-----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, GiDW802sP/9Oe8fqn6AWcLwhII4URZd+OPyY90XdTUyj/0Vqlnk35xKJYLU5wW6R oQ0b7MKn52YNSAmfIAnoZQ== 0000910647-05-000294.txt : 20051109 0000910647-05-000294.hdr.sgml : 20051109 20051109111144 ACCESSION NUMBER: 0000910647-05-000294 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051109 DATE AS OF CHANGE: 20051109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTFIELD FINANCIAL INC CENTRAL INDEX KEY: 0001157647 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-16767 FILM NUMBER: 051188377 BUSINESS ADDRESS: STREET 1: 141 ELM STREET CITY: WESTFIELD STATE: MA ZIP: 01085 BUSINESS PHONE: 4135681911 10-Q 1 wesf-q3.txt BODY OF FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 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 September 30, 2005 Commission file number 001-16767 Westfield Financial, Inc. (Exact name of registrant as specified in its charter) Massachusetts 73-1627673 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 141 Elm Street, Westfield, Massachusetts 01086 (Address of principal executive offices) (Zip Code) (413) 568-1911 (Registrant's telephone number, including area code) 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 twelve 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 is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No ----- ----- Indicate by check mark whether the registrant is a shell holding company (as defined in Rule 12b-2 of the Exchange Act). Yes No X ----- --- - -- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Outstanding at Class November 4, 2005 - ------------ ---------------- Common 9,839,457 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements of Westfield Financial, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) - September 30, 2005 and December 31, 2004 Consolidated Statements of Operations (Unaudited) - Three and nine months ended September 30, 2005 and 2004 Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income (Unaudited) - Nine months ended September 30, 2005 Consolidated Statements of Cash Flows (Unaudited) - Nine months ended September 30, 2005 and 2004 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits Signatures Exhibits 1 FORWARD - LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains "forward-looking statements" which may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," and "potential." Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition and results of operation and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to: * general and local economic conditions; * changes in interest rates, deposit flows, demand for mortgages and other loans, real estate values, and competition; * changes in loan default and charge-off rates; * changes in accounting principles, policies, or guidelines; * changes in legislation or regulation; and * other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products, and services. Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or unknown risks and uncertainties. Consequently, no forward-looking statements can be guaranteed. We disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events. 2 ITEM 1: FINANCIAL STATEMENTS Westfield Financial, Inc. and Subsidiaries Consolidated Balance Sheets - Unaudited (Dollars in thousands except share data)
September 30, December 31, 2005 2004 ---- ---- ASSETS Cash and due from banks $ 14,109 $ 13,961 Federal funds sold 25,625 31,964 Interest-bearing deposits 5,056 5,122 -------- -------- Cash and cash equivalents 44,790 51,047 -------- -------- SECURITIES: Available for sale - at estimated fair value 19,829 14,968 Held to maturity - at amortized cost (estimated fair value of $73,168 in September 2005, and $71,654 in December 2004) 73,352 71,298 MORTGAGE BACKED SECURITIES: Available for sale - at estimated fair value 93,978 73,316 Held to maturity - at amortized cost (estimated fair value of $153,759 in September 2005, and $174,051 in December 2004) 155,938 175,302 FEDERAL HOME LOAN BANK OF BOSTON AND OTHER STOCK 4,237 4,237 LOANS - Net of allowance for loan losses of $5,452 in September 2005 and $5,277 in December 2004 380,529 368,601 PREMISES AND EQUIPMENT, Net 11,108 11,505 ACCRUED INTEREST AND DIVIDENDS 3,689 3,551 BANK OWNED LIFE INSURANCE 19,613 17,248 OTHER ASSETS 5,408 5,830 -------- -------- TOTAL ASSETS $812,471 $796,903 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES DEPOSITS: Noninterest-bearing $ 42,891 $ 48,305 Interest-bearing 583,010 564,316 -------- -------- Total deposits 625,901 612,621 -------- -------- CUSTOMER REPURCHASE AGREEMENTS 16,637 14,615 FEDERAL HOME LOAN BANK OF BOSTON ADVANCES 45,000 45,000 OTHER LIABILITIES 7,193 6,616 -------- -------- TOTAL LIABILITIES 694,731 678,852 -------- -------- STOCKHOLDERS' EQUITY: Preferred stock - $.01 par value, 5,000,000 shares authorized, none outstanding at September 30, 2005, December 31, 2004 - - Common stock - $.01 par value, 25,000,000 shares authorized, 10,580,000 shares issued, 9,839,457 shares outstanding at September 30, 2005 and 9,954,512 December 31, 2004 106 106 Additional paid-in capital 47,806 47,659 Unallocated Common Stock of Employee Stock Ownership Plan (5,202) (5,427) Restricted stock unearned compensation (978) (1,543) Retained earnings 92,646 90,399 Accumulated other comprehensive income, net (771) (122) Treasury stock, at cost (740,543 shares at September 30, 2005 and 625,488 December 31, 2004) (15,867) (13,021) -------- -------- Total stockholders' equity 117,740 118,051 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $812,471 $796,903 ======== ========
See accompanying notes to consolidated financial statements. 3 Westfield Financial, Inc. and Subsidiaries Consolidated Statements of Operations - Unaudited (Dollars in thousands, except per share data)
Three Months Nine Months Ended September 30, Ended September 30, 2005 2004 2005 2004 ---- ---- ---- ---- INTEREST AND DIVIDEND INCOME: Residential and commercial real estate loans $4,085 $3,641 $11,809 $10,808 Securities and mortgage backed securities 3,206 3,147 9,610 9,568 Consumer loans 143 284 503 976 Commercial and industrial loans 1,714 1,337 4,683 3,707 Federal funds sold 216 87 568 133 Marketable equity securities 97 74 288 262 Interest-bearing deposits 43 7 95 115 ------ ------ ------- ------- Total interest and dividend income 9,504 8,577 27,556 25,569 ------ ------ ------- ------- INTEREST EXPENSE: Deposits 3,098 2,328 8,496 7,245 Customer repurchase agreements 82 43 212 142 Other borrowings 374 317 1,086 736 ------ ------ ------- ------- Total interest expense 3,554 2,688 9,794 8,123 ------ ------ ------- ------- Net interest and dividend income 5,950 5,889 17,762 17,446 PROVISION FOR LOAN LOSSES 100 200 365 475 ------ ------ ------- ------- Net interest and dividend income after provision for loan losses 5,850 5,689 17,397 16,971 ------ ------ ------- ------- NONINTEREST INCOME: Income from bank owned life insurance 206 187 552 553 Service charges and fees 709 591 1,903 1,699 Gain on sales of securities, net - - 19 868 ------ ------ ------- ------- Total noninterest income 915 778 2,474 3,120 ------ ------ ------- ------- NONINTEREST EXPENSE: Salaries and employees benefits 2,940 2,614 8,415 7,828 Occupancy 485 447 1,441 1,350 Computer operations 391 400 1,185 1,208 Stationery, supplies and postage 138 122 403 394 Other 663 703 2,554 2,469 ------ ------ ------- ------- Total noninterest expense 4,617 4,286 13,998 13,249 ------ ------ ------- ------- INCOME BEFORE INCOME TAXES 2,148 2,181 5,873 6,842 INCOME TAXES 553 627 1,355 2,048 ------ ------ ------- ------- NET INCOME $1,595 $1,554 $ 4,518 $ 4,794 ====== ====== ======= ======= EARNINGS PER COMMON SHARE: Basic earnings per share $ 0.17 $ 0.16 $ 0.48 $ 0.49 Diluted earnings per share $ 0.16 $ 0.16 $ 0.46 $ 0.48
See accompanying notes to consolidated financial statements. 4 WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME - UNAUDITED (Dollars in thousands, except share data)
