-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FnNke0RKkX79tM2Ob9Injr6o69UEZHK5bmfib20v6s8ZsI0bMLWeRFi5ppGZsFLG VyHUQBadbyp0Bbn7fJ8cvw== 0000910647-00-000052.txt : 20000215 0000910647-00-000052.hdr.sgml : 20000215 ACCESSION NUMBER: 0000910647-00-000052 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTBOROUGH FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0001087843 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-27997 FILM NUMBER: 542950 BUSINESS ADDRESS: STREET 1: 100 E MAIN ST CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5083664111 MAIL ADDRESS: STREET 1: 100 E MAIN ST CITY: WAWESTBOROUGH STATE: MA ZIP: 01581 10QSB 1 BODY OF 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1999 OR [ ] 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: 000-27997 Westborough Financial Services, Inc. (Exact name of registrant as specified in its charter) Massachusetts Application Pending (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 100 E. Main Street Westborough, Massachusetts 01581 (508) 366-4111 (Address of principal executive offices) (Registrant's telephone number, including area code) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ] As of February 11, 2000, no shares of the registrant's common stock were outstanding. Transitional Small Business Disclosure Format (check one): YES [ ] NO [X] WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page --------------------- Item 1 Financial Statements Consolidated Balance Sheets 1 December 31, 1999 and September 30, 1999 Consolidated Statements of Income 2 For Three Months Ended December 31, 1999 and 1998 Consolidated Statements of Changes in Surplus 3 For Three Months Ended December 31, 1999 and 1998 Consolidated Statements of Cash Flows 4 For Three Months Ended December 31, 1999 and 1998 Notes To Unaudited Consolidated Financial Statements 5 Item 2 Management's Discussion and Analysis 6 PART II. OTHER INFORMATION Item 1 Legal Proceedings 13 Item 2 Changes in Securities and Use of Proceeds 13 Item 3 Defaults Upon Senior Securities 13 Item 4 Submission of Matters to a Vote of Common Shareholders 13 Item 5 Other Information 13 Item 6 Exhibits and Reports on 8-K 13 SIGNATURES 14 This Report on Form 10-QSB contains certain forward looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company and the Bank that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include: changes in general, economic and market conditions, or the development of an adverse interest rate environment that adversely affects the interest rate spread or other income anticipated from the Bank's operations and investments, and other the factors. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Westborough Savings Bank and Subsidiaries Consolidated Balance Sheet (Dollars in Thousands)
December 31, September 30, 1999 1999 ------------ ------------- (Unaudited) Assets Cash and due from banks $ 5,817 $ 4,157 Federal funds sold 5,859 4,632 Short-term investments 1,943 1,929 ------------------------ Total cash and cash equivalents 13,619 10,718 Securities available for sale, at fair value 66,601 63,607 Federal Home Loan Bank stock, at cost 850 850 Loans, net 93,019 92,092 Banking premises and equipment, net 1,697 1,724 Accrued interest receivable 1,071 1,130 Deferred income taxes 938 833 Cash surrender value of life insurance 2,993 2,906 Other assets 884 734 ------------------------ $181,672 $174,594 ======================== Liabilities and Surplus Deposits $154,778 $150,111 Federal Home Loan Bank advances 4,000 4,000 Mortgagors' escrow accounts 216 231 Accrued taxes and expenses 651 865 Other liabilities 3,051 106 ------------------------ Total liabilities 162,696 155,313 ------------------------ Commitments and contingencies Surplus 20,049 19,680 Accumulated other comprehensive income (1,073) (399) ------------------------ Total surplus 18,976 19,281 ------------------------ $181,672 $174,594 ========================
Westborough Savings Bank and Subsidiaries Consolidated Statements of Income (Dollars in Thousands)
Three Months Ended ---------------------------- December 31, December 31, 1999 1998 ------------ ------------ (Unaudited) Interest and dividend income: Interest and fees on loans $1,699 $1,568 Interest and dividends on investment securities 998 941 Interest on federal funds sold 86 63 Interest on short term investments 41 34 ---------------------- Total interest and dividend income 2,824 2,606 ---------------------- Interest expense: Interest on deposits 1,255 1,193 Interest on borrowings 52 27 ---------------------- Total interest expense 1,307 1,220 ---------------------- Net interest income 1,517 1,386 Provision for loan losses 0 15 ---------------------- Net interest income, after provision for loan losses 1,517 1,371 ---------------------- Other income: Customer service fees 85 69 Loan fees 3 7 Income from covered call options 129 171 Gain on sales of securities available for sale, net 158 112 Miscellaneous 29 5 ---------------------- Total other income 404 364 ---------------------- Operating expenses: Salaries and employee benefits 746 550 Occupancy and equipment expenses 192 143 Data processing expenses 72 49 Marketing expenses 57 35 Contributions 0 15 Professional fees 26 17 Other general and administrative expenses 308 186 ---------------------- Total operating expenses 1,401 995 ---------------------- Income before income taxes 520 740 Provision for income taxes 151 262 ---------------------- Net income $ 369 $ 478 ======================
