1
WESTBANK CORPORATION
2000 ANNUAL REPORT
A YEAR OF TRANSITION
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TABLE OF CONTENTS
1 Financial Highlights
2 Letter to Shareholders
4 Business - Westbank Corporation and Subsidiaries
5 Selected Consolidated Financial Data
6 Management's Discussion and Analysis - Financial Results
20 Consolidated Balance Sheets
21 Consolidated Statements of Income
22 Consolidated Statements of Stockholders' Equity
22 Consolidated Statements of Comprehensive Income
23 Consolidated Statements of Cash Flows
24 Notes to Consolidated Financial Statements
43 Independent Auditors' Reports
44 Corporate Directory
IBC Corporate Information
ON THE COVER
The road to success is often a winding one. But with a sound
strategic plan, a highly capable management team and a
dedicated staff of employees, Westbank Corporation is prepared
to continue its journey into the 21st century.
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FINANCIAL HIGHLIGHTS
Westbank Corporation and Subsidiaries
FOR THE YEAR ENDED DECEMBER 31
(Dollars in Thousands) 2000 1999 1998
- - ---------------------- ---- ---- ----
Net income $ 3,788 $ 4,167 $ 3,377
Net interest income 19,417 17,121 15,339
Non-interest income 2,652 2,330 2,427
Non-interest expense 15,841 12,598 12,200
Provision for loan losses 472 77 41
YEAR END DECEMBER 31
(Dollars in Thousands)
- - ----------------------
Investments $ 97,676 $ 81,320 $ 84,328
Loans, net 429,231 438,567 293,113
Allowance for loan losses 3,670 3,908 2,665
Total assets 574,596 576,150 402,623
Total deposits 499,140 478,896 342,267
Total stockholders' equity 34,860 31,543 30,490
COMMON SHARE INFORMATION
Basic weighted average
shares outstanding 4,229,105 4,244,402 4,143,009
Basic earnings per share $ .90 $ .98 $ .82
GROWTH IN ASSETS, LOANS AND DEPOSITS BAR CHART
(Dollars in thousands)
Assets Loans Deposits
------ ----- --------
1996 $331,803 $254,948 $298,014
1997 355,567 268,254 314,679
1998 402,623 293,113 342,267
1999 576,150 438,567 478,896
2000 574,596 429,231 499,140
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CHAIRMAN AND PRESIDENT'S LETTER
WESTBANK CORPORATION AND SUBSIDIARIES
By all accounts, 2000 was a year unlike any other -- especially from a business
perspective. It began with the infamous Y2K scare, saw the meteoric rise and
shake-up of the dot com industry and featured a controversial presidential
election that had to be decided in the U.S. Supreme Court. Even the economy,
vibrant and robust in the fourth quarter of 1999, began to exhibit signs of a
slowdown. All in all, it was a year of change -- a year of transition.
For us, 2000 was also a year of transition. While some might consider this a
clever spin on our financial performance, it is, in fact, an appropriate analogy
for a number of reasons. We completed the integration of our Cargill Bank
franchise. We endured a sustained period of high interest rates that had a
direct impact on our residential and commercial mortgage portfolios. And we saw
eroding consumer confidence and falling stock prices begin to take their toll on
the local economy.
As is often the case with a major acquisition, a significant dedication of
resources was required to bring the Cargill Bank franchise in line with our
corporate objectives. While we are now solidly positioned for future growth, a
number of critical initiatives had to be implemented. We restructured the
management team and replaced key personnel in a number of branches. We
consolidated the number of Cargill Bank branch offices from five to four to
reduce costs and increase our operating efficiency. We streamlined the Cargill
Bank product line to better match that of our Park West Bank and Trust Company
subsidiary. As a result of these initiatives, we absorbed $250,000 in
non-recurring expenses and amortized $683,000 in goodwill associated with the
merger.
2000 was also a challenging year for residential and commercial lending. A high
interest rate environment, slowing economy and eroding consumer confidence
resulted in lower than expected loan volume in our residential and commercial
mortgage portfolios. Most significantly affected was the residential real estate
market, as increased home prices and rising interest rates led to a cooling of
what had been a relatively hot market.
At Westbank Corporation, we place great emphasis on enhancing shareholder value.
In fact, our long-term strategic plan is developed with that specific goal in
mind. We fully realize that our loyal investors have come to expect great things
from us and we want to continue to set the bar high. While extraneous factors
certainly had an impact on our overall financial performance, there were several
key areas that registered significant growth from the previous fiscal year.
For the year ended December 31, 2000, earnings totaled $3,788,000 or $.89 per
diluted share versus $4,167,000 or $.96 per diluted share for the year ended
December 31, 1999. As of December 31, 2000, assets totaled $574.6 million, while
investments grew to $97.7 million and loans totaled $429.2 million. As of
year-end, deposits were $499.1 million, a $20.2 million increase compared to
December 31, 1999, and the Corporation's shareholders' equity grew to $34.9
million, representing a book value of $8.26 per share.
The Corporation's net interest margin improved significantly in the fourth
quarter of 2000, a trend we believe will continue in 2001. This was achieved by
closely monitoring the changing interest rate environment and aggressively
managing the overall cost of funds. We also took advantage of falling interest
rates in the fourth quarter and improved mortgage banking activity by selling
$16 million in fixed rate residential mortgages. This transaction allowed the
Corporation to execute some balance sheet restructuring, as well as enhance its
earnings during the quarter.
At year-end, the Corporation's allowance for loan losses totaled $3.7 million,
representing .85% of total loans. At the same time, loan quality remained sound,
with non-performing loans decreasing from $2.4 million to $2.2 million at the
end of 2000.
In addition to the ongoing conversion efforts at Cargill Bank, we also
implemented a number of initiatives designed to retain and acquire market share
at both subsidiaries. In June 2000, Park West Bank and Trust Company introduced
a consumer debit card, providing customers with a convenient way to make
point-of-sale purchases from their checking account -- without having to write a
check or withdraw cash. In addition to cementing customer relationships, the
consumer debit card program is expected to generate significant fee income in
2001.
In July 2000, a Free Checking account program was introduced at both
subsidiaries. Targeting new customers, this program features a free checking and
savings account, free checks, free ATM transactions (at Park West Bank and Trust
Company or Cargill Bank ATMs) and a free debit card. The goal of this product
introduction is to generate new customer relationships and acquire low cost core
deposits, thereby reducing each bank's overall cost of funds. It also provides a
platform for cross-selling other profitable bank products and services like
mortgages, home equity lines, and trust and investment services.
In October 2000, Park West Bank and Trust Company relocated its Westfield
supermarket office from the former Stop & Shop on Route 20 to the Big Y World
Class Market on East Silver Street. A successful grand opening celebration was
held and response to the new location has been favorable in terms of customer
traffic and feedback. October also saw the introduction of a Small Business
Checking account. This came after an internal analysis of both subsidiaries'
business checking account portfolios and in response to the need for an account
that caters to the growing number of small business start-ups.
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[CHASE/LAFLAMME PHOTO]
We also made significant strides in 2000 with regard to the development of our
Internet banking product. The Web sites for Park West Bank and Trust Company,
Cargill Bank and Westbank Corporation have been designed and are near
completion. Once completed, these Web sites will be used to promote each bank's
products and services and will serve as a conduit for accessing the Internet
banking products for both consumer and business customers. The product rollout
is scheduled for the 2nd quarter of 2001. A Web bill payment component is also
being developed that would allow customers to pay their bills via the Internet.
This service provides yet another way to acquire new accounts and solidifies
existing customer relationships. It also places both subsidiaries in a more
favorable competitive position in their respective marketplaces.
Our Business Banking Division has historically been a mainstay of the
Corporation and, as such, is one of our most important assets. Despite a less
than favorable interest rate environment in 2000, our Business Banking team
still managed to achieve growth of 8% in our commercial and industrial loan
portfolio. In 2001, we will continue to support the calling efforts of the
Business Banking team at both subsidiaries, while placing additional emphasis on
both the Equipment Leasing Division and our commercial mortgage portfolio. Other
planned Business Banking initiatives for 2001 include a corporate Internet
banking product, a business debit card and the introduction of a package of
small business services such as small business checking, equipment lease
financing and business retirement plan products.
2000 also saw the expansion of our successful Indirect Lending division, which
underwrites consumer auto loans through automobile dealerships. Additional staff
were hired and a strategic plan was implemented to acquire new dealer
relationships in northeastern Connecticut. Park West Bank and Trust Company and
Cargill Bank had 50 dealer affiliations as of December 31, 2000.
The Corporation's Trust and Investments Division increased its assets from
$113.0 million in 1999 to $117.7 million in 2000, a 4% increase. Going forward,
this division will continue to build long-term client relationships in
Massachusetts and Connecticut, utilizing a disciplined investment strategy that
controls risk and maximizes return.
From a corporate perspective, the Corporation initiated a stock repurchase
program in early 2000. This program was implemented because the Corporation
believes it is a wise long-term investment. We have been conducting the
repurchases from shareholders in open market trading through registered
broker-dealers. As of December 31, 2000, we repurchased a total of 127,320
outstanding shares representing $1.1 million. Our goal is to repurchase 5% of
our outstanding stock and that process is approximately 50% complete.
Our primary goals in 2001 will be to increase market share, maintain asset
quality and improve the Corporation's interest margins. We look forward to the
challenges and opportunities that lie ahead, and remain as focused and committed
as ever to building an even stronger Corporation for our shareholders, customers
and employees.
With a sound strategic plan, a highly capable management team and a dedicated
staff of employees, we are confident that we are well positioned for future
success. As we enter the second year of the new millennium, we embark not on an
uncharted expedition, but rather a well-planned journey to success.
Thank you for your loyalty, confidence and continued support of Westbank
Corporation.
Sincerely,
Donald R. Chase Ernest N. Laflamme, Jr.
President and Chairman of the Board
Chief Executive Officer
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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") and Cargill Bank
(hereinafter sometimes referred to as "Cargill") into additional financial
services related to banking. On January 29, 1999, Westbank became the owner of
all the outstanding stock of Cargill Bancorp, Inc., a state chartered savings
and loan association.
