Westbank Corporation
1995 Annual Report to Stockholders
Inside front cover:
On the Cover:
"Making The Vision A Reality" is more than just a focus for
Westbank's Annual Report. It is an active and developing strategy
that will provide continued growth through the 1990's - the decade
for community banks.
We have taken major strides toward the vision set forth because of
our accomplishments in 1995.
Our Vision:
Westbank Corporation will continue to provide the products and
servies our customers want while maintaining strategic and
organizational flexibility to meet the challenges of a changing
financial industry.
In pursuing its vision, the Corporation will stive to maintain an
environment that provides increasing value for shareholders, service
excellence for customers, and opportunities for employees.
"Vision is the power to see beyond the obvious. . ."
Donald R. Chase
President and Chief Executive Officer
Financial Highlights
Westbank Corporation and Subsidiaries
For the Year
(Dollars in Thousands) 1995 1994 1993
========================================================================================================================
Net income $2,353 $2,175 $1,947
Net interest income 11,721 10,847 10,073
Non-interest income 2,917 2,459 2,861
Non-interest expenses 8,017 8,852 8,275
Real estate owned expenses 498 1,236 1,797
Total non-interest expenses 8,515 10,088 10,072
Provision for loan losses 2,690 1,473 790
Year End
(Dollars in Thousands)
========================================================================================================================
Investment and mortgage-backed securities $35,116 $29,547 $31,979
Loans, net 197,264 192,677 174,597
Allowance for loan losses 3,707 3,325 3,472
Total assets 253,777 243,313 228,863
Total deposits 227,962 218,563 202,431
Total stockholders equity 17,703 15,344 13,271
Common Share Information
Weighted average shares outstanding 3,271,875 3,203,985 3,190,486
Net income per share $.72 $.68 $.61
GRAPH INSERT -
The following graphs illustrate the Corporation's net income, earnings per
share and book value for the years 1993 through 1995:
1993 1994 1995
Net income $1,947,000 $2,175,000 $2,353,000
Earnings per share $0.61 $0.68 $0.72
Book Value $4.16 $4.79 $5.41
Chairman s and President s Letter
Westbank Corporation and Subsidiaries
Dear Shareholder:
We continued in 1995 to fulfill the pledge we made to you four years
ago. We said then that we were determined to restore profitability,
build capital, improve productivity and position ourselves for the
opportunities of this decade. We ve done exactly that.
Westbank Corporation achieved record earnings and profitability in
1995 as we more fully realized the benefits of strategies we have
been pursuing for the past four years.
The Corporation earned a record net income of $2,353,000, or $.72
per share, an 8% increase over the previous year.
Our progress is no accident. It comes from design and hard work.
For four years, we have followed a strategy of becoming the most
progressive independent, locally- owned community bank in Western
Massachusetts. In the process, we first took the steps necessary to
ensure our survival at a time when many New England banks were
failing. We then worked through a recovery phase to restore our
financial strength. We are now well poised to gain competitive
advantage in the marketplace and to attain our long-term goals of
increased profitability and enhanced shareholder value.
With our record 1995 results, the Board of Directors raised the
quarterly cash dividend rate 20% to $.06 per share. This was a
tribute to those shareholders who stood by patiently while
supporting our efforts to bring the company back to financial
health.
Westbank Corporation s 1995 performance produced returns on average
assets and shareholders equity of .93% and 14.04% respectively. The
Corporation s book value also increased to $5.41 as compared to
$4.79 per share in 1994.
One of our goals last year was to deliver financial services to
individuals and local businesses in a way that creates customer
loyalty and steady earnings growth. We strove to achieve this goal
by emphasizing asset quality and by maintaining high underwriting
standards and active loan servicing programs while aggressively
reserving against, managing and disposing of nonaccrual assets.
Lagging economic recovery did not hinder our community commercial
lenders from achieving loan growth in 1995, with total loans at year
end of $197.3 million, an increase of more than $4.5 million over
1994.
Westbank s investment portfolio totaled $35.1 million at year end
compared to $29.5 million at the end of 1994, an increase of 18%,
and included the origination and creation of $8.9 million of
mortgage-backed securities.
Total deposits of $228 million include an increase of more than $3.6
million or 9% in new demand deposit accounts over the previous year.
Growth in loans, investments and demand deposits enabled the
Corporation to maintain a net interest margin of 4.94% for the year
ended, with net interest income increasing by $874 thousand or 8%
compared to 1994.
Westbank seeks to increase earnings through careful asset growth and
by managing interest rate risk to maximize net interest income over
time in changing interest rate environments, while meeting customers
changing needs for deposit and loan products. The Corporation also
earns fee income from checking and deposit services and from
residential and commercial loan origination and loan servicing.
The Corporation controls expenses by delivering financial services
to its growing customer base in an efficient manner. Westbank has
expanded its customer base and achieved economies of scale in the
last four years. During 1995, we successfully continued our quest
to reduce the level of operating expenses, with the Cor-poration s
core expenses declining by more than $80 thousand dollars, resulting
in a most enviable efficiency ratio of 59%.
At year-end, the Corporation s capital totaled $17.7 million, an
increase of more than $2 million or 15.4% compared to year end 1994
and the Corporation s capital ratio was 6.98%. Under Federal
Deposit Insurance Corporation guidelines, our capital ratio exceeds
the numeric criteria for a well- capitalized bank.
Westbank s longstanding commitment to address the needs of our local
communities continues. The health of our business is tied to the
health of the communities we serve, including low and
moderate-income neighborhoods. Success in achieving this goal is
evident by a regulatory rating of outstanding from the Federal
Deposit Insurance Corporation after its recent community
reinvestment examination of the Corporation s wholly owned
subsidiary, Park West Bank and Trust Company.
The progress we made last year is gratifying, but we do not
underestimate the work ahead to become the best community bank in
the markets we serve. We ve resolved to build on our core business
strengths and our deep-rooted customer relationships. Our
mark-eting campaign entitled We have our roots where other banks
have their branches encourages customers who want to establish
deep-rooted banking relation-ships to abandon those big out- of-town
banks and open their accounts at Westbank.
We improved our competitive position by opening supermarket branches
in the Edwards Super Food Stores in Westfield and Chicopee. The
success of these new ventures has been rewarding and we await
regulatory approval to open our third supermarket branch in the
Edwards Super Food Store in East Long-meadow. Supermarket branches
are very successful in other areas of the country and we are in the
forefront of this banking innovation.
Park West Bank and Trust Company s Trust Division has a reputation
to be a very professional and concerned provider of personal service
to those clients having a fiduciary relationship with the Bank.
During the past four years our Trust Division has grown 33% in book
value for trust and agency accounts under investment management.
During the same period trust income increased 39% over total
operating expenses. The book value of assets held by the Trust
Division in various fiduciary capacities is $102,315,000. In today
s environment, the Trust Division continues to maintain a
conservative investment posture mindful of its fiduciary
responsibility as a long-term investment manager for a variety of
account types.
Because of recent banking merger and acquisition activity in Western
Massachusetts, Westbank s Trust Division is an attractive
alternative for individuals who want the expertise of large
institutions in conjunction with the caring and understanding found
only in a community bank such as Westbank.
As we move forward, our focus is to build upon our solid retail
banking foundation. Particular areas of emphasis in 1996 will be
our goals of increased lending volume, growth in non-interest
income, maintenance of asset quality, and control of overhead
expenses. We will pursue these goals while retaining our focus on
superior customer service and, above all, the enhancement of our
shareholders investment.
The future holds the familiar challenges of a changing interest rate
environment, increased consolidation in the industry, and heavy
competition in our market. We are confident, however, that we have
the resources and the market presence to strengthen our competitive
position and effect our central purpose of building value through
people.
Our Board of Directors and employees are an integral part of
Westbank s success. The results of their diligent efforts were
highly evident last year and their continued dedication will keep
moving us in the right direction in 1996. We would also like to
express our appreciation to our shareholders. Your support will
help ensure another successful year of Making the vision a reality.
Sincerely,
Alfred C. Whitaker Donald R. Chase
Chairman of the Board President and Chief Executive Officer
Business
Westbank Corporation and Subsidiaries
Corporate Organization
Westbank Corporation (hereinafter sometimes referred to as Westbank
or the Corporation ) 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 or the Bank ) into additional financial services
related to banking.
Park West Bank and Trust Company
Substantially all operating income and net income of the Corporation
are presently accounted for by Park West. Park West is chartered as
a state bank and trust company by the Commonwealth of Massachusetts,
is a member of the Federal Deposit Insurance Corporation ( FDIC ),
and is subject to regulation by the Massachusetts Commissioner of
Banks and the FDIC. A full range of retail banking services is
furnished to individuals, businesses, and nonprofit organizations
through ten banking offices located in Hampden County. Such
services include a wide range of checking and savings accounts,
loans, safe deposit facilities, and automated teller machines at
selected branch locations.
Park West also provides lending, depository and related financial
services to commercial, industrial, financial, and governmental
customers. In the lending area, these include short and long term
loans and revolving credit arrangements, letters of credit,
inventory and accounts receivable financing, real estate
construction lending, and mortgage loans.
Park West also operates a Trust Department providing services
normally associated with holding property in a fiduciary or agency
capacity. The value of the property held by the Trust Department at
December 31, 1995 amounted to $102,315,000 and is not included in
the accompanying financial statements since such items are not
assets of the Bank.
Employees
As of December 31, 1995, the Corporation and its subsidiaries had an
equivalent of 111 full time officers and staff.
Competition
Westbank s banking, real estate activity and trust services are
competitive with other Massachusetts financial institutions. Its
service area is in Western Massachusetts, primarily Hampden County.
Westbank s competitors include other commercial banks, mutual
savings banks, savings and loan associations, credit unions,
consumer finance companies, loan offices, money market funds, and
other financing organizations.
Competition for trust services by major commercial banks is high,
with continuing efforts by those banks to solicit new business. The
Trust Department prides itself as one of the few remaining corporate
fiduciaries providing personal services locally. Insurance
companies, mutual savings banks, investment counseling firms, and
other business firms and individuals also offer active competition
for such business.
Selected Consolidated Financial Data
Westbank Corporation and Subsidiaries
Years Ended December 31,
(Dollars in Thousands Except Share Amounts) 1995 1994 1993 1992 1991
========================================================================================================================
Interest and dividend income $20,261 $17,046 $16,809 $18,948 $24,023
Interest expense 8,540 6,199 6,736 9,105 14,210
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 11,7 2110,847 10,073 9,843 9,813
Provision for loan losses 2,690 1,473 790 2,298 5,375
Non-interest income 2,917 2,459 2,861 3,376 2,451
Non-interest expense 8,515 10,088 10,072 10,165 15,980
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes, (benefit)
extraordinary item and cumulative effect
of accounting change 3,433 1,745 2,072 756 (9,091)
Income taxes (benefit) 1,080 (430) 525 202 (800)
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item
and cumulative effect of accounting change 2,353 2,175 1,547 554 (8,291)
Extraordinary item and
cumulative effect of accounting change:
Extraordinary item-Tax benefit of
net operating loss carryforward 202
Cumulative effect of accounting change
for income taxes 400
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $2,353 $2,175 $1,947 $756 $(8,291)
========================================================================================================================
Per common share data:
Net earnings (loss) per share before
extraordinary item and cumulative effect
of accounting change $.72 $.68 $.48 $.18 $(2.66)
Earnings per share attributable to:
Extraordinary item .06
Cumulative effect of accounting change
for income taxes .13
- ------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $.72 $.68 $.61 $.24 $(2.66)
========================================================================================================================
Cash dividends declared $.20
Ending book value $5.41 $4.79 $4.16 $3.60 $3.38
At December 31:
Total loans net $197,264 $192,677 $174,597 $175,065 $191,725
Total assets 253,777 243,313 228,863 234,448 240,957
Total non-performing assets 7,904 7,435 7,042 12,348 17,948
Total deposits 227,962 218,563 202,431 211,745 217,490
Total stockholders equity 17,703 15,344 13,271 11,292 10,536
Average for year:
Loans $197,562 $182,676 $171,814 $174,546 $205,873
Assets 253,024 232,922 227,579 235,614 263,799
Deposits 227,952 210,659 205,915 213,637 232,793
Stockholders equity 16,755 14,722 12,322 10,855 15,859
Number of weighted shares outstanding 3,271,875 3,203,985 3,190,486 3,138,327 3,115,689
Selected ratios:
Rate of return (loss) on average total assets .93% .93% .86% .32% (3.14)%
Rate of return (loss) on average
stockholders equity 14.04% 14.77% 15.80% 6.96% (52.28)%
Stockholders equity to total assets at year end 6.98% 6.31% 5.80% 4.82% 4.37%
Average total stockholders equity to
average total assets 6.62% 6.32% 5.41% 4.61% 6.01%
Allowance for loan losses to total loans
at year end 1.84% 1.70% 1.95% 1.93% 1.82%
Non-performing loans as a percentage
of total loans at year end 3.43% 3.00% 2.18% 4.76% 6.64%
Net charge-offs as a percentage of average loans 1.17% .89% .44% 1.38% 2.90%
Other real estate owned as a percentage
of total assets .51% .64% 1.38% 1.82% 1.88%
Management s Discussion and Analysis - Financial Results
Westbank Corporation and Subsidiaries
Management s discussion of operations and financial position is
based on the selected consolidated financial data and should be read
in conjunction with the consolidated financial statements and notes
thereto.
