UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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: 000-27997
Westborough Financial Services, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts Application Pending
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 E. Main Street
Westborough, Massachusetts 01581
(508) 366-4111
(Address of principal executive offices)
(Registrant's telephone number, including area code)
Check whether the issuer (1) has 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 [ ]
As of February 11, 2000, no shares of the registrant's common stock were
outstanding.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
WESTBOROUGH FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
---------------------
Item 1 Financial Statements
Consolidated Balance Sheets 1
December 31, 1999 and September 30, 1999
Consolidated Statements of Income 2
For Three Months Ended December 31, 1999 and 1998
Consolidated Statements of Changes in Surplus 3
For Three Months Ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows 4
For Three Months Ended December 31, 1999 and 1998
Notes To Unaudited Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis 6
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 2 Changes in Securities and Use of Proceeds 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Common Shareholders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on 8-K 13
SIGNATURES 14
This Report on Form 10-QSB contains certain forward looking statements
consisting of estimates with respect to the financial condition, results of
operations and business of the Company and the Bank that are subject to
various factors which could cause actual results to differ materially from
these estimates. These factors include: changes in general, economic and
market conditions, or the development of an adverse interest rate
environment that adversely affects the interest rate spread or other income
anticipated from the Bank's operations and investments, and other the
factors.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Westborough Savings Bank and Subsidiaries
Consolidated Balance Sheet
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 5,817 $ 4,157
Federal funds sold 5,859 4,632
Short-term investments 1,943 1,929
------------------------
Total cash and cash equivalents 13,619 10,718
Securities available for sale, at fair
value 66,601 63,607
Federal Home Loan Bank stock, at cost 850 850
Loans, net 93,019 92,092
Banking premises and equipment, net 1,697 1,724
Accrued interest receivable 1,071 1,130
Deferred income taxes 938 833
Cash surrender value of life insurance 2,993 2,906
Other assets 884 734
------------------------
$181,672 $174,594
========================
Liabilities and Surplus
Deposits $154,778 $150,111
Federal Home Loan Bank advances 4,000 4,000
Mortgagors' escrow accounts 216 231
Accrued taxes and expenses 651 865
Other liabilities 3,051 106
------------------------
Total liabilities 162,696 155,313
------------------------
Commitments and contingencies
Surplus 20,049 19,680
Accumulated other comprehensive income (1,073) (399)
------------------------
Total surplus 18,976 19,281
------------------------
$181,672 $174,594
========================
</TABLE>
Westborough Savings Bank and Subsidiaries
Consolidated Statements of Income
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
December 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $1,699 $1,568
Interest and dividends on investment
securities 998 941
Interest on federal funds sold 86 63
Interest on short term investments 41 34
----------------------
Total interest and dividend income 2,824 2,606
----------------------
Interest expense:
Interest on deposits 1,255 1,193
Interest on borrowings 52 27
----------------------
Total interest expense 1,307 1,220
----------------------
Net interest income 1,517 1,386
Provision for loan losses 0 15
----------------------
Net interest income, after provision for
loan losses 1,517 1,371
----------------------
Other income:
Customer service fees 85 69
Loan fees 3 7
Income from covered call options 129 171
Gain on sales of securities available for
sale, net 158 112
Miscellaneous 29 5
----------------------
Total other income 404 364
----------------------
Operating expenses:
Salaries and employee benefits 746 550
Occupancy and equipment expenses 192 143
Data processing expenses 72 49
Marketing expenses 57 35
Contributions 0 15
Professional fees 26 17
Other general and administrative expenses 308 186
----------------------
Total operating expenses 1,401 995
----------------------
Income before income taxes 520 740
Provision for income taxes 151 262
----------------------
Net income $ 369 $ 478
======================
</TABLE>
Westborough Savings Bank and Subsidiaries
Consolidated Statements of Changes in Surplus
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Total
Surplus Income (Loss) Surplus
------- ----------------- -------
(Unaudited)
