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, 2000
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 small business issuer as specified in its charter)
Massachusetts 04-3504121
(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)
(Issuer'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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Outstanding as of January 25, 2001
----- ----------------------------------
Common Stock, par value $0.01 1,581,374
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
Forward Looking Statements
Westborough Financial Services, Inc. (the "Company") and The
Westborough Bank (the "Bank") may from time to time make written or oral
"forward-looking statements." These forward-looking statements may be
contained in this Quarterly Report on Form 10-QSB filed with the Securities
and Exchange Commission (the "SEC"), other filings with the SEC, and in
other communications by the Company and the Bank, which are made in good
faith pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The words "may," "could," "should," "would,"
"believe," "anticipate," "estimate," "expect," "intend," "plan" and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, which are subject to significant risks and
uncertainties. The following factors, many of which are subject to change
based on various other factors beyond the Company's control, and other
factors identified in the Company's filings with the SEC and those
presented elsewhere by management from time to time, could cause its
financial performance to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such forward-looking
statements:
* the strength of the United States economy in general and the
strength of the local economies in which the Company and the Bank
conduct operations;
* the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the Federal
Reserve Board;
* inflation, interest rate, market and monetary fluctuations;
* the timely development of and acceptance of new products and
services and the perceived overall value of these products and
services by users, including the features, pricing and quality
compared to competitors' products and services;
* the willingness of users to substitute competitors' products and
services for the Company's and the Bank's products and services;
* the Company's and the Bank's success in gaining regulatory
approval of their products and services, when required;
* the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and
insurance);
* the impact of technological changes;
* acquisitions;
* changes in consumer spending and saving habits; and
* the Company's and the Bank's success at managing the risks
involved in their business.
This list of important factors is not exclusive. The Company or the
Bank does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company or the Bank.
WESTBOROUGH FINANCIAL SERVICES, INC.
AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION Page
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets 1
December 31, 2000 and September 30, 2000 (unaudited)
Consolidated Statements of Income 2
For Three Months Ended December 31, 2000 and 1999 (unaudited)
Consolidated Statements of Changes in Stockholders' Equity 3
For Three Months Ended December 31, 2000 and 1999 (unaudited)
Consolidated Statement of Cash Flows 4
For Three Months Ended December 31, 2000 and 1999 (unaudited)
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis. 6
PART II. OTHER INFORMATION 11
Item 1. Legal Proceedings. 11
Item 2. Changes in Securities and Use of Proceeds. 11
Item 3. Defaults upon Senior Securities. 11
Item 4. Submission of Matters to a Vote of Security Holders. 11
Item 5. Other Information. 12
Item 6. Exhibits and Reports on Form 8-K. 12
SIGNATURES 13
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
Westborough Financial Services, Inc. and Subsidiary
Consolidated Balance Sheets
(Dollars in thousands)
December 31, September 30,
2000 2000
------------ -------------
(Unaudited)
Assets
Cash and due from banks $ 7,276 $ 4,599
Federal funds sold 5,838 7,510
Short-term investments 2,408 2,351
-----------------------
Total cash and cash equivalents 15,522 14,460
Securities available for sale, at fair value 74,256 69,216
Federal Home Loan Bank stock, at cost 903 903
Loans, net 115,546 113,559
Banking premises and equipment, net 2,268 2,192
Accrued interest receivable 1,483 1,317
Deferred income taxes 487 881
Cash surrender value of life insurance 3,229 3,133
Other assets 265 315
-----------------------
Total assets $213,959 $ 205,976
=======================
Liabilities and Stockholders' Equity
Deposits $170,031 $163,405
Federal Home Loan Bank advances 16,500 16,500
Mortgagors' escrow accounts 213 247
Accrued expenses and other liabilities 1,701 1,108
-----------------------
Total liabilities 188,445 181,260
-----------------------
Commitments and Contingencies
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding 0 0
Common stock, $.01 par value, 5,000,000 shares authorized,
1,581,374 shares issued and outstanding 16 16
Additional paid in capital 4,541 4,541
Retained earnings 21,252 20,931
Accumulated other comprehensive income (loss) 117 (352)
Unearned compensation-employee stock ownership plan (412) (420)
-----------------------
Total stockholders' equity 25,514 24,716
-----------------------
Total liabilities and stockholders' equity $213,959 $205,976
=======================
See accompanying notes to unaudited consolidated financial statements.
