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 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 Commission file number 0 - 12784 WESTBANK CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04 - 2830731 (State or other jurisdiction of inc. or organization) (I.R.S. Employer I.D. No.) 225 Park Avenue, West Springfield, Massachusetts 01090-0149 (Address of principal executive offices) (Zip Code) (413) 747-1400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 Common stock, par value $2 per share: 3,127,493 shares outstanding as of April 30, 1994. WESTBANK CORPORATION AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statement of Stockholders' Equity 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Financial Statements 7-9 Management's Discussion and Analysis of Financial Condition and Results of Operation 9-18 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 17 ITEM 2. Changes in Rights of Securities Holders 17 ITEM 3. Defaults by Company on its Senior Securities 17 ITEM 4. Results of Votes on Matters Submitted to a Vote of Security Holders 17 ITEM 5. Other Information 17 ITEM 6. Exhibits and Reports on Form 8-K 17 Signatures 18 WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1994 AND DECEMBER 31, 1993 (Dollar amounts in thousands) ASSETS March 31, 1994 December 31, 1993 Cash and due from banks (Unaudited) Non-interest bearing $ 10,181 $ 9,621 Interest bearing 362 353 Federal Funds sold 3,300 3,000 Securities available for sale (approximate market value of $9,502 in 1994 $5,085 in 1993) 9,502 4,945 Securities held to maturity (approximate market value of $17,245 in 1994 and $27,398 in 1993) 17,224 26,633 Mortgage-backed securities (approximate market value of $377 in 1994 and $422 in 1993) 369 401 Loans $ 178,704 $ 176,090 Allowance for loan losses (3,463) (3,472) Net-loans 175,241 172,618 Bank premises and equipment 2,996 3,088 Other Real Estate Owned (OREO) $ 3,041 $ 3,601 In-substance foreclosures 1,791 1,979 Valuation allowance (681) (440) Net-O.R.E.O. 4,151 5,140 Accrued interest receivable 1,628 1,560 Deferred income tax receivable 769 369 Refundable income tax 40 50 Other assets 1,333 1,085 TOTAL ASSETS $ 227,096 $ 228,863 LIABILITIES AND EQUITY Deposits Non-interest bearing $ 35,806 $ 34,499 Interest bearing 168,758 167,932 Total Deposits 204,564 202,431 Borrowed funds 7,381 12,420 Accrued interest payable 464 541 Other liabilities 454 200 Total Liabilities 212,863 215,592 Stockholders' Equity Preferred stock - $5 par value 0 0 Authorized - 100,000 shares Issued - none Common stock - $2 par value Authorized - 9,000,000 shares Issued - 3,127,493 shares in 1994 and 3,125,506 shares in 1993 6,255 6,251 Additional paid in capital 6,864 6,861 Retained earnings 1,075 159 Net unrealized gain on securities available for sale 39 0 Total Stockholders' Equity 14,233 13,271 TOTAL LIABILITIES AND EQUITY $ 227,096 $ 228,863 See accompanying notes to condensed consolidated financial statements. WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR QUARTER ENDED MARCH 31, 1994 AND 1993 (Dollar amounts in thousands) (Unaudited) THREE MONTHS ENDED 		 03-31-94 03-31-93 Income: Interest and fees on loans $ 3,516 $ 3,816 Interest from temporary investments 14 43 Interest and dividends from securities 483 418 Total interest and dividend income 4,013 4,277 Interest expense 1,406 1,880 Net interest income 2,607 2,397 Provision for loan losses 347 225 Interest income after provision for loan losses 2,260 2,172 Security gains Other non-interest income 596 528 Income before operating expenses 3,006 2,796 Operating Expenses: Salaries and benefits 908 962 Other Real Estate-provison for losses 241 255 -operating expense 104 150 Other non-interest expense 832 848 Occupancy - net 185 160 Total operating expenses 2,270 2,375 Income before income taxes 736 421 Income taxes (benefit) (180) 80 Income before cumulative effect of change in accounting principle 916 341 Cumulative effect of change in accounting principle - income taxes 0 400 Net Income $ 916 $ 741 Earnings per share before cumulative effect of change in accounting principle $ .28 $ .11 Earnings per share after cumulative effect of change in accounting principle - income taxes $ .28 $ .23 Weighted average of common and common share equivalents 3,195,513 3,147,382 See accompanying notes to condensed consolidated financial statements. 								 