Accumulated Common Stock Restricted Other ---------------- Additional Unallo- Stock Comprehensive Treasury Stock Par Paid-In cated Unearned Retained Income (Loss), ------------------ Shares Value Capital ESOP Compensation Earnings Net Shares Amount Total ------ ----- ---------- ------- ------------ -------- -------------- ------ ------ ----- Balance at December 31, 2004 10,580,000 $106 $47,659 $(5,427) $(1,543) $90,399 $(122) (625,488) $(13,021) $118,051 Comprehensive income: Net income - - - - - 4,518 - - - 4,518 Unrealized losses on securities arising during the year, net of tax benefit of $401 - - - - - - (649) - - (649) -------- Comprehensive income 3,869 -------- Activity related to common stock issued as employee incentives - - 147 225 565 - - - - 937 -------- Treasury stock purchased - - - - - - - (152,400) $ (3,651) (3,651) Reissuance of treasury shares in connection with stock option exercises - - - - - (268) - 37,345 $ 805 537 Cash dividends declared - - - - - (2,003) - - - (2,003) ---------- ---- ------- ------- ------- ------- ----- -------- --------- -------- Balance, September 30, 2005 10,580,000 $106 $47,806 $(5,202) $ (978) $92,646 $(771) (740,543) $(15,867) $117,740 ========== ==== ======= ======= ======= ======= ===== ======== ========= ======== Balance at December 31, 2003 10,580,000 $106 $47,143 $(5,837) $(2,094) $85,794 $ 788 (57,700) $ (1,096) $124,804 Comprehensive income: Net income - - - - - 4,794 - - - 4,794 Unrealized losses on securities arising during the period, net of tax benefit of $89 - - - - - - (199) - - (199) Reclassification for gains included in net income, net of tax benefit of $250 - - - - - - (618) - - (618) -------- Comprehensive income 3,977 -------- Activity related to common stock issued as employee incentives - - 247 108 413 - - - - 768 Treasury stock purchased - - - - - - - (546,378) (11,388) (11,388) Cash dividends declared - - - - - (1,495) - - - (1,495) ---------- ---- ------- ------- ------- ------- ----- -------- --------- -------- Balance at September 30, 2004 10,580,000 $106 $47,390 $(5,729) $(1,681) $89,093 $ (29) (604,078) $(12,484) $116,666 ========== ==== ======= ======= ======= ======= ===== ======== ========= ========
See accompanying notes to consolidated financial statements. 5 Westfield Financial, Inc. and Subsidiaries Consolidated Statements of Cash Flows - Unaudited (Dollars in thousands)
Nine Months Ended September 30, 2005 2004 ---- ---- OPERATING ACTIVITIES: Net income $ 4,518 $ 4,794 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 365 475 Depreciation of premises and equipment 720 771 Net amortization of premiums and discounts on securities, mortgage backed securities, and mortgage loans 833 1,145 Amortization of unearned compensation 1,058 872 Net realized securities gains (19) (868) Deferred income tax provision - 417 Increase in cash surrender value of bank owned life insurance (552) (553) Changes in assets and liabilities: Accrued interest and dividends (138) (36) Other assets 823 762 Other liabilities 577 (411) -------- -------- Net cash provided by operating activities 8,185 7,368 -------- -------- INVESTING ACTIVITIES: Securities, held to maturity: Purchases (11,130) (15,209) Proceeds from calls, maturities, and principal collections 9,000 3,000 Securities, available for sale: Purchases (9,206) (5,287) Proceeds from sales 3,833 11,891 Proceeds from calls, maturities, and principal collections 365 3,899 Mortgage backed securities, held to maturity: Purchases (17,165) (19,663) Principal collections 36,035 42,690 Mortgage backed securities, available for sale: Purchases (56,833) (36,515) Proceeds from sales 16,962 20,325 Principal collections 18,112 17,463 Purchase of residential mortgages (1,284) (34,127) Net other (increase) decrease in loans (11,059) 4,827 Purchases of premise and equipment (323) (391) Purchase of bank owned life insurance (1,813) - -------- -------- Net cash used in investing activities (24,506) (7,097) -------- -------- FINANCING ACTIVITIES: Increase (decrease) in deposits 13,280 (21,783) Increase in customer repurchase agreements 2,022 4,304 Federal Home Loan Bank of Boston advances - 25,000 Purchase of common stock in connection with employee benefit program (121) (104) Cash dividends paid (2,003) (1,495) Treasury stock purchased (3,651) (11,388) Reissuance of treasury shares in connection with employee benefit program 537 - -------- -------- Net cash provided (used in) by financing activities 10,064 (5,466) -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS: (6,257) (5,195) CASH AND CASH EQUIVALENTS Beginning of period 51,047 45,674 -------- -------- End of period $ 44,790 $ 40,479 ======== ========
See accompanying notes to consolidated financial statements. 6 WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations - Westfield Financial, Inc. (the "Company") is a Massachusetts chartered corporation. The Company has a federally chartered stock savings bank subsidiary called Westfield Bank (the "Bank"). The Bank's deposits are insured to the limits specified by the Federal Deposit Insurance Corporation ("FDIC"). The Bank operates ten branches in Western Massachusetts. The Bank's primary source of revenue is earnings on loans to small and middle-market businesses and to residential property homeowners. Westfield Securities Corp., a Massachusetts chartered security corporation, was formed in 2001 by the Company for the primary purpose of holding qualified investment securities. In the third quarter of 2005, the Company dissolved Westfield Securities Corp. in order to streamline operations. In 2003, the Bank formed another wholly-owned subsidiary, Elm Street Securities Corporation, a Massachusetts-chartered security corporation, for the primary purpose of holding investment securities. Principles of Consolidation - The consolidated financial statements include the accounts of the Company, the Bank, Westfield Securities Corp. and Elm Street Securities Corporation. All material intercompany balances and transactions have been eliminated in consolidation. Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses for each. Actual results could differ from those estimates. Estimates that are particularly susceptible to significant change in the near-term relate to the determination of the fair value of financial instruments and the allowance for loan losses. Basis of Presentation - In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company's financial condition as of September 30, 2005, and the results of operations, changes in stockholders' equity and comprehensive income and cash flows for the interim periods presented. The results of operations for the three months and nine months ended are not necessarily indicative of the results of operations for the remainder of the year ending December 31, 2005. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2004. Reclassifications - Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. 7 Stock Based Compensation - The Company applies APB Opinion No. 25 and related interpretations in accounting for stock based compensation options. Accordingly, no compensation cost has been recognized. Had compensation cost for the Company's stock options been determined based on the fair value at the grant dates for awards under the plans consistent with the method prescribed by SFAS No. 123, as amended by SFAS No. 148, the Company's net income and income per share would have been adjusted to the pro forma amounts indicated below (in thousands, except per share amounts):
Three Months Nine Months Ended September 30, Ended September 30, 2005 2004 2005 2004 ---- ---- ---- ---- Net income as reported $1,595 $1,554 $4,518 $4,794 Less: Compensation expense determined under fair value based method for all awards net of tax effects (135) (68) (271) (204) ------ ------ ------ ------ Pro forma net income $1,460 $1,486 $4,247 $4,590 ====== ====== ====== ====== Net income per share Basic as reported $ 0.17 $ 0.16 $ 0.48 $ 0.49 Pro forma 0.15 0.16 0.45 0.47 Diluted as reported 0.16 0.16 0.46 0.48 Pro forma 0.15 0.15 0.44 0.46
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. 2. EARNINGS PER SHARE Basic earnings per share represents income available to stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential shares had been issued or earned. 8 3. PENSION AND OTHER BENEFITS The following provides information regarding net benefit costs for the period shown:
Pension Benefits Other Benefits ---------------- -------------- Three months ended September 30, 2005 2004 2005 2004 ---- ---- ---- ---- Service cost $ 157 $ 137 $ 8 $ 6 Interest cost 127 116 11 10 Expected return on assets (131) (113) - - Transaction obligation (3) (3) 2 2 Actuarial loss 6 2 - - ----- ----- --- --- Net periodic pension cost $ 156 $ 139 $21 $18 ===== ===== === === Pension Benefits Other Benefits ---------------- -------------- Nine months ended September 30, 2005 2004 2005 2004 ---- ---- ---- ---- Service cost $ 470 $ 411 $23 $18 Interest cost 380 347 32 29 Expected return on assets (392) (339) - - Transaction obligation (9) (9) 7 7 Actuarial loss 17 5 - - ----- ----- --- --- Net periodic pension cost $ 466 $ 415 $62 $54 ===== ===== === ===
