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 September 30, 1995
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 org.) (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: 3,215,211 shares
outstanding as of October 31, 1995.
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 Statements of Stockholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7-9
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-16
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
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(Dollar amounts in thousands)
ASSETS September 30, 1995 December 31, 1994
Cash and due from banks: (Unaudited)
Non-interest bearing $ 10,503 $ 10,425
Interest bearing 22 275
Federal Funds sold 7,000 1,000
Total cash and cash equivalents 17,525 11,700
Securities:
Securities available for sale
(Amortized cost of $16,340 in 1995 and
$8,001 in 1994) 16,427 7,753
Securities held to maturity (approximate
market value of $19,959 in 1995 and
$20,631 in 1994) 20,116 21,463
Mortgage-backed securities (approximate
market value of $299 in 1995 and $327 in 1994) 299 331
Total securities 36,842 29,547
Loans $ 202,432 $ 196,002
Allowance for loan losses (3,836) (3,325)
Net-loans 198,596 192,677
Bank premises and equipment 3,577 3,417
Other real estate owned (OREO) - net of
allowance for losses of $50 in
1995 and $231 in 1994 1,237 1,552
Accrued interest receivable 1,829 1,668
Deferred income taxes 1,503 1,245
Other assets 1,614 1,507
TOTAL ASSETS $ 262,723 $ 243,313
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 44,403 $ 40,399
Interest bearing 192,870 178,164
Total deposits 237,273 218,563
Borrowed funds 6,812 8,625
Accrued interest payable 307 240
Accrued taxes 827 0
Other liabilities 405 541
Total liabilities 245,624 227,969
Stockholders' Equity:
Preferred stock - $5 par value per share
Authorized - 100,000 shares
Issued - none
Common stock - $2 par value per share
Authorized - 9,000,000 shares
Issued - 3,199,690 shares in 1995 and
3,138,167 shares in 1994 6,399 6,276
Additional paid in capital 7,053 6,877
Retained earnings 3,597 2,334
Net unrealized gain/(loss) on securities available
for sale 50 (143)
Total stockholders' equity 17,099 15,344
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 262,723 $ 243,313
See accompanying notes to condensed consolidated financial statements.
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Dollar amounts in thousands)
(Unaudited)
QUARTER ENDED NINE MONTHS ENDED
09-30-95 09-30-94 09-30-95 09-30-94
Income:
Interest and fees on loans $ 4,606 $ 3,771 $13,305 $10,921
Interest on temporary investments 69 77 181 138
Interest and dividends on securities 663 474 1,737 1,370
Total interest and dividend income 5,338 4,322 15,223 12,429
Interest expense 2,278 1,602 6,415 4,504
Net interest income 3,060 2,720 8,808 7,925
Provision for loan losses 1,190 219 1,990 931
Net interest income after provision
for loan losses 1,870 2,501 6,818 6,994
Operating Income:
Security gains 98 1 98 151
Other non-interest income 501 554 1,536 1,808
Total Operating Income 599 555 1,634 1,959
Operating Expenses:
Salaries and benefits 844 1,001 2,745 2,860
Other real estate-provision for losses 14 266 124 692
-operating expenses 2 107 212 327
Other non-interest expense 754 877 2,542 2,517
Occupancy - net 166 202 519 561
Total operating expenses 1,780 2,453 6,142 6,957
Income before income taxes 689 603 2,310 1,996
Income taxes (benefit) 354 (59) 573 (115)
Net Income $ 335 $ 662 $ 1,737 $ 2,111
Net income per share $ 0.10 $ 0.21 $ 0.53 $ 0.66
Weighted average shares of common
stock and common share
equivalents 3,289,039 3,208,103 3,254,913 3,201,134
See accompanying notes to condensed consolidated financial statements.