<S> <C> <C> <C>
Balance at September 30, 1998 $18,207 $ 1,160 $19,367
Comprehensive Income:
Net income 478 - 478
Change in net unrealized loss on securities
available for sale, net of tax effects - (93) (93)
Total comprehensive income 385
-------------------------------------
Balance at December 31, 1998 $18,685 $ 1,067 $19,752
=====================================
Balance at September 30, 1999 $19,680 $ (399) $19,281
Comprehensive Loss:
Net income 369 - 369
Change in net unrealized loss on securities
available for sale, net of tax effects - (674) (674)
Total comprehensive loss (305)
-------------------------------------
Balance at December 31, 1999 $20,049 $(1,073) $18,976
=====================================
</TABLE>
Westborough Savings Bank and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
December 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 369 $ 478
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Provision for loan losses 0 15
Gain on sales of securities available for sale (158) (112)
Recognition of covered call options (129) (171)
Amortization of premiums on securities 7 (553)
Depreciation expense 83 65
Amortization of net deferred loan costs 4 38
Decrease in accrued interest receivable 59 138
Other, net 2,823 1,330
-----------------------
Net cash provided by operating activities 3,058 1,228
-----------------------
Cash flows from investing activities:
Purchase of securities available for sale (8,497) (8,230)
Proceeds from sales and call of securities
available for sale 2,890 5,104
Proceeds from maturities of securities
available for sale 1,001 0
Principal repayments received on mortgage and
asset backed securities 784 940
Loans originated, net of payments received (931) (1,927)
Purchase of banking premises and equipment (56) (94)
-----------------------
Net cash used by investing activities (4,809) (4,207)
-----------------------
Cash flows from financing activities:
Net increase in deposits 4,667 3,701
Net decrease in mortgagors escrow accounts (15) (27)
-----------------------
Net cash provided by financing activities 4,652 3,674
-----------------------
Net change in cash and cash equivalents 2,901 695
Cash and cash equivalents at beginning of period 10,718 12,441
-----------------------
Cash and cash equivalents at end of period $13,619 $13,136
=======================
</TABLE>
Westborough Savings Bank and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1) Basis of Presentation and Consolidation.
The unaudited consolidated interim financial statements of Westborough
Savings Bank and subsidiaries (the "Bank") presented herein should be read
in conjunction with the consolidated financial statements of Westborough
Savings Bank for the year ended September 30, 1999, included in the Annual
Report of Form 10-KSB of Westborough Financial Services, Inc. ("Westborough"
or the "Company"), the proposed holding company for Westborough Savings
Bank. The financial statements of Westborough have been omitted because
Westborough had not issued any stock, had no liabilities and had not
conducted any business other than that of an organizational nature as of
December 31, 1999.
The unaudited consolidated interim financial statements herein have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for completed financial statements.
In the opinion of management, the consolidated interim financial
statements reflect all adjustments (consisting solely of normal recurring
accruals) necessary for a fair presentation of such information. Interim
results are not necessarily indicative of results to be expected for the
entire year.
2) Reorganization and Stock Offering.
The Bank is a Massachusetts chartered mutual savings bank founded in
1869. The Bank has applied for and received approval from the Massachusetts
Commissioner of Banks and the Federal Reserve Board, and the non-objection
of the Federal Deposit Insurance Corporation, to reorganize from a mutual
savings bank into a two-tiered mutual holding company structure pursuant to
the Bank's Plan of Reorganization from a Mutual Savings Bank to a Mutual
Holding Company and Stock Issuance Plan (the "Reorganization"). In
connection with the Reorganization, (i) the Bank will form Westborough
Bancorp, MHC, a Massachusetts chartered mutual holding company which will be
the majority owner of the Company (the "MHC"); (ii) the Bank will convert
from mutual to stock form and issue 100% of its capital stock to the
Company; and (iii) the Company will issue shares of its common stock, $0.01
par value per share (the "Common Stock") to the public at a price of $10.00
per share. Upon consummation of the Reorganization, the Company will issue
1,581,374 shares of the Common Stock of which 35% of these shares, or
553,481 shares, will be sold to the public, including depositors of the Bank
and the Company's Employee Stock Ownership Plan, and 65% of these shares, or
1,027,893 shares, will be issued to the MHC.
3) Contingencies.
