UNITED STATES
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, 2007
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 by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer Accelerated filer X Non-accelerated filer
--- --- ---
Indicate by check mark whether the registrant is a shell company. Yes No X
--- ---
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 May 4, 2007
- ----------------------------------- ----------------------------------
Common Stock, par value $0.01 31,926,587
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements of Westfield Financial, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited) - March 31, 2007 and December
31, 2006
Consolidated Statements of Income (Unaudited) - Three months ended
March 31, 2007 and 2006
Consolidated Statement of Changes in Stockholders' Equity and
Comprehensive Income (Unaudited) - Three Months ended March 31, 2007
and 2006
Consolidated Statements of Cash Flows (Unaudited) - Three Months ended
March 31, 2007 and 2006
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity 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. Exhibits
Signatures
Exhibits
1
FORWARD - LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements."
These forward-looking statements are made in good faith pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. The
words "may," "could," "should," "would," "believe," "anticipate," "estimate,"
"expect," "intend," "plan" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements may be subject to
significant known and unknown risks, uncertainties, and other factors,
including, but not limited to, changes in the real estate market or local
economy, changes in interest rates, changes in laws and regulations to which we
are subject, and competition in our primary market area.
Although we believe that the expectations reflected in such
forward-looking statements are reasonable, actual results may differ materially
from the results discussed in these forward-looking statements. You are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Westfield Financial undertakes no
obligation to republish revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
2
PART I
ITEM 1. FINANCIAL STATEMENTS
Westfield Financial, Inc. and Subsidiaries
Consolidated Balance Sheets - Unaudited
(Dollars in thousands except share data)
March 31, December 31,
2007 2006
---- ----
ASSETS
Cash and due from banks $ 16,092 $ 51,645
Federal funds sold 61,491 97,659
Interest-bearing deposits and other short term investments 15,217 5,204
---------- --------
Cash and cash equivalents 92,800 154,508
---------- --------
SECURITIES:
Available for sale - at estimated fair value 46,916 41,687
Held to maturity - at amortized cost (estimated fair value of
$103,831 at March 31, 2007, and $76,938 at December 31, 2006) 104,051 77,299
MORTGAGE-BACKED SECURITIES:
Available for sale - at estimated fair value 160,236 126,942
Held to maturity - at amortized cost (estimated fair value of
$172,899 at March 31, 2007, and $160,709 at December 31, 2006) 174,741 163,093
FEDERAL HOME LOAN BANK OF BOSTON AND OTHER STOCK 4,029 4,246
LOANS - Net of allowance for loan losses of $5,553 at March 31,
2007, and $5,437 at December 31, 2006 376,446 385,184
PREMISES AND EQUIPMENT - Net 12,582 12,247
ACCRUED INTEREST RECEIVABLE 4,961 4,502
BANK-OWNED LIFE INSURANCE 31,407 20,619
OTHER ASSETS 5,930 6,502
---------- --------
TOTAL ASSETS $1,014,099 $996,829
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
DEPOSITS:
Noninterest-bearing $ 36,485 $ 45,383
Interest-bearing 591,542 585,083
---------- --------
Total deposits 628,027 627,466
---------- --------
CUSTOMER REPURCHASE AGREEMENTS 18,012 17,919
FEDERAL HOME LOAN BANK OF BOSTON ADVANCES 50,000 55,000
OTHER LIABILITIES 24,750 7,036
---------- --------
TOTAL LIABILITIES 720,789 707,421
---------- --------
COMMITMENTS AND CONTINGENCIES (page 19)
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value, 5,000,000 shares authorized,
none outstanding at March 31, 2007 and December 31, 2006 - -
Common stock - $.01 par value, 75,000,000 shares authorized, 31,924,887
shares issued and outstanding at March 31, 2007, 82,034,500 shares
authorized, 34,717,000 shares issued, 31,924,257 shares outstanding at
December 31, 2006 (1) 319 274
Additional paid-in capital 208,915 201,736
Unallocated common stock of Employee Stock Ownership Plan (12,027) (4,835)
Unearned compensation (285) (405)
Retained earnings 96,589 93,364
Accumulated other comprehensive loss (201) (726)
---------- --------
Total stockholders' equity 293,310 289,408
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,014,099 $996,829
========== ========
(1) Per share amounts related to periods prior to the date of completion of the conversion (January
3, 2007) have been restated to give retroactive recognition to the exchange ratio applied in the
conversion (3.28138).
See accompanying notes to consolidated financial statements.
3
Westfield Financial, Inc. and Subsidiaries
Consolidated Statements of Income - Unaudited
(Dollars in thousands, except per share data)
Three Months
Ended March 31,
2007 2006
---- ----
INTEREST AND DIVIDEND INCOME:
Debt securities, taxable $ 4,558 $3,310
Residential and commercial real estate loans 4,432 4,104
Commercial and industrial loans 1,924 1,718
Federal funds sold 1,315 210
Debt securities, tax-exempt 308 308
Marketable equity securities 148 109
Consumer loans 91 114
Interest-bearing deposits and other short term investments 68 55
------- ------
Total interest and dividend income 12,844 9,928
------- ------
INTEREST EXPENSE:
Deposits 4,796 3,667
Customer repurchase agreements 137 76
Other borrowings 390 407
------- ------
Total interest expense 5,323 4,150
------- ------
Net interest and dividend income 7,521 5,778
PROVISION FOR LOAN LOSSES 100 75
------- ------
Net interest and dividend income after provision
for loan losses 7,421 5,703
------- ------
NONINTEREST INCOME:
Income from bank-owned life insurance 267 195
Service charges and fees 552 658
------- ------
Total noninterest income 819 853
------- ------
NONINTEREST EXPENSE:
Salaries and employee benefits 3,314 2,999
Occupancy 589 495
Professional fees 399 294
Computer operations 352 395
Stationery, supplies and postage 127 117
Other 525 494
------- ------
Total noninterest expense 5,306 4,794
------- ------
INCOME BEFORE INCOME TAXES 2,934 1,762
INCOME TAXES 913 449
------- ------
NET INCOME $ 2,021 $1,313
======= ======
EARNINGS PER COMMON SHARE:
Basic (1) $ 0.07 $ 0.04
Diluted (1) $ 0.07 $ 0.04
(1) Per share amounts related to periods prior to the date of completion of
the conversion (January 3, 2007) have been restated to give retroactive
recognition to the exchange ratio applied in the conversion (3.28138).
