##### 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 endedJune 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number: 0-25251
 CENTRAL BANCORP, INC.
  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  (Registrants telephone number, including area code)
 N/A  (Former name, former address and former fiscal year, if changed since last report)
  þ o
  o o þ
  o þ
 Common Stock, $1.00 par value
    
    1,639,951Class
    
    Outstanding at August 10, 2007




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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 June 30, 2007 and
March 31, 2007
    
    1Consolidated Statements of Income for the Three Months Ended
June 30, 2007 and 2006
    
    2Consolidated Statements of Changes in Stockholders Equity for the Three
Months Ended June 30, 2007
    
    3Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 2007 and 2006
    
    4Notes to Unaudited Consolidated Financial Statements
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    17Item 4. Controls and Procedures
    
    18Part II. Other InformationItem 1. Legal Proceedings
    
    18Item 1A. Risk Factors
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    19Item 3. Defaults Upon Senior Securities
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    19Item 5. Other Information
    
    19Item 6. Exhibits
    
    19SignaturesEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATIONS OF THE CEO AND CFO




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
  
   (Dollars in Thousands)
    
    June 30, 2007
    
    
    March 31, 2007ASSETSCash and due from banks
    
    $
    5,316
    
    
    $
    6,147Short-term investments
    
    
    1,699
    
    
    
    14,470Cash and cash equivalents
    
    
    7,015
    
    
    
    20,617Investment securities available for sale
(amortized cost of $64,861
at June 30, 2007 and $66,033 at March 31, 2007)
    
    
    64,315
    
    
    
    65,763Stock in Federal Home Loan Bank of Boston, at cost
    
    
    7,401
    
    
    
    7,366The Co-operative Central Bank Reserve Fund, at cost
    
    
    1,576
    
    
    
    1,576Total investments
    
    
    73,292
    
    
    
    74,705Loans held for sale
    
    
    640
    
    
    
    575Loans (Note 2)
    
    
    458,503
    
    
    
    460,542Less allowance for loan losses
    
    
    3,848
    
    
    
    3,881Loans, net
    
    
    454,655
    
    
    
    456,661Accrued interest receivable
    
    
    2,206
    
    
    
    2,415Banking premises and equipment, net
    
    
    4,536
    
    
    
    4,756Deferred tax asset, net
    
    
    2,305
    
    
    
    2,212Goodwill, net
    
    
    2,232
    
    
    
    2,232Other assets
    
    
    1,969
    
    
    
    1,967Total assets
    
    $
    548,850
    
    
    $
    566,140LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits (Note 3)
    
    $
    374,631
    
    
    $
    388,573Short-term borrowings
    
    
    3,372
    
    
    
    712Federal Home Loan Bank advances
    
    
    119,000
    
    
    
    125,000Subordinated debenture (Note 4)
    
    
    11,341
    
    
    
    11,341Advanced payments by borrowers for taxes and insurance
    
    
    1,201
    
    
    
    1,229Accrued expenses and other liabilities
    
    
    1,585
    
    
    
    1,583Total liabilities
    
    
    511,130
    
    
    
    528,438Commitments and Contingencies (Note 6)Stockholders equity (Note 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;
1,639,951 shares issued at June 30, 2007 and March 31, 2007
    
    
    2,033
    
    
    
    2,033Additional paid-in capital
    
    
    3,143
    
    
    
    3,086Retained income
    
    
    40,366
    
    
    
    40,394Accumulated other comprehensive loss (Note 5)
    
    
    (203
    )
    
    
    (20
    )Unearned compensation  ESOP
    
    
    (7,619
    )
    
    
    (7,791
    )Total stockholders equity
    
    
    37,720
    
    
    
    37,702Total liabilities and stockholders equity
    
    $
    548,850
    
    
    $
    566,140
  1




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Three Months EndedJune 30,2007
    
    
    2006Interest and dividend income:Mortgage loans
    
    $
    6,809
    
    
    $
    6,141Other loans
    
    
    150
    
    
    
    127Short-term investments
    
    
    193
    
    
    
    95Investments
    
    
    886
    
    
    
    1,126Total interest and dividend income
    
    
    8,038
    
    
    
    7,489Interest expense:Deposits
    
    
    2,853
    
    
    
