##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2008
 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.
 
  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
 
  Not
applicable
 
  x o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting
company x o þ
 Common Stock, $1.00 par value
    
    1,639,951Class
    
    Outstanding at February 12, 2009




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##### 



CENTRAL BANCORP, INC.
 Form 10-Q
  
 Table of Contents
 Page No.Part I. Financial InformationItem 1. Financial Statements (Unaudited)Consolidated Statements of Financial Condition at December 31, 2008
and March 31, 2008
    
    
    1Consolidated Statements of Income for the Three and Nine Months Ended
December 31, 2008 and 2007
    
    
    2Consolidated Statements of Changes in Stockholders Equity for the Nine
Months Ended December 31, 2008 and 2007
    
    
    3Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 2008 and 2007
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4(T).
    
    Controls and Procedures
    
    
    27Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    27Item 1A.
    
    Risk Factors
    
    
    27Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3.
    
    Defaults Upon Senior Securities
    
    
    28Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    28Item 5.
    
    Other Information
    
    
    28Item 6.
    
    Exhibits
    
    
    28SignaturesEX-10.1EX-31.1EX-31.2EX-32




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##### Table of Contents



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)
    
    December 31, 2008
    
    
    March 31, 2008ASSETSCash and due from banks
    
    $
    5,322
    
    
    $
    5,837Short-term investments
    
    
    24,677
    
    
    
    11,888Cash and cash equivalents
    
    
    29,999
    
    
    
    17,725Investment securities available for sale (Note 2)
    
    
    36,266
    
    
    
    52,960Stock in Federal Home Loan Bank of Boston, at cost
    
    
    8,518
    
    
    
    8,518The Co-operative Central Bank Reserve Fund, at cost
    
    
    1,576
    
    
    
    1,576Total investments
    
    
    46,360
    
    
    
    63,054Loans held for sale
    
    
    350
    
    
    
    195Loans (Note 3)
    
    
    455,935
    
    
    
    474,942Less allowance for loan losses
    
    
    4,600
    
    
    
    3,613Loans, net
    
    
    451,335
    
    
    
    471,329Accrued interest receivable
    
    
    1,845
    
    
    
    1,981Banking premises and equipment, net
    
    
    3,530
    
    
    
    3,969Deferred tax asset, net
    
    
    7,431
    
    
    
    2,557Other real estate owned
    
    
    191
    
    
    
    Goodwill, net
    
    
    2,232
    
    
    
    2,232Bank owned life insurance (Note 11)
    
    
    6,319
    
    
    
    6,084Other assets
    
    
    2,427
    
    
    
    2,119Total assets
    
    $
    552,019
    
    
    $
    571,245LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits (Note 4)
    
    $
    349,542
    
    
    $
    361,089Short-term borrowings
    
    
    1,645
    
    
    
    141Federal Home Loan Bank advances
    
    
    144,610
    
    
    
    156,691Subordinated debenture (Note 5)
    
    
    11,341
    
    
    
    11,341Advanced payments by borrowers for taxes and insurance
    
    
    1,467
    
    
    
    1,308Accrued expenses and other liabilities
    
    
    1,626
    
    
    
    1,859Total liabilities
    
    
    510,231
    
    
    
    532,429Commitments and Contingencies (Note 7)Stockholders equity:Preferred stock  Series A Cumulative Perpetual, $1.00 par value;
5,000,000 shares authorized; 10,000 shares issued and outstanding
at December 31, 2008, and no shares issued at March 31, 2008, with a
liquidation preference and redemption value of $10,000,000
    
    
    9,421
    
    
    
    Common stock $1.00 par value; 15,000,000 shares authorized; 1,639,951
shares issued and outstanding at December 31, 2008 and March 31,
2008, respectively
    
    
    1,640
    
    
    
    1,640Additional paid-in capital
    
    
    4,198
    
    
    
    3,690Retained income
    
    
    34,861
    
    
    
    40,825Accumulated other comprehensive loss (Note 6)
    
    
    (1,745
    )
    
    
    (236
    )Unearned compensation  ESOP
    
    
    (6,587
    )
    
    
    (7,103
    )Total stockholders equity
    
    
    41,788
    
    
    
    38,816Total liabilities and stockholders equity
    
    $
    552,019
    
    
    $
    571,245
 See accompanying notes to unaudited consolidated financial statements.
 1




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CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,(In Thousands, Except Per Share Data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Interest and dividend income:Mortgage loans
    
    $
    6,836
    
    
    $
    6,798
    
    
    $
    20,573
    
    
    $
    20,360Other loans
    
    
    105
    
    
    