See accompanying notes to consolidated financial statements.
4
WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except share amounts)
Common Stock Restricted Accumulated
------------------ Additional Stock Other
Par Paid-In Unallocated Unearned Retained Comprehensive
Shares Value Capital ESOP Compensation Earnings Income (Loss) Total
-------- ----- ---------- ---- ------------ -------- ------------- -----
BALANCE, DECEMBER 31, 2005 10,580,000 $ 106 $ 48,020 $ (5,127) $(861) $92,789 $(1,177) $115,842
Comprehensive income:
Net income -- -- -- -- -- 1,313 -- 1,313
Unrealized losses on
securities arising during
the year, net of tax
benefit of $167 -- -- -- -- -- -- (289) (289)
--------
Comprehensive income 1,024
--------
Activity related to common stock
issued as employee incentives -- -- 139 73 93 -- -- 305
Treasury stock purchased -- -- -- -- -- -- -- (1,583)
Cash dividends declared
($0.10 per share) -- -- -- -- -- (573) -- (573)
---------- ----- -------- -------- ----- ------- ------- --------
BALANCE MARCH 31, 2006 10,580,000 $ 106 $ 48,159 $ (5,054) $(768) $93,529 $(1,466) $115,015
========== ===== ======== ======== ===== ======= ======= ========
BALANCE DECEMBER 31, 2006 9,728,812 $ 274 $201,736 $ (4,835) $(405) $93,364 $ (726) $289,408
Comprehensive income:
Net income -- -- -- -- -- 2,021 -- 2,021
Unrealized gains on
securities arising during
the year, net of tax
benefit of $299 -- -- -- -- -- -- 525 525
--------
Comprehensive income 2,546
--------
Exchange of common stock
pursuant to reorganization
(9,728,912 shares exchanged
at a 3.28138 ratio for
31,923,913 shares) 21,458,991 38 (349) -- -- -- -- (311)
Capital contribution pursuant
to dissolution of Mutual
Holding Company -- -- -- -- -- 2,713 -- 2,713
Share-based compensation -- -- 164 168 120 -- -- 452
Purchase of ESOP Shares 736,000 7 7,360 (7,360) -- -- -- 7
Issuance of common stock in
connection with stock option
exercise 984 -- 4 -- -- -- -- 4
Cash dividends declared
($.05 per share) -- -- -- -- -- (1,509) -- (1,509)
---------- ----- -------- -------- ----- ------- ------- --------
BALANCE, MARCH 31, 2007 31,924,887 $ 319 $208,915 $(12,027) $(285) $96,589 $ (201) $293,310
========== ===== ======== ======== ===== ======= ======= ========
See accompanying notes to consolidated financial statements.
5
Westfield Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
Three Months
Ended March,
2007 2006
---- ----
OPERATING ACTIVITIES:
Net Income $ 2,021 $ 1,313
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 100 75
Depreciation and amortization of premises and equipment 248 253
Net amortization of premiums and discounts on securities,
mortgage-backed securities and mortgage loans 83 163
Share-based compensation expense 597 419
Loss on sale of fixed assets -- 2
Deferred income tax benefit -- (18)
Increases in cash surrender value of bank-owned life insurance (268) (194)
Changes in assets and liabilities:
Accrued interest and dividends (459) (127)
Other assets 290 (1)
Other liabilities 17,715 794
-------- --------
Net cash provided by operating activities 20,327 2,679
-------- --------
INVESTING ACTIVITIES:
Securities, held to maturity:
Purchases (31,758) (4,997)
Proceeds from maturities and principal collections 5,000 5,000
Securities, available for sale:
Purchases (10,086) (5,048)
Proceeds from calls, maturities, and principal collections 5,000 3,000
Mortgage-backed securities, held to maturity:
Purchases (20,389) (5,050)
Principal collections 8,664 8,573
Mortgage-backed securities, available for sale:
Purchases (41,046) (11,414)
Principal collections 8,438 5,546
Purchase of residential mortgages (579) (9,976)
Net increase in loans 9,212 8,167
Proceeds from sale of FHLB stock 217 --
Purchases of premises and equipment (583) (763)
Proceeds from sale of fixed assets -- 10
Purchase of bank-owned life insurance (10,520) --
-------- --------
Net cash used in investing activities (78,430) (6,952)
-------- --------
FINANCING ACTIVITIES:
Increase in deposits 561 15,982
Increase in customer repurchase agreements 93 1,527
Repayment of Federal Home Loan Bank of Boston advances (15,000) --
Federal Home Loan Bank of Boston advances 10,000 --
Purchase of ESOP shares 7 --
Cash dividends paid (1,509) (573)
Exchange of common stock pursuant to reorganization (311) --
Capital contribution pursuant to dissolution of MHC 2,713 --
Treasury stock purchased -- (1,583)
Issuance of common stock in connection with stock option exercises 4 --
Purchase of common stock in connection with employee benefit program (163) (114)
-------- --------
Net cash provided by financing activities (3,605) 15,239
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS: (61,708) 10,966
Beginning of period 154,508 26,456
-------- --------
End of period $ 92,800 $ 37,422
======== ========
See accompanying notes to consolidated financial statements.
6
WESTFIELD FINANCIAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Westfield Financial, Inc. was organized as a
Massachusetts-chartered stock holding company in November 2001 in connection
with the reorganization of Westfield Mutual Holding Company, a
federally-chartered mutual holding company. As part of the reorganization,
Westfield Financial offered for sale 47% of its common stock. The remaining 53%
of Westfield Financial's shares were issued to Westfield Mutual Holding
Company. The reorganization and related stock offering were completed on
December 27, 2001.
On January 3, 2007, Westfield Financial completed its stock offering in
connection with the second step conversion of Westfield Mutual Holding Company.
As part of the conversion, New Westfield Financial, Inc. succeeded Westfield
Financial as the stock holding company of Westfield Bank, and Westfield Mutual
Holding Company was dissolved. In the stock offering, a total of 18,400,000
shares representing Westfield Mutual Holding Company's ownership interest in
Westfield Financial were sold by New Westfield Financial in a subscription
offering, community offering and syndicated offering. In addition, each
outstanding share of Westfield Financial as of January 3, 2007 was exchanged
for 3.28138 new shares of New Westfield Financial common stock. New Westfield
Financial, Inc. changed its name to Westfield Financial, Inc. effect January 3,
2007.
