Exhibit 99.1
While the votes are being tabulated I would like to take a few minutes and
report to you on the performance for the fiscal year end 9/30/02 of WFSI
and Westborough Bank. As always, legal counsel has asked me to preface my
remarks with this disclaimer concerning forward looking statements, which
may be found on Page 1 of Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in our Annual Report.
Turning to the first slide the consolidated financial statements for the
year ended 9/30/02 reflect a decrease in net income of $419,000 (30%) to a
level of $979,000 as compared to $1.4 million for the prior fiscal year.
This decrease in net income was primarily the result of losses sustained in
our securities portfolio; specifically in our common stock portfolio. This
loss of $466,000 was tempered with the use of capital loss carry backs that
lessened our federal income tax liability. Although net income was down
core earnings were actually very strong.
Core earnings increased by $876,000 from fye 9/30/01 to fye 9/30/02, as a
result of strong growth in Net Interest Income. You can see by looking at
this slide the wide swing in Net Income was indeed primarily the result of
the change in security transactions - a gain of $726,000 in f/y/e 9/01
followed by the loss of $466,000 in f/y/e 9/02.
This next slide shows the components of the 8.5 mil. of net interest
income:
Interest and dividend income declined by $264 thousand or 1.87% to $13.9
million for the year ended September 30, 2002 from $14.1 million for the
year ended September 30, 2001. The decrease in interest and dividend
income was mainly the result of a decline in the rate earned on interest
earning assets offset, to a lesser extent, by an increase in the volume of
interest earning assets. The Federal Reserve Bank's Federal Open Market
Committee, ("FOMC") reduced the discount rate by 1.25 percentage points
during the fiscal year ended September 30, 2002. This generally declining
interest rate environment translated into declining rates earned on loans,
investment securities and short-term investments. Additionally, some loan
customers renegotiated existing loan rates that, accordingly, lowered rates
earned by the Company on those loans.
INTEREST EXPENSE DECLINED BY $1.6 MILLION, OR 22.65%, TO $5.4 MILLION FOR
THE YEAR ENDED SEPTEMBER 30, 2002 FROM $6.9 MILLION FOR THE YEAR ENDED
SEPTEMBER 30, 2001. INTEREST EXPENSE DECLINED MAINLY DUE TO A DECLINE IN
THE AVERAGE RATE PAID ON INTEREST-BEARING LIABILITIES OFFSET, TO A LESSER
EXTENT, BY AN INCREASE IN THE AVERAGE VOLUME OF INTEREST-BEARING
LIABILITIES. THE PREVIOUSLY MENTIONED FOMC INTEREST RATE REDUCTIONS
ALLOWED THE COMPANY TO REDUCE RATES PAID ON NOW, SAVINGS, MONEY MARKET
DEPOSIT AND CERTIFICATES OF DEPOSIT ACCOUNTS.
Just one more comment on net interest margin. This next slide, provided by
our friends at RBC Capital, shows our net interest margin by quarter since
our reorganization in 2000. As you can see, we have always been above our
peers and f/y 2002 was an especially strong year. One of our challenges
going forward will be to maintain this strong net interest margin.
The next slide shows operating expenses
OPERATING EXPENSES INCREASED BY $469 THOUSAND, TO $7.4 MILLION FOR THE YEAR
ENDED SEPTEMBER 30, 2002 AS COMPARED TO $7.0 MILLION FOR THE PREVIOUS YEAR
ENDED SEPTEMBER 30, 2001 PRIMARILY AS A RESULT OF INCREASES IN SALARIES AND
BENEFITS EXPENSES, INCREASE IN DATA PROCESSING EXPENSES RELATING TO THE
COMPANY'S RECENT CONVERSION TO AN ENHANCED DATA PROCESSING AND INFORMATION
SYSTEM AND ALSO DUE TO OUR MOVE INTO THE ADDITION TO THE BANK'S MAIN
OFFICE. THESE EXPENSES WERE OFFSET, TO A LESSER EXTENT, BY DECLINES IN
MARKETING EXPENSES, PROFESSIONAL AND LEGAL FEES AND OTHER GENERAL AND
ADMINISTRATIVE EXPENSES.
In addition, we have managed to slow the rate of growth in our operating
expesnses from over 20% between 2000 and 2001 to 5.7% between f/y 2001 and
f/y 2002. Our ongoing investment in human resources will be our largest
single challenge going forward as we attempt to balance our need for
skilled and motivated staff to deliver first class service and support to
our customers with the need to grow earnings. We believe the first begets
the second.