Westborough Savings Bank and Subsidiaries Consolidated Statements of Changes in Surplus (Dollars in Thousands)
Accumulated Other Comprehensive Total Surplus Income (Loss) Surplus ------- ----------------- ------- (Unaudited) Balance at September 30, 1998 $18,207 $ 1,160 $19,367 Comprehensive Income: Net income 478 - 478 Change in net unrealized loss on securities available for sale, net of tax effects - (93) (93) Total comprehensive income 385 ------------------------------------- Balance at December 31, 1998 $18,685 $ 1,067 $19,752 ===================================== Balance at September 30, 1999 $19,680 $ (399) $19,281 Comprehensive Loss: Net income 369 - 369 Change in net unrealized loss on securities available for sale, net of tax effects - (674) (674) Total comprehensive loss (305) ------------------------------------- Balance at December 31, 1999 $20,049 $(1,073) $18,976 =====================================
Westborough Savings Bank and Subsidiaries Consolidated Statements of Cash Flows (Dollars in Thousands)
Three Months Ended ---------------------------- December 31, December 31, 1999 1998 ------------ ------------ (Unaudited) Cash flows from operating activities: Net income $ 369 $ 478 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 0 15 Gain on sales of securities available for sale (158) (112) Recognition of covered call options (129) (171) Amortization of premiums on securities 7 (553) Depreciation expense 83 65 Amortization of net deferred loan costs 4 38 Decrease in accrued interest receivable 59 138 Other, net 2,823 1,330 ----------------------- Net cash provided by operating activities 3,058 1,228 ----------------------- Cash flows from investing activities: Purchase of securities available for sale (8,497) (8,230) Proceeds from sales and call of securities available for sale 2,890 5,104 Proceeds from maturities of securities available for sale 1,001 0 Principal repayments received on mortgage and asset backed securities 784 940 Loans originated, net of payments received (931) (1,927) Purchase of banking premises and equipment (56) (94) ----------------------- Net cash used by investing activities (4,809) (4,207) ----------------------- Cash flows from financing activities: Net increase in deposits 4,667 3,701 Net decrease in mortgagors escrow accounts (15) (27) ----------------------- Net cash provided by financing activities 4,652 3,674 ----------------------- Net change in cash and cash equivalents 2,901 695 Cash and cash equivalents at beginning of period 10,718 12,441 ----------------------- Cash and cash equivalents at end of period $13,619 $13,136 =======================
Westborough Savings Bank and Subsidiaries Notes to Unaudited Consolidated Financial Statements 1) Basis of Presentation and Consolidation. The unaudited consolidated interim financial statements of Westborough Savings Bank and subsidiaries (the "Bank") presented herein should be read in conjunction with the consolidated financial statements of Westborough Savings Bank for the year ended September 30, 1999, included in the Annual Report of Form 10-KSB of Westborough Financial Services, Inc. ("Westborough" or the "Company"), the proposed holding company for Westborough Savings Bank. The financial statements of Westborough have been omitted because Westborough had not issued any stock, had no liabilities and had not conducted any business other than that of an organizational nature as of December 31, 1999. The unaudited consolidated interim financial statements herein have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for completed financial statements. In the opinion of management, the consolidated interim financial statements reflect all adjustments (consisting solely of normal recurring accruals) necessary for a fair presentation of such information. Interim results are not necessarily indicative of results to be expected for the entire year. 2) Reorganization and Stock Offering. The Bank is a Massachusetts chartered mutual savings bank founded in 1869. The Bank has applied for and received approval from the Massachusetts Commissioner of Banks and the Federal Reserve Board, and the non-objection of the Federal Deposit Insurance Corporation, to reorganize from a