For 1995, the Corporation reported net income of $2,353,000 or $.72
per share after providing $2,690,000 for loan losses and $224,000
for other real estate owned (OREO), mainly in response to further
declines in the real estate industry and the New England economy.
This compares to net income for 1994 of $2,175,000, or $.68 per
share. The Corporation s 1994 earnings reflected a provision for
loan losses of $1,473,000 and $760,000 for OREO. Net interest
income increased $874,000 from 1994 to 1995.
Non-interest expense, excluding the write-down of OREO and related
operating expenses, amounted to $8,017,000 in 1995 compared to
$8,852,000 in 1994, a decrease of $835,000, or 9%. Non-interest
expense for 1994 reflects the write-down of $750,000 as the result
of the employee defalcation as reported in the Corporation s 1994
Annual Report to Shareholders. During 1995, the Corporation filed
an insurance claim for the full amount of the loss, and an insurance
refund totaling $703,000 was received by the Corporation during
October 1995 and is reflected in non-interest income.
Non-interest income increased by $458,000 from 1994 and reflects the
recovery noted above, as well as an increase in Trust Department
earnings and a decrease in service charges on deposit accounts of
$111,000. Decreases in gain on sale of mortgages and sale of other
real estate owned totaling $150,000 were the result of fewer sales
during 1995 and overall market conditions.
Income taxes in 1995 totaled $1,080,000 an increase of $1,510,000
over 1994. Included in the 1994 results of operations is a tax
benefit totaling $430,000. The benefit is primarily attributable to
the utilization of net operating loss carryforwards of $237,000 and
a decrease in the valuation allowance for deferred tax assets due to
a change in judgement about the realizability of such deferred tax
assets.
At December 31, 1995, the Corporation s total assets were
$253,777,000, an increase of $10,464,000, or 4.3%, from $243,313,000
at year end 1994. The higher level of assets resulted primarily
through an increase in net loans and investments totaling
$10,156,000 funded by the growth in deposits.
Non-performing assets amounted to $7,904,000, or 3.11% of total
assets at December 31, 1995, compared with $7,435,000 or 3.06% at
the end of 1994.
Since December 1994, Park West has been operating under a Memorandum
of Understanding (the Memorandum ) with the Federal Deposit
Insurance Corporation (the FDIC ) and the Commissioner of Banks for
the Commonwealth of Massachusetts (the Commissioner ). On December
11, 1995 the Memorandum was revised. The Memorandum is an informal
agreement with the FDIC and 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 and correct other
deficiencies noted in the exam. The Memorandum requires Park West
to obtain approval from the FDIC and the Commissioner prior to
paying or declaring a dividend. 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 ) imposes significant regulatory restrictions and
requirements on banking institutions insured by the FDIC and their
holding companies. FDICIA established capital categories into which
financial institutions are placed based on capital level. Each
capital category establishes different degrees of regulatory
restrictions which can apply to a financial institution. As of
December 31, 1995, Park West s capital was at a level that placed
the Bank in the well capitalized category as defined by FDICIA.
FDICIA imposes a variety of other restrictions and requirements on
insured banks. These include significant regulatory reporting
requirements such as insuring that a system of risk-based deposit
insurance premiums and civil money penalties for inaccurate deposit
assessment reports exist. In addition, FDICIA imposes a system of
regulatory standards for bank and bank holding company operations,
detailed truth in savings disclosure requirements, and restrictions
on activities authorized by state law but not authorized for
national banks.
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
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 earnings and
asset quality. 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 comply with the Memorandum as well as the requirements
of FDICIA.
Components of Capital
The following table presents the Corporation s components of Tier 1
leverage capital as of December 31. The table also presents the
ratio of Tier 1 capital to total assets.
(Dollars in Thousands) 1995 1994 1993
========================================================================================================================
Stockholders Equity
Common stock $6,443 $6,276 $6,251
Additional paid-in-capital 7,141 6,877 6,861
Retained earnings 4,053 2,334 159
Unrealized gain (loss) on
securities available for sale 66 (143)
- ------------------------------------------------------------------------------------------------------------------------
Total Capital $17,703 $15,344 $13,271
========================================================================================================================
Ratio of Tier 1 leverage capital
to total assets 6.98% 6.31% 5.80%
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.
In 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.
The following are the Corporation s risk-based capital ratios at
December 31, 1995:
Tier 1 risk-based capital (minimum required 4%) 9.98%
Total risk-based capital (minimum required 8%) 11.24%
GRAPH INSERT -
The following graph illustrates the Corporation's capital level for
the years 1993 through 1995:
(Dollars in thousands)
1993 1994 1995
Capital $13,271 $15,344 $17,703
Asset/Liability Management and Interest Rate Sensitivity
The following table sets forth the distribution of the repricing of
Westbank s earning assets and interest bearing liabilities as of
December 31, 1995, the interest rate sensitivity gap, (i.e.,
interest rate sensitive assets less interest rate sensitive
liabilities), the cumulative interest rate sensitivity gap, the
interest rate sensitivity gap ratio and the cumulative interest rate
sensitivity gap ratio. The table also sets forth the time periods
in which earning assets and interest-bearing liabilities will mature
or may reprice in accordance with their contractual terms. However,
the table does not necessarily indicate the impact of general
interest rate movements on the net interest margin since the
repricing of various categories of assets and liabilities is subject
to competitive pressures and the needs of Westbank s customers. In
addition, various assets and liabilities indicated as repricing
within the same period may in fact reprice at different times within
such period and at different rates.
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Three Over Three Over One Over
Months Months to Year to Five
(Dollars in Thousands) or Less A Year Five Years Years Total
========================================================================================================================
Earning Assets
Securities including
mortgage-backed securities $643 $3,751 $20,645 $10,077 $35,116
Interest bearing cash 509 509
Loans 54,121 43,953 55,093 47,804 200,971
Federal funds sold 900 900
- ------------------------------------------------------------------------------------------------------------------------
56,173 47,704 75,738 57,881 237,496
Interest Bearing Liabilities
Savings deposits 3,193 28,735 31,928
NOW Accounts 1,711 15,402 17,113
Money market account 15,027 15,027
Negotiated rate certificates 8,440 4,514 12,954
Other time deposits 45,104 35,113 26,742 106,959
Borrowed funds 7,177 7,177
- ------------------------------------------------------------------------------------------------------------------------
75,748 44,531 70,879 191,158
- ------------------------------------------------------------------------------------------------------------------------
Interest Rate
Sensitivity Gap (19,575) 3,173 4,859 57,881 46,338
Cumulative Interest Rate
Sensitivity Gap $(19,575) $(16,402) $(11,543) $46,338 $
========================================================================================================================
Interest Rate
Sensitivity Gap Ratio (8.24)% 1.34% 2.04% 2 4.37% 19.51%
Cumulative Interest Rate
Sensitivity Gap Ratio (8.24)% (6.90)% (4.86)% 19.51%
The presentation of a run off and repricing of savings accounts and
NOW accounts is based on the Corporation s historical experience
with $3,193,000 and $1,711,000, respectively, included in the three
month to one year category and the remainder placed in the one to
five year category of the interest bearing liabilities.
Westbank seeks to manage the mix of asset and liability maturities
to control the effect of changes in the general level of interest
rates on net interest income. In periods of rising interest rates,
Westbank s negative interest rate sensitivity gap as to earning
assets and interest-bearing liabilities maturing in less than one
year may cause a diminution of Westbank s income; correspondingly,
in periods of declining interest rates, a negative interest rate
sensitivity gap may provide additional income. Except for its
effect on the general level of interest rates, inflation does not
have a material impact on Westbank s earnings due to the rate of
variability and short-term maturities of its earning assets.
Distribution of Assets, Liabilities and Stockholders Equity -
Interest Rates and Interest Differential
The following table presents the condensed average balance sheets
for 1995, 1994 and 1993. The total dollar amount of interest income
from earning assets and the resultant yields are calculated on a
taxable equivalent basis. The interest paid on interest-bearing
liabilities, expressed both in dollars and rates, is also shown in
the table:
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
1995 1994 1993
Interest Average Interest Average Interest Average
Average Income/ Yield Average Income/ Yield Average Income/ Yield
(Dollars in Thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
========================================================================================================================
Assets
Securities:
U.S. Treasury $9,463 $600 6.34% $10,536 $679 6.44% $9,920 $653 6.58%
Federal agencies 24,034 1,596 6.64 17,728 1,072 6.05 16,628 1,038 6.24
Other securities 1,760 116 6.59 1,554 104 6.69 1,988 137 6.89
- ------------------------------------------------------------------------------------------------------------------------
Total securities 35,257 2,312 6.56 29,818 1,855 6.22 28,536 1,828 6.41
- ------------------------------------------------------------------------------------------------------------------------
Interest-bearing cash and
temporary investments 399 24 6.02 639 28 4.38 3,326 97 2.92
- ------------------------------------------------------------------------------------------------------------------------
Loans: (b)
Commercial 36,106 3,675 10.18 33,537 2,920 8.71 35,228 2,821 8.01
Tax exempt-federal (a) 286 33 11.54 569 69 12.13 822 69 8.39
Real estate 144,566 12,406 8.58 130,668 10,530 8.06 116,073 10,184 8.77
Consumer 16,604 1,578 9.50 17,902 1,519 8.49 19,691 1,702 8.64
- ------------------------------------------------------------------------------------------------------------------------
Total loans 197,562 17,692 8.96 182,676 15,038 8.23 171,814 14,776 8.60
- ------------------------------------------------------------------------------------------------------------------------
Federal funds sold 4,182 244 5.83 3,759 148 3.94 4,554 131 2.88
- ------------------------------------------------------------------------------------------------------------------------
Total earning assets 237,400 $20,272 8.54% 216,892 $17,069 7.87% 208,230 $16,832 8.08%
- ------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (3,349) (3,547) (3,499)
Cash and due from banks 9,418 9,169 8,965
Other assets 9,555 10,408 13,883
- ------------------------------------------------------------------------------------------------------------------------
Total assets $253,024 $232,922 $227,579
========================================================================================================================
Liabilities and Stockholders Equity
Interest-bearing deposits:
Savings $33,026 $696 2.11% $36,879 $778 2.11% $37,529 $914 2.44%
Money market 16,560 422 2.55 22,548 579 2.56 25,585 734 2.87
Negotiated rate
certificates 14,246 698 4.90 6,279 287 4.57 5,412 270 4.99
Other time deposits 124,122 6,453 5.20 109,242 4,355 3.99 107,324 4,560 4.25
- ------------------------------------------------------------------------------------------------------------------------
Total time deposits 187,954 8,269 4.40 174,948 5,999 3.43 175,850 6,478 3.68
Borrowed funds 7,107 271 3.81 6,896 200 2.90 8,711 258 2.96
- ------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 195,061 8,540 4.38 181,844 6,199 3.41 184,561 6,736 3.65
Demand deposits 39,998 35,711 30,065
Other liabilities 1,210 645 631
Stockholders equity 16,755 14,722 12,322
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders equity $253,024 $232,922 $227,579
========================================================================================================================
Net interest income 11,732 10,870 10,096
Yield spread 4.16% 4.46% 4.43%
========================================================================================================================
Net yield on earning assets 4.94% 5.01% 4.85%
========================================================================================================================
Deduct-Tax equivalent
adjustment (a) 11 23 23
========================================================================================================================
Net interest income $11,721 $10,847 $10,073
========================================================================================================================
(a) Interest income on non-taxable investment securities and loans
includes the effects of tax equivalent adjustments using the
marginal federal tax rate of 34% in adjusting tax exempt
interest income to a fully taxable basis.
(b) Average loan balances above include non-accrual loans. When a
loan is placed in non-accrual status, interest income is
recorded to the extent actually received in cash or is applied
to reduce principal.
During 1995, the yield spread declined to 4.16% from 4.46% in 1994
down 30 basis points. The Corporation s net interest margin
decreased during 1995 to 4.94% from 5.01% in 1994 a decrease of 7
basis points. The section titled rate volume analysis further
describes the change in yields.
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Rate/Volume Analysis of Interest Margin on Earning Assets
The following table sets forth, for each major category of interest
earning assets and interest bearing liabilities, the dollar amounts
of interest income (calculated on a taxable equivalent basis) and
interest expense and changes therein for 1995 as compared with 1994
and 1994 compared with 1993.