Westborough Financial Services, Inc. and Subsidiary
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Three Months Ended
December 31, December 31,
2000 1999
------------ ------------
Interest and dividend income:
Interest and fees on loans $ 2,185 $1,699
Interest and dividends on investment securities 1,143 998
Interest on federal funds sold 127 86
Interest on short term investments 55 41
------------------------
Total interest and dividend income 3,510 2,824
------------------------
Interest expense:
Interest on deposits 1,489 1,255
Interest on borrowings 271 52
------------------------
Total interest expense 1,760 1,307
------------------------
Net interest income 1,750 1,517
Provision for loan losses 12 0
------------------------
Net interest income, after provision for loan losses 1,738 1,517
------------------------
Other income:
Customer service fees 184 88
Income from covered call options 16 129
Gain on sales of securities available for sale, net 52 158
Miscellaneous 33 29
------------------------
Total other income 285 404
------------------------
Operating expenses:
Salaries and employee benefits 839 746
Occupancy and equipment expenses 227 192
Data processing expenses 96 72
Marketing expenses 66 57
Professional fees 76 26
Other general and administrative expenses 374 308
------------------------
Total operating expenses 1,678 1,401
------------------------
Income before income taxes and cumulative effect
of change in accounting principle 345 520
Income taxes 92 151
------------------------
Income before cumulative effect of change in accounting principle 253 369
Cumulative effect of change in accounting principle, net of $76
of related tax effect, for the adoption of a new accounting
standard for covered call options 147 0
------------------------
Net income $ 400 $ 369
========================
Number of weighted average shares outstanding 1,539,753 N/A
Earnings per share - Basic $0.26 N/A
See accompanying notes to unaudited consolidated financial statements.
Westborough Financial Services, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)
Accumulated
Additional Other Unearned
Common Paid-in Retained Comprehensive Comp -
Stock Capital Earnings Income (Loss) ESOP Total
(Unaudited)
Balance at September 30, 1999 $ 0 $ 0 $19,680 $ (399) $ 0 $19,281
-------
Comprehensive income (loss):
Net income 0 0 369 0 0 369
Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification adjustment and tax effects 0 0 0 (674) 0 (674)
--------
Total comprehensive income (305)
--------
Balance at December 31, 1999 $ 0 $ 0 $20,049 $(1,073) $ 0 $18,976
=========================================================================
Balance at September 30, 2000 $16 $4,541 $20,931 $ (352) $(420) $24,716
-------
Comprehensive income:
Net income 0 0 400 0 0 400
Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification adjustment and tax effects 0 0 0 469 0 469
-------
Total comprehensive income 869
-------
Dividends paid, $0.05 per share outstanding 0 0 (79) 0 0 (79)
ESOP shares committed to be released 0 0 0 0 8 8
-------------------------------------------------------------------------
Balance at December 31, 2000 $16 $4,541 $21,252 $ 117 $(412) $25,514
=========================================================================
See accompanying notes to unaudited consolidated financial statements.
Westborough Financial Services, Inc. and Subsidiary
Consolidated Statement of Cash Flows
(Dollars in thousands)
Three Months Ended
----------------------------
December 31, December 31,
2000 1999
------------ ------------
(unaudited)
Cash flows from operating activities:
Net income $ 400 $ 369
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 12 0
Gain on sales of securities available for sale, net (52) (158)
Recognition of income from covered call options (16) (129)
(Accretion) Amortization on securties, net (17) 7
Depreciation expense 102 83
Amortization of net deferred loan costs (fees), net 1 4
Amortization of unearned compensation - ESOP 8 0
Decrease (increase) in accrued interest receivable (166) 59
Increase in cash surrender value of life insurance (96) 0
Other, net 666 2,823
-----------------------
Net cash provided by operating activities 842 3,058
-----------------------
Cash flows from investing activities:
Purchase of securities available for sale (9,700) (8,497)
Proceeds from sales and calls of securities available for sale 2,917 2,890
Proceeds from maturities of securities available for sale 1,999 1,001
Principal repayments received on mortgage and asset
backed securities 590 784
Loans originated, net of payments received (2,000) (931)
Purchase of banking premises and equipment (178) (56)
-----------------------
Net cash used by investing activities (6,372) (4,809)
-----------------------
Cash flows from financing activities:
Net increase in deposits 6,626 4,667
Net decrease in mortgagors escrow accounts (34) (15)
-----------------------
Net cash provided by financing activities 6,592 4,652
-----------------------
Net increase in cash and cash equivalents 1,062 2,901
Cash and cash equivalents at beginning of period 14,460 10,718
-----------------------
Cash and cash equivalents at end of period $15,522 $13,619
=======================
See accompanying notes to unaudited consolidated financial statements.