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1994 AND NINE MONTHS ENDED SEPTEMBER 30, 1995
(1995 Unaudited)
(Dollar amounts in thousands)
NET UNREALIZED
GAIN (LOSS) ON
COMMON STOCK ADDITIONAL SECURITIES
NUMBER OF PAR PAID IN RETAINED AVAILABLE
SHARES VALUE CAPITAL EARNINGS FOR SALE TOTAL
DECEMBER 31, 1993 3,125,506 $ 6,251 $ 6,861 $ 159 $ - $ 13,271
Net income - - - 2,175 - 2,175
Shares issued under stock
option plan 7,864 16 - - - 16
Shares issued under stock
purchase plan 4,797 9 16 - - 25
Cumulative effect of implementing
accounting standard for investments
as of January 1, 1994 - - - - 233 233
Unrealized loss on securities
available for sale for
the year - - - - (376) (376)
Balance, December 31, 1994 3,138,167 $6,276 $6,877 $2,334 $(143) $15,344
Net income for nine months
ended September 30, 1995 1,737 1,737
Cash Dividend Declared:
Amount Declaration Record Paid
$0.05 1/10/95 1/20/95 1/25/95 (157) (157)
$0.05 4/19/95 5/01/95 5/03/95 (158) (158)
$0.05 7/05/95 7/17/95 7/20/95 (159) (159)
Shares issued under Dividend
Reinvestment Plan 25,517 51 92 143
Shares issued under stock
option plan 15,042 30 4 34
Shares issued under stock
purchase plan 20,964 42 80 122
Unrealized gain on
securities available
for sale for the nine
months ended
September 30, 1995 193 193
BALANCE - SEPTEMBER 30, 1995 3,199,690 $6,399 $7,053 $3,597 $ 50 $17,099
See accompanying notes to condensed consolidated financial statements.
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
(Dollar amounts in thousands)
Nine Months Ended
09-30-95 09-30-94
Operating activities:
Net income $ 1,737 $2,111
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 1,990 931
Depreciation and amortization 357 442
Provision for other real estate owned 124 692
Increase/(decrease) in interest payable on deposits 67 (346)
(Increase)/decrease in accrued interest receivable (161) (54)
Realized gain on sale of securities (98) (151)
Realized (gain) loss on sale of other real estate owned (13) 0
Realized loss on disposal of premises and equipment 14 0
Decrease/(increase) in other assets (210) (341)
Increase/(decrease) in other liabilities (136) 165
Decrease/(increase) in income taxes refundable 103 (14)
(Increase) in deferred taxes (258) (550)
Increase in accrued income taxes 827 0
Net cash provided by operating activities 4,343 2,885
Investing activities:
Investments and mortgage-backed securities:
Held to maturity:
Purchases (4,500) (5,250)
Proceeds from maturities 5,847 1,474
Available for sale:
Purchases (11,638) (6,750)
Proceeds from sales 2,707 5,349
Proceeds from maturities 580 95
Purchases of premises and equipment (531) (792)
Net (increase)/decrease in loans (8,413) (8,384)
Proceeds from sale of other real estate owned 708 1,294
Net cash provided by (used in) investing activities (15,240) (12,964)
Financing activities:
Net increase/(decrease) in borrowings (1,813) (6,867)
Net increase/(decrease) in deposits 18,710 18,700
Proceeds from exercise of stock options and
stock purchase plan 299 34
Dividends paid (474) 0
Net cash used by financing activities 16,722 11,867
Increase/(decrease) in cash and cash equivalents 5,825 1,788
Cash and cash equivalents at beginning of year 11,700 12,974
Cash and cash equivalents at end of year $17,525 $14,762
Cash paid during the year:
Interest on deposits and other borrowings 6,348 4,850
Income taxes 0 270
Transfers of loans to other real estate owned 845 211
Sales of other real estate owned financed by the bank 341 911
See notes to 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. Substantially all operating income and net income of
the Corporation are presently accounted for by Park West.