PARK WEST BANK AND TRUST COMPANY
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 thirteen banking
offices located in Hampden County, Massachusetts. 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, 2000 amounted to $117,713,000 and is not included in
the accompanying financial statements since such items are not assets of the
Bank.
CARGILL BANK
Cargill is a Connecticut state chartered savings and loan association
headquartered in Danielson, Connecticut. Cargill is a member of the FDIC and is
subject to regulation by the State of Connecticut Department of Banking and the
Office of Thrift Supervision ("OTS"). On October 29, 1999, Cargill completed its
purchase of certain assets and assumption of certain liabilities of New London
Trust, F.S.B. ("New London Trust"), including two branches in Putnam and
Danielson, Connecticut, with such assets totaling $106,000,000. Cargill provides
a full range of retail banking services to individuals, businesses and nonprofit
organizations through four banking offices located in Windham County,
Connecticut. Such services include a wide range of checking and savings
accounts, loans, safe deposit facilities and automated teller machines at all
branch locations.
Cargill also provides lending, depository and related financial services to
commercial, industrial, financial and governmental customers. In the lending
area, these services 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.
EMPLOYEES
As of December 31, 2000, the Corporation and its subsidiaries had the equivalent
of 168 full-time employees.
COMPETITION
Westbank's banking, real estate activity and trust services are competitive with
other financial institutions. Its service area is in western Massachusetts and
northeastern Connecticut. 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 from 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.
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SELECTED CONSOLIDATED FINANCIAL DATA
Westbank Corporation and Subsidiaries
Year ended December 31,
(Dollars in Thousands Except Share Amounts) 2000 1999 1998 1997 1996
- - ------------------------------------------- ---- ---- ---- ---- ----
Interest and dividend income $ 42,645 $ 32,437 $ 28,631 $ 26,724 $ 24,059
Interest expense 23,228 15,316 13,292 12,091 10,524
--------- --------- --------- --------- ---------
Net interest income 19,417 17,121 15,339 14,633 13,535
Provision for loan losses 472 77 41 306 944
Non-interest income 2,652 2,330 2,427 2,529 2,340
Non-interest expense 15,841 12,598 12,200 11,066 11,278
--------- --------- --------- --------- ---------
Income before income taxes 5,756 6,776 5,525 5,790 3,653
Income taxes 1,968 2,609 2,148 2,406 1,516
--------- --------- --------- --------- ---------
Net income $ 3,788 $ 4,167 $ 3,377 $ 3,384 $ 2,137
========= ========= ========= ========= =========
Common share data:
Earnings per share:
Basic $ .90 $ .98 $ .82 $ .88 $ .59
Diluted $ .89 $ .96 $ .79 $ .85 $ .57
Cash dividends declared $ .40 $ .40 $ .40 $ .30 $ .24
Ending book value $ 8.26 $ 7.36 $ 7.26 $ 6.84 $ 6.19
AT DECEMBER 31:
Total loans -- net $ 429,231 $ 438,567 $ 293,113 $ 268,254 $ 254,948
Total assets 574,596 576,150 402,623 355,567 331,803
Total non-performing assets 2,737 2,881 1,494 2,025 3,791
Total deposits 499,140 478,896 342,267 314,679 298,014
Total borrowings 20,992 46,546 27,807 11,884 9,269
Mandatory redeemable preferred stock 17,000 17,000
Total stockholders' equity 34,860 31,543 30,490 26,918 22,717
AVERAGE FOR YEAR:
Loans 445,846 349,614 284,629 270,066 246,366
Assets 581,328 450,691 382,924 348,561 313,063
Deposits 488,396 384,410 335,110 312,725 280,855
Stockholders' equity 32,096 31,187 29,229 24,638 21,777
Weighted shares outstanding - basic 4,229,105 4,244,402 4,143,009 3,845,698 3,643,270
- diluted 4,273,384 4,333,326 4,272,682 4,003,015 3,762,419
SELECTED RATIOS:
Rate of return on average total assets .65% .92% .88% .97% .68%
Rate of return on average stockholders' equity 11.80% 13.36% 11.55% 13.73% 9.81%
Allowance for loan losses to total loans at year end .85% .88% .90% 1.13% 1.05%
Non-performing loans as a percentage
of total loans at year end .51% .55% .35% .68% 1.23%
Net charge-offs (recoveries) as a
percentage of average loans .16% .14% .15% (.02%) .88%
Other real estate owned as a percentage of total assets .09% .08% .12% .10% .19%
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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. Effective January 29, 1999,
Cargill Bank was merged with and into Westbank Corporation, pursuant to a plan
of merger dated July 15, 1998. Each share of Cargill common stock was converted
into 1.3655 shares of the Corporation's common stock. Approximately 400,164 of
Westbank common shares were issued for the outstanding common stock of Cargill.
The transaction was accounted for using the pooling-of-interests method and,
accordingly, all historical financial data has been restated to include both
entities for all periods presented. The restatement of the historical data is
based on Westbank's fiscal year-end December 31 and Cargill's fiscal year-end
September 30 for all periods prior to 1999.
On October 29, 1999, Cargill Bank completed its acquisition of the Connecticut
division of New London Trust. The two New London Trust offices became part of
Cargill Bank. The acquisition resulted in $106 million of assets (loans of $84
million) and $106 million of liabilities being acquired as of October 29, 1999.
The Corporation has accounted for this acquisition on the purchase accounting
method.
For 2000, the Corporation reported net income of $3,788,000, or $.90 per share
basic and $.89 diluted, after providing $472,000 for loan losses. This compares
to net income for 1999 of $4,167,000, or $.98 per share basic and $.96 diluted.
The Corporation's 1999 earnings reflected a provision for loan losses of
$77,000. Net interest income increased $2,296,000 from 1999 to 2000.
Non-interest expense amounted to $15,841,000 in 2000 compared to $12,598,000 in
1999, an increase of $3,243,000, or 26%. The increase in operating expenses for
2000 is a result of the overall growth of the Corporation and the acquisition of
the New London offices, as well as the amortization of goodwill associated with
the branch acquisition totaling $683,000. Non-interest income increased by
$322,000 compared to 1999. During 2000, Trust Department earnings grew by
$26,000 versus 1999. Gains on sale of investments, other real estate and sale of
mortgages increased by $22,000, while service charges on deposit accounts, other
non-interest income and loan servicing fees grew by $274,000 compared to 1999.
Income taxes in 2000 totaled $1,968,000, a decrease of $641,000 versus 1999.
At December 31, 2000, the Corporation's total assets were $574,596,000, a
decrease of $1,554,000 compared to year-end 1999.
Non-performing assets amounted to $2,737,000 or .48% of total assets at December
31, 2000, compared with $2,881,000 or .50% at the end of 1999.
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,
2000, Park West's and Cargill's capital were at levels that placed each 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 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
COMPONENTS OF CAPITAL
The following table presents the Corporation's components of capital as of
December 31. The table also presents the ratio of capital to total assets.
(Dollars in Thousands) 2000 1999 1998
- - ---------------------- ---- ---- ----
Stockholders' Equity
Common stock $ 8,567 $ 8,567 $ 8,397
Additional paid-in-capital 11,608 11,633 11,076
Retained earnings 15,408 13,317 10,803
Treasury stock (526)
Accumulated other
comprehensive income (loss) (197) (1,974) 214
-------- -------- --------
Total Capital $ 34,860 $ 31,543 $ 30,490
======== ======== ========
Ratio of capital
to average total assets 6.45% 6.92% 7.53%
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 and a portion of the mandatory redeemable preferred stock;
total risk-based, or supplementary capital includes not only the equity but also
a portion of the allowance for loan losses and a portion of the mandatory
redeemable preferred stock.
The following are the Corporation's risk-based capital ratios at December 31:
2000 1999 1998
---- ---- ----
Tier 1 risk-based capital (minimum required 4%) 10.34% 10.17% 11.94%
Total risk-based capital (minimum required 8%) 12.85% 12.50% 13.00%
DISCUSSION OF MARKET RISK
Market risk is the risk of loss due to adverse changes in market prices and
rates. The management of this risk, coupled with directives to build shareholder
value and profitability, is an integral part of the Corporation's overall
operating strategy. The Corporation's approach to risk management, primarily
interest rate risk management, concentrates on fundamental strategies to
structure the balance sheet and the composition of assets and liabilities. Since
the Corporation does not utilize interest rate futures, swaps or options
transactions, its asset/liability profile is not complex. It reflects a simple
approach to managing risk through the use of fixed and adjustable rate loans and
investments, rate-insensitive checking accounts as well as a combination of
fixed and variable rate deposit products and borrowed funds. Bank policy
includes required limits on the sensitivity of net interest income under various
interest rate scenarios.
The Bank seeks to control its interest rate risk exposure in a manner that
allows for adequate levels of earnings and capital over a range of possible
interest rate environments. The Bank has adopted formal policies and practices
to monitor and manage interest rate risk exposure. As part of this effort, the
Bank actively manages interest rate risk through the use of a simulation model
that measures the sensitivity of future net interest income to changes in
interest rates. In addition, the Bank regularly monitors interest rate
sensitivity through gap analysis, which measures the terms to maturity or next
repricing date of interest-earning assets and interest-bearing liabilities.
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MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
On a quarterly basis, an interest rate risk exposure compliance report is
prepared and presented to the Bank's Board of Directors. This report presents an
analysis of the change in net interest income resulting from an increase or
decrease in the level of interest rates. All changes are measured as percentage
changes from the projected net interest income in the flat rate scenario. The
calculated estimates of change in net interest income are compared to current
limits established by management and approved by the Board of Directors. The
following is a summary of the interest rate exposure report as of December 31,
2000 and 1999:
Percentage Change in
Change in Interest Rates Net Interest Income
(In Basis Points) 2000 1999
----------------- ---- ----
+200 0% (3.00%)
Level 0% 0%
-200 (1.00%) 2.00%
The model utilized to create the results presented above makes various estimates
at each level of interest rate change regarding cash flows from principal
repayments on loans and mortgage-backed securities and/or call activity on
investment securities. Actual results could differ significantly from these
estimates which would result in significant differences in the calculated
projected change.