Westborough Financial Services, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
1) Basis of Presentation and Consolidation.
The unaudited consolidated interim financial statements of
Westborough Financial Services, Inc. and Subsidiary (the "Company")
presented herein should be read in conjunction with the consolidated
financial statements for the year ended September 30, 2000, included in the
Annual Report on Form 10-KSB of the Company, the holding company for The
Westborough Bank (the "Bank").
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 was founded in 1869 as a Massachusetts chartered mutual
savings bank. On February 15, 2000, the Bank reorganized 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 formed Westborough Bancorp, MHC (the "MHC"), a
Massachusetts chartered mutual holding company which is the majority owner
of the Company; (ii) the Bank converted from mutual to stock form, changing
its name from "Westborough Savings Bank" to "The Westborough Bank," and
issued 100% of its capital stock to the Company; and (iii) the Company
issued 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 (the "Stock
Offering"). The Company issued 1,581,374 shares of the Common Stock in the
Stock Offering, of which 35% of these shares, or 553,481 shares, were 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, were
issued to the MHC.
3) Contingencies.
At December 31, 2000, the Bank had loan commitments to borrowers of
$2.6 million, commitments of home equity loans of $260 thousand, available
home equity lines of credit of $5.5 million, unadvanced funds on commercial
lines of credit of $1.5 million, and personal overdraft lines of credit of
approximately $323 thousand. The Bank had no commitments to purchase
securities at December 31, 2000. In order to create a platform for the
accomplishment of the Bank's goals, the Bank has begun to make significant
investments in its physical infrastructure and human and technological
resources. In particular, the Bank is expanding and renovating its main
office. The cost to complete this expansion and renovation is approximately
$1.9 million and it is scheduled to be completed in the Spring of 2001. The
Bank also has a deposit on land in Shrewsbury where it plans to relocate
its current Maple Avenue branch. No formal estimates or contracts have been
entered into for this branch. Such investments have been and, in the
future, will be necessary to ensure that adequate resources are in place to
offer increased products and services. As a result, for a period of time,
the Bank expects operating expenses to increase and net income to be
adversely impacted. The Bank believes, however, that its long-term
profitability should improve as it realizes the benefits of diversified
product lines and market share growth
4) Earnings per Share.
Earnings per share for the three months ended December 31, 2000 is
computed using 1,539,753 weighted average shares outstanding. Earnings per
share data is not presented for the three-month period ended December 31,
1999 because shares of common stock were not issued until February 15,
2000.
5} Adoption of New Accounting Pronouncement.
On October 1, 2000 the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which required the Company to record the after-tax
effects of changes in the fair value of covered call options through
current income. Previously, such changes were included in accumulated
comprehensive income (loss). By adopting this standard, the Bank recorded
pre-tax earnings of $223 thousand for the quarter ended December 31, 2000.
After related taxes at the rate of 34%, or, $76 thousand, the standard
resulted in additional income of $147 thousand.
6) Subsequent Event.
On the January 25, 2001 Annual Shareholders' Meeting, the Company
adopted the Westborough Financial Services, Inc. 2001 Stock Option Plan and
the Westborough Financial Services, Inc. 2001 Recognition and Retention
Plan.
Item 2. Management's Discussion and Analysis.
General
The Bank completed its reorganization into a "two-tiered" mutual
holding company structure on February 15, 2000. In connection with this
reorganization: (1) the Bank formed Westborough Bancorp, MHC (the "MHC"), a
Massachusetts-chartered mutual holding company, which is the majority owner
of the Company, a Massachusetts-chartered stock holding company; (2) the
Bank converted from a Massachusetts-chartered mutual savings bank to a
Massachusetts-chartered stock savings bank and issued 100% of its capital
stock to the Company; and (3) the Company issued shares of its common
stock, $0.01 per share, to the public at a price of $10.00 per share in a
subscription, community and syndicated offering (the "Stock Offering").
