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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, 2002
-----------------
Commission File Number: 0-25251
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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
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(Address of Principal Executive Offices)
(617) 628-4000
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Registrant's Telephone Number
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
--- ---
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
Common Stock, $1.00 par value 1,662,433
----------------------------- ---------------------------------
Class Outstanding at February 12, 2003
CENTRAL BANCORP, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition at
December 31, 2002 and March 31, 2002 1
Consolidated Statements of Income for the three
and nine months ended December 31, 2002 and 2001 2
Consolidated Statements of Changes in Stockholders'
Equity for the nine months ended December 31, 2002
and 2001 3
Consolidated Statements of Cash Flows for the nine
months ended December 31, 2002 and 2001 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Liquidity and Capital Resources 13
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 13
Item 4. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES AND CERTIFICATIONS
Item 1. Financial Statements
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, March 31,
(Dollars in Thousands) 2002 2002
- ---------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
Cash and due from banks $ 7,555 $ 5,109
Short-term investments 798 2,455
--------- ---------
Cash and cash equivalents 8,353 7,564
--------- ---------
Investment securities available for sale (amortized cost of $63,801
at December 31, 2002 and $74,935 at March 31, 2002) 65,182 73,884
Stock in Federal Home Loan Bank of Boston, at cost 8,300 8,300
The Co-operative Central Bank Reserve Fund 1,576 1,576
--------- ---------
Total investments 75,058 83,760
--------- ---------
Loans held for sale (Note 2) 19,494 --
Loans (Note 2) 380,494 371,707
Less allowance for loan losses 3,276 3,292
--------- ---------
Net loans 377,218 368,415
--------- ---------
Accrued interest receivable 2,574 2,530
Banking premises and equipment, net 1,865 1,836
Deferred tax asset, net 752 1,289
Goodwill, net (Note 1) 2,232 2,232
Other assets 501 593
--------- ---------
Total assets $ 488,047 $ 468,219
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 3) $ 286,721 $ 261,907
Short-term borrowings 457 --
Advances from Federal Home Loan Bank of Boston 155,400 164,000
Advance payments by borrowers for taxes and insurance 990 1,111
Accrued expenses and other liabilities 3,389 2,247
--------- ---------
Total liabilities 446,957 429,265
--------- ---------
Commitments and Contingencies (Note 5)
Stockholders' equity (Notes 6 and 7):
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;
2,027,727 shares issued at December 31, 2002 and
1,999,588 shares issued at March 31, 2002 2,028 2,000
Additional paid-in capital 12,697 11,934
Retained income 35,218 33,141
Treasury stock (365,294 shares at December 31, 2002 and
at March 31, 2002), at cost (7,204) (7,189)
Accumulated other comprehensive income (loss) (Note 4) 886 (626)
Unearned compensation - ESOP (2,535) (306)
--------- ---------
Total stockholders' equity 41,090 38,954
--------- ---------
Total liabilities and stockholders' equity $ 488,047 $ 468,219
========= =========
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 Nine Months Ended
December 31, December 31,
-------------------------- -----------------------
2002 2001 2002 2001
---------- ---------- --------- --------
Interest and dividend income:
Mortgage loans $ 6,220 $ 5,564 $ 18,512 $ 17,510
Other loans 145 157 438 521
Short-term investments 23 47 118 848
Investments 1,212 1,284 3,540 2,953
---------- ---------- --------- --------
Total interest and dividend income 7,600 7,052 22,608 21,831
---------- ---------- --------- --------
Interest expense:
Deposits 1,385 1,743 4,366 6,557
Advances from Federal Home Loan Bank of Boston 1,863 1,601 5,494 4,970
---------- ---------- --------- --------
Total interest expense 3,248 3,344 9,860 11,527
---------- ---------- --------- --------
Net interest and dividend income 4,352 3,708 12,748 10,304
Provision for loan losses -- -- -- --
---------- ---------- --------- --------
Net interest and dividend income after
provision for loan losses 4,352 3,708 12,748 10,304
---------- ---------- --------- --------
Non-interest income:
Deposit service charges 151 136 413 364
Net gains (losses) from sales and write-downs
of investment securities 14 16 (196) 339
Gain on sales of loans 27 -- 28 --
Other income 114 92 342 288
---------- ---------- --------- --------
Total non-interest income 306 244 587 991
---------- ---------- --------- --------
Non-interest expenses:
Salaries and employee benefits 1,759 1,334 5,050 4,382
Occupancy and equipment 265 273 834 868
Data processing service fees 268 248 814 738
Professional fees 438 232 1,141 786
Goodwill amortization (Note 1) -- 72 -- 216
Other expenses 470 308 1,384 1,096
---------- ---------- --------- --------
Total non-interest expenses 3,200 2,467 9,223 8,086
---------- ---------- --------- --------
Income before income taxes 1,458 1,485 4,112 3,209
Provision for income taxes 548 536 1,507 1,166
---------- ---------- --------- --------
Net income $ 910 $ 949 $ 2,605 $ 2,043
========== ========== ========= ========
Earnings per common share - basic $ 0.58 $ 0.57 $ 1.64 $ 1.23
========== ========== ========= ========
Earnings per common share - diluted $ 0.58 $ 0.57 $ 1.63 $ 1.22
========== ========== ========= ========
Weighted average common shares outstanding - basic 1,569 1,657 1,584 1,661
Weighted average common and equivalent shares
outstanding - diluted 1,580 1,672 1,600 1,676
See accompanying notes to unaudited consolidated financial statements.