1995 Compared With 1994 1994 Compared With 1993
- ------------------------------------------------------------------------------------------------------------------------
Increase Due to* Increase Due to*
(Dollars in Thousands) 1995 1994 (Decrease) Volume Rate 1994 1993 (Decrease) Volume Rate
========================================================================================================================
Interest earned:
Securities:
U.S. Treasury $600 $679 $(79) $(69) $(10) $679 $653 $26 $40 $(14)
Federal agencies 1,596 1,072 524 411 113 1,072 1,038 34 68 (34)
Other securities 116 104 12 14 (2) 104 137 (33) (29) (4)
Interest-bearing cash 24 28 (4) (13) 9 28 97 (69) (112) 43
Loans:
Commercial 3,675 2,920 755 236 519 2,920 2,821 99 (139) 238
Tax exempt -federal 33 69 (36) (33) (3) 69 69 (25) 25
Real estate 12,406 10,530 1,876 1,168 708 10,530 10,184 346 1,212 (866)
Consumer 1,578 1,519 59 (114) 173 1,519 1,702 (183) (153) (30)
Federal funds sold 244 148 96 18 78 148 131 17 (26) 43
- ------------------------------------------------------------------------------------------------------------------------
20,272 17,069 3,203 1,618 1,585 17,069 16,832 237 836 (599)
- ------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings 696 778 (82) (82) 778 914 (136) (15) (121)
Money market 422 579 (157) (155) (2) 579 734 (155) (81) (74)
Negotiated rate
certificates 698 287 411 388 23 287 270 17 40 (23)
Other time deposits 6,453 4,355 2,098 651 1,447 4,355 4,560 (205) 79 (284)
Borrowed funds 271 200 71 6 65 200 258 (58) (53) (5)
- ------------------------------------------------------------------------------------------------------------------------
8,540 6,199 2,341 808 1,533 6,199 6,736 (537) (30) (507)
- ------------------------------------------------------------------------------------------------------------------------
$11,732 $10,870 $862 $810 $52 $10,870 $10,096 $774 $866 $(92)
========================================================================================================================
* The dollar amount of changes in interest income and interest
expense attributable to changes in rate/volume has been allocated
between rate and volume based on changes in rates times the prior
year s volume and the changes in volume times the prior year s rate.
Net interest income on a taxable equivalent basis for 1995 increased
to $11,732,000, up 7.9% from $10,870,000 in 1994. A 9.5% increase
in average earning assets and a 67 basis point increase in average
rate of return resulted in an increase in volume of $1,618,000 and a
increase in rate of $1,585,000. An increase of 7.3% in average
interest bearing liabilities and a 97 basis point increase in
average rate of interest paid contributed to an increase in volume
and rate of $808,000 and $1,533,000, respectively.
Liquidity
Liquidity management requires close scrutiny of the mix and maturity
of deposits and borrowings and short-term investments. Cash and due
from banks, federal funds sold, investment securities and
mortgage-backed securities, as compared to deposits, are used by
Westbank to compute its liquidity on a daily basis as adjusted for
regulatory purposes. At December 31, 1995, Westbank s ratio of such
assets to total deposits was 16.61%. In addition, Westbank is
subject to Regulation D of the Federal Reserve Bank (FRB), which
requires depository institutions to maintain reserve balances on
deposit with the FRB based on certain average depositor balances.
Westbank is in compliance with Regulation D. Management of Westbank
believes that its current liquidity is sufficient to meet current
and anticipated funding needs. Refer to Note 7 in the Notes To
Consolidated Financial Statements for a discussion of the
Corporation s external sources of liquidity.
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Investment Portfolio
Refer to Note 2 in the Notes To Consolidated Financial Statements of
this report which covers the maturity distribution and market values
at December 31, 1995 of the securities portfolio. The following
table shows the amortized cost (in thousands) of the Corporation s
securities held to maturity at December 31:
GRAPH INSERT -
The following graph demonstrates the mix of the Corporation's
investments at December 31, 1995:
(Dollars in thousands)
Amount % of Portfolio
U.S. Government Bonds $8,893 25.9%
Federal agency obligations $14,876 43.3%
Other debt securities $1,515 4.4%
Mortgage-backed securities $9,073 26.4%
1995 1994 1993
========================================================================================================================
U. S. Government obligations $5,998 $6,499 $10,691
Federal agency obligations 10,678 13,694 14,304
Mortgage-backed securities 274 331 401
Other debt securities 1,259 1,270 1,637
Marketable equity securities 1
- ------------------------------------------------------------------------------------------------------------------------
$18,209 $21,794 $27,034
========================================================================================================================
The following table shows the fair value (in thousands) of the
Corporation s securities available for sale at December 31:
1995 1994 1993
========================================================================================================================
U. S. Government obligations $2,933 $3,329 $
Federal agency obligations 4,120 4,161
Mortgage-backed securities 8,941 5,085
Other debt securities 257 254
Marketable equity securities 656 9
- ------------------------------------------------------------------------------------------------------------------------
16,907 7,753 5,085
Gross unrealized (gain) loss on
securities available for sale (115) 248 (140)
- ------------------------------------------------------------------------------------------------------------------------
Amortized cost $16,792 $8,001 $4,945
========================================================================================================================
The following table shows weighted average yields and maturity
distribution of debt securities at December 31, 1995:
Within 1 Year 1 to 5 Years 5 to 10 Years After 10 Years
Weighted Weighted Weighted Weighted Weighted Total
Average Amortized Average Amortized Average Amortized Average Amortized Average Amortized
Yield Cost Yield Cost Yield Cost Yield Cost Yield Cost
========================================================================================================================
U. S. Government
obligations 6.30% $1,898 6.41% $6,995 % $ % $ 6.39% $8,893
Federal agency
obligations 4.68 1,600 5.52 10,776 7.10 2,500 5.69 14,876
Other debt
securities 8.66 253 7.21 1,262 7.45 1,515
Mortgage-backed
securities 8.20 125 7.56 8,948 7.57 9,073
- ------------------------------------------------------------------------------------------------------------------------
Total debt
securities $3,751 $19,033 $2,625 $8,948 $34,357
========================================================================================================================
(a) The weighted average yield has been computed by dividing
annualized interest income, including the accretion of discount
and the amortization of premiums, by the book value of
securities outstanding.
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Loan Portfolio
The following table sets forth the classification (in thousands) of
the Corporation s loans by major category at December 31:
1995 1994 1993 1992 1991
========================================================================================================================
Commercial $35,116 $34,306 $30,431 $31,006 $41,577
- ------------------------------------------------------------------------------------------------------------------------
Real Estate:
Construction 7,550 8,517 8,491 6,501 5,980
Residential (1-4 family) 99,321 81,333 70,530 66,154 58,428
Residential (5 or more) 2,632 4,034 4,852 3,286 3,315
Commercial properties 47,566 58,310 53,768 57,225 67,732
- ------------------------------------------------------------------------------------------------------------------------
Total Real Estate 157,069 152,194 137,641 133,166 135,455
- ------------------------------------------------------------------------------------------------------------------------
Consumer 8,896 9,383 9,282 11,231 12,108
- ------------------------------------------------------------------------------------------------------------------------
Lease financing 230 352 932 3,349 6,348
- ------------------------------------------------------------------------------------------------------------------------
Gross loans 201,311 196,235 178,286 178,752 195,488
Unearned discount (4) (5)
Deferred loan origination
fees-net of costs (340) (233) (217) (241) (208)
- ------------------------------------------------------------------------------------------------------------------------
Total Loans 200,971 196,002 178,069 178,507 195,275
Allowance for loan
losses (3,707) (3,325) 3,472) (3,442) (3,550)
- ------------------------------------------------------------------------------------------------------------------------
Net loans $197,264 $192,677 $174,597 $175,065 $191,725
========================================================================================================================
The Corporation s loan portfolio is not concen- trated within a
single industry or a group of related industries, however,
underlying collateral values are dependent upon market fluctuations
in the Western Massachusetts area. The aggregate amount of loans to
executive officers, directors and organizations with which they are
associated amounted to $1,334,000, or 7.5% of stockholders equity as
of December 31, 1995.
GRAPH INSERT -
The following graph demonstrates mix of the Corporation's loan
portfolio at December 31, 1995:
(Dollars in thousands)
Amount % of Portfolio
Commercial loans $35,116 17.4%
Consumer and other loans $9,126 4.5%
Residential mortgages $99,321 49.3%
Commercial mortgages $57,748 28.7%
The following table provides the maturity distribution and
sensitivity to changes in interest rates of commercial loans and
commercial real estate construction loans at December 31, 1995:
(Dollars in Thousands) 12 Months 1 - 5 After
or Less Years 5 Years Total
========================================================================================================================
Commercial $13,334 $14,398 $7,384 $35,116
Real estate-construction 6,493 1,057 - 7,550
- ------------------------------------------------------------------------------------------------------------------------
Totals $19,827 $15,455 $7,384 $42,666
========================================================================================================================
Of the commercial loans which mature beyond one year approximately
$9,611,000 have fixed rates and the remaining $12,171,000 are
floating rate loans. Of the construction loans that mature after
one year, $811,000 are loans with floating rates.
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Loan Loss Experience
The provision for loan losses is an amount added to the allowance
against which loan losses are charged. The provision for losses is
dependent on actual net write-offs and an evaluation as to the
collectibility of the loan portfolio taking into consideration such
factors as the financial condition of individual borrowers,
historical loss experience with respect to various portfolio
segments, current and near term economic conditions, and the size of
the portfolio. Based on these reviews, the allowance for loan
losses at December 31, 1995, is deemed to be adequate by management.
In the determination of the allowance for loan losses management
obtains independent appraisals for a significant number of
properties. Management has also retained an independent loan review
consultant to provide advice on the adequacy of the loan loss
allowance.
The following table sets forth the historical relationship among the
average amount of loans outstanding, the allowance for loan losses,
provision for loan losses charged to operating expenses, losses
charged off, recoveries and selected ratios:
Year Ended December 31,
(Dollars in Thousands) 1995 1994 1993 1992 1991
========================================================================================================================
Balance at beginning of year $3,325 $3,472 $3,442 $3,550 $4,145
Provision charged to expense 2,690 1,473 790 2,298 5,375
- ------------------------------------------------------------------------------------------------------------------------
6,015 4,945 4,232 5,848 9,520
- ------------------------------------------------------------------------------------------------------------------------
Charge-offs:
Loans secured by real estate 2,129 1,291 152 1,150 2,444
Construction/land development 230 344 821
Commercial and
industrial loans 230 480 638 866 2,286
Consumer loans 119 91 84 155 408
Lease financing receivables 5 7 55 100 218
- ------------------------------------------------------------------------------------------------------------------------
2,483 1,869 1,159 2,615 6,177
- ------------------------------------------------------------------------------------------------------------------------
Recoveries:
Loans secured by real estate 24 25 259 20 31
Construction/land developing 75 11 25 114
Commercial and
industrial loans 45 204 45 11 14
Consumer loans 25 14 39 34 46
Lease financing receivables 6 6 45 119 2
- ------------------------------------------------------------------------------------------------------------------------
175 249 399 209 207
- ------------------------------------------------------------------------------------------------------------------------
Net charge-offs 2,308 1,620 760 2,406 5,970
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of year $3,707 $3,325 $3,472 $3,442 $3,550
========================================================================================================================
Average loans outstanding $197,562 $182,676 $171,814 $174,546 $205,873
========================================================================================================================
Net charge-offs as a percentage
of average loans 1.17% .89% .44% 1.38% 2.90%
Net charge-offs as a percentage of
the allowance at January 1 69.41% 46.66% 22.08% 67.77% 144.03%
Allowance as a percentage of total
loans at December 31 1.84% 1.70% 1.95% 1.93% 1.82%
Allowance as a percentage of non-
performing loans
at December 31 53.76% 56.52% 89.46% 40.51% 27.35%
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Allocation of the balance of the allowance for loan losses
applicable to:
(Dollars in Thousands) 1995 1994 1993 1992 1991
========================================================================================================================
% of % of % of % of % of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- ------------------------------------------------------------------------------------------------------------------------
Loans secured by
real estate $2,717 74.23% $2,496 73.18% $1,619 72.39% $1,474 70.82% $1,039 66.20%
Construction/land
development 150 3.76 127 4.35 4.79 3.64 311 3.06
Commercial and industrial
loans 687 17.47 514 17.50 85 17.09 287 17.37 386 21.29
Consumer loans 89 4.43 125 4.79 5.21 6.29 6.20
Lease financing receivables 64 .11 63 .18 .52 1.88 3.25
Unallocated 1,568 N/A 1,681 N/A 1,814 N/A
- ------------------------------------------------------------------------------------------------------------------------
$3,707 100.00% $3,325 100.00% $3,472 100.00% $3,442 100.00% $3,550 100.00%
========================================================================================================================
The approach the Corporation uses in determining the adequacy of the
allowance for loan losses is the combination of a target reserve and
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 adequacy of the collateral on these same loans. In
addition, the Corporation allocates a general reserve against the
remainder of the loan portfolio.
Non-Performing Assets
Loans
Loans on which interest and principal payments are 90 days or more
past due are placed on a non-accrual basis (earlier if deemed
appropriate) and interest is reversed unless management determines
that the collectibility of principal and interest is not reasonably
considered in doubt. The following table sets forth information
with regard to non-performing loans as of the end of each year
indicated:
(Dollars in Thousands) 1995 1994 1993 1992 1991
========================================================================================================================
Loans on a non-accrual basis $6,180 $4,890 $3,057 $7,353 $10,092
========================================================================================================================
Non-accrual loans as a percentage
of total net loans outstanding 3.13% 2.54% 1.75% 4.20% 5.26%
Non-accrual loans as a percentage
of total assets 2.44% 2.01% 1.34% 3.14% 4.19%
Loans contractually past due 90
days or more and still accruing $277 $492 $330 $724 $2,884
========================================================================================================================
The gross amount of interest that would have been accrued at the
original contract rate on loans on a non-accrual basis (in
thousands) was $354, $342, $126, $124, and $346 for 1995, 1994,
1993, 1992, and 1991, respectively. Interest income included in the
results of operations relating to these loans was $20,000 in 1994.