    2,531Advances from Federal Home Loan Bank of Boston
    
    
    1,634
    
    
    
    1,228Other borrowings
    
    
    211
    
    
    
    152Total interest expense
    
    
    4,698
    
    
    
    3,911Net interest and dividend income
    
    
    3,340
    
    
    
    3,578Provision for loan losses
    
    
    
    
    
    
    50Net interest and dividend income after
provision for loan losses
    
    
    3,340
    
    
    
    3,528Non-interest income:Deposit service charges
    
    
    252
    
    
    
    256Net gains from sales of investment securities
    
    
    116
    
    
    
    112Net gains on sales of loans
    
    
    52
    
    
    
    33Other income
    
    
    105
    
    
    
    89Total non-interest income
    
    
    525
    
    
    
    490Non-interest expenses:Salaries and employee benefits
    
    
    2,099
    
    
    
    2,179Occupancy and equipment
    
    
    550
    
    
    
    504Data processing fees
    
    
    223
    
    
    
    233Professional fees
    
    
    204
    
    
    
    237Advertising and marketing
    
    
    4
    
    
    
    222Other expenses
    
    
    436
    
    
    
    471Total non-interest expenses
    
    
    3,516
    
    
    
    3,846Income before income taxes
    
    
    349
    
    
    
    172Provision for income taxes (Note 6)
    
    
    124
    
    
    
    59Net income
    
    $
    225
    
    
    $
    113Earnings per common share  basic (Note 8)
    
    $
    0.16
    
    
    $
    0.08Earnings per common share  diluted (Note 8)
    
    $
    0.16
    
    
    $
    0.08Weighted average common shares outstanding  basic
    
    
    1,392
    
    
    
    1,440Weighted average common and equivalent shares
outstanding  diluted
    
    
    1,401
    
    
    
    1,453
  2




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AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    Unearned
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Compensation
    
    
    Stockholders(In Thousands)
    
    Stock
    
    
    Capital
    
    
    Income
    
    
    Loss
    
    
    ESOP
    
    
    EquityThree Months Ended June 30, 2007Balance at March 31, 2007
    
    $
    2,033
    
    
    $
    3,086
    
    
    $
    40,394
    
    
    $
    (20
    )
    
    $
    (7,791
    )
    
    $
    37,702Net income
    
    
    
    
    
    
    
    
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    225Other comprehensive income net of
tax:Unrealized loss on securities, net
of reclassification adjustment
(Note 5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (183
    )
    
    
    
    
    
    
    (183
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42Stock compensation expenseDividends paid ($0.18 per share)
    
    
    
    
    
    
    
    
    
    
    (253
    )
    
    
    
    
    
    
    
    
    
    
    (253
    )Stock option expense (Note 9)
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80Amortization of unearned
compensation  ESOP
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    172
    
    
    
    149Balance at June 30, 2007
    
    $
    2,033
    
    
    $
    3,143
    
    
    $
    40,366
    
    
    $
    (203
    )
    
    $
    (7,619
    )
    
    $
    37,720
  3




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Three Months EndedJune 30,(In thousands)
    
    2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    225
    
    
    $
    113Adjustments to reconcile net income to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    243
    
    
    
    187Amortization of premiums
    
    
    14
    
    
    
    34Provision for loan losses
    
    
    
    
    
    
    50Stock-based compensation
    
    
    229
    
    
    
    125Net gains from sales and write-downs of investment securities
    
    
    (116
    )
    
    
    (112
    )Gain on sales of loans held for sale
    
    
    (33
    )
    
    
    (33
    )Originations of loans held for sale
    
    
    4,346
    
    
    
    (3,929
    )Proceeds from sale of loans originated for sale
    
    
    (4,378
    )
    
    
    3,624Decrease in accrued interest receivable
    
    
    209
    
    
    
    517Decrease (increase) in other assets, net
    
    
    (2
    )
    
    
    (54
    )Increase in advance payments by borrowers for taxes and insurance
    
    
    (28
    )
    
    
    (124
    )Increase (decrease) in accrued expenses and other liabilities, net
    
    
    2
    
    
    
    (221
    )Net cash provided by operating activities
    
    
    711
    
    
    
    177Cash flows from investing activities:Decrease in loans
    
    
    2,006
    
    
    