Westfield Financial has a federally-chartered stock savings bank subsidiary
called Westfield Bank. Westfield Bank's deposits are insured to the limits
specified by the Federal Deposit Insurance Corporation ("FDIC"). Westfield Bank
operates ten branches in Western Massachusetts. Westfield Bank's primary source
of revenue is earnings on loans to small and middle-market businesses and to
residential property homeowners.
Elm Street Securities Corporation and WFD Securities Corporation,
Massachusetts-chartered security corporations, were formed by Westfield
Financial for the primary purpose of holding qualified investment securities.
The conversion was accounted for as a reorganization in corporate form with no
change in the historical basis of Westfield Financial's assets, liabilities,
and equity. All references to the number of shares outstanding for purposes of
calculating per share amounts are restate to give retroactive recognition to
the exchange ratio applied in the conversion.
Principles of Consolidation - The consolidated financial statements include the
accounts of Westfield Financial, Westfield Bank, Elm Street Securities
Corporation, as well as WFD Securities Corporation. All material intercompany
balances and transactions have been eliminated in consolidation.
Estimates - The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
("U.S. GAAP") 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.
7
Basis of Presentation - In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
Westfield Financial's financial condition as of March 31, 2007, and the results
of operations, changes in stockholders' equity and comprehensive income and
cash flows for the interim periods presented. The results of operations for the
three months ended are not necessarily indicative of the results of operations
for the remainder of the year ending December 31, 2007. Certain information and
disclosures normally included in financial statements prepared in accordance
with U.S. GAAP have been omitted pursuant to the rules and regulations of the
Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements as of and for the year ended
December 31, 2006.
Reclassifications - Certain amounts in the prior year financial statements have
been reclassified to conform to the current year presentation.
2. 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, as well as any
adjustment to income that would result from the assumed issuance. Per share
amounts related to periods prior to the date of completion of the conversion
(January 3, 2007) have been restated to give retroactive recognition to the
exchange ratio applied in the conversion (3.28138). Potential common shares
that may be issued by Westfield Financial relate solely to outstanding stock
awards and options and are determined using the treasury stock method.
Earnings per common share for the three months ended March 31, 2007 and 2006,
have been computed based on the following:
Three Months
Ended March 31,
2007 2006
---- ----
(In thousands, except
per share data)
Net income available to common stock holders $ 2,021 $ 1,313
======= =======
Weighted Average number of common stock outstanding 30,103 30,618
Effect of dilutive stock awards and options 580 466
------- -------
Adjusted weighted average number of common shares
outstanding used to calculate diluted earnings per
common share 30,683 31,084
======= =======
Basic earnings per share $ .07 $ .04
Diluted earnings per share $ .07 $ .04
8
3. SHARE-BASED COMPENSATION
Under Westfield Financial's Stock Option Plan, Westfield Financial may grant
options to its directors, officers, and employees for up to 1,631,699 shares of
common stock. Both incentive stock options and non-statutory stock options may
be granted under the plan. The exercise price of each option equals the market
price of Westfield Financial's stock on the date of grant with a maximum term
of ten years. All options currently outstanding vest at 20% per year.
Westfield Financial adopted Statement of Financial Accounting Standards No.
123(R), "Share-Based Payment" ("SFAS 123(R)"), on January 1, 2006 using the
"modified prospective" method. Under this method, awards that are granted,
modified, or settled after December 31, 2005 are measured and accounted for in
accordance with SFAS 123(R). Also, under this method, expense is recognized for
awards that were granted prior to January 1, 2006 but vest after January 1,
2006, based on the fair value determined at the grant date under SFAS 123,
"Accounting for Stock-Based Compensation" ("SFAS 123").
The adoption of SFAS 123(R) by Westfield Financial resulted in additional
share-based compensation expense of $73,000 and related tax benefit of $17,000
for the three months ended March 31, 2007 and 2006. As of March 31, 2007, the
compensation cost of unvested stock options amounted to $109,000 with a related
tax benefit of $23,000. Compensation costs of $92,000 with a related tax
benefit $23,000 of will be recognized by July of 2007.
A summary of the status of Westfield Financial's stock options at March 31,
2007 is presented below:
Weighted Average
Shares Exercise Price
------ ----------------
Balance at December 31, 2006 1,217,049 $4.43
Exercised (984) 4.39
Balance at March 31, 2007 1,216,065 $4.43
Information pertaining to options outstanding at March 31, 2007 is as follows:
Weighted Average
Exercise Number Remaining Number
Price Outstanding Contractual Life Exercisable
-------- ----------- ---------------- -----------
$4.39 1,199,659 5.4 Years 953,887
7.52 8,203 7.9 Years 1,641
7.62 8,203 6.9 Years 3,281
--------- -------
1,216,065 958,809
========= =======
9
4. PENSION AND OTHER BENEFITS
The following table provides information regarding net benefit costs for the
periods shown:
Pension Benefits Other Benefits
Three months ended March 31, 2007 2006 2007 2006
---- ---- ---- ----
Service cost $ 175 $ 181 $ 8 $ 7
Interest cost 145 150 12 12
Expected return on assets (162) (149) - -
Transaction obligation (3) (3) 2 2
Actuarial (gain) loss - 11 - 1
----- ----- --- ---
Net periodic pension cost $ 155 $ 190 $22 $22
===== ===== === ===
The Company plans to contribute the amount required to meet the minimum funding
standards under Internal Revenue Code Section 412. Additional contributions
will be made as deemed appropriate by management in conjunction with the plan's
actuaries. For the year 2007, the preliminary estimated contribution is
approximately $690,000. As of March 31, 2007 no contribution had been made.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements," which defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting principles, and
expands disclosures about fair value measurements. This Statement is effective
for the Bank on January 1, 2008, with early adoption permitted, and is not
expected to have a material impact on the Bank's consolidated financial
statements.
