UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 Commission file number 0 - 12784 WESTBANK CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04 - 2830731 (State or other jurisdiction of inc. or org.) (I.R.S. Employer I.D. No.) 225 Park Avenue, West Springfield, Massachusetts 01090-0149 (Address of principal executive offices) (Zip Code) (413) 747-1400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO Common stock, par value $2 per share: 3,334,319 shares outstanding as of October 31, 1996. WESTBANK CORPORATION AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Stockholders' Equity 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-16 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 17 ITEM 2. Changes in Rights of Securities Holders 17 ITEM 3. Defaults by Company on its Senior Securities 17 ITEM 4. Results of Votes on Matters Submitted to a Vote of Security Holders 17 ITEM 5. Other Information 17 ITEM 6. Exhibits and Reports on Form 8-K 17 Signatures 18 WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollar amounts in thousands) September 30, 1996 December 31, 1995 ASSETS Cash and due from banks: Non-interest bearing $ 12,141 $ 11,195 Interest bearing 1,195 509 Federal Funds sold 10,995 900 Total cash and cash equivalents 24,331 12,604 Investment securities available for sale 14,718 16,907 Investment securities held to maturity (approximate market value of $20,899 in 1996 and $18,402 in 1995) 20,986 18,209 Total investment securities 35,704 35,116 Loans $ 210,007 $ 192,145 Mortgage loans held-for-sale 5,546 8,826 Allowance for loan losses (2,735) (3,707) Net-loans 212,818 197,264 Bank premises and equipment 4,343 3,643 Other real estate owned - net of allowance for losses of $360 in 1996 and $65 in 1995 793 1,300 Accrued interest receivable 1,760 1,658 Deferred income taxes 848 364 Other assets 1,043 1,828 TOTAL ASSETS $ 281,640 $ 253,777 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 46,801 $ 43,981 Interest bearing 206,776 183,981 Total deposits 253,577 227,962 Borrowed funds 7,994 7,177 Accrued interest payable 311 309 Other liabilities 677 626 Total liabilities 262,559 236,074 Stockholders' Equity: Common stock - $2 par value Authorized - 9,000,000 shares Issued - 3,320,154 shares in 1996 and 3,221,603 shares in 1995 6,640 6,443 Additional paid in capital 7,497 7,141 Retained earnings 5,109 4,053 Net unrealized gain (loss) on securities available for sale (165) 66 Total Stockholders' Equity 19,081 17,703 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 281,640 $ 253,777 See accompanying notes to condensed consolidated financial statements. WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME 		 (Unaudited) (Dollar amounts in thousands) QUARTER ENDED NINE MONTHS ENDED 09-30-96 09-30-95 09-30-96 09-30-95 				 	 			 		 Income: Interest and fees on loans $4,529 $ 4,606 $13,222 $13,305 Interest and dividend income on securities 630 663 1,792 1,737 Interest on temporary investments 31 69 181 181 Total interest and dividend income 5,190 5,338 15,195 15,223 Interest expense 2,242 2,278 6,460 6,415 Net interest income 2,948 3,060 8,735 8,808 Provision for loan losses 176 1,190 668 1,990 Net interest income after provision for loan losses 2,772 1,870 8,067 6,818 Security gains 98 112 98 Other non-interest income 489 501 1,532 1,536 Total non-interest income 489 599 1,644 1,634 Non-interest expenses: Salaries and benefits 1,049 844 3,129 2,745 Other real estate-provision for losses 124 14 305 124 -operating expenses 45 2 84 212 Other non-interest expense 829 754 2,688 2,542 Occupancy - net 220 166 664 519 Total non-interest expense 2,267 1,780 6,870 6,142 Income before income taxes 994 689 2,841 2,310 Income taxes 421 354 1,200 573 Net Income $ 573 $ 335 $ 1,641 $ 1,737 Net income per share $ 0.17 $ 0.10 $ 0.49 $ 0.53 Weighted average shares of common stock and common share equivalents 3,417,503 3,289,039 3,379,961 3,254,913 See accompanying notes to condensed consolidated financial statements. WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996 (1996 Unaudited) (Dollar amounts in thousands) UNREALIZED GAIN (LOSS) COMMON STOCK ADDITIONAL ON SECURITIES NUMBER OF PAR PAID IN RETAINED AVAILABLE SHARES VALUE CAPITAL EARNINGS FOR SALE TOTAL 		 			 	 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 Cash Dividend Declared ($0.18 per share) (585) (585) Shares issued: Dividend reinvestment plan 34,861 71 168 239 Dividend reinvestment and stock purchase plan 63,690 126 188 314 Change in unrealized gain (loss) on securities available for sale (231) (231) Net income 1,641 1,641 BALANCE-SEPTEMBER 30, 1996 3,320,154 $ 6,640 $ 7,497 $ 