1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
Commission file number 0 - 12784
WESTBANK CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2830731
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer I.D. No.)
225 PARK AVENUE, WEST SPRINGFIELD, MASSACHUSETTS 01090-0149
(Address of principal executive offices) (Zip Code)
(413) 747-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Common stock, par value $2.00 per share: 4,208,907 shares outstanding
as of July 31, 2000
2
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 Comprehensive Income 5
Condensed Consolidated Statements of Stockholders' Equity 6
Condensed Consolidated Statements of Cash Flows 7
Notes to Condensed Consolidated Financial Statements 8-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-17
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Rights of Securities Holders 18
ITEM 3. Defaults by Company on its Senior Securities 18
ITEM 4. Results of Votes on Matters Submitted
to a Vote of Security Holders 18
ITEM 5. Other Events 18
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
3
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands) June 30, 2000 December 31, 1999
- ----------------------------- ------------- -----------------
ASSETS
Cash and due from banks:
Non-interest bearing $ 16,118 $ 17,006
Interest bearing 572 1,147
Federal funds sold 1,426 13,389
--------- ---------
Total cash and cash equivalents 18,116 31,542
--------- ---------
Investment securities available for sale 87,751 69,516
Investment securities held to maturity
(fair value of $11,250 in 2000 and $11,472 in 1999) 11,596 11,804
--------- ---------
Total securities 99,347 81,320
--------- ---------
Loans 447,527 440,319
Mortgage loans held-for-sale 2,042 2,156
Allowance for loan losses (3,896) (3,908)
--------- ---------
Net loans 445,673 438,567
Bank premises and equipment 7,484 7,809
Other real estate owned 672 442
Accrued interest receivable 3,848 3,243
Intangible assets 9,685 9,971
Other assets 4,729 3,256
--------- ---------
TOTAL ASSETS $ 589,554 $ 576,150
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 58,168 $ 59,643
Interest bearing 428,924 419,253
--------- ---------
Total Deposits 487,092 478,896
Borrowed funds 50,742 46,546
Accrued interest payable 569 732
Other liabilities 2,396 1,433
--------- ---------
Total Liabilities 540,799 527,607
--------- ---------
Mandatory redeemable preferred stock 17,000 17,000
--------- ---------
Stockholders' Equity:
Common stock - $2.00 par value
Authorized - 9,000,000 shares
Issued - 4,192,882 shares in 2000 and
4,283,719 shares in 1999 8,567 8,567
Additional paid in capital 11,638 11,633
Retained earnings 14,445 13,317
Treasury stock (799)
Accumulated other comprehensive income (loss) (2,096) (1,974)
--------- ---------
Total Stockholders' Equity 31,755 31,543
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 589,554 $ 576,150
========= =========
See accompanying notes to condensed consolidated financial statements.
3
4
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
6-30-00 06-30-99 06-30-00 06-30-99
------- -------- -------- --------
Income:
Interest and fees on loans $8,815 $6,504 $17,507 $12,533
Interest on federal funds sold 28 35 96 73
Interest on securities 1,723 1,114 3,246 2,390
------ ------ ------- -------
10,566 7,653 20,849 14,996
Interest expense 5,665 3,481 10,960 6,806
------ ------ ------- -------
Net interest income 4,901 4,172 9,889 8,190
Provision for loan losses 75 2 140 77
------ ------ ------- -------
Net interest income after provision 4,826 4,170 9,749 8,113
------ ------ ------- -------
Investment security gains 92
Other non-interest income 606 492 1,184 1,018
------ ------ ------- -------
Total non-interest income 606 492 1,184 1,110
------ ------ ------- -------
Operating expense:
Salaries and benefits 1,920 1,470 3,962 2,967
Other operating expenses 1,509 1,163 3,189 2,273
Occupancy - net 332 306 686 614
------ ------ ------- -------
Total operating expenses 3,761 2,939 7,837 5,854
------ ------ ------- -------
Income before income taxes 1,671 1,723 3,096 3,369
Income taxes 592 652 1,116 1,277
------ ------ ------- -------
Net Income $1,079 $1,071 $ 1,980 $ 2,092
====== ====== ======= ========
Earnings per share
- Basic $0.26 $0.25 $0.47 $0.50
- Diluted $0.25 $0.25 $0.46 $0.48
Weighted average shares outstanding
- Basic 4,204,822 4,225,943 4,238,753 4,218,407
- Dilutive option shares 50,042 94,132 54,018 118,172
- Diluted 4,254,864 4,320,075 4,292,771 4,336,579
See accompanying notes to condensed consolidated financial statements.