In September 2006, the FASB ratified EITF 06-4, "Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life Insurance Arrangements." This issue addresses accounting for split-dollar
life insurance arrangements whereby the employer purchases a policy to insure
the life of an employee and separately enters into an agreement to split the
policy benefits between the employer and the employee. This EITF states that an
obligation arises as a result of a substantive agreement with an employee to
provide future postretirement benefits. Under EITF 06-4, the obligation is not
settled upon entering into an insurance arrangement. Since the obligation is
not settled a liability should be recognized in accordance with applicable
authoritative guidance. EITF 06-4 is effective for the Bank's 2008 fiscal year
and the Bank is in the process of evaluating the potential impacts of adopting
EITF 06-4 on its consolidated financial statements.
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities," which provides companies with an
option to report selected financial assets and liabilities at fair value.
Statement No. 159 also establishes presentation and disclosure requirements
designed to facilitate comparisons between companies and choose different
measurement attributes for similar types of assets and liabilities. This
Statement is effective for the Bank on January 1, 2008, with early adoption
permitted for fiscal 2007, provided that the bank also adopts Statement No. 157
for fiscal 2007. Management is in the process of evaluating the potential
impacts of adopting SFAS No. 159 on its consolidated financial statements.
10
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Overview
Westfield Financial strives to remain a leader in meeting the financial service
needs of the local community and to provide quality service to the individuals
and businesses in the market areas that it has served since 1853. Historically,
Westfield Bank has been a community-oriented provider of traditional banking
products and services to business organizations and individuals, including
products such as residential and commercial real estate loans, consumer loans
and a variety of deposit products. Westfield Bank meets the needs of its local
community through a community-based and service-oriented approach to banking.
Westfield Financial has adopted a growth-oriented strategy that has focused on
increased emphasis on commercial lending. Westfield Financial's strategy also
calls for increasing deposit relationships and broadening its product lines and
services. Westfield Financial believes that this business strategy is best for
its long term success and viability, and complements its existing commitment to
high quality customer service. In connection with its overall growth strategy,
Westfield Bank seeks to:
o continue to grow its commercial and industrial and commercial real
estate loan portfolio by targeting businesses in its primary market
area and in northern Connecticut as a means to increase the yield on
and diversify its loan portfolio and build transactional deposit
account relationships;
o focus on expanding its retail banking franchise, and increasing the
number of households served within its market area; and
o depending on market conditions, refer substantially all of the
fixed-rate residential real estate loans to a third party mortgage
company which underwrites, originates and services these loans in
order to diversify its loan portfolio, increase fee income and reduce
interest rate risk.
You should read our financial results for the quarter ended March 31, 2007 in
the context of this strategy.
o On January 3, 2007, Westfield Financial completed its stock offering
in connection with the second step conversion of Westfield Mutual
Holding Company. As part of the conversion, New Westfield Financial,
Inc. succeeded Westfield Financial as the stock holding company of
Westfield Bank, and Westfield Mutual Holding Company was dissolved.
In the stock offering, a total of 18,400,000 shares representing
Westfield Mutual Holding Company's ownership interest in Westfield
Financial were sold by New Westfield Financial in a subscription
offering, community offering and syndicated offering. In addition,
each outstanding share of Westfield Financial as of January 3, 2007
was exchanged for 3.28138 new shares of New Westfield Financial
common stock. New Westfield Financial, Inc. changed its name to
Westfield Financial, Inc. effective January 3, 2007. Proceeds, net of
stock issuance costs, were approximately $171.2 million.
o Net income was $2.0 million, or $0.07 per diluted share, for the
quarter ended March 31, 2007 as compared to $1.3 million, or $0.04
per diluted share for the same period in 2006.
o Net interest income was $7.5 million for the three months ended March
31, 2007 and $5.8 million for the same period in 2006. The increase
in net interest income was mainly due to a $154.6 million increase in
average earning assets as a result of funds raised in the second step
stock offering. The net interest margin, on a tax equivalent basis,
was 3.34% for the three months ended March 31, 2007, compared to
3.14% for the same period in 2006.
11
o Total assets increased $17.2 million to $1.0 billion at March 31,
2007 from $996.8 million at March 31, 2006. Investment securities
increased $76.9 million, to $485.9 million at March 31, 2007 from
$409.0 million at December 31, 2006. Cash and cash equivalents
decreased $61.7 million, to $92.8 million at March 31, 2007 from
$154.5 million at December 31, 2006. The decrease in cash and cash
equivalents was the result of using funds to purchase investment
securities.
o Net loans decreased by $8.7 million to $376.4 million at March 31,
2007 from $385.1 million at December 31, 2006. Commercial real estate
loans decreased $8.9 million, to $165.6 million at March 31, 2007
from $174.5 million at December 31, 2006. This was primarily due to a
single commercial relationship that divested real estate holdings and
paid off loans totaling $10.2 million. The decrease in commercial
real estate loans was partially offset by a $1.6 million increase in
commercial and industrial loans, which were $102.0 million at March
31, 2007.
o Residential real estate loans decreased $1.0 million to $108.9
million at March 31, 2007 from $109.9 million at December 31, 2006.
Since September 2001, Westfield Bank has referred substantially all
of the originations of its residential real estate loans to a third
party mortgage company. Residential real estate borrowers submit
applications to Westfield Bank, but the loan is approved by and
closed on the books of the mortgage company. The third party mortgage
company owns the servicing rights and services the loans. Westfield
Bank retains no residual ownership interest in these loans.
o Total deposits increased $561,000 to $628.0 million at March 31, 2007
from $627.4 million at December 31, 2006. Time deposits increased
$3.5 million to $377.5 million at March 31, 2006, while regular
savings and money market accounts decreased $3.3 million. As the
rates paid on term deposits increased in recent periods, some
customers have shifted funds out of lower yielding core deposits, and
into higher yielding term deposits.
o Customer repurchase agreements were $18.0 million at March 31, 2007
and $17.9 million at December 31, 2006. All of Westfield Bank's
customer repurchase agreements at March 31, 2007 were held by
commercial customers.
o Nonperforming loans were $1.1 million, or 0.28% of total loans, at
March 31, 2007, compared to $1.0 million, or 0.26%, of total loans,
at December 31, 2006. Charge-offs decreased by $192,000 to $20,000
for the three months ended March 31, 2007 from $212,000 for the three
months ended March 31, 2006.
o The allowance for loan losses was $5.6 million at March 31, 2007 and
$5.4 million at December 31, 2006. This represents 1.45% of total
loans at March 31, 2007 and 1.39% of total loans at December 31,
2006. At these levels, the allowance for loan losses as a percentage
of nonperforming loans was 517% at March 31, 2007 and 529% at
December 31, 2006.
o Stockholders' equity at March 31, 2007 and December 31, 2006 was
$293.3 million and $289.4 million, respectively, which represented
28.9% of total assets as of March 31, 2007 and 29.0% of total assets
as of December 31, 2006.
o Noninterest expense for the three months ended March 31, 2007 was
$5.3 million, compared to $4.8 million for the same period in 2006.
