UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
TRANSITION REPORT UNDER 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)
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 May 6, 2003
----- -----------------------------
Common Stock, par value $0.01 1,581,574
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" which may be identified by the use of such
words as "may," "could," "should," "would," "believe," "anticipate,"
"estimate," "expect," "intend," "plan" and similar expressions that 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 Securities and
Exchange Commission 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. Examples of forward-looking statements
include, but are not limited to, estimates with respect to our financial
condition, results of operations and business that are subject to various
factors which would cause actual results to differ materially from these
estimates. These factors include, but are not limited to:
* conditions which effect general and local economies;
* changes in interest rates, deposit flows, demand for mortgages
and other loans, real estate values and competition;
* changes in accounting principles, policies, or guidelines;
* changes in legislation or regulation; and
* other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing, products
and services.
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
(unaudited)
INDEX
PART I. FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Changes in Stockholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis 7
Item 3. Controls and Procedures 17
PART II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 20
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Westborough Financial Services, Inc. and Subsidiary
Consolidated Balance Sheets
(Dollars in thousands)
March 31, September 30,
2003 2002
--------- -------------
(unaudited)
ASSETS
<s> <c> <c>
Cash and due from banks $ 4,403 $ 5,295
Federal funds sold 11,258 11,136
Short-term investments 2,118 2,822
Total cash and cash equivalents 17,779 19,253
Securities available for sale 87,239 75,638
Federal Home Loan Bank stock, at cost 1,250 1,250
Loans, net 132,055 132,880
Banking premises and equipment, net 6,423 5,524
Accrued interest receivable 1,292 1,341
Deferred income taxes 145 22
Bank owned life insurance 4,278 4,122
Due from broker 404 0
Other assets 1,641 1,243
-------- --------
Total assets $252,506 $241,273
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $212,686 $202,063
Federal Home Loan Bank advances 9,500 9,500
Mortgagors' escrow accounts 164 198
Accrued expenses and other liabilities 1,808 1,523
-------- --------
Total liabilities 224,158 213,284
-------- --------
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, 1,581,574 issued and outstanding 16 16
Additional paid-in capital 4,602 4,583
Retained earnings 22,975 22,676
Accumulated other comprehensive income 1,429 1,439
Unearned compensation-RRP (22,139 shares) (327) (365)
Unearned compensation-ESOP (34,622 and 36,096
shares, respectively) (347) (360)
-------- --------
Total stockholders' equity 28,348 27,989
-------- --------
Total liabilities and stockholders' equity $252,506 $241,273
======== ========
See accompanying notes to unaudited consolidated financial statements
1
Westborough Financial Services, Inc. and Subsidiary
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- ----
(unaudited) (unaudited)
<s> <c> <c> <c> <c>
Interest and dividend income:
Interest and fees on loans $ 1,993 $ 2,400 $ 4,095 $ 4,869
Interest and dividends on securities 1,036 1,048 2,101 2,041
Interest on federal funds sold 24 28 59 69
Interest on short term investments 6 25 31 39
--------- --------- --------- ---------
Total interest and dividend income 3,059 3,501 6,286 7,018
--------- --------- --------- ---------
Interest expense:
Interest on deposits 850 1,114 1,835 2,413
Interest on borrowings 154 197 311 398
--------- --------- --------- ---------
Total interest expense 1,004 1,311 2,146 2,811
--------- --------- --------- ---------
Net interest income 2,055 2,190 4,140 4,207
Provision for loan losses 0 0 0 8
--------- --------- --------- ---------
Net interest income, after provision for loan losses 2,055 2,190 4,140 4,199
--------- --------- --------- ---------
Other income:
Customer service fees 114 108 279 264
Gain (loss) on sales of securities available for sale, net (7) (26) (3) 4
Gain on sales of mortgages 5 5 5 5
Miscellaneous 43 44 85 89
--------- --------- --------- ---------
Total other income 155 131 366 362
--------- --------- --------- ---------
Operating expenses:
Salaries and employee benefits 994 969 1,961 1,903
Occupancy and equipment 322 266 627 503
Data processing expenses 147 148 310 270
Marketing and advertising 33 51 86 98
Professional fees 84 77 149 154
Other general and administrative 333 323 680 699
--------- --------- --------- ---------
Total operating expenses 1,913 1,834 3,813 3,627
--------- --------- --------- ---------
Income before provision for income taxes 297 487 693 934
Provision for income taxes 118 109 236 225
--------- --------- --------- ---------
Net income $ 179 $ 378 $ 457 $ 709
========= ========= ========= =========
Number of weighted average shares outstanding-Basic 1,528,424 1,541,970 1,527,951 1,542,544
Earnings per share-Basic $ 0.12 $ 0.25 $ 0.30 $ 0.46
Number of weighted average shares outstanding-Dilutive 1,549,370 1,560,287 1,548,519 1,559,615
Earnings per share-Dilutive $ 0.12 $ 0.24 $ 0.30 $ 0.45
See accompanying notes to unaudited consolidated financial statements.
