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 March 31, 2002
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 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 the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Outstanding at
Class April 23, 2002
----- --------------
Common 10,441,160
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements of Westfield Financial, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited) - March 31, 2002 and
December 31, 2001
Consolidated Statements of Income (Unaudited) - Three months ended
March 31, 2002 and March 31, 2001
Consolidated Statements of Changes in Equity (Unaudited) - Three
Months ended March 31, 2002
Consolidated Statements of Cash Flows (Unaudited) - Three Months
ended March 31, 2002 and March 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Liquidity and Capital Resources
Item 4. Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in 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. Reports on Form 8-K
Signatures
1
Westfield Financial, Inc. and Subsidiaries
Consolidated Balance Sheets - Unaudited
(Dollars in Thousands Except Share Data)
March 31, December 31,
2002 2001
--------- ------------
<s> <c> <c>
ASSETS
Cash and Due From Banks $ 13,591 $ 14,169
Federal Funds Sold 13,826 34,267
Interest-Bearing Deposits 18,824 8,599
-------- --------
CASH AND CASH EQUIVALENTS 46,241 57,035
-------- --------
SECURITIES:
Available For Sale-at estimated Fair Value 90,573 74,184
Held to Maturity-at amortized cost (estimated
fair value of $ 39,594 in 2002, and $46,040 in 2001) 39,586 45,614
MORTGAGE BACKED SECURITIES:
Available for sale- at estimated fair value 91,071 87,150
Held to maturity- at amortized cost (estimated
fair value of $ 90,877 in 2002, and $81,366 in 2001) 91,207 81,007
FEDERAL HOME LOAN BANK OF
BOSTON AND OTHER STOCK 3,933 3,634
LOANS- Net of allowance for loan losses of
$4,236 in 2002, and $3,923 in 2001 401,932 413,546
PREMISES AND EQUIPMENT, NET 13,391 13,581
ACCRUED INTEREST AND DIVIDENDS 4,202 4,201
OTHER ASSETS 2,538 2,780
-------- --------
TOTAL ASSETS $784,674 $782,732
======== ========
LIABILITIES AND EQUITY
LIABILITIES
DEPOSITS :
Noninterest bearing $ 46,902 $ 48,247
Interest bearing 594,093 588,862
-------- --------
Total deposits 640,995 637,109
-------- --------
CUSTOMER REPURCHASE AGREEMENTS 7,466 6,061
OTHER LIABILITIES 7,361 8,245
-------- --------
TOTAL LIABILITIES 655,822 651,415
-------- --------
EQUITY:
Preferred stock - $.01 par value, 5,000,000
shares authorized, none outstanding - -
Common stock - $.01 par value, 10,580,000
shares authorized, 10,441,160 shares issued
and outstanding 106 106
Additional paid-in capital 47,411 47,623
Unallocated Common Stock of Employee Stock
Ownership Plan (2,157) -
Retained Earnings 82,366 81,808
Accumulated other comprehensive income 1,126 1,780
-------- --------
Total equity 128,852 131,317
-------- --------
TOTAL LIABILITIES AND EQUITY $784,674 $782,732
======== ========
See notes to Consolidated Financial Statements
2
Westfield Financial, Inc. and Subsidiaries
Consolidated Statements of Income - Unaudited
(Dollars in Thousands Except Share Data)
Three Months
Ended March 31,
2002 2001
---- ----
<s> <c> <c>
INTEREST AND DIVIDEND INCOME:
Residential and commercial real estate loans $ 5,306 $ 6,769
Securities and mortgage backed securities 3,494 2,686
Consumer loans 1,143 1,484
Commercial and industrial loans 851 855
Federal funds sold 101 216
Stocks 117 107
Interest bearing deposits 95 143
------- -------
Total interest and dividend income 11,107 12,260
------- -------
INTEREST EXPENSE:
Deposits 4,969 6,757
Customer repurchase agreements 43 85
------- -------
Total interest expense 5,012 6,842
------- -------
Net interest and dividend income 6,095 5,418
PROVISION FOR LOAN LOSSES 300 328
------- -------
Net interest and dividend income after
provision for loan losses 5,795 5,090
------- -------
NONINTEREST INCOME:
Service charges and fees 379 355
Securities gains (losses), net (248) 29
------- -------
Total noninterest income 131 384
------- -------
NONINTEREST EXPENSE:
Salaries and employees benefits 2,346 1,847
Occupancy 421 358
Computer operations 363 312
Stationery, supplies, and postage 114 134
Other 1,032 911
------- -------
Total noninterest expense 4,276 3,562
------- -------
INCOME BEFORE INCOME TAXES 1,650 1,912
INCOME TAXES 563 650
------- -------
NET INCOME $ 1,087 $ 1,262
------- -------
Basic and diluted earnings per share $ 0.10 N/A
Average shares outstanding 10,494,000 N/A
See notes to Consolidated Financial Statements.