Salaries and benefits increased $315,000 primarily the result of
hiring new employees and normal increases in expenses related to
employee salaries and benefits. Occupancy expense increased $94,000
primarily due to expenses associated with three new automated teller
machines and leasehold improvements.
12
CRITICAL ACCOUNTING POLICIES
Westfield Financial's critical accounting policies given its current business
strategy and asset/liability structure are revenue recognition on loans, the
accounting for allowance for loan losses and provision for loan losses, the
classification of securities as either held to maturity or available for sale,
and the evaluation of securities for other than temporary impairment.
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 judgment of
management, collection of 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 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 appropriateness 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 the 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
appropriateness 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 nonperforming 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 appropriate levels, future adjustments may be necessary if economic,
real estate and other conditions differ substantially from the current
operating environment.
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
misclassification would have a direct effect on stockholders' 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. Westfield Financial 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.
13
On a quarterly basis, Westfield Financial reviews available for sale investment
securities with unrealized depreciation on a judgmental basis to assess whether
the decline in fair value is temporary or other than temporary. Declines in the
fair value of held to maturity and available for sale securities below their
cost that are deemed to be other than temporary are reflected in earnings as
realized losses. In estimating other than temporary impairment losses,
management considers (1) the length of time and the extent to which the fair
value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the corporation to
retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2007 AND DECEMBER 31, 2006
Total assets increased $17.2 million to $1.0 billion at March 31, 2007 from
$996.8 million at December 31, 2006. Investment securities increased $76.9
million to $485.9 million at March 31, 2007 from $409.0 million at December 31,
2006. Cash and cash equivalents decreased $61.7 million to $92.8 million at
March 31, 2007 from $154.5 million at December 31, 2006. The decrease in cash
and cash equivalents is the result of using funds to purchase investment
securities.
Net loans decreased by $8.7 million to $376.4 million at March 31, 2007 from
$385.1 million at December 31, 2006. Commercial real estate loans decreased
$8.9 million to $165.6 million at March 31, 2007 from $174.5 million at
December 31, 2006. This was primarily due to a single commercial relationship
that divested real estate holding and paid off loans totaling $10.2 million.
The decrease in commercial real estate loans was partially offset by a $1.6
million increase in commercial and industrial loans, which were $102.0 million
at March 31, 2007.
Residential real estate loans decreased $1.0 million to $108.9 million at March
31, 2007 from $109.9 million at December 31, 2006. Since September 2001,
Westfield Bank has referred substantially all of the originations of its
residential real estate loans to a third party mortgage company. Residential
real estate borrowers submit applications to Westfield Bank, but the loan is
approved by and closed on the books of the mortgage company. The third party
mortgage company owns the servicing rights and services the loans. Westfield
Bank retains no residual ownership interest in these loans.
Total deposits increased $561,000 to $628.0 million at March 31, 2007 from
$627.4 million at December 31, 2006. Time deposits increased $3.5 million to
$377.5 million at March 31, 2007, while regular savings and money market
accounts decreased $3.3 million. As the rates paid on time deposits increased
in recent periods, some customers have shifted funds out of lower yielding core
deposits, and into higher yielding time deposits.
Customer repurchase agreements were $18.0 million at March 31, 2007 and $17.9
million at December 31, 2006. 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. All of Westfield Bank's customer repurchase
agreements at March 31, 2007 were held by commercial customers.
Federal Home Loan Bank ("FHLB") borrowings were $50.0 million at March 31, 2007
and $55.0 million at December 31, 2006.
Stockholders' equity at March 31, 2007 and December 31, 2006 was $293.3 million
and $289.4 million, respectively, representing 28.9% and 29.0% of total assets,
respectively.
14
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND
MARCH 31, 2006
General
Net income was $2.0 million, or $0.07 per diluted share, for the quarter ended
March 31, 2007 as compared to $1.3 million, or $0.04 per diluted share, for the
same period in 2006.
Net interest and dividend income was $7.5 million for the three months ended
March 31, 2007 and $5.7 million for the same period in 2006.
Net Interest and Dividend Income
The following tables set forth the information relating to our average balance
at, and net interest income for, the three months ended March 31, 2007 and 2006
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 and
terms and fees earned when real estate loans are prepaid or refinanced.
Interest earned on tax exempt assets is adjusted to a tax equivalent basis to
recognize the income tax savings which facilitate comparison between taxable
and tax exempt assets.
Three Months Ended March 31,
2007 2006
------------------------------------ ------------------------------------
Average Avg Yield/ Average Avg Yield/
Interest Balance Cost Interest Balance Cost
-------- ------- ---------- -------- ------- ----------
(Dollars in thousands)
Interest-Earning Assets
- -----------------------
Short Term Investments $ 1,383 $104,861 5.28% $ 265 $ 24,594 4.31%
Investment Securities 5,096 428,074 4.76 3,892 359,770 4.33
Loans 6,485 383,520 6.76 5,978 377,448 6.34
------- -------- ------- --------
Total Interest-Earning Assets $12,964 $916,455 5.66% $10,135 $761,812 5.32%
======= ======== ======= ========
Interest-Bearing Liabilities
- ----------------------------
NOW Accounts $ 319 $ 79,144 1.61% $ 160 $ 69,082 0.93%
Savings Accounts 48 38,920 0.49 50 40,859 0.49
Money Market Accounts 349 91,631 1.52 483 124,314 1.55
Time Deposits 4,080 373,921 4.36 2,974 351,299 3.39
Customer Repurchase Agreements and
Borrowings 527 58,713 3.59 483 59,115 3.27
------- -------- ------- --------
Total Interest-Bearing Liabilities $ 5,323 $642,329 3.31% $ 4,150 $644,669 2.57%
======= ======== ======= ========
Net Interest Income/Interest Rate Spread $ 7,641 2.35% $ 5,985 2.75%
======= ==== ======= ====
Net Interest Margin (1) 3.34% 3.14%
===== ====
(1) Net interest margin represents tax equivalent net interest and dividend income as a percentage of average interest
earning assets.
