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NEW LONDON TRUST, F.S.B.
(CONNECTICUT DIVISION)
(ACQUIRED BY WESTBANK CORPORATION)
Statements of Assets Acquired and Liabilities
Assumed as of October 29, 1999 and Historical
Summary of Revenues and Operating Expenses for
the period from January 1, 1999 through October
29, 1999 and Independent Auditors' Report
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NEW LONDON TRUST, F.S.B. (CONNECTICUT DIVISION)
(ACQUIRED BY WESTBANK CORPORATION)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Westbank Corporation:
We have audited the accompanying Statements of Assets Acquired and Liabilities
Assumed as of October 29, 1999 and Historical Summary of Revenues and Operating
Expenses for the period from January 1, 1999 through October 29, 1999
(collectively, the "Statements") of New London Trust, F.S.B.'s - Connecticut
Division (acquired by Westbank Corporation from New London Trust F.S.B.). These
Statements are the responsibility of the Westbank Corporation's management. Our
responsibility is to express an opinion on these 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 Statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying Statements were prepared for inclusion in the Form 8-K of
Westbank Corporation on the basis of presentation as described in Note 1, and
are not intended to be a complete presentation of New London Trust F.S.B.'s
(Connecticut Division) assets, liabilities, revenue and expenses.
In our opinion, the Statements referred to above present fairly, in all material
respects, the assets and liabilities acquired as of October 29,1999 and the
gross revenues and operating expenses for the period from January 1, 1999
through October 29, 1999 of New London Trust, F.S.B.'s (Connecticut Division) on
the basis of presentation as described in Note 1, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
December 28, 1999
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NEW LONDON TRUST, F.S.B. (CONNECTICUT DIVISION)
(ACQUIRED BY WESTBANK CORPORATION)
STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
OCTOBER 29, 1999
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ASSETS
Cash and equivalents $ 18,792,726
Loans receivable (net of allowance for loan losses of
$1,667,740) 83,894,910
Other real estate owned (net of allowance for loss
of $57,050) 498,409
Premises and equipment, net 1,877,142
Accrued interest receivable and other assets 994,890
------------
TOTAL $106,058,077
============
LIABILITIES
Demand deposits $ 3,756,329
Savings deposits 16,949,694
NOW deposits 6,890,770
Money market deposits 7,964,434
Certificates of deposit 69,954,602
------------
Total deposits 105,515,829
Accrued interest payable and other liabilities 295,380
Advances from borrowers for taxes and insurance 246,868
Commitments and Contingencies (Note 6)
------------
TOTAL $106,058,077
============
The accompanying notes are an integral part of these Statements
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NEW LONDON TRUST, F.S.B. (CONNECTICUT DIVISION)
(ACQUIRED BY WESTBANK CORPORATION)
HISTORICAL SUMMARY OF REVENUES AND OPERATING EXPENSES
PERIOD FROM JANUARY 1, 1999 THROUGH OCTOBER 29, 1999
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INTEREST INCOME:
Loans receivable $ 5,682,716
Securities 973,767
-----------
Total interest income 6,656,483
INTEREST EXPENSE:
Deposits 3,791,729
-----------
NET INTEREST INCOME 2,864,754
PROVISION FOR LOAN LOSSES 192,000
-----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,672,754
-----------
NONINTEREST INCOME:
Service charges on deposit accounts 137,154
Loan servicing fees 73,396
Loss on sales of interest-earning assets, net (182,738)
Other 189,710
-----------
Total noninterest income 217,522
-----------
NONINTEREST EXPENSE:
Salaries and employee benefits 1,861,786
Occupancy 208,319
Equipment 195,711
FDIC deposit insurance premiums 21,278
Real estate foreclosure and holding costs 28,752
-----------
Total noninterest expense 2,315,846
-----------
NET HISTORICAL REVENUES AND OPERATING EXPENSES $ 574,430
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The accompanying notes are an integral part of these Statements
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NEW LONDON TRUST, F.S.B. (CONNECTICUT DIVISION)
(ACQUIRED BY WESTBANK CORPORATION)
NOTES TO STATEMENTS
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1. NATURE OF BUSINESS
Effective October 29, 1999, Westbank Corporation ("Westbank") through its
subsidiary Cargill Bank, acquired certain assets and assumed certain
deposits and other liabilities recorded at and allocated to banking
branches of New London Trust, F.S.B. ("NLT") located in Northeast
Connecticut ("Connecticut Division"), pursuant to an Acquisition Agreement
(the "Acquisition Agreement") dated April 12, 1999.
