<PAGE>
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 June 30, 1999
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 1-14671
WORONOCO BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3444269
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31 Court Street, Westfield, Massachusetts 01085
- ----------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(413) 568-9141
--------------
(Issuer's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changes since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: the Issuer had 5,998,860 shares
of common stock, par value $0.01 per share, outstanding as of August 9, 1999.
<PAGE>
WORONOCO BANCORP, INC.
FORM 10-Q
INDEX
<TABLE>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at
June 30, 1999 and December 31, 1998................................................. 1
Consolidated Statements of Operations for the Three
And Six Months Ended June 30, 1999 and 1998......................................... 2
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months Ended June 30, 1999 and 1998..................................... 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998............................................. 4
Notes to Unaudited Consolidated Financial Statements................................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 30
PART II: OTHER INFORMATION
Item 1. Legal Proceedings................................................................... 31
Item 2. Changes in Securities and Use of Proceeds........................................... 31
Item 3. Defaults Upon Senior Securities..................................................... 31
Item 4. Submission of Matters to a Vote of Security Holders................................. 31
Item 5. Other Information .................................................................. 31
Item 6. Exhibits and Reports on Form 8-K.................................................... 32
SIGNATURES..................................................................................... 33
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
WORONOCO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
Unaudited
June 30, December 31,
1999 1998
Assets ------------------ ------------------
<S> <C> <C>
Cash and due from banks $ 11,496 $ 10,371
Interest-bearing balances 1,659 1,607
------------------ ------------------
Total cash and cash equivalents 13,155 11,978
Securities available for sale 114,123 111,409
Federal Home Loan Bank stock, at cost 5,733 5,648
Loans, net of allowance for loan losses ($2,281 at June 30, 1999
and $2,166 at December 31, 1998) 293,574 284,043
Other real estate owned, net 211 241
Banking premises and equipment, net 8,910 8,290
Accrued interest receivable 1,991 1,748
Net deferred tax asset 2,564 55
Cash surrender value of life insurance 1,996 1,917
Other assets 798 1,497
------------------ ------------------
Total assets $ 443,055 $ 426,826
================== ==================
Liabilities and Stockholders' Equity
Deposits $ 277,380 $ 275,041
Federal Home Loan Bank advances 75,000 111,163
Repurchase agreements 154 100
Mortgagors' escrow accounts 657 645
Accrued expenses and other liabilities 2,942 4,104
------------------ ------------------
Total liabilities 356,133 391,053
------------------ ------------------
Commitments and contingencies
Stockholders' Equity:
Preferred stock ($.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding) - -
Common stock ($.01 par value; 16,000,000 shares
authorized; shares issued and outstanding:
5,998,860 at June 30, 1999) 60 -
Additional paid-in capital 57,891 -
Unearned compensation - ESOP (4,473) -
Retained earnings 33,420 34,060
Accumulated other comprehensive income - net
unrealized gain on securities available for sale,
net of tax effects 24 1,713
------------------ ------------------
Total stockholders' equity 86,922 35,773
------------------ ------------------
Total liabilities and stockholders' equity $ 443,055 $ 426,826
================== ==================
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
1
<PAGE>
WORONOCO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 5,398 $ 5,373 $ 10,780 $ 10,549
Interest and dividends on investment securities:
Interest 1,310 595 2,798 1,270
Dividends 335 217 619 423
Interest on federal funds sold 17 7 323 52
Other interest income 10 32 24 57
------------ ------------ ------------ ------------
Total interest and dividend income 7,070 6,224 14,544 12,351
------------ ------------ ------------ ------------
Interest expense:
Interest on deposits 2,343 2,596 4,729 5,163
Interest on borrowings 839 722 2,186 1,412
------------ ------------ ------------ ------------
Total interest expense 3,182 3,318 6,915 6,575
------------ ------------ ------------ ------------
Net interest income 3,888 2,906 7,629 5,776
Provision for loan losses 60 60 120 120
------------ ------------ ------------ ------------
Net interest income, after provision for loan losses 3,828 2,846 7,509 5,656
------------ ------------ ------------ ------------
Other income:
Fee income 478 407 920 763
Gain on sales and disposition of securities, net 355 913 803 1,118
Other income 66 53 95 94
------------ ------------ ------------ ------------
Total other income 899 1,373 1,818 1,975
------------ ------------ ------------ ------------
Other expenses:
Salaries and employee benefits 1,539 1,163 2,938 2,444
Occupancy and equipment 430 342 880 701
Marketing 206 163 409 389
Professional services 246 125 391 230
Data processing 190 157 366 314
Deposit insurance 9 8 25 24
Contributions 1 105 4,446 107
Other general and administrative 489 426 939 798
------------ ------------ ------------ ------------
Total other expenses 3,110 2,489 10,394 5,007
------------ ------------ ------------ ------------
Income (loss) before income taxes 1,617 1,730 (1,067) 2,624
Income tax expense (benefit) 609 597 (427) 891
------------ ------------ ------------ ------------
Net income (loss) $ 1,008 $ 1,133 ($640) $ 1,733
============ ============ ============ ============
Earnings per share:
Basic $ 0.18 NA NA NA
Diluted $ 0.18 NA NA NA
Weighted average shares outstanding:
Basic 5,519,062 NA NA NA
Diluted 5,519,062 NA NA NA
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
2
<PAGE>
WORONOCO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(In Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Unearned Retained Comprehensive
Stock Capital Compensation Earnings Income Total
----------- ------------ ------------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ - $ - $ - $ 34,060 $ 1,713 $ 35,773
Comprehensive income (loss):
Net loss - - - (640) - (640)
Change in net unrealized gain on securities
available for sale, net of tax effects - - - - (1,689) (1,689)
---------
Total comprehensive loss (2,329)
---------
Issuance of common stock in connection with
Bank's conversion from mutual to stock-
owned savings bank 60 57,891 (4,609) - - 53,342
Decrease in unearned compensation - - 136 - - 136
----------- ------------ ------------- --------- ------- ---------
Balance at June 30, 1999 $ 60 $ 57,891 $ (4,473) $ 33,420 $ 24 $ 86,922
=========== ============ ============= ========= ======= =========
Balance at December 31, 1997 $ - $ - $ - $ 30,950 $ 2,382 $ 33,332
Comprehensive income:
Net income - - - 1,733 - 1,733
Change in net unrealized gain on securities
available for sale, net of tax effects - - - - (549) (549)
---------
Total comprehensive income 1,184
----------- ------------ ------------- --------- ------- ---------
Balance at June 30, 1998 $ - $ - $ - $ 32,683 $ 1,833 $ 34,516
=========== ============ ============= ========= ======= =========
</TABLE>
See accompanying Notes to the Unaudited Consolidated Financial Statements
3
<PAGE>
WORONOCO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Unaudited
Six Months Ended
June 30, June 30,
1999 1998
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($640) $ 1,733
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Provision for loan losses 120 120
Charitable contribution in the form of equity securities 4,444 102
Net amortization (accretion) of investments 36 (8)
Depreciation and amortization 351 327
Employee stock ownership plan expense 136 -
Deferred taxes (1,511) -
Gain on sales and disposition of securities, net (803) (1,118)
Changes in operating assets and liabilities:
Accrued interest receivable (243) (93)
Accrued expenses and other liabilities (1,162) (131)
Other, net 596 178
---------------- -----------------
Net cash provided by operating activities 1,324 1,110
---------------- -----------------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 6,200 4,974
Purchase of securities available for sale (18,252) (10,894)
Proceeds from maturities of securities available for sale 433 300
Principal payments on mortgage-backed investments 7,009 4,917
Purchase of Federal Home Loan Bank stock (85) (551)
Loans originated, net of loan payments received (9,702) (17,202)
Purchases of banking premises and equipment (971) (1,576)
Net change in other real estate owned 81 80
Loan to fund employee stock ownership plan (4,609) -
---------------- -----------------
Net cash used in investing activities (19,896) (19,952)
---------------- -----------------
Cash flows from financing activities:
Net increase in deposits 2,339 4,100
Net (decrease) increase in borrowings (36,109) 13,543
Net increase (decrease) in escrow 12 (76)
Net proceeds from initial public offering 53,507 -
---------------- -----------------
Net cash provided by financing activities 19,749 17,567
---------------- -----------------
Net increase (decrease) in cash & cash equivalents 1,177 (1,275)
Cash & cash equivalents at beginning of period 11,978 11,686
---------------- -----------------
Cash & cash equivalents at end of period $ 13,155 $ 10,411
================ =================
Supplemental cash flow information:
Interest paid on deposits $ 4,732 $ 5,165
Interest paid on borrowings 2,279 1,346
Income taxes paid 1,094 925
Transfers from loans to other real estate owned 51 22
</TABLE>
4
<PAGE>
WORONOCO BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
June 30, 1999
(Dollars in thousands except per share amounts)
1. Consolidated Financial Statements
The Consolidated Financial Statements of Woronoco Bancorp, Inc. and its
subsidiaries (the "Company") included herein are unaudited, and in the opinion
of management all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial condition, results of
operations and cash flows, as of and for the periods covered herein, have been
made. Certain information and note disclosures normally included in the
Consolidated Financial Statements have been omitted as they are included in the
most recent Securities and Exchange Commission ("SEC") Form 10-K and
accompanying Notes to the Financial Statements (the "Form 10-K") filed by the
Company for the year ended December 31, 1998. Management believes that the
disclosures contained herein are adequate to make a fair presentation.
