##### 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 September 30, 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
    
    (I.R.S. Employer Identification No.)organization)399 Highland Avenue, Somerville, Massachusetts
    
    02144(Address of principal executive offices)
    
    (Zip Code)
 (617) 628-4000
 Not applicable
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ
 Common Stock, $1.00 par value
    
    1,639,951Class
    
    Outstanding at November 12, 2008




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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 September 30, 2008 and
March 31, 2008
    
    
    1Consolidated Statements of Income for the Three and Six Months Ended
September 30, 2008 and 2007
    
    
    2Consolidated Statements of Changes in Stockholders Equity for the Six
Months Ended September 30, 2008 and 2007
    
    
    3Consolidated Statements of Cash Flows for the Six Months Ended
September 30, 2008 and 2007
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results
Of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4 (T).
    
    Controls and Procedures
    
    
    26Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3.
    
    Defaults Upon Senior Securities
    
    
    27Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27Item 5.
    
    Other Information
    
    
    27Item 6.
    
    Exhibits
    
    
    27SignaturesEX-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)
    
    September 30, 2008
    
    
    March 31, 2008ASSETSCash and due from banks
    
    $
    8,847
    
    
    $
    5,837Short-term investments
    
    
    7,429
    
    
    
    11,888Cash and cash equivalents
    
    
    16,276
    
    
    
    17,725Investment securities available for sale (amortized cost of $38,708
at September 30, 2008 and $53,612 at March 31, 2008) (Note 2)
    
    
    36,445
    
    
    
    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
    
    
    46,539
    
    
    
    63,054Loans held for sale
    
    
    1,240
    
    
    
    195Loans (Note 3)
    
    
    462,700
    
    
    
    474,942Less allowance for loan losses
    
    
    4,674
    
    
    
    3,613Loans, net
    
    
    458,026
    
    
    
    471,329Accrued interest receivable
    
    
    1,972
    
    
    
    1,981Banking premises and equipment, net
    
    
    3,717
    
    
    
    3,969Deferred tax asset, net
    
    
    3,146
    
    
    
    2,557Other real estate owned
    
    
    89
    
    
    
    Goodwill, net
    
    
    2,232
    
    
    
    2,232Bank owned life insurance (Note 11)
    
    
    6,241
    
    
    
    6,084Other assets
    
    
    2,185
    
    
    
    2,119Total assets
    
    $
    541,752
    
    
    $
    571,245LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits (Note 4)
    
    $
    354,061
    
    
    $
    361,089Short-term borrowings
    
    
    160
    
    
    
    141Federal Home Loan Bank advances
    
    
    144,638
    
    
    
    156,691Subordinated debenture (Note 5)
    
    
    11,341
    
    
    
    11,341Advanced payments by borrowers for taxes and insurance
    
    
    1,525
    
    
    
    1,308Accrued expenses and other liabilities
    
    
    1,439
    
    
    
    1,859Total liabilities
    
    
    513,164
    
    
    
    532,429Commitments and Contingencies (Note 7)Stockholders equity (Note 9):Preferred stock $1.00 par value; 5,000,000 shares authorized; none issued or
outstanding
    
    
    
    
    
    
    Common stock $1.00 par value; 15,000,000 shares authorized;
1,639,951 shares issued and outstanding at September 30, 2008 and March 31, 2008
    
    
    1,640
    
    
    
    1,640Additional paid-in capital
    
    
    3,658
    
    
    
    3,690Retained income
    
    
    31,247
    
    
    
    40,825Accumulated other comprehensive loss (Note 6)
    
    
    (1,198
    )
    
    
    (236
    )Unearned compensation  ESOP
    
    
    (6,759
    )
    
    
    (7,103
    )Total stockholders equity
    
    
    28,588
    
    
    
    38,816Total liabilities and stockholders equity
    
    $
    541,752
    
    
    $
    571,245
 See accompanying notes to unaudited consolidated financial statements.
 1




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##### Table of Contents



CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest and dividend income:Mortgage loans
    