The increase in non-accrual loans from 1994 is attributable to
management moving two loans totaling approximately $4,000,000 to
non-performing status during the third quarter of 1995. The
classification to non-performing status was in response to
deterioration of these two borrowers and managements aggressive
action in an attempt to resolve them. Each of the loans is real
estate related. The increase in the provision for loan losses and
charge offs during 1995 are directly related to the loans referred
to above.
As described in Note 1, 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.
Under this guidance 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.
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
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 during 1995 on
impaired loans was not significant.
At December 31, 1995, the recorded investment in impaired loans was
$4,735,000, for which no additional specific allowance for loan
losses was recorded. For the twelve months ended December 31, 1995,
the average recorded investment in impaired loans was $2,201,000.
As a result of adopting SFAS 114, in-substance foreclosures
totalling $1,979,000, $5,988,000 and $575,000 as of December 31,
1993, 1992 and 1991, respectively, were reclassified to loans and
are included in non-accrual loans above.
Restructured Loans
A restructured loan is one for which the Corporation has modified
the contractual terms to provide a reduction in the rate of interest
and, in most instances, an extension of payments of principal or
interest or both because of a deterioration in the financial
position of the borrower. Restructured loans modified prior to
December 31, 1994 which are performing in accordance with their new
terms are not included in non-accrual loans unless concern exists as
to the ultimate collection of principal or inte rest and are not
considered to be impaired. Those entered into after December 31,
1994 are considered to be impaired as defined by SFAS No. 114
described above. Restructured loans, which are classified as
accruing loans, amounted to $439,000 in 1995, $501,000 in 1994,
$494,000 in 1993, $420,000 in 1992 and none during 1991. The
average current yield on these loans was approximately 8.67% for
1995. The following is an analysis of interest income related to
restructured loans which are classified as accruing loans:
Year Ended December 31,
(Dollars in Thousands) 1995 1994 1993 1992
========================================================================================================================
Interest income that would have
been recognized if the
loans had been current
at original contractual rates $46 $50 $45 $12
Amount recognized as
interest income 43 42 41 8
- ------------------------------------------------------------------------------------------------------------------------
Reduced interest income $3 $8 $4 $4
========================================================================================================================
Other Real Estate Owned
The following table sets forth information regarding other real
estate owned:
(Dollars in Thousands) 1995 1994 1993 1992 1991
========================================================================================================================
Other real estate owned - net $1,008 $1,552 $3,161 $4,271 $4,972
Other real estate held for investment 292
- ------------------------------------------------------------------------------------------------------------------------
$1,300 $1,552 $3,161 $4,271 $4,972
========================================================================================================================
Other real estate owned as a
percentage of total assets .51% .64% 1.38% 1.82% 2.06%
========================================================================================================================
Deposits
The following table sets forth the average amounts of various
classifications of deposits:
1995 1994 1993
========================================================================================================================
(Dollars in Thousands) Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------------------------------
Savings $33,026 2.11% $36,879 2.11% $37,529 2.44%
Money market 16,560 2.55 22,548 2.56 25,585 2.87
Negotiated rate certificates 14,246 4.90 6,279 4.57 5,412 4.99
Other time deposits 124,122 5.20 109,242 3.99 107,324 4.25
- ------------------------------------------------------------------------------------------------------------------------
187,954 4.40% 174,948 3.43% 175,850 3.68%
Demand deposits 39,998 35,711 30,065
- ------------------------------------------------------------------------------------------------------------------------
$227,952 $210,659 $205,915
========================================================================================================================
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Certificates of deposits of $100,000 and over at December 31, 1995
had the following maturities:
3 Months 3 to 6 6 to 12
(Dollars in Thousands) or Less Months Months Total
========================================================================================================================
Totals $8,440 $2,655 $1,859 $12,954
========================================================================================================================
Return on Equity and Assets
The Corporation s return on average assets, return on average
equity, average equity to average assets ratio and dividend payout
ratio, for each of the years ended December 31, were as follows:
1995 1994 1993
========================================================================================================================
Return on average total assets .93% .93% .86%
Return on average stockholders equity 14.04 14.77 15.80
Average stockholders equity to average total assets 6.62 6.32 5.41
Dividend payout ratio 27.78
Borrowings
The following table summarizes borrowings. Average interest rates
during each year were computed by dividing total interest expense by
the average amount borrowed:
(Dollars in Thousands) 1995 1994 1993
========================================================================================================================
Balance at year end $7,177 $8,625 $12,420
Average amount outstanding $7,107 $6,896 $8,711
Maximum amount outstanding at any month-end $9,675 $13,961 $12,420
Average interest rate for the year 3.78% 2.90% 2.96%
Average interest rate on year-end balance 3.38% 4.20% 2.94%
Management s Discussion and Analysis of the Statements of Income
In the following sections of Management s Discussion and Analysis of
the Statements of Income, the comparative results of 1995, 1994 and
1993 will be covered in greater detail. The principal earning
assets of the holding company consist of a commercial bank, Park
West Bank and Trust Company. Noteworthy are the effects of sources
of income from earning assets and expense of interest-bearing
liabilities. Presented below is a comparative summary of
percentages of increases and decreases for the three years ended
December 31, 1995. The significant changes are discussed in the
analysis that follow the summary.
Percentage
of increase (decrease)
========================================================================================================================
1995 1994
Over Over
(Dollars in Thousands) 1995 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Net interest income $11,721 $10,847 $10,073 8.06% 7.68%
Provision for loan losses 2,690 1,473 790 82.62 86.46
Non-interest income 2,917 2,459 2,861 18.63 (14.05)
Non-interest expense 8,515 10,088 10,072 (15.59) .16
Income taxes (benefit) 1,080 (430) 525
- ------------------------------------------------------------------------------------------------------------------------
Net income before
cumulative effect of
accounting change 2,353 2,175 1,547 8.18 40.59
Cumulative effect of accounting
change for income taxes 400
- ------------------------------------------------------------------------------------------------------------------------
Net Income $2,353 $2,175 $1,947 8.18% 11.71%
========================================================================================================================
Interest Income
Westbank s earning assets include a diverse portfolio of interest
earning instruments ranging from Westbank 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.
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Total interest income for 1995 amounted to $20,261,000 as compared
to $17,046,000 for 1994 and $16,809,000 for 1993. For 1995 this
represents an increase of $3,215,000 or 19% over 1994, while
interest income increased by $237,000 or 1.4% in 1994 versus 1993.
The increase in 1995 is the result of an increase in average earning
assets of $20,508,000 or 9% and an increase of 67 basis points in
average earning interest rate. The increase in 1994 over 1993 is
the result of an increase in average earning assets of $8,622,000
combined with a 21 basis point reduction in average earning interest
rate.
Interest Expense
Interest expense for 1995 on deposits and borrowings amounted to
$8,540,000 as compared to $6,199,000 in 1994 and $6,736,000 for
1993. Interest expense increased by $2,341,000 or 37% during 1995
compared to 1994 and 1994 interest expense declined by $537,000 or
8% versus 1993. The 1995 increase is the result of an increase of
average interest bearing liabilities of $13,217,000 and a 97 basis
point increase in the average rate of interest paid compared to
1994. The decline in interest expense during 1994 versus 1993 is
the result of a decrease of average interest bearing liabilities of
$2,717,000 combined with a decrease of 24 basis points on average
interest rate paid.
Net Interest Income
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 using statutory rates to recognize the income tax savings
which facilitates comparison between taxable and tax exempt assets.
Westbank s management 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 stockholders equity).
GRAPH INSERT -
The following graph illustrates the growth in net interest income
for the periods 1993 through 1995:
(Dollars in thousands)
1993 $10,096
1994 $10,870
1995 $11,732
The following table sets forth Westbank s net interest income on a
taxable equivalent basis:
(Dollars in Thousands) 1995 1994 1993
========================================================================================================================
Total interest income $20,261 $17,046 $16,809
Total interest expense 8,540 6,199 6,736
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 11,721 10,847 10,073
Tax equivalent adjustment
to interest income 11 23 23
- ------------------------------------------------------------------------------------------------------------------------
Net interest income
(taxable equivalent) $11,732 $10,870 $10,096
========================================================================================================================
The RATE/VOLUME ANALYSIS OF INTEREST MARGIN ON EARNING ASSETS
section includes and sets forth each major category of interest
earning assets and interest bearing liabilities which result in net
interest income.
Provision for Loan Losses
The 1995 provision for loan losses totalled $2,690,000 compared with
$1,473,000 in 1994, an increase of 83%. During 1994 the provision
increased by $683,000 over 1993 representing an increase of 86%.
The increase in the provision for loan losses during 1995 is
directly attributable to the increase in non-performing loans
primarily during the third quarter, and managements aggressive
action in attempting to resolve them. A full discussion appears
previously under the headings of LOAN LOSS EXPERIENCE and
NON-PERFORMING ASSETS.
Management s Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Non-Interest Income
Income from sources other than interest was $2,917,000 in 1995, an
increase of $458,000 from the prior year and an increase of $56,000
versus 1993. Non-interest income for 1995 reflects an increase in
Trust Department earnings, a decrease in service charges on deposit
accounts of $111,000 and decreases from the gain on sale of
mortgages and sale of other real estate owned totaling $150,000
compared to 1994. 1995 also reflects the recovery of an insurance
claim totaling $703,000 relating to the loss resulting from the
employee defalcation previously discussed.
Non-Interest Expense
GRAPH INSERT -
The following graph illustrates the level of non-interest expense
for the years 1993 through 1995:
(Dollars in thousands)
1993 $10,072
1994 $10,088
1995 $8,515
The components of other operating expenses at December 31 are as
follows:
(Dollars in Thousands) 1995 1994 1993
========================================================================================================================
Salaries and benefits $3,845 $3,939 $3,656
Occupancy 513 555 504
Write-down of other
real estate owned 224 760 1,164
Other real estate
owned expense 274 476 633
Other non-interest expense 3,659 4,358 4,115
- ------------------------------------------------------------------------------------------------------------------------
$8,515 $10,088 $10,072
========================================================================================================================
Overall non-interest expense declined during 1995 by $1,573,000
versus 1994 and $1,557,000 compared to 1993. During 1995 salaries
and benefits decreased by $94,000 reflecting the savings of
outsourcing the Corporation s transit and statement rendering
functions offset partially as a result of two new branch locations
and the associated staffing requirements. Similarly, occupancy
decreased by $42,000 as a result of the outsourcing described above.
Other real estate owned expenses declined by $738,000 during 1995
the result of less real estate under management by the Bank during
the current year. Finally, other non-interest expense decreased in
1995 by $699,000, the result of the Corporation reflecting a loss of
$750,000 in 1994 for the alleged employee defalcation previously
discussed.
Income Taxes
The Financial Accounting Standards Board issued a Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes
( SFAS No. 109 ) in February, 1992. The Statement requires the
recognition of 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 No. 109, resulting in a $400,000 benefit
which has been reported as a cumulative effect of the change in
accounting principle.
For the year ended December 31, 1995 Westbank Corporation recorded a
tax expense of $1,080,000 compared to 1994, when the Corporation
recorded a tax benefit of $430,000, which was primarily the result
of the utilization of net operating loss carryforwards of $237,000
and a decrease in a valuation allowance of $771,000 pertaining to
deferred tax assets offset by the provision for current taxes.
Income taxes for 1993 totaled $525,000 offset by a $400,000 benefit
recorded as a cumulative effect of accounting change for income
taxes, which is the result of the Corporation adopting SFAS No.
109.
Net Income
The net income for 1995 of $2,353,000, or $.72 per share, is based
on a weighted average of 3,271,875 shares outstanding, compared with
a net income for 1994 of $2,175,000, or $.68 based on a weighted
average of 3,203,985 shares outstanding and net income for 1993 of
$1,947,000 or $.61 based on a weighted average shares of 3,190,486.
Independent Auditors Reports
Westbank Corporation and Subsidiaries
Independent Auditors Report
The Stockholders and Board of Directors,
Westbank Corporation
We have audited the accompanying consolidated balance sheets of
Westbank Corporation and Subsidiaries (the Corporation ) as of
December 31, 1995 and 1994, and the related consolidated statements
of income, stockholders equity and cash flows for the years then
ended. These financial statements are the responsibility of the
Corporation s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Westbank Corporation and Subsidiaries at
December 31, 1995 and 1994, and the results of their operations and
their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As described in Note 1, the Corporation changed its method of
accounting for securities as of January 1, 1994.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
January 25, 1996
Independent Auditors Report
The Stockholders and Board of Directors,
Westbank Corporation
We have audited the accompanying consolidated statements of income,
stockholders equity and cash flows of Westbank Corporation and
subsidiaries for the year ended December 31, 1993. These
consolidated financial statements are the responsibility of the
Corporation s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of
operations and cash flows of Westbank Corporation and Subsidiaries
for the year ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the
Corporation adopted Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes.