4
5
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-00 06-30-99 06-30-00 06-30-99
-------- -------- -------- --------
Net Income $ 1,079 $ 1,071 $ 1,980 $ 2,092
------- ------- ------- -------
Other comprehensive income:
Unrealized gain/(loss) on securities
available for sale, net of income
taxes (benefits) of $9 and $(481) for the
quarter and $(75) and $(733) for
the six-month periods ended June 30, 2000
and 1999, respectively 16 (785) (122) (1,196)
Reclassification adjustment for
gains included in net income,
net of income taxes of $35 for
the six-month period ended
June 30, 1999 57
------- ------- ------- -------
Other comprehensive income (loss) 16 (785) (122) (1,139)
------- ------- ------- -------
Comprehensive Income $ 1,095 $ 286 $ 1,858 $ 953
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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6
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999 AND SIX MONTHS ENDED JUNE 30, 2000
(2000 unaudited)
(Dollar amounts in thousands)
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
NUMBER PAR PAID IN RETAINED TREASURY INCOME/
OF SHARES VALUE CAPITAL EARNINGS STOCK (LOSS) TOTAL
BALANCE - DECEMBER 31, 1998 4,198,838 $8,397 $11,076 $10,803 $ 214 $30,490
Net income 4,167 4,167
Cash dividend declared
($.40 per share) (1,653) (1,653)
Shares issued:
Stock Option Plan 30,255 61 78 139
Dividend Reinvestment
and Stock Purchase Plan 54,626 109 479 588
Changes in unrealized loss on
securities available for sale (2,188) (2,188)
--------- ------ ------- ------- ------ ------- -------
BALANCE - DECEMBER 31, 1999 4,283,719 8,567 11,633 13,317 (1,974) 31,543
Net income 1,980 1,980
Cash dividend declared
($.20 per share) (852) (852)
Treasury Shares:
Redeemed (123,200) $(1,097) (1,097)
Reissued 32,363 5 298 303
Changes in unrealized loss on
securities available for sale (122) (122)
--------- ------ ------- ------- ------ ------- -------
BALANCE - JUNE 30, 2000 4,192,882 $8,567 $11,638 $14,445 $ (799) $(2,096) $31,755
========= ====== ======= ======= ====== ======= =======
See accompanying notes to condensed consolidated financial statements.
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WESTBANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
(Dollar amounts in thousands)
2000 1999
Operating activities:
Net income $ 1,980 $ 2,092
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 140 77
Depreciation and amortization 525 471
Intangible amortization 286
Realized gain on sale of securities (92)
Realized gain on sale of other real estate owned 19
Increase in accrued interest receivable (605) (144)
Increase in other assets (1,473) (618)
Increase/(Decrease) in interest payable on deposits (163) 41
Increase/(Decrease) in other liabilities 1,186 (784)
-------- --------
Net cash provided by operating activities 1,876 1,062
-------- --------
Investing activities:
Investments and mortgage-backed securities:
Held to maturity:
Purchases (1,050)
Proceeds from maturities and principal payments 208 19,106
Available for sale:
Purchases (19,366) (20,686)
Proceeds from sales 4,679
Proceeds from maturities 878 10,307
Purchases of premises and equipment (200) (530)
Net (increase)/decrease in loans (7,423) (44,417)
Proceeds from sale of other real estate owned 78 381
-------- --------
Net cash used in investing activities (25,825) (32,210)
-------- --------
Financing activities:
Net increase in borrowed funds 3,973 4,250
Net increase in deposits 8,196 27,817
Proceeds from exercise of stock options and stock purchase plan 324
Treasury stock (purchased)/issued, net (794)
Dividends paid (852) (801)
-------- --------
Net cash provided by financing activities 10,523 31,590
-------- --------
Increase/(Decrease) in cash and cash equivalents (13,426) 442
Cash and cash equivalents at beginning of period 31,542 14,240
-------- --------
Cash and cash equivalents at end of period $ 18,116 $ 14,682
======== ========
Cash paid during the period:
Interest on deposits and other borrowings $ 11,123 $ 6,765
Income taxes 1,147 1,191
Supplemental disclosure of cash flow information:
Transfers of loans to other real estate owned 308
See accompanying notes to condensed consolidated financial statements.