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and related notes that are
included within this report.
The business of the Bank consists of attracting deposits from the
general public and using these funds to originate various types of loans
primarily in the towns of Westborough, Northborough and Shrewsbury,
Massachusetts, including residential and commercial real estate mortgage
loans and, to a lesser extent, consumer and commercial loans.
The Bank's results of operations depend primarily on net interest
income. Net interest income is the difference between the interest income
the Bank earns on its interest-earning assets and the interest it pays on
its interest-bearing liabilities. Interest-earning assets primarily consist
of mortgage loans, mortgage-backed securities and investment securities.
Interest-bearing liabilities consist primarily of certificates of deposit,
savings accounts and borrowings. The Bank's results of operations are also
affected by its provision for loan losses, income from security
transactions, other income and operating expenses. Operating expenses
consist primarily of salaries and employee benefits, occupancy, data
processing, marketing, professional fees and other general and
administrative expenses. Other income consists mainly of service fees and
charges, income from writing covered call options, gains on sales of
securities and fees from the sale of non-insured investment products.
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, 2000 and September 30,
2000
The Bank's total assets increased by $8.0 million, or 3.9%, to $214.0
million at December 31, 2000 from $206.0 million at September 30, 2000.
Securities available for sale during this period increased $5.0 million, to
$74.3 million at December 31, 2000 from $69.2 million at September 30,
2000. This increase was mainly attributable to an increase in banking and
finance obligations, mortgage-backed securities and other bonds and
obligations. Net loans during this period increased by $2.0 million, or
1.8%, to $115.5 million at December 31, 2000, from $113.6 million at
September 30, 2000. The loan increase was primarily due to increased
variable rate, residential first mortgage loans and home equity lines of
credit. Asset quality remained strong, with no non-accural loans and no
non-performing assets at December 31, 2000 and September 30, 2000.
Total deposits increased by $6.6 million, or 4.1%, to $170.0 million
at December 31, 2000 from $163.4 million at September 30, 2000. Most of
this increase was attributable to increases in checking and NOW accounts,
along with increases in interest-bearing certificates of deposits.
Total stockholders' equity increased by $798 thousand to $25.5
million at December 31, 2000 from $24.7 million at September 30, 2000
primarily as a result of net income of $400 thousand and an increase of
$469 thousand in accumulated other comprehensive income. Accumulated other
comprehensive income, which measures the after-tax change in the value of
securities considered available for sale, increased as a result of a
decline in market interest rates at December 31, 2000. During the quarter
ended December 31, 2000, the Company declared and paid a cash dividend of
$.05 per common share, which reduced stockholders' equity by $79 thousand
for the quarter. The Employee Stock Ownership Plan Trust committed to
release $8 thousand in the form of shares during the period. Total
stockholders' equity as a percent of total assets was 11.92% at December
31, 2000 as compared to 12.00% at September 30, 2000.
Comparison of Operating Results for the Three Months Ended December 31,
2000 and 1999
Net Income: For the quarter ended December 31, 2000 the Bank's net
income increased $31 thousand, or 8.4%, to $400 thousand as compared to
$369 thousand for the quarter ended December 31, 1999. The increase was
primarily due to an increase in net interest income, income from customer
service fees and income from the cumulative effect of a change in
accounting principle offset, to a lesser extent, by an increase in
operating expenses. The Bank's return on average assets for the quarter
ended December 31, 2000 was 0.76% compared to 0.84% for the quarter ended
December 31, 1999. Earnings per share data for the quarterly period ended
December 31, 1999 is not applicable since the Company became a public
company on February 15, 2000.
Interest and Dividend Income: The Bank's interest and dividend income
increased by $686 thousand, or 24.3%, to $3.5 million for the quarter ended
December 31, 2000, from $2.8 million for the quarter ended December 31,
1999. The increase was due mainly to a higher level of average interest-
earning assets, and to a lesser extent by an increase in the average rate
earned on earning assets. The average volume of interest-earning assets for
the quarter ended December 31, 2000 was $195.8 million earning an average
rate of 7.17% as compared to an average volume of $166.1million earning an
average rate of 6.80% for the quarter ending December 31, 1999. The Bank
experienced continued growth in real estate and commercial lending and
deployed additional cash flows into investment securities. The real estate
loan increase was primarily due to increased variable rate loans purchased
in August 2000, which were secured by one-to-four family real estate loans.