3
WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - UNAUDITED
(Dollars in Thousands)
Accumulated
Additional Other
Common Paid-in Retained Unearned Comprehensive
Stock Capital Earnings Compensation Income Total
----- ----------- -------- ------------ ------------- -----
<s> <c> <c> <c> <c> <c> <c>
Balance at January 1, 2002 $106 $47,623 $81,808 $ - $1,780 $131,317
Comprehensive income:
Net income - - 1,087 - - 1,087
Unrealized losses on securities
arising during the quarter,
net of taxes of $364 - - - - (706) (706)
Reclassification for losses
included in net income, net
of taxes $27 - - - - 52 52
--------
Comprehensive income 433
Purchase of common stock in
connection with employee
benefit programs (2,157) (2,157)
Costs associated with stock
conversion (212) (212)
Cash dividends declared - - (529) - (529)
Balance at March 31, 2002 $106 $47,411 $82,366 $(2,157) $1,126 $128,852
==== ======= ======= ======= ====== ========
See the accompanying notes to unaudited consolidated financial statements
4
Westfield Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows- Unaudited
(Dollars in Thousands)
Three Months
Ended March 31,
2002 2001
---- ----
<s> <c> <c>
OPERATING ACTIVITIES
Net income $ 1,087 $ 1,262
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 300 328
Valuation adjustment of other real estate owned (77) -
Securities (gain/loss) 247 (29)
Depreciation of premises and equipment 263 176
Net amortization of premiums and discounts on
securities, mortgage backed securities and
mortgage loans 89 (21)
Deferred income tax provision (3,677) (17)
Changes in assets and liabilities:
Accrued interest and dividends (26) 305
Other assets 203 (848)
Other liabilities 2,521 2,206
-------- --------
Net cash provided by operating activities 930 3,362
-------- --------
INVESTING ACTIVITIES:
Securities, held to maturity:
Purchases (4,996) (5,061)
Proceeds from calls,maturities and principal
collections 11,029 11,003
Securities, available for sale:
Purchases (23,098) (8,888)
Proceeds from sales 549 4,258
Proceeds from calls, maturities and principal
collections 5,119 8,504
Mortgage backed securities, held to maturity
Purchases (18,256) (27,374)
Principal collections 7,940 964
Mortgage backed securities, available for sale
Purchases (13,268) (9,512)
Proceeds from sales - 14,776
Principal collections 9,101 3,532
Purchase of Federal Home Loan Bank of Boston
and other stock (299) -
Loans 9,297 (7,769)
Proceeds from sale of other real estate owned 37 -
Net purchases of premises and equipment (73) (925)
-------- --------
Net cash used in investing activities (16,918) (16,492)
-------- --------
FINANCING ACTIVITIES:
Increase in deposits 3,886 15,892
Increase in customer repurchase agreements 1,405 536
Stock issuance costs (97) -
-------- --------
Net cash provided by financing actvivities 5,194 16,428
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (10,794) 3,298
CASH AND CASH EQUIVALENTS
Beginning of period 57,035 32,729
-------- --------
End of period $ 46,241 $ 36,027
======== ========
See notes to consolidated financial statements
5
WESTFIELD FINANCIAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
QUARTER ENDED MARCH 31, 2002 AND 2001
1. REORGANIZATION AND STOCK OFFERING
On December 27, 2001, the Board of Directors of Westfield Mutual Holding
Company ("Mutual Holding Company") completed a plan of reorganization (the
"Plan") whereby the Mutual Holding Company formed a mid-tier stock holding
company ("Westfield Financial, Inc." or the "Company") and exchanged 100%
of the common stock of Westfield Bank (the "Bank") for a majority interest
in Westfield Financial, Inc. Pursuant to the Plan, shares of Westfield
Financial, Inc. were offered for subscription by depositors with eligible
accounts at the Bank as of specified dates. The Company issued 10,580,000
shares of common stock (par value $0.01 per share) at a price of $10.00 per
share, of which 47% of these shares, or 4,972,600 shares, were sold to the
public, including depositors of the Bank and 53% of these shares, or
5,607,400 shares, were issued to the Mutual Holding Company. Net proceeds
from the stock offering totaled $47.7 million. Costs related to the
reorganization were charged against the proceeds from the shares sold in
the reorganization. Reorganization costs of approximately $2.1 million
were incurred.