2
Westborough Financial Services, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)
Accumulated
Additional Other Unearned Unearned
Common Paid-in Retained Comprehensive Compensation- Compensation-
Stock Capital Earnings Income (Loss) RRP ESOP Total
------ ---------- -------- ------------- ------------- ------------- -----
(Unaudited)
<s> <c> <c> <c> <c> <c> <c> <c>
Balance at September 30, 2001 $16 $4,549 $22,013 $ 724 $ 0 $(390) $26,912
-------
Comprehensive income:
Net income 0 0 709 0 0 0 709
Change in net unrealized gain on
securities available for sale, net
of reclassification adjustment and
tax effects 0 0 0 (662) 0 0 (662)
-------
Total comprehensive income 47
-------
Cash dividends declared and paid
($.10 per share) 0 0 (158) 0 0 0 (158)
ESOP shares released and committed
to be released 0 13 0 0 0 15 28
Purchase of RRP shares (9,000 shares) 0 0 0 0 (184) 0 (184)
Amortization of RRP stock 0 0 0 0 34 0 34
Issuance of common stock under stock
option plan, net of income tax benefits 0 3 0 0 0 0 3
--- ------ ------- ------ ----- ----- -------
Balance at March 31, 2002 $16 $4,565 $22,564 $ 62 $(150) $(375) $26,682
=== ====== ======= ====== ===== ===== =======
Balance at September 30, 2002 $16 $4,583 $22,676 $1,439 $(365) $(360) $27,989
-------
Comprehensive income:
Net income 0 0 457 0 0 0 457
Change in net unrealized gain on
securities available for sale, net
of reclassification adjustment and
tax effects 0 0 0 (10) 0 0 (10)
-------
Total comprehensive income 447
-------
Cash dividends declared and paid
($.10 per share) 0 0 (158) 0 0 0 (158)
ESOP shares released and committed
to be released 0 19 0 0 0 13 32
Amortization of RRP stock 0 0 0 0 38 0 38
--- ------ ------- ------ ----- ----- -------
Balance at March 31, 2003 $16 $4,602 $22,975 $1,429 $(327) $(347) $28,348
=== ====== ======= ====== ===== ===== =======
See accompanying notes to unaudited consolidated financial statements.
3
Westborough Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(dollars in thousands)
Six Months Ended
--------------------------------
March 31, 2003 March 31, 2002
-------------- --------------
(unaudited)
<s> <c> <c>
Cash flows from operating activities:
Net income $ 457 $ 709
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 0 8
Net amortization on securities 98 26
Amortization of net deferred loan costs and discounts (26) (24)
Depreciation expense 318 221
(Gain) Loss on sales of securities available for sale, net 3 (4)
Gain on sales of mortgages (5) (5)
Decrease (increase) in accrued interest receivable 49 (79)
Deferred income tax benefit (105) (96)
ESOP shares released and committed to be released 32 28
Amortization of RRP Stock 38 34
Increase in bank-owned life insurance (156) (299)
Other, net (517) 142
------- -------
Net cash provided by operating activities 186 661
------- -------
Cash flows from investing activities:
Activity in available for sale securities:
Sales and calls 2,007 2,616
Maturities 1,495 4,132
Purchases (21,101) (13,191)
Principal payments 5,869 4,082
Purchase of Federal Home Loan Bank stock 0 (150)
Loan (originations) principal payments, net 856 (676)
Purchase of banking premises and equipment (1,217) (1,418)
------- -------
Net cash used by investing activities (12,091) (4,605)
------- -------
Cash flows from financing activities:
Net increase in deposits 10,623 6,070
Net decrease in mortgagors escrow accounts (34) (37)
Purchase of RRP Stock 0 (184)
Issuance of common stock under stock option plan,
net of income tax benefits 0 3
Dividends paid (158) (158)
------- -------
Net cash provided by financing activities 10,431 5,694
------- -------
Net change in cash and cash equivalents (1,474) 1,750
Cash and cash equivalents at beginning of period 19,253 15,108
------- -------
Cash and cash equivalents at end of period $17,779 $16,858
======= =======
See accompanying notes to unaudited consolidated financial statements.
4
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, 2002, 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 accounting principles generally accepted
in the United States of America ("GAAP") 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 GAAP for complete consolidated 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. A
summary of significant accounting policies followed by the Company is set
forth in the Notes to Consolidated Financial Statements of the Company's
2002 annual report to stockholders.
2) Contingencies.
At March 31, 2003, the Bank had loan commitments to borrowers of
$12.4 million, commitments for home equity loans of $1.3 million, available
home equity lines of credit of $11.5 million, unadvanced funds on
commercial lines of credit, overdrafts and participation loans of $1.8
million, unadvanced funds on construction mortgages of $3.6 million and
personal overdraft lines of credit of approximately $470 thousand. At March
31, 2003, the Company recorded a $404 thousand due from broker, which
represents the proceeds of a sale of preferred stock that settled on April
2, 2003.
3) Earnings per Share.
Basic earnings per share represent income available to common
stockholders divided by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is calculated in
accordance with Statement of Financial Accounting Standards No. 128 and
reflects additional common shares (common stock equivalents) that would
have been outstanding if only dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the
assumed issuance. For the periods presented, the Company has no potential
common shares outstanding that are considered anti-dilutive. If applicable,
the Company would exclude from the diluted earnings per share calculation
any potential common shares that would increase earnings per share.