In order to reduce the exposure to interest rate fluctuations, the Corporation
has developed strategies to manage its liquidity, shorten the effective
maturities of certain interest-earning assets and increase the effective
maturities of certain interest-bearing liabilities. The Bank has focused its
residential lending on a combination of fixed and adjustable rate mortgages.
Commercial loans, commercial mortgages and consumer lending focus on adjustable
and short term loans. The Bank also attempts to maintain and/or increase its
savings and transaction accounts, which are considered relatively insensitive to
changes in interest rates.
The Corporation also measures sensitivity to changes in interest rates using
interest rate sensitivity gap analysis which is the difference between the cash
flow amounts of interest-sensitive assets and liabilities that will be
refinanced (or repriced) during a given period. For example, if the asset amount
to be repriced exceeds the corresponding liability amount for a certain day,
month, year, or longer period, the institution is in an asset-sensitive gap
position. In this situation, net interest income would increase if market
interest rates rose or decrease if market interest rates fell. If,
alternatively, more liabilities than assets will reprice, the institution is in
a liability-sensitive position. Accordingly, net interest income would decline
when rates rise and increase when rates fall. Also, these examples assume that
interest-rate changes for assets and liabilities are of the same magnitude,
whereas actual interest-rate changes generally differ in magnitude for assets
and liabilities.
The following table sets forth the distribution of the repricing of the
Corporation's earning assets and interest-bearing liabilities as of December 31,
2000, 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 the Bank'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.
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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
Investments $ 5,517 $ 396 $ 14,378 $ 77,385 $ 97,676
Interest bearing cash 127 100 227
Loans 64,378 71,536 146,783 150,204 432,901
Federal funds sold 5,249 5,249
--------- --------- --------- --------- ---------
75,271 71,932 161,261 227,589 536,053
INTEREST BEARING LIABILITIES
Savings deposits 10,485 94,374 104,859
NOW accounts 2,965 26,679 29,644
Money market accounts 18,849 18,849
Other time deposits 113,714 114,633 53,494 338 282,179
Borrowed funds and preferred stock 13,992 7,000 17,000 37,992
--------- --------- --------- --------- ---------
$ 146,555 $ 128,083 $ 181,547 $ 17,338 $ 473,523
========= ========= ========= ========= =========
Interest Rate
Sensitivity Gap $ (71,284) $ (56,151) $ (20,286) $ 210,251 $ 62,530
Cumulative Interest Rate
Sensitivity Gap (71,284) (127,435) (147,721) 62,530
Interest Rate
Sensitivity Gap Ratio (13.30)% (10.47)% (3.78)% 39.22% 11.67%
Cumulative Interest Rate
Sensitivity Gap Ratio (13.30)% (23.77)% (27.55)% 11.67%
The presentation of a run off and repricing of savings accounts and NOW accounts
is based on the Corporation's historical experience with $10,485,000 and
$2,965,000, 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. 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 2000, 1999
and 1998. 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 shown
in the table:
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MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
2000 1999 1998
Average Average Average
Interest Yield/ Interest Yield/ Interest Yield/
Average Income/ Rate Average Income/ Rate Average Income/ Rate
(Dollars in Thousands) Balance Expense Paid Balance Expense Paid Balance Expense Paid
- - ---------------------- ------- ------- ---- ------- ------- ---- ------- ------- ----
ASSETS
Securities:
U.S. Treasury $ 534 $ 32 6.00% $ 812 $ 49 6.03% $ 3,663 $ 221 6.03%
Federal agencies 90,018 6,422 7.12 69,536 4,638 6.67 61,856 3,994 6.46
Tax exempt federal (a) 616 42 6.82 284 20 7.04
Other securities 4,007 292 7.29 1,910 155 8.12 4,969 304 6.12
--------- --------- ---- --------- --------- ---- --------- --------- ----
Total securities 95,175 6,788 7.13 72,542 4,862 6.70 70,488 4,519 6.41
--------- --------- ---- --------- --------- ---- --------- --------- ----
Interest-bearing cash and
temporary investments 765 41 5.36 2,559 123 4.81 792 29 3.66
--------- --------- ---- --------- --------- ---- --------- --------- ----
Loans: (b)
Commercial 60,064 5,608 9.34 52,356 4,221 8.06 41,129 3,810 9.26
Tax exempt federal (a) 4,653 413 8.88 2,191 198 9.04
Real estate 333,757 26,008 7.79 258,639 20,120 7.78 213,377 17,400 8.15
Consumer 47,372 3,708 7.83 36,428 2,815 7.73 30,123 2,435 8.08
--------- --------- ---- --------- --------- ---- --------- --------- ----
Total loans 445,846 35,737 8.02 349,614 27,354 7.82 284,629 23,645 8.31
--------- --------- ---- --------- --------- ---- --------- --------- ----
Federal funds sold 3,793 234 6.17 3,287 171 5.20 7,761 438 5.64
--------- --------- ---- --------- --------- ---- --------- --------- ----
Total earning assets 545,579 $ 42,800 7.84% 428,002 $ 32,510 7.60% 363,670 $ 28,631 7.87%
--------- --------- ---- --------- --------- ---- --------- --------- ----
Allowance for loan losses (3,937) (3,019) (2,920)
Cash and due from banks 14,054 12,033 11,120
Other assets 25,632 13,675 11,054
--------- --------- ---- --------- --------- ---- --------- --------- ----
Total assets $ 581,328 $ 450,691 $ 382,924
========= ========= ==== ========= ========= ==== ========= ========= ====
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings $ 127,764 $ 3,365 2.63% $ 63,611 $ 1,742 2.74% $ 50,588 $ 1,382 2.73%
Money market 24,021 765 3.18 29,465 883 3.00 31,663 1,195 3.77
Negotiated rate certificates 50,391 2,899 5.75 34,934 1,754 5.02 22,977 1,118 4.87
Other time deposits 225,609 12,464 5.52 202,834 9,296 4.58 181,085 8,967 4.95
--------- --------- ---- --------- --------- ---- --------- --------- ----
Total time deposits 427,785 19,493 4.56 330,844 13,675 4.13 286,313 12,662 4.42
Borrowed funds/preferred stock 57,717 3,735 6.47 33,001 1,641 4.97 16,906 630 3.73
--------- --------- ---- --------- --------- ---- --------- --------- ----
Total interest-bearing liabilities 485,502 23,228 4.78 363,845 15,316 4.21 303,219 13,292 4.38
Demand deposits 60,610 53,566 48,797
Other liabilities 3,120 2,093 1,679
Stockholders' equity 32,096 31,187 29,229
--------- --------- ---- --------- --------- ---- --------- --------- ----
Total liabilities and
stockholders' equity $ 581,328 $ 450,691 $ 382,924
========= ========= ==== ========= ========= ==== ========= ========= ====
Net interest income 19,572 17,194 15,339
Yield spread 3.06 3.39 3.49
Net yield on earning assets 3.59% 4.02% 4.22%
Deduct tax equivalent adjustment 155 73
--------- --------- ---- --------- --------- ---- --------- --------- ----
Net interest income $ 19,417 $ 17,121 $ 15,339
========= ========= ==== ========= ========= ==== ========= ========= ====
(a) Tax equivalent basis. Interest income on non-taxable investment securities
and loans includes the effects of the 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 2000, the yield spread declined to 3.06% versus 3.39% in 1999. The
Corporation's net interest margin decreased during 2000 to 3.59% from 4.02% in
1999, a decrease of 43 basis points.
During 1999, the yield declined by 1- basis points versus 1998. The
Corporation's net interest margin decreased during 1999 to 4.02% from 4.22% in
1998, a decrease of 20 basis points. The section titled Rate/Volume Analysis
further describes the change in yields.
10
13
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 2000 as compared with 1999 and 1999 compared with 1998.
2000 Compared With 1999 1999 Compared With 1998
----------------------- -----------------------
Increase Due to Increase Due to
(Dollars in Thousands) 2000 1999 (Decrease) Volume Rate 1999 1998 (Decrease) Volume Rate
- - ---------------------- ---- ---- ---------- ------ ---- ---- ---- --------- ------ ----
Interest earned:
Securities:
U.S. Treasury $ 32 $ 49 $ (17) $ (17) $ 49 $ 221 $ (172) $ (172)
Federal agencies 6,422 4,638 1,784 1,444 $ 340 4,638 3,994 644 510 $ 134
Tax exempt federal 42 20 22 23 (1) 20 20 20
Other securities 292 155 137 151 (14) 155 304 (149) (227) 78
Interest-bearing cash 41 123 (82) (98) 16 123 29 94 82 12
Loans:
Commercial 5,608 4,221 1,387 667 720 4,221 3,810 411 947 (536)
Tax exempt federal 413 198 215 219 (4) 198 198 198
Real estate 26,008 20,120 5,888 5,857 31 20,120 17,400 2,720 3,552 (832)
Consumer 3,708 2,815 893 856 37 2,815 2,435 380 490 (110)
Federal funds sold 234 171 63 29 34 171 438 (267) (235) (32)
------- ------- ------- ------ ------- ------- ------- ------ ------ ------
42,800 32,510 10,290 9,131 1,159 32,510 28,631 3,879 5,165 (1,286)
------- ------- ------- ------ ------- ------- ------- ------ ------ ------
Interest expense:
Savings 3,365 1,742 1,623 1,687 (64) 1,742 1,382 360 356 4
Money market 765 883 (118) (177) 59 883 1,195 (312) (80) (232)
Negotiated rate certificates 2,899 1,754 1,145 861 284 1,754 1,118 636 600 36
Other time deposits 12,464 9,296 3,168 1,121 2,047 9,296 8,967 329 1,028 (699)
Borrowed funds 3,735 1,641 2,094 1,493 601 1,641 630 1,011 749 262
------- ------- ------- ------ ------- ------- ------- ------ ------ -------
23,228 15,316 7,912 4,985 2,927 15,316 13,292 2,024 2,653 (629)
------- ------- ------- ------ ------- ------- ------- ------ ------ -------
Net interest income $19,572 $17,194 $ 2,378 $4,146 $(1,768) $17,194 $15,339 $1,855 $2,512 $ (657)
======= ======= ======= ====== ======= ======= ======= ====== ====== =======
* The dollar amount of changes in interest income and interest expense
attributable to changes in rate and 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 for 2000 increased to $19,572,000, up 14% from $17,194,000
in 1999. A 27% increase in average earning assets and a 24 basis point increase
in average rate of return resulted in an increase in volume of $9,131,000 and an
increase in rate of $1,159,000. An increase of 33% in average interest-bearing
liabilities and a 57 basis point increase in average rate of interest paid
contributed to an increase in volume of $4,985,000 and in increase in rate of
$2,927,000.