WESTBANK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1993 AND THREE MONTHS ENDED MARCH 31, 1994 (1994 Unaudited) (Dollar amounts in thousands) NET UNREALIZED GAIN ON COMMON STOCK ADD'L. SECURITIES NUMBER OF PAR PAID IN RETAINED AVAIL. SHARES VALUE CAPITAL EARNINGS FOR SALE TOTAL DECEMBER 31, 1992 3,115,689 $ 6,231 $ 6,849 $( 1,788) $ 0 $ 11,292 Shares issued under stock option plan 5,700 12 12 Shares issued under stock purchase plan 4,117 8 12 20 Net income for the year ended December 31, 1993 1,947 1,947 DECEMBER 31, 1993 3,125,506 6,251 6,861 159 0 13,271 Shares issued under stock option plan 1,100 2 2 Shares issued under stock purchase plan 887 2 3 5 Net unrealized gain on securities available for sale 39 39 Net income for three months ended March 31, 1994 916 916 MARCH 31, 1994 3,127,493 $ 6,255 $ 6,864 $ 1,075 $ 39 $ 14,233 See accompanying notes to condensed consolidated financial statements. WESTBANK CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Three Months Ended March 31, 1994 and 1993 (Unaudited) (Dollar amounts in thousands) INCREASE/(DECREASE) IN CASH FLOW FROM: THREE MONTHS ENDED OPERATING ACTIVITIES: 03-31-94 03-31-93 Net Income Adjustments to reconcile net income to net cash from operating activities: Provision for loan losses 347 225 Provision for depreciation and amortization 156 196 Charge off in carrying value of other real estate owned 241 255 Gain on sale of investment securities ( 150) ( 95) Increase/(Decrease) In Cash Flow From: Accrued interest receivable ( 68) 671 Accrued interest payable ( 77) ( 48) Income tax benefit ( 390) ( 445) Other assets ( 248) ( 753) Other liabilities 254 ( 154) 981 593 INVESTING ACTIVITIES: Proceeds from maturities of investments and mortgage-backed securities 596 9,466 Proceeds from sales of securities available for sale 4,979 2,411 Purchases of investment and mortgage-backed securities ( 502) ( 8,560) Loans/leases - net of non cash transfers to other assets ( 3,193) ( 1,161) Proceeds from sale of other real estate owned and in-substance foreclosures 971 440 Purchases of bank premises and equipment ( 64) ( 17) ( 2,787) 2,579 FINANCING ACTIVITIES: Deposits 2,133 5,726 Increase/(decrease) in short term borrowings ( 5,039) 1,062 Proceeds from exercise of stock options and stock purchase plan 7 0 ( 2,899) 6,788 Increase/(decrease) in cash and cash equivalents 869 ( 3,616) Cash and cash equivalents at beginning of period 12,974 17,607 Cash and cash equivalents at end of period $ 13,843 $ 13,991 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid during the three months: Interest on deposits and other borrowings $ 553 $ 1,928 Income taxes 210 125 Non-cash investing activities: Transfer of loans to other real estate owned and in-substance foreclosure $ 223 $ 1,349 See accompanying notes to condensed consolidated financial statements. WESTBANK CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE A - GENERAL INFORMATION Westbank Corporation (hereinafter sometimes referred to as "Westbank") is a registered Bank Holding Company organized to facilitate the expansion and diversification of the business of Park West Bank and Trust Company (hereinafter sometimes referred to as "Park West") into additional financial services related to banking which are permitted by the Federal Bank Holding Company Act of 1956, as amended. Westbank became the owner of all of Park West's outstanding capital stock effective July 2, 1984. On February 20, 1987, Westbank became the owner of all the outstanding stock of Chicopee Co-operative Bank (hereinafter sometimes referred to as "Chicopee"), a state-chartered stock co-operative bank. On February 26, 1990, the merger of Chicopee Co-operative Bank into Park West Bank and Trust company was completed with the Chicopee Office becoming a full service office operating under the charter of Park West. Substantially all operating income and net income of the Corporation are presently accounted for by Park West. NOTE B - CURRENT OPERATING ENVIRONMENT In March, 1992, Park West's Board of Directors entered into a formal agreement ("Agreement") with the Federal Deposit Insurance Corporation and the Commissioner of Banks for the Commonwealth of Massachusetts (the "Commissioner"). The Agreement requires Park West to take certain affirmative actions in response to a 1991 examination by the FDIC and the Commissioner. The affirmative actions required by the Order include, the development and implementation of a written management plan and a plan to improve Park West's earnings; the development and implementation of a