LoanTable origination fees, net of certain direct loan origination costs, are deferred and are amortized into interest income over the contractual loan term using the level-yield method. Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~June 3130, ~~2011~~2012

¨	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.

(Exact name of registrant as specified in its charter)


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

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was reported to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Common Stock, $1.00 par value		1,690,951
Class		Outstanding at ~~February~~August 1413, 2012

CENTRAL BANCORP, INC.

FORM 10-Q

Table of Contents

		Page No.
Part I.	Financial Information
Part I. Financial Information
Item 1.	Financial Statements (Unaudited)		12
	Consolidated Statements of Financial Condition at December 31, 2011 and March 31, 2011		1
	Consolidated Statements of Financial Condition at June 30, 2012 and March 31, 2012		2
	Consolidated Statements of Income for the Three and Nine Months Ended December 31, 2011 and 2010		2
	Consolidated Statements of Income for the Three Months Ended June 30, 2012 and 2011		3
	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended December 31, 2011 and 2010		3
	Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2012 and 2011		4
	Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2011 and 2010		4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended June 30, 2012 and 2011		5
	Notes to Unaudited Consolidated Financial Statements		5
	Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2012 and 2011		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations Operations		33
	Notes to Unaudited Consolidated Financial Statements		7
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		47
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations Operations		32
Item 4.	Controls and Procedures		47
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		44
Part II.	Other Information
Item 4.	Controls and Procedures		44
Item 1.	Legal Proceedings		48
Part II. Other Information			45
Item 1A.	Risk Factors		48
Item 1.	Legal Proceedings		45
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		48
Item 1A.	Risk Factors		45
Item 3.	Defaults Upon Senior Securities		48
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		45
Item 4.	Mine Safety Disclosures		48
Item 3.	Defaults Upon Senior Securities		45
Item 5.	Other Information		48
Item 4.	Mine Safety Disclosures		45
Item 6.	Exhibits		48
Item 5.	Other Information		45
Signatures			49
Item 6.	Exhibits		46
Signatures			47

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CENTRAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Financial Condition

(Unaudited – In Thousands)

(In Thousands, Except Share and Per Share Data)	December 31, 2011			March 31, 2011
	June 30,2012			March 31,2012
ASSETS
Cash and due from banks	$	45,~~566~~104		$	34,~~728~~117
Short-term investments		324,~~494~~950			373,~~190~~224
Cash and cash equivalents		3710,~~060~~054			407,~~918~~341
Investment securities available for sale, at fair value (Note 2)		35,269			25,185
Investment securities available for sale, at fair value (Note 3)		37,401			39,060
Stock in Federal Home Loan Bank of Boston, at cost (Note 2)		8,518			8,518
Stock in Federal Home Loan Bank of Boston, at cost (Notes 3)		8,203			8,203
The Co-operative Central Bank Reserve Fund, at cost		1,576			1,576
The Co-operative Central Bank Reserve Fund, at cost (Note 3)		1,576			1,576
Total investments		4547,~~363~~180			3548,~~279~~839
Loans held for sale		221			—
Loans held for sale, at fair value		75			—
Loans (Note 3)		420,955			394,217
Loans (Note 4)		489,832			448,886
Less allowance for loan losses		(4,083	)		(3,892	)
Less allowance for loan losses (Note 4)		(4,153	)		(4,272	)
Loans, net		~~416~~485,~~872~~679			~~390~~444,~~325~~614
Accrued interest receivable		1,~~378~~365			1,~~496~~359
Banking premises and equipment, net		2,~~706~~603			2,~~705~~694
Deferred tax asset, net		3,~~875~~198			3,~~600~~253
Other real estate owned		~~320~~665			~~132~~133
Goodwill		2,232			2,232
Goodwill, net		2,232			2,232
Bank-owned life insurance (Note 11)		7,183			6,972
Bank-owned life insurance		9,733			9,648
Other assets		42,~~140~~953			3,~~966~~459
Total assets	$	~~521~~565,~~350~~737		$	~~487~~523,~~625~~572
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits (Note 4)	$	332,709		$	309,077
Deposits (Note 5)	$	356,900		$	344,534
Federal Home Loan Bank advances		~~117~~147,~~260~~197			117,~~351~~228
Subordinated debentures (Note 5)		11,341			11,341
Subordinated debentures (Note 6)		11,341			11,341
Advanced payments by borrowers for taxes and insurance		2,276			1,387
Advance payments by borrowers for taxes and insurance		3,124			2,955
Accrued expenses and other liabilities		122,~~965~~260			12,~~348~~168
Total liabilities		~~476~~520,~~551~~822			~~440~~478,~~504~~226
Commitments and Contingencies (Note 7)
Commitments and Contingencies (Note 8)
Stockholders’ equity:
Preferred stock – Series A Cumulative Perpetual, $1.00 par value; 5,000,000 shares authorized; No shares issued and outstanding at December 31, 2011 and 10,000 shares issued and outstanding, with a liquidation preference and redemption value of $10,063,889 at March 31, 2011		—			9,709
Preferred stock – Series B Non-Cumulative Perpetual, $1.00 par value; 10,000 shares authorized; 10,000 shares issued and outstanding with a liquidation preference and redemption value of $10,000 at June 30, 2012 and March 31, 2012 (Note 15)		9,971			9,966
Preferred stock – Series B Senior Non-Cumulative Perpetual, $1.00 par value; 10,000 shares authorized; 10,000 shares issued and outstanding, with a liquidation preference and redemption value of $10,000,000 at December 31, 2011 and no shares issued and outstanding at March 31, 2011		9,961			—
Common stock $1.00 par value; 15,000,000 shares authorized; 1,690,951 shares issued and outstanding at June 30, 2012 and March 31, 2012, respectively		1,691			1,691
Common stock $1.00 par value; 15,000,000 shares authorized; and 1,681,071 shares issued and outstanding at December 31, 2011 and March 31, 2011		1,681			1,681
Additional paid-in capital		2,202			2,201
Additional paid-in capital		2,121			4,589
Retained income		34,277			34,966
Retained income		35,115			35,288
Accumulated other comprehensive income (Note 7)		951			871
Accumulated other comprehensive income (Note 6)		442			892
Unearned compensation – Employee Stock Ownership Plan (Note 11)		(4,177	)		(4,349	)
Unearned compensation – Employee Stock Ownership Plan		(4,521	)		(5,038	)
Total stockholders’ equity		44,915			45,346
Total stockholders’ equity		44,799			47,121
Total liabilities and stockholders’ equity	$	565,737		$	523,572
Total liabilities and stockholders’ equity	$	521,350		$	487,625

See accompanying notes to ~~unaudited~~ consolidated financial statements.

CENTRAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of (Loss) Income

(Unaudited in thousands, except per share data)

	Three Months Ended					~~Nine Months Ended~~
(In Thousands, Except Share and Per Share Data)	~~December~~June 3130,					~~December 31,~~
	2011			2010		2011		2010
	2012			2011
Interest and dividend income:
Mortgage loans	$	5,~~343~~213		$	5,~~746~~298	$	~~16,143~~	$	~~18,423~~
Other loans		2114			4938		89		~~183~~
Investments		~~386~~296			~~365~~233		~~933~~		~~984~~
Short-term investments		151			2714		39		47
Total interest and dividend income		5,~~765~~524			65,~~187~~583		~~17,204~~		~~19,637~~
Interest expense:
Deposits		~~429~~448			~~573~~388		~~1,238~~		~~1,962~~
Advances from Federal Home Loan Bank of Boston		1,~~102~~099			1,~~226~~090		~~3,295~~		~~3,837~~
Other borrowings		~~142~~141			~~140~~137		~~418~~		~~420~~
Total interest expense		1,~~673~~688			1,~~939~~615		~~4,951~~		~~6,219~~
Net interest and dividend income		43,~~092~~836			43,~~248~~968		~~12,253~~		~~13,418~~
Provision for loan losses		~~300~~150			~~300~~500		~~1,100~~		~~900~~
Net interest and dividend income after provision for loan losses (Note 3)		3,792			3,948		11,153		12,518
Net interest and dividend income after provision for loan losses		3,686			3,468
Noninterest income:
Deposit service charges		~~255~~256			~~266~~240		~~731~~		~~777~~
Net (loss) gain from sales and write-downs of investment securities		(48	)		13		507		(170	)
Net gain from sales and write-downs of investment securities		4			490
Net gains on sales of loans		~~105~~—			~~111~~9		~~140~~		~~241~~
Bank-owned life insurance		7485			7572		~~219~~		~~219~~
Other		80157			8794		~~273~~		~~305~~
Total noninterest income		~~466~~502			~~552~~905		~~1,870~~		~~1,372~~
Noninterest expenses:
Salaries and employee benefits		2,~~258~~787			2,~~292~~595		~~7,313~~		~~6,784~~
Occupancy and equipment		~~508~~490			~~523~~529		~~1,557~~		~~1,548~~
Data processing fees		~~189~~200			~~212~~202		~~579~~		~~629~~
Professional fees		~~228~~68			~~233~~178		~~627~~		~~730~~
FDIC deposit insurance premiums		106			139		307		426
Merger expenses		551			—
Advertising and marketing		20			24		103		121
FDIC deposit premiums		113			102
Other expenses		458			402		1,438		1,268
Advertising and marketing		25			32
Total noninterest expenses		3,767			3,825		11,924		11,506
Other expenses		488			407
Income before income taxes		491			675		1,099		2,384
Total noninterest expenses		4,722			4,045
Provision for income taxes		131			330		299		900
(Loss) income before income taxes		(534	)		328
Net income	$	360		$	345	$	800	$	1,484
(Benefit) provision for income taxes		(52	)		92
Net income available to common shareholders (Note 9)	$	231		$	191	$	64	$	1,021
Net (loss) income	$	(482	)	$	236
Earnings per common share – basic (Note 9)	$	0.15		$	0.13	$	0.04	$	0.68
Net (loss) income available to common shareholders	$	(612	)	$	80
Earnings per common share – diluted (Note 9)	$	0.15		$	0.12	$	0.04	$	0.64
(Loss) earnings per common share – basic (Note 10)	$	(0.39	)	$	0.05
Weighted average common shares outstanding – basic		1,541,300			1,505,873		1,535,924		1,500,497
(Loss) earnings per common share – diluted (Note 10)	$	(0.39	)	$	0.05
Weighted average common and equivalent shares outstanding – diluted		1,570,076			1,633,165		1,648,554		1,608,120
Weighted average common shares outstanding – basic		1,561,934			1,530,547
Weighted average common and equivalent shares outstanding – diluted		1,575,815			1,686,755

See accompanying notes to unaudited consolidated financial statements.

CENTRAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(Unaudited – in Thousands)


	Three Months Ended
	June 30,
	2012			2011

Net (loss) income	$	(482	)	$	236
Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on securities
Change in Fair Value of Securities Available for Sale		82			83
Less: Net Security Gains Reclassified into Earnings		(2	)		(293	)

Net Change in Fair Value of Securities Available for Sale		80			(210	)

Total other comprehensive income (loss)		80			(210	)

Total comprehensive (loss) income	$	(402	)	$	26

See accompanying notes to unaudited consolidated financials statements

CENTRAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(In Thousands, Except Share and Per Share Data)

	Numberof SharesofSeries APreferredStock		Series APreferredStock		Numberof SharesofSeries BPreferredStock		Series BPreferredStock		Number ofShares ofCommonStock		CommonStock		AdditionalPaid-InCapital			RetainedIncome			AccumulatedOtherComprehensiveIncome			UnearnedCompensation-ESOP			TotalStockholders’Equity
	Number ofShares ofSeries APreferredStock		Series APreferredStock		Number ofShares ofSeries BPreferredStock		Series BPreferredStock		Number ofShares ofCommonStock		CommonStock		AdditionalPaid-InCapital			RetainedIncome			AccumulatedOtherComprehensiveIncome			UnearnedCompensation-ESOP			TotalStockholders’Equity
Nine Months Ended December 31, 2010
Balance at March 31, 2011		10,000	$	9,709		—	$	—		1,681,071	$	1,681	$	4,589		$	35,288		$	892		$	(5,038	)	$	47,121
Balance at March 31, 2010		10,000	$	9,589		—	$	—		1,667,151	$	1,667	$	4,291		$	34,482		$	810		$	(5,726	)	$	45,113
Net income		—		—		—		—		—		—		—			236			—			—			236
Net income		—		—		—		—		—		—		—			1,484			—			—			1,484
Unrealized loss on securities, net of reclassification adjustment (Note 3 & 7 ) and tax benefit of $114 thousand		—		—		—		—		—		—		—			—			(210	)		—			(210	)
Other comprehensive income, net of taxes of $83:
Dividends paid to common stockholders ($0.05 per share)		—		—		—		—		—		—		—			(76	)		—			—			(76	)
Unrealized gain on securities, net of reclassification adjustment (Note 6)		—		—		—		—		—		—		—			—			140			—			140
Preferred stock accretion of discount and issuance costs		—		31		—		—		—		—		—			(31	)		—			—			—
Comprehensive income																										1,624
Dividends paid on preferred stock		—		—		—		—		—		—		—			(125	)		—			—			(125	)
Dividends paid to common stockholders ($0.15 per share)		—		—		—		—		—		—		—			(224	)		—			—			(224	)
Stock-based compensation (Note)		—		—		—		—		—		—		108			—			—			—			108
Preferred stock accretion of discount and issuance costs		—		88		—		—		—		—		—			(88	)		—			—			—
Amortization of unearned compensation – ESOP		—		—		—		—		—		—		(70	)		—			—			172			102
Dividends paid on preferred stock		—		—		—		—		—		—		—			(375	)		—			—			(375	)
Balance at June 30, 2011		10,000	$	9,740		—	$	—		1,681,071	$	1,681	$	4,627		$	35,292		$	682		$	(4,866	)	$	47,156
Stock-based compensation (Note 10)		—		—		—		—		—		—		302			—			—			—			302
Balance at March 31, 2012		—	$	—		10,000	$	9,966		1,690,951	$	1,691	$	2,201		$	34,966		$	871		$	(4,349	)	$	45,346
Amortization of unearned compensation – ESOP		—		—		—		—		—		—		(325	)		—			—			516			191
Net loss		—		—		—		—		—		—		—			(482	)		—			—			(482	)
Balance at December 31, 2010		10,000	$	9,677		—	$	—		1,667,151	$	1,667	$	4,268		$	35,279		$	950		$	(5,210	)	$	46,631
Unrealized gain on securities, net of reclassification adjustment (Note 3 & 7) and tax expense of $55 thousand		—		—		—		—		—		—		—			—			80			—			80
Dividends paid to common stockholders ($0.05 per share)		—		—		—		—		—		—		—			(77	)		—			—			(77	)
Preferred stock accretion of discount and issuance costs		—		—		—		5		—		—		—			(5	)		—			—			—
Dividends paid on preferred stock		—		—		—		—		—		—		—			(125	)		—			—			(125	)
Stock-based compensation (Note 1)		—		—		—		—		—		—		31			—			—			—			31
Amortization of unearned compensation – ESOP		—		—		—		—		—		—		(30	)		—			—			172			142
Balance at June 30, 2012		—	$	—		10,000	$	9,971		1,690,951	$	1,691	$	2,202		$	34,277		$	951		$	(4,177	)	$	44,915

	Numberof SharesofSeries APreferredStock			Series APreferredStock			Numberof SharesofSeries BPreferredStock		Series BPreferredStock		Number ofShares ofCommonStock		CommonStock		AdditionalPaid-InCapital			RetainedIncome			AccumulatedOtherComprehensiveIncome			UnearnedCompensation-ESOP			TotalStockholders’Equity
Nine Months Ended December 31, 2011
Balance at March 31, 2011		10,000		$	9,709			—	$	—		1,681,071	$	1,681	$	4,589		$	35,288		$	892		$	(5,038	)	$	47,121
Net income		—			—			—		—		—		—		—			800			—			—			800
Other comprehensive loss, net of tax benefit of $275:
Unrealized loss on securities, net of reclassification adjustment (Note 6)		—			—			—		—		—		—		—			—			(450	)		—			(450	)
Comprehensive income																												350
Dividends paid to common stockholders ($0.15 per share)		—			—			—		—		—		—		—			(237	)		—			—			(237	)
Redemption of Series A Preferred Stock net		(10,000	)		(9,701	)		—		—		—		—		—			(299	)		—			—			(10,000	)
Issuance of Series B Preferred Stock, net of issuance costs of $45		—			—			10,000		9,955		—		—		—			—			—			—			9,955
Preferred stock accretion of discount and issuance costs		—			56			—		6		—		—		—			(62	)		—			—			—
Redemption of Series A warrants		—			—			—		—		—		—		(2,526	)		—			—			—			(2,526	)
Dividends paid on preferred stock		—			(64	)		—		—		—		—		—			(375	)		—			—			(439	)
Stock-based compensation (Note 10)		—			—			—		—		—		—		278			—			—			—			278
Amortization of unearned compensation – ESOP		—			—			—		—		—		—		(220	)		—			—			517			297
Balance at December 31, 2011		—		$	—			10,000	$	9,961		1,681,071	$	1,681	$	2,121		$	35,115		$	442		$	(4,521	)	$	44,799

See accompanying notes to unaudited consolidated financial statements.

~~See~~5 ~~accompanying notes to consolidated financial statements~~

CENTRAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited in thousands)

	Nine Months Ended
	Three Months Ended
	December 31,
	June 30,
(In thousands)	~~2011~~2012			~~2010~~2011
Cash flows from operating activities:
Net income	$	800		$	1,484
Net (loss) income	$	(482	)	$	236
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		~~398~~104			~~470~~145
Amortization of premiums		9753			~~179~~33
Deferred tax benefit		—			1,288
Provision for loan losses		150			500
Provision for loan losses		1,100			900
Stock-based compensation and amortization of unearned compensation – ESOP		173			210
Stock-based compensation and amortization of unearned compensation - ESOP		575			493
Net gain, from sales and write-downs of investment securities		(4	)		(490	)
Net (gains) losses from sales of investment securities		(507	)		170
Bank-owned life insurance income		(85	)		(72	)
Bank-owned life insurance income		(211	)		(218	)
Gains on sales of loans held for sale		—			(9	)
Gain on sale of OREO		—			(2	)
Originations of loans held for sale		(75	)		(806	)
Gains on sales of loans held for sale		(140	)		(241	)
Proceeds from sale of loans originated for sale		—			619
Originations of loans held for sale		(10,934	)		(20,621	)
(Increase) decrease in accrued interest receivable		(6	)		97
Proceeds from sale of loans originated for sale		10,853			20,844
Decrease in other assets, net		506			206
Decrease in accrued interest receivable		118			480
Increase in accrued expenses and other liabilities, net		92			791
(Increase) decrease in other assets		(174	)		82
Net cash provided by operating activities		426			1,460
Increase (decrease) in accrued expenses and other liabilities		11,617			(483	)
Net cash provided by operating activities		13,592			4,781
Cash flows from investing activities:
Loan (originations) principal collections, net		(27,835	)		56,008
Loan principal originations, net		(41,747	)		(23,513	)
Principal payments on mortgage-backed securities		31,~~613~~582			71,~~129~~372
Proceeds from sales of investment securities		~~6,788~~163			26,~~092~~310
Purchases of investment securities		~~(20,800~~—	)		(39,~~223~~842	)
Proceeds from sales of OREO		—			62
Purchase of banking premises and equipment		(13	)		(77	)
Purchase of banking premises and equipment		(399	)		(562	)
Net cash used in by investing activities		(40,015	)		(25,750	)
Net cash (used in) provided by investing activities		(38,633	)		61,506
Cash flows from financing activities:
Issuance of Series B preferred stock		10,000			—
Net increase in deposits		12,366			8,422
Preferred stock issuance costs		(45	)		—
Increase (decrease) in advance payments by borrowers for taxes and insurance		169			395
Redemption of Series a preferred stock		(10,000	)		—
Proceeds from (repayments of) advances from FHLB of Boston		29,969			(30	)
Redemption of Series A preferred stock warrants		(2,526	)		—
Cash dividends paid		(202	)		(201	)
Net increase (decrease) in deposits		23,632			14,019
Net cash provided by financing activities		42,302			8,586
Increase in advance payments by borrowers for taxes and insurance		889			44
Net increase (decrease) in cash and cash equivalents		2,713			(15,704	)
Repayment of advances from FHLB of Boston		(91	)		(17,087	)
Cash and cash equivalents at beginning of period		7,341			40,918
Cash dividends paid		(676	)		(598	)
Cash and cash equivalents at end of period	$	10,054		$	25,214
Net cash provided by (used in) financing activities		21,183			(31,704	)
Net (decrease) increase in cash and cash equivalents		(3,858	)		34,583
Cash and cash equivalents at beginning of period		40,918			16,536
Cash and cash equivalents at end of period	$	37,060		$	51,119
Cash paid (received) during the period for:
Interest	$	41,~~951~~696		$	61,~~312~~629
Income taxes		~~(669~~—	)		—(609	)
Supplemental disclosure of non-cash investing and financing activities:
Accretion of Series A and B preferred stock discount and issuance costs		62			88
Accretion of Series A preferred stock issuance costs		—			31
Deemed dividend on Series A preferred stock		299			—
Accretion of Series B preferred stock issuance costs		5			—
Loans transferred to other real estate owned		~~188~~532			~~132~~—

See accompanying notes to unaudited consolidated financial statements.

CENTRAL BANCORP AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

~~December 31~~June 30, ~~2011~~2012

(1)

Basis of Presentation

The unaudited consolidated financial statements of Central Bancorp, Inc. and its wholly owned subsidiary, Central Co-operative Bank (the “Bank”) (collectively referred to as the “Company”), presented herein should be read in conjunction with the consolidated financial statements of the Company as of and for the year ended March 31, ~~2011~~2012, included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on June 1719, ~~2011~~2012. The accompanying unaudited consolidated financial statements were prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all of the information or footnotes necessary for a complete presentation of financial position, results of operations, changes in stockholders’ equity or cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, the accompanying unaudited consolidated financial statements reflect all normal recurring adjustments that are necessary for a fair presentation. The results for the ~~nine~~three months ended ~~December~~June 3130, ~~2011~~2012 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, ~~2012~~2013 or any other period.

The Company owns 100% of the common stock of Central Bancorp Capital Trust I (“Trust I”) and Central Bancorp Statutory Trust II (“Trust II”), which have issued trust preferred securities to the public in private placement offerings. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 860 Transfers and Servicing, neither Trust I nor Trust II ~~are~~is included in the Company’s consolidated financial statements (See Note 56).

The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended March 31, ~~2011~~2012 and are also included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Form 10-Q. For interim reporting purposes, the Company follows the same significant accounting policies.

(2) ~~Investments~~Agreement and Plan of Merger

~~The~~On ~~amortized~~April 30, ~~cost~~2012, the Company and ~~fair~~the ~~value~~Bank entered into an Agreement and Plan of ~~investment~~Merger ~~securities~~(the ~~available~~“Merger Agreement”) with Independent Bank Corp. (“Independent”), the parent company of Rockland Trust Company (“Rockland”), pursuant to which the Company will merge with and into Independent. As part of the transaction, the Bank will also merge with and into Rockland. Under the terms of the Merger Agreement, each share of Company common stock, other than shares held by Independent, will convert into the right to receive either (i) $32.00 in cash or (ii) such number of shares of Independent common stock as determined by the exchange ratio provided for ~~sale~~in the Merger Agreement, all as more fully set forth in the Merger Agreement and subject to the terms and conditions set forth therein. The Merger Agreement provides that 40% of the aggregate merger consideration must consist of cash and 60% of the aggregate merger consideration must consist of shares of Independent common stock. Following the consummation of the transactions contemplated by the Merger Agreement, the Board of Directors of Independent and Rockland will each consist of its respective directors immediately prior to the merger and John J. Morrissey, a current director of the Company and the Bank. The transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval of the merger by the holders of at ~~December~~least two-thirds of the outstanding common shares of the Company. The Company’s Board of Directors has called a special meeting of stockholders to be held on September 3111, ~~2011~~2012 for stockholders to vote on the approval of the merger agreement. If the merger is not consummated under certain circumstances, ~~are~~the ~~summarized~~Company has agreed to reimburse Independent up asto ~~follows:~~$750,000 for its reasonably documented fees and expenses and to pay Independent a termination fee of $2.2 million; provided however, that any amounts paid in reimbursement will be credited against the termination fee payable. Currently, the merger is expected to be completed in the fourth quarter of 2012.

	December, 2011
	AmortizedCost		Gross Unrealized					FairValue
			Gains		Losses
			(In Thousands)
Government agency and government sponsored enterprise mortgage-backed securities	$	27,383	$	718	$	(13	)	$	28,088
Single issuer trust preferred securities issued by financial institutions		1,001		39		—			1,040
Total debt securities		28,384		757		(13	)		29,128
Perpetual preferred stock issued by financial institutions		3,065		93		(384	)		2,774
Common stock		3,361		212		(206	)		3,367
Total	$	34,810	$	1,062	$	(603	)	$	35,269

As previously disclosed, a putative stockholder class action lawsuit was filed in connection with the Merger Agreement on July 17, 2012 in Superior Court in Middlesex County, Massachusetts, against the Company, each of its directors and Independent. For more information on the lawsuit, see the Company’s Current Report on From 8-K that was filed with the Securities and Exchange Commission on July 23, 2012

~~The~~(3) ~~amortized cost and fair value of investment securities available for sale at March 31, 2011 are as follows:~~ Investments

	March 31, 2011
	AmortizedCost		Gross Unrealized					FairValue
			Gains		Losses
			(In Thousands)
Government agency and government sponsored enterprise mortgage-backed securities	$	18,129	$	764	$	(70	)	$	18,823
Single issuer trust preferred securities issued by financial institutions		1,002		47		—			1,049
Total debt securities		19,131		811		(70	)		19,872
Perpetual preferred stock issued by financial institutions		3,071		194		(80	)		3,185
Common stock		1,799		354		(25	)		2,128
Total	$	24,001	$	1,359	$	(175	)	$	25,185

The amortized cost and fair value of investment securities available for sale at June 30, 2012, are summarized as follows:

During the nine-month period ended December 31, 2011, one common stock was deemed to be other-than-temporarily impaired and was written down by $47 thousand to its fair value as of December 31, 2011.


	June 30, 2012
	Amortized Cost		Gross Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value
			(In Thousands)

Government agency and government sponsored enterprise mortgage-backed securities	$	28,820	$	950	$	(10	)	$	29,760
Single issuer trust preferred securities issued by financial institutions		1,001		35		—			1,036

Total debt securities		29,821		985		(10	)		30,796
Perpetual preferred stock issued by financial institutions		3,042		114		—			3,156
Common stock		3,201		378		(130	)		3,449

Total	$	36,064	$	1,477	$	(140	)	$	37,401

~~Temporarily~~The ~~impaired~~amortized ~~securities~~cost ~~as of December 31, 2011 are presented in the following table~~ and ~~are~~fair ~~aggregated~~value byof investment ~~category~~ ~~and length of time that individual~~ securities ~~have~~available ~~been~~for insale aat ~~continuous~~March 31, ~~loss~~2012 ~~position~~are as follows:

	Less Than or Equal to12 Months					Greater Than12 Months
	March 31, 2012
	FairValue		UnrealizedLosses			Fair Value			UnrealizedLosses
	AmortizedCost		Gross Unrealized						FairValue
	(In Thousands)
			Gains			Losses
Government agency and government sponsored enterprise mortgage-backed securities	$	120	$	(3	)	$	269		$	(10	)
			(In Thousands)
Perpetual preferred stock issued by financial institutions		895		(124	)		757			(260	)
Government agency and government sponsored enterprise mortgage-backed securities	$	30,453	$	816		$	(11	)	$	31,258
Common stock		1,456		(192	)		123			(14	)
Single issuer trust preferred securities issued by financial institutions		1,001		40			—			1,041
Total temporarily impaired securities	$	2,471	$	(319	)	$	1,149		$	(284	)
Total debt securities		31,454		856			(11	)		32,299
Perpetual preferred stock issued by financial institutions		3,043		93			(25	)		3,111
Common stock		3,361		374			(85	)		3,650
Total	$	37,858	$	1,323		$	(121	)	$	39,060

~~The~~During ~~Company has one preferred stock investment currently in an unrealized loss position for longer than twelve months for which~~ the ~~fair~~three-month ~~value~~period ~~has decreased during the nine months~~ ended ~~December~~June 3130, ~~2011. The preferred stock had an unrealized loss to book value ratio of 25.6% at December 31~~2012, ~~2011~~there ~~compared~~were tono aninvestment ~~unrealized loss to book value ratio of 5.7% at March 31, 2011. Due to the long-term nature of preferred stocks, management considers these~~ securities todetermined ~~be similar~~ to ~~debt securities for analysis purposes. Based on available information, management has determined that the~~be ~~unrealized loss on the Company’s investment in this preferred stock is not~~ other-than-~~temporary~~temporarily ~~as of December 31, 2011~~impaired.

~~The~~8 Company had one debt security in an unrealized loss position as of December 31, 2011, which has been in a continuous unrealized loss position for a period greater than twelve months. This debt security has a total fair value of $269 thousand and an unrealized loss of $10 thousand as of December 31, 2011. This debt security is a government agency mortgage–backed security. Management currently does not have the intent to sell this security and it is more likely than not that it will not have to sell this security before recovery of its cost basis. Based on management’s analysis of this security, it has been determined that there is no other-than-temporarily impaired as of December 31, 2011.