    252
    
    
    
    435
    
    
    
    637Investments
    
    
    454
    
    
    
    950
    
    
    
    1,942
    
    
    
    2,715Short-term investments
    
    
    23
    
    
    
    62
    
    
    
    132
    
    
    
    321Total interest and dividend income
    
    
    7,418
    
    
    
    8,062
    
    
    
    23,082
    
    
    
    24,033Interest expense:Deposits
    
    
    1,656
    
    
    
    2,664
    
    
    
    5,400
    
    
    
    8,263Advances from Federal Home Loan Bank of Boston
    
    
    1,670
    
    
    
    1,726
    
    
    
    5,124
    
    
    
    5,077Other borrowings
    
    
    177
    
    
    
    215
    
    
    
    520
    
    
    
    643Total interest expense
    
    
    3,503
    
    
    
    4,605
    
    
    
    11,044
    
    
    
    13,983Net interest and dividend income
    
    
    3,915
    
    
    
    3,457
    
    
    
    12,038
    
    
    
    10,050Provision (credit) for loan losses
    
    
    
    
    
    
    
    
    
    
    1,100
    
    
    
    (300
    )Net interest and dividend income after
provision (credit) for loan losses
    
    
    3,915
    
    
    
    3,457
    
    
    
    10,938
    
    
    
    10,350Noninterest income:Deposit service charges
    
    
    259
    
    
    
    263
    
    
    
    758
    
    
    
    766Loss on write-down of Fannie Mae and Freddie
Mac preferred stock
    
    
    
    
    
    
    
    
    
    
    (9,394
    )
    
    
    Net gains (losses) from sales and write-downs
of other investment securities
    
    
    
    
    
    
    359
    
    
    
    (144
    )
    
    
    647Net gains on sales of loans
    
    
    30
    
    
    
    41
    
    
    
    45
    
    
    
    118Bank owned life insurance income
    
    
    78
    
    
    
    23
    
    
    
    236
    
    
    
    23Other income
    
    
    65
    
    
    
    100
    
    
    
    265
    
    
    
    291Total noninterest income (loss)
    
    
    432
    
    
    
    786
    
    
    
    (8,234
    )
    
    
    1,845Noninterest expenses:Salaries and employee benefits
    
    
    1,995
    
    
    
    1,983
    
    
    
    6,293
    
    
    
    6,021Occupancy and equipment
    
    
    579
    
    
    
    533
    
    
    
    1,704
    
    
    
    1,609Data processing fees
    
    
    196
    
    
    
    219
    
    
    
    596
    
    
    
    661Professional fees
    
    
    211
    
    
    
    186
    
    
    
    595
    
    
    
    588Advertising and marketing
    
    
    158
    
    
    
    1
    
    
    
    247
    
    
    
    8Other expenses
    
    
    652
    
    
    
    418
    
    
    
    1,570
    
    
    
    1,352Total noninterest expenses
    
    
    3,791
    
    
    
    3,340
    
    
    
    11,005
    
    
    
    10,239Income (loss) before income taxes
    
    
    556
    
    
    
    903
    
    
    
    (8,301
    )
    
    
    1,956Provision (benefit) for income taxes
    
    
    (3,361
    )
    
    
    247
    
    
    
    (3,153
    )
    
    
    610Net income (loss)
    
    $
    3,917
    
    
    $
    656
    
    
    $
    (5,148
    )
    
    $
    1,346Net income (loss) available to common shareholders
    
    $
    3,872
    
    
    $
    656
    
    
    $
    (5,193
    )
    
    $
    1,346Earnings (loss) per common share  basic (Note 9)
    
    $
    2.76
    
    
    $
    0.48
    
    
    $
    (3.73
    )
    
    $
    1.00Earnings (loss) per common share  diluted (Note 9)
    
    $
    2.76
    
    
    $
    0.48
    
    
    $
    (3.73
    )
    
    $
    0.99Weighted average common shares outstanding  basic
    
    
    1,404
    
    
    
    1,354
    
    
    
    1,394
    
    
    
    1,347Weighted average common and equivalent shares
outstanding  diluted
    
    
    1,404
    
    
    
    1,358
    
    
    
    1,394
    
    
    
    1,354
 See accompanying notes to unaudited consolidated financial statements.
 2




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CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders Equity
(Unaudited)
 AccumulatedSeries A
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    Unearned
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Compensation
    
    
    Stockholders(In Thousands)
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Income
    
    
    Loss
    
    
    ESOP
    
    
    EquityNine Months Ended December 31, 2008Balance at March 31, 2008
    
    $
    
    
    