These unaudited consolidated financial statements should be read in conjunction
with the Form 10-K.
The results for the three and six month interim periods covered hereby are not
necessarily indicative of the operating results for a full year.
2. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal years beginning
after June 15, 1999. Subsequently, in June 1999, the FASB issued SFAS No. 137
which delays the effective date of SFAS No. 133 until fiscal quarters beginning
after June 15, 2000. This Statement standardizes the accounting for derivative
instruments, including derivative instruments embedded in other contracts, by
requiring that an entity recognize those items as assets or liabilities in the
balance sheet and measure them at fair value. In specific circumstances, an
entity may elect to designate a derivative as follows: (1) a hedge of the
exposure to changes in the fair market value of a recognized asset or liability,
or of an unrecognized firm commitment that is attributable to a particular risk;
(2) a hedge of the exposure to variability in the cash flows of a recognized
asset or liability, or of a forecasted transaction, that are attributable to a
particular risk; or (3) a hedge of the foreign currency exposure of an
unrecognized firm commitment, an available-for-sale security, a forecasted
transaction, or a net investment in a foreign operation. This Statement
generally provides for matching the timing of a gain or loss recognition on the
hedging instrument with the recognition of the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or the
earnings effect of the hedged forecasted transaction. The Company will adopt
the requirements of this statement during the year ended December 31, 2000, and
it is not expected to have a material impact on the Company.
3. Earnings Per Share
Basic earnings per share represents income available to common stock 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. At June 30, 1999,
the Company had no outstanding dilutive securities such as stock options or
restricted stock. Earnings per share data is not presented in these financial
statements for the six months ended June 30, 1999 and the three and six months
ended June 30, 1998 since shares of common stock were not issued until March 19,
1999.
5
<PAGE>
The following table sets forth the calculation of basic and diluted earnings per
share for the periods indicated (dollars in thousands except per share amounts).
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 1,008 NA NA NA
Weighted average shares outstanding:
Weighted average shares outstanding 5,998,860 NA NA NA
Less: unearned ESOP shares (479,798) NA NA NA
-------------
Basic 5,519,062 NA NA NA
Diluted 5,519,062 NA NA NA
Net income per share:
Basic $ 0.18 NA NA NA
Diluted $ 0.18 NA NA NA
</TABLE>
4. Loan commitments
Outstanding commitments for all loans totaled $7.8 million at June 30, 1999
compared to $10.0 million at December 31, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
--------------
The following analysis discusses changes in the financial condition and results
of operations at and for the three and six months ended June 30, 1999 and 1998,
and should be read in conjunction with the Company's Unaudited Consolidated
Financial Statements and the notes thereto, appearing in Part I, Item 1 of this
document.
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such forward-
looking statements to be covered by the safe harbor provisions for forward-
looking statements contained in the Private Securities Reform Act of 1995, and
is including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on the operations
of the Company include, but are not limited to, changes in: interest rates,
general economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality or composition of the loan or investment
portfolios, demand for loan products,
6
<PAGE>
deposit flows, competition, demand for financial services in the Company's
market area and accounting principles and guidelines. These risks and
uncertainties should be considered in evaluating forward-looking statements and
undue reliance should not be placed on such statements. Examples of these
assumptions may be found in the discussion of Management Strategy, Classified
Assets, Nonperforming Assets and Impaired Loans, Provision for Loan Losses,
Liquidity and Capital Resources, Regulatory Capital and Year 2000 Compliance.
Further information concerning the Company and its business, including
additional factors that could materially affect the Company's financial results,
is included in the Company's other filings with the SEC.
The Company does not undertake - and specifically disclaims any obligation - to
publicly release the result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
General
The Company was incorporated in October 1998 under Delaware law. On March 19,
1999, the Company acquired Woronoco Savings Bank (the "Bank") as part of the
Bank's conversion from a Massachusetts-chartered mutual savings bank to a
Massachusetts-chartered stock savings bank (the "Conversion"). The Company
acquired the Bank for 50% of the net proceeds from the Conversion. The Company
is currently a savings and loan holding company regulated by the Office of
Thrift Supervision ("OTS"). In connection with the Conversion, the Company
issued an aggregate of 5,998,860 shares of its common stock of which 5,554,500
shares were sold at a purchase price of $10 per share in a subscription offering
and 444,360 shares were issued to Woronoco Savings Charitable Foundation, a
charitable foundation established by the Company. The net proceeds resulting
from the offering totaled $53.5 million.
The Company does not transact any material business other than through its
wholly-owned subsidiary, Woronoco Savings Bank (the "Bank"). The Bank's results
of operations are dependent primarily on net interest income, which is the
difference between the interest income earned on the Bank's interest-earning
assets, such as loans and investments, and the interest expense on its interest-
bearing liabilities, such as deposits and borrowings. The Bank also generates
non-interest income such as gains on sales of securities and loans, service
charges and other fees. The Bank's non-interest expenses primarily consist of
employee compensation and benefits, occupancy and equipment expense, marketing
expenses, data processing, professional services and other general and
administrative expenses. The Bank's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory agencies.
Management Strategy
The Bank operates as a community-oriented savings bank, offering traditional
deposit and loan products to its customers. In recent years, the Bank's
strategy has been to maintain profitability while managing its capital position
and limiting its credit and interest rate risk exposure. To accomplish these
objectives, the Bank has sought to:
. Emphasize providing superior service and competitive rates to increase
deposits, including commercial accounts
. Control credit risk by emphasizing the origination of single-family, owner-
occupied residential mortgage loans and consumer loans, consisting
primarily of home equity loans and lines of credit
7
<PAGE>
. Invest funds in excess of loan demand primarily in mortgage-backed and
investment grade equity securities
. Control interest rate risk by selectively utilizing off-balance sheet
hedging transactions such as interest rate swaps, caps and floors
. Originate high quality, multi-family and commercial real estate and
commercial business loans which increase the yields earned on its overall
loan portfolio, without incurring unnecessary risk
. Expand its lending and deposit base through the establishment of full-
service banking offices located inside supermarket/grocery stores
Beginning in 1994, the Bank began opening full-service banking offices in
supermarket/grocery stores operated by the regionally based Big Y Foods, Inc.
Since 1994, the Bank has established four such banking offices. The Bank will
continue to seek attractive opportunities to expand its branching activities
through supermarket facilities as such opportunities arise.
Management intends to continue these operating strategies in an effort to
enhance the Company's long-term profitability while maintaining a reasonable
level of interest rate risk. Management also intends to enhance the Company's
current operating strategy by expanding the products and services that it
offers, as necessary, to improve its market share in its primary market area.
In this regard, the Company has begun to offer new consumer and commercial
deposit products and customer improvement services, and it intends to expand its
trust services and invest in technological enhancements, such as PC banking, to
better serve its customers in the future. In addition, and consistent with its
plan to increase its loan portfolio, the Company has hired a loan originator and
an additional credit analyst, and it intends to hire an additional loan
originator as well as a commercial loan officer. Finally, management will
continue to evaluate various alternatives to increase the Company's market share
and expand its core businesses.
Comparison of Financial Condition at June 30, 1999 and December 31, 1998
Total assets increased by $16.2 million, or 3.8%, to $443.1 million at June 30,
1999, from $426.8 million at December 31, 1998 due primarily to growth in net
loans and to a lesser extent to increases in securities available for sale and
net deferred tax assets. Net loans increased by $9.5 million or 3.4%, to $293.6
million at June 30, 1999, from $284.0 million at December 31, 1998, primarily as
a result of net new originations of one- to four-family residential real estate
loans. Total stockholders' equity increased $51.1 million to $86.9 million at
June 30, 1999 from $35.8 million at December 31, 1998 reflecting the proceeds
from the Conversion. These proceeds were used to pay down Federal Home Loan
Bank borrowings and to fund the Company's growth in total assets.