Turning to the Balance Sheet, this next slide shows the continued growth of
the bank. Total assets increased by $15.6 million or 6.91% to $241.3
million at Sept. 30, 2002 from $225.7 million at September 30, 2001.
The next slide shows the composition or mix of the balance sheet.
Net loans during this period declined by $2.1 million, or 1.54%, to $132.9
million at September 30, 2002, from $135.0 million at September 30, 2001.
The loan decline was primarily due to a net decline in fixed-rate mortgage
loans secured by real estate, as a result of the current low interest rate
environment that encouraged increased loan payoffs and refinancing.
Securities available for sale increased by $15.2 million, to $90.8 million
at September 30, 2002 as compared to $75.5 million at September 30, 2001
due primarily to the investment of funds provided from deposit growth.
Total deposits increased by $17.0 million, or 9.17%, to $202.1 million at
September 30, 2002 from $185.1 million at September 30, 2001. Most of this
increase was attributable to increases in variable-rate tiered accounts and
regular savings accounts. In the current low interest rate and volatile
investment environment, deposit customers preferred to place their deposits
in stable accounts that offer higher liquidity. The slide indicates solid
consistent growth in deposits during past five years. This is seen in the
next slide that shows core deposits or non-certificate accounts increasing
by $17.7 million (or 14.6%) to $139.0 million at 9/30/02 compared to $121.3
million at 9/30/01, while certificates of deposit decreased slightly from
$63.8 million at 9/30/01 to $63.1 million at 9/30/02.
The bank's capital level remains very strong at 11.60% of assets. That is
well above all regulatory capital requirements, which are detailed on Page
F24 at the back of the Annual Report.
I would be remiss if I did not comment on certain events that transpired
during the past year.
S - O - A Slide
It is not unusual in our business that national events have a direct impact
on our Company and the way we do business. During the year, the corporate
world came under fire for transgressions that compromised business ethics
and the trust and integrity for all of those in business and their
customers. Perhaps the most disconcerting aspect of this environment is
the declining level of trust in the leadership of all organizations. I
want to assure you that our financial information reporting is accurate
with integrity second to none. Throughout our 133-year history, we have
remained committed to the highest standards of business ethics. We fully
recognize the trust our customers have placed in us and it is for this
reason that we have grown and been able to serve our communities year after
year. We remain a trusted corporate neighbor and will continually strive
to grow as a leader in our community. Fulfilling our mission has never
been something we take lightly; we have always set high standards for the
way we conduct our business.
The Sarbanes-Oxley Act of 2002, which President Bush signed on July 30,
2002 represents congressional reaction to these transgressions. The Act
implements a broad range of corporate governance and accounting measures
for public companies designed to promote honesty and transparency in
corporate America and better protect investors from the type of corporate
wrongdoing that occurred in, among others, Enron and WorldCom. Banking has
always been a highly regulated industry but with Sarbanes-Oxley the
spotlight has been focused on many corporate governance issues and business
practices we have taken for granted. The level of responsibility and
liability for executive officers and board members has been raised
significantly. Management and your Board of Directors have begun a
detailed evaluation of our corporate governance structure and board and
management succession issues. We agree with the spirit of the Act and we
are prepared to comply with new SEC rules and regulations as they are
announced in the coming months.
Before I open the floor for your questions I have just 3 more slides I
would like to share with you. The first two concern our stock price
performance. This slide tracks the closing price of the stock by quarter
as well as its appreciation since our reorganization in 2000. The price
has been as high as $24.00 and closed last night at $23.30.
This next slide, again provided by RBC Capital, compares our price
performance with the SNL Thrift Index, which we closely track and with the
broader S&P 500 and NASDAQ Composite, which we have consistently out-
performed during the last two years as investors sought stability in a bear
market.
And finally, this last slide compares our most recent quarterly earnings
(for the quarter ended 12/31/02) with the previous four quarters. Our
press release, which was distributed via the business wires at 3:00 pm this
afternoon, is available at the back of the room.
Briefly, net income was $278,000 (.18/sh) for the q/e 12/31/02, which was
up from the q/e 9/30/02 (when we took the stock loss I mentioned earlier)
and off slightly from the $331,000 (or.2 per sh) reported for the quarter
ended 12/31/01.
The 16.01% decline in net income was primarily due to an increase in
operating expenses and a decline in gains on the sale of securities,
offset, to a lesser extent, by an increase in net interest income. The
Company's return on average assets for the quarter ended December 31, 2002
was .45% as compared to .58% for the quarter ended December 31, 2001.