NOTE B - CURRENT OPERATING ENVIRONMENT
From March, 1992 until December 22, 1994 Park West had been
operating under a Formal Order (the "Formal Order") with the Federal
Deposit Insurance Corporation and the Commissioner of Banks for the
Commonwealth of Massachusetts. On December 22, 1994, as a result of
the improved financial condition of the Bank, the Formal Order was
released. The Formal Order was replaced with a Memorandum of
Understanding, which Memorandum was revised as a result of an
examination by the Federal Deposit Insurance Corporation as of
August 7, 1995. The revised Memorandum of Understanding (the
"Memorandum") expected to be signed on or before November 30, 1995
is an informal agreement with the Federal Deposit Insurance
Corporation (the "FDIC") and the Commissioner of Banks for the
Commonwealth of Massachusetts (the "Commissioner") requiring Park
West, among other things, to maintain a leverage capital ratio of at
least 6%, to develop a written plan of action to lessen its risk
exposure to certain borrowers and to refrain from extending or
renewing credit to any borrower who has a loan or extension of
credit with Park West that has been charged off or classified,
without first obtaining majority approval of Park West's Board of
Directors. Park West must maintain the allowance for loan losses at
a level commensurate to the risk in the loan portfolio. The
Memorandum requires Park West to obtain approval from the FDIC and
the Commissioner prior to paying or declaring a dividend. Park West
must, within 60 days of the date of the Memorandum, revise the
Bank's Investment Policy, and develop a plan to address internal
routines and controls. Finally, Park West is required to make
quarterly reports to the FDIC and the Commissioner detailing the
form and manner of action taken to secure compliance with the
Memorandum.
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
September 30, 1995, Park West's capital was at a level that placed
the Bank in the well capitalized category.
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 containment
program, the Board of Directors and management believe the
Corporation is positioned to sustain compliance with the Memorandum
as well as the requirements of FDICIA.
NOTE C - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements for the third quarter ended September 30, 1995 and 1994
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 nine month period ended September 30, 1995, are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1995.
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, 1994.
NOTE D - CHANGES IN ACCOUNTING PRINCIPLES
On January 1, 1995 the Bank adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting for
Creditors for Impairment of a Loan - Income Recognition and
Disclosures".
SFAS No. 114 prescribes the methodology under which certain loans
are to be measured for impairment. Generally, a loan is considered
impaired when management believes it is probable that all amounts
due will not be collected according to the contractual terms of the
loan agreement. SFAS No. 118 amends SFAS No. 114 by eliminating
certain income recognition provisions and by expanding the
disclosure requirements. Adoption of these standards did not have a
material effect on the Bank's financial condition or results of
operations.
The Bank measures impairment of commercial loans by using the
present value of expected future cash flows discounted at the loan's
effective interest rate. Commercial real estate loans are generally
measured based on the fair value of the underlying collateral.
Smaller balance homogenous loans, including residential real estate
and consumer loans, are collectively evaluated for impairment.
The Bank evaluates each impaired loan to determine the income
recognition policy. Generally, income is recorded only on a cash
basis for impaired loans. Interest income recognized in the first
nine months of 1995 on impaired loans was not significant.
At September 30, 1995, the recorded investment in impaired loans was
$980,000, for which no specific allowance for loan losses was
recorded. For the nine months ended September 30, 1995, the average
recorded investment in impaired loans was $1,344,000.
NOTE E - STOCKHOLDERS' EQUITY
The FDIC imposes leverage capital ratio requirements for state
non-member Banks. The Bank's leverage capital ratio as of September
30, 1995 and December 31, 1994 was 6.53% and 6.36%, 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 September 30, 1995, for Tier 1 was 9.18% and
total risk-based capital was 10.44%.
Management is not aware of any regulatory recommendations which will
have a material impact on the Corporation's liquidity, capital
resources or results of operations.
