Exhibit 99.1
Press Release
Westborough Financial Services, Inc. Reports Earnings for
Three-months ended December 31, 2005
WESTBOROUGH, Mass.--(BUSINESS WIRE)-January 26, 2006 -- Westborough
Financial Services, Inc., (the "Company") (OTCBB: WFSM.OB) the holding
company for The Westborough Bank (the "Bank"), reported earnings per
share (dilutive) for three-months ended December 31, 2005 of $0.06 on
net income of $90 thousand, as compared to $0.22 per share (dilutive) on
net income of $339 thousand for three-months ended December 31, 2004.
For three-months ended December 31, 2005, net income declined by $249
thousand, or 73.5%, as compared to three-months ended December 31, 2004,
which is attributed to a decrease in the Company's net interest margin,
resulting from the effects of a relatively flat yield curve. The
Company's return on average assets was 0.12% for three-months ended
December 31, 2005 as compared to 0.51% for three-months ended December
31, 2004 and the Company's return on average stockholders' equity was
1.26% for three-months ended December 31, 2005 as compared to 4.70% for
three-months ended December 31, 2004.
For three-months ended December 31, 2005, net interest income
declined by $204 thousand, or 9.4%, to $2.0 million as compared to $2.2
million for three-months ended December 31, 2004. During 2005, the Bank
experienced the effects of a relatively flat yield curve, where the
difference between short-term interest rates and longer-term interest
rates was relatively small. As the Federal Reserve Open Market Committee
increased short-term rates, the interest rates paid to interest-bearing
deposit customers increased. As a result of these changes, the net
interest rate spread, which represents the difference between the yield
on average interest-earning assets and the cost of average interest-
bearing liabilities, declined by 0.76%, to 2.51% for three-months ended
December 31, 2005 as compared to 3.27% for three-months ended December
31, 2004. Primarily due to an increase in the rate of interest earned on
short-term investments and loans, the yield on average interest-earning
assets increased by 0.20%, to 5.02% for three-months ended December 31,
2005 from 4.82% for three-months ended December 31, 2004. However, the
cost of average interest-bearing liabilities increased by 0.98%, to
2.52% for three-months ended December 31, 2005 from 1.54% for three-
months ended December 31, 2004 and primarily reflects higher interest
rates paid on savings accounts, certificates of deposits, money market
deposit accounts and Federal Home Loan Bank advances. Continued
flattening of the yield curve challenged the Bank by limiting investment
opportunities and returns. Compression of the net interest rate spread
can be expected to result in lower net interest income, and possibly
losses, until such time as the yield curve returns to a more normal,
upward slope.
The Bank had no provision for loan losses for three-months ended
December 31, 2005 as compared to a $125 thousand (credit) provision for
loan losses for three-months ended December 31, 2004. This primarily
reflects paydowns and the high credit quality of specific commercial
loans for which a portion of the allowance for loan losses had been
allocated.
Other income increased by 14.8%, or $33 thousand to $256 thousand,
for three-months ended December 31, 2005 from $223 thousand for three-
months ended December 31, 2004, primarily as a result of an increase in
customer service fees. Customer service fees increased by $41 thousand,
or 26.6%, to $195 thousand for three-months ended December 31, 2005 from
$154 thousand for three-months ended December 31, 2004 due primarily to
an increase in prepayment fees on commercial loans plus an increase in
fees associated with the sale of non-deposit investment products.
Miscellaneous income decreased by 9.0%, or $6 thousand to $61 thousand,
for three-months ended December 31, 2005 from $67 thousand for three-
months ended December 31, 2004, primarily due to an increase in
amortization of mortgage servicing income recognized upon sale of
mortgages in the secondary market.
Operating expenses increased by $84 thousand, or 4.1%, to $2.1
million for three-months ended December 31, 2005. The primary reasons
for the increase in operating expenses were due to general increases in
employee salaries and commissions, coupled with increases in
professional fees, retirement benefits and data processing fees.
Professional fees increased by $50 thousand, or 75.8%, to $116 thousand
for three months ended December 31, 2005 primarily due to legal and
other expenses related to a civil action filed against the Bank and also
due to various strategic planning projects and initiatives. Primarily as
a result of a higher volume of services provided, data processing
expenses increased by $11 thousand, or 6.1%, to $190 thousand for three-
months ended December 31, 2005. Occupancy and equipment expenses
declined by $22 thousand, or 7.5%, primarily due to the completion of a
records archival initiative in December 2004. Marketing and advertising
expenses declined by $16 thousand, or 27.6%, to $42 thousand, for three-
months ended December 31, 2005 as compared to $58 thousand for three-
months ended December 31, 2004 as a result of a decline in cable TV
advertising. Other general and administrative expenses
declined by 18.1%, or $72 thousand for three-months ended December 31, 2005,
resulting from a timing change on payment of retainer fees to the
directors of the Company.
The Company's total assets increased by $9.1 million, or 3.1%, to $300.6
million at December 31, 2005 from $291.5 million at September 30, 2005.
Deposits increased by $4.7 million, or 2.3%, to $215.0 million from
$210.3 million, primarily in personal checking accounts and one-year or
longer term certificates of deposit. Long-term Federal Home Loan Bank
advances increased by $3.5 million, or 7.6%, to $49.5 million at
December 31, 2005 from $46.0 million at September 30, 2005. The increase
in deposits and borrowings was used primarily to fund loan growth.