At December 31, 1999, the Bank had loan commitments to borrowers of
$1.1 million, unadvanced funds on commercial lines of credit of $0.8 million
and available home equity lines of credit of $5.4 million. The Bank had no
commitments to purchase mortgage-backed securities at December 31, 1999.
In the first half of 2000, the Bank plans to begin an expansion of its
facilities by constructing an addition to its existing executive office.
The construction expenses for this addition are expected to total
approximately $2.5 million. On December 16, 1999, the Bank entered into a
purchase and sales agreement to acquire approximately 8 acres of land and
buildings located at 23/25 Maple Avenue, Shrewsbury for the sum of $935
thousand, subject to adjustments and numerous conditions. The site is
adjacent to the Bank's current leased branch office at 19 Maple Avenue,
Shrewsbury. If the sale is completed, the Bank's plan is to relocate its 19
Maple Avenue branch to a newly constructed building located at 23/25 Maple
Avenue. The Bank anticipates that it will have sufficient funds to meet
these planned capital expenditures throughout 2000.
Item 2. Management's Discussion and Analysis.
General
Westborough Savings Bank (the "Bank") is a Massachusetts chartered
mutual savings bank founded in 1869. The Bank has applied for and received
approval from the Massachusetts Commissioner of Banks and the Federal
Reserve Board, and the non-objection of the Federal Deposit Insurance
Corporation, to reorganize from a mutual savings bank into a two-tiered
mutual holding company structure pursuant to the Bank's Plan of
Reorganization from a Mutual Savings Bank to a Mutual Holding Company and
Stock Issuance Plan (the "Reorganization"). Westborough Financial Services,
Inc. (the "Company") is a Massachusetts corporation (in organization) which
will become the stock holding company for the Bank upon consummation of the
Reorganization. Specifically, as part of the Reorganization, (i) the Bank
will form Westborough Bancorp, MHC, a Massachusetts chartered mutual holding
company which will be the majority owner of the Company (the "MHC"); (ii)
the Bank will convert from mutual to stock form and issue 100% of its
capital stock to the Company; and (iii) the Company will issue shares of its
common stock, $0.01 par value per share (the "Common Stock") to the public
at a price of $10.00 per share. Upon consummation of the Reorganization,
the Company will issue 1,581,374 shares of the Common Stock of which 35% of
these shares, or 553,481 shares, will be sold to the public, including
depositors of the Bank and the Company's Employee Stock Ownership Plan, and
65% of these shares, or 1,027,893 shares, will be issued to the MHC.
The Company's sole business activity will consist of the business of
the Bank. The Company also will invest in long and short-term investment
grade marketable securities and other liquid investments. In the future,
the Company will consider using some of the proceeds of the stock offering
retained by it to expand its operations in its existing primary market and
other nearby areas by acquiring other financial institutions which could be
merged with the Bank or operated as separate subsidiaries. Presently, there
are no agreements or understandings for expansion of the Company's
operations. The Company's Common Stock is traded on the Over-The-Counter
Bulletin Board under the symbol "WFSM." Unless otherwise disclosed, the
information presented in this Report on Form 10-QSB represents the activity
of the Bank and its subsidiaries.
The Bank is a community- and customer-oriented retail bank offering
traditional deposit products, residential and commercial real estate
mortgage loans and, to a lesser extent, consumer and commercial loans. The
Bank operates five full service banking offices located in the towns of
Westborough, Northborough and Shrewsbury, Massachusetts. The Bank also
operates a non-public, self-contained office at the "Willows," a retirement
community located in Westborough. Together, these offices serve the Bank's
"primary market area" consisting of Westborough, Northborough, Shrewsbury,
Grafton, Southborough and Hopkinton, Massachusetts.
The Bank's results of operations depend primarily on net interest
income. Net interest income is the difference between the interest income
that the Bank earns on its interest-earning assets, primarily mortgage
loans, mortgage-backed securities and investment securities, and the
interest it pays on its interest-bearing liabilities, primarily certificates
of deposit and savings accounts. The Bank's results of operations are also
affected by its provision for loan losses, other income and operating
expense. Operating expense consists primarily of salaries and employee
benefits, occupancy expenses and other general and administrative expenses.
Other income consists mainly of service fees and charges, income from
writing covered call options and gains on sales of securities.