Potential common shares that may be issued by the Company relate solely to
outstanding stock options and grants and are determined using the treasury
stock method.
On January 25, 2001, the Company's stockholders approved the
Westborough Financial Services, Inc. 2001 Stock Option Plan (the "Stock
Option Plan"). Under the Stock Option Plan, the Company may grant options
to its directors, officers and employees for up to 55,348 shares of common
stock. Both incentive stock options and non-qualified stock options may be
granted under the Stock Option Plan. The exercise price of each option
equals the market price of the Company's stock on the date of grant and an
option's maximum term is ten years. Options generally vest over a five-year
period.
The Company applies APB Opinion 25 and related Interpretations in
accounting for the Stock
5
Option Plan. Accordingly, no compensation cost has been recognized. Had
compensation cost for the Company's Stock Option Plan been determined based
on the fair value at the grant dates for awards under the plan consistent
with the method prescribed by SFAS No. 123, the Company's net income and
earning per share would have been adjusted to the pro forma amounts
indicated below:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
2003 2002 2003 2002
---- ---- ---- ----
<s> <c> <c> <c> <c> <c>
Net income As reported $179 $ 378 $ 457 $ 709
Pro forma $174 $ 373 $ 446 $ 698
Basic earnings per share As reported $0.12 $0.25 $0.30 $0.46
Pro forma $0.11 $0.24 $0.29 $0.45
Diluted earnings per share As reported $0.12 $0.24 $0.30 $0.45
Pro forma $0.11 $0.24 $0.29 $0.45
6
Item 2. Management's Discussion and Analysis.
General
The following discussion compares the financial condition of the
Company and its wholly-owned subsidiary, the Bank, at March 31, 2003 and
September 30, 2002, and the results of operations for the three and six
month periods ended March 31, 2003, compared to the same period in 2002.
This discussion and analysis should be read in conjunction with the
unaudited consolidated financial statements and related notes that are
included within this report.
The Company's principal business is its investment in the Bank, which
is a community-oriented financial institution providing a variety of
financial services to the communities which it serves. 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 bank-owned life insurance 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.
7
Comparison of Financial Condition at March 31, 2003 and September 30, 2002
As a result of continued growth in deposits, the Company's total
assets increased by $11.2 million, or 4.7%, to $252.5 million at March 31,
2003 from $241.3 million at September 30, 2002. Securities available for
sale increased by $11.6 million or 15.3%, to $87.2 million, at March 31,
2003 as compared to $75.6 million at September 30, 2002. Loans declined
slightly to $132.1 million at March 31, 2003 from $132.9 million at
September 30, 2002. Mainly as a result of the Bank's construction of a new
branch office in the town of Shrewsbury and renovations made to its
existing loan servicing area, building premises and equipment increased by
$899 thousand to $6.4 million at March 31, 2003. Due from broker of $404
thousand at March 31, 2003 represents proceeds due to the Bank for its sale
of preferred stock entered into prior to the close of the quarter. The Bank
received the proceeds in the month of April.
Total deposits increased by $10.6 million, or 5.3%, to $212.7 million
at March 31, 2003 from $202.1 million at September 30, 2002. Most of this
increase was attributable to increases in variable-rate tiered accounts and
regular savings accounts. In the current low interest rate environment,
deposit customers preferred to place their deposits in accounts with higher
liquidity. Non-performing loans increased to $659 thousand at March 31,
2003 as compared to $140 thousand at September 30, 2002 primarily as a
result of the addition of one commercial loan delinquency.
Total stockholders' equity increased by $359 thousand, to $28.3
million at March 31, 2003 from $28.0 million at September 30, 2002
primarily as a result of current period net income.
Comparison of Operating Results for the Three Months Ended March 31, 2003
and 2002
Net Income: The Company reported earnings per share (dilutive) for
the quarter ended March 31, 2003 of $0.12 on net income of $179 thousand.
For the current quarter ended March 31, 2003, net income decreased by $199
thousand, or 52.7%, as compared to $378 thousand, or $0.24 per share
(dilutive), for the previous quarter ended March 31, 2002. The decreased
net income was primarily due to a decline in net interest income and an
increase in operating expenses, offset, to a lesser extent, by an increase
in other income. The rate of interest earned on the Company's short-term
investments, investment securities and loans declined and reflects the
general decline in interest rates and an increase in the number of loan
customers refinancing or renegotiating their loans to lower rates. The
level of operating expenses increased by 4.3%, or $79 thousand and mainly
reflects an increase in occupancy and equipment expenses associated with
building and equipment depreciation for the Company's operations center, as
well as an increase in snow removal and security-related expenses. Salary
and employee benefits expenses increased by 2.6%, or $25 thousand, due
primarily to increases in employee retirement expenses associated with the
Company's defined benefit plan and also due to increases in health
insurance. The Company's return on average assets was .29% for the three-
month period ended March 31, 2003 as compared to .66% for the three-month
period ended March 31, 2002.