    $
    6,884
    
    
    $
    6,753
    
    
    $
    13,737
    
    
    $
    13,562Other loans
    
    
    140
    
    
    
    235
    
    
    
    330
    
    
    
    385Investments
    
    
    723
    
    
    
    880
    
    
    
    1,488
    
    
    
    1,766Short-term investments
    
    
    53
    
    
    
    65
    
    
    
    109
    
    
    
    258Total interest and dividend income
    
    
    7,800
    
    
    
    7,933
    
    
    
    15,664
    
    
    
    15,971Interest expense:Deposits
    
    
    1,737
    
    
    
    2,746
    
    
    
    3,744
    
    
    
    5,599Advances from Federal Home Loan Bank of Boston
    
    
    1,691
    
    
    
    1,727
    
    
    
    3,454
    
    
    
    3,351Other borrowings
    
    
    174
    
    
    
    207
    
    
    
    343
    
    
    
    428Total interest expense
    
    
    3,602
    
    
    
    4,680
    
    
    
    7,541
    
    
    
    9,378Net interest and dividend income
    
    
    4,198
    
    
    
    3,253
    
    
    
    8,123
    
    
    
    6,593Provision (credit) for loan losses
    
    
    900
    
    
    
    (300
    )
    
    
    1,100
    
    
    
    (300
    )Net interest and dividend income after
Provision (credit) for loan losses
    
    
    3,298
    
    
    
    3,553
    
    
    
    7,023
    
    
    
    6,893Noninterest income:Deposit service charges
    
    
    252
    
    
    
    251
    
    
    
    499
    
    
    
    503Loss on write-down of Fannie Mae and Freddie Mac
preferred stock
    
    
    (9,394
    )
    
    
    
    
    
    
    (9,394
    )
    
    
    Net (losses) gains from sales and write-downs
of other investment securities
    
    
    (115
    )
    
    
    172
    
    
    
    (144
    )
    
    
    288Net gains on sales of loans
    
    
    3
    
    
    
    25
    
    
    
    15
    
    
    
    77Bank owned life insurance income
    
    
    79
    
    
    
    
    
    
    
    157
    
    
    
    Other income
    
    
    81
    
    
    
    86
    
    
    
    201
    
    
    
    191Total noninterest (loss) income
    
    
    (9,094
    )
    
    
    534
    
    
    
    (8,666
    )
    
    
    1,059Noninterest expenses:Salaries and employee benefits
    
    
    2,080
    
    
    
    1,939
    
    
    
    4,298
    
    
    
    4,038Occupancy and equipment
    
    
    572
    
    
    
    526
    
    
    
    1,125
    
    
    
    1,076Data processing fees
    
    
    199
    
    
    
    219
    
    
    
    400
    
    
    
    442Professional fees
    
    
    204
    
    
    
    198
    
    
    
    384
    
    
    
    402Advertising and marketing
    
    
    59
    
    
    
    3
    
    
    
    89
    
    
    
    7Other expenses
    
    
    492
    
    
    
    498
    
    
    
    918
    
    
    
    934Total noninterest expenses
    
    
    3,606
    
    
    
    3,383
    
    
    
    7,214
    
    
    
    6,899(Loss) income before income taxes
    
    
    (9,402
    )
    
    
    704
    
    
    
    (8,857
    )
    
    
    1,053Provision for income taxes
    
    
    64
    
    
    
    239
    
    
    
    208
    
    
    
    363Net (loss) income
    
    $
    (9,466
    )
    
    $
    465
    
    
    $
    (9,065
    )
    
    $
    690Earnings
(loss) per common share  basic (Note 9)
    
    $
    (6.80
    )
    
    $
    0.33
    
    
    $
    (6.53
    )
    
    $
    0.50Earnings
(loss) per common share  diluted (Note 9)
    
    $
    (6.80
    )
    
    $
    0.33
    
    
    $
    (6.53
    )
    
    $
    0.49Weighted average common shares outstanding  basic
    
    
    1,391
    
    
    
    1,394
    
    
    
    1,388
    
    
    