mutual savings bank into a two-tiered mutual holding company structure pursuant to the Bank's Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the "Reorganization"). In connection with the Reorganization, (i) the Bank will form Westborough Bancorp, MHC, a Massachusetts chartered mutual holding company which will be the majority owner of the Company (the "MHC"); (ii) the Bank will convert from mutual to stock form and issue 100% of its capital stock to the Company; and (iii) the Company will issue shares of its common stock, $0.01 par value per share (the "Common Stock") to the public at a price of $10.00 per share. Upon consummation of the Reorganization, the Company will issue 1,581,374 shares of the Common Stock of which 35% of these shares, or 553,481 shares, will be sold to the public, including depositors of the Bank and the Company's Employee Stock Ownership Plan, and 65% of these shares, or 1,027,893 shares, will be issued to the MHC. 3) Contingencies. At December 31, 1999, the Bank had loan commitments to borrowers of $1.1 million, unadvanced funds on commercial lines of credit of $0.8 million and available home equity lines of credit of $5.4 million. The Bank had no commitments to purchase mortgage-backed securities at December 31, 1999. In the first half of 2000, the Bank plans to begin an expansion of its facilities by constructing an addition to its existing executive office. The construction expenses for this addition are expected to total approximately $2.5 million. On December 16, 1999, the Bank entered into a purchase and sales agreement to acquire approximately 8 acres of land and buildings located at 23/25 Maple Avenue, Shrewsbury for the sum of $935 thousand, subject to adjustments and numerous conditions. The site is adjacent to the Bank's current leased branch office at 19 Maple Avenue, Shrewsbury. If the sale is completed, the Bank's plan is to relocate its 19 Maple Avenue branch to a newly constructed building located at 23/25 Maple Avenue. The Bank anticipates that it will have sufficient funds to meet these planned capital expenditures throughout 2000. Item 2. Management's Discussion and Analysis. General Westborough Savings Bank (the "Bank") is a Massachusetts chartered mutual savings bank founded in 1869. The Bank has applied for and received approval from the Massachusetts Commissioner of Banks and the Federal Reserve Board, and the non-objection of the Federal Deposit Insurance Corporation, to reorganize from a mutual savings bank into a two-tiered mutual holding company structure pursuant to the Bank's Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the "Reorganization"). Westborough Financial Services, Inc. (the "Company") is a Massachusetts corporation (in organization) which will become the stock holding company for the Bank upon consummation of the Reorganization. Specifically, as part of the Reorganization, (i) the Bank will form Westborough Bancorp, MHC, a Massachusetts chartered mutual holding company which will be the majority owner of the Company (the "MHC"); (ii) the Bank will convert from mutual to stock form and issue 100% of its capital stock to the Company; and (iii) the Company will issue shares of its common stock, $0.01 par value per share (the "Common Stock") to the public at a price of $10.00 per share. Upon consummation of the Reorganization, the Company will issue 1,581,374 shares of the Common Stock of which 35% of these shares, or 553,481 shares, will be sold to the public, including depositors of the Bank and the Company's Employee Stock Ownership Plan, and 65% of these shares, or 1,027,893 shares, will be issued to the MHC. The Company's sole business activity will consist of the business of the Bank. The Company also will invest in long and short-term investment grade marketable securities and other liquid investments. In the future, the Company will consider using some of the proceeds of the stock offering retained by it to expand its operations in its existing primary market and other nearby areas by acquiring other financial institutions which could be merged with the Bank or operated as separate subsidiaries. Presently, there are no agreements or understandings for expansion of the Company's operations. The Company's Common Stock is traded on the Over-The-Counter Bulletin Board under the symbol "WFSM." Unless otherwise disclosed, the information presented in this Report on Form 10-QSB represents the activity of the Bank and its subsidiaries. The Bank is a community- and customer-oriented retail bank offering traditional deposit products, residential and commercial real estate mortgage loans and, to a lesser extent, consumer and commercial loans. The Bank operates five full service banking offices located in the towns of Westborough, Northborough and Shrewsbury, Massachusetts. The Bank also operates a non-public, self-contained