Detail of the Bank's net interest rate spread and net interest margin
for the periods indicated are as follows and such detail will aid in the
subsequent discussion of interest and dividend income, interest expense and
net interest income:
8
For Three Months Ended
March 31,
---------------------- Increase
2003 2002 (decrease)
---- ---- ----------
<s> <c> <c> <c>
Interest-earning assets:
Short-term investments (1) 0.98% 1.87% -0.89%
Investment securities (2) 4.64% 6.30% -1.66%
Loans (3) 6.11% 7.03% -0.92%
Total interest-earning assets 5.27% 6.53% -1.26%
Interest-bearing liabilities:
NOW accounts 0.16% 0.50% -0.34%
Savings accounts (4) 1.43% 2.15% -0.72%
Money market deposit accounts 1.26% 1.94% -0.68%
Certificate of deposit accounts 2.93% 3.83% -0.90%
Total interest-bearing deposits 1.80% 2.62% -0.82%
Borrowed funds 6.48% 6.57% -0.09%
Total interest-bearing liabilities 2.02% 2.88% -0.86%
Net interest rate spread (5) 3.25% 3.65% -0.40%
Net interest margin (6) 3.54% 4.09% -0.55%
<FN>
<F1> Short-term investments include federal funds sold.
<F2> All investment securities are considered available for sale.
<F3> Loans are net of deferred loan origination costs (fees), allowance
for loan losses, discount/premium on purchased loans and unadvanced
funds.
<F4> Savings accounts include the balance in mortgagors' escrow accounts.
<F5> Net interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the weighted
average cost of interest-bearing liabilities.
<F6> Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</FN>
9
Interest and Dividend Income: The Bank's interest and dividend income
declined by $442 thousand, or 12.6%, to $3.1 million for the quarter ended
March 31, 2003 as compared to $3.5 million for the quarter ended March 31,
2002. The decline was due to the combination of lower rates earned on
average interest-earning assets offset, to a lesser extent, by an increase
in the average volume of interest-earning assets. As a result of the
substantial reductions in short-term rates by the Federal Open Market
Committee, the Bank's average interest rate earned on all interest-earning
assets declined in the recent quarter. The average volume of interest-
earning assets for the three-months ended March 31, 2003 increased to
$232.2 million earning an average rate of 5.27% as compared to an average
volume of $214.4 million earning an average rate of 6.53% for the three-
months ending March 31, 2002. This increase in average volume of interest-
earning assets was a primarily the result of positive cash flows from
interest bearing and non-interest bearing deposits. These deposits, plus
additional cash generated from loan prepayments, provided funds to be
invested in investment securities and short-term investments. As noted
above, this increase in volume was invested in assets with comparatively
lower interest-earning rates. The average balance of investment securities
for the three-months ended March 31, 2003 increased to $89.3 million,
earning 4.64% as compared to an average balance of $66.6 million, earning
6.30% for the three-months ending March 31, 2002. The average balance of
short-term investments for the three-months ended March 31, 2003 increased
to $12.3 million earning 0.98% as compared to an average balance of $11.3
million earning 1.87% for the three-months ending March 31, 2002. In
contrast, the average balance of loans for the three-months ended March 31,
2003 declined to $130.6 million earning 6.11% as compared to an average
balance of $136.5 million earning 7.03% for the three-months ending March
31, 2002. During the most recent period, the Bank continued to experience a
decline in the volume of new loans and an increase in commercial and
residential loan payoffs and customer interest rate renegotiations. The
decline in the interest rate earned on loans was, in large part, a result
of the general decline in market-based interest rates offered on new loans
granted during the period and also due to a decline in the rates of
interest charged on variable-rate loans held in our portfolio which were
subject to periodic adjustment or a renegotiation of the current rate
charged by the Bank.
Interest Expense: Total interest expense declined by $307 thousand,
or 23.4%, to $1.0 million for the three-months ended March 31, 2003, from
$1.3 million for the three-months ended March 31, 2002. The decline in
interest expense was mainly due to the Bank's constantly monitoring and
actively reducing rates offered on various savings accounts to coincide
with the general decline in competitive loan, investment and deposit
interest rates. The average volume of all interest-bearing liabilities
(which includes interest-bearing deposits and interest-bearing borrowings)
increased to $198.7 million with a cost of 2.02% for the three-months ended
March 31, 2003 as compared to $181.9 million with a cost of 2.88% for the
three-months ending March 31, 2002. The average volume of interest-bearing
deposits increased to $189.2 million with a cost of 1.80% for the three-
months ending March 31, 2003 as compared to $169.9 million with a cost of
2.62% for three-months ending March 31, 2002. Some of the funds from
increased deposit flows and loan payoffs were used to pay down scheduled
maturities of borrowings from the Federal Home Loan Bank of Boston.
Accordingly, the average volume of interest-bearing borrowing declined to
$9.5 million with a cost of 6.48% for the three-months ending March 31,
2003 as compared to $12.0 million with a cost of 6.57% for three-months
ending March 31, 2002.
