(Source: MARKETWIRE)Central Bancorp, Inc. (NASDAQ: CEBK) (the "Company") today reported that its net income for the quarter ended September 30, 2009 increased to $604 thousand, or $0.30 per diluted share, as compared to a net loss of $9.5 million, or $6.80 per diluted share, for the comparable prior year quarter. The Company's net income for the six months ended September 30, 2009 was $901 thousand, or $0.40 per diluted share, as compared to net loss of $9.1 million, or $6.53 per diluted share, for the corresponding period in 2008. The financial results for both 2008 periods were significantly impacted by the September 2008 conservatorship of the Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac") that resulted in a $9.4 million impairment of the value of the Company's investment in the preferred stock of those companies. No tax benefit was recorded during that period as the losses were initially considered capital losses and there were insufficient capital gains to offset such losses. However, during the subsequent quarter ending December 31, 2008, the Company recognized a tax benefit of approximately $3.5 million on the Fannie Mae and Freddie Mac impairment charges due to the October 3, 2008 enactment of the Emergency Economic Stabilization Act of 2008, which permitted the Company to treat losses incurred on the Fannie Mae and Freddie Mac preferred stock as ordinary losses for federal income tax purposes.

Net interest and dividend income totaled $4.2 million during both the quarter ended September 30, 2009 and the quarter ended September 30, 2008. Interest income totaled $7.2 million during the quarter ended September 30, 2009, which represents a decrease of $575 thousand as compared to interest income of $7.8 million during the quarter ended September 30, 2008. This decrease in interest income was largely offset by a $563 thousand decrease in interest expense, which totaled $3.0 million during the quarter ended September 30, 2009 compared to $3.6 million during the quarter ended September 30, 2008. The net interest rate spread and the net interest margin were 2.90% and 3.19%, respectively, for the quarter ended September 30, 2009 compared to 2.82% and 3.14%, respectively, for the quarter ended September 30, 2008, with the changes in these ratios resulting from rate and volume changes as follows. The cost of funds decreased by 41 basis points mainly due to a general decline in interest rates and aggressive liability management. During the quarter ended September 30, 2009, the yield on interest-earning assets declined by 33 basis points primarily due to a 129 basis point decrease in interest income on investments and a 165 basis point reduction in interest income on short-term investments. The reduced yield on investments during the quarter ended September 30, 2009 was primarily due to the combined effect of: (1) a $96 thousand decrease in dividends which resulted from the elimination of dividends on preferred stock issued by the Fannie Mae and Freddie Mac as a result of the above referenced events related to those companies in September 2008; and (2) a reduction of $65 thousand in FHLB stock dividends due to the FHLB of Boston's elimination of its dividend as announced in February 2009. The average balance of short-term investments increased from $11.0 million during the quarter ended September 30, 2008 to $19.6 million during the quarter ended September 30, 2009. This increase was primarily due to management's determination to use proceeds received from the December 2008 sale of $10.0 million of preferred stock and warrant to purchase common stock to the U.S. Treasury Department as a participant in the federal government's TARP Capital Purchase Program, and proceeds from loan and securities repayments and maturities, to purchase short-term investments due to a lack of attractive re-investment alternatives during the recessionary economic environment.

Notwithstanding the increase in the average balance of short-term investments, interest income on these investments declined by $40 thousand as the Federal Reserve lowered the fed funds target rate by approximately 175 basis points from 200 basis points during the quarter ended September 30, 2008 to 25 basis points during the quarter ended September 30, 2009. This decrease in the fed funds target rate had a corresponding effect on the interest earned on the Company's short-term investments, as the interest earned on these assets is closely tied to the target fed funds rate. Short-term investments are primarily comprised of federal funds sold and interest-earning balances at the Federal Reserve Bank of Boston.

The provision for loan losses for the quarter ended September 30, 2009 totaled $200 thousand compared to a provision for loan losses of $900 thousand during the quarter ended September 30, 2008, the prior period's provision being primarily attributable to one borrowing relationship. The Company provides for loan losses in order to maintain the allowance for loan losses at a level that management estimates is adequate to absorb probable losses based on an evaluation of known and inherent risks in the portfolio. In determining the appropriate level of the allowance for loan losses, the Company considers, among other things, past and anticipated loss experience, evaluations of underlying collateral, prevailing economic conditions, changes in staff depth and experience, the nature and volume of the loan portfolio and the levels of non-performing and other classified loans. Management evaluates the level of the loan loss reserve on a regular basis and considered the allowance for loan losses to be adequate during the quarter ended September 30, 2009. However, management's ability to predict future results is inherently uncertain and future increases to the allowance for loan losses may be necessary due to changes in loan composition or volume, changes in economic market area conditions or other factors.

Non-interest income increased by $9.5 million from $(9.1) million during the quarter ended September 30, 2008 to $410 thousand during the quarter ended September 30, 2009. As previously mentioned, the Company recorded a $9.4 million impairment on Fannie Mae and Freddie Mac preferred stock during the quarter ended September 30, 2008. Additionally, net loss on the sales or write-downs on other securities totaled $115 thousand during the quarter ended September 30, 2008 compared to $0 during the quarter ended September 30, 2009. Gains on the sale of loans increased from $3 thousand during the quarter ended September 30, 2008 to $32 thousand during the quarter ended September 30, 2009 due to increased loan origination and sale activity during the 2009 period.