    $
    1,640
    
    
    $
    3,690
    
    
    $
    40,825
    
    
    $
    (236
    )
    
    $
    (7,103
    )
    
    $
    38,816Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,148
    )
    
    
    
    
    
    
    
    
    
    
    (5,148
    )Other comprehensive loss, net of $1.0 million
tax benefit:Unrealized loss on securities, net
of reclassification adjustment (Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,509
    )
    
    
    
    
    
    
    (1,509
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,657
    )Dividends paid to common shareholders
($0.54 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (771
    )
    
    
    
    
    
    
    
    
    
    
    (771
    )Issuance of preferred stock and warrants, net
    
    
    9,376
    
    
    
    
    
    
    
    594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,970Preferred stock accretion of discount and
issuance costs
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Dividends accrued on preferred stock
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    (36
    )Stock-based compensation (Note 10)
    
    
    
    
    
    
    
    
    
    
    242
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    242Amortization of unearned compensation  ESOP
    
    
    
    
    
    
    
    
    
    
    (328
    )
    
    
    
    
    
    
    
    
    
    
    516
    
    
    
    188Balance at December 31, 2008
    
    $
    9,421
    
    
    $
    1,640
    
    
    $
    4,198
    
    
    $
    34,861
    
    
    $
    (1,745
    )
    
    $
    (6,587
    )
    
    $
    41,788
 See accompanying notes to unaudited consolidated financial statements.
 3




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CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months EndedDecember 31,Dollars in thousands
    
    2008
    
    
    2007Cash flows from operating activities:Net (loss) income
    
    $
    (5,148
    )
    
    $
    1,346Adjustments to reconcile net (loss) income to net cash provided by
operating activities:Depreciation and amortization
    
    
    685
    
    
    
    721Amortization of premiums
    
    
    38
    
    
    
    44Provision (credit) for loan losses
    
    
    1,100
    
    
    
    (300
    )Stock-based compensation and amortization of unearned compensation  ESOP
    
    
    430
    
    
    
    639Increase in deferred tax asset
    
    
    (3,830
    )
    
    
    Net losses (gains) from sales and write-downs of investment securities
    
    
    9,538
    
    
    
    (647
    )Bank-owned life insurance income
    
    
    (236
    )
    
    
    (23
    )Gain on sales of loans held for sale
    
    
    (45
    )
    
    
    (118
    )Originations of loans held for sale
    
    
    (4,683
    )
    
    
    (9,713
    )Proceeds from sale of loans originated for sale
    
    
    4,573
    
    
    
    10,406Decrease in accrued interest receivable
    
    
    136
    
    
    
    371Increase in other assets, net
    
    
    (306
    )
    
    
    (103
    )Increase in advance payments by borrowers for taxes and insurance
    
    
    159
    
    
    
    112(Decrease) increase in accrued expenses and other liabilities, net
    
    
    (233
    )
    
    
    223Net cash provided by operating activities
    
    
    2,178
    
    
    
    2,958Cash flows from investing activities:Loan principal collections (originations), net
    
    
    18,703
    
    
    
    (7,480
    )Principal payments on mortgage-backed securities
    
    
    3,965
    
    
    
    4,320Purchases of restricted equity-FHLB
    
    
    
    
    
    
    (420
    )Proceeds from sales of investment securities
    
    
    3,616
    
    
    
    17,406Purchases of investment securities
    
    
    (9,017
    )
    
    
    (11,503
    )Maturities and calls of investment securities
    
    
    6,000
    
    
    
    1,999Purchase of bank-owned life insurance
    
    
    
    
    
    
    (6,027
    )Purchase of banking premises and equipment
    
    
    (246
    )
    
    
    (125
    )Net cash provided by (used in) investing activities
    
    
    23,021
    
    
    
    (1,830
    )Cash flows from financing activities:Net decrease in deposits
    
    
    (11,547
    )
    
    
    (33,706
    )Proceeds from advances from FHLB of Boston
    
    
    
    
    
    
    117,800Repayment of advances from FHLB of Boston
    
    
    (12,081
    )
    
    
    (97,000
    )Net proceeds from short-term borrowings
    
    
    1,504
    
    
    
    (269
    )Cash dividends paid
    
    
    (771
    )
    
    
    (761
    )Issuance of Series A preferred stock and warrants
    
    
    9,970
    
    
    
    Net cash used in financing activities
    
    
    (12,925
    )
    
    
    (13,936
    )Net increase (decrease) in cash and cash equivalents
    
    
    12,274
    
    
    
