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 June 30, 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 incorporation 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: $3,136,033 shares outstanding
as of July 31, 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 19
ITEM 2. Changes in Rights of Securities Holders 19
ITEM 3. Defaults by Company on its Senior Securities 19
ITEM 4. Results of Votes on Matters Submitted to a Vote
of Security Holders 19
ITEM 5. Other Information 19
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 20
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
(Dollar amounts in thousands)
ASSETS June 30, 1994 Dec. 31, 1993
Cash and due from banks (Unaudited)
Non-interest bearing $ 11,919 $ 9,621
Interest bearing 365 353
Federal Funds sold 13,000 3,000
Securities available for sale
(approximate market value of $9,654 in
1994 and $5,085 in 1993) 9,654 4,945
Securities held to maturity (approximate
market value of $16,860 in 1994 and
$27,398 in 1993) 17,192 26,633
Mortgage-backed securities (approximate
market value of $358 in 1994 and $422 in 1993 359 401
Loans $ 182,783 $ 176,090
Allowance for loan losses (3,954) (3,472)
Net-loans 178,829 172,618
Bank premises and equipment 3,275 3,088
Other Real Estate Owned (OREO) $ 2,776 $ 3,601
In-substance foreclosures 1,302 1,979
Valuation allowance (669) (440)
Net-O.R.E.O. 3,409 5,140
Accrued interest receivable 1,639 1,560
Deferred income tax receivable 769 369
Prepaid/refundable income tax 88 50
Other assets 1,093 1,085
TOTAL ASSETS $ 241,591 $ 228,863
LIABILITIES AND EQUITY
Deposits
Non-interest bearing $ 35,647 $ 34,499
Interest bearing 184,324 167,932
Total Deposits 219,971 202,431
Borrowed funds 6,103 12,420
Accrued interest payable 503 541
Other liabilities 324 200
Total Liabilities 226,901 215,592
Stockholders' Equity
Preferred stock - $5 par value
Authorized - 100,000 shares
Issued - none 0 0
Common stock - $2 par value
Authorized - 9,000,000 shares
Issued - 3,135,073 shares in 1994 and
3,125,506 shares in 1993 6,270 6,251
Additional paid in capital 6,868 6,861
Retained earnings 1,608 159
Net unrealized gain/loss on sec. avail. for sale (56) 0
Total Stockholders' Equity 14,690 13,271
TOTAL LIABILITIES AND EQUITY $ 241,591 $ 228,863
See accompanying notes to condensed consolidated financial statements.
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR QUARTER AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(Unaudited)
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
6-30-94 6-30-93 6-30-94 6-30-93
Income:
Interest and fees on loans $ 3,634 $ 3,791 $ 7,150 $ 7,607
Interest from temporary investments 47 40 61 83
Interest and dividends from securities 413 504 896 922
Total interest and dividend income 4,094 4,335 8,107 8,612
Interest expense 1,496 1,802 2,902 3,682
Net interest income before provision
for loan losses 2,598 2,533 5,205 4,930
Provision for loan losses 365 80 712 305
Interest income after provision
for loan losses 2,233 2,453 4,493 4,625
Security gains 0 77 150 173
Other non-interest income 658 505 1,254 1,033
Income before operating expenses 2,891 3,035 5,897 5,831
Operating Expenses:
Salaries and benefits 951 866 1,859 1,828
Other real estate - prov. for losses 185 409 426 664
- operating expense 116 200 220 350
Other non-interest expense 808 958 1,640 1,806
Occupancy - net 174 163 359 323
Total operating expenses 2,234 2,596 4,504 4,971
Income before income taxes 657 439 1,393 860
Income taxes (benefit) 124 82 (56) 162
Income before cumulative effect of change
in accounting principle 533 357 1,449 698
Cumulative effect of change in accounting
principle - income taxes 0 0 0 400
Net Income $ 533 $ 357 $ 1,449 $ 1,098
Earnings per share
before cumulative effect of change
in accounting principle $ .17 $ .11 $ .45 $ .22
Earnings per share
after cumulative effect of change
in acct principle - income taxes $ .17 $ .11 $ .45 $ .35
Weighted average of common and
common share equivalents 3,202,174 3,156,876 3,197,527 3,150,942
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 SIX MONTHS ENDED JUNE 30, 1994
(1994 Unaudited)
(Dollar amounts in thousands)
NET UNREALIZED
GAIN ON
COMMON STOCK ADDITIONAL SECURITIES
NUMBER OF PAR PAID IN RETAINED AVAILABLE
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 7,364 15 15
Shares issued under stock
purchase plan 2,203 4 7 11
Net unrealized gain on
sec. avail. for sale (56) (56)
Net income for six months
ended June 30, 1994 1,449 1,449
JUNE 30, 1994 3,135,073 $ 6,270 $ 6,868 $1,608 $(56) $14,690
See accompanying notes to condensed consolidated financial statements.
WESTBANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1994 and 1993
(Unaudited)
(Dollar amounts in thousands)
INCREASE/(DECREASE) IN CASH FLOW FROM:
SIX MONTHS ENDED
06-30-94 06-30-93
OPERATING ACTIVITIES:
Net Income $ 1,449 $ 1,098
Adjustments to reconcile net income to
net cash from operating activities:
Provision for loan losses 712 305
Provision for depreciation and amortization 301 394
Charge off in carrying value of other real estate owned 426 664
Gain on sale of investment securities ( 150) ( 173)
Increase/(Decrease) In Cash Flow From:
Accrued interest receivable ( 79) 118
Accrued interest payable ( 38) ( 71)
Income tax benefit ( 438) ( 573)
Other assets ( 8) 81
Other liabilities 124 ( 2)
INVESTING ACTIVITIES:
Proceeds from maturities of investments and
mortgage-backed securities 1,437 11,836
Proceeds from sales of securities
available for sale 4,923 5,077
Purchases of investment and mortgage-backed securities (1,492) (18,714)
Loans - net of non cash transfers to other assets (6,495) 2,103
Proceeds from sale of other real estate owned and
in-substance foreclosures 877 909
Purchases of bank premises and equipment ( 488) ( 216)
(1,238) 995
FINANCING ACTIVITIES:
Deposits 17,540 ( 1,240)
Increase/(decrease) in short term borrowings (6,317) ( 1,211)
Proceeds from exercise of stock options and
stock purchase plan 26 (4)
11,249 ( 2,447)
Increase/(decrease) in cash and cash equivalents 12,310 389
Cash and cash equivalents at beginning of period 12,974 17,607
Cash and cash equivalents at end of period $25,284 $ 17,996
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the six months:
Interest on deposits and other borrowings $ 2,939 $ 3,753
Income taxes 270 325
Non-cash investing activities:
Transfer of loans to other real estate owned
and in-substance foreclosure $ 314 $ 418
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 Agreement 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 June 30, 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 continue to 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 June
30, 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 Agreement
as well as the requirements of FDICIA.
NOTE C - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements for the second quarter ended June 30, 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 six month period ended June 30, 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 ACCOUNTING 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 decrease stockholders' equity by approximately $56,000 (net of
tax effect) on June 30, 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
two quarters 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.
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 June 30, 1994 standby letters
of credit amounted to $724,000 and loan commitments were $34,580,000
and unused balances available on home equity lines of credit were
$8,136,000.
Trust Assets - Property with a book value of $87,445,581 at June 30,
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 June 30,
1994 and December 31, 1993 was 6.40% 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 June 30, 1994, for Tier 1 was 8.26% and total
risk-based capital was 9.52%.
As discussed in NOTE B, the Formal Agreement 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 June 30, 1994,
the Bank was in compliance with all required capital targets.
The Agreement required that Park West's Tier 1 leverage capital
ratio be increased to a minimum of 6% by June 30, 1994. As of June
30, 1994 Park West Tier 1 leverage capital ratio was 6.40% exceeding
the requirement of the Agreement.
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 $241,591,000 on June 30, 1994,
compared to $228,863,000 on December 31, 1993. As of June 30, 1994
and June 30, 1993 earning assets amounted to, respectively,
$223,353,000 or 92% of total assets, and $209,045,000 or 90% of
total assets.
