Westfield Financial, Inc. Reports Results for the Quarter Ended September 30, 2013 and Declares Quarterly Dividend

• A portion of the investment securities portfolio was reclassified from available-for-sale to held-to-maturity during the third quarter 2013.   At September 30, 2013 securities classified as held-to-maturity totaled $299.0 million or 55.2% of debt securities and mortgage-backed securities, as compared to $174.0 million or 29.4%, at June 30, 2013.

• As of September 30, 2013, the Company had entered into several forward-starting interest rate swap contracts with a combined notional value of $155.0 million. The swap contracts have start dates ranging from the fourth quarter 2013 to the third quarter 2016 and have durations ranging from four to six years. This hedge strategy converts the LIBOR based rate of interest on certain FHLB advances to fixed interest rates, thereby protecting the Company from floating interest rate variability and reducing future volatility in tangible book value and Accumulated Other Comprehensive Income (AOCI). 

• The Bank prepaid a repurchase agreement in the amount of $9.5 million and incurred a prepayment expense of $540,000 for the third quarter 2013.  The repurchase agreement had a cost of 2.86%.  The prepayment of the repurchase agreement resulted in a decrease in the cost of funds. 

President and CEO, James C. Hagan, stated, "The results for the quarter and nine months ended September 30, 2013 demonstrate the Bank's ongoing commitment and focus on commercial lending growth.  We have taken steps to change our asset mix by decreasing the securities portfolio while increasing loans, thereby improving our net interest margin and return on assets." 

Income Statement Discussion and Analysis

Net interest and dividend income increased $125,000 to $7.8 million for the quarter ended September 30, 2013, compared to $7.7 million for the quarter ended September 30, 2012.  The net interest margin increased 10 basis points to 2.62% for the quarter ended September 30, 2013, compared to 2.52% for the quarter ended September 30, 2012.  The cost of average interest-bearing liabilities decreased 26 basis points, which was partially offset by a decrease of 7 basis points in the yield of average interest-earning assets.

Net interest and dividend income increased $288,000 to $23.1 million for the nine months ended September 30, 2013, as compared to $22.8 million for the same period in 2012.  The net interest margin for the nine months ended September 30, 2013 increased 4 basis points to 2.59%, as compared to 2.55% for the first nine months of 2012.  The increase in income was primarily due to a 27 basis point decrease in the cost of average interest-bearing liabilities, partially offset by a 16 basis point decrease in the yield on average interest-earning assets.

Net gains on sales of securities were $546,000 for the third quarter 2013, compared to $174,000 for the same period in 2012.  The sales primarily represented sales of mortgage-backed securities that were expected to prepay rapidly and decrease the expected yield.  The Bank prepaid a repurchase agreement in the amount of $9.5 million and incurred a prepayment expense of $540,000 for the third quarter 2013, compared to none in the same period in 2012.  The repurchase agreement had a cost of 2.86%.  The prepayment of the repurchase agreement resulted in a decrease in the cost of funds. 

Noninterest expense increased $53,000 for the quarter ended September 30, 2013 to $6.9 million, compared to the same period in 2012. This was primarily due to an increase in occupancy expense of $70,000, partially offset by a decrease in salaries and benefits of $129,000 primarily due to the completion of vesting of certain stock-based compensation in the fourth quarter 2012.  The efficiency ratio, excluding extraordinary items, was 77.6% for third quarter 2013, compared to and 78.1% for the same period in 2012.

Noninterest expense decreased $322,000 to $20.2 million for the nine months ended September 30, 2013, compared to $20.5 million for the same period in 2012. Salaries and benefits decreased $909,000 to $11.7 million for the nine months ended September 30, 2013, primarily due to the completion of vesting of certain stock-based compensation in the fourth quarter 2012.  This was partially offset by an increase in data processing expense of $159,000 due to increased use of technology in customer delivery channels and general bank operations.  The efficiency ratio, excluding extraordinary items, improved to 77.3% for nine months ended September 30, 2013, compared to 80.2% for the same period in 2012.

