UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
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, a non-accelerated filer, or a smaller reporting
company.
Large accelerated filer Accelerated filer x
--- ---
Non-accelerated filer Smaller reporting company
--- ---
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 August 4, 2008
- ----------------------------------- ----------------------------------
Common Stock, par value $0.01 31,383,188
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements of Westfield Financial, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited) - June 30, 2008 and
December 31, 2007
Consolidated Statements of Income (Unaudited) - Three and six months
ended June 30, 2008 and 2007
Consolidated Statement of Changes in Stockholders' Equity and
Comprehensive Income (Unaudited) - Six Months ended
June 30, 2008 and 2007
Consolidated Statements of Cash Flows (Unaudited) - Six Months
ended June 30, 2008 and 2007
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, Inc. 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 1
ITEM 1. FINANCIAL STATEMENTS
Westfield Financial, Inc. and Subsidiaries
Consolidated Balance Sheets - Unaudited
(Dollars in thousands, except share data)
June 30, December 31,
2008 2007
---- ----
ASSETS
Cash and due from banks $ 17,272 $ 16,603
Federal funds sold 30,259 21,017
Interest-bearing deposits and other short-term investments - 3
---------- ----------
Cash and cash equivalents 47,531 37,623
---------- ----------
SECURITIES:
Available for sale - at estimated fair value 24,256 38,051
Held to maturity - at amortized cost (estimated fair value of
$84,754 at June 30, 2008 and $105,829 in December 31, 2007) 84,028 104,025
MORTGAGE-BACKED SECURITIES:
Available for sale - at estimated fair value 235,831 206,178
Held to maturity - at amortized cost (estimated fair value of
$172,480 at June 30, 2008 and $174,550 at December 31, 2007) 172,530 174,594
FEDERAL HOME LOAN BANK OF BOSTON AND OTHER STOCK - AT COST 8,446 7,510
LOANS - Net of allowance for loan losses of $6,127 at June 30, 2008 and
$5,726 at December 31, 2007 434,678 414,902
PREMISES AND EQUIPMENT, Net 12,374 12,712
ACCRUED INTEREST RECEIVABLE 5,564 5,761
BANK-OWNED LIFE INSURANCE 35,041 32,398
OTHER ASSETS 9,133 6,030
---------- ----------
TOTAL ASSETS $1,069,412 $1,039,784
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
DEPOSITS:
Noninterest-bearing $ 44,877 $ 42,408
Interest-bearing 541,583 560,268
---------- ----------
Total deposits 586,460 602,676
---------- ----------
SHORT-TERM BORROWINGS 47,395 35,268
LONG-TERM DEBT 153,500 105,000
OTHER LIABILITIES 8,358 10,308
---------- ----------
TOTAL LIABILITIES 795,713 753,252
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value, 5,000,000 shares authorized,
none outstanding at June 30, 2008 and December 31, 2007 - -
Common stock - $.01 par value, 75,000,000 shares authorized, 31,383,188
shares issued and outstanding at June 30, 2008, 75,000,000 shares
authorized, 31,933,549 shares issued and outstanding at
December 31, 2007 313 319
Additional paid-in capital 205,012 209,497
Unallocated common stock of Employee Stock Ownership Plan (11,228) (11,542)
Restricted stock unearned compensation (4,992) (5,493)
Retained earnings 86,595 92,702
Accumulated other comprehensive (loss) income (2,001) 1,049
---------- ----------
Total stockholders' equity 273,699 286,532
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,069,412 $1,039,784
========== ==========
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 Six Months
Ended June 30, Ended June 30,
2008 2007 2008 2007
---- ---- ---- ----
INTEREST AND DIVIDEND INCOME:
Debt securities, taxable $ 6,285 $ 5,389 $ 12,587 $ 9,947
Residential and commercial real estate loans 4,564 4,377 9,240 8,809
Commercial and industrial loans 1,948 2,069 3,923 3,993
Debt securities, tax-exempt 345 327 679 635
Federal funds sold 172 620 386 1,936
Marketable equity securities 151 160 331 307
Consumer loans 82 90 169 181
Interest-bearing deposits and other
short-term investments - 27 1 95
---------- ---------- ---------- ----------
Total interest and dividend income 13,547 13,059 27,316 25,903
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits 3,794 4,923 8,135 9,719
Short-term borrowings 246 136 564 273
Long-term debt 1,554 587 2,956 977
---------- ---------- ---------- ----------
Total interest expense 5,594 5,646 11,655 10,969
---------- ---------- ---------- ----------
Net interest and dividend income 7,953 7,413 15,661 14,934
PROVISION FOR LOAN LOSSES 240 75 415 175
---------- ---------- ---------- ----------
Net interest and dividend income after
provision for loan losses 7,713 7,338 15,246 14,759
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Income from bank-owned life insurance 323 324 643 591
Service charges and fees 609 650 1,164 1,202
Gain on sales of securities, net 19 - 319 -
Other than temporary writedowns on securities - - (310) -
---------- ---------- ---------- ----------
Total noninterest income 951 974 1,816 1,793
---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employees benefits 3,488 3,290 7,096 6,604
Occupancy 624 578 1,226 1,167
Professional fees 373 344 847 744
Computer operations 420 361 854 713
Stationery, supplies and postage 124 127 250 253
Other 704 881 1,244 1,406
---------- ---------- ---------- ----------
Total noninterest expense 5,733 5,581 11,517 10,887
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 2,931 2,731 5,545 5,665
INCOME TAXES 811 826 1,564 1,740
---------- ---------- ---------- ----------
NET INCOME $ 2,120 $ 1,905 $ 3,981 $ 3,925
========== ========== ========== ==========
EARNINGS PER COMMON SHARE:
Basic earnings per share $ 0.07 $ 0.06 $ 0.14 $ 0.13
Weighted average shares outstanding 29,300,122 30,120,536 29,388,895 30,107,957
Diluted earnings per share $ 0.07 $ 0.06 $ 0.13 $ 0.13
Weighted average diluted shares outstanding 29,698,152 30,575,244 29,845,175 30,625,328
See accompanying notes to consolidated financial statements.