NOTE F - SUBSEQUENT EVENT
On October 23, 1995 the Corporation received a refund of $703,000
for payment on the Corporation's claim against its Blanket Bond as
reported in the 1994 Annual Report to shareholders. The amount of
$703,000 represents recovery in full less the $50,000 deductible
amount of the Blanket Bond. The recovery will be reflected in the
Corporation's earnings during the fourth quarter of 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Changes in Financial Condition - Total consolidated assets amounted
to $262,723,000 on September 30, 1995, compared to $243,313,000 on
December 31, 1994. As of September 30, 1995 and September 30, 1994
earning assets amounted to, respectively, $246,346,000, or 94% of
total assets, and $225,050,000, or 93% of total assets. Earning
assets increased during the first nine months of 1995 as a result of
overall strong loan growth. During the first nine months of 1995
the Corporation securitized approximately $10 million of residential
mortgages into mortgage-backed Securities, which were placed into
the Corporation's securities available for sale account. The
increase in earning assets was funded through an increase in
deposits of approximately $18 million.
Changes in results of Operations - Operations reflect net income for
the current quarter of $335,000 as compared to a net income of
$662,000 for the same quarter during 1994. For the nine month
period ended September 30, 1995, net income totaled $1,737,000
compared to net income of $2,111,000 for the same period one year
ago. An overall increase in interest income and interest expense
reflects an increase in volume and interest rates on earning assets,
and interest bearing deposits. Further analysis is provided in
sections on net interest revenue and supporting schedules.
For the nine months ended September 30, 1995 the Corporation
recorded tax expense totaling $573,000 versus a benefit of $115,000
for the same period of 1994. The increase in tax expense for 1995
is the result of the Corporation's utilization of net operating loss
carryforwards in 1994.
Allowance for loan/lease losses and non-performing assets - A
significant increase has been reflected in the provision for loan
losses in the current quarter with $1,190,000 being provided
compared to $219,000 in the 1994 quarter. For the nine month period
ended September 30, 1995 the provision for loan losses increased by
$1,059,000 compared to the same period one year ago. The year to
date increase in the provision for loan/lease losses is the result
of managements review and analysis of the adequacy of the
Corporation's allowance for loan and lease losses and more
specifically the deterioration of two large real estate loans which
deteriorated during the third quarter of the year.
Loans and leases written-off against the allowance for loan/lease
losses after recoveries amounted to $1,479,000 for the first nine
months of 1995 versus $1,234,000 for the same period of 1994. The
increase in net charge-offs during the 1995 period is a reflection
of the continued weak economy and real estate market.
After giving effect to the actions described above, the allowance
for loan/lease losses at September 30, 1995, totalled $3,836,000 or
1.89% of total loans/leases as compared to $3,325,000 or 1.70% at
December 31, 1994.
Non-performing past due loans/leases at September 30, 1995,
aggregated $3,647,000 or 1.80% of total loan/leases compared to
$5,883,000 or 3.00% at December 31, 1994. The percentage of
non-performing and past due loan/leases compared to total assets on
those same dates, respectively amounted to 1.39%, and 2.42%.
The decline in non-performing loans/leases represents the
resolution, charge-off and/or transfer to other real estate owned of
problem loans during the nine months ended September 30, 1995.
Other real estate owned declined during the nine month period of
1995 by $315,000 compared to the same period of 1994, resulting in
reduced other real estate provisions and operating expenses of
$683,000 for the nine months ended September 30, 1995 versus
September 30, 1994.
Other real estate owned-net, amounted to $1,237,000 at September 30,
1995, compared to $1,552,000 at December 31, 1994. The percentage
as compared to total assets on those same dates respectively
amounted to 0.47%, and 0.64%.
