Westfield Financial, Inc. (the "Company") (NasdaqGS:WFD), the holding company for Westfield Bank (the "Bank"), reported net income of $1.6 million, or $0.09 per diluted share, for the quarter ended September 30, 2015, compared to $1.5 million, or $0.08 per diluted share, for the quarter ended September 30, 2014. For the nine months ended September 30, 2015, net income was $4.3 million, or $0.25 per diluted share, compared to $4.5 million, or $0.25 per diluted share, for the same period in 2014.

Selected financial highlights for third quarter 2015 include:
  • Total loans increased $87.3 million, or 12.1%, to $806.9 million at September 30, 2015 compared to $719.6 million at September 30, 2014. This was primarily due to increases in residential loans of $69.7 million, commercial real estate loans of $8.6 million and commercial and industrial loans of $6.3 million. On a sequential-quarter basis, total loans increased $47.5 million, or 6.3%, during the third quarter of 2015. This was due to an increase in residential loans of $36.9 million, commercial real estate loans of $7.7 million and commercial and industrial loans of $644,000.
  • Securities decreased $55.0 million, or 10.8%, to $455.9 million at September 30, 2015, compared to $510.9 million at September 30, 2014. On a sequential-quarter basis, securities decreased $60.8 million, or 11.8% at September 30, 2015, compared to $516.7 million at June 30, 2015.
  • Net interest and dividend income increased $326,000 to $8.2 million for the quarter ended September 30, 2015 compared to $7.8 million for the comparable 2014 period. On a sequential-quarter basis, net interest and dividend income increased $381,000 for the quarter ended September 30, 2015, compared to the quarter ended June 30, 2015. On a sequential quarter basis, the net interest margin increase 3 basis points to 2.53%, compared to 2.50% for the quarter ended June 30, 2015.
  • The Bank prepaid $19.0 million in Federal Home Loan Bank borrowings with a weighted average rate of 2.93% and incurred a prepayment expense of $429,000 in the third quarter of 2015 in order to eliminate a higher-cost liability. Because the transaction was completed at the end of the third quarter 2015, it did not have an impact on the Bank's cost of funds in this quarter.
  • Noninterest expense increased $519,000 to $6.9 million for the quarter ended September 30, 2015 compared to the third quarter of 2014. On a sequential-quarter basis, noninterest expense was stable at $6.9 million for the quarters ended September 30, 2015 and June 30, 2015, respectively. The efficiency ratio, excluding non-core items, was 73.7% for the third quarter of 2015, compared to 76.1% for the quarter ended June 30, 2015.

President and CEO, James C. Hagan stated, "One of our strategic objectives has been the improvement of our asset mix through reducing securities and growing our loan portfolio. The results through September 30, 2015 demonstrate that we continue to execute on this strategy, and in doing so, we have improved our net interest income. We remain committed to growing our core customer franchise and our shareholder value."

Additional Income Statement Discussion

Net interest and dividend income increased $339,000 to $23.5 million for the nine months ended September 30, 2015, as compared to $23.2 million for the nine months ended September 30, 2014. The net interest margin for the nine months ended September 30, 2015 decreased 9 basis points to 2.52%, as compared to 2.61% for the same period in 2014. This was a result of a decrease of 5 basis points in the yield on average interest-earning assets along with a 5 basis point increase in the cost of average interest-bearing liabilities.

Non-interest income decreased $97,000 to $1.1 million for the quarter ended September 30, 2015, compared to $1.2 million for the quarter ended June 30, 2015. The June 30, 2015 period included a $130,000 one-time payment pertaining to a vendor contract renegotiation.

Non-interest expense increased $1.0 million to $20.4 million from $19.4 million for the nine months ended September 30, 2015, compared to the same period in 2014. Salaries and benefits increased $522,000 and occupancy expense increased $188,000. This was driven, in part, by the addition of the Enfield branch, which opened in November 2014, as well as annual increases in benefits expense. The efficiency ratio, excluding non-core items, was 75.9% and 73.8% for the nine months ended September 30, 2015 and 2014, respectively.

Additional Balance Sheet Discussion

Total deposits increased $80.2 million, or 9.7%, to $909.0 million at September 30, 2015, compared to $828.8 million at September 30, 2014. This was primarily due to increases in term accounts of $64.8 million, money market accounts of $13.7 million and checking accounts of $3.9 million, partially offset by a decrease in savings accounts of $2.1 million. The increase in term accounts from September 30, 2014 includes $40.2 million in brokered and listing service deposits, which provide a diversified, low cost funding source. Total deposits increased $11.3 million, or 1.3%, to $909.0 million at September 30, 2015, compared to $897.7 million at June 30, 2015. In addition, short-term borrowings and long term debt decreased $19.4 million to $287.6 million at September 30, 2015, compared to $307.0 million at June 30, 2015.