The Company plans to contribute the amount required to meet the minimum funding standards under Internal Revenue Code Section 412. Additional contributions will be made as deemed appropriate by management in conjunction with the plan's actuaries. On September 30, 2005, the Company made a contribution in the amount of $474,283. 4. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123R, "Share-based Payment (Revised 2004)" ("SFAS 123R"), which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. SFAS 123R eliminates the ability to account for share-based compensation transactions using the intrinsic method and requires that such transactions be accounted for using a fair-value-based method and recognized as expense in the consolidated statement of income. SFAS 123R allows the use of valuation models other than the Black-Scholes model prescribed in SFAS 123. Therefore, the pro forma costs of stock option expense estimated in Note 1 using the Black- Scholes option pricing model may not be representative of the costs recognized by the Company upon adoption of SFAS 123R. The Company is still in the process of analyzing the cost of stock options under SFAS 123R. On April 14, 2005, the Securities and Exchange Commission delayed the effective date for SFAS 123R, which allows companies to implement the statement at the beginning of their first fiscal year beginning after June 15, 2005, which would be January 1, 2006 for the Company. On March 29, 2005, the Securities and Exchange 9 Commission ("SEC") Staff issued Staff Accounting Bulletin No. 107 ("SAB 107"). SAB 107 expresses the views of the SEC staff regarding the interaction of FAS 123R and certain SEC rules and regulations and provides the SEC staff's view regarding the valuation of share-based payment arrangements for public companies. The provisions of FAS 123R and SAB 107 do not have an impact on the Company's results of operations at the present time. The Company intends to recognize compensation expense under the fair value based method beginning January 1, 2006. While the Company is still in the process of analyzing the cost of stock options under SFAS 123R, the preliminary estimate of the expense, using the Black-Scholes model for the year ended December 31, 2006 is approximately $234,000, net of taxes. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview Westfield Financial (the "Company") strives to remain a leader in meeting the financial service needs of the local community primarily in Hampden County, Massachusetts, and to provide quality service to the individuals and businesses in the market areas that it has served since 1853. Historically, Westfield Bank (the "Bank") has been a community-oriented provider of traditional banking products and services to business organizations and individuals, including products such as residential and commercial real estate loans, consumer loans and a variety of deposit products. Westfield Bank meets the needs of its local community through a community-based and service-oriented approach to banking. In recent years, in addition to real estate lending, we have adopted a growth-oriented strategy that has focused on increased emphasis on commercial lending. Our strategy also calls for increasing deposit relationships and broadening our product lines and services. We believe that this business strategy is best for our long term success and viability, and complements our existing commitment to high quality customer service. In connection with our overall growth strategy, Westfield Bank seeks to: * continue to grow its commercial loan portfolio as a means to increase the yield on and diversify its loan portfolio and build transactional deposit account relationships; * focus on expanding its retail banking franchise, and increasing the number of households served within its market area; and * depending on market conditions, refer substantially all of the fixed-rate residential real estate loans to a third party mortgage company which underwrites, originates and services these loans in order to diversify its loan portfolio, increase fee income and reduce interest rate risk. You should read our financial results for the quarter ended September 30, 2005 in the context of this strategy. * Net income was $1.6 million, or $0.16 per diluted share, for the quarter ended September 30, 2005 as compared to $1.6 million, or $0.16 per diluted share for the same period in 2004. * For the nine months ended September 30, 2005, net income was $4.5 million, or $0.46 per diluted share as compared to $4.8 million, or $0.48 per diluted share for the same period in 2004. The 2004 results included net gains from the sale of securities of $868,000 for the nine months ended September 30, 2004. This was primarily the result of the Company selling its common stock portfolio in 2004. Net gains from sales of securities for the nine months ended September 30, 2005 were $19,000. 10 * Commercial real estate and commercial and industrial loans increased $28.4 million, or 11.9% from $239.1 million at December 31, 2004 to $267.5 million at September 30, 2005. This is consistent with the Bank's strategic plan, which emphasizes commercial lending. The continued success of the Bank's commercial lending is primarily dependent on the local and national economy. * Residential real estate loans decreased $12.8 million to $110.4 million at September 30, 2005 from $123.2 million at December 31, 2004. The Bank refers its residential real estate borrowers to a third party mortgage company and substantially all of the Bank's residential real estate loans are underwritten, originated and serviced by a third party mortgage company. The Bank receives a fee from each of these loans originated. The Bank believes that this program has diversified its loan portfolio and continues to reduce interest rate risk. * Net interest and dividend income increased primarily as a result of higher balances in interest-earning assets, along with a higher yield on interest-earning assets. The Company expects net interest and dividend income to increase in future periods as it continues to emphasize higher yielding commercial real estate loans and commercial and industrial loans, while referring residential mortgage loans to a third party mortgage company. The net interest margin was 3.09% and 3.14% for the three and nine months ended September 30, 2005, respectively, as compared to 3.14% and 3.11% for the same periods in 2004, respectively. * Total deposits increased $13.3 million from $612.6 million at December 31, 2004 to $625.9 million at September 30, 2005. The increase in deposits was primarily the result of an increase of $22.5 million in term deposits, which were $335.6 million at September 30, 2005. The increase in term deposits was partially offset by a decrease in core deposits which totaled $9.3 million. The rates paid on term deposits have increased over the past several months. Some customers have shifted funds out of core deposits, which generally pay lower rates, and into term deposits. Management feels that in a period of rising rates, the more rate sensitive customers will continue to move funds into term deposits, resulting in a higher cost of deposits. * Nonperforming loans were $2.0 million at September 30, 2005 and $2.2 million December 31, 2004. * Charge-offs increased by $91,000 from $351,000 for the nine months ended September 30, 2004 to $442,000 for the nine months ended September 30, 2005. This was primarily the result of an increase of $289,000 in charge offs of commercial and industrial loans, which was partially offset by a decrease of $198,000 in consumer loans. The decrease in charge offs of consumer loans is mainly the result of the discontinuation of the indirect auto loan program. CRITICAL ACCOUNTING POLICIES The Company's critical accounting policies given its current business strategy and asset/liability structure are revenue recognition on loans, the accounting for allowance for loan losses and provision for loan losses, the classification of securities as either held to maturity or available for sale, and the evaluation of securities for other than temporary impairment. The Company's general policy is to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more, or earlier if the loan is considered impaired. Any unpaid amounts previously accrued on these loans are reversed from income. Subsequent cash receipts are applied to the outstanding principal balance or to interest income if, in the judgement of management, collection of principal balance is not in question. Loans are returned to accrual status when they become current as to both principal and interest and when subsequent performance reduces the concern as to the collectibility of principal and interest. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an 11 adjustment to interest income over the estimated average lives of the related loans. Compensation to an auto dealer is normally based upon a spread that a dealer adds on the loanbase rate set by the Company. The compensation is paid to an automobile dealer shortly after the loan is originated. The Company records the amount as a deferred cost that is amortized over the life of the loans in relation to the interest paid by the consumer. The Company's methodology for assessing the appropriateness of the allowance consists of two key components, which are a specific allowance for identified problem or impaired loans and a formula allowance for the remainder of the portfolio. Measurement of impairment can be based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the collateral, if the loan is collateral dependent. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change. The appropriateness of the allowance is also reviewed by management based upon its evaluation of then- existing economic and business conditions affecting the key lending areas of the Company and other conditions, such as new loan products, credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectibility of the loan portfolio. Although management believes it has established and maintained the allowance for loan losses at appropriate levels, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current operating environment. Securities, including mortgage backed securities, which management has the positive intent and ability to hold until maturity, are classified as held to maturity and are carried at amortized cost. Securities, including mortgage-backed securities, which have been identified as assets for which there is not a positive intent to hold to maturity, are classified as available for sale and are carried at fair value with unrealized gains and losses, net of income taxes, reported as a separate component of equity. Accordingly, a misclassification would have a direct effect on stockholders' equity. Sales or reclassification as available for sale (except for certain permitted reasons) of held to maturity securities may result in the reclassification of all such securities to available for sale. The Company has not sold held to maturity securities or reclassified such securities to available for sale other than in specifically permitted circumstances. The Company does not acquire securities or mortgage backed securities for purposes of engaging in trading activities. On a quarterly basis, the Company reviews available for sale investment securities with unrealized depreciation to assess whether the decline in fair value is temporary or other than temporary. The Company evaluates whether the decline in value is from company-specific events, industry developments, general economic conditions or other reasons. Once the estimated reasons for the decline are identified, further judgements are required as to whether those conditions are likely to reverse and, if so, whether that reversal is likely to result in a recovery of the fair value of the investment in the near term. Unrealized losses which are determined to be other than temporary are charged to operations. COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2005 AND DECEMBER 31, 2004 Total assets increased $15.6 million to $812.5 million at September 30, 2005 from $796.9 million at December 31, 2004. Securities increased $8.2 million to $343.1 million at September 30, 2005 from $334.9 million at December 31, 2004. Net loans during the period increased by $11.9 million to $380.5 million at September 30, 2005 from $368.6 million at December 31, 2004. Commercial real estate and commercial and industrial loans increased $28.4 million, or 11.9%, to $267.5 million at September 30, 2005 from $239.1 million at December 31, 2004. This is consistent with Westfield Bank's strategic plan, which emphasizes commercial lending. The continued success of Westfield Bank's commercial lending is primarily dependent on the local and national economy. Residential real estate loans decreased $12.8 million to $110.4 million at September 30, 2005 from $123.2 million at December 31, 2004. The Bank refers its residential real estate borrowers to a third party mortgage company and substantially all of the Bank's residential real estate loans are underwritten, originated and serviced by a third party mortgage company. The Bank receives a fee from each of these loans originated. Westfield Bank believes that this program has diversified its loan portfolio and continues to reduce interest rate risk. 12 Total deposits increased $13.3 million to $625.9 million at September 30, 2005 from $612.6 million at December 31, 2004. Time deposits increased $22.5 million to $335.6 million at September 30, 2005. Core deposits, which include checking, NOW, savings, and money market accounts, decreased by $9.3 million to $290.2 million at September 30, 2005. The rates paid on term deposits have increased over the past several months. Some customers have shifted funds out of core deposits, which generally pay lower rates, and into term deposits. Management feels that in a period of rising rates the more rate sensitive customers will continue to move funds into term deposits, resulting in a higher cost of deposits. Federal Home Loan Bank borrowings totaled $45.0 million at September 30, 2005 and December 31, 2004. Customer repurchase agreements increased 2.0 million, to $16.6 million at September 30, 2005 from $14.6 million at December 31, 2004. A customer repurchase agreement is an agreement by the Bank to sell to and repurchase form the customer an interest in specific securities issued by or guaranteed by the United States Government. This transaction settles immediately on a same day basis in immediately available funds. Interest paid is commensurate with other products of equal interest and credit risk. All of the Bank's customer repurchase agreements at September 30, 2005 were held by commercial customers. Stockholders' equity at September 30, 2005 and December 31, 2004 was $117.7 million and $118.1 million, respectively, which represented 14.5% of total assets as of September 30, 2005 and 14.8% of total assets as of December 31, 2004. The change is primarily attributable to net income of $4.5 million for the nine months ended September 30, 2005, offset by the repurchase of 152,400 shares of common stock for $3.7 million, and the declaration by the Board of Directors of dividends of $0.10 per share on January 27, 2005 and April 26, 2005, and July 26, 2005 as well as the declaration of a special dividend of $0.20 per share on April 26, 2005, all of which aggregated $2.0 million. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004 General Net income was $1.6 million, or $0.16 per diluted share, for the quarter ended September 30, 2005 as compared to $1.6 million, or $0.16 per diluted share, for the same period in 2004. Net interest and dividend income increased $61,000 to $5.9 million for the three months ended September 30, 2005. Net Interest and Dividend Income The following tables set forth the information relating to our average balance at, and net interest income for, the three months ended September 30, 2005 and 2004 and reflect the average yield on assets and average cost of liabilities for the periods indicated. Yields and costs are derived by dividing interest income by the average balance of interest-earning assets and interest expense by the average balance of interest-bearing liabilities for the periods shown. Average balances are derived from actual daily balances over the periods indicated. Interest income includes fees earned from making changes in loan rates and terms and fees earned when real estate loans are prepaid or refinanced. 13