comprehensive policy for determining the adequacy of Park West's allowance for loan and lease losses; the development and implementation of a policy to lessen Park West's risk position with respect to certain borrowers; the development and implementation of a written funds management policy; the increase of Park West's Tier 1 capital to total asset ratio to 6% by June 30, 1994; an agreement not to declare or pay dividends without the prior approval of the FDIC and the Commissioner, as well as an agreement not to make any payments to, or for the benefit of, any affiliated organization without such prior approval. At March 31, 1994, the Bank met the interim Tier 1 capital requirements outlined in the Agreement and has submitted all of the required plans and policies as called for under the Agreement. Park West anticipates that it will be able to comply with the terms of the Agreement. Failure to do so could result in additional administrative actions by the FDIC or the Commissioner, any of which actions could have a substantial negative impact on Park West. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted into law on December 19, 1991 and imposes significant new regulatory restrictions and requirements on banking institutions insured by the FDIC and their holding companies. Effective December 19, 1992, FDICIA established five capital categories into which financial institutions are placed based on capital level. The capital categories established by FDICIA are: well capitalized; adequately capitalized; undercapitalized; significantly undercapitalized; and critically under- capitalized. Each capital category establishes different degrees of regulatory restrictions which can apply to a financial institution. As of March 31, 1994, Park West's capital was at a level that placed the Bank in the adequately capitalized category. As a result of Park West's capital classification the following restriction applies: The Bank may not accept, renew, or rollover any brokered deposits without prior written permission of the FDIC. FDICIA imposes a variety of other restrictions and requirements on insured banks. These include significant new regulatory reporting requirements for fiscal years commencing after December 31, 1992, a system of risk-based deposit insurance premiums and civil money penalties for inaccurate deposit assessment reports. In addition, a system of regulatory standards for bank and bank holding company operations, detailed new truth in savings disclosure requirements, and restrictions on activities authorized by state law but not authorized for national banks. The weak economy and real estate market continues to impair the financial results of the Corporation. Despite these weaknesses the Corporation has managed significant improvements in the level of non-performing assets. As a result of the continued aggressive management of problem loans and an on-going expense reduction program, the Board of Directors and management believe the Corporation is positioned to sustain compliance with the Formal Order as well as the requirements of FDICIA. NOTE C - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements for the first quarter ended March 31, 1994 and 1993 have been prepared in accordance with generally accepted accounting principles for interim information and with instructions for Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1994, are not necessarily indicative of the results that may be expected for the year ended December 31, 1994. For further information, please refer to the Consolidated Financial Statements and footnotes thereto included in the Westbank Corporation's Annual Report on Form 10-K for the year ended December 31, 1993. NOTE D - CHANGES IN PRINCIPLES On January 1, 1994, the Bank adopted Statement on Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities". This pronouncement requires that securities classified as available for sale be reported at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. The effect of the implementation of this pronouncement was to increase stockholders' equity by approximately $39,000 (net of tax effect) on March 31, 1994. The Corporation adopted "SFAS 115" by categorizing all investments with a maturity of less than three years as available for sale. In addition, any mortgage-backed securities created out of the Banks own inventory of residential real estate loans is also considered available for sale. All other investments are considered to