2
CENTRAL BANCORP, INC. AND SUBSIDIARY
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, 2002
- -----------------------------------
Balance at March 31, 2002 $ 2,000 $ 11,934 $ 33,141 $ (7,189)
Net income -- -- 2,605 --
Other comprehensive income net of tax:
Unrealized gain on securities, net
of reclassification adjustment -- -- -- --
Comprehensive income
Proceeds from exercise of stock options 28 488 -- --
Tax benefit of stock options -- 66 -- --
Purchase of shares by ESOP -- -- -- --
Director deferred compensation
transactions -- 20 -- (15)
Dividends paid ($.32 per share) -- -- (528) --
Amortization of unearned compensation -
ESOP -- 189 -- --
--------- ----------- ----------- ----------
Balance at December 31, 2002 $ 2,028 $ 12,697 $ 35,218 $ (7,204)
========= =========== =========== ==========
Nine Months Ended December 31, 2001
- -----------------------------------
Balance at March 31, 2001 $ 1,970 $ 11,190 $ 30,950 $ (5,230)
Net income -- -- 2,043 --
Other comprehensive income net of tax:
Unrealized loss on securities, net
of reclassification adjustment -- -- -- --
Comprehensive income
Proceeds from exercise of stock options 30 462 -- --
Purchase of treasury stock -- -- -- (1,449)
Dividends paid ($.30 per share) -- -- (509) --
Amortization of unearned compensation -
ESOP -- 140 -- --
--------- ----------- ----------- ----------
Balance at December 31, 2001 $ 2,000 $ 11,792 $ 32,484 $ (6,679)
========= =========== =========== ==========
Accumulated
Other Unearned Total
Comprehensive Compensation Stockholders'
(In Thousands) Income (Loss) ESOP Equity
- ----------------------------------------------------------------------------------------------------------
Nine Months Ended December 31, 2002
- -----------------------------------
Balance at March 31, 2002 $ (626) $ (306) $ 38,954
Net income -- -- 2,605
Other comprehensive income net of tax:
Unrealized gain on securities, net
of reclassification adjustment 1,512 -- 1,512
-----------
Comprehensive income 4,117
-----------
Proceeds from exercise of stock options -- -- 516
Tax benefit of stock options -- -- 66
Purchase of shares by ESOP -- (2,358) (2,358)
Director deferred compensation
transactions -- -- 5
Dividends paid ($.32 per share) -- -- (528)
Amortization of unearned compensation -
ESOP -- 129 318
----------- ---------- -----------
Balance at December 31, 2002 $ 886 $ (2,535) $ 41,090
=========== ========== ===========
Nine Months Ended December 31, 2001
- -----------------------------------
Balance at March 31, 2001 $ (431) $ (237) $ 38,212
Net income -- -- 2,043
Other comprehensive income net of tax:
Unrealized loss on securities, net
of reclassification adjustment (111) -- (111)
-----------
Comprehensive income 1,932
-----------
Proceeds from exercise of stock options -- -- 492
Purchase of treasury stock -- -- (1,449)
Dividends paid ($.30 per share) -- -- (509)
Amortization of unearned compensation -
ESOP -- 97 237
----------- ---------- -----------
Balance at December 31, 2001 $ (542) $ (140) $ 38,915
=========== ========== ===========
See accompanying notes to unaudited consolidated financial statements.