    (12,808
    )Cash and cash equivalents at beginning of period
    
    
    17,725
    
    
    
    20,617Cash and cash equivalents at end of period
    
    $
    29,999
    
    
    $
    7,809Cash paid during the period for:Interest
    
    $
    11,091
    
    
    $
    13,249Income taxes
    
    $
    935
    
    
    $
    470Supplemental disclosure of non-cash investing and financing activities:Loans transferred to other real estate owned
    
    $
    191
    
    
    $
    Accretion of Series A preferred stock issuance costs
    
    $
    9
    
    
    $
    
 See accompanying notes to unaudited consolidated financial statements
 4




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CENTRAL BANCORP AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
December 31, 2008
 (1) Basis of Presentation
    (2) Investments
  December 31, 2008Amortized
    
    
    Gross Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in Thousands)U.S. Government and agency obligations
    
    $
    1,500
    
    
    $
    16
    
    
    $
    
    
    
    $
    1,516Corporate bonds
    
    
    4,484
    
    
    
    
    
    
    
    (1,126
    )
    
    
    3,358Mortgage-backed securities
    
    
    25,287
    
    
    
    351
    
    
    
    (101
    )
    
    
    25,537Trust preferred securities
    
    
    1,003
    
    
    
    1
    
    
    
    
    
    
    
    1,004Total debt securities
    
    
    32,274
    
    
    
    368
    
    
    
    (1,227
    )
    
    
    31,415Preferred stock
    
    
    3,777
    
    
    
    
    
    
    
    (1,362
    )
    
    
    2,415Common stock
    
    
    3,422
    
    
    
    20
    
    
    
    (1,006
    )
    
    
    2,436Total
    
    $
    39,473
    
    
    $
    388
    
    
    $
    (3,595
    )
    
    $
    36,266
 5




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March 31, 2008Amortized
    
    
    Gross Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in Thousands)U.S. Government and agency obligations
    
    $
    3,495
    
    
    $
    52
    
    
    $
    
    
    
    $
    3,547Corporate bonds
    
    
    8,496
    
    
    
    8
    
    
    
    (192
    )
    
    
    8,312Mortgage-backed securities
    
    
    22,235
    
    
    
    257
    
    
    
    (42
    )
    
    
    22,450Trust preferred securities
    
    
    1,004
    
    
    
    8
    
    
    
    
    
    
    
    1,012Total debt securities
    
    
    35,230
    
    
    
    325
    
    
    
    (234
    )
    
    
    35,321Preferred stock
    
    
    12,173
    
    
    
    
    
    
    
    (751
    )
    
    
    11,422Common stock
    
    
    6,209
    
    
    
    384
    
    
    
    (376
    )
    
    
    6,217Total
    
    $
    53,612
    
    
    $
    709
    
    
    $
    (1,361
    )
    
    $
    52,960
 Managements Discussion and Analysis of Financial Condition and Results of
Operations  Market Events
 (3) Loans
 Loans, excluding loans held for sale, as of December 31, 2008 and March 31, 2008 are
summarized below (unaudited, in thousands):
 December 31,
    
    
    March 31,2008
    
    
    2008Real estate loans:Residential real estate (1-4 family)
    
    $
    178,879
    
    
    $
    178,727Commercial real estate
    
    
    243,933
    
    
    
    244,496Construction
    
    
    18,652
    
    
    
    30,950Home equity lines of credit
    
    
    7,225
    
    
    
    6,559Total real estate loans
    
    
    448,689
    
    
    
    460,732Commercial loans
    
    
    6,104
    
    
    
    13,173Consumer loans
    
    
    1,142
    
    
    
    1,037Total loans
    
    
    445,935
    
    
    
    474,942Less: allowance for loan losses
    
    
    (4,600
    )
    
    
    (3,613
    )Total loans, net
    
    $
    451,335
    
    
    $
    471,329
   6




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##### Table of Contents



Three Months EndedDecember 31,2008
    
    
    2007Balance at beginning of period
    
    $
    4,674
    
    
    $
    3,378Provision charged (credited) to expense
    
    
    
    
    
    
    Less: charge-offs
    
    
    (77
    )
    
    
    (11
    )Add: recoveries
    
    
    3
    
    
    
    12Balance at end of period
    
    $
    4,600
    
    
    $
    3,379
 Nine Months EndedDecember 31,2008
    
    
    2007Balance at beginning of period
    
    $
    3,613
    
    
    $
    3,881Provision charged (credited) to expense
    
    
    1,100
    
    
    
    (300
    )Less: charge-offs
    
    
    (124
    )
    