Shareholders' equity was $139.6 million at September 30, 2015 and $139.8 million at June 30, 2015, which represented 10.3% of total assets at September 30 and June 30, 2015, respectively. The decrease in shareholders' equity during the quarter reflects a decrease in accumulated other comprehensive income of $744,000, the repurchase of 97,579 shares of common stock for $740,000 (an average price of $7.58 per share) and the payment of a quarterly dividend of $523,000. This was offset by net income of $1.6 million for the quarter ended September 30, 2015.

On March 13, 2014, the Company announced a repurchase program under which it may repurchase up to 1,970,000 shares, or 10% of its outstanding common stock. At September 30, 2015, there were 614,154 shares remaining under this repurchase program.

Credit Quality

The allowance for loan losses was $8.4 million, $8.3 million and $7.7 million at September 30, 2015, June 30, 2015 and September 30, 2014, representing 1.04%, 1.09% and 1.07% of total loans, respectively. This represents 114.0%, 103.5% and 86.8% of nonperforming loans, respectively.

An analysis of the changes in the allowance for loan losses is as follows:
  Three Months Ended
September 30,     June 30,     September 30,
  2015     2015     2014  
(In thousands)
 
Balance, beginning of period $ 8,295 $ 8,035 $ 8,017
Provision 150 350 750
Charge-offs (85 ) (101 ) (1,076 )
Recoveries   12     11     4  
Balance, end of period $ 8,372   $ 8,295   $ 7,695  

Nonperforming loans were $7.3 million and $8.0 million, representing 0.91% and 1.06% of total loans at September 30, 2015 and June 30, 2015, respectively. Loans delinquent 30 - 89 days increased $4.2 million to $5.9 million at September 30, 2015 from $1.7 million at June 30, 2015 primarily due to one commercial and industrial loan relationship of $3.3 million. There are no loans 90 or more days past due and still accruing interest.

Declaration of Quarterly Dividend

The Board of Directors approved the declaration of a quarterly cash dividend of $0.03 per share. The dividend is payable on November 25, 2015 to all shareholders of record on November 11, 2015.

About Westfield Financial, Inc.

Westfield Financial, Inc. is a Massachusetts-chartered stock holding company and the parent company of Westfield Bank, Elm Street Securities Corporation, WFD Securities, Inc. and WB Real Estate Holdings, LLC. Westfield Financial and its subsidiaries are headquartered in Westfield, Massachusetts and operate through 13 banking offices located in Agawam, East Longmeadow, Feeding Hills, Holyoke, Southwick, Springfield, West Springfield and Westfield, Massachusetts, and Granby and Enfield, Connecticut. To learn more, visit our website at www.westfieldbank.com.

Forward-Looking Statements

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements contained in this press release, which speak only as of the date made. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors discussed under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014, and in subsequent filings with the Securities and Exchange Commission. The Company and the Bank do not undertake and specifically decline any obligation to publicly release the result of any revisions that 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.
WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES  
Consolidated Statements of Income and Other Data
(Dollars in thousands, except share and per share data)
(Unaudited)
 
  Three Months Ended   Nine Months Ended

September 30,
  June 30,   March 31,   December 31,   September 30, September 30,
2015   2015   2015   2014   2014   2015     2014
INTEREST AND DIVIDEND INCOME:    
Loans $ 7,849 $ 7,371 $ 7,229 $ 7,331 $ 7,135 $   22,449 $   20,513
Securities 2,997 3,049 2,885 3,079 3,147 8,931 9,808
Other investments - at cost 126 69 68 59 59 263 187
Federal funds sold, interest-bearing deposits and other short-term investments   2     5     6     2     2       13         11
Total interest and dividend income   10,974     10,494     10,188     10,471     10,343       31,656         30,519
 
INTEREST EXPENSE:
Deposits 1,414 1,380 1,341 1,300 1,298 4,135 3,877
Long-term debt 1,083 1,092 1,070 1,119 1,125 3,244 3,207
Short-term borrowings   317     243     187     174     86       748         245
Total interest expense   2,814     2,715     2,598     2,593     2,509       8,127         7,329
 
Net interest and dividend income 8,160 7,779 7,590 7,878 7,834 23,529 23,190
 
PROVISION FOR LOAN LOSSES   150     350     300     275     750       800         1,300
 
Net interest and dividend income after provision for loan losses   8,010     7,429     7,290     7,603     7,084       22,729         21,890
 
NONINTEREST INCOME:
Service charges and fees 789 840 638 659 655 2,266 1,958
Income from bank-owned life insurance 374 407 367 374 384 1,149 1,150
Loss on prepayment of borrowings (429) (278) (593) - - (1,300) -
Gain on sales of securities, net   414     276     817     44     226       1,507         276
Total noninterest income   1,148     1,245     1,229     1,077     1,265       3,622         3,384
 