3
CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
December 31,
(In thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 2,605 $ 2,043
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Depreciation and amortization 239 298
Amortization of premiums 189 118
Amortization of goodwill -- 216
Stock-based compensation 318 237
Net (gains) losses from sales and write-downs of
investment securities 196 (339)
Gain on sale of loans held for sale (28) --
Originations of loans held for sale (21,309) --
Proceeds from sale of loans originated for sale 1,843 --
Increase in accrued interest receivable (44) (60)
(Increase) decrease in other assets, net (700) 195
Decrease in advance payments by borrowers for taxes and insurance (121) (232)
Increase (decrease) in accrued expenses and other liabilities 142 (32)
----------- -----------
Net cash provided by (used in) operating activities (16,670) 2,444
----------- -----------
Cash flows from investing activities:
Net (increase) decrease in loans (8,787) 17,146
Principal payments on mortgage-backed securities 5,293 5,337
Purchases of investment securities (5,210) (63,858)
Maturities and calls of investment securities 4,000 26,000
Proceeds from sales of investment securities 8,126 2,625
Purchase of stock in Federal Home Loan Bank of Boston -- (211)
Purchase of banking premises and equipment (269) (164)
----------- -----------
Net cash provided by (used in) investing activities 3,153 (13,125)
----------- -----------
Cash flows from financing activities:
Increase (decrease) in deposits 24,814 (25,135)
Proceeds from advances from FHLB of Boston 39,000 24,000
Repayments on advances from FHLB of Boston (47,600) (18,000)
Net increase in short-term advances from FHLB of Boston -- 2,206
Increase in short-term borrowings 457 --
Proceeds from exercise of stock options 516 492
Purchase of treasury stock -- (1,449)
Purchase of shares by ESOP (2,358) --
Dividends paid (528) (509)
Net directors deferred compensation 5 --
----------- -----------
Net cash provided by (used in) financing activities 14,306 (18,395)
----------- -----------
Net increase (decrease) in cash and cash equivalents 789 (29,076)
Cash and cash equivalents at beginning of period 7,564 39,880
----------- -----------
Cash and cash equivalents at end of period $ 8,353 $ 10,804
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 9,834 $ 11,576
Income taxes $ 2,095 $ 1,194
See accompanying notes to unaudited consolidated financial statements.
4
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(1) BASIS OF PRESENTATION
The unaudited consolidated financial statements of Central Bancorp, Inc.
and its wholly-owned subsidiary Central Co-operative 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, 2002, included in the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission. In the opinion of management, the
accompanying unaudited consolidated financial statements reflect all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation. Interim results are not necessarily indicative of results to be
expected for the entire year.
The Company's significant accounting policies are described in Note 1 of
the Notes to Consolidated Financial Statements included in its Form 10-K for the
year ended March 31, 2002. For interim reporting purposes, the Company follows
the same significant accounting policies. As set forth in Note 1 of the Form
10-K, the Company initially applied the requirements of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142) beginning April 1, 2002 and, accordingly, no amortization of goodwill was
recorded for the nine months ended December 31, 2002. Net income and earnings
per share for the three and nine month periods ended December 31, 2001 would
have been as follows had the requirements of SFAS No. 142 been applied
retroactively (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
December 31, 2001 December 31, 2001
------------------ -----------------
Net income $ 1,021 $ 2,259
Earnings per share - basic $ 0.62 $ 1.36
Earnings per share - diluted $ 0.61 $ 1.35
In accordance with SFAS No. 142, goodwill is subject to ongoing periodic
impairment testing using various fair value techniques, such as price/earnings
ratios, present values and other fair value methods. The Company has completed
the transitional impairment test specified by SFAS No. 142 and concluded that
the amount of recorded goodwill was not impaired as of April 1, 2002. In the
opinion of management, based upon its assessment, there was no impairment in the
carrying value of goodwill at December 31, 2002.
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. Such reclassifications
have no effect on previously reported net income.
(2) LOANS AND LOANS HELD FOR SALE
Loans, excluding loans held for sale, as of December 31, 2002 and March 31,
2002 are summarized below (in thousands):
December 31, March 31,
2002 2002
----------- -----------
Real estate loans:
Residential real estate $ 235,954 $ 239,396
Commercial real estate 98,736 93,662
Construction 27,361 20,998
Second mortgage and home equity lines of credit 9,792 9,154
----------- -----------
Total real estate loans 371,843 363,210
----------- -----------
Commercial loans 6,785 6,901
Consumer loans 1,866 1,596
----------- -----------
Total loans 380,494 371,707
Less: allowance for loan losses (3,276) (3,292)
----------- -----------
Total loans, net $ 377,218 $ 368,415
=========== ===========
5
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002
(2) LOANS AND LOANS HELD FOR SALE (CONTINUED)
There were no non-accrual loans at December 31, 2002 and March 31, 2002.
During the quarter ended December 31, 2002, the Company began to implement
its program to sell certain fixed rate residential mortgage loans to the
secondary market. In connection therewith, the Company entered into certain
commitments with investors to sell such loans on a servicing released basis.
Loans which were outstanding at December 31, 2002 and which were designated for
sale to investors have been separately classified in the accompanying balance
sheet as "loans held for sale" and accounted for at the lower of cost or market
value.