    
    (71
    )Less: transfer
    
    
    
    
    
    
    (173
    )Add: recoveries
    
    
    11
    
    
    
    42Balance at end of period
    
    $
    4,600
    
    
    $
    3,379
 (4) Deposits
  December 31,
    
    
    March 31,2008
    
    
    2008Demand deposit accounts
    
    $
    36,514
    
    
    $
    38,250NOW accounts
    
    
    26,950
    
    
    
    27,065Passbook and other savings accounts
    
    
    49,235
    
    
    
    50,252Money market deposit accounts
    
    
    62,820
    
    
    
    67,243Total non-certificate accounts
    
    
    175,519
    
    
    
    182,810Term deposit certificates:Certificates of $100,000 and above
    
    
    82,883
    
    
    
    74,052Certificates of less than $100,000
    
    
    91,140
    
    
    
    104,227Total term deposit certificates
    
    
    174,023
    
    
    
    178,279Total deposits
    
    $
    349,542
    
    
    $
    361,089
 (5) Subordinated Debentures
  7




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##### Table of Contents



(6) Other Comprehensive Loss
   For the Nine Months EndedDecember 31, 2008Before-Tax
    
    
    Tax
    
    
    After-TaxAmount
    
    
    Effect
    
    
    AmountUnrealized losses on securities:Unrealized net holding losses during period
    
    $
    (12,093
    )
    
    $
    (4,410
    )
    
    $
    (7,683
    )Less: reclassification adjustment for net
losses included in net income (loss)
    
    
    9,538
    
    
    
    (3,364
    )
    
    
    (6,174
    )Other comprehensive loss
    
    $
    (2,555
    )
    
    $
    (1,046
    )
    
    $
    (1,509
    )
 For the Nine Months EndedDecember 31, 2007Before-Tax
    
    
    Tax
    
    
    After-TaxAmount
    
    
    Effect
    
    
    AmountUnrealized gains on securities:Unrealized net holding gains during period
    
    $
    1,023
    
    
    $
    330
    
    
    $
    693Less: reclassification adjustment for net
gains included in net income
    
    
    647
    
    
    
    205
    
    
    
    442Other comprehensive income
    
    $
    376
    
    
    $
    125
    
    
    $
    251
 8




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##### Table of Contents



(7) Contingencies
 Legal Proceedings.
 (8) Subsequent Events
  (9) Earnings per Share (EPS)
   Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(Amounts in thousands, except per share amounts)Net income (loss) as reported
    
    $
    3,917
    
    
    $
    656
    
    
    $
    (5,148
    )
    
    $
    1,346Less preferred dividends and accretion
    
    
    (45
    )
    
    
    
    
    
    
    (45
    )
    
    
    Net income (loss) available to common shareholders
    
    $
    3,872
    
    
    $
    656
    
    
    $
    (5,193
    )
    
    $
    1,346Weighted average number of common shares outstanding
    
    
    1,640
    
    
    
    1,640
    
    
    
    1,640
    
    
    
    1,640Weighted average number of unallocated ESOP and
unvested restricted shares
    
    
    (236
    )
    
    
    (286
    )
    
    
    (246
    )
    
    
    (293
    )Weighted average number of common shares outstanding
used in calculation of basic earnings per share
    
    
    1,404
    
    
    
    1,354
    
    
    
    1,394
    
    
    
    1,347Incremental shares from the assumed exercise of dilutive
stock options
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    7Weighted average number of common shares outstanding
used in calculating diluted earnings (loss) per share
    
    
    1,404
    
    
    
    1,358
    
    
    
    1,394
    
    
    
    1,354Earnings (loss) per shareBasic
    
    $
    2.76
    
    
    $
    0.48
    
    
    $
    (3.73
    )
    
    $
    1.00Diluted
    
    $
    2.76
    
    
    $
    0.48
    
    
    $
    (3.73
    )
    
    $
    0.99
  9




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##### Table of Contents



(10) Stock-Based Compensation
       Number of
    
    
    WeightedShares
    
    
    Exercise PriceOutstanding at March 31, 2008
    
    
    68,218
    
    
    $
    25.364Exercised
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    68,218
    
    
    $
    25.364Exercisable at December 31, 2008
    
    
    62,218
    
    
    $
    24.800
 10




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##### Table of Contents



WeightedAverageRemaining
    
    
    WeightedNumber
    
    
    Contractual
    
    
    Average
    
    
    AggregateExercise
    
    
    of Shares
    
    
    Life
    
    
    Exercise
    
    
    IntrinsicPrice
    
    
    Outstanding
    
    
    (Years)
    