15
The following table shows how changes in interest rates and changes in the
volume of interest-earning assets and interest-bearing liabilities have
affected Westfield Financial's interest income and interest expense during the
periods indicated. Information is provided in each category with respect to:
o Interest income changes attributable to changes in volume (changes in
volume multiplied by prior rate);
o Interest income changes attributable to changes in rate (changes in rate
multiplied by current volume); and
o 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.
Three Months Ended March 31, 2007 compared to
March 31, 2006
Increase (decrease) due to:
---------------------------------------------
Interest-Earning Assets Volume Rate Net
- ----------------------- ------ ---- ---
(Dollars in thousands)
Short Term Investments $ 865 $ 253 $1,118
Investment Securities 739 465 1,204
Loans 96 411 507
------ ------ ------
Net Change in Income on
Interest-Earning Assets 1,700 1,129 2,829
------ ------ ------
Interest-Bearing Liabilities
- ----------------------------
NOW Accounts 23 136 159
Savings Accounts (2) - (2)
Money Market Accounts (127) (7) (134)
Time Deposits 192 914 1,106
Customer Repurchase Agreements
and Borrowings (3) 47 44
------ ------ ------
Net Change in Expense on
Interest-Bearing Liabilities 83 1,090 1,173
------ ------ ------
Change in Net Interest Income $1,617 $ 39 $1,656
====== ====== ======
Net interest and dividend income increased $1.7 million to $7.5 million for the
three months ended March 31, 2007 from $5.8 million in the same period in 2006.
The net interest margin, on a tax equivalent basis, was 3.34% for the three
months ended March 31, 2007 as compared to 3.14% for the same period in 2006.
The increase in net interest income was mainly due to a $154.6 million increase
in average earning assets as a result of funds raised in the second step stock
offering. Average earning assets were $916.5 million for the three months ended
March 31, 2007 compared to $761.8 for the same period in 2006. The yield of
interest-earning assets increased 34 basis points to 5.66% for the three months
ended March 31, 2007 from 5.32% for same period in 2006.
16
The increase in interest income was partially offset by an increase of $1.2
million in interest expense. The average cost of interest-bearing liabilities
increased 74 basis points to 3.31% for the three months ended March 31, 2007
from 2.57% for same period in 2006. The increase in the average cost of
interest-bearing liabilities was primarily due to an increase in the cost of
time deposits resulting from the rising interest rate environment.
Provision for Loan Losses
The appropriations of the allowance is 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 nonperforming 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.
The amount that Westfield Bank provided for the provision for loan losses
during the three months ended March 31, 2007 was based upon the changes that
occurred in the loan portfolio during that same period. The changes in the loan
portfolio, described in detail below, include an increase in nonperforming
loans and an increase in commercial and industrial loans, tempered by a
decrease in other loan balances. After evaluating these factors, the Bank
provided $100,000 for loan losses for the three months ended March 31, 2007,
compared to $75,000 for the same period in 2006. The allowance was $5.6 million
at March 31, 2007 and $5.4 million at December 31, 2006. The allowance for loan
losses was 1.45% of total loans at March 31, 2007 and 1.39% at December 31,
2006.
Nonperforming loans were $1.1 million at March 31, 2007 and $1.0 million at
December 31, 2006. At March 31, 2007, commercial and industrial loans increased
$1.6 million to $102.0 million compared to December 31, 2006. Westfield Bank
considers these types of loans to contain more credit risk and market risk than
both commercial real estate loans and conventional residential real estate
mortgages. Commercial real estate loans decreased by $8.9 million and
residential real estate mortgages decreased by $1.0 during the quarter ended
March 31, 2007.
Net recoveries were $16,000 for the three months ended March 31, 2007. This was
comprised of recoveries of $36,000 for the three months ended March 31, 2007,
partially offset by charge-offs of $20,000 for the same period.
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.
Noninterest Income
Noninterest income decreased $34,000 to $819,000 for the three months ended
March 31, 2007 from $853,000 in the same period in 2006.
Net checking account processing fee income decreased $77,000 to $386,000 for
the three months ended March 31, 2007, compared to $463,000 for the same period
in 2006. Fees received from the third party mortgage company were $9,000 for
the three months ended March 31, 2007, compared to $39,000 for the same period
in 2006. Fee income from the third party mortgage company in the future may be
affected by borrower activity, which generally decreases in a rising interest
rate environment.
The decreases described above were partially offset by an increase in income
from bank-owned life insurance of $73,000, which was $267,000 for the three
months ended March 31, 2007 compared to $194,000 in the same period in 2006.
This was primarily the result of the purchase of an additional $10.0 million of
bank-owned life insurance in the first quarter of 2007.
17
Noninterest Expense
Noninterest expense for the three months ended March 31, 2007 was $5.3 million,
compared to $4.8 million for the same period in 2006. Salaries and benefits
increased $315,000 to $3.3 million for the three months ended March 31, 2007
compared to $3.0 million for the same period in 2006, primarily the result of
hiring new employees and normal increases in expenses related to employee
salaries and benefits. Several of the newly hired employees are in relation to
a new Westfield Bank branch in Westfield Massachusetts which is expected to
open in the second quarter of 2007.
Occupancy expense increased $94,000 to $589,000 for the three months ended
March 31, 2007 compared to $495,000 for the same period in 2006, primarily due
to expenses associated with three new automated teller machines and leasehold
improvements.
Income Taxes
For the three months ended March 31, 2007, Westfield Financial had a tax
provision of $913,000 as compared to $449,000 for the same period in 2006. The
effective tax rate was 31.1% for the three months ended March 31, 2007 and
25.5% for the same period in 2006.