Three Months Ended September 30, 2005 2004 Average Avg Yield/ Average Avg Yield/ Interest Balance Cost Interest Balance Cost -------- ------- ---------- -------- ------- ---------- (Dollars in thousands) Interest-Earning Assets - ----------------------- Short Term Investments $ 216 $ 30,547 2.83% $ 87 $ 26,353 1.32% Investment Securities 3,346 341,924 3.91 3,228 343,792 3.76 Loans 5,942 390,626 6.08 5,262 373,082 5.64 ------ -------- ------ -------- Total Interest-Earning Assets $9,504 $763,097 4.98 $8,577 $743,227 4.62 ====== ======== ====== ======== Interest-Bearing Liabilities - ---------------------------- NOW Accounts $ 77 $ 60,556 0.51 $ 68 $ 53,488 0.51 Savings Accounts 54 42,715 0.51 59 47,068 0.50 Money Market Accounts 544 144,235 1.51 330 150,952 0.87 Time Deposits 2,423 332,271 2.92 1,871 312,130 2.40 Customer Repurchase Agreements and Borrowings 456 61,716 2.95 360 53,807 2.68 ------ -------- ------ -------- Total Interest-Bearing Liabilities $3,554 $641,493 2.22 $2,688 $617,445 1.74 ====== ======== ====== ======== Net Interest Income/Interest Rate Spread $5,950 2.76% $5,889 2.88% ====== ==== ====== ==== Net Interest Margin 3.09% 3.14% ==== ====
14 The following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: * interest income changes attributable to changes in volume (changes in volume multiplied by prior rate); * interest income changes attributable to changes in rate (changes in rate multiplied by current volume); and * the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Three Months Ended September 30, 2005 Compared to September 30, 2004 Increase (decrease) due to: Interest-Earning Assets Volume Rate Net - ----------------------- ------ ---- --- (Dollars in thousands) Short Term Investments $ 14 $115 $129 Investment Securities (18) 136 118 Loans 247 433 680 ---- ---- ---- Net Change in Income on Interest-Earning Assets 243 684 927 ---- ---- ---- Interest-Bearing Liabilities - ---------------------------- NOW Accounts 9 0 9 Savings Accounts (5) 0 (5) Money Market Accounts (15) 229 214 Time Deposits 121 431 552 Customer Repurchase Agreements and Borrowings 53 43 96 ---- ---- ---- Net Change in Expense on Interest-Bearing Liabilities 163 703 866 ---- ---- ---- Net Change in Interest Income $ 80 $(19) $ 61 ==== ==== ====
15 Net interest and dividend income increased $61,000 to $5.9 million for the three months ended September 30, 2005. The increase in net interest income was primarily the result of higher balances in interest-earning assets. The average balance of interest-earning assets increased $19.9 million to $763.1 million for the three months ended September 30, 2005 as compared to $743.2 million for the same period in 2004. Westfield Financial expects net interest and dividend income to generally increase in future periods as the Company continues to emphasize higher yielding commercial real estate loans and commercial and industrial loans, while referring residential mortgage loans to a third party mortgage company. The net interest margin was 3.09% for the three months ended September 30, 2005 as compared to 3.14% for the same period in 2004. The decrease in the net interest margin was primarily the result of higher funding costs. The average cost of interest-bearing liabilities increased 48 basis points to 2.22% for the three months ended September 30, 2005 from 1.74% for same period in 2004. The yield of interest-earning assets increased 36 basis points to 4.98% for the three months ended September 30, 2005 from 4.62% for same period in 2004. The increase in the average cost of interest- bearing liabilities was primarily due to an increase in the cost of money market accounts and term deposits resulting from the rising interest rate environment. As the rates on term deposits have increased over the past several months, some customers have shifted funds out of core deposits, which generally pay lower rates, and into term deposits. In a period of rising interest rates, the more rate sensitive customers will continue to shift funds back into time deposits, resulting in a higher cost of deposits. Provision for Loan Losses For the three months ended September 30, 2005, Westfield Bank provided $100,000 for loan losses, compared to $200,000 for the same period in 2004. The amount Westfield Bank provided for the provision for loan losses during the three months ended September 30, 2005 was based upon changes that occurred in the loan portfolio during that same period. The provision for loan losses brings Westfield Bank's allowance for loan losses to a level determined appropriate by management. The allowance was $5.5 million at September 30, 2005 and $5.3 million at June 30, 2005. The allowance for loan losses was 1.41% of total loans at September 30, 2005 and 1.36% at June 30, 2005. Commercial real estate loans and commercial and industrial loans comprised 69.3% of the Bank's loan portfolio as of September 30, 2005 compared to 68.4% as of June 30, 2005. This has resulted in an increase in the allowance for loan losses requirement for commercial real estate loans and commercial and industrial loans. Westfield Bank considers these types of loans to contain more risk than conventional residential real estate mortgages. Residential real estate mortgages decreased by $5.1 million during the quarter ended September 30, 2005, resulting in a decrease in the allowance requirements for residential real estate loans. Consumer loans decreased by $0.8 million to $8.0 million during the quarter ended September 30, 2005, resulting in a decrease in the allowance for loan losses requirement for consumer loans. The decline in the allowance requirements for residential real estate loans and consumer loans partially offset the increase in the allowance requirement for commercial real estate loans and commercial and industrial loans. Nonperforming loans decreased $126,000 to $2.0 million at September 30, 2005 compared to $2.1 million at June 30, 2005. As a result of the above factors, management determined that a provision of $100,000 was appropriate. 16 Noninterest Income Noninterest income increased $137,000 to $915,000 for the three months ended September 30, 2005 from $778,000 in the same period in 2004. Checking account processing fees increased $63,000 to $500,000 for the three months ended September 30, 2005 from $437,000 in the same period in 2004. Fees received from the third party mortgage company increased $23,000 to $39,000 for the three months ended September 30, 2005 from $16,000 for the same period in 2004. Fee income from the third party mortgage company in the future may be affected by borrower activity, which generally decreases in a rising interest rate environment. Income from Bank Owned Life Insurance ("BOLI") increased $19,000 to $206,000 for the three months ended September 30, 2005 from $187,000 in the same period in 2004. Noninterest Expense Noninterest expense was $4.6 million for the three months ended September 30, 2005 and $4.3 million for September 30, 2004. Salaries and benefits increased $326,000 for the three months ended September 30, 2005 as compared to the same period in 2004. This was primarily the result of normal increases in salaries and health care costs along with an increase in stock based benefit plan expenses. Income Taxes For the three months ended September 30, 2005, the Company had a tax provision of $553,000 as compared to $627,000 for the same period in 2004. This was a result of an increase in income from tax exempt assets. COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004 General Net income was $4.5 million, or $0.46 per diluted share, for the nine months ended September 30, 2005 as compared to $4.8 million, or $0.48 per diluted share, for the same period in 2004. The 2004 results included net gains from the sale of securities of $868,000 for the nine months ended September 30, 2004. This was primarily the result of the Company selling its common stock portfolio in 2004. Net gains from the sale of securities for the nine months ended September 30, 2005 were $19,000. Net interest and dividend income increased $316,000 to $17.8 million for the nine months ended September 30, 2005 as compared to $17.4 million for the same period in 2004. 17 Net Interest and Dividend Income The following tables set forth the information relating to our average balance at, and net interest income for, the nine months ended September 30, 2005 and 2004 and reflect the average yield on assets and average cost of liabilities for the periods indicated. Yields and costs are derived by dividing interest income by the average balance of interest-earning assets and interest expense by the average balance of interest-bearing liabilities for the periods shown. Average balances are derived from actual daily balances over the periods indicated. Interest income includes fees earned from making changes in loan rates and terms and fees earned when real estate loans are prepaid or refinanced.