    1,393Weighted average common and equivalent shares
outstanding  diluted
    
    
    1,391
    
    
    
    1,399
    
    
    
    1,388
    
    
    
    1,400
 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)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    Unearned
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Compensation
    
    
    Stockholders(In Thousands)
    
    Stock
    
    
    Capital
    
    
    Income
    
    
    Loss
    
    
    ESOP
    
    
    EquitySix Months Ended September 30, 2008Balance at March 31, 2008
    
    $
    1,640
    
    
    $
    3,690
    
    
    $
    40,825
    
    
    $
    (236
    )
    
    $
    (7,103
    )
    
    $
    38,816Net income (loss)
    
    
    
    
    
    
    
    
    
    
    (9,065
    )
    
    
    
    
    
    
    
    
    
    
    (9,065
    )Other comprehensive loss, net of tax benefit:Unrealized loss on securities, net
of reclassification adjustment (Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (962
    )
    
    
    
    
    
    
    (962
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,027
    )Dividends paid ($0.36 per share)
    
    
    
    
    
    
    
    
    
    
    (513
    )
    
    
    
    
    
    
    
    
    
    
    (513
    )Stock-based
compensation (Note 10)
    
    
    
    
    
    
    161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161Amortization of unearned compensation  ESOP
    
    
    
    
    
    
    (193
    )
    
    
    
    
    
    
    
    
    
    
    344
    
    
    
    151Balance at September 30, 2008
    
    $
    1,640
    
    
    $
    3,658
    
    
    $
    31,247
    
    
    $
    (1,198
    )
    
    $
    (6,759
    )
    
    $
    28,588
 See accompanying notes to unaudited consolidated financial statements.
 3




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CENTRAL BANCORP, INC. AND SUBSIDIARY
 Consolidated Statements of Cash Flows
(Unaudited)
 Six Months EndedSeptember 30,Dollars in thousands
    
    2008
    
    
    2007Cash flows from operating activities:Net (loss) income
    
    $
    (9,065
    )
    
    $
    690Adjustments to reconcile net (loss) income to net cash provided by
operating activities:Depreciation and amortization
    
    
    460
    
    
    
    483Amortization of premiums
    
    
    29
    
    
    
    34Provision (credit) for loan losses
    
    
    1,100
    
    
    
    (300
    )Stock-based compensation and amortization of unearned compensation  ESOP
    
    
    312
    
    
    
    438Decrease in deferred tax asset
    
    
    59
    
    
    
    Net losses (gains) from sales and write-downs of investment securities
    
    
    9,538
    
    
    
    (288
    )Bank owned life insurance income
    
    
    (157
    )
    
    
    Gain on sales of loans held for sale
    
    
    (15
    )
    
    
    (77
    )Originations of loans held for sale
    
    
    (2,877
    )
    
    
    (5,814
    )Proceeds from sale of loans originated for sale
    
    
    1,847
    
    
    
    6,466Decrease in accrued interest receivable
    
    
    9
    
    
    
    62(Increase) decrease in other assets, net
    
    
    (155
    )
    
    
    231Decrease in advance payments by borrowers for taxes and insurance
    
    
    217
    
    
    
    172Increase (decrease) in accrued expenses and other liabilities, net
    
    
    (420
    )
    
    
    16Net cash provided by operating activities
    
    
    882
    
    
    
    2,113Cash flows from investing activities:Loan principal collections, net of originations
    
    
    12,114
    
    
    
    2,139Principal payments on mortgage-backed securities
    
    
    2,724
    
    
    
    3,110Purchases of restricted equity-FHLB
    
    
    
    
    
    
    (420
    )Proceeds from sales of investment securities
    
    
    3,616
    
    
    
    3,145Purchases of investment securities
    
    
    (3,002
    )
    
    
    (2,883
    )Maturities and calls of investment securities
    
    
    2,000
    
    
    
    Purchase of banking premises and equipment
    
    
    (208
    )
    
    
    (45
    )Net cash provided by investing activities
    
    
    17,244
    
    
    