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WESTBANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER AND SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(Unaudited)
NOTE A - GENERAL INFORMATION
Westbank Corporation (hereinafter sometimes referred to as "Westbank" or the
"Corporation") is a registered Financial Holding Company organized to facilitate
the expansion and diversification of the business of Park West Bank and Trust
Company and Cargill Bank (hereinafter sometimes referred to as "Park West" or
"Cargill" and collectively as the "Banks") into additional financial services
related to banking. Substantially all operating income and net income of the
Corporation are presently accounted for by Park West and Cargill.
NOTE B - CURRENT OPERATING ENVIRONMENT
Park West operates thirteen banking offices located in Hampden County,
Massachusetts, 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 is furnished to individuals, businesses and
non-profit organizations. Cargill Bank operates five offices in Windham County,
Connecticut. A full range of retail banking services is furnished to
individuals, businesses and non-profit organizations. The primary source of
revenue for Park West and Cargill is derived from providing loans to customers
who are predominantly located in Park West's and Cargill's service areas.
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 that can apply to a financial institution. As of June 30, 2000,
Park West and Cargill's capital was at a level that placed the Banks 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.
NOTE C - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for the
quarter and six months ended June 30, 2000 and 1999 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 or normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the quarter and six-month
period ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000.
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, 1999.
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9
NOTE D - ACQUISITION OF BRANCHES
On October 29, 1999, the Corporation completed its acquisition of the
Connecticut division of New London Trust, F.S.B. The two New London Trust
offices became part of Cargill Bank, increasing its number of offices to five.
The Corporation has accounted for this acquisition on the purchase method,
including the results of their operations since October 29, 1999. The intangible
assets are being amortized over fifteen (15) years.
The pro forma results of operations for the quarter and six months ended June
30, 1999, as if this acquisition had occurred at the beginning of 1999, were as
follows:
Quarter Six Months
------- ----------
Net interest income $5,032 $9,910
Net income $1,072 $2,094
Basic earnings per share $0.25 $0.50
Diluted earnings per share $0.25 $0.48
NOTE E - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments and
contingent liabilities, such as standby letters of credit and commitments to
extend credit. As of June 30, 2000, standby letters of credit amounted to
$764,000 and loan commitments were $28,497,000 and unused balances available on
home equity lines of credit were $11,966,000.
Trust Assets - Property with a book value of $115,858,000 at June 30, 2000 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 F - STOCKHOLDERS' EQUITY
The FDIC imposes leverage capital ratio requirements for state non-member banks.
In addition, the FDIC has established risk-based capital requirements for
insured institutions for Tier 1 risk-based capital of 4.00% and total risk-based
capital of 8.0%.
The capital ratios of Park West and Cargill as of June 30, 2000 were as follows:
Park West Bank
and Trust Company Cargill Bank
----------------- ------------
Leverage Capital Ratio 7.34% 5.92%
Tier 1 Risk-Based Capital 10.77% 10.95%
Total Risk-Based Capital 11.64% 12.20%
As of June 30, 2000, both Park West and Cargill met the criteria which
classified them as well capitalized financial institutions.