Balance Sheet Growth

Securities decreased by $49.1 million, or 8.1%, to $557.6 million at September 30, 2013, compared to $606.7 million at June 30, 2013.  Securities decreased $106.8 million, or 16.1%, at September 30, 2013, compared to $664.4 at September 30, 2012.  Cash flow from the securities portfolio was primarily used to fund loan originations, stock repurchases and to pay off borrowings.     

Total loans increased $13.6 million, or 2.2%, to $620.2 million compared to June 30, 2013.  This was primarily due to an increase in commercial real estate loans of $13.7 million to $257.4 million.  This was partially offset by a decrease in commercial and industrial loans of $2.0 million to $126.4 million, primarily due to a decrease in line of credit utilization of $3.9 million.  Total loans increased $37.5 million, or 6.4%, at September 30, 2013 compared to September 30, 2012.  This was primarily due to increases in commercial real estate loans of $17.0 million, commercial and industrial loans of $11.0 million, and residential loans of $10.0 million. 

Total deposits increased $10.8 million, or 1.4%, to $793.5 million at September 30, 2013, compared to $782.7 million at June 30, 2013.  This was primarily due to increases in term accounts of $11.4 million and checking accounts of $1.2 million.  This was partially offset by decreases in savings and money market accounts of $1.8 million.  Total deposits increased $39.1 million at September 30, 2013 compared to September 30, 2012, primarily due to a $33.4 million increase in money market accounts.

Short-term borrowings and long-term debt decreased $30.0 million to $310.0 million at September 30, 2013, compared to $340.0 million at June 30, 2013.   Federal Home Loan Bank of Boston ("FHLBB") borrowings, both short-term and long-term, decreased $35.5 million to $256.7 million at September 30, 2013.  In addition wholesale repurchase agreements decreased $9.5 million to $10.0 million at September 30, 2013.  Short-term customer repurchase agreements increased $15.0 million to $37.7 million at September 30, 2013.  Customer repurchase agreements serve as a vehicle whereby commercial customers can sweep money daily into a Bank product and earn an interest rate.  This allows the Bank to decrease its reliance on wholesale funding and build franchise value by deepening its customer relationships.  

Shareholders' equity was $156.9 million and $160.4 million, which represented 12.3% and 12.4% of total assets at September 30, 2013, and June 30, 2013, respectively.  The decrease in shareholders' equity during the quarter reflects a tender offer to repurchase outstanding options amounting to $2.7 million, a decrease in other comprehensive income of $1.4 million due to the change in fair value of securities, and the payment of a quarterly dividend amounting to $1.2 million.  This was partially offset by net income of $1.6 million for the quarter ended September 30, 2013.  

On September 17, 2013 the Board of Directors authorized a stock repurchase program under which the Company may purchase up to 1,037,000 shares, or 5% of its outstanding common stock.  At September 30, 2013, the Company had repurchased 8,914 shares of our common stock at a cost of $65,000 pursuant to this repurchase program.

Credit Quality

The allowance for loan losses was $7.3 million at September 30, 2013, and $7.5 million at June 30, 2013, representing 1.18% and 1.23% of total loans, respectively.  This represents 249.3% and 228.4% of nonperforming loans at September 30, 2013, and June 30, 2013, respectively. 

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

During the third quarter of 2013, nonperforming loans decreased $339,000 to $2.9 million, representing 0.47% of total loans at September 30, 2013.  Loans delinquent 30 – 89 days were $1.8 million at September 30, 2013, and $1.4 million June 30, 2013.  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 $0.06 per share.  The dividend is payable on November 20, 2013, to all shareholders of record on November 6, 2013.

About Westfield Financial, Inc.

Westfield Financial, Inc., with total assets of $1.3 billion at September 30, 2013, 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 11 banking offices located in Agawam, East Longmeadow, Feeding Hills, Holyoke, Southwick, Springfield, West Springfield and Westfield, Massachusetts and one banking office in Granby, 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, 2012, 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,		September 30,		September 30,
	2013		2013		2012		2013		2012
INTEREST AND DIVIDEND INCOME:
Loans	$      6,371		$       6,307		$      6,476		$ 18,950		$ 19,234
Securities	3,954		3,917		4,353		11,926		13,171
Other investments - at cost	20		21		23		60		70
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