    5,046Cash flows from financing activities:Net decrease in deposits
    
    
    (7,028
    )
    
    
    (29,577
    )Proceeds from advances from FHLB of Boston
    
    
    
    
    
    
    90,000Repayment of advances from FHLB of Boston
    
    
    (12,053
    )
    
    
    (75,000
    )Net proceeds from short-term borrowings
    
    
    19
    
    
    
    111Cash dividends paid
    
    
    (513
    )
    
    
    (506
    )Net cash used in financing activities
    
    
    (19,575
    )
    
    
    (14,972
    )Net decrease in cash and cash equivalents
    
    
    (1,449
    )
    
    
    (7,813
    )Cash and cash equivalents at beginning of period
    
    
    17,725
    
    
    
    20,617Cash and cash equivalents at end of period
    
    $
    16,276
    
    
    $
    12,804Cash paid during the period for:Interest
    
    $
    7,591
    
    
    $
    8,862Income taxes
    
    $
    600
    
    
    $
    340Loans transferred to other real estate owned
    
    $
    89
    
    
    
    
 See accompanying notes to unaudited consolidated financial statements
 4




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CENTRAL BANCORP AND SUBSIDIARY
 Notes to Unaudited Consolidated Financial Statements
September 30, 2008
 (1) Basis of Presentation
    (2) Investments
  September 30, 2008Amortized
    
    
    Gross Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in Thousands)U.S. Government and agency obligations
    
    $
    3,499
    
    
    $
    8
    
    
    $
    
    
    
    $
    3,507Corporate bonds
    
    
    6,486
    
    
    
    
    
    
    
    (1,185
    )
    
    
    5,301Mortgage-backed securities
    
    
    20,519
    
    
    
    67
    
    
    
    (160
    )
    
    
    20,426Trust preferred securities
    
    
    1,003
    
    
    
    
    
    
    
    (45
    )
    
    
    958Total debt securities
    
    
    31,507
    
    
    
    75
    
    
    
    (1,390
    )
    
    
    30,192Preferred stock
    
    
    3,779
    
    
    
    
    
    
    
    (678
    )
    
    
    3,101Common stock
    
    
    3,422
    
    
    
    51
    
    
    
    (321
    )
    
    
    3,152Total
    
    $
    38,708
    
    
    $
    126
    
    
    $
    (2,389
    )
    
    $
    36,445
  5




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##### Table of Contents



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
 (3) Loans
  September 30,
    
    
    March 31,2008
    
    
    2008Real estate loans:Residential real estate (1-4 family)
    
    $
    183,637
    
    
    $
    178,727Commercial real estate
    
    
    242,382
    
    
    
    244,496Construction
    
    
    22,511
    
    
    
    30,950Home equity lines of credit
    
    
    7,050
    
    
    
    6,559Total real estate loans
    
    
    455,580
    
    
    
    460,732Commercial loans
    
    
    6,004
    
    
    
    13,173Consumer loans
    
    
    1,116
    
    
    
    1,037Total loans
    
    
    462,700
    
    
    
    474,942Less: allowance for loan losses
    
    
    (4,674
    )
    
    
    (3,613
    )Total loans, net
    
    $
    458,026
    
    
    $
    471,329
   6




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##### Table of Contents



Three Months EndedSeptember 30,2008
    
    
    2007Balance at beginning of period
    
    $
    3,808
    
    
    $
    3,848Provision charged (credited) to expense
    
    
    900
    
    
    
    (300
    )Less: charge-offs
    
    
    (41
    )
    
    
    (187
    )Add: recoveries
    
    
    6
    
    
    
    17Balance at end of period
    
    $
    4,674
    
    
    $
    3,378
 Six Months EndedSeptember 30,2008
    
    
    2007Balance at beginning of period
    
    $
    3,613
    
    
    $
    3,881Provision charged (credited) to expense
    
    
    1,100
    
    
    
    (300
    )Less: charge-offs
    
    
    (47
    )
    
    
    (233
    )Add: recoveries
    
    
    8
    
    
    