9
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
Total consolidated assets amounted to $589,554,000 on June 30, 2000, compared to
$576,150,000 on December 31, 1999. As of June 30, 2000 and June 30, 1999,
earning assets amounted to, respectively, $550,914,000 or 93% of total assets
and $538,331,000 or 93% of total assets. Earning assets increased during the
first six months of 2000 as a result of an increase in loans and investments.
Deposits originated throughout the Corporation's branch system and short-term
borrowings with the Federal Home Loan Banks funded the growth in assets.
Changes in Results of Operations
For the quarter ended June 30, 2000, net income totaled $1,079,000, compared to
$1,071,000 for the quarter ended June 30, 1999. For the six months ended June
30, 2000, net income was $1,980,000, compared to $2,092,000 for the same period
during 1999. Included in the results for the six months ended June 30, 2000 were
approximately $230,000 in expenses related to the integration of the branch
acquisition in northeast Connecticut.
An overall increase in interest income and interest expense reflects an increase
in volume and interest rates on earning assets and an increase in volume and
increase in rates on interest-bearing liabilities. Further analysis is provided
in sections on net interest revenue and supporting schedules.
Allowance for Loan Losses and Non-Performing Assets
The Corporation's provision for loan losses in the current quarter was $75,000,
compared to $2,000 for the same period in 1999. Loans written off against the
allowance for loan losses after recoveries amounted to $152,000 for the six
months ended June 30, 2000.
After giving effect to the actions described above, the allowance for loan
losses at June 30, 2000, totaled $3,896,000 or .87% of total loans, as compared
to $3,908,000 or .87% at December 31, 1999.
Non-performing past due loans at June 30, 2000, aggregated $1,469,000 or .33% of
total loans, compared to $2,439,000 or .55% at December 31, 1999. The percentage
of non-performing and past due loans compared to total assets on those same
dates, respectively, amounted to .25% and .42%. The change in non-performing
loans was primarily the result of the sale of a pool of classified loans during
the first quarter of the year.
Other real estate owned at June 30, 2000, totaled $672,000 and stands at .11% of
total assets at the end of the current quarter.
Management has made every effort to recognize all circumstances known at this
time that could affect the collectibility of loans and has reflected these in
the provision for loan losses, the write-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
loan grading system and circumstances known at this time.
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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).
The balances and rates derived for the analysis of net interest income presented
on the following pages reflect the consolidated assets and liabilities of the
Corporation's principal earning subsidiaries, Park West Bank and Trust Company
and Cargill Bank.
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-00 06-30-99 06-30-00 06-30-99
-------- -------- -------- --------
Interest and dividend income $10,566 $ 7,653 $20,849 $14,996
Interest expense 5,665 3,481 10,960 6,806
------- ------- ------- -------
Net interest income $ 4,901 $ 4,172 $ 9,889 $ 8,190
======= ======= ======= =======
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands)
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ---- ------- ----
Earning Assets $542,974 7.81% $403,316 7.59% $537,227 7.79% $394,995 7.59%
-------- ---- -------- ---- -------- ---- -------- ----
Interest-bearing
liabilities 485,124 4.67 338,717 4.11 479,918 4.57 331,640 4.10
-------- ---- -------- ---- -------- ---- -------- ----
Interest rate spread 3.14 3.48 3.22 3.49
-------- ---- -------- ---- -------- ---- -------- ----
Interest-free resources
used to fund
earning assets 57,850 64,599 57,309 63,355
-------- ---- -------- ---- -------- ---- -------- ----
Total Sources of Funds $542,974 $403,316 $537,227 $394,995
======== ==== ======== ==== ======== ==== ======== ====
Net Yield on Earning Assets 3.64% 4.14% 3.71% 4.15%
======== ==== ======== ==== ======== ==== ======== ====
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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 06-30-00 SIX MONTHS ENDED 06-30-00
OVER OVER
QUARTER ENDED 06-30-99 SIX MONTHS ENDED 06-30-99
CHANGE DUE TO CHANGE DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- ------ ---- -----
Interest Income:
Loans $2,219 $125 $2,344 $4,887 $148 $5,035
Securities 511 101 612 664 199 863
Federal funds (13) 6 (7) 23 23
----- --- ----- ----- --- -----
Total Interest Earned 2,717 232 2,949 5,551 370 5,921
----- --- ----- ----- --- -----
Interest Expense:
Interest-bearing deposits 1,204 225 1,429 2,404 293 2,697
Other borrowed funds 519 236 755 1,016 441 1,457
----- --- ----- ----- --- -----
Total Interest Expense 1,723 461 2,184 3,420 734 4,154
----- --- ----- ----- --- -----
Net Interest Income $ 994 $(229) $ 765 $2,131 $(364) $1,767
====== ===== ====== ====== ===== ======
Net interest earned on a tax equivalent basis increased by $765,000 during the
second quarter of 2000 compared to the second quarter of 1999. For the six-month
period ended June 30, 2000, net interest income increased by $1,767,000 versus
the same period of 1999.