~~The~~Temporarily ~~Company~~impaired ~~had seventeen equity~~ securities ~~with~~as ~~a fair value~~ of ~~$1.6 million and unrealized losses of $206 thousand which were temporarily impaired at December~~June 3130, ~~2011.~~2012 ~~The~~are ~~total~~presented in ~~unrealized~~the ~~losses~~following ~~relating~~table toand ~~these~~are ~~securities~~aggregated ~~represent~~by ~~approximately~~investment ~~11.5%~~category ofand ~~book~~length ~~value. This is an increase when compared to the ratio~~ of ~~unrealized losses~~time tothat ~~book~~individual ~~value of 6.3% at March 31, 2011. Of these seventeen~~ securities, ~~one~~have ~~has~~ been in a continuous ~~unrealized~~ loss position ~~for greater than twelve months aggregating $14 thousand at December 31, 2011~~. Data indicates that, due to current economic conditions, the time for many stocks to recover may be substantially lengthened. Management’s investment approach is to be a long-term investor. As of December 31, 2011, the Company has determined that the unrealized losses associated with these securities are not other-than-temporary based on the projected recovery of the unrealized losses, and management’s intent and ability to hold the securities until recovery of cost.

The maturity distribution (based on contractual maturities) and annual yields of debt securities at December 31, 2011 are as follows:


	Less Than or Equal to 12 Months					Greater Than 12 Months
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In Thousands)
Government agency and government sponsored enterprise mortgage-backed securities	$	—	$	—		$	340	$	(10	)
Common stock		597		(37	)		337		(93	)


Total temporarily impaired securities	$	597	$	(37	)	$	677	$	(103	)

	Amortized		Fair		Annual
	Cost		Value		Yield
	(Dollars in thousands)
Government agency and government sponsored enterprise mortgage-backed securities
Due within one year	$	605	$	613		3.88	%
Due after one year but within five years				—		—
Due after five years but within ten years		1,816		1,839		2.77
Due after ten years		24,962		25,636		3.54
Total		27,383		28,088
Single issuer trust preferred securities issued by financial institutions:
Due after ten years		1,001		1,040		7.78	%
Total	$	28,384	$	29,128

During the three-month period ended June 30, 2012, the Company sold two common stock securities for a net gain of $4 thousand.

As of June 30, 2012, the Company has nine government agency mortgage-backed securities which have been in a continuous loss position for a period greater than twelve months and none which have been in a continuous loss position for less than twelve months. These debt securities have a total fair value of $340 thousand and unrealized losses of $10 thousand as of June 30, 2012. Management currently does not have the intent to sell these securities and it is more likely that it will not have to sell these securities before recovery of their cost basis. Based on management’s analysis of these securities, it has been determined that none of the securities are other-than-temporarily impaired as of June 30, 2012.

The Company has ten equity securities with a fair value of $934 thousand and unrealized losses of $130 thousand which were temporarily impaired at June 30, 2012. The total unrealized losses relating to these equity securities represent 12.0% of book value. This is an increase when compared to the ratio of unrealized losses to book value of 11.00% at March 31, 2012. Of these ten securities, four have been in a continuous loss position for greater than twelve months. Data indicates that, due to current economic conditions, the time for many stocks to recover may be substantially lengthened. Management’s investment approach is to be a long-term investor. As of June 30, 2012, the Company has determined that the unrealized losses associated with these securities are not other-than-temporary based on the projected recovery of the unrealized losses, and management’s intent and ability hold until recovery of cost.

The maturity distribution (based on contractual maturities) and annual yields of debt securities at June 30, 2012 are as follows:


	Amortized Cost		Fair Value		Annual Yield
	(Dollars in Thousands)
Government agency and government sponsored enterprise mortgage-backed securities

Due after one year but within five years	$	351	$	354		3.88	%
Due after five years but within ten years		1,594		1,630		2.73
Due after ten years		26,875		27,776		3.42

		28,820		29,760

Trust preferred securities:
Due after ten years		1,001		1,036		7.78	%


Total	$	29,821	$	30,796

Mortgage-backed securities are shown at their contractual maturity dates but actual maturities may differ as borrowers have the right to prepay obligations without incurring prepayment penalties.

~~Mortgage-backed~~Proceeds ~~securities~~from ~~with~~sales ~~an amortized cost~~ of ~~$1.0~~investment ~~million~~securities and arelated ~~fair~~gains ~~value~~and oflosses ~~$1.1 million at December 31, 2011 were pledged to provide collateral~~ for ~~certain~~the three ~~customers.~~months Atended ~~December~~June 3130, ~~2011~~2012 ~~securities~~and ~~carried~~2011 at(all ~~$2.2~~classified ~~million~~as ~~were~~available ~~pledged~~for ~~under a blanket lien to partially secure the Bank’s advances from the Federal Home Loan Bank Board of Boston (“FHLBB”~~sale). ~~Additionally, at December 31, 2011 investment securities carried at $2.7 million~~ were ~~pledged~~as tofollows: ~~maintain borrowing capacity at the Federal Reserve Bank of Boston.~~

As a member of the FHLBB, the Bank is required to invest in stock of the FHLBB in an amount which, until April 2004, was equal to 1% of its outstanding home loans or 1/20th of its outstanding advances from the FHLBB, whichever was higher.


	2012			2011
	(Dollars in Thousands)
Proceeds from sales, maturities, redemptions	$	163		$	6,310

Gross gains	$	33		$	490
Gross losses		(29	)		—
Other- than- temporary impairments		—			—

Net realized gain	$	4		$	490

Income tax expense on net realized gains	$	2		$	197

~~The~~Mortgage-backed ~~Company~~securities ~~views~~with ~~its~~a ~~investment~~fair invalue ~~the~~of ~~FHLBB~~$424 ~~stock~~thousand asat ~~a long-term investment.~~June ~~Accordingly~~30, ~~when~~2012 ~~evaluating~~were ~~for~~pledged ~~impairment,~~to ~~the~~provide ~~value~~collateral for iscertain ~~determined~~customers. ~~based~~Investment onsecurities ~~the~~carried ~~ultimate~~at ~~recovery~~$1.9 ofmillion ~~the~~were ~~par~~pledged ~~value rather~~under ~~than~~a ~~recognizing~~blanket ~~temporary~~lien ~~declines~~to inpartially ~~value. The~~secure ~~determination of whether a decline affects~~ the ~~ultimate~~Bank’s ~~recovery~~advances isfrom ~~influenced by criteria such as: (1)~~ the ~~significance~~FHLB of ~~the~~Boston. ~~decline~~Additionally, ininvestment ~~net~~securities ~~assets~~carried ofat ~~the~~$1.9 ~~FHLBB~~million aswere ~~compared~~pledged to ~~the~~ ~~capital~~maintain ~~stock~~borrowing ~~amount~~capacity ~~and~~at ~~length of time a decline has persisted; (2)~~ the ~~impact~~Federal ofReserve ~~legislative~~Bank ~~and regulatory changes on the FHLBB; and (3) the liquidity position~~ of ~~the FHLBB~~Boston.

~~The~~As ~~FHLBB~~a ~~reported~~member ~~earnings~~of ~~for~~the ~~2010~~FHLB of ~~approximately~~Boston, the Company is required to invest in $~~107~~100 ~~million~~par ~~after~~value ~~two~~stock ~~consecutive~~of ~~years~~the FHLB of ~~losses~~Boston. ~~During~~The ~~July~~FHLB of Boston capital structure mandates that members must own stock as determined by their total stock investment requirement which is the sum of a member’s membership stock investment requirement and ~~October~~activity-based ~~2011~~stock investment requirement. The membership stock investment requirement is calculated as 0.35% of the member’s stock investment base, subject to a minimum investment of $10 thousand and a maximum ~~the~~investment ~~FHLBB~~of ~~declared~~$25 ~~dividends~~million. The stock investment base is an amount calculated based ~~upon~~on ~~average~~certain assets held by a member that are reflected on call reports submitted to applicable regulatory authorities. The activity-based stock investment requirement is calculated as 4.5% of a member’s outstanding ~~for~~principal balances of FHLB advances plus a percentage of advance commitments, 4.5% of standby letters of credit issued by the FHLB of Boston and 4.5% of the value of intermediated derivative contracts.

7The Company views its investment in the FHLB of Boston stock as a long-term investment. Accordingly, when evaluating for impairment, the value is determined based on the ultimate recovery of the par value rather than

~~second~~recognizing ~~and~~temporary ~~third~~declines ~~quarters~~in ~~of 2011, respectively~~value. The ~~FHLBB’s~~determination ~~board~~ of ~~directors~~whether ~~anticipates~~a ~~that~~decline itaffects ~~will~~the ~~continue~~ultimate torecovery ~~declare~~is ~~modest~~influenced ~~cash~~by ~~dividends~~criteria ~~through~~such ~~2011,~~as: ~~but~~(1) the ~~cautioned~~significance ~~that~~of ~~adverse~~the decline in ~~events~~net ~~such~~assets asof athe ~~negative~~FHLB ~~trend~~of inBoston ~~credit~~as ~~losses~~compared onto the ~~FHLBB’s~~capital ~~private~~stock ~~label~~amount ~~mortgage-backed~~and ~~securities~~length orof ~~mortgage~~time ~~portfolio,~~ a ~~meaningful~~ decline inhas ~~income,~~persisted; or(2) impact of legislative and regulatory ~~disapproval~~changes ~~could~~on ~~lead~~the toFHLB ~~reconsideration~~of Boston and (3) the liquidity position of ~~this~~the ~~plan.~~FHLB of Boston.

OnThe ~~August~~Company does not believe that its investment in the FHLB of Boston is impaired as of June 830, ~~2011~~ 2012. However, ~~Standard &~~this ~~Poor’s~~estimate ~~Ratings~~could ~~Services~~change ~~cut~~in the ~~credit~~near ~~ratings~~term ~~for~~in ~~many~~the ~~government-related~~event ~~entities~~that: ~~to AA+~~(1) additional ~~from~~significant ~~AAA~~impairment ~~reflecting~~losses ~~their~~are ~~dependence~~incurred on the ~~recently~~mortgage-backed ~~downgraded~~securities ~~U.S.~~causing ~~Government.~~a ~~Included~~significant decline in ~~those~~the ~~downgrades~~FHLB ~~were~~of ~~ten~~Boston’s ofregulatory capital ~~twelve~~status; ~~Federal~~(2) the ~~Home~~economic ~~Loan~~losses ~~Banks,~~resulting ~~including~~from credit deterioration on the ~~FHLBB.~~mortgage-backed ~~The~~securities ~~other~~increases ~~two~~significantly; ~~Federal~~or ~~Home~~(3) capital ~~Loan~~preservation ~~Banks~~strategies ~~previously~~being ~~had~~utilized ~~been~~by ~~downgraded to~~the ~~AA+.~~FHLB of Boston become ineffective.

The ~~Company~~Co-operative ~~does~~Central ~~not~~Bank ~~believe~~Reserve ~~that~~Fund ~~its~~(the ~~investment~~“Fund”) inwas ~~the~~established ~~FHLBB~~for isliquidity ~~impaired~~purposes asand ofconsists ~~December 31, 2011. However,~~of ~~this~~deposits ~~estimate~~required ~~could~~of ~~change~~all ininsured ~~the~~co-operative ~~near~~banks ~~term~~ in ~~the~~Massachusetts. ~~event~~The ~~that:~~Fund ~~(1) additional~~is ~~significant~~used ~~impairment~~by ~~losses~~The ~~are incurred on the mortgage~~Co-~~backed~~operative ~~securities~~Central ~~causing~~Bank ato ~~significant~~advance ~~decline~~funds into ~~the~~member ~~FHLBB’s~~banks ~~regulatory capital status; (2) the economic losses resulting from credit deterioration on the mortgage-backed securities increases significantly;~~ or ~~(3) capital~~to ~~preservation~~make ~~strategies~~other ~~being utilized by the FHLBB become ineffective~~investments.

(34) Loans ~~and the Allowance for Loan Losses~~

Loans. ~~Loans~~ that management has the intent and ability to hold for the foreseeable future are reported at the principal amount outstanding, adjusted by unamortized discounts, premiums, and net deferred loan origination costs and fees.

Loans classified as held for sale are stated at the lower of aggregate cost or fair value. Fair value is estimated based on outstanding investor commitments. Net unrealized losses, if any, are provided for in a valuation allowance by charges to operations. The Company enters into forward commitments (generally on a best efforts delivery basis) to sell loans held for sale in order to reduce market risk associated with the origination of such loans. Loans held for sale are sold on a servicing released basis. As of ~~December~~June 3130, ~~2011~~2012 ~~loans~~there ~~held~~was ~~for~~$75 ~~sale~~thousand ~~totaled~~in ~~$221~~loans ~~thousand~~held ~~compared~~for tosale $0and at March 31, ~~2011~~2012, there were no loans held for sale.

Mortgage loan commitments that relate to the origination of a mortgage that will be held for sale upon funding are considered derivative instruments. Loan commitments that are derivatives are recognized at fair value on the consolidated balance sheet in other assets and other liabilities with changes in their fair values recorded in noninterest income.

The Company carefully evaluates all loan sales agreements to determine whether they meet the definition of a derivative as facts and circumstances may differ significantly. If agreements qualify, to protect against the price risk inherent in derivative loan commitments, the Company generally uses “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. ~~Forward~~Mandatory delivery contracts are accounted for as derivative instruments. Accordingly, forward loan sale commitments are recognized at fair value on the consolidated balance sheet in other assets and liabilities with changes in their fair values recorded in other noninterest income. ~~The fair value of forward loan sale commitments at December 31, 2011 was not material.~~

Loan origination fees, net of certain direct loan origination costs, are deferred and are amortized into interest income over the contractual loan term using the level-yield method.

Interest income on loans is recognized on an accrual basis only if deemed collectible. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans and amortization of net deferred loan fees or costs are discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal, or when a loan becomes contractually past due 90 days with respect to interest or principal. The accrual on some loans, however, may continue even though they are more than 90 days past due if management deems it appropriate, provided that the loans are well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.

811

Loans are classified as impaired when it is probable that the Bank will not be able to collect all amounts due in accordance with the contractual terms of the loan agreement. Impaired loans, except those loans that are accounted for at fair value or at lower of cost or fair value such as loans held for sale, are accounted for at the present value of the expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient in the case of collateral dependent loans, the lower of the fair value of the collateral less selling and other costs, or the recorded amount of the loan. In evaluating collateral values for impaired loans, management obtains new appraisals or opinions of value when deemed necessary and may discount those appraisals depending on the likelihood of foreclosure. Other factors considered by management when discounting appraisals are the age of the appraisal, availability of comparable properties, geographic considerations, and property type. Management considers the payment status, net worth and earnings potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with its contractual terms. Management does not set any minimum delay of payments as a factor in reviewing for impairment classification. For all loans, charge-offs occur when management believes that the ~~collectability~~collectibility of a portion or all of the loan’s principal balance is remote. Management considers nonaccrual loans, except for certain nonaccrual residential and consumer loans, to be impaired. However, all troubled debt restructurings (“TDRs”) are considered to be impaired. ~~In April 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-02, Receivables (Topic 310):~~ A ~~Creditors~~ ~~Determination~~TDR ofoccurs ~~Whether~~when athe ~~Restructuring~~Bank isgrants a ~~Troubled~~concession ~~Debt Restructuring. The Company adopted this guidance on June 30, 2011 and applied it retrospectively~~ to ~~April 1, 2011, the beginning of the annual period of adoption. In evaluating when~~ a ~~restructuring~~borrower ~~constitutes~~with afinancial ~~TDR,~~difficulties ~~a creditor must separately conclude~~ that ~~both~~it ofwould ~~the~~not ~~following exist: (1) the restructuring constitutes a concession, and (2) the debtor is experiencing financial difficulties~~otherwise consider. The majority of TDRs involve a modification in loan terms such as a temporary reduction in the interest rate or a temporary period of interest only, and escrow (if required). TDRs are accounted for as set forth in ASC 310 Receivables (“ASC 310”). A TDR is typically on non-accrual until the borrower successfully performs under the new terms for at least six consecutive months. However, a TDR may be kept on accrual immediately following the restructuring in those instances where a borrower’s payments are current prior to the modification and management determines that principal and interest under the new terms are fully collectible.

Existing performing loan customers, who request a ~~loan (~~non-TDR) loan modification and who meet the Bank’s underwriting standards may, usually for a fee, modify their original loan terms to terms currently offered. The modified terms of these loans are similar to the terms offered to new customers with similar credit, income, and collateral. Each modification is examined on a loan-by-loan basis and if the modification of terms represents more than a minor change to the loan, then the unamortized balance of the pre-modification deferred fees or costs associated with the mortgage loan are recognized in interest income at the time of the modification. If the modification of terms does not represent more than a minor change to the loan, then the unamortized balance of the pre-modification deferred fees or costs continue to be deferred and amortized over the remaining life of the loan.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level determined to be adequate by management to absorb probable losses based on an evaluation of known and inherent risks in the portfolio. This allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged-off, and reduced by charge-offs on loans or reductions in the provision credited to operating expense.

The allowance for loan losses is maintained at a level determined to be adequate by management to absorb probable losses based on an evaluation of known and inherent risks in the portfolio. This allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged-off, and reduced by charge-offs on loans or reductions in the provision credited to operating expense.

The Bank 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, management considers past and anticipated loss experience, evaluations of underlying collateral, financial condition of the borrower, prevailing economic conditions, the nature and volume of the loan portfolio and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and ultimate losses may vary from such estimates. Management assesses the allowance for loan losses on a quarterly basis and provides for loan losses monthly when appropriate to maintain the adequacy of the allowance.

Regarding impaired loans, the Bank individually evaluates each ~~such~~ loan and documents what management believes to be an appropriate reserve level in accordance with ~~Accounting Standards Codification (“~~ASC”) 310 ~~Receivables (“ASC 310”)~~. If management does not believe that any separate ~~reserve~~reserves for such ~~loan~~loans isare deemed necessary at the evaluation date in accordance with ASC 310, ~~that~~such ~~loan~~loans would continue to be evaluated separately and will not be returned to be included in the general ASC 450 Contingencies (“ASC 450”) formula based reserve calculation. In evaluating impaired loans, all related management discounts of appraised values, selling and resolution costs are taken into consideration in determining the level of reserves required when appropriate.

912

The methodology employed in calculating the allowance for loan losses is portfolio segmentation. For the commercial real estate (“CRE”) portfolio, this is further refined through stratification within each segment based ~~reserve~~on ~~calculation~~loan-to-value (“LTV”) ratios. InThe ~~evaluating~~CRE ~~impaired~~portfolio ~~loans,~~is ~~all~~further ~~related~~segmented ~~management~~by ~~discounts~~type of properties ~~appraised~~securing ~~values,~~those ~~selling~~loans. ~~and~~This ~~resolution~~approach ~~costs~~allows ~~are~~the ~~taken~~Bank to take into consideration inthe ~~determining~~fact that the ~~level~~ various sectors of ~~reserves~~the ~~required~~real ~~when~~estate ~~appropriate~~market change value at differing rates and thereby present different risk levels. CRE loans are segmented into the following categories:

The methodology employed in calculating the allowance for loan losses is portfolio segmentation. For the commercial real estate (“CRE”) portfolio, this is further refined through stratification within each segment based on loan-to-value (LTV) ratios. The CRE portfolio is further segmented by type of properties securing those loans. This approach allows the Bank to take into consideration the fact that the various sectors of the real estate market change value at differing rates and thereby present different risk levels. CRE loans are segmented into the following categories:

•

Apartments

•

Offices

•

Retail

•

Mixed Use

•

Industrial/Other

Monthly, CRE loans are segmented ~~monthly~~ using the above collateral-types and three LTV ratio categories: <40%, 40%-60%, and >60%. While these ranges are subjective, management feels that each category represents a significantly different degree of risk from the other. CRE loans carrying higher LTV ratios are assigned incrementally higher ASC 450 reserve rates. Annually, for the CRE portfolio, management adjusts the appraised values which are used to calculate LTV ratios in our allowance for loan losses calculation. The data is provided by an independent appraiser and it indicates annual changes in value for each property type in the Bank’s market area for the last ten years. Management then adjusts the appraised or most recent appraised values based on the year the appraisal was made. These adjustments are believed to be appropriate based on the Bank’s own experience with collateral values in its market area in recent years. Based on the ~~Company~~Bank’s allowance for loan loss methodology with respect to CRE, unfavorable trends in the value of real estate will increase the ~~required~~ level of the ~~Company~~Bank’s ASC 450 allowance for loan losses.

In developing ASC 450 reserve levels, ~~recent~~ regulatory guidance suggests using the Bank’s charge-off history as a starting point. The ~~For~~Bank’s ~~each loan type, we utilize a two~~charge-~~year~~off ~~average~~history ~~for~~in ~~our~~recent ~~historical loss ratio. We believe that two~~ years ishas ~~appropriate~~been ~~at this time as it captures the economic downturn~~minimal. The ~~two-year average may be adjusted over time to cover longer periods as the economy improves. The~~ charge-off ratios are then adjusted based on trends in delinquent and impaired loans, trends in charge-offs and recoveries, trends in underwriting practices, experience of loan staff, national and local economic trends, industry conditions, and changes in credit concentrations. There is a concentration in CRE loans, but the concentration is decreasing. Management’s efforts to reduce the levels of commercial real estate and construction loans are reflected in changes in the Bank’s commercial real estate concentration ratio, which is calculated as total non-owner -occupied commercial real estate and construction loans divided by the Bank’s risk-based capital. At ~~December~~June 3130, ~~2011~~2012, the commercial real estate concentration ratio was ~~296~~263%, compared to a ratio of ~~330~~286% at March 31, ~~2011~~2012.

Residential loans, home equity loans and consumer loans, other than TDRs and loans in the process of foreclosure or repossession, are collectively evaluated for impairment. ~~Factors~~In addition to our charge-off experience, factors considered in determining the appropriate ASC 450 reserve levels are trends in delinquent and impaired loans, changes in the value of collateral, trends in charge-offs and recoveries, trends in underwriting practices, experience of loan staff, national and local economic trends, industry conditions, and changes in credit concentrations. TDRs and loans that are in the process of foreclosure or repossession are evaluated under ASC 310.

Commercial and industrial and construction loans that are not impaired are evaluated under ASC 450 and factors considered in determining the appropriate reserve levels include trends in delinquent and impaired loans, changes in the value of collateral, trends in charge-offs and recoveries, trends in underwriting practices, experience of loan staff, national and local economic trends, industry conditions, and changes in credit concentrations. Those loans that are individually reviewed for impairment are evaluated according to ASC 310.

During the three months ended ~~December~~June 3130, ~~2011~~2012, management ~~increased~~changed the various ASC 450 loss factors, specifically as it related to ~~changes~~trends in ~~value~~delinquencies ofand ~~collateral~~impaired ~~for residential~~ loans, ~~and~~changes ~~trends~~ in collateral values, charge-offs and recoveries, and trends and conditions related to economic conditions among the different loan types. As a result of these loss factor changes, increases in ASC 450 reserves of approximately $62 thousand were made to the allowance for ~~residential~~loan losses.

condominiums and commercial real estate loans. As a result of those changes and adjustments made by management for trends in recent historical losses, the impact to the allowance for loan losses were increases in ASC 450 reserves of $295 thousand for those loan types. During the nine months ended December 31, 2011, management increased the ASC 450 loss factors related to economic conditions for all loan types, changes in collateral values for residential loans, and trends in delinquencies and charge-offs and recoveries for commercial real estate loans. As a result of those changes and adjustments made by management for trends in recent historical losses, the impact to the allowance for loan losses were increases in ASC 450 reserves of 444 thousand for those loan types.

Although management uses available information to establish the appropriate level of the allowance for loan losses, future additions or reductions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in loan composition or volume, changes in economic market area conditions or other factors. As a result, our allowance for loan losses may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect the Company’s operating results. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination. Management currently believes that there are adequate reserves and collateral securing nonperforming loans to cover losses that may result from these loans at December 31, 2011.

In the ordinary course of business, the Bank enters into commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses. The reserve for unfunded lending commitments is included in other liabilities in the balance sheet. The reserve was $0 at December 31, 2011 and March 31, 2011.

Loans, excluding loans held for sale, as of December 31, 2011 and March 31, 2011 are summarized below (in thousands):

	December 31,2011			March 31,2011
Real estate loans:
Residential real estate and condominium	$	237,085		$	183,157
Commercial real estate		172,819			199,074
Land		424			456
Home equity lines of credit		8,599			8,426
Total real estate loans		418,927			391,113
Commercial and Industrial loans		1,164			2,212
Consumer loans		864			892
Total loans		420,955			394,217
Less: allowance for loan losses		(4,083	)		(3,892	)
Total loans, net	$	416,872		$	390,325

The following is a summary of the activity in the allowance for loan losses by loan portfolio segment for the three and nine months ended December 31, 2011 and 2010 (in thousands):

	For the Three Months Ending December 31, 2011
	ResidentialReal EstateandCondominium			CommercialReal EstateAnd Land			CommercialAndIndustrialLoans			ConsumerLoans			Unallocated			Total
Beginning balance	$	1,393		$	2,635		$	12		$	6		$	127		$	4,173
Charge offs		(204	)		(186	)		—			(1	)		—			(391	)
Recoveries		—			—			—			1			—			1
Provision (benefit)		203			68			(1	)		—			30			300
Ending balance	$	1,392		$	2,517		$	11		$	6		$	157		$	4,083
	For the Three Months Ending December 31, 2010
	ResidentialReal EstateandCondominium			CommercialReal EstateAnd Land			CommercialAndIndustrialLoans			ConsumerLoans			Unallocated			Total
Beginning balance	$	929		$	2,566		$	36		$	20		$	82		$	3,633
Charge offs		(12	)		(171			—			(2	)		—			(185	)
Recoveries		—			—			—			—			—
Provision (benefit)		13			355			(13	)		—			(55	)		300
Ending balance	$	930		$	2,750		$	23		$	18		$	27		$	3,748
	For the Nine Months Ending December 31, 2011
	ResidentialReal EstateandCondominium			CommercialReal EstateAnd Land			CommercialAndIndustrialLoans			ConsumerLoans			Unallocated			Total
Beginning balance	$	816		$	2,771		$	16		$	17		$	272		$	3,892
Charge offs		(326	)		(604	)		(3	)		(10	)		—			(943	)
Recoveries		30			—			—			4			—			34
Provision (benefit)		872			350			(2	)		(5	)		(115	)		1,100
Ending balance	$	1,392		$	2,517		$	11		$	6		$	157		$	4,083
	For the Nine Months Ending December 31, 2010
	ResidentialReal EstateandCondominium			CommercialReal EstateAnd Land			CommercialAndIndustrialLoans			ConsumerLoans			Unallocated			Total
Beginning balance	$	853		$	2,037		$	44		$	22		$	82		$	3,038
Charge offs		(12	)		(171	)		—			(10	)		—			(193	)
Recoveries		—			—			—			3			—			3
Provision (benefit)		89			884			(21	)		3			(55	)		900
Ending balance	$	930		$	2,750		$	23		$	18		$	27		$	3,748

The increased provision for loan losses during the nine months ended December 31, 2011 compared to the nine months ended December 31, 2010 was primarily due to net increased allocated reserves for three commercial loans with balances of $3.7 million at December 31, 2011 and two residential loans with balances of $463 thousand at December 31, 2011.

Financing Receivables on Nonaccrual Status as of:
	December 31,		March 31,
	2011		2011
	(In Thousands)
Commercial real estate:
Mixed Use	$	1,875	$	1,616
Industrial (other)		1,360		1,500
Retail		923		769
Apartments		2,145		2,757
Offices		718		—
Residential:
Residential Real Estate		2,535		2,587
Condominium		264		352
Home equity lines of credit		20		—
	$	9,840	$	9,581

Total nonaccrual loans include nonaccrual impaired loans as well as certain nonaccrual residential loans that are not considered impaired.

The following is an age analysis of past due loans as of December 31, 2011 and March 31, 2011, by loan portfolio classes (in thousands):

	Age Analysis of Past Due Financing Receivables
	as of December 31, 2011
	30-59 DaysPast Due		60-89 DaysPast Due		Greaterthan90 Days		TotalPast Due		Current		Total
Commercial real estate:
Mixed use	$	—	$	—	$	347	$	347	$	32,303	$	32,650
Apartments		—		1,389		587		1,976		62,039		64,015
Industrial (other)		625		—		734		1,359		35,418		36,777
Retail		—		—		923		923		23,700		24,623
Offices		—		—		718		718		14,036		14,754
Land and Construction		—		—		—		—		424		424
Residential:
Residential real estate		1,843		521		323		2,687		204,443		207,130
Condominium		—		—				—		29,955		29,955
Home Equity Lines of Credit		59		—		20		79		8,520		8,599
Commercial and Industrial Loans		—		—		—		—		1,164		1,164
Consumer Loans		—		—		—		—		864		864
	$	2,527	$	1,910	$	3,652	$	8,089	$	412,866	$	420,955

	Age Analysis of Past Due Financing Receivables
	as of March 31, 2011
	30-59 DaysPast Due		60-89 DaysPast Due		Greaterthan90 Days		TotalPastDue		Current		Total
Commercial real estate:
Mixed use	$	398	$	—	$	1,616	$	2,014	$	36,605	$	38,619
Apartments		—		258		2,757		3,015		75,655		78,670
Industrial (other)		—		—		1,500		1,500		36,005		37,505
Retail		—		—		—		—		29,045		29,045
Offices		—		—		—		—		15,235		15,235
Land		—		—		—		—		456		456
Residential:
Residential real estate		782		247		1,299		2,328		154,266		156,594
Condominium		—		—		352		352		26,211		26,563
Home equity lines of credit		—		—		—		—		8,426		8,426
Commercial and industrial loans		—		—		—		—		2,212		2,212
Consumer loans		4		—		—		4		888		892
	$	1,184	$	505	$	7,524	$	9,213	$	385,004	$	394,217

Management uses available information to establish the appropriate level of the allowance for loan losses, future additions or reductions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in loan composition or volume, changes in economic market area conditions or other factors. As a result, our allowance for loan losses may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect the Company’s operating results. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination. Management currently believes that there are adequate reserves and collateral securing non-performing loans to cover losses that may result from these loans at June 30, 2012.