(3) DEPOSITS
Deposits at December 31, 2002 and March 31, 2002 are summarized as follows
(in thousands):
December 31, March 31,
2002 2002
----------- -----------
Demand deposit accounts $ 31,120 $ 25,370
NOW accounts 37,849 36,277
Regular, Club and 90 day notice accounts 71,201 72,944
Money market deposit accounts 40,901 17,997
----------- -----------
Total non certificate accounts 181,071 152,588
----------- -----------
Term deposit certificates
Certificates of $100 and above 27,345 27,233
Certificates less than $100 78,305 82,086
----------- -----------
Total term deposit certificates 105,650 109,319
----------- -----------
Total deposits $ 286,721 $ 261,907
=========== ===========
(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 (in thousands):
For the Nine Months Ended
December 31, 2002
-----------------------------------
Before-
Tax Tax(Benefit) After-Tax
Amount Expense Amount
-------- ------------ ---------
Unrealized gains (losses) on securities:
Unrealized net holding gains arising during period $2,236 $ 845 $1,391
Less: reclassification adjustment for net
losses included in net income (196) (75) (121)
------- ------- ------
Other comprehensive income $ 2,432 $ 920 $1,512
======= ======= ======
6
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002
(4) REPORTING COMPREHENSIVE INCOME (CONTINUED)
For the Nine Months Ended
December 31, 2001
-----------------------------------
Before-
Tax Tax(Benefit) After-Tax
Amount Expense Amount
-------- ------------ ---------
Unrealized gains (losses) on securities:
Unrealized holding gains arising during period $ 142 $ 37 $ 105
Less: reclassification adjustment for net
gains included in net income 339 123 216
------- ------- -------
Other comprehensive loss $ (197) $ (86) $ (111)
======= ======= =======
(5) CONTINGENCIES
Legal Proceedings
The Company from time to time is involved as plaintiff or defendant in
various legal actions incident to its business. Except as described herein, none
of these actions are believed to be material, either individually or
collectively, to the results of operations and financial condition of the
Company.
Central Co-operative Bank (the Bank) has been named as defendant in a civil
suit filed March 28, 2002 in Middlesex Superior Court under the caption Yi v.
Central Bank in which it is alleged, inter alia, that the Bank committed an
unfair or deceptive trade practice by failing to pay surplus foreclosure
proceeds to a junior lien holder in 1994. Plaintiff seeks damages of $160,000
plus interest of approximately $150,000 and has applied for a multiple damage
award under Chapter 93A of the Massachusetts General Laws which provides for up
to treble damages if a violation is found to be willful or knowing. The Bank
believes that it has meritorious defenses to all such claims and intends to
vigorously defend against them.
State Income Taxes
In June 2002, the Bank received from the Commonwealth of Massachusetts
Department of Revenue ("DOR") a Notice of Intent to Assess additional state
excise taxes of $535,000 plus interest with respect to its tax years ended March
31, 2000 and 2001. In October 2002, the DOR sent the Bank a Notice of Assessment
for the same amount and in December 2002 sent a demand for payment. The Bank has
submitted an application for abatement to the DOR for the full amount assessed.
For the period April 1, 2001 to December 31, 2002, additional state excise taxes
would be $530,000 applying the methodology set forth in the DOR's aforementioned
notices. The Bank is aware that the DOR has sent similar notices to numerous
other financial institutions in Massachusetts that reported a deduction for
dividends received from a REIT during this period. Assessed amounts ultimately
paid, if any, would be deductible expenses for federal income tax purposes.
The DOR contends that dividend distributions by the Bank's REIT to the Bank
are fully taxable in Massachusetts. The Bank believes that the Massachusetts
statute that provides for a dividends received deduction equal to 95% of certain
dividend distributions applies to the distributions made by the Bank's REIT.
Accordingly, no provision has been made in the Company's consolidated financial
statements for the amounts assessed or additional amounts that might be assessed
in the future. The Company intends to vigorously appeal the assessment and to
pursue all available means to defend its position.
7
CENTRAL BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002
(5) CONTINGENCIES (CONTINUED)
On January 30, 2003, the Governor of Massachusetts proposed legislation
that would amend state law by eliminating the 95% dividends received deduction
for distributions by a REIT. As currently proposed, this change in the law would
be retroactive to tax years ending on or after December 31, 1999.
If this proposed legislation is adopted, the Bank, along with other
Massachusetts financial institutions with a REIT subsidiary, intends to
challenge the new statute, particularly its retroactive feature, on
constitutional grounds. It is uncertain what impact this recent development may
have on the related pending abatement application discussed above.
(6) ESOP STOCK PURCHASES
During fiscal 2002, the Company's Board of Directors authorized the Central
Co-operative Bank Employee Stock Ownership Plan Trust (the ESOP) to acquire up
to an additional 5% of outstanding shares of Company stock. During the nine
months ended December 31, 2002, the ESOP completed the purchase program by
acquiring 76,913 shares at a cost of $2,358,000.
(7) SUBSEQUENT EVENT
On January 9, 2003, the Board of Directors voted the payment of a quarterly
cash dividend of $.12 per share. The dividend is payable on February 14, 2003 to
stockholders of record on January 31, 2003.
(8) RECENT ACCOUNTING PRONOUNCEMENT
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123."
