##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 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 organization)
    
    (I.R.S. Employer
Identification No.)399 Highland Avenue, Somerville, Massachusetts
    
    02144(Address of principal executive offices)
    
    (Zip Code)
 (617) 628-4000
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $1.00 per share 
Stock Purchase Rights
    
    NASDAQ Global Market
 None
 o þ
 o þ
 þ o
 þ
  o o þ
 o þ
 SM
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



CENTRAL BANCORP, INC.
 ANNUAL REPORT ON FORM 10-K
 TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    20Item 1B.
    
    Unresolved Staff Comments
    
    
    25Item 2.
    
    Properties
    
    
    25Item 3.
    
    Legal Proceedings
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26PART IIItem 5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    26Item 6.
    
    Selected Financial Data
    
    
    29Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    31Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 8.
    
    Financial Statements and Supplementary Data
    
    
    41Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    73Item 9A.
    
    Controls and Procedures
    
    
    73Item 9B.
    
    Other Information
    
    
    73PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    73Item 11.
    
    Executive Compensation
    
    
    74Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management 80
and Related Stockholder Matters
    
    
    74Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    75Item 14.
    
    Principal Accounting Fees and Services
    
    
    75PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    75Signatures
    
    
    
    
    77EX-21 SUBSIDIARIES OF THE REGISTRANTEX-23.1 CONSENT OF VITALE, CATURANO & COMPANY, LTD.EX-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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PART I
 Note on Forward-Looking Statements
 When used in this Annual Report on Form 10-K , the words or phrases will likely result, are
expected to, will continue, is anticipated, estimate, project or similar expressions are
intended to identify forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and advises readers that
various factors, including changes in regional and national economic conditions, changes in local
demographics, unfavorable judicial decisions, substantial changes in levels of market interest
rates, technological innovations, credit and other risks of lending and investment activities and
competitive and regulatory factors, could affect the Companys financial performance and could
cause the Companys actual results for future periods to differ materially from those anticipated
or projected.
 The Company does not undertake and specifically disclaims any obligation to update any
forward-looking statements to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
 
 Item 1. Business
 General
 The Company.
 The Bank.
   1




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www.centralbk.com
  Market Area
  Competition
     Future Expansion Plans
  2




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Lending Activities
    3




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Loan Portfolio Composition.
 At March 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Mortgage loans:Residential
    
    $
    175,259
    
    
    
    38.1
    %
    
    $
    160,381
    
    
    
    38.6
    %
    
    $
    159,838
    
    
    
    41.4
    %
    
    $
    171,682
    
    
    
    48.2
    %
    
    $
    236,649
    
    
    
    60.7
    %Commercial
    
    
    235,535
    
    
    
    51.1
    
    
    
    213,935
    
    
    
    51.5
    
    
    
    194,326
    
    
    
    50.3
    
    
    
    146,107
    
    
    
    41.0
    
    
    
    107,140
    
    
    
    27.5Construction
    
    
    35,011
    
    
    
    7.6
    
    
    
    27,680
    
    
    
    6.7
    
    
    
    17,187
    
    
    
    4.4
    
    
    
    25,112
    
    
    
    7.0
    
    
    
    30,294
    
    
    
    7.8Home equity
    
    
    6,901
    
    
    
    1.5
    
    
    
    7,505
    
    
    
    1.8
    
    
    
    9,194
    
    
    
    2.4
    
    
    
    9,397
    
    
    
    2.6
    
    
    
    9,128
    
    
    
    2.3Total mortgage loan
    
    
    452,706
    
    
    
    98.3
    
    
    
    409,501
    
    
    
    98.6
    
    
    
    380,545
    
    
    
    98.5
    
    
    
    352,298
    
    
    
    98.8
    
    
    
    383,211
    
    
    
    98.3Other loans:Commercial and industrial
    
    
    6,605
    
    
    
    1.4
    
    
    
    4,457
    
    
    
    1.1
    
    
    
    4,786
    
    
    
    1.2
    
    
    
    3,198
    
    
    
    0.9
    
    
    
    5,319
    
    
    
    1.4Consumer
    
    
    1,231
    
    
    
    0.3
    
    
    
    1,360
    
    
    
    0.3
    
    
    
    1,051
    
    
    
    0.3
    
    
    
    1,129
    
    
    
    0.3
    
    
    
    1,287
    
    
    
    0.3Total other loan
    
    
    7,836
    
    
    
    1.7
    
    
    
    5,817
    
    
    
    1.4
    
    
    
    5,837
    
    
    
    1.5
    
    
    
    4,327
    
    
    
    1.2
    
    
    
    6,606
    
    
    
    1.7Total loans
    
    
    460,542
    
    
    
    100.0
    %
    
    
    415,318
    
    
    
    100.0
    %
    
    
    386,382
    
    
    
    100.0
    %
    
    
    356,625
    
    
    
    100.0
    %
    
    
    389,817
    
    
    
    100.0
    %Less:Allowance for loan losses
    
    
    3,881
    
    
    
    
    
    
    
    3,788
    
    
    
    
    
    
    
    3,681
    
    
    
    
    
    
    
    3,537
    
    
    
    
    
    
    
    3,284Loans, net
    
    $
    456,661
    
    
    
    
    
    
    $
    411,530
    
    
    
    
    
    
    $
    382,701
    
    
    
    
    
    
    $
    353,088
    
    
    
    
    
    
    $
    386,533
 Loan Portfolio Sensitivity.
 Due AfterDue Within
    
    
    One Through
    
    
    Due AfterOne Year
    
    
    Five Years
    
    
    Five Years
    
    
    Total(In thousands)Commercial and industrial loans
    
    $
    5,316
    
    
    $
    863
    
    
    $
    426
    
    
    $
    6,605Construction loans
    
    
    22,485
    
    
    
    11,105
    
    
    
    1,421
    
    
    
    35,011Total
    
    $
    27,801
    
    
    $
    11,968
    
    
    $
    1,847
    
    
    $
    41,616
  Residential Lending.
 e.g.,
  4




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Commercial Real Estate and Construction Lending .
   Home Equity Lines of Credit . Wall Street Journal
 Commercial and Industrial, Consumer and Other Loans .
 Risks of Commercial Real Estate, Construction and Commercial and Industrial Lending .
 5




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Origination Fees and Other Fees .
  Loan Solicitation and Processing .
  Non-Performing Assets .
   6




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At March 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Loans accounted for on a non-accrual basis,
non-performing loans
    
    $
    330
    
    
    $
    1,220
    
    
    $
    190
    
    
    $
    
    
    
    $
    Restructured loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate acquired by foreclosure
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-performing assets
    
    $
    330
    
    
    $
    1,220
    
    
    $
    190
    
    
    $
    
    
    
    $
    Impaired loans, accruing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Non-performing loans to total loans
    
    
    0.07
    %
    
    
    0.29
    %
    
    
    0.05
    %
    
    
    0.00
    %
    
    
    0.00
    %Non-performing assets to total assets
    
    
    0.06
    %
    
    
    0.22
    %
    
    
    0.04
    %
    
    
    0.00
    %
    
    
    0.00
    %
  Allowance for Loan Losses .
  7




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At or For the Years Ended March 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Balance at beginning of year
    
    $
    3,788
    
    
    $
    3,681
    
    
    $
    3,537
    
    
    $
    3,284
    
    
    $
    3,292Provision
    
    
    80
    
    
    
    100
    
    
    
    100
    
    
    
    200
    
    
    
    Charge-offs:Residential mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other loans
    
    
    (48
    )
    
    
    (39
    )
    
    
    (3
    )
    
    
    (29
    )
    
    
    (21
    )Total charge-offs
    
    
    (48
    )
    
    
    (39
    )
    
    
    (3
    )
    
    
    (29
    )
    
    
    (21
    )Recoveries:Residential mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    Commercial mortgage
    
    
    43
    
    
    
    37
    
    
    
    39
    
    
    
    33
    
    
    
    Other loans
    
    
    18
    
    
    
    9
    
    
    
    8
    
    
    
    30
    
    
    
    13Total recoveries
    
    
    61
    
    
    
    46
    
    
    
    47
    
    
    
    82
    
    
    
    13Net (charge-offs) recoveries
    
    
    13
    
    
    
    7
    
    
    
    44
    
    
    
    53
    
    
    
    (8
    )Balance at end of year
    
    $
    3,881
    
    
    $
    3,788
    
    
    $
    3,681
    
    
    $
    3,537
    
    
    $
    3,284Average loans outstanding during the
year
    
    $
    433,935
    
    
    $
    406,474
    
    
    $
    365,130
    
    
    $
    367,094
    
    
    $
    378,502Ratio of net charge-offs to average
loans
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aTotal loans outstanding at
end of year
    
    $
    460,542
    
    
    $
    415,318
    
    
    $
    386,382
    
    
    $
    356,625
    
    
    $
    389,817Ratio of allowance for loan
losses to loans at end of year
    
    
    0.84
    %
    
    
    0.91
    %
    
    
    0.95
    %
    
    
    0.99
    %
    
    
    0.84
    %
 
 n/a means either not applicable or not meaningful 8




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##### Table of Contents



At March 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofLoans to
    
    
    
    
    
    
    Loans to
    
    
    
    
    
    
    Loans to
    
    
    
    
    
    
    Loans to
    
    
    
    
    
    
    Loans toAmount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans(Dollars in thousands)Mortgage loans:Residential mortgage
    
    $
    456
    
    
    
    38.10
    %
    
    $
    443
    
    
    
    38.60
    %
    
    $
    422
    
    
    
    41.40
    %
    
    $
    446
    
    
    
    48.20
    %
    
    $
    583
    
    
    
    60.80
    %Commercial mortgage
    
    
    2,642
    
    
    
    51.10
    
    
    
    2,653
    
    
    
    51.50
    
    
    
    2,740
    
    
    
    50.30
    
    
    
    2,434
    
    
    
    41.00
    
    
    
    2,009
    
    
    
    27.40Construction
    
    
    587
    
    
    
    7.60
    
    
    
    523
    
    
    
    6.70
    
    
    
    334
    
    
    
    4.40
    
    
    
    494
    
    
    
    7.00
    
    
    
    457
    
    
    
    7.80Home equity
    
    
    84
    
    
    
    1.50
    
    
    
    88
    
    
    
    1.80
    
    
    
    100
    
    
    
    2.40
    
    
    
    101
    
    
    
    2.60
    
    
    
    94
    
    
    
    2.30Total mortgage loans
    
    
    3,769
    
    
    
    98.30
    
    
    
    3,707
    
    
    
    98.60
    
    
    
    3,596
    
    
    
    98.50
    
    
    
    3,475
    
    
    
    98.80
    
    
    
    3,143
    
    
    
    98.30Other loans
    
    
    112
    
    
    
    1.70
    
    
    
    81
    
    
    
    1.40
    
    
    
    85
    
    
    
    1.50
    
    
    
    62
    
    
    
    1.20
    
    
    
    141
    
    
    
    1.70Total
    
    $
    3,881
    
    
    
    100.00
    %
    
    $
    3,788
    
    
    
    100.00
    %
    
    $
    3,681
    
    
    
    100.00
    %
    
    $
    3,537
    
    
    
    100.00
    %
    
    $
    3,284
    
    
    
    100.00
    %
 9




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Investment Activities
    At March 31,2007
    
    
    2006
    
    
    2005(Dollars in thousands)U. S. Government and agency obligations
    
    $
    19,768
    
    
    $
    25,407
    
    
    $
    21,725Corporate bonds
    
    
    13,697
    
    
    
    28,297
    
    
    
    35,217Mortgage-backed securities
    
    
    27,387
    
    
    
    38,948
    
    
    
    47,879Marketable equity securities
    
    
    4,911
    
    
    
    4,543
    
    
    