Investments
The Company generally invests funds not utilized for loan origination activity
in securities, as a method of maintaining liquidity at levels deemed appropriate
by management and as a method of managing interest rate risk and the gap
position. The Company maintains an investment portfolio which consists
primarily of mortgage-backed and equity securities. The Company purchases
mortgage-backed securities to (1) achieve positive interest rate spreads with
minimal administrative expense and (2) lower its credit risk as a result of
guarantees provided by Freddie Mac, Fannie Mae, and Ginnie Mae. Although the
Company no longer invests in Real Estate Mortgage Investment Conduits
("REMICs"), the Company did maintain $7.4 million of such investments in its
securities portfolio at June 30, 1999. Generally, REMICs hold commercial and/or
8
<PAGE>
residential real estate mortgages in trust and issue securities representing an
undivided interest in such mortgages.
Investments in equity securities involve risk as they are not insured or
guaranteed investments and are affected by stock market fluctuations. Such
investments are carried at their market value and can directly affect the
stockholders' equity of the Company. The Company also utilizes, from time to
time, "covered" call options with respect to common stocks as a means to further
supplement its revenues associated with equity investments. Such investment
activity is specifically authorized by both federal and Massachusetts law.
An investment portfolio of securities must be categorized as held-to-maturity,
available-for-sale or held-for-trading. At June 30, 1999, the Company's
securities portfolio totaled $114.1 million, or 25.8% of assets, all of which
was categorized as available-for-sale.
The following table sets forth at the dates indicated information regarding the
amortized cost and market values of the Company's investment securities.
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
-------------------------------- --------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------- -------------- -------------- --------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Equity securities:
Preferred stock $ 3,646 $ 3,633 $ 3,754 $ 3,815
Trust preferred 9,901 9,612 - -
Common stock 18,049 20,372 15,438 17,436
Mutual funds 1,561 1,424 1,524 1,394
-------------- -------------- -------------- --------------
Total equity securities 33,157 35,041 20,716 22,645
-------------- -------------- -------------- --------------
Mortgage-backed and mortgage-related securities:
FHLMC 4,140 4,157 5,459 5,546
FNMA 28,001 27,777 31,955 32,435
GNMA 41,692 39,763 42,726 42,670
REMIC 7,095 7,385 7,833 8,113
-------------- -------------- -------------- --------------
Total mortgage-backed securities 80,928 79,082 87,973 88,764
-------------- -------------- -------------- --------------
Total securities (1) $ 114,085 $ 114,123 $ 108,689 $ 111,409
============== ============== ============== ==============
</TABLE>
(1) Does not include $5.7 million and $5.6 million of FHLB-Boston stock held at
June 30, 1999 and December 31, 1998, respectively.
Lending Activities
Federal and state laws and regulations limit the types of loans that the Company
may originate. The interest rates charged by the Company on loans are affected
principally by the Company's current asset/liability strategy, the demand for
such loans, the supply of money available for lending purposes and the rates
offered by its competitors. These factors are, in turn, affected by general and
economic conditions, monetary
9
<PAGE>
policies of the federal government, including the Federal Reserve Board ("FRB"),
legislative tax policies and governmental budgetary matters.
At June 30, 1999, the Company's total loan portfolio was $297.5 million, or
67.1%, of total assets. The following table sets forth the composition of the
Company's loan portfolio in dollar amounts and as a percentage of the respective
portfolio at the dates indicated.
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------- -----------------------
Percent Percent
Amount of Total Amount of Total
-------- ---------- -------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Real estate loans
One- to four-family $167,031 56.15% $157,698 54.95%
Multi-family 24,223 8.14% 22,962 8.00%
Commercial 22,370 7.52% 20,595 7.18%
Construction and development 2,278 0.77% 3,464 1.21%
-------- ------- -------- -------
Total real estate loans 215,902 72.58% 204,719 71.34%
-------- ------- -------- -------
Consumer loans
Home equity loans 62,249 20.93% 64,705 22.55%
Automobile 9,046 3.04% 9,460 3.30%
Other 3,607 1.21% 3,454 1.20%
-------- ------- -------- -------
Total consumer loans 74,902 25.18% 77,619 27.05%
-------- ------- -------- -------
Commercial loans 6,666 2.24% 4,613 1.61%
-------- -------- -------
Total loans 297,470 100.00% 286,951 100.00%
======= =======
Less:
Unadvanced loan funds (1) (2,162) (1,453)
Deferred loan origination costs 547 711
Allowance for loan losses (2,281) (2,166)
-------- --------
Net loans $293,574 $284,043
======== ========
</TABLE>
(1) Includes committed but unadvanced loan amounts.
One- to four-family residential real estate loans increased $9.3 million during
the six months ended June 30, 1999, reflecting new originations offset by
prepayments and amortization of the existing portfolio.
10
<PAGE>
For the six months ended June 30, 1999, multi-family real estate, commercial
real estate and commercial loans increased $1.3 million, $1.8 million and $2.1
million, respectively, primarily due to new originations.
Home equity loans decreased $2.5 million as a result of the amortization of the
existing portfolio partially offset by originations.
Classified Assets
Federal regulations and the Company's internal policies require that the Company
utilize an internal asset classification system as a means of reporting problem
and potential problem assets. The Company currently classifies problem and
potential problem assets as "Substandard," "Doubtful" or "Loss" assets. An
asset is considered Substandard if it is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged, if
any. Substandard assets include those characterized by the distinct possibility
that the Company will sustain some loss if the deficiencies are not corrected.
Assets classified as Doubtful have all of the weaknesses inherent in those
classified Substandard with the added characteristic that the weaknesses present
make collection or liquidation in full, on the basis of currently existing
facts, conditions and values, highly questionable and improbable. Assets
classified as Loss are those considered uncollectible and of such little value
that their continuance as assets, without the establishment of a specific loss
reserve, is not warranted. Assets which do not currently expose the Company to
a sufficient degree of risk to warrant classification in one of the
aforementioned categories but possess weaknesses are required to be designated
"Special Mention."
When the Company classifies one or more assets, or portions thereof, as
Substandard or Doubtful, it is required to establish an allowance for loan
losses in an amount deemed prudent by management unless the loss of principal
appears to be remote. When the Company classifies one or more assets, or
portions thereof, as Loss, it is required either to establish a specific
allowance for losses equal to 100% of the amount of the assets so classified or
to charge off the loan in full.
At June 30, 1999, the Company had $2.7 million, or 0.6%, of assets designated as
Substandard, consisting of 17 one- to four-family loans, three commercial real
estate loans, four multi-family loans, nine home equity lines of credit , 16
consumer loans and three commercial business loans. At such date, the Company
had no loans classified as Doubtful or Loss. Also, at June 30, 1999, the
Company had $1.1 million or 0.2% of assets designated as Special Mention,
consisting of eight one- to four-family real estate loans, three commercial real
estate loans, three multi-family real estate loan, two home equity lines of
credit and three commercial business loans. At June 30, 1999, all of these
classified assets represented 1.3% of total loans.
At June 30, 1999, the Company had two loans, each with balances of $500 thousand
or more, which had been adversely classified or identified as a problem credit.
The first, which is classified as substandard, was restructured in 1994 and is
secured by a blanket first mortgage on ten multi-family properties located in
Westfield, Massachusetts. Currently, the borrower provides the Company with
monthly financial statements and the Company actively monitors the properties'
vacancy rates. The borrower is current with respect to payments. The second
loan, which was originally restructured in 1992 and, more recently in December
1997, is classified as impaired. This loan is secured by an office/retail
building located in Wilbraham, Massachusetts. The borrower is current with
respect to payments. As of June 30, 1999, the aggregate outstanding carrying
balance of these loans was $1.4 million.
11
<PAGE>
Non-performing Assets and Impaired Loans
The following table sets forth information regarding nonaccrual loans, real
estate owned ("REO") and restructured loans. Interest on loans is recognized on
a simple interest basis and is generally not accrued on loans which are
identified as impaired or loans which are ninety days or more past due.
Interest income previously accrued on such loans is reversed against current
period interest income. Interest income on all nonaccrual loans is recognized
only to the extent of interest payments received. If interest payments on all
nonaccrual loans for the six months ended June 30, 1999 and 1998 had been made
in accordance with original loan agreements, interest income of $8 thousand and
$9 thousand respectively, would have been recognized. On January 1, 1995, the
Company adopted Statement of Financial Accounting Standards ("SFAS") No. 114
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118.