KPMG PEAT MARWICK LLP
Springfield, Massachusetts
January 28, 1994
Consolidated Balance Sheets
Westbank Corporation and Subsidiaries
December 31,
(Dollars in Thousands, except share amounts) 1995 1994
========================================================================================================================
Assets
Cash and due from banks:
Non-interest bearing $11,195 $10,425
Interest bearing 509 275
- ------------------------------------------------------------------------------------------------------------------------
11,704 10,700
Federal funds sold 900 1,000
- ------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 12,604 11,700
Securities (Note 2):
Investment securities available for sale
(amortized cost of $16,792 in 1995 and $8,001 in 1994) 16,907 7,753
Investment securities held to maturity
(fair value of $18,402 in 1995 and $20,958 in 1994) 18,209 21,794
- ------------------------------------------------------------------------------------------------------------------------
Total securities 35,116 29,547
- ------------------------------------------------------------------------------------------------------------------------
Mortgage loans held for sale 8,826
Loans, net of allowance for loan losses
of $3,707 in 1995 and $3,325 in 1994 188,438 192,677
- ------------------------------------------------------------------------------------------------------------------------
Total Loans, Net (Note 3) 197,264 192,677
- ------------------------------------------------------------------------------------------------------------------------
Property and equipment (Note 4) 3,643 3,417
Other real estate owned, net of allowance for losses
of $65 in 1995 and $231 in 1994 (Note 5) 1,300 1,552
Accrued interest receivable 1,658 1,668
Deferred premium on loans sold 39 112
Deferred income taxes (Note 8) 364 1,245
Income taxes refundable (Note 8) 314 103
Other assets 1,475 1,292
- ------------------------------------------------------------------------------------------------------------------------
Total assets $253,777 $243,313
========================================================================================================================
Liabilties and Stockholders Equity
Deposits (Note 6):
Non-interest bearing $43,981 $40,399
Interest bearing 183,981 178,164
- ------------------------------------------------------------------------------------------------------------------------
Total deposits 227,962 218,563
Borrowed funds (Note 7) 7,177 8,625
Interest payable on deposits 309 240
Other liabilities 626 541
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 236,074 227,969
Commitments and contingent liabilities (Notes 11 and 12)
Stockholders equity (Note 14):
Preferred stock, par value $5 per share, authorized
100,000 shares; none issued
Common stock, par value $2 per share,
authorized 9,000,000 shares; issued and outstanding
3,221,603 shares in 1995 and 3,138,167 shares in 1994 6,443 6,276
Additional paid-in capital 7,141 6,877
Retained earnings 4,053 2,334
Unrealized gain (loss) on securities available for sale 66 (143)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders equity 17,703 15,344
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders equity $253,777 $243,313
========================================================================================================================
See notes to consolidated financial statements.
Consolidated Statements of Income
Westbank Corporation and Subsidiaries
Years ended December 31,
(Dollars in Thousands, except share amounts) 1995 1994 1993
========================================================================================================================
Interest and dividend income:
Interest and fees on loans $17,681 $15,015 $14,756
Interest from temporary investments 268 176 147
Interest and dividend income from securities 2,312 1,855 1,906
- ------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 20,261 17,046 16,809
Interest expense:
Interest on time deposits 7,574 5,712 6,207
Interest on certificates of deposit - $100,000 or more 695 287 270
Interest on borrowed funds 271 200 259
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense 8,540 6,199 6,736
- ------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for loan losses 11,721 10,847 10,073
Provision for loan losses (Note 3) 2,690 1,473 790
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 9,031 9,374 9,283
Non-interest income:
Trust department income 354 329 316
Service charges on deposits 851 962 1,123
Gain (loss) on sale of mortgage loans/servicing rights (4) 77 187
Gain on sale of securities available for sale 145 145 339
Gain on sale of other real estate owned 13 82 43
Other non-interest income (Note 13) 1,558 864 853
- ------------------------------------------------------------------------------------------------------------------------
Total non-interest income 2,917 2,459 2,861
- ------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and wages 3,181 3,331 3,099
Pension and employee benefits (Note 9) 664 608 557
Occupancy expense 513 555 504
Depreciation and amortization expense 453 550 787
Write-down of other real estate owned 224 760 1,164
Other real estate owned expenses 274 476 633
Other non-interest expense (Note 13) 3,206 3,808 3,328
- ------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 8,515 10,088 10,072
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes, (benefit)
and cumulative effect of accounting change 3,433 1,745 2,072
Income taxes (benefit) (Note 8) 1,080 (430) 525
Net income before cumulative effect
of accounting change 2,353 2,175 1,547
Cumulative effect of accounting change
for income taxes (Note 8) 400
- ------------------------------------------------------------------------------------------------------------------------
Net income $2,353 $2,175 $1,947
========================================================================================================================
Net earnings per share before
cumulative effect of accounting change $.72 $.68 $.48
Net earnings per share attributable to
cumulative effect of accounting change .13
- ------------------------------------------------------------------------------------------------------------------------
Net earnings per share $.72 $.68 $.61
========================================================================================================================
Weighted average shares and equivalent shares outstanding 3,271,875 3,203,985 3,190,486
========================================================================================================================
See notes to consolidated financial statements.
Consolidated Stament of Stockholder Equity
Westbank Corporation and Subsidiaries
Retained Unrealized
Common Stock Additional earnings gain (loss)
Par paid-in (accumulated on securities
(Dollars in Thousands, except share amounts) Shares Value capital deficit) available for sale Total
========================================================================================================================
Balance, December 31, 1992 3,115,689 $6,231 $6,849 $(1,788) $ $11,292
Net income 1,947 1,947
Shares issued under stock
option plan 5,700 12 12
Shares issued under stock
purchase plan 4,117 8 12 20
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 3,125,506 6,251 6,861 159 13,271
Net income 2,175 2,175
Shares issued:
Stock option plan 7,864 16 16
Dividend reinvestment
and stock purchase plan 4,797 9 16 25
Cumulative effect of implementing
accounting standard for securities
as of January 1, 1994 233 233
Changes in unrealized loss on securities
available for sale (376) (376)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 3,138,167 6,276 6,877 2,334 (143) 15,344
Net income 2,353 2,353
Cash dividends declared ($.20 per share) (634) (634)
Shares issued:
Stock option plan 16,342 33 4 37
Dividend reinvestment
and stock purchase plan 67,094 134 260 394
Change in unrealized gain (loss)
on securities available for sale 209 209
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 3,221,603 $6,443 $7,141 $4,053 $66 $17,703
========================================================================================================================
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Westbank Corporation and Subsidiaries
For the years ended December 31,
(Dollars in Thousands) 1995 1994 1993
========================================================================================================================
Operating activities:
Net income $2,353 $2,175 $1,947
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 2,690 1,473 790
Provision for other real estate owned 224 760 1,164
Depreciation and amortization 453 550 787
Realized gain on sale of securities (145) (145) (339)
Realized gain on sale of other real estate owned (13) (82) (43)
Change in:
Loans held for sale (4,154)
Accrued interest receivable 10 (108) 174
Income taxes refundable (211) (53) (6)
Deferred taxes 881 (876) (400)
Other assets (183) (319) 197
Interest payable on deposits 69 (301) (308)
Other liabilities 85 341 (229)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,059 3,415 3,734
- ------------------------------------------------------------------------------------------------------------------------
Investing activities:
Securities:
Held to maturity:
Purchases (4,500) (5,747)
Proceeds from maturities 8,085 169
Available for sale:
Purchases (14,866) (6,740)
Proceeds from sales 4,912 7,738
Proceeds from maturities 1,308 7,014
Investments:
Purchases (23,908)
Proceeds from sales 15,514
Proceeds from maturities 7,570
Purchases of premises and equipment (960) (879) (318)
Net increase in loans (3,847) (21,808) (4,097)
Proceeds from sale of other real estate owned 965 3,186 3,836
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,903) (17,067) (1,403)
- ------------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from borrowed funds 15,099 969
Repayment of borrowed funds (2,676) (15,716) (797)
Net increase (decrease) in deposits 9,399 16,132 (9,314)
Net increase (decrease) in short-term borrowings 1,228 (3,178) 2,146
Proceeds from exercise of stock options and stock purchase plan 431 41 32
Dividends paid (634)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities 7,748 12,378 (6,964)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 904 (1,274) (4,633)
Cash and cash equivalents at beginning of year 11,700 12,974 17,607
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $12,604 $11,700 $12,974
========================================================================================================================
Cash paid during the year:
Interest on deposits and other borrowings $8,471 $6,499 $7,044
Income taxes 520 366 500
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Westbank Corporation and Subsidiaries
1 - Summary of Significant
Accounting Policies
The accounting and reporting policies of Westbank Corporation (the
Corporation ) and its subsidiaries are in conformity with generally
accepted accounting principles and general practices within the
banking industry. The following is a description of the more
significant policies.
Nature of Operations
The Corporation operates ten banking offices located in Hampden
County and also operates a Trust Department providing services
normally associated with holding property in a fiduciary or agency
capacity. A full range of retail banking services are furnished to
individuals, businesses and non-profit organizations. The
Corporation s primary source of revenue is providing loans to
customers, predominately located in Western Massachusetts.
Use of Estimates in the Preparation of Financial Statements
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for loan losses and other real
estate owned, management obtains independent appraisals for
significant properties.
In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank s allowances
for losses on loans and other real estate owned. Such agencies may
require the Bank to recognize additions to the allowances based on
their judgements about information available to them at the time of
their examination.
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiary, Park West Bank and
Trust Company ( Park West or the Bank ), its subsidiaries, Lorac
Leasing Corp., and PWB&T Inc. All material intercompany balances
and transactions have been eliminated upon consolidation. Certain
amounts in the 1994 and 1993 financial statements have been
reclassified to conform to the 1995 presentation.
Cash and Cash Equivalents
The Corporation defines cash and due from banks and federal funds
sold to be cash equivalents.
Securities
Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investment in Debt and Equity Securities ( SFAS No. 115 )
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities. Those investments are to be
classified in three categories and accounted for as follows:
Held to Maturity Securities - reported at amortized cost.
Trading Securities - reported at fair value with unrealized
gains/losses included in earnings.
Available for Sale - reported at fair value, with unrealized
gains/losses, net of income taxes, excluded from earnings and
reported as a separate component of shareholders equity.
Securities that management has the positive intent and ability to
hold until maturity are stated at cost, adjusted for amortization of
premiums and accretion of discounts. Those securities which have
been identified as assets for which there is not a positive intent
to hold to maturity, including all marketable equity securities, are
classified as available for sale with unrealized gains (losses), net
of income taxes reported as a separate component of shareholders
equity. The Corporation classifies all securities with an original
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 are also considered
available for sale. All other securities are classified as held to
maturity. Gains and losses on sales of securities are recognized at
the time of sale on a specific identification basis.
Mortgage-backed securities held to maturity are stated at cost,
adjusted for amortization of premiums and accretion of discounts
determined by a method that approximates the level-yield method.
Management has the positive ability and the intent to hold these
assets until maturity.
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
Loans
Loans have been reduced by deferred loan fees and the allowance for
loan losses.
Interest on commercial and real estate loans is accrued on the
principal amount of loans outstanding. Interest on discounted
installment loans is recognized by a method which approximates the
interest method. Interest on other loans, is calculated by using
the simple interest method on daily balances of the principal amount
outstanding.
Non-accrual loans are loans on which the accrual of interest ceases
when the collection of principal or interest payments is determined
to be doubtful by management. It is the general policy of the
Corporation to discontinue the accrual of interest when principal or
interest payments are delinquent 90 days or more unless the loan
principal and interest are determined by management to be fully
collectible. Any unpaid amounts previously accrued on these loans
are reversed from income. Interest received where a loan is in
non-accrual status is applied to reduce principal or, if management
determines that the principal is collectible, interest is recognized
on a cash basis. A loan is returned to accrual status after the
borrower has brought the loan current and has demonstrated
compliance with the loan terms for a sufficient period and
management s doubts concerning collectibility have been removed.
The adequacy of the allowance for loan losses is evaluated regularly
by management. Factors considered in evaluating the adequacy of the
allowance include the size of the portfolio, previous loss
experience, current economic conditions and their effect on
borrowers and the financial condition of individual borrowers and
the related performance of individual loans in relation to contract
terms. The provision for loan losses charged to operating expense
is based upon management s judgement of the amount necessary to
maintain the allowance at a level adequate to absorb losses. Loan
losses are charged against the allowance for loan losses when
management believes the collectibility of the principal is unlikely.
Loan origination fees, net of certain direct loan origination costs,
are deferred and recognized as income over the life of the related
loan as an adjustment to the loan s yield.