    3,795Total investment securities
    
    $
    65,763
    
    
    $
    97,195
    
    
    $
    108,616Percentage of total assets
    
    
    11.6
    %
    
    
    17.8
    %
    
    
    20.8
    %
  Issuer
    
    Amortized Cost
    
    Market Value(In thousands)Ford Motor Credit
    
    $
    4,530
    
    
    $
    4,412Verizon Maryland
    
    
    3,983
    
    
    
    4,132
 10




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##### Table of Contents



One Year or Less
    
    
    One to Five Years
    
    
    Five to Ten Years
    
    
    More than Ten Years
    
    
    Total Investment PortfolioAmortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Fair
    
    
    AverageCost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    Yield(Dollars in thousands)U.S. government and agency
obligations
    
    $
    3,000
    
    
    
    3.92
    %
    
    $
    16,984
    
    
    
    4.42
    %
    
    $
    
    
    
    
     %
    
    
    $
    
    
    
    
     %
    
    
    $
    19,984
    
    
    $
    19,768
    
    
    
    4.30
    %Corporate bonds
    
    
    
    
    
    
    
    
    
    
    13,565
    
    
    
    6.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,565
    
    
    
    13,697
    
    
    
    5.94Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    5.36
    
    
    
    13,297
    
    
    
    4.22
    
    
    
    14,476
    
    
    
    4.99
    
    
    
    27,829
    
    
    
    27,387
    
    
    
    4.55Total
    
    $
    3,000
    
    
    
    
    
    
    $
    30,605
    
    
    
    
    
    
    $
    13,297
    
    
    
    
    
    
    $
    14,476
    
    
    
    
    
    
    $
    61,378
    
    
    $
    60,852
 Deposits and Borrowed Funds
 General .
 Deposits .
 Deposit Accounts.
 Years Ended March 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    % of
    
    
    Rate
    
    
    Average
    
    
    % of
    
    
    Rate
    
    
    Average
    
    
    % of
    
    
    RateBalance
    
    
    Deposits
    
    
    Paid
    
    
    Balance
    
    
    Deposits
    
    
    Paid
    
    
    Balance
    
    
    Deposits
    
    
    Paid(Dollars in thousands)Demand deposit accounts
    
    $
    38,832
    
    
    
    9.95
    %
    
    
    
    %
    
    $
    37,990
    
    
    
    10.7
    %
    
    
    
    %
    
    $
    32,601
    
    
    
    10.4
    %
    
    
    
    %NOW accounts
    
    
    30,005
    
    
    
    7.69
    
    
    
    .61
    
    
    
    33,604
    
    
    
    9.5
    
    
    
    0.54
    
    
    
    35,660
    
    
    
    11.4
    
    
    
    0.68Passbook and other savings
accounts
    
    
    59,354
    
    
    
    15.22
    
    
    
    .64
    
    
    
    69,336
    
    
    
    19.6
    
    
    
    0.66
    
    
    
    73,916
    
    
    
    23.6
    
    
    
    0.54Money market deposit accounts
    
    
    35,287
    
    
    
    9.05
    
    
    
    2.28
    
    
    
    43,490
    
    
    
    12.3
    
    
    
    1.44
    
    
    
    58,155
    
    
    
    18.5
    
    
    
    1.56Term deposit certificates
    
    
    226,630
    
    
    
    58.09
    
    
    
    4.33
    
    
    
    169,303
    
    
    
    47.9
    
    
    
    3.34
    
    
    
    113,495
    
    
    
    36.1
    
    
    
    2.77Total deposits
    
    $
    390,108
    
    
    
    100.0
    %
    
    
    2.86
    %
    
    $
    353,723
    
    
    
    100.0
    %
    
    
    1.96
    %
    
    $
    313,827
    
    
    
    100.0
    %
    
    
    1.51
    %
 11




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##### Table of Contents



Time Deposits in Excess of $100,000.
 Maturity Period:Three months or less
    
    $
    31,462Three through six months
    
    
    26,414Six through twelve months
    
    
    19,644Over twelve months
    
    
    4,639Total
    
    $
    82,159
 Borrowings .
  At or for theYears Ended March 31,2007
    
    2006
    
    2005(Dollars in thousands)Amounts outstanding at end of period
    
    $
    125,000
    
    
    $
    103,500
    
    
    $
    138,135Weighted average rate at end of period
    
    
    5.11
    %
    
    
    5.15
    %
    
    
    4.82
    %Maximum amount of borrowings outstanding
at any month end
    
    $
    140,371
    
    
    $
    147,800
    
    
    $
    153,800Approximate average amounts outstanding at any month end
    
    $
    112,070
    
    
    $
    134,299
    
    
    $
    141,091Approximate weighted average rate during the year
    
    
    5.42
    %
    
    
    4.93
    %
    
    
    4.85
    %
 Subsidiaries
  12




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##### Table of Contents



REGULATION AND SUPERVISION
 Regulation and Supervision of the Company
 General .
 Activities.
  13




---



##### Table of Contents



Acquisitions.
   Capital Requirements.
 Dividends .
 Stock Repurchases.
 14




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##### Table of Contents



The Sarbanes-Oxley Act of 2002
    Regulation and Supervision of the Bank
 General .
 Massachusetts State Law .
 15




---



##### Table of Contents



Capital Requirements .
   Dividend Limitations .
   Investment Activities.
 16




---



##### Table of Contents



Insurance of Deposit Accounts.
       17




---



##### Table of Contents



Prompt Corrective Regulatory Action .
  Adequately
    
    
    
    
    
    SignificantlyWell Capitalized
    
    Capitalized
    
    Undercapitalized
    
    UndercapitalizedTotal risk-based
capital ratio
    
    10.0% or more
    
    8.0% or more
    
    Less than 8.0%
    
    Less than 6.0%Tier 1 risk-based
capital ratio
    
    6.0% or more
    
    4.0% or more
    
    Less than 4.0%
    
    Less than 3.0%Leverage ratio
    
    5.0% or more
    
    4.0% or more*
    
    Less than 4.0%*
    
    Less than 3.0%
 
 *
    
    3.0% if the institution has a composite 1 CAMELS rating.  Loans to Executive Officers, Directors and Principal Stockholders .
 18




---



##### Table of Contents



Transactions with Affiliates .
 Enforcement.
  Federal Reserve System.
 19




---



##### Table of Contents



Community Reinvestment Act.
  Federal Home Loan Bank System.
  Employees
  
 Item 1A. Risk Factors
 An investment in shares of our common stock involves various risks. Before deciding to invest
in our common stock, you should carefully consider the risks described below in conjunction with
the other information in this annual report on Form 10-K and information incorporated by reference
into this annual report on Form 10-K , including our consolidated financial statements and related
notes. Our business, financial condition and results of operations could be harmed by any of the
following risks or by other risks that have not been identified or that we may believe are
immaterial or unlikely. The value or market price of our common stock could decline due to any of
these risks, and you may lose all or part of your investment. The risks discussed below also
include forward-looking statements and our actual results may differ substantially from those
discussed in these forward-looking statements.
 20




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##### Table of Contents



Our nonresidential real estate and construction lending may expose us to a greater risk of loss and
hurt our earnings and profitability.
    Our business is subject to the success of the local economy in which we operate.
  If the value of real estate in northwestern suburbs of Boston were to decline materially, a
significant portion of our loan portfolio could become under-collateralized, which could have a
material adverse effect on us.
  21




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##### Table of Contents



Our continued pace of growth may require us to raise additional capital in the future, but that
capital may not be available when it is needed.
   Competition from financial institutions and other financial service providers may adversely affect
our growth and profitability.
  Fluctuations in interest rates could reduce our profitability and affect the value of our assets.
 e.g.
  22




---



##### Table of Contents



Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio.
    We are dependent upon the services of our management team.
  Our failure to continue to recruit and retain qualified loan originators could adversely affect our
ability to compete successfully and affect our profitability.
  23




---



##### Table of Contents



We operate in a highly regulated environment and we may be adversely affected by changes in laws
and regulations.
  We are subject to security and operational risks relating to our use of technology that could
damage our reputation and our business.
  We may have fewer resources than many of our competitors to invest in technological improvements.
  Our ability to service our debt, pay dividends and otherwise pay our obligations as they come due
is substantially dependent on capital distributions from Central Co-operative Bank, and these
distributions are subject to regulatory limits and other restrictions.
  24




---



##### Table of Contents



Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  Net BookYear
    
    Value atOffice Location
    
    Opened
    
    March 31, 2007(in thousands)Main Office
399 Highland Avenue
Somerville, MA (owned)
    
    
    1974
    
    
    $
    275Branch Offices:
175 Broadway
Arlington, MA (owned)
    
    
    1982
    
    
    
    15785 Wilmington Road
Burlington, MA (leased)
    
    
    1978
    (a)
    
    
    1111192 Boylston Street
Chestnut Hill (Brookline), MA (owned)
    
    
    1954
    
    
    
    127137 Pleasant Street
Malden, MA (leased)
    
    
    1975
    (b)
    
    
    55846 Main Street
Melrose, MA (owned)
    
    
    1994
    
    
    
    227275 Main Street
Woburn, MA (owned)
    
    
    1980
    
    
    
    463198 Lexington Street
Woburn, MA (owned)
    
    
    1974
    
    
    
    202Woburn High School
Woburn, MA (leased)
    
    
    2002
    (c)
    
    
    40Stand Alone ATM:
94 Highland Avenue
Somerville, MA (leased)
    
    
    2004
    (d)
    
    
    96Loan Center
401 Highland Avenue
Somerville, MA (leased)
    
    
    2002
    (e)
    
    
    290Operations Center/Branch Office
270 Mystic Avenue
Medford, MA (leased)
    
    
    2006
    (f)
    
    
    720
 25




---



##### Table of Contents



(a)
    
    The lease for the Burlington branch expires 10/31/2007 with a five-year renewal option.(b)
    
    The lease for the Malden branch expires 8/31/2015.(c)
    
    The lease for the Woburn High School branch is for one year, renewable annually on an automatic
basis.(d)
    
    The lease for the stand alone ATM expires 11/30/07 with an option to extend for three
three-year terms.(e)
    
    The lease for the Commercial Loan Center was scheduled to expire on 11/1/2006 with an option
to extend for one three-year term. On May 1, 2006 this lease was terminated and re-written;
adding more space and additional parking for the Banks lending operations. The new lease is
for ten years with two five year options to extend. The initial base rent is $113,745 per
year.(f)
    
    In March, 2005, the Bank signed a lease for a combined retail branch and operations center to
be located at 270 Mystic Avenue, Medford. The lease was subsequently renegotiated and the
Bank took occupancy in May 2006. The initial rent under the lease is for $150,000 per year
and the initial term is 10 years. There are options to extend the lease by two five-year
terms.  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for the Registrants Common Equity and Related Stockholder Matters and Issuer
Purchases of Securities
 Market for Common Equity and Related Stockholder Matters
 SM
  Common Stock Prices
    
    Cash Dividends (payable dates)Fiscal 2007
    
    High
    
    Low
    
    Fiscal 2007
    
    Amount6/30/06
    
    $
    36.20
    
    
    $
    28.25
    
    
    5/19/06
    
    $
    0.189/30/06
    
    
    33.46
    
    
    
    30.00
    
    
    8/18/06
    
    
    0.1812/31/06
    
    
    33.90
    
    
    
    30.50
    
    
    11/17/06
    
    
    0.183/31/07
    
    
    32.80
    
    
    
    30.02
    
    
    2/16/07
    
    
    0.18
 Fiscal 2006
    
    High
    
    Low
    
    Fiscal 2006
    
    Amount6/30/05
    
    $
    29.97
    
    
    $
    25.20
    
    
    5/19/05
    
    $
    0.129/30/05
    
    
    28.67
    
    
    
    25.25
    
    
    8/19/05
    
    
    0.1812/31/05
    
    
    30.87
    
    
    
    27.00
    
    
    11/17/05
    
    
    0.183/31/06
    
    
    29.97
    
    
    
    28.25
    
    
    2/17/06
    
    
    0.18
 26




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##### Table of Contents



Stock Price Performance Graph
  CUMULATIVE TOTAL SHAREHOLDER RETURN
COMPARED WITH PERFORMANCE OF SELECTED INDICES
 
 Summary
 3/31/02
    
    3/31/03
    
    3/31/04
    
    3/31/05
    
    3/31/06
    
    3/31/07Central Bancorp, Inc.
    