In connection with the reorganization, a "Liquidation Account" was
established in the amount of $82.1 million which was equal to the net worth
of the Mutual Holding Company set forth in its latest consolidated
statement of financial condition contained in the reorganization
prospectus. The function of the Liquidation Account is to establish a
priority on liquidation to the assets of the Company to Eligible Account
Holders (as defined in the Plan) who continue to maintain deposits in the
Bank after the reorganization. In the unlikely event of a complete
liquidation of the Company, and only in such event, each Eligible Account
Holder would receive from the Liquidation Account a liquidation
distribution based on the their proportionate share of the then remaining
qualifying deposits.
Current regulations allow the Bank to pay dividends on its stock if its
regulatory capital would not thereby be reduced below the amount then
required for the aforementioned Liquidation Account. Also, capital
distribution regulations limit the Bank's ability to make capital
distributions which include dividends, stock redemptions and repurchases
and other transactions charged to the capital accounts based on their
capital level and supervisory condition. Federal regulations also limit
any repurchase of the stock for the Bank of its holding company for three
years after reorganization except for repurchases pursuant to an open-
market stock repurchase program with certain regulatory criteria and
approval of the FDIC.
Employee Stock Ownership Plan - In connection with the reorganization,
Westfield Financial, Inc. established an Employee Stock Ownership Plan
("ESOP") for eligible employees. Employees employed with Westfield
Financial, Inc. or the Bank who have completed one year of service and have
attained age 21 are eligible to participate.
To fund the purchase of 8% of the shares of common stock issued in the
reorganization, the ESOP Trust borrowed funds from the Company. The loan to
the ESOP Trust will be repaid principally from the Bank's contributions to
the ESOP Trust over a period of 30 years and the collateral for the loan is
common stock purchased by the ESOP Trust.
Shares purchased by the ESOP are held by a trustee for allocation among
participants as the loan is repaid. At March 31, 2002 the ESOP Trust had
purchased 152,100 shares of common stock on the open market.
6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation - Westfield Financial, Inc.
is a Massachusetts chartered corporation. The Company has a state 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") and the Depositors Insurance Fund ("DIF"), a
corporation formed by the Massachusetts legislature. The Bank operates ten
branches in Western Massachusetts. The Bank's primary source of revenue is
earned by making loans to small and middle-market businesses and to
residential property homeowners.
The Bank formed a wholly owned subsidiary, Elm Street Real Estate
Investments Inc., (the "REIT"). The REIT is 99.9% owned by the Bank.
Westfield Securities Corp., a Massachusetts chartered security corporation,
was formed in 2001 by the Company for the primary purpose of holding
qualified investment securities.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company, the Bank, Westfield Securities Corp., and the
REIT. All material intercompany balances and transactions have been
eliminated in consolidation. Certain amounts in the prior year financial
statements have been reclassified to conform to the current year
presentation.