4
WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME - UNAUDITED
(Dollars in thousands, except share data)
Common Stock Restricted Accumulated
------------------ Additional Stock Other
Par Paid-In Unallocated Unearned Retained Comprehensive
Shares Value Capital ESOP Compensation Earnings Income (Loss) Total
-------- ----- ---------- ---- ------------ -------- ------------- -----
Balance at December 31, 2007 31,933,549 $319 $209,497 $(11,542) $(5,493) $92,702 $ 1,049 $286,532
Comprehensive income:
Net income - - - - - 3,981 - 3,981
Unrealized losses on
securities arising during
the period, net of tax
benefit of $2,025 - - - - - - (3,044) (3,044)
Reclassification for gains
included in net income,
net of tax of $3 - - - - - - (6) (6)
--------
Comprehensive income: 931
--------
Share-based compensation - - 492 314 501 - - 1,307
Common stock repurchased (983,471) (10) (9,769) - - - - (9,779)
Issuance of common stock in
connection with stock
option exercises 433,110 4 4,447 - - (2,550) - 1,901
Excess tax benefits in
connection with stock
option exercises - - 345 - - - - 345
Cash dividends declared
($0.25 per share) - - - - - (7,538) - (7,538)
---------- ---- -------- -------- ------- ------- ------- --------
Balance at June 30, 2008 31,383,188 $313 $205,012 $(11,228) $(4,992) $86,595 $(2,001) $273,699
========== ==== ======== ======== ======= ======= ======= ========
Balance at December 31, 2006 9,728,912 274 201,736 (4,835) (405) 93,364 (726) 289,408
Comprehensive income:
Net income - - - - - 3,925 - 3,925
Unrealized losses on
securities arising during
the year, net of tax
benefit of $244 - - - - - - (347) (347)
--------
Comprehensive income: 3,578
--------
Exchange of common stock
pursuant to reorganization
(9,728,912 shares exchanged
at a 3.28138 ratio for
31,923,903 shares) 21,458,991 38 (358) - - - - (320)
Capital contribution pursuant
to dissolution of Mutual
Holding Company - - - - - 2,713 - 2,713
Share-based compensation - - 336 331 244 - - 911
Issuance of restricted stock - - 202 - (202) - - -
Purchase of ESOP shares 736,000 7 7,353 (7,360) - - - -
Issuance of common stock in
connection with stock
option exercises 2,684 - 12 - - - - 12
Cash dividends declared
($0.10 per share) - - - - - (3,017) - (3,017)
---------- ---- -------- -------- ------- ------- ------- --------
Balance at June 30, 2007 31,926,587 $319 $209,281 $(11,864) $ (363) $96,985 $(1,073) $293,285
========== ==== ======== ======== ======= ======= ======= ========
See accompanying notes to consolidated financial statements.
5
Westfield Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows - Unaudited
(Dollars in thousands)
Six Months
Ended June 30,
2008 2007
---- ----
OPERATING ACTIVITIES:
Net income $ 3,981 $ 3,925
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 415 175
Depreciation of premises and equipment 596 509
Net amortization of premiums and discounts on securities,
mortgage-backed securities, and mortgage loans 118 186
Share-based compensation expense 1,307 911
Excess tax benefits in connection with stock option exercises (345) -
Net realized securities gains (319) -
Other than temporary writedowns on securities 310 -
Deferred income tax benefit (90) (34)
Income from bank-owned life insurance (643) (591)
Changes in assets and liabilities:
Accrued interest and dividends 197 (1,007)
Other assets (989) 49
Other liabilities (1,605) 761
--------- --------
Net cash provided by operating activities 2,933 4,884
--------- --------
INVESTING ACTIVITIES:
Securities, held to maturity:
Purchases - (31,758)
Proceeds from maturities and principal collections 20,000 10,000
Securities, available for sale:
Purchases (12,217) (16,171)
Proceeds from sales 15,242 -
Proceeds from calls, maturities, and principal collections 9,992 5,293
Mortgage-backed securities, held to maturity:
Purchases (18,339) (20,342)
Principal collections 20,278 19,196
Mortgage-backed securities, available for sale:
Purchases (63,782) (63,808)
Proceeds from sales 4,424 -
Principal collections 25,441 16,759
Purchase of residential mortgages (977) (741)
Net other increase in loans (19,233) (8,992)
Purchase of Federal Home Loan Bank of Boston stock (936) (1,546)
Proceeds from sale of Federal Home Loan Bank of Boston stock - 217
Purchases of premises and equipment (258) (1,443)
Purchase of bank-owned life insurance (2,000) (10,521)
--------- --------
Net cash used in investing activities (22,365) (103,857)
--------- --------
FINANCING ACTIVITIES:
(Decrease) increase in deposits (16,216) 2,802
Net change in short-term borrowings 12,127 (7,640)
Repayment of long-term debt (10,000) (5,000)
Proceeds from long-term debt 58,500 40,000
Cash dividends paid (7,538) (3,017)
Exchange of common stock pursuant to reorganization - (320)
Capital contribution pursuant to dissolution of MHC - 2,713
Common stock repurchased (9,779) -
Issuance of common stock in connection with stock option exercises 1,901 12
Excess tax benefits in connection with stock option exercises 345 -
--------- --------
Net cash provided by financing activities 29,340 29,550
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS: 9,908 (69,423)
Beginning of period 37,623 154,508
--------- -------
End of period $ 47,531 $ 85,085
========= ========
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. (the "Company" or "Westfield
Financial") 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. effective January
3, 2007.
Westfield Bank is a federally-chartered stock savings bank subsidiary of
Westfield Financial. Westfield Bank's deposits are insured to the limits
specified by the Federal Deposit Insurance Corporation ("FDIC"). Westfield Bank
operates eleven 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.
Principles of Consolidation - The consolidated financial statements include the
accounts of Westfield Financial, Westfield Bank, Elm Street Securities
Corporation, and 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
allowance for loan losses and other than temporary impairment of investment
securities.
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 June 30, 2008, and the results
of operations, changes in stockholders' equity and cash flows for the interim
periods presented. The results of operations for the three and six months ended
June 30, 2008 are not necessarily indicative of the results of operations for
the remainder of the year ended December 31, 2008. 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 interim
financial statements should be read in conjunction with the audited
consolidated financial statements as of and for the year ended December 31,
2007.
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 shareholders 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 form the assumed issuance. 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 and six months ended June 30, 2008 and
2007 have been computed based on the following:
Three Months Six Months
Ended June 30, Ended June 30,
2008 2007 2008 2007
---- ---- ---- ----
(In thousands, except per share data)
Net income available to common shareholders $ 2,120 $ 1,905 $ 3,981 $ 3,925
======= ======= ======= =======
Weighted average number of common shares outstanding 29,300 30,120 29,389 30,108
Effect of dilutive share awards and options 398 455 456 517
------- ------- ------- -------
Adjusted weighted average number of common shares
outstanding used to calculate diluted earnings
per common share 29,698 30,575 29,845 30,625
======= ======= ======= =======
Basic earnings per share $ 0.07 $ 0.06 $ 0.14 $ 0.13
Diluted earnings per share $ 0.07 $ 0.06 $ 0.13 $ 0.13
Stock options and awards that would have an antidilutive effect on diluted
earnings per share are excluded from the calculation. At June 30, 2008,
1,501,857 shares were antidilutive. No shares were antidilutive at June 30,
2007.
8
3. SHARE-BASED COMPENSATION
The Westfield Financial, Inc. 2007 Stock Option Plan (the "2007 Stock Option
Plan") was approved by the shareholders at the annual meeting of shareholders
on July 19, 2007. In August 2007, 1,351,702 shares of common stock were granted
under the 2007 Stock Option Plan. At June 30, 2008, 208,399 shares were
available for future grants. No shares were granted during the three and six
months ended June 30, 2008. In August 2007, 559,000 shares of common stock were
granted under the 2007 Recognition and Retention Plan. As of June 30, 2008,
65,041 shares were available for future grants. No shares were granted in the
three and six months ended June 30, 2008.
Westfield Financial applies Statement of Financial Accounting Standard No.
123(R), "Share Based Payment" ("SFAS 123(R)" or "the Statement") in accounting
for stock awards. The stock allocations, based on the market price at the date
of grant, are recorded as unearned compensation. Unearned compensation is
amortized over the vesting period. Westfield Financial recorded compensation
cost related to stock awards of approximately $251,000 and $124,000 for three
months ended June 30, 2008 and 2007, respectively, and $501,000 and $244,000
for the six months ended June 30, 2008 and 2007, respectively.