    $
    100.00
    
    
    $
    113.76
    
    
    $
    140.76
    
    
    $
    101.71
    
    
    $
    111.66
    
    
    $
    118.22NASDAQ Banks Index
    
    
    100.00
    
    
    
    93.15
    
    
    
    135.33
    
    
    
    100.65
    
    
    
    109.12
    
    
    
    100.79S&P 500
    
    
    100.00
    
    
    
    75.23
    
    
    
    101.66
    
    
    
    108.44
    
    
    
    121.14
    
    
    
    135.46
 27




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##### Table of Contents



Purchases of Equity Securities
 (a)
    
    
    (b)
    
    
    (c)
    
    
    (d)Total Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares that May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Shares Purchased
    
    
    per Share
    
    
    Programs
    
    
    ProgramsMonth #1:January 1, 2007 to
January 31, 2007
    
    
    109,600
    (1)
    
    $
    33.00
    
    
    
    
    
    
    
    Month #2:February 1, 2007 to
February 28, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Month #3:March 1, 2007 to
March 31, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Total
    
    
    109,600
    (1)
    
    $
    33.00
    
    
    
    
    
    
    
    
 
 (1)
    
    On January 31, 2007, the Central Co-operative Bank Employee Stock Ownership Plan (the ESOP)
completed the purchase of 109,600 shares of the Companys common stock. The ESOP purchased
the shares pursuant to the terms of the Stock Purchase Agreement, dated January 25, 2007, by
and among the Company and the ESOP and Mendon Capital Advisors Corp., Moors & Mendon Master
Fund, L/P., Mendon ACAM Master Fund, Ltd. and Burnham Financial Services Fund (collectively,
Mendon) at a price of $33.00 per share. 28




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##### Table of Contents



Item 6. Selected Financial Data
  At or for the Year Ended March 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(Dollars and shares in thousands, except per share data)Balance SheetTotal assets
    
    $
    566,140
    
    
    $
    547,275
    
    
    $
    521,071
    
    
    $
    490,897
    
    
    $
    477,208Total loans
    
    
    460,542
    
    
    
    415,318
    
    
    
    386,382
    
    
    
    356,625
    
    
    
    389,817Investments available for sale
    
    
    65,763
    
    
    
    97,195
    
    
    
    108,616
    
    
    
    83,771
    
    
    
    61,111Deposits
    
    
    388,573
    
    
    
    393,413
    
    
    
    333,215
    
    
    
    295,920
    
    
    
    287,959Total borrowings
    
    
    137,053
    
    
    
    111,290
    
    
    
    146,455
    
    
    
    145,256
    
    
    
    144,576Total stockholders equity
    
    
    37,702
    
    
    
    39,189
    
    
    
    38,239
    
    
    
    43,454
    
    
    
    39,443Shares outstanding
    
    
    1,640
    
    
    
    1,591
    
    
    
    1,589
    
    
    
    1,665
    
    
    
    1,662Statements of OperationsNet interest and dividend income
    
    $
    14,449
    
    
    $
    16,317
    
    
    $
    15,731
    
    
    $
    15,570
    
    
    $
    17,257Provision for loan losses
    
    
    80
    
    
    
    100
    
    
    
    100
    
    
    
    200
    
    
    
    Net gain (loss) from sale and write-down of
investment securities
    
    
    581
    
    
    
    419
    
    
    
    453
    
    
    
    (135
    )
    
    
    (308
    )Gain on sale of loans
    
    
    99
    
    
    
    208
    
    
    
    252
    
    
    
    295
    
    
    
    796Other non-interest income
    
    
    1,314
    
    
    
    1,370
    
    
    
    950
    
    
    
    966
    
    
    
    917Total non-interest expenses
    
    
    14,856
    
    
    
    14,183
    
    
    
    13,518
    
    
    
    12,401
    
    
    
    13,877Net income
    
    
    1,020
    
    
    
    2,643
    
    
    
    2,463
    
    
    
    2,936
    
    
    
    2,187Earnings per common share-diluted
    
    
    0.70
    
    
    
    1.83
    
    
    
    1.65
    
    
    
    1.88
    
    
    
    1.37Selected RatiosInterest rate spread
    
    
    2.21
    %
    
    
    2.72
    %
    
    
    2.85
    %
    
    
    2.96
    %
    
    
    3.29
    %Net yield on interest-earning assets
    
    
    2.68
    
    
    
    3.11
    
    
    
    3.20
    
    
    
    3.36
    
    
    
    3.71Non-interest expenses to average assets
    
    
    2.69
    
    
    
    2.64
    
    
    
    2.68
    
    
    
    2.60
    
    
    
    2.91Equity-to-assets
    
    
    6.66
    
    
    
    7.16
    
    
    
    7.34
    
    
    
    8.85
    
    
    
    8.27Return on average assets
    
    
    0.18
    
    
    
    0.49
    
    
    
    0.49
    
    
    
    0.62
    
    
    
    0.46Return on average stockholders equity
    
    
    2.59
    
    
    
    6.78
    
    
    
    6.12
    
    
    
    6.98
    
    
    
    5.52Dividend payout ratio
    
    
    100.00
    
    
    
    35.68
    
    
    
    28.91
    
    
    
    23.23
    
    
    
    33.24Book value per share
    
    $
    22.99
    
    
    $
    24.64
    
    
    $
    24.07
    
    
    $
    26.10
    
    
    $
    23.73Tangible book value per share
    
    $
    21.63
    
    
    $
    23.24
    
    
    $
    22.67
    
    
    $
    24.72
    
    
    $
    22.38
 29




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##### Table of Contents



Quarterly Results of Operations
  2007First
    
    
    Second
    
    
    Third
    
    
    FourthInterest and dividend income
    
    $
    7,489
    
    
    $
    8,246
    
    
    $
    8,352
    
    
    $
    8,200Interest expense
    
    
    3,911
    
    
    
    4,365
    
    
    
    4,732
    
    
    
    4,830Net interest and dividend income
    
    
    3,578
    
    
    
    3,881
    
    
    
    3,620
    
    
    
    3,370Provision for loan losses
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    30Non-interest income
    
    
    490
    
    
    
    442
    
    
    
    475
    
    
    
    587Non-interest expenses
    
    
    3,846
    
    
    
    3,787
    
    
    
    3,310
    
    
    
    3,913Income before income taxes
    
    
    172
    
    
    
    536
    
    
    
    785
    
    
    
    14Income tax
    
    
    59
    
    
    
    185
    
    
    
    271
    
    
    
    (28
    )Net income
    
    $
    113
    
    
    $
    351
    
    
    $
    514
    
    
    $
    42Earnings per common share  basic
    
    $
    .08
    
    
    $
    .24
    
    
    $
    .36
    
    
    $
    .03Earnings per common share  diluted
    
    $
    .08
    
    
    $
    .24
    
    
    $
    .35
    
    
    $
    .03
 2006First
    
    
    Second
    
    
    Third
    
    
    FourthInterest and dividend income
    
    $
    7,368
    
    
    $
    7,571
    
    
    $
    7,702
    
    
    $
    7,700Interest expense
    
    
    3,210
    
    
    
    3,357
    
    
    
    3,623
    
    
    
    3,834Net interest and dividend income
    
    
    4,158
    
    
    
    4,214
    
    
    
    4,079
    
    
    
    3,866Provision for loan losses
    
    
    50
    
    
    
    50
    
    
    
    
    
    
    
    Non-interest income
    
    
    494
    
    
    
    606
    
    
    
    447
    
    
    
    450Non-interest expenses
    
    
    3,514
    
    
    
    3,805
    
    
    
    3,302
    
    
    
    3,562Income before income taxes
    
    
    1,088
    
    
    
    965
    
    
    
    1,224
    
    
    
    754Income tax
    
    
    383
    
    
    
    341
    
    
    
    428
    
    
    
    236Net income
    
    $
    705
    
    
    $
    624
    
    
    $
    796
    
    
    $
    518Earnings per common share  basic
    
    $
    .50
    
    
    $
    .44
    
    
    $
    .56
    
    
    $
    .36Earnings per common share  diluted
    
    $
    .49
    
    
    $
    .43
    
    
    $
    .55
    
    
    $
    .36
 30




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 General
    Application of Critical Accounting Policies
     31




---



##### Table of Contents



Results of Operations
 Overview.
  Yield
    
    Cost
    
    SpreadFiscal 2001
    
    
    7.50
    %
    
    
    4.70
    %
    
    
    2.80
    %Fiscal 2002
    
    
    6.83
    
    
    
    3.98
    
    
    
    2.85Fiscal 2003
    
    
    6.48
    
    
    
    3.19
    
    
    
    3.29Fiscal 2004
    
    
    5.84
    
    
    
    2.88
    
    
    
    2.96Fiscal 2005
    
    
    5.62
    
    
    
    2.77
    
    
    
    2.85Fiscal 2006
    
    
    5.78
    
    
    
    3.06
    
    
    
    2.72Fiscal 2007
    
    
    5.99
    
    
    
    3.78
    
    
    
    2.21
   32




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##### Table of Contents



Interest Rate Spread.
 Years Ended March 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost
    
    
    Balance
    
    
    Interest
    
    
    Cost
    
    
    Balance
    
    
    Interest
    
    
    Cost(Dollars in thousands)Assets:Interest-earning assets:Mortgage loans
    
    $
    426,670
    
    
    $
    26,589
    
    
    
    6.23
    %
    
    $
    400,576
    
    
    $
    24,425
    
    
    
    6.10
    %
    
    $
    358,783
    
    
    $
    21,902
    
    
    
    6.10
    %Other loans
    
    
    7,265
    
    
    
    581
    
    
    
    8.00
    
    
    
    5,898
    
    
    
    428
    
    
    
    7.26
    
    
    
    6,347
    
    
    
    366
    
    
    
    5.77Total loans
    
    
    433,935
    
    
    
    27,170
    
    
    
    6.26
    
    
    
    406,474
    
    
    
    24,853
    
    
    
    6.11
    
    
    
    365,130
    
    
    
    22,268
    
    
    
    6.10Short-term investments
    
    
    6,721
    
    
    
    329
    
    
    
    4.90
    
    
    
    6,570
    
    
    
    232
    
    
    
    3.53
    
    
    
    15,368
    
    
    
    175
    
    
    
    1.14Investment securities
    
    
    98,621
    
    
    
    4,788
    
    
    
    4.85
    
    
    
    112,206
    
    
    
    5,256
    
    
    
    4.68
    
    
    
    111,085
    
    
    
    5,173
    
    
    
    4.66Total investments
    
    
    105,342
    
    
    
    5,117
    
    
    
    4.86
    
    
    
    118,776
    
    
    
    5,488
    
    
    
    4.62
    
    
    
    126,453
    
    
    
    5,348
    
    
    
    4.22Total interest-earning assets
    
    
    539,277
    
    
    
    32,287
    
    
    
    5.99
    
    
    
    525,250
    
    
    
    30,341
    
    
    
    5.78
    
    
    
    491,583
    
    
    
    27,616
    
    
    
    5.62Allowance for loan losses
    
    
    (3,840
    )
    
    
    
    
    
    
    
    
    
    
    (3,754
    )
    
    
    
    
    
    
    
    
    
    
    (3,607
    )Non-interest-earning assets
    
    
    17,548
    
    
    
    
    
    
    
    
    
    
    
    16,747
    
    
    
    
    
    
    
    
    
    
    
    16,797Total assets
    
    $
    552,985
    
    
    
    
    
    
    
    
    
    
    $
    538,243
    
    
    
    
    
    
    
    
    
    
    $
    504,773Liabilities and Stockholders Equity:Interest-bearing liabilities:Deposits
    