Net interest income for 1999 increased to $17,194,000, up 12% from $15,339,000
in 1998. An 18% increase in average earning assets and a 27 basis point decline
in average rate of return resulted in an increase in volume of $5,165,000 and a
decrease in rate of $1,286,000. An increase of 20% in average interest-bearing
liabilities and a 17 basis point increase in average rate of interest paid
contributed to an increase in volume of $2,653,000 and a decrease in rate of
$629,000.
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. Refer to Note 7 in the Notes To Consolidated
Financial Statements for a discussion of the Corporation's external sources of
liquidity.
11
14
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
INVESTMENT PORTFOLIO MIX PIE CHART
(Dollars in thousands)
U.S. Government $ 537
Federal agencies 71,253
Mortgage-backed securities 20,417
Municipal bonds 614
Other securities 5,150
INVESTMENT PORTFOLIO
Refer to Note 2 in the Notes to Consolidated Financial Statements of this report
which covers the maturity distribution and fair values at December 31, 2000 of
the securities portfolio. The following table shows the amortized cost (in
thousands) of the Corporation's securities held to maturity at December 31:
2000 1999 1998
---- ---- ----
U. S. Government obligations $ 499 $ 499 $ 998
Federal agency obligations 9,448 9,459 26,890
Mortgage-backed securities 1,462 1,846 2,728
------- ------- -------
Amortized cost $11,409 $11,804 $30,616
======= ======= =======
The following table shows the fair value (in thousands) of the Corporation's
securities available for sale at December 31:
2000 1999 1998
---- ---- ----
U. S. Government obligations $ 38 $ 11 $ 928
Federal agency obligations 61,465 50,379 26,667
Mortgage-backed securities 18,929 16,504 24,372
Municipal bonds 624 598
Equity securities 5,211 2,024 1,745
-------- -------- --------
86,267 69,516 53,712
Gross unrealized (gain) loss on
securities available for sale 295 3,053 (352)
-------- -------- --------
Amortized cost $ 86,562 $ 72,569 $ 53,360
======== ======== ========
The following table shows weighted average yields and maturity distribution of
debt securities at December 31, 2000:
Within 1 Year 1 to 5 Years 5 to 10 Years After 10 Years 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 6.23% $ 537 6.23% $ 537
Federal agency
obligations 6.27 998 6.43% $13,179 7.07% $53,376 6.58% $ 3,700 6.91 71,253
Mortgage-backed
securities 5.84 381 6.45 433 6.42 621 6.74 18,982 6.71 20,417
Municipal bonds 4.71 614 4.71 614
---- ------ ---- ------- ---- ------- ---- ------- ---- -------
Total debt
Securities 6.17 $1,916 6.43% $13,612 7.03% $54,611 6.71% $22,682 6.85% $92,821
==== ====== ==== ======= ==== ======= ==== ======= ==== =======
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.
12
15
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:
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Commercial $ 60,652 $ 56,276 $ 41,760 $ 41,661 $ 36,153
--------- --------- --------- --------- ---------
Real Estate:
Construction 5,160 5,952 5,998 5,302 6,662
Residential (1-4 family) 248,059 263,832 168,744 152,896 153,781
Commercial properties 84,833 85,385 60,348 55,127 45,506
--------- --------- --------- --------- ---------
Total Real Estate 338,052 355,169 235,090 213,325 205,949
--------- --------- --------- --------- ---------
Consumer 34,578 31,556 19,277 16,648 15,943
--------- --------- --------- --------- ---------
Gross loans 433,282 443,001 296,127 271,634 258,045
Deferred loan origination
fees-net of costs (381) (526) (349) (323) (398)
--------- --------- --------- --------- ---------
Total Loans 432,901 442,475 295,778 271,311 257,647
Allowance for loan
losses (3,670) (3,908) (2,665) (3,057) (2,699)
--------- --------- --------- --------- ---------
Net loans $ 429,231 $ 438,567 $ 293,113 $ 268,254 $ 254,948
========= ========= ========= ========= =========
The Corporation's loan portfolio is not concentrated within
a single industry or a group of related industries; however,
underlying collateral values are dependent upon market
fluctuations in the western Massachusetts and northeastern
Connecticut areas. The aggregate amount of loans to executive
officers, directors and organizations with which they are associated
amounted to $3,798,000 or 11% of stockholders' equity as of
December 31, 2000, compared to $3,266,000 or 10.4% as of
December 31, 1999. 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, 2000:
LOAN MIX PIE CHART
Commercial loans $ 60,652
Consumer loans 34,578
Residential real estate 248,059
Commercial real estate 89,993
12 Months 1 - 5 After
(Dollars in Thousands) or Less Years 5 Years Total
- - ---------------------- ------- ----- ------- -----
Commercial $44,556 $15,455 $ 641 $60,652
Commercial real estate-construction 5,160 5,160
------- ------- ------- -------
Totals $49,716 $15,455 $ 641 $65,812
======= ======= ======= =======
Of the commercial loans which mature beyond one year, approximately $15,009,000
have fixed rates and the remaining $1,087,000 are floating rate loans.
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. The most significant of these are
commitments to grant loans and commitments to advance funds under existing loan
agreements which were $8,460,000 and $38,569,000, respectively, at December 31,
2000 and $4,604,000 and $38,827,000, respectively, in 1999. See further
discussion in Note 14 to the Consolidated Financial Statements.
13
16
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 of 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,
2000, 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) 2000 1999 1998 1997 1996
- - ---------------------- ---- ---- ---- ---- ----
Balance at beginning of year $ 3,908 $ 2,665 $ 3,057 $ 2,699 $ 3,924
Provision charged to expense 472 77 41 306 944
Acquisition 1,669
--------- --------- --------- --------- ---------
4,380 4,411 3,098 3,005 4,868
--------- --------- --------- --------- ---------
Charge-offs:
Loans secured by real estate 163 78 318 394 1,745
Construction/land development 190
Commercial and
industrial loans 538 455 153 250 510
Consumer loans 88 90 47 116 94
--------- --------- --------- --------- ---------
789 623 518 760 2,539
--------- --------- --------- --------- ---------
Recoveries:
Loans secured by real estate 32 79 42 354 324
Construction/land development 14 14
Commercial and
industrial loans 27 15 30 445 12
Consumer loans 20 12 13 13 20
--------- --------- --------- --------- ---------
79 120 85 812 370
--------- --------- --------- --------- ---------
Net charge-offs (recoveries) 710 503 433 (52) 2,169
--------- --------- --------- --------- ---------
Balance at end of year $ 3,670 $ 3,908 $ 2,665 $ 3,057 $ 2,699
========= ========= ========= ========= =========
Average loans outstanding $ 445,846 $ 349,614 $ 284,629 $ 270,066 $ 246,366
========= ========= ========= ========= =========
Net charge-offs (recoveries) as a percentage
of average loans 0.16% 0.14% 0.15% (0.02)% 0.88%
Net charge-offs (recoveries) as a percentage of
the allowance at January 1 18.17 18.87 14.16 (1.93) 55.28
Allowance as a percentage of total
loans at December 31 0.85 0.88 0.90 1.13 1.05
Allowance as a percentage of
non-performing loans
at December 31 167.12 160.23 259.24 166.87 85.41
14
17
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
Allocation of the balance as of December 31 of the allowance for loan losses
applicable to:
(Dollars in Thousands) 2000 1999 1998 1997 1996
- - ---------------------- ---- ---- ---- ---- ----
% of % of % of % of % of
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Loans secured by
real estate $2,212 76.83% $2,986 78.84% $1,764 77.38% $2,083 76.55% $1,763 77.23%
Construction/land
development 17 1.19 64 1.34 70 2.03 83 1.97 94 2.58
Commercial and industrial
loans 1,164 14.00 581 12.70 628 14.10 697 15.35 685 14.01
Consumer loans 277 7.98 277 7.12 203 6.49 194 6.13 157 6.18
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
$3,670 100.00% $3,908 100% $2,665 100% $3,057 100% $2,699 100%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
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. The increase in the allowance for loan losses from 1998 to
1999 is primarily the result of the acquisition of a loan loss allowance
totaling $1,669,000 related to the loans acquired with the purchase of the New
London Trust offices.
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) 2000 1999 1998 1997 1996
- - ---------------------- ---- ---- ---- ---- ----
Loans on a non-accrual basis $ 1,778 $ 2,001 $ 797 $ 1,648 $ 2,878
========= ========= ========= ========= =========
Non-accrual loans as a percentage
of total net loans outstanding 0.41% 0.46% 0.27% 0.61% 1.13%
Non-accrual loans as a percentage
of total assets 0.31% 0.35% 0.20% 0.46% 0.87%
Loans contractually past due 90
days or more and still accruing $ 418 $ 438 $ 231 $ 184 $ 282
The gross amount of interest that would have been accrued at the original
contract rate on loans on a non-accrual basis was $159,000, $77,000, $35,000,
$79,000 and $240,000 for 2000, 1999, 1998, 1997 and 1996, respectively.