The average balance of loans for the quarter ended December 31, 2000 was
$114.1 million earning 7.66% as compared to an average balance of $92.2
million earning 7.37% for the quarter ending December 31, 1999. The average
balance of investment securities for the quarter ended December 31, 2000
was $71.0 million earning 6.44% as compared to an average balance of $65.5
million earning 6.09% for the quarter ending December 31, 1999. The average
balance of short-term investments for the quarter ended December 31, 2000
was $10.7 million earning 6.81% as compared to an average balance of $8.4
million earning 6.07% for the quarter ending December 31, 1999.
Interest Expense: Interest expense increased by $453 thousand, or
34.7%, to $1.8 million for the quarter ended December 31, 2000, from $1.3
million for the quarter ending December 31, 1999. Interest expense
increased due to a higher average rate paid on interest-bearing liabilities
and to a lesser extent to a higher average balance of such interest-bearing
liabilities. The average volume of all interest-bearing liabilities (which
includes interest-bearing deposits and interest-bearing borrowing) was
$166.6 million with a cost of 4.23% for the quarter ended December 31, 2000
as compared to $144.7 million with a cost of 3.60% for the quarter ending
December 31, 1999. The average volume of interest-bearing deposits was
$150.1 million with a cost of 3.97% for the quarter ending December 31,
2000 as compared to $140.7 million with a cost of 3.57% for quarter ending
December 31, 1999. As a result of an increase in borrowing from the Federal
Home Loan Bank of Boston to fund the purchase of variable-rate real estate
loans, the average volume of interest-bearing borrowing was $16.5 million
with a cost of 6.57% for the quarter ending December 31, 2000 as compared
to $4.0 million with a cost of 5.20% for quarter ending December 31, 1999.
Net Interest Income: The Bank's net interest income increased by $233
thousand for the quarter ended December 31, 2000, or 15.4%, to $1.8 million
from $1.5 million for the quarter ending December 31, 1999. The increase
was attributed to the combination of an increase in interest and dividend
income of $686 thousand offset by an increase in interest expense of $453
thousand. The Bank's net interest rate spread decreased to 2.95% for the
quarter ended December 31, 2000 as compared to 3.19% for the quarter ending
December 31, 1999.
Provision for Loan Losses: The Bank's provision for loan losses was
$12 thousand for the quarter ended December 31, 2000 compared to $0
thousand the quarter ending December 31, 1999. As the Bank expands its
commercial lending activities, management believes that 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 declined 29.5% to $285 thousand for the
quarter ended December 31, 2000, as compared to $404 thousand for quarter
ending December 31, 1999. The primary reason for the decline was due to a
significantly lower level of investment activity and a lower level of net
gains from the sale of common stock sold as a result of the exercise of a
covered call option by the buyer. For the quarter ended December 31, 2000,
gains from the sale of securities declined by $106 thousand, or 67.1%, to
$52 thousand, from $158 thousand for the quarter ending December 31, 1999.
For the quarter ended December 31, 2000, income from covered call options
declined by $113 thousand, or 87.6%, to $16 thousand, from $129 thousand
for the quarter ending December 31, 1999. Customer service fees and
miscellaneous income increased by $100 thousand, or 85.5%, to $217 thousand
for the quarter ended December 31, 2000 from $117 thousand for the quarter
ended December 31, 1999. This increase is primarily due to the increase in
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, 2000,
operating expenses increased by $277 thousand, or 19.8%, to $1.7 million
from $1.4 million for quarter ending December 31, 1999. The increase was
primarily due to salary and benefit expenses associated with additional
staff and incentive payments to support the sale of non-insured investment
products, plus personnel to support training and information technology.
The increase in operating expenses is also a result of the Bank's efforts
to update its computers along with the associated increases in data
processing costs. The Bank replaced many older computers with newer
equipment in order to allow for the migration to more efficient transaction
processing systems, use of electronic mail and Internet services and to
provide enhanced customer services. Professional services, increased due to
additional legal services and accounting services required of a public
company. Other general and administrative services increased due to
increases in directors' fees, expenses associated with the development and
maintenance of the Bank's web site, the increased use of the telephone and
postage and increased expenses for office supplies.