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 also amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS No. 148 does not
permit the use of the original SFAS No.123 prospective method of transition for
changes to the fair value based method made in fiscal years beginning after
December 15, 2003. The Company does not expect to change to the fair value based
method of accounting for stock-based employee compensation, and does not believe
the adoption of SFAS No. 148 will have a material impact on the Company's
Consolidated Financial Statements.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this discussion and elsewhere in this Quarterly Report on Form
10-Q, the words or phrases "will likely result," "are expected to." "will
continue," "is anticipated," "estimate," "project," or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company cautions readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made, and to advise readers that various factors, including
changes in regional and national economic conditions, unfavorable judicial
decisions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
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 loans trends,
charge-off experience and other asset quality factors. The Company evaluates
specific loan status reports on certain commercial and commercial real estate
loans rated "substandard" or worse in excess of a specified dollar amount.
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 and
qualitative adjustments. For the residential real estate and consumer loan
portfolios, the range of reserves is calculated by applying historical
charge-off and recovery experience 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 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 DECEMBER 31, 2002 AND MARCH 31, 2002
Total assets increased by $19.8 million from $468.2 million at March 31,
2002 to $488.0 million at December 31, 2002. This increase occurred as a result
of net deposit growth of $24.8 million which was partially used to paydown
maturing FHLB advances.
During the nine months ended December 31, 2002, loans increased by $28.3
million, including $19.5 million in loans held for sale. All of this growth
occurred during the most recent quarter as the Company implemented its secondary
mortgage market program. This program allows the Company to compete more
effectively for residential mortgage loan originations by using the secondary
mortgage market as an outlet for that portion of originations in excess of
targeted loan portfolio needs. During the nine months ended December 31,
9
2002, the Company originated $130.7 million in loans, including $44.6 million in
commercial real estate and construction loans.
During the nine months ended December 31, 2002, the Company experienced
core deposit growth of $28.5 million, or 18.7%. The majority of this growth was
in money market deposits, the Company's highest-paying core deposit account.
While deposit flows can vary significantly on a daily basis, the Company has
experienced steady growth in core deposits during the past six quarters. This
growth has been aided by the introduction and promotion of the Bank's Community
Package Account product, low interest rates and the continuing uncertainty in
the stock market.
FHLB advances were reduced by $8.6 million during the nine months ended
December 31, 2002. This decrease is consistent with the Company's current
strategy of reducing its utilization of FHLB advances. In January 2003, an
additional $11.0 million in advances were repaid with proceeds from the sale of
loans.
The increase in stockholders' equity of $2.1 million to $41.1 million at
December 31, 2002 resulted primarily from net income of $2.6 million, other
comprehensive income of $1.5 million and proceeds from the exercise of stock
options of $516,000. These increases were partially offset by cash dividends and
stock purchases by the Employee Stock Ownership Plan (ESOP) totaling $2.9
million. During the first nine months of the year, an additional 76,913 shares
were purchased by the ESOP for a total purchase price of $2,358,000 ($30.67 per
share) which was funded by an internal loan.
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED DECEMBER 31, 2002 AND
2001
Net income decreased by $39,000, or 4.1%, to $910,000 ($0.58 per diluted
share) for the quarter ended December 31, 2002, compared to $949,000 ($0.57 per
diluted share) in the same quarter in the prior year. Included in net income for
the quarter ended December 31, 2002, are professional fees of approximately
$250,000 attributable to litigation relating to the most recent annual
stockholders meeting. Exclusive of the after-tax impact of such professional
fees, net income would have increased $126,000, or 13.3% for the quarter ended
December 31, 2002 compared to the same quarter in the prior year. This increase
was primarily due to an increase of $644,000 in net interest and dividend income
and an increase of $64,000 in non-interest income (excluding securities
transactions), partially offset by an increase of $483,000 in non-interest
expenses, excluding the professional fees noted in the preceding sentence.
Interest Income. Interest income for the quarter ended December 31, 2002 was
$7.6 million, an increase of $548,000 over the same quarter in the prior year
despite a decrease in the yield on interest-earning assets from 6.88% in the
third quarter of the prior year to 6.51% in the current quarter. Average
interest-earning assets increased by $57.2 million, or 14.0%, to $467.0 million
during the quarter ended December 31, 2002 from $409.8 million for the quarter
ended December 31, 2001.
The principal area of growth in average balances for the quarter ended
December 31, 2002 was in real estate loans (up $62.7 million, or 20.1%), which
was partially offset by a decrease in investments of $5.6 million, all as
compared to average balances for the quarter ended December 31, 2001.
Interest Expense. Interest expense for the quarter ended December 31, 2002 was
$3.2 million compared to $3.3 million for the quarter ended December 31, 2001, a
decrease of $96,000, or 2.9%. This decrease resulted from a 59 basis points
decrease in the cost of funds from 3.79% in the quarter ended December 31, 2001
to 3.20% in the quarter ended December 31, 2002. This decrease was substantially
offset by an increase in average interest-bearing liabilities of $51.9 million
in the current year period.
The significant decrease in the cost of funds in the third quarter of
fiscal 2003 reflected the impact of the series of rate decreases initiated by
the Federal Reserve Board beginning in January 2001, the repricing of a majority
of certificates of deposit during the past year and a shift in deposits from
higher cost certificates of deposit which represented 44.8% of deposits at the
beginning of the third quarter of the prior fiscal year compared to 38.6% at the
beginning of the third quarter of the current fiscal year.