    $
    351,276
    
    
    
    11,136
    
    
    
    3.17
    
    
    $
    315,733
    
    
    
    6,893
    
    
    
    2.18
    
    
    $
    281,226
    
    
    
    4,733
    
    
    
    1.68Other borrowings- including short-term
advances from FHLB
    
    
    9,951
    
    
    
    719
    
    
    
    7.12
    
    
    
    8,615
    
    
    
    537
    
    
    
    6.23
    
    
    
    6,901
    
    
    
    304
    
    
    
    4.41Long term advances from FHLB of Boston
    
    
    110,597
    
    
    
    5,993
    
    
    
    5.42
    
    
    
    133,718
    
    
    
    6,594
    
    
    
    4.93
    
    
    
    140,482
    
    
    
    6,848
    
    
    
    4.87Total interest-bearing
liabilities
    
    
    471,824
    
    
    
    17,838
    
    
    
    3.78
    
    
    
    458,066
    
    
    
    14,024
    
    
    
    3.06
    
    
    
    428,609
    
    
    
    11,885
    
    
    
    2.77Non-interest-bearing deposits
    
    
    38,832
    
    
    
    
    
    
    
    
    
    
    
    37,990
    
    
    
    
    
    
    
    
    
    
    
    32,601Other liabilities
    
    
    2,991
    
    
    
    
    
    
    
    
    
    
    
    3,219
    
    
    
    
    
    
    
    
    
    
    
    3,308Total liabilities
    
    
    513,647
    
    
    
    
    
    
    
    
    
    
    
    499,275
    
    
    
    
    
    
    
    
    
    
    
    464,518Stockholders equity
    
    
    39,338
    
    
    
    
    
    
    
    
    
    
    
    38,968
    
    
    
    
    
    
    
    
    
    
    
    40,255Total liabilities and stockholders
equity
    
    $
    552,985
    
    
    
    
    
    
    
    
    
    
    $
    538,243
    
    
    
    
    
    
    
    
    
    
    $
    504,773Net interest and dividend income
    
    
    
    
    
    $
    14,449
    
    
    
    
    
    
    
    
    
    
    $
    16,317
    
    
    
    
    
    
    
    
    
    
    $
    15,731Interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.21
    %
    
    
    
    
    
    
    
    
    
    
    2.72
    %
    
    
    
    
    
    
    
    
    
    
    2.85
    %Net yield on interest-earning assets
    
    
    
    
    
    
    
    
    
    
    2.68
    %
    
    
    
    
    
    
    
    
    
    
    3.11
    %
    
    
    
    
    
    
    
    
    
    
    3.20
    %
 33




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##### Table of Contents



Rate/Volume Analysis.
 2007 vs. 2006
    
    
    2006 vs. 2005Changes due to
    
    
    Changes due toincrease (decrease) in:
    
    
    increase (decrease) in:Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total(In thousands)Interest income:Mortgage loans
    
    $
    1,630
    
    
    $
    534
    
    
    $
    2,164
    
    
    $
    2,523
    
    
    $
    
    
    
    $
    2,523Other loans
    
    
    106
    
    
    
    47
    
    
    
    153
    
    
    
    (28
    )
    
    
    90
    
    
    
    62Total income from loans
    
    
    1,736
    
    
    
    581
    
    
    
    2,317
    
    
    
    2,495
    
    
    
    90
    
    
    
    2,585Short-term investments
    
    
    5
    
    
    
    92
    
    
    
    97
    
    
    
    (145
    )
    
    
    202
    
    
    
    57Investment securities
    
    
    (654
    )
    
    
    186
    
    
    
    (468
    )
    
    
    58
    
    
    
    25
    
    
    
    83Total income from investments
    
    
    (649
    )
    
    
    278
    
    
    
    (371
    )
    
    
    (87
    )
    
    
    227
    
    
    
    140Total interest and dividend income
    
    
    1,087
    
    
    
    859
    
    
    
    1,946
    
    
    
    2,408
    
    
    
    317
    
    
    
    2,725Interest expense:Deposits
    
    
    843
    
    
    
    3, 400
    
    
    
    4,243
    
    
    
    631
    
    
    
    1,529
    
    
    
    2,160Other
borrowings  including short-term advances from FHLB
    
    
    89
    
    
    
    83
    
    
    
    172
    
    
    
    (336
    )
    
    
    82
    
    
    
    (254
    )Long-term advances  FHLB of Boston
    
    
    (1,214
    )
    
    
    613
    
    
    
    (601
    )
    
    
    88
    
    
    
    145
    
    
    
    233Total interest expense
    
    
    (282
    )
    
    
    4,097
    
    
    
    3,815
    
    
    
    383
    
    
    
    1,756
    
    
    
    2,139Net interest and dividend income
    
    $
    1,369
    
    
    $
    (3,237
    )
    
    $
    (1,868
    )
    
    $
    2,025
    
    
    $
    (1,439
    )
    
    $
    586
 Interest and Dividend Income.
  Interest Expense.
 34




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##### Table of Contents



Provision for Loan Losses.
 Non-Interest Income.
 2007 v. 2006
  2006 v. 2005
  Non-Interest Expenses.
 2007 v. 2006
       35




---



##### Table of Contents



2006 v. 2005
        Financial Condition
    36




---



##### Table of Contents



Liquidity
     37




---



##### Table of Contents



Commitments, Contingencies and Off-Balance Sheet Risk
       38




---



##### Table of Contents



Contractual Obligations and Commitments by Maturity
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 years(In thousands)Deposits
    
    $
    388,573
    
    
    $
    373,888
    
    
    $
    13,874
    
    
    $
    811
    
    
    $
    Advances from FHLB
    
    
    125,000
    
    
    
    36,000
    
    
    
    30,000
    
    
    
    20,000
    
    
    
    39,000Short-term borrowings
    
    
    712
    
    
    
    712
    
    
    
    
    
    
    
    
    
    
    
    Subordinated debenture
    
    
    11,341
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,341Operating lease obligations
    
    
    2,856
    
    
    
    330
    
    
    
    644
    
    
    
    644
    
    
    
    1,238Total contractual cash obligations
    
    $
    528,482
    
    
    $
    410,930
    
    
    $
    44,518
    
    
    $
    21,455
    
    
    $
    51,579
 Amount of Commitment Expiring by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 years(In thousands)Loan commitments
    
    $
    10,046
    
    
    $
    10,046
    
    
    $
    
    
    
    $
    
    
    
    $
    Lines of credit
    
    
    24,012
    
    
    
    8,248
    
    
    
    1,129
    
    
    
    3
    
    
    
    14,632Sell mortgage loans
    
    
    1,796
    
    
    
    1,796
    
    
    
    
    
    
    
    
    
    
    
    Total commitments
    
    $
    35,854
    
    
    $
    20,090
    
    
    $
    1,129
    
    
    $
    3
    
    
    $
    14,632
 Impact of Inflation and Changing Prices
  Capital Resources
   39




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
      At March 31,2007
    
    2006Amount
    
    % Change
    
    Amount
    
    % Change(Dollars in thousands)200 basis point increase in rates
    
    $
    (1,956
    )
    
    
    (13.39
    )%
    
    $
    (1,530
    )
    
    
    (10.0
    )%200 basis point decrease in rates
    
    
    320
    
    
    
    2.19
    
    
    
    611
    
    
    
    4.0
  40




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 PageConsolidated Balance Sheets at March 31, 2007 and 2006
    
    
    42Consolidated Statements of Income for the years ended March 31, 2007, 2006 and 2005
    
    
    43Consolidated Statement of Changes in Stockholders Equity and Comprehensive Income for the years
ended March 31, 2007, 2006 and 2005
    
    
    44Consolidated Statements of Cash Flows for the years ended March 31, 2007, 2006 and 2005
    
    
    46Notes to Consolidated Financial Statements
    
    
    47Report of Independent Registered Public Accounting Firm
    
    
    72
 41




---



##### Table of Contents



CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
 (Dollars in thousands)
 March 31,2007
    
    
    2006ASSETSCash and due from banks
    
    $
    6,147
    
    
    $
    6,590Short-term investments
    
    
    14,470
    
    
    
    8,673Cash and cash equivalents
    
    
    20,617
    
    
    
    15,263Certificates of deposit
    
    
    
    
    
    
    627Investment securities available for sale (note 2)
    
    
    65,763
    
    
    
    97,195Stock in Federal Home Loan Bank of Boston (notes 2 and 7)
    
    
    7,366
    
    
    
    8,300The Co-operative Central Bank Reserve Fund (note 2)
    
    
    1,576
    
    
    
    1,576Total investments
    
    
    74,705
    
    
    
    107,071Loans held for sale (note 1)
    
    
    575
    
    
    
    45Loans (note 3)
    
    
    460,542
    
    
    
    415,318Less allowance for loan losses (note 4)
    
    
    3,881
    
    
    
    3,788Net loans
    
    
    456,661
    
    
    
    411,530Accrued interest receivable
    
    
    2,415
    
    
    
    2,678Banking premises and equipment, net (note 5)
    
    
    4,756
    
    
    
    3,870Deferred tax asset, net (note 8)
    
    
    2,212
    
    
    
    2,347Goodwill, net (note 1)
    
    
    2,232
    
    
    
    2,232Other assets
    
    
    1,967
    
    
    
    1,612Total assets
    
    $
    566,140
    
    
    $
    547,275LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits (note 6)
    
    $
    388,573
    
    
    $
    393,413Short-term borrowings
    
    
    712
    
    
    
    Federal Home Loan Bank advances (notes 2 and 7)
    
    
    125,000
    
    
    
    103,500Subordinated debenture (note 1)
    
    
    11,341
    
    
    
    5,258ESOP loan (note 11)
    
    
    
    
    
    
    2,532Advance payments by borrowers for taxes and insurance
    
    
    1,229
    
    
    
    1,277Accrued expenses and other liabilities
    
    
    1,583
    
    
    
    2,106Total liabilities
    
    
    528,438
    
    
    
    508,086Commitments and Contingencies (notes 8, 9 and 12)Stockholders equity (note 10):Preferred stock $1.00 par value; authorized 5,000,000 shares; none issued
    
    
    
    
    
    
    Common stock $1.00 par value; authorized 15,000,000 shares; 1,639,951
shares issued at March 31, 2007 and 1,590,181 shares issued at
March 31, 2006
    
    
    2,033
    
    
    
    2,033Additional paid-in capital
    
    
    3,086
    
    
    
    2,938Retained income
    
    
    40,394
    
    
    
    40,421Accumulated other comprehensive income
    
    
    (20
    )
    
    
    (1,281
    )Unearned compensation  ESOP (note 11)
    
    
    (7,791
    )
    
    
    (4,922
    )Total stockholders equity
    
    
    37,702
    
    
    
    39,189Total liabilities and stockholders equity
    
    $
    566,140
    
    
    $
    547,275
  42




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##### Table of Contents



CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
 Years Ended March 31,2007
    
    
    2006
    
    
    2005Interest and dividend income:Mortgage loans
    
    $
    26,589
    
    
    $
    24,425
    
    
    $
    21,902Other loans
    
    
    581
    
    
    
    428
    
    
    
    366Short-term investments
    
    
    329
    
    
    
    232
    
    
    
    175Investments
    
    
    4,788
    
    
    
    5,256
    
    
    
    5,173Total interest and dividend income
    
    
    32,287
    
    
    
    30,341
    
    
    
    27,616Interest expense:Deposits
    
    
    11,136
    
    
    
    6,893
    
    
    
    4,733Advances from Federal Home Loan Bank of Boston
    
    
    6,049
    
    
    
    6,615
    
    
    
    6,848Other borrowings
    
    
    653
    
    
    
    516
    
    
    
    304Total interest expense
    
    
    17,838
    
    
    
    14,024
    
    
    
    11,885Net interest and dividend income
    
    
    14,449
    
    
    
    16,317
    
    
    