    
    Price
    
    
    Value (1)16.625
    
    
    
    12,077
    (2)
    
    
    1.9
    
    
    
    16.625
    
    
    
    20.250
    
    
    
    13,745
    (2)
    
    
    0.8
    
    
    
    20.250
    
    
    
    28.990
    
    
    
    32,396
    (2)
    
    
    6.1
    
    
    
    28.990
    
    
    
    31.200
    
    
    
    10,000
    (3)
    
    
    7.7
    
    
    
    31.200
    
    
    
    Average/Total
    
    
    25.364
    
    
    
    68,218
    
    
    
    4.6
    
    
    
    25.364
    
    
    $
    
 
 (1)
    
    Represents the total intrinsic value, based on the Companys closing stock price of $4.84 on
December 31, 2008, which would have been received by the option holders had all option holders
exercised their options as of that date. As of December 31, 2008, the intrinsic value of
outstanding stock options and exercisable stock options was zero.(2)
    
    Fully vested and exercisable at the time of grant.(3)
    
    Subject to vesting over five years, 40% vested at December 31, 2008.  Weighted AverageNumber of
    
    Grant DateShares
    
    Fair ValueNon-vested at March 31, 2008
    
    
    39,200
    
    
    $
    31.20Granted
    
    
    
    
    
    
    Vested
    
    
    9,800
    
    
    
    31.20Forfeited
    
    
    
    
    
    
    Non-vested at December 31, 2008
    
    
    29,400
    
    
    $
    31.20
 (11) Bank-Owned Life Insurance
  (12) Recent Accounting Pronouncements
  11




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##### Table of Contents



Determining the Fair Value of a Financial
Asset When the Market for that Asset is Not Active
 (13) Fair Value Disclosures
  Level 1
    
    -
    
    Quoted prices for identical instruments in active marketsLevel 2
    
    -
    
    Quoted prices for similar instruments in active or non-active
markets and model-derived valuations in which all significant
inputs and value drivers are observable in active marketsLevel 3
    
    -
    
    Valuation derived from significant unobservable inputs
   Carrying Value (in thousands)Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalSecurities available for sale
    
    $
    2,436
    
    
    $
    33,225
    
    
    $
    605
    
    
    $
    36,266Impaired Loans
    
    
    
    
    
    
    
    
    
    $
    3,223
    
    
    $
    3,223
  12




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##### Table of Contents



InvestmentSecuritiesAvailable for SaleBalance at March 31, 2008
    
    $
    717Total realized and unrealized gains (losses) included in income
    
    
    Total unrealized losses included in other comprehensive income
    
    
    (27
    )Net accretion of discount and repayment of principal
    
    
    (85
    )Net transfers in/out of Level 3
    
    
    Balance at December 31, 2008
    
    $
    605
   ImpairedLoansBalance at March 31, 2008
    
    $
    4,226Total realized and unrealized losses included in income
    
    
    (1,100
    )Additional principal disbursement
    
    
    97Balance at December 31, 2008
    
    $
    3,223
   (14) Troubled Asset Relief Program Capital Purchase Program
  13




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##### Table of Contents



Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own
Stock
 Expected life in years
    
    
    10.00Expected volatility
    
    
    54.76
    %Dividend yield
    
    
    3.00
    %Risk-free interest rate
    
    
    2.67
    %
 Managements Discussion and Analysis of Financial Condition and Results of
OperationsMarket Events
 
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
  14




---



##### Table of Contents



Part IIItem 1A. Risk Factors
 General
      Critical Accounting Policies
  15




---



##### Table of Contents



Allowance for Loan Losses
 Other Real Estate Owned
 Fair Value of Investments
    Income
Taxes.
 16




---



##### Table of Contents



Accounting
for Goodwill and Impairment.
 Market Events
   17




---



##### Table of Contents



At December 31, 2008RegulatoryThresholdFor WellActual
    
    
    CapitalizedCentral Bancorp (1):Tier 1 Leverage
    
    
    8.44
    %
    
    
    5.0
    %Tier 1 Risk-Based Ratio
    
    
    12.10
    %
    
    
    6.0
    %Total Risk-Based Ratio
    
    
    13.32
    %
    
    
    10.0
    %Central Co-operative Bank (1):Tier 1 Leverage
    
    
    6.81
    %
    
    
    5.0
    %Tier 1 Risk-Based Ratio
    
    
    9.75
    %
    
    
    6.0
    %Total Risk-Based Ratio
    
    
    10.98
    %
    
    
    10.0
    %
 
 (1)
    