At June 30, 1999, the Company had a $1.2 million recorded investment in impaired
loans which had specific allowances of $285 thousand. At December 31, 1998,
there were $1.2 million of impaired loans with specific loan loss allowances of
$283 thousand.
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Nonaccruing loans:
Real estate:
One- to four- family $ 25 $ 167
Commercial 46 109
Home equity loans and lines of credit 45 30
Commercial 48 -
-------------- --------------
Total 164 306
Real estate owned (REO), net (1) 211 241
-------------- --------------
Total nonperforming assets 375 547
Troubled debt restructurings 758 773
-------------- --------------
Troubled debt restructurings and
total nonperforming assets $ 1,133 $ 1,320
============== ==============
Total nonperforming loans and
troubled debt restructurings as a
percentage of total loans (2) (3) 0.31% 0.38%
Total nonperforming assets and
troubled debt restructurings as a
percentage of total assets (3) 0.26% 0.31%
</TABLE>
(1) Real estate owned balances are shown net of related allowances.
(2) Total loans includes loans, less unadvanced loan funds, plus deferred loan
costs (fees), net.
(3) Nonperforming assets consist of nonperforming loans and REO. Nonperforming
loans consist of nonaccruing loans and all loans 90 days or more past due
and other loans which have been identified by the Company as presenting
uncertainty with respect to the collectibility of interest or principal.
12
<PAGE>
Allowance for Loan Losses
The allowance for loan losses is maintained through provisions for loan losses
based on management's on-going evaluation of the risks inherent in the Company's
loan portfolio, consideration of the trends in the Company's loan portfolio,
national and regional economies and the real estate market in the Company's
primary lending area. The allowance for loan losses is maintained at an amount
management considers adequate to cover losses in the Company's loan portfolio
which are deemed probable and estimable based on information currently known to
management. The Company's loan loss allowance determinations also incorporate
factors and analyses which consider the potential principal loss associated with
the loan, costs of acquiring the property securing the loan through foreclosure
or deed in lieu thereof, the periods of time involved with the acquisition and
sale of such property, and costs and expenses associated with maintaining and
holding the property until sale.
Management calculates a loan loss allowance sufficiency analysis on a monthly
basis based upon the loan portfolio composition, asset classifications, loan-to-
value ratios, potential impairments in the loan portfolio and other factors.
The analysis is compared to actual losses, peer group comparisons and economic
conditions. Management believes that, based on information available at June
30, 1999, the Company's allowance for loan losses was sufficient to cover losses
inherent in the Company's loan portfolio at that time. Based upon the Company's
plan to increase its emphasis on non-one- to four-family mortgage lending, the
Company may further increase its allowance for loan losses over future periods
as conditions dictate. However, no assurances can be given that the Company's
level of allowance for loan losses will be sufficient to cover future loan
losses incurred by the Company or that further future adjustments to the
allowance for loan losses will not be necessary if economic and other conditions
differ substantially from the economic and other conditions used by management
to determine the current level of the allowance for loan losses. In addition,
the Federal Deposit Insurance Corporation ("FDIC") and the Commissioner of Banks
for the Commonwealth of Massachusetts ("Commissioner"), as an integral part of
their examination processes, periodically review the Company's allowance for
loan losses. Such agencies may require the Company to make additional
provisions for estimated loan losses based upon judgments different from those
of management.
13
<PAGE>
The following table sets forth activity in the allowance for loan losses for the
periods set forth in the table.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Allowance for loan losses, beginning of period $2,166 $1,952
Charged-off loans:
Real estate 7 -
Consumer 23 31
-------- --------
Total charged-off loans 30 31
Recoveries on loans previously charged-off:
Real estate 9 -
Consumer 16 11
-------- --------
Total recoveries 25 11
-------- --------
Net loans charged off 5 20
Provision for loan losses 120 120
-------- --------
Allowance for loan losses, end of period $2,281 $2,052
======== ========
Net loans charged-off to average
interest-earning loans - 0.01%
Allowance for loan losses to total loans (1) 0.77% 0.73%
Allowance for loan losses to nonperforming
loans and troubled debt restructurings (2) 247.40% 223.29%
Net loans charged-off to allowance for loan losses 0.44% 1.95%
Recoveries to charge-offs 83.33% 35.48%
</TABLE>
(1) Total loans includes loans, less unadvanced loan funds, plus deferred loan
costs (fees), net.
(2) Nonperforming loans and troubled debt restructurings consist of all loans 90
days or more past due and other loans which have been identified by the Bank
as presenting uncertainty with respect to the collectibility of interest or
principal.
14
<PAGE>
The following table sets forth the percent of allowance for loan losses to total
allowances and the percent of loans to total loans in each of the categories
listed at the dates indicated. Management believes that the allowance can be
allocated by category only on an approximate basis. These allocations are not
necessarily indicative of future losses and do not restrict the use of the
allowance to absorb losses in any other loan category.
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------------------------- --------------------------------------
Percent of Percent Percent of Percent
Allowance of Loans Allowance of Loans
in each in each in each in each
Category Category Category Category
to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans
---------- ----------- ---------- ---------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans $ 1,545 67.73% 72.58% $ 1,543 71.24% 71.34%
Consumer loans 638 27.97% 25.18% 525 24.24% 27.05%
Commercial loans 98 4.30% 2.24% 98 4.52% 1.61%
---------- ----------- ---------- ---------- ----------- ----------
Total allowance for loan losses $ 2,281 100.00% 100.00% $ 2,166 100.00% 100.00%
========== =========== ========== ========== =========== ==========
</TABLE>
Deposits
The following table sets forth the distribution of deposit accounts for the
periods indicated.
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
----------------------- -----------------------
Percent Percent
of Total of Total
Balance Deposits Balance Deposits
--------- ---------- --------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Demand deposits $ 11,479 4.14% $ 10,382 3.77%
Savings accounts 69,571 25.08% 66,774 24.28%
Money market accounts 28,804 10.38% 27,176 9.88%
NOW accounts 34,265 12.35% 32,305 11.75%
Certificates of deposit 133,261 48.05% 138,404 50.32%
-------- ------- -------- -------
Total deposits $277,380 100.00% $275,041 100.00%
======== ======= ======== =======
</TABLE>
The Company's core deposits, consisting of demand, savings, money market and NOW
accounts, increased $7.5 million, or 5.5%, reflecting the active promotion of
these products as well as increased deposits due to full service banking offices
opened during 1998 and 1999.
Certificates of deposit balances declined $5.1 million, or 3.7%, primarily due
to the maturing of previously offered "specials" that the Company did not
actively seek to retain.
15
<PAGE>
Comparison of Operating Results for the Three Months Ended June 30, 1999 and
1998
General
The Company reported net income of $1.0 million for the three months ended June
30, 1999 compared to net income of $1.1 million for the same period in 1998.
This decrease was primarily due to lower gains on sales of securities and higher
other expenses, partially offset by growth in net interest income.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
on the relative amounts of interest-earning assets and interest-bearing
liabilities and the interest rate earned or paid on them.
The following table sets forth, for the periods indicated, average balances,
interest income and expense, and yields earned or rates paid on the major
categories of assets and liabilities. The average yields and costs are derived
by dividing income or expense by the average balance of interest-earning assets
or interest-bearing liabilities, respectively, for the periods shown and reflect
annualized yields and costs. Average balances are derived from average daily
balances. The yields and costs include fees which are considered adjustments to
yields. Loan interest and yield data does not include any accrued interest from
nonaccruing loans.