    3,438Principal payments on mortgage-backed securities
    
    
    1,343
    
    
    
    2,361Purchases of restricted equity-FHLB
    
    
    (35
    )
    
    
    Proceeds from sale of restricted equity-FHLB
    
    
    
    
    
    
    2,367Proceeds from sales of investment securities
    
    
    1,064
    
    
    
    1,962Purchases of investment securities
    
    
    (1,133
    )
    
    
    (1,885
    )Maturities and calls of investment securities
    
    
    
    
    
    
    6,900Purchase of banking premises and equipment
    
    
    (23
    )
    
    
    (1,189
    )Net cash used by investing activities
    
    
    3,222
    
    
    
    13,954Cash flows from financing activities:Increase (decrease) in deposits
    
    
    (13,942
    )
    
    
    15,485Proceeds from advances from FHLB of Boston
    
    
    43,000
    
    
    
    Repayment of advances from FHLB of Boston
    
    
    (49,000
    )
    
    
    (17,000
    )Increase (decrease) in short-term borrowings
    
    
    2,660
    
    
    
    391Repayment of ESOP loan
    
    
    
    
    
    
    (97
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    13Tax benefit from exercise of stock options
    
    
    
    
    
    
    4Dividends paid, net
    
    
    (253
    )
    
    
    (259
    )Net cash provided by financing activities
    
    
    (17,535
    )
    
    
    (1,463
    )Net increase (decrease) in cash and cash equivalents
    
    
    (13,602
    )
    
    
    12,668Cash and cash equivalents at beginning of year
    
    
    20,617
    
    
    
    15,263Cash and cash equivalents at end of period
    
    $
    7,015
    
    
    $
    27,931Supplementary disclosure of cash flows information:Cash paid during the period for:Interest
    
    $
    4,729
    
    
    $
    3,983Income taxes
    
    $
    10
    
    
    $
    193
  4




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Central Bancorp, Inc.Notes to Unaudited Consolidated Financial StatementsJune 30, 2007
 (1) Basis of Presentation
    (2) Loans
  June 30,
    
    
    March 31,2007
    
    
    2007Real estate loans:Residential real estate (1-4 family)
    
    $
    173,971
    
    
    $
    175,259Commercial real estate
    
    
    239,021
    
    
    
    235,535Construction
    
    
    26,305
    
    
    
    35,011Home equity lines of credit
    
    
    6,617
    
    
    
    6,901Total real estate loans
    
    
    445,914
    
    
    
    452,706Commercial loans
    
    
    11,327
    
    
    
    6,605Consumer loans
    
    
    1,262
    
    
    
    1,231Total loans
    
    
    458,503
    
    
    
    460,542Less: allowance for loan losses
    
    
    (3,848
    )
    
    
    (3,881
    )Total loans, net
    
    $
    454,655
    
    
    $
    456,661
  5




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Three Months EndedJune 30,2007
    
    
    2006Balance at beginning of period
    
    $
    3,881
    
    
    $
    3,788Provision charged to expense
    
    
    
    
    
    
    50Less: charge-offs
    
    
    (46
    )
    
    
    (8
    )Add: recoveries
    
    
    13
    
    
    
    13Balance at end of period
    
    $
    3,848
    
    
    $
    3,843
 (3) Deposits
  June 30,
    
    
    March 31,2007
    
    
    2007Demand deposit accounts
    
    $
    40,871
    
    
    $
    40,026NOW accounts
    
    
    31,111
    
    
    
    28,591Passbook and other savings accounts
    
    
    53,891
    
    
    
    56,495Money market deposit accounts
    
    
    55,752
    
    
    
    45,586Total non-certificate accounts
    
    
    181,625
    
    
    
    170,698Term deposit certificates:Certificates of $100,000 and above
    
    
    71,376
    
    
    
    82,159Certificates of less than $100,000
    
    
    121,630
    
    
    
    135,716Total term deposit certificates
    
    
    193,006
    
    
    
    217,875Total deposits
    
    $
    374,631
    
    
    $
    388,573
 (4) Subordinated Debentures
  6




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(5) Other Comprehensive Income (Loss)
   For the Three Months EndedJune 30, 2007Before-Tax
    
    
    Tax
    
    
    After-TaxAmount
    
    
    Effect
    
    
    AmountUnrealized losses on securities:Unrealized net holding losses during period
    