The accompanying Statements have been prepared from the books and records
of NLT for the purpose of presenting the assets and liabilities acquired
by Westbank, pursuant to the Acquisition Agreement, and historical
revenues and expenses of the operations of the Connecticut Division for
the period from January 1, 1999 through October 29, 1999.
Certain revenues and expenses reflected in the Historical Summary of
Revenues and Operating Expenses include allocations, which were based on
average net asset or liability balances and head count of personnel by
geographic location. These allocations include interest and dividend
income on investment securities, other non-interest income, salaries and
employee benefits, occupancy expenses and other miscellaneous expenses.
The allocations do not include income tax or the amortization of
intangibles. Management believes the foregoing allocations are reasonable;
however, the allocations are not necessarily indicative of the amounts
which would have been incurred on a stand-alone basis.
The financial information included herein may not necessarily reflect the
financial position and results of operations of the Connecticut Division
in the future, the effect of any fair value adjustments, exclude certain
disclosures due to the lack of information on a divisional basis or what
the financial position and results of operations the Connecticut Division
would have been had they been a separate, stand-alone entity.
NLT was a federally chartered savings bank. NLT originated commercial,
residential real estate and installment loans to its customers, with a
significant portion of those loans collateralized by real estate located
in its primary market areas, which included New Hampshire and Northeast
Connecticut. The inherent risk in this focus of operations is that as a
result of this concentration, the Connecticut Division could be adversely
impacted by declines in Northeast Connecticut's real estate and tourism
markets.
NLT was subject to regulation by the Office of Thrift Supervision ("OTS")
and the Federal Reserve Board. At periodic intervals, these regulators
examined NLT's financial condition as part of their legally prescribed
oversight function.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES - In preparing the Statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and revenues and expenses. Actual results could differ
significantly from those estimates. Estimates which are particularly
susceptible to significant changes in the near-term relate to the
determination of the allowance for loan losses and the valuation of
foreclosed real estate. In connection with the determination of the
allowance for loan losses and the valuation of foreclosed real estate,
independent appraisals were obtained for significant properties.
SECURITIES - Gains and losses on the sale of securities were recorded on
the trade date by specific identification of the security sold.
LOANS - Loans are stated at the principal amounts outstanding, less the
allowance for loan losses and net deferred loan origination fees. Interest
income on loans is recorded on the accrual basis. Loans were placed on
nonaccrual status when management believed that the borrower's financial
condition, after giving consideration to economic and business conditions
and collection efforts, was such that collection of interest or principal
was doubtful. When a loan was placed on nonaccrual status, all interest
previously accrued but not collected was reversed against the then
current-period interest income. Interest accruals were resumed on such
loans only when they were brought fully current with respect to interest
and principal, had performed on a sustained basis for a reasonable period
of time and when, in the judgment of management, the loans were estimated
to be fully collectible as to both principal and interest.
A loan was recognized as impaired when it was probable that principal
and/or interest were not collectible in accordance with the contractual
terms of the loan. When a loan was considered impaired, it was placed on
nonaccrual status. Income was recorded using the income recognition
principles outlined below. Measurement of impairment was based on the
present value of expected future cash flows discounted at the loan's
effective interest rate, or, at the loan's observable market price or the
fair value of the collateral, if the loan was collateral-dependent. Small
homogenous loans such as consumer loans and credit cards were not
separately reviewed for impaired status. These loans typically were for
maturities less than five years and required monthly payments. Separate
allocations of the allowance for loan losses were made based upon trends
and prior loss experience and composition of credit risk in these types of
loans. This evaluation was inherently subjective as it required material
estimates that may be susceptible to significant change.
If the fair value of the impaired loan was less than the related recorded
amount, a specific valuation allowance was established or, if the
impairment was considered to be permanent, a write-down was charged
against the allowance for loan losses.
LOAN ORIGINATION FEES - Loan origination fees and related direct loan
origination costs were offset and the resulting net amount was taken into
interest income as a loan yield adjustment over the estimated lives of the
related loans using a method which approximated the level-yield method.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses established
through a provision for loan losses charged to earnings represents the
amount which, in management's judgment, is necessary to absorb potential
losses on loans that may become uncollectible. The allowance is based on a
continuing review of the loan portfolio, past loss experience and current
economic conditions, which may affect the borrower's ability to pay. Loans
were charged against the allowance when determined to be uncollectible.