Average earning assets increased by $142,232,000 during the first six months of
2000. The average earning base was $537,227,000 compared to $394,995,000 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:
(Dollars amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-00 06-30-99 06-30-00 06-30-99
-------- -------- -------- --------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
Salaries and benefits $1,920 17.19% $1,470 18.05% $3,962 17.98% $2,967 18.42%
Other non-interest expense 1,509 13.51 1,163 14.28 3,189 14.47 2,273 14.11
Occupancy - net 332 2.96 306 3.75 686 3.12 614 3.82
------ ----- ------ ----- ------ ----- ------ -----
Total Operating Expenses $3,761 33.66% $2,939 36.08% $7,837 35.57% $5,854 36.35%
====== ===== ====== ===== ====== ===== ====== =====
For the six-month period ended June 30, 2000, operating expenses increased by
approximately $1,983,000 over the 1999 period. The increase was a result of
increases in salary and benefits totaling $995,000, occupancy expense totaling
$72,000 and an increase in other non-interest expense of $916,000. The increases
are a direct result of the branch acquisition on October 29, 1999 and the
related staffing and acquisition costs.
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WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
CAPITAL RATIOS
06-30-00 06-30-99
-------- --------
Ratio of "Tier 1" leverage capital
to total assets at end of period 6.23% 7.34%
Regulatory risk-based capital requirements take into account the different risk
categories of banking organizations by assigning risk weight to assets and the
credit equivalent amounts of off-balance sheet exposures.
In addition, capital is divided into two tiers. For this Corporation, Tier 1
includes the common stockholders' equity. Tier 2, or supplementary capital,
includes not only the equity but, also, a portion of the allowance for loan
losses. Net unrealized gain/(losses) on securities available for sale are not
permitted to be included for regulatory capital purposes.
The following are the Corporation's risk-based capital ratios at June 30, 2000:
Tier 1 Capital (minimum required 4.00%) 9.46%
Tier 2 Capital (minimum required 8.00%) 12.03%
INTEREST RATE SENSITIVITY
The following table sets forth the distribution of the repricing of the
Corporation's earning assets and interest-bearing liabilities as of June 30,
2000.