5,109 $ (165) $ 19,081 See accompanying notes to condensed consolidated financial statements. WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) (Dollar amounts in thousands) 1996 1995 Operating activities: Net income $1,641 $1,737 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 668 1,990 Depreciation and amortization 464 357 Provision for other real estate owned 305 124 (Increase) in accrued interest receivable (102) (161) Realized gain on sale of securities (112) (98) Realized gain loss on sale of other real estate owned (3) (13) Realized gain loss on sale of loans (66) Realized (gain) loss on sale of equipment (17) 14 Increase in deferred taxes (484) (258) Increase in interest payable on deposits 2 67 (Increase) decrease in other assets 785 (107) Increase in other liabilities 51 691 Net cash provided by operating activities 3,132 4,343 Investing activities: Investments and mortgage-backed securities: Held to maturity: Purchases (7,579) (4,500) Proceeds from maturities and principal payments 4,802 5,847 Available for sale: Purchases (2,456) (11,638) Proceeds from sales 2,857 2,707 Proceeds from maturities 5,238 580 Purchases of premises and equipment (947) (531) Net (increase) decrease in loans (21,094) (8,413) Proceeds from sale of equipment 17 Proceeds from sale of other real estate owned 1,357 708 Net cash used in investing activities (17,805) (15,240) Financing activities: Net increase (decrease) in borrowings 817 (1,813) Net increase in deposits 25,615 18,710 Proceeds from exercise of stock options and stock purchase plan 553 299 Dividends paid (585) (474) Net cash provided by financing activities 26,400 16,722 Increase in cash and cash equivalents 11,727 5,825 Cash and cash equivalents at beginning of period 12,604 11,700 Cash and cash equivalents at end of period $24,331 $17,525 Cash paid during the year: Interest on deposits and other borrowings 6,458 6,348 Income taxes 997 Transfers of loans to other real estate owned 1,782 845 Sales of other real estate owned financed by the bank 667 341 See notes to consolidated financial statements. WESTBANK CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - GENERAL INFORMATION Westbank Corporation (hereinafter sometimes referred to as "Westbank" 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. Substantially all operating income and net income of the Corporation are presently accounted for by Park West. NOTE B - CURRENT OPERATING ENVIRONMENT 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 losses at a level commensurate to the risk in the loan portfolio and correct other deficiencies. 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. Park West is currently in compliance with all the requirements of 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 September 30, 1996, 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 exists. 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. 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, the Board of Directors and management believe the Corporation is positioned to comply with the Memorandum as well as the requirements of FDICIA. NOTE C - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements for the third quarter ended September 30, 1996 and 1995 have been prepared in accordance with generally accepted accounting principles for interim information and with instructions for Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, please refer to the Consolidated Financial Statements and footnotes thereto included in the Westbank Corporation's Annual Report on Form 10-K for the year ended December 31, 1995. WESTBANK CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) NOTE D - CHANGES IN ACCOUNTING PRINCIPLES On January 1, 1996 the Bank adopted Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights". 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. The adoption of this statement did not have a material effect on the Bank's financial condition or results of its operations. NOTE E - NET INCOME PER SHARE Net earnings per share were computed by dividing net income by the weighted average number of shares of common stock outstanding and common stock equivalent shares arising from unexercised stock options. The weighted average of common stock and common stock equivalents for the periods ended September 30, 1996 and 1995, amounted to 3,379,961 and 3,254,913 shares, respectively. NOTE F - COMMITMENTS AND CONTINGENT LIABILITIES In the normal course of business, there are outstanding commitments and contingent liabilities, such as, standby letters of credit and commitments to extend credit. As of September 30, 1996 standby letters of