Estimates - The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America 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.
3. NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations". SFAS No. 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method.
In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets", which became effective January 1, 2002. SFAS No. 141 requires,
among other things, the discontinuance of goodwill amortization, the
reclassification of certain existing recognized intangibles as goodwill,
the reassessment of the useful lives of existing recognized intangibles and
the identification of reporting units for purchases of assessing potential
future impairments of goodwill. SFAS 142 also requires a transitional
goodwill impairment test six months from the date of adoption.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets", which superceded SFAS No. 121 and
portions of APB Opinion No. 30. SFAS No. 144 became effective January 31,
2002. This statement addresses the recognition of an impairment loss for
long-lived assets to be held and used, or disposed of by sale or otherwise.
This statement is effective for financial statements issued for fiscal
years beginning December 15, 2001 and interim periods within those fiscal
years.
The adoption of these standards did not have any effect on the Company's
consolidated financial statements.
7
4. 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. Earnings per share data is presented for the three
months ended March 31, 2002 only, as the Company converted to stock form on
December 27, 2001; therefore per share information for the first three
months of 2001 are not applicable.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITON AND RESULTS OF
OPERATIONS.
Forward Looking Statements - This Quarterly Report on Form 10-Q contains
certain statements that may be considered forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's actual results could differ materially from those projected in
the forward-looking statements. Important factors that might cause such a
difference include: changes in national or regional economic conditions;
changes in loan default and charge-off rates; reductions in deposit levels
necessitating increased borrowing to fund loans and investments; changes in
interest rates; changes in the size and the nature of the Company's
competition; and changes in the assumptions used in making such forward-
looking statements.
CRITICAL ACCOUNTING POLICIES
Westfield Financial's critical accounting policies given its current
business strategy and asset/liability structure are accounting for the
allowance for loan losses, and the securities as either held to maturity or
available for sale. In addition to the information disclosed in the Notes
to the Consolidated Financial Statements, Westfield Financial's policy on
each of these accounting policies is described in detail in the applicable
sections of Management's Discussion and Analysis of Financial Condition and
results of Operations.
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 change in classification would have a direct effect on
stockholder's 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 never sold held to maturity securities or
reclassified such securities to available for sale other than in
specifically permitted circumstances. Westfield Financial does not acquire
securities or mortgage backed securities for purposes of engaging in
trading activities.
Westfield Financial'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 or 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 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 loan base rate set by Westfield Financial. The
compensation is paid to an automobile dealer
8
shortly after the loan is originated. Westfield Financial 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.
Westfield Financial's methodology for assessing the appropriations 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
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 appropriations 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 Westfield Financial and other conditions, such as new loan products,
credit quality trends (including trends in non-performing 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 adequate levels, future adjustments may be
necessary if economic, real estate and other conditions differ
substantially from the current operating environment.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2002 AND DECEMBER 31, 2001
Total assets increased $2.0 million to $784.7 million at March 31, 2002
from $782.7 million at December 31, 2001. Securities increased $24.4
million, or 8.5%, to $312.4 million at March 31, 2002 from $288.0 million
at December 31, 2001. Federal funds sold decreased from $34.3 million at
December 31, 2001 to $13.9 million at March 31, 2002. This is the result
of investing funds raised by the stock offering, which had been held in
Federal Funds at December 31, 2001, in securities. Net loans during this
period decreased by $11.6 million, or 2.8%, to $401.9 million at March 31,
2002, from $413.5 million at December 31, 2001. This decease is primarily
the result of our current residential real estate loan referral program
with a third party mortgage company. Commercial and industrial loans
increased $9.3 million from $46.0 million at December 31, 2001 to $55.3
million at March 31, 2002.
Asset growth was funded primarily by an increase of $3.9 million in
deposits, to $641.0 million at March 31, 2002 from $637.1 million at
December 31, 2001. Customer repurchase agreements increased $1.4 million
to $7.5 million at March 31, 2002 from $6.1 million at December 31, 2001.