On January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan , ( SFAS No. 114 ) which requires that certain
impaired loans, except large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment, be measured
based on the present value of expected future cash flows discounted
at the loan s effective interest rate or, as a practical expedient,
at the loan s observable market price or the fair value of the
collateral if the loan is collateral dependent. SFAS No. 114 was
modified by SFAS No. 118, Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures, and was adopted
concurrently by the Corporation. The adoption of these new
standards did not have any material impact on the Corporation s
financial statements.
New Accounting Standards
The Corporation has not adopted Statement of Financial Accounting
Standards No. 122, Accounting for Mortgage Servicing Rights , (
SFAS No. 122 ) which is effective for fiscal years beginning after
December 15, 1995. This statement requires allocation of the total
cost of mortgage loans to the mortgage servicing rights and the
loans (without the mortgage servicing rights) based on their
relative fair values. It is not anticipated that the adoption of
this standard will have a material impact on the Corporation s
financial statements.
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation , ( SFAS No. 123 ) is effective for fiscal
years beginning after December 15, 1995. This statement encourages,
but does not require, employers to adopt a fair value method of
accounting for employee stock-based compensation. Regardless of the
method used for employee stock-based arrangements, SFAS No. 123
requires increased disclosures of stock-based compensation
arrangements with employees. Management has not assessed the impact
of adoption of this Standard.
These statements apply to Westbank s financial statements as of
January 1, 1996 and will be implemented during the first quarter of
1996.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method. Amortization of leasehold improvements is
charged over the terms of the respective leases, including option
periods or the estimated useful lives of the improvements, whichever
is shorter. Gains and losses are recognized upon disposal of
assets. The cost of maintenance and repairs is charged to income as
incurred, whereas significant renewals are capitalized.
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
Other Real Estate Owned
Other real estate owned ( OREO ) includes properties the Bank has
acquired through foreclosure. OREO is recorded at the lower of cost
or fair value at the date of acquisition, less estimated selling
costs. At the time of foreclosure, the excess, if any, of the loan
amount over the fair value of the asset acquired is charged off
against the allowance for loan losses. Operating expenses to
administer OREO properties are charged directly to operating
expenses. Valuation allowances are established subsequent to
acquisition, as necessary, based upon management s continuing
assessment of the fair values of the properties. Loans granted in
conjunction with sales of OREO are required to comply with the Bank
s standard underwriting criteria, including receipt of an adequate
down payment.
Deferred Premium on Loans Sold
The Corporation sells mortgage loans resulting in gains which are
deferred at the time of the sale when the average interest rate on
the loans sold, after normal servicing fees, differs from the agreed
yield to the buyer. The premium or discount which results from
these sales is amortized using the interest method over the
estimated remaining life of the servicing contract, adjusted for
estimated prepayments. Such amortization is charged against
operations based upon amounts considered necessary by management to
reflect accelerated prepayment experience.
Income Taxes
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes ( SFAS No. 109 ) established the asset and liability
method of accounting for income taxes. Under SFAS No. 109,
deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax basis. To the extent that current available
evidence about the future raises doubt about the realization of a
deferred tax asset, a valuation allowance must be established.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The Corporation adopted
SFAS No. 109 on January 1, 1993, and reported the cumulative effect
of that change in the statement of income for the year ended
December 31, 1993.
Pension Plan
The Corporation has a trusteed contributory defined contribution
pension plan covering substantially all employees. The Corporation
s policy is to fund accrued pension cost.
Trust Department
Assets held by the Corporation for customers in a fiduciary or
agency capacity are not included in the consolidated financial
statements, as such items are not assets of the Cor-poration. Such
assets totaled approximately $102,315,000 and $84,031,000 at
December 31, 1995 and 1994, respectively. Trust income is
recognized on a cash basis. The amounts recognized under this
method are not materially different from amounts that would be
recognized on the accrual basis.
Net Earnings Per Share
The computation of earnings per share is based on the weighted
average number of shares of common stock and common stock
equivalents outstanding during the year.
2 - Securities
Investment securities held to maturity at December 31 are as
follows:
1995
========================================================================================================================
Gross and net
Amortized Fair unrealized
(Dollars in Thousands) cost value gains
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government obligations $5,998 $6,134 $136
Federal agency obligations 10,678 10,695 17
Other debt securities 1,259 1,287 28
Mortgage-backed securities 274 286 12
- ------------------------------------------------------------------------------------------------------------------------
$18,209 $18,402 $193
========================================================================================================================
1994
========================================================================================================================
Gross and net
Amortized Fair unrealized
(Dollars in Thousands) cost value losses
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government obligations $6,499 $6,269 $230
Federal agency obligations 13,694 13,117 577
Other debt securities 1,270 1,245 25
Mortgage-backed securities 331 327 4
- ------------------------------------------------------------------------------------------------------------------------
$21,794 $20,958 $836
========================================================================================================================
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
Investment securities available for sale at December 31 are as
follows:
1995
========================================================================================================================
Gross Gross Net
Amortized unrealized unrealized Fair unrealized
(Dollars in Thousands) cost gains losses value gain/(loss)
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government obligations $2,896 $37 $ $2,933 $37
Federal agency obligations 4,199 79 4,120 (79)
Other debt securities 253 4 257 4
Equity securities 645 11 656 11
Mortgage-backed securities 8,799 142 8,941 142
- ------------------------------------------------------------------------------------------------------------------------
$16,792 $194 $79 $16,907 $115
========================================================================================================================
At December 31, 1995, the net unrealized gains, net of tax effect,
on available-for-sale securities that was included as a separate
component of stockholders equity was $66,000. During the year ended
December 31, 1995 there were no sales of investment securities
classified as held to maturity.
1994
========================================================================================================================
Gross Gross Net
Amortized unrealized unrealized Fair unrealized
(Dollars in Thousands) cost gains losses value gain/(loss)
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government obligations $3,394 $ $65 $3,329 $(65)
Federal agency obligations 4,350 189 4,161 (189)
Other debt securities 255 1 254 (1)
Equity securities 2 7 9 7
- ------------------------------------------------------------------------------------------------------------------------
$8,001 $7 $255 $7,753 $(248)
========================================================================================================================
During 1995, the Corporation recognized gains on securities
available for sale totaling $145,000 all of which were from the sale
of mortgage-backed securities. For 1994, the Corporation also
recognized a net gain on securities available for sale tota-ling
$145,000 the result of recognizing a loss of $5,000 on the sale of
U.S. Government obligations offset by gains totaling $150,000 on
the sale of mortgage-backed securities. There were no net realized
gains or losses during 1993.
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
The contractual maturities of securities as of December 31, 1995 are
summarized in the following tables. Actual maturities may differ
from contractual maturities because certain issuers have the right
to call or prepay obligations.
Amortized Fair Percent
(Dollars in Thousands) cost value of total
========================================================================================================================
Held to Maturity:
Within 1 year $ - $ - %
Over 1 year to 5 years 16,935 17,115 93
Over 5 years to 10 years 1,000 1,001 5
Over 10 years 274 286 2
- ------------------------------------------------------------------------------------------------------------------------
Total bond and
debt obligations $18,209 $18,402 100%
========================================================================================================================
Amortized Fair Percent
(Dollars in Thousands) cost value of total
========================================================================================================================
Available for Sale:
Within 1 year $3,752 $3,766 22%
Over 1 year to 5 years 4,241 4,200 25
Over 5 years to 10 years
Over 10 years 8,799 8,941 53
- ------------------------------------------------------------------------------------------------------------------------
Total bond and
debt obligations $16,792 $16,907 100%
========================================================================================================================
Securities carried at $12,660,000 at December 31, 1995 were pledged
to secure public deposits, repurchase agreements and for other
purposes as required by law.
3 - Loans And Allowance for Loan Losses
Loans consisted of the following at December 31:
(Dollars in Thousands) 1995 1994
========================================================================================================================
Commercial $35,116 $34,306
Real estate construction 7,550 8,517
Real estate 149,519 143,677
Consumer 8,896 9,383
Lease financing 230 352
- ------------------------------------------------------------------------------------------------------------------------
201,311 196,235
Allowance for loan losses (3,707) (3,325)
Deferred loan origination fees (340) (233)
- ------------------------------------------------------------------------------------------------------------------------
$197,264 $192,677
========================================================================================================================
Changes in the allowance for loan losses are summarized as follows:
(Dollars in Thousands) 1995 1994 1993
========================================================================================================================
Balance, beginning of year $3,325 $3,472 $3,442
Provision for loan losses 2,690 1,473 790
Loans charged off (2,483) (1,869) (1,159)
Recoveries 175 249 399
- ------------------------------------------------------------------------------------------------------------------------
$3,707 $3,325 $3,472
========================================================================================================================
The aggregate principal balance of non-accrual loans was $6,180,000,
$4,890,000 and $3,057,000 at December 31, 1995, 1994 and 1993,
respectively. Contractual interest income which was not recognized
on such non-accrual loans was $354,000, $342,000 and $126,000 for
1995, 1994 and 1993, respectively. The only income included in the
results of operations for these non-accrual loans was $20,000 during
1994.
The Corporation did not sell any loans with recourse during 1995.
The remaining recourse exposure on prior sales was $5,014,000 at
December 31, 1995. Management does not believe that its recourse
obligations subject the Corporation to any material risk of loss in
the future. The Corporation has suffered no losses as a result of
these recourse obligations.
Of the $157,069,000 in real estate loans at December 31, 1995,
$99,321,000 are collateralized by 1-4 family dwel-lings. The
majority of the collateral for these loans is located in the bank s
direct market area of Western Massachusetts. Commercial real estate
and real estate construction loans represented $55,116,000 in
outstanding principal at December 31, 1995. These loans encompass a
wider region extending throughout Massachusetts and Southern New
England. Most are collateralized by commercial real estate
developments. Commercial loans both collateralized and
uncollateralized of $35,116,000 at December 31, 1995 represent loans
made to businesses in Western Massachusetts.
The Bank has had, and expects to have in the future, banking
transactions in the ordinary course of business with its directors
and officers. Such loans, in the opinion of management, do not
include more than the normal risk of collectibility nor other
unfavorable features.
The following summarizes the activity with respect to indebtedness,
both direct and indirect, with an aggregate of $60,000 or more for
the directors, policy-making officers and major stockholders during
the years ended December 31:
(Dollars in Thousands) 1995 1994
========================================================================================================================
Balance at beginning of year $687 $1,390
New loans granted 1,268 543
Repayments of principal (621) (831)
Resignation of director (415)
- ------------------------------------------------------------------------------------------------------------------------
Balance at end of year $1,334 $687
========================================================================================================================
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
The Corporation restructured loans totaling $439,000, $501,000 and
$494,000 at December 31, 1995, 1994 and 1993, respectively, which
resulted in interest rates being reduced. The reduction of interest
income is summarized as follows:
(Dollars in Thousands) 1995 1994 1993
========================================================================================================================
Gross income if at
original terms $46 $50 $45
Actual income recorded
during the year 43 42 41
- ------------------------------------------------------------------------------------------------------------------------
Reduction of interest income $3 $8 $4
========================================================================================================================
As described in Note 1, 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.
Under this guidance 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 during 1995 on
impaired loans was not significant.
At December 31, 1995, the recorded investment in impaired loans was
$4,735,000, for which no additional specific allowance for loan
losses was recorded. For the twelve months ended December 31, 1995,
the average recorded investment in impaired loans was $2,201,000.
The Corporation had no commitments to lend additional funds to these
borrowers having loans which are on non-accrual, impaired or
restructured. The Corporation serviced loans for others totaling
$153,923,000 and $155,539,000 at December 31, 1995 and 1994,
respectively.
4 - Property and Equipment
Major classes of property and equipment at December 31 are
summarized as follows:
Estimated
(Dollars in Thousands) 1995 1994 Lives
========================================================================================================================
Property (including
land of $1,029) $2,686 $3,00 30-40 years
Furniture and equipment 6,387 5,841 3-10 years
Motor vehicles 157 131 3 years
Leasehold and building
improvements 1,780 1,392 5-15 years
- ------------------------------------------------------------------------------------------------------------------------
11,010 10,368
Accumulated depreciation (7,367) (6,951)
- ------------------------------------------------------------------------------------------------------------------------
$3,643 $3,417
========================================================================================================================
Depreciation and amortization relating to property and equipment and
charged to operating expense amounted to $453,000 in 1995, $550,000
in 1994 and $787,000 in 1993.
5 - Other Real Estate Owned
At December 31, other real estate owned consisted of properties
acquired through foreclosure as follows:
(Dollars in Thousands) 1995 1994
========================================================================================================================
Real estate acquired
through foreclosure $1,300 $1,552
========================================================================================================================
Changes in the allowance for other real estate owned losses are
summarized as follows:
(Dollars in Thousands) 1995 1994 1993
========================================================================================================================
Balance, beginning of year $231 $440 $123
Provision for other real estate
owned charged to operations 224 760 1,164
Write-downs (net of payments) (390) (969) (847)
- ------------------------------------------------------------------------------------------------------------------------
Balance, end of year $65 $231 $440
========================================================================================================================
Certain sales of other real estate owned were financed by the Bank,
aggregating approximately $340,000 and $961,000 in 1995 and 1994,
respectively. Net non cash transfer of loans to (from) other real
estate owned were $375,000, $276,000 and ($162,000) for the years
ended December 31, 1995, 1994 and 1993, respectively.