    $
    (160
    )
    
    $
    (52
    )
    
    $
    (108
    )Less: reclassification adjustment for net
gains included in net income
    
    
    116
    
    
    
    41
    
    
    
    75Other comprehensive loss
    
    $
    (276
    )
    
    $
    (93
    )
    
    $
    (183
    )
 For the Three Months EndedJune 30, 2006Before-Tax
    
    
    Tax
    
    
    After-TaxAmount
    
    
    Effect
    
    
    AmountUnrealized losses on securities:Unrealized net holding losses during period
    
    $
    (241
    )
    
    $
    (89
    )
    
    $
    (152
    )Less: reclassification adjustment for net
gains included in net income
    
    
    112
    
    
    
    38
    
    
    
    74Other comprehensive loss
    
    $
    (353
    )
    
    $
    (127
    )
    
    $
    (226
    )
 7




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(6) Contingencies
 Legal Proceedings
  (7) Subsequent Events
  (8) Earnings per Share (EPS)
   Three Months EndedJune 30,2007
    
    
    2006(Amounts in thousands,except per share amounts)Net income available to common shareholders
    
    $
    225
    
    
    $
    113Weighted average number of common shares outstanding
    
    
    1,640
    
    
    
    1,591Weighted average number of unallocated ESOP shares
    
    
    (248
    )
    
    
    (151
    )Weighted average number of common shares
outstanding used in calculation of basic earnings
per share
    
    
    1,392
    
    
    
    1,440Incremental shares from the assumed exercise of
dilutive stock options
    
    
    9
    
    
    
    13Weighted average number of common shares
outstanding used in calculating diluted earnings
per share
    
    
    1,401
    
    
    
    1,453Earnings per shareBasic
    
    $
    0.16
    
    
    $
    0.08Diluted
    
    $
    0.16
    
    
    $
    0.08
  (9) Stock-Based Compensation
  8




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9




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##### Table of Contents



Number of
    
    
    WeightedShares
    
    
    Exercise PriceBalance March 31, 2007
    
    
    69,121
    
    
    $
    25.411Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (903
    )
    
    
    28.990Granted
    
    
    
    
    
    
    Balance at June 30, 2007
    
    
    68,218
    
    
    
    25.364
  WeightedAverageRemaining
    
    
    WeightedNumber
    
    
    Contractual
    
    
    Average
    
    
    AggregateExercise
    
    
    of Shares
    
    
    Life
    
    
    Exercise
    
    
    IntrinsicPrice
    
    
    Outstanding
    
    
    (Years)
    
    
    Price
    
    
    Value (1)$
    16.625
    
    
    
    12,077
    (2)
    
    
    3.4
    
    
    $
    16.625
    
    
    $
    101,74920.250
    
    
    
    13,745
    (2)
    
    
    2.3
    
    
    
    20.250
    
    
    
    65,97628.990
    
    
    
    32,396
    (2)
    
    
    7.6
    
    
    
    28.990
    
    
    
    (127,640
    )31.200
    
    
    
    10,000
    (3)
    
    
    9.2
    
    
    
    31.200
    
    
    
    (61,500
    )Average/Total
    
    $
    25.411
    
    
    
    68,218
    
    
    
    6.11
    
    
    $
    25.411
    
    
    $
    (21,415
    )
 
 (1)
    
    Represents the total intrinsic value, based on the Companys closing stock price of $25.05 as
of June 30, 2007, which would have been received by the option holders had all option holders
exercised their options as of that date.(2)
    
    Fully vested and exercisable at the time of grant.(3)
    
    Subject to vesting over five years, 0% vested at June 30, 2007. (10) Recent Accounting Pronouncements
  10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
  General
    11




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Critical Accounting Policies
   Comparison of Financial Condition at June 30, 2007 and March 31, 2007
  12




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Comparison of Operating Results for the Quarters Ended June 30, 2007 and 2006
  Net Interest Income.
 13




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Interest Income.
 Interest Expense.
 14




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Three Months Ended June 30,2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-earning assets:Mortgage loans
    
    $
    449,084
    
    
    $
    6,809
    
    
    
    6.06
    %
    
    $
    406,129
    
    
    $
    6,141
    
    
    