Westfield Financial applies SFAS 123(R) in accounting for stock options. SFAS
123(R) permits entities to use any option-pricing model that meets the fair
value objective in the Statement. Westfield Financial uses the binomial model
for its adoption of this statement to determine that fair value of stock
options granted. Expense is recognized for stock options based on the fair
value determined at the grant date. Westfield Financial recorded compensation
costs relating to stock options of $173,000 and $84,000, with a related tax
benefit of $45,000 and $18,000 for the three months ended June 30, 2008 and
2007, respectively. Westfield Financial recorded compensation costs relating to
stock options of $346,000 and $157,000, with a related tax benefit of $90,000
and $35,000 for the six months ended June 30, 2008 and 2007, respectively.
4. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Westfield Bank utilizes short-term borrowings and long-term debt as additional
sources of funds to finance Westfield Bank's lending and investing activities
and to provide liquidity for daily operations. Short-term borrowings are made
up of Federal Home Loan Bank ("FHLB") advances with an original maturity of
less than one year as well as customer repurchase agreements, which have an
original maturity of one day. Short-term borrowings issued by the FHLB were
$32.7 million and $18.5 million at June 30, 2008 and December 31, 2007,
respectively. Customer repurchase agreements were $14.7 million at June 30,
2008 and $16.8 million at December 31, 2007. 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 June 30, 2008 and December 31, 2007 were held by commercial
customers.
Long-term debt consists of FHLB advances with an original maturity of one year
or more as well as securities sold under repurchase agreements. At June 30,
2008, Westfield Bank had $105.0 million in long-term debt with the FHLB and
$48.5 million in securities sold under repurchase agreements with an approved
broker-dealer. This compares to $105.0 million in FHLB advances and no
securities sold under repurchase agreements at December 31, 2007. In the first
quarter of 2008, securities sold under repurchase agreements of $48.5 million
were executed with a weighted average interest rate of 2.66% and final
maturities in the first quarter of 2018. The securities sold under agreements
to repurchase are callable at the issuer's option beginning in the years 2010
to 2012.
9
5. PENSION AND POSTRETIREMENT LIFE INSURANCE BENEFITS
The following table provides information regarding net benefit costs for the
period shown:
Postretirement Life
Pension Benefits Insurance Benefits
Three months ended Three months ended
June 30, June 30,
------------------ -------------------
(In thousands)
2008 2007 2008 2007
---- ---- ---- ----
Service cost $ 175 $ 175 $ - $ 8
Interest cost 162 145 6 12
Expected return on assets (188) (162) - -
Transaction obligation (3) (3) - 2
Actuarial loss (9) - - -
----- ----- ---- ----
Net periodic pension cost $ 137 $ 155 $ 6 $ 22
===== ===== ==== ====
Postretirement Life
Pension Benefits Insurance Benefits
Six months ended Six months ended
June 30, June 30,
------------------ -------------------
(In thousands)
2008 2007 2008 2007
---- ---- ---- ----
Service cost $ 351 $ 351 $ - $ 16
Interest cost 324 291 12 25
Expected return on assets (377) (323) - -
Transition obligation (6) (6) - 4
Actuarial loss (17) (1) 1 -
----- ----- ---- ----
Net periodic pension cost $ 275 $ 312 $ 13 $ 45
===== ===== ==== ====
Westfield Financial 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 2008, the preliminary estimated
contribution is approximately $557,000. As of June 30, 2008, no contribution
had been made.
In 2007, Westfield Financial curtailed its postretirement life insurance
benefits for active employees to offset rising compensation costs.
10
6. FAIR VALUE OF ASSETS AND LIABILITIES
Effective January 1, 2008, Westfield Financial adopted Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" ("SFAS 157"), which
provides a framework for measuring fair value under U.S. GAAP.
Westfield Financial also adopted SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115" ("SFAS 159"). SFAS 159 allows an entity the irrevocable
option to elect fair value for the initial and subsequent measurement for
certain financial assets and liabilities on a contract-by-contract basis.
Westfield Financial did not elect fair value treatment for any financial assets
or liabilities upon adoption.
Assets and liabilities measured at fair value on a recurring basis are
summarized below:
June 30, 2008
----------------------------------------
Level 1 Level 2 Level 3 Total
------- ------- ------- -----
(In thousands)
Assets
Securities available for sale $6,759 $ 17,497 $ - $ 24,256
Mortgage-backed securities
available for sale - 235,831 - 235,831
------ -------- ------- --------
Total assets $6,759 $253,328 $ - $260,087
====== ======== ======= ========
Also, Westfield Financial may be required, from time to time, to measure
certain other financial assets on a nonrecurring basis in accordance with U.S.
GAAP. These adjustments to fair value usually result from application of
lower-of-cost-or-market accounting or write-downs of individual assets. The
following table summarizes the fair value hierarchy used to determine each
adjustment and the carrying value of the related individual assets for the
three and six months ended June 30, 2008.
Three Months Six Months
Ended Ended
At June 30, 2008 June 30, 2008 June 30, 2008
---------------- ------------- -------------
(In thousands)
Total Total
Level 1 Level 2 Level 3 Gains (Losses) Gains (Losses)
------- ------- ------- -------------- --------------
Assets
Securities available for sale $690 $ - $ - $ - $(310)
Loans - 1,904 - (35) (126)
---- ------ ---- ---- -----
Total assets $690 $1,904 $ - $(35) $(436)
==== ====== ==== ==== =====
The amount of securities available for sale represents the carrying value and
related writedown of one other than temporarily impaired highly rated preferred
stock of a government-sponsored enterprise for which the adjustment was based
on the difficult underlying operating environment of this entity. The writedown
of $310,000 is included in Westfield Financial's earnings for the six months
ended June 30, 2008. The amount of loans represents the carrying value and
related write-down and valuation allowance of impaired loans for which
adjustments are based on the estimated fair value of the underlying collateral.
11
7. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141 (revised), "Business Combinations" ("SFAS 141R"). This
Statement replaces FASB Statement No. 141 ("SFAS 141"), and applies to all
business entities, including mutual entities that previously used the
pooling-of-interests method of accounting for some business combinations. Under
SFAS 141R an acquirer is required to recognize at fair value the assets
acquired, liabilities assumed, and any non-controlling interest in the acquiree
at the acquisition date. This replaces the cost-allocation process under SFAS
141, which resulted in the non-recognition of some assets and liabilities at
the acquisition date, and in measuring some assets and liabilities at amounts
other than their fair values at the acquisition date. SFAS 141R requires that
acquisition costs and expected restructuring costs be recognized separately
from the acquisition, and that the acquirer in a business combination achieved
in stages recognize the identifiable assets and liabilities, as well as the
non-controlling interest in the acquiree, at the full amounts of their fair
values. SFAS 141R also requires an acquirer to recognize assets acquired and
liabilities assumed arising from contractual contingencies as of the
acquisition date, while SFAS 141 allowed for the deferred recognition of
pre-acquisition contingencies until certain recognition criteria were met, and
an acquirer is only required to recognize assets or liabilities arising from
all other contingencies if it is more likely than not that they meet the
definition of an asset or a liability. Under SFAS 141R, an acquirer is required
to recognize contingent consideration at the acquisition date, whereas
contingent consideration obligations usually were not recognized at the
acquisition date under SFAS 141. Further, SFAS 141R eliminates the concept of
negative goodwill and requires gain recognition in instances in which the total
acquisition-date fair value of the identifiable net assets acquired exceeds the
fair value of the consideration transferred plus any non-controlling interest
in the acquiree. SFAS 141R makes significant amendments to other Statements and
other authoritative guidance, and applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. An
entity may not apply it before that date.
