SOMERVILLE, MA -- 11/03/09 --
Central Bancorp, Inc. (NASDAQ: CEBK) (the
"Company") today reported that its net income for the quarter ended
September 30, 2009 increased to $604 thousand, or $0.30 per diluted share,
as compared to a net loss of $9.5 million, or $6.80 per diluted share, for
the comparable prior year quarter. The Company's net income for the six
months ended September 30, 2009 was $901 thousand, or $0.40 per diluted
share, as compared to net loss of $9.1 million, or $6.53 per diluted share,
for the corresponding period in 2008. The financial results for both 2008
periods were significantly impacted by the September 2008 conservatorship
of the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac") that resulted in a $9.4
million impairment of the value of the Company's investment in the
preferred stock of those companies. No tax benefit was recorded during that
period as the losses were initially considered capital losses and there
were insufficient capital gains to offset such losses. However, during the
subsequent quarter ending December 31, 2008, the Company recognized a tax
benefit of approximately $3.5 million on the Fannie Mae and Freddie Mac
impairment charges due to the October 3, 2008 enactment of the Emergency
Economic Stabilization Act of 2008, which permitted the Company to treat
losses incurred on the Fannie Mae and Freddie Mac preferred stock as
ordinary losses for federal income tax purposes.
Net interest and dividend income totaled $4.2 million during both the
quarter ended September 30, 2009 and the quarter ended September 30, 2008.
Interest income totaled $7.2 million during the quarter ended September 30,
2009, which represents a decrease of $575 thousand as compared to interest
income of $7.8 million during the quarter ended September 30, 2008. This
decrease in interest income was largely offset by a $563 thousand decrease
in interest expense, which totaled $3.0 million during the quarter ended
September 30, 2009 compared to $3.6 million during the quarter ended
September 30, 2008. The net interest rate spread and the net interest
margin were 2.90% and 3.19%, respectively, for the quarter ended September
30, 2009 compared to 2.82% and 3.14%, respectively, for the quarter ended
September 30, 2008, with the changes in these ratios resulting from rate
and volume changes as follows. The cost of funds decreased by 41 basis
points mainly due to a general decline in interest rates and aggressive
liability management. During the quarter ended September 30, 2009, the
yield on interest-earning assets declined by 33 basis points primarily due
to a 129 basis point decrease in interest income on investments and a 165
basis point reduction in interest income on short-term investments. The
reduced yield on investments during the quarter ended September 30, 2009
was primarily due to the combined effect of: (1) a $96 thousand decrease in
dividends which resulted from the elimination of dividends on preferred
stock issued by the Fannie Mae and Freddie Mac as a result of the above
referenced events related to those companies in September 2008; and (2) a
reduction of $65 thousand in FHLB stock dividends due to the FHLB of
Boston's elimination of its dividend as announced in February 2009. The
average balance of short-term investments increased from $11.0 million
during the quarter ended September 30, 2008 to $19.6 million during the
quarter ended September 30, 2009. This increase was primarily due to
management's determination to use proceeds received from the December 2008
sale of $10.0 million of preferred stock and warrant to purchase common
stock to the U.S. Treasury Department as a participant in the federal
government's TARP Capital Purchase Program, and proceeds from loan and
securities repayments and maturities, to purchase short-term investments
due to a lack of attractive re-investment alternatives during the
recessionary economic environment.
Notwithstanding the increase in the average balance of short-term
investments, interest income on these investments declined by $40 thousand
as the Federal Reserve lowered the fed funds target rate by approximately
175 basis points from 200 basis points during the quarter ended September
30, 2008 to 25 basis points during the quarter ended September 30, 2009.
This decrease in the fed funds target rate had a corresponding effect on
the interest earned on the Company's short-term investments, as the
interest earned on these assets is closely tied to the target fed funds
rate. Short-term investments are primarily comprised of federal funds sold
and interest-earning balances at the Federal Reserve Bank of Boston.