Income Taxes. The provision for income taxes declined by $59 thousand
to $92 thousand for the quarter ended December 31, 2000 as compared to $151
thousand for the quarter ended December 31, 1999, resulting in an effective
tax rate of 26.7% and 29.0% for the quarter ended December 31, 2000 and
1999, respectively. The Bank utilizes security investment subsidiaries to
substantially reduce state income taxes and receives the benefit of a
dividends received deduction on common stock. Additionally, the Bank
receives favorable tax treatment from the increase in the cash surrender
value of Bank-owned life insurance. At October 1, 2000 the Bank adopted a
new accounting standard for reporting covered call options. By adopting
this standard, the Bank recorded pre-tax earnings of $223 thousand for the
quarter ended December 31, 2000. After related taxes at the rate of 34%,
or, $76 thousand, the standard resulted in additional income of $147
thousand.
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, 2000, the Bank had $16.5
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 three
months ended December 31, 2000, the Bank originated loans of $6.1 million,
purchased mortgage-backed securities of $1.3 million and purchased
investment securities of $8.4 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 $4.7 million for the three
months ended December 31, 2000. Maturities of investment securities totaled
$2.0 million during the three months ended December 31, 2000. Sales and
calls of investment securities provided cash flows of $2.9 million during
the three months ended December 31, 2000.
Total deposits increased $6.6 million, during the three months ended
December 31, 2000. The level of interest rates, interest rates and products
offered by competitors and other factors affects deposit flows. Certificate
of deposit accounts scheduled to mature within one year were $47.1 million
at December 31, 2000. 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, the Federal Deposit Insurance Corporation and other
available reports, which 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.
The Bank has begun 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 sale agreement to acquire
approximately 0.8 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 2001.
At December 31, 2000, the Bank exceeded each of the applicable
regulatory capital requirements. The Bank's leverage (tier 1) capital was
approximately $21.3 million, or 10.27% of adjusted total average assets for
the quarter. In order to be classified as "well-capitalized" by the FDIC,
the Bank was required to have leverage (tier 1) capital of $10.4 million,
or 5.0%. To obtain such classification, the Bank must also have a risk-
based total capital ratio of 10.0% of total risk-weighted assets. At
December 31, 2000, the Bank had a risk-based total capital ratio of 17.81%.
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.
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.
The Company held its 2001 Annual Meeting of Stockholders (the "Meeting") on
January 25, 2001. All of the proposals submitted to the stockholders were
approved. The proposals submitted to stockholders and the tabulation of
votes for each proposal is as follows:
1. Approval to amend Article VI, Section 1 of Westborough Financial
Services' Articles of Organization to clarify that directors are
allowed to continue serving on the Company's board of directors
until the annual meeting immediately following his or her 75th
birthday.
For: 1,447,080
Against: 5,958
Abstained: 1,200
There were no broker held non-voted shares represented at the
Meeting with respect to this matter.
2. For the election of each of the nominees for director:
Nominees: For Withheld
Nelson P. Ball 1,452,138 2,100
Robert G. Daniel 1,452,338 1,900
Earl H. Hutt 1,449,788 4,450
Roger B. Leland 1,450,838 3,400
Joseph F. MacDonough 1,452,338 1,900
There were no broker held non-voted shares represented at the
Meeting with respect to this matter.
3. Ratification of the appointment of Wolf & Company, P.C., as
independent public accountants for the fiscal year ending
September 30, 2001:
For: 1,452,081
Against: 2,019
Abstained: 140
There were no broker held non-voted shares represented at the
Meeting with respect to this matter.
4. Approval of the 2001 Westborough Financial Services, Inc. Stock
Option Plan:
For: 399,800
Against: 26,105
Abstained: 440
There were no broker held non-voted shares represented at the
Meeting with respect to this matter. The foregoing tabulation
excludes 1,027,893 shares held by the Westborough Bancorp, MHC.
5. Approval of the Westborough Financial Services, Inc. Recognition
and Retention Plan:
For: 404,175
Against: 21,230
Abstained: 940
There were no broker held non-voted shares represented at the
Meeting with respect to this matter. The foregoing tabulation
excludes 1,027,893 shares held by the Westborough Bancorp, MHC.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(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 12, 2001 By: /s/ Joseph F. MacDonough
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President and Chief Executive Officer
Date: February 12, 2001 By: /s/ John L. Casagrande
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Sr. Vice-President and Treasurer