The Bank's results of operations may also be affected significantly by
general and local economic and competitive conditions, particularly those
with respect to changes in market interest rates, government policies and
actions of regulatory authorities. Future changes in applicable law,
regulations or government policies may materially impact the Bank.
Additionally, the Bank's lending activity is concentrated in loans secured
by real estate located in Westborough, Northborough, Shrewsbury and Grafton,
Massachusetts. Accordingly, the Bank's results of operations are affected
by regional market and economic conditions.
Comparison of Financial Condition at December 31, 1999
and September 30, 1999
The Bank's total assets increased by $7.1 million, or 4.1%, to $181.7
million at December 31, 1999 from $174.6 million at September 30, 1999.
Total cash and cash equivalents increased by $2.9 million to $13.6 million
at December 31, 1999 from $10.7 million at September 30, 1999. Much of this
increase in liquidity was in response to potential liquidity needs of
customers as a result of Year 2000 ("Y2K") computer-related concerns. The
Bank, subsequently, did not experience a high demand for cash relating to
Y2K after December 31, 1999. Securities available for sale increased by
$3.0 million, to $66.6 million at December 31, 1999 from $63.6 million at
September 30, 1999. This increase was mainly attributable to increases in
U.S. government, federal agency and corporate obligations. Loans increased
$927 thousand, or 1.0%, for the quarter to $93.0 million at December 31,
1999, as compared to $92.1 million at September 30, 1999. General increases
in interest rates, coupled with a declining inventory of available housing
in our market area, accounted for the modest level of growth during the
recent fiscal quarter.
Total deposits increased by $4.7 million, or 3.1%, to $154.8 million
at December 31, 1999, from $150.1 million at September 30, 1999. Most of
this increase was attributable to increases in short-term certificates of
deposit and interest-bearing, tiered-rate and NOW accounts. The Bank also
experienced increases in non-interest bearing demand deposit accounts.
Other liabilities increased by $2.9 million to $3.1 million at December 31,
1999. Approximately $2.5 million of the increase represented funds received
from subscribers of the Common Stock as part of the Company's stock
offering. Total surplus declined by $305 thousand, or 1.6%, to $19.0
million at December 31, 1999, from $19.3 million at September 30, 1999.
This decline was attributed to net income earned for the quarter ended
December 31, 1999 of $369 thousand, offset to a larger extent by an increase
of $674 thousand in net unrealized losses on the Bank's portfolio of
securities considered available for sale. At December 31, 1999,
approximately 37%, or $66.6 million, of the Bank's $181.7 million of assets
are classified as securities available for sale and the value of such
securities changes inversely with the general trend of interest rates which
rose during the recent quarter ended December 31, 1999.
Comparison of the Operating Results for the
Three Months Ended December 31, 1999 and 1998
Net Income: The Bank's net income for the three months ended December
31, 1999 declined by $109 thousand, or $22.8%, to $369 thousand from $478
thousand for the three months ended December 31, 1998. This decline was
primarily the result of increases in operating expenses associated with
branch expansion, operational improvements and the addition of other
personnel partially offset by an increase in net interest margin. The
Bank's annual return on average assets for the three months ended December
31, 1999 was 0.84% as compared to 1.21% for the three months ended
December 31, 1998.
Interest and Dividend Income: Interest and dividend income increased
by $218 thousand, or 8.4%, to $2.8 million for the quarter ended December
31, 1999, from $2.6 million for the quarter ended December 31, 1998. The
increase was due mainly to a higher level of average interest-earning
assets, reduced to a lesser extent by a decline in the average rate earned
on earning assets. The average volume of interest-earning assets for the
quarter ended December 31, 1999 was $166.1 million earning an average rate
of 6.7% as compared to an average volume of $152.9 million earning an
average rate of 6.83% for the quarter ending December 31, 1998. The Bank
experienced continued growth in real estate lending and deployed additional
cash flows into investment securities. The average balance of loans for the
quarter ended December 31, 1999 was $92.2 million earning 7.38% as compared
to an average balance of $83.1 million earning 7.5% for the quarter ending
December 31, 1998. The average balance of investment securities for the
quarter ended December 31, 1999 was $65.5 million earning 6.09% as compared
to an average balance of $61.2 million earning 6.15% for the quarter ending
December 31, 1998.