15
18
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
The Bank evaluates each impaired loan to determine the appropriate income
recognition practice. Generally, income is recorded only on a cash basis for
impaired loans. Interest income recognized during 2000 and 1999 on impaired
loans was not significant. At December 31, 2000 and 1999, the recorded
investment in impaired loans was $1,778,000 and $2,365,000 respectively, for
which no additional specific allowance for loan losses was recorded. For the
twelve months ended December 31, 2000, the average recorded investment in
impaired loans was $1,184,000 compared to $874,000 for 1999.
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
are considered to be impaired as described in Note 1 to the financial
statements.
OTHER REAL ESTATE OWNED
The following table sets forth information regarding other real estate owned at
December 31:
(Dollars in Thousands) 2000 1999 1998 1997 1996
- - ---------------------- ---- ---- ---- ---- ----
Other real estate owned - net $541 $442 $466 $353 $631
Other real estate owned as a
percentage of total assets .09% .08% .12% .10% .19%
DEPOSITS
The following table sets forth the average amounts of various classifications of
deposits:
2000 1999 1998
(Dollars in Thousands) Amount Rate Amount Rate Amount Rate
- - ---------------------- ------ ---- ------ ---- ------ ----
Savings $127,764 2.63% $ 63,611 2.74% $ 50,588 2.73%
Money market 24,021 3.18 29,465 3.00 31,663 3.77
Certificates of deposit 50,391 5.75 34,934 5.02 22,977 4.87
Other time deposits 225,609 5.52 202,834 4.58 181,085 4.95
-------- ---- --------- ---- --------- ----
427,785 4.56% 330,844 4.13% 286,313 4.42%
Demand deposits 60,610 53,566 48,797
-------- ---- --------- ---- --------- ----
$488,395 $384,410 $335,110
======== ==== ========= ==== ========= ====
Certificates of deposit of $100,000 and over at December 31, 2000 had the
following maturities:
3 Months 3 to 6 6 to 12 1 Year to
(Dollars in Thousands) or Less Months Months 5 Years Total
- - ---------------------- ------- ------ ------ ------- -----
======= ====== ====== ====== =======
Totals $33,226 $7,923 $6,962 $5,128 $53,239
======= ====== ====== ====== =======
DEPOSIT MIX PIE CHART
(Dollars in thousands)
Demand deposits $ 63,609
Savings deposits 104,859
NOW accounts 29,643
Money market accounts 18,849
Other time deposits 282,179
16
19
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
RETURN ON EQUITY AND ASSETS
The Corporation's return on average equity and assets for each of the years
ended December 31 were as follows:
2000 1999 1998
---- ---- ----
Return on average total assets .65% .92% .88%
Return on average stockholders' equity 11.80% 13.36% 11.55%
Average stockholders' equity to average total assets 5.52% 6.92% 7.63%
Dividend payout ratio 44.80% 39.67% 44.54%
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) 2000 1999 1998
- - ---------------------- ---- ---- ----
Balance at year end $20,992 $46,546 $27,807
Average amount outstanding 40,717 28,751 16,442
Maximum amount outstanding at any month-end 50,742 46,769 28,307
Average interest rate for the year 5.16% 5.37% 3.83%
Average interest rate on year-end balance 4.02% 4.97 3.85
STATEMENTS OF INCOME
In the following sections of Management's Discussion and Analysis of the
Statements of Income, the comparative results of 2000, 1999 and 1998 will be
covered in greater detail. As of December 31, 2000, the principal earning assets
of the holding company consist of a commercial bank, Park West Bank and Trust
Company, and a Connecticut state-chartered savings and loan association, Cargill
Bank. 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, 2000. The significant changes are discussed in the analysis that
follow the summary.
Percentage of
increase (decrease)
2000 1999
Over Over
(Dollars in Thousands) 2000 1999 1998 1999 1998
- - ---------------------- ---- ---- ---- ---- ----
Net interest income $19,417 $17,121 $15,339 13.41% 11.62%
Provision for loan losses 472 77 41 512.99 87.80
Non-interest income 2,652 2,330 2,427 13.82 (4.00)
Non-interest expense 15,841 12,598 12,200 25.74 3.26
Income taxes 1,968 2,609 2,148 (24.57) 21.46
------- ------- ------- ----- -----
Net Income $ 3,788 $ 4,167 $ 3,377 (9.09)% 23.39%
======= ======= ======= ===== =====
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.
Total interest income for 2000 amounted to $42,645,000 as compared to
$32,437,000 for 1999 and $28,631,000 for 1998. For 2000 this represents an
increase of $10,208,000 or 31% over 1999, while interest income increased by
$3,806,000 or 13% in 1999 versus 1998. The increase in 2000 is the result of an
increase in average earning assets of $117,577,000 or 27%, and an increase of 24
basis points in average earning interest rate. The increase in 1999 over 1998 is
the result of an increase in average earning assets of $64,332,000 offset by a
27 basis point decrease in average earning interest rate.
17
20
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
INTEREST EXPENSE
Interest expense for 2000 on deposits and borrowings amounted to $23,228,000 as
compared to $15,316,000 in 1999 and $13,292,000 for 1998. Interest expense
increased by $7,912,000 or 52% during 2000 compared to 1999 and 1999 interest
expense increased by $2,024,000 or 15% versus 1998. The 2000 increase is the
result of an increase in average interest-bearing liabilities of $121,657,000
and a 57 basis point increase in the average rate of interest paid compared to
1999. The increase in interest expense during 1999 versus 1998 is the result of
an increase of average interest-bearing liabilities of $60,626,000 combined with
a 17 basis point decrease in 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. 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).
The following table sets forth Westbank's net interest income:
(Dollars in Thousands) 2000 1999 1998
================================================================================
Total interest income $42,645 $32,437 $28,631
Total interest expense 23,228 15,316 13,292
- - --------------------------------------------------------------------------------
Net interest income $19,417 $17,121 $15,339
================================================================================
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.
NET INTEREST INCOME BAR CHART
(Dollars in thousands)
1996 $13,535
1997 14,633
1998 15,339
1999 17,121
2000 19,417
PROVISION FOR LOAN LOSSES
The 2000 provision for loan losses totaled $472,000 compared with $77,000 in
1999. The increase in the provision for loan losses during 2000 is directly
attributable to the charge off of one commercial loan totaling approximately
$400,000. During 1999, the provision increased by $36,000 versus 1998. A full
discussion appears previously under the headings of LOAN LOSS EXPERIENCE and
NON-PERFORMING ASSETS.
NON-INTEREST INCOME
Income from sources other than interest was $2,652,000 in 2000, a increase of
$322,000 from the prior year and an increase of $225,000 versus 1998.
Non-interest income for 2000 reflects an increase in Trust Department earnings
of $26,000, an increase in service charges on deposit accounts and other
non-interest income of $156,000, an increase in loan servicing income of
$118,000 and a net increase from the gain on sale of investments, other real
estate and mortgages totaling $22,000 compared to 1999.
18
21
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
NON-INTEREST EXPENSE
The components of other operating expenses are as follows:
(Dollars in Thousands) 2000 1999 1998
================================================================================
Salaries and benefits $ 7,940 $ 6,541 $ 5,797
Occupancy 983 881 802
Other non-interest expense 6,120 5,053 5,497
Goodwill amortization 683 100
Other real estate
owned expenses and provision 115 23 104
- - --------------------------------------------------------------------------------
$15,841 $12,598 $12,200
================================================================================
OPERATING EXPENSE BAR CHART
(as a percentage of assets)
1996 3.60%
1997 3.17
1998 3.19
1999 2.79
2000 2.61
(Excludes amortization of goodwill)
Overall non-interest expense increased during 2000 by $3,243,000 versus 1999 and
by $398,000 compared to 1998. During 2000, salaries and benefits increased by
$1,399,000, attributable to overall corporate growth and the staff requirements
for the addition of the branch offices acquired during 1999. Occupancy increased
by $102,000 versus 1999. Other non-interest expense and depreciation and
amortization expense increased in 2000 by $967,000, also the result of the
branches acquired during 1999. Goodwill amortization during 2000 totaled
$683,000, representing amortization of the premium paid on deposits acquired
with the branch acquisition.
INCOME TAXES
For the year ended December 31, 2000, Westbank Corporation recorded a tax
expense of $1,968,000 compared to 1999, when the Corporation recorded a tax
expense of $2,609,000.
NET INCOME
The net income for 2000 of $3,788,000, or $.90 per share basic and $.89 per
share diluted, is based on a weighted average of 4,229,105 basic and 4,273,384
diluted shares outstanding, compared with a net income for 1999 of $4,167,000,
or $.98 per share basic and $.96 per share diluted based on a weighted average
of 4,244,402 basic and 4,333,326 diluted. Net income in 1998 was $3,337,000, or
$.82 per share basic and $.79 per share diluted and based on weighted average
shares of 4,143,009 basic and 4,272,682 diluted.
NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities as amended by
SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of Effective Date of FASB Statement No. 133, which establishes
accounting and reporting standards for derivatives, derivative instruments
embedded in other contracts and for hedging activities. In 2000, the FASB issued
SFAS No. 138, Accounting for Certain Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for certain
derivatives, derivative instruments embedded in other contracts and for certain
hedging activities. These statements are effective for the Corporation's fiscal
2001 financial statements. Management has determined that the adoption of these
standards will have no significant impact on the Corporation's consolidated
financial statements.