    Reflects $8.0 million in TARP funds received as a capital contribution from
the Company to the Bank. The balance of the TARP proceeds,
$2.0 million, was contributed as a capital contribution by the
Company to the Bank after December 31, 2008. The ratios above
reflect that, as of December 31, 2008, such $2.0 million
was held by the Company. Comparison of Financial Condition at December 31, 2008 and March 31, 2008
  Provision for Loan Losses"
   18




---



##### Table of Contents



Bank-Owned Life Insurance
   Comparison of Operating Results for the Quarters Ended December 31, 2008 and 2007
 Market Events
 Interest and Dividend Income.
 19




---



##### Table of Contents



Interest Expense
 20




---



##### Table of Contents



Three Months Ended December 31,2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-earning assets:Mortgage loans
    
    $
    453,209
    
    
    $
    6,836
    
    
    
    6.03
    %
    
    $
    449,420
    
    
    $
    6,798
    
    
    
    6.05
    %Other loans
    
    
    6,713
    
    
    
    105
    
    
    
    6.26
    
    
    
    14,024
    
    
    
    252
    
    
    
    7.19Investment securities
    
    
    43,476
    
    
    
    454
    
    
    
    4.18
    
    
    
    67,508
    
    
    
    950
    
    
    
    5.63Short-term investments
    
    
    16,290
    
    
    
    23
    
    
    
    0.56
    
    
    
    4,622
    
    
    
    62
    
    
    
    5.37Total interest-earning assets
    
    
    519,688
    
    
    
    7,418
    
    
    
    5.71
    
    
    
    535,574
    
    
    
    8,062
    
    
    
    6.02Allowance for loan losses
    
    
    (4,673
    )
    
    
    
    
    
    
    
    
    
    
    (3,375
    )Noninterest-earning assets
    
    
    25,781
    
    
    
    
    
    
    
    
    
    
    
    18,771Total assets
    
    $
    540,796
    
    
    
    
    
    
    
    
    
    
    $
    550,970Interest-bearing liabilities:Deposits
    
    $
    310,361
    
    
    
    1,656
    
    
    
    2.13
    
    
    $
    320,709
    
    
    
    2,664
    
    
    
    3.32Advances from FHLB of Boston
    
    
    144,620
    
    
    
    1,670
    
    
    
    4.62
    
    
    
    138,666
    
    
    
    1,726
    
    
    
    4.98Other borrowings
    
    
    12,343
    
    
    
    177
    
    
    
    5.74
    
    
    
    11,801
    
    
    
    215
    
    
    
    7.29Total interest-bearing liabilities.
    
    
    467,324
    
    
    
    3,503
    
    
    
    3.00
    
    
    
    471,176
    
    
    
    4,605
    
    
    
    3.91Noninterest-bearing liabilities
    
    
    40,152
    
    
    
    
    
    
    
    
    
    
    
    40,953Total liabilities
    
    
    507,476
    
    
    
    
    
    
    
    
    
    
    
    512,129Stockholders equity
    
    
    33,320
    
    
    
    
    
    
    
    
    
    
    
    38,841Total liabilities and stockholders
equity
    
    $
    540,796
    
    
    
    
    
    
    
    
    
    
    $
    550,970Net interest and dividend income
    
    
    
    
    
    $
    3,915
    
    
    
    
    
    
    
    
    
    
    $
    3,457Net interest spread
    
    
    
    
    
    
    
    
    
    
    2.71
    %
    
    
    
    
    
    
    
    
    
    
    2.11
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.01
    %
    
    
    
    
    
    
    
    
    
    
    2.58
    %
 Provision for Loan Losses.
  21




---



##### Table of Contents



Noninterest Income.
 Noninterest Expenses
     Income Taxes
 22




---



##### Table of Contents



Comparison of Operating Results for the Nine Months Ended December 31, 2008 and 2007
 Market Events
  Interest and Dividend Income.
 Interest Expense.
 23




---



##### Table of Contents



Nine Months Ended December 31,2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-earning assets:Mortgage loans
    
    $
    457,478
    
    
    $
    20,573
    
    
    
    6.00
    %
    
    $
    448,334
    
    
    $
    20,360
    
    
    
    6.06Other loans
    
    
    9,176
    
    
    
    435
    
    
    
    6.32
    
    
    
    11,354
    
    
    
    637
    
    
    
    7.48Investment securities
    
    
    57,328
    
    
    
    1,942
    
    
    
    4.52
    
    
    
    71,770
    
    
    
    2,715
    
    
    
    5.04Short-term investments
    
    
    11,678
    
    
    
    132
    
    
    
