it was able to increase the rates it earns on its loan and investment products, resulting in decreases in net interest spread and net interest margin from 2.45% and 2.91%, respectively, for the quarter ended September 30, 2006 to 1.95% and 2.43%, respectively, for the quarter ended September 30, 2007. The yield on interest-earning assets decreased from 6.20% in the second quarter of 2006 to 5.92% for the same period in 2007, however, the average cost of interest-bearing liabilities increased from 3.75% to 3.97%, respectively.

     Interest and Dividend Income. Interest and dividend income decreased by $308,000, or 3.7%, to $7.9 million for the quarter ended September 30, 2007 as compared to $8.2 million during the same period of 2006. Despite the $35.9 million, or 8.5%, increase in the average balance of loans from the quarter ended September 30, 2006 to September 30, 2007, the $31.6 million decrease in the average balance of short-term investments and available for sale investment securities for the quarter ended September 30, 2007 as compared to the 2006 period and the decline in yields on earning assets resulted in the overall decline in interest and dividend income. The average balance of loans increased primarily due to an increase in the average balance of commercial real estate and commercial loans as the Bank continued to focus on originating these types of loans during the period. Interest income for the quarter ended September 30, 2007 was negatively impacted as interest income not recognized on non-accrual loans totaled $162,000. The average balance and yield on investment securities declined as maturities and principal repayments were used to fund loan growth. Additionally, investment income for the quarter ended September 30, 2006 was higher than normal due to the Federal Home Loan Bank of Boston’s payment of two quarterly dividends to compensate for a dividend not being paid during the previous quarter. Although the average balance of total interest-earning assets increased by $4.3 million, total interest and dividend income decreased due to a 28 basis point decrease in the average yield on those assets.

     Interest Expense. Interest expense increased by $315,000, or 7.2%, to $4.7 million for the quarter ended September 30, 2007 as compared to $4.4 million during the same period of 2006 as increases in interest expense on borrowings were partially offset by a decrease in interest expense on deposits. Interest expense on Federal Home Loan Bank borrowings increased by $398,000 as the average balance increased by $35.6 million to $131.7 million

13

from $96.2 million although the average cost decreased by 29 basis points to 5.24% from 5.53%. The decrease in the average cost of these funds was the result of a decrease in market interest rates. Interest expense on other borrowings increased by $48,000 to $207,000 for the quarter ended September 30, 2007 as compared to $159,000 for the same period of 2006 due to a $3.5 million increase in the average balance, partially offset by a 61 basis point decrease in the cost of those funds. Interest expense on deposits decreased by $131,000 as average deposit balances decreased by $32.3 million, from $360.5 million in the quarter ended September 30, 2006 to $328.2 million in the 2007 quarter, while the average cost of these deposits increased by 16 basis points from 3.19% to 3.35%. The increase in the average cost of deposits is primarily the result of the competition for deposit accounts, and a shift to higher costing accounts.

     The following table presents average balances and average rates earned/paid by the Company for the quarter ended September 30, 2007 compared to the quarter ended September 30, 2006:

	Three Months Ended September 30,
	2007								2006
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
	(Dollars in thousands)
Interest-earning assets:
Mortgage loans	$	447,721		$	6,753		6.03	%	$	415,562		$	6,630		6.38	%
Other loans		10,991			235		8.55			7,228			146		8.08
Investment securities		72,753			880		4.84			100,303			1,344		5.36
Short-term investments		4,978			65		5.22			9,004			121		5.38
Total interest-earning assets		536,443			7,933		5.92			532,097			8,241		6.20
Allowance for loan losses		(3,844	)							(3,844	)
Non-interest-earning assets		18,734								18,632
Total assets	$	551,333							$	546,885
Interest-bearing liabilities:
Deposits	$	328,204			2,746		3.35		$	360,475			2,877		3.19
Advances from FHLB of Boston		131,736			1,727		5.24			96,176			1,329		5.53
Other borrowings		12,028			207		6.88			8,486			159		7.49
Total interest-bearing liabilities		471,968			4,680		3.97			465,137			4,365		3.75
Non-interest-bearing liabilities		41,229								42,213
Total liabilities		513,197								507,350
Stockholders’ equity		38,136								39,535
Total liabilities and stockholders’ equity	$	551,333							$	546,885
Net interest and dividend income				$	3,253							$	3,876
Net interest spread							1.95	%							2.45	%
Net interest margin							2.43	%							2.91	%