    30Balance at end of period
    
    $
    4,674
    
    
    $
    3,378
 (4) Deposits
  September 30,
    
    
    March 31,2008
    
    
    2008Demand deposit accounts
    
    $
    40,154
    
    
    $
    38,250NOW accounts
    
    
    23,970
    
    
    
    27,065Passbook and other savings accounts
    
    
    50,109
    
    
    
    50,252Money market deposit accounts
    
    
    69,225
    
    
    
    67,243Total non-certificate accounts
    
    
    183,458
    
    
    
    182,810Term deposit certificates:Certificates of $100,000 and above
    
    
    78,669
    
    
    
    74,052Certificates of less than $100,000
    
    
    91,934
    
    
    
    104,227Total term deposit certificates
    
    
    170,603
    
    
    
    178,279Total deposits
    
    $
    354,061
    
    
    $
    361,089
 (5) Subordinated Debentures
  7




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##### Table of Contents



(6) Other Comprehensive Loss
   For the Six Months EndedSeptember 30, 2008Before-Tax
    
    
    Tax
    
    
    After-TaxAmount
    
    
    Effect
    
    
    AmountUnrealized losses on securities:Unrealized net holding losses during period
    
    $
    (11,149
    )
    
    $
    (649
    )
    
    $
    (10,500
    )Less: reclassification adjustment for net
losses included in net income (loss)
    
    
    (9,538
    )
    
    
    
    
    
    
    (9,538
    )Other comprehensive loss
    
    $
    (1,611
    )
    
    $
    (649
    )
    
    $
    (962
    )
 For the Six Months EndedSeptember 30, 2007Before-Tax
    
    
    Tax
    
    
    After-TaxAmount
    
    
    Effect
    
    
    AmountUnrealized gains on securities:Unrealized net holding gains during period
    
    $
    656
    
    
    $
    241
    
    
    $
    415Less: reclassification adjustment for net
gains included in net income
    
    
    288
    
    
    
    99
    
    
    
    189Other comprehensive gain
    
    $
    368
    
    
    $
    142
    
    
    $
    226
 8




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##### Table of Contents



(7) Contingencies
 Legal Proceedings.
 (8) Subsequent Events
  (9) Earnings per Share (EPS)
   Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Amounts in thousands, except per share amounts)Net income (loss) available to common shareholders
    
    $
    (9,466
    )
    
    $
    465
    
    
    $
    (9,065
    )
    
    $
    690Weighted average number of common shares outstanding
    
    
    1,640
    
    
    
    1,640
    
    
    
    1,640
    
    
    
    1,640Weighted average number of unallocated ESOP and
unvested restricted shares
    
    
    (249
    )
    
    
    (246
    )
    
    
    (252
    )
    
    
    (247
    )Weighted average number of common shares outstanding
used in calculation of basic earnings per share
    
    
    1,391
    
    
    
    1,394
    
    
    
    1,388
    
    
    
    1,393Incremental shares from the assumed exercise of dilutive
stock options
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    7Weighted average number of common shares outstanding
used in calculating diluted earnings (loss) per share
    
    
    1,391
    
    
    
    1,399
    
    
    
    1,388
    
    
    
    1,400Earnings (loss) per shareBasic
    
    $
    (6.80
    )
    
    $
    0.33
    
    
    $
    (6.53
    )
    
    $
    0.50Diluted
    
    $
    (6.80
    )
    
    $
    0.33
    
    
    $
    (6.53
    )
    
    $
    0.49
  (10) Stock-Based Compensation
   9




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##### Table of Contents



10




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##### Table of Contents



Number of
    
    
    WeightedShares
    
    
    Exercise PriceOutstanding at March 31, 2008
    
    
    68,218
    
    
    $
    25.364Exercised
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    Outstanding at September 30, 2008
    