be held to maturity. The securities available for sale as disclosed in the accompanying Consolidated Balance Sheet are stated at cost for 1993 and market value for 1994. There were no sales out of the investment portfolio during the first quarter of 1994. NOTE E - EARNINGS PER SHARE Earnings per share were computed by dividing net income by the weighted average number of shares of common stock outstanding and common stock equivalent shares arising from unexercised stock options. The weighted average of common and common stock equivalents for the periods ended March 31, 1994 and 1993, amounted to 3,195,513 and 3,147,382 shares, respectively. NOTE F - COMMITMENTS AND CONTINGENT LIABILITIES In the normal course of business, there are outstanding commitments and contingent liabilities, such as, standby letters of credit and commitments to extend credit. As of March 31, 1994 standby letters of credit amounted to $1,321,000 and loan commitments were $30,162,000 and unused balances available on home equity lines of credit were $7,649,000. Trust Assets - Property with a book value of $86,758,710 at March 31, 1994 held for customers by a subsidiary in a fiduciary or agency capacity, is not included in the accompanying Balance Sheet since such items are not assets of the Bank. NOTE G - STOCKHOLDERS' EQUITY The FDIC imposes leverage capital ratio requirements for state non-member Banks. The Bank's leverage capital ratio as of March 31, 1994 and December 31, 1993 was 6.31% and 5.90%, respectively. In addition, the FDIC has established risk-based capital requirements for insured institutions of, Tier 1 risk-based capital of 4.00% and total risk-based capital of 8.00%. The Bank's risk-based capital at March 31, 1994, for Tier 1 was 8.32% and total risk-based capital was 9.58%. As discussed in NOTE B, the formal regulatory order requires Park West to increase its level of Tier 1 leverage capital and to comply with the minimum requirements of risk-based capital. As of March 31, 1994, the Bank was in compliance with all required capital targets. The Formal Order requires that Park West's Tier 1 leverage capital ratio be increased to a minimum of 6% by June 30, 1994. Under the agreement, capital ratio targets have been set in six month intervals, with the next target required to be a minimum of 6.00% by June 30, 1994. Under the agreement, the Corporation is prohibited from paying dividends without the prior approval of the FDIC and the Massachusetts Commissioner of Banks. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Total consolidated assets amounted to $227,096,000 on March 31, 1994, compared to $228,863,000 on December 31, 1993. As of March 31, 1994 and March 31, 1993 earning assets amounted to, respectively, $209,461,000, or 92% of total assets, and $205,192,000, or 90% of total assets. For the quarter ended March 31, 1994, net income totaled $916,000 compared to $741,000 for the three month period ended March 31, 1993. Included in the results of the current quarter is a $180,000 tax benefit which is the result of a decrease in the valuation reserve pertaining to deferred tax assets, offset by the provision for current taxes. In addition, the Corporation absorbed a one time charge to earnings totaling $130,000 in preparation for the change from an in-house data processing environment to that of a service bureau. Net income for the quarter ended March 31, 1993 reflects a benefit of $400,000 as a result of a cumulative effect of a change in accounting principle for income taxes. An overall reduction in interest income and interest expense reflects an increase in volume and a decrease in interest rates on earning assets, and decreases in volume and interest rates on interest bearing deposits. Further analysis is provided in sections on net interest revenue and supporting schedules. An increase has been reflected in the provision for loan losses in the current quarter with $347,000 being provided compared to $225,000 in the 1993 quarter. Decreases are noted in other real estate provisions and operating expenses. This expense totalled $345,000 for the current quarter compared with $405,000 a year ago, a decrease of $60,000. Loans and leases written-off against the allowance for loan/lease losses after recoveries amounted to $356,000 in the current quarter compared to $247,000 during the quarter ended December 31, 1993. After giving effect to the actions described above, the allowance for loan/lease losses at March 