In December 2007, the FASB issued Statement No. 160, "Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS 160").
SFAS 160 amends ARB No. 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. SFAS 160 is effective for fiscal
years beginning on or after December 15, 2008.
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:
12
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.
Please review our financial results for the quarter ended June 30, 2008 in the
context of this strategy.
o Net income was $2.1 million, or $0.07 per diluted share, for the
quarter ended June 30, 2008 compared to $1.9 million, or $0.06 per
diluted share for the same period in 2007. For the six months ended
June 30, 2008, net income was $4.0 million, or $0.13 per diluted
share compared to $3.9 million, or $0.13 per diluted share for the
same period in 2007. The increase in earnings was primarily the
result of an increase in net interest income, partially offset by
increased noninterest expenses and an increase in the provision for
loan losses.
o Net interest income increased $540,000 to $8.0 million for the
three months ended June 30, 2008 compared to $7.4 million for the
same period in 2007. The net interest margin, on a tax equivalent
basis, was 3.23% for the three months ended June 30, 2008, compared
to 3.25% for the same period in 2007. The increase in net interest
income was mainly due to $74.0 million increase in average earning
assets.
o For the six months ended June 30, 2008, net interest income
increased $727,000 to $15.7 million, compared to $14.9 million for
the same period in 2007. The net interest margin, on a tax
equivalent basis, was 3.20% and 3.31% for the six months ended June
30, 2008 and 2007, respectively. The increase in net interest
income was primarily due to a $74.9 million increase in average
earning assets.
o For the three months ended June 30, 2008, noninterest expense was
$5.7 million compared to $5.6 million for the same period in 2007.
This was primarily due to an increase of $198,000 in salaries and
benefits to $3.5 million for the three months ended June 30, 2008.
Expenses related to share-based compensation increased $192,000 for
the three months ended June 30, 2008 as a result of new grants of
restricted stock and stock options in the third quarter of 2007.
o For the six months ended June 30, 2008, noninterest expense was
$11.5 million compared to $10.9 million for the same period in
2007. This increase was primarily due to an increase of $492,000 in
salaries and benefits to $7.1 million for the six months ended June
30, 2008. Expenses related to share-based compensation increased
$394,000 for the six months ended June 30, 2008 as a result of new
grants, described above. In addition, expenses related to employee
health insurance increased $92,000 due to normal increases in this
area.
o The six months ended June 30, 2008 also includes a net gain of
$9,000 on the sale and writedown of securities. In the first
quarter of 2008, Westfield Financial reported a writedown of
$310,000 on preferred stock issued by Freddie Mac, a
government-sponsored enterprise. Management deemed the impaired
value of this preferred stock to be other than temporary. Westfield
Financial's book value remaining on preferred stock issued by
Freddie Mac is $690,000 at June 30, 2008. The writedown was offset
by net gains of $319,000 for the six months ended June 30, 2008 on
the sale of other investment securities. There were no gains,
losses, or writedowns related to investment securities for the same
period in 2007.
13
o Total assets increased $29.6 million to $1.1 billion at June 30,
2008 from $1.0 billion at December 31, 2007. Net loans increased by
$19.8 million, to $434.7 million at June 30, 2008 from $414.9
million at December 31, 2007. The increase in net loans was
primarily the result of an increase in commercial and industrial
loans and commercial real estate loans. Commercial and industrial
loans increased $15.5 million to $132.0 million at June 30, 2008
from $116.5 million at December 31, 2007. Commercial real estate
loans increased $13.1 million to $203.1 million at June 30, 2008
from $190.0 million at December 31, 2007.
o Residential real estate loans decreased $7.7 million to $100.4
million at June 30, 2008 from $108.1 million at December 31, 2007.
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. Westfield Bank does not originate or hold subprime loans.
o Asset growth was funded primarily through a $60.6 million increase
in short-term borrowings and long-term debt, which totaled $200.9
million at June 30, 2008. This was primarily due to $48.5 million
in new long-term debt, in the form of institutional repurchase
agreements, at June 30, 2008. The slope of the yield curve provided
opportunities to earn a spread by borrowing funds and reinvesting
in loans and securities.
o Total deposits decreased $16.2 million to $586.5 million at June
30, 2008 from $602.7 million at December 31, 2007. The decrease in
deposits was due to a decrease in time deposits and money market
accounts, partially offset by an increase in regular savings and
checking accounts. Time deposits decreased $29.4 million to $323.9
million at June 30, 2008. Management placed less emphasis on
gathering time deposits in favor of using other types of funding,
such as borrowings. Management believes that doing so helped to
control funding costs.
o Stockholders' equity at June 30, 2008 and December 31, 2007 was
$273.7 million and $286.5 million, respectively, which represented
25.6% of total assets of June 30, 2008 and 27.6% of total assets as
of December 31, 2007. The decrease in stockholders' equity is the
result of the repurchase of 983,471 shares for $9.8 million related
to the stock repurchase plan, along with regular and special
dividends amounting to $7.5 million. This was partially offset by
net income of $4.0 million for the six months ended June 30, 2008
and the issuance of 433,110 shares of common stock amounting to
$1.9 million in connection with stock option exercises. All of the
stock options exercised during the six months ended June 30, 2008
were granted in 2002.
o Nonperforming loans increased $1.9 million to $3.1 million at June
30, 2008 compared to $1.2 million at December 31, 2007. This
represented 0.69% of total loans at June 30, 2008 and 0.29% of
total loans at December 31, 2007. The increase was the result of a
single agricultural commercial loan relationship of $1.8 million.
The loan relationship is primarily secured by real estate.
Management does not anticipate significant losses on this
relationship.
o The allowance for loan losses was $6.1 million at June 30, 2008 and
$5.7 million at December 31, 2007. This represents 1.39% of total
loans at June 30, 2008 and 1.36% of total loans at December 31,
2007. At these levels, the allowance for loan losses as percentage
of nonperforming loans was 200% at June 30, 2008 and 476% at
December 31, 2007.
14
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.
Westfield Financial's methodology for assessing the appropriateness of the
allowance consists of two key components: (i) a specific allowance for
identified problem or impaired loans and (ii) a formula allowance for the
remainder of the portfolio. Measurement of an 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, that 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, that 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.
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.
15
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2008 AND DECEMBER 31, 2007
Total assets increased $29.6 million to $1.1 billion at June 30, 2008 from $1.0
billion at December 31, 2007. Cash and cash equivalents increased $9.9 million
to $47.5 million at June 30, 2008 from $37.6 million at December 31, 2007. The
increase in cash and cash equivalents was primarily the result of cash flow
received from the investment portfolio during the second quarter of 2008.
Net loans increased by $19.8 million to $434.7 million at June 30, 2008 from
$414.9 million at December 31, 2007. This was the result of increases in
commercial and industrial loans and commercial real estate loans, partially
offset by a decrease in residential real estate loans. Commercial and
industrial loans increased $15.5 million to $132.0 million at June 30, 2008
from $116.5 million at December 31, 2007. Commercial real estate loans
increased $13.1 million to $203.1 million at June 30, 2008 from $190.0 million
at December 31, 2007. Owner occupied commercial real estate loans totaled $92.2
million and $90.4 million at June 30, 2008 and December 31, 2007, respectively,
while non-owner occupied commercial real estate loans totaled $110.9 million
and $99.6 million at June 30, 2008 and December 31, 2007, respectively. The
increases in commercial and industrial and commercial real estate loans were
due to increased loan originations to commercial customers within our market
area.