The provision for loan losses for the quarter ended September 30, 2009
totaled $200 thousand compared to a provision for loan losses of $900
thousand during the quarter ended September 30, 2008, the prior period's
provision being primarily attributable to one borrowing relationship. The
Company provides for loan losses in order to maintain the allowance for
loan losses at a level that management estimates is adequate to absorb
probable losses based on an evaluation of known and inherent risks in the
portfolio. In determining the appropriate level of the allowance for loan
losses, the Company considers, among other things, past and anticipated
loss experience, evaluations of underlying collateral, prevailing economic
conditions, changes in staff depth and experience, the nature and volume of
the loan portfolio and the levels of non-performing and other classified
loans. Management evaluates the level of the loan loss reserve on a regular
basis and considered the allowance for loan losses to be adequate during
the quarter ended September 30, 2009. However, management's ability to
predict future results is inherently uncertain and future increases to the
allowance for loan losses may be necessary due to changes in loan
composition or volume, changes in economic market area conditions or other
factors.
Non-interest income increased by $9.5 million from $(9.1) million during
the quarter ended September 30, 2008 to $410 thousand during the quarter
ended September 30, 2009. As previously mentioned, the Company recorded a
$9.4 million impairment on Fannie Mae and Freddie Mac preferred stock
during the quarter ended September 30, 2008. Additionally, net loss on the
sales or write-downs on other securities totaled $115 thousand during the
quarter ended September 30, 2008 compared to $0 during the quarter ended
September 30, 2009. Gains on the sale of loans increased from $3 thousand
during the quarter ended September 30, 2008 to $32 thousand during the
quarter ended September 30, 2009 due to increased loan origination and sale
activity during the 2009 period. Other non-interest income decreased by $35
thousand over the two periods primarily due to a $20 thousand decrease in
third party brokerage income.
Non-interest expenses decreased by $121 thousand to $3.5 million during the
quarter ended September 30, 2009 as compared to $3.6 million during the
quarter ended September 30, 2008. Included in this decrease were a $183
thousand decrease in salaries and benefits primarily due to the receipt of
benefits-related legal settlement, and a $197 thousand increase in other
expenses mainly due to a $122 thousand increase in FDIC insurance premiums.
Also, professional fees decreased by $70 thousand and marketing expenses
decreased by $51 thousand.
The effective income tax rate for the quarter ended September 30, 2009 was
33.7%, compared to an effective income tax rate of (0.7)% for the same
quarter of 2008. The tax rate for the 2008 quarter resulted from the losses
due to the Fannie Mae and Freddie Mac impairment charge during the 2008
quarter, as previously mentioned, and the Company's inability to take the
tax benefit recorded during the fourth quarter of 2008 during the three
months ended September 30, 2009.
In addition to the losses relating to the Fannie Mae and Freddie Mac
preferred stock, items primarily affecting the Company's earnings for the
six months ended September 30, 2009 when compared to the six months ended
September 30, 2008 were: a decrease in net interest income of $89 thousand;
a decrease in the provision for loan losses of $850 thousand primarily
resulting from provisions for loan losses related to one borrower which
totaled $1.1 million during the six months ended September 30, 2008 and the
absence of such a provision in the 2009 period; a net loss in sales and
write-downs on other securities of $144 thousand, and an increase in
non-interest expenses of $194 thousand. The increase in non-interest
expenses was primarily the result of a $350 decrease in salaries and
benefits, and a $453 thousand increase in deposit insurance premiums which
included a special assessment recorded during June 2009 that totaled $270
thousand.
The net interest rate spread and the net interest margin improved from
2.67% and 3.01%, respectively, for the six months ended September 30, 2008
to 2.75% and 3.04%, respectively, for the 2009 comparable period, primarily
due to a 43 basis point reduction in the cost of funds, partially offset by
a 35 basis point decrease in the average rate earned on interest-earning
assets.