6 - Deposits
Deposit accounts by type as of December 31 are summarized as
follows:
(Dollars in Thousands) 1995 1994
========================================================================================================================
Demand deposits $43,981 $40,399
Regular - Savings 31,928 35,143
N.O.W. 17,113 15,670
Money market deposits 15,027 19,580
IRA s 27,542 26,546
Certificates of deposit 92,371 81,225
- ------------------------------------------------------------------------------------------------------------------------
$227,962 $218,563
========================================================================================================================
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
Certificates of deposit with balances greater than or equal to
$100,000 amounted to $12,954,000 and $12,142,000 as of December 31,
1995 and 1994, respectively. Interest paid on these deposits
totaled approximately $695,000 and $287,000, respectively.
7 - Borrowed Funds
Borrowed funds as of December 31 are as follows:
(Dollars in Thousands) 1995 1994
========================================================================================================================
Short Term Borrowings:
Securities sold under agreements
to repurchase $6,621 $4,246
Purchased federal funds 190
Treasury tax and loan notes 366 1,703
- ------------------------------------------------------------------------------------------------------------------------
7,177 5,949
- ------------------------------------------------------------------------------------------------------------------------
Other Borrowings:
Securities sold under agreements
to repurchase 2,676
- ------------------------------------------------------------------------------------------------------------------------
2,676
- ------------------------------------------------------------------------------------------------------------------------
$7,177 $8,625
========================================================================================================================
The securities pledged under the repurchase agreements include U.S.
Government and Federal agency obligations. At December 31, 1995,
the book balance was $7,658,000 and the fair value was $7,598,000.
The above short term borrowings mature daily.
The Corporation maintains lines of credit with the Fleet Bank of
Massachusetts for $3,000,000 and the Bank of Boston for $1,500,000.
Both are revolving lines of credit with no set expiration date.
There were no amounts outstanding against either line as of December
31, 1995 or 1994.
The Bank had additional short term borrowing capacity through the
Federal Home Loan Bank of $4,873,000 through its Ideal Way program
that was unused at year end 1995.
8 - Income Taxes
The income tax provisions (benefits) were as follows:
(Dollars in Thousands) 1995 1994 1993
========================================================================================================================
Current tax:
Federal $148 $25 $50
State 204 316 475
- ------------------------------------------------------------------------------------------------------------------------
Total current 352 341 525
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax (benefit):
Deferred tax expense 728 558
Change in valuation allowance
for deferred tax assets (771) (558)
- ------------------------------------------------------------------------------------------------------------------------
Total deferred 728 (771)
- ------------------------------------------------------------------------------------------------------------------------
Total income tax
provision (benefit) $1,080 $(430) $525
========================================================================================================================
The differences between the effective tax rate and the federal
statutory tax rate on income before taxes are reconciled as follows:
1995 1994 1993
========================================================================================================================
Federal statutory rate 34.0% 34.0% 34.0%
Reduction in valuation allowance
for deferred tax asset (44.2) (27.0)
State income taxes,
net of federal benefit 8.0 12.0 15.1
Deferred tax benefits
realized currently (10.5) (17.0)
Other (9.4) 3.2
- ------------------------------------------------------------------------------------------------------------------------
31.5% (24.6)% 25.3%
========================================================================================================================
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31 are presented below:
(Dollars in Thousands) 1995 1994
========================================================================================================================
Deferred tax assets:
Allowance for loan losses $36 $
Other real estate owned 61 809
Deferred loan fees 143 98
State tax net operating loss carryforward 182 286
Alternative minimum tax credit carryover 318
Depreciation 125
Non-accrual interest 210 210
Federal tax net operating loss carryforward 225
Unrealized loss on securities 105
Other 11 75
- ------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 643 2,251
Valuation allowance (662)
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax assets - net of
valuation allowance 643 1,589
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Bond accretion 24
Unrealized gain on securities 48
Depreciation 10
Allowance for loan losses 58
Leases, net of residual value 146 197
Deferred FNMA premium 16 47
Prepaid pension 35 42
- ------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 279 344
- ------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $364 $1,245
========================================================================================================================
The net change in the total valuation allowance for the year ended
December 31, 1995 was a decrease of $662,000 mostly due to the
recapture of such benefits. In assessing the realizability of
deferred tax assets, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
Management considers the scheduled reversal of deferred tax assets
and liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Corporation will
realize the benefits of these deductible differences.
9 - Pension Plan
Park West Bank and Trust Company, a wholly-owned subsidiary of the
Corporation, has a contributory defined contribution pension plan
(money purchase), covering substantially all of its employees.
Contributions to the pension plan are a percentage of individual
employees salary. Total pension expense for 1995, 1994 and 1993
amounted to $216,000, $216,000 and $198,000, respectively. At May
31, 1995, the most recent plan year, total plan assets were
$2,084,000 and the vested balance was $2,032,000. The pension plan
assets are invested in money market funds, government bonds,
corporate and government agency bonds and marketable securities.
10 - Stock Options
The Corporation offers shares of common stock to officers and key
employees pursuant to the 1985 Incentive Stock Option Plan. On
April 16, 1992, all outstanding options were canceled and 67,913
options at a price of $2 per share were issued. As of December 31,
1995, all options granted are exercisable. At the 1994 Annual
Meeting of Sharehold-ers the 1985 Incentive Stock Option Plan was
amended to increase the number of shares reserved for issuance by
200,000 shares. The following is a summary of the changes in
options outstanding:
1995 1994 1993
========================================================================================================================
Options outstanding
at the beginning of year 325,949 134,916 67,913
Options granted at fair value:
at $2.00
at $2.50 52,400
at $3.50 20,303
at $6.00 200,000
Options exercised:
at $2.00 (8,142) (7,264) (4,500)
at $2.50 (8,200) (600) (1,200)
Options canceled (1,901) (1,103)
- ------------------------------------------------------------------------------------------------------------------------
Options outstanding
at the end of year 307,706 325,949 134,916
========================================================================================================================
Shares available for future grants
========================================================================================================================
The Corporation adopted a Directors Stock Option Plan during 1995
which was approved at the 1995 Annual Meeting of Shareholders. The
following is a summary of the changes in options outstanding under
the Directors Stock Option Plan:
1995
========================================================================================================================
Options outstanding at the beginning of the year
Options authorized during 1995 125,000
Options granted at fair value $6.00 33,000
- ------------------------------------------------------------------------------------------------------------------------
Options available for future grants 92,000
========================================================================================================================
Unless exercised, the options will expire ten years after granting.
11 - Leases
The Corporation leases certain facilities under long-term lease
agreements. The following is a schedule of future minimum lease
payments for operating leases as of December 31, 1995:
Year ending December 31,
(Dollars in Thousands)
========================================================================================================================
1996 $210
1997 198
1998 176
1999 162
2000 162
After 2000 98
- ------------------------------------------------------------------------------------------------------------------------
Total minimum lease payments $1,006
========================================================================================================================
Rent expense for 1995, 1994 and 1993 amounted to $116,000, $109,000
and $113,000, respectively.
12 - Commitments, Contingent Liabilities
and Financial Instruments with
Off-Balance-Sheet Risk
In the normal course of business, various commitments and contingent
liabilities are outstanding, such as guarantees, standby letters of
credit, commitments to extend credit and various financial
instruments with off- balance-sheet risk that are not reflected in
the financial statements. Financial instruments with
off-balance-sheet risk involve elements of credit risk, interest
rate risk, liquidity risk and market risk. Management does not
anticipate any significant losses as a result of these transactions.
Note to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
The following table summarizes the contractual value of financial
instruments and other commitments and contingent liabilities at
December 31:
(Dollars in Thousands) 1995 1994
========================================================================================================================
Commitments to grant loans $6,682 $6,116
Performance letters of
credit and financial guarantees 1,658 892
Commitments to advance funds
under existing loan agreements 23,900 34,127
Commitments for the sale and
delivery of mortgage loans to FMNA
The Bank uses the same credit policies in making commitment and
conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
commitments may be expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each c ustomer s creditworthiness
on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on
management s credit evaluation of the borrower. Collateral held
varies but may include accounts receivable, inventory, property
plant and equipment and income-producing commercial properties.
Generally, all of the Banks loans are to borrowers in the Western
Massachusetts and surrounding areas. The ability of borrowers to
repay their loans is dependent on the overall economic stability of
the Corporation s market area, real estate values and the net worth
of the borrowers. A majority of the Corporation s loans are secured
by real estate.
As of December 31, 1995 the Bank has commitments to open two (2)
supermarket branches in Edwards Super Food Stores in Chicopee and
East Longmeadow. The Chicopee office opened on February 12, 1996
and the East Long-meadow office is scheduled to open in April 1996
pending regulatory approval. The Corporation anticipates entering
into a lease agreement with Edwards Super Food Store for the East
Longmeadow office and estimates capital expenditures for this office
and the recently opened Chicopee office to be $600,000.
Certain litigation is pending against the Corporation. Management,
after consultation with legal counsel, does not anticipate that any
ultimate liability arising out of such litigation will have a
material effect on the Corporation s financial condition or results
of operation.
13 - Other Non-Interest Income and Expense
The components of other non-interest income and expense, which are
in excess of 1% of the aggregate of total interest income and
non-interest income and not shown separately on the consolidated
statements of income, are as follows:
Years Ended December 31,
(Dollars in Thousands) 1995 1994 1993
========================================================================================================================
Income:
Loan servicing fees $513 $499 $375
Insurance recovery 703
Expenses:
Computer operations
and supplies 232 379 537
Service bureau expense 542 102
Federal Deposit Insurance
Corporation assessment 433 584 634
Professional fees 260 329 204
Advertising 284 241 179
Unusual item 750
During March 1995 the bank discovered an alleged em-ployee
defalcation of approximately $750,000. Included in the financial
statements for 1994 is the writedown of this unusual item, while the
1995 financial statements reflect the recovery of this item based on
an insurance refund of $703,000 (as shown above).
14 - Stockholders Equity and Regulatory Matters
As a federally insured banking institution, Park West is subject to
regulation by the Federal Deposit Insurance Corporation (the FDIC ).
On December 22, 1994, in conjunction with an examination by the
Commissioner of Banks for the Commonwealth of Massachusetts (the
Commissioner ), Park West entered into a Memorandum of Understanding
(the Memorandum ) with the Commissioner and the FDIC. The
Memorandum required Park West to take certain affirmative action in
response to the examination by the Commissioner. On December 11,
1995, in conjunction with an examination by the FDIC the Memorandum
was revised. The revised Memorandum requires, among other items:
Park West s Tier 1 capital to total asset ratio remain at or above
6%; Park West to submit written plans to further reduce classified
assets; the Bank to review and/or revise its Investment Policy;
correct other deficiencies noted in the exam; not declare or pay any
dividends without prior approval by the FDIC and the Commissioner.
Park West management believes that the Bank will be able to comply
with all of the terms of the Memorandum.
Note to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
The Federal Deposit Insurance Corporation Improvement Act of 1991 (
FDICIA ) includes significant changes to the legal and regulatory
environment for insured depository institutions, including
reductions in insurance coverage for certain kinds of deposits,
increased supervision by the federal regulatory agencies, increased
reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.
Under the prompt corrective action provisions of FDICIA, specific
capital categories were defined based on an institution s capital
ratios. To be considered well capitalized an institution must
generally have a leverage ratio of at least 5%, a Tier 1 risk-based
capital ratio of at least 6%, and a total risk-based capital ratio
of at least 10%.
At December 31, 1995, the Bank s leverage ratio was 6.87%, Tier 1
risk-based ratio was 9.81% and total risk-based ratio was 11.07%,
based on leverage capital of $17,446,000, Tier 1 capital of
$17,380,000, and total risk-based capital of $19,613,000, as
defined. At December 31, 1995, the institution is classified as
well capitalized as defined under FDICIA as described above.
Westbank Corporation has adopted a Shareholders Rights Plan. The
plan provides for the distribution of one Common Stock Purchase
Right for each outstanding share of Common Stock of the Corporation
to stockholders of record at the close of business on January 2,
1990. Each Right entitles the registered holder to purchase from
the Corporation one share of Common Stock, par value $2 per share
(the Common Stock ), at a cash Exercise Price of $36 per share of
Common Stock, subject to adjustment.
The Purchase Rights will be exercisable for shares of common stock
having a market value of two times the exercise price in the event
that the Board of Directors determines that the Corporation may be
the subject of an adverse takeover. In the event that the
Corporation is acquired in a merger in which the Corporation is not
the surviving corporation or 50 percent or more of the Corporation s
assets or earning power is sold, the Purchase Rights will be
exercisable for common stock of the acquiring corporation having a
market value of two times the exercise price. The Purchase Rights
may be redeemed in whole by the Corporation, under certain
circumstances, at a price of $.0001 per Purchase Right. The
Purchase Rights expire on January 2, 2000.
On January 5, 1996, the Corporation declared a dividend of $.06 per
share to common shareholders of record on January 17, 1996 payable
January 25, 1996.