    15,731Provision for loan losses (note 4)
    
    
    80
    
    
    
    100
    
    
    
    100Net interest and dividend income after
provision for loan losses
    
    
    14,369
    
    
    
    16,217
    
    
    
    15,631Non-interest income:Deposit service charges
    
    
    1,024
    
    
    
    969
    
    
    
    649Net gains (losses) from sales and write-downs
of investment securities (note 2)
    
    
    581
    
    
    
    419
    
    
    
    453Gain on sales of loans
    
    
    99
    
    
    
    208
    
    
    
    252Brokerage income
    
    
    98
    
    
    
    125
    
    
    
    101Other income
    
    
    192
    
    
    
    276
    
    
    
    200Total non-interest income
    
    
    1,994
    
    
    
    1,997
    
    
    
    1,655Non-interest expenses:Salaries and employee benefits (note 11)
    
    
    8,598
    
    
    
    8,476
    
    
    
    7,693Occupancy and equipment (note 5)
    
    
    2,156
    
    
    
    1,642
    
    
    
    1,363Data processing service fees
    
    
    933
    
    
    
    950
    
    
    
    1,018Professional fees (note 12)
    
    
    869
    
    
    
    742
    
    
    
    1,000Advertising and marketing
    
    
    449
    
    
    
    624
    
    
    
    574Other expenses (note 1)
    
    
    1,851
    
    
    
    1,749
    
    
    
    1,870Total non-interest expenses
    
    
    14,856
    
    
    
    14,183
    
    
    
    13,518Income before income taxes
    
    
    1,507
    
    
    
    4,031
    
    
    
    3,768Provision for income taxes (note 8)
    
    
    487
    
    
    
    1,388
    
    
    
    1,305Net income
    
    $
    1,020
    
    
    $
    2,643
    
    
    $
    2,463Earnings per common share (note 1):Basic
    
    $
    0.72
    
    
    $
    1.85
    
    
    $
    1.66Diluted
    
    $
    0.70
    
    
    $
    1.84
    
    
    $
    1.65Weighted average common shares outstanding  basic
    
    
    1,419
    
    
    
    1,429
    
    
    
    1,482Weighted average common and equivalent shares
outstanding  diluted
    
    
    1,452
    
    
    
    1,438
    
    
    
    1,493
  43




---



##### Table of Contents



CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income
(In Thousands, Except Per Share Data)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Unearned
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury
    
    
    Comprehensive
    
    
    Compensation
    
    
    StockholdersStock
    
    
    Capital
    
    
    Income
    
    
    Stock
    
    
    Income (Loss)
    
    
    ESOP
    
    
    EquityBalance at March 31, 2004
    
    $
    2,030
    
    
    $
    12,920
    
    
    $
    36,855
    
    
    $
    (7,311
    )
    
    $
    2,293
    
    
    $
    (3,333
    )
    
    $
    43,454Net income
    
    
    
    
    
    
    
    
    
    
    2,463
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,463Other comprehensive loss net of tax:Unrealized loss on securities, net
of reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,349
    )
    
    
    
    
    
    
    (2,349
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114Purchase of 77,134 shares by ESOP (Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,565
    )
    
    
    (2,565
    )Proceeds from exercise
of stock options (775 shares)
    
    
    1
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Tax benefit of stock option exercises
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Director deferred compensation transactions
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    (55
    )
    
    
    
    
    
    
    
    
    
    
    9Dividends paid ($0.48 per share)
    
    
    
    
    
    
    
    
    
    
    (712
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (712
    )Amortization of unearned compensation
 ESOP
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    458
    
    
    
    463Purchase of treasury stock (77,134 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,565
    )
    
    
    
    
    
    
    
    
    
    
    (2,565
    )Other equity transactions (note 10)
    
    
    
    
    
    
    (10,032
    )
    
    
    122
    
    
    
    9,931
    
    
    
    
    
    
    
    
    
    
    
    21Balances at March 31, 2005
    
    
    2,031
    
    
    
    2,976
    
    
    
    38,728
    
    
    
    0
    
    
    
    (56
    )
    
    
    (5,440
    )
    
    
    38,239Net income
    
    
    
    
    
    
    
    
    
    
    2,643
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,643Other comprehensive loss net of tax:Unrealized loss on securities, net
of reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,225
    )
    
    
    
    
    
    
    (1,225
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,418Proceeds from exercise
of stock options (1,583 shares)
    
    
    2
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Tax benefit of stock option exercises
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Dividends paid ($0.66 per share)
    
    
    
    
    
    
    
    
    
    
    (950
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (950
    )Amortization of unearned compensation
 ESOP
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    518
    
    
    
    452Balances at March 31, 2006
    
    
    2,033
    
    
    
    2,938
    
    
    
    40,421
    
    
    
    
    
    
    
    (1,281
    )
    
    
    (4,922
    )
    
    
    39,189Net income
    
    
    
    
    
    
    
    
    
    
    1,020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,020Other comprehensive income net of tax:Unrealized gain on securities, net
of reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,078
    
    
    
    
    
    
    
    1,078Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,098Adjustment to initally apply SFAS 158,net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    183Purchase of 103,500 shares by ESOP (Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,415
    )
    
    
    (3,415
    )Proceeds from exercise
of stock options (770 shares)
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Tax benefit of stock option exercises
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Stock Compensation expense
    
    
    
    
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134Dividends paid ($0.72 per share)
    
    
    
    
    
    
    
    
    
    
    (1,047
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,047
    )Amortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
     ESOP
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    546
    
    
    
    543Balances at March 31, 2007
    
    $
    2,033
    
    
    $
    3,086
    
    
    $
    40,394
    
    
    $
    
    
    
    $
    (20
    )
    
    $
    (7,791
    )
    
    $
    37,702
  44




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##### Table of Contents



CENTRAL BANCORP, INC. AND SUBSIDIARY
 Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income(continued)
 (In Thousands)
  2007Before Tax
    
    Tax (Benefit)
    
    After-TaxAmount
    
    Expense
    
    AmountUnrealized gains on securities:Unrealized net holding gains during period
    
    $
    2,275
    
    
    $
    816
    
    
    $
    1,459Less reclassification adjustment for net gains included in net income
    
    
    (581
    )
    
    
    (200
    )
    
    
    (381
    )Other comprehensive gain
    
    $
    1,694
    
    
    $
    616
    
    
    $
    1,078
  2006Before-Tax
    
    Tax (Benefit)
    
    After-TaxAmount
    
    Expense
    
    AmountUnrealized losses on securities:Unrealized net holding gains during period
    
    $
    (1,471
    )
    
    $
    (522
    )
    
    $
    (949
    )Add reclassification adjustment for net gains included in net income
    
    
    (419
    )
    
    
    (144
    )
    
    
    (275
    )Other comprehensive loss
    
    $
    (1,890
    )
    
    $
    (666
    )
    
    $
    (1,224
    )
 2005Before-Tax
    
    Tax (Benefit)
    
    After-TaxAmount
    
    Expense
    
    AmountUnrealized losses on securities:Unrealized net holding losses during period
    
    $
    (3,191
    )
    
    $
    (1,133
    )
    
    $
    (2,058
    )Add reclassification adjustment for net gains included in net income
    
    
    (453
    )
    
    
    (162
    )
    
    
    (291
    )Other comprehensive loss
    
    $
    (3,644
    )
    
    $
    (1,295
    )
    
    $
    (2,349
    )
 45




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##### Table of Contents



CENTRAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in Thousands)
 Years Ended March 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    1,020
    
    
    $
    2,643
    
    
    $
    2,463Adjustments to reconcile net income to net cash provided
by (used in) operating activitiesDepreciation and amortization
    
    
    835
    
    
    
    572
    
    
    
    427Loss on retirement of Banking premises and equipment
    
    
    16
    
    
    
    
    
    
    
    Amortization of premiums and discounts
    
    
    226
    
    
    
    141
    
    
    
    174Provision for loan losses
    
    
    80
    
    
    
    100
    
    
    
    100Stock-based compensation
    
    
    677
    
    
    
    452
    
    
    
    463(Increase) decrease in deferred tax assets, net
    
    
    (482
    )
    
    
    43
    
    
    
    (101
    )Net (gains) losses from sales and write-downs of
investment securities
    
    
    (581
    )
    
    
    (419
    )
    
    
    (453
    )Gain on sale of loans
    
    
    (99
    )
    
    
    (208
    )
    
    
    (252
    )Originations of loans held for sale
    
    
    (7,475
    )
    
    
    (17,120
    )
    
    
    (21,935
    )Proceeds from the sale of loans originated for sale
    
    
    7,044
    
    
    
    19,504
    
    
    
    20,765(Increase) decrease in accrued interest receivable
    
    
    263
    
    
    
    (234
    )
    
    
    (241
    )(Increase) in other assets, net
    
    
    (355
    )
    
    
    (66
    )
    
    
    (522
    )Increase (decrease) in advance payments by borrowers for
taxes and insurance
    
    
    (48
    )
    
    
    109
    
    
    
    (14
    )Increase (decrease) in accrued expenses and other liabilities
    
    
    (339
    )
    
    
    112
    
    
    
    (3,091
    )Net cash provided by (used in) operating activities
    
    
    782
    
    
    
    5,543
    
    
    
    (2,217
    )Cash flows from investing activities:Net increase in loans
    
    
    (45,211
    )
    
    
    (28,929
    )
    
    
    (29,713
    )Principal payments on mortgage-backed securities
    
    
    8,068
    
    
    
    11,125
    
    
    
    7,956Purchases of investment securities
    
    
    (12,892
    )
    
    
    (11,716
    )
    
    
    (48,036
    )Proceeds from sales of investment securities
    
    
    17,405
    
    
    
    4,400
    
    
    
    6,875Maturities and redemptions of investment securities
    
    
    20,900
    
    
    
    6,000
    
    
    
    4,995Purchases of restricted equity  FHLB
    
    
    (1,433
    )
    
    
    
    
    
    
    Proceeds from sales of restricted equity  FHLB
    
    
    2,367
    
    
    
    
    
    
    
    (Purchase) redemption of certificate of deposit
    
    
    627
    
    
    
    (21
    )
    
    
    605Purchase of banking premises and equipment
    
    
    (1,737
    )
    
    
    (1,635
    )
    
    
    (1,121
    )Net cash provided by (used in) investing activities
    
    
    (11,906
    )
    
    
    (20,776
    )
    
    
    (58,439
    )Cash flows from financing activities:Net increase (decrease) in deposits
    
    
    (4,840
    )
    
    
    60,198
    
    
    
    37,295Proceeds from FHLB of Boston advances
    
    
    148,983
    
    
    
    124,184
    
    
    
    67,000Repayments of FHLB of Boston advances
    
    
    (127,483
    )
    
    
    (158,819
    )
    
    
    (74,300
    )Repayments of ESOP loan
    
    
    (2,532
    )
    
    
    (389
    )
    
    
    (390
    )Net increase (decrease) in short-term borrowings
    
    
    712
    
    
    
    (141
    )
    
    
    3,631Issuance of subordinated debenture
    
    
    6,083
    
    
    
    
    
    
    
    5,258Proceeds from exercise of stock options
    
    
    13
    
    
    
    25
    
    
    
    20Tax benefit from exercise of stock option
    
    
    4
    
    
    
    5
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (2,565
    )Payments of dividends, net
    
    
    (1,047
    )
    
    
    (950
    )
    
    
    (712
    )Purchase of common stock by ESOP
    
    
    (3,415
    )
    
    
    
    
    
    
    (2,565
    )Other equity transactions
    
    
    
    
    
    
    
    
    
    
    30Net cash provided by financing activities
    
    
    16,478
    
    
    
    24,113
    
    
    
    32,702Net increase (decrease) in cash and cash equivalents
    
    
    5,354
    
    
    
    8,880
    
    
    
    (27,954
    )Cash and cash equivalents at beginning of year
    
    
    15,263
    
    
    
    6,383
    
    
    
