Westfield Financial, Inc. (the "Company" or "Westfield") (NasdaqGS:WFD), the holding company for Westfield Bank (the "Bank"), reported net income of $389,000, or $0.02 per basic and diluted share, for the quarter ended June 30, 2016, compared to $1.4 million, or $0.08 per basic and diluted share, for the quarter ended June 30, 2015. For the six months ended June 30, 2016, net income was $2.4 million, or $0.14 per basic and diluted share, compared to $2.7 million, or $0.15 per basic and diluted share, for the same period in 2015.

The quarter and six months ended June 30, 2016 were impacted by non-recurring expenses of $929,000 and $1.1 million, respectively, related to our previously announced and pending merger with Chicopee Bancorp, Inc. ("Chicopee"). The transaction is expected to close in the fourth quarter of 2016, subject to customary closing conditions, including receipt of regulatory approvals and the approvals of the shareholders of Westfield and Chicopee. Excluding these non-recurring expenses, net income before income taxes for the quarter and six months ended June 30, 2016 was $1.6 million and $4.5 million, respectively, compared to $1.8 million and $3.6 million a year ago.

Selected financial highlights include:
  • Total loans increased $146.8 million, or 19.3%, to $906.2 million at June 30, 2016 compared to $759.4 million at June 30, 2015. This was primarily due to increases in residential loans of $96.9 million and commercial real estate loans of $50.7 million, partially offset by a decrease in commercial and industrial loans of $3.8 million. On a sequential-quarter basis, total loans increased $79.2 million, or 9.6%, during the second quarter of 2016. This was due to increases in residential loans of $52.9 million, commercial real estate loans of $15.7 million and commercial and industrial loans of $9.7 million.
  • Securities decreased $208.9 million, or 40.4%, to $307.8 million at June 30, 2016, compared to $516.7 million at June 30, 2015. The decrease in securities was primarily driven by sales of securities, with the proceeds used to fund loan growth and pay down Federal Home Loan Bank ("FHLB") borrowings, both strategic initiatives to improve the balance sheet mix. On a sequential-quarter basis, securities decreased $8.5 million, or 2.7%, at June 30, 2016.
  • Short-term borrowings and long-term debt decreased a total of $84.3 million, or 27.5%, to $222.7 million at June 30, 2016 compared to $307.0 million at June 30, 2015. On a sequential-quarter basis, short-term borrowings and long-term debt decreased $26.8 million, or 10.7%, during the second quarter of 2016. This is consistent with Management's intent to reduce reliance on wholesale funding.
  • Net interest and dividend income increased $223,000 to $8.0 million for the quarter ended June 30, 2016 compared to $7.8 million for the comparable 2015 period. Net interest margin increased 12 basis points to 2.62% for the three months ended June 30, 2016 from 2.50% in the comparable 2015 period. On a sequential-quarter basis, net interest and dividend income decreased $241,000 for the quarter ended June 30, 2016, primarily due to the timing of redeploying funds from lower yielding short-term investments into loans. On a sequential quarter basis, the net interest margin was relatively flat at 2.62% for the quarter ended June 30, 2016, compared to 2.61% for the quarter ended March 31, 2016.

James C. Hagan, President and CEO stated, "We continue to actively focus on the improvement of our balance sheet mix by increasing loans and decreasing securities. During the first quarter 2016, we took advantage of market conditions to further reduce our securities portfolio, which created a large cash position at March 31, 2016. We were successful in utilizing the cash for loan growth while also reducing our reliance on wholesale funding during the second quarter 2016."

Hagan went on to say, "We're very excited about our previously announced pending merger with Chicopee Bancorp and continue to work diligently through the approval process. The complimentary nature of our branch footprints creates opportunity for growth and expansion into new markets for Westfield, which will be extremely favorable for the shareholders, customers, employees and communities of both institutions."

Additional Income Statement Discussion

Net interest and dividend income increased $875,000 to $16.2 million for the six months ended June 30, 2016, as compared to $15.4 million for the six months ended June 30, 2015. The net interest margin for the six months ended June 30, 2016 increased 10 basis points to 2.61%, as compared to 2.51% for the same period in 2015. This was a result of an increase of 11 basis points in the yield on average interest-earning assets along with the cost of average interest-bearing liabilities remaining stable compared to the same period.

Non-interest income increased $15,000 to $1.3 million for the quarter ended June 30, 2016, compared to $1.2 million for the quarter ended June 30, 2015. For the six months ended June 30, 2016, non-interest income decreased $198,000 to $2.3 million, compared to $2.5 million for the same period in 2015. Net gains on the sales of securities decreased $410,000 for the six months ended 2016, while service charges and fees increased $266,000 for the same period.