NONINTEREST EXPENSE:
Salaries and employees benefits 3,903 3,863 3,821 3,643 3,623 11,588 11,066
Occupancy 784 818 840 821 743 2,443 2,255
Data processing 636 559 585 616 600 1,779 1,725
Professional fees 596 488 472 447 495 1,555 1,489
FDIC insurance 212 188 193 205 166 592 508
Other   736     949     800     764     721       2,486         2,370
Total noninterest expense   6,867     6,865     6,711     6,496     6,348       20,443         19,413
 
INCOME BEFORE INCOME TAXES 2,291 1,809 1,808 2,184 2,001 5,908 5,861
 
INCOME TAX PROVISION   680     445     470     523     491       1,595         1,360
NET INCOME $ 1,611   $ 1,364   $ 1,338   $ 1,661   $ 1,510   $   4,313     $   4,501
 
Basic earnings per share $ 0.09 $ 0.08 $ 0.08 $ 0.09 $ 0.08 $ 0.25 $ 0.25

Weighted average shares outstanding
17,461,472 17,519,562 17,684,498 17,718,143 17,910,223 17,554,361 18,340,642
Diluted earnings per share $ 0.09 $ 0.08 $ 0.08 $ 0.09 $ 0.08 $ 0.25 $ 0.25

Weighted average diluted shares outstanding
17,461,472 17,519,562 17,684,498 17,718,143 17,910,223 17,554,361 18,340,642
 
Other Data:
Return on average assets (1) 0.47% 0.41% 0.41% 0.50% 0.46% 0.43% 0.47%
Return on average equity (1) 4.69% 3.89% 3.82% 4.57% 4.12% 4.13% 4.05%
Efficiency ratio (2) 73.66% 76.06% 78.08% 72.90% 71.54% 75.87% 73.82%
Net interest margin 2.53% 2.50% 2.52% 2.56% 2.58% 2.52% 2.61%
(1) Annualized.
(2) The efficiency ratio represents the ratio of operating expenses divided by the sum of net interest and dividend income and noninterest income, excluding gain and loss on sale of securities, gain on bank-owned life insurance death benefit and loss on prepayment of borrowings.
WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets and Other Data
(Dollars in thousands, except per share data)
(Unaudited)
 
  September 30,   June 30,   March 31,   December 31,   September 30,
2015 2015 2015 2014 2014
Cash and cash equivalents $ 21,980 $ 13,694 $ 12,719 $ 18,785 $ 14,429
Securities available for sale, at fair value 191,324 245,004 233,591 215,750 212,460
Securities held to maturity, at cost 248,757 256,303 266,718 278,080 283,684
Federal Home Loan Bank of Boston and other restricted stock - at cost 15,839 15,372 14,934 14,934 14,720
 
Loans 806,893 759,382 730,354 724,686 719,555
Allowance for loan losses   8,372   8,295   8,035   7,948   7,695
Net loans 798,521 751,087 722,319 716,738 711,860
 
Bank-owned life insurance 49,852 49,477 49,070 48,703 48,329
Other assets   30,942   30,749   29,660   27,106   25,699
TOTAL ASSETS $ 1,357,215 $ 1,361,686 $ 1,329,011 $ 1,320,096 $ 1,311,181
 
Total deposits $ 909,041 $ 897,714 $ 873,303 $ 834,218 $ 828,785
Short-term borrowings 121,222 111,251 82,625 93,997 78,685
Long-term debt 166,407 195,772 212,637 232,479 246,804
Securities pending settlement - - - - 137
Other liabilities   20,937   17,124   20,156   16,859   12,464
TOTAL LIABILITIES 1,217,607 1,221,861 1,188,721 1,177,553 1,166,875
 
TOTAL SHAREHOLDERS' EQUITY   139,608   139,825   140,290   142,543   144,306
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,357,215 $ 1,361,686 $ 1,329,011 $ 1,320,096 $ 1,311,181
 
Book value per share $ 7.59 $ 7.56 $ 7.56 $ 7.61 $ 7.67
 
Other Data:
30- 89 day delinquent loans $ 5,882 $ 1,744 $ 1,973 $ 3,821 $ 4,254
Nonperforming loans 7,347 8,013 8,340 8,830 8,867
Nonperforming loans as a percentage of total loans 0.91% 1.06% 1.14% 1.22% 1.23%
Nonperforming assets as a percentage of total assets 0.54% 0.59% 0.63% 0.67% 0.68%
Allowance for loan losses as a percentage of nonperforming loans 113.95% 103.52% 96.34% 90.01% 86.78%
Allowance for loan losses as a percentage of total loans 1.04% 1.09% 1.10% 1.10% 1.07%