~~There~~In ~~was~~the ~~one~~ordinary ~~loan~~course ~~with~~of abusiness, ~~balance~~the Bank enters into commitments to extend credit, commercial letters of ~~$347~~credit, and ~~thousand~~standby ~~which~~letters ~~was~~of ~~past~~credit. ~~due~~Such 90financial ~~days~~instruments orare ~~more~~recorded ~~and~~in ~~still~~the ~~accruing interest~~consolidated asfinancial ofstatements ~~December~~when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses. At June 3130, ~~2011~~2012 and March 31, ~~2011~~2012, the reserve for unfunded commitments was not significant.

Credit Quality Indicators. Management regularly reviews the problem loans in the Bank's portfolio to determine whether any assets require classification in accordance with Bank policy and applicable regulations. The following table sets forth the balance of loans classified as passLoans, ~~special~~excluding ~~mention, or substandard at December 31, 2011 and March 31, 2011 by loan class. Pass are those~~ loans ~~not~~held ~~classified~~for as special mention or lower risk rating. Special mention loans are performing loans on which known information about the collateral pledged or the possible credit problems of the borrowers have caused management to have doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such loans in the nonperforming loan categories. A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledgedsale, ~~if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected. Loans classified~~ as ~~doubtful have all the weaknesses inherent as those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis~~ of ~~currently existing facts and conditions and values~~June 30, ~~highly questionable and improbable. Loans classified as loss are considered uncollectible and of such little value that their continuance as~~ ~~loans~~2012 ~~without the establishment of specific loss allowance is not warranted. Loans classified as substandard, doubtful or loss are individually evaluated for impairment. At December 31, 2011~~ and March 31, ~~2011~~2012 ~~there~~are ~~were~~summarized nobelow ~~loans classified~~(in asthousands): ~~doubtful or loss.~~


	June 30, 2012			March 31, 2012

Real estate loans:
Residential real estate (1-4 family)	$	323,897		$	270,324
Commercial real estate		154,090			167,196
Land and construction		1,238			937
Home equity lines of credit		8,970			8,471

Total real estate loans		488,195			446,928
Commercial loans		780			1,127
Consumer loans		857			831

Total loans		489,832			448,886
Less: allowance for loan losses		(4,153	)		(4,272	)

Total loans, net	$	485,679		$	444,614

Nonaccrual loans totaled $8.6 million as of June 30, 2012 and were comprised of six commercial real estate customer relationships which totaled $6.7 million and five residential customers which totaled $1.9 million of which there was one residential customer relationship totaling $1.4 million which was not impaired. Nonaccrual loans totaled $9.1 million as of March 31, 2012 and were comprised of seven commercial real estate customer relationships which totaled $7.9 million and seven residential customer relationships which totaled $1.2 million. Total nonaccrual loans include nonaccrual impaired loans as well as certain nonaccrual residential loans that are not considered impaired.

~~The~~Financing ~~following~~Receivables ~~table~~on ~~displays~~Nonaccrual ~~the~~Status ~~loan portfolio by credit quality indicators~~ as of ~~December 31,~~ ~~2011 and March 31, 2011~~ (in In thousands):

	Credit Quality Indicators as of December 31, 2011
	June 30,		March 31,
	CommercialandIndustrial		ResidentialReal EstateandCondominium		HomeEquityLines ofCredit		CommercialReal Estate		Land		ConsumerLoans		Total
	2012		2012
Pass	$	1,164	$	235,816	$	8,599	$	158,595	$	424	$	864	$	405,462
Commercial real estate:
Special mention		—		—		—		8,747		—		—		8,747
Mixed use	$	1,463	$	1,494
Substandard		—		1,269		—		5,477		—		—		6,746
Apartments		2,104		2,114
	$	1,164	$	237,085	$	8,599	$	172,819	$	424	$	864	$	420,955
Industrial (other)		966		2,977
Retail		897		—
Offices		1,269		1,271
Residential:
Residential (1-4 family)		1,911		1,192
	$	8,610	$	9,048

	Credit Quality Indicators as of March 31, 2011
	CommercialandIndustrial		ResidentialReal EstateAndCondominium		HomeEquityLines ofCredit		CommercialReal Estate		Land		ConsumerLoans		Total
Pass	$	2,212	$	182,931	$	8,426	$	188,917	$	456	$	892	$	383,834
Special mention		—		—		—		7,128		—		—		7,128
Substandard		—		226		—		3,029		—		—		3,255
	$	2,212	$	183,157	$	8,426	$	199,074	$	456	$	892	$	394,217

Following is an age analysis of past due loans as of June 30, 2012 and March 31, 2012, by loan portfolio class (in thousands):

The $1.0 million net increase in substandard residential loans during the nine months ended December 31, 2011 was due to the addition of eight loans totaling $1.3 million, partially offset by a decrease of $226 thousand as the substandard loan relationship at March 31, 2011 was transferred to OREO during the nine-month period. The $2.4 million net increase in substandard commercial real estate loans during the nine months ended December 31, 2011 was due to increases resulting from the downgrades of ten loans totaling $5.4 million, partially offset by decreases due to the settlement payoff of one loans which totaled $2.8 million and the full charge-off of another loan which totaled $258 thousand.


	Age Analysis of Past Due Financing Receivables as of June 30, 2012
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More		Total Past Due		Current		Total
Commercial real estate:

Mixed use	$	—	$	—	$	—	$	—	$	30,992	$	30,992
Apartments		—		—		1,357		1,357		51,341		52,698
Industrial (other)		—		—		—		—		32,139		32,139
Retail		—		—		—		—		24,639		24,639
Offices		—		—		562		562		13,060		13,622

Land and construction		—		—		—		—		1,238		1,238

Residential:
Residential real estate loans		574		1,378		322		2,274		288,940		291,214
Residential (condominium)		—		—		—		—		32,683		32,683
Home equity lines of credit		5		—		—		5		8,965		8,970
Commercial and industrial loans		—		—		—		—		780		780
Consumer loans		2		—		—		2		855		857

	$	581	$	1,378	$	2,241	$	4,200	$	485,632	$	489,832

The following table displays the balances of non-impaired CRE loans with various Loan-to-Value (“LTV”) ratios by collateral type. The Bank considers this an additional credit quality indicator specifically as it relates to the CRE loan portfolio as of December 31, 2011 and March 31, 2011 (in thousands):

	Non-Impaired CRE Loans by Collateral Type and LTV Ratio as of December 31, 2011
	Apartments		Offices		MixedUse		Industrial(Other)		Retail		Total
< 40%	$	9,757	$	926	$	8,996	$	6,590	$	6,112	$	32,351
40% - 60%		24,434		8,154		8,893		8,602		11,925		62,008
> 60%		23,727		4,559		12,494		11,480		3,830		56,090
Participations		—		—		—		8,984		444		9,428
Total	$	57,918	$	13,639	$	30,353	$	35,656	$	22,311	$	159,877

	Non-Impaired CRE Loans by Collateral Type and LTV Ratio as of March 31, 2011
	Age Analysis of Past Due Financing Receivables as of March 31, 2012
	Apartments		Offices		MixedUse		Industrial(Other)		Retail		Total
	30-59 DaysPast Due		60-89 DaysPast Due		90 DaysOr More		TotalPast Due		Current		Total
< 40%	$	12,720	$	1,028	$	10,083	$	6,646	$	6,883	$	37,360
Commercial real estate:
40% - 60%		22,994		8,299		7,899		9,055		16,220		64,467
Mixed use	$	—	$	—	$	—	$	—	$	32,101	$	32,101
> 60%		32,165		5,494		18,658		10,396		2,660		69,373
Apartments		—		1,533		—		1,533		59,642		61,175
Participations		4,576		—		—		9,352		1,116		15,044
Industrial (other)		—		616		777		1,393		33,216		34,609
Total	$	72,455	$	14,821	$	36,640	$	35,449	$	26,879	$	186,244
Retail		—		—		—		—		25,039		25,039
Offices		—		562		—		562		13,710		14,272
Land and construction		—		—		—		—		937		937
Residential:
Residential real estate loans		490		329		436		1,255		237,396		238,651
Residential (condominium)		—		—		—		—		31,673		31,673
Home equity lines of credit		8		—		—		8		8,463		8,471
Commercial and industrial loans		—		—		—		—		1,127		1,127
Consumer loans		—		—		—		—		831		831
	$	498	$	3,040	$	1,213	$	4,751	$	444,135	$	448,886

~~The~~There ~~following~~were isno aloans ~~summary~~which ofwere ~~the~~past ~~allowance~~due ~~for~~90 ~~loan~~days ~~losses~~or more and ~~loans~~still accruing interest as of ~~December~~June 3130, ~~2011~~2012 and March 31, ~~2011,~~2012. ~~by loan portfolio segment disaggregated by impairment method (in thousands):~~

	Allowance for Loan Losses as of December 31, 2011
	ResidentialReal EstateAndCondominium		CommercialReal EstateAnd Land		CommercialAndIndustrialLoans		ConsumerLoans		Unallocated		Total
Allowance for loan losses ending balance:
Individually evaluated for impairment	$	342	$	905	$	—	$	—	$	—	$	1,247
Collectively evaluated for impairment		1,050		1,612		11		6		157		2,836
	$	1,392	$	2,517	$	11	$	6	$	157	$	4,083
Loans ending balance:
Individually evaluated for impairment	$	3,289	$	12,785	$	—	$	—	$	—	$	16,074
Collectively evaluated for impairment		242,395		160,458		1,164		864		—		404,881
	$	245,684	$	173,243	$	1,164	$	864	$	—	$	420,955

Credit Quality Indicators. Management regularly reviews the problem loans in the Bank's portfolio to determine whether any assets require classification in accordance with Bank policy and applicable regulations. The following tables sets forth the balance of loans classified as pass, special mention, substandard or doubtful at June 30, 2012 and March 31, 2012 by loan class. Pass are those loans not classified as special mention or lower risk rating. Special mention loans are performing loans on which known information about the collateral pledged or the possible credit problems of the borrowers have caused management to have doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such loans in the non-performing loan categories. A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have all the weaknesses inherent as those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values, highly questionable and improbable. Loans classified as loss are considered uncollectible and of such little value that their continuance as loans without the establishment of specific loss allowance is not warranted. Loans classified as substandard, doubtful or loss are individually evaluated for impairment.

	Allowance for Loan Losses as of March 31, 2011
	ResidentialReal EstateAndCondominium		CommercialReal EstateAnd Land		CommercialAndIndustrialLoans		ConsumerLoans		Unallocated		Total
Allowance for loan losses ending balance:
Individually evaluated for impairment	$	110	$	1,307	$	—	$	—	$	—	$	1,417
Collectively evaluated for impairment		763		1,513		17		16		166		2,475
	$	873	$	2,820	$	17	$	16	$	166	$	3,892
Loans ending balance:
Individually evaluated for impairment	$	3,588	$	12,486	$	—	$	—	$	—	$	16,074
Collectively evaluated for impairment		187,883		187,572		690		2,048		—		378,143
	$	191,421	$	200,058	$	690	$	2,048	$	—	$	394,217

The following tables display the loan portfolio by credit quality indicators as of June 30, 2012 and March 31, 2012 (in thousands):


	June 30, 2012
	Commercial and Industrial Loans		Residential Real Estate		Home Equity Lines of Credit		Commercial Real Estate		Land and Construction		Consumer Loans		Total

Pass	$	780	$	322,084	$	8,965	$	138,566	$	1,238	$	857	$	472,490
Special mention		—		—		—		7,960		—		—		7,960
Substandard		—		1,813		5		7,564		—		—		9,382


	$	780	$	323,897	$	8,970	$	154,090	$	1,238	$	857	$	489,832

The following is a summary of impaired loans and their related allowances within the allowance for loan losses as of December 31, 2011 and March 31, 2011 (in thousands):


	March 31, 2012
	Commercial and Industrial Loans		Residential Real Estate		Home Equity Lines of Credit		Commercial Real Estate		Land and Construction		Consumer Loans		Total

Pass	$	1,127	$	269,280	$	8,466	$	151,637	$	937	$	831	$	432,278

Special mention		—		—		—		7,703		—		—		7,703
Substandard		—		1,044		5		7,856		—		—		8,905

	$	1,127	$	270,324	$	8,471	$	167,196	$	937	$	831	$	448,886

	Impaired Loans and Their Related Allowances as of December 31, 2011
	RecordedInvestment *		UnpaidPrincipalBalance		RelatedAllowance		PartialCharge-offs		AverageRecordedInvestment		InterestIncomeRecognizedDuringQuarter
With no related allowance recorded:
Residential Real Estate and Condominium	$	1,543	$	1,696	$	—	$	3	$	1,683	$	10
Commercial Real Estate and Land		4,534		4,333		—		16		5,305		84
With an allowance recorded:
Residential Real Estate and Condominium		1,638		1,636		342		162		1,726		3
Commercial Real Estate and Land		8,473		8,452		850		—		7,164		—
Total
Residential Real Estate and Condominium		3,181		3,332		342		165		3,409		13
Commercial Real Estate and Land	$	13,007	$	12,785	$	850	$	16	$	12,469	$	84

Following is a summary of the activity in the allowance for loan losses by loan portfolio segment for the three and months ended June 30, 2012 and 2011 follows (in thousands):

* Includes accrued interest, specific reserves and net unearned deferred fees and costs.


	For the Three Months Ending June 30, 2012
	Residential Real Estate and Condominium		Commercial Real Estate And Land			Commercial And Industrial Loans			Consumer Loans			Unallocated			Total
Beginning balance	$	1,397	$	2,820		$	12		$	5		$	38		$	4,272
Charge offs		—		(265	)		—			(4	)		—			(269	)
Recoveries		—		—			—			—			—			—
Provision (benefit)		58		133			(7	)		4			(38	)		150

Ending balance	$	1,455	$	2,688		$	5		$	5		$	—		$	4,153

	Impaired Loans and Their Related Allowancesas of March 31, 2011
	For the Three Months Ending June 30, 2011
	RecordedInvestment *		UnpaidPrincipalBalance		RelatedAllowance
	ResidentialReal EstateandCondominium		CommercialReal EstateAnd Land		CommercialAndIndustrialLoans			ConsumerLoans			Unallocated			Total
With no related allowance recorded:
Beginning balance	$	816	$	2,771	$	16		$	17		$	272		$	3,892
Residential Real Estate and Condominium	$	2,119	$	2,123	$	—
Charge offs		—		—		—			(5	)		—			(5	)
Commercial Real Estate and Land		8,894		8,920		—
Recoveries		30		—		—			1			—			31
		—		—		—
Provision (benefit)		410		256		(1	)		2			(167	)		500
With an allowance recorded:
Ending balance	$	1,256	$	3,027	$	15		$	15		$	105		$	4,418
Residential Real Estate and Condominium		1,468		1,630		110
Commercial Real Estate and Land		3,629		4,580		1,307
Total
Residential Real Estate and Condominium		3,587		3,753		110
Commercial Real Estate and Land	$	12,523	$	13,500	$	1,307

* Includes accrued interest, specific reserves and net unearned deferred fees and costs.

Impaired loans are evaluated separately and measured utilizing guidance set forth by ASC 310 as described in Note 1 to the Company’s audited financial statements for the year ended March 31, 2011. All loans modified in TDRs are included in impaired loans.

At December 31, 2011 total TDRs amounted to $9.7 million and were comprised of nine residential real estate loan relationships which totaled $2.3 million and five commercial real estate loan relationships which totaled $7.4 million. Additionally, at December 31, 2011, total accruing TDRs amounted to $4.2 million and total nonaccruing TDRs amounted to $5.5 million.

Following ~~are~~is ~~tables~~a ~~and~~summary ~~discussions~~of ~~regarding~~the allowance ~~TDR~~for ~~activity~~loan ~~during~~losses ~~the~~at ~~quarter~~June 30, 2012 and ~~nine month periods ended December~~March 31, ~~2011~~2012 ~~and~~by ~~2010~~loan portfolio segment disaggregated by impairment method (in thousands):

	Troubled Debt Restructurings
	Allowance for Loan Losses as of June 30, 2012
	NumberofContracts		Pre-ModificationOutstanding RecordedInvestment		Post-ModificationOutstanding RecordedInvestment
	ResidentialReal EstateAndCondominium		CommercialReal EstateAnd Land		CommercialAndIndustrialLoans		ConsumerLoans		Unallocated		Total
TDRs during the quarter ended December 31, 2011:
Allowance for loan losses ending balance:
Commercial Real Estate:
Individually evaluated for impairment	$	155	$	1,285	$	—	$	—	$	—	$	1,440
Apartments		1	$	1,558	$	1,558
Collectively evaluated for impairment		1,300		1,403		5		5		—		2,713
Residential:
	$	1 ,455	$	2,688	$	5	$	5	$	—	$	4,153
Residential Real Estate		2	$	163	$	163
Loans ending balance:
			Defaulted Balance atDecember 31, 2011
Individually evaluated for impairment	$	2,127	$	12,170	$	—	$	—	$	—	$	14,297
TDRs during the 12 months ended December 31, 2011 which defaulted during the quarter ended December 31, 2011:
Collectively evaluated for impairment		330,740		143,158		780		857		—		475,535
Commercial Real Estate:
	$	332,867	$	155,328	$	780	$	857	$	—	$	489,832
Industrial (other)			$	—
Residential:
Residential real estate		1	$	199
Condominium			$	—
	Troubled Debt Restructurings
	Number		Pre-Modification		Post-Modification
	of		Outstanding Recorded		Outstanding Recorded
	Contracts		Investment		Investment
TDRs during the nine months ended December 31, 2011:
Commercial Real Estate:
Apartments		2	$	1,973	$	1,973
Residential:
Residential real estate		3	$	362	$	362
			Defaulted Balance atDecember 31, 2011
TDRs during the 12 months ended December 31, 2011 which defaulted during the nine months ended December 31, 2011:
Commercial Real Estate
Industrial (other)			$	—
Residential :
Residential real estate		2	$	950
Condominium			$	—

There were three troubled debt restructurings during the quarter ended December 31, 2011. During the nine months ended December 31, 2011, five customer relationships were modified in troubled debt restructurings comprised of two commercial real estate loan relationships which totaled $2.0 million as of December 31, 2011 and three residential customer relationships which totaled $362 thousand as of December 31, 2011. One commercial real estate TDR which totaled $1.6 million resulted from delinquencies due to tenant vacancies in the current economic environment. The modification consisted of six months of interest only to give the borrower time to effect an orderly liquidation of the properties. However, due to uncertainty regarding the success of the borrower’s efforts, management is considering this relationship to be collateral dependent with an allocated reserve of $355 thousand. The other commercial real estate TDR resulted from delinquencies due to the borrower’s financial difficulties. This modification also consisted of six months of interest only to give the borrower sufficient time to obtain financing elsewhere. During the quarter ended December 31, 2011 the borrower was able to obtain outside financing which resulted in payment in full of this customer’s loan balance. As there was no reduction in the interest rate, no loss resulted and therefore there was no allocated reserve for this commercial customer. One residential modification


	Allowance for Loan Losses as of March 31, 2012
	Residential Real Estate And Condominium		Commercial Real Estate And Land		Commercial And Industrial Loans		Consumer Loans		Unallocated		Total
Allowance for loan losses ending balance:
Individually evaluated for impairment	$	210	$	1,315	$	—	$	—	$	—	$	1,525
Collectively evaluated for impairment		1,187		1,505		12		5		38		2,747

	$	1 ,397	$	2,820	$	12	$	5	$	38	$	4,272

Loans ending balance:
Individually evaluated for impairment	$	1,981	$	13,400	$	—	$	—	$	—	$	15,381
Collectively evaluated for impairment		276,814		154,733		1,127		831		—		433,505

	$	278,795	$	168,133	$	1,127	$	831	$	—	$	448,886

~~resulted~~Following ~~from~~is ~~the re-default of~~ a ~~prior~~summary ~~modification. Both modifications for this residential customer consisted~~ of ~~temporary~~impaired ~~reductions~~loans ~~in the interest rate as management has attempted to allow this customer to work through financial difficulties. The customer was not able to meet the modified terms~~ and ~~this~~their ~~relationship~~related isallowances now considered to be collateral dependent with an allocated reserve of $85 thousand which represents the estimated loss under the foreclosure and sale of collateral scenario. The second residential TDR resulted in an estimated loss of $27 thousand after the Bank agreed to a short sale after the borrower experienced financial difficulties. The estimated loss is allocated within the allowance for loan losses ~~until~~for the ~~transaction~~quarter isended consummated. The third residential TDR resulted from an agreement between the Bank and a residential borrower in bankruptcy. An allocated reserve of $15 thousand represents the estimated loss that will be realized once final approval of the agreement is accepted by the bankruptcy court. Regarding TDR re-defaultsJune 30, ~~all~~2012 ~~TDRs are considered impaired~~ and ~~are subject to individual loss analysis both at the time of the TDR and subsequent to the restructuring periodically as determined by management~~June 30, ~~which~~2011 ~~includes~~(in ~~events~~thousands): ~~of re-default. Management may change allocated reserves within the allowance for loan losses as necessary based upon those subsequent reviews.~~

	Troubled Debt Restructurings
	Impaired Loans and Their Related Allowances as of June 30, 2012
	NumberofContracts		Pre-ModificationOutstanding RecordedInvestment		Post-ModificationOutstanding RecordedInvestment
	RecordedInvestment *		UnpaidPrincipalBalance		RelatedAllowance		PartialCharge-offsRecordedDuring theYear		AverageRecordedInvestment		InterestIncomeRecognizedDuringQuarter
TDRs during the quarter ended December 31, 2010:
With no related allowance recorded:
Commercial Real Estate:
Residential real estate and condominium	$	1,154	$	1,383	$	—	$	—	$	1,7464	$	13
Mixed Use		1	$	1,397	$	1,397
Commercial real estate and land		7,738		7,720		—		—		7,901		90
Residential:
With an allowance recorded:
Residential Real Estate		1	$	359	$	359
Residential real estate and condominium		973		978		155		—		1,150		8
			Defaulted Balance atDecember 31, 2010
Commercial real estate and land		4,432		4,660		1,285		—		4,467		4
TDRs during the 12 months ended December 31, 2010 which defaulted during the three months ended December 31, 2010:
Total
Commercial Real Estate :
Residential real estate and condominium	$	2,127	$	2,361	$	155	$	—	$	2,614	$	21
Industrial (other)		1	$	283
Commercial real estate and land	$	12,170	$	12,380	$	1,285	$	—	$	12,368	$	90
Residential
Residential real estate		2	$	585
	Troubled Debt Restructurings
	NumberofContracts		Pre-ModificationOutstanding RecordedInvestment		Post-ModificationOutstanding RecordedInvestment
TDRs during the nine months ended December 31, 2010:
Commercial Real Estate:
Apartments		1	$	4,130	$	4,130
Industrial (Other)		1	$	293	$	293
Mixed Use		2	$	2,918	$	3,073
Residential:
Residential real estate		3	$	1,323	$	1,323
Condominium		1	$	270	$	270
			Defaulted Balance atDecember 31, 2010
TDRs during the 12 months ended December 31, 2010 which defaulted during the nine months ended December 31, 2010:
Commercial Real Estate
Industrial (other)		1	$	283
Residential :
Residential real estate		4	$	1,536

*	Includes accrued interest, specific reserves and net unearned deferred fees and costs.


	Impaired Loans and Their Related Allowances as of March 31, 2012
	Recorded Investment *		Unpaid Principal Balance		Related Allowance		Partial Charge-offs Recorded During the Year		Average Recorded Investment		Interest Income Recognized During Quarter
With no related allowance recorded:
Residential real estate and condominium	$	1,048	$	1,128	$	—	$	100	$	1,737	$	47
Commercial real estate and land		7,740		7,747		—		—		7,965		434
With an allowance recorded:
Residential real estate and condominium		933		1,092		210		—		1,593		36
Commercial real estate and land		5,660		5,867		1,315		—		4,906		155
Total
Residential real estate and condominium	$	1,981	$	2,220	$	210	$	100	$	3,329	$	83
Commercial real estate and land	$	13,400	$	13,614	$	1,315	$	—	$	12,871	$	589

*	Includes accrued interest, specific reserves and net unearned deferred fees and costs.

~~There~~Following ~~were~~are ~~two~~tables ~~troubled~~detailing ~~debt restructurings during~~ the ~~quarter~~modifications ended December 31, 2010. During the nine months ended December 31, 2010, eight customer relationships were modified in troubled debt restructurings comprised of four commercial real estate loan relationships which ~~totaled $7.3 million as of December 31, 2011 and~~ ~~four~~occurred residential real estate loan relationships which totaled $1.6 million as of December 31, 2011. Three of the commercial real estate TDRs which totaled $5.8 million resulted from what management determined to be temporary cash flow difficulties. The modified terms consisted of six months of interest only and no forgiveness of principal. As there were no changes in the interest rate, no losses resulted and therefore there are no allocated reserves for these two customers which were determined to have temporary cash flow difficulties. The fourth commercial real estate TDR consisted of relationship which totaled $1.5 million. While there was no forgiveness of principal, the interest rate was reduced and payments were changed to interest-only. Additional funds were disbursed to pay past due taxes resulting in a post-TDR balance of $1.7 million. Management was unsure regarding the total collectability of the principal and interest under the modified terms, therefore the interest-only payments have been applied to principal resulting in an estimated reduction in interest income of $64 thousand during the ~~nine~~three months ended ~~December~~June 3130, ~~2011.~~2012 ~~Additionally,~~and ~~management is considering this relationship to be collateral dependent with an allocated reserve of $315 thousand within the allowance for loan losses at December 31,~~ 2011. ~~Regarding the four residential TDRs, one totaled $839 thousand with TDR terms of interest only for six months and no forgiveness of principal, resulting~~ (in nothousands): estimated loss and no allocated reserve. The second residential TDR had an interest rate reduction for one year resulting in an estimated interest rate differential loss of $3 thousand which is allocated as a reserve within the allowance for loan losses. The third residential TDR consisted of interest only for three months. This customer continued to have financial problems and this relationship is considered to be collateral dependent with an allocated reserve of $70 thousand. The fourth residential TDR represents a loan that was restructured by the servicer. The servicer has not been cooperative regarding the details of the transaction, therefore, management is considering this loan to be collateral dependent with an allocated loss of $80 thousand. Regarding TDR re-defaults, all TDRs are considered impaired and are subject to individual loss analysis both at the time of the TDR and subsequent to the restructuring periodically as determined by management, which includes events of re-default. Management may change allocated reserves within the allowance for loan losses as necessary based upon those subsequent reviews.

(4) Deposits


	Troubled Debt Restructurings at June 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
TDRs during the three months ended June 30, 2012:
Commercial real estate:		—	$	—	$	—
Residential real estate and condominium		1		113		113

			Defaulted Balance at June 30, 2012
TDRs during the three months ended June 30, 2012 which defaulted during the three months ended June 30, 2012:

Commercial real estate			$	—
Residential real estate and condominium				—

Deposits at December 31, 2011 and March 31, 2011 are summarized as follows (in thousands):


	Troubled Debt Restructurings at June 30, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
TDRs during the three months ended June 30, 2011:
Commercial real estate:		1	$	417	$	417
Residential real estate and condominium		1		200		200

			Defaulted Balance at June 30, 2011
TDRs during the three months ended June 30, 2011 which defaulted during the three months ended June 30, 2011:

Commercial real estate			$	—
Residential real estate and condominium				—

	December 31,2011		March 31,2011
Demand deposit accounts	$	44,341	$	40,745
NOW accounts		27,857		28,989
Passbook and other savings accounts		58,434		55,326
Money market deposit accounts		68,210		76,201
Total non-certificate accounts		198,842		201,261
Term deposit certificates:
Certificates of $100,000 and above		69,520		40,843
Certificates of less than $100,000		64,347		66,973
Total term deposit certificates		133,867		107,816
Total deposits	$	332,709	$	309,077

During the three months ended June 30, 2012, one residential loan totaling $113 thousand was modified in a TDR. The modification of this residential real estate loan involved interest rate relief only.

~~(5)~~During ~~Subordinated~~the ~~Debentures~~three months ended June 30, 2011, two loans were modified in TDRs comprised of one residential real estate loan relationship which totaled $200 thousand as of June 30, 2011 and one commercial real estate loan relationship which totaled $417 thousand as of June 30, 2011. There were no commitments to lend additional funds to borrowers whose loans were modified as a TDR.