Operations reflect net income for the current quarter of $533,000 as
compared to a net income of $357,000 for the same quarter during
1993. For the six months and year-to-date period June 30, 1994, net
income totals $1,449,000 compared to net income of $1,098,000 for
the same period one year ago.
An overall reduction in interest income and interest expense
reflects an increase in loan volume and decreases in deposit volume
and interest rates on earning assets and interest bearing deposits.
Further analysis is provided in sections on net interest income and
supporting schedules. An increase has been reflected in the
provision for loan losses in the current quarter with $365,000 being
provided compared to $80,000 in the 1993 quarter, and an increase of
$407,000 for the six month period. Decreases are noted in other
real estate provisions and operating expenses. This expense
totalled $301,000 for the current quarter compared with $609,000 a
year ago, a decrease of $308,000, these comparable expenses reflect
a decrease of $368,000 for the six month period.
Loans and leases written-off against the allowance for loan losses
after recoveries amounted to net recoveries of $(126,000) in the
current quarter compared to net charge offs of $143,000 during the
quarter ended June 30, 1993.
After giving effect to the actions described above, the allowance
for loan losses at June 30, 1994, totalled $3,954,000 or 2.17% of
total loans as compared to $3,472,000 or 1.97% at December 31, 1993.
Non-performing past due loans/leases at June 30, 1994, aggregated
$5,241,000 or 2.87% of total loans/leases compared to $1,902,000 or
1.08% at December 31, 1993. The percentage of non-performing and
past due loans compared to total assets on those same dates
respectively amounted to 2.17% and 0.83%.
Other-real-estate-owned and in-substance foreclosures-net amounted
to $3,409,000 at June 30, 1994 compared to $5,140,000 at December
31, 1993. The percentage as compared to total assets on those same
dates respectively amounted to 1.41% and 2.25%.
Management has made every effort to recognize all circumstances
known at this time which could affect the collectibility of loans
and has reflected such circumstances in deciding as to the provision
for loan losses, the writing down of other real estate owned and
in-substance foreclosures to fair value, the charge-off of loans and
the balance in the allowance for losses. Management deems, that the
provision for the quarter, and the balance in the allowance for loan
losses, are adequate based on results provided by the loan 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
revenue presented on the following pages reflect the consolidated
assets and liabilities of the Corporation's principal earning
subsidiary, Park West Bank and Trust Company.
(Dollar amounts in thousands)
Quarter Ended Six Months Ended
6-30-94 6-30-93 6-30-94 6-30-93
Interest revenue $ 4,094 $ 4,335 $ 8,107 $ 8,612
Interest expense 1,496 1,802 2,902 3,682
Net interest income 2,598 2,533 5,205 4,930
Tax equivalent adjustment 5 7 11 13
Net int. income (taxable equivalent) $ 2,603 $ 2,540 $ 5,216 $ 4,943
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands)
Quarter Ended June 30,
1994 1993
(Taxable Equivalent) Average Average
Balance Rate Balance Rate
Earning Assets $213,428 7.68% $208,585 8.33%
Interest-bearing
liabilities 180,208 3.32 188,288 3.83
Interest rate spread 4.36 4.50
Interest-free
resources used to
fund earning assets 33,220 20,297
Total Sources of Funds $213,428 2.80 $208,585 3.46
Net Yield on Earning Assets 4.88% 4.87%
Six Months Ended June 30,
1994 1993
(Taxable Equivalent) Average Average
Balance Rate Balance Rate
Earning Assets $210,799 7.70% $208,387 8.28%
Interest-bearing
liabilities 178,269 3.26 188,982 3.90
Interest rate spread 4.44 4.38
Interest-free
resources used to
fund earning assets 32,530 19,405
Total Sources of Funds $210,799 2.75 $208,387 3.53
Net Yield on Earning Assets 4.95% 4.75%
CHANGES IN NET INTEREST INCOME
(Dollar amounts in thousands)
QUARTER ENDED 6/30/1994 SIX MONTHS ENDED 6/30/1994