Loans, net of allowance for loan losses, increased by $8.6, or 4.3%, to
$209.0 million at December 31, 2005 as compared to $200.5 million at
September 30, 2005 primarily as a result of net new loan growth in
adjustable-rate residential and commercial loans and increases in home
equity lines-of-credit. Cash and cash equivalent balances declined by
$3.1 million, or 34.4%, to $5.9 million at December 31, 2005 from $9.0
million at September 30, 2005 and such funds were invested in the
securities portfolio and used to fund increased loan volume.
Total stockholders' equity decreased by $77 thousand, to $28.5
million at December 31, 2005. Stockholders' equity increased by net
income of $90 thousand, however, it was offset by a $111 thousand
decline in the after-tax market value of securities available for sale
and the payment of $96 thousand in dividends to stockholders. The
Company's securities available for sale consist primarily of interest-
rate sensitive securities, whose market values change inversely with
changes in market interest rates. Interest rates applicable to the
securities portfolio at December 31, 2005 were generally higher than the
interest rates that were applicable at September 30, 2005 and,
accordingly, the after-tax market value of securities available for sale
declined. For each three-months ended December 31, 2005 and December 31,
2004, the Company paid a dividend of $0.06 per share. The dividend
payout ratio, which represents dividends declared per share divided by
dilutive earnings per share, was 105.04% and 27.78% for three-months
ended December 31, 2005 and 2004, respectively.
Joseph F. MacDonough, President and CEO of the Company, commenting
on the Company's performance stated that: "the unfavorable slope of the
yield curve, coupled with an anticipated slowing of loan volume, will
continue to negatively impact the Bank's net interest margin and net
income over the next few quarters."
The Bank was founded in 1869 as a Massachusetts chartered mutual
savings bank and was reorganized into a two-tiered mutual holding
company structure on February 15, 2000. The Bank is a community and
customer-oriented, full-service financial institution offering
traditional deposit products, residential and commercial real estate
mortgage loans, electronic and Internet-based services as well as
consumer and commercial loans. The Bank currently operates four full-
service banking offices located in the towns of Westborough,
Northborough and Shrewsbury, Massachusetts. The Bank also operates a
non-public, self-contained office at the Willows, a retirement community
located in Westborough. Together, these offices serve the Bank's primary
market area consisting of Westborough, Northborough, Shrewsbury,
Grafton, Southborough and Hopkinton, Massachusetts.
Statements contained in this news release, which are not
historical facts, are forward-looking statements that are defined in the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to risk and uncertainties, which could cause
actual results to differ materially from those currently anticipated due
to a number of factors, which include, but are not limited to, factors
discussed in the documents filed by the Company with the Securities and
Exchange Commission. The Company and the Bank do 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.
For further information contact:
John L. Casagrande
Senior Vice President and Treasurer
Westborough Financial Services, Inc.
100 East Main Street
Westborough, MA 01581
508-366-4111
Westborough Financial Services, Inc. and Subsidiary
Selected Consolidated Financial and Other Data
at
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December 31, September 30,
2005 2005
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Consolidated Balance Sheet Data ($ in thousands) (unaudited)
Total assets $300,592 $291,490
Loans, net 209,041 200,477
Investment securities 69,354 66,906
Total deposits 215,024 210,281
Federal Home Loan Bank advances 53,500 50,000
Stockholders' equity 28,526 28,603
Allowance for loan losses 785 785
Non-accrual loans 160 175
Non-performing assets 160 175
Condensed Consolidated Statement of Income
Three months ended
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($ in thousands, except per share data) 12/31/05 12/31/04
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(unaudited)
Total interest and dividend income $3,489 $2,987
Total interest expense 1,520 814
Net interest income 1,969 2,173
(Credit) provision for loan losses 0 (125)
Net interest income, after (credit)
provision for loan losses 1,969 2,298
Customer service fees 195 154
Gain on sales and calls of securities available
for sale, net 0 2
Miscellaneous 61 67
Total other income 256 223
Total operating expenses 2,109 2,025
Income before provision for income taxes 116 496
Provision for income taxes 26 157
Net income $ 90 $ 339
Basic number of weighted average shares
outstanding 1,560,379 1,549,148
Dilutive number of weighted average shares
outstanding 1,575,665 1,569,337
Basic earnings per share $0.06 $0.22
Dilutive earnings per share $0.06 $0.22
Dividends declared per share $0.06 $0.06
Three months ended
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Performance Ratios: 12/31/05 12/31/04
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(unaudited)
Return on average assets 0.12% 0.51%
Return on average stockholders' equity 1.26% 4.70%
Dividend payout ratio (1) 105.04% 27.78%
Average stockholders' equity to average assets 9.65% 10.82%
Net interest rate spread (2) 2.51% 3.27%
Net interest margin (3) 2.84% 3.50%
Operating expenses as a percent of average assets 2.84% 3.03%
Average interest-earning assets to average
interest-bearing liabilities 115.05% 117.57%
Efficiency ratio (4) 94.79% 84.59%
(1) Dividend payout ratio represents dividends declared per share divided
by dilutive earnings per share.
(2) 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.
(3) Net interest margin represents net interest income as a percentage
of average interest-earning assets.
(4) Efficiency ratio represents total operating expenses divided by the
sum of net interest income, customer service fees and miscellaneous
income.
at
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Asset Quality Ratios: December 31, September 30,
2005 2005
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(unaudited)
Non-performing loans as a percent of loans 0.08% 0.09%
Non-performing assets as a percent of total assets 0.05% 0.06%
Allowance for loan losses as a percent of total
loans 0.37% 0.39%
Capital Ratio and other data:
Equity to assets at end of period 9.49% 9.81%
Number of shares outstanding at end of period 1,594,774 1,594,774
Number of:
Full-service offices (1) 4 4
Full-time equivalent employees 68 71
(1) The number of full service offices does not include our branch at the
Willows.