10
Provisions 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 using an approach that is summarized in the preceding section entitled
"Critical Accounting Policies."
Due to the high level of asset quality, as measured by low delinquency
rates and the absence of non-performing loans during the past two years, the
Company made no provision for loan losses during the quarters ended December 31,
2002 and 2001.
Non-interest Income. Exclusive of securities transactions, non-interest income
was $292,000 for the quarter ended December 31, 2002 compared to $228,000 in the
same period of 2001. The primary reasons for the current quarter increase were
gains on the sale of loans ($27,000) and other loan related income.
Net gains (losses) from sales and write-downs of investment securities were
$14,000 for the quarter ended December 31, 2002 compared to $16,000 in the prior
year period. Included in such amounts are write-downs of $248,000 and $185,000
in certain equity securities which had experienced a decline in fair value
judged to be other than temporary during the quarters ended December 31, 2002
and 2001, respectively.
Non-interest Expenses. Non-interest expenses increased $733,000 during the
quarter ended December 31, 2002 as compared to the same quarter in 2001.
Exclusive of the elimination of the amortization of goodwill in the current year
as required by generally accepted accounting principles (SFAS No. 142),
non-interest expenses increased $805,000, or 33.6%, due principally to increases
in salaries and employee benefits of $425,000, additional costs of approximately
$250,000 (primarily professional fees) attributable to litigation resulting from
the contested election of directors at the 2003 Annual Meeting of Stockholders
and additional advertising expense of $68,000.
The increase in salaries and employee benefits of $425,000, or 31.9%,
during the quarter ended December 31, 2002, was due to overall salary increases
averaging 4%, increases in staffing to support higher mortgage loan
originations, additional expense accrued under the Management Incentive
Compensation Plan ($199,000) and an increase in ESOP expense ($58,000) due to
both an increase in market value of the Company's stock and the allocation of
shares under the ESOP's recent stock purchase program.
The increase in other expenses of $162,000, or 52.6%, during the quarter
ended December 31, 2002 was primarily due to increases in advertising and other
costs associated with lending activities and, to a lesser extent, increases in
communication costs and charitable contributions.
Income Taxes. The effective tax rates for the quarters ended December 31, 2002
and 2001 were 37.6% and 36.1%, respectively. These rates vary from the statutory
income tax rate for banks of approximately 41% due to the Company's use of both
a securities corporation and a REIT subsidiary for state tax purposes.
In June 2002, the Bank received from the Commonwealth of Massachusetts
Department of Revenue ("DOR") a Notice of Intent to Assess additional state
excise taxes of $535,000 plus interest with respect to its tax years ended March
31, 2000 and 2001. In October 2002, the DOR sent the Bank a Notice of Assessment
for the same amount and in December 2002 sent a demand for payment. The Bank has
submitted an application for abatement to the DOR for the amount assessed. For
the period April 1, 2001 to December 31, 2002, additional state excise taxes
would be $530,000 applying the methodology set forth in the DOR's aforementioned
notices. The Bank is aware that the DOR has sent similar notices to numerous
other financial institutions in Massachusetts that reported a deduction for
dividends received from a REIT during this period. Assessed amounts ultimately
paid, if any, would be deductible expenses for federal income tax purposes.
The DOR contends that dividend distributions by the Bank's REIT to the Bank
are fully taxable in Massachusetts. The Bank believes that the Massachusetts
statute that provides for a dividends received deduction equal to 95% of certain
dividend distributions applies to the distributions made by the Bank's REIT.
Accordingly, no provision has been made in the Company's consolidated financial
statements for the amounts assessed or additional amounts that might be assessed
in the future. The Company intends to vigorously appeal the assessment and to
pursue all available means to defend its position.
11
On January 30, 2003, the Governor of Massachusetts proposed legislation
that would amend state law by eliminating the 95% dividends received deduction
for distributions by a REIT. As currently proposed, this change in the law would
be retroactive to tax years ending on or after December 31, 1999.
If this proposed legislation is adopted, the Bank, along with other
Massachusetts financial institutions with a REIT subsidiary, intends to
challenge the new statute, particularly its retroactive feature, on
constitutional grounds. It is uncertain what impact this recent development may
have on the Bank's related pending abatement application.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND
2001
Net income increased by $562,000, or 27.5%, to $2.6 million ($1.63 per
diluted share) for the nine months ended December 31, 2002, compared to $2.0
million ($1.22 per diluted share) in the same period in the prior year.
Exclusive of the after tax impact of gains and losses on the sales and
write-downs of investment securities, which adversely affected the increase in
net income between years by $341,000, net income would have increased by
$903,000, or 49.5%, for the nine months ended December 31, 2002 compared to the
same period in the prior year. The significant increase was primarily due to an
increase of $2.4 million in net interest and dividend income and an increase of
$131,000 in non-interest income (excluding securities transactions), partially
offset by an increase of $1.1 million in non-interest expenses.