    6.05
    %Other loans
    
    
    7,709
    
    
    
    150
    
    
    
    7.78
    
    
    
    6,421
    
    
    
    127
    
    
    
    7.91Investment securities
    
    
    74,632
    
    
    
    886
    
    
    
    4.75
    
    
    
    104,056
    
    
    
    1,126
    
    
    
    4.33Short-term investments
    
    
    13,546
    
    
    
    193
    
    
    
    5.70
    
    
    
    9,167
    
    
    
    95
    
    
    
    4.15Total interest-earning assets
    
    
    544,971
    
    
    
    8,038
    
    
    
    5.90
    
    
    
    525,773
    
    
    
    7,489
    
    
    
    5.70Allowance for loan losses
    
    
    (3,854
    )
    
    
    
    
    
    
    
    
    
    
    (3,807
    )Non-interest-earning assets
    
    
    18,873
    
    
    
    
    
    
    
    
    
    
    
    17,341Total assets
    
    $
    559,990
    
    
    
    
    
    
    
    
    
    
    $
    539,307Interest-bearing liabilities:Deposits
    
    $
    339,904
    
    
    
    2,853
    
    
    
    3.36
    
    
    
    356,481
    
    
    
    2,531
    
    
    
    2.84Advances from FHLB of Boston
    
    
    128,055
    
    
    
    1,621
    
    
    
    5.06
    
    
    
    94,104
    
    
    
    1,228
    
    
    
    5.22Other borrowings
    
    
    12,425
    
    
    
    224
    
    
    
    7.21
    
    
    
    8,662
    
    
    
    152
    
    
    
    7.02Total interest-bearing liabilities
    
    
    480,384
    
    
    
    4,698
    
    
    
    3.91
    
    
    
    459,247
    
    
    
    3,911
    
    
    
    3.41Non-interest-bearing liabilities
    
    
    41,932
    
    
    
    
    
    
    
    
    
    
    
    40,981Total liabilities
    
    
    522,315
    
    
    
    
    
    
    
    
    
    
    
    500,228Stockholders equity
    
    
    37,674
    
    
    
    
    
    
    
    
    
    
    
    39,079Total liabilities and
stockholders Equity
    
    $
    559,990
    
    
    
    
    
    
    
    
    
    
    $
    539,307Net interest and dividend income
    
    
    
    
    
    $
    3,340
    
    
    
    
    
    
    
    
    
    
    $
    3,578Net interest spread
    
    
    
    
    
    
    
    
    
    
    1.99
    %
    
    
    
    
    
    
    
    
    
    
    2.29
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.45
    %
    
    
    
    
    
    
    
    
    
    
    2.72
    %
 Provision for Loan Losses.
  15




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##### Table of Contents



Non-Interest Income
 Non-Interest Expense
      Income Taxes
 Liquidity and Capital Resources
   16




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##### Table of Contents



Company
    
    BankTier 1 Capital (to average assets)
    
    
    8.37
    %
    
    
    6.86
    %Tier 1 Capital (to risk-weighted assets)
    
    
    12.01
    %
    
    
    9.85
    %Total Capital (to risk-weighted assets)
    
    
    13.05
    %
    
    
    10.89
    %
  Off-Balance Sheet Arrangements
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
     17




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##### Table of Contents



June 30,
    
    March 31,2007
    
    2007Amount
    
    % Change
    
    Amount
    
    % Change(Dollars in thousands)200 basis point increase in rates
    
    $
    (1,665
    )
    
    
    (11.79
    )%
    
    $
    (1,956
    )
    
    
    (13.39
    )%200 basis point decrease in rates
    
    
    538
    
    
    
    3.81
    
    
    
    320
    
    
    
    2.19
  
 Item 4. Controls and Procedures
   
 Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  18




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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
 Exhibits31.1
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a) Certification of Chief Financial Officer32
    
    Section 1350 Certifications
 19




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##### Table of Contents



SIGNATURES
  CENTRAL BANCORP, INC.RegistrantAugust 14, 2007
    
    By:
    
    /s/ John D. DohertyJohn D. DohertyChairman, President and Chief Executive OfficerAugust 14, 2007
    
    By:
    
    /s/ Paul S. FeeleyPaul S. FeeleySenior Vice President, Treasurer andChief Financial Officer