(Dollar amounts in thousands)
Three Over Three Over One
Months Months to Year to Over
or Less One Year Five Years Five Years Total
------- -------- ---------- ---------- -----
Earning Assets $ 71,171 $ 59,513 $167,720 $252,510 $550,914
Interest-Bearing
Liabilities 169,429 145,100 165,137 17,000 496,666
------- ------- ------- ------ -------
Interest Rate
Sensitivity Gap $(98,258) $(85,587) $ 2,583 $235,510 $ 54,248
------- ------- ------- ------ -------
Cumulative Interest
Rate
Sensitivity Gap $(98,258) $(183,845) $(181,262) $ 54,248
Interest Rate
Sensitivity
Gap Ratio (17.84)% (15.54)% 0.47% 42.75%
Cumulative Interest
Rate Sensitivity
Gap Ratio (17.84)% (33.38)% (32.91)% 9.84%
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WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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. 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.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-00 06-30-99 06-30-00 06-30-99
-------- -------- -------- --------
Balance at beginning of period $3,820 $2,669 $3,908 $2,665
Provision charged to expense 75 2 140 77
------ ------ ------ ------
3,895 2,671 4,048 2,742
------ ------ ------ ------
Charge-offs:
Loans secured by real estate 138
Commercial and industrial loans 19 31 87
Consumer loans 15 22 24 40
------ ------ ------ ------
34 22 193 127
------ ------ ------ ------
Recoveries:
Loans secured by real estate 22 70 22 86
Commercial and industrial loans 9 9 15
Consumer loans 4 2 10 5
------ ------ ------ ------
35 72 41 106
------ ------ ------ ------
Net charge-offs (recoveries) (1) (50) 152 21
------ ------ ------ ------
Balance at end of period $3,896 $2,721 $3,896 $2,721
------ ------ ------ ------
Net charge-offs to:
Average loans .00% (.02)% .03% .01%
Loans at end of period .00% (.01)% .03% .01%
Allowance for loan losses .00% (1.84)% 3.90% .77%
Allowance for loan losses as a percentage of:
Average loans .88% .82% .88% .85%
Loans at end of period .87% .80% .87% .80%
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.
14
15
WESTBANK CORPORATION AND SUBSIDIARIES
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(Dollar amounts in thousands)
06-30-00 03-31-00 12-31-99 09-30-99 06-30-99
-------- -------- -------- -------- --------
Non-Accrual Loans $ 691 $ 996 $2,001 $ 658 $ 595
------ ------ ------ ------ ------
Loans contracturally past
due 90 days or more
and still accruing 778 381 438 357 245
------ ------ ------ ------ ------
Total non-accrual, past due
and restructured loans $1,469 $1,377 $2,439 $1,015 $ 840
------ ------ ------ ------ ------
Non-accrual, past due and
restructured loans as a
percentage of total loans .33% .31% .55% .29% .25%
------ ------ ------ ------ ------
Allowance for loan losses as a
percentage of non-accrual,
past due and restructured loans 265.21% 277.41% 160.23% 262.27% 323.93%
------ ------ ------ ------ ------
Other real estate owned - net $ 672 $ 512 $ 442 $ 84 $ 85
------ ------ ------ ------ ------
Total non-performing assets $2,141 $1,889 $2,881 $1,099 $ 925
------ ------ ------ ------ ------
Non-performing assets as a
percentage of total assets .36% .33% .50% .24% .21%
------ ------ ------ ------ ------
15
16
WESTBANK CORPORATION AND SUBSIDIARIES
QUARTER-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
JUNE 30, 2000 JUNE 30, 1999
Balance Interest Rate Balance Interest Rate
Federal funds sold and
temporary investments $ 1,933 $ 28 5.79% $ 2,849 $ 35 4.91%
Securities 96,242 1,726 7.17 67,374 1,114 6.61
Loans 444,799 8,848 7.96 333,093 6,504 7.81
------- ----- ---- ------- ----- ----
Total earning assets $542,974 $10,602 7.81% 403,316 $7,653 7.59%%
------- ----- ---- ------- ----- ----
Loan loss allowance (3,982) (2,746)
All other assets 39,708 22,916
------- ----- ---- ------- ----- ----
TOTAL ASSETS $578,700 $423,486
======= ===== ==== ======= ===== ====
LIABILITIES AND EQUITY
Interest-bearing deposits $424,377 $4,659 4.39% $313,686 $3,230 4.12%