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 impaired loans to fair value and other loans (watch list)
monitored by management, 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 NINE MONTHS ENDED
(Dollar amounts in thousands) 09-30-95 09-30-94 09-30-95 09-30-94
Interest and dividend income $ 5,338 $ 4,322 $15,223 $12,429
Interest expense 2,278 1,602 6,415 4,504
Net interest income 3,060 2,720 8,808 7,925
Tax equivalent adjustment 2 8 9 19
Net interest income
(taxable equivalent) $ 3,062 $ 2,728 $ 8,817 $ 7,944
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands)
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1995 1994 1995 1994
(Taxable Equivalent) Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
Earning Assets $242,367 8.81% $221,395 7.81% $236,079 8.60% $214,253 7.75%
Interest-bearing
liabilities 198,432 4.59 185,977 3.45 195,486 4.38 180,838 3.32
Interest rate spread 4.22 4.36 4.22 4.43
Interest-free
resources used to
fund earning assets 43,935 35,418 40,593 33,415
Total Sources of Funds $242,367 3.76 $221,395 2.89 $236,079 3.62 $214,253 2.80
Net Yield on Earning Assets 5.05% 4.92% 4.98% 4.95%
CHANGES IN NET INTEREST INCOME
(Dollar amounts in thousands)
QUARTER ENDED SEPT. 30, 1995 NINE MONTHS ENDED SEPT. 30, 1995
(Taxable Equivalent) O V E R O V E R
QUARTER ENDED SEPT. 30, 1994 NINE MONTHS ENDED SEPT. 30, 1994
CHANGE DUE TO CHANGE DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
Interest Income:
Loans/Leases $ 315 $ 514 $ 829 $ 1,050 $ 1,324 $ 2,374
Securities 141 48 189 277 90 367
Federal funds (25) 17 (8) (16) 59 43
Total Interest Earned 431 579 1,010 1,311 1,473 2,784
Interest Expense:
Interest bearing deposits 103 552 655 393 1,447 1,840
Other Borrowed Funds 9 12 21 0 71 71
Total Interest Expense $ 112 $ 564 $ 676 $ 393 $ 1,518 $ 1,911
Net Interest Income $ 319 $ 15 $ 334 $ 918 $ (45) $ 873
Net interest earned on a taxable equivalent basis increased to
$3,062,000 in the third quarter of 1995, up $334,000 as compared
with the same period of 1994. Average earning assets increased
during the third quarter of 1995. The average earning base was
$242,367,000 compared to $221,395,000 in the same period last year,
an increase of $20,972,000. For the nine month period ended
September 30, 1995, net interest earned on a tax equivalent basis
increased to $8,817,000 up by $873,000 as compared with the
comparable period of 1994 or 11%. Average earning assets increased
by $21,826,000 or 10% and the net yield on earning assets increased
to 4.98% from 4.95% for the nine month period ending September 30,
1995 compared to September 30, 1994.
OPERATING EXPENSES
(Dollar amounts in thousands)
The components of total operating expenses for the periods and their
percentage of gross income are as follows:
QUARTER ENDED NINE MONTHS ENDED
9-30-95 9-30-94 9-30-95 9-30-94
Amount Percent Amount Percent Amount Percent Amount Percent
Salaries and benefits $ 844 14.22% $1,001 20.52% $2,745 16.28% $2,860 19.88%
Other real estate
- provision for losses 14 0.24 266 5.46 124 0.74 692 4.81
- operating expense 2 0.01 107 2.19 212 1.26 327 2.27
Other non-interest expense 754 12.70 877 17.98 2,542 15.08 2,517 17.49
Occupancy - net 166 2.81 202 4.15 519 3.08 561 3.90
Total Operating Expenses $1,780 29.98% $2,453 50.30% $6,142 36.44% $6,957 48.35%
For the nine month period operating expenses declined by $815,000
primarily the result of reduced other real estate owned expenses due
to the change in other real estate holdings as discussed in the
non-performing asset section on page 10. In addition, the Bank
received a refund totaling approximately $108,000 relating to
reduced FDIC deposit insurance.
COMPONENTS OF CAPITAL
(Dollar amounts in thousands)
September 30, 1995 December 31, 1994
Stockholders' Equity:
Common Stock $ 6,399 $ 6,276
Additional paid-in capital 7,053 6,877
Retained earnings 3,597 2,334
Net unrealized gain/(loss) on securities
available for sale 50 (143)
Total Stockholders' Equity $17,099 $15,344
Ratio of "Tier 1" leverage capital
to total assets at end of period 6.51% 6.31%
Regulatory risk-based capital requirements 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
September 30, 1995:
Tier 1 Capital (minimum required 4.00%) 9.18%
Tier 2 Capital (minimum required 8.00%) 10.44%
Under the Memorandum, the Corporation is prohibited from paying
dividends without the prior approval of the FDIC and the
Massachusetts Commissioner of Banks.