LIQUIDITY AND CAPITAL RESOURCES
The term "liquidity" refers to Westfield Financial's ability to generate
adequate amounts of cash to fund loan originations, loan purchases, withdrawals
of deposits and operating expenses. Westfield Financial'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 FHLB based on eligible collateral of loans and securities. The Bank's
maximum additional borrowing capacity from the FHLB at March 31, 2007 was
approximately $22.9 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 Westfield Financial has sufficient liquidity to meet its current operating
needs.
At March 31, 2007, Westfield Financial exceeded each of its applicable
regulatory capital requirements. As of March 31, 2007 the most recent
notification from the Office of Thrift Supervision (the "OTS") 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 as set forth in
the following table. There are no conditions or events since that notification
that management believes have changed the Bank's category. Westfield
Financial's and the Bank's actual capital ratios of March 31, 2007 are also
presented in the following table.
18
Minimum
To Be Well
Minimum Capitalized
For Capital Under Prompt
Adequacy Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ----------- ----- ----------------- -----
(Dollars in Thousands)
March 31, 2007
Total Capital (to Risk Weighted Assets):
Consolidated $298,940 55.20% $43,325 8.00% N/A -
Bank 211,977 40.62 41,744 8.00 $ 52,180 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 293,387 54.17 21,662 4.00 N/A -
Bank 206,424 22.35 20,872 4.00 31,308 6.00
Tier 1 Capital (to Adjusted Assets):
Consolidated 293,387 28.92 40,573 - N/A -
Bank 206,424 22.35 36,946 46,183
Tangible Equity (to Tangible Assets):
Consolidated N/A - N/A - N/A -
Bank 206,424 22.35 18,473 2.00 N/A -
December 31, 2006
Total Capital (to Risk Weighted Assets):
Consolidated $295,404 55.39% 42,662 8.00% N/A -
Bank 119,266 22.70 42,029 8.00 $ 52,536 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 289,967 54.37 21,331 4.00 N/A -
Bank 113,856 21.67 21,014 4.00 31,522 6.00
Tier 1 Capital (to Adjusted Assets):
Consolidated 289,967 29.07 39,905 4.00 N/A -
Bank 113,856 11.88 38,327 4.00 47,908 5.00
Tangible Equity (to Tangible Assets):
Consolidated N/A - N/A - N/A -
Bank 113,856 11.88 19,163 2.00 N/A -
See the "Consolidated Statements of Cash Flows" in the Consolidated Financial
Statements included in this Form 10-Q for the sources and uses of cash flows
for operating, investing, and financing activities for the three months ended
March 31, 2007 and March 31, 2006.
The Bank also has outstanding, at any time, a significant number of commitments
to extend credit and provide financial guarantees to third parties. These
arrangements are subject to strict credit control assessments. Guarantees
specify limits to the Bank's obligations. Because many commitments and almost
all guarantees expire without being funded in whole or in part, the contract
amounts are not estimates of future cash flows. The Bank is obligated under
leases for certain of its branches and equipment. A summary of lease
obligations and credit commitments at March 31, 2007 is followed:
19
After 1 Year After 3 Years
Within but Within but Within After
1 Year 3 Years 5 Years 5 Years Total
------ ------------ ------------- ------- -----
(In thousands)
LEASE OBLIGATIONS
Operating lease obligations $ 366 $ 727 $ 720 $ 6,961 $ 8,774
======== ======= ======= ======= ========
BORROWINGS
Federal Home Loan Bank $ 20,000 $20,000 $10,000 $ - $ 50,000
======== ======= ======= ======= ========
CREDIT COMMITMENTS
Available lines of credit $ 43,685 $ - $ - $13,353 $ 57,038
Other loan commitments 78,227 1,665 - - 79,892
Letters of credit 8,571 - - 588 9,159
-------- ------- ------- ------- --------
Total credit commitments $130,483 $ 1,665 $ - $13,941 $146,089
-------- ------- ------- ------- --------
Grand total $150,849 $22,392 $10,720 $20,902 $204,863
======== ======= ======= ======= ========
OFF-BALANCE SHEET ARRANGEMENTS
Westfield Financial does not have any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on Westfield
Financial's financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
above) of total and Tier I capital to risk weighted assets and to adjusted
total assets. Management believes, as of March 31, 2007, that the Bank met all
capital adequacy requirements to which it was subject. As of March 31, 2007,
the most recent notification from the Office of Thrift Supervision 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 uses a simulation model to monitor interest rate risk. This model
reports the net interest income at risk primarily under seven different
interest rate environments. Specifically, net interest income is measured in
one scenario that assumes no change in interest rates, and six scenarios where
interest rates increase 100, 200, and 300 basis points, and decrease 100, 200,
and 300 basis points, respectively, from current rates over the one year time
period following the current consolidated financial statements. Income from
tax-exempt assets is calculated on a fully taxable equivalent basis.
The changes in interest income and interest expense due to changes in interest
rates reflect the rate sensitivity of our interest-earning assets and
interest-bearing liabilities. For example, in a rising interest rate
environment, the interest income from an adjustable rate loan is likely to
increase depending on its repricing characteristics while the interest income
from a fixed rate loan would not increase until the funds were repaid and
loaned out at a higher interest rate.
20
The table below sets forth as of March 31, 2007 the estimated changes in net
interest and dividend income that would result from incremental changes in
interest rates over the applicable twelve month period.
For the Twelve Months Ending March 31, 2008
(Dollars in thousands)
-------------------------------------------
Net Interest
Changes in and
Interest Rates Dividend
(Basis Points) Income % Change
-------------- ------------ --------
300 32,618 -1.0%
200 32,941 0.0%
100 32,556 -1.2%
0 32,935 0.0%
-100 33,351 1.3%
-200 32,595 -1.0%
-300 32,158 -2.4%
Management believes that there have been no significant changes in market risk
since December 31, 2006.
The income simulation analysis was based upon a variety of assumptions. These
assumptions include but are not limited to balance sheet growth, asset mix,
prepayment speeds, the timing and level of interest rates, and the shape of the
yield curve. As market conditions vary from the assumptions in the income
simulation analysis, actual results will differ. As a result, the income
simulation analysis does not serve as a forecast of net interest income, nor do
the calculations represent any actions that management may undertake in
response to changes in interest rates.