    
    68,218
    
    
    $
    25.364Exercisable at September 30, 2008
    
    
    60,218
    
    
    $
    21.705
  WeightedAverageRemaining
    
    
    WeightedNumber
    
    
    Contractual
    
    
    Average
    
    
    AggregateExercise
    
    
    of Shares
    
    
    Life
    
    
    Exercise
    
    
    IntrinsicPrice
    
    
    Outstanding
    
    
    (Years)
    
    
    Price
    
    
    Value (1)$
    16.625
    
    
    
    12,077
    (2)
    
    
    2.2
    
    
    $
    16.625
    
    
    $
    20.250
    
    
    
    13,745
    (2)
    
    
    1.1
    
    
    
    20.250
    
    
    
    28.990
    
    
    
    32,396
    (2)
    
    
    6.4
    
    
    
    28.990
    
    
    
    31.200
    
    
    
    10,000
    (3)
    
    
    7.9
    
    
    
    31.200
    
    
    
    Average/Total
    
    $
    25.364
    
    
    
    68,218
    
    
    
    4.9
    
    
    $
    25.364
    
    
    $
    
 
 (1)
    
    Represents the total intrinsic value, based on the Companys closing stock price of $11.50 on
September 30, 2008, which would have been received by the option holders had all option
holders exercised their options as of that date. As of September 30, 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, 20% vested at September 30, 2008.  Weighted AverageNumber of
    
    Grant DateShares
    
    Fair ValueNon-vested at March 31, 2008
    
    
    39,200
    
    
    $
    31.20Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Non-vested at September 30, 2008
    
    
    39,200
    
    
    $
    31.20
 11




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##### Table of Contents



(11) Bank-Owned Life Insurance
  (12) Recent Accounting Pronouncements
     12




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##### Table of Contents



(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
    
    $
    3,151
    
    
    $
    32,651
    
    
    $
    643
    
    
    $
    36,445Impaired Loans
    
    
    
    
    
    
    
    
    
    $
    3,224
    
    
    $
    3,224
   13




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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
    
    
    (6
    )Net accretion of discount and repayment of principal
    
    
    (68
    )Net transfers in/out of Level 3
    
    
    Balance at September 30, 2008
    
    $
    643
   ImpairedLoansBalance at March 31, 2008
    
    $
    4,226Total realized and unrealized gains (losses) included in income
    
    
    (1,100
    )Additional principal disbursement
    
    
    98Balance at September 30, 2008
    
    $
    3,224
   14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
 Part IIItem 1A. Risk Factors
 General
     15




---



##### Table of Contents



Critical Accounting Policies
  Allowance for Loan Losses
 Fair Value of Investments
    16




---



##### Table of Contents



Market Events
    At September 30, 2008Regulatory
    
    RegulatoryThreshold
    
    ThresholdFor Well
    
    For AdequatelyActual
    
    Capitalized
    
    CapitalizedCentral Bancorp:Tier 1 Leverage
    
    
    6.44
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based Ratio
    
    
    9.32
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based Ratio
    
    
    10.54
    %
    
    
    10.0
    %
    
    
    8.0
    %Central Co-operative Bank:Tier 1 Leverage
    
    
    5.45
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based Ratio
    
    
    7.90
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based Ratio
    
    
    9.12
    %
    
    
    10.0
    %
    
    
    8.0
    %
  Comparison of Financial Condition at September 30, 2008 and March 31, 2008
  17




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##### Table of Contents



Provision for Loan
Losses
 Other Real Estate Owned
 Bank-Owned Life Insurance
     18




---



##### Table of Contents



Comparison of Operating Results for the Quarters Ended September 30, 2008 and 2007
  Interest and Dividend Income.
 Interest Expense
 19




---



##### Table of Contents



Three Months Ended September 30,2008
    
    
    2007Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Average Rate
    
    
    Balance
    
    
    Interest
    
    
    Average Rate(Dollars in thousands)Interest-earning assets:Mortgage loans
    
    $
    457,339
    
    
    $
    6,884
    
    
    
    6.03
    %
    
    $
    447,721
    
    
    $
    6,753
    
    
    
    6.03
    %Other loans
    
    
    8,804
    
    
    
    140
    
    
    