Debentures are the sole assets of Trust I and are subordinate to all of the Company’s existing and future obligations for borrowed money. With respect to Trust I, the trust preferred securities and debentures each have 30-year lives and may be callable by the Company or Trust I, at their respective option, after five years, and sooner in the case of certain specific events, including in the event that the securities are not eligible for treatment as Tier 1 capital, subject to prior approval by the Federal Reserve Board, if then required. Interest on the trust preferred securities and the debentures may be deferred at any time or from time to time for a period not exceeding 20 consecutive quarterly periods (~~five years~~5), ~~provided there is no event of default.~~ Deposits

Deposits at June 30, 2012 and March 31, 2012 are summarized as follows (In thousands):


	June 30, 2012		March 31, 2012

Demand deposit accounts	$	47,039	$	45,902
NOW accounts		31,413		30,547
Passbook and other savings accounts		61,211		59,924
Money market deposit accounts		70,779		67,525

Total non-certificate accounts		210,442		203,898

Term deposit certificates
Certificates of $100,000 and above		82,478		75,761
Certificates less than $100,000		63,980		64,875

Total term deposit certificates		146,458		140,636

Total deposits	$	356,900	$	344,534

(6)

Subordinated Debentures

On September 16, 2004, the Company completed a trust preferred securities financing in the amount of $5.1 million. In the transaction, the Company formed a Delaware statutory trust, known as Central Bancorp Capital Trust I (“Trust I”). Trust I issued and sold $5.1 million of trust preferred securities in a private placement and issued $158,000 of trust common securities to the Company. Trust I used the proceeds of these issuances to purchase $5.3 million of the Company’s floating rate junior subordinated debentures due September 16, 2034 (the “Trust I Debentures”). The interest rate on the Trust I Debentures and the trust preferred securities is variable and adjustable quarterly at 2.44% over three-month LIBOR. At June 30, 2012 the interest rate was 2.91%. The Trust I Debentures are the sole assets of Trust I and are subordinate to all of the Company’s existing and future obligations for borrowed money. With respect to Trust I, the trust preferred securities and debentures each have 30-year lives and may be callable by the Company or Trust I, at their respective option, after five years, and sooner in the case of certain specific events, including in the event that the securities are not eligible for treatment as Tier 1 capital, subject to prior approval by the Federal Reserve Board, if then required. Interest on the trust preferred securities and the debentures may be deferred at any time or from time to time for a period not exceeding 20 consecutive quarterly periods (five years), provided there is no event of default.

On January 31, 2007, the Company completed a trust preferred securities financing in the amount of $5.9 million. In the transaction, the Company formed a Connecticut statutory trust, known as Central Bancorp Statutory Trust II (“Trust II”). Trust II issued and sold $5.9 million of trust preferred securities in a private placement and issued $183,000 of trust common securities to the Company. Trust II used the proceeds of these issuances to purchase $6.1 million of the Company’s floating rate junior subordinated debentures due March 15, 2037 (the “Trust II Debentures”). From January 31, 2007 until March 15, 2017 (the “Fixed Rate Period”), the interest rate on the Trust II Debentures and the trust preferred securities is fixed at 7.015% per annum. Upon the expiration of the Fixed Rate Period, the interest rate on the Trust II Debentures and the trust preferred securities will be at a variable per annum rate, reset quarterly, equal to three month LIBOR plus 1.65%. The Trust II Debentures are the sole assets of Trust II. The Trust II Debentures and the trust preferred securities each have 30-year lives. The trust preferred securities and the Trust II Debentures will each be callable by the Company or Trust II, at their respective option, after ten years, and sooner in certain specific events, including in the event that the securities are not eligible for treatment as Tier 1 capital, subject to prior approval by the Federal Reserve Board, if then required. Interest on the trust preferred securities and the Trust II Debentures may be deferred at any time or from time to time for a period not exceeding 20 consecutive quarterly payments (five years), provided there is no event of default.

The trust preferred securities generally rank equal to the trust common securities in priority of payment, but will rank prior to the trust common securities if and so long as the Company fails to make principal or interest payments on the Trust I and/or the Trust II Debentures. Concurrently with the issuance of the Trust I and the Trust II Debentures and the trust preferred securities, the Company issued guarantees related to each trust’s securities for the benefit of the respective holders of Trust I and Trust II.

(6) Other Comprehensive Income

The Company has established standards for reporting and displaying comprehensive income, which is defined as all changes to equity except investments by, and distributions to, stockholders. Net income is a component of comprehensive income, with all other components referred to, in the aggregate, as other comprehensive income.

The Company’s other comprehensive income (loss) and related tax effect for the three and nine months ended December 31, 2011 and 2010 are as follows (in thousands):

	For the Three Months Ended									For the Three Months Ended
	December 31, 2011									December 31, 2010
	Before						After			Before				After
	Tax			Tax			Tax			Tax		Tax		Tax
	Amount			Effect			Amount			Amount		Effect		Amount
Unrealized gains on securities:
Unrealized net holding gains during period	$	380		$	151		$	229		$	187	$	68	$	119
Less: reclassification adjustment for net (losses) gains included in net income		(47	)		(19	)		(28	)		13		5		8
Other comprehensive income	$	427		$	170		$	257		$	174	$	63	$	111

	For the Nine Months Ended									For the Nine Months Ended
	December 31, 2011									December 31, 2010
	Before						After			Before						After
	Tax			Tax			Tax			Tax			Tax			Tax
	Amount			Effect			Amount			Amount			Effect			Amount
Unrealized (losses) gains on securities:
Unrealized net holding losses during period	$	(218	)	$	(71	)	$	(147	)	$	60		$	20		$	40
Less: reclassification adjustment for net gains (losses) included in net income		507			204			303			(170	)		(70	)		(100	)
Other comprehensive (loss) income	($	725	)	($	275	)	($	450	)	$	230		$	90		$	140

(7)

Other Comprehensive Income

~~(7)~~The ~~Commitments~~Company has established standards for reporting and ~~Contingencies~~displaying comprehensive income, which is defined as all changes to equity except investments by, and distributions to, stockholders. Net income is a component of comprehensive income, with all other components referred to, in the aggregate, as other comprehensive income.

~~Financial Instruments with Off-Balance Sheet Risk.~~ The ~~Bank~~Company’s isother acomprehensive ~~party~~income to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include unused lines of credit, unadvanced portions of commercial loans, and ~~commitments~~related totax ~~originate~~effect ~~loans. The~~for ~~instruments~~the ~~involve,~~three tomonths ~~varying~~ended ~~degrees~~June 30, ~~elements~~2012 ~~of credit~~ and ~~interest~~2011 ~~rate~~are ~~risk~~as infollows ~~excess of the amounts recognized~~ (in ~~the~~thousands): ~~balance sheets. The amounts of those instruments reflect the extent of the Bank’s involvement in particular classes of financial instruments.~~

The Bank’s exposure to credit loss in the event of nonperformance by the other party to its financial instruments is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.


	For the Three Months Ended						For the Three Months Ended
	June 30, 2012						June 30, 2011
	Before Tax Amount		Tax Effect		After Tax Amount		Before Tax Amount			Tax Effect			After Tax Amount
Unrealized gains (losses) on securities:

Unrealized net holding gains during period	$	139	$	57	$	82	$	166		$	83		$	83
Less: reclassification adjustment for Net gains included in net income		4		2		2		490			197			293

Other comprehensive income (loss)	$	135	$	55	$	80	$	(324	)	$	(114	)	$	(210	)

~~Financial~~Information ~~instruments~~on ~~with~~the ~~off-balance~~Company’s ~~sheet~~accumulated ~~risks~~other comprehensive asincome, net of ~~December 31,~~tax ~~2011~~is ~~and~~comprised ~~March 31,~~of ~~2011~~the ~~included~~following components as of the ~~following~~period ~~(In thousands)~~indicated:

	At December 31, 2011			At March 31,2011
	UnrealizedGain onSecurities			UnrealizedGain onPensionBenefits		Total
Unused lines of credit	$	15,617		$	15,940
	(In Thousands)
Unadvanced portions of commercial loans		414			459
	2012
Commitments to originate residential mortgage loans		15,246			11,232
Accumulated other comprehensive income March 31, 2012	$	727		$	144	$	871
Commitments to sell residential mortgage loans		—			595
Net change in other comprehensive income		80			—		80
Total off-balance sheet commitments	$	31,277		$	28,226
Accumulated other comprehensive income June 30, 2012	$	807		$	144	$	951
	2011
Accumulated other comprehensive income March 31, 2011	$	732		$	160	$	892
Net change in other comprehensive income		(210	)		—		(210	)
Accumulated other comprehensive income June 30, 2011	$	522		$	160	$	6 82

~~Commitments~~(8) to originate loans, unused lines of credit and unadvanced portions of commercial loans are agreements to lend to a customer, provided there is no violation of any condition established in the contract. Commitments ~~generally have fixed expiration dates or other termination clauses~~ and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the borrower. Contingencies

Financial Instruments with Off-Balance Sheet Risk. The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include unused lines of credit, unadvanced portions of commercial and construction loans, and commitments to originate loans. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheets. The amounts of those instruments reflect the extent of the Bank’s involvement in particular classes of financial instruments.

~~Legal~~The ~~Proceedings.~~Bank’s ~~The~~exposure ~~Company~~to ~~from~~credit ~~time~~loss toin ~~time~~the isevent ~~involved~~of innonperformance ~~various~~by ~~legal actions~~the ~~incident~~other toparty to its ~~business.~~financial Atinstruments ~~December 31,~~is ~~2011,~~represented ~~none~~by the contractual amount of ~~these~~those ~~actions~~instruments. isThe ~~believed~~Bank touses bethe ~~material,~~same ~~either~~credit ~~individually~~policies orin ~~collectively,~~making tocommitments ~~the~~and ~~results~~conditional ofobligations ~~operations~~as ~~and~~it ~~financial~~does ~~condition~~for ofon-balance ~~the~~sheet ~~Company~~instruments.

Financial instruments with off-balance sheet risks as of June 30, 2012 and March 31, 2012 included the following (8In thousands): ~~Subsequent Events~~

On January 19, 2012, the Company’s Board of Directors approved the payment of a quarterly cash dividend of $0.05 per common share. The dividend is payable on or about February 17, 2012 to common stockholders of record as of February 3, 2012.


	June 30,		March 31,
	2012		2012

Unused lines and letters of credit	$	14,429	$	14,566
Unadvanced portions of commercial and construction loans		494		533
Commitments to originate residential mortgage loans		13,877		24,942
Commitments to sell residential mortgage loans		8,228		—

Total off-balance sheet commitments	$	37,028	$	40,041

~~(9)~~Commitments ~~Earnings~~to ~~Per~~originate ~~Share~~loans, ~~(EPS)~~unused lines of credit and unadvanced portions of commercial and construction loans are agreements to lend to a customer, provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the borrower.

~~Unallocated~~Legal ~~shares~~Proceedings. ofThe Company ~~common~~from ~~stock~~time ~~held~~to bytime ~~the~~is ~~Central~~involved ~~Co-operative~~in ~~Bank~~various ~~Employee Stock Ownership Plan Trust~~legal ~~(the~~actions ~~“ESOP”)~~incident ~~are~~to ~~not~~its ~~treated~~business. asAt ~~being~~June 30, ~~outstanding~~2012, innone ~~the computation~~ of ~~either~~these ~~basic~~actions oris ~~diluted~~believed ~~earnings~~to ~~per~~be ~~share (“EPS”). At December 31~~material, ~~2011~~either ~~and~~individually ~~2010~~or collectively, ~~there~~to ~~were~~the ~~approximately~~results ~~138,000~~of operations and ~~159,000~~financial ~~unallocated~~condition ~~ESOP~~of ~~shares, respectively~~the Company.

~~The~~(9) ~~following~~Subsequent ~~depicts a reconciliation of earnings per share:~~ Events

	Three Months EndedDecember 31,						Nine Months EndedDecember 31,
	2011			2010			2011			2010
	(Amounts in thousands exceptshare and per share amounts)						(Amounts in thousands exceptshare and per share amounts)
Net income as reported	$	360		$	345		$	800		$	1,484
Less preferred dividends and accretion		(129	)		(154	)		(736	)		(463	)
Net income available to common stockholders	$	231		$	191		$	64		$	1,021
Weighted average number of common shares outstanding		1,681,071			1,667,151			1,681,071			1,667,151
Weighted average number of unallocated ESOP shares		(139,771	)		(161,278	)		(145,147	)		(166,654	)
Weighted average number of common shares outstanding used in calculation of basic earnings per share		1,541,300			1,505,873			1,535,924			1,500,497
Incremental shares from the assumed exercise of dilutive securities		28,776			127,292			112,630			107,623
Weighted average number of common shares outstanding used in calculating diluted earnings per share		1,570,076			1,633,165			1,648,554			1,608,120
Earnings per common share
Basic	$	0.15		$	0.13		$	0.04		$	0.68
Diluted	$	0.15		$	0.12		$	0.04		$	0.64

On July 19 2012, the Company’s Board of Directors approved the payment of a quarterly cash dividend of $0.05 per common share. The dividend is payable on or about August 17, 2012 to common stockholders of record as of August 3, 2012.

At(10) ~~December 31,~~Earnings ~~2011,~~Per ~~33,589~~Share stock options were anti-dilutive and, therefore, excluded from the above calculations for the three and nine-month periods ended December 31, 2011. At December 31, 2010, 34,458 stock options were anti-dilutive and, therefore, excluded from the above calculation for both the three and nine-month periods ended December 31, 2010. (EPS)

Unallocated shares of Company common stock held by the Central Co-operative Bank Employee Stock Ownership Plan Trust (10the “ESOP”) ~~Stock-Based~~are ~~Compensation~~not treated as being outstanding in the computation of either basic or diluted earnings per share (“EPS”). As used in this calculation, at June 30, 2012 and 2011, there were approximately 127,000 shares and 149,000 unallocated ESOP shares, respectively.

The Company accounts for stock-based compensation pursuant to ASC 718 Compensation–Stock Compensation (“ASC 718”). The Company uses the Black-Scholes option pricing model as its method for

~~determining the fair value of stock option grants.~~ The ~~Company~~following ~~has~~depicts ~~previously~~a ~~adopted two qualified stock option plans for the benefit of officers and other employees under which an aggregate of~~reconciliation ~~281,500 shares have been reserved for issuance. One~~ of ~~these~~earnings ~~plans~~per ~~expired~~share: in 1997 and the other plan expired in 2009. All awards under the plan that expired in 2009 were granted by the end of 2005. However, awards outstanding at the time the plans expire will continue to remain outstanding according to their terms.

On July 31, 2006, the Company’s stockholders approved the Central Bancorp, Inc. 2006 Long-Term Incentive Plan (the “Incentive Plan”). Under the Incentive Plan, 150,000 shares have been reserved for issuance as options to purchase stock, restricted stock, or other stock awards. However, a maximum of 100,000 restricted shares may be granted under the plan. The exercise price of an option may not be less than the fair market value of the Company’s common stock on the date of grant of the option and may not be exercisable more than ten years after the date of grant. As of December 31, 2011, 49,880 shares remained unissued and available for award under the Incentive Plan, of which 9,880 were available to be issued in the form of stock grants.


	Three Months Ended June 30,
	2012			2011
	(Amounts in thousands except per share amounts)

Net (loss) income as reported	$	(482	)	$	236

Less preferred dividends and accretion		(130	)		(156	)


Net (loss) income available to common stockholders		(612	)		80


Weighted average number of common shares outstanding		1,690,951			1,681,071

Weighted average number of unallocated ESOP shares		(129,017	)		(150,524	)


Weighted average number of common shares outstanding used in calculation of basic earnings per share		1,561,934			1,530,547

Incremental shares from the assumed exercise of dilutive securities		13,881			156,208


Weighted average number of common shares outstanding used in calculating diluted earnings per share		1,575,815			1,686,755


(Loss) earnings per common share

Basic	$	(0.39	)	$	0.05

Diluted	$	(0.39	)	$	0.05

~~Forfeitures~~At ofJune 30, ~~awards granted under the Incentive Plan are estimated at the time of grant and revised~~2012, ~~if necessary~~33,589 ~~in subsequent~~stock ~~periods~~options ifwere ~~actual~~anti-dilutive ~~forfeitures~~and ~~differ~~therefore excluded from ~~those estimates in order to derive~~ the ~~Company’s~~above ~~best~~calculations ~~estimate of awards ultimately expected to vest. Estimated forfeiture rates represent only~~ for the ~~unvested~~three-month ~~portion~~period ofended aJune 30, ~~surrendered option and are typically estimated based on historical experience~~2012. ~~Based~~At onJune 30, an2011, ~~analysis of the Company’s historical data~~34,458 ~~the Company applied a forfeiture rate of 0% to~~ stock options ~~outstanding~~were inanti-dilutive ~~determining~~and, ~~stock~~therefore, ~~compensation~~excluded ~~expense~~from ~~for~~ the ~~nine months~~above ~~ended~~calculation ~~December 31,~~for ~~2011~~the ~~and~~three-month ~~2010~~period.

~~The~~(11) Company granted no stock options in fiscal 2011. During the fourth quarter of fiscal 2011, 13,920 restricted shares were issued under the Incentive Plan. Of these shares, 5,871 shares vested immediately and 8,049 shares vest over a five-year life. No stock options or grants were issued during the quarter and nine months ended December 31, 2011. Stock-~~based~~Based ~~compensation totaled $278,000 and $302,000 for the nine months ended December 31, 2011 and 2010, respectively.~~ Compensation

The Company accounts for stock-based compensation pursuant to ASC 718 Compensation–Stock Compensation (“ASC 718”). The Company uses the Black-Scholes option ~~activity~~pricing ~~was~~model as ~~follows~~its method for determining the ~~nine~~fair ~~months~~value ~~ended~~of ~~December 31~~stock option grants. The Company has previously adopted two qualified stock option plans for the benefit of officers and other employees under which an aggregate of 281,500 ~~2011:~~shares have been reserved for issuance. One of these plans expired in 1997 and the other plan expired in 2009. All awards under the plan that expired in 2009 were granted by the end of 2005. However, awards outstanding at the time the plans expire will continue to remain outstanding according to their terms.

	Number ofShares			WeightedExercise Price
Outstanding at March 31, 2011		34,458		$	29.63
Exercised		—			—
Forfeited		—			—
Expired		(869	)	$	28.99
Outstanding at December 31, 2011		33,589		$	29.65
Exercisable at December 31, 2011		33,589		$	29.65

On July 31, 2006, the Company’s stockholders approved the Central Bancorp, Inc. 2006 Long-Term Incentive Plan (the “Incentive Plan”). Under the Incentive Plan, 150,000 shares have been reserved for issuance as options to purchase stock, restricted stock, or other stock awards. However, a maximum of 100,000 restricted shares may be granted under the plan. The exercise price of an option may not be less than the fair market value of the Company’s common stock on the date of grant of the option and may not be exercisable more than ten years after the date of grant. As of June 30, 2012, no shares remained unissued and available for award under the Incentive Plan.

As of December 31, 2011, the Company expects all non-vested stock options to vest over their remaining vesting periods.

As of December 31, 2011, the expected future compensation costs related to options and restricted stock vesting is as follows: $24 thousand during the final three months of the fiscal year ending March 31, 2012; $30 thousand per year during the fiscal years ending March 31, 2013 through March 31, 2015; and $29 thousand during the fiscal year ending March 31, 2016.

~~The~~Forfeitures ~~range~~of awards granted under the Incentive Plan are estimated at the time of ~~exercise~~grant and ~~prices~~revised, ~~weighted~~if ~~average~~necessary, ~~remaining~~in ~~contractual~~subsequent ~~lives~~periods if actual forfeitures differ from those estimates in order to derive the Company’s best estimate of ~~outstanding~~awards ultimately expected to vest. Estimated forfeiture rates represent only the unvested portion of a surrendered option and are typically estimated based on historical experience. Based on an analysis of the Company’s historical data, the Company applied a forfeiture rate of 0% to stock options ~~and~~outstanding ~~aggregate~~in ~~intrinsic~~determining ~~value~~stock compensation atexpense ~~December~~for the three months ended June 3130, ~~2011~~2012 ~~were~~and as2011. ~~follows:~~

	ExercisePrice		Numberof SharesOutstanding			WeightedAverageRemainingContractualLife(Years)		AggregateIntrinsicValue (1)
	$	28.99		23,589	(2)		3.2		—
		31.20		10,000	(3)		4.7		—
Average/Total	$	29.65		33,589			3.7	$	—

During the fourth quarter of fiscal 2012, 9,880 restricted shares were issued under the Incentive Plan. Of these shares, 2,000 shares vested immediately and 7,880 shares vest over a five-year life. During the fourth quarter of fiscal 2012, the Company also granted stock options to purchase an aggregate of 40,000 shares. Of these stock options, 8,267 options vested immediately and 31,733 options vest over a five-year life. Stock-based compensation totaled $31 thousand and $108 thousand for the three months ended June 30, 2012 and 2011, respectively.

~~(1)~~There ~~Represents~~was ~~the~~no ~~total intrinsic value, based on the Company’s closing~~ stock ~~price~~option ofactivity ~~$17.05~~during ~~on December 31, 2011, which would have been received by~~ the ~~option~~three ~~holders~~months ~~had~~ended ~~all option holders exercised their options as of that date. As of December 31~~June 30, ~~2011, the intrinsic value of outstanding stock options and exercisable stock options was $0~~2012.

~~(2)~~As ~~Fully~~of June 30, 2012, the Company expects all non-vested ~~and~~stock ~~exercisable~~options atto ~~the~~vest ~~time~~over oftheir ~~grant~~remaining vesting periods.

~~(3)~~As ~~Subject~~of June 30, 2012, the expected future compensation costs related to ~~vesting~~options ~~over~~and ~~five~~restricted ~~years,~~stock ~~100%~~vesting ~~vested~~during atthe ~~December~~period of July 1, 2012 through March 31, ~~2011~~2013 is $92 thousand.

A(12) ~~summary~~Bank-Owned ofLife ~~restricted stock activity under all Company plans for the nine months ended December 31, 2011 is as follows:~~ Insurance

	Numberof RestrictedShares			Weighted AverageGrant Date ValueFair
Non-vested at March 31, 2011	$	38,949		$	15.33
Granted		—			—
Vested		(8,400	)	$	31.20
Forfeited		—			—
Non-vested at December 31, 2011	$	30,549		$	10.97

The Bank follows ASC 325 Investments – Other (“ASC 325”) in accounting for bank-owned life insurance. Increases in the cash value are recognized in other noninterest income and are not subject to income taxes. The Bank reviewed the financial strength of the insurance carriers prior to the purchase of the policies, and continues to conduct such reviews on an annual basis. Bank-owned life insurance totaled $9.7 million at June 30, 2012.

(1113) ~~Bank-Owned~~Recent ~~Life~~Accounting ~~Insurance~~Pronouncements

~~The~~In ~~Bank~~April ~~follows~~2011, ~~ASC~~the ~~325~~FASB ~~Investments~~issued –Accounting ~~Other~~Standards Update (~~“ASC~~ASU) No. 2011-03, ~~325”~~Transfers and Servicing (Topic 860): inReconsideration ~~accounting~~of Effective Control for ~~bank-owned~~Repurchase ~~life insurance~~Agreements. ~~Increases~~The main provisions in ~~the~~this ~~cash~~amendment ~~value~~remove ~~are~~from ~~recognized~~the inassessment ~~other~~of ~~noninterest~~effective ~~income~~control ~~and~~(1) the ~~are~~criterion ~~not~~requiring ~~subject~~the transferor to ~~income~~have ~~taxes.~~the ~~The~~ability ~~Bank~~to ~~reviewed~~repurchase or redeem the financial ~~strength~~assets ofon substantially the ~~insurance~~agreed ~~carriers~~terms, ~~prior~~even toin the ~~purchase~~event of default by the ~~policies~~transferee, and ~~continues~~(2) the collateral maintenance implementation guidance related to ~~conduct~~that criterion. ~~such~~Eliminating ~~reviews~~the ontransferor’s ability criterion and related implementation guidance from an ~~annual~~entity’s ~~basis.~~assessment ~~Bank-owned~~of ~~life~~effective ~~insurance~~control ~~totaled~~should $7improve the accounting for repos and other similar transactions.2 ~~million~~The atguidance in this update is effective for the first interim or annual period beginning on or after December 3115, 2011 and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued Accounting Standards Update (12ASU) No. 2011-04, ~~Recent~~Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this update are a result of the work by the FASB and the International Accounting ~~Pronouncements~~Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRSs”). The amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for these amendments to result in a change in the application of the requirements of Topic 820. The amendments are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. Early application is not permitted. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In April 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-02, Receivables (Topic 310): A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring. For public entities this update provides guidance and clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. The adoption of this guidance on June 30, 2011 did not have a material impact on the Company’s consolidated financial statements.

In April 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. The main provisions in this amendment remove from the assessment of effective control (1) the criterion requiring the transferor to have the

~~ability~~In toJune ~~repurchase~~2011, ~~or redeem~~ the ~~financial~~FASB ~~assets~~issued onAccounting ~~substantially~~Standards ~~the~~Update ~~agreed terms~~(ASU) No. 2011-05, ~~even~~Comprehensive inIncome ~~the~~(Topic ~~event~~220): Presentation of ~~default~~Comprehensive byIncome. ~~the~~The ~~transferee,~~objective ~~and~~of ~~(2) the~~this ~~collateral~~update ~~maintenance~~is ~~implementation guidance~~to ~~related~~improve tothe ~~that~~comparability, ~~criterion.~~consistency, ~~Eliminating~~and ~~the~~transparency ~~transferor’s~~of ~~ability~~financial ~~criterion~~reporting and ~~related~~to ~~implementation~~increase ~~guidance~~the ~~from~~prominence anof items ~~entity’s~~reported ~~assessment~~in ofother ~~effective~~comprehensive ~~control~~income. ~~should~~The ~~improve~~amendments ~~the~~in ~~accounting~~this ~~for~~update ~~repos~~require ~~and~~that ~~other~~all ~~similar~~non-owner ~~transactions. The~~changes ~~guidance~~ in ~~this~~stockholders’ ~~update~~equity isbe ~~effective~~presented ~~for~~either ~~the~~in ~~first~~a ~~interim~~single orcontinuous ~~annual~~statement ~~period~~of ~~beginning~~comprehensive onincome or ~~after~~in ~~December 15,~~two ~~2011~~separate ~~and~~but consecutive ~~should~~statements. beThe ~~applied~~amendments ~~prospectively~~are to ~~transactions~~be orapplied ~~modifications~~retrospectively. ofThe ~~existing~~amendments ~~transactions~~are ~~that~~effective ~~occur~~during oninterim orand annual periods beginning after ~~the effective~~December 15, ~~date~~2011. Early adoption is ~~not~~ permitted. The ~~Company does not anticipate that the~~ adoption of this guidance ~~will~~did ~~have~~not have a material impact on the Company’s consolidated financial statements.

In ~~May~~September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-0408, ~~Fair~~Intangibles ~~Value~~– ~~Measurement~~Goodwill and Other (Topic ~~820~~350): ~~Amendments~~Testing ~~to Achieve~~Goodwill ~~Common~~for ~~Fair~~Impairment. ~~Value~~The ~~Measurement~~objective ~~and~~of ~~Disclosure~~this ~~Requirements~~update inis ~~U.S.~~to ~~GAAP~~simplify ~~and~~how ~~IFRSs~~entities test goodwill for impairment. The amendments in this update ~~are~~permit aan entity ~~result~~to offirst ~~the~~assess ~~work~~qualitative byfactors ~~the FASB and the International Accounting Standards Board~~ to ~~develop~~determine ~~common~~whether ~~requirements~~it ~~for measuring~~is ~~fair~~more ~~value~~likely ~~and~~than ~~for~~not ~~disclosing~~that ~~information~~the ~~about~~ fair value ~~measurements~~of ina ~~accordance~~reporting ~~with~~unit ~~U.S.~~is ~~generally~~less ~~accepted~~than ~~accounting~~its ~~principles~~carrying ~~(“GAAP”)~~amount ~~and~~as ~~International~~a ~~Financial~~basis ~~Reporting~~for ~~Standards~~determining ~~(“IFRS”).~~whether ~~The~~it ~~amendments change~~is ~~the~~necessary ~~wording used~~ to ~~describe~~perform ~~many of~~ the ~~requirements~~two-step ingoodwill impairment ~~U.S.~~test ~~GAAP~~described ~~for~~in ~~measuring~~Topic ~~fair value and for disclosing information about fair value measurements~~350. ~~For~~The ~~many of the requirements, the FASB does~~ more-likely-than-not ~~intend~~threshold ~~for~~is ~~these~~defined ~~amendments~~as tohaving ~~result in~~ a ~~change~~likelihood ~~in the application~~ of ~~the~~more ~~requirements~~than of50 ~~Topic 820~~percent. The amendments are to be applied prospectively. The amendments are effective ~~during~~for ~~interim~~annual and ~~annual~~interim ~~periods~~goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early ~~application~~adoption is ~~not~~ permitted. The ~~Company does not anticipate that the~~ adoption of this guidance ~~will~~did not have a material impact on the Company’s consolidated financial statements.