31, 1994, totalled $3,463,000 or 1.94% of total loans/leases as compared to $3,472,000 or 1.97% at December 31, 1993. Non-performing past due loans/leases at March 31, 1994, aggregated $2,678,000 or 1.50% of total loan/leases compared to $1,903,000 or 1.08% at December 31, 1993. The percentage of non-performing and past due loan/leases compared to total assets on those same dates, respectively amounted to 1.18%, and 0.83%. Other real estate owned and in-substance foreclosures-net, amounted to $4,151,000 at March 31, 1994, compared to $5,140,000 at December 31, 1993. The percentage as compared to total assets on those same dates respectively amounted to 1.83%, and 2.25%. Management has made every effort to recognize all circumstances known at this time which could affect the collectibility of loan/leases and has reflected these in deciding as to the provision for loan/lease losses, the writing down of other real estate owned and in-substance foreclosures to fair value, the charge-off of loans/leases and the balance in the allowance for losses. Management deems that the provision for the quarter, and the balance in the allowance for loan/lease losses, are adequate based on results provided by the grading system and circumstances known at this time. NET INTEREST INCOME The Corporation's earning assets include a diverse portfolio of earning instruments ranging from the Corporation's core business of loan extensions to interest-bearing securities issued by federal, state and municipal authorities. These earning assets are financed through a combination of interest-bearing and interest-free sources. Net interest income, the most significant component of earnings, is the amount by which the interest generated by assets exceeds the interest expense on liabilities. For analytical purposes, the interest earned on tax exempt assets is adjusted to a "tax equivalent" basis to recognize the income tax savings which facilitates comparison between taxable and tax exempt assets. The Corporation analyzes its performance by utilizing the concepts of interest rate spread and net yield on earning assets. The interest rate spread represents the difference between the yield on earning assets and interest paid on interest-bearing liabilities. The net yield on earning assets is the difference between the rate of interest on earning assets and the effective rate paid on all funds - interest-bearing liabilities, as well as, interest-free sources (primarily demand deposits and shareholders' equity). The balances and rates derived for the analysis of net interest income presented on the following pages reflect the consolidated assets and liabilities of the Corporation's principal earning subsidiary, Park West Bank and Trust Company. QUARTER ENDED (Dollar amounts in thousands) 03-31-94 03-31-93 Interest revenue $ 4,013 $ 4,277 Interest expense 1,406 1,880 Net interest income 2,607 2,397 Tax equivalent adjustment 6 6 Net interest income (taxable equivalent) $ 2,613 $ 2,403 INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS (Dollar amounts in thousands) QUARTER ENDED 03-31-94 03-31-93 (Taxable Equivalent) Average Average Balance Rate Balance Rate Earning Assets $208,399 7.72% $208,190 8.23% Interest-bearing liabilities 176,329 3.19 189,675 3.96 Interest rate spread 4.53 4.27 Interest-free resources used to fund earning assets 32,070 18,515 Total Sources of Funds $208,399 2.70 $208,190 3.61 Net Yield on Earning Assets 5.02% 4.62% CHANGES IN NET INTEREST EARNED (Dollar amounts in thousands) QUARTER ENDED 03-31-94 (Taxable Equivalent) O V E R QUARTER ENDED 03-31-93 CHANGE DUE TO Interest Earned VOLUME RATE TOTAL Loans/leases $ 33 $( 333) $( 300) Securities 36 29 65 Federal funds ( 26) ( 3) ( 29) Total Interest Earned 43 ( 307) ( 264) Interest Expense Interest bearing deposits ( 129) ( 336) ( 465) Other borrowed funds 1 ( 10) ( 9) Total Interest Expense ( 128) ( 346) ( 474) Net Interest Earned $ 171 $ 39 $ 210 Net interest earned on a taxable equivalent basis increased to $2,613,000 in the first quarter of 1994, up $210,000 as compared with the comparable period of 1993, or 7%. Average earning assets increased slightly during the first quarter of 1994. The average earning base was $208,399,000 compared to $208,190,000 in the same period last year, an increase of $209,000 or 1%. OPERATING EXPENSES The components of total operating expenses for the periods and their percentage of gross income are as follows: QUARTER ENDED (Dollar