Interest Income. Interest income for the nine months ended December 31, 2002 was
$22.6 million, or $777,000 greater than the amount earned in the same period in
the prior year despite a decrease in the yield on interest-earning assets from
6.90% in the first nine months of the prior year to 6.53% in the same period of
the current year. Average interest-earning assets increased by $39.7 million, or
9.4%, to $461.9 million during the nine months ended December 31, 2002 from
$422.2 million for the nine months ended December 31, 2001.
The principal area of growth in average balances for the nine months ended
December 31, 2002 was in real estate loans (up $43.2 million, or 13.5%) which
was partially offset by a decrease in investments of $3.8 million, all as
compared to average balances for the nine months ended December 31, 2001.
Interest Expense. Interest expense for the nine months ended December 31, 2002
was $9.9 million compared to $11.5 million for the nine months ended December
31, 2001, a decrease of $1.7 million, or 14.5%. This significant decrease
resulted from a 91 basis points decrease in the cost of funds from 4.19% in the
nine months ended December 31, 2001 to 3.28% in the nine months ended December
31, 2002. This decrease was partially offset by an increase in average
interest-bearing liabilities of $34.5 million in the current year period.
The significant decrease in the cost of funds in the nine months of fiscal
2003 reflected the impact of the series of rate decreases initiated by the
Federal Reserve Board beginning in January 2001, the repricing of a majority of
certificates of deposit during the past year and a shift in deposits from higher
cost certificates of deposit which represented 52.9% of deposits at the
beginning of the prior year compared to 41.7`% at the beginning of the current
year.
Provisions for Loan Losses. Due to the high level of asset quality, as measured
by low delinquency rates and the absence of non-performing loans during the past
two years, the Company made no provision for loan losses during the nine months
ended December 31, 2002 and 2001.
Non-interest Income. Exclusive of securities transactions, as previously
discussed, non-interest income was $783,000 for the nine months ended December
31, 2002 compared to $652,000 in the same period of 2001. The primary causes of
the $131,000 increase in the current year were prepayment penalties on
commercial real estate loans ($66,000), higher deposit service charges ($49,000)
and gains on the sale of loans ($28,000).
Net gains (losses) from sales and write-downs of investment securities were
($196,000) for the nine months ended December 31, 2002 compared to $339,000 in
the comparable prior year period. Included in such amounts are write-downs of
$688,000 and $185,000 in certain equity securities which had experienced a
decline in fair value judged to be other than temporary during the nine months
ended December 31, 2002 and 2001, respectively.
12
Non-interest Expenses. Non-interest expenses increased $1.1 million during the
nine months ended December 31, 2002 as compared to the corresponding period in
the prior year. Exclusive of the elimination of the amortization of goodwill in
the current year as required by generally accepted accounting principles (SFAS
No. 142), non-interest expenses increased $1.4 million, or 17.2%, due
principally to increases in salaries and employee benefits of $668,000 and
additional costs of approximately $600,000 (primarily professional fees)
incurred in connection with the contested election of directors at the 2002
annual meeting of stockholders and related litigation costs. Also contributing
to the growth in non-interest expenses were increases in advertising costs
primarily associated with lending activities and to a lesser extent, increases
in communication costs and charitable contributions.
The increase in salaries and employee benefits of $668,000, or 15.2%,
during the nine months ended December 31, 2002, was due to overall salary
increases averaging 4%, increases in staffing to support higher mortgage loan
originations, expense accrued under the Management Incentive Compensation Plan
($246,000) and additional ESOP expense due to an increase in market value of the
Company's stock and the allocation of shares under the ESOP's recent stock
purchase program.
Income Taxes. The effective tax rates for the nine months ended December 31,
2002 and 2001 were 36.6% and 36.3%, respectively. These rates vary from the
statutory income tax rate for banks of approximately 41% due to the Company's
use of both a securities corporation and a REIT subsidiary for state tax
purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are loan amortization, loan
prepayments, increases in deposits, advances from the Federal Home Loan Bank
(FHLB) of Boston and funds from operations. The Bank is a voluntary member of
the FHLB 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 and funds on deposit at the FHLB of Boston. At December 31,
2002, the Bank had approximately $35.7 million in unused borrowing capacity at
the FHLB of Boston.
At December 31, 2002, the Company had commitments to originate loans,
unused outstanding lines of credit and undisbursed proceeds of loans totaling
$77.9 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 December 31, 2002 were as
follows:
Company Bank
------- ----
Total Capital (to risk-weighted assets) 12.70% 11.81%
Tier 1 Capital (to risk-weighted assets) 11.68 10.79
Tier 1 Capital (to average assets) 7.89 7.29
These ratios placed the Company in excess of regulatory standards and the
Bank in the "well capitalized" category as set forth by the FDIC.
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.
13
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.