    6.36
    
    
    
    10,991
    
    
    
    235
    
    
    
    8.55Investment securities
    
    
    52,210
    
    
    
    723
    
    
    
    5.06
    
    
    
    72,753
    
    
    
    880
    
    
    
    4.84Short-term investments
    
    
    11,025
    
    
    
    53
    
    
    
    1.92
    
    
    
    4,978
    
    
    
    65
    
    
    
    5.22Total interest-earning assets
    
    
    534,378
    
    
    
    7,800
    
    
    
    5.85
    
    
    
    536,443
    
    
    
    7,933
    
    
    
    5.92Allowance for loan losses
    
    
    (3,982
    )
    
    
    
    
    
    
    
    
    
    
    (3,844
    )Noninterest-earning assets
    
    
    25,563
    
    
    
    
    
    
    
    
    
    
    
    18,734Total assets
    
    $
    555,959
    
    
    
    
    
    
    
    
    
    
    $
    551,333Interest-bearing liabilities:Deposits
    
    $
    318,915
    
    
    
    1,737
    
    
    
    2.18
    
    
    $
    328,204
    
    
    
    2,746
    
    
    
    3.35Advances from FHLB of Boston
    
    
    146,223
    
    
    
    1,691
    
    
    
    4.63
    
    
    
    131,736
    
    
    
    1,727
    
    
    
    5.24Other borrowings
    
    
    11,998
    
    
    
    174
    
    
    
    5.80
    
    
    
    12,028
    
    
    
    207
    
    
    
    6.88Total interest-bearing liabilities
    
    
    477,136
    
    
    
    3,602
    
    
    
    3.02
    
    
    
    471,968
    
    
    
    4,680
    
    
    
    3.97Noninterest-bearing liabilities
    
    
    40,939
    
    
    
    
    
    
    
    
    
    
    
    41,229Total liabilities
    
    
    518,075
    
    
    
    
    
    
    
    
    
    
    
    513,197Stockholders equity
    
    
    37,884
    
    
    
    
    
    
    
    
    
    
    
    38,136Total liabilities and stockholders
equity
    
    $
    555,959
    
    
    
    
    
    
    
    
    
    
    $
    551,333Net interest and dividend income
    
    
    
    
    
    $
    4,198
    
    
    
    
    
    
    
    
    
    
    $
    3,253Net interest spread
    
    
    
    
    
    
    
    
    
    
    2.82
    %
    
    
    
    
    
    
    
    
    
    
    1.95
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.14
    %
    
    
    
    
    
    
    
    
    
    
    2.43
    %
 Provision for Loan Losses.
  20




---



##### Table of Contents



Noninterest Income.
 Noninterest Expenses
     21




---



##### Table of Contents



Income Taxes
  Comparison of Operating Results for the Six Months Ended September 30, 2008 and 2007
  Interest and Dividend Income.
 Interest Expense.
 22




---



##### Table of Contents



Six Months Ended September 30,2008
    
    
    2007AverageBalance
    
    
    Interest
    
    
    AverageRate
    
    
    AverageBalance
    
    
    Interest
    
    
    AverageRate(Dollars in thousands)Interest-earning assets:Mortgage loans
    
    $
    459,625
    
    
    $
    13,737
    
    
    
    5.98
    %
    
    $
    448,400
    
    
    $
    13,562
    
    
    
    6.05
    %Other loans
    
    
    10,414
    
    
    
    330
    
    
    
    6.34
    
    
    
    9,358
    
    
    
    385
    
    
    
    8.23Investment securities
    
    
    60,359
    
    
    
    1 ,488
    
    
    
    4.93
    
    
    
    73,581
    
    
    
    1 ,766
    
    
    
    4.80Short-term investments
    
    
    9,385
    
    
    
    109
    
    
    
    2.32
    
    
    
    9,239
    
    
    
    258
    
    
    
    5.59Total interest-earning assets
    
    
    539,783
    
    
    
    15,664
    
    
    
    5.80
    
    
    
    540,578
    
    
    