A "Customer Repurchase Agreement" is an agreement by Westfield Bank to sell
to and repurchase from 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.
Stockholder's equity at March 31, 2002 and December 31, 2001 was $128.9
million and $131.3 million respectively, represented 16.4% and 16.8% of
total assets. The change is comprised of net income of $1.1 million for
the quarter ended March 31, 2002, a decrease in net unrealized gains on
securities available for sale of $665,000 net of income taxes, the
recording of the purchase of 152,100 shares of stock for the ESOP amounting
to $2.2 million and the declaration by the Board of Directors of a $0.05
per share, or $529,000 cash dividend payable on April 30, 2002.
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED MARCH 31, 2002 AND
MARCH 31, 2001
General
Net income was $1.1 million for the three months ended March 31, 2002, a
decrease of $175,000, or 13.9%, compared with net income of $1.3 million
for the three months ended March 31, 2001. The decrease was attributable
to net losses of $248,000 from sales and writedowns of securities for the
three months ended March 31, 2002 compared to net gains on sale of
securities of $29,000 for the same period
9
in 2001. Included in the net loss for the 2002 quarter was the writedown
by $304,000 of certain equity securities whose impairment was determined to
be other than temporary. Noninterest expense increased $714,000, while
federal and state income taxes decreased $87,000 and net interest and
dividend income increased $677,000 compared to the prior year.
Interest and Dividend Income
Total interest and dividends decreased $1.2 million, or 9.8%, to $11.1
million compared with $12.3 million for the same period in 2001. Interest
and dividends on securities increased $808,000 to $3.5 million from $2.7
million, while interest income on loans decreased $1.0 million.
The average balance of interest earning assets increased $81.0 million, or
12.1%. However the yield on earning assets decreased from 7.30% for the
quarter ended March 31, 2001 to 5.90% for the quarter ended March 31, 2002.
Interest Expense
Interest expense decreased $1.8 million, or 26.7%, to $5.0 million for the
three months ended March 31, 2002 from $6.8 million for the same period in
2001. The average balance of total interest bearing deposits increased
$17.4 million to $589.3 million for the quarter ended March 31, 2002 from
$571.8 million for the quarter ended March 31, 2001, while the average cost
of deposits decreased 136 basis points to 3.37%. The average balance of
customer repurchase agreements decreased $701,000 from $7.2 million for the
three months ended March 31, 2001 to $6.5 million for the three months
ended March 31, 2002 which resulted in a $42,000 decrease in the interest
paid on customer repurchase agreements.
Net Interest and Dividend Income
Net interest and dividend income for the three months ended March 31, 2002
was $6.1 million as compared to $5.4 million for 2001. Net interest rate
spread decreased 3 basis points from 2.57% at march 31, 2001 to 2.54% at
March 31, 2002.
Provision for Loan Losses
For the three month ended March 31, 2002, Westfield Bank provided $300,000
for loan losses, compared to $328,000 for the same period in 2001. The
provision for loan losses brings Westfield Bank's allowance for loan losses
to a level determined appropriate by management. The allowance for loan
losses at March 31, 2002 was $4.2 million as compared to $3.9 million at
December 31, 2001.
Commercial real estate and commercial and industrial loans increased $10.1
million or 6.8% for the quarter ending March 31, 2002. Westfield Bank
considers these types of loans to contain more risk than conventional
residential mortgages, which declined by $16.5 million or 7.8% for the
quarter ended March 31, 2002. This resulted in an increase in the
allowance requirements for commercial real estate and commercial and
industrial loans and a decrease for residential real estate loans.
Consumer loans decreased from $58.1 million at December 31, 2001 to $53.2
million at March 31, 2002 resulting in a decrease in the allowance
requirement for consumer loans. Nonaccrual loans remained relatively
constant at $2.7 million for March 31, 2002 and December 31, 2001.
As a result of the detailed allowance methodology and consideration of the
above factors, management determined that an increase in the provision of
$300,000 was appropriate.
The allowance for loan losses at the end of March 31, 2002 was 1.04% of
total loans compared with 0.94% at the end of 2001. The increase in the
coverage ratio reflects the changes in the loan portfolio described above.