In ~~June~~December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-0510, ~~Comprehensive~~Property, ~~Income~~Plant, and Equipment (Topic ~~220~~360): ~~Presentation~~De-recognition of ~~Comprehensive~~In ~~Income.~~Substance ~~The~~Real ~~objective~~Estate of– ~~this~~a ~~update~~Scope isClarification. toUnder ~~improve~~ the ~~comparability,~~amendments ~~consistency,~~in ~~and~~this ~~transparency~~update, ofwhen ~~financial~~a ~~reporting~~parent ~~and~~ceases to ~~increase~~have ~~the~~a ~~prominence~~controlling offinancial ~~items~~interest ~~reported~~ in ~~other~~a subsidiary ~~comprehensive~~that ~~income.~~is ~~The~~in ~~amendments~~substance inreal ~~this~~estate ~~update~~as ~~require~~a ~~that~~result ~~all~~of ~~non-owner~~default ~~changes~~on inthe ~~stockholders~~subsidiary’s ~~equity~~nonrecourse ~~be presented~~debt, ~~either~~the inreporting asentity ~~single~~should ~~continuous~~apply ~~statement~~the ofguidance ~~comprehensive~~in ~~income~~Subtopic or360-20 into ~~two~~determine ~~separate~~whether ~~but~~it ~~consecutive~~should ~~statements.~~derecognize the in substance real estate. The amendments are to be applied prospectively to deconsolidation events occurring after the effective date. The amendments are effective ~~during~~for ~~interim~~fiscal years and ~~annual~~interim periods within those years, beginning on or after ~~December~~ June 15, ~~2011~~2012. ~~Early adoption is permitted.~~ The Company does not anticipate that the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

In ~~September~~December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-0811, ~~Intangibles~~Balance –Sheet ~~Goodwill and Other~~ (Topic ~~350~~ 210): ~~Testing~~Disclosures ~~Goodwill~~about ~~for~~Offsetting ~~Impairment~~Assets and Liabilities. ~~The~~Under ~~objective~~the ofamendments in this update, isentities toare ~~simplify~~required ~~how~~to ~~entities~~disclose ~~test~~both ~~goodwill~~gross ~~for~~information ~~impairment.~~and ~~The~~net ~~amendments~~information inabout ~~this~~both instruments ~~update~~and ~~permit~~transactions aneligible ~~entity~~for tooffset ~~first~~in ~~assess~~the ~~qualitative~~statement ~~factors~~of tofinancial ~~determine~~position ~~whether~~and itinstruments isand ~~more likely~~transactions ~~than~~subject ~~not~~to ~~that~~an ~~the~~agreement ~~fair~~similar ~~value~~to of a ~~reporting~~master ~~unit~~netting isarrangement. ~~less~~This ~~than~~scope ~~its~~includes ~~carrying~~derivatives, ~~amount~~sale asand arepurchase ~~basis~~agreements and ~~for~~reverse ~~determining~~sale ~~whether~~and itrepurchase isagreements, ~~necessary~~and tosecurities ~~perform~~borrowing ~~the~~and ~~two-step~~securities ~~goodwill~~lending ~~impairment~~arrangements. ~~test~~An ~~described~~entity inis ~~Topic~~required ~~350.~~to ~~The~~apply ~~more-likely-than-not~~the ~~threshold is~~amendments ~~defined~~for asannual ~~having~~reporting aperiods ~~likelihood~~beginning ofon ~~more~~or ~~than~~after 50January 1, ~~percent.~~2013, ~~The~~and ~~amendments~~interim ~~are~~periods within tothose beannual ~~applied prospectively~~periods. ~~The~~An ~~amendments~~entity ~~are~~should ~~effective~~provide ~~for~~the ~~annual~~disclosures ~~and~~required ~~interim~~by ~~goodwill~~the ~~impairment~~amendment ~~tests~~retrospectively ~~performed~~ for ~~fiscal~~all ~~years~~comparative ~~beginning~~periods ~~after December 15, 2011~~presented. ~~Early adoption is permitted.~~ The Company does not anticipate that the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-1012, ~~Property,~~Comprehensive ~~Plant,~~Income ~~and Equipment~~ (Topic ~~360~~220): ~~De-recognition~~ Deferral of inthe ~~Substance~~Effective ~~Real~~Date ~~Estate~~for –Amendments ato ~~Scope~~the ~~Clarification.~~Presentation ~~Under~~of ~~the~~Reclassifications ~~amendments~~of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The objective of this update, ~~when~~is ato ~~parent~~allow ~~ceases~~the FASB to ~~have~~reconsider awhether ~~controlling~~it ~~financial~~is ~~interest~~necessary into arequire ~~subsidiary~~entities ~~that~~to ispresent reclassification adjustments by component in ~~substance~~both ~~real~~the ~~estate~~statement aswhere anet ~~result~~income ofis ~~default on~~presented and the ~~subsidiary’s~~statement ~~nonrecourse~~where ~~debt,~~other comprehensive ~~the~~income ~~reporting~~is ~~entity~~presented ~~should~~for ~~apply~~both ~~the~~interim ~~guidance~~and annual financial statements. All other requirements in ~~Subtopic~~Update ~~360~~2011-2005 toare ~~determine~~not ~~whether~~affected itby ~~should~~this ~~derecognize~~Update, including the inrequirement ~~substance~~to ~~real~~report ~~estate.~~comprehensive ~~The~~income ~~amendments~~either ~~are~~in toa besingle ~~applied~~continuous financial ~~prospectively~~statement toor ~~deconsolidation events~~in ~~occurring~~two ~~after~~separate ~~the~~but ~~effective~~consecutive ~~date~~financial statements. The amendments are effective ~~for~~during ~~fiscal~~interim ~~years~~ and ~~interim~~annual periods ~~within those years,~~ beginning ~~on or~~ after ~~June~~December 15, ~~2012~~2011. The ~~Company does not anticipate that the~~ adoption of this guidance ~~will~~did not have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Under the amendments in this update, entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a

~~master~~(14) ~~netting~~Fair ~~arrangement.~~Value This scope includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by the amendment retrospectively for all comparative periods presented. The Company does not anticipate that the adoption of this guidance will have a material impact on the Company’s consolidated financial statements. Disclosures

InThe ~~December~~Company ~~2011,~~follows ~~the~~ASC ~~FASB~~820 ~~issued~~Fair ~~Accounting~~Value ~~Standards~~Measurements ~~Update~~and Disclosures (~~ASU)~~“ASC ~~No. 2011-12~~820”), ~~Comprehensive~~which ~~Income~~defines ~~(Topic~~fair ~~220):~~value ~~Deferral~~as of the ~~Effective~~exchange ~~Date~~price ~~for~~that ~~Amendments~~would tobe ~~the~~received ~~Presentation~~upon ofsale ~~Reclassifications~~ of ~~Items~~an ~~Out~~asset ofor ~~Accumulated~~paid ~~Other Comprehensive Income in Accounting Standards Update No. 2011-05. The objective of this update is~~ to ~~allow~~transfer ~~the~~a ~~FASB~~liability ~~to reconsider whether it is necessary to require entities to present reclassification adjustments by component~~ in ~~both~~ the ~~statement~~principal ~~where~~or ~~net~~most ~~income~~advantageous ismarket ~~presented~~for ~~and~~ the ~~statement~~asset ~~where~~or ~~other~~liability ~~comprehensive~~in ~~income~~an isorderly ~~presented~~transaction between ~~for~~market ~~both~~participants ~~interim~~on ~~and~~the ~~annual financial~~measurement ~~statements~~date. ~~All~~In ~~other~~addition, ~~requirements~~ASC in820 ~~Update~~specifies ~~2011-05~~a ~~are~~hierarchy ~~not~~of ~~affected~~valuation bytechniques ~~this~~based ~~Update,~~on ~~including~~whether the ~~requirement~~inputs to ~~report~~those ~~comprehensive~~techniques ~~income~~are ~~either~~observable ~~in as single continuous financial statement~~ or ~~in two separate but consecutive financial statements~~unobservable. ~~The~~Observable ~~amendments~~inputs ~~are~~reflect tomarket bedata ~~applied~~obtained from ~~prospectively.~~independent ~~The~~sources, ~~amendments~~while ~~are~~unobservable ~~effective~~inputs ~~during~~reflect ~~interim~~the ~~and~~Company’s ~~annual~~market ~~periods beginning after December 15, 2011~~assumptions. ~~The~~These ~~Company~~two ~~does~~types ~~not anticipate that the adoption~~ of ~~this~~inputs ~~guidance will~~ have ~~a material impact on~~ the ~~Company’s~~following ~~consolidated~~fair ~~financial~~value ~~statements.~~hierarchy:

(13) Fair Value Disclosures


Level 1 –		Quoted prices for identical instruments in active markets

Level 2 –		Quoted prices for similar instruments in active or non-active markets and model-derived valuations in which all significant inputs and value drivers are observable in active markets

Level 3 –		Valuation derived from significant unobservable inputs

The Company ~~follows~~uses ~~ASC~~fair ~~820~~value ~~Fair~~measurements ~~Value~~to ~~Measurements~~record ~~and~~certain ~~Disclosures~~assets ~~(“ASC~~at ~~820”) which defines~~ fair value ason ~~the~~a ~~exchange~~recurring ~~price~~basis. Additionally, ~~that would be received upon~~ the ~~sale~~Company ofmay anbe ~~asset~~required ~~or paid~~ to ~~transfer~~record aat ~~liability~~fair invalue ~~the~~other ~~principal~~assets oron ~~most~~a ~~advantageous~~nonrecurring ~~market~~basis. ~~for~~These ~~the~~nonrecurring ~~asset~~fair orvalue ~~liability~~adjustments intypically aninvolve ~~orderly transaction between market participants on~~ the ~~measurement~~ ~~date.~~application ~~In addition, ASC 820 specifies a hierarchy~~ of ~~valuation techniques based on whether the inputs to those techniques are observable~~ lower-of-cost-or ~~unobservable. Observable inputs reflect~~ market ~~data~~value ~~obtained~~accounting ~~from~~or ~~independent~~write-downs ~~sources, while~~of ~~unobservable~~individual ~~inputs reflect the Company’s market assumptions~~assets. ~~These two types of inputs have the following fair value hierarchy:~~

Level 1 -		Quoted prices for identical instruments in active markets
Level 2 -		Quoted prices for similar instruments in active or non-active markets and model-derived valuations in which all significant inputs and value drivers are observable in active markets
Level 3 -		Valuation derived from significant unobservable inputs

The only assets of the Company recorded at fair value on a recurring basis at June 30, 2012 and March 31, 2012 were securities available for sale. The assets of the Company recorded at fair value on a nonrecurring basis at June 30, 2012 and March 31, 2012 were impaired loans and other real estate owned (“OREO”).

The Company uses fair value measurements to record certain assets at fair value on a recurring basis. Additionally, the Company may be required to record fair values other assets on a nonrecurring basis. These nonrecurring fair value adjustments typically involve the application of lower-of-cost-or market value accounting or write-downs of individual assets.

The only assets of the Company recorded at fair value on a recurring basis at December 31, 2011 and March 31, 2011 were securities available for sale. The assets of the Company recorded at fair value on a nonrecurring basis at December 31, 2011 and March 31, 2011 were collateral dependent loans and other real estate owned (“OREO”). The following table presents the level of valuation assumptions used to determine the fair values of such securities and loans:

At December 31, 2011	Carrying Value (In Thousands)
At June 30, 2012	Carrying Value (In Thousands)
	Level 1		Level 2		Level 3		Total
Assets recorded at fair value on a recurring basis:
Securities available for sale
Government agency and government sponsored agency mortgage-backed securities	$	—	$	2829,~~088~~760	$	—	$	2829,~~088~~760
Single issuer trust preferred securities issued by financial institutions		1,~~040~~036		—		—		1,~~040~~036
Perpetual preferred stock issued by financial institutions		~~814~~1,018		12,~~960~~138		—		23,~~774~~156
Common stock		3,~~367~~449		—		—		3,~~367~~449
Assets measured at estimated fair value on a nonrecurring basis:
Assets recorded at fair value on a nonrecurring basis:
Impaired loans:
Impaired loans carried at fair value:
CRE		—		—		3,541		3,541
Commercial real estate		—		—		3,147		3,147
Residential		—		—		965		965
Residential real estate		—		—		818		818
OREO		—		—		~~320~~665		~~320~~665

At March 31, 2011	Carrying Value (In Thousands)
At March 31, 2012	Carrying Value (In Thousands)
	Level 1		Level 2		Level 3		Total
Assets recorded at fair value on a recurring basis:
Securities available for sale
Government agency and government sponsored agency mortgage-backed securities	$	—	$	1831,~~823~~258	$	—	$	1831,~~823~~258
Single issuer trust preferred securities issued by financial institutions		1,~~049~~041		—		—		1,~~049~~041
Perpetual preferred stock issued by financial institutions		~~2,063~~991		12,~~122~~120		—		3,~~185~~111
Common stock		23,~~128~~650		—		—		23,~~128~~650
Assets measured at estimated fair value on a nonrecurring basis:
Assets recorded at fair value on a nonrecurring basis:
Impaired loans:
Impaired loans carried at fair value:
CRE		—		—		4,566		4,566
Commercial real estate		—		—		4,345		4,345
Residential		—		—		433		433
Residential real estate		—		—		723		723
OREO		—		—		~~132~~133		~~132~~133

There were no Level 3 securities at ~~December~~June 3130, ~~2011~~2012 or March 31, ~~2011~~2012. The Company did not have any sales, or purchases ~~or transfers~~ of Level 3 available for sale securities during the ~~quarter ended December 31, 2011~~period.

AtThe ~~December 31,~~Company ~~2011,~~measures the fair value of ~~one~~impaired loans ~~government~~on ~~sponsored~~a ~~enterprise~~periodic ~~preferred~~basis ~~stock~~in ~~amounting~~periods subsequent to ~~$36~~its ~~thousand~~initial ~~was~~recognition. ~~measured~~At ~~using Level 1 inputs in comparison to March~~June 3130, ~~2011~~2012, atimpaired ~~which time~~loans ~~the~~measured ~~security~~at ~~had a~~ fair value ~~of $46 thousand and was measured~~ using Level 23 inputs. ~~The~~amounted ~~transfer~~to ~~from~~$4.0 ~~Level~~million, 2which torepresents ~~Level~~ten 1customer ~~was~~relationships, ~~primarily~~compared ~~the~~to ~~result~~nine customer ofrelationships ~~increased~~which ~~trading~~totaled ~~volume~~$5.1 ofmillion ~~the security~~ at ~~and around December~~March 31, ~~2011~~2012. ~~The~~There ~~fair~~were ~~value as~~no ofimpaired ~~December 31,~~loans ~~2011~~measured ~~was~~at ~~determined~~fair value using ~~actual~~Level ~~trades~~2 ofinputs ~~the~~at ~~exact security~~June 30, ~~whereas~~2012 ~~the~~or ~~fair value as of~~ March 31, ~~2011~~2012. ~~was~~Level ~~determined~~3 byinputs ~~matrix~~utilized ~~pricing~~to ~~models~~determine ~~based upon comparable securities. At December 31, 2011,~~ the fair value of the ~~one~~impaired ~~financial~~loan ~~institution~~relationships ~~preferred~~at ~~stock~~June 30, ~~amounting~~2012 toand ~~$1.1 million was measured using Level 2 inputs in comparison to~~ March 31, ~~2011,~~2012 atconsist ~~which~~of ~~time~~appraisals, ~~the~~which ~~security~~may ~~had~~be adiscounted ~~fair~~by ~~value~~management ~~of $1.1 million and was measured~~ using ~~Level~~non-observable 1 inputs~~. The~~, ~~transfer~~as ~~from~~well ~~Level~~as 1estimated costs to ~~Level~~sell. ~~2 was primarily the result of decreased trading volume of~~

OREO is measured at fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. As of June 30, 2012, the Company had one residential parcel and one commercial real estate parcel of OREO which totaled $665 thousand.

the security at and around December 31, 2011. The fair value as of December 31, 2011 was determined by matrix pricing models based upon comparable securities, whereas the fair value as of December 31, 2011 was determined using actual trades of the exact security. There were no other transfers of Level 1 or Level 2 securities during the nine months ended December 31, 2011.

Management utilizes a fair value measurement to determine the allocated allowance for collateral dependent impaired loans on a periodic basis in periods subsequent to its initial recognition. At December 31, 2011, impaired loans measured at estimated fair value using Level 3 inputs amounted to $4.5 million, which represents ten customer relationships, compared to ten customer relationships which totaled $5.0 million at March 31, 2011. There were no impaired loans measured at estimated fair value using Level 2 inputs at December 31, 2011 or March 31, 2011. Level 3 inputs utilized to determine the estimated fair value of the impaired loan relationships at December 31, 2011 and March 31, 2011 consist of appraisals, which may be discounted by management using non-observable inputs, as well as estimated costs to sell.

OREO is measured at fair value less selling costs. Fair value is based upon independent market prices, fair appraised values of the collateral, or management’s estimation of the value of the collateral. During the nine months ended December 31, 2011, OREO increased by $188 thousand as the Bank foreclosed upon one parcel of residential property with an estimated value less selling costs of $55 thousand, and recorded a residential in-substance foreclosure of $133 thousand. As of December 31, 2011, the Company had three residential parcels of OREO which totaled $320 thousand.

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets. As a result, the unrealized gains and losses for these assets presented in the table above may include changes in fair value that were attributable to both observable and unobservable inputs.

The following methods and assumptions were used by the Bank in estimating fair values of financial assets and liabilities:

Cash and Due from Banks -– The carrying values reported in the balance sheet for cash and due from banks approximate their fair value because of the short maturity of these instruments.

Short-Term Investments -– The carrying values reported in the balance sheet for short-term investments approximate fair value because of the short maturity of these investments.

Investment Securities Available for Sale - – Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Examples of such instruments include publicly traded common and preferred stocks. If quoted prices are not available, then fair values are estimated by using pricing models (i.e., matrix pricing) and market interest rates and credit assumptions or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. Examples of such instruments include government agency and government sponsored agency mortgage-backed securities, as well as certain preferred and trust preferred stocks. Level 3 securities are securities for which significant unobservable inputs are utilized. There were no changes in valuation techniques used to measure similar assets during the period. Available for sale securities are recorded at fair value on a recurring basis. There were no Level 3 securities at June 30, 2012 or March 31, 2012. The Company did not have any sales or purchases of Level 3 available for sale securities during the periods.

Loans ~~and~~– ~~Loans Held for Sale -~~ The fair values of loans are estimated using discounted cash flow analysis, using interest rates, estimated using local market data, of which loans with similar terms would be made to borrowers of similar credit quality. The incremental credit risk for nonperforming loans has been considered in the determination of the fair value of loans. ~~The fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices. Regular~~ Regular reviews of the loan portfolio are performed to identify impaired loans for which specific allowance allocations are considered prudent. Valuations of impaired loans are made based on evaluations that ~~the~~we ~~Bank~~believe ~~believes~~ to be appropriate in ~~accordance~~ accordance with ASC 310, and such valuations are determined by reviewing current collateral values, financial information, cash flows, payment histories and trends and other relevant facts surrounding the particular credits.

Accrued Interest Receivable -– The carrying amount reported in the balance sheet for accrued interest receivable approximates its fair value due to the short maturity of these accounts.

Stock in FHLB of Boston – The carrying amount reported in the balance sheet for FHLB of Boston stock approximates its fair value based on the redemption features of the stock.

The Co-operative Central Bank Reserve Fund – The carrying amount reported in the balance sheet for the Co-operative Central Bank Reserve Fund approximates its fair value.

Deposits – The fair values of deposits (excluding term deposit certificates) are, by definition, equal to the amount payable on demand at the reporting date. Fair values for term deposit certificates are estimated using a discounted cash flow technique that applies interest rates estimated using local market data currently being offered on certificates to a schedule of aggregated monthly maturities on time deposits with similar remaining maturities.

Advances from FHLB of Boston – Fair values of non-callable advances from the FHLB of Boston are estimated based on the discounted cash flows of scheduled future payments using the respective quarter-end published rates for advances with similar terms and remaining maturities. Fair values of callable advances from the FHLB of Boston are estimated using indicative pricing provided by the FHLB of Boston.

~~Stock~~Subordinated inDebentures ~~FHLBB~~– -The fair value of one subordinated debenture totaling $5.3 million whose interest rate is adjustable quarterly is estimated to be equal to its book value. The ~~carrying~~other ~~amount~~subordinated ~~reported~~debenture intotaling ~~the~~$6.1 ~~balance~~million ~~sheet~~has ~~for~~a ~~FHLBB~~fixed ~~stock~~rate until March 15, 2017, at which time it will convert to an ~~approximates~~adjustable ~~its~~rate which will adjust quarterly. The maturity date is March 15, 2037. The fair value of this subordinated debenture is estimated based on the ~~redemption~~discounted ~~features~~cash flows of ~~the~~scheduled ~~stock~~future payments utilizing a discount rate derived from instruments with similar terms and remaining maturities.

~~The~~Advance ~~Co-operative~~Payments ~~Central~~by ~~Bank~~Borrowers ~~Reserve~~for ~~Fund~~Taxes ~~- The~~and Insurance and Accrued Interest Payable – The carrying ~~amount~~values reported in the balance sheet for ~~the~~advance ~~Co-operative~~payments ~~Central~~by ~~Bank~~borrowers ~~Reserve~~for ~~Fund~~taxes ~~approximates~~and ~~its~~insurance and accrued interest payable approximate their fair value because of the short maturity of these accounts.

~~Deposits~~The -estimated ~~The~~carrying amounts and fair values of ~~deposits (excluding term deposit certificates) are, by definition, equal to~~ the ~~amount~~Company’s ~~payable on demand at the reporting date. Fair values for term deposit~~financial ~~certificates~~instruments are ~~estimated~~as ~~using~~follows a(In ~~discounted~~thousands): ~~cash flow technique that applies interest rates currently being offered on certificates to a schedule of aggregated monthly maturities on time deposits with similar remaining maturities.~~

Advances from FHLBB - Fair values of non-callable advances from the FHLBB are estimated based on the discounted cash flows of scheduled future payments using the respective quarter-end published rates for advances with similar terms and remaining maturities. Fair values of callable advances from the FHLBB are estimated using indicative pricing provided by the FHLBB.


	June 30, 2012
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and due from banks	$	5,104	$	5,104	$	5,104	$	—	$	—
Short-term investments		4,950		4,950		4,950		—		—
Investment securities available for sale		36,064		37,401		5,503		31,898
Loans held for sale		75		75						75
Net loans		485,679		495,936						495,936
Stock in Federal Home Loan Bank of Boston		8,203		8,203		—		—		8,203
The Co-operative Central Bank Reserve Fund		1,576		1,576		—		—		1,576
Accrued interest receivable		1,365		1,365		1,365		—		—

Liabilities
Certificates of Deposits	$	146,458	$	147,831		—	$	147,831		—
Advances from FHLB of Boston		147,197		156,987		—		156,987		—
Subordinated debentures		11,341		8,812		—		—		8,812
Advance payments by borrowers for taxes and insurance		3,124		3,124		3,124		—		—
Accrued interest payable		394		394		394		—		—

Subordinated Debentures - The fair value of one subordinated debenture totaling $5.2 million whose interest rate is adjustable quarterly is estimated to be equal to its book value. The other subordinated debenture totaling $6.1 million has a fixed rate until March 15, 2017, at which time it will convert to an adjustable rate which will adjust quarterly. The maturity date is March 15, 2037. The fair value of this subordinated debenture is estimated based on the discounted cash flows of scheduled future payments utilizing a discount rate derived from instruments with similar terms and remaining maturities.

Short-Term Borrowings, Advance Payments by Borrowers for Taxes and Insurance and Accrued Interest Payable - The carrying values reported in the balance sheet for short-term borrowings, advance payments by borrowers for taxes and insurance and accrued interest payable approximate their fair value because of the short maturity of these accounts.

Off-Balance Sheet Instruments - Fair values of the Company’s off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. The fair value of off-balance-sheet instruments was not significant at December 31, 2011 and March 31, 2011.

The estimated carrying amounts and fair values of the Company’s financial instruments are as follows:


	March 31, 2012
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and due from banks	$	4,117	$	4,117	$	4,117	$	—	$	—
Short-term investments		3,224		3,224		3,224		—		—
Investment securities available for sale		39,060		39,060		5,682		33,378
Loans held for sale		—		—		—		—		—
Net loans		444,614		454,454		—		—		454,454
Stock in Federal Home Loan Bank of Boston		8,203		8,203		—		—		8,203
The Co-operative Central Bank Reserve Fund		1,576		1,576		—		—		1,576
Accrued interest receivable		1,359		1,359		1,365		—		—

Liabilities
Certificates of Deposits	$	140,636	$	142,100		—		142.100		—
Advances from FHLB of Boston		117,228		126,985		—		126,985		—
Subordinated debentures		11,341		8,856		—		—		8,856
Advance payments by borrowers for taxes and insurance		2,955		2,955		2,955		—		—
Accrued interest payable		403		403		403		—		—

	December 31, 2011				March 31, 2011
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Assets
Cash and due from banks	$	4,566	$	4,566	$	3,728	$	3,728
Short-term investments		32,494		32,494		37,190		37,190
Investment securities available for sale		35,269		35,269		25,185		25,185
Loans held for sale		221		221		—		—
Net loans		416,872		429,124		390,325		394,475
Stock in FHLB of Boston		8,518		8,518		8,518		8,518
The Co-operative Central Bank Reserve Fund		1,576		1,576		1,576		1,576
Accrued interest receivable		1,378		1,378		1,496		1,496
Liabilities
Deposits	$	332,709	$	332,206	$	309,077	$	300,875
Advances from FHLB of Boston		117,260		127,996		117,351		125,314
Subordinated debentures		11,341		8,899		11,341		8,651
Advance payments by borrowers for taxes and insurance		2,276		2,276		1,387		1,387
Accrued interest payable		398		398		397		397

(15)

Troubled Asset Relief Program Capital Purchase Program

On August 25, 2011, the Company entered into and consummated a letter agreement (14the “Repurchase Letter”) with the United States Department of the Treasury (“Treasury”), pursuant to which the Company redeemed, out of the proceeds of its issuance of 10,000 shares of its Series B Senior Non-Cumulative Perpetual Preferred Stock, all 10,000 outstanding shares of its Series A Fixed Rate Cumulative Perpetual Preferred Stock, liquidation amount $1,000 per share (the “Series A Preferred Stock”), for a redemption price of $10,013,889, including accrued but unpaid dividends to the date of redemption. On December 5, 2008, the Company sold $10.0 million in Series A Preferred Stock to the Treasury as a participant in the federal government’s Troubled Asset Relief Program (“TARP”) Capital Purchase Program. This represented approximately 2.6% of the Company’s risk-weighted assets as of September 30, 2008. In connection with the investment, the Company had entered into a Letter Agreement and the related Securities Purchase Agreement with the Treasury pursuant to which the Company issued the 10,000 shares of Series A Preferred Stock and a warrant (the “Warrant”) to purchase 234,742 shares of the Company’s common stock for an aggregate purchase price of $10.0 million in cash.

OnThe ~~August 25, 2011, the~~ Company ~~entered~~subsequently ~~into~~repurchased ~~and consummated a letter agreement (~~the ~~“Repurchase Letter”)~~Warrant ~~with~~from the ~~United States Department of the~~ Treasury ~~(“Treasury”),~~on ~~pursuant to which the Company redeemed, out of the proceeds of its issuance of 10,000 shares of its Series~~October ~~B Senior Non-Cumulative Perpetual Preferred Stock~~19, all 10,000 outstanding shares of its Series A Fixed Rate Cumulative Perpetual Preferred Stock, liquidation amount $1,000 per share (the “Series A Preferred Stock”), for a redemption price of $10,013,889, including accrued but2011 unpaid dividends to the date of redemption. On December 5, 2008, the Company sold $10.0 million in the Series A Preferred Stock to the Treasury as a participant in the federal government’s Troubled Asset Relief Program (“TARP”) Capital Purchase Program. This represented approximately 2.6% of the Company’s risk-weighted assets as of September 30, 2008. In connection with the investment, the Company had entered into a Letter Agreement and the related Securities Purchase Agreement with the Treasury pursuant to which the Company issued the 10,000 shares of Series A Preferred Stock and a warrant (the “Warrant”) to purchase 234,742 shares of the Company’s common stock for an aggregate purchase price of $102.05 million ~~in cash~~.

~~The~~(16) ~~Company subsequently repurchased the Warrant from the Treasury on October 19, 2011 for an aggregate purchase price of $2~~U.~~525 million~~S. ~~For~~Treasury ~~additional~~Department ~~information,~~Small ~~see~~business ~~Note~~Lending ~~15.~~ Fund

On August 25, 2011, the Company entered into and consummated a Securities Purchase Agreement (the “Purchase Agreement”) with the Secretary of the U.S. Department of the Treasury, pursuant to which the Company issued 10,000 shares of the Company’s Senior Non-Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”), having a liquidation amount per share equal to $1,000, for a total purchase price of $10,000,000. The Purchase Agreement was entered into, and the Series B Preferred Stock was issued, pursuant to the Small Business Lending Fund (“SBLF”) program, a fund established under the Small Business Jobs Act of 2010, that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. The Company used the $10 million in SBLF funds to redeem shares of the Series A Preferred Stock issued under the TARP Capital Purchase Program.

Preferred Stock is outstanding, based upon changes in the level of “Qualified Small Business Lending” or “QSBL” (15as defined in the Purchase Agreement) Uby the Company’s wholly owned subsidiary Central Co-operative Bank.S Based upon the increase in the Bank’s level of QSBL over the baseline level calculated under the terms of the Purchase Agreement, the dividend rate for the initial dividend period has been set at five percent (5%). For ~~Treasury~~the ~~Department~~second ~~Small~~through ~~Business~~ninth ~~Lending~~calendar ~~Fund~~quarters, the dividend rate may be adjusted to between one percent (1%) and five percent (5%) per annum, to reflect the amount of change in the Bank’s level of QSBL. If the level of the Bank’s qualified small business loans declines so that the percentage increase in QSBL as compared to the baseline level is less than 10%, then the dividend rate payable on the Series B Preferred Stock would increase. For the tenth calendar quarter through four and one half years after issuance, the dividend rate will be fixed at between one percent (1%) and seven percent (7%) based upon the increase in QSBL as compared to the baseline. After four and one half years from issuance, the dividend rate will increase to 9% (including a quarterly lending incentive fee of 0.5%). In addition, beginning on January 1, 2014, and on all Series B Preferred Stock dividend payment dates thereafter ending on April 1, 2016, the Company will be required to pay to the Secretary, on each share of Series B Preferred Stock, but only out of assets legally available therefore, a fee equal to 0.5% of the liquidation amount per share of Series B Preferred Stock.

On August 25, 2011, the Company entered into and consummated a Securities Purchase Agreement (the “Purchase Agreement”) with the Secretary of the U.S. Department of the Treasury (the “Secretary”), pursuant to which the Company issued 10,000 shares of the Company’s Senior Non-Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”), having a liquidation amount per share equal to $1,000, for a total purchase price of $10,000,000. The Purchase Agreement was entered into, and the Series B Preferred Stock was issued, pursuant to the Small Business Lending Fund (“SBLF”) program, a fund established under the Small Business Jobs Act of 2010, that encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. The Company used the $10 million in SBLF funds to redeem shares of the Series A Preferred Stock issued under the TARP Capital Purchase Program.