office at the "Willows," a retirement community located in Westborough. Together, these offices serve the Bank's "primary market area" consisting of Westborough, Northborough, Shrewsbury, Grafton, Southborough and Hopkinton, Massachusetts. The Bank's results of operations depend primarily on net interest income. Net interest income is the difference between the interest income that the Bank earns on its interest-earning assets, primarily mortgage loans, mortgage-backed securities and investment securities, and the interest it pays on its interest-bearing liabilities, primarily certificates of deposit and savings accounts. The Bank's results of operations are also affected by its provision for loan losses, other income and operating expense. Operating expense consists primarily of salaries and employee benefits, occupancy expenses and other general and administrative expenses. Other income consists mainly of service fees and charges, income from writing covered call options and gains on sales of securities. The Bank's results of operations may also be affected significantly by general and local economic and competitive conditions, particularly those with respect to changes in market interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact the Bank. Additionally, the Bank's lending activity is concentrated in loans secured by real estate located in Westborough, Northborough, Shrewsbury and Grafton, Massachusetts. Accordingly, the Bank's results of operations are affected by regional market and economic conditions. Comparison of Financial Condition at December 31, 1999 and September 30, 1999 The Bank's total assets increased by $7.1 million, or 4.1%, to $181.7 million at December 31, 1999 from $174.6 million at September 30, 1999. Total cash and cash equivalents increased by $2.9 million to $13.6 million at December 31, 1999 from $10.7 million at September 30, 1999. Much of this increase in liquidity was in response to potential liquidity needs of customers as a result of Year 2000 ("Y2K") computer-related concerns. The Bank, subsequently, did not experience a high demand for cash relating to Y2K after December 31, 1999. Securities available for sale increased by $3.0 million, to $66.6 million at December 31, 1999 from $63.6 million at September 30, 1999. This increase was mainly attributable to increases in U.S. government, federal agency and corporate obligations. Loans increased $927 thousand, or 1.0%, for the quarter to $93.0 million at December 31, 1999, as compared to $92.1 million at September 30, 1999. General increases in interest rates, coupled with a declining inventory of available housing in our market area, accounted for the modest level of growth during the recent fiscal quarter. Total deposits increased by $4.7 million, or 3.1%, to $154.8 million at December 31, 1999, from $150.1 million at September 30, 1999. Most of this increase was attributable to increases in short-term certificates of deposit and interest-bearing, tiered-rate and NOW accounts. The Bank also experienced increases in non-interest bearing demand deposit accounts. Other liabilities increased by $2.9 million to $3.1 million at December 31, 1999. Approximately $2.5 million of the increase represented funds received from subscribers of the Common Stock as part of the Company's stock offering. Total surplus declined by $305 thousand, or 1.6%, to $19.0 million at December 31, 1999, from $19.3 million at September 30, 1999. This decline was attributed to net income earned for the quarter ended December 31, 1999 of $369 thousand, offset to a larger extent by an increase of $674 thousand in net unrealized losses on the Bank's portfolio of securities considered available for sale. At December 31, 1999, approximately 37%, or $66.6 million, of the Bank's $181.7 million of assets are classified as securities available for sale and the value of such securities changes inversely with the general trend of interest rates which rose during the recent quarter ended December 31, 1999. Comparison of the Operating Results for the Three Months Ended December 31, 1999 and 1998 Net Income: The Bank's net income for the three months ended December 31, 1999 declined by $109 thousand, or $22.8%, to $369 thousand from $478 thousand for the three months ended December 31, 1998. This decline was primarily the result of increases in operating expenses associated with branch expansion, operational improvements and the addition of other personnel partially offset by an increase in net interest margin. The Bank's annual return on average assets for the three months ended December 31, 1999 was 0.84% as compared to 1.21% for the three months ended December 31, 1998. Interest and Dividend Income: Interest and dividend income increased by $218 thousand, or 8.4%, to $2.8 million for the quarter ended December 31, 1999, from $2.6 million for