(Taxable Equivalent) O V E R O V E R
QUARTER ENDED 6/30/1993 SIX MONTHS ENDED 6/30/1993
CHANGE DUE TO CHANGE DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
Interest Income:
Loans/Leases $ 235 $ (394) $ (159) $ 268 $ (727) $ (459)
Securities (85) (6) (91)
Federal funds ( 4) 11 7 (30) 8 (22)
--------------------------
Total Interest Earned 146 (389) (243) 189 (696) (507)
--------------------------
Interest Expense:
Interest bearing deposits (59) (225) (284) (187) (561) (748)
Other Borrowed Funds (14) ( 8) ( 22)
-------------------------- ---------------------------
Total Interest Expense $ (73) $ (233) $ (306) $ (201) $ (579) $ (780)
--------------------------
Net Interest Income $ 219 $ (156) $ 63 $ 390 $ (117) $ (273)
--------------------------
Net interest earned on a taxable equivalent basis increased to
$2,603,000 in the second quarter of 1994, up $63,000 as compared
with the same period of 1993. Average earning assets increased
during the second quarter of 1994. The average earning base was
$213,428,000 compared to $208,585,000 in the same period last year,
an increase of $4,843,000. For the six month period ended June 30,
1994, net interest earned on a tax equivalent basis increased to
$5,216,000 up by $273,000 as compared with the comparable period of
1993 or 5.5%. Average earning assets increased by $2,412,000 or
1.1% and the net yield on earning assets increased to 4.95% from
4.75% for the six month period ending June 30, 1994 compared to June
30, 1993.
OPERATING EXPENSES
The components of total operating expenses for the periods and their
percentage of gross income are as follows:
(Dollar amounts in thousands)
QUARTER ENDED
6-30-94 6-30-93
Amount Percent Amount Percent
Salaries and benefits $ 951 20.01% $ 866 17.62%
Other real estate
- provision for losses 185 3.89 409 8.31
- operating expense 116 2.44 200 4.07
Other non-interest expense 808 17.00 958 19.48
Occupancy - net 174 3.66 163 3.32
Total Operating Expenses $2,234 47.00% $2,596 52.80%
------ ------ ------ ------
SIX MONTHS ENDED
6-30-94 6-30-93
Amount Percent Amount Percent
Salaries and benefits $1,859 19.55% $1,828 18.62%
Other real estate
- provision for losses 426 4.48 664 6.76
- operating expense 220 2.31 350 3.56
Other non-interest expense 1,640 17.24 1,806 18.39
Occupancy - net 359 3.78 323 3.30
Total Operating Expenses $4,504 47.36% $4,971 50.63%
------ ------ ------ ------
INCOME TAXES
In February, 1992, the Financial Accounting Standards Board issued a
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
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 change in
accounting principle.
During the first six months of 1994 Westbank recorded a tax benefit
of $56,000 which is primarily the result of a decrease in the
valuation reserve of $400,000 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 the resultant consideration of the realizability of
deferred tax assets and is in accordance with the guidance in
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes".
COMPONENTS OF CAPITAL
June 30, December 30,
(Dollar amounts in thousands) 1994 1993
Stockholders' Equity:
Common stock $ 6,270 $ 6,251
Additional paid-in capital 6,868 6,861
Retained earnings 1,608 159
Net unrealized gain/(loss) on sec. avail. for sale (56) 0
------- -------
Total Stockholders' Equity 14,690 13,271
Ratio of "Tier 1" leverage capital
to total assets at end of period 6.08% 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
June 30, 1994:
Tier 1 Capital (minimum required 4.00%) 8.26%
Tier 2 Capital (minimum required 8.00%) 9.52%
The Agreement 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 June 30, 1994 the Formal Order required Park West's
Tier 1 leverage capital to be at a minimum of 6.00%. For Park West,
Tier 1 leverage capital is calculated using quarterly average
assets. At June 30, 1994 Park West's Tier 1 leverage capital to
average assets was 6.40%, which is above the interim target
established by the Agreement.
Under the Agreement, 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 June 30, 1994.