The Series B Preferred Stock is entitled to receive non-cumulative dividends, payable quarterly, on each January 1, April 1, July 1 and October 1, beginning October 1, 2011. The dividend rate, as a percentage of the liquidation amount, can fluctuate on a quarterly basis during the first ten quarters during which the Series B Preferred Stock is outstanding, based upon changes in the level of “Qualified Small Business Lending” or “QSBL” (as defined in the Purchase Agreement) by the Company’s wholly owned subsidiary Central Co-operative Bank. Based upon the increase in the Bank’s level of QSBL over the baseline level calculated under the terms of the Purchase Agreement, the dividend rate for the initial dividend period has been set at five percent (5%). For the second through ninth calendar quarters, the dividend rate may be adjusted to between one percent (1%) and five percent (5%) per annum, to reflect the amount of change in the Bank’s level of QSBL. If the level of the Bank’s qualified small business loans declines so that the percentage increase in QSBL as compared to the baseline level is less than 10%, then the dividend rate payable on the Series B Preferred Stock would increase. For the tenth calendar quarter through four and one half years after issuance, the dividend rate will be fixed at between one percent (1%) and seven percent (7%) based upon the increase in QSBL as compared to the baseline. After four and one half years from issuance, the dividend rate will increase to 9% (including a quarterly lending incentive fee of 0.5%). In addition, beginning on January 1, 2014, and on all Series B Preferred Stock dividend payment dates thereafter ending on April 1, 2016, the Company will be required to pay to the Secretary, on each share of Series B Preferred Stock, but only out of assets legally available therefore, a fee equal to 0.5% of the liquidation amount per share of Series B Preferred Stock.

The Series B Preferred Stock is non-voting, except in limited circumstances. In the event that the Company misses five dividend payments, whether or not consecutive, the holder of the Series B Preferred Stock will have the right, but not the obligation, to appoint a representative as an observer on the Company’s Board of Directors. In the event that the Company misses six dividend payments, whether or not consecutive, and if the then outstanding aggregate liquidation amount of the Series B Preferred Stock is at least $25,000,000, then the holder of the Series B Preferred Stock will have the right to designate two directors to the Board of Directors of the Company.

The Series B Preferred Stock may be redeemed at any time at the Company’s option, at a redemption price of 100% of the liquidation amount plus accrued but unpaid dividends to the date of redemption for the current period, subject to the approval of its federal banking regulator.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of the financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of Central Bancorp, Inc. (the “Company” or “Central Bancorp”). The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and footnotes appearing in Part I, Item 1 of this Form 10-Q.

Forward-Looking Statements

This ~~report~~document, ~~contains~~as ~~forward-looking~~well ~~statements~~as ~~that~~other ~~are~~written ~~based~~communications onmade ~~assumptions~~from time to time by Central Bancorp, Inc. (the “Company”) and subsidiaries and oral communications made from time to time by authorized officers of the Company, may ~~describe~~contain statements relating to the future ~~plans~~results of the Company (including certain projections, ~~strategies~~such ~~and~~as ~~expectations~~earnings projections, necessary tax provisions, and business trends) that are considered “forward looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the ~~Company~~“PSLRA”). ~~These~~Such forward-looking statements ~~are~~may ~~generally~~ be identified by the use of ~~the~~such words as “intend,” “believe,” “expect,” “~~intend~~should,” “~~anticipate~~planned,” “~~estimate~~estimated,” and “~~project~~potential.” orFor ~~similar~~these ~~expressions~~statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the PSLRA. The Company’s ability to predict future results oris ~~the~~inherently ~~actual~~uncertain ~~effect~~and ofthe ~~future~~Company ~~plans~~cautions oryou ~~strategies~~that isa ~~inherently~~number ~~uncertain.~~of ~~Factors~~important ~~which~~factors could ~~have~~cause aactual ~~material~~results ~~adverse~~to ~~effect~~differ materially onfrom ~~the~~those ~~operations~~currently ofanticipated ~~the~~in ~~Company~~any ~~and~~forward-looking ~~its~~statement. ~~subsidiaries~~These factors include, but are not limited to: ~~recent~~the ~~and~~risk ~~future~~that ~~bail-out~~the ~~actions~~Company’s bystrategic ~~the~~initiatives ~~government;~~and ~~the~~business ~~impact~~plans, ofincluding ~~the~~its ~~Company’s~~prospective ~~participation~~business incombination with ~~the~~Independent UBank Corp.S., ~~Department~~may ofnot ~~Treasury’s~~be ~~Small~~satisfactorily ~~Business~~completed ~~Lending~~or ~~Fund~~executed, if at all; recent and future bail-out actions by the government; a further slowdown in the national and Massachusetts economies; a further deterioration in asset values locally and nationwide; the volatility of rate-sensitive deposits; changes in the regulatory environment; increasing competitive pressure in the banking industry; operational risks including data processing system failures or fraud; asset/liability matching risks and liquidity risks; continued access to liquidity sources; changes in our borrowers’ performance on loans; changes in critical accounting policies and judgments; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies; changes in the equity and debt securities markets; governmental action as a result of our inability to comply with regulatory orders and agreements; the effect of additional provision for loan losses; the effect of an impairment charge on our deferred tax asset; fluctuations of our stock price; the success and timing of our business strategies; the impact of reputation risk created by these developments on such matters as business generation and retention, funding and liquidity; the impact of regulatory restrictions on our ability to receive dividends from our subsidiaries; and political developments, wars or other hostilities may disrupt or increase volatility in securities or otherwise affect economic conditions. Additionally, other risks and uncertainties may be described in reports the Company files with the SEC, including the Company’s Annual Report on Form 10-K for the year ended March 31, 2011, as filed with the Securities and Exchange Commission on June 17, 2011, which is available through the SEC’s website at www.sec.gov. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

inability to comply with regulatory orders and agreements; the effect of additional provision for loan losses; the effect of an impairment charge on our deferred tax asset; fluctuations of our stock price; the success and timing of our business strategies; the impact of reputation risk created by these developments on such matters as business generation and retention, funding and liquidity; the impact of regulatory restrictions on our ability to receive dividends from our subsidiaries; and political developments, wars or other hostilities may disrupt or increase volatility in securities or otherwise affect economic conditions. Additionally, other risks and uncertainties may be described in reports the Company files with the SEC, including the Company’s Annual Report on Form 10-K for the year ended March 31, 2012, as filed with the Securities and Exchange Commission on June 19, 2012, which is available through the SEC’s website at www.sec.gov. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

General

The Company is a Massachusetts bank holding company established in 1998 to be the holding company for Central Co-operative Bank (the “Bank”). The Company’s primary business activity is the ownership of all of the outstanding capital stock of the Bank. Accordingly, the information set forth in this report, including the consolidated financial statements and related data, relates primarily to the Bank.

The Bank is a Massachusetts co-operative bank headquartered in Somerville, Massachusetts with nine full-service facilities, a limited service high school branch in suburban Boston, and a stand-alone 24-hour automated teller machine in Somerville. The Company primarily generates funds in the form of deposits and uses the funds to make mortgage loans for the construction, purchase and refinancing of residential properties and to make loans on commercial real estate in its market area.

The operations of the Company and its subsidiary are generally influenced by overall economic conditions, the related monetary and fiscal policies of the federal government and the regulatory policies of financial institution regulatory authorities, including the Massachusetts Commissioner of Banks, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the Federal Deposit Insurance Corporation (the “FDIC”).

The Bank monitors its exposure to earnings fluctuations resulting from market interest rate changes. Historically, the Bank’s earnings have been vulnerable to changing interest rates due to differences in the terms to maturity or ~~repricing~~re-pricing of its assets and liabilities. For example, in a declining interest rate environment, the Bank’s net interest income and net income could be positively impacted as interest-sensitive liabilities (deposits and borrowings) could adjust more quickly to declining interest rates than the Bank’s interest-sensitive assets (loans and investments). Conversely, in a rising interest rate environment, the Bank’s net interest income and net income could be negatively affected as interest-sensitive liabilities (deposits and borrowings) could adjust more quickly to rising interest rates than the Bank’s interest-sensitive assets (loans and investments).

The following is a discussion and analysis of the Company’s results of operations for the three months ended June 30, 2012 and its financial condition at June 30, 2012 compared to March 31, 2012. Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes.

Critical Accounting Policies

Accounting policies involving significant judgments and assumptions by management, which have, or could have, a material impact on the carrying value of certain assets and impact income, are considered critical accounting policies. The Company considers the allowance for loan losses, fair value of other real estate owned, fair value of investments and other-than-temporary impairment, income taxes, accounting for goodwill and impairment, and stock-based compensation to be its critical accounting policies. There have been no significant changes in the methods or assumptions used in the accounting policies that require material estimates and assumptions. Actual results could differ from the amount derived from management’s estimates and assumptions under different assumptions or conditions.

net interest income and net income could be positively impacted as interest-sensitive liabilities (deposits and borrowings) could adjust more quickly to declining interest rates than the Bank’s interest-sensitive assets (loans and investments). Conversely, in a rising interest rate environment, the Bank’s net interest income and net income could be negatively affected as interest-sensitive liabilities (deposits and borrowings) could adjust more quickly to rising interest rates than the Bank’s interest-sensitive assets (loans and investments).

The following is a discussion and analysis of the Company’s results of operations for the three and nine months ended December 31, 2011 as compared to the three and nine months December 31, 2010 and its financial condition at December 31, 2011 compared to March 31, 2011. Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes.

Critical Accounting Policies

Accounting policies involving significant judgments and assumptions by management, which have, or could have, a material impact on the carrying value of certain assets and impact income, are considered critical accounting policies. The Company considers the allowance for loan losses, loans, fair value of other real estate owned, fair value of investments, income taxes, accounting for goodwill and impairment, and stock-based compensation to be its critical accounting policies. There have been no significant changes in the methods or assumptions used in the accounting policies that require material estimates and assumptions.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level determined to be adequate by management to absorb probable losses based on an evaluation of known and inherent risks in the portfolio. This allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged-off, and reduced by charge-offs on loans or reductions in the provision credited to operating expense.

Regarding impaired loans, the Bank individually evaluates each ~~such~~ loan and documents what management believes to be an appropriate reserve level in accordance with ~~Accounting Standards Codification (“~~ASC”) 310 ~~Receivables (“ASC 310”)~~. If management does not believe that any separate reserve for such loan is deemed necessary at the evaluation date ~~in accordance with ASC 310~~, ~~that~~it ~~loan~~ would continue to be evaluated separately and will not be returned to be included in the ~~general~~ normal ASC 450 Contingencies (“ASC 450”) formula based reserve calculation. In evaluating impaired loans, all related management discounts of appraised values, selling and resolution costs are taken into consideration in determining the level of reserves required when appropriate.

The methodology employed in calculating the allowance for loan losses is portfolio segmentation. For the commercial real estate (“CRE”) portfolio, this is further refined through stratification within each segment based on loan-to-value (LTV) ratios. The CRE portfolio is further segmented by type of properties securing those loans. This approach allows the Bank to take into consideration the fact that the various sectors of the real estate market change value at differing rates and thereby present different risk levels. CRE loans are segmented into the following categories:

•

Apartments

•

Offices

•

Retail

•

Mixed Use

•

Industrial/Other

CRE loans are segmented ~~monthly~~ using the above collateral-types and three LTV ratio categories: <40%, 40%-60%, and >60%. While these ranges are subjective, management feels that each category represents a significantly different degree of risk from the other. CRE loans carrying higher LTV ratios are assigned incrementally higher ASC 450 reserve rates. Annually, for the CRE portfolio, management adjusts the appraised values which are used to calculate LTV ratios in our allowance for loan losses calculation. The data is provided by an independent appraiser and it indicates annual changes in value for each property type in the Bank’s market area for the last ten years. Management then adjusts the appraised or most recent appraised values based on the year the appraisal was made. These adjustments are believed to be appropriate based on the Bank’s own experience with collateral values in its market area in recent years. Based on the Company’s allowance for loan loss methodology with respect to CRE, unfavorable trends in the value of real estate will increase the ~~required~~ level of the Company’s ASC 450 allowance for loan losses.

In developing ASC 450 reserve levels, recent regulatory guidance ~~suggests~~focuses ~~using~~on the Bank’s charge-off history as a starting point. ~~The~~ The Bank’s charge-off history in recent years has been minimal.; ~~The~~therefore, ~~charge-off~~management continues to utilize more conservative historical loss ratios which are believed to be appropriate. Those ratios are then adjusted based on trends in delinquent and impaired loans, trends in charge-offs and recoveries, trends in underwriting practices, experience of loan staff, national and local economic trends, industry conditions, and changes in credit concentrations. There is a concentration in CRE loans, but the concentration is decreasing. Management’s efforts to reduce the levels of commercial real estate and construction loans are reflected in changes in the Bank’s commercial real estate concentration ratio, which is calculated as total non-owner occupied commercial real estate and construction loans divided by the Bank’s risk-based capital. At December 31, 2011, the commercial real estate concentration ratio was 296%, compared to a ratio of 330% at March 31, 2011 and 466% at March 31, 2010.

~~Residential~~34 loans, home equity loans and consumer loans, other than TDRs and loans in the process of foreclosure or repossession, are collectively evaluated for impairment. Factors considered in determining the appropriate ASC 450 reserve levels are trends in delinquent and impaired loans, changes in the value of collateral, trends in charge-offs and recoveries, trends in underwriting practices, experience of loan staff, national and local economic trends, industry conditions, and changes in credit concentrations. TDRs and loans that are in the process of foreclosure or repossession are evaluated under ASC 310.

During the nine months ended December 31, 2011, management increased the ASC 450 loss factors related to economic conditions for all loan types, changes in collateral values for residential loans, and trends in delinquencies and charge-offs and recoveries for commercial real estate loans. As a result of those changes and adjustments made by management for trends in recent historical losses, the impact to the allowance for loan losses were increases in ASC 450 reserves of 444 thousand for those loan types.

In changes ~~the~~in ~~ordinary~~credit ~~course~~concentrations. ofThere ~~business,~~is ~~the~~a ~~Bank~~concentration ~~enters~~in ~~into~~CRE ~~commitments~~loans, tobut ~~extend~~the ~~credit, commercial~~concentration ~~letters~~is ofdecreasing. ~~credit,~~Management’s ~~and~~efforts ~~standby~~to ~~letters~~reduce the levels of ~~credit.~~commercial ~~Such~~real ~~financial~~estate ~~instruments~~and construction loans are ~~recorded~~reflected in changes in the ~~consolidated~~Bank’s ~~financial~~commercial ~~statements~~real ~~when~~estate ~~they~~concentration ~~become~~ratio, ~~payable.~~which ~~The~~is ~~credit~~calculated ~~risk~~as ~~associated~~total ~~with~~non-owner ~~these~~occupied ~~commitments~~commercial isreal ~~evaluated~~estate inand aconstruction ~~manner similar~~loans todivided by the ~~allowance~~Bank’s ~~for~~risk-based ~~loan losses~~capital. At ~~The~~June 30, ~~reserve~~2012, ~~for~~the ~~unfunded~~commercial ~~lending~~real ~~commitments~~estate isconcentration ~~included~~ratio inwas ~~other~~263%, ~~liabilities~~compared into ~~the~~a ~~balance~~ratio ~~sheet.~~of At286% ~~December 31,~~at ~~2011 and~~ March 31, ~~2011, the reserve for unfunded commitments was not significant~~2012.

Residential loans, home equity loans and consumer loans, other than trouble debt restructuring (“TDRs”) and loans in the process of foreclosure or repossession, are collectively evaluated for impairment. Factors considered in determining the appropriate ASC 450 reserve levels are trends in delinquent and impaired loans, changes in the value of collateral, trends in charge-offs and recoveries, trends in underwriting practices, experience of loan staff, national and local economic trends, industry conditions, and changes in credit concentrations. TDRs and loans that are in the process of foreclosure or repossession are evaluated under ASC 310.

During the three months ended June 30, 2012, management changed the various ASC 450 loss factors, specifically as it related to trends in delinquencies and impaired loans, changes in collateral values, charge-offs and recoveries, and trends and conditions related to economic conditions among the different loan types.

In the ordinary course of business, the Bank enters into commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses. The reserve for unfunded lending commitments is included in other liabilities in the balance sheet. At June 30, 2012, the reserve for unfunded commitments was not significant.

Loans. Loans that management has the intent and ability to hold for the foreseeable future are reported at the principal amount outstanding, adjusted by unamortized discounts, premiums, and net deferred loan origination costs and fees.

Loans classified as held for sale are stated at the lower of aggregate cost or fair value. Fair value is estimated based on outstanding investor commitments. Net unrealized losses, if any, are provided for in a valuation allowance by charges to operations. The Company enters into forward commitments (generally on a best efforts delivery basis) to sell loans held for sale in order to reduce market risk associated with the origination of such loans. Loans held for sale are sold on a servicing released basis. As of ~~December~~June 3130, ~~2011,~~2012 loans held for sale totaled $~~221~~75 thousand compared to $0 at March 31, ~~2011~~2012.

~~The~~35 Company carefully evaluates all loan sales agreements to determine whether they meet the definition of a derivative as facts and circumstances may differ significantly. If agreements qualify, to protect against the price risk inherent in derivative loan commitments, the Company generally uses “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Forward loan sale commitments are recognized at fair value on the consolidated balance sheet in other assets and liabilities with changes in their fair values recorded in other noninterest income. At December 31, 2011, the fair value of forward loan sale commitments was not material.

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~~Interest~~The ~~income~~Company oncarefully ~~loans~~evaluates isall ~~recognized~~loan onsales anagreements ~~accrual~~to ~~basis~~determine ~~only~~whether ifthey ~~deemed~~meet ~~collectible. Loans on which~~ the definition ~~accrual~~ of ~~interest~~a ~~has~~derivative ~~been discontinued are designated~~ as ~~nonaccrual~~facts ~~loans. Accrual of interest on loans~~ and ~~amortization~~circumstances ofmay ~~net~~differ ~~deferred~~significantly. ~~loan~~If ~~fees~~agreements orqualify, ~~costs~~to ~~are~~protect ~~discontinued~~against ~~either when reasonable doubt exists as to~~ the ~~full~~price ~~and~~risk ~~timely~~inherent ~~collection~~in ofderivative ~~interest~~loan ~~or principal~~commitments, orthe ~~when~~Company agenerally ~~loan~~uses ~~becomes~~“best ~~contractually~~efforts” ~~past~~forward ~~due~~loan 90sale commitments ~~days with respect~~ to ~~interest~~ ormitigate ~~principal.~~the ~~The~~risk ~~accrual~~of onpotential ~~some~~decreases ~~loans,~~in ~~however,~~the ~~may~~values ~~continue~~of ~~even~~loans ~~though~~that ~~they~~would ~~are~~result ~~more~~from ~~than 90 days past due if management deems it appropriate, provided that~~ the ~~loans~~exercise ~~are~~of ~~well secured and in~~ the ~~process~~derivative ofloan ~~collection~~commitments. ~~When~~Forward a loan ~~is placed~~sale oncommitments ~~nonaccrual~~are ~~status,~~recognized ~~all~~at ~~interest~~fair ~~previously~~value ~~accrued but not collected is reversed against current period interest income. Interest accruals are resumed~~ on ~~such~~the ~~loans~~consolidated ~~only~~balance ~~when~~sheet ~~they~~in other ~~are~~assets ~~brought~~and ~~fully~~liabilities ~~current~~ with ~~respect~~changes toin ~~interest~~their ~~and principal~~fair ~~and~~values ~~when,~~recorded in ~~the~~other ~~judgment~~noninterest ofincome. ~~management~~At June 30, 2012, the ~~loans~~fair ~~are~~value ~~estimated~~of toforward beloan ~~fully~~sale ~~collectible~~commitments aswas tonot ~~both principal and interest~~material.

~~Loans~~Loan ~~are~~origination ~~classified~~fees, asnet ~~impaired when it is probable that the Bank will not be able to collect all amounts due in accordance with the contractual terms~~ of ~~the~~certain direct loan ~~agreement.~~origination ~~Impaired loans~~costs, ~~except those loans that~~ are ~~accounted~~deferred ~~for~~and ~~at fair value or at lower of cost or fair value such as loans held for sale,~~ are ~~accounted~~amortized ~~for~~into atinterest ~~the~~income ~~present~~over ~~value of~~ the contractual ~~expected~~loan ~~future~~term ~~cash~~using ~~flows discounted at~~ the ~~loan’s~~level-yield ~~effective~~method. ~~interest~~At ~~rate~~June 30, or2012 asand ~~a practical~~June 30, ~~expedient in the case of collateral dependent loans~~2011, ~~the~~net ~~lower~~deferred ofloan ~~the~~fees ~~fair~~and ~~value~~costs of ~~the~~$118 ~~collateral~~thousand ~~less selling~~ and ~~other~~$(8) ~~costs~~thousand, orrespectively, ~~the~~were ~~recorded~~included ~~amount~~with of the related loan. Inbalances ~~evaluating collateral values~~ for ~~impaired loans, management obtains new~~financial ~~appraisals~~presentation ~~or opinions of value when deemed necessary and may discount those appraisals depending on the likelihood of foreclosure~~purposes. ~~Other factors considered by management when discounting appraisals are the age of the~~

Interest income on loans is recognized on an accrual basis using the simple interest method only if deemed collectible. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans and amortization of net deferred loan fees or costs are discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal, or when a loan becomes contractually past due 90 days with respect to interest or principal. The accrual on some loans, however, may continue even though they are more than 90 days past due if management deems it appropriate, provided that the loans are well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. The Bank records interest income on nonaccrual and impaired loans on the cash basis of accounting.

Loans are classified as impaired when it is probable that the Bank will not be able to collect all amounts due in accordance with the contractual terms of the loan agreement. Impaired loans, except those loans that are accounted for at fair value or at lower of cost or fair value such as loans held for sale, are accounted for at the present value of the expected future cash flows discounted at the loan’s effective interest rate or as a practical expedient in the case of collateral dependent loans, the lower of the fair value of the collateral less selling and other costs, or the recorded amount of the loan. In evaluating collateral values for impaired loans, management obtains new appraisals or opinions of value when deemed necessary and may discount those appraisals depending on the likelihood of foreclosure. Other factors considered by management when discounting appraisals are the age of the appraisal, availability of comparable properties, geographic considerations, and property type. Management considers the payment status, net worth and earnings potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with its contractual terms. Management does not set any minimum delay of payments as a factor in reviewing for impairment classification. For all loans, charge-offs occur when management believes that the collectability of a portion or all of the loan’s principal balance is remote. Management considers nonaccrual loans, except for certain nonaccrual residential and consumer loans, to be impaired. However, all TDRs are considered to be impaired. A TDR occurs when the Bank grants a concession to a borrower with financial difficulties that it would not otherwise consider. The majority of TDRs involve a modification in loan terms such as a temporary reduction in the interest rate or a temporary period of interest only, and escrow (if required). TDRs are accounted for as set forth in ASC 310 Receivables (“ASC 310”). A TDR is typically on non-accrual until the borrower successfully performs under the new terms for at least six consecutive months. However, a TDR may be kept on accrual immediately following the restructuring in those instances where a borrower’s payments are current prior to the modification and management determines that principal and interest under the new terms are fully collectible.

Existing performing loan customers, who request a non-TDR loan modification and who meet the Bank’s underwriting standards may, usually for a fee, modify their original loan terms to terms currently offered. The modified terms of these loans are similar to the terms offered to new customers with similar credit, income, and collateral. The fee assessed for modifying the loan is deferred and amortized over the life of the modified loan using the level-yield method and is reflected as an adjustment to interest income. Each modification is examined on a loan-by-loan basis and if the modification of terms represents more than a minor change to the loan, then the

~~appraisal,~~unamortized ~~availability~~balance of ~~comparable properties, geographic considerations, and property type. Management considers~~ the ~~payment~~pre-modification ~~status,~~deferred ~~net~~fees ~~worth~~or ~~and~~costs ~~earnings~~associated ~~potential~~with of the ~~borrower,~~mortgage ~~and the value and cash flow of the collateral as factors to determine if a~~ loan ~~will~~are berecognized ~~paid~~ in ~~accordance~~interest ~~with~~income ~~its~~at ~~contractual terms. Management does not set any minimum delay of payments as a factor in reviewing for impairment classification. For all loans, charge-offs occur when management believes that~~ the ~~collectability~~time of ~~a portion or all of~~ the ~~loan’s principal balance is remote~~modification. ~~Management~~If considers nonaccrual loans, except for certain nonaccrual residential and consumer loans, to be impaired. However, all troubled debt restructurings (“TDRs”) are considered to be impaired. A TDR occurs when the ~~Bank~~modification ~~grants a concession to a borrower with financial difficulties that it would not otherwise consider. The majority~~ of ~~TDRs~~ ~~involve~~terms adoes ~~modification~~not inrepresent ~~loan~~more ~~terms~~than ~~such as~~ a ~~temporary~~minor ~~reduction~~change into the ~~interest rate or a temporary period of interest only~~loan, ~~and~~then ~~escrow (if required). TDRs are accounted for as set forth in ASC 310. A TDR is typically on nonaccrual until~~ the ~~borrower~~ ~~successfully~~unamortized ~~performs~~balance ~~under~~of the ~~new~~pre-modification ~~terms~~deferred ~~for~~fees ator ~~least~~costs ~~six~~continue ~~consecutive~~to ~~months. However, a TDR may~~ be ~~kept~~deferred onand ~~accrual~~amortized ~~immediately~~over ~~following~~ the ~~restructuring~~remaining inlife ~~those~~of ~~instances where a borrower’s payments are current prior to~~ the ~~modification~~ ~~and management determines that principal and interest under the new terms are fully collectible~~loan.

Existing performing loan customers who request a loan (non-TDR) modification and who meet the Bank’s underwriting standards may, usually for a fee, modify their original loan terms to terms currently offered. The modified terms of these loans are similar to the terms offered to new customers with similar credit, income, and collateral. Each modification is examined on a loan-by-loan basis and if the modification of terms represents more than a minor change to the loan, then the unamortized balance of the pre-modification deferred fees or costs associated with the mortgage loan are recognized in interest income at the time of the modification. If the modification of terms does not represent more than a minor change to the loan, then the unamortized balance of the pre-modification deferred fees or costs continue to be deferred and amortized over the remaining life of the loan.

Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the accounting basis and the tax basis of the Bank’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The Bank’s deferred tax asset is reviewed periodically and adjustments to such asset are recognized as deferred income tax expense or benefit based on management’s judgments relating to the realizability of such an asset.

Accounting for Goodwill and Impairment. ASC 350, “Intangibles – Goodwill and Other, ~~Intangibles”~~ (“ASC 350”), addresses the method of identifying and measuring goodwill and other intangible assets having indefinite lives acquired in a business combination, eliminates further amortization of goodwill and requires periodic impairment evaluations of goodwill using a fair value methodology prescribed in ASC 350. In accordance with ASC 350, the Company does not amortize the goodwill balance of $2.2 million and the Company consists of a single reporting unit. Impairment testing is required at least annually or more frequently as a result of an event or change in circumstances (e.g., recurring operating losses by the acquired entity) that would indicate an impairment adjustment may be necessary. The Company adopted December 31 as its assessment date. Annual impairment testing was performed during each year and in each analysis, it was determined that an impairment charge was not required. The most recent testing was performed as of December 31, 2011 utilizing average earnings and average book and tangible book multiples of sales transactions of banks considered to be comparable to the Company, and management determined that no impairment existed at that date. Management utilized 2011 sales transaction data of financial institutions in the New England area of similar size, credit quality, net income, and return on average assets levels and management feels that the overall assumptions utilized in the testing process were reasonable. During the December 31, 2011 impairment testing, management also considered utilizing market capitalization, but ultimately concluded that it was not an appropriate measure of the Company’s value due to the overall depressed valuations in the financial sector and the significance of the Company’s insider ownership and the lack of volume in trading in the Company’s shares of common stock. Management also does not believe that this measure generally reflects the premium that a buyer would typically pay for a controlling interest. No ~~facts~~events ~~or circumstances~~ have ~~arisen~~occurred ~~after~~during the ~~Company’s~~six ~~impairment~~months ~~testing~~ended ~~date~~June 30, to2012 ~~warrant~~which anindicate ~~interim~~that ~~analysis~~the impairment test would need to be re-performed.

~~Fair~~Investments. ~~Value~~Debt ofsecurities ~~Other~~that ~~Real~~management ~~Estate~~has ~~Owned.~~the ~~OREO~~positive isintent ~~recorded~~and ability to hold to maturity are classified as held-to-maturity and reported at ~~the~~cost, ~~lower~~adjusted for amortization of ~~cost~~premiums and accretion of discounts, orboth ~~fair~~computed ~~value~~by ~~less~~a ~~estimated~~method ~~selling~~that ~~costs~~approximates the effective yield method. ~~Property~~Debt ~~insurance~~and isequity ~~obtained~~securities ~~for~~that ~~each~~are ~~parcel,~~bought and ~~each~~held ~~property~~principally isfor the ~~properly~~purpose ~~maintained~~of ~~and~~selling ~~secured~~them ~~during~~in the ~~holding~~near ~~period.~~term ~~Property~~are ~~management~~classified ~~vendors~~as ~~may~~trading beand ~~utilized~~reported inat ~~those~~fair ~~instances~~value, ~~when~~with aunrealized ~~direct~~gains ~~sale~~and ~~does~~losses ~~not~~included ~~seem~~in ~~probable~~earnings. ~~during~~Debt aand ~~reasonable~~equity ~~period~~securities ofnot ~~time,~~classified oras ifeither ~~the~~held-to-maturity ~~property~~or ~~requires~~trading ~~additional~~are ~~oversight.~~classified as Itavailable isfor ~~the~~sale ~~Company’s~~and ~~policy~~reported at fair value, with unrealized gains and ~~strategy~~losses determined by management to ~~sell~~be ~~all~~temporary ~~OREO~~excluded asfrom ~~soon~~earnings and reported as ~~possible~~a ~~consistent~~separate ~~with~~component ~~maximizing~~of ~~value~~stockholders’ equity and ~~return~~comprehensive toincome. At June 30, 2012 and March 31, 2012, all of the ~~Company~~Bank’s investment securities were classified as available for sale.