Nine Months Ended September 30, 2005 2004 Average Avg Yield/ Average Avg Yield/ Interest Balance Cost Interest Balance Cost -------- ------- ---------- -------- ------- ---------- (Dollars in thousands) Interest-Earning Assets - ----------------------- Short Term Investments $ 568 $ 31,075 2.44% $ 133 $ 16,746 1.06% Investment Securities 9,993 341,576 3.90 9,945 367,418 3.61 Loans 16,995 383,243 5.91 15,491 363,629 5.68 ------- -------- ------- -------- Total Interest-Earning Assets $27,556 $755,894 4.86 $25,569 $747,793 4.56 ======= ======== ======= ======== Interest-Bearing Liabilities - ---------------------------- NOW Accounts $ 223 $ 60,004 0.50 $ 180 $ 55,618 0.43 Savings Accounts 162 43,605 0.50 175 48,500 0.48 Money Market Accounts 1,547 146,381 1.41 1,076 152,985 0.94 Time Deposits 6,564 321,999 2.72 5,814 319,876 2.42 Customer Repurchase Agreements and borrowings 1,298 61,839 2.80 878 46,304 2.53 ------- -------- ------- -------- Total Interest-Bearing Liabilities $ 9,794 $633,828 2.06 $ 8,123 $623,283 1.74 ======= ======== ======= ======== Net Interest Income/Interest Rate Spread $17,762 2.80% $17,446 2.82% ======= ==== ======= ==== Net Interest Margin 3.14% 3.11% ==== ====
18 The following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: * interest income changes attributable to changes in volume (changes in volume multiplied by prior rate); * interest income changes attributable to changes in rate (changes in rate multiplied by current volume); and * the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Nine Months Ended September 30, 2005 Compared to September 30, 2004 Increase (decrease) due to: Interest-Earning Assets Volume Rate Net - ----------------------- ------ ---- --- (Dollars in thousands) Short Term Investments $ 114 $ 321 $ 435 Investment Securities (699) 747 48 Loans 836 668 1,504 ----- ------ ------ Net Change in Income on interest-Earning Assets 251 1,736 1,987 ----- ------ ------ Interest-Bearing Liabilities - ---------------------------- NOW Accounts 14 29 43 Savings Accounts (18) 5 (13) Money Market Accounts (46) 517 471 Time Deposits 39 711 750 Customer Repurchase Agreements and borrowings 295 125 420 ----- ------ ------ Net Change in Expense on interest-Bearing Liabilities 284 1,387 1,671 ----- ------ ------ Net Change in Interest Income $ (33) $ 349 $ 316 ===== ====== ======
19 Net interest and dividend income increased $316,000 to $17.8 million for the nine months ended September 30, 2005 as compared to $17.4 million for the same period in 2004. The increase in net interest income was primarily the result of higher balances in interest-earning assets. The average balance of interest-earning assets increased $8.1 million to $755.9 million for the nine months ended September 30, 2005 as compared to $747.8 million for the same period in 2004. Westfield Financial expects net interest and dividend income to generally increase in future periods as it continues to emphasize higher yielding commercial real estate loans and commercial and industrial loans, while referring residential mortgage loans to a third party mortgage company. The net interest margin was 3.14% for the nine months ended September 30, 2005 as compared to 3.11% for the same period in 2004. The increase in the net interest margin was primarily the result of a higher yield on interest- earning assets. The yield of interest-earning assets increased 30 basis points to 4.86% for the nine months ended September 30, 2005 from 4.56% for the same period in 2004. The average cost of interest-bearing liabilities increased 32 basis points to 2.06% for the nine months ended September 30, 2005 from 1.74% for the same period in 2004. The increase in the average cost of interest-bearing liabilities was primarily due to an increase in the cost of money market accounts and term deposits resulting from the rising interest rate environment. As the rates on term deposits have increased over the past several months, some customers have shifted funds out of core deposits, which generally pay lower rates, and into term deposits. In a period of rising interest rates, the more rate sensitive customers will continue to shift funds back into time deposits, resulting in a higher cost of deposits. Provision for Loan Losses For the nine months ended September 30, 2005, Westfield Bank provided $365,000 for loan losses, compared to $475,000 for the same period in 2004. The amount Westfield Bank provided for the provision for loan losses during the nine months ended September 30, 2005 was based upon changes that occurred in the loan portfolio during that same period. The provision for loan losses brings Westfield Bank's allowance for loan losses to a level determined appropriate by management. The allowance was $5.5 million at September 30, 2005 and $5.3 million at December 31, 2004. The allowance for loan losses was 1.41% of total loans at September 30, 2005 and 1.41% at December 31, 2004. At September 30, 2005 commercial real estate loans and commercial and industrial loans increased $28.4 million as compared to December 31, 2004. Commercial real estate loans and commercial and industrial loans comprised 69.3% of Westfield Bank's loan portfolio as of September 30, 2005 as compared to 63.9% as of December 31, 2004. This has resulted in an increase in the allowance for loan losses requirement for commercial real estate loans and commercial and industrial loans. Westfield Bank considers these types of loans to contain more risk than conventional residential real estate mortgages, which decreased by $12.8 million during the nine months ended September 30, 2005. This resulted in a decrease in the allowance requirement for residential real estate loans. Consumer loans decreased by $3.6 million to $8.0 million at September 30, 2005, resulting in a decrease in the allowance for loan losses requirement for consumer loans. The decline in the allowance requirement for residential real estate loans and consumer loans partially offset the increase in the allowance requirement for commercial real estate loans and commercial and industrial loans. Nonperforming loans decreased $182,000 to $2.0 million at September 30, 2005 compared to $2.2 million at December 31, 2004. As a result of the above factors, management determined that a provision of $365,000 was appropriate. 20 Noninterest Income Noninterest income decreased $646,000 to $2.5 million for the nine months ended September 30, 2005 from $3.1 million in the same period in 2004. Net gains on the sale of securities were $19,000 for the nine months ended September 30, 2005 as compared to $868,000 for the same period in 2004. The Company sold essentially all its common stock portfolio in 2004. Checking account processing fees increased $76,000 to $1.3 million for the nine months ended September 30, 2005 from $1.2 million for the same period in 2004. Fee income from commercial letters of credit was $41,000 for the nine months ended September 30, 2005 compared to none for the same period in 2004. Fees received from the third party mortgage company increased $10,000 to $75,000 for the nine months ended September 30, 2005 as compared to $65,000 for the same period in 2004. Fee income from the third party mortgage company in the future may be affected by borrower activity, which generally decreases in a rising interest rate environment. Noninterest Expense Noninterest expense for the nine months ended September 30, 2005 was $14.0 million as compared to $13.2 million for the same period in 2004. Salaries