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 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 forecasted cash flows
and management's assumptions is compared to net interest income projections
based on an immediate shift of 300 basis points upward and 150/100 basis points
downward. Internal guidelines on interest rate risk state that for every 100
basis points immediate shift in interest rates, estimated net interest income
over the next twelve months should decline by no more than 5%.
The following table indicates the estimated exposure, as a percentage of
estimated net interest income, for the twelve month period following the date
indicated assuming an immediate shift in interest rates as set forth below:
December 31, March 31,
2002 2002
----------- ---------
300 basis point increase in rates......... (4.0)% (12.9)%
150 basis point decrease in rates
(March 31 only).............................. 0.5%
100 basis point decrease in rates
(December 31 only).......................... (3.0)%
For each one percentage point change in net interest income in the December
2002 projections, the effect on net income would be $112,000 assuming a 36% tax
rate.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
evaluated the Company's disclosure controls and procedures (as such term is
defined in Rule 13a-14(c) under the Exchange Act) as of a date within 90 days of
the date of filing of this Form 10-Q. Based upon such evaluation, the Company's
Chief Executive Officer and Chief Financial Officer have concluded that such
controls and procedures are effective to ensure that the information required to
be disclosed by the Company in the reports it files under the Exchange Act is
gathered, analyzed and disclosed with adequate timeliness.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of the evaluation described above.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and each of its directors were named as defendants in a suit
filed on October 1, 2002 by Richard Lashley and PL Capital, LLC in the U.S.
District Court for the District of Massachusetts. The suit alleged that the
adjournment of the 2002 Annual Meeting of Stockholders until October 11, 2002
violated Massachusetts law and the Company's Bylaws and constituted a breach of
fiduciary duty by the defendant directors. The suit sought declaratory relief
and the issuance of a temporary restraining order and preliminary injunction. On
October 8, 2002, the Court declined to issue a temporary restraining order and
denied injunctive relief. The Company moved for dismissal of the suit as moot.
On November 12, 2002, the plaintiffs responded to the Company's motion for
dismissal by amending their complaint to allege breaches of fiduciary duty by
the directors for their failure to elect PL Capital's nominees to the Board of
the Company's principal subsidiary, Central Co-operative Bank, their alleged
failure to conduct a reasonable investigation into the sale of the Company, and
their alleged consenting to the reimbursement of legal fees of Joseph and John
Doherty and to allege unfair and deceptive trade practices within the meaning of
chapter 93A of the Massachusetts General Laws. On November 13, 2002, the U.S.
District Court dismissed the suit in its entirety and on December 12, 2002 the
Court denied PL Capital's motion to open the case and for reconsideration. On
January 21, 2003, the Board of Directors received a demand from Richard J.
Lashley and PL Capital, LLC in their capacities as stockholders calling for the
Board of Directors to take prompt remedial action with respect to the
allegations contained in their November 12, 2002 amendment to their dismissed
complaint. The demand has been referred to a special committee of independent
directors of the Company's Board of Directors for their investigation and
recommendation.
See Note 5 of the Notes to Unaudited Consolidated Financial Statements
presented elsewhere herein.
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
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification under Section 906 of Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On October 10, 2002, the Registrant filed a Form 8-K reporting under
Item 5 that it had increased in its quarterly cash dividend to $0.12
per share.
On October 25, 2002, the Registrant filed a Form 8-K reporting under
Item 9 its earnings for the quarter ended September 30, 2002.
On November 8, 2002, the Registrant filed a Form 8-K reporting under
Item 5 the Board of Directors' determination that it was in the best
interests of stockholders for the Registrant to remain independent,
that John D. Doherty had been named Chairman of the Board and that
Paul Bulman, Marat Santini and John Gilgun had been elected to the
Board of Directors of the Registrant's principal subsidiary, Central
Co-operative Bank.
On January 28, 2003, the Registrant filed a Form 8-K reporting under
Item 9 its earnings for the quarter ended December 31, 2002.
15
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
February 12, 2003 /s/ John D. Doherty
- ----------------- ---------------------------------------
Date John D. Doherty
President and Chief Executive Officer
February 12, 2003 /s/ Michael K. Devlin
- ----------------- ---------------------------------------
Date Michael K. Devlin
Senior Vice President, Treasurer
and Chief Financial Officer
CERTIFICATION
I, John D. Doherty, President and Chief Executive Officer of Central Bancorp,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Central Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within these
entities, particularly during the period in which this quarterly
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board or directors (or persons fulfilling the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 12, 2003
/s/ John D. Doherty
--------------------------------------
John D. Doherty
President and Chief Executive Officer
CERTIFICATION
I, Michael K. Devlin, Senior Vice President, Treasurer and Chief Financial
Officer of Central Bancorp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Central Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within these
entities, particularly during the period in which this quarterly
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board or directors (or persons fulfilling the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 12, 2003
/s/ Michael K. Devlin
---------------------------------------------------
Michael K. Devlin
Senior Vice President, Treasurer and Chief Financial
Officer