ITEM 4:
CONTROLS AND PROCEDURES
Management, including Westfield Financial's Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of Westfield Financial's
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)), as of the end of the period covered by this report. Based upon
the evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures were effective, to ensure
that information required to be disclosed in the reports Westfield Financial
files and submits under the Exchange Act (i) is recorded, processed, summarized
and reported as and when required and (ii) accumulated and communicated to
Westfield Financial's management, including the Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely discussion regarding
required disclosure.
There have been no changes in Westfield Financial's internal control over
financial reporting identified in connection with the evaluation that occurred
during Westfield Financial's last fiscal quarter that has materially affected,
or that is reasonably likely to materially affect, Westfield Financial's
internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
21
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors previously disclosed on
Westfield's Form 10-K for the year ending December 31, 2006.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 3, 2007, Westfield Financial completed its stock offering in
connection with the second step conversion of Westfield Mutual Holding Company.
As part of the conversion, New Westfield Financial, Inc. succeeded Westfield
Financial as the stock holding company of Westfield Bank, and Westfield Mutual
Holding Company was dissolved. In the stock offering, a total of 18,400,000
shares representing Westfield Mutual Holding Company's ownership interest in
Westfield Financial were sold by New Westfield Financial in a subscription
offering, community offering and syndicated offering. In accordance with the
Amended and Restated Plan of Conversion and Stock Issuance of Westfield Mutual
Holding Company, Westfield Financial, Inc. and Westfield Bank, and pursuant to
the registration statement, first priority rights to subscribe for shares of
New Westfield Financial common stock were offered to eligible depositors of
Westfield Bank. Pursuant to a Registration Statement on Form S-1 (No.
333-137024) which was declared effective by the Securities and Exchange
Commission on November 8, 2006, shares of New Westfield Financial were sold for
a purchase price of $10.00 per share. In addition, each outstanding share of
Westfield Financial as of January 3, 2007 was exchanged for 3.28138 new shares
of New Westfield Financial common stock. New Westfield Financial, Inc. changed
its name to Westfield Financial, Inc. effective January 3, 2007.
Keefe, Bruyette & Woods, Inc. ("KBW") was engaged to assist in the marketing of
the common stock. For their services, KBW received a management fee of $50,000
and a success fee equal to 1% of the dollar amount of common stock sold in the
offering other than shares purchased by Westfield Bank's officers, directors,
or employees (or members of their immediate family), The Employee Stock
Ownership Plan Trust of Westfield Financial, Inc. ("ESOP"), tax-qualified or
stock based compensation plans (except IRA's) or similar plans created by the
Westfield Bank or Westfield Financial for some or all of their directors or
employees, for which no fee was be paid.
Expenses related to the offering were approximately $2.95 million, including
the expenses paid to KBW described above, none of which were paid to officers
or directors of Westfield Financial, Westfield Bank or associates of such
persons. No underwriting discounts, commissions or finders fees were paid in
connection with the offering. Net proceeds of the offering were approximately
$171.2 million. As a result of completion of the offering, 31,926,587 shares of
Westfield Financial common stock are outstanding as of May 4, 2007.
Fifty percent of the net proceeds of the stock offering were contributed to
Westfield Bank. Additionally, $7.36 million, an amount necessary to allow the
ESOP to purchase up to 736,000 shares of Westfield Financial common stock in
the open market, was loaned to the ESOP. All further proceeds were retained at
the holding company level for future capital needs.
Initially, both Westfield Financial and Westfield Bank have invested the net
proceeds from the stock offering in short-term investments and mortgage-backed
and asset-backed securities until these proceeds can be deployed for other
purposes.
Westfield Financial's common stock is quoted on the American Stock Exchange
under the symbol "WFD."
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
a. None
b. None
ITEM 6. EXHIBITS
The following exhibits are furnished with this report:
Exhibit Description
- ------- ---------------------------------------------------------------------
2. Plan of Reorganization and Minority Stock Issuance of
Westfield Mutual Holding Company, as amended. (1)
3. Articles of Organization of Westfield Financial, Inc. (1)
3.2 Bylaws of Westfield Financial, Inc. (1)
3.3 Amended and Restated Charter of Westfield Mutual Holding Company. (1)
3.4 Amended and Restated Bylaws of Westfield Mutual Holding Company. (1)
4.1 Articles of Organization of Westfield Financial, Inc.
(See Exhibit 3.1)
4.2 Bylaws of Westfield Financial, Inc. (See Exhibit 3.2)
4.3 Form of Stock Certificate of Westfield Financial, Inc. (1)
10.1 Form of Employee Stock Ownership Plan of Westfield Financial, Inc. (1)
10.2 Form of the Benefit Restoration Plan of Westfield Financial, Inc. (5)
10.3 Form of Employment Agreement between Donald A. Williams and Westfield
Financial, Inc. (1)
10.4 [Reserved]
10.5 Form of Employment Agreement between Michael J. Janosco, Jr. and
Westfield Financial, Inc. (1)
10.6 Form of One Year Change in Control Agreement by and among certain
officers and Westfield Financial, Inc. and Westfield Bank. (1)
10.7 Form of Directors' Deferred Compensation Plan. (5)
10.8 The SBERA 401(k) Plan adopted by Westfield Bank. (2)
10.9 Amendments to the Employee Stock Ownership Plan of Westfield
Financial, Inc. (4) (6)
10.10 Form of Amended and Restated Deferred Compensation Agreement with
Donald A. Williams. (5)
16.1 Letter regarding change on certifying accountants (4)
31.1 Rule 13a - 14(a)/15d - 14(a) Certifications
32.1 Section 1350 Certifications
(1) Incorporated herein by reference to the Registration Statement No.
333-68550, on Form S-1 of Westfield Financial filed with the SEC on August
28, 2001, as amended.
(2) Incorporated herein by reference to the Registration Statement No.
333-73132, on Form S-8, filed with the SEC on November 9, 2001, as
amended.
(3) Incorporated by reference to the Annual Report on Form 10-K for the year
ended December 31, 2002 as filed with the SEC on March 31, 2003.
(4) Incorporated by reference to the Form 8-K filed with the SEC on June 21,
2004.
(5) Incorporated by reference to the Form 8-K filed with the SEC on December
22, 2005.
(6) Incorporated by reference to the Form 8-K filed with the SEC on August 25,
2005.
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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
Chairman of the Board/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 9, 2007
24