    34,337Cash and cash equivalents at end of year
    
    $
    20,617
    
    
    $
    15,263
    
    
    $
    6,383Supplemental disclosure of cash flow information:Cash paid during the period for:Interest
    
    $
    17,820
    
    
    $
    14,113
    
    
    $
    11,937Income taxes
    
    $
    1,353
    
    
    $
    1,458
    
    
    $
    1,065
  46




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##### Table of Contents



CENTRAL BANCORP, INC. AND SUBSIDIARY
 
 Notes to Consolidated Financial Statements
 March 31, 2007
 Note 1. Summary of Significant Accounting Policies
     Subordinated
Debentures
  Cash and Cash Equivalents
   Investments
  47




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##### Table of Contents



Loans
     48




---



##### Table of Contents



Subordinated Debentures
    Allowance for Loan Losses
    49




---



##### Table of Contents



Income Taxes
  Banking Premises and Equipment
  Goodwill
 e.g.,
 Pension Benefits
  Stock-Based Compensation
   50




---



##### Table of Contents



Number of
    
    
    Weighted AverageShares
    
    
    Exercise PriceBalance March 31, 2004
    
    
    28,950
    
    
    
    $18.581Exercised
    
    
    (775
    )
    
    
    19.796Granted
    
    
    33,299
    
    
    
    28.990Balance March 31, 2005
    
    
    61,474
    
    
    
    24.204Exercised
    
    
    (1,583
    )
    
    
    18.471Balance March 31, 2006
    
    
    59,891
    
    
    
    24.356Exercised
    
    
    (770
    )
    
    
    18.489Granted
    
    
    10,000
    
    
    
    31.200Balance at March 31, 2007
    
    
    69,121
    
    
    
    $25.411
 51




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##### Table of Contents



Fiscal year ending
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    TOTALCompensation Expense
    
    
    322,000
    
    
    
    322,000
    
    
    
    322,000
    
    
    
    322,000
    
    
    
    188,000
    
    
    
    1,476,000
    WeightedAverageRemainingNumber
    
    
    Contractual
    
    
    Weighted Average
    
    
    AggregateExercise
    
    
    of Shares
    
    
    Life
    
    
    Exercise
    
    
    IntrinsicPrice
    
    
    Outstanding
    
    
    (Years)
    
    
    Price
    
    
    Value (1)$
    16.625
    
    
    
    12,077
    (2)
    
    
    3.9
    
    
    $
    16.625
    
    
    $
    161,77120.250
    
    
    
    13,745
    (2)
    
    
    2.8
    
    
    
    20.250
    
    
    
    134,28928.990
    
    
    
    33,299
    (2)
    
    
    8.1
    
    
    
    28.990
    
    
    
    34,29831.200
    
    
    
    10,000
    (3)
    
    
    9.7
    
    
    
    31.200
    
    
    
    (11,800
    )Average/Total
    
    $
    25.411
    
    
    
    69,121
    
    
    
    6.6
    
    
    $
    25.411
    
    
    $
    318,558
 
 (1)
    
    Represents the total intrinsic value, based on the Companys closing stock price of $30.02 as
of March 31, 2007, which would have been received by the option holders had all option holders
exercised their options as of that date. The total intrinsic value of options exercised
during the year ended March 31, 2007 was approximately $11,000.(2)
    
    Fully vested and exercisable at the time of grant.(3)
    
    Subject to vesting over five years, 0% vested at March 31, 2007.  52




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##### Table of Contents



Earnings Per Share
   2007
    
    
    2006
    
    
    2005(Amounts in thousands, except per share amounts)Net income available to common stockholders
    
    $
    1,020
    
    
    $
    2,643
    
    
    $
    2,463Weighted average number of common shares outstanding
    
    
    1,640
    
    
    
    1,590
    
    
    
    1,624Weighted average number of unallocated ESOP shares
    
    
    (221
    )
    
    
    (161
    )
    
    
    (142
    )Weighted average number of common shares
outstanding used in calculation of basic earnings
per share
    
    
    1,419
    
    
    
    1,429
    
    
    
    1,482Incremental shares from the assumed exercise of
dilutive stock options
    
    
    33
    
    
    
    9
    
    
    
    11Weighted average number of common shares
outstanding used in calculating diluted earnings
per share
    
    
    1,452
    
    
    
    1,438
    
    
    
    1,493Earnings per share:Basic
    
    $
    0.72
    
    
    $
    1.85
    
    
    $
    1.66Diluted
    
    $
    0.70
    
    
    $
    1.84
    
    
    $
    1.65
  Other Comprehensive Income (Loss)
  53




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##### Table of Contents



Recent Accounting Pronouncements
      54




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##### Table of Contents



55




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##### Table of Contents



Note 2. Investments
  March 31, 2007Amortized
    
    
    Gross Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in Thousands)U.S. Government and agency obligations
    
    $
    19,984
    
    
    $
    
    
    
    $
    (216
    )
    
    $
    19,768Corporate bonds
    
    
    13,565
    
    
    
    250
    
    
    
    (118
    )
    
    
    13,697Mortgage-backed securities
    
    
    27,829
    
    
    
    61
    
    
    
    (503
    )
    
    
    27,387Total debt securities
    
    
    61,378
    
    
    
    311
    
    
    
    (837
    )
    
    
    60,852Marketable equity securities
    
    
    4,655
    
    
    
    293
    
    
    
    (37
    )
    
    
    4,911Total
    
    $
    66,033
    
    
    $
    604
    
    
    $
    (874
    )
    
    $
    65,763
 March 31, 2006Amortized
    
    
    Gross Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in Thousands)U.S. Government and agency obligations
    
    $
    25,973
    
    
    $
    
    
    
    $
    (566
    )
    
    $
    25,407Corporate bonds
    
    
    28,558
    
    
    
    175
    
    
    
    (436
    )
    
    
    28,297Mortgage-backed securities
    
    
    40,115
    
    
    
    61
    
    
    
    (1,228
    )
    
    
    38,948Total debt securities
    
    
    94,646
    
    
    
    236
    
    
    
    (2,230
    )
    
    
    92,652Marketable equity securities
    
    
    4,513
    
    
    
    140
    
    
    
    (110
    )
    
    
    4,543Total
    
    $
    99,159
    
    
    $
    376
    
    
    $
    (2,340
    )
    
    $
    97,195
  Less Than
    
    
    Greater Than12 Months
    
    
    12 MonthsFair
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Fair Value
    
    
    Losses(Dollars in Thousands)U.S. Government and agency obligations
    
    $
    
    
    
    $
    
    
    
    $
    19,768
    
    
    $
    (216
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    4,412
    
    
    
    (118
    )Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    25,072
    
    
    
    (503
    )Marketable equity securities
    
    
    908
    
    
    
    (37
    )
    
    
    
    
    
    
    Total temporarily impaired securities
    
    $
    908
    
    
    $
    (37
    )
    
    $
    49,252
    
    
    $
    (837
    )
  56




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##### Table of Contents



Amortized
    
    
    Fair
    
    
    AnnualCost
    
    
    Value
    
    
    Yield(Dollars in Thousands)Due within one year
    
    $
    3,000
    
    
    $
    2,974
    
    
    
    3.92
    %Due after one year but within five years
    
    
    30,605
    
    
    
    30,546
    
    
    
    5.12Due after five years but within ten years
    
    
    13,297
    
    
    
    12,970
    
    
    
    4.22Due after ten years
    
    
    14,476
    
    
    
    14,362
    
    
    
    4.99$
    61,378
    
    
    $
    60,852
   2007
    
    
    2006
    
    
    2005(Dollars in Thousands)Proceeds from sales
    
    $
    17,405
    
    
    $
    4,400
    
    
    $
    6,875Gross gains
    
    
    674
    
    
    
    508
    
    
    
    536Gross losses
    
    
    93
    
    
    
    89
    
    
    
    14Other than temporary impairments
    
    
    
    
    
    
    
    
    
    
    42Net realized gains (losses)
    
    $
    581
    
    
    $
    419
    
    
    $
    453
     57




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##### Table of Contents



Note 3. Loans
  2007
    
    
    2006Real estate loans:Residential real estate
    
    $
    175,259
    
    
    $
    160,381Commercial real estate
    
    
    235,535
    
    
    
    213,935Construction
    
    
    35,011
    
    
    
    27,680Home equity lines of credit
    
    
    6,901
    
    
    
    7,505Total real estate loans
    
    
    452,706
    
    
    
    409,051Commercial loans
    
    
    6,605
    
    
    
    4,457Consumer loans
    
    
    1,231
    
    
    
    1,360Total loans
    
    
    460,542
    
    
    
    415,318Less: allowance for loan losses
    
    
    (3,881
    )
    
    
    (3,788
    )Total loans, net
    
    $
    456,661
    
    
    $
    411,530
      2007
    
    
    2006Balance at beginning of year
    
    $
    702
    
    
    $
    1,019New loans
    
    
    
    
    
    
    16Repayment of principal
    
    
    (48
    )
    
    
    (333
    )Balance at end of year
    
    $
    654
    
    
    $
    702
  58




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##### Table of Contents



Note 4. Allowance for Loan Losses
  Years Ended March 31,2007
    
    
    2006
    
    
    2005Balance at beginning of year
    
    $
    3,788
    
    
    $
    3,681
    
    
    $
    3,537Provision charged to expense
    
    
    80
    
    
    
    100
    
    
    
    100Amounts charged-off
    
    
    (48
    )
    
    
    (39
    )
    
    
    (3
    )Recoveries on accounts previously charged-off
    
    
    61
    
    
    
    46
    
    
    
    47Balance at end of year
    
    $
    3,881
    
    
    $
    3,788
    
    
    $
    3,681
 Note 5. Banking Premises and Equipment
  Estimated2007
    
    
    2006
    
    
    Useful LivesLand
    
    $
    589
    
    
    $
    589Buildings and improvements
    
    
    2,162
    
    
    
    3,059
    
    
    50 yearsFurniture and fixtures
    
    
    3,093
    
    
    
    7,887
    
    
    3-5 yearsLeasehold improvements
    
    
    1,538
    
    
    
    998
    
    
    5-6 years7,382
    
    
    
    12,533Less accumulated depreciation and amortization
    
    
    (2,626
    )
    
    
    (8,663
    )Total
    
    $
    4,756
    
    
    $
    3,870
   Years EndingMarch 31,2008
    
    $
    3302009
    
    
    3222010
    
    
    3222011
    
    
    3222012
    
    
    322Thereafter
    
    
    1,238
  59




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##### Table of Contents



Note 6. Deposits
  2007
    
    
    2006Demand deposit accounts
    
    $
    40,026
    
    
    $
    40,871NOW accounts
    
    
    28,591
    
    
    
    29,902Passbook and other savings accounts
    
    
    56,495
    
    
    
    65,546Money market deposit accounts
    
    
    45,586
    
    
    
    36,051Total non certificate accounts
    
    
    170,698
    
    
    
    172,370Term deposit certificatesCertificates of $100 and above
    
    
    82,159
    
    
    
    84,028Certificates less than $100
    
    
    135,716
    
    
    
    137,015Total term deposit certificates
    
    
    217,875
    
    
    
    221,043$
    388,573
    
    
    $
    393,413
  Amount
    
    
    RateWithin 1 year
    
    $
    203,190
    
    
    
    4.55
    %Over 1 to 3 years
    
    
    13,874
    
    
    
    2.65Over 3 years
    
    
    811
    
    
    
    3.62$
    217,875
 Note 7. Federal Home Loan Bank Advances
  2007
    
    
    2006Amount
    
    
    Rate
    
    
    Amount
    
    
    RateWithin 1 year
    
    $
    36,000
    
    
    
    5.34
    %
    
    $
    13,500
    
    
    
    3.71
    %1-2 years
    
    
    10,000
    
    
    
    5.46
    
    
    
    22,000
    
    
    
    5.362-3 years
    
    
    20,000
    
    
    
    5.97
    
    
    
    15,000
    
    
    