Net Interest Income: The Bank's net interest income declined by $135
thousand for the quarter ended March 31, 2003, or 6.2%, to $2.1 million
from $2.2 million for the quarter ending March 31, 2002. For the reasons
noted above, the decline was attributed to the combination of a decrease in
interest and dividend income of $442 thousand and a decline in interest
expense of $307 thousand. The Bank's net interest rate spread, which
represents the difference between the weighted average yield on interest-
earning assets and the weighted average cost of interest-bearing
liabilities, declined by .40%, to 3.25% for the quarter ended March 31,
2003 as compared to 3.65% for the
10
quarter ending March 31, 2002. In addition, the Bank's net interest margin,
which represents net interest income as a percentage of average interest-
earning assets, declined by .55% to 3.54% for the quarter ending March 31,
2003 as compared to 4.09% for the quarter ending March 31, 2002.
Provision for Loan Losses: The Bank had no provision for loan losses
for each of the quarters ended March 31, 2003 and March 31, 2002. The
provision for loan losses is a result of management's periodic analysis of
risks inherent in our loan portfolio from time to time, as well as the
adequacy of the allowance for loan losses. It is our policy to provide
valuation allowances for estimated losses on loans based upon past loss
experience, current trends in the level of delinquent and specific problem
loans, loan concentrations to single borrowers, adverse situations that may
affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current and anticipated economic conditions in
our market area. Accordingly, the evaluation of the adequacy of the
allowance for loan losses is not based directly on the level of non-
performing loans. The allowance for loan losses, in management's opinion,
is at a level sufficient to cover losses in the Bank's loan portfolio at
this time. As the Bank expands its commercial lending activities,
management believes that growth in the provision for loan losses may be
likely. Additionally, while the Bank believes it has excellent loan
quality, the Bank recognizes that it is located in a market and geographic
area that is considered in the high technology and financial services belt.
The Bank's loan portfolio is representative of such demographics.
Unemployment rates in Massachusetts and our area have increased and
commercial property vacancy rates have also risen. Much uncertainty
surrounds the length and depth of the current recession and other external
factors, and, while Bank management believes that its current level of
allowance for loan losses is adequate, there can be no assurance that the
allowance will be sufficient to cover loan losses or that future
adjustments to the allowance will not be necessary if economic and/or other
conditions differ substantially from the economic and other conditions
considered by management in evaluating the adequacy of the current level of
the allowance.
Other Income: Other income consists primarily of fee income for
customer services, gains and losses from the sale of securities and income
from bank-owned life insurance. Total other income increased by $24
thousand or 18.3% to $155 thousand for the quarter ended March 31, 2003,
from $131 thousand for the comparative quarter ended March 31, 2002. The
primary reason for the increase was a $19 thousand reduction in net losses
on the sale of securities available for sale. For the quarter ended March
31, 2003, the Bank sold, at a pre-tax gain of $19 thousand, a $500 thousand
bond. It also sold, at a pre-tax loss of $26 thousand, a $500 thousand
preferred stock. With regard to the Company's common stock holdings, our
internal investment policy requires us to either write-down to market
value, or sell, any common stock issue that has sustained a continuous
decline in market value of 50% or more, for a continuous period of nine-
months or more. Although management believes that it has established and
maintained an adequate accounting policy as it relates to investment
impairment, such judgments involve a higher degree of complexity and
require management to make difficult and subjective judgments that often
require assumptions or estimates about highly uncertain matters. Changes in
these judgments, assumptions or estimates could cause reported results to
differ materially. This critical policy and its application are
periodically reviewed with the Audit Committee and our Board of Directors.
Lastly, customer service fees increased by $6 thousand, or 5.6% to $114
thousand for the quarter ended March 31, 2003 as compared to $108 thousand
for the comparative quarter last year. The primary reason for the increase
was an increase in income from the sale of non-deposit investment products
such as mutual funds and annuities.
Operating Expenses: The level of operating expenses increased by
4.3%, or $79 thousand and mainly reflects an increase in occupancy and
equipment expenses associated with building and equipment depreciation for
the Company's operations center, as well as an increase in snow removal and
security-related expenses. Salary and employee benefits expenses increased
by 2.6%, or $25 thousand, due primarily to increases in employee retirement
expenses associated with the Company's
11
defined benefit plan and also due to increases in health insurance
expenses. Marketing and advertising expenses declined by $18 thousand or
35.3%, to $33 thousand for the quarter ended March 31, 2003 due primarily
to the timing of advertising placement. Professional expenses increased by
$7 thousand or 9.1%, to $84 thousand for the quarter ended March 31, 2003
due primarily to an increase in legal and internal audit expenses. Other
general and administrative expenses increased by $10 thousand or 3.1%, to
$333 thousand for the quarter ended March 31, 2003 due primarily to
expenses related to a recent periodic Massachusetts Division of Banks'
examination.
Income Taxes. The provision for income taxes increased by $9 thousand
to $118 thousand for the quarter ended March 31, 2003 as compared to $109
thousand for the quarter ended March 31, 2002, resulting in an effective
tax rate of 39.7% and 22.4% for the quarter ended March 31, 2003 and 2002,
respectively. The Bank utilizes security investment subsidiaries and
receives the benefit of a dividends received deduction on common stock
held. Additionally, the Bank receives favorable tax treatment from the
increase in the cash surrender value of bank owned life insurance.