and benefits increased $587,000 for the nine months ended September 30, 2005 as compared to the same period in 2004. This was primarily the result of normal increases in salaries and health care costs along with an increase in stock based benefit plan expenses. Advertising expenses increased $217,000 to $403,000 for the nine months ended September 30, 2005 as compared to $186,000 for the same period in 2004. Income Taxes For the nine months ended September 30, 2005, the Company had a tax provision of $1.4 million as compared to $2.0 million for the same period in 2004. This was the result in a decrease in income before taxes and an increase in income from tax-exempt assets. LIQUIDITY AND CAPITAL RESOURCES The term "liquidity" refers to the Company's ability to generate adequate amounts of cash to fund loan originations, loan purchases, withdrawals of deposits and operating expenses. The Company's primary sources of liquidity are deposits, scheduled amortization and prepayments of loan principal and mortgage backed securities, maturities and calls of investment securities and funds provided by operations. Westfield Bank also can borrow funds from the Federal Home Loan Bank based on eligible collateral of loans and securities. Westfield Bank's maximum additional borrowing capacity from the Federal Home Loan Bank at September 30, 2005 was approximately $22 million. Liquidity management is both a daily and long term function of business management. The measure of a company's liquidity is its ability to meet its cash commitments at all times with available cash or by conversion of other assets to cash at a reasonable price. Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flow, calls of investment securities and repayments 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. Management believes that the Company has sufficient liquidity to meet its current operating needs. 21 At September 30, 2005, the Company exceeded each of the applicable regulatory capital requirements. As of September 30, 2005, the most recent notification from the Office of Thrift Supervision (the "OTS") categorized Westfield Bank as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized," Westfield Bank must maintain minimum total risk-based, Tier 1 risk -based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed Westfield Bank's category. The Company's and Westfield Bank's actual capital ratios as of September 30, 2005 are also presented in the table.
Minimum To Be Well Minimum Capitalized For Capital Under Prompt Adequacy Corrective Actual Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (Dollars in thousands) September 30, 2005 Total Capital (to Risk Weighted Assets): Consolidated $123,783 26.07% $37,989 8.00% N/A - Bank 103,795 22.03 37,685 8.00 $47,106 10.00% Tier 1 Capital (to Risk Weighted Assets): Consolidated 118,331 24.92 18,995 4.00 N/A - Bank 98,470 20.90 18,842 4.00 28,263 6.00 Tier 1 Capital (to Adjusted Total Assets): Consolidated 118,331 14.54 32,545 4.00 N/A - Bank 98,470 12.40 31,771 4.00 39,713 5.00 December 31, 2004 Total Capital (to Risk Weighted Assets): Consolidated $123,222 26.90% $36,650 8.00% N/A - Bank 87,916 19.49 36,091 8.00 $45,114 10.00% Tier 1 Capital (to Risk Weighted Assets): Consolidated 117,945 25.75 18,325 4.00 N/A - Bank 82,639 18.32 18,046 4.00 27,069 6.00 Tier 1 Capital (to Adjusted Total Assets): Consolidated 117,945 14.69 32,125 4.00 N/A - Bank 82,639 10.85 30,452 4.00 38,065 5.00
On July 23, 2004, Westfield Bank and the Company's mutual holding company completed their conversions from companies regulated by the Massachusetts Division of Banks or the Federal Reserve Board to federally-chartered companies regulated by the OTS. Westfield Bank, as a federally-chartered savings bank, is subject to OTS capital requirements rather than Federal Deposit Insurance Corporation capital requirements. Westfield Bank is considered "well capitalized" under OTS capital requirements. See the "Consolidated Statements of Cash Flows" in the Consolidated Financial Statements included in this Form 10-Q for the sources and uses of cash flows for operating, investing, and financing activities for the nine months ended September 30, 2005 and September 30, 2004. 22 Westfield Bank also has outstanding, at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to Westfield Bank's obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. Westfield Bank is obligated under leases for certain of its branches and equipment. A summary of lease obligations and credit commitments at September 30, 2005 is shown below:
After 1 Year After 3 Years Within but Within but Within After 1 Year 3 Years 5 Years 5 Years Total (In thousands) LEASE OBLIGATIONS Operating lease obligations $ 238 $ 334 $ 198 $ 330 $ 1,100 ======= ======= ====== ======= ======== BORROWINGS Federal Home Loan Bank $ 5,000 $35,000 $5,000 $ - $ 45,000 ======= ======= ====== ======= ======== CREDIT COMMITMENTS Available lines of credit $40,452 $ - $ - $12,978 $ 53,430 Other loan commitments 34,973 7,046 - - 42,019 Letters of credit 4,722 - - 904 5,626 ------- ------- ------ ------- -------- Total credit commitments $80,147 $ 7,046 $ - $13,882 $101,075 ======= ======= ====== ======= ======== Grand total $85,385 $42,380 $5,198 $14,212 $147,175 ======= ======= ====== ======= ========
OFF-BALANCE SHEET ARRANGEMENTS The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative measures established by regulation to ensure capital adequacy require the Company and Westfield Bank to maintain minimum amounts and ratios (set forth in the table above) of total and Tier I capital to risk weighted assets and to average assets. Management believes, as of September 30, 2004, that the Company and Westfield Bank met all capital adequacy requirements to which they were subject. As of September 30, 2004, the most recent notification from the OTS categorized Westfield Bank as well capitalized under the regulatory framework for prompt corrective action. 23 To be categorized as well capitalized, Westfield Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios. There are no conditions or events since that notification that management believes have changed Westfield Bank's category. Management uses a simulation model to monitor interest rate risk. This model reports the net interest income at risk primarily under seven different interest rate change environments. Specifically, net interest income is measured in one scenario that assumed no change in interest rates, and six scenarios where interest rates increase 100, 200, 300, and 400 basis points, and decrease 100 and 200 basis points, respectively, from current rates over the one year time period following the current consolidated financial statement. Income from tax-exempt assets is calculated on a fully taxable equivalent basis. The changes in interest income and interest expense due to changes in interest rates reflect the interest sensitivity of our interest earning assets and interest bearing liabilities. For example, in a rising interest rate environment, the interest income from an adjustable rate loan will increase depending on its repricing characteristics while the interest income from a fixed loan would not increase until the loan was repaid and reinvested or loaned out at a higher interest rate. The tables below set forth for the twelve months ended September 30, 2005 the estimated changes in net interest and dividend income that would result from incremental changes in interest rates over the applicable period.