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 September 30, 1995,
the Corporation's ratio of such assets to total deposits and
borrowed funds was 19.34%.
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 September 30, 1995.
(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 $ 77,042 $ 48,715 $ 73,789 $ 46,800 $246,346
Interest Bearing
Liabilities 65,026 63,138 71,512 44,445 244,121
Interest Rate
Sensitivity Gap $ 12,016 $ (14,423) $ 2,277 $ 2,355 $ 2,225
Cumulative Interest
Rate
Sensitivity Gap $ 12,016 $ (2,407) $ (130) $ 2,225
Interest Rate
Sensitivity
Gap Ratio 4.88% (5.86)% 0.92% 0.96%
Cumulative Interest
Rate Sensitivity
Gap Ratio 4.88% (0.98)% (0.06)% 0.90%
Savings and NOW accounts are identified as variable rate deposits.
Although all other variable rate deposits are placed in the 1 - 3
month time horizon for repricing purposes, the above two classes of
deposits are placed as follows:
10% of total savings and NOW accounts placed in the 6 - 12
month time horizon based on a run off of approximately 10% of
the Bank's savings accounts. The remaining 90% are placed in
the 1 - 5 year gap position.
This gap position is justified based on the historical trends of
changes in rate on these deposits and the historical method of how
these deposits are managed and the limited run off of deposits which
the Bank has experienced.
PROVISION AND ALLOWANCE FOR LOAN/LEASE LOSSES
(Dollar amounts in thousands)
QUARTER ENDED NINE MONTHS ENDED
9-30-95 9-30-94 9-30-95 9-30-94
Balance at beginning of period $ 3,005 $ 3,954 $ 3,325 $ 3,472
Provision charged to expense 1,190 219 1,990 931
4,195 4,173 5,315 4,403
Less Charge-offs:
Loans secured by real estate 361 657 1,257 924
Commercial and industrial loans 7 345 211 473
Consumer loans 20 10 105 33
Lease financing receivables 0 0 5 7
388 1,012 1,578 1,437
Add-Recoveries:
Loans secured by real estate 14 2 24 9
Commercial and industrial loans 1 0 42 178
Consumer loans 12 3 28 12
Lease financing receivables 2 3 5 4
29 8 99 203
Net charge-offs 359 1,004 1,479 1,234
Balance at end of period $ 3,836 $ 3,169 $ 3,836 $ 3,169
Net Charge-offs to:
Average loans/leases .18% .55% .75% .68%
Loans/leases at end of period .18% .55% .73% .67%
Allowance for loan/lease losses 9.36% 31.68% 38.56% 38.94%
Allowance for loan/lease losses
as a percentage of:
Average loans/leases 1.93% 1.73% 1.95% 1.76%
Loans/leases at end of period 1.89% 1.72% 1.89% 1.72%
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: 09-30-95 06-30-95 03-31-95 12-31-94 09-30-94
Loans secured by real estate $ 2,124 $ 2,745 $ 3,302 $ 4,173 $ 4,977
Construction/Land development 361 52 58 68 0
Commercial and Industrial Loans 302 299 357 570 1,132
Consumer Loans 13 16 24 79 53
2,800 3,112 3,741 4,890 6,162
Loans Contractually
past due 90 days or more
still accruing:
Loans secured by real estate 271 201 117 260 81
Commercial and Industrial Loans 118 50 0 216 5
Consumer Loans 16 14 8 16 36
405 265 125 492 122
Restructured Loans 442 496 498 501 452
Total non-accrual, past
due and restructured
loans $ 3,647 $ 3,873 $ 4,364 $ 5,883 $ 6,736