    5.133-4 years
    
    
    20,000
    
    
    
    5.81
    
    
    
    20,000
    
    
    
    5.974-5 years
    
    
    
    
    
    
    
    
    
    
    24,000
    
    
    
    5.61Over 5 to 10 years
    
    
    39,000
    
    
    
    4.02
    
    
    
    9,000
    
    
    
    3.83$
    125,000
    
    
    
    5.11
    %
    
    $
    103,500
    
    
    
    5.15
    %
   60




---



##### Table of Contents



Note 8. Income Taxes
  Years Ended March 31,2007
    
    
    2006
    
    
    2005CurrentFederal
    
    $
    726
    
    
    $
    1,446
    
    
    $
    1,332State
    
    
    127
    
    
    
    76
    
    
    
    74Total current provision
    
    
    853
    
    
    
    1,522
    
    
    
    1,406Deferred (prepaid)
    
    
    (366
    )
    
    
    (134
    )
    
    
    (101
    )$
    487
    
    
    $
    1,388
    
    
    $
    1,305
  Years Ended March 31,2007
    
    
    2006
    
    
    2005Statutory Federal tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %Items affecting Federal income tax rate:
    
    
    
    
    
    
    
    
    
    
    Dividends received deduction
    
    
    (2.2
    )
    
    
    (0.6
    )
    
    
    (0.7
    )Stock buyback costs
    
    
    
    
    
    
    
    
    
    
    1.5State income taxes
    
    
    0.1
    
    
    
    0.7
    
    
    
    0.2ESOP expense
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Other
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.1Effective tax rate
    
    
    32.3
    %
    
    
    34.4
    %
    
    
    34.6
    %
 61




---



##### Table of Contents



2007
    
    
    2006Deferred tax assets:Allowance for loan losses
    
    $
    1,267
    
    
    $
    975Deferred loan origination fees
    
    
    
    
    
    
    10Depreciation
    
    
    418
    
    
    
    353Post-employee retirement benefit
accrual
    
    
    246
    
    
    
    253Write-down of investments
    
    
    43
    
    
    
    24Unrealized loss on securities, net
    
    
    195
    
    
    
    696Capital loss carry forward
    
    
    202
    
    
    
    273Other
    
    
    103
    
    
    
    69Gross deferred tax asset
    
    
    2,474
    
    
    
    2,653Deferred tax liabilities:Accrued dividend receivable
    
    
    
    
    
    
    44Deferred loan origination costs
    
    
    262
    
    
    
    262Gross deferred tax liability
    
    
    
    
    
    
    306Net deferred tax asset
    
    $
    2,212
    
    
    $
    2,347
   Note 9. Financial Instruments with Off-Balance Sheet Risk
   62




---



##### Table of Contents



2007
    
    
    2006Unused home equity and personal lines of credit
    
    $
    17,164
    
    
    $
    18,563Unadvanced portions of construction loans
    
    
    5,552
    
    
    
    8,011Unadvanced portions of commercial loans
    
    
    1,296
    
    
    
    838Commitments to originate commercial mortgage loans
    
    
    6,894
    
    
    
    3,684Commitments to originate residential mortgage loans
    
    
    3,152
    
    
    
    1,776Commitments to sell residential mortgage loans
    
    
    1,796
    
    
    
    2,518Total off-balance sheet commitments
    
    $
    35,854
    
    
    $
    35,390
  Note 10. Stockholders Equity
     63




---



##### Table of Contents



To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    Action provisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of March 31, 2007:Company (consolidated)Total capital
    
    $
    50,455
    
    
    
    13.09
    %
    
    $
    30,836
    
    
    
    38.00
    %
    
    
    N/A
    
    
    
    N/ATier 1 capital
    
    
    46,459
    
    
    
    12.05
    
    
    
    15,422
    
    
    
    34.00
    
    
    
    N/A
    
    
    
    N/ATier 1 leverage capital
    
    
    46,459
    
    
    
    8.21
    
    
    
    22,635
    
    
    
    34.00
    
    
    
    N/A
    
    
    
    N/ABankTotal capital
    
    $
    41,822
    
    
    
    10.86
    %
    
    $
    30,808
    
    
    
    38.00
    %
    
    $
    38,510
    
    
    
    310.00
    %Tier 1 capital
    
    
    37,826
    
    
    
    9.83
    
    
    
    15,392
    
    
    
    34.00
    
    
    
    23,088
    
    
    
    36.00Tier 1 leverage capital
    
    
    37,826
    
    
    
    6.69
    
    
    
    22,616
    
    
    
    34.00
    
    
    
    28,271
    
    
    
    35.00As of March 31, 2006:CompanyTotal capital
    
    $
    47,139
    
    
    
    13.09
    %
    
    $
    28,816
    
    
    
    38.00
    %
    
    
    N/A
    
    
    
    N/ATier 1 capital
    
    
    43,337
    
    
    
    12.03
    
    
    
    14,408
    
    
    
    34.00
    
    
    
    N/A
    
    
    
    N/ATier 1 leverage capital
    
    
    43,337
    
    
    
    7.93
    
    
    
    21,858
    
    
    
    34.00
    
    
    
    N/A
    
    
    
    N/ABankTotal capital
    
    $
    43,684
    
    
    
    12.15
    %
    
    $
    28,755
    
    
    
    38.00
    %
    
    $
    35,944
    
    
    
    310.00
    %Tier 1 capital
    
    
    39,882
    
    
    
    11.10
    
    
    
    14,378
    
    
    
    34.00
    
    
    
    21,566
    
    
    
    36.00Tier 1 leverage capital
    
    
    39,882
    
    
    
    7.31
    
    
    
    21,826
    
    
    
    34.00
    
    
    
    27,283
    
    
    
    35.00
 Note 11. Employee Benefits
 Pension and Savings Plans
    64




---



##### Table of Contents



Employee Stock Ownership Plan
     Stock Option and Long-Term Incentive Plans
    65




---



##### Table of Contents



Other Post-Retirement Benefits
  2007
    
    
    2006Life
    
    
    Medical
    
    
    Life
    
    
    MedicalActuarial present value of benefits obligation:Retirees
    
    $
    (230
    )
    
    $
    (199
    )
    
    $
    (258
    )
    
    $
    (210
    )Fully eligible participants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    (230
    )
    
    $
    (199
    )
    
    $
    (258
    )
    
    $
    (210
    )Change in projected benefit obligation:Accumulated benefit obligations at prior year-end
    
    $
    (258
    )
    
    $
    (210
    )
    
    $
    (254
    )
    
    $
    (373
    )Service cost less expense component
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest cost
    
    
    (13
    )
    
    
    (11
    )
    
    
    (14
    )
    
    
    (19
    )Actuarial gain (loss)
    
    
    39
    
    
    
    5
    
    
    
    5
    
    
    
    47Amendment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107Assumptions
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    (4
    )Benefits paid
    
    
    2
    
    
    
    17
    
    
    
    2
    
    
    
    32Accumulated benefit obligations at year-end
    
    $
    230
    
    
    $
    199
    
    
    $
    (258
    )
    
    $
    (210
    )Change in plan assets:Fair value of plan assets at prior year-end
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employer contribution
    
    
    1
    
    
    
    (17
    )
    
    
    1
    
    
    
    32Benefits paid and expenses
    
    
    (1
    )
    
    
    17
    
    
    
    (1
    )
    
    
    (32
    )Fair value of plan assets at current year-end
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Change in Other Comprehensive IncomeOther Comprehensive Income @ Prior fiscal year end
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aImplementation of FAS #158
    
    
    (54
    )
    
    
    (129
    )
    
    
    n/a
    
    
    
    n/aPlan Amendment
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aG(L) Actuarial Experience
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aG(L) Assumptions
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aAmortization included in Pension Expense
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aOther Comprehensive Income at current year end
    
    
    ($54
    )
    
    
    (129
    )
    
    
    n/a
    
    
    
    n/aAmounts with Deferred Recognition
    
    
    n/a
    
    
    
    n/a
    
    
    
    ($11
    )
    
    
    ($129
    )Reconciliation of (accrual) prepaid:(Accrued) prepaid pension cost at beginning
of year
    
    $
    (269
    )
    
    $
    (339
    )
    
    $
    (250
    )
    
    $
    (343
    )Minus net periodic cost
    
    
    (15
    )
    
    
    (7
    )
    
    
    (21
    )
    
    
    (28
    )Plus employer contributions, net
    
    
    1
    
    
    
    17
    
    
    
    1
    
    
    
    32(Accrued) prepaid cost at end of year
    
    $
    (283
    )
    
    $
    (329
    )
    
    $
    (270
    )
    
    $
    (339
    )Benefit obligation weighted average assumption as
of fiscal year-end:Discount rate
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %Expected return on plan assets
    
    
    5.75
    
    
    
    5.75
    
    
    
    5.75
    
    
    
    5.75Rate of compensation increase
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
 66




---



##### Table of Contents



2007
    
    
    2006Life
    
    
    Medical
    
    
    Life
    
    
    MedicalComponents of net periodic benefit cost:Service cost
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost
    
    
    13
    
    
    
    11
    
    
    
    15
    
    
    
    19Expected return on plan assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    9
    
    
    
    14
    
    
    
    8
    
    
    
    25Recognized actuarial (gain) loss
    
    
    (7
    )
    
    
    (18
    )
    
    
    (2
    )
    
    
    (16
    )Net periodic benefit cost
    
    $
    15
    
    
    $
    7
    
    
    $
    21
    
    
    $
    28Periodic benefit cost weighted average assumptions:Discount rate
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %Expected return on plan assets
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %Rate of compensation increase
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aAmounts Recognized in the statement of
Financial Position consist ofNoncurrent Assets
    
    
    
    
    
    
    
    
    
    
    n/a
    
    
    
    n/aCurrent Liabilities
    
    
    (21
    )
    
    
    (20
    )
    
    
    n/a
    
    
    
    n/aNoncurrent Liabilities
    
    
    (178
    )
    
    
    (210
    )
    
    
    n/a
    
    
    
    n/a(199
    )
    
    
    (230
    )Amounts Recognized in Accumulated Other
Comprehensive Income consist ofNet Loss (Gain)
    
    
    ($182
    )
    
    
    ($104
    )
    
    
    n/a
    
    
    
    n/aPrior Service Cost (Credit)
    
    
    (96
    )
    
    
    
    
    
    
    n/a
    
    
    
    n/aTransition Liability (Asset)
    
    
    149
    
    
    
    51
    
    
    
    n/a
    
    
    
    n/a(129
    )
    
    
    (53
    )Amounts anticipated to be recognized in expense
for fiscal year ending in 2008Net Loss (Gain)
    
    
    ($18
    )
    
    
    ($8
    )
    
    
    n/a
    
    
    
    n/aPrior Service Cost (Credit)
    
    
    (11
    )
    
    
    
    
    
    
    n/a
    
    
    
    n/aTransition Liability (Asset)
    
    
    25
    
    
    
    9
    
    
    
    n/a
    
    
    
    n/a($4
    )
    
    $
    1
  67




---



##### Table of Contents



Before
    
    
    
    
    
    AfterApplication of
    
    
    
    
    
    Application ofSFAS # 158
    
    Adjustments
    
    SFAS # 158Deferred income taxes
    
    $
    2,212
    
    
    $
    
    
    
    $
    2,212Total Assets
    
    
    566,140
    
    
    
    
    
    
    
    566,140Other liabilities
    
    
    1,762
    
    
    
    179
    
    
    
    1,583Total liabilities
    
    
    528,617
    
    
    
    179
    
    
    
    528,438Retained Income
    
    
    40,398
    
    
    
    4
    
    
    
    40,394Accumulated other comprehensive loss
    
    
    20,150
    
    
    
    (183
    )
    
    
    20,333Total shareholders equity
    
    $
    37,523
    
    
    
    (179
    )
    