credit amounted to $937,000 and loan commitments were $23,872,000 and unused balances available on home equity lines of credit were $7,913,000. Trust Assets - Assets with a book value of $106,247,000 at September 30, 1996 held for customers in a fiduciary or agency capacity, is not included in the accompanying balance sheet since such items are not assets of the Bank. NOTE G - STOCKHOLDERS' EQUITY The FDIC imposes leverage capital ratio requirements for state non-member Banks. The Bank's leverage capital ratio as of September 30, 1996 and December 31, 1995 was 6.92% and 6.87% respectively, which is above the leverage capital ratio required under the Memorandum. In addition, the FDIC has established risk-based capital requirements for insured institutions. Under those requirements, Tier 1 risk based capital must be at least 4% while total risk-based capital must be at a minimum of 8%. The Bank's Tier 1 risk-based capital was 9.86% on September 30, 1996 and total risk-based capital was 11.12%. WESTBANK CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Changes in Financial Condition - Total consolidated assets amounted to $281,640,000 on September 30, 1996, compared to $253,777,000 on December 31, 1995. As of September 30, 1996 and September 30, 1995, earning assets amounted to, respectively, $263,447,000 or 94% of total assets, and $246,296,000, or 94% of total assets. Earning assets increased during the first nine months of 1996 as a result of increases in securities, loans and temporary funds. Deposits originated from three newly opened supermarket branches provided the funds to support the increase in earning assets. During the first three months of 1996, the Corporation securitized approximately $3.6 million of residential mortgages into mortgage-backed securities, are catagorized as investment securities available for sale. During the first quarter, the Corporation also sold approximately $3 million of mortgage-backed securities resulting in a gain of $112,000. Changes in Results of Operations - For the quarter ended September 30, 1996 net income totaled $573,000 compared to $335,000 for the three month period ended September 30, 1995. For the nine months ended September 30, 1996, net income was $1,641,000 compared to $1,737,000 for the same period during 1995. For the nine months ended September 30, 1996, the Corporation recorded tax expense totaling $1,200,000 versus $573,000 during 1995. The lower tax expense during 1995 was a result of a decrease in the valuation reserve pertaining to deferred tax assets. A slight decrease in net interest income for the period ended September 30, 1996 reflects an increase in volume and decreases in interest rates on earning assets and interest-bearing deposits. Further analysis is provided in sections on net interest revenue and supporting schedules. Allowance for Loan Losses and Non-Performing Assets - A significant decrease has been reflected in the provision for loan losses in the current quarter with $176,000 being provided compared to $1,190,000 in the quarter ending September 30, 1995. For the nine month period ended September 30, 1996 the provision for loan losses declined by $1,322,000 compared to the same period one year ago. After giving effect to the actions described above, the allowance for loan losses at September 30, 1996 totalled $2,735,000 or 1.27% of total loans, as compared to $3,707,000 or 1.84% at December 31, 1995. Non-performing past due loans at September 30, 1996 aggregated $2,710,000 or 1.26% of total loans compared to $6,896,000 or 3.43% at December 31, 1995. The percentage of non-performing and past due loans compared to total assets on those same dates, respectively, amounted to 0.96% and 2.71%. The change in non-performing loans was primarily the result of the sale of a pool of non-performing loans which resulted in net proceeds to the Corporation of approximately $2,000,000 and continued improvement in the overall loan portfolio. Other real estate owned decreased by $507,000 compared to December 31, 1995. The percentage of other real estate owned to total assets as of September 30, 1996 and December 31, 1995 amounted to 0.28% and 0.51%, respectively. Management has made every effort to recognize all circumstances known at this time which could affect the collectibility of loans and has reflected these in establishing the provision for loan losses, the writing down of other real estate owned and impaired loans to fair value and other loans (watch list) monitored by management, the charge-off of loans and the balance in the allowance for loan losses. Management deems that the provision for the