15 - Employee Stock Ownership Plan
The Corporation established an Employees Stock Ownership Plan ( ESOP
). The ESOP has been funded by a $100 contribution from the
Corporation. At December 31, 1995 and 1994, the ESOP held no shares
of the Corporation s stock.
16 - Fair Value of Financial Instruments
Fair value estimates, methods, and assumptions are set forth below
for the Corporation s financial instruments. The following table
represents the carrying amount and estimated fair value of the
Corporation s financial instruments at December 31:
1995 1994
========================================================================================================================
Carrying Estimated Carrying Estimated
(Dollars in Thousands) Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks $11,704 $11,704 $10,700 $10,700
Federal funds sold 900 900 1,000 1,000
Investment securities held to maturity 18,209 18,402 21,794 20,958
Securities available for sale 16,792 16,907 8,001 7,753
Loans 197,264 199,623 192,677 187,308
Accrued interest receivable 1,658 1,658 1,668 1,668
Liabilities:
Deposits 227,962 228,550 218,563 217,537
Borrowed funds 7,177 7,177 8,625 8,625
Interest payable on deposits 309 309 240 240
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
Cash and Due from Banks and
Federal Funds Sold
The carrying amount for cash and due from banks and for federal
funds sold approximates fair value and mature in 90 days or less.
Investment Securities
The fair value of securities except certain state and municipal
securities, is estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. The
fair value of certain state and mu-nicipal securities is not readily
available through market sources other than dealer quotations, so
fair value estimates are based on quoted market prices of similar
instruments, adjusted for differences between the quoted instruments
and the instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as
commercial, commercial real estate, residential mortgage, and other
consumer. Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and non-performing
categories.
The fair value of performing loans, except residential mortgages, is
calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loan. The estimate of
maturity is based on the Corporation s historical experience with
repayments for each loan classification, modified, as required, by
an estimate of the effect of current economic and lending
conditions. For performing residential mortgage loans, fair value
is estimated by discounting contractual cash flows adjusted for
prepayment estimates using discount rates based on secondary market
sources adjusted to reflect differences in servicing and credit
costs.
Fair value for significant non-performing loans is based on recent
external appraisals. If appraisals are not available, estimated
cash flows are discounted using a rate commensurate with the risk
associated with the estimated cash flows. Assumptions regarding
credit risk, cash flows, and discount rates are judgmentally
determined using available market information and specific borrower
information.
Accrued Interest Receivable,
Interest Payable on Deposits
The carrying amount for these items approximate the fair value due
to their short-term nature.
Deposits
The fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, regular savings, and NOW
accounts, and money market and checking accounts, is equal to the
amount payable on demand. The fair value of certificates of deposit
is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
Borrowed Funds
The fair value of such borrowings was estimated by utilizing future
cash flows discounted using the Bank s current borrowing rate for
similar instruments.
Commitments to Extend Credit
The stated value of commitments to extend credit approximates fair
value as the current fees charged for similar commitments does not
differ significantly from quoted fees. For fixed-rate loan
commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. Such
differences are not considered significant.
17 - Summary of Unaudited Quarterly Financial Information
1995 1994
(Dollars in Thousands, except per share amounts) Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
========================================================================================================================
Interest income $4,766 $5,119 $5,338 $5,038 $20,261 $4,013 $4,094 $4,322 $4,617 $17,046
Interest expense 1,926 2,211 2,278 2,125 8,540 1,406 1,496 1,602 1,695 6,199
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 2,840 2,908 3,060 2,9131 1,721 2,607 2,598 2,720 2,922 10,847
Provision for loan losses 450 350 1,190 700 2,690 347 365 219 542 1,473
Non-interest income 512 523 599 1,283 2,917 876 535 555 493 2,459
Non-interest expense 2,112 2,250 1,780 2,373 8,515 2,400 2,111 2,453 3,124 10,088
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 790 831 689 1,123 3,433 736 657 603 (251) 1,745
Income tax expense (benefit) (65) 284 354 507 1,080 (180) 124 (59) (315) (430)
- ------------------------------------------------------------------------------------------------------------------------
Net income $855 $547 $335 $616 $2,353 $916 $533 $662 $64 $2,175
========================================================================================================================
Net earnings per share $.26 $.17 $.10 $.19 $.72 $.28 $.17 $.21 $.02 $.68
========================================================================================================================
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
18 - Condensed Parent Company Only Financial Statements
December 31,
(Dollars in Thousands) 1995 1994
==============================================================================
Balance Sheets
Assets
Cash $13 $2
Investment in subsidiaries 17,445 15,287
Other investments 245 55
- ------------------------------------------------------------------------------
Total assets $17,703 $15,344
==============================================================================
Stockholders equity
Preferred stock - none $ $
Common stock, par value $2 per share 6,443 6,276
Additional paid-in capital 7,141 6,877
Retained earnings 4,119 2,191
- ------------------------------------------------------------------------------
Total stockholders equity $17,703 $15,344
===============================================================================
1995 1994 1993
==============================================================================
Statements of Income
Dividend from subsidiary $429 $ $
Interest income 8
Other income (expense) - net (33) (20) 4
- -------------------------------------------------------------------------------
Income (loss) before undistributed
income of subsidiaries 404 (20) 4
Undistributed income of subsidiaries 1,949 2,195 1,943
- ------------------------------------------------------------------------------
Net income $2,353 $2,175 $1,947
- -------------------------------------------------------------------------------
Statements of Cash Flows
Cash flows from operating activities:
Net income $2,353 $2,175 $1,947
Operating Activities:
Equity in income of subsidiaries (1,949) (2,195) (1,943)
- -------------------------------------------------------------------------------
Net cash provided from (used in)
operating activities 404 (20) 4
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investment securities (190) (19) (36)
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from stock options exercised 37 16 12
Proceeds from dividend reinvestment
and optional stock purchases 394 25 20
Dividends paid (634)
- ------------------------------------------------------------------------------
Net cash (used in) provided from
financing activities (203) 41 32
- ------------------------------------------------------------------------------
Net increase in cash and cash equivalents 11 2
Cash and cash equivalents at the
beginning of the year 2
- ------------------------------------------------------------------------------
Cash and cash equivalents at the
end of the year $13 $2 $
==============================================================================
CORPORATE DIRECTORY -
Westbank Corporation and Subsidiaries
DIRECTORS
WESTBANK CORPORATION
ALFRED C. WHITAKER
Chairman of the Board
Westbank Corporation
Sales Consultant
ROLAND O. ARCHAMBAULT
Owner, Park Supply Company
MARK A. BEAUREGARD
Attorney at Law
Resnic, Beauregard, Waite
& Driscoll
DAVID R. CHAMBERLAND
President
Chicopee Building Supply, Inc.
DONALD R. CHASE
President and Chief Executive
Officer
Westbank Corporation
President and Chief Executive
Officer
Park West Bank and Trust
Company
JOHN E. FITZGERALD
Private Investor
LEROY F. JARRETT
President and Treasurer
New England Church Interiors
ERNEST N. LAFLAMME, JR.
Treasurer, City of Chicopee
President, Laflamme Oil Co.
RUSSELL MAWDSLEY
President and Treasurer
Russell-Hall, Inc.
PAUL J. MCKENNA, D.M.D.
Orthodontist
ROBERT J. PERLAK
Private Investor
JAMES E. TREMBLE
President
Valley Cinema, Inc.
PARK WEST BANK AND TRUST COMPANY
ROLAND O. ARCHAMBAULT
Owner, Park Supply Company
MARK A. BEAUREGARD
Attorney at Law
Resnic, Beauregard, Waite
& Driscoll
DAVID R. CHAMBERLAND
President
Chicopee Building Supply, Inc.
DONALD R. CHASE
President and Chief Executive
Officer
Park West Bank and Trust Company
President and Chief Executive
Officer
Westbank Corporation
JOHN E. FITZGERALD
Private Investor
LEROY F. JARRETT
President and Treasurer
New England Church Interiors
ERNEST N. LAFLAMME, JR.
Treasurer, City of Chicopee
President, Laflamme Oil Co.
RUSSELL MAWDSLEY
President and Treasurer
Russell-Hall, Inc.
PAUL J. MCKENNA, D.M.D.
Orthodontist
ROBERT J. PERLAK
Private Investor
JAMES E. TREMBLE
President
Valley Cinema, Inc.
ALFRED C. WHITAKER
Sales Consultant
Westbank Corporation
OFFICERS
WESTBANK CORPORATION
ALFRED C. WHITAKER
Chairman of the Board
Assistant Corporate Clerk
LEROY F. JARRETT
Vice Chairman of the Board
ROBERT J. PERLAK
Corporate Clerk
DONALD R. CHASE
President and Chief
Executive Officer
JOHN M. LILLY
Treasurer and Chief
Financial Officer
PARK WEST BANK AND TRUST COMPANY
DONALD R. CHASE
President and Chief
Executive Officer
ROBERT J. PERLAK
Corporate Clerk
ALFRED C. WHITAKER
Assistant Clerk
FINANCE DIVISION
JOHN M. LILLY
Executive Vice President
and Treasurer
IRVING M. WALKER, JR., CMA
Accounting Officer
J. MICHAEL LAGE
Asset Liability Manager/Accounting Officer
LOAN DIVISION
GARY L. BRIGGS
Executive Vice President
PAUL M. ACCORSI
Vice President
GERARD E. DRAPEAU
Vice President
PAUL W. KENYON
Vice President
RICHARD E. LANDRY, SR.
Vice President
RICHARD H. LEMPKE
Vice President
RICHARD N. HANCHETT
Assistant Vice President
JEFFREY M. SMITH
Assistant Vice President
ALLEN J. MILES
Assistant Vice President
JOHN E. O BRIEN
Loan Operations Officer
RESIDENTIAL REAL ESTATE
STANLEY F. OSOWSKI
Senior Vice President
WOLFGANG A. ADAMETZ
Assistant Vice President
ELIZABETH A. WILK
Assistant Vice President
LOAN CREDIT & COLLECTIONS
TRENTON E. TAYLOR
Senior Vice President
EDP/OPERATIONS DIVISION
ROGER M. ROBERGE
EDP Officer
MARKETING
JOSEPH L. ROLAK
Director of Marketing and
Vice President
COMPLIANCE
JANE M. KNAPP
Vice President
BRANCH ADMINISTRATION/PERSONNEL
KATHLEEN A. JALBERT
Senior Vice President
H. ELLEN BELLOWS
Branch Manager
AUDITING DIVISION
LLOYD S. HALL, CBA
Director of Auditing
TRUST DIVISION
ROBERT A. GIBOWICZ
Senior Trust Officer
Corporate Information
Westbank Corporation and Subsidiaries
Westbank Corporation
Westbank Tower, 225 Park Avenue
West Springfield, MA 01089-3310
(413) 747-1400
Annual Meeting
The Annual Meeting of Stockholders of Westbank
Corporation will be held on Wednesday, April 17, 1996
at nine o'clock in the morning at the Carriage House
at Storrowton Tavern, 1305 Memorial Avenue, West
Springfield, Massachusetts.
Transfer Agent and Registrar
Park West Bank and Trust Company
Independent Accountants
Deloitte & Touche LLP
Hartford, Connecticut
Corporate Counsel
Doherty, Wallace, Pillsbury and Murphy, P.C.
Springfield, Massachusetts
Information Service
Westbank Corporation welcomes stockholder and
public interest in our services and activities. Questions
pertaining to material presented in this Report and
requests for a copy of the Annual Report (Form 10-K)
filed with the Securities and Exchange Commission
should be directed to John M. Lilly, Treasurer and Chief
Financial Officer, at the above address.
Common Stock - market Information
The table below shows cash dividend data and the range
of bid prices by quarter for the Corporation's common
stock. The source of the bid ranges is the local
newspaper's listing of the NASD regional market quotations:
1995 1994
Bid Bid
High Low Dividend High Low Dividend
First $7 1/8 $5 $0.05 $5 1/4 $5 $0.00
Second 6 7/8 6 1/8 0.05 6 1/4 5 0.00
Third 7 1/4 6 1/2 0.05 6 1/4 5 0.00
Fourth 7 1/8 6 3/4 0.05 6 5 1/4 0.00
The above quotations of the Corporation's common
stock represent prices between dealers. They do not
include retail markup, markdown or commissions.
At January 31, 1996 the Corporation had 1,043
stockholders.
Westbank Corporation's common stock is traded on
the NASDAQ National Market Exchange, the trading
symbol is "WBKC". For information on the Westbank
corporation Dividend Reinvestment and Stock Purchase
Plan, call: Park West Bank and Trust Company, Trust
Department (413) 747-1482.
The following firms make a market in Westbank
Corporation's Common Stock:
Advest, Inc.
First Albany Corporation
Herzog, Heine, Geduld, Inc.
McConnell, Budd & Downes, Inc.
Ryan, Beck & Co., Inc.
Equal Opportunity Employer
The Corporation has maintained its commitment to
equal opportunity and affirmative action in employment
and personnel policies and pledges to recruit, hire train
and promote persons in all job classifications without
regard to race, color, religion, sex, national origin,
veterans status, age or handicap.
Design: Robert Farrell Associates, Inc./Printing: Sterling Press