16
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
--------------------------------------------------------------------------
1999 1998
---------------------------------- --------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ---------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets: (1)
Investments:
Mortgage-backed securities $ 82,329 $ 1,310 6.36% $ 36,688 $ 595 6.49%
Equity securities 23,695 245 4.14% 20,736 174 3.36%
FHLB stock 5,733 90 6.28% 2,939 43 5.85%
Loans: (2)
Residential real estate loans 186,766 3,382 7.24% 169,708 3,334 7.86%
Commercial real estate loans 22,051 504 9.14% 21,210 494 9.32%
Consumer loans 75,737 1,390 7.44% 77,644 1,442 7.53%
Commercial loans 6,597 122 7.40% 5,533 103 7.45%
--------- ------- --------- -------
Loans, net 291,151 5,398 7.44% 274,095 5,373 7.87%
Other 3,109 27 3.47% 3,587 39 4.35%
--------- ------- --------- -------
Total interest-earning assets 406,017 7,070 6.98% 338,045 6,224 7.39%
------- -------
Noninterest-earning assets 27,089 19,640
--------- ---------
Total assets $ 433,106 $ 357,685
========= =========
Interest-bearing liabilities:
Deposits:
Money market accounts $ 28,487 $ 217 3.09% $ 23,404 $ 204 3.54%
Savings accounts (3) 69,452 350 2.04% 66,959 384 2.33%
NOW accounts 33,711 88 1.06% 31,177 75 0.98%
Certificates of deposit 134,343 1,688 5.10% 139,269 1,933 5.63%
--------- ------- --------- -------
Total interest-bearing deposits 265,993 2,343 3.57% 260,809 2,596 4.04%
Borrowings 68,115 839 4.93% 52,447 722 5.51%
--------- ------- --------- -------
Total interest-bearing liabilities 334,108 3,182 3.85% 313,256 3,318 4.28%
------- ------ ------- ------
Demand deposits 8,278 7,477
Other noninterest-bearing liabilities 3,114 1,783
--------- ---------
Total liabilities 345,500 322,516
Total stockholders' equity 87,606 35,169
--------- ---------
Total liabilities and stockholders' equity $ 433,106 $ 357,685
========= =========
Net interest-earning assets $ 71,909 $ 24,789
========= =========
Net interest income/interest
rate spread (4) $ 3,888 3.13% $ 2,906 3.11%
======= ====== ======= ======
Net interest margin as a percentage
of interest-earning assets (5) 3.83% 3.44%
====== ======
Ratio of interest earning assets
to interest-bearing liabilities 121.52% 107.91%
====== ======
</TABLE>
(1) Includes related assets available-for-sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan origination fees, unadvanced loan funds,
allowance for loan losses and includes nonaccrual loans. The Company
records interest income on nonaccruing loans on a cash basis.
(3) Savings accounts include mortgagors' escrow deposits.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
17
<PAGE>
Net interest income totaled $3.9 million for the three months ended June 30,
1999 compared to $2.9 million for the same period in 1998, representing an
increase of $1.0 million, or 33.8%. This increase was primarily due to a $68.0
million increase in average interest-earning assets and a 41 basis points
increase in the net interest margin. This significant increase in the net
interest margin primarily reflects the use of conversion proceeds to fund a
portion of the Company's asset growth.
Interest and dividend income increased $846 thousand, or 13.6%, to $7.1 million
for the three months ended June 30, 1999. This increase was attributable to
higher levels of interest-earning assets offset by lower yields on
interest-earning assets. Interest-earning assets totaled $406.0 million for the
quarter ended June 30, 1999 compared to $338.0 million for the same period last
year, an increase of $68.0 million, or 20.1%. Average investments increased
$48.6 million, or 84.6%, resulting from the use of conversion proceeds to fund
the purchase of mortgage-backed securities and the securitization of $19.1
million of fixed rate one-to four-family residential mortgage loans in the third
quarter of 1998. Average loans increased $17.1 million, or 6.2%, primarily due
to new originations of residential real estate loans, offset by amortization and
prepayments of the existing loan portfolio and the loan securitization. Yields
on interest-earning assets declined 41 basis points due to a lower interest rate
environment, the refinancing of existing loans, and an increase in lower
yielding mortgage-backed securities.
Total interest expense decreased $136 thousand, or 4.1%, to $3.2 million for the
three months ended June 30, 1999 resulting primarily from lower rates paid on
interest-bearing liabilities, offset by an increase in balances on such
liabilities. Rates paid on interest-bearing liabilities declined 43 basis points
reflecting a lower interest rate environment and the maturing of previously
offered, specially priced certificates of deposits. The average balance of
interest-bearing liabilities was $334.1 million for the quarter ended June 30,
1999 as compared to $313.3 million for the same period last year, reflecting an
increase of $20.9 million, or 6.7%. This was primarily due to an increase of
$15.7 million in average borrowings resulting from management's decision to
increase its utilization of borrowings to fund asset growth. The growth in
average interest-bearing liabilities was also due to an increase of $5.2
million, or 2.0%, in average interest-bearing deposits reflecting growth in
money market, savings and NOW account deposits as a result of the Company's
active promotion of these products, partially offset by the maturity of
specially priced certificates of deposits which the Bank did not seek to retain.
18
<PAGE>
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); and (iii) 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.
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 compared to 1998
---------------------------------------------
Increase (Decrease)
Due to
---------------------------------------------
Volume Rate Net
-------------- -------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-earning assets:
Mortgage-backed securities $ 726 $ (11) $ 715
Equity securities 31 40 71
FHLB stock 44 3 47
Loans:
Residential real estate loans 309 (261) 48
Commercial real estate loans 19 (9) 10
Consumer loans (35) (17) (52)
Commercial loans 20 (1) 19
------- -------- ------
Total loans 313 (288) 25
Other 20 (32) (12)
------- -------- ------
Total interest-earning assets $ 1,134 $ (288) $ 846
------- -------- ------
Interest-bearing liabilities:
Deposits:
Money market accounts $ 39 $ (26) $ 13
Savings accounts (1) 13 (47) (34)
NOW accounts 7 6 13
Certificates of deposit (62) (183) (245)
------- -------- ------
Total deposits (3) (250) (253)
Borrowings 144 (27) 117
------- -------- ------
Total interest-bearing liabilities 141 (277) (136)
------- -------- ------
Increase (decrease) in net interest income $ 993 $ (11) $ 982
======= ======== ======
</TABLE>
(1) Includes interest on mortgagors' escrow deposits.
19
<PAGE>
Provision for Loan Losses
The Company's provision for loan losses amounted to $60 thousand for each of the
quarters ended June 30, 1999 and 1998. The allowance for loan losses is
maintained through provisions for loan losses based on management's on-going
evaluation of the risks inherent in the Company's loan portfolio, consideration
of the trends in the Company's loan portfolio, national and regional economies
and the real estate market in the Company's primary lending area. The allowance
for loan losses is maintained at an amount management considers adequate to
cover losses in its loan portfolio which are deemed probable and estimable based
on information currently known to management.
Other Income
Total other income decreased $474 thousand, or 34.5%, to $899 thousand for the
quarter ended June 30, 1999 from $1.4 million in the comparable 1998 period as a
result of lower gains on sales of securities, partially offset by growth in fee
income. Fee income increased $71 thousand, or 17.4%, for the three months ended
June 30, 1999, reflecting an increase in fees associated with the Company's
larger deposit base as well as higher servicing income due to the securitization
of $19.1 million of residential mortgages in the third quarter of 1998.
Other Expenses
Total other expense increased $621 thousand, or 24.9%, to $3.1 million for the
quarter ended June 30, 1999 compared to $2.5 million for the same period in
1998. Salaries and benefits increased $376 thousand, or 32.3%, reflecting
expenses related to the Bank's employee stock ownership plan ("ESOP") which was
established in 1999, additional staff required to support the Company's expanded
branch network and growth and standard wage increases. Occupancy and equipment
expenses increased $88 thousand, or 25.7%, resulting from the opening of a new,
full service banking office as well as the expansion and renovation of the
Company's headquarters. Professional expenses increased $121 thousand, or 96.8%,
due to increased expenses related to the additional requirements of being a
public company and expenses associated with achieving year 2000 compliance.
20
<PAGE>
Comparison of Operating Results for the Six Months Ended June 30, 1999 and 1998
General
The Company reported a net loss of $640 thousand for the six months ended June
30, 1999 compared to net income of $1.7 million for the same period in 1998. The
results for the first six months of 1999 were affected by the Company's
contribution of $4.4 million to fund the Woronoco Savings Charitable Foundation
in connection with the Bank's conversion to stock form and the related tax
effect of $1.5 million. Excluding these items, the Company would have earned
$2.3 million for the six months ended June 30, 1999 representing an increase of
$560 thousand or 32.3% from the same period last year. This increase was
primarily due to growth in net interest income, partially offset by lower other
income and an increase in other expenses.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
on the relative amounts of interest-earning assets and interest-bearing
liabilities and the interest rate earned or paid on them.
The following table sets forth, for the periods indicated, average balances,
interest income and expense, and yields earned or rates paid on the major
categories of assets and liabilities. The average yields and costs are derived
by dividing income or expense by the average balance of interest-earning assets
or interest-bearing liabilities, respectively, for the periods shown and reflect
annualized yields and costs. Average balances are derived from average daily
balances. The yields and costs include fees which are considered adjustments to
yields. Loan interest and yield data does not include any accrued interest from
nonaccruing loans.