19
22
CONSOLIDATED BALANCE SHEETS
Westbank Corporation and Subsidiaries
December 31,
(Dollars in Thousands, except share amounts) 2000 1999
====================================================================================
ASSETS
Cash and due from banks:
Non-interest bearing $ 18,043 $ 17,006
Interest bearing 227 1,147
- - ------------------------------------------------------------------------------------
18,270 18,153
Federal funds sold 5,249 13,389
- - ------------------------------------------------------------------------------------
Total cash and cash equivalents 23,519 31,542
- - ------------------------------------------------------------------------------------
Securities (Note 2):
Investment securities available for sale 86,267 69,516
Investment securities held to maturity
(fair value of $11,392 in 2000 and $11,472 in 1999) 11,409 11,804
- - ------------------------------------------------------------------------------------
Total securities 97,676 81,320
- - ------------------------------------------------------------------------------------
Loans, net of allowance for loan losses
of $3,670 in 2000 and $3,908 in 1999 (Note 3) 427,381 436,411
Mortgage loans held for sale 1,850 2,156
- - ------------------------------------------------------------------------------------
Total loans 429,231 438,567
- - ------------------------------------------------------------------------------------
Property and equipment (Note 4) 7,292 7,809
Other real estate owned, net of allowance for losses
$31 in 1999 (Note 5) 541 442
Accrued interest receivable 3,977 3,243
Intangible assets, net of amortization
of $683 in 2000 and $100 in 1999 9,521 9,971
Other assets 2,839 3,256
- - ------------------------------------------------------------------------------------
Total assets $ 574,596 $ 576,150
====================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 6):
Non-interest bearing $ 63,609 $ 59,643
Interest bearing 435,531 419,253
- - ------------------------------------------------------------------------------------
Total deposits 499,140 478,896
Borrowed funds (Note 7) 20,992 46,546
Interest payable on deposits 727 732
Other liabilities 1,877 1,433
- - ------------------------------------------------------------------------------------
Total liabilities 522,736 527,607
- - ------------------------------------------------------------------------------------
Mandatory redeemable preferred stock (Note 8) 17,000 17,000
- - ------------------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 13 and 14)
- - ------------------------------------------------------------------------------------
Stockholders' equity (Notes 11 and 16):
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
4,222,520 shares in 2000 and 4,283,719 shares in 1999 8,567 8,567
Additional paid-in capital 11,608 11,633
Retained earnings 15,408 13,317
Treasury stock (61,199 shares at cost) (526)
Accumulated other comprehensive income (loss) (197) (1,974)
- - ------------------------------------------------------------------------------------
Total stockholders' equity 34,860 31,543
- - ------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 574,596 $ 576,150
====================================================================================
See notes to consolidated financial statements.
20
23
CONSOLIDATED STATEMENTS OF INCOME
Westbank Corporation and Subsidiaries
Years ended December 31,
(Dollars in Thousands, except share amounts) 2000 1999 1998
==========================================================================================
Interest and dividend income:
Interest and fees on loans $ 35,596 $ 27,288 $ 23,645
Interest and dividend income from securities 6,774 4,855 4,614
Interest from interest-bearing cash
and federal funds sold 275 294 372
- - ------------------------------------------------------------------------------------------
Total interest and dividend income 42,645 32,437 28,631
- - ------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits (Note 6) 21,125 13,773 12,662
Interest on borrowed funds (Note 7) 2,103 1,543 630
- - ------------------------------------------------------------------------------------------
Total interest expense 23,228 15,316 13,292
- - ------------------------------------------------------------------------------------------
Net interest income 19,417 17,121 15,339
Provision for loan losses (Note 3) 472 77 41
- - ------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 18,945 17,044 15,298
- - ------------------------------------------------------------------------------------------
Non-interest income:
Trust department income 528 502 498
Service charges on deposits 1,070 938 766
Loan servicing 410 292 470
Gain on sale of securities available for sale 92 141
Gain on sale of other real estate owned (Note 5) 16 34 43
Gain on sale of mortgages 136 4 120
Other non-interest income 492 468 389
- - ------------------------------------------------------------------------------------------
Total non-interest income 2,652 2,330 2,427
- - ------------------------------------------------------------------------------------------
Non-interest expense:
Compensation and benefits (Note 10) 7,940 6,541 5,797
Depreciation and amortization 992 968 851
Data processing 1,639 945 808
Occupancy expense 983 881 802
Other real estate owned expenses (Note 5) 115 23 104
Other non-interest expense (Note 15) 3,489 3,140 3,838
Goodwill amortization 683 100
- - ------------------------------------------------------------------------------------------
Total non-interest expense 15,841 12,598 12,200
- - ------------------------------------------------------------------------------------------
Income before income taxes 5,756 6,776 5,525
Income taxes (Note 9) 1,968 2,609 2,148
- - ------------------------------------------------------------------------------------------
Net income $ 3,788 $ 4,167 $ 3,377
==========================================================================================
Earnings per share (Note 12):
- Basic $ .90 $ .98 $ .82
- Diluted $ .89 $ .96 $ .79
==========================================================================================
Weighted average shares outstanding (Note 12):
- Basic 4,229,105 4,244,402 4,143,009
- Diluted 4,273,384 4,333,326 4,272,682
==========================================================================================
See notes to consolidated financial statements.
21
24
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Westbank Corporation and Subsidiaries
Accumulated
Common Stock Additional Other
Par paid-in Retained Treasury Comprehensive
(Dollars in Thousands, except share amounts) Shares Value capital earnings Stock Income/(Loss) Total
====================================================================================================================================
Balance, December 31, 1997 3,932,535 $7,865 $ 9,711 $ 9,282 $ 60 $26,918
Net income 3,377 3,377
Cash dividends declared
($.40 per share) (1,503) (1,503)
Stock dividend
(5% on Cargill Bancorp shares) 17,389 35 93 (129) (1)
Shares issued:
Stock option plan 199,799 399 742 1,141
Dividend reinvestment
and stock purchase plan 49,115 98 530 628
Cargill interim loss for the quarter
ended December 31, 1998 (Note 1) (224) (224)
Changes in unrealized gain (loss)
on securities available for sale 154 154
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 4,198,838 8,397 11,076 10,803 214 30,490
Net income 4,167 4,167
Cash dividends declared
($.40 per share) (1,653) (1,653)
Shares issued:
Stock option plan 30,255 61 78 139
Dividend reinvestment
and stock purchase plan 54,626 109 479 588
Changes in unrealized gain (loss)
on securities available for sale (2,188) (2,188)
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 4,283,719 8,567 11,633 13,317 (1,974) 31,543
Net income 3,788 3,788
Cash dividends declared
($.40 per share) (1,697) (1,697)
Shares reissued from Treasury stock:
Stock option plan 1,000 (3) $ 6 3
Dividend reinvestment
and stock purchase plan 65,121 (22) 595 573
Changes in unrealized gain (loss)
on securities available for sale 1,777 1,777
Repurchase of common stock (127,320) (1,127) (1,127)
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 4,222,520 $8,567 $ 11,608 $ 15,408 $ (526) $ (197) $34,860
====================================================================================================================================
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31,
(Dollars in Thousands) 2000 1999 1998
=================================================================================================
Net Income $ 3,788 $ 4,167 $ 3,377
- - -------------------------------------------------------------------------------------------------
Unrealized gain (loss) on securities available for sale,
net of income taxes (benefit) of $915 in 2000,
($1,376) in 1999 and $150 in 1998 1,777 (2,245) 246
Less: reclassification adjustment for gains
included in net income, net of income
taxes of $35 in 1999 and $49 in 1998 57 (92)
- - -------------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss) 1,777 (2,188) 154
- - -------------------------------------------------------------------------------------------------
Comprehensive Income $ 5,565 $ 1,979 $ 3,531
=================================================================================================
See notes to consolidated financial statements.
22
25
CONSOLIDATED STATEMENTS OF CASH FLOWS
Westbank Corporation and Subsidiaries
Years ended December 31,
(Dollars in Thousands) 2000 1999 1998
=======================================================================================================
Operating activities:
Net income $ 3,788 $ 4,167 $ 3,377
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Cargill interim loss for period ended December 31, 1998 (224)
Provision for loan losses 472 77 41
Provision for other real estate owned 62 31 22
Depreciation and amortization 992 968 851
Intangible amortization 623 100
Realized gain on sale of securities (92) (141)
Realized gain on sale of other real estate owned (16) (34) (43)
Realized gain on sale of mortgages (136) (4) (120)
Deferred income taxes 282 (104) (107)
Change in assets and liabilities net of effects
from purchase of New London Trust:
Loans held for sale 306 190 2,100
Accrued interest receivable (734) (786) (217)
Other assets 417 (2,138) 814
Interest payable on deposits (5) 303 44
Other liabilities 385 (316) 36
- - -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,436 2,362 6,433
=======================================================================================================
Investing activities:
Securities:
Held to maturity:
Purchases (1,050) (21,473)
Proceeds from maturities 395 19,862 30,459
Available for sale:
Purchases (22,773) (35,627) (41,210)
Proceeds from sales 1,779 4,679 8,607
Proceeds from maturities 7,000 11,723 5,164
Purchases of premises and equipment (475) (1,926) (1,801)
Net (increase)/decrease in loans 7,311 (144,797) (32,987)
Proceeds from sale of other real estate owned 258 382 618
Assumption of liabilities of New London
Trust, net of cash acquired (173) (9,971)
- - -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,678) (156,725) (52,623)
=======================================================================================================
Financing activities:
Net increase in deposits 20,244 136,629 27,588
Net increase/(decrease) in short-term borrowings (25,777) 18,962 8,923
Increase in long-term borrowings 7,000
Proceeds from mandatory redeemable preferred stock 17,000
Proceeds from exercise of stock options
and stock purchase plan 576 727 1,897
Treasury stock repurchases (1,127)
Dividends paid (1,697) (1,653) (1,504)
- - -------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (7,781) 171,665 43,904
- - -------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (8,023) 17,302 (2,286)
Cash and cash equivalents at beginning of year 31,542 14,240 16,526
- - -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 23,519 $ 31,542 $ 14,240
=======================================================================================================
Cash paid during the year:
Interest on deposits and other borrowings $ 23,233 $ 15,013 $ 13,075
Income taxes 1,717 2,600 2,103
Supplemental disclosure of cash flow information:
Securitization of loans into mortgage-backed securities 5,067
Transfers of loans to other real estate owned 290 701
Loans to facilitate the sale of other real estate owned 618
See notes to consolidated financial statements.