Residential real estate loans decreased $7.7 million to $100.4 million at June
30, 2008 from $108.1 million at December 31, 2007. 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. Westfield Bank does
not originate or hold subprime loans.
Asset growth was funded primarily through a $60.6 million increase in
short-term borrowings and long-term debt, which totaled $200.9 million at June
30, 2008. This was primarily due to $48.5 million in new long-term debt, in the
form of securities sold under repurchase agreements with an approved
broker-dealer, at June 30, 2008.
Short-term borrowings were $47.4 million at June 30, 2008 and $35.3 million at
December 31, 2007. Short-term borrowings are made up of FHLB advances with an
original maturity of less than one year as well as customer repurchase
agreements, which have an original maturity of one day. Short-term borrowings
issued by the FHLB were $32.7 million at June 30, 2008 and $18.5 million at
December 31, 2007. Customer repurchase agreements were $14.7 million at June
30, 2008 and $16.8 million at December 31, 2007. 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 June 30, 2008 were held by commercial customers.
Long-term debt, which includes FHLB advances and securities sold under
repurchase agreements with an original maturity of one year or more, were
$153.5 million at June 30, 2008 and $105.0 million at December 31, 2007. As of
June 30, 2008, FHLB advances comprised $105.0 million and securities sold under
repurchase agreements comprised $48.5 million of the long-term debt. The
securities sold under agreements to repurchase have final maturities in the
first quarter of 2018 and are callable at the issuer's option beginning in the
years 2010 to 2012.
16
Total deposits decreased $16.2 million to $586.5 million at June 30, 2008 from
$602.7 million at December 31, 2007. The decrease in deposits was due to a
decrease in time deposits and money market accounts, partially offset by an
increase in regular savings and checking accounts. Time deposits decreased
$29.4 million to $323.9 million at June 30, 2008. Money market accounts
decreased $7.7 million to $66.9 million while regular savings and checking
accounts increased $20.8 million. Management placed less emphasis on gathering
time deposits in favor of using other types of funding, such as borrowings.
Management believes that doing so helped control funding costs.
Stockholders' equity at June 30, 2008 and December 31, 2007 was $273.7 million
and $286.5 million, respectively, representing 25.6% and 27.6% of total assets,
respectively. The decrease in stockholders' equity is comprised of the
repurchase of 983,471 shares for $9.8 million and the payment of regular and
special dividends amounting to $7.5 million, partially offset by net income of
$4.0 million for the six months ended June 30, 2008. In January 2008, the Board
of Directors voted to authorize the commencement of a repurchase program which
authorized Westfield Financial to repurchase up to 3,194,000 shares, or ten
percent of its outstanding shares of common stock. The repurchase of 983,471
shares was partially offset by the reissuance of 433,110 shares in connection
with stock option exercises. All of the stock options exercised during the six
months ended June 30, 2008 were granted in 2002.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2008 AND
JUNE 30, 2007
General
Net income was $2.1 million, or $0.07 per diluted share, for the quarter ended
June 30, 2008 as compared to $1.9 million, or $0.06 per diluted share, for the
same period in 2007. Net interest and dividend income was $8.0 million for the
three months ended June 30, 2008 and $7.4 million for the same period in 2007.
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 June 30, 2008 and 2007
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. For
analytical purposes, the interest earned on tax-exempt assets is adjusted to a
tax equivalent basis to recognize the income tax savings which facilitates
comparison between taxable and tax exempt assets.
17
Three Months Ended June 30,
2008 2007
------------------------------------ ------------------------------------
Average Avg Yield/ Average Avg Yield/
Interest Balance Cost Interest Balance Cost
-------- ------- ---------- -------- ------- ----------
(Dollars in thousands)
Interest-Earning Assets
- -----------------------
Short-term investments $ 172 $ 33,006 2.08% $ 647 $ 49,751 5.20%
Investment securities 6,900 540,388 5.11 5,960 492,629 4.84
Loans 6,630 432,081 6.14 6,574 389,075 6.76
------- ---------- ------- --------
Total interest-earning assets $13,702 $1,005,475 5.45% $13,181 $931,455 5.66%
======= ========== ======= ========
Interest-Bearing Liabilities
- ----------------------------
NOW accounts $ 316 $ 88,754 1.42% $ 341 $ 80,813 1.69%
Savings accounts 182 58,266 1.25 59 37,866 0.62
Money market accounts 198 68,844 1.15 346 87,367 1.58
Time deposits 3,098 329,790 3.76 4,177 372,924 4.48
Customer repurchase agreements
and Borrowings 1,800 197,844 3.64 723 73,830 3.92
------- ---------- ------- --------
Total interest-bearing liabilities $ 5,594 $ 743,498 3.01% $ 5,646 $652,800 3.46%
======= ========== ======= ========
Less: Tax equivalent adjustment (155) (122)
Net interest income/interest rate spread $ 7,953 2.44% $ 7,413 2.20%
======= ==== ======= ====
Net interest margin 3.23% 3.25%
==== ====
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.
18
Three Months Ended June 30, 2008
compared to Three Months Ended
June 30, 2007
Increase (decrease) due to:
--------------------------------
Interest-Earning Assets Volume Rate Net
- ----------------------- ------ ---- ---
(Dollars in thousands)
Short-term investments $ (218) $(257) $ (475)
Investment securities 578 362 940
Loans 727 (671) 56
------ ----- -------
Net change in income on
interest-earning assets 1,087 (566) 521
------ ----- -------
Interest-Bearing Liabilities
- ----------------------------
NOW accounts 34 (59) (25)
Savings accounts 32 91 123
Money market accounts (73) (75) (148)
Time deposits (483) (596) (1,079)
Customer repurchase agreements and
borrowings 1,214 (137) 1,077
------ ----- -------
Net change in expense on
interest-bearing liabilities 724 (776) (52)
------ ----- -------
Change in net interest income $ 363 $ 210 $ 573
====== ===== =======
Net interest and dividend income increased $540,000 to $8.0 million for the
three months ended June 30, 2008 from $7.4 million for the same period in 2007.
The net interest margin, on a tax equivalent basis, was 3.23% for the three
months ended June 30, 2008 as compared to 3.25% for the same period in 2007.
Interest and dividend income, on a tax equivalent basis, increased $521,000 to
$13.7 million for the three months ended June 30, 2008 from $13.2 million for
the same period in 2007. The increase in interest income was mainly due to a
$74.0 million increase in average earning assets. Average earning assets were
$1.0 billion for the three months ended June 30, 2008 compared to $931.5
million for the same period in 2007. The yield on interest-earning assets
decreased 21 basis points to 5.45% for the three months ended June 30, 2008
from 5.66% for same period in 2007.
Interest expense was $5.6 million for the three months ended June 30, 2008 and
2007, respectively. The average cost of interest-bearing liabilities decreased
forty-five basis points to 3.01% for the three months ended June 30, 2008 from
3.46% for same period in 2007. The decrease in the cost of interest-bearing
liabilities was primarily due to the falling interest rate environment.
Provision for Loan Losses
The allocation of the allowance for loan losses is reviewed by management based
upon its evaluation of then-existing economic and business conditions affecting
the key lending areas of Westfield Bank 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.