Interest Expense: Interest expense increased by $87 thousand, or
7.1%, to $1.3 million for the quarter ended December 31, 1999, from $1.2
million for the quarter ending December 31, 1998. Interest expense
increased due to a higher volume of interest-bearing liabilities, offset, to
a lesser extent, by a declining average rate of interest paid on such
interest-bearing liabilities. The average volume of interest-bearing
liabilities was $144.7 million with a cost of 3.61% for the quarter ended
December 31, 1999 as compared to $129.5 million with a cost of 3.77% for the
quarter ending December 31, 1998. The average volume of interest-bearing
deposits was $140.7 million with a cost of 3.57% for the quarter ending
December 31, 1999 as compared to $127.5 million with a cost of 3.74% for
quarter ending December 31, 1998. The average volume of borrowed funds was
$4.0 million with a cost of 5.20% for the quarter ending December 31, 1999
as compared to $2.0 million with a cost of 5.40% for quarter ending December
31, 1998.
Net Interest Income: The Bank's net interest and dividend income
increased by $131 thousand for the quarter ended December 31, 1999, or 9.5%,
to $1.5 million from $1.4 million for the quarter ending December 31, 1998.
The increase was attributed to the combination of an increase in interest
and dividend income of $218 thousand offset by an increase in interest
expense of $87 thousand. The Bank's net interest rate spread increased to
3.15% for the quarter ended December 31, 1999 as compared to 3.06% for the
quarter ending December 31, 1998.
Provision for Loan Losses: The Bank's provision for loan losses
declined to $0 for the quarter ended December 31, 1999 as compared to $15
thousand for quarter ending December 31, 1998. This decline reflects the
Bank's continued low level of non-performing loans. However, as the Bank
expands its commercial lending activities, increases in the provision are
likely.
Other Income: Other income consists primarily of fee income for Bank
services, gains and losses from the sale of securities and income from the
writing of covered call options on common stock held in the Bank's stock
portfolio. Total other income increased 11.0% to $404 thousand for the
quarter ended December 31, 1999, as compared to $364 thousand for quarter
ending December 31, 1998. For the quarter ended December 31, 1999, gains
from the sale of securities increased by $46 thousand to $158 thousand, from
$112 thousand for the quarter ending December 31, 1998. The primary reason
for the increase was due to a higher level of gains from the sale of common
stock sold as a result of the exercise of a covered call option by the
buyer. Alternatively, income from expired options, where the buyer allows
the option to expire unexercised, declined by $42 thousand to $129 thousand
for quarter ended December 31, 1999 from $171 thousand for quarter ending
December 31, 1998. Customer service fees, loan fees and miscellaneous
income increased by $36 thousand, or 44.4%, to $117 thousand for the quarter
ended December 31, 1999 from $81 thousand for the quarter ended December 31,
1998. This increase is primarily due to the increase in the number of
customer accounts held at the Bank, the sale of non-insured investment
products and increases in the cash surrender value of Bank-owned life
insurance.
Operating Expenses: For the quarter ended December 31, 1999,
operating expenses increased by $406 thousand, or $40.8%, to $1.4 million
from $1.0 million for quarter ending December 31, 1998. The increase was
primarily due to salary and benefit expenses associated with the opening of
a supermarket branch in May 1999, additional staff in commercial lending and
financial reporting and staff incentive payments. Also, occupancy and
equipment, data processing, marketing, promotion, supplies and other
expenses increased as a result of the Bank's recent branch opening.
Additional board and committee meeting fees, mostly associated with
strategic planning issues and meetings concerning the formation of a mutual
holding company, plus the payment of a yearly retainer fee to board members
in the most recent quarter, increased the level of board expenses which are
included in other general and administrative expenses.
Income Taxes: The provision for income taxes declined by $111
thousand to $151 thousand for the quarter ended December 31, 1999 as
compared to $262 thousand for the quarter ended December 31, 1998 resulting
in effective income tax rates of 29.0% and 35.5% for the quarters ended
December 31, 1999 and 1998, respectively. The Bank utilizes investment
securities subsidiaries to substantially reduce state income taxes. The
lower effective tax rate is a result of a larger increase in the dividends
received reduction partially offset a slight increase in state taxes, net of
the federal tax benefit.