23
26
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 BUSINESS
As of December 31, 2000, the Corporation operates two banking subsidiaries (the
"Banks"), Park West Bank and Trust Company ("Park West") with thirteen banking
offices and a trust department located in Hampden County, Massachusetts, and
Cargill Bank ("Cargill") with four offices in Windham County, Connecticut. A
full range of retail banking services are furnished to individuals, businesses
and non-profit organizations. The Corporation's primary source of revenue is
derived from providing loans to customers, predominately located in western
Massachusetts and northeastern Connecticut.
MERGER WITH CARGILL BANCORP, INC.
Effective January 29, 1999, Cargill Bancorp, Inc., and its subsidiary
("Cargill") were merged with and into Westbank Corporation ("Westbank"),
pursuant to a plan of merger dated July 15, 1998. Each share of Cargill common
stock was converted into 1.3655 shares of the Corporation's common stock. A
total of 400,164 Westbank common shares were issued for the outstanding common
stock of Cargill.
The transaction was accounted for using the pooling-of-interests method and,
accordingly, all historical financial data has been restated to include both
entities for all periods presented. Directs costs of mergers accounted for by
the pooling-of-interests method are expensed as incurred. Merger-related costs
expensed in 1998 aggregated $595,000. These merger expenses included legal,
accounting, regulatory and severance costs, as well as integration costs such as
conversions, abandonments and relocations, etc. The restatement of the
historical financial data is based on Westbank's fiscal year end December 31 and
Cargill's fiscal year end September 30. The Cargill loss of $224,000 for the
quarter ended December 31, 1998, has been included directly in stockholders'
equity in order to conform Cargill's reporting periods to the Corporation's as
of December 31, 1998. For the quarter ended December 31, 1998, Cargill had net
interest income of $456,000 and a net loss of $224,000. Included in operating
expenses were $346,000 of merger and related costs that were primarily the cause
of their loss.
The following table presents summary results of operations for the companies for
the immediate periods prior to the merger:
(Dollar amounts in thousands)
Westbank Cargill Combined
-------- ------- --------
Month Ended January 29,1999:
Net interest income $ 1,192 $ 138 $ 1,330
Net income 355 21 376
1998 Year:
Net interest income $13,442 $ 1,897 $15,339
Net income 3,256 121 3,377
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. The acquisition was allocated as follows:
Cash and cash equivalents $ 8,722
Loans 83,895
Other real estate owned 498
Bank premises and equipment 1,877
Intangible assets 10,071
Other assets 995
- - --------------------------------------------------------------------------------
Total Assets $106,058
================================================================================
Deposits $105,516
Other liabilities 542
- - --------------------------------------------------------------------------------
Total Liabilities $106,058
================================================================================
The corporation has accounted for this acquisition on the purchase accounting
method, including the results of their operations since October 29, 1999. The
intangible assets are being amortized over fifteen years.
24
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
The pro forma results of operations for the years ended December 31, 1999 and
1998, as if this acquisition had occurred at the beginning of these years, were
as follows:
1999 1998
---- ----
Net interest income $ 19,986 $ 18,256
Net income 4,520 3,467
Basic earnings per share $ 1.07 $ .84
Diluted earnings per share $ 1.04 $ .81
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiaries, Park West Bank and Trust Company, its
subsidiaries, Lorac Leasing Corp., Park West Securities Corporation, Park West
Real Estate Investment Trust, Inc., PWB&T Inc., and Cargill Bank. All material
intercompany balances and transactions have been eliminated upon consolidation.
Certain amounts in the 1999 and 1998 financial statements have been reclassified
to conform to the 2000 presentation.
The Corporation operates two community banks offering different products and
services. Since the Corporation derives a significant portion of its revenue and
expense from the Banks, no meaningful allocation of its resources is possible.
USE OF ESTIMATES
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 and affect the reported amounts of income and expenses for each year.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses, the valuation of
real estate acquired in connection with foreclosures or in satisfaction of
loans, and intangible assets. 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 Corporation's allowances for losses on loans and other
real estate owned. Such agencies may require the Corporation to recognize
additions to the allowances based on their judgments about information available
to them at the time of their examination.
NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities as amended by
SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of Effective Date of FASB Statement No. 133, which establishes
accounting and reporting standards for derivatives, derivative instruments
embedded in other contracts and for hedging activities. In 2000, the FASB issued
SFAS No. 138, Accounting for Certain Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for certain
derivatives, derivative instruments embedded in other contracts and for certain
hedging activities. These statements are effective for the Corporation's fiscal
2001 financial statements. Management has determined that the adoption of these
standards will have no significant impact on the Corporation's consolidated
financial statements.
CASH AND CASH EQUIVALENTS
The Corporation defines cash and due from banks and federal funds sold to be
cash and cash equivalents. The Bank is required to maintain reserve balances
with the Federal Reserve Bank. These balances can be in the form of either vault
cash or funds left on deposit with the Federal Reserve Bank. The average amount
of these balances was $3,484,000 for 2000.
SECURITIES
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 stockholders'
equity. The Corporation determines if securities will be classified as held to
maturity or available for sale at the time of purchase. In addition, any
mortgage-backed securities created out of the Corporation's own inventory of
residential real estate loans are also considered available for sale.
25
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
Gains and losses on sales of securities are recognized in non-interest income at
the time of sale on a specific identification basis. Securities which have
experienced an other than temporary decline in value are written down to
estimated fair value, establishing a new cost basis with the amount of the
write-down expensed as a realized loss. The Corporation does not engage in
trading activities.
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.
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 installment and other loans is calculated by
using the simple interest method on daily balances of the principal amount
outstanding. 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.
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,
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 on a loan in non-accrual status is applied to
reduce principal or, if management determines that the principal is collectible,
applied to interest 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 Corporation 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 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. The Corporation evaluates each impaired loan to
determine the appropriate income recognition practice. Generally, income is
recorded only on a cash basis for impaired loans.
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, 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 judgment 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.
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or fair value in the aggregate. Net unrealized
losses are recognized through a valuation allowance charged to income.
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.
OTHER REAL ESTATE OWNED
Other real estate owned ("OREO") includes properties the Corporation 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 Corporation's standard underwriting criteria, including receipt
of an adequate down payment.
26
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
LOAN SALES AND SERVICING RIGHTS
The Corporation sells loans in the secondary market and retains the related
servicing rights. Mortgage servicing rights are recognized as an asset when
loans are sold with servicing retained, by allocating the cost of an originated
mortgage loan between the loan and the servicing right based on estimated
relative fair values. The cost allocated to the servicing right is capitalized
as a separate asset and amortized in proportion to, and over the period of,
estimated net servicing income.
Capitalized mortgage servicing rights are evaluated for impairment by comparing
the asset's unamortized cost to its current estimated fair value. Fair values
are estimated using a discounted cash flow approach, which considers future
servicing income and costs, current market interest rates, and anticipated
prepayment and default rates. In making impairment evaluations, mortgage
servicing rights are stratified based on one or more of the predominant risk
characteristics of the underlying loans. The Corporation has stratified its
servicing portfolio for this purpose between fixed and adjustable rate loans.
Impairment losses, if any, are recognized through a valuation allowance for each
impaired stratum. Adjustments to the valuation allowance are charged or credited
to income.
INCOME TAXES
The asset and liability method of accounting for income taxes is utilized.
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 will
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. 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.
PENSION PLAN
The Corporation has a trusteed defined contribution pension plan covering
substantially all employees. The Corporation's policy is to fund accrued pension
cost.
STOCK OPTIONS
The Corporation measures compensation cost of stock options on the intrinsic
value of the common stock options granted. Intrinsic value is the excess of the
market value of the common stock over the exercise price at the date of grant.
Because stock options are granted with fixed terms and with an exercise price
equal to the market price of the common stock at the date of grant, there is no
measured compensation cost of stock options.
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 Corporation. Such assets totaled approximately $117,713,000 and
$113,008,000 at December 31, 2000 and 1999, 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.
EARNINGS PER SHARE
Basic earnings per share is the result of dividing earnings available to common
stockholders by the weighted average number of common shares outstanding during
the year. Diluted earnings per share gives effect to all potentially dilutive
common shares that were outstanding during the year.
27
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
2 - SECURITIES
Investment securities held to maturity at December 31 are as follows:
2000
Gross Gross Net
Amortized unrealized unrealized Fair unrealized
(Dollars in Thousands) cost gains losses value gain/(loss)
===================================================================================================
U.S. Government obligations $ 499 $ 3 $ 502 $ 3
Federal agency obligations 9,448 2 $ 45 9,405 (43)
Mortgage-backed securities 1,462 28 5 1,485 23
- - ---------------------------------------------------------------------------------------------------
$ 11,409 $ 33 $ 50 $ 11,392 $ (17)
===================================================================================================
1999
Gross Gross Net
Amortized unrealized unrealized Fair unrealized
(Dollars in Thousands) cost gains losses value gain/(loss)
===================================================================================================
U.S. Government obligations $ 499 $ 1 $ 500 $ 1
Federal agency obligations 9,459 $ 313 9,146 (313)
Mortgage-backed securities 1,846 8 28 1,826 (20)
- - ---------------------------------------------------------------------------------------------------
$ 11,804 $ 9 $ 341 $ 11,472 ($ 332)
===================================================================================================
During 2000, 1999 and 1998 there were no sales of investment securities
classified as held to maturity. Investment securities available for sale at
December 31 are as follows:
2000
Gross Gross Net
Amortized unrealized unrealized Fair unrealized
(Dollars in Thousands) cost gains losses value gain/(loss)
===================================================================================================
U.S. Government obligations $ 38 $ 38
Federal agency obligations 61,805 $ 162 $ 502 61,465 $ (340)
Equity securities 5,150 61 5,211 61
Mortgage-backed securities 18,955 90 116 18,929 (26)
Municipal bonds 614 10 624 10
- - ---------------------------------------------------------------------------------------------------
$ 86,562 $ 323 $ 618 $ 86,267 $ (295)
===================================================================================================
1999
Gross Gross Net
Amortized unrealized unrealized Fair unrealized
(Dollars in Thousands) cost gains losses value gain/(loss)
===================================================================================================
U.S. Government obligations $ 11 $ 11
Federal agency obligations 52,765 $ 2,386 50,379 ($ 2,386)
Equity securities 1,996 $ 28 2,024 28
Mortgage-backed securities 17,182 3 681 16,504 (678)
Municipal bonds 615 17 598 (17)
- - ---------------------------------------------------------------------------------------------------
$ 72,569 $ 31 $ 3,084 $ 69,516 ($ 3,053)
===================================================================================================
During 2000, 1999 and 1998, the Corporation recognized gross gains on securities
available for sale totaling $0, $92,000 and $141,000, respectively.