Gains and losses on sales of securities are recognized when realized with the cost basis of investments sold determined on a specific-identification basis. Premiums and discounts on investment and mortgage-backed securities are amortized or accreted to interest income over the actual or expected lives of the securities using the level-yield method.

If a decline in fair value below the amortized cost basis of an investment is judged to be other-than-temporary, the cost basis of the investment is written down to fair value as a new cost basis. For debt securities, when the Bank does not intend to sell the security, and it is more-likely-than-not that the Bank will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment loss in earnings, and the remaining portion in other comprehensive income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as estimated based on the cash flows projections discounted at the applicable original yield of the security.

Fair Value of Investments. Debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and reported at cost, adjusted for amortization of premiums and accretion of discounts, both computed by a method that approximates the effective yield method. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity or trading are classified as available for sale and reported at fair value, with unrealized gains and losses determined by management to be temporary excluded from earnings and reported as a separate component of stockholders’ equity and comprehensive income. At December 31, 2011, all of the Bank’s investment securities were classified as available for sale.

If a decline in fair value below the amortized cost basis of an investment is judged to be other-than-temporary, the cost basis of the investment is written down to fair value as a new cost basis and the amount of the write-down is included in the results of operations. For debt securities, when the Bank does not intend to sell the security, and it is more-likely-than-not that the Bank will not have to sell the security before recovery of its cost basis, it will recognize the credit component of a other-than-temporary impairment loss in earnings, and the remaining portion in other comprehensive income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as estimated based on the cash flows projections discounted at the applicable original yield of the security.

Stock-Based Compensation. The Company accounts for stock based compensation pursuant to ASC 718 Compensation-Stock Compensation (“ASC 718”). The Company uses the Black-Scholes option pricing model as its method for determining fair value of stock option grants. The Company has previously adopted two qualified stock option plans for the benefit of officers and other employees under which an aggregate of 281,500 shares have been reserved for issuance. One of these plans expired in 1997 and the other plan expired in 2009. Awards outstanding at the time the plans expire will continue to remain outstanding according to their terms.

On July 31, 2006, the Company’s stockholders approved the Central Bancorp, Inc. 2006 Long-Term Incentive Plan (the “Incentive Plan”). Under the Incentive Plan, 150,000 shares have been reserved for issuance as options to purchase stock, restricted stock, or other stock awards, however, a maximum of 100,000 restricted shares may be granted under the plan. The exercise price of an option may not be less than the fair market value of the Company’s common stock on the date of grant of the option and may not be exercisable more than ten years after the date of grant. However, awards may become available again if participants forfeit awards under the plan prior to its expiration. As of ~~December~~June 3130, ~~2011~~2012, ~~49,880~~no shares ~~remained~~remain available for issue under the Incentive Plan~~, of which 9,880 were available to be issued in the form of stock grants~~.

Forfeitures of awards granted under the Incentive Plan are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates in order to derive the Company’s best estimate of awards ultimately expected to vest. Forfeitures represent only the unvested portion of a surrendered option and are typically estimated based on historical experience. Based on an analysis of the Company’s historical data, the Company applied a forfeiture rate of 0% to stock options outstanding in determining stock compensation expense for ~~the~~each ~~quarter~~of ~~and~~the ~~nine~~three ~~months~~month periods ended ~~December~~June 3130, 2012 and 2011.

Comparison of Financial Condition at ~~December~~June 3130, ~~2011~~2012 and March 31, ~~2011~~2012

Total assets were $~~521~~565.37 million at ~~December~~ June 3130, ~~2011~~2012 compared to $~~487~~523.6 million at March 31, ~~2011~~ 2012, representing an increase of $3342.71 million, or 68.90%. The increase in total assets reflected strategic actions taken by management to ~~reduce~~emphasize ~~risk,~~residential ~~which~~loans ~~included~~utilizing ~~increasing~~short ~~the residential~~term ~~loan~~FHLB ~~portfolio~~of byBoston ~~$54.9~~advances, ~~million~~certain deposits, and ~~continuing to de-emphasize~~ commercial real estate ~~lending~~loan inrepayments ~~accordance~~to ~~with~~fund the ~~Company’s business plan~~growth. Total loans (excluding loans held for sale) were $~~420~~489.98 million at ~~December~~June 3130, ~~2011~~2012, compared to $~~394~~448.29 million at March 31, ~~2011~~2012, representing an increase of $2640.79 million, or 69.81%. This increase was primarily due to increases in residential and home equity loans of $53.6 million and $499 thousand, respectively, partially offset by a decrease in commercial real estate loans of $13.1 million as management de-emphasized this type of lending prior periods in the current economic environment in an effort to reduce risk and increase regulatory capital ratios in accordance with the Company’s business plan. Construction and land loans increased $301 thousand to $1.2 million at June 30, 2012. Management’s efforts to reduce the levels of commercial real estate loans are reflected in changes in the Bank’s commercial real estate concentration ratio, which is calculated as total non-owner occupied commercial real estate and construction loans divided by the Bank’s risk-based capital. At June 30, 2012 the commercial real estate concentration ratio was 263%, compared to a ratio of 286% at March 31, 2012.

The allowance for loan losses totaled $4.2 million at June 30, 2012 compared to $4.3 million at March 31, 2012, representing a net decrease of $119 thousand, or 2.8%. This net decrease was primarily due to the charging off of a two commercial real estate loans totaling $265 thousand, partially offset by a provision of $150 thousand resulting from management’s review of the adequacy of the allowance for loan losses. Based upon management’s regular analysis of the adequacy of the allowance for loan losses, management considered the allowance for loan losses to be adequate at both June 30, 2012 and March 31, 2012. See “Comparison of Operating Results for the Quarters Ended June 30, 2012 and 2011–Provision for Loan Losses.”

Management regularly assesses the desirability of holding newly originated residential mortgage loans in the Bank’s portfolio or selling such loans in the secondary market. A number of factors are evaluated to determine whether or not to hold such loans in the Bank’s portfolio including current and projected liquidity, current and projected interest rates, projected growth in other interest-earning assets and the current and projected interest rate risk profile. Based on its consideration of these factors, management determined that most long-term residential

~~and~~mortgage ~~home equity~~ loans oforiginated ~~$53.9~~during ~~million~~the ~~and~~three ~~$173~~months ~~thousand,~~ended ~~respectively~~June 30, ~~offset~~2012 byshould ~~decreases~~be retained in ~~commercial~~the ~~real~~Bank’s ~~estate loans of $27~~portfolio.0 ~~million.~~The ~~Residential~~decision ~~and home equity loans increased from $191.6 million at March 31, 2011~~ to ~~$245.7~~sell ~~million~~or athold ~~December 31, 2011. Commercial and industrial~~ loans ~~decreased~~is ~~from~~made ~~$2.1 million~~ at ~~March 31,~~the ~~2011~~time ~~to $1.2 million at December 31, 2011 primarily due to~~ the ~~scheduled repayments~~loan ofcommitment ~~principal~~is issued. ~~Management’s~~Upon ~~efforts~~making toa ~~reduce~~determination ~~the~~not ~~levels~~to ofretain ~~commercial~~a ~~real~~loan, ~~estate and land and construction loans are reflected in changes in~~ the Bank’s ~~commercial~~simultaneously ~~real~~enters ~~estate~~into ~~concentration~~a ~~ratio,~~best ~~which~~efforts isforward ~~calculated~~commitment asto ~~total~~sell ~~non-owner occupied~~the ~~commercial~~loan ~~real~~to ~~estate~~manage ~~and land and construction loans divided by~~ the ~~Bank’s~~interest rate risk~~-based~~ ~~capital.~~associated Atwith ~~December 31, 2011~~ the ~~commercial~~decision ~~real estate concentration ratio was 296%, compared~~ to asell ~~ratio~~the ofloan. ~~330%~~Loans atare sold ~~March 31,~~servicing ~~2011~~released.

~~The~~Cash ~~allowance~~and ~~for~~cash ~~loan~~equivalents ~~losses~~ totaled $410.1 million at ~~December~~June 3130, ~~2011~~2012 compared to $37.93 million at March 31, ~~2011~~2012, representing aan ~~net~~ increase of $~~191~~2.7 ~~thousand~~million, or 437.90%. ~~This~~During ~~net increase was primarily due to a provision of $1.1 million for~~ the ~~nine~~three months ended ~~December~~June 3130, ~~2011~~2012, ~~resulting~~in ~~from~~general, ~~management’s~~proceeds ~~review~~from ofFHLB ~~the adequacy~~ of ~~the~~Boston ~~allowance~~short ~~for~~ term loan ~~losses.~~advances, ~~Based~~commercial ~~upon~~real ~~management’s~~estate ~~regular analysis of the adequacy of the allowance for~~ loan ~~losses~~repayments, ~~management~~and ~~considered~~deposits ~~the~~were utilized ~~allowance for loan losses~~ to befund ~~adequate~~residential atreal ~~both~~estate ~~December 31,~~loan ~~2011 and March 31~~growth, ~~2011.~~with ~~See “Comparison~~the ofremaining ~~Operating~~funds ~~Results~~contributing ~~for~~to the ~~Quarters~~increase ~~Ended~~in ~~December 31,~~cash ~~2011~~ and ~~2010–Provision~~cash ~~for Loan Losses~~equivalents.”

~~Management~~Investment ~~regularly~~securities ~~assesses~~totaled ~~the~~$47.2 ~~desirability~~million ofat ~~holding~~June 30, ~~newly~~2012 ~~originated~~compared ~~residential~~to ~~mortgage~~$48.8 ~~loans~~million inat ~~the~~March 31, ~~Bank’s~~2012, ~~portfolio~~representing ora ~~selling~~decrease ~~such~~of ~~loans~~$1.7 inmillion, ~~the~~or ~~secondary market~~3.4%. AThe ~~number~~decrease ofin ~~factors~~investment ~~are~~securities ~~evaluated~~is toprimarily ~~determine~~due ~~whether or not~~ to ~~hold such loans in~~ the ~~Bank’s~~repayment ~~portfolio~~of ~~including~~$1.6 ~~current~~million ~~and projected liquidity, current and projected interest rates, projected growth~~ in ~~other~~principal ~~interest~~on mortgage-~~earning~~backed ~~assets~~securities and the ~~current~~sale ~~and~~of ~~projected interest~~$163 ~~rate~~thousand ~~risk~~in ~~profile.~~common ~~Based on its consideration of these factors~~stock, ~~management~~partially ~~determined~~offset ~~that~~by ~~most~~a ~~long-term~~net ~~residential~~increase ~~mortgage~~of ~~loans~~$135 ~~originated~~thousand ~~during~~in the ~~nine~~fair ~~months~~value ~~ended~~of ~~December 31,~~available ~~2011~~for ~~should~~sale besecurities. ~~retained~~ Stock in the ~~Bank’s portfolio~~FHLB ~~rather~~of ~~than~~Boston ~~being~~totaled ~~sold in the secondary market~~$8.2 ~~The~~million ~~decision to sell or hold loans is made~~ at ~~the~~both ~~time~~June 30, ~~the~~2012 ~~loan~~and ~~commitment is issued. Upon making a determination not to retain a loan~~March 31, ~~the Bank simultaneously enters into a best efforts forward commitment to sell the loan to manage the interest rate risk associated with the decision to sell the loan~~2012. ~~Loans are sold servicing released.~~

~~Cash~~Banking premises and equipment, ~~cash~~net, ~~equivalents~~ totaled $372.16 million atand ~~December 31, 2011 compared to~~ $402.97 million at ~~March~~June 3130, ~~2011,~~2012 ~~representing~~and ~~a decrease of $3.9 million, or 9.4%. During the nine months ended December~~March 31, ~~2011, proceeds from cash and cash equivalents, commercial real estate payoffs and increases in certificates of deposit were generally utilized to fund the growth in the residential loan portfolio~~2012.

~~Investment~~Other ~~securities~~real estate owned totaled $~~45.4~~665 ~~million~~thousand at ~~December~~June 3130, ~~2011~~2012, compared to $~~35.3~~133 ~~million~~thousand at March 31, ~~2011,~~2012 ~~representing~~as ~~an increase~~one ofparcel ~~$10.1 million, or 28.6%. The increase in investment securities is primarily due to the purchase~~ of ~~$18.6~~foreclosed ~~million~~commercial inreal ~~mortgage-backed~~estate ~~securities~~property ~~and~~was ~~$2.4~~added ~~million~~during ~~in common stock, offset by~~ the ~~sale~~quarter ofended $6.2 million in mortgage-backed securities, the repayment of $3.6 million of principal on mortgage-backed securities and a net decrease of $725 thousand in the fair value of available for sale securities. Stock in the Federal Home Loan Bank of Boston totaled $8.5 million at both DecemberJune 3130, ~~2011 and March 31, 2011~~2012.

~~Banking~~Deferred ~~premises~~tax ~~and~~assets ~~equipment, net,~~ totaled $23.72 million at ~~December~~ June 3130, ~~2011~~2012 ~~and~~compared to $3.3 million at March 31, ~~2011~~2012. The decrease in deferred tax asset is primarily due to the tax effect related to the increase in the fair value of available for sale securities during the quarter ending June 30, ~~respectively~~2012.

~~Other~~During ~~real~~the ~~estate~~quarter ~~owned~~ended December 31, 2007, the Bank purchased life insurance policies on one executive which totaled $~~320~~6.0 ~~thousand~~million. ~~at December~~During the quarter ended March 31, ~~2011~~2012 ~~compared~~the toBank purchased a life insurance policy on one executive which totaled $~~132~~2.0 ~~thousand~~million. The cash surrender value of these policies is carried as an asset titled “Bank-Owned Life Insurance” and totaled $9.7 million at ~~March~~June 3130, ~~2011~~2012 as ~~two~~compared ~~new~~to $9.6 ~~residential~~million ~~properties~~as ~~were~~of ~~added~~March 31, 2012.

~~Deferred~~Total ~~tax~~deposits ~~asset~~amounted ~~totaled~~to $3356.9 million at ~~December~~June 3130, ~~2011~~2012 compared to $3344.6 5 million at March 31, ~~2011~~2012, representing an increase of $12.4 million, or 3.6%. The increase was a result of the combined effect of a $5.8 million net increase in certificates of deposit , including $6.8 million obtained through a non-broker listing service, and a net increase in core deposits of $6.5 million (consisting of all non-certificate accounts). Management utilized cash and short-term investments to fund certain maturing higher-cost certificates of deposit in an effort to improve the Company’s net interest rate spread and net interest margin.

~~The~~FHLB ~~cash surrender value~~ of aBoston ~~bank-owned~~advances ~~life~~amounted ~~insurance~~to ~~policy~~$147.2 million onat ~~one~~June 30, ~~executive~~2012 iscompared ~~carried~~to as$117.2 anmillion ~~asset~~at ~~titled~~March 31, ~~“Bank-Owned~~2012, ~~Life Insurance”~~representing ~~and~~an ~~totaled~~increase ~~approximately~~of $730.20 million, ator ~~December 31~~25.6%, ~~2011~~as ~~compared~~short term advances were utilized to ~~$7.0~~fund ~~million~~residential atreal ~~March 31,~~estate ~~2011~~loan growth.

~~Total~~The ~~deposits~~net ~~amounted~~decrease toin stockholders’ equity from $~~332~~45.73 million at ~~December~~March 31, ~~2011~~2012 ~~compared~~ to $~~309~~44.19 million at ~~March~~June 3130, ~~2011,~~2012 ~~representing~~is primarily anthe ~~increase of $23.6 million, or 7.6%. The increase was a~~ result of ~~the combined~~net ~~effect~~loss of a $~~26.0~~482 ~~million~~thousand ~~increase in certificates of deposit~~ and a$202 ~~net~~thousand ~~decrease in core deposits~~ of ~~$2.4~~dividends ~~million~~paid ~~(consisting~~to ofpreferred ~~all~~and ~~non-certificate~~common ~~accounts)~~shareholders. ~~Certificate of deposit growth for the nine months ended December 31, 2011 included~~

Comparison of Operating Results for the Quarters Ended June 30, 2012 and 2011

Net loss attributable to common shareholders for the quarter ended June 30, 2012 was $(612) thousand, or $(0.39) per diluted common share, as compared to net income available to common shareholders of $80 thousand, or $0.05 per diluted common share, for the comparable prior year quarter. The decrease was primarily due to an increase in non-interest expenses of $677 thousand (which includes $551 thousand related to the proposed merger), a $403 thousand decrease in non-interest income and a decrease in net interest and dividend income of $132

~~$24.2~~thousand, ~~million~~partially ~~obtained~~offset ~~through~~by a ~~non-broker~~decrease ~~listing~~in ~~service.~~the ~~During~~provision ~~the~~for ~~nine~~loan ~~months~~losses ~~ended~~of ~~December 31,~~$350 ~~2011,~~thousand ~~management~~and ~~utilized~~a ~~increases~~$144 thousand decrease in ~~deposits~~income totax ~~fund~~expense. ~~residential~~Additionally, ~~loan~~for ~~portfolio~~the quarter ended June 30, ~~growth~~2012, innet anincome ~~effort~~available to ~~reduce~~common ~~risk~~shareholders inwas ~~accordance~~reduced ~~with~~by ~~the~~$125 ~~Company’s~~thousand ~~business~~for ~~plan~~allocated dividends paid to preferred shareholders.

~~FHLBB~~Interest ~~advances~~and ~~amounted~~Dividend Income. Interest and dividend income decreased by $59 thousand, or 1.1%, to $~~117~~5.3 5 million atfor ~~both~~the ~~December~~quarter ended June 3130, 2012 as compared to $5.6 million for the same period of 2011. During the quarter ended June 30, 2012, the yield on interest-earning assets decreased by 49 basis points primarily due to a 78 basis point reduction in the yield on mortgage loans due to a general decline in market interest rates and ~~March~~the continued decrease in higher-risk, higher-yield commercial real estate loan balances. The average balance of commercial real estate loans decreased by $35.5 million, from $196.6 million for the quarter ended June 3130, 2011 to $161.1 million for the quarter ended June 30, 2012.

~~Included~~Interest Expense. Interest expense increased by $73 thousand, or 4.5%, to $1.7 million for the quarter ended June 30, 2012 as compared to $1.6 million for the same period of 2011 primarily due to increases in ~~other~~the ~~liabilities~~average atrates ~~December~~paid on deposits and higher balances of FHLB of Boston borrowings. The cost of deposits increased by 2 basis points from 0.58% for the quarter ended June 3130, 2011 isto 0.60% for the quarter ended June 30, 2012, as higher-cost certificates of deposit increased, partially offset by increases in generally lower cost non certificate accounts. The average balance of certificates of deposit totaled $10141.48 million ~~which~~for ~~represents~~the ~~purchases~~quarter ofended ~~available~~June 30, 2012, compared to $108.0 million for ~~sale~~the ~~mortgage~~same period in 2011, an increase of $33.8 million. The average balance of lower-~~backed~~cost ~~securities~~non-maturity ~~which~~deposits ~~had~~increased ~~December~~by $373 thousand to $158.8 million for the quarter ended June 30, 2012, as compared to an average balance of $158.4 million during the same period of 2011. ~~trade~~The ~~dates~~average ~~and~~balance ~~January~~of FHLB of Boston borrowings increased by $13.6 million, from $117.3 million for the quarter ended June 30, 2011 to $130.9 million for the quarter ended June 30, 2012. ~~settlement~~The ~~dates~~average cost of these borrowings decreased as management utilized lower cost short-term borrowings to fund the residential loan growth during the quarter ended June 30, 2012.

The net decrease in stockholders’ equity from $47.1 million at March 31, 2011 to $44.8 million at December 31, 2011 was primarily due to a $2.5 million negotiated repurchase on October 19, 2011 of the warrant associated with the Company’s participation in the U.S. Department of Treasury’s TARP Capital Purchase Program. Other items contributing to the net decrease in stockholders’ equity during the period were a $450 thousand decrease in other comprehensive income due to an overall decrease in the market value of available for sale securities and $676 thousand of dividends paid to common and preferred stockholders, partially offset by net income of $800 thousand and stock-based compensation of $575 thousand.

Comparison of Operating Results for the Quarters Ended December 31, 2011 and 2010

Net income available to common shareholders for the quarter ended December 31, 2011 was $231 thousand, or $0.15 per diluted common share, as compared to net income available to common shareholders of $191 thousand, or $0.12 per diluted common share, for the comparable prior year quarter. The increase was primarily due to a decrease in net interest and dividend income of $156 thousand, an $86 decrease in non-interest income and a $58 thousand decrease in non-interest expenses. Additionally, for each of the quarters ended December 31, 2011 and 2010 net income available to common shareholders was reduced by $125 thousand for allocated dividends paid to preferred shareholders and accretion of the discount related to the Company’s December 2008 sale of $10.0 million of Series A Preferred Stock and a warrant to purchase 234,732 shares of the Company’s common stock pursuant to the TARP Capital Purchase Program. Using the $10.0 million in proceeds it received from 10,000 shares issued in Series B Preferred stock to the Treasury Department through the Company’s participation in the SBLF program, on August 25, 2011, the Company redeemed all 10,000 outstanding shares of its Series A Preferred Stock for a redemption price of $10,013,889, which amount includes accrued but unpaid dividends. The Company subsequently repurchased the warrant from the Treasury on October 19, 2011 for an aggregate purchase price of $2.525 million.

Interest and Dividend Income. Interest and dividend income decreased by $422 thousand, or 6.8%, to $5.8 million for the quarter ended December 31, 2011 as compared to $6.2 million for the same period of 2010. During the quarter ended December 31, 2011, the yield on interest-earning assets decreased by 25 basis points primarily due to a 52 basis point reduction in the yield on mortgage loans, partially offset by a 20 basis point decrease in the cost of interest bearing liabilities. The average balance of commercial real estate loans decreased by $40.1 million, from $217.4 million for the quarter ended December 31, 2010 to $177.3 million for the quarter ended December 31, 2011.

Interest Expense. Interest expense decreased by $266 thousand, or 13.8%, to $1.7 million for the quarter ended December 31, 2011 as compared to $1.9 million for the same period of 2010 primarily due to decreases in the average rates paid on deposits and FHLBB borrowings. The cost of deposits decreased by 19 basis points from 0.79% for the quarter ended December 31, 2010 to 0.60% for the quarter ended December 31, 2011, as some higher-cost certificates of deposit were either not renewed or were replaced by lower-costing deposits. The average balance of certificates of deposit totaled $133.4 million for the quarter ended December 31, 2011, compared to $126.7 million for the same period in 2010, an increase of $6.7 million. The average balance of lower-cost non-maturity deposits decreased by $8.8 million to $153.9 million for the quarter ended December 31, 2011, as compared to an average balance of $162.7 million for the same period of 2010. The average balance of FHLBB borrowings decreased by $10.9 million, from $128.1 million for the quarter ended December 31, 2010 to $117.3 million for the quarter ended December 31, 2011. The average cost of these borrowings declined as management utilized short-term investments to fund a maturing, relatively higher-rate advance during the quarter ended December 31, 2010.

The following table presents average balances and average rates earned/paid by the Company for the three months ended ~~December~~June 3130, ~~2011~~2012 compared to the three months ended ~~December~~June 3130, ~~2010~~2011:

	Three Months Ended December 31,
	Three Months Ended June 30,
	2011								2010
	2012								2011
	AverageBalance			Interest		AverageRate			AverageBalance			Interest		AverageRate
	(Dollars in thousands)
Interest-earning assets:
Mortgage loans	$	~~427~~464,~~631~~080		$	5,~~343~~213		54.0049	%	$	~~416~~401,~~517~~793		$	5,~~746~~298		5.5227	%
Other loans		1,~~658~~280			2114		54.0738			32,~~955~~673			4938		45.9669
Investment securities		2740,~~296~~071			~~379~~293		52.5592			2830,~~333~~430			~~365~~227		52.1598
Federal Home Loan Bank Stock		8,~~518~~203			63		0.2815			8,518			—6		—0.28
Short-term investments		231,~~992~~937			151		0.2521			4123,~~606~~623			2714		0.2624
Total interest-earning assets		~~489~~515,~~095~~571			5,~~764~~524		4.7129			~~498~~467,~~929~~037			65,~~187~~583		4.9678
Allowance for loan losses		(4,~~102~~239	)							(3,~~733~~997	)
Noninterest-earning assets		2526,~~942~~357								2724,~~624~~468
Total Assets	$	510,935							$	522,820
Total assets	$	537,689							$	487,508
Interest-bearing liabilities
Interest-bearing liabilities:
Deposits	$	~~287~~300,~~327~~634			~~429~~448		0.60		$	~~289~~266,~~535~~429			~~573~~388		0.7958
Advances from FHLB of Boston		~~117~~130,~~274~~865			1,~~102~~099		3.7636			~~128~~117,~~134~~331			1,~~226~~090		3.8372
Other borrowings		11,341			141		4.97			11,341			~~140~~137		4.9487
Total interest-bearing liabilities		~~415~~442,~~942~~840			1,~~672~~688		1.6152			~~429~~395,~~010~~101			1,~~939~~615		1.8164
Noninterest-bearing liabilities		49,761								47,332
Noninterest-bearing deposits		45,036								42,331
Total liabilities		465,703								476,342
Noninterest-bearing liabilities		4,689								2,844
Stockholders’ equity		45,232								46,478
Total liabilities		492,565								440,276
Total liabilities and stockholders’ equity	$	510,935							$	522,820
Stockholders’ equity		45,124								47,232
Net interest and dividend income				$	4,092							$	4,248
Total liabilities and stockholders’ equity	$	537,689							$	487,508
Net interest spread							3.10	%							3.15	%
Net interest and dividend income				$	3,836							$	3,968
Net interest margin							3.35	%							3.41	%
Net interest spread							2.77	%							3.14	%
Net interest margin							2.98	%							3.40	%

Provision for Loan Losses. 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, ~~management~~ management considers past and anticipated loss experience, evaluations of underlying collateral, financial condition of the borrower, prevailing economic conditions, the nature and volume of the loan portfolio and the levels of non-performing and ~~other~~ other classified loans. The amount of the allowance is based on estimates and ultimate losses may vary from such estimates. Management assesses the allowance for loan losses on a quarterly basis and provides for loan losses monthly when appropriate to to maintain the adequacy of the allowance. The Company uses a process of portfolio segmentation to calculate the appropriate level at the end of each quarter. Periodically, the Company evaluates the allocations used in these calculations. During the quarters ended ~~December~~June 3130, ~~2011~~2012 and ~~2010~~2011, management analyzed required allowance allocations for loans considered impaired under ASC 310 and the allocation percentages used when calculating potential losses under ASC 450. ~~During~~Management ~~the quarter ended December 31, 2011, management~~ increased ~~the~~ ASC 450 loss factors related to ~~changes~~collateral invalues ~~value~~for ofcommercial ~~collateral~~real ~~for~~estate and residential condominium loans and ~~trends~~decreased inloss ~~charge-offs~~factors ~~and recoveries~~ for residential ~~condominiums and commercial~~ real estate loans. Asduring ~~a result~~the ofquarter ~~those~~ended ~~changes~~June 30, ~~and~~2012. ~~adjustments~~As ~~made~~a byresult ~~management~~of ~~for~~the ~~trends~~aforementioned factor ~~in recent historical losses~~changes, the impact to the allowance for loan losses ~~were~~was ~~increases~~an increase in ASC 450 reserves of $~~295~~62 thousand ~~for those loan types~~. Management made no changes to ASC 450 loss factors during the quarter ended December 31, 2010. Based on these analyses, a provision for loan losses of $300 thousand was recorded during the quarters ended December 31, 2011 and December 31, 2010 respectively.

Management ~~gives~~increased ~~high~~ASC ~~priority~~450 loss factors related to ~~monitoring~~collateral values for residential and ~~managing~~home ~~the~~equity ~~Company’s~~loans ~~asset~~during ~~quality. At~~the ~~December~~quarter ended June 3130, 2011,. ~~nonperforming~~As ~~loans~~a ~~totaled~~result ~~$9.8~~of ~~million~~the asaforementioned ~~compared~~factor changes, the impact to the allowance for loan losses was an increase in ASC 450 reserves of $925 thousand.6 ~~million~~Based on ~~March 31~~these analyses, ~~2011.~~a ~~All~~provision ~~twenty~~for ~~three~~loan losses of ~~the~~$150 ~~loans~~thousand ~~included~~was inrecorded ~~this~~during ~~category~~the atquarter ~~December~~ended June 3130, ~~2011~~2012 ~~are~~compared ~~secured~~to bya provision ~~real~~for ~~estate~~loan ~~collateral~~losses ~~that~~of ~~is predominantly~~$500 ~~located~~thousand inrecorded during the ~~Bank’s~~quarter ~~market~~ended ~~area~~June 30, 2011.