Total assets were $540.7 million at September 30, 2009 compared to $575.8
million at March 31, 2009, a decrease of $35.1 million. Generally,
management utilized short-term investments, as well as loan repayment
proceeds, to fund investment purchases and certain maturing deposits and
borrowings. During the six months ended September 30, 2009, cash on hand
increased by $187 thousand, short-term investments decreased by $27.0
million, and investment securities increased by $811 thousand. Total loans
decreased by $4.6 million as commercial real estate loans decreased by
$12.7 million and construction loans declined by $10.4 million as
management de-emphasized these types of lending as a result of the current
market environment. Residential and home equity loans increased by $21.2
million, from $190.7 million at March 31, 2009 to $211.9 million at
September 30, 2009 due to management's increased emphasis on this type of
lending. Commercial and industrial loans decreased slightly, from $4.8
million at March 31, 2009 to $4.7 million at September 30, 2009. Deposits
decreased by $33.9 million due to a decrease in certificates of deposit of
$37.0 million, partially offset by a net increase in core deposits of $3.1
million. To reduce excess short-term investments, management strategically
did not renew certain maturing certificates of deposit. FHLB advances
decreased by $3.1 million to $141.5 million at September 30, 2009 from
$144.6 million at March 31, 2009 as a maturing advance was not renewed but
was instead funded with available cash.
The net increase in stockholders' equity from $40.2 million at March 31,
2009 to $43.1 million at September 30, 2009 is primarily the result of a
$2.1 million decrease in accumulated other comprehensive loss resulting
from net increases in the market values of available for sale securities,
and net income of $901 thousand.
The Company's and the Bank's capital ratios were as follows:
------------------------------------------------
REGULATORY
THRESHOLD
September FOR WELL
30, 2009 March 31, 2009 CAPITALIZED
------------- -------------- ------------
Central Bancorp:
Tier 1 Leverage 8.64% 7.77% 5.0%
Tier 1 Risk-Based Ratio 13.15% 11.56% 6.0%
Total Risk-Based Ratio 13.90% 12.41% 10.0%
Central Co-operative Bank:
Tier 1 Leverage 7.45% 6.61% 5.0%
Tier 1 Risk-Based Ratio 11.34% 9.84% 6.0%
Total Risk-Based Ratio 12.09% 10.69% 10.0%
At September 30, 2009, non-performing assets totaled $5.2 million, or 0.97%
of total assets, as compared to non-performing assets of $7.8 million, or
1.35% of total assets, at March 31, 2009. This decrease is primarily
attributable to the sales of two parcels of residential other real estate
owned which totaled $2.7 million. At September 30, 2009, other real estate
owned totaled $336 thousand compared to a balance of $3.0 million at March
31, 2009. While bankruptcy filings continue to extend the time required to
resolve some non-performing loans, management continues to work with
borrowers and bankruptcy trustees to resolve these situations as soon as
possible. Management currently believes that there are adequate reserves
and collateral securing non-performing loans to cover losses that may
result from these loans. However, management's ability to predict future
results is inherently uncertain and future increases to the allowance for
loan losses may be necessary due to changes in loan composition or volume,
changes in economic market area conditions or other factors.
Central Bancorp, Inc. is the holding company for Central Bank, whose legal
name is Central Co-operative Bank, a Massachusetts-chartered co-operative
bank operating nine full-service banking offices, a limited service high
school branch in suburban Boston and a standalone 24-hour automated teller
machine in Somerville.
(See accompanying tables.)