quarter, and the balance in the allowance for loan losses, are adequate based on results provided by the grading system and circumstances known at this time. WESTBANK CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) NET INTEREST INCOME The Corporation's earning assets include a diverse portfolio of earning instruments ranging from the Corporation's core business of loan extensions to interest-bearing securities issued by federal, state and municipal authorities. These earning assets are financed through a combination of interest-bearing and interest-free sources. Net interest income, the most significant component of earnings, is the amount by which the interest generated by assets exceeds the interest expense on liabilities. The Corporation analyzes its performance by utilizing the concepts of interest rate spread and net yield on earning assets. The interest rate spread represents the difference between the yield on earning assets and interest paid on interest-bearing liabilities. The net yield on earning assets is the difference between the rate of interest on earning assets and the effective rate paid on all funds - interest-bearing liabilities, as well as, interest-free sources (primarily demand deposits and shareholders' equity). (Dollar amounts in thousands) QUARTER ENDED NINE MONTHS ENDED 09-30-96 09-30-95 09-30-96 09-30-95 Interest and divided income $5,190 $5,338 $15,195 $15,223 Interest expense 2,242 2,278 6,460 6,415 Net interest income $2,948 $3,060 $8,735 $8,808 INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS (Dollar amounts in thousands) QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 Average Average Average Average Balance Rate Balance Rate Balance Rate Balance Rate 		 			 	 		 	 		 				 Earning Assets $253,598 8.19% $242,367 8.81% $246,645 8.21% $236,079 8.60% Interest-bearing liabilities 207,888 4.31% 198,432 4.59% 200,749 4.29% 195,486 4.38% Interest rate spread 3.88% 4.22% 3.92% 4.22% Interest-free resources used to fund earning assets 45,710 43,935 45,896 40,593 Total Sources of Funds $253,598 3.54% $242,367 3.76% $246,645 3.49% $236,079 3.62% Net Yield on Earning Assets 4.65% 5.05% 4.72% 4.98% WESTBANK CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) CHANGES IN NET INTEREST INCOME (Dollar amounts in thousands) QUARTER ENDED 09-30-96 NINE MONTHS ENDED 09-30-96 O V E R O V E R QUARTER ENDED 09-30-95 NINE MONTHS ENDED 09-30-95 CHANGE DUE TO CHANGE DUE TO VOLUME RATE TOTAL VOLUME RATE TOTAL 						 				 Interest Income: Loans $348 $(425) $(77) $593 $(676) $(83) Securities (26) (7) (33) 52 3 55 Federal funds (33) (5) (38) 26 (26) 0 Total Interest Earned 289 (437) (148) 671 (699) (28) Interest Expense: Interest bearing deposits 79 (123) (44) 124 (58) 66 Other Borrowed Funds 19 (11) 8 34 (55) (21) Total Interest Expense 98 (134) (36) 158 (113) 45 Net Interest Income $191 $(303) $(112) $513 $(586) $(73) Net interest earned declined by $112,000 during the third quarter of 1996 compared to the third quarter of 1995. For the nine month period ended September 30, 1996 net interest income also declined by $73,000 versus the same period of 1995. Average earning assets increased by $10,566,000 during the first nine months of 1996. The average earning base was $246,645,000 compared to $236,079,000 in the same period last year. OPERATING EXPENSES The components of total operating expenses for the periods and their percentage of gross income are as follows: (Dollar amounts in thousands) QUARTER ENDED NINE MONTHS ENDED 09-30-96 09-30-95 09-30-96 09-30-95 Amount Percent Amount Percent Amount Percent Amount Percent 		 		 	 				 				 Salaries and benefits $1,049 18.50% $844 14.20% $3,129 18.60% $2,745 16.30% Other real estate - expense 169 3.00 16 0.30 389 2.30 336 2.00 Other non-interest expense 829 14.60 754 12.70 2,688 16.00 2,542 15.10 Occupancy - net 220 3.80 166 2.80 664 3.90 519 3.00 Total Operating Expenses $2,267 39.90% $1,780 30.00% $6,870 40.80% $6,142 36.40% For the nine month period operating expenses increased by approximately $727,000 primarily the result of the addition of three new branch offices opened late in 1995 and early 1996. WESTBANK CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) CAPITAL RATIOS September 30, 1996 1995 Ratio of "Tier 1" leverage capital to total assets at end of period 6.77% 6.51% Regulatory risk-based capital requirements take into account the different risk categories of banking organizations by assigning risk weights to assets and the credit equivalent amounts of off-balance sheet exposures. In addition, capital is divided into two tiers. For this Corporation, Tier 1 includes the common