the quarter ended December 31, 1998. The increase was due mainly to a higher level of average interest-earning assets, reduced to a lesser extent by a decline in the average rate earned on earning assets. The average volume of interest-earning assets for the quarter ended December 31, 1999 was $166.1 million earning an average rate of 6.7% as compared to an average volume of $152.9 million earning an average rate of 6.83% for the quarter ending December 31, 1998. The Bank experienced continued growth in real estate lending and deployed additional cash flows into investment securities. The average balance of loans for the quarter ended December 31, 1999 was $92.2 million earning 7.38% as compared to an average balance of $83.1 million earning 7.5% for the quarter ending December 31, 1998. The average balance of investment securities for the quarter ended December 31, 1999 was $65.5 million earning 6.09% as compared to an average balance of $61.2 million earning 6.15% for the quarter ending December 31, 1998. Interest Expense: Interest expense increased by $87 thousand, or 7.1%, to $1.3 million for the quarter ended December 31, 1999, from $1.2 million for the quarter ending December 31, 1998. Interest expense increased due to a higher volume of interest-bearing liabilities, offset, to a lesser extent, by a declining average rate of interest paid on such interest-bearing liabilities. The average volume of interest-bearing liabilities was $144.7 million with a cost of 3.61% for the quarter ended December 31, 1999 as compared to $129.5 million with a cost of 3.77% for the quarter ending December 31, 1998. The average volume of interest-bearing deposits was $140.7 million with a cost of 3.57% for the quarter ending December 31, 1999 as compared to $127.5 million with a cost of 3.74% for quarter ending December 31, 1998. The average volume of borrowed funds was $4.0 million with a cost of 5.20% for the quarter ending December 31, 1999 as compared to $2.0 million with a cost of 5.40% for quarter ending December 31, 1998. Net Interest Income: The Bank's net interest and dividend income increased by $131 thousand for the quarter ended December 31, 1999, or 9.5%, to $1.5 million from $1.4 million for the quarter ending December 31, 1998. The increase was attributed to the combination of an increase in interest and dividend income of $218 thousand offset by an increase in interest expense of $87 thousand. The Bank's net interest rate spread increased to 3.15% for the quarter ended December 31, 1999 as compared to 3.06% for the quarter ending December 31, 1998. Provision for Loan Losses: The Bank's provision for loan losses declined to $0 for the quarter ended December 31, 1999 as compared to $15 thousand for quarter ending December 31, 1998. This decline reflects the Bank's continued low level of non-performing loans. However, as the Bank expands its commercial lending activities, increases in the provision are likely. Other Income: Other income consists primarily of fee income for Bank services, gains and losses from the sale of securities and income from the writing of covered call options on common stock held in the Bank's stock portfolio. Total other income increased 11.0% to $404 thousand for the quarter ended December 31, 1999, as compared to $364 thousand for quarter ending December 31, 1998. For the quarter ended December 31, 1999, gains from the sale of securities increased by $46 thousand to $158 thousand, from $112 thousand for the quarter ending December 31, 1998. The primary reason for the increase was due to a higher level of gains from the sale of common stock sold as a result of the exercise of a covered call option by the buyer. Alternatively, income from expired options, where the buyer allows the option to expire unexercised, declined by $42 thousand to $129 thousand for quarter ended December 31, 1999 from $171 thousand for quarter ending December 31, 1998. Customer service fees, loan fees and miscellaneous income increased by $36 thousand, or 44.4%, to $117 thousand for the quarter ended December 31, 1999 from $81 thousand for the quarter ended December 31, 1998. This increase is primarily due to the increase in the number of customer accounts held at the Bank, the sale of non-insured investment products and increases in the cash surrender value of Bank-owned life insurance. Operating Expenses: For the quarter ended December 31, 1999, operating expenses increased by $406 thousand, or $40.8%, to $1.4 million from $1.0 million for quarter ending December 31, 1998. The increase was primarily due to salary and benefit expenses associated with the opening of a supermarket branch in May 1999, additional staff in commercial lending and financial reporting and staff incentive payments. Also, occupancy and equipment, data processing, marketing, promotion, supplies and other expenses increased