19
The amount that Westfield Bank provided for the provision for loan losses
during the three months ended June 30, 2008 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 increases in commercial and
industrial loans and commercial real estate loans, tempered by a decrease in
residential real estate loan balances. After evaluating these factors,
Westfield Bank provided $240,000 for loan losses for the three months ended
June 30, 2008, compared to $75,000 for the same period in 2007. The allowance
was $6.1 million at June 30, 2008 and $5.9 million at March 31, 2008. The
allowance for loan losses was 1.39% of total loans at June 30, 2008 and March
31, 2008.
Commercial and industrial loans increased $8.2 million to $132.0 million at
June 30, 2008. Westfield Bank considers commercial and industrial 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 increased $11.1 million during the quarter ended June 30, 2008 to $203.1
million. At June 30, 2008, residential real estate loans decreased $2.3 million
to $100.4 million compared to March 31, 2008.
Net charge-offs were $21,000 for the three months ended June 30, 2008. This was
comprised of charge-offs of $45,000 offset by recoveries of $24,000. Net
recoveries for the three months ended June 30, 2007 were $46,000. This was
comprised of recoveries of $71,000 offset by charge-offs of $25,000.
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 $23,000 to $951,000 for the three months ended
June 30, 2008 from $974,000 in the same period in 2007. Net checking account
processing fee income decreased $72,000 to $344,000 for the three months ended
June 30, 2008, compared to $416,000 for the same period in 2007. The decrease
in net checking account processing fee income was partially offset by an
increase of $14,000 in commissions from the third party mortgage company over
the comparable 2007 period. In addition, ATM surcharge fee income increased
$18,000 over the comparable 2007 period primarily due to a restructuring of the
fee schedules late in the second quarter of 2007.
Westfield Financial recorded a net gain of $19,000 on the sale of securities
for the three months ended June 30, 2008. There were no gains, losses, or
writedowns related to investment securities for the same period in 2007.
Noninterest Expense
Noninterest expense for the three months ended June 30, 2008 was $5.7 million,
compared to $5.6 million for the same period in 2007. Salaries and benefits
increased $198,000 to $3.5 million for the three months ended June 30, 2008
compared to $3.3 million for the same period in 2007. The increase in salaries
and benefits for the three months ended June 30, 2008 was primarily the result
of an increase of $192,000 in expenses related to share-based compensation, due
to new grants of restricted stock and stock options in the third quarter of
2007.
Income Taxes
For the three months ended June 30, 2008, Westfield Financial had a tax
provision of $811,000 as compared to $826,000 for the same period in 2007. The
effective tax rate was 27.7% for the three months ended June 30, 2008 and 30.2%
for the same period in 2007.
20
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND
JUNE 30, 2007
General
Net income was $4.0 million, or $0.13 per diluted share, for the six months
ended June 30, 2008 as compared to $3.9 million, or $0.13 per diluted share,
for the same period in 2007. Net interest and dividend income was $15.7 million
for the six months ended June 30, 2008 and $14.9 million for the same period in
2007.
Net Interest and Dividend Income
The following tables set forth the information relating to our average balance
at, and net interest income for, the six months ended June 30, 2008 and 2007
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. For
analytical purposes, the interest earned on tax-exempt assets is adjusted to a
tax equivalent basis to recognize the income tax savings which facilitates
comparison between taxable and tax-exempt assets.
Six Months Ended June 30,
2008 2007
------------------------------------ ------------------------------------
Average Avg Yield/ Average Avg Yield/
Interest Balance Cost Interest Balance Cost
-------- ------- ---- -------- ------- ----
(Dollars in thousands)
Interest-Earning Assets
- -----------------------
Short-term investments $ 387 $ 30,964 2.50% $ 2,031 $ 77,153 5.26%
Investment securities 13,820 541,461 5.10 11,055 460,530 4.80
Loans 13,402 426,492 6.28 13,059 386,313 6.76
------- -------- ------- --------
Total interest-earning assets $27,609 $998,917 5.53% $26,145 $923,996 5.66%
======= ======== ======= ========
Interest-Bearing Liabilities
- ----------------------------
NOW accounts $ 620 $ 86,923 1.43% $ 660 $ 79,983 1.65%
Savings accounts 341 55,006 1.24 107 39,108 0.55
Money market accounts 420 71,006 1.18 695 89,487 1.55
Time deposits 6,754 337,357 4.00 8,257 373,420 4.42
Customer repurchase agreements
and borrowings 3,520 183,156 3.84 1,250 66,313 3.77
------- -------- ------- --------
Total interest-bearing liabilities $11,655 $733,448 3.18% $10,969 $648,311 3.38%
======= ======== ======= ========
Less: Tax equivalent adjustment (293) (242)
Net interest income/interest rate spread $15,661 2.35% $14,934 2.28%
======= ==== ======= ====
Net interest margin 3.20% 3.31%
==== ====
21
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.
Six Months Ended June 30, 2008
compared to Six Months Ended
June 30, 2007
Increase (decrease) due to:
Interest-Earning Assets Volume Rate Net
- ----------------------- ------ ---- ---
(Dollars in thousands)
Short-term investments $(1,216) $ (428) $(1,644)
Investment securities 1,943 822 2,765
Loans 1,358 (1,015) 343
------- ------- -------
Net change in income on
interest-earning assets 2,085 (621) 1,464
------- ------- -------
Interest-Bearing Liabilities
- ----------------------------
NOW accounts 57 (97) (40)
Savings accounts 43 191 234
Money market accounts (144) (131) (275)
Time deposits (797) (706) (1,503)
Customer repurchase agreements
and borrowings 2,202 68 2,270
------- ------- -------
Net change in expense on
interest-bearing liabilities 1,361 (675) 686
------- ------- -------
Change in net interest income $ 724 $ 54 $ 778
======= ======= =======
Net interest and dividend income increased $727,000 to $15.7 million for the
six months ended June 30, 2008 from $14.9 million for the same period in 2007.
The net interest margin, on a tax equivalent basis, was 3.20% for the six
months ended June 30, 2008 as compared to 3.31% for the same period in 2007.
Interest and dividend income, on a tax equivalent basis, increased $1.5 million
to $27.6 million for the six months ended June 30, 2008 from $26.1 million for
the same period in 2007. The increase in interest income was mainly due to a
$74.9 million increase in average earning assets. Average earning assets were
$998.9 million for the six months ended June 30, 2008 compared to $924.0
million for the same period in 2007. The yield on interest-earning assets
decreased thirteen basis points to 5.53% for the six months ended June 30, 2008
from 5.66% for same period in 2007.
22
Interest expense was $11.7 million for the six months ended June 30, 2008 and
$11.0 million for the six months ended June 30, 2007. The average cost of
interest-bearing liabilities decreased twenty basis points to 3.18% for the six
months ended June 30, 2008 from 3.38% for same period in 2007. The decrease in
the cost of interest-bearing liabilities was primarily due to a decrease in
time deposits. In addition, management placed less emphasis on gathering time
deposits in favor of using other types of funding, such as short-term
borrowings and long-term debt. Management believes that doing so helped to
control funding costs.
Provision for Loan Losses
The amount that Westfield Bank provided for the provision for loan losses
during the six months ended June 30, 2008 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 increases in commercial and
industrial loans and commercial real estate loans, and an increase in
nonperforming and impaired loans due to the deterioration of one commercial
loan relationship, tempered by a decrease in residential real estate loan
balances. After evaluating these factors, Westfield Bank provided $415,000 for
loan losses for the six months ended June 30, 2008, compared to $175,000 for
the same period in 2007. The allowance was $6.1 million at June 30, 2008 and
$5.7 million at December 31, 2007. The allowance for loan losses was 1.39% of
total loans at June 30, 2008 and 1.36% of total loans at December 31, 2007.