     Provision for Loan Losses. 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, management considers past and anticipated loss experience, evaluations of underlying collateral, financial condition of the borrower, prevailing economic conditions, the nature and volume of the loan portfolio and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and ultimate losses may vary from such estimates. Management assesses the allowance for loan losses on a quarterly basis and provides for

14

loan losses monthly when appropriate to maintain the adequacy of the allowance. The Company uses a process of portfolio segmentation to calculate the appropriate reserve level at the end of each quarter. Periodically, the Company evaluates the allocations used in these calculations. During the quarter ended September 30, 2007, management performed a thorough analysis of the loan portfolio as well as the required reserve allocations for loans considered impaired under SFAS No 114 and the allocation percentages used when calculating potential losses under FAS No. 5. Based on this analysis, the Company recorded a credit (benefit) to the provision of $300,000, compared to no provision for loan losses during the corresponding 2006 quarter. This benefit reflects the maturation of the Company’s commercial real estate portfolio.

     Since March 31, 2007, the Company has experienced an increase in the volume and percentage of loans classified as nonperforming.  At September 30, 2007, non-performing loans totaled $9.3 million as compared to $330,000 on March 31, 2007. While the Company has seen increases in its nonperforming loans and net loans charged off, such increases are primarily related to two borrowers.  Management has evaluated the financial condition of the borrowers as well as the collateral of the loans and believes it has properly identified any potential losses as of September 30, 2007.  Furthermore to management’s knowledge, there are no loans, other than those identified as impaired, which cause management to have serious doubts as to the ability of a borrower to comply with their loan repayment terms. Based on management’s analysis of the allowance for loan losses, the current allowance for loan losses is considered adequate as of September 30, 2007.

     Non-Interest Income. Non-interest income increased by $87,000, or 19.5%, to $534,000 for the quarter ended September 30, 2007 as compared to $447,000 during the same period of 2006 primarily due to increases in gains on investments and other income. Net gains on investments totaled $172,000 during the current quarter, up $56,000 from the $116,000 recognized in the prior year’s quarter. Other income increased $29,000 from $57,000 in 2006 to $86,000 during the same quarter this year primarily due to a $35,000 increase in third-party investment fees.

     Non-Interest Expenses. Non-interest expense decreased by $404,000, or 10.7%, to $3.4 million during the quarter ended September 30, 2007 as compared to $3.8 million during the same period of 2006. Decreases in salaries and benefits of $238,000, occupancy and equipment of $17,000, data processing fees of $35,000, professional fees of $22,000, and advertising and marketing expenses of $97,000, were partially offset by an increase in other expenses of $5,000. The changes reflect the efforts by the Company to reduce expenses throughout the Company.

     Salaries and employee benefits decreased by $238,000, or 10.9%, to $1.9 million during the quarter ended September 30, 2007 as compared $2.2 million during the same quarter of 2006 due to staff cuts and positions not being filled in an effort to save salary costs. No salary increases that normally would have taken effect as of April 1 were granted this year.

     Office occupancy and equipment expenses decreased by $17,000, or 3.1%, to $526,000 during the quarter ended September 30, 2007 as compared to the prior year period due to lower utilities and repairs and maintenance costs, partially offset by increases in property insurance premiums and depreciation of furniture, fixtures and equipment, primarily as a result of the Bank’s new branch and operations center.

     Professional fees decreased $22,000, or 10.0%, to $198,000 during the quarter ended September 30, 2007 as compared to $220,000 during the same period of 2006.

     Marketing expenses declined $97,000, or 97.0%, to $3,000 during the quarter ended September 30, 2007 as compared to $100,000 during the same period of 2006 due to a decision to discontinue most advertising and marketing efforts during the quarter.

     Other non-interest expenses increased $5,000, or 1.0%, to $498,000 during the quarter ended September 30, 2007 as compared $493,000 during the same period of 2006.

     Income Taxes. The effective tax rates for the quarters ended September 2007 and 2006 were 33.9% and 34.5%, respectively.