For the Twelve Months Ending September 30, 2005 (Dollars in thousands) ----------------------------------------------- Changes in Net Interest Interest Rates and Dividend (Basis Points) Income % Change -------------- ------------ -------- 400 $26,673 -1.8% 300 26,750 -1.5 200 27,016 -0.5 100 27,241 0.3 0 27,153 N/A -100 27,884 2.7 -200 27,561 1.5
Management believes that there have been no significant changes in market risk since December 31, 2004. The income simulation analysis was based upon a variety of assumptions. These assumptions include but are not limited to balance sheet growth, asset mix, prepayment speeds, the timing and level of interest rates, and the shape of the yield curve. As market conditions vary from the assumptions in the income simulation analysis, actual results will differ. As a result, the income simulation analysis does not serve as a forecast of net interest income, nor do the calculations represent any actions that management may undertake in response to changes in interest rates. 24 ITEM 4: CONTROLS AND PROCEDURES Management, including the Company's President and Chief Executive Officer and the Company's Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of the end of the period covered by this report. Based upon the evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company files and submits under the Company's Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to the Company's management, including the Company's principal executive officer and principal accounting officer, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in the Company's internal control over financial reporting identified in connection with the evaluation that occurred during the Company's last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the Company's internal control over financial reporting. Part II - Other Information ITEM 1. LEGAL PROCEEDINGS None ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES USE OF PROCEEDS The following table sets forth information with respect to purchases made by the Company of its common stock during the nine months ended September 30, 2005.
Total number of shares Maximum number purchased as of shares that Total number part of publicly may yet be of shares Average price announced purchased under Period purchased paid per share($) programs the program - -------------------------------------------------------------------------------------------------- July 1 - 31, 2005 - - - - -------------------------------------------------------------------------------------------------- August 1 - 31, 2005 152,400 23.96 152,400 - -------------------------------------------------------------------------------------------------- September 1 - 30, 2005 - - - - -------------------------------------------------------------------------------------------------- Total 152,400 23.96 152,400 291,007 - --------------------------------------------------------------------------------------------------
In July 2004, the Company announced that the Board of Directors had approved a share repurchase program ("Repurchase Program 2") which authorized the repurchase of up to 502,550 shares. The Repurchase Program will continue until it is completed. There were no sales by the Company of unregistered securities during the three months ended September 30, 2005. 25 ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION a. None b. None ITEM 6. EXHIBITS The following exhibits are furnished with this report: 2.1 Plan of Reorganization and Minority Stock Issuance of Westfield Mutual Holding Company, as amended.* 3.1 Articles of Organization of Westfield Financial, Inc.* 3.2 Bylaws of Westfield Financial, Inc.* 3.3 Amended and Restated Charter of Westfield Mutual Holding Company* 3.4 Amended and Restated Bylaws of Westfield Mutual Holding Company* 4.1 Articles of Organization of Westfield Financial, Inc. (See Exhibit 3.1)* 4.2 Bylaws of Westfield Financial, Inc. (See Exhibit 3.2)* 4.3 Form of Stock Certificate of Westfield Financial, Inc.* 10.1 Form of Employee Stock Ownership Plan of Westfield Financial, Inc.* 10.2 Form of the Benefit Restoration Plan of Westfield Financial, Inc.* 10.3 Form of Employment Agreement between Donald A. Williams and Westfield Financial, Inc.* 10.4 Form of Employment Agreement between Victor J. Carra and Westfield Financial, Inc.* 10.5 Form of Employment Agreement between Michael J. Janosco, Jr. and Westfield Financial, Inc.* 10.6 Form of One Year Change in Control Agreement by and among certain officers and Westfield Financial, Inc. and Westfield Bank* 10.7 Form of Directors' Deferred Compensation Plan* 10.8 The SBERA 401(k) Plan adopted by Westfield Bank** 10.9 Amendments to the Employee Stock Ownership Plan of Westfield Financial, Inc.*** 26 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Incorporated herein by reference to the Registration Statement No. 333-68550 on Form S-1 filed with the SEC on August 28, 2001, as amended. ** Incorporated herein by reference to the Registration Statement No. 333-73132 on Form S-8 filed with the SEC on November 9, 2001, as amended. *** Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2002 filed with the SEC on March 31, 2003. 27 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. Westfield Financial, Inc. (Registrant) By: /s/ Donald A. Williams -------------------------------- Donald A. Williams Chairman/Chief Executive Officer (Principal Executive Officer) By: /s/ Michael J. Janosco, Jr. -------------------------------- Michael J. Janosco, Jr. Vice President/Chief Financial Officer (Principal Accounting Officer) November 9, 2005 28 EX-31 2 wes3-311.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION I, Donald A. Williams, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Westfield Financial, Inc. (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: November 9, 2005 /s/ Donald A. Williams ------------------------------------ Donald A. Williams Chairman and Chief Executive Officer EX-31 3 wes3-312.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION I, Michael J. Janosco, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Westfield Financial, Inc. (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: November 9, 2005 /s/ Michael J. Janosco ------------------------------------ Michael J. Janosco Chief Financial Officer EX-32 4 wes3-321.txt EXHIBIT 32.1 Exhibit 32.1 STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 The undersigned, Donald A. Williams, is the Chairman and Chief Executive Officer of Westfield Financial, Inc. (the "Company"). This statement is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2005 (the "Report"). By execution of this statement, I certify that: A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. November 9, 2005 /s/ Donald A. Williams - ----------------------------- ------------------------------------ Dated Donald A. Williams EX-32 5 wes3-322.txt EXHIBIT 32.2 Exhibit 32.2 STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 The undersigned, Michael J. Janosco, Jr., is the Chief Financial Officer of Westfield Financial, Inc. (the "Company"). This statement is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2005 (the "Report"). By execution of this statement, I certify that: A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. November 9, 2005 /s/ Michael J. Janosco, Jr. - ----------------------------- ------------------------------------ Dated Michael J. Janosco, Jr. -----END PRIVACY-ENHANCED MESSAGE-----