10
Noninterest Income
Noninterest income decreased $253,000 to $131,000 for the three months
ended March 31, 2002 from $384,000 for the three months ended March 31,
2001. Security losses were $248,000 for the quarter ended March 31, 2002
compared to a net gain of $29,000 for the same period in 2001. The net
loss in 2002 included a writedown of $304,000 of certain equity securities
whose impairment was determined to be other than temporary.
Noninterest Expense
Noninterest expense for the three months ended was $4.3 million compared
with $3.6 million for the same period in 2001. Employee salaries and
benefits for the quarter ended March 31, 2002 and 2001 were $2.3 million
and $1.8 million, respectively. This increase was primarily the result of
the decision by management to accrue monthly for an annual employee bonus
which in prior years was determined in December, this amounted to $165,000
for the current quarter. Also contributing to this increase was a rise in
employee retirement plan costs amounting to $100,000. The remainder of the
increase was the result of normal annual salary increases as well as the
opening of two new branches in June of 2001 which required the hiring of
additional personnel.
Income Taxes
Income taxes decreased $87,000, or 13.4%, to $563,000 for the three months
ended March 31, 2002 compared to $650,000 for the same period in 2001. The
effective tax rate for both periods is approximately 34%. The effective tax
rate reflects the utilization of Westfield Securities Corp., a qualified
Massachusetts securities corporation, and Elm Street Real Estate
Investments, Inc., a wholly-owned subsidiary of Westfield Bank as a real
estate investment trust.
11
The following tables set forth the information relating to our average
balance and net interest income at and for the three months ending March
21, 2002 and 2001 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 or terms and fees earned when real estate
loans were prepaid or refinanced.
ANALYSIS OF NET INTEREST INCOME
Three Months Ending March 31:
2002 2001
(Dollars in thousands)
Average Avg Yield/ Average Avg Yield/
Interest Balance Cost Interest Balance Cost
-------- ------- ---------- -------- ------- ----------
<s> <c> <c> <c> <c> <c> <c>
Interest-Earning Assets
- -----------------------
Cash equivalents $ 101 $ 24,231 1.67% $ 216 $ 15,332 5.64%
Investment securities 3,706 318,085 4.66 2,936 187,423 6.27
Loans 7,300 410,661 7.11 9,108 469,176 7.77
-------------------- --------------------
Total interest-earning assets 11,107 $752,977 5.90 12,260 $671,931 7.30
======== ========
Interest-Bearing Liabilities
- ----------------------------
NOW accounts 159 $ 38,363 1.66% 193 $ 33,275 2.32 %
Savings accounts 110 42,559 1.03 106 42,130 1.01
Money Market accounts 635 128,104 1.98 1,030 114,624 3.59
Time deposits 4,065 380,251 4.28 5,428 381,816 5.69
Customer repurchase agreements 43 6,466 2.66 85 7,167 4.74
-------------------- --------------------
Total interest-bearing
liabilities 5,012 $595,743 3.37 6,842 $579,012 4.73
======== ========
Net Interest Income/Interest
Rate Spread $ 6,095 2.54% $ 5,418 2.57%
======= ---- ======= ----
Net Interest Margin 3.28% 3.27%
---- ----
12
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.
RATE VOLUME ANALYSIS
Three Months Ending March 31, 2002 compared to March 31, 2001
Increase (decrease) due to:
(Dollars in thousands)
Interest-Earning Assets Volume Rate Net
- ----------------------- ------ ---- ---
<s> <c> <c> <c>
Cash Equivalents $ 125 $ (240) $ (115)
Securities 2,047 (1,277) 770
Loans (1,136) (672) (1,808)
----------------------------------
Net Change in Income on
Interest-Earning Assets 1,036 (2,189) (1,153)
------- ------- -------
Interest-Bearing Liabilities
- ----------------------------
NOW Accounts 30 (64) (34)
Savings Account 1 3 4
Money Market Accounts 121 (516) (395)
Time Deposits (22) (1,341) (1,363)
Customer Repurchase Agreements (8) (34) (42)
----------------------------------
Net Change in Expense on
Interest-Bearing Liabilities 121 (1,951) (1,830)
------- ------- -------
Net Change in Interest Income $ 915 $ (238) $ 677
======= ======= =======
- ----------------------------------------------------------------------
13
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. The Bank also can
borrow funds from the Federal Home Loan Bank based on eligible collateral
of loans and securities. The Bank's maximum borrowing capacity form the
Federal Home Loan Bank at March 31, 2002 was approximately $140.4 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.