stockholders' equity; Tier 2, or supplementary capital, includes not only the equity, but also, a portion of the allowance for loan losses. Net unrealized gain/(losses) on securities available for sale are not permitted to be included for regulatory capital purposes. The following are the Corporation's risk-based capital ratios at September 30, 1996: Tier 1 Capital (minimum required 4.00%) 10.20% Tier 2 Capital (minimum required 8.00%) 11.45% INTEREST RATE SENSITIVITY The following table sets forth the distribution of the repricing of the Corporation's earning assets and interest bearing liabilities as of September 30, 1996. (Dollar amounts in thousands) Three Over Three Over One Over Months Months to Year to Five or Less One Year Five Years Years Total 	 		 	 		 Earning Assets $62,025 $38,564 $83,822 $79,036 $263,447 Interest Bearing Liabilities 67,350 72,456 74,962 2 214,770 Interest Rate Sensitivity Gap $(5,325) $(33,892) $8,860 $79,034 $48,677 Cumulative Interest Rate Sensitivity Gap $(5,325) $(39,217) $(30,357) $48,677 Interest Rate Sensitivity Gap Ratio (2.02)% (12.86)% 3.36% 30.00% Cumulative Interest Rate Sensitivity Gap Ratio (2.02)% (14.88)% (11.52)% 18.48% WESTBANK CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) LIQUIDITY Cash and due from banks, federal funds sold, investment securities, mortgage-backed securities and loans available for sale, as compared to deposits and short term liabilities, are used by the Corporation to compute its liquidity on a daily basis. At September 30, 1996, the Corporation's ratio of such assets to total deposits and borrowed funds was 18.55%. PROVISION AND ALLOWANCE FOR LOAN LOSSES (Dollar amounts in thousands) QUARTER ENDED NINE MONTHS ENDED 09-30-96 09-30-95 09-30-96 09-30-95 Balance at beginning of period $2,647 $3,005 $3,707 $3,325 Provision charged to expense 176 1,190 668 1,990 2,823 4,195 4,375 5,315 Charge-offs: Loans secured by real estate 77 361 1,787 1,257 Commercial and industrial loans 45 7 134 211 Consumer loans 11 20 68 105 Lease financing receivables 5 133 388 1,989 1,578 Recoveries: Loans secured by real estate 39 14 328 24 Commercial and industrial loans 2 1 4 42 Consumer loans 4 12 16 28 Lease financing receivables 2 1 5 45 29 349 99 Net charge-offs 88 359 1,640 1,479 Balance at end of period $2,735 $3,836 $2,735 $3,836 Net Charge-offs to: Average loans .04% .18% .80% .75% Loans at end of period .04% .18% .76% .73% Allowance for loan losses 3.22% 9.36% 59.96% 38.56% Allowance for loan losses as a percentage of: Average loans 1.28% 1.93% 1.33% 1.95% Loans at end of period 1.27% 1.89% 1.27% 1.89% The approach the Corporation uses in determining the adequacy of the allowance for loan losses is the combination of a target reserve and a general reserve allocation. Quarterly, based on an internal review of the loan portfolio, the Corporation identifies required reserve allocations targeted to recognized problem loans that, in the opinion of management, have potential loss exposure or questions relative to the depth of the collateral on these same loans. In addition, the Corporation allocates a general reserve against the remainder of the loan portfolio. WESTBANK CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS (Dollar amounts in thousands) 09-30-96 06-30-96 03-31-96 12-31-95 09-30-95 Non-Accrual Loans: Loans secured by real estate $1,910 $2,116 $3,172 $5,450 $2,124 Construction/Land development 10 19 464 353 361 Commercial and Industrial Loans 750 856 838 373 302 Consumer Loans 1 1 7 4 13 2,671 2,992 4,481 6,180 2,800 Loans Contractually past due 90 days or more still accruing: Loans secured by real estate 33 145 128 271 Commercial and Industrial Loans 6 43 20 135 118 Consumer Loans 20 14 16 39 43 185 277 405 Restructured Loans 78 437 439 442 Total non-accrual, past due and restructured loans $2,710 $3,113 $5,103 $6,896 $3,647 Non-accrual, past due and restructured loans as a percentage of total loans 1.26% 1.48% 2.61% 3.43% 1.80% Allowance for loan losses as a percentage of non accrual, past due and restructured loans 99.09% 85.03% 76.74% 53.76% 105.18% OTHER REAL ESTATE Other real estate owned - net $793 $1,303 $1,858 $1,300 $1,237 Total non-performing assets $3,503 $4,416 $6,961 $8,196 $4,884 Non-performing assets as a percentage of total assets 1.24% 1.64% 2.66% 3.23% 1.86% WESTBANK CORPORATION AND SUBSIDIARIES QUARTERLY TO DATE AVERAGE BALANCES INTEREST EARNED - INTEREST EXPENSE (Dollar amounts in thousands) FOR THE QUARTER ENDED FOR THE QUARTER ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 Balance Interest Rate Balance Interest Rate Federal Funds sold and temporary investments $2,547 $31 