Commercial and industrial loans increased $15.5 million to $132.0 million at
June 30, 2008. Westfield Bank considers commercial and industrial 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 increased $13.1 million during the six months ended June 30, 2008 to
$203.1 million. At June 30, 2008, residential real estate loans decreased $7.7
million to $100.4 million compared to December 31, 2007.
Nonperforming loans were $3.1 million at June 30, 2008 compared to $1.2 million
at December 31, 2007. Nonperforming loans as a percentage of total loans were
0.69% at June 30, 2008 and 0.29% at December 31, 2007. The increase was the
result of a single agricultural commercial loan relationship of $1.8 million.
The loan relationship is primarily secured by real estate. Management does not
anticipate incurring significant losses on this relationship.
Impaired loans increased $1.7 million to $1.9 million at June 30, 2008 from
$196,000 at December 31, 2007 as a result of the single agricultural commercial
loan relationship of $1.8 million described above. A valuation allowance of
$91,000 was allocated in the first quarter of 2008 on the loan relationship of
$1.8 million based on the estimated fair value of the underlying collateral.
Net charge-offs were $14,000 for the six months ended June 30, 2008. This was
comprised of charge-offs of $51,000 offset by recoveries of $37,000. Net
recoveries for the six months ended June 30, 2007 were $62,000. This was
comprised of recoveries of $107,000 offset by charge-offs of $45,000.
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 increased $23,000 to $1.8 million for the six months ended
June 30, 2008 from the same period in 2007. Income from bank-owned life
insurance increased $52,000 to $643,000 for the six months ended June 30, 2008
compared to $591,000 in the same period in 2007. Net checking account
processing fee income decreased $130,000 to $671,000 for the six months ended
June 30, 2008, compared to the same period in 2007.
23
Westfield Financial recorded a net gain of $9,000 on the sale and writedown of
securities for the six months ended June 30, 2008. Westfield Financial reported
a writedown of $310,000 on preferred stock issued by Freddie Mac. Management
deemed the impaired value of this preferred stock to be other than temporary.
Westfield Financial's book value remaining on preferred stock issued by Freddie
Mac is $690,000 at June 30, 2008. The writedown was offset by net gains of
$319,000 for the six months ended June 30, 2008 on the sale of other investment
securities. There were no gains, losses, or writedowns related to investment
securities for the same period in 2007.
Noninterest Expense
Noninterest expense for the six months ended June 30, 2008 was $11.5 million,
compared to $10.9 million for the same period in 2007. Salaries and benefits
increased $492,000 to $7.1 million for the six months ended June 30, 2008
compared to $6.6 million for the same period in 2007. The increase in salaries
and benefits for the six months ended June 30, 2008 was primarily the result of
an increase of $394,000 in expenses related to share-based compensation, due to
new grants of restricted stock and stock options in the third quarter of 2007.
In addition, expenses related to employee health insurance increased $92,000
due to normal increases in this area.
Income Taxes
For the six months ended June 30, 2008, Westfield Financial had a tax provision
of $1.6 million as compared to $1.7 million for the same period in 2007. The
effective tax rate was 28.2% for the six months ended June 30, 2008 and 30.7%
for the same period in 2007. The decrease in effective tax rate for the six
months ended June 30, 2008 from the comparable 2007 period is due primarily to
a decrease in fully taxable income while maintaining tax-exempt income levels.
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. Westfield Bank also can borrow
funds from the FHLB based on eligible collateral of loans and securities.
Westfield Bank's maximum additional borrowing capacity from the FHLB at June
30, 2008 was approximately $209.6 million.
Liquidity management is both a short-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 June 30, 2008, Westfield Financial exceeded each of its applicable
regulatory capital requirements. As of June 30, 2008, the most recent
notification from the Office of Thrift Supervision (the "OTS") categorized
Westfield Bank as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized" Westfield 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 Westfield Bank's
category. Westfield Financial's and Westfield Bank's actual capital ratios of
June 30, 2008 are also presented in the following table.
24
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)
June 30, 2008
Total Capital (to Risk Weighted Assets):
Consolidated $281,586 45.79% $49,196 8.00% N/A -
Bank 222,513 36.95 48,179 8.00 $60,224 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 275,459 44.79 24,598 4.00 N/A -
Bank 216,477 35.95 24,090 4.00 36,134 6.00
Tier 1 Capital (to Adjusted Total Assets):
Consolidated 275,459 25.70 42,879 4.00 N/A -
Bank 216,477 21.33 40,598 4.00 50,748 5.00
Tangible Equity (to Tangible Assets):
Consolidated N/A - N/A - N/A -
Bank 216,477 21.33 15,224 1.50 N/A -
December 31, 2007
Total Capital (to Risk Weighted Assets):
Consolidated $290,000 50.29% $46,276 8.00% N/A -
Bank 218,118 38.76 45,021 8.00 $56,277 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 285,174 49.30 23,138 4.00 N/A -
Bank 212,392 37.74 22,511 4.00 33,766 6.00
Tier 1 Capital (to Adjusted Total Assets):
Consolidated 285,174 27.48 41,506 4.00 N/A -
Bank 212,392 21.95 38,696 4.00 48,370 5.00
Tangible Equity (to Tangible Assets):
Consolidated N/A - N/A - N/A -
Bank 212,392 21.95 14,511 1.50 N/A -
25
Westfield 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 Westfield 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. Westfield Bank is
obligated under leases for certain of its branches and equipment. A summary of
lease obligations and credit commitments at June 30, 2008 follows:
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 $ 395 $ 759 $ 608 $ 6,639 $ 8,401
======== ======= ======= ======= ========
BORROWINGS
Federal Home Loan Bank $ 25,000 $55,000 $20,000 $ 5,000 $105,000
Securities sold under
repurchase agreements - - - 48,500 48,500
-------- ------- ------- ------- --------
$ 25,000 $55,000 $20,000 $53,500 $153,500
======== ======= ======= ======= ========
CREDIT COMMITMENTS
Available lines of credit $ 48,115 $ - $ - $14,820 $ 62,935
Other loan commitments 35,495 4,664 - - 40,159
Letters of credit 7,079 - - 243 7,322
-------- ------- ------- ------- --------
Total credit commitments $ 90,689 $ 4,664 - $15,063 $110,416
-------- ------- ------- ------- --------
Grand total $116,084 $60,423 $20,608 $75,202 $272,317
======== ======= ======= ======= ========
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 Westfield 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 average
assets. Management believes, as of June 30, 2008, that Westfield Bank met all
capital adequacy requirements to which it was subject. As of June 30, 2008, the
most recent notification from the OTS categorized Westfield Bank as "well
capitalized" under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, Westfield Bank must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios. There are no
conditions or events since the most recent OTS notification that management
believes have changed Westfield Bank's categorization.
26
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 change 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
statement. 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 interest 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 will increase
depending on its repricing characteristics while the interest income from a
fixed loan would not increase until the loan was repaid and reinvested or
loaned out at a higher interest rate.
The table below sets forth as of June 30, 2008 the estimated changes
in net interest and dividend income that would result from incremental changes
in interest rates over the applicable period.