Non-accrual, past due and
restructured loans
as a percentage of total
loans 1.80% 1.98% 2.24% 3.00% 3.65%
Allowance for loan
losses as a percentage of
non accrual, past due and
restructured loans 105.18% 77.59% 62.79% 56.52% 47.04%
Other real estate owned - net $ 1,237 $ 1,775 $ 1,540 $ 1,552 $ 1,659
Total non-performing assets $ 4,884 $ 5,648 $ 5,904 $ 7,435 $ 8,395
Non-performing assets as a
percentage of total assets 1.86% 2.19% 2.38% 3.06% 3.46%
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
September 30, 1995 September 30, 1994
Balance Interest Rate Balance Interest Rate
Federal Funds sold and
temporary investments $ 5,294 $ 69 5.21% $ 7,376 $ 77 4.18%
Securities 38,803 663 6.83 30,370 474 6.24
Loans/leases 198,270 4,608 9.30 183,649 3,779 8.23
Total earning assets 242,367 $ 5,340 8.81 221,395 $ 4,330 7.81
Loan/lease loss allowance (3,366) (3,917)
All other assets 18,986 19,963
TOTAL ASSETS $257,987 $237,441
LIABILITIES AND EQUITY
Interest bearing deposits $191,828 $ 2,218 4.62 $180,574 $ 1,563 3.46
Borrowed funds 6,604 60 3.63 5,403 39 2.89
Total interest bearing
liabilities 198,432 $ 2,278 4.59 185,977 $ 1,602 3.45
Interest rate spread 4.22% 4.36%
Demand deposits 41,062 35,808
Other liabilities 1,471 728
Shareholders' equity 17,022 14,928
TOTAL LIABILITIES
AND EQUITY $257,987 $237,441
Net Interest Income $ 3,062 $ 2,728
Interest Earned/Earning Assets 8.81% 7.81%
Interest Expense/Earning Assets 3.76 2.89
Net Yield on Earning Assets 5.05% 4.92%
Deduct - Tax Equivalent Adjustment 2 8
NET INTEREST INCOME $ 3,060 $ 2,720
WESTBANK CORPORATION AND SUBSIDIARIES
YEAR TO DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(RATES ON A TAX EQUIVALENT BASIS)
(Dollar amounts in thousands)
NINE MONTHS ENDED NINE MONTHS ENDED
September 30, 1995 September 30, 1994
Balance Interest Rate Balance Interest Rate
Federal Funds sold and
temporary investments $ 4,527 $ 181 5.33% $ 4,738 $ 138 3.88%
Securities 34,771 1,737 6.67 29,313 1,370 6.23
Loans/leases 196,781 13,314 9.02 180,202 10,940 8.09
Total earning assets 236,079 $ 15,232 8.60 214,253 $ 12,448 7.75
Loan/lease loss allowance (3,165) (3,637)
All other assets 18,865 19,780
TOTAL ASSETS $251,779 $230,396
LIABILITIES AND EQUITY
Interest bearing deposits $188,327 $ 6,201 4.39 $173,683 $ 4,361 3.35
Borrowed funds 7,159 214 3.99 7,155 143 2.66
Total interest bearing
liabilities 195,486 $ 6,415 4.38 180,838 $ 4,504 3.32
Interest rate spread 4.22% 4.43%
Demand deposits 38,752 34,488
Other liabilities 1,060 637
Shareholders' equity 16,481 14,433
TOTAL LIABILITIES
AND EQUITY $251,779 $230,396
Net Interest Income $ 8,817 $ 7,944
Interest Earned/Earning Assets 8.60% 7.75%
Interest Expense/Earning Assets 3.62 2.80
Net Yield on Earning Assets 4.98% 4.95%
Deduct - Tax Equivalent Adjustment 9 19
NET INTEREST INCOME $ 8,808 $ 7,925
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-K
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: November 13, 1995
Donald R. Chase
President and
Chief Executive Officer
Date: November 13, 1995
John M. Lilly, Treasurer and
Chief Financial Officer