15

Comparison of Operating Results for the Six Months Ended September 30, 2007 and 2006

     For the six months ended September 30, 2007, net income increased 48.7% to $690,000, or $0.49 per diluted share, compared to $464,000, or $0.32 per diluted share, in the year earlier period. This change reflects an $861,000 decrease in net interest income, a credit (benefit) to the provision for loan losses of $300,000, a $122,000 increase in non-interest income, a $734,000 reduction in non-interest expenses, and a $119,000 increase in the provision for income taxes.

     Interest and Dividend Income. Interest and dividend income increased by $241,000, or 1.5%, to $16.0 million for the six months ended September 30, 2007 compared to $15.7 million for the same period of 2006 primarily due to increased average loan balances. The yield on interest-earning assets decreased slightly from 5.96% in the first six months of the prior year to 5.91% in the same period of the current year. Interest income for the six months ended September 30, 2007 was negatively impacted as interest income not recognized on non-accrual loans totaled $238,000. Average interest-earning assets increased by $12.6 million, or 2.4%, to $540.6 million during the six months ended September 30, 2007, from $527.9 million for the six months ended September 30, 2006.

     Interest Expense. Interest expense increased by $1.1 million, or 13.3%, to $9.4 million for the six months ended September 30, 2007 compared to $8.3 million for the same period of 2006. This increase resulted from a 36 basis point increase in the cost of funds from 3.58% in the six months ended September 30, 2006 to 3.94% in the six months ended September 30, 2007 and an increase in average interest-bearing liabilities of $14.3 million to $476.2 million from $461.8 million. Interest-bearing liabilities were increased to fund growth in the loan portfolio.

     The increase in the cost of interest-bearing liabilities during the first half of the current year was primarily due to an increase in the cost of deposits from 3.02% during the prior year period to 3.35% during the six months ended September 30, 2007. The cost of Federal Home Loan Bank of Boston advances, the Company’s other primary interest-bearing liability, decreased during the first half of the current year to 5.15% from 5.37% in the comparable prior year period as some advances matured and some option advances were called and were replaced with lower rate advances.

16

     The following table presents average balances and average rates earned/paid by the Company for the six months ended September 30, 2007 compared to the six months ended September 30, 2006:

	Six Months Ended September 30,
	2007								2006
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
	(Dollars in thousands)
Interest-earning assets:
Mortgage loans	$	448,400		$	13,562		6.05	%	$	410,871		$	12,771		6.22	%
Other loans		9,358			385		8.23			6,826			273		8.00
Investment securities		73,581			1,766		4.80			101,159			2,470		4.88
Short-term investments		9,239			258		5.59			9,085			216		4.76
Total interest-earning assets		540,578			15,971		5.91			527,941			15,730		5.96
Allowance for loan losses		(3,849	)							(3,825	)
Noninterest-earning assets		18,908								19,001
Total assets	$	555,637							$	543,117
Interest-bearing liabilities:
Deposits	$	334,023		$	5,599		3.35		$	358,489		$	5,409		3.02
Advances from FHLB of Boston		130,050			3,351		5.15			95,146			2,557		5.37
Other borrowings		12,081			428		7.09			8,199			310		7.56
Total interest-bearing liabilities		476,154			9,378		3.94			461,834			8,276		3.58
Non-interest-bearing liabilities		41,492								41,863
Total liabilities		517,646								503,697
Stockholders’ equity		37,991								39,420
Total liabilities and stockholders’ equity									$	543,117
	$	555,637
Net interest and dividend income				$	6,593							$	7,454
Net interest spread							1.97	%							2.38	%
Net interest margin							2.44	%							2.82	%

     Provision for Loan Losses. 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, management considers past and anticipated loss experience, evaluations of underlying collateral, financial condition of the borrower, prevailing economic conditions, the nature and volume of the loan portfolio and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and ultimate losses may vary from such estimates. Management assesses the allowance for loan losses on a quarterly basis and provides for loan losses monthly when appropriate to maintain the adequacy of the allowance. The Company uses a process of portfolio segmentation to calculate the appropriate reserve level at the end of each quarter. Periodically, the Company evaluates the allocations used in these calculations. During the six-month period ended September 30, 2007, management performed a thorough analysis of the loan portfolio as well as the required reserve allocations for loans considered impaired under SFAS No 114 and the allocation percentages used when calculating potential losses under FAS No. 5.  Based on this analysis, the Company recorded a credit (benefit) to the provision of $300,000, compared to a provision for loan losses of $50,000 during the corresponding 2006 period. The benefit recorded in the first six months of Fiscal 2008 year reflects the maturation of the Company’s commercial real estate portfolio.