    $
    37,702
 Note 12. Legal Proceedings
  Note 13. Fair Values of Financial Instruments
 i.e.,
  Cash and Due from Banks
  Short-term Investments and Certificate of Deposit
  68




---



##### Table of Contents



Investment and Mortgage-Backed Securities
  Loans and Loans Held for Sale
  Accrued Interest Receivable
  Stock in FHLB of Boston
  The Co-operative Central Bank Reserve Fund
  Deposits
  Advances from FHLB of Boston
  Short-term Borrowings, Advance Payments by Borrowers for Taxes and Insurance and Accrued
Interest Payable
  Off-Balance Sheet Instruments
  69




---



##### Table of Contents



March 31, 2007
    
    March 31, 2006Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueAssetsCash and due from banks
    
    $
    6,147
    
    
    $
    6,147
    
    
    $
    6,590
    
    
    $
    6,590Short-term investments
    
    
    14,470
    
    
    
    14,470
    
    
    
    8,673
    
    
    
    8,673Certificate of deposit
    
    
    
    
    
    
    
    
    
    
    627
    
    
    
    627Investment securities
    
    
    65,763
    
    
    
    65,763
    
    
    
    97,195
    
    
    
    97,195Loans held for sale
    
    
    575
    
    
    
    575
    
    
    
    45
    
    
    
    45Net loans
    
    
    456,661
    
    
    
    458,789
    
    
    
    411,530
    
    
    
    413,844Stock in Federal Home Loan Bank of Boston
    
    
    7,366
    
    
    
    7,366
    
    
    
    8,300
    
    
    
    8,300The Co-operative Central Bank Reserve Fund
    
    
    1,576
    
    
    
    1,576
    
    
    
    1,576
    
    
    
    1,576Accrued interest receivable
    
    
    2,415
    
    
    
    2,415
    
    
    
    2,678
    
    
    
    2,678LiabilitiesDeposits
    
    $
    388,573
    
    
    $
    372,325
    
    
    $
    393,413
    
    
    $
    375,481Short-term borrowings
    
    
    712
    
    
    
    712
    
    
    
    
    
    
    
    Advances from FHLB of Boston
    
    
    125,000
    
    
    
    126,082
    
    
    
    103,500
    
    
    
    104,522ESOP loan
    
    
    
    
    
    
    
    
    
    
    2,532
    
    
    
    2,532Subordinated debenture
    
    
    11,341
    
    
    
    11,341
    
    
    
    5,258
    
    
    
    5,258Advance payments by borrowers for taxes and insurance
    
    
    1,229
    
    
    
    1,229
    
    
    
    1,277
    
    
    
    1,277Accrued interest payable
    
    
    565
    
    
    
    565
    
    
    
    507
    
    
    
    507
 Note 14. Parent Company Only Condensed Financial Statements
  March 31,Balance Sheets
    
    2007
    
    
    2006AssetsCash deposit in subsidiary bank
    
    $
    572
    
    
    $
    217Certificate of deposit
    
    
    0
    
    
    
    627Investment in subsidiary
    
    
    40,066
    
    
    
    40,834ESOP loan (Note 11)
    
    
    7,917
    
    
    
    2,452Investment in unconsolidated subsidiary
    
    
    341
    
    
    
    158Other assets
    
    
    190
    
    
    
    190Total assets
    
    $
    49,086
    
    
    $
    44,478Liabilities and Stockholders EquitySubordinated debentures (Note 1)
    
    $
    11,341
    
    
    $
    5,258Accrued taxes and other liabilities
    
    
    43
    
    
    
    31Total stockholders equity
    
    
    37,702
    
    
    
    39,189Total liabilities and stockholders equity
    
    $
    49,086
    
    
    $
    44,478
 70




---



##### Table of Contents



Years Ended March 31,Statements of Income
    
    2007
    
    
    2006
    
    
    2005Dividends from subsidiary
    
    $
    800
    
    
    $
    1,300
    
    
    $
    800Interest income
    
    
    231
    
    
    
    160
    
    
    
    87Interest expense on subordinated debentures
    
    
    (482
    )
    
    
    (330
    )
    
    
    (135
    )Non-interest income (expenses)
    
    
    (494
    )
    
    
    (332
    )
    
    
    529
    )Income before income taxes
    
    
    55
    
    
    
    798
    
    
    
    223Income tax benefit (provision)
    
    
    258
    
    
    
    171
    
    
    
    98Income before equity in undistributed net income of subsidiary
    
    
    313
    
    
    
    969
    
    
    
    321Equity in undistributed net income of subsidiary
    
    
    707
    
    
    
    1,674
    
    
    
    242Net income
    
    $
    1,020
    
    
    $
    2,643
    
    
    $
    2,463
 Years Ended March 31,Statements of Cash Flows
    
    2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    1,020
    
    
    $
    2,643
    
    
    $
    2,463Adjustments to reconcile net income to net cash provided by operating
activities:Equity in undistributed net income of subsidiary
    
    
    (707
    )
    
    
    (1,674
    )
    
    
    (2,142
    )Decrease (increase) in other assets
    
    
    
    
    
    
    (104
    )
    
    
    (96
    )Increase (decrease) in accrued taxes and other liabilities
    
    
    14
    
    
    
    (6
    )
    
    
    (38
    )Net cash provided by operating activities
    
    
    327
    
    
    
    859
    
    
    
    187Cash flows from investing activities:ESOP loans, net of repayment
    
    
    (5,465
    )
    
    
    79
    
    
    
    (2,531
    )(Purchase) redemption of certificate of deposit
    
    
    627
    
    
    
    (21
    )
    
    
    605Investment in subsidiary
    
    
    (183
    )
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (5,021
    )
    
    
    58
    
    
    
    (1,926
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    
    
    
    
    30
    
    
    
    20Proceeds from issuance of subordinated debenture
    
    
    6,083
    
    
    
    
    
    
    
    5,100Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (2,565
    )Cash dividends paid, net
    
    
    (1,047
    )
    
    
    (950
    )
    
    
    (712
    )Other, net
    
    
    13
    
    
    
    
    
    
    
    9Net cash provided by (used in) financing activities
    
    
    5,049
    
    
    
    (920
    )
    
    
    1,852Net increase (decrease) in cash in subsidiary bank
    
    
    355
    
    
    
    (3
    )
    
    
    113Cash in subsidiary bank at beginning of year
    
    
    217
    
    
    
    220
    
    
    
    107Cash in subsidiary bank at end of year
    
    $
    572
    
    
    $
    217
    
    
    $
    220
 71




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        
 72




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##### Table of Contents



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
  
 Item 9A. Controls and Procedures
   
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
 Directors
  Executive Officers
  Compliance with Section 16(a) of the Exchange Act
  73




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##### Table of Contents



Code of Ethics
  Corporate Governance
  
 Item 11. Executive Compensation
 Executive Compensation
  Corporate Governance
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
 (a)
    
    Security Ownership of Certain Beneficial Owners
  (b)
    
    Security Ownership of Management
  (c)
    
    Changes in Control
  (d)
    
    Equity Compensation Plans
  74




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##### Table of Contents



(a)

    
    (b)

    
    (c)Number of securities remainingavailable for future issuanceNumber of securities to be issued

    
    Weighted-average exercise

    
    under equity compensationupon exercise of outstanding

    
    price of outstanding

    
    plan (excluding securitiesPlan Category
    
    options, warrants and rights

    
    options, warrants and rights

    
    reflected in column (a))Equity compensation plans

approved by security holders
    
    
    69,121
    
    
    
    $25,411
    
    
    
    91,000Equity compensation plans not

approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total (1)
    
    
    69,121
    
    
    
    $25,411
    
    
    
    91,000
 
 (1)
    
    The 1999 Stock Option Plan and the 2006 Long-Term Incentive Plan provides for a proportionate
adjustment to the number of shares reserved thereunder in the event of a stock split, stock
dividend, reclassification or similar event. 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
 Certain Relationships and Related Transactions
  Director Independence
  
 Item 14. Principal Accounting Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    The following documents are filed as part of this Annual Report on Form 10-K.
 (1)
    
    Financial Statements
  (2)
    
    Financial Statement Schedules
  75




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##### Table of Contents



(3)
    
    Exhibits
   Exhibit No.
    
    Description3.11
    
    Articles of Organization of Central Bancorp, Inc.3.22
    
    Amended Bylaws of Central Bancorp, Inc.4.12
    
    Shareholder Rights Agreement, dated as of October 11, 2001, by and between
Central Bancorp, Inc. and Registrar and Transfer Company, as Rights Agent, as amended
and restated as of January 29, 2003, and as amended on February 11, 2003, May 22,
2003, July 24, 2003 and August 4, 200310.11
    
    Employment Agreement between the Bank and John D. Doherty, dated October
24, 1986 10.21
    
    First Amendment to Employment Agreement between the Bank and John D.
Doherty, dated March 31, 1992 10.31
    
    Second Amendment to Employment Agreement between the Bank and John D.
Doherty, dated June 8, 1995 10.41
    
    Third Amendment to the Employment Agreement between the Bank and John D.
Doherty, dated January 8, 1999 10.51
    
    Severance Agreement between the Bank and William P. Morrissey, dated
December 14, 1994 10.61
    
    Severance Agreement between the Bank and David W. Kearn, dated December
14, 1994 10.71
    
    Severance Agreement between the Bank and Paul S. Feeley, dated May 14,
1998 10.81
    
    Amendments to Severance Agreements between the Bank and Messrs. Feeley,
Kearn and Morrissey, dated January 8, 1999 10.093
    
    1999 Stock Option and Incentive Plan 10.104
    
    Deferred Compensation Plan for Non-Employee Directors 10.112
    
    Senior Management Incentive Plan, as amended 10.125
    
    Severance Agreement between the Bank and Bryan E. Greenbaum dated March
17, 200510.136
    
    Central Bancorp, Inc. 2006 Long-Term Incentive Plan147
    
    Code of Ethics21
    
    Subsidiaries of Registrant23.1
    
    Consent of Vitale, Caturano & Company, Ltd.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.1
    
    Incorporated by reference to the Form 10-K for the fiscal year ended March 31, 1999 (File No.
0-25251) filed with the SEC on June 28, 1999.2
    
    Incorporated by reference to the Form 10-K for the fiscal year ended March 31, 2004 (File No.
0-25251) filed with the SEC on June 28, 2004.3
    
    Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-87005)
filed on September 13, 1999.4
    
    Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-49264)
filed on November 3, 2000.5
    
    Incorporated by reference to the Form 10-K for the fiscal year ended March 31, 2004 (File No.
0-25251) filed with the SEC on June 29, 2005.6
    
    Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-136234)
filed with the SEC on August 2, 2006.7
    
    Incorporated by reference to the Current Report on Form 8-K (File No. 0-25251) filed with the SEC
on April 13, 2004. 76




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##### Table of Contents



SIGNATURES
  CENTRAL BANCORP, INC.Date: June 21, 2007
    By:
    /s/ John D. DohertyJohn D. DohertyChairman, President and Chief Executive Officer
(Duly Authorized Representative)  /s/ John D. Doherty
    
    June 21, 2007John D. DohertyChairman, President and Chief Executive Officer/s/ Paul S. Feeley
    
    June 21, 2007Paul S. FeeleySenior Vice President, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)/s/ Gregory W. Boulos
    
    June 21, 2007Gregory W. BoulosDirector/s/ Paul E. Bulman
    
    June 21, 2007Paul E. BulmanDirector/s/ Joseph R. Doherty
    
    June 21, 2007Joseph R. DohertyDirector/s/ James F. Linnehan
    
    June 21, 2007James F. LinnehanDirector/s/ Albert J. Mercuri, Jr.
    
    June 21, 2007Albert J. Mercuri, Jr.Director/s/ John J. Morrissey
    
    June 21, 2007John J. MorrisseyDirector/s/ Richard E. Stevens
    
    June 21, 2007Richard E. StevensDirector/s/ Edward F. Sweeney, Jr.
    
    June 21, 2007Edward F. Sweeney, Jr.Director
 77