    15,971
    
    
    
    5.91Allowance for loan losses
    
    
    (3,799
    )
    
    
    
    
    
    
    
    
    
    
    (3,849
    )Noninterest-earning assets
    
    
    24,618
    
    
    
    
    
    
    
    
    
    
    
    18,908Total assets
    
    $
    560,602
    
    
    
    
    
    
    
    
    
    
    $
    555,637Interest-bearing liabilities:Deposits
    
    $
    319,976
    
    
    $
    3,744
    
    
    
    2.34
    
    
    $
    334,023
    
    
    $
    5,599
    
    
    
    3.35Advances from FHLB of Boston
    
    
    149,614
    
    
    
    3,454
    
    
    
    4.62
    
    
    
    130,050
    
    
    
    3,351
    
    
    
    5.15Other borrowings
    
    
    11,687
    
    
    
    343
    
    
    
    5.87
    
    
    
    12,081
    
    
    
    428
    
    
    
    7.09Total interest-bearing liabilities
    
    
    481,277
    
    
    
    7,541
    
    
    
    3.13
    
    
    
    476,154
    
    
    
    9,378
    
    
    
    3.94Noninterest-bearing liabilities
    
    
    40,393
    
    
    
    
    
    
    
    
    
    
    
    41,492Total liabilities
    
    
    521,670
    
    
    
    
    
    
    
    
    
    
    
    517,646Stockholders equity
    
    
    38,932
    
    
    
    
    
    
    
    
    
    
    
    37,991Total liabilities and
stockholders equity
    
    $
    560,602
    
    
    
    
    
    
    
    
    
    
    $
    555,637Net interest and dividend income
    
    
    
    
    
    $
    8,123
    
    
    
    
    
    
    
    
    
    
    $
    6,593Net interest spread
    
    
    
    
    
    
    
    
    
    
    2.67
    %
    
    
    
    
    
    
    
    
    
    
    1.97
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.01
    %
    
    
    
    
    
    
    
    
    
    
    2.44
    %
 Provision for Loan Losses.
 23




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##### Table of Contents



Noninterest Income.
 Noninterest Expenses.
     24




---



##### Table of Contents



Income Taxes
 Liquidity and Capital Resources
    At September 30, 2008Regulatory ThresholdRegulatory Threshold
    
    For AdequatelyActual
    
    For Well Capitalized
    
    CapitalizedCentral Bancorp:Tier 1 Leverage
    
    
    6.44
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based Ratio
    
    
    9.32
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based Ratio
    
    
    10.54
    %
    
    
    10.0
    %
    
    
    8.0
    %Central Co-operative Bank:Tier 1 Leverage
    
    
    5.45
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based Ratio
    
    
    7.90
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based Ratio
    
    
    9.12
    %
    
    
    10.0
    %
    
    
    8.0
    %
  25




---



##### Table of Contents



Off-Balance Sheet Arrangements
   
 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
  26




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##### Table of Contents



The Companys ability to pay dividends on its common stock may be adversely affected by the
regulation of its bank subsidiary.
  
 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
   ELECTION OF DIRECTORS
    
    FOR
    
    WITHHELDPaul E. Bulman
    
    
    1,412,676
    
    
    
    123,831James F. Linnehan
    
    
    1,410,946
    
    
    
    125,561John J. Morrissey
    
    
    1,412,876
    
    
    
    123,631
  
 Item 5. Other Information
  
 Item 6. Exhibits
 10.1
    
    Central Co-operative Bank Senior Management Incentive Compensation Plan for Fiscal 200931.1
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a) Certification of Chief Financial Officer32
    
    Section 1350 Certifications
 27




---



##### Table of Contents



SIGNATURES
  CENTRAL BANCORP, INC.
RegistrantNovember 14, 2008
    By:

/s/
John D. DohertyJohn D. DohertyChairman, President and Chief Executive OfficerNovember 14, 2008
    By:

/s/
Paul S. FeeleyPaul S. FeeleySenior Vice President, Treasurer and
Chief Financial Officer 28