21
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-------------------------------------------------------------------------
1999 1998
--------------------------------- ------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------------ ---------- ------- ----------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:(1)
Investments:
Mortgage-backed securities $ 84,543 $ 2,798 6.62% $ 37,928 $ 1,270 6.70%
Equity securities 22,860 474 4.15% 18,338 340 3.71%
FHLB stock 5,719 145 5.07% 2,772 83 5.99%
Loans:(2)
Residential real estate loans 183,946 6,744 7.33% 166,508 6,505 7.81%
Commercial real estate loans 22,100 983 8.90% 19,985 995 9.96%
Consumer loans 76,383 2,802 7.40% 77,293 2,835 7.40%
Commercial loans 6,727 251 7.42% 5,669 214 7.51%
------------ ---------- ----------- ---------
Loans, net 289,156 10,780 7.47% 269,455 10,549 7.85%
Other 15,851 347 4.35% 4,795 109 4.52%
------------ ---------- ----------- ---------
Total interest-earning assets 418,129 14,544 6.97% 333,288 12,351 7.42%
---------- ---------
Noninterest-earning assets 27,538 19,610
------------ -----------
Total assets $ 445,667 $ 352,898
============ ===========
Interest-bearing liabilities:
Deposits:
Money market accounts $ 28,058 $ 425 3.05% $ 23,204 $ 395 3.43%
Savings accounts (3) 85,014 680 1.61% 66,110 754 2.30%
NOW accounts 32,412 165 1.03% 29,905 141 0.95%
Certificates of deposit 136,175 3,459 5.12% 139,914 3,873 5.58%
------------ ----------- ---------- --------
Total interest-bearing deposits 281,659 4,729 3.39% 259,133 5,163 4.02%
Borrowings 86,213 2,186 5.04% 50,590 1,412 5.55%
------------ ----------- ---------- --------
Total interest-bearing liabilities 367,872 6,915 3.77% 309,723 6,575 4.27%
----------- ------- -------- --------
Demand deposits 9,058 6,760
Other noninterest-bearing liabilities 3,068 1,779
------------ -----------
Total liabilities 379,998 318,262
Total stockholders' equity 65,669 34,636
------------ -----------
Total liabilities and stockholders equity $ 445,667 $ 352,898
============ ===========
Net interest-earning assets $ 50,257 $ 23,565
============ ==========
Net interest income/interest
rate spread (4) $ 7,629 3.20% $ 5,776 3.15%
============ ======= ======== ========
Net interest margin as a percentage
of interest-earning assets (5) 3.65% 3.47%
======= ========
Ratio of interest earning assets
to interest-bearing liabilities 113.66% 107.61%
======= ========
</TABLE>
(1) Includes related assets available-for-sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan origination fees, unadvanced loan funds,
allowance for loan losses and includes nonaccrual loans. The Company
records interest income on nonaccruing loans on a cash basis.
(3) Savings accounts include mortgagors' escrow deposits.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost
of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
22
<PAGE>
Net interest income totaled $7.6 million for the six months ended June 30, 1999
compared to $5.8 million for the same period in 1998, representing an increase
of $1.9 million, or 32.1%. This increase was primarily due to a $84.8 million
increase in average interest-earning assets and an 18 basis points increase in
the net interest margin. This increase in the net interest margin primarily
reflects the use of conversion proceeds to fund a portion of the Company's asset
growth.
Interest and dividend income increased $2.2 million, or 17.8%, to $14.5 million
for the six months ended June 30, 1999. This increase was attributable to higher
levels of interest-earning assets offset by lower yields on interest-earning
assets. Interest-earning assets totaled $418.1 million for the six months ended
June 30, 1999 compared to $333.3 million for the same period last year, an
increase of $84.8 million, or 25.4%. Average investments increased $51.1
million, or 90.9%, as the Company utilized borrowings and conversion proceeds to
purchase mortgage-backed securities. The growth in average investments also
reflects the securitization of $19.1 million of fixed rate one-to four-family
residential mortgage loans in the third quarter of 1998. Average loans increased
$19.7 million, or 7.3%, primarily due to new originations of residential real
estate loans, offset by amortization and prepayments of the existing loan
portfolio and the loan securitization. Other interest-earning assets increased
$11.1 million as a result of higher federal funds sold. This increase in federal
funds sold reflects the receipt of subscriptions from potential investors as
part of the Conversion. Yields on interest-earning assets declined 45 basis
points due to a lower interest rate environment, the refinancing of existing
loans and increases in lower yielding mortgage-backed securities and federal
funds sold balances.
Total interest expense increased $340 thousand, or 5.2%, to $6.9 million for the
six months ended June 30, 1999 resulting from an increase in interest-bearing
liabilities offset by lower rates paid on such liabilities. Total interest-
bearing liabilities were $367.9 million for the six months ended June 30, 1999
as compared to $309.7 million for the same period last year, reflecting an
increase of $58.1 million, or 18.8%. This was primarily due to an increase of
$35.6 million in average borrowings resulting from management's decision to
increase its utilization of borrowings to fund a portion of the Company's asset
growth. The growth in the average balance of total interest-bearing liabilities
was also due an increase of $22.5 million, or 8.7%, in average interest-bearing
deposits primarily reflecting the receipt of subscription proceeds from
potential investors as part of the Conversion. Rates paid on interest-bearing
liabilities declined 50 basis points reflecting a lower interest rate
environment as well as the effect of the subscription receipts.
23
<PAGE>
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); and (iii) 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.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 compared to 1998
----------------------------------------------
Increase (Decrease)
Due to
----------------------------------------------
Volume Rate Net
------------- ------------ ---------------
<S> <C> <C> <C>
Interest-earning assets:
Mortgage-backed securities $ 1,543 $ (15) $ 1,528
Equity securities 94 40 134
FHLB stock 75 (13) 62
Loans:
Residential real estate loans 639 (400) 239
Commercial real estate loans 94 (106) (12)
Consumer loans (33) 0 (33)
Commercial loans 39 (2) 37
------------- ------------- ---------------
Total loans 739 (508) 231
Other 244 (6) 238
-------------- ------------ ---------------
Total interest-earning assets $ 2,695 $ (502) $ 2,193
-------------- ------------ ---------------
Interest-bearing liabilities:
Deposits:
Money market accounts $ 74 $ (44) $ 30
Savings account (1) 150 (224) (74)
NOW accounts 13 11 24
Certificates of deposit (95) (319) (414)
------------- ------------ --------------
Total deposits 142 (576) (434)
Borrowings 825 (51) 774
------------- ------------ --------------
Total interest-bearing liabilities 967 (627) 340
------------- ------------ ---------------
Increase in net interest income $ 1,728 $ 125 $ 1,853
============= ============= ===============
</TABLE>
(1) Includes interest on mortgagors' escrow deposits.
24
<PAGE>
Provision for Loan Losses
The Company's provision for loan losses totaled $120 thousand for each of the
six months ended June 30, 1999 and 1998. The allowance for loan losses is
maintained through provisions for loan losses based on management's on-going
evaluation of the risks inherent in the Company's loan portfolio, consideration
of the trends in the Company's loan portfolio, national and regional economies
and the real estate market in the Company's primary lending area. The allowance
for loan losses is maintained at an amount management considers adequate to
cover losses in its loan portfolio which are deemed probable and estimable based
on information currently known to management.
Other Income
Total other income decreased $157 thousand, or 7.9%, to $1.8 million for the six
months ended June 30, 1999 from $2.0 million in the 1998 period as a result of
lower gains on sales of securities, partially offset by growth in fee income.
Fee income increased $157 thousand, or 20.6%, for the six months ended June 30,
1999, reflecting an increase in fees associated with the Company's larger
deposit base as well as higher servicing income due to the securitization of
$19.1 million of residential mortgages in the third quarter of 1998.
Other Expenses
Other expenses totaled $10.4 million for the six months ended June 30, 1999
compared to $5.0 million for the 1998 period. Excluding the $4.4 million
contribution to the Woronoco Savings Charitable Foundation, other expenses for
the six months ended June 30, 1999 increased $943 thousand, or 18.8%, from the
comparable 1998 period primarily due to ESOP expense, the opening of a new, full
service banking office, additional staff required to support the Company's
expanded branch network and growth, investor related expenses and year 2000
expenses.
Income Taxes
The Company recorded an income tax benefit of $427 thousand for the six months
ended June 30, 1999 compared to income tax expense of $891 thousand for the same
period last year. Excluding the tax effect of $1.5 million related to the
Company's contribution to establish the Woronoco Savings Charitable Foundation,
the Company's total provision for income taxes would have been $1.1 million for
the first six months of 1999.