    1.51
    
    
    
    8,078
    
    
    
    321
    
    
    
    5.30Total interest-earning assets
    
    
    535,660
    
    
    
    23,082
    
    
    
    5.75
    
    
    
    539,536
    
    
    
    24,033
    
    
    
    5.94Allowance for loan losses
    
    
    (4,091
    )
    
    
    
    
    
    
    
    
    
    
    (3,690
    )Noninterest-earning assets
    
    
    22,407
    
    
    
    
    
    
    
    
    
    
    
    18,522Total assets
    
    $
    553,976
    
    
    
    
    
    
    
    
    
    
    $
    554,368Interest-bearing liabilities:Deposits
    
    $
    316,759
    
    
    
    5,400
    
    
    
    2.27
    
    
    $
    328,640
    
    
    
    8,263
    
    
    
    3.35Advances from FHLB of Boston
    
    
    147,943
    
    
    
    5,124
    
    
    
    4.62
    
    
    
    134,235
    
    
    
    5,077
    
    
    
    5.04Other borrowings
    
    
    11,907
    
    
    
    520
    
    
    
    5.82
    
    
    
    11,946
    
    
    
    643
    
    
    
    7.18Total interest-bearing liabilities.
    
    
    476,609
    
    
    
    11,044
    
    
    
    3.09
    
    
    
    474,821
    
    
    
    13,983
    
    
    
    3.93Noninterest-bearing liabilities
    
    
    41,259
    
    
    
    
    
    
    
    
    
    
    
    41,080Total liabilities
    
    
    517,868
    
    
    
    
    
    
    
    
    
    
    
    515,901Stockholders equity
    
    
    36,108
    
    
    
    
    
    
    
    
    
    
    
    38,467Total liabilities and stockholders
equity
    
    $
    553,976
    
    
    
    
    
    
    
    
    
    
    $
    554,368Net interest and dividend income
    
    
    
    
    
    $
    12,038
    
    
    
    
    
    
    
    
    
    
    $
    10,050Net interest spread
    
    
    
    
    
    
    
    
    
    
    2.66
    %
    
    
    
    
    
    
    
    
    
    
    2.01Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.00
    %
    
    
    
    
    
    
    
    
    
    
    2.48
 Provision for Loan Losses.
 24




---



##### Table of Contents



Noninterest Income.
 Noninterest Expenses.
    25




---



##### Table of Contents



Income Taxes
 Liquidity and Capital Resources
    At December 31, 2008RegulatoryThresholdFor WellActual
    
    
    CapitalizedCentral
Bancorp (1):Tier 1 Leverage
    
    
    8.44
    %
    
    
    5.0
    %Tier 1 Risk-Based Ratio
    
    
    12.10
    %
    
    
    6.0
    %Total Risk-Based Ratio
    
    
    13.32
    %
    
    
    10.0
    %Central Co-operative Bank (1):Tier 1 Leverage
    
    
    6.81
    %
    
    
    5.0
    %Tier 1 Risk-Based Ratio
    
    
    9.75
    %
    
    
    6.0
    %Total Risk-Based Ratio
    
    
    10.98
    %
    
    
    10.0
    %
 
 (1)
    
    Reflects $8.0 million in TARP funds received as a capital contribution from
the Company to the Bank. The balance of the TARP proceeds,
$2.0 million, was contributed as a capital contribution by the
Company to the Bank after December 31, 2008. The ratios above
reflect that, as of December 31, 2008, such $2.0 million
was held by the Company. Off-Balance Sheet Arrangements
  26




---



##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4
    
    (T). Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A. Risk Factors
  27




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##### Table of Contents



Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
 10.1
    
    
    Amended and Restated Central Bancorp, Inc. Deferred Compensation Plan for Non-Employee Directors*(1)31.1
    
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2
    
    
    Rule 13a-14(a) Certification of Chief Financial Officer32
    
    
    Section 1350 Certifications
 
 *
    
    Management contract or compensatory plan, contract or arrangement.(1)
    
    Amended during the quarter ended December 31, 2008 to comply with Section 409A of
the Internal Revenue Code of 1986, as amended (the Code) and the regulations and
guidance issued with respect to Section 409A of the Code. 28




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##### Table of Contents



SIGNATURES
  CENTRAL BANCORP, INC.
          RegistrantFebruary 17, 2009
    By:

/s/
John D. DohertyJohn D. DohertyChairman, President and Chief Executive Officer February 17, 2009
    By:

/s/
Paul S. FeeleyPaul S. FeeleySenior Vice President, Treasurer and
Chief Financial Officer