4.87% $5,294 $69 5.21% Securities 37,245 630 6.76 38,803 663 6.83 Loans/leases 213,806 4,529 8.47 198,270 4,606 9.30 Total earning assets 253,598 $5,190 8.19 242,367 $5,338 8.81 Loan loss allowance (2,701) (3,366) All other assets 19,430 18,986 TOTAL ASSETS $270,327 $257,987 LIABILITIES AND EQUITY Interest bearing deposits $198,865 $2,174 4.37 $191,828 $2,218 4.62 Borrowed funds 9,023 68 3.01 6,604 60 3.63 Total interest bearing liabilities 207,888 $2,242 4.31 198,432 $2,278 4.59 Interest rate spread 3.88% 4.22% Demand deposits 42,646 41,062 Other liabilities 1,091 1,471 Shareholders' equity 18,702 17,022 TOTAL LIABILITIES AND EQUITY $270,327 $257,987 NET INTEREST INCOME $2,948 $3,060 Interest Earned/Earning Assets 8.19% 8.81% Interest Expense/Earning Assets 3.54 3.76 Net Yield on Earning Assets 4.65% 5.05% WESTBANK CORPORATION AND SUBSIDIARIES YEAR TO DATE AVERAGE BALANCES INTEREST EARNED - INTEREST EXPENSE (Dollar amounts in thousands) NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 Balance Interest Rate Balance Interest Rate 				 	 	 		 	 Federal Funds sold and temporary investments $4,624 $181 5.21% $4,527 $181 5.33% Securities 36,361 1,792 6.57 34,771 1,737 6.67 Loans/leases 205,660 13,222 8.57 196,781 13,305 9.02 Total earning assets 246,645 $15,195 8.21 236,079 $15,223 8.60 Loan loss allowance (3,369) (3,165) All other assets 19,285 18,865 TOTAL ASSETS $262,561 $251,779 LIABILITIES AND EQUITY Interest bearing deposits $192,074 $6,268 4.35 $188,327 $6,201 4.39 Borrowed funds 8,675 192 2.95 7,159 214 3.99 Total interest bearing liabilities 200,749 $6,460 4.29 195,486 $6,415 4.38 Interest rate spread 3.92% 4.22% Demand deposits 42,436 38,752 Other liabilities 1,098 1,060 Shareholders' equity 18,278 16,481 TOTAL LIABILITIES AND EQUITY $262,561 $251,779 NET INTEREST INCOME $8,735 $8,808 																			 Interest Earned/Earning Assets 8.21% 8.60% Interest Expense/Earning Assets 3.49 3.62 Net Yield on Earning Assets 4.72% 4.98% WESTBANK CORPORATION AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - None ITEM 2. Changes in Rights of Securities Holders - None ITEM 3. Defaults by Company on its Senior Securities - None ITEM 4. Results of Votes on Matters Submitted to a Vote of Security Holders - None ITEM 5. Other Events Information Concerning Forward-Looking Statements. Westbank has made and may make in the future forward looking statements concerning future performance, including but not limited to future earnings, and events or conditions which may affect such future performance. These forward looking statements are based upon management's expectations and belief concerning possible future developments and the potential effect of such future developments on Westbank. There is no assurance that such future developments will be in accordance with management's expectations and belief or that the effect of any future developments on Westbank will be those anticipated by Westbank management. All assumptions that form the basis of any forward looking statements regarding future performance, as well as events or conditions which may affect such future performance, are based on factors that are beyond Westbank's ability to control or predict with precision, including future market conditions and the behavior of other market participants. Among the factors that could cause actual results to differ materially from such forward looking statements are the following: 1. The status of the economy in general, as well as in Westbank's prime market area, Western Massachusetts; 2. The recovery of the real estate market in Western Massachusetts; 3. Competition in Westbank's prime market area from other banks, especially in light of continued consolidation in the New England banking industry. 4. Any changes in federal and state bank regulatory requirements; 5. Changes in interest rates; and 6. The cost and other effects of unanticipated legal and administrative cases and proceedings, settlements and investigations. While Westbank periodically reassesses material trends and uncertainties affecting the Corporation's performance in connection with is preparation of management's discussion and analysis of results of operations and financial condition contained in its quarterly and annual reports, Westbank does not intend to review or revise any particular forward looking statement in light of future events. ITEM 6. Exhibits and Reports on Form 8 - None WESTBANK CORPORATION AND SUBSIDIARIES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized. WESTBANK CORPORATION Date: November 12, 1996 Donald R. Chase President and C.E.O. Date: November 12, 1996 John M. Lilly Treasurer and C.F.O.