As a result of deposit growth, the Company's total assets grew by $7.3
million, or 3.04%, to $248.6 million at December 31, 2002 from $241.3
million at September 30, 2002. The primary areas of change were from
increases in securities available for sale of $12.7 million, offset to a
lesser extent, by a decline in loans of $4.3 million. The decline in loans
was the result of a large commercial real estate loan payoff and was also
due to the general effects of the current low interest rate environment
that encourages residential loan payoffs and refinancing. Asset quality
remained strong, with non-performing assets as a percent of total assets of
..06% at December 31, 2002 and September 30, 2002.
Total deposits increased by $7.1 million, or 3.51%, to $209.2 million at
December 31, 2002 from $202.1 million at September 30, 2002. Most of this
increase was attributable to increases in tiered-rate savings accounts and
checking accounts. In the current low interest rate environment, deposit
customers preferred to place their deposits in accounts with higher
liquidity.
Total stockholders' equity increased by $344 thousand, or 1.23%, to $28.3
million at December 31, 2002 as compared to $28.0 million at September 30,
2002.
At this time I would be happy to answer your questions.
In closing, I would like to report that the success our company and the
bank have enjoyed over many years is due in no small part to the dedication
and leadership of our Board of Directors. Over the years these men and
women have provided guidance and set the strategic direction of the bank
along with their ongoing commitment to our customers and the communities we
serve. This year, Mr. Earl H. Hutt, a board member who began a
relationship with the Bank as a Corporator in 1963, is retiring. Earl has
been a member of the Board of Directors for 14 years and has served on the
Audit Committee for 10 years, the last 3 as its Chairman. We will miss his
keen perception and thoughtful monitoring of our financial activities.
2002 has been a challenging year to say the least and 2003 may prove to be
just as much a challenge.....but with each challenge there is also
opportunity. And with your continued support we plan to meet each
challenge and take advantage of every opportunity. My sincere thanks to
all of our staff, who work so hard for our customers, especially my senior
officers, and my thanks to the Executive Committee and the entire Board of
Directors for your guidance.
Slide 1
Westborough Financial Services, Inc.
Annual Shareholders Meeting
(LOGO)
Wyndham Westborough Hotel
Westborough, Massachusetts
3:00 pm
January 30, 2003
Slide 2
Forward Looking Statements
- ---------------------------------------------------------------------------
The foregoing material may contain forward looking statements. We caution
that such statements may be subject to a number of uncertainties and actual
results could differ materially and, therefore, readers or attendees should
not place undue reliance on any forward looking statements.
Westborough Financial Services, Inc. does not undertake, and specifically
disclaims, any obligation to publicly release the results of any revisions
that may be made to any forward looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after
the date of such statements.
Slide 3
WESTBOROUGH FINANCIAL SERVICES, INC.
Net Income
September 30,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
$1,313 $1,473 $1,251 $1,398 $979
Slide 4
Westborough Financial Services, Inc. and Subsidiary
Fiscal Year End 9-30-2002 & 2001
(not presented in accordance with GAAP)
FYE FYE Increase
2002 2001 (decrease)
---- ---- ----------
Net interest income $8,513 $7,208 $1,305
Operating expenses 7,446 6,977 469
Provision for loan losses 8 48 (40)
------ ------ ------
Core earnings 1,059 183 876
Customer fees 439 658 (219)
Miscellaneous income 200 160 40
------ ------ ------
Income before income taxes and
cumulative effect of change in
accounting principle, exclusive of
gain (loss) on securities available
for sale, net 1,698 1,001 697
Gain (loss) on securities available
for sale, net (see note) (466) 726 (1,192)
Income taxes 253 476 (223)
Cumulative effect of change in
accounting principle, net of tax 0 147 (147)
------ ------ ------
Net income as reported
in 2002 Annual Report $ 979 $1,398 $ (419)
====== ====== ======
NOTE: FYE 2001 Gain (loss) on securities available for sale, net includes
income from covered call options.
Slide 5
WESTBOROUGH FINANCIAL SERVICES, INC.