Non-interest expense increased $1.1 million to $8.0 million from $6.9 million for the quarter ended June 30, 2016, compared to the same period in 2015. Non-interest expense increased $1.5 million to $15.1 million from $13.6 million for the six months ended June 30, 2016, compared to the same period in 2015. The increases for both periods were primarily due to merger related expenses of $929,000 and $1.1 million, respectively. The efficiency ratio was 80.4% and 77.0% for the six months ended June 30, 2016 and 2015, respectively.

Additional Balance Sheet Discussion

Cash and cash equivalents decreased $133.9 million on a sequential-quarter basis, to $21.3 million at June 30, 2016 compared to $155.2 million at March 31, 2016. The Bank sold $136.8 million in securities at the end of the first quarter 2016 which resulted in a larger than normal cash and cash equivalent balance at March 31, 2016. The funds were redeployed throughout the second quarter 2016, primarily to fund loan growth and pay down borrowings. Cash and cash equivalents increased $7.6 million compared to $13.7 million at June 30, 2015.

Total deposits increased $23.2 million, or 2.6%, to $920.9 million at June 30, 2016, compared to $897.7 million at June 30, 2015. This was primarily due to increases in money market accounts of $35.8 million and checking accounts of $6.5 million, offset partially by a decrease in term accounts of $19.1 million. The decrease in term accounts from June 30, 2015 was primarily due to a $13.4 million decrease in brokered and listing service deposits. Total deposits decreased $7.2 million, or 0.8%, to $920.9 million at June 30, 2016, compared to $928.1 million at March 31, 2016. This was primarily due to an $11.9 million decrease in brokered and listing service deposits.

Shareholders' equity was $144.6 million at June 30, 2016 and $143.0 million at March 31, 2016, which represented 11.1% and 10.5% of total assets at June 30 and March 31, 2016, respectively. The increase in shareholders' equity during the quarter reflects an increase in accumulated other comprehensive income of $1.5 million and net income of $389,000, both partially offset by the payment of regular dividends of $519,000 for the quarter ended June 30, 2016.

Credit Quality

The allowance for loan losses was $9.6 million, $8.9 million and $8.3 million at June 30, 2016, March 31, 2016 and June 30, 2015, representing 1.06%, 1.07% and 1.09% of total loans, respectively. This represents 119.0%, 106.8% and 103.5% of nonperforming loans, respectively. The provision for loan losses of $625,000 recorded in the second quarter was primarily the result of growth in the loan portfolio.

An analysis of the changes in the allowance for loan losses is as follows:

 
Three Months Ended
June 30,   March 31,   June 30,
2016 2016 2015
(In thousands)
 
Balance, beginning of period $ 8,855 $ 8,840 $ 8,035
Provision 625 (600 ) 350
Charge-offs (18 ) (243 ) (101 )
Recoveries   108     858     11  
Balance, end of period $ 9,570   $ 8,855   $ 8,295  
 

Nonperforming loans were $8.0 million and $8.3 million, representing 0.89% and 1.00% of total loans at June 30, 2016 and March 31, 2016, respectively. Loans delinquent 30 - 89 days increased $1.2 million to $2.5 million at June 30, 2016 from $1.4 million at March 31, 2016. 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 August 24, 2016 to all shareholders of record on August 10, 2016.

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, 2015, as amended by Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 2015, 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 Six Months Ended
June 30, March 31, December 31, September 30, June 30, June 30,
2016 2016 2015 2015 2015 2016 2015
INTEREST AND DIVIDEND INCOME:
Loans $ 8,639 $ 8,250 $ 8,072 $ 7,849 $ 7,371 $ 16,889 $ 14,601
Securities 1,750 2,554 2,609 2,997 3,049 4,305 5,935
Other investments - at cost 136 132 133 126 69 268 137
Federal funds sold, interest-bearing deposits and other short-term investments   29     25     6     2     5     53     11  
Total interest and dividend income   10,554     10,961     10,820     10,974     10,494     21,515     20,684  
 
INTEREST EXPENSE:
Deposits 1,535 1,472 1,436 1,414 1,380 3,007 2,721
Long-term debt 461 842 889 1,083 1,092 1,303 2,162
Short-term borrowings   556     404     342     317     243     960     431  
Total interest expense   2,552     2,718     2,667     2,814     2,715     5,270     5,314  
 
Net interest and dividend income 8,002 8,243 8,153 8,160 7,779 16,245 15,370
 
PROVISION FOR LOAN LOSSES   625     (600 )   475     150     350     25     650  
 
Net interest and dividend income after provision for loan losses   7,377     8,843     7,678     8,010     7,429     16,220     14,720  
 