Liquidity and Capital Resources
Liquidity and funding strategies are the responsibility of the Asset/Liability
Management Committee (the "ALCO"). The ALCO is responsible for establishing
liquidity targets and implementing strategies to meet desired goals. Liquidity
is measured by the Company's ability to raise cash within 30 days at a
reasonable cost and with a minimum of loss. The Company's primary sources of
funds are deposits, principal and interest payments on loans and investment
securities and borrowings from the FHLB-Boston. While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
outflows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and competition.
The primary investing activities of the Company are the origination of
residential one-to four-family mortgage loans and consumer loans, primarily home
equity loans and lines of credit, and, to a lesser extent, multi-family and
commercial real estate loans, construction and development loans, commercial
business loans, other types of consumer loans and the investment in mortgage-
backed and equity securities. These
25
<PAGE>
activities are funded primarily by principal and interest payments on loans and
investment securities, deposit growth and the utilization of FHLB advances.
During the six months ended June 30, 1999, the Company's loan originations
totaled $42.0 million. At June 30, 1999, the Company's investments in mortgage-
backed and equity securities totaled $114.1 million. The Company experienced a
net increase in total deposits of $2.3 million for the six months ended June 30,
1999. Deposit flows are affected by the overall level of interest rates, the
interest rates and products offered by the Company and its local competitors and
other factors. The Company closely monitors its liquidity position on a daily
basis. If the Company requires funds beyond its ability to generate them
internally, additional sources of funds are available through FHLB advances. At
June 30, 1999, the Company had $75.0 million of outstanding FHLB borrowings.
Although the Company's policies allow for the use of brokered deposits, the
Company does not currently solicit brokered deposits.
Additionally, in August 1998, the Company completed the securitization
(converting whole loans into mortgage-backed securities) of $19.1 million of 30
year fixed-rate one- to four-family mortgage loans with Fannie Mae. The loans
are serviced as mortgage-backed securities for Fannie Mae. In addition to
resulting in a decrease in loans receivable and a related increase in mortgage-
backed securities, the securitization provides a liquidity related benefit to
the Company in that it adds high quality collateral to the Company's balance
sheet which can be pledged for borrowings in the secondary market and designates
such loans as "available-for-sale" so that the Company could sell or
collateralize such securities.
Outstanding commitments for all loans totaled $7.8 million at June 30, 1999.
Management of the Company anticipates that it will have sufficient funds
available to meet its current loan commitments. Certificates of deposit which
are scheduled to mature in one year or less from June 30, 1999 totaled $114.9
million. The Company relies primarily on competitive rates, customer service,
and long-standing relationships with customers to retain deposits. From time to
time, the Company will also offer competitive special products to its customers
to increase retention and to attract new deposits. Based upon the Company's
experience with deposit retention and current retention strategies, management
believes that, although it is not possible to predict future terms and
conditions upon renewal, a significant portion of such deposits will remain with
the Company.
Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined) to risk weighted assets (as
defined) and to average assets (as defined). As of June 30, 1999, the Bank meets
all adequacy requirements to which it is subject.
26
<PAGE>
As of June 30, 1999 and December 31, 1998, the most recent notification from the
FDIC 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 I risk-based and Tier I leverage ratios
as set forth in the following table. There were no conditions or events since
that notification that management believes have changed the Bank's category.
<TABLE>
<CAPTION>
Minimum
to be Well
Capitalized Under
Minimum for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------- ------------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- -------- ---------- ----------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999:
- --------------------
Total Capital to Risk Weighted Assets $ 60,882 23.0% $ 21,206 8.0% $ 26,507 10.0%
Tier 1 Capital to Risk Weighted Assets 58,601 22.1% 10,603 4.0% 15,904 6.0%
Tier 1 Capital to Average Assets 58,601 13.2% 13,324 - 3.0% - 22,207 5.0%
22,207 5.0%
As of December 31, 1998:
- ------------------------
Total Capital to Risk Weighted Assets $ 36,226 13.9% $ 20,898 8.0% $ 26,122 10.0%
Tier 1 Capital to Risk Weighted Assets 34,060 13.0% 10,449 4.0% 15,673 6.0%
Tier 1 Capital to Average Assets 34,060 9.3% 10,929 - 3.0% - 18,215 5.0%
18,215 5.0%
</TABLE>
Year 2000 Compliance
As the Year 2000 approaches, an important business issue has emerged regarding
how existing computer application software programs and operating systems can
accommodate this date value. Many existing application software products are
designed to accommodate only two digits. If not corrected, many computer
applications and systems could fail or create erroneous results at or after the
Year 2000. While the Company maintains an internal computer system for
approximately 20% of its operating functions, the substantial majority of the
Company's data processing is outsourced to a third party vendor. The Company's
Year 2000 Project Planning Committee has identified potential problems
associated with the Year 2000 issue and has implemented a Year 2000 Action Plan
(the "Y2K Plan") designated to ensure that all software and hardware used in
connection with the Company's business will manage and manipulate data involved
in the transition from 1999 to 2000 without functional or data abnormality and
without inaccurate results related to such data. Currently, 95% of the Company's
internal software, and 99% of its hardware are Year 2000 compliant. The
Company's critical issues schedule identifies timelines and responsibilities for
completion of the remainder. The remaining items consist of the Company's e-
mail, safe deposit billing, and voice mail systems. In keeping with our
schedule, compliant versions of all remaining critical issues have now been
arranged. Installation Dates are currently being scheduled for the summer of
1999.
Accordingly, the Company recognizes that its ability to be Year 2000 compliant
is dependent upon the cooperation of its vendors and, in particular, this third
party data processor. The Company is requiring its computer systems and software
vendors to represent that the products provided are or will be Year 2000
compliant, and has planned a program of testing for compliance. The Company
utilizes these representations from its computer system and software vendors for
the purpose of determining the vendors' Year 2000
27
<PAGE>
readiness. Upon receiving such representations, the Company determines the need
for replacement of or remediations to each particular vendor's system. The
Company recognizes that its ability to pursue vendors for possible
misrepresentation is limited in comparison to the disruption that may occur in
the Company's business and operations if a particular vendor is not Year 2000
compliant. Accordingly, rather than solely relying on representations from its
vendors, the Company also independently tests all available critical vendor
applications. The Company has completed testing of its critical vendors'
computer applications and any known Year 2000 issues have been corrected. The
Company has received representations from its primary third party data
processing vendor that its internally developed programs are fully compliant. Of
the data processor's internal programs, its critical banking related programs
are also 100% compliant. Testing of the data center's core applications by its
user banks is now completed. For other appropriate applications involving
multiple banks using similar services, "proxy" testing is performed with the
results shared with all similarly situated banks. Proxy statements for tested
applications were issued in July of 1999. The data processor's Year 2000 User
Committee, on which Woronoco Savings Bank is represented, meets quarterly to
address important Year 2000 issues.
The Company identified and contacted commercial borrowers that may be vulnerable
to the Year 2000 date change. Additionally, the Company determined that Year
2000 readiness issues have little or no impact on the Company's one- to four-
family lending relationships. The Company views Year 2000 compliance as an
integral part of the commercial loan credit analysis and underwriting process.
As warranted by the type and nature of a particular loan request, the Company
reviews and assesses the impact of Year 2000 on an applicant's business and any
factors that may limit the applicant's ability to repay the debt. Additionally,
an assessment is made on the potential effect that vendors, suppliers and
customers, who fail to remediate Year 2000 risks, might have on the applicant's
business. Based upon this review, a determination is made as to whether it is
necessary to require the applicant to develop a formal program to address Year
2000 issues and to report the progress of such a program to the Company. In
situations that warrant formal programs and monitoring, this requirement becomes
a condition for granting the loan. The Company completed its efforts to contact
and survey all of its existing commercial borrowers with lending relationships
having aggregate exposure exceeding $500,000. The majority of these
relationships are comprised of multi-family and commercial real estate loans.
All 32 borrowers in this category responded to a comprehensive questionnaire
either in writing or via telephone. Based upon the responses and analysis of the
type of business operations that each borrower conducts, the Company concluded
that the effect of Year 2000 issues on these credits does not pose a material
risk to the Company.
The Company's operations may also be affected by the Year 2000 compliance of its
significant suppliers and other vendors, including those that provide
non-information and technology systems. With respect to those significant
suppliers and other vendors, information has been gathered to assess their Year
2000 compliance. Over 80% of the those critical suppliers and vendors contacted
have met our expectations concerning their Year 2000 compliance progress. Those
vendors that are not Year 2000 compliant and who are unlikely to achieve Year
2000 compliance are being replaced according to established timeframes as
identified in the Company's contingency plans. If any of the Company's
significant suppliers or other vendors do not achieve Year 2000 compliance in a
timely manner, the Company's business or operations could be adversely affected.