~~Noninterest~~Management ~~Income.~~gives ~~Noninterest income totaled $466~~high ~~thousand~~priority ~~for the quarter ended December 31, 2011 compared~~ to ~~$552~~monitoring ~~thousand~~and ~~for~~managing the ~~quarter~~Company’s ~~ended~~asset ~~December~~quality. At June 3130, ~~2010.~~2012, ~~The~~nonperforming ~~decrease~~loans oftotaled $868.6 ~~thousand~~million ~~was~~as ~~primarily~~compared ~~due~~ to ~~a net decrease in securities related income of~~ $619.0 ~~thousand,~~million ~~as an other than temporary impairment write-down was taken~~ on ~~one~~March 31, ~~available~~2012. ~~for~~All ~~sale~~seventeen ~~equity security~~ of ~~$47~~the ~~thousand~~loans ~~during~~included ~~the~~in ~~current~~this ~~period~~category ~~compared~~at June 30, to2012 aare ~~write-down~~secured ofby $9real ~~thousand~~estate oncollateral ~~one~~that ~~available~~is ~~for~~predominantly ~~sale~~located ~~equity~~in ~~security~~ the ~~quarter~~Bank’s ~~ended~~market ~~December 31, 2010~~area. ~~Additionally,~~All ~~gains on the sale~~ of ~~securities~~these ~~totaled~~real $0estate ~~during~~secured ~~the~~loans ~~quarter~~have ~~ended~~an ~~December 31,~~active ~~2011~~plan ~~compared~~for toresolution ~~$22~~in ~~thousand~~place ~~during~~from either the ~~same~~sale ~~period~~ of ~~2010. Other items contributing to~~ the ~~overall~~real ~~decrease in non-interest income were~~estate ~~decreases~~directly inby ~~deposit~~the ~~service~~borrower, ~~charges~~through offoreclosure ~~$411~~or ~~thousand~~repossession, ~~and~~or ~~gains~~through onloan ~~the~~workout ~~sales of loans of $6 thousand~~efforts.

Noninterest ~~Expenses~~Income. Noninterest ~~expenses~~income ~~decreased~~totaled by $58502 thousand, ~~or 1.5%, to $3.8 million~~ for the quarter ended ~~December~~June 3130, ~~2011~~2012 as compared to $~~3.8~~905 ~~million~~thousand for the quarter ended ~~December~~June 3130, ~~2010~~2011. ~~that~~The decrease of $403 thousand was primarily adue ~~result~~to of a $34486 thousand decrease in ~~salaries~~gains ~~and~~on the ~~benefits~~sale ~~due~~of toinvestment ~~lower~~securities. ~~costs~~Gains on the sale of ~~loan~~loans ~~originations~~decreased by $9 thousand as most residential loans originated during the quarter ended June 30, 2012 were retained rather than sold in the secondary market. Other non-interest income increased by $92 thousand primarily due to a $2350 thousand ~~decrease~~increase in ~~data~~miscellaneous ~~processing~~income ~~costs~~as ~~and~~a result of a non-recurring $1550 thousand ~~decrease~~settlement inrelated ~~occupancy~~to ~~and~~the ~~equipment~~modification ~~expenses,~~on ~~partially~~a ~~offset~~purchased byloan, a $1416 thousand increase in deposit service charges, a ~~other~~$13 ~~expense~~thousand increase in BOLI income and a $1013 thousand increase in ~~foreclosure~~third ~~and~~party ~~collection~~brokerage ~~expenses~~income.

~~Salaries~~Noninterest Expenses. ~~and~~Noninterest ~~employee~~expenses ~~benefits~~increased ~~decreased~~ by $34677 thousand, or 116.57%, to $24.37 million ~~during~~for the quarter ended ~~December~~June 3130, ~~2011~~2012 as compared to $24.30 million ~~during~~for the quarter ended ~~December~~June 3130, ~~2010~~2011. This net increase was primarily due to ~~decreases~~a of $75441 thousand increase in ~~the~~professional ~~costs~~fees ofto ~~loan~~$619 ~~originations~~thousand, which included $45551 thousand ~~decrease~~ in ~~incentive~~merger ~~based~~related ~~compensation~~expenses, ~~and~~a $38192 thousand ~~decrease~~increase in ~~stock~~salaries ~~based~~and ~~compensation,~~benefits ~~partially~~due ~~offset~~to byincreases ~~increase~~in ofloan origination commissions and staffing, and a $8948 thousand increase ~~for~~in ~~staffing~~collection ~~increases~~and foreclosures expenses, partially offset by a $2939 thousand decrease in ~~contract~~other ~~labor~~occupancy ~~costs~~and equipment expenses, and an $258 thousand decrease in ~~employee~~marketing ~~related benefits.~~expenses

~~FDIC~~Salaries ~~deposit~~and ~~insurance~~employee ~~premiums~~benefits ~~decreased~~increased by $33192 thousand, or 7.4%, to $~~106~~2.8 ~~thousand~~million ~~during~~for the quarter ended ~~December~~ June 3130, ~~2011~~2012 ~~compared~~as compared to $~~139~~2.6 ~~thousand~~million ~~during~~for the ~~same~~ quarter ofended ~~2010~~June 30, 2011 primarily due to aincreases ~~change~~of in$101 ~~the~~thousand ~~calculation~~for ~~methodology~~loan ~~implemented~~origination bycommissions, ~~the~~a ~~FDIC~~$90 inthousand ~~April~~increase ~~2011~~for ~~and~~contract ~~lower~~labor ~~deposit~~utilized ~~insurance~~to ~~costs~~compensate ~~due~~for tostaffing ~~declining~~shortages, ~~average~~and ~~balances~~$56 ofthousand ~~deposits.~~in stock related compensation expenses.

~~Advertising~~FDIC ~~and~~deposit ~~marketing~~insurance ~~expenses~~premiums ~~decreased~~increased by $411 thousand to $20113 thousand ~~during~~for the quarter ended ~~December~~June 3130, ~~2011 as~~2012 compared to $24102 thousand ~~during~~for the same ~~period~~quarter of ~~2010~~2011 asdue to a change in the ~~Company~~calculation ~~strategically~~methodology ~~decided~~implemented toby ~~decrease~~the ~~advertising~~FDIC in April 2011 and ~~marketing~~higher ~~efforts~~deposit oninsurance acosts ~~limited~~due ~~basis~~to increasing average balances of total assets.

~~Office~~Advertising ~~occupancy~~ and ~~equipment~~marketing expenses decreased by $158 thousand, ~~or 2.9%~~ to $~~508~~25 thousand for the quarter ended ~~December~~June 3130, 2012 ~~2011~~ as compared to $~~523~~32 thousand ~~during~~for the same period of ~~2010~~2011 as the Company strategically decided to decrease advertising and marketing efforts on a limited basis.

~~Data~~Office ~~processing~~occupancy ~~fees~~and equipment expenses decreased by $2339 thousand, or 107.84%, to $~~189~~490 thousand ~~during~~for the quarter ended ~~December~~June 3130, ~~2011~~2012 as compared to $~~212~~529 thousand ~~during~~for the same period of ~~2010~~2011 ~~due~~primarily due to decreases in ~~certain~~amortization ~~processing~~of leasehold improvements, depreciation of furniture, fixtures and equipment and other maintenance costs, partially offset by increases in computer and network maintenance expenses.

~~Professional~~Data processing fees ~~decreased~~ bytotaled $5200 thousand, orfor ~~2%, to $228 thousand during~~ the quarter ended ~~December~~June 3130, ~~2011~~2012 as compared to $~~233~~202 thousand during the same period of ~~2010 primarily due to decreases in loan workout-related expenses and contract labor costs, partially offset by higher legal fees~~2011.

~~Other~~Professional ~~expenses~~fees ~~increased~~decreased by $56111 thousand, ~~or 13.9%,~~ to $~~458~~67 ~~thousand~~for ~~during~~ the quarter ended ~~December~~June 3130, ~~2011~~2012 as compared to $~~402~~ 178 thousand ~~during~~for the ~~quarter~~same ~~ended~~period ~~December 31,~~of ~~2010~~2011 primarily asdue ato ~~result of an increase in telephone expenses of~~ $28100 thousand, ~~a $15 thousand increase in directors’ fees and a $11 thousand increase for customer check printing costs, partially offset by a $9 thousand~~ decrease in ~~office~~legal ~~supplies and a $5 thousand decrease in bank policy losses~~expenses.

Income Taxes. The effective income tax rate for the quarter ended December 31, 2011 was 26.68%, compared to an effective income tax rate of 48.8% for the same quarter in 2010. The difference in the effective tax rate for the two periods was due to differences in the amounts and the composition of actual pre-tax income as well as differences in management’s estimates of projected pre-tax income for each fiscal year.

~~Comparison~~Merger ofrelated ~~Operating~~expenses ~~Results~~totaled $551 thousand for the ~~Nine~~quarter ~~Months~~ended ~~Ended December~~June 3130, ~~2011~~2012 ~~and~~with no ~~2010~~comparable expense in the prior period.

~~Net~~Other ~~income~~expenses ~~available~~increased toby ~~common shareholders for the nine months ended December 31, 2011 was~~ $6482 thousand, or $020.04 ~~per diluted share~~2%, as ~~compared~~ to ~~net income of~~ $~~1.0~~489 ~~million,~~thousand orfor ~~$0.64 per diluted share, during~~ the quarter ~~nine months~~ ended ~~December~~June 3130, ~~2010.~~2012 ~~Items~~as ~~primarily~~compared ~~affecting~~to ~~the~~$407 ~~Company’s~~thousand ~~earnings~~ for the ~~nine~~quarter ~~months~~ ended ~~December~~June 3130, 2011 ~~when~~primarily ~~compared~~as ~~to the nine months ended December 31, 2010 was~~ a 50result ~~basis point reduction in the yield on mortgage loans, partially offset by a 28 basis point decrease in the average cost~~ of ~~interest bearing liabilities; and~~ an increase in ~~noninterest~~OREO expenses of $~~418~~48 thousand., ~~Noninterest~~ATM ~~expenses~~expense ~~increased primarily due to increases in salaries and benefits~~ of $~~529~~16 thousand, and ~~other~~telephone expenses of $6815 thousand, partially offset by ~~decreases~~a indecrease ~~data processing costs~~ of $5015 thousand ~~and~~in ~~marketing~~other ~~expenses~~bank ~~of $18~~policy ~~thousand.~~losses ~~Additionally, for each of the nine months ended December 31, 2011~~ and ~~2010 net income was reduced by~~ $~~375~~4 thousand for allocated dividends to preferred shareholders related to the Company’s 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~~office ~~federal government’s TARP Capital Purchase Program~~supplies. On August 25, 2011, using the $10 million in proceeds it received from issued 10,000 shares in Series B Preferred stock to the Treasury Department through the Company’s participation in the SBLF program, the Company redeemed all 10,000 outstanding shares of its Series A Preferred Stock for a redemption price of $10,013,889, which amount included accrued but unpaid dividends. This transaction also resulted in the Company recording a deemed dividend of $299 thousand which further reduced net income available to common shareholders during the nine months ended December 31, 2011. The Company subsequently repurchased the warrant from the Treasury on October 19, 2011 for an aggregate purchase price of $2.525 million.

~~Interest and Dividend~~ Income Taxes. ~~Interest~~The ~~and~~effective ~~dividend~~ income ~~decreased~~tax byrate ~~$2.4 million, or 12.4%, to $17.2 million~~ for the ~~nine~~quarter ~~months~~ ended ~~December~~June 3130, ~~2011~~2012 was 9.8%, compared to ~~$19.6~~ ~~million~~an ~~for~~effective ~~the~~income ~~same~~tax ~~period~~rate of ~~2010~~28.1% ~~primarily~~for ~~due~~the tosame ~~decreases~~quarter in ~~the~~2011. ~~average~~The ~~yields~~difference ~~and~~in ~~average~~the ~~loan~~effective ~~balances.~~tax ~~The~~rate ~~average~~for ~~balance~~the oftwo ~~loans~~periods ~~decreased~~was ~~primarily~~ due to differences ~~decreases~~ in the ~~average~~amounts ~~balances~~and ofthe ~~commercial~~composition ~~real~~of ~~estate~~actual ~~and construction~~pre-tax ~~loans~~income as ~~the~~well ~~Bank~~as ~~continued~~differences toin ~~shift~~management’s ~~its~~estimates ~~focus~~of ~~from~~projected ~~those~~pre-tax ~~loan~~income ~~types~~for toeach ~~originating~~fiscal ~~residential real estate loans~~year.

~~Interest~~Liquidity Expense. Interest expense decreased by $1.3 million, or 20.4%, to $4.9 million for the nine months ended December 31, 2011 compared to $6.2 million for the same period of 2010. The cost of deposits decreased by 21 basis points from 0.90% during the quarter ended December 31, 2010 to 0.59% during the quarter ended December 31, 2011, as some higher-cost certificates of deposit were replaced by lower-costing deposits. The average balance of certificates of deposit totaled $128.5 million during the nine months ended December 31, 2010, compared to $122.5 million for the same period in 2011, a decline of $6 million. The average balance of lower-costing non-maturity deposits decreased by $7.9 million to $155.6 million for the nine months ended December 31, 2011, as compared to an average balance of $163.5 million for the same period of 2010. The average balance of FHLBB borrowings decreased by $14.8 million, from $132.1 million during the nine months ended December 31, 2010 to $117.3 million for the same period of 2011. The decrease in the average cost of these funds was the result of a decrease in market interest rates. The average cost of other borrowings decreased as a portion of these borrowings are adjustable and ~~the~~Capital ~~average~~Resources ~~rate paid for the nine months ended December 31, 2011 was 4.91%, compared to an average rate of 4.94% during the same period of 2010.~~

Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’s principal sources of liquidity are customer deposits, short-term investments, loan repayments, and advances from the FHLB of Boston and funds from operations. The Bank is a voluntary member of the FHLB of Boston and, as such, is entitled to borrow up to the value of its qualified collateral that has not been pledged to others. Qualified collateral generally consists of residential first mortgage loans, commercial real estate loans, U.S. Government and agencies securities, mortgage-backed securities and funds on deposit at the FHLB of Boston. At June 30, 2012, the Company had approximately $86.4 million in unused borrowing capacity at the FHLB of Boston. The Company also has established borrowing capacity with the Federal Reserve Bank of Boston (“FRB”). The unused borrowing capacity at the FRB totaled $5.9 million at June 30, 2012.

At June 30, 2012, the Company had commitments to originate loans, unused outstanding lines of credit and undisbursed proceeds of loans totaling $28.8 million, and commitments to sell loans of $8.2 million. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. At June 30, 2012, the Company believes it has sufficient funds available to meet its current loan commitments.

On September 29, 2009, the FDIC adopted an Amended Restoration Plan to enable the Deposit Insurance Fund to return to its minimum reserve ratio of 1.15% over eight years. Under this plan, the FDIC did not impose a previously-planned second special assessment (on June 30, 2009, the Bank accrued the first special assessment which totaled $270 thousand that was paid on September 30, 2009). Also, the plan calls for deposit insurance premiums to increase by 3 basis points effective January 1, 2011. Additionally, to meet bank failure cash flow needs, the FDIC assessed a three-year insurance premium prepayment, which was paid by banks in December 2009 and will cover the period of January 1, 2010 through December 31, 2012. The FDIC estimates that bank failures will total approximately $100 billion during the next three years, but only projects revenues of approximately $60 billion. The shortfall will be met through the collection of prepaid premiums, which is estimated to be $45 billion. The Bank’s prepaid premium totaled $2.3 million and was paid during the quarter ended December 31, 2009, and it is being amortized monthly over the three-year period. This prepaid deposit premium is carried on the balance sheet in the other assets category.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders. The Company’s primary source of cash are dividends received from the Bank, and principal and interest payment receipts related to loans which the Company has made to the ESOP. Regarding dividends received from the Bank, the Bank may not pay dividends on its capital stock if its regulatory capital would thereby be reduced below the amount then required for the liquidation account established for the benefit of certain depositors of the Bank at the time of its conversion to stock form. The approval of the Massachusetts Commissioner of Banks is necessary for the payment of any dividend which exceeds the total net profits for the year combined with retained net profits for the prior two years. At June 30, 2012, the Company had liquid assets of $175 thousand.

The following table ~~presents~~sets ~~average~~forth ~~balances~~the ~~and~~capital ~~average~~positions ~~rates~~of ~~earned/paid by~~ the Company ~~for~~ ~~the~~and ~~nine months ended December 31, 2011 compared to~~ the ~~nine~~Bank ~~months ended December~~at June 3130, ~~2010~~2012:

	Nine Months Ended December 31,
	At June 30, 2012
	2011									2010
	Actual			RegulatoryThresholdFor WellCapitalized
	AverageBalance			Interest			AverageRate			AverageBalance			Interest		AverageRate
Central Bancorp:
				(Dollars in thousands)
Tier 1 Leverage		9.36	%		5.0	%
Interest-earning assets:
Tier 1 Risk-Based Ratio		14.30	%		6.0	%
Mortgage loans	$	419,139		$	16,143			5.14	%	$	435,555		$	18,423		5.64	%
Total Risk-Based Ratio		15.54	%		10.0	%
Other loans		2,173			90			5.52			4,392			183		5.56
Central Co-operative Bank:
Investment securities		28,750			913			4.23			30,654			984		4.28
Tier 1 Leverage		8..39	%		5.0	%
Federal Home Loan Bank Stock		8,518			19			0.30			8,518			—		—
Tier 1 Risk-Based Ratio		12.81	%		6.0	%
Short-term investments		22,043			39			0.24			24,685			47		0.25
Total Risk-Based Ratio		14.05	%		10.0	%
Total interest-earning assets		480,623			17,204			4.77			503,804			19,637		5.20
Allowance for loan losses		(4,204	)								(3,427	)
Noninterest-earning assets		24.429									27,380
Total assets	$	500,848								$	527,757
Interest-bearing liabilities:
Deposits	$	278,137			1,238			.59		$	292,069			1,962		.90
Advances from FHLB of Boston		117,302			3,295			3.75			132,084			3,837		3.87
Other borrowings		11,341			418			4.91			11,341			420		4.94
Total interest-bearing liabilities		406,780			4,951			1.62			435,494			6,219		1.90
Noninterest-bearing liabilities		47,461									46,363
Total liabilities		454,441									481,857
Stockholders’ equity		46,407									45,900
Total liabilities and stockholders’ equity	$	500,848								$	527,757
Net interest and dividend income				$	12,253								$	13,418
Net interest spread								3.15	%							3.30	%
Net interest margin								3.40	%							3.55	%

Provision for Loan Losses. 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, management considers past and anticipated loss experience, evaluations of underlying collateral, financial condition of the borrower, prevailing economic conditions, the nature and volume of the loan portfolio and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and ultimate losses may vary from such estimates. Management assesses the allowance for loan losses on a quarterly basis and provides for loan losses monthly when appropriate to maintain the adequacy of the allowance. The Company uses a process of portfolio segmentation to calculate the appropriate allowance level at the end of each quarter. Periodically, the Company evaluates the allocations used in these calculations. During the nine-month periods ended December 31, 2011 and 2010, management performed a thorough analysis of the loan portfolio as well as the required allowance allocations for loans considered impaired under ASC 310 and the allocation percentages used when calculating potential losses under ASC 450. During the nine months ended December 31, 2011, management increased the ASC 450 loss factors related to economic conditions for all loan types, changes in collateral values for residential loans, and trends in delinquencies and charge-offs and recoveries for commercial real estate loans. As a result of those changes and adjustments made by management for trends in recent historical losses, the impact to the allowance for loan losses were increases in ASC 450 reserves of 444 thousand for those loan types. During the nine months ended December 31, 2010, management increased the ASC 450 loss factors related to trends in delinquent

and impaired loans for residential real estate, commercial real estate, and commercial and industrial loans, and increased loss factors related to national and local economic conditions for commercial real estate and commercial and industrial loans. As a result of the aforementioned ASC 450 factor changes, the impact to the allowance for loan losses were increases in ASC 450 reserves of $35 thousand for residential loans, $51 thousand for CRE loans, and $1 thousand for commercial and industrial loans. Based on these analyses, the Company recorded a provision of $1.1 million for the nine months ended December 31, 2011 compared to a provision for loan losses of $900 thousand during the corresponding 2010 period.

Management continues to give high priority to monitoring and managing the Company’s asset quality. At December 31, 2011, nonperforming loans totaled $9.8 million as compared to $9.6 million at March 31, 2011. Of the twenty three loans constituting this category at December 31, 2011, all are secured by real estate collateral that is predominantly located in the Bank’s market area.

Noninterest Income. Noninterest income increased by $498 thousand from $1.4 million during the nine months ended December 31, 2010 to $1.9 million during the nine months ended December 31, 2011. The increase was primarily due to net gains on the sales and write-downs on investments, which totaled $507 thousand during the nine months ended December 31, 2011 compared to losses of $170 thousand during the prior year period. Partially offsetting the aforementioned increase were decreases in gains on sales of loans of $101 thousand due to decreased loan sale activity, deposit fees of $46 thousand, brokerage income of $23 thousand, and other income of $9 thousand.

Noninterest Expenses. Noninterest expense increased by $418 thousand, or 3.6% to $11.9 million during the nine months ended December 31, 2011 as compared to $11.5 million during the same period of 2010. This increase is due to increases in salaries and other benefits of $529 thousand, a $168 thousand increase in other expenses, and a $9 thousand increase in occupancy and equipment costs, partially offset by a $119 thousand decrease in FDIC insurance premiums, a $103 thousand decrease in other professional fees, a $50 thousand decrease in data processing costs, and a $18 thousand decrease in marketing expenses.

Salaries and employee benefits increased by $529 thousand, or 7.8%, to $7.3 million during the nine months ended December 31, 2011 as compared to $6.8 million during the same period of 2010 primarily due to increases of $368 thousand commissions paid for non-deposit investment product and loan origination and $244 thousand for salaries due to staffing increases.

FDIC deposit insurance premiums decreased by $119 thousand to $307 thousand during the nine months ended December 31, 2011 compared to $426 thousand during the same period of 2010. This decrease was primarily due to a change in the calculation methodology implemented by the FDIC in April 2011 and lower deposit insurance costs due to declining average balances of deposits.

Advertising and marketing expenses decreased by $18 thousand to $103 thousand during the nine months ended December 31, 2011 as compared to $121 thousand during the same period of 2010 as management strategically decided to deemphasize advertising and marketing efforts.

Office occupancy and equipment expenses increased by $9 thousand, or 0.6%, to $1.6 million during the nine months ended December 31, 2011 as compared to $1.5 million during the same period of 2010 primarily due to decreases in the amortization of leasehold improvements, depreciation of furniture, fixtures and equipment and decreases for other bank building expenses, partially offset by increases in computer/network maintenance costs, maintenance and repairs and security expenses.

Data processing costs decreased by $50 thousand, or 7.9%, to $579 thousand during the nine months ended December 31, 2011 as compared to $629 thousand during the same period of 2010 due to decreases in certain processing costs.

Income Taxes. The effective income tax rate for the nine months ended December 31, 2011 was 27.21%, compared to an effective income tax rate of 37.8% for the same period of 2010. The difference in the effective tax rate for the two periods was due to differences in the amounts and the composition of actual pre-tax income as well as differences in management’s estimates of projected pre-tax income for each fiscal year.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company’s principal sources of liquidity are customer deposits, short-term investments, loan repayments, and advances from the FHLBB and funds from operations. The Bank is a voluntary member of the FHLBB and, as such, is entitled to borrow up to the value of its qualified collateral that has not been pledged to others. Qualified collateral generally consists of residential first mortgage loans, commercial real estate loans, U.S. Government and agencies securities, mortgage-backed securities and funds on deposit at the FHLBB. At December 31, 2011, the Company had approximately $65.2 million in unused borrowing capacity at the FHLBB. The Company also has established borrowing capacity with the Federal Reserve Bank of Boston (“FRB”) at December 31, 2011. The unused borrowing capacity at the FRB totaled $6.1 million at December 31, 2011.

At December 31, 2011, the Company had commitments to originate loans, unused outstanding lines of credit, undisbursed proceeds of loans totaling $16.1 million, and commitments to sell loans of $15.2 million. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. At December 31, 2011, the Company believes it has sufficient funds available to meet its current loan commitments.

On September 29, 2009, the FDIC adopted an Amended Restoration Plan to enable the Deposit Insurance Fund to return to its minimum reserve ratio of 1.15% over eight years. Under this plan, the FDIC did not impose a previously-planned second special assessment (on June 30, 2009, the Bank accrued the first special assessment which totaled $270 thousand that was paid on December 31, 2009). Additionally, to meet bank failure cash flow needs, the FDIC assessed a three-year insurance premium prepayment, which was paid by banks in December 2009 and covers the period of January 1, 2010 through December 31, 2012. The FDIC estimates that bank failures will total approximately $100 billion during this three-year period. The Bank’s prepaid premium totaled $2.3 million and was paid during the quarter ended December 31, 2009, and it is being amortized monthly over the three-year period. This prepaid deposit premium is carried on the balance sheet in the other assets category and totaled $1.4 million at December 31, 2011.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders. The Company’s primary source of cash are dividends received from the Bank, and principal and interest payment receipts related to loans which the Company has made to the ESOP. Regarding dividends received from the Bank, the Bank may not pay dividends on its capital stock if its regulatory capital would thereby be reduced below the amount then required for the liquidation account established for the benefit of certain depositors of the Bank at the time of its conversion to stock form. The approval of the Massachusetts Commissioner of Banks is necessary for the payment of any dividend which exceeds the total net profits for the year combined with retained net profits for the prior two years. At December 31, 2011, the Company had liquid assets of $75 thousand.

The following table sets forth the capital positions of the Company and the Bank at December 31, 2011:

	Actual			RegulatoryThresholdFor WellCapitalized
Central Bancorp:
Tier 1 Leverage		9.89	%		5.0	%
Tier 1 Risk-Based Ratio		15.70	%		6.0	%
Total Risk-Based Ratio		16.92	%		10.0	%
Central Co-operative Bank:
Tier 1 Leverage		8.87	%		5.0	%
Tier 1 Risk-Based Ratio		14.06	%		6.0	%
Total Risk-Based Ratio		15.28	%		10.0	%

Off-Balance Sheet Arrangements

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

For the year ended March 31, ~~2011~~2012 and for the ~~nine~~three months ended ~~December~~June 3130, ~~2011~~2012, the Company engaged in no no off-balance sheet transactions reasonably likely to have a material effect on its financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For a discussion of the potential impact of interest rate changes upon the market value of the Company’s portfolio equity, see Item 7A in the Company’s Annual Report on Form 10-K for the year ended March 31, ~~2011~~2012. Management, as part of its regular practices, performs periodic reviews of the impact of interest rate changes upon net interest income and the market value of the Company’s portfolio equity. Based on such reviews, among other factors, management believes that there have been no material changes in the market risk of the Company’s asset and liability position since March 31, ~~2011~~2012.

Item 4. Controls and Procedures

The Company’s management has carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, (1) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In44 addition, based on that evaluation, there has been no change in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

In addition, based on that evaluation, there has been no change in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~Periodically~~A putative stockholder class action lawsuit was filed in connection with the Merger Agreement on July 17, ~~there~~2012 ~~have~~in ~~been~~Superior ~~various~~Court ~~claims~~in ~~and~~Middlesex ~~lawsuits~~County, Massachusetts, against the Company, ~~considered~~each ~~incident~~of toits ~~our~~directors ~~business~~and Independent, captioned Rational Strategies Fund v. WeJohn ~~are~~D. ~~not~~Doherty, aet ~~party~~al, Civil Action No. 12-2682. The lawsuit alleges that the Company and its directors breached their fiduciary duties owed to ~~any~~the ~~pending~~Company’s ~~legal~~stockholders ~~proceedings~~in connection with the approval and disclosure of the proposed merger with Independent and that weIndependent aided and abetted the alleged breaches of fiduciary duty. The Company, the Company’s directors and Independent believe ~~would~~the ~~have~~factual aallegations ~~material~~in the complaint are without ~~adverse~~merit ~~effect~~and onintend ~~our~~to ~~financial~~defend ~~condition,~~vigorously ~~results~~against ofthe ~~operations~~allegations orin ~~cash~~the ~~flows~~complaint.

Periodically, there have been various claims and lawsuits against the Company, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors, which could materially affect our business, financial condition or future results. These risk factors are discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, ~~2011~~2012, as filed with the SEC on June 1719, ~~2011~~2012. At ~~December~~June 3130, ~~2011~~2012, the Company’s risk factors had not changed materially from those set forth in the Company’s Form 10-K and Form 10-Q. The risks described in these documents are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company did not repurchase any of its securities during the quarter ended ~~December~~ June 3130, ~~2011~~2012.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

2.1		Agreement and Plan of Merger by and among Independent Bank Corp., Rockland Trust Company, Central Bancorp, Inc. and Central Co-operative Bank, dated as of April 30, 2012*
31.1		Rule 13a-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a) Certification of Chief Financial Officer
32.0		Section 1350 Certifications
32		Section 1350 Certifications
101*		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statement of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements, tagged as blocks of text.
101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statement of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the notes to the consolidated financial statements**

* ~~Furnished,~~Incorporated ~~not~~by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 000-25251) filed with the U.S. Securities and Exchange Commission on May 3, 2012.

48** Furnished, not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	~~CENTRAL BANCORP, INC.~~		CENTRAL BANCORP, INC.
	Registrant
August 13, 2012		By:	/s/ John D. Doherty
February 14, 2012	By:	/s/ John D. Doherty
			John D. Doherty
		John D. Doherty
			Chairman and Chief Executive Officer
		Chairman and Chief Executive Officer
			(Principal Executive Officer)
		(Principal Executive Officer)
August 13, 2012		By:	/s/ Paul S. Feeley
February 14, 2012	By:	/s/ Paul S. Feeley
			Paul S. Feeley
		Paul S. Feeley
			Senior Vice President, Treasurer and Chief Financial Officer
		Senior Vice President, Treasurer and Chief Financial Officer
			(Principal Financial and Accounting Officer)
		(Principal Financial and Accounting Officer)

4947

Filing Compare · CENTRAL BANCORP INC /MA/