NONINTEREST INCOME:
Service charges and fees 859 884 865 789 840 1,743 1,477
Income from bank-owned life insurance 403 361 378 374 407 764 774
Loss on prepayment of borrowings - (915 ) - (429 ) (278 ) (915 ) (871 )
Gain on sales of securities, net   (2 )   685     (1 )   414     276     683     1,093  
Total noninterest income   1,260     1,015     1,242     1,148     1,245     2,275     2,473  
 
NONINTEREST EXPENSE:
Salaries and employees benefits 3,910 3,871 3,822 3,903 3,863 7,781 7,684
Occupancy 804 801 795 784 818 1,605 1,659
Data processing 626 621 582 636 559 1,247 1,143
Professional fees 545 516 568 596 488 1,061 959
FDIC insurance 190 190 208 212 188 380 381
Merger related expenses 929 154 55 - - 1,083 -
Other   994     919     960     736     949     1,913     1,750  
Total noninterest expense   7,998     7,072     6,990     6,867     6,865     15,070     13,576  
 
INCOME BEFORE INCOME TAXES 639 2,786 1,930 2,291 1,809 3,425 3,617
 
INCOME TAX PROVISION   250     822     529     680     445     1,072     915  
NET INCOME $ 389   $ 1,964   $ 1,401   $ 1,611   $ 1,364   $ 2,353   $ 2,702  
 
Basic earnings per share $ 0.02 $ 0.11 $ 0.08 $ 0.09 $ 0.08 $ 0.14 $ 0.15
Weighted average shares outstanding 17,337,955 17,304,088 17,329,248 17,461,472 17,519,562 17,321,022 17,601,575
Diluted earnings per share $ 0.02 $ 0.11 $ 0.08 $ 0.09 $ 0.08 $ 0.14 $ 0.15
Weighted average diluted shares outstanding 17,337,955 17,304,088 17,329,248 17,461,472 17,519,562 17,321,022 17,601,575
 
Other Data:
Return on average assets (1) 0.12 % 0.58 % 0.41 % 0.47 % 0.41 % 0.35 % 0.41 %
Return on average equity (1) 1.14 % 5.61 % 3.99 % 4.69 % 3.89 % 3.40 % 3.86 %
Efficiency ratio (2) 86.33 % 74.54 % 74.39 % 73.66 % 76.06 % 80.36 % 77.04 %
Net interest margin 2.62 % 2.61 % 2.58 % 2.53 % 2.50 % 2.61 % 2.51 %

 

(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)
 
June 30, March 31, December 31, September 30, June 30,
2016 2016 2015 2015 2015
Cash and cash equivalents $ 21,267 $ 155,194 $ 13,703 $ 21,980 $ 13,694
Securities available for sale, at fair value 296,565 302,224 182,590 191,324 245,004
Securities held to maturity, at cost - - 238,219 248,757 256,303
Federal Home Loan Bank of Boston and other restricted stock - at cost 11,267 14,080 15,074 15,839 15,372
 
Loans 906,212 826,963 818,213 806,893 759,382
Allowance for loan losses   9,570     8,855     8,840     8,372     8,295  
Net loans 896,642 818,108 809,373 798,521 751,087
 
Bank-owned life insurance 50,994 50,591 50,230 49,852 49,477
Other assets   29,570     28,747     30,741     30,942     30,749  
TOTAL ASSETS $ 1,306,305   $ 1,368,944   $ 1,339,930   $ 1,357,215   $ 1,361,686  
 
Total deposits $ 920,912 $ 928,124 $ 900,363 $ 909,041 $ 897,714
Short-term borrowings 144,707 158,593 128,407 121,222 111,251
Long-term debt 78,032 90,943 153,358 166,407 195,772
Trades pending settlement - 30,570 - - -
Other liabilities   18,085     17,719     18,336     20,937     17,124  
TOTAL LIABILITIES 1,161,736 1,225,949 1,200,464 1,217,607 1,221,861
 
TOTAL SHAREHOLDERS' EQUITY   144,569     142,995     139,466     139,608     139,825  
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,306,305   $ 1,368,944   $ 1,339,930   $ 1,357,215   $ 1,361,686  
 
Book value per share $ 7.89 $ 7.83 $ 7.63 $ 7.59 $ 7.56
 
Other Data:
30- 89 day delinquent loans $ 2,547 $ 1,358 $ 2,876 $ 5,882 $ 1,744
Nonperforming loans 8,043 8,288 8,080 7,347 8,013
Nonperforming loans as a percentage of total loans 0.89 % 1.00 % 0.99 % 0.91 % 1.06 %
Nonperforming assets as a percentage of total assets 0.62 % 0.61 % 0.60 % 0.54 % 0.59 %
Allowance for loan losses as a percentage of nonperforming loans 118.99 % 106.84 % 109.41 % 113.95 % 103.52 %
Allowance for loan losses as a percentage of total loans 1.06 % 1.07 % 1.08 % 1.04 % 1.09 %
 