amounts in thousands) 03-31-94 03-31-93 Amount Percent Amount Percent Salaries and benefits $ 908 19.08% $ 962 19.63% Other Real Estate - provision for losses 241 5.06 255 5.20 Other non-interest expense 936 19.67 998 20.36 Occupancy - net 185 3.89 160 3.26 Total Operating Expenses $2,270 47.70% $2,375 48.45% INCOME TAXES In February, 1992, the Financial Accounting Standards Board issued statement of financial accounting standard No. 109, "Accounting for Income Taxes" ("SFAS 109"). The statement requires the recognition of deferred tax liabilities and deferred tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. Effective January 1, 1993, the Corporation prospectively adopted SFAS 109, resulting in a $400,000 benefit which has been reported as a cumulative effect of a change in accounting principle. During the first quarter of 1994 Westbank recorded a tax benefit of $180,000 which is primarily the result of a decrease in the valuation reserve pertaining to deferred tax assets offset by the provision for current taxes. The decrease in such valuation reserve is due to the continued profitable performance of the Bank and is in accordance with the guidance in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". COMPONENTS OF CAPITAL (Dollar amounts in thousands) March 31, 1994 December 31, 1993 Stockholders' Equity: Common Stock $ 6,255 $ 6,251 Additional paid-in capital 6,864 6,861 Retained earnings 1,075 159 Net unrealized gain on securities available for sale 39 0 Total Stockholders' Equity $14,233 $13,271 Ratio of "Tier 1" leverage capital to total assets at end of period 6.27% 5.80% Regulatory risk-based capital requirements, which became effective on December 31, 1990, take into account the different risk categories of banking organizations by assigning risk weights to assets and the credit equivalent amounts of off-balance sheet exposures. In addition, capital is divided into two tiers. For this Corporation, Tier 1 includes the common stockholders' equity; Tier 2, or supplementary capital, includes not only the equity, but also, a portion of the allowance for loan losses, net unrealized gain/(losses) on securities available for sale are not permitted to be included for regulatory capital purposes. The following are the Corporation's risk-based capital ratios at March 31, 1994: Tier 1 Capital (minimum required 4.00%) 8.23% Tier 2 Capital (minimum required 8.00%) 9.49% The Formal Order requires that Park West's Tier 1 leverage capital ratio be increased to a minimum of 6% by June 30, 1994. Under the Formal Order capital ratio targets have been set in six month intervals. At March 31, 1994 the Formal Order required Park West's Tier 1 leverage capital to be at a minimum of 5.75%. For Park West, Tier 1 leverage capital is calculated using quarterly average assets. At March 31, 1994 Park West's Tier 1 leverage capital to average assets was 6.31%, which is above the interim target established by the Formal Order. The next interim target agreed under the Formal Order is 6.00% by June 30, 1994. Under the Formal Order, the Corporation is prohibited from paying dividends without the prior approval of the FDIC and the Massachusetts Commissioner of Banks. INTEREST RATE SENSITIVITY The following table sets forth the distribution of the repricing of the Corporation's earning assets and interest bearing liabilities as of March 31, 1994. (Dollar amounts in thousands) Over Three Over One Three Months Months to Year to Over or Less One Year Five Years Five Years Total Earning Assets $ 71,547 $ 51,341 $ 57,357 $ 29,216 $209,461 Interest Bearing							 Liabilities 108,164 31,740 36,235 0 176,139 Interest Rate Sensitivity Gap $( 36,617) $ 19,601 $ 21,122 $ 29,216 $ 33,322 Cumulative Interest Rate Sensitivity Gap $( 36,617) $( 17,016) $ 4,106 $ 33,322 Interest Rate Sensitivity Gap Ratio (17.48)% 9.36% 10.08% 13.95% Cumulative Interest Rate Sensitivity Gap Ratio (17.48)% (8.12)% 1.96% 15.91% LIQUIDITY Cash and due from banks, federal funds sold, investment securities, mortgage-backed securities and loans available for sale, as compared to deposits and short term liabilities, are used by the Corporation to compute its liquidity on a daily basis. At March 31, 1994, the Corporation's ratio of such assets to total deposits and borrowed funds was 25.21%. PROVISION AND ALLOWANCE FOR LOAN/LEASE LOSSES (Dollar amounts in thousands) QUARTER ENDED 03-31-94 03-31-93 Balance at beginning of period $ 3,472 $ 3,442 Provision charged to