17

     Since March 31, 2007, the Company has experienced an increase in the volume and percentage of loans classified as nonperforming.  At September 30, 2007, non-performing loans totaled $9.3 million as compared to $330,000 on March 31, 2007. While the Company has seen increases in its nonperforming loans and net loans charged off, such increases are primarily related to two borrowers.  Management has evaluated the financial condition of the borrowers as well as the collateral of the loans and believes it has properly identified any potential losses as of September 30, 2007.  Furthermore to management’s knowledge, there are no loans, other than those identified as impaired, which cause management to have serious doubts as to the ability of a borrower to comply with their loan repayment terms. Based on management’s analysis of the allowance for loan losses, the current allowance for loan losses is considered adequate as of September 30, 2007.

     Non-interest Income. Non-interest income increased by $122,000, or 13.0%, to $1.1 million during the six months ended September 30, 2007 compared to $937,000 during the same period of 2006 due to increases in gains on the sale of investments of $60,000, third-party investment fees of $48,000, and gains on the sales of loans of $18,000.

     Net gains from sales of investment securities were $288,000 for the six months ended September 30, 2007 compared to net gains of $228,000 in the comparable prior year period. During the six months ended September 30, 2007 and 2006, the Company did not record any write-downs of equity securities which had experienced a decline in fair value judged to be other than temporary.

     Non-interest Expenses. Non-interest expense decreased by $734,000, or 9.6%, to $6.9 million during the six months ended September 30, 2007 as compared to $7.6 million during the same period of 2006. This decrease is due to decreases in salaries and benefits of $318,000, marketing costs of $315,000, professional fees of $55,000, data processing costs of $45,000 and other expenses of $30,000, partially offset by an increase in occupancy costs and equipment of $29,000.

     Salaries and employee benefits decreased by $318,000, or 7.3%, to $4.0 million during the six months ended September 30, 2007 as compared $4.4 million during the same period of 2006 due to staff cuts and positions not being filled in an effort to reduce salary costs.

     Office occupancy and equipment expenses increased $29,000, or 2.8%, to $1.1 million during the six months ended September 30, 2007 as compared $1.0 million during the same period of 2006 primarily due to increases in property insurance, the amortization of leasehold improvements and depreciation of furniture, fixtures and equipment , partially offset by decreases in utilities, repairs and maintenance and property taxes, partly as a result of the opening of our new Medford branch and operations center.

     Data processing costs decreased by $45,000, or 9.2%, to $442,000 during the six months ended September 30, 2007 as compared to $487,000 during the same period of 2006 as certain postage charges, previously included as data processing charges, were reclassified to the other expense category.

     Marketing expenses decreased by $315,000 to $7,000 during the six months ended September 30, 2007 as compared to $322,000 during the same period of 2006 due to a decision to discontinue most advertising and marketing efforts during the period.

     Other non-interest expenses decreased $30,000, or 3.1%, to $934,000 during the six months ended September 30, 2007 as compared to $964,000 during the same period of 2006 primarily due to overall net reductions in general overhead costs.

     Income Taxes. The effective tax rate for both the six months ended September 30, 2007 and 2006 was 34.5%.

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Liquidity and Capital Resources

     Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’s principal sources of liquidity are customer deposits, short-term investments, loan repayments, and advances from the Federal Home Loan Bank of Boston and funds from operations. The Bank is a voluntary member of the Federal Home Loan Bank of Boston and, as such, is entitled to borrow up to the value of its qualified collateral that has not been pledged to others. Qualified collateral generally consists of residential first mortgage loans, U.S. Government and agencies securities, mortgage-backed securities and funds on deposit at the Federal Home Loan Bank of Boston. At September 30, 2007, the Company had approximately $15.5 million in unused borrowing capacity at the Federal Home Loan Bank of Boston.

     At September 30, 2007, the Company had commitments to originate loans, unused outstanding lines of credit and undisbursed proceeds of loans totaling $33.0 million. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company anticipates that it will have sufficient funds available to meet its current loan commitments.

     The Company’s and the Bank’s capital ratios at September 30, 2007 were as follows:

	Company	Bank
Tier 1 Capital (to average assets)	8.58%	7.09%
Tier 1 Capital (to risk-weighted assets)	11.95%	9.90%
Total Capital (to risk-weighted assets)	12.86%	10.81%

     These ratios place the Company in excess of regulatory standards and the Bank in the “well capitalized” category as set forth by the Federal Deposit Insurance Corporation.