This press release, as well as other written communications made from time
to time by Central Bancorp, Inc. and Central Co-operative Bank, and oral
communications made from time to time by authorized officers of the Company
and Bank, may contain statements relating to the future results of the
Company (including certain projections, such as earnings projections,
necessary tax provisions, and business trends) that are considered
"forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "PSLRA"). Such forward-looking
statements may be identified by the use of such words as "intend,"
"believe," "expect," "should," "planned," "estimated" and "potential." For
these statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the PSLRA. The Company's ability to
predict future results is inherently uncertain and the Company cautions you
that a number of important factors could cause actual results to differ
materially from those currently anticipated in any forward-looking
statement. These factors include, among others, changes in market interest
rates and general and regional economic conditions, changes in government
regulations, changes in accounting principles and the quality or
composition of the loan and investment portfolios. Additional factors that
may affect our results are discussed under "Item 1A Risk Factors" in the
Company's Quarterly Reports on Form 10-Q and in its Annual Report on Form
10-K, each filed with the Securities and Exchange Commission (the "SEC"),
which are available at the SEC's website (www.sec.gov) and to which
reference is hereby made. These factors should be considered in evaluating
the forward-looking statements. Stockholders are cautioned not to place
undue reliance on such statements, which speak only as of the date of those
documents. All subsequent written and oral forward-looking statements
attributable to us or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements above. Except to
the extent required by applicable law or regulation, the Company does not
undertake any obligation to update any forward-looking statement to reflect
circumstances or events that occur after the date the forward-looking
statements are made.
Central Bancorp, Inc.
Consolidated Operating Data
(In Thousands, Except Per Share Data)
Quarter Ended Six Months Ended
September 30, September 30,
------------------ ------------------
2009 2008 2009 2008
--------- -------- --------- --------
(Unaudited) (Unaudited)
Net interest and dividend income $ 4,186 $ 4,198 $ 8,034 $ 8,123
Provision for loan losses 200 900 250 1,100
Net gain (loss) from sales or
write-downs of investment
securities other than FNMA or
FHLMC - (115) - (144)
Net loss from write-downs of FNMA
and FHLMC - (9,394) - (9,394)
Gains on sales of loans 32 3 181 15
Other non-interest income 378 412 763 857
Non-interest expenses 3,485 3,606 7,408 7,214
--------- -------- --------- --------
Income (loss) before taxes 911 (9,402) 1,320 (8,857)
Provision for income taxes 307 64 419 208
--------- -------- --------- --------
Net income (loss) $ 604 $ (9,466) $ 901 $ (9,065)
========= ======== ========= ========
Net income (loss) available to
common shareholders $ 451 $ (9,466) $ 596 $ (9,065)
========= ======== ========= ========
Earnings (loss) per share:
Basic $ 0.31 $ (6.80) $ 0.41 $ (6.53)
========= ======== ========= ========
Diluted $ 0.30 $ (6.80) $ 0.40 $ (6.53)
========= ======== ========= ========
Weighted average number of
shares outstanding:
Basic 1,452 1,391 1,449 1,388
========= ======== ========= ========
Diluted 1,498 1,391 1,473 1,388
========= ======== ========= ========
Outstanding shares, end of period 1,640 1,640 1,640 1,640
========= ======== ========= ========
Consolidated Balance Sheet Data
(In Thousands, Except Per Share Data)
September 30, March 31,
2009 2009
------------- -------------
(Unaudited)
Total assets $ 540,674 $ 575,827
Short-term investments 10,368 37,323
Total investments 46,120 45,309
Total loans (1) 459,310 463,878
Allowance for loan losses 2,719 3,191
Other real estate owned 336 2,986
Deposits 341,218 375,074
Borrowings 141,668 145,597
Subordinated debentures 11,341 11,341
Stockholders' equity 43,130 40,239
Book value per common share 20.49 18.76
Book equity to assets 7.98% 6.99%
Non-performing assets to total assets 0.97 1.35
(1) Includes loans held for sale of $732 and $3,208 at September 30, 2009
and March 31, 2009, respectively.
Selected Financial Ratios
(In Thousands, Except Per Share Data)
Quarter Ended Six Months Ended
September 30, September 30,
------------------- -------------------
2009 2008 2009 2008
--------- -------- --------- --------
(Unaudited) (Unaudited)
Return on average assets 0.44% (6.81)% 0.32% (3.23)%
Return on average equity 5.68 (99.95) 4.31 (46.57)
Interest rate spread 2.90 2.82 2.75 2.67
Net interest margin 3.19 3.14 3.04 3.01
Contact:
Paul S. Feeley
Senior Vice President, Treasurer &
Chief Financial Officer
(617) 628-4000