Liquidity and Capital Resources
The term "liquidity" refers to the Bank's ability to generate adequate
amounts of cash to fund loan originations, deposit withdrawals and operating
expenses. The Bank's primary sources of funds are deposits, scheduled
amortization and prepayments of loan principal and mortgage-backed
securities, maturities and calls of investment securities and funds provided
by the Bank's operations. The Bank also has expanded its use of borrowings
from the Federal Home Loan Bank of Boston as part of its management of
interest rate risk. At December 31, 1999, the Bank had $4.0 million in
outstanding borrowings.
Loan repayments and maturing investment securities are a relatively
predictable source of funds. However, deposit flows, calls of investment
securities and prepayments of loans and mortgage-backed securities are
strongly influenced by interest rates, general and local economic conditions
and competition in the marketplace. These factors reduce the predictability
of the timing of these sources of funds.
The Bank's primary investing activities are the origination of one- to
four-family real estate and other loans, the purchase of mortgage-backed
securities and the purchase of investment securities. During the quarter
ended December 31, 1999, the Bank originated loans of $7.1 million, there
were no purchases of mortgage-backed securities, and purchases of investment
securities were $8.5 million.
These investing activities were funded by deposit growth, principal
payments on mortgage loans and mortgage-backed securities, calls and
maturities on investment securities and funds provided by the Bank's
operating activities. Principal repayments on loans and mortgage-backed
securities totaled $6.9, million for the quarter ended December 31, 1999.
Maturities of investment securities totaled $1.0 million during the quarter
ended December 31, 1999. Sales and calls of investment securities provided
cash flows of $2.9 million during the quarter ended December 31, 1999.
At December 31, 1999, the Bank had loan commitments to borrowers of
$1.1 million, unadvanced funds on commercial lines of credit of $0.8 million
and available home equity lines of credit of $5.4 million. The Bank had no
commitments to purchase mortgage-backed securities at December 31, 1999.
Total deposits increased $4.7 million, during the quarter ended December 31,
1999. Deposit flows are affected by the level of interest rates, the
interest rates and products offered by competitors and other factors.
Certificate of deposit accounts scheduled to mature within one year were
$43.8 million at December 31, 1999. Based on the Bank's deposit retention
experience and current pricing strategy, the Bank anticipates that a
significant portion of these certificates of deposit will remain with the
Bank. The Bank is committed to maintaining a strong liquidity position;
therefore, it monitors its liquidity position on a daily basis. The Bank
also periodically reviews liquidity information prepared by the Depositors
Insurance Fund and other available reports that compare the Bank's liquidity
with banks in its peer group. The Bank anticipates that it will have
sufficient funds to meet its current funding commitments.
In May 1999, the Bank expanded its retail banking franchise by opening
an additional branch location in the town of Shrewsbury. This branch is
located in the Shaw's supermarket, and start-up costs were approximately
$300 thousand. In the first half of 2000, the Bank also plans to begin an
expansion of its facilities by constructing an addition to its existing
executive office. The construction expenses for this addition are expected
to total approximately $2.5 million. On December 16, 1999, the Bank entered
into a purchase and sales agreement to acquire approximately 8 acres of land
and buildings located at 23/25 Maple Avenue, Shrewsbury for the sum of $935
thousand, subject to adjustments and numerous conditions. The site is
adjacent to the Bank's current leased branch office at 19 Maple Avenue,
Shrewsbury. If the sale is completed, the Bank's plan is to relocate its 19
Maple Avenue branch to a newly constructed building located at 23/25 Maple
Avenue. The Bank anticipates that it will have sufficient funds to meet
these planned capital expenditures throughout 2000.
At December 31, 1999, the Bank exceeded each of the applicable
regulatory capital requirements. The Bank's leverage (tier 1) capital was
approximately $19.0 million, or 10.8%. In order to be classified as "well-
capitalized" by the FDIC, the Bank was required to have leverage (tier 1)
capital of $8.8 million, or 5.0%. To be classified as a well-capitalized
bank by the FDIC, the Bank must also have a risk-based total capital ratio
of 10.0%. At December 31, 1999, the Bank had a risk-based total capital
ratio of 20.48%.