Depending upon the timing and magnitude of such income items, changes in
the Company's effective tax rate can vary from period to period. The
increase in the tax provision over last year is primarily due to a decrease
in the amount of dividend income eligible for the federal dividends
received deduction.
Comparison of Operating Results for the Six-months ended March 31, 2003 and
2002
Net Income: The Company reported earning per share (dilutive) for the
current six-month period ended March 31, 2003 of $0.30 on net income of
$457 thousand. For the six-month period ended March 31, 2003, net income
declined by $252 thousand, or 35.5%, as compared to $709 thousand, or $0.45
per share (dilutive) for the previous six-month period ended March 31,
2002. The Company's return on average assets was .37% for the six-month
period ended March 31, 2003 as compared to .62% for the six-month period
ended March 31, 2002. The decrease in net income was due to a combination
of factors, primarily due to an increase in operating expenses of $186
thousand and a decline in net interest income of $67 thousand. The level of
operating expenses mainly reflects an increase in occupancy and equipment
expenses associated with building and equipment depreciation for the
Company's operations center, as well as an increase in snow removal and
security-related expenses. Salary and employee benefits expenses increased
by 3.1%, or $58 thousand, due primarily to increases in employee retirement
expenses associated with the Company's defined benefit plan and increases
in health insurance expenses.
Detail of the Bank's net interest rate spread and net interest margin
for the periods indicated are as follows and such detail will aid in the
subsequent discussion of interest and dividend income, interest expense and
net interest income:
12
For Six Months Ended
March 31,
-------------------- Increase
2003 2002 (decrease)
---- ---- ----------
<s> <c> <c> <c>
Interest-earning assets:
Short-term investments (1) 1.25% 1.86% -0.61%
Investment securities (2) 4.91% 6.19% -1.28%
Loans (3) 6.31% 7.12% -0.81%
Total interest-earning assets 5.47% 6.55% -1.08%
Interest-bearing liabilities:
NOW accounts 0.20% 0.50% -0.30%
Savings accounts (4) 1.59% 2.28% -0.69%
Money market deposit accounts 1.44% 1.98% -0.54%
Certificate of deposit accounts 3.07% 4.25% -1.18%
Total interest-bearing deposits 1.95% 2.85% -0.90%
Borrowed funds 6.55% 6.63% -0.08%
Total interest-bearing liabilities 2.18% 3.10% -0.92%
Net interest rate spread (5) 3.29% 3.45% -0.16%
Net interest margin (6) 3.60% 3.92% -0.32%
<FN>
<F1> Short-term investments include federal funds sold.
<F2> All investment securities are considered available for sale.
<F3> Loans are net of deferred loan origination costs (fees), allowance
for loan losses, discount/premium on purchased loans and unadvanced
funds.
<F4> Savings accounts include the balance in mortgagors' escrow accounts.
<F5> Net interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the weighted
average cost of interest-bearing liabilities.
<F6> Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</FN>
13
Interest and Dividend Income: Interest and dividend income declined
by $732 thousand, or 10.4%, to $6.3 million for the six-months ended March
31, 2003 as compared to $7.0 million for the six-months ended March 31,
2002. The decrease was due mainly to a decline in the average rate earned
on interest-earning assets. The average volume of interest-earning assets
for the six-months ended March 31, 2003 was $230.0 million earning an
average rate of 5.47% as compared to an average volume of $214.4 million
earning an average rate of 6.55% for the six-months ending March 31, 2002.
The Bank experienced a decline in average loan balances and average loan
rates of interest. The average balance of loans for the six-months ended
March 31, 2003 was $129.9 million earning 6.31% as compared to an average
balance of $136.8 million earning 7.12% for the six-months ending March 31,
2002. The decline in the interest rate earned on loans was primarily the
result of a general decline in market-based interest rates offered on new
loans granted during the period and also due to a decline in the rates of
interest charged on variable-rate loans held in our portfolio which were
subject to periodic rate adjustment or a renegotiation of the current
interest rate charged by the Bank. Reflecting additional cash flows
primarily from deposit growth, the average balance of investment securities
for the six-months ended March 31, 2003 increased to $85.7 million, earning
4.91% as compared to an average balance of $66.0 million, earning 6.19% for
the six-months ending March 31, 2002. The average balance of short-term
investments for the six-months ended March 31, 2003 was $14.4 million
earning 1.25% as compared to an average balance of $11.6 million earning
1.86% for the six-months ending March 31, 2002.