(Dollar amounts in thousands)
Three Over Three Over One Year
Months Months to to Over
or Less One Year Five Years Five Years Total
Earning Assets $ 87,775 $ 45,528 $ 54,804 $ 35,409 $223,516
Interest Bearing
Liabilities 130,209 33,228 26,990 0 190,427
Interest Rate
Sensitivity Gap $( 42,434) $ 12,300 $ 27,814 $ 35,409 $ 33,089
---------- --------- --------- --------- --------
Cumulative Interest
Rate
Sensitivity Gap $( 42,434) $( 30,134) $( 2,320) $ 33,089
---------- ---------- ---------- ---------
Interest Rate
Sensitivity
Gap Ratio (18.98)% 5.50% 12.44% 15.84%
Cumulative Interest
Rate Sensitivity
Gap Ratio (18.98)% (13.48)% (1.04)% 14.80%
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 June 30,
1994, the Corporation's ratio of such assets to total deposits and
borrowed funds was 22.00%.
PROVISION AND ALLOWANCE FOR LOAN/LEASE LOSSES
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
6-30-94 6-30-93 6-30-94 6-30-93
Balance at beginning of period $ 3,463 $ 3,405 $ 3,472 $ 3,442
Provision charged to expense 365 80 712 305
$ 3,828 $ 3,485 $ 4,184 $ 3,747
Less Charge-offs:
Loans secured by real estate 0 106 267 125
Construction/land development 0 0 0 150
Commercial and industrial loans 0 45 128 144
Consumer loans 15 27 23 39
Lease financing receivables 7 14 7 55
$ 22 $ 192 $ 425 $ 513
Add-Recoveries:
Loans secured by real estate 7 17 7 59
Construction/land developing 0 0 0 0
Commercial and industrial loans 136 11 178 18
Consumer loans 5 2 9 11
Lease financing receivables 0 16 1 17
148 46 195 105
Net charge-offs (recoveries) (126) 146 230 408
Balance at end of period $ 3,954 $ 3,339 $ 3,954 $ 3,339
Net Charge-offs (recoveries) to:
Average loans/leases (.07%) .08% 1.30% .24%
Loans/leases at end of period (.07%) .09% 1.30% .24%
Allowance for loan/lease losses (3.19%) 4.37% 5.82% 12.22%
Allowance for loan/lease losses
as a percentage of:
Average loans/leases 2.18% 1.96% 2.22% 1.94%
Loans/leases at end of period 2.17% 1.95% 2.17% 1.95%
During the most recent quarter, non-accrual loans increased by
$3,400,000, the result of further deterioration of a few previously
identified problem loans.
In response to the increase in non-accrual loans, the Corporation
has increased the balance of the allowance for loan/lease losses to
$3,954,000 at the end of the second quarter.
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)
06-30-94 03-31-94 12-31-93 09-30-93 06-30-93
Non-Accrual Loans:
Loans secured by real estate $ 3,898 $ 513 $ 524 $ 585 $ 583
Construction/Land development 84 91 91 99 103
Commercial and Industrial Loans 483 466 445 392 563
Consumer Loans 19 7 18 24 42
Lease financing receivables 0 0 0 0 0
4,484 1,077 1,078 1,100 1,291
Loans Contractually
past due 90 days or more
still accruing:
Loans secured by real estate 229 921 285 92 246
Construction/Land development 0 22 0 0 0
Commercial and Industrial Loans 49 16 5 26 0
Consumer Loans 23 18 31 15 8
Lease financing receivables 0 7 9 0 0
301 984 330 133 254
Restructured Loans * 456 617 494 955 923
Total non-accrual, past
due and restructured
Loans $ 5,241 $ 2,678 $ 1,902 $ 2,188 $ 2,468
Non-accrual, past due and
restructured Loans
as a percentage of total
Loans 2.87% 1.50% 1.08% 1.29% 1.44%
Allowance for Loan
losses as a percentage of
non accrual, past due and
restructured Loans 75.44% 129.31% 182.54% 157.40% 135.29%
OTHER REAL ESTATE
Other real estate owned - net $ 2,107 $ 2,360 $ 3,161 $ 3,036 $ 3,143
In substance foreclosure 1,302 1,791 1,979 2,886 4,278
Total Other Real Estate $ 3,409 $ 4,151 $ 5,140 $ 5,922 $ 7,421
* As of June 30, 1994, 100% of restructured loans are performing in
compliance with modified terms of their restructuring.