The following tables set forth the information relating to our average balances and net interest income for the three months ended June 30, 2016, March 31, 2016, and June 30, 2015, and the six months ended June 30, 2016 and 2015, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated.
    Three Months Ended
June 30, 2016   March 31, 2016   June 30, 2015
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) $ 869,877 $ 8,672 3.99 % $ 823,335 $ 8,280 4.02 % $ 742,475 $ 7,401 3.99 %
Securities(2) 297,797 1,764 2.37 411,034 2,590 2.52 498,093 3,135 2.52
Other investments - at cost 15,349 136 3.54 16,051 132 3.29 16,460 69 1.68
Short-term investments(3)   54,892   29   0.21   28,276   25   0.35   11,231   5   0.18
Total interest-earning assets 1,237,915   10,601   3.43 1,278,696   11,027   3.45 1,268,259   10,610   3.35
Total noninterest-earning assets   73,371   80,510   80,303
 
Total assets $ 1,311,286 $ 1,359,206 $ 1,348,562
 
LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing accounts $ 32,337 21 0.26 $ 30,531 20 0.26 $ 35,954 20 0.22
Savings accounts 76,627 23 0.12 76,958 20 0.10 75,669 20 0.11
Money market accounts 266,056 265 0.40 248,597 227 0.37 236,322 208 0.35
Time certificates of deposit   393,585   1,226   1.25   398,598   1,205   1.21   390,616   1,132   1.16
Total interest-bearing deposits 768,605 1,535 754,684 1,472 738,561 1,380
Short-term borrowings and long-term debt   231,827   1,017   1.75   290,069   1,246   1.72   307,892   1,335   1.73
Interest-bearing liabilities   1,000,432   2,552   1.02   1,044,753   2,718   1.04   1,046,453   2,715   1.04
Noninterest-bearing deposits 161,639 155,887 143,323
Other noninterest-bearing liabilities   11,611   17,987   18,302
Total noninterest-bearing liabilities   173,250   173,874   161,625
 
Total liabilities 1,173,682 1,218,627 1,208,078
Total equity   137,604   140,579   140,484
Total liabilities and equity $ 1,311,286 $ 1,359,206 $ 1,348,562
Less: Tax-equivalent adjustment(2)   (47 )   (66 )   (116 )
Net interest and dividend income $ 8,002   $ 8,243   $ 7,779  
Net interest rate spread(4) 2.41 % 2.41 % 2.31 %
Net interest margin(5) 2.62 % 2.61 % 2.50 %
Ratio of average interest-earning
assets to average interest-bearing liabilities 123.74 122.39 121.20
 
    Six Months Ended June 30,
2016   2015
Average     Avg Yield/ Average     Avg Yield/
Balance Interest Cost Balance Interest Cost
(Dollars in thousands)
ASSETS:      
Interest-earning assets
Loans(1)(2) $ 846,606 $ 16,950 4.00 % $ 735,003 $ 14,662 3.99 %
Securities(2) 354,415 4,353 2.46 490,051 6,109 2.49
Other investments - at cost 15,700 268 3.41 16,347 138 1.69
Short-term investments(3)   41,584   53   0.25 13,475 11   0.16
Total interest-earning assets 1,258,305   21,624   3.44 1,254,876 20,920   3.33
Total noninterest-earning assets   76,940 79,197
 
Total assets $ 1,335,245 $ 1,334,073
 
LIABILITIES AND EQUITY:
Interest-bearing liabilities
Interest-bearing checking $ 31,434 41 0.26 $ 37,011 41 0.22
Savings accounts 76,792 42 0.11 75,697 39 0.10
Money market accounts 257,327 492 0.38 234,878 429 0.37
Time certificates of deposit   396,091   2,432   1.23 379,600 2,212   1.17
Total interest-bearing deposits 761,644 3,007 727,186 2,721
Short-term borrowings and long-term debt   260,948   2,263   1.73 308,134 2,593   1.68
Interest-bearing liabilities   1,022,592   5,270   1.03 1,035,320 5,314   1.03
Noninterest-bearing deposits 158,763 139,136
Other noninterest-bearing liabilities   14,799 18,384
Total noninterest-bearing liabilities   173,562 157,520
 
Total liabilities 1,196,154 1,192,840
Total equity   139,091 141,233
Total liabilities and equity $ 1,335,245 $ 1,334,073
Less: Tax-equivalent adjustment(2)   (109 ) (236 )
Net interest and dividend income $ 16,245   $ 15,370  
Net interest rate spread(4) 2.41 % 2.30 %
Net interest margin(5) 2.61 % 2.51 %
Ratio of average interest-earning
assets to average interest-bearing liabilities 123.05 121.21
 

(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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