At March 31, 2002, the Company exceeded each of the applicable regulatory
capital requirements. The Company's leverage Tier 1 capital was $127.6
million, or 27.4% of risk-weighted assets, and 16.2% of average assets.
The Company had a risk-based total capital of $132.0 million and a risk-
based capital ratio of 28.3%.
See the "Consolidated Statements of Cash Flows" in the Unaudited
Consolidated Financial Statements included in this Form 10-Q for the
sources and uses of cash flows for operating and financing activities for
the three months ended March 31, 2002 and March 31, 2001.
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital to risk weighted
assets and to average assets. Management believes, as of March 31, 2002,
the Company and the Bank met all capital adequacy requirements to which
they were subject. As of March 31, 2002, the most recent notification from
the Federal Deposit Insurance Corporation categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the 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 the Bank's category.
Management believes that there have been no significant changes in market
risk since December 31, 2001.
14
Part II - Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
(d) Use of Proceeds
Westfield Financial's Registration Statement on Form S-1 (File No.
333-68550) (the "Registration Statement") was declared effective by the
United States Securities and Exchange Commission (the "SEC") on November 9,
2001. 4,972,600 shares of common stock, par value $.01 per share (the
"Common Stock"), registered in the Registration Statement and offered in
Westfield Financial's Subscription Offering (the "Offering") were sold at a
price of $10.00 per share. Westfield Financial also issued 5,607,400
shares or 53% of the outstanding shares of its Common Stock, to Westfield
Mutual Holding Company, a Massachusetts mutual holding company. The
Offering closed on December 27, 2001 and raised gross proceeds of $49.7
million for Westfield Financial. Keefe, Bruyette & Woods, Inc. served as
Sales Agent for the Offering.
No Offering expenses were paid, either directly or indirectly, to
directors or officers of Westfield Financial or their associates, to
persons owning ten percent or more of Westfield Financial's Common Stock or
to any other affiliates of Westfield Financial.
The net proceeds of the Offering for Westfield Financial, after
deducting the expenses of the Offering (including sales agency commissions
and expenses) were $47.7 million. Of such proceeds, $23.8 million were
distributed to Westfield Bank, Westfield Financial's wholly owned
subsidiary, which will use the proceeds for the following:
* to increase lending, especially to support the continued growth
in its commercial loan portfolio;
* to establish or acquire new branches;
* to finance the acquisition of financial institutions or other
businesses related to banking, although no mergers or
acquisitions are planned at the present time; and
* for general corporate purposes.
Westfield Financial intends to use the proceeds it has retained from
the Offering for the following purposes:
* to finance the acquisition of financial institutions or other
businesses related to banking, although no mergers or
acquisitions are planned at the present time;
* to pay dividends to stockholders;
* repurchase shares of Common Stock issued in the Offering;
* for a loan issued to the Employee Stock Ownership Plan of
Westfield Financial to fund its purchase of shares of the
Common Stock of Westfield Financial; and
* for general corporate purposes.
The use of proceeds does not represent a material change from the use
of proceeds described in Westfield Financial's prospectus.
Item 3. Defaults Upon Senior Securities
None
15
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Reports on Form 8-K
None
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
President/Chief Executive
Officer
(Principal Executive Officer)
By: /s/ Michael J. Janosco, Jr.
-------------------------
Michael J. Janosco, Jr.
Vice President/Chief Financial
Officer
(Principal Accounting Officer)
May 14, 2001
16