Interest Expense: Total interest expense declined by $665 thousand,
or 23.7%, to $2.1 million for the six-months ended March 31, 2003, from
$2.8 million for the six-months ending March 31, 2002. The decline in
interest expense was mainly due to the Bank's response to the general
decline in interest rates. Interest rates offered to new or existing
savings and certificate of deposit account customers declined during the
recent six-month period. The average volume of all interest-bearing
liabilities (which includes interest-bearing deposits and interest-bearing
borrowings) was $197.3 million with a cost of 2.18% for the six-months
ended March 31, 2003 as compared to $181.3 million with a cost of 3.10% for
the six-months ending March 31, 2002. The average volume of interest-
bearing deposits was $187.8 million with a cost of 1.95% for the six-months
ending March 31, 2003 as compared to $169.3 million with a cost of 2.85%
for six-months ending March 31, 2002. As a result of the payment of
scheduled maturities of borrowings from the Federal Home Loan Bank of
Boston, the average volume of interest-bearing borrowing was $9.5 million
with a cost of 6.55% for the six-months ending March 31, 2003 as compared
to $12.0 million with a cost of 6.63% for six-months ending March 31, 2002.
Net Interest Income: Net interest income declined by $67 thousand, or
1.6%, for the six-months ended March 31, 2003, to $4.1 million from $4.2
million for the six-months ending March 31, 2002. The decline was
attributed to the decline in interest income of $732 thousand, offset, to a
lesser extent, by a decline in interest expense of $655 thousand. The
Bank's net interest rate spread, which represents the difference between
the weighted average yield on interest-earning assets and the weighted
average cost of interest-bearing liabilities, declined by .16%, to 3.29%,
for the six-months ended March 31, 2003 as compared to 3.45% for the six-
months ending March 31, 2002. In addition, the Bank's net interest margin,
which represents net interest income as a percentage of average interest-
earning assets, declined by .32%, to 3.60%, for the six-months ending March
31, 2003 as compared to 3.92% for the six-months ending March 31, 2002.
Provision for Loan Losses: The Bank had no provision for loan losses
the six-months ended March 31, 2003 compared to $8 thousand for the six-
months ended March 31, 2002. The provision for loan losses is a result of
management's periodic analysis of risks inherent in its loan portfolio from
time to time, as well as the adequacy of the allowance for loan losses. It
is the Bank's policy to
14
provide valuation allowances for estimated losses on loans based upon past
loss experience, current trends in the level of delinquent and specific
problem loans, loan concentrations to single borrowers, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current and anticipated economic conditions in
our market area. Accordingly, the evaluation of the adequacy of the
allowance for loan losses is not based directly on the level of non-
performing loans. The allowance for loan losses, in management's opinion,
is sufficient to cover losses in the Bank's loan portfolio at this time. As
the Bank expands its commercial lending activities, management believes
that growth in the provision for loan losses may be likely. Additionally,
while the Bank believes it has excellent loan quality, the Bank recognizes
that it is located in a market and geographic area that is considered in
the high technology and financial services belt. The Bank's loan portfolio
is representative of such demographics. Unemployment rates in Massachusetts
and its area have increased and commercial property vacancy rates have also
risen. While Bank management believes that its current level of allowance
for loan losses is adequate, there can be no assurance that the allowance
will be sufficient to cover loan losses or that future adjustments to the
allowance will not be necessary if economic and/or other conditions differ
substantially from the economic and other conditions considered by
management in evaluating the adequacy of the current level of the
allowance.
Other Income: Other income consists primarily of fee income for
customer services and gains and losses from the sale of securities and
income recognized from bank-owned life insurance. Total other income
increased $4 thousand, or 1.1%, to $366 thousand, for the six-months ended
March 31, 2003, as compared to $362 thousand for six-months ending March
31, 2002. Net gains on the sale of securities available for sale declined
by $7 thousand for the six-months ended March 31, 2003 compared to the six-
months ending March 31, 2002. Customer service fees increased by $15
thousand, or 5.7%, to $279 thousand, for the six-months ended March 31,
2003, from $264 thousand for the six-months ended March 31, 2002 primarily
due to an increase in the volume of fees earned on the sale of non-insured
investment products such as mutual funds and annuities.
Operating Expenses: For the six-months ended March 31, 2003,
operating expenses increased by $186 thousand, or 5.1%, to $3.8 million
from $3.6 million for six-months ending March 31, 2002. The level of
operating expenses mainly reflects a $124 thousand, or 24.7%, increase in
occupancy and equipment expenses associated with building and equipment
depreciation for the Company's operations center, as well as an increase in
snow removal and security-related expenses. Salary and employee benefits
expenses increased by 3.0%, or $58 thousand, due primarily to increases in
employee retirement expenses associated with the Company's defined benefit
plan and increases in health insurance expenses. Data processing expenses
increased by $40 thousand, or 14.8%, due to costs associated with the
Bank's conversion to a new data processing company.
Income Taxes. The provision for income taxes increased by $11
thousand to $236 thousand for the six-months ended March 31, 2003 as
compared to $225 thousand for the six-months ended March 31, 2002,
resulting in an effective tax rate of 34.1% and 24.1% for the six-months
ended March 31, 2003 and 2002, respectively. The Bank utilizes security
investment subsidiaries and receives the benefit of a dividends received
deduction on common stock held. Additionally, the Bank receives favorable
tax treatment from the increase in the cash surrender value of bank owned
life insurance. Depending upon the timing and magnitude of such income
items, changes in the Company's effective tax rate can vary from period to
period. The increase in the tax provision over last year is primarily due
to a decrease in the amount of dividend income eligible for the federal
dividends received deduction.