Off-Balance Sheet Arrangements

     In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

     For the year ended March 31, 2007 and for the six months ended September 30, 2007, the Company engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company’s earnings are largely dependent on its net interest income, which is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. The Company seeks to reduce its exposure to changes in interest rate, or market risk, through active monitoring and management of its interest-rate risk exposure. The policies and procedures for managing both on- and off-balance sheet activities are established by the Bank’s asset/liability management committee (“ALCO”). The Board of Directors reviews and approves the ALCO policy annually and monitors related activities on an ongoing basis.

     Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest rate risk inherent in its lending, borrowing and deposit taking activities.

     The main objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on net interest income and preserve capital, while adjusting the asset/liability structure to control interest-rate risk. However, a sudden and substantial increase or decrease in interest rates may adversely impact earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis.

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     The Company quantifies its interest-rate risk exposure using a sophisticated simulation model. Simulation analysis is used to measure the exposure of net interest income to changes in interest rates over a specific time horizon. Simulation analysis involves projecting future interest income and expense under various rate scenarios. The simulation is based on both actual and forecasted cash flows and assumptions of management about the future changes in interest rates and levels of activity (loan originations, loan prepayments, deposit flows, etc). The assumptions are inherently uncertain and, therefore, actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and strategies. The net interest income projection resulting from use of actual and forecasted cash flows and management’s assumptions is compared to net interest income projections based on an immediate shift of 200 basis points upward and 200 basis points downward. Internal guidelines on interest rate risk state that for every immediate shift in interest rates of 100 basis points, estimated net interest income over the next twelve months should decline by no more than 5%.

     The following table indicates the projected change in net interest income and sets forth such change as a percentage of estimated net interest income, for the twelve-month period following the date indicated assuming an immediate and parallel shift for all market rates with other rates adjusting to varying degrees in each scenario based on both historical and expected spread relationships:

	September 30,						March 31,
	2007						2007
	Amount			% Change			Amount			% Change
	(Dollars in thousands)
200 basis point increase in rates	$	(1,597	)		(11.68	)%	$	(1,956	)		(13.39	)%
200 basis point decrease in rates		340			2.48			320			2.19

     As noted, this policy provides broad, visionary guidance for managing the Bank’s balance sheet, not absolute limits. When the simulation results indicate a variance from the stated parameters, ALCO will intensify its scrutiny of the reasons for the variance and take whatever actions are deemed appropriate under the circumstances.

Item 4. Controls and Procedures

     The Company’s management has carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, (1) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

     In addition, based on that evaluation, there has been no change in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

     Periodically, there have been various claims and lawsuits against the Company, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

     In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2007, as filed with the Securities and Exchange Commission on June 22, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     The Company did not repurchase any of its securities during the quarter ended September 30, 2007.

Item 3. Defaults Upon Senior Securities

     Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

     On July 26, 2007, the Registrant convened its Annual Meeting of Stockholders.

     The first item submitted to a vote of stockholders was the election of three directors, Gregory W. Boulos, John D. Doherty and Albert J. Mercuri, Jr., who were elected directors for a term of three years each. Continuing directors are Joseph R. Doherty, Paul E. Bulman, Richard E. Stevens, James F. Linnehan, John J. Morrissey and Edward F. Sweeney, Jr. The following is a record of the voting in the election of directors:

ELECTION OF DIRECTORS	FOR		WITHHELD
John D. Doherty		1,219,702		329,592
Gregory W. Boulos		1,224,032		329,592
Albert J. Mercuri, Jr.		1,224,032		329,592

     There were no abstentions and no broker non-votes.

Item 5. Other Information

     None.

Item 6. Exhibits

3.2	Amended and Restated Bylaws of Central Bancorp, Inc. (Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed with the SEC on October 22, 2007.)
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32	Section 1350 Certifications

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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.                Registrant
November 14, 2007	By:	/s/ John D. Doherty
		John D. Doherty
		Chairman, President and Chief Executive Officer
November 14, 2007	By:	/s/ Paul S. Feeley
		Paul S. Feeley
		Senior Vice President, Treasurer and Chief Financial Officer