as a result of the Bank's recent branch opening. Additional board and committee meeting fees, mostly associated with strategic planning issues and meetings concerning the formation of a mutual holding company, plus the payment of a yearly retainer fee to board members in the most recent quarter, increased the level of board expenses which are included in other general and administrative expenses. Income Taxes: The provision for income taxes declined by $111 thousand to $151 thousand for the quarter ended December 31, 1999 as compared to $262 thousand for the quarter ended December 31, 1998 resulting in effective income tax rates of 29.0% and 35.5% for the quarters ended December 31, 1999 and 1998, respectively. The Bank utilizes investment securities subsidiaries to substantially reduce state income taxes. The lower effective tax rate is a result of a larger increase in the dividends received reduction partially offset a slight increase in state taxes, net of the federal tax benefit. Liquidity and Capital Resources The term "liquidity" refers to the Bank's ability to generate adequate amounts of cash to fund loan originations, deposit withdrawals and operating expenses. The Bank's primary sources of funds are deposits, scheduled amortization and prepayments of loan principal and mortgage-backed securities, maturities and calls of investment securities and funds provided by the Bank's operations. The Bank also has expanded its use of borrowings from the Federal Home Loan Bank of Boston as part of its management of interest rate risk. At December 31, 1999, the Bank had $4.0 million in outstanding borrowings. Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds. The Bank's primary investing activities are the origination of one- to four-family real estate and other loans, the purchase of mortgage-backed securities and the purchase of investment securities. During the quarter ended December 31, 1999, the Bank originated loans of $7.1 million, there were no purchases of mortgage-backed securities, and purchases of investment securities were $8.5 million. These investing activities were funded by deposit growth, principal payments on mortgage loans and mortgage-backed securities, calls and maturities on investment securities and funds provided by the Bank's operating activities. Principal repayments on loans and mortgage-backed securities totaled $6.9, million for the quarter ended December 31, 1999. Maturities of investment securities totaled $1.0 million during the quarter ended December 31, 1999. Sales and calls of investment securities provided cash flows of $2.9 million during the quarter ended December 31, 1999. At December 31, 1999, the Bank had loan commitments to borrowers of $1.1 million, unadvanced funds on commercial lines of credit of $0.8 million and available home equity lines of credit of $5.4 million. The Bank had no commitments to purchase mortgage-backed securities at December 31, 1999. Total deposits increased $4.7 million, during the quarter ended December 31, 1999. Deposit flows are affected by the level of interest rates, the interest rates and products offered by competitors and other factors. Certificate of deposit accounts scheduled to mature within one year were $43.8 million at December 31, 1999. Based on the Bank's deposit retention experience and current pricing strategy, the Bank anticipates that a significant portion of these certificates of deposit will remain with the Bank. The Bank is committed to maintaining a strong liquidity position; therefore, it monitors its liquidity position on a daily basis. The Bank also periodically reviews liquidity information prepared by the Depositors Insurance Fund and other available reports that compare the Bank's liquidity with banks in its peer group. The Bank anticipates that it will have sufficient funds to meet its current funding commitments. In May 1999, the Bank expanded its retail banking franchise by opening an additional branch location in the town of Shrewsbury. This branch is located in the Shaw's supermarket, and start-up costs were approximately $300 thousand. In the first half of 2000, the Bank also plans to begin an expansion of its facilities by constructing an addition to its existing executive office. The construction expenses for this addition are expected to total approximately $2.5 million. On December 16, 1999, the Bank entered into a purchase and sales agreement to acquire approximately 8 acres of land and buildings located at 23/25 Maple Avenue, Shrewsbury for the sum of $935 thousand, subject to adjustments and numerous conditions. The site is adjacent to the Bank's current leased branch office at 19 Maple Avenue, Shrewsbury. If the sale is completed, the Bank's plan is to relocate its 19 Maple Avenue branch to a newly constructed building located at 23/25 Maple Avenue. The Bank anticipates that it