The following tables set forth the information relating to our average balances and net interest income for the three months ended September 30, 2015, June 30, 2015, and September 30, 2014, and the nine months ended September 30, 2015 and 2014, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated.
Three Months Ended
September 30, 2015     June 30, 2015     September 30, 2014
Average         Avg Yield/ Average         Avg Yield/ Average         Avg Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans(1)(2) $ 788,637 $ 7,879 4.00 % $ 742,475 $ 7,401 3.99 % $ 703,736 $ 7,170 4.08 %
Securities(2) 481,360 3,068 2.55 498,093 3,135 2.52 492,948 3,245 2.63
Other investments - at cost 16,963 126 2.97 16,460 69 1.68 16,129 59 1.46
Short-term investments(3)   7,704   2 0.10   11,231   5 0.18   12,399   2 0.06
Total interest-earning assets 1,294,664   11,075 3.42 1,268,259   10,610 3.35 1,225,212   10,476 3.42
Total noninterest-earning assets   76,614   80,303   72,984
 
Total assets $ 1,371,278 $ 1,348,562 $ 1,298,196
 
LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing accounts $ 34,725 20 0.23 $ 35,954 20 0.22 $ 38,889 22 0.23
Savings accounts 75,943 20 0.11 75,669 20 0.11 78,860 20 0.10
Money market accounts 239,112 198 0.33 236,322 208 0.35 227,554 225 0.40
Time certificates of deposit   398,238   1,176 1.18   390,616   1,132 1.16   342,281   1,031 1.20
Total interest-bearing deposits 748,018 1,414 738,561 1,380 687,584 1,298
Short-term borrowings and long-term debt   320,712   1,400 1.75   307,892   1,335 1.73   318,357   1,211 1.52
Interest-bearing liabilities   1,068,730   2,814 1.05   1,046,453   2,715 1.04   1,005,941   2,509 1.00
Noninterest-bearing deposits 149,626 143,323 133,817
Other noninterest-bearing liabilities   16,755   18,302   13,139
Total noninterest-bearing liabilities   166,381   161,625   146,956
 
Total liabilities 1,235,111 1,208,078 1,152,897
Total equity   136,167   140,484   145,299
Total liabilities and equity $ 1,371,278 $ 1,348,562 $ 1,298,196
Less: Tax-equivalent adjustment(2)   (101)   (116)   (133)
Net interest and dividend income $ 8,160 $ 7,779 $ 7,834
Net interest rate spread(4) 2.37 % 2.31 % 2.42 %
Net interest margin(5) 2.53 % 2.50 % 2.58 %
Ratio of average interest-earning
assets to average interest-bearing liabilities 121.14 121.20 121.80
                 
Nine Months Ended September 30,
2015 2014
Average Balance Interest

 

Avg Yield/ Cost

 

Average Balance

 

Interest

 

Avg Yield/ Cost
(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans(1)(2) $ 753,077 $ 22,542 3.99 % $ 670,102 $ 20,622 4.1 %
Securities(2) 487,122 9,177 2.51 507,906 10,107 2.65
Other investments - at cost 16,555 263 2.12 16,730 187 1.49
Short-term investments(3)   11,531   13 0.15   15,107   11 0.1
Total interest-earning assets 1,268,285   31,995 3.36 1,209,845   30,927 3.41
Total noninterest-earning assets   78,288   72,676
 
Total assets $ 1,346,573 $ 1,282,521
 
LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing checking $ 36,240 61 0.22 $ 41,178 77 0.25
Savings accounts 75,780 59 0.1 80,150 61 0.1
Money market accounts 236,305 627 0.35 217,283 625 0.38
Time certificates of deposit   385,881   3,388 1.17   341,256   3,114 1.22
Total interest-bearing deposits 734,206 4,135 679,867 3,877
Short-term borrowings and long-term debt   312,373   3,992 1.7   311,954   3,452 1.48
Interest-bearing liabilities   1,046,579   8,127 1.04   991,821   7,329 0.99
Noninterest-bearing deposits 142,671 131,107
Other noninterest-bearing liabilities   17,797   10,981
Total noninterest-bearing liabilities   160,468   142,088
 
Total liabilities 1,207,047 1,133,909
Total equity   139,526   148,612
Total liabilities and equity $ 1,346,573 $ 1,282,521
Less: Tax-equivalent adjustment(2)  

339
 

408
Net interest and dividend income $ 23,529 $ 23,190
Net interest rate spread(4) 2.32 % 2.42 %
Net interest margin(5) 2.52 % 2.61 %
Ratio of average interest-earning
assets to average interest-bearing liabilities             121.18 121.98

(1) Loans, including non-accrual loans, are net of deferred loan origination costs and unadvanced funds.

(2) Securities, loan income and net interest income are presented on a tax-equivalent basis using a tax rate of 34%. The tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported on the statements of income.

(3) Short-term investments include federal funds sold.

(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 tax-equivalent net interest and dividend income as a percentage of average interest-earning assets.

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