WESTBANK CORPORATION AND SUBSIDIARIES
QUARTERLY AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(RATES ON A TAX EQUIVALENT BASIS)
(Dollar amounts in thousands)
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
JUNE 30, JUNE 30,
1994 1993
ASSETS Balance Interest Rate Balance Interest Rate
Federal funds sold and
temporary investments $ 5,003 $ 47 3.76% $ 5,577 $ 40 2.87%
Securities 27,133 413 6.09% 32,698 504 6.17
Loans/Leases 181,292 3,639 8.03% 170,310 3,798 8.92
Total earning assets $213,428 $4,099 7.68% $208,585 $ 4,342 8.33
Loan/Lease loss allow. ( 3,526) (3,516)
All other assets 19,574 24,537
TOTAL ASSETS $229,476 $229,606
LIABILITIES AND EQUITY
Int. bearing deposits $173,847 $1,454 3.35 $180,015 $ 1,738 3.86
Borrowed funds 6,361 42 2.64 8,273 64 3.09
Total interest bearing
liabilities 180,208 $1,496 3.32 188,288 $ 1,802 3.83
Interest rate spread 4.36% 4.50%
Demand deposits 34,368 28,428
Other liabilities 471 717
Shareholders' equity 14,429 12,173
TOTAL LIABILITIES
AND EQUITY $229,476 $229,606
Net interest income $2,603 $ 2,540
Interest Earned/Earning Assets 7.68% 8.33%
Interest Expense/Earning Assets 2.80 3.46
Net Yield on Earning Assets 4.88% 4.87%
Deduct - Tax Equivalent Adj. 5 7
NET INTEREST INCOME $2,598 $ 2,533
WESTBANK CORPORATION AND SUBSIDIARIES
YEAR TO DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(RATES ON A TAX EQUIVALENT BASIS)
(Dollar amounts in thousands)
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993
ASSETS Balance Interest Rate Balance Interest Rate
Federal Funds sold and
temporary investments $ 3,534 $ 61 3.45% $ 5,653 $ 83 2.94%
Securities 28,786 896 6.23 30,389 922 6.07
Loans/Leases 178,479 7,161 8.02 172,345 7,620 8.84
Total earning assets 210,799 $8,118 7.70 208,387 $ 8,625 8.28
Loan/Lease loss allowance ( 3,498) ( 3,515)
All other assets 19,573 24,478
TOTAL ASSETS $226,874 $229,350
LIABILITIES AND EQUITY
Int. bearing deposits $170,238 $2,799 3.29 $180,063 $ 3,547 3.94
Borrowed funds 8,031 103 2.57 8,919 135 3.02
Total interest bearing
liabilities 178,269 $2,902 3.26 188,982 $ 3,682 3.90
Interest rate spread 4.44% 4.38%
Demand deposits 33,829 27,829
Other liabilities 592 692
Shareholders' equity 14,184 11,847
TOTAL LIABILITIES
AND EQUITY $226,874 $229,350
Net Interest Income $5,216 $ 4,943
Interest Earned/Earning Assets 7.70% 8.28%
Interest Expense/Earning Assets 2.75 3.53
Net Yield on Earning Assets 4.95% 4.75%
Deduct - Tax Equivalent Adjustment 11 13
NET INTEREST INCOME $5,205 $ 4,930
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Rights of Security 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-K
The Corporation filed two reports on Form 8-K on April 20, 1994, which
reports (1) reported the dismissal of KPMG Peat Marwick as the
Corporation's independent public accountants and (2) reported the
appointment of the firm of Deloitte & Touche as the Corporation's
independent public accountants for the year ending December 31, 1994.
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: August 8, 1994
Donald R. Chase
President and Chief Executive Officer
Date: August 8, 1994
John M. Lilly
Treasurer and Chief Financial Officer