The Company also has prepared a Year 2000 Contingency Plan for use in the
unlikely event of a Year 2000 related failure affecting any of its core business
processes. Various department managers have completed development of appropriate
contingency plans for the Company's core business processes. This project is
part of a general upgrade to the Company's existing Business Resumption Policy.
A test plan to validate the Company's Business Resumption Policy and related
Year 2000 contingency plans is in place and testing of the plan is underway. The
upgrade to the Business Resumption Plan and the Year 2000 Contingency Plan
28
<PAGE>
were both completed prior to June 30, 1999. Both plans were reviewed by the
Executive Officers and Board of Directors. The Company's most likely worst case
scenario relates to a possible excess amount of withdrawal requests created by
depositor concerns over possible Year 2000 failures. Accordingly, the Company
has implemented a customer awareness program designed to keep customers well
informed of the facts relating to Year 2000 and what the Company is doing to
achieve Year 2000 compliance. In this regard, the Company provided brochures to
customers to make them aware of the Year 2000 issue. Our goal is to continually
reassure customers concerning the safety of their deposits with Woronoco Savings
Bank. Additionally, as part of its Year 2000 contingency planning efforts, the
Company has developed a Cash and Liquidity Contingency Plan. This plan is
designed to enable the Company to forecast and prepare for any unusual customer
cash demands associated with the Year 2000 date change.
The Company budgeted $235,000 for achieving Year 2000 compliance. As of June 30,
1999, approximately $190,000 relating to Year 2000 compliance has been
identified for payment, with $143,676 paid to date. Approximately 16% of the
$235,000 Year 2000 budget is being used for remediation. To insure the
reliability of the Company's Year 2000 risk and cost estimates, the Company
follows the work program guidelines as provided by the Federal Financial
Institutions Examination Council. These are the same guidelines used by federal
examiners to determine the effectiveness of the Year 2000 efforts by the banks
they examine. The Company's Compliance Officer regularly monitors the Company's
Year 2000 progress and the Company's internal auditor has performed regular
audits of the Y2K Plan. In addition, the FDIC conducts regular Y2K examinations
of the Company. Material costs, if any, that may arise from the failure to
achieve Year 2000 compliance by either the Company's third party data processing
vendor or its significant suppliers and other vendors is not currently
determinable. To the extent that the Company's systems are not yet fully Year
2000 compliant, there can be no assurance that potential systems interruptions
or the cost necessary to update software would not have a materially adverse
effect on the Company's business, financial condition, results of operations,
cash flows or business prospects. If the Company's progress towards becoming
Year 2000 compliant is deemed inadequate, regulatory action may be undertaken.
This description of the Company's Year 2000 Action Plan is a "Year 2000
Readiness Disclosure" as defined by the Year 2000 Information and Readiness
Disclosure Act and is subject to the Act's civil liability protections. This
"Year 2000 Readiness Disclosure" is solely intended to inform and does not
constitute an explicit or implicit representation or warranty of any kind.
29
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
There have been no material changes in information regarding quantitative and
qualitative disclosure about market risk from the information presented as of
December 31, 1998 in the Company's Form 10-K.
30
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Company is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. Such routine
legal proceedings, in the aggregate, are believed by management to be immaterial
to the financial condition and results of operations of the Company.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
None.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
Item 5. Other Information.
-----------------
None.
31
<PAGE>
Item 6. Exhibits and Reports on Form 8-K ((S)249.308 of this Chapter).
-------------------------------------------------------------
(a) Exhibits
2.1 Amended Plan of Conversion of Woronoco Savings Bank (1)
3.1 Certificate of Incorporation of Woronoco Bancorp, Inc. (1)
3.2 Amended Bylaws of Woronoco Bancorp, Inc.
4.0 Stock Certificate of Woronoco Bancorp, Inc. (1)
27.0 Financial Data Schedule
-----------------------------
(1) Incorporated by reference from the Exhibits filed with the
Registration Statement on Form S-1, and any amendments
thereto, Registration No. 333-67255.
(b) Reports on Form 8-K
None.
32
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WORONOCO BANCORP, INC.
Dated: August 13, 1999 By: /s/ Cornelius D. Mahoney
---------------------------------------
Cornelius D. Mahoney
Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Dated: August 13, 1999 By: /s/ Debra L. Murphy
---------------------------------------
Debra L. Murphy
Senior Vice President and
Chief Financial Officer
(principal financial and accounting officer)
33
<PAGE>
Exhibit 3.2
WORONOCO BANCORP, INC.
AMENDED BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
--------- --------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
--------- ----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for
<PAGE>
all purposes, unless or except to the extent that the presence of a larger
number may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation) shall constitute a quorum
entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
--------- -------------------
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
2
<PAGE>
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter such stockholder proposes to bring before the annual meeting: (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting; (ii)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder; and
(iv) any material interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
brought before or conducted at an annual meeting except in accordance with the
provisions of this Section 6(b). The Officer of the Corporation or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 6(b) and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors; or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request
of the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible
3
<PAGE>
for election as a Director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The Officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she shall so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
4
<PAGE>
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
--------- ------------------------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be twelve
(12). The Board of Directors shall annually elect a Chairman of the Board from
among its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
5
<PAGE>
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President or, in the event that the Chairman of the
Board or President are incapacitated or otherwise unable to call such meeting,
by the Secretary, and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
each such special meeting shall be given each Director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
-------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
6
<PAGE>
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any Officer upon
any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs;
and
(9) To fix the Compensation of officers and employees of the
Corporation and its subsidiaries as it may determine.
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
7
<PAGE>
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be one-
third of such members and all matters considered by such committees shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
---------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
8
<PAGE>
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board, subject to the provisions of these Bylaws and to
the direction of the Board of Directors, when present shall preside at all
meetings of the stockholders of the Corporation. The Chairman of the Board
shall perform such duties designated to him by the Board of Directors and which
are delegated to him or her by the Board of Directors by resolution of the Board
of Directors.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer shall have general responsibility
for the management and control of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident to
the office of President and Chief Executive Officer or which are delegated to
him or her by the Board of Directors. Subject to the direction of the Board of
Directors, the President and Chief Executive Officer shall have power to sign
all stock certificates, contracts and other instruments of the Corporation which
are authorized and shall have general supervision of all of the other Officers
(other than the Chairman of the Board), employees and agents of the Corporation.
Section 4. Vice President.
---------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise
9
<PAGE>
the powers usually incident to their respective offices and/or such other duties
and powers as may be properly assigned to them by the Board of Directors, the
Chairman of the Board or the President. A Vice President or Vice Presidents may
be designated as Executive Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
Section 6. Treasurer.
---------- ----------
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- -----------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
---------- --------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
10
<PAGE>
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
11
<PAGE>
Section 4. Lost, Stolen or Destroyed Certificates.
--------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
12
<PAGE>
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
13
<PAGE>
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) days prior to the meeting. The stockholders shall also have power
to amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
The above Amended Bylaws are effective as of July 28, 1999.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated Financial Statements of Woronoco Savings Bank for the six months
ended June 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11496
<INT-BEARING-DEPOSITS> 1659
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 119856
<INVESTMENTS-CARRYING> 117972
<INVESTMENTS-MARKET> 119856
<LOANS> 293574
<ALLOWANCE> (2281)
<TOTAL-ASSETS> 443055
<DEPOSITS> 277380
<SHORT-TERM> 75154
<LIABILITIES-OTHER> 3599
<LONG-TERM> 0
0
0
<COMMON> 60
<OTHER-SE> 86862
<TOTAL-LIABILITIES-AND-EQUITY> 443055
<INTEREST-LOAN> 10780
<INTEREST-INVEST> 3417
<INTEREST-OTHER> 24
<INTEREST-TOTAL> 14544
<INTEREST-DEPOSIT> 4729
<INTEREST-EXPENSE> 6915
<INTEREST-INCOME-NET> 7629
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 803
<EXPENSE-OTHER> 10394
<INCOME-PRETAX> (1067)
<INCOME-PRE-EXTRAORDINARY> (1067)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (640)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 6.97
<LOANS-NON> 164
<LOANS-PAST> 0
<LOANS-TROUBLED> 758
<LOANS-PROBLEM> 2700
<ALLOWANCE-OPEN> 2166
<CHARGE-OFFS> 30
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 2281
<ALLOWANCE-DOMESTIC> 2281
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