will have sufficient funds to meet these planned capital expenditures throughout 2000. At December 31, 1999, the Bank exceeded each of the applicable regulatory capital requirements. The Bank's leverage (tier 1) capital was approximately $19.0 million, or 10.8%. In order to be classified as "well- capitalized" by the FDIC, the Bank was required to have leverage (tier 1) capital of $8.8 million, or 5.0%. To be classified as a well-capitalized bank by the FDIC, the Bank must also have a risk-based total capital ratio of 10.0%. At December 31, 1999, the Bank had a risk-based total capital ratio of 20.48%. Further, the Bank does not have any balloon or other payments due on any long-term obligations or any off-balance sheet items other than the commitments and unused lines of credit noted above. Financial Services Modernization Legislation On November 12, 1999, President Clinton signed into law the Gramm- Leach-Bliley Financial Services Modernization Act of 1999, federal legislation intended to modernize the financial services industry by establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers. Generally, the Act: (a) repeals the historical restrictions and eliminates many federal and state law barriers to affiliations among banks, securities firms, insurance companies and other financial service providers; (b) provides a uniform framework for the functional regulation of the activities of banks, savings institutions and their holding companies; (c) broadens the activities that may be conducted by national banks, banking subsidiaries of bank holding companies and their financial subsidiaries; (d) provides an enhanced framework for protecting the privacy of consumer information; (e) adopts a number of provisions related to the capitalization, membership, corporate governance and other measures designed to modernize the Federal Home Loan Bank system; (f) modifies the laws governing the implementation of the Community Reinvestment Act and (g) addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions. Bank holding companies will be permitted to engage in a wider variety of financial activities than permitted under prior law, particularly with respect to insurance and securities activities. In addition, in a change from prior law, bank holding companies will be in a position to be owned, controlled or acquired by any company engaged in financially-related activities. The Bank does not believe that the Act will have a material adverse effect on its operations in the near-term. However, to the extent that the Act permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. This could result in a growing number of larger financial institutions that offer a wider variety of financial services than the Bank currently offers and that can aggressively compete in the markets it currently serves. Year 2000 Based on a review of the Bank's business since January 1, 2000, the Bank has not experienced any material effects of the Year 2000 problem. Although the Bank has not been informed of any material risks associated with the Year 2000 problem from third parties, there can be no assurance that the Bank will not be impacted in the future. The Bank will continuously monitor its business applications and maintain contact with its third party vendors and key business partners to resolve any year 2000 problems that may arise in the future. Monitoring and managing the Year 2000 project has resulted in direct and indirect costs to the Bank. The Bank currently estimates that the total costs will be approximately $85,000 and does not believe that such costs will have a material effect on results of operations. Both direct and indirect costs of addressing the Year 2000 problem have been charged to earnings as incurred. PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. None. Item 3. Defaults upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27.1 Financial Data Schedule (submitted only with filing in electronic format). (b) Reports on 8-K. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Westborough Financial Services, Inc. Date: February 11, 2000 By: /s/ Joseph F. MacDonough ---------------------------------------- President and Chief Executive Officer Date: February 11, 2000 By: /s/ John L. Casagrande ---------------------------------------- Sr. Vice-President and Treasurer EX-27.1 2 FINANCIAL DATA SCHEDULE--12/31/99
9 This schedule contains summary financial information extracted from the consolidated balance sheets and the statements of income of Westborough Savings Bank and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS SEP-30-1999 DEC-31-1999 5,817 357 5,859 0 67,451 0 0 93,898 (879) 181,672 154,778 0 3,051 4,000 0 0 0 18,976 181,672 1,699 998 127 2,824 1,255 1,307 1,517 0 158 308 520 520 0 0 369 0 0 6.8 0 0 0 939 879 0 0 879 703 0 176
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