15
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 borrows money from time to
time from the Federal Home Loan Bank of Boston as part of its management of
interest rate risk. At March 31, 2003, the Bank had $9.5 million in
outstanding borrowings.
Loan repayments and maturing securities are a relatively predictable
source of funds. However, deposit flows, calls of 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 and the purchase of securities.
During the six-months ended March 31, 2003, the Bank originated loans of
$41.6 million and experienced principal repayments of loans of $42.5
million. The Bank purchased securities of $21.1 million. Sales and calls on
investments provided $2.0 million and principal payments on mortgage-backed
securities provided an additional $5.9 million. There were $1.5 million of
investment maturities for the six-month period ended March 31, 2003. The
investment in banking premises and equipment utilized $1.2 million. These
investing activities were financed primarily by a net increase in deposits
of $10.6 million. Net cash and cash equivalents decreased by $1.5 million
during the six-months ended March 31, 2003.
Total deposits increased $10.6 million during the six-months ended
March 31, 2003. The level of interest rates and products offered by
competitors and other factors affect deposit flows. Certificate of deposit
accounts scheduled to mature within one year were $49.1 million at March
31, 2003. 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.
In order to create a platform for the accomplishment of the Bank's
goals, the Bank has made significant investments in its physical
infrastructure and human and technological resources. In particular, the
Bank completed the construction of an addition to its main office and
completed the renovation of the older portion of its main office. The Bank
also has been in the process of constructing a branch in Shrewsbury for the
relocation of its current Maple Avenue branch office and expects to open
for business in May of this year. When completed, the approximate costs for
land will be $1.0 million, building will be $1.2 million and furniture and
fixtures will be $300 thousand. The Bank expects to depreciate the building
over 35 years and the furniture and equipment over 3-to-7 years, both
utilizing the straight-line method of depreciation. Such investments have
been and, in the future, may be necessary to insure 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.
At March 31, 2003, the Company's capital to assets ratio was 11.23%
and it exceeded each of the
16
applicable regulatory capital requirements. Further, it 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.
Item 3. Controls and Procedures.
During the 90-day period prior to the filing date of this report,
management, including the Company's President and Chief Executive Officer
and Senior Vice President, Treasurer and Clerk, evaluated the effectiveness
of the design and operation of the Company's disclosure controls and
procedures. Based upon and as of the date of that evaluation, the President
and Chief Executive Officer and Senior Vice President, Treasurer and Clerk
concluded that the disclosure controls and procedures were effective, in
all material respects, to ensure that information required to be disclosed
in the reports the Company files and submits under the Exchange Act is
recorded, processed, summarized and reported as and when required.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal
controls subsequent to the date the Company carried out its evaluation.
There were no significant deficiencies or material weaknesses identified in
the evaluation and therefore, no corrective actions were taken.
17
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.
Westborough Financial Services, Inc. (the "Company") held its annual
meeting of shareholders on January 30, 2003 (the "Meeting"). All of the
proposals submitted to the shareholders at the Meeting were approved. The
proposals submitted to shareholders and the tabulation of votes for each
proposal is as follows:
1. Election of five directors of the Company. The number of votes cast
with respect to this matter was as follows:
Nominee For Withheld Broker Non-Votes
David E. Carlstrom 1,445,379 1,400 0
John L. Casagrande 1,445,379 1,400 0
William W. Cotting, Jr. 1,445,254 1,525 0
Walter A. Kinell, Jr. 1,445,354 1,425 0
Robert A. Klugman 1,445,354 1,425 0
2. Ratification of the appointment of Wolf & Company, P.C. as the
Company's independent public accountants for the fiscal year ending
September 30, 2003.
For Against Abstain Broker Non-Votes
1,446,754 25 0 0
Item 5. Other Information.
The Company's Chief Executive Officer and Chief Financial Officer have
furnished statements relating to its Form 10-QSB for the quarter ended
March 31, 2003 pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002. The statements are attached
hereto as Exhibits 99.1 and 99.2.
Item 6. Exhibits and Reports on Form 8-K.
18
(a) Exhibit 99.1: Statement furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit 99.2: Statement furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on 8-K.
On April 29, 2003, the registrant filed an 8-K Report regarding
announced earnings for the second quarter of the 2003 fiscal year,
under Item 12.
19
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Westborough Financial Services, Inc.
Date: May 15, 2003 By: /s/ Joseph F. MacDonough
-------------------------------------
President and Chief Executive Officer
Date: May 15, 2003 By: /s/ John L. Casagrande
-------------------------------------
Senior Vice-President, Treasurer
and Clerk
CERTIFICATIONS
I, Joseph F. MacDonough, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Westborough
Financial Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Joseph F. MacDonough
-------------------------------------
Joseph F. MacDonough
President and Chief Executive Officer
20
I, John L. Casagrande, certify that
1. I have reviewed this quarterly report on Form 10-QSB of Westborough
Financial Services, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ John L. Casagrande
--------------------------------
John L. Casagrande
Senior Vice President, Treasurer
and Clerk
21