While management believes it used the best information available to
establish the allowance, future adjustments to the allowance may become
necessary if economic conditions differ substantially from the assumptions
used in making the evaluation. This evaluation is inherently subjective,
as it requires material estimates including the amounts and timing of
future cash flows expected to be received on impaired loans that may be
susceptible to significant change. In addition, various regulatory
agencies, as an integral part of their examination process, review the
allowance for loan losses. Such agencies may require additions to the
allowance based on judgments different from those of management.
Prior to foreclosure, the value of the loan was written down to the
appraised value of the underlying collateral, less costs to sell, by a
charge to the allowance for loan losses, if necessary.
OTHER REAL ESTATE OWNED - Other real estate owned includes properties
acquired through foreclosure. Foreclosed assets were carried at the lower
of the recorded investment in the defaulted loans, or the fair value of
the assets less estimated costs to sell. Losses at the date of transfer
were charged to the allowance for loan losses. Thereafter valuations were
periodically performed by management and an allowance for losses on real
estate was established by a charge to earnings if the carrying value of a
property exceeded its estimated net fair value.
The amounts Westbank ultimately recovers from such foreclosed real estate
could differ materially from the amounts used in arriving at the net
carrying value of the assets because of future market factors beyond
Westbank's control or changes in Westbank's strategy for recovering its
investment.
PREMISES AND EQUIPMENT - Premises and equipment were stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization
were provided on straight-line and various accelerated methods, computed
over the estimated useful lives of the assets which ranged from two to
twenty-five years. Expenditures for replacements or major improvements
were capitalized; expenditures for normal maintenance and repairs were
charged to earnings as incurred. Upon the sale or retirement of equipment,
the cost and accumulated depreciation and amortization were removed from
the respective accounts and any gain or loss was included in earnings.
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3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans are summarized as follows:
Commercial loans $ 3,495,047
Residential real estate mortgages 63,945,558
Commercial real estate mortgages 16,116,236
Installment loans 2,014,879
------------
85,571,720
Deferred loan origination fees (9,070)
Less allowance for loan losses (1,667,740)
------------
Loans, net $ 83,894,910
============
Changes in the allowance for loan losses are shown below:
Balance, beginning of year $ 1,759,384
Provision for loan losses 192,000
Loan recoveries, net of charge off and adjustments (283,644)
-----------
Balance, end of year $ 1,667,740
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For the period ended October 29, 1999, the recorded investments in loans
that are considered to be impaired amounted to approximately $1,163,000,
of which $1,074,000 were on a nonaccrual basis. The impaired loans do not
have a specific allowance for credit losses. The average recorded
investments in impaired loans during the period ended October 29, 1999
amounted to approximately $1,263,000.
4. OTHER REAL ESTATE OWNED
The carrying value of other real estate owned assets is summarized as
follows:
Other real estate owned $ 555,459
Valuation allowance (57,050)
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Total $ 498,409
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4. OTHER REAL ESTATE OWNED (CONTINUED)
Activity in the allowance for losses for real estate for the period ended
October 29 is as follows:
Balance, beginning of the year $ 69,242
Provision for losses --
(Charge-offs) recoveries, net (12,192)
--------
Balance, end of year $ 57,050
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5. PREMISES AND EQUIPMENT
Premises and equipment are summarized below:
Land, buildings and improvements $ 2,526,477
Equipment and fixtures 1,500,494
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4,026,971
Less accumulated depreciation and amortization (2,149,829)
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Premises and equipment, net $ 1,877,142
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Depreciation expense was $137,000 for the period ended October 29, 1999.
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6. COMMITMENTS AND CONTINGENCIES
NLT entered into commitments to extend credit in the normal course of
business in order to meet the financing needs of its customers. NLT's
exposure to loss in the event of nonperformance by the other party for
commitments to extend credit was represented by the contractual notional
amount of those instruments. NLT used the same credit policies in making
commitments as it did for on-balance sheet instruments. Commitments to
extend credit were agreements to lend to a customer as long as there was
no violation of any condition established in the contract. Commitments
generally had fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments were expected to
expire without being drawn upon, the total commitment amounts did not
necessarily represent future cash requirements. NLT evaluated each
customer's creditworthiness on a case-by-case basis. Substantially all of
NLT's commitments to extend credit were generally collateralized by real
estate mortgages, if funded.
NLT was also subject to various claims and legal actions in the ordinary
course of business. In the opinion of management, the resolution of any
such matters did not have a material effect on the Statements.
* * * * * * *
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