For the Twelve Months Ending June 30, 2009
(Dollars in thousands)
---------------------------------------------
Changes in Net Interest
Interest Rates and Dividend
(Basis Points) Income % Change
-------------- ------------ --------
300 31,902 6.6%
200 31,314 4.6%
200 30,681 2.5%
0 29,936 0.0%
-100 29,157 -2.6%
-200 27,731 -7.4%
-300 25,410 -15.1%
Management believes that there have been no significant changes in market risk
since December 31, 2007.
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 Chairman and 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 Chairman and 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 is (i) recorded, processed, summarized and reported as and when
required and (ii) accumulated and communicated to Westfield Financial's
management, including Westfield Financial's principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
27
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 have materially affected,
or that are reasonably likely to materially affect, Westfield Financial's
internal control over financial reporting.
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in
Westfield Financial's Form 10-K for the year ended December 31, 2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information with respect to purchases made by
Westfield Financial of its common stock during the three months ended June 30,
2008.
- -------------------------------------------------------------------------------------------------
Total number
of shares Maximum number
purchased as of shares that
Total number part of publicly may yet be
of shares Average price announced purchased under
Period purchased paid per share($) programs the program
- -------------------------------------------------------------------------------------------------
April 1 - 30, 2008 24,318 9.87 24,318 2,654,667
- -------------------------------------------------------------------------------------------------
May 1 - 31, 2008 444,138 9.54 444,138 2,210,529
- -------------------------------------------------------------------------------------------------
June 1 - 30, 2008 - - - 2,210,529
- -------------------------------------------------------------------------------------------------
Total 468,456 9.55 468,456 2,210,529
- -------------------------------------------------------------------------------------------------
In January 2008, the Board of Directors voted to authorize the commencement of
a repurchase program ("Repurchase Program") authorizing Westfield Financial to
repurchase up to 3,194,000 shares, or ten percent of its outstanding shares of
common stock. The Repurchase Program will continue until it is completed. The
repurchases may be made from time to time at the discretion of management of
Westfield Financial.
During the three months ended June 30, 2008, 280,053 shares of Westfield
Financial's stock which were repurchased under the repurchase program were
reissued in connection with stock option exercises.
There were no sales by Westfield Financial of unregistered securities during
the six months ended June 30, 2008.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Westfield Financial held its Annual Meeting of Shareholders on May 22, 2008
(the "Meeting"). All the proposals submitted to the shareholders at the Meeting
were approved. The proposals submitted to shareholders and the tabulation of
the votes for each proposal was as follows:
1. Election of three candidates to the Board of Directors.
The number of votes cast with respect to this matter was as follows:
Nominee For Withheld
------- --- --------
Robert T. Crowley, Jr. 27,107,993 806,889
Harry C. Lane 27,116,221 798,661
Paul R. Pohl 26,839,277 1,075,605
There were no broker held non-votes or abstentions on this proposal. The
following directors' terms of office continued after the Meeting:
Victor J. Carra
David C. Colton, Jr.
Richard C. Placek
Mary C. O'Neil
Charles E. Sullivan
Donald A. Williams
2. Ratify the appointment of Wolf & Company, P.C. as our independent registered
public accounting firm for the fiscal year ending December 31, 2008.
The number of votes cast with respect to this matter was as follows:
For Against Abstain
--- ------- -------
27,737,015 142,277 35,590
There were no broker held non-voted shares represented at the Meeting with
respect to this matter.
3. Amend the Westfield Financial, Inc. 2007 Stock Option Plan.
The number of votes cast with respect to this matter was as follows:
For Against Abstain
--- ------- -------
14,204,769 7,049,520 245,677
There were 6,414,916 broker held non-voted shares represented at the Meeting
with respect to this matter.
4. Amend the Westfield Financial, Inc. 2007 Recognition and Retention Plan.
The number of votes cast with respect to this matter was as follows:
For Against Abstain
--- ------- -------
14,373,969 6,882,208 243,789
There were 6,414,916 broker held non-voted shares represented at the Meeting
with respect to this matter.
29
ITEM 5. OTHER INFORMATION
a. None
b. None
ITEM 6. EXHIBITS
The following exhibits are furnished with this report:
Exhibit Description
- ------- -----------------------------------------------------------------
2.1 Amended and Restated Plan of Conversion and Stock Issuance of
Westfield Mutual Holding Company, Westfield Financial, Inc. and
Westfield Bank.(1)
3.1 Articles of Organization of Westfield Financial, Inc.(2)
3.2 Bylaws of Westfield Financial, Inc.(2)
4.1 Form of Stock Certificate of Westfield Financial, Inc.(1)
10.1 Form of Employee Stock Ownership Plan of Westfield
Financial, Inc.(3)
10.2 Amendments to the Employee Stock Ownership Plan of Westfield
Financial, Inc.(4)
10.3 Form of Director's Deferred Compensation Plan.(5)
10.4 The 401(k) Plan adopted by Westfield Bank.(6)
10.5 Form of Benefit Restoration Plan of Westfield Financial, Inc.(5)
10.6 Form of Amended and Restated Deferred Compensation Agreement with
Donald A. Williams.(5)
10.7 Form of Employment Agreement between Donald A. Williams and
Westfield Bank.(1)
10.8 Form of Employment Agreement between Michael J. Janosco, Jr.
and Westfield Bank.(1)
10.9 Form of Employment Agreement between James C. Hagan and
Westfield Bank.(1)
10.10 Form of Employment Agreement between Donald A. Williams and
New Westfield Financial, Inc.(1)
10.11 Form of Employment Agreement between Michael J. Janosco, Jr. and
New Westfield Financial, Inc.(1)
10.12 Form of Employment Agreement between James C. Hagan and
New Westfield Financial, Inc.(1)
10.13 Form of One Year Change in Control Agreement by and among certain
officers and New Westfield Financial, Inc. and Westfield Bank.(1)
10.14 Agreement between Westfield Bank and Village Mortgage Company.(1)
31.1 Rule 13a-14(a)/15d-14(a) Certifications
32.1 Section 1350 Certifications
- ------------------
(1) Incorporated by reference to the Registration Statement No. 333-137024 on
Form S-1 filed with the Securities and Exchange Commission on August 31,
2006, as amended.
(2) Incorporated by reference to the Form 8-K filed with the Securities and
Exchange Commission on January 5, 2007.
(3) Incorporated herein by reference to the Registration Statement No.
333-68550 on Form S-1 filed with the Securities and Exchange Commission
on August 28, 2001, as amended.
(4) Incorporated by reference to the Annual Report on Form 10-K for the year
ended December 31, 2002 filed with the Securities and Exchange Commission
on March 31, 2003.
(5) Incorporated by reference to the Form 8-K filed with the Securities and
Exchange Commission on December 22, 2005.
(6) Incorporated herein by reference to the Post-Effective Amendment No. 1 to
the Registration Statement No. 333-73132 on Form S-8 filed with the
Securities and Exchange Commission on April 28, 2006.
(7) Incorporated by reference to the Form 8-K filed with the SEC on October
25, 2007.
30
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.
By: /s/ Donald A. Williams
---------------------------------------------
Donald A. Williams
Chairman/Chief Executive Officer
(Principal Executive Officer)
By: /s/ Michael J. Janosco, Jr.
---------------------------------------------
Michael J. Janosco, Jr.
Vice President/Chief Financial Officer
(Principal Accounting Officer)
August 8, 2008
31