Borrowed funds 60,747 1,006 6.62 25,031 251 4.01
------- ----- ---- ------- ----- ----
Total interest-bearing liabilities 485,124 5,665 4.67 338,717 $3,481 4.11
------- ----- ---- ------- ----- ----
Interest rate spread 3.14% 3.48%
Demand deposits 59,733 52,032
Other liabilities 2,672 1,617
Shareholders' equity 31,171 31,120
------- ----- ---- ------- ----- ----
TOTAL LIABILITIES
AND EQUITY $578,700 $423,486
======= ===== ==== ======= ===== ====
NET INTEREST INCOME $4,937 $4,172
======= ===== ==== ======= ===== ====
Interest Earned/Earning Assets 7.81% 7.59%
Interest Expense/Earning Assets 4.17 3.45
------- ----- ---- ------- ----- ----
Net Yield on Earning Assets 3.64% 4.14%
------- ----- ---- ------- ----- ----
Deduct Tax Equivalent Adjustment 36 0
------- ----- ---- ------- ----- ----
NET INTEREST INCOME $4,901 $4,172
======= ===== ==== ======= ===== ====
16
17
WESTBANK CORPORATION AND SUBSIDIARIES
YEAR-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Federal funds sold and
temporary investments $ 3,483 $ 96 5.51% $ 3,374 $ 73 4.33%
Securities 91,208 3,253 7.13 72,321 2,390 6.61
Loans 442,536 17,568 7.94 319,300 12,533 7.85
------- ------ ---- ------- ------ ----
Total earning assets 537,227 $20,917 7.79% 394,995 $14,996 7.59%
------- ------ ---- ------- ------ ----
Loan loss allowance (3,990) (2,714)
All other assets 39,298 22,766
------- ------ ---- ------- ------ ----
TOTAL ASSETS $572,535 $415,047
======= ======= ==== ======= ======= ====
LIABILITIES AND EQUITY
Interest-bearing deposits $419,341 $ 9,007 4.26% $306,696 $6,310 4.11%
Borrowed funds 60,577 1,953 6.45 24,944 496 3.98
------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities 479,918 10,960 4.57 331,640 $6,806 4.10
------- ------ ---- ------- ------ ----
Interest rate spread 3.22% 3.49%
Demand deposits 58,925 50,627
Other liabilities 2,517 1,782
Shareholders' equity 31,175 30,998
------- ------ ---- ------- ------ ----
TOTAL LIABILITIES
AND EQUITY $572,535 $415,047
======= ======= ==== ======= ======= ====
NET INTEREST INCOME $9,957 $8,190
======= ======= ==== ======= ======= ====
Interest Earned/Earning Assets 7.79% 7.59%
Interest Expense/Earning Assets 4.08 3.44
------- ------ ---- ------- ------ ----
Net Yield on Earning Assets 3.71% 4.15%
------- ------ ---- ------- ------ ----
Deduct Tax Equivalent Adjustment 68 0
------- ------ ---- ------- ------ ----
NET INTEREST INCOME $9,889 $8,190
======= ======= ==== ======= ======= ====
17
18
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
a. 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 that 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 that 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 areas of Western Massachusetts and
Northeastern Connecticut;
2. The real estate market in Western Massachusetts and
Northeastern Connecticut;
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 its 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
statements.
b. Registration on Form S-3
None.
c. Registration of Form S-8
None
18
19
ITEM 6. Exhibits and Reports on Form 8
a. Exhibits
EXHIBIT INDEX
Page No.
--------
3. Articles of Organization, as amended **
(a) Articles of Organization, as amended *
(b) By-Laws, as amended *
10. Material Contracts - None
27. Financial Data Schedule To be included
* Incorporated by reference to identically numbered exhibits
contained in Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988.
** Incorporated by reference to identically numbered exhibits
contained in Registrant's Annual Report on Form 10-K for the
year ended December 31, 1987.
b. Reports on Form 8-K - None
19
20
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: August 11, 2000
--------------------------------------
Donald R. Chase
President and Chief Executive Officer
Date: August 11, 2000
--------------------------------------
John M. Lilly
Treasurer and Chief Financial Officer
20