Net Interest Margin
Years Ended September 30,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Interest Income $9.9 $10.6 $12.0 $14.1 $13.9
Interest Expense $4.5 $ 5.0 $ 5.5 $ 6.9 $ 5.4
Net Interest Margin $5.4 $ 5.6 $ 6.5 $ 7.2 $ 8.5
Slide 6
Net Interest Margin
- ---------------------------------------------------------------------------
3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02 9/02
---- ---- ---- ----- ---- ---- ---- ----- ---- ---- ----
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Westborough 3.67 3.90 3.67 3.58 3.44 3.41 3.41 3.76 4.09 3.93 3.95
Peer Median 3.39 3.36 3.25 3.17 3.20 3.20 3.24 3.30 3.42 3.44 3.45
<FN>
The peer group represents publicly traded thrifts with assets of $1 billion
or less.
</FN>
Slide 7
WESTBOROUGH FINANCIAL SERVICES, INC.
Operating Expenses
Years ended September 30,
($ in millions)
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
$3.6 $3.7 $4.6 $5.8 $7.0 $7.4
Slide 8
WESTBOROUGH FINANCIAL SERVICES, INC.
Assets
September 30,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
$158.5 $174.6 $206.0 $225.7 $241.3
Slide 9
WESTBOROUGH FINANCIAL SERVICES, INC.
Asset Mix
September 30,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Investments $60.1 $64.5 $ 70.1 $ 75.6 $ 90.8
Loans $82.3 $92.1 $113.6 $135.0 $132.9
Slide 10
WESTBOROUGH FINANCIAL SERVICES, INC.
Deposits
September 30,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
$135.9 $150.1 $163.4 $185.1 $202.1
Slide 11
WESTBOROUGH FINANCIAL SERVICES, INC.
Deposit Mix
September 30,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Certificates $46.9 $52.0 $ 55.6 $ 63.8 $ 63.1
Non-Certificates $89.0 $98.1 $107.8 $121.3 $139.0
Slide 12
WESTBOROUGH FINANCIAL SERVICES, INC.
Capital Ratio
September 30,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
12.22% 11.04% 12.00% 11.93% 11.60%
Slide 13
Sarbanes-Oxley Act of 2002
Slide 14
Common Stock Performance
- ---------------------------------------------------------------------------
Change
Quarter Ending from
Ended Price Conversion
------- ------ ----------
Conversion $10.00
03/31/00 $ 9.25 -8%
06/30/00 $ 9.06 -9%
09/30/00 $10.53 5%
12/31/00 $10.22 2%
03/31/01 $11.09 11%
06/30/01 $14.70 47%
09/30/01 $17.75 78%
12/31/01 $18.95 90%
03/31/02 $20.42 104%
06/30/02 $22.25 123%
09/30/02 $22.30 123%
Slide 15
Stock Price Since Inception
- ---------------------------------------------------------------------------
Graph showing trading price and volume of the Company's common stock from
its inception on February 17, 2000 to January 29, 2003.
Slide 16
Common Stock Performance
- ---------------------------------------------------------------------------
Graph comparing the relative price performance of the Company's common stock
with the SNK thrift index, the S&P 500 and the Nasdaq Composite Index from
February 17, 2000, the date of the Company's inception, to January 29, 2003.
Slide 17
Quarterly Financial Information
- ---------------------------------------------------------------------------
Year Ended September 30, 2002
-------------------------------------------
FYE 9-30-03 Fourth Third Second First
First Qtr Quarter Quarter Quarter Quarter
----------- -------------------------------------------
(dollars in thousands, except earnings per share data)
(unaudited)
<s> <c> <c> <c> <c> <c>
Interest and dividend income $3,298 $3,466 $3,387 $3,501 $3,517
Interest expense 1,142 1,280 1,267 1,311 1,500
------ ------ ------ ------ ------
Net interest income 2,156 2,186 2,120 2,190 2,017
Provision for loan loss - - - - 8
Gains (loss) on security transactions 4 (460) (10) (26) 30
All other income 207 151 130 157 201
Operating expenses 1,971 1,828 1,991 1,834 1,793
Provision (credit) for income taxes 118 (17) 45 109 116
------ ------ ------ ------ ------
Net income $ 278 $ 66 $ 204 $ 378 $ 331
====== ====== ====== ====== ======
Earnings per common share:
- --------------------------
Basic $ 0.18 $ 0.04 $ 0.13 $ 0.25 $ 0.21
====== ====== ====== ====== ======
Diluted $ 0.18 $ 0.04 $ 0.13 $ 0.24 $ 0.21
====== ====== ====== ====== ======
Slide 18
Westborough Financial Services, Inc.
Annual Shareholders Meeting
(LOGO)
Wyndham Westborough Hotel
Westborough, Massachusetts
3:00 pm
January 30, 2003