Further, the Bank does not have any balloon or other payments due on
any long-term obligations or any off-balance sheet items other than the
commitments and unused lines of credit noted above.
Financial Services Modernization Legislation
On November 12, 1999, President Clinton signed into law the Gramm-
Leach-Bliley Financial Services Modernization Act of 1999, federal
legislation intended to modernize the financial services industry by
establishing a comprehensive framework to permit affiliations among
commercial banks, insurance companies, securities firms and other financial
service providers. Generally, the Act: (a) repeals the historical
restrictions and eliminates many federal and state law barriers to
affiliations among banks, securities firms, insurance companies and other
financial service providers; (b) provides a uniform framework for the
functional regulation of the activities of banks, savings institutions and
their holding companies; (c) broadens the activities that may be conducted
by national banks, banking subsidiaries of bank holding companies and their
financial subsidiaries; (d) provides an enhanced framework for protecting
the privacy of consumer information; (e) adopts a number of provisions
related to the capitalization, membership, corporate governance and other
measures designed to modernize the Federal Home Loan Bank system; (f)
modifies the laws governing the implementation of the Community Reinvestment
Act and (g) addresses a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term activities of financial
institutions.
Bank holding companies will be permitted to engage in a wider variety
of financial activities than permitted under prior law, particularly with
respect to insurance and securities activities. In addition, in a change
from prior law, bank holding companies will be in a position to be owned,
controlled or acquired by any company engaged in financially-related
activities.
The Bank does not believe that the Act will have a material adverse
effect on its operations in the near-term. However, to the extent that the
Act permits banks, securities firms and insurance companies to affiliate,
the financial services industry may experience further consolidation. This
could result in a growing number of larger financial institutions that offer
a wider variety of financial services than the Bank currently offers and
that can aggressively compete in the markets it currently serves.
Year 2000
Based on a review of the Bank's business since January 1, 2000, the
Bank has not experienced any material effects of the Year 2000 problem.
Although the Bank has not been informed of any material risks associated
with the Year 2000 problem from third parties, there can be no assurance
that the Bank will not be impacted in the future. The Bank will
continuously monitor its business applications and maintain contact with its
third party vendors and key business partners to resolve any year 2000
problems that may arise in the future.
Monitoring and managing the Year 2000 project has resulted in direct
and indirect costs to the Bank. The Bank currently estimates that the total
costs will be approximately $85,000 and does not believe that such costs
will have a material effect on results of operations. Both direct and
indirect costs of addressing the Year 2000 problem have been charged to
earnings as incurred.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule (submitted only with filing in
electronic format).
(b) Reports on 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Westborough Financial Services, Inc.
Date: February 11, 2000 By: /s/ Joseph F. MacDonough
----------------------------------------
President and Chief Executive Officer
Date: February 11, 2000 By: /s/ John L. Casagrande
----------------------------------------
Sr. Vice-President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and the statements of income of Westborough Savings
Bank and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,817
<INT-BEARING-DEPOSITS> 357
<FED-FUNDS-SOLD> 5,859
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 67,451
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 93,898
<ALLOWANCE> (879)
<TOTAL-ASSETS> 181,672
<DEPOSITS> 154,778
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,051
<LONG-TERM> 4,000
0
0
<COMMON> 0
<OTHER-SE> 18,976
<TOTAL-LIABILITIES-AND-EQUITY> 181,672
<INTEREST-LOAN> 1,699
<INTEREST-INVEST> 998
<INTEREST-OTHER> 127
<INTEREST-TOTAL> 2,824
<INTEREST-DEPOSIT> 1,255
<INTEREST-EXPENSE> 1,307
<INTEREST-INCOME-NET> 1,517
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 158
<EXPENSE-OTHER> 308
<INCOME-PRETAX> 520
<INCOME-PRE-EXTRAORDINARY> 520
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 369
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 6.8
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 939
<ALLOWANCE-OPEN> 879
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 879
<ALLOWANCE-DOMESTIC> 703
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 176
</TABLE>