expense 347 225 3,819 3,667 Less-Charge-offs: Loans secured by real estate 267 19 Construction/land development 0 150 Commercial and industrial loans 128 99 Consumer loans 8 12 Lease financing receivables 0 41 403 321 Add-Recoveries: Loans secured by real estate 0 42 Construction/land developing 0 0 Commercial and industrial loans 42 7 Consumer loans 4 9 Lease financing receivables 1 1 47 59 Net charge-offs 356 262 Balance at end of period $ 3,463 $ 3,405 Net Charge-offs to: Average loan/leases .20% .15% Loans/leases at end of period .20% .15% Allowance for loan/lease losses 10.28% 7.69% Allowance for loan/lease losses as a percentage of: Average loan/leases 1.97% 1.95% Loan/leases at end of period 1.94% 1.96% The approach the Corporation uses in determining the adequacy of the Allowance for Loan/Lease Losses is the combination of a target reserve and a general reserve allocation. Quarterly, based on an internal review of the Loan Portfolio, the Corporation identifies required reserve allocations targeted to recognized problem loans that, in the opinion of management, have potential loss exposure or questions relative to the depth of the collateral on these same loans. In addition, the Corporation allocates a general reserve against the remainder of the Loan Portfolio. NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS (Dollar amounts in thousands) Non-Accrual Loans: 03-31-94 12-31-93 09-30-93 06-30-93 03-31-93 Loans secured by real estate $ 513 $ 524 $ 585 $ 583 $ 616 Construction/Land development 91 91 99 103 105 Commercial and Industrial Loans 466 445 392 563 167 Consumer Loans 7 18 24 42 69 Lease financing receivables 0 0 0 0 20 1,077 1,078 1,100 1,291 977 Loans Contractually past due 90 days or more still accruing: Loans secured by real estate 921 285 92 246 608 Construction/Land development 22 0 0 0 0 Commercial and Industrial Loans 16 5 26 0 15 Consumer Loans 18 31 15 8 12 Lease financing receivables 7 9 0 0 0 984 330 133 254 635 Restructured Loans * 617 494 955 923 873 Total non-accrual, past due and restructured Loans $ 2,678 $ 1,902 $ 2,188 $ 2,468 $ 2,485 Non-accrual, past due and restructured Loans as a percentage of total Loans 1.50% 1.08% 1.29% 1.44% 1.43% Allowance for Loan losses as a percentage of non accrual, past due and restructured Loans 129.31% 182.54% 157.40% 135.29% 137.02% OTHER REAL ESTATE Other real estate owned - net $ 2,360 $ 3,161 $ 3,036 $ 3,143 $ 4,457 In substance foreclosure 1,791 1,979 2,886 4,278 5,062 Total Other Real Estate $ 4,151 $ 5,140 $ 5,922 $ 7,421 $ 9,519 * As of March 31, 1994, 100% of restructured loans are performing in compliance with the modified terms of their restructuring. WESTBANK CORPORATION AND SUBSIDIARIES QUARTER TO DATE AVERAGE BALANCES INTEREST EARNED - INTEREST EXPENSE (RATES ON A TAX EQUIVALENT BASIS) (Dollar amounts in thousands) THREE MONTHS ENDED THREE MONTHS ENDED March 31, 1994 March 31, 1993 Balance Interest Rate Balance Interest Rate Federal Funds sold and temporary investments $ 2,067 $ 14 2.71% $ 5,730 $ 43 3.00% Securities 30,439 483 6.35 28,081 418 5.95 Loans/leases 175,893 3,522 8.01 174,379 3,822 8.77 Total earning assets 208,399 $ 4,019 7.72 208,190 $ 4,283 8.23 Loan/lease loss allowance (3,469) (3,405) All other assets 19,342 24,307 TOTAL ASSETS $224,272 $229,092 LIABILITIES AND EQUITY Interest bearing deposits $166,627 $ 1,345 3.23 $180,110 $ 1,810 4.02 Borrowed funds 9,702 61 2.51 19,565 70 2.93 Total interest bearing liabilities 176,329 $ 1,406 3.19 189,675 $ 1,880 3.96 Interest rate spread 4.53% 4.27% Demand deposits 33,290 27,230 Other liabilities 713 667 Shareholders' equity 13,940 11,520 TOTAL LIABILITIES AND EQUITY $224,272 $229,092 Net Interest Income $ 2,613 $ 2,403 Interest Earned/Earning Assets 7.72% 8.23% Interest Expense/Earning Assets 2.70 3.61 Net Yield on Earning Assets 5.02% 4.62% Deduct - Tax Equivalent Adjustment 6 6 NET INTEREST INCOME $ 2,607 $ 2,397 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings None ITEM 2. Changes in Rights of Securities Holders None ITEM 3. Defaults by Company on its Senior Securities None ITEM 4. Results of Votes on Matters Submitted to a Vote of Security Holders None ITEM 5. Other Information None ITEM 6. Exhibits and Reports on Form 8 None Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized. 							 WESTBANK CORPORATION Date: May 9, 1994 Donald R. Chase President and Chief Executive Officer Date: May 9, 1994 John M. Lilly, Treasurer and Chief Financial Officer