The contractual maturities of held-to-maturity and available-for-sale
securities, other than equity securities, as of December 31, 2000, are
summarized in the following tables. Actual maturities may differ from
contractual maturities because certain issuers have the right to call or prepay
obligations.
For the purposes of the following December 31, 2000 maturity table,
mortgage-backed securities, which are not due at a single maturity date, have
been allocated over maturity groupings based on the contractual maturities of
underlying collateral. The mortgage-backed securities may mature earlier than
their contractual maturities because of principal repayments.
28
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
Amortized Fair
(Dollars in Thousands) cost value
=================================================================================
Held to Maturity:
Within 1 year $ 1,722 $ 1,743
Over 1 year to 5 years 1,631 1,630
Over 5 years to 10 years 7,367 7,330
Over 10 years 689 689
- - ---------------------------------------------------------------------------------
Total debt obligations $11,409 $11,392
=================================================================================
Amortized Fair
(Dollars in Thousands) cost value
=================================================================================
Available for Sale:
Within 1 year $ 203 $ 203
Over 1 year to 5 years 11,958 11,919
Over 5 years to 10 years 47,500 47,337
Over 10 years 21,751 21,597
- - ---------------------------------------------------------------------------------
Total debt obligations $81,412 $81,056
=================================================================================
At December 31, 2000 securities with a book value and fair value of $27,499,000
and $27,344,000, respectively, 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) 2000 1999
=================================================================================
Commercial $ 60,652 $ 56,276
Real estate construction 5,160 5,952
Real estate 332,892 349,217
Consumer 34,578 31,556
- - ---------------------------------------------------------------------------------
433,282 443,001
Allowance for loan losses (3,670) (3,908)
Deferred loan origination fees (381) (526)
- - ---------------------------------------------------------------------------------
$ 429,231 $ 438,567
=================================================================================
Changes in the allowance for loan losses are summarized as follows:
(Dollars in Thousands) 2000 1999 1998
=================================================================================
Balance, beginning of year $ 3,908 $ 2,665 $ 3,057
Acquisition 1,669
Provision for loan losses 472 77 41
Loans charged off (789) (623) (518)
Recoveries 79 120 85
- - ---------------------------------------------------------------------------------
Balance, end of year $ 3,670 $ 3,908 $ 2,665
=================================================================================
The aggregate principal balance of non-accrual loans was $1,778,000 and
$2,001,000 at December 31, 2000 and 1999, respectively. Contractual interest
income that was not recognized on such non-accrual loans was $159,000, $77,000
and $35,000 for 2000, 1999 and 1998, respectively.
29
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
The Corporation did not sell any loans with recourse during 2000 or 1999. The
remaining recourse exposure on prior sales was $919,297 at December 31, 2000.
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 $332,892,000 in real estate loans at December 31, 2000, $248,059,000 are
collateralized by 1-4 family dwellings. The majority of the collateral for these
loans is located in the Corporation's market area of Western Massachusetts and
Northeast Connecticut. Commercial real estate and real estate construction loans
represented $89,993,000 in outstanding principal at December 31, 2000. These
loans encompass a wider region extending throughout Massachusetts and Southern
New England. Most are collateralized by commercial real estate. Commercial loans
both collateralized and uncollateralized of $60,652,000 at December 31, 2000,
represent loans made to businesses primarily in western Massachusetts and
northeastern Connecticut.
The Corporation 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, for directors,
policy-making officers and major stockholders during the years ended December
31:
(Dollars in Thousands) 2000 1999
=================================================================================
Balance at beginning of year $ 3,266 $ 3,041
New loans granted 1,915 766
Repayments of principal/sold (1,383) (541)
- - ---------------------------------------------------------------------------------
Balance at end of year $ 3,798 $ 3,266
=================================================================================
At December 31, 2000 and 1999, the recorded investment in impaired loans was
$1,778,000 and $2,365,000, respectively, for which no additional specific
allowance for loan losses was recorded. For the years ended December 31, 2000,
1999 and 1998, the average recorded investment in impaired loans was $1,184,000,
$874,000 and $1,366,000, respectively. Interest income recognized during 2000,
1999 and 1998 on impaired loans was not significant.
The Corporation had no commitments to lend additional funds to borrowers having
loans that are on non-accrual status, impaired or restructured.
The Corporation services loans for others which are not included in the
consolidated balance sheets. The unpaid balances of these loans totaled
$84,966,000, $97,622,000 and $115,391,000 at December 31, 2000, 1999 and 1998,
respectively.
4 - PROPERTY AND EQUIPMENT
Major classes of property and equipment at December 31 are summarized as
follows:
Estimated
(Dollars in Thousands) 2000 1999 Lives
================================================================================
Property (including land of $1,664
in 2000 and $1,514 in 1999) $ 7,191 $ 7,091 15-40 years
Capital lease building 263 263 15 years
Furniture and equipment 4,517 4,857 3-10 years
Leasehold and building
improvements 2,624 2,461 5-15 years
Motor vehicles 114 114 3 years
- - --------------------------------------------------------------------------------
14,709 14,786
Accumulated depreciation 7,417 6,977
- - --------------------------------------------------------------------------------
Property and Equipment $ 7,292 $ 7,809
================================================================================
30
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
5 - OTHER REAL ESTATE OWNED
At December 31, other real estate owned consisted of properties acquired through
foreclosure as follows:
(Dollars in Thousands) 2000 1999
================================================================================
Real estate acquired through foreclosure - net of OREO allowance $541 $442
================================================================================
Changes in the allowance for other real estate owned losses are summarized as
follows:
(Dollars in Thousands) 2000 1999 1998
===============================================================================================
Balance, beginning of year $ 31 $ 200
Acquisition $ 31
Provision for other real estate owned charged to operations 62 22
Write-downs (net of payments) (93) (222)
- - -----------------------------------------------------------------------------------------------
Balance, end of year $ $ 31 $
===============================================================================================
6 - DEPOSITS
Deposit accounts by type as of December 31 are summarized as follows:
(Dollars in Thousands) 2000 Rate 1999 Rate
================================================================================
Demand deposit $ 63,609 $ 59,643
Savings 104,859 3.34% 86,566 2.97%
NOW accounts 29,644 .64 31,082 .49
Money market accounts 18,849 3.16 32,694 3.29
Other time deposits 282,179 6.09 268,911 5.04
- - --------------------------------------------------------------------------------
$499,140 $478,896
================================================================================
At December 31, 2000, the scheduled maturities of other time deposits and IRA
deposits with a fixed maturity are as follows:
(Dollars in Thousands)
================================================================================
2001 $225,328
2002 43,616
2003 8,465
2004 820
2005 and after 3,950
- - --------------------------------------------------------------------------------
$282,179
================================================================================
Certificates of deposit with balances greater than or equal to $100,000 amounted
to $53,239,000 and $52,249,000 as of December 31, 2000 and 1999, respectively.
Interest paid on these deposits totaled approximately $2,898,000 and $1,754,000,
respectively.
7 - BORROWED FUNDS
Short-term borrowings as of December 31 are as follows:
(Dollars in Thousands) 2000 1999
================================================================================
Securities sold under agreements
to repurchase $11,937 $ 9,212
Purchased federal funds 400
FHLB advance 26,740
Treasury tax and loan notes 1,655 3,594
- - --------------------------------------------------------------------------------
Total short term borrowings $13,992 $39,546
================================================================================
The above short-term borrowings generally mature daily.
31
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
The following information relates to long-term debt as of December:
(Dollars in Thousands) 2000 1999
================================================================================
FHLB Term advance 5.87% due May 12, 2003 $7,000 $7,000
================================================================================
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) 2000 1999 1998
================================================================================
Balance at year end $20,992 $46,546 $27,807
Average amount outstanding 40,717 28,751 16,442
Maximum amount outstanding at any month-end 50,742 46,769 28,307
Average interest rate for the year 5.16% 5.37% 3.83%
Average interest rate on year-end balance 4.02% 4.97% 3.85%
The Corporation maintains a revolving line of credit with the Fleet Bank of
Massachusetts for $3,000,000 that is renewed on an annual basis. There were no
amounts outstanding against this line as of December 31, 2000 or 1999. The
Corporation had short term borrowing capacity through the Federal Home Loan Bank
of $7,244,000 through its Ideal Way program that was unused at year-end 2000.
Advances from the Federal Home Loan Bank of Boston (FHLB) are collateralized by
the Company's holdings of FHLB stock and residential real estate loans.
8 - MANDATORY REDEEMABLE PREFERRED STOCK
On September 30, 1999, the Corporation completed its offering of 1,700,000
shares, 9.6% trust preferred stock, each with a liquidation amount of $10. The
$17 million trust preferred debentures are due September 30, 2029. Quarterly
cash distributions were paid beginning December 31, 1999. Of the $17 million in
proceeds, the Corporation contributed $15.5 million of the net proceeds to
Cargill Bank as equity capital to support the acquisition of two Connecticut
branches of New London Trust, F.S.B. (see Note 1).
9 - INCOME TAXES
The income taxes (benefits) were as follows:
(Dollars in Thousands) 2000 1999 1998
================================================================================
Current tax:
Federal $ 1,569 $ 2,327 $ 1,943
State 117 386 312
- - --------------------------------------------------------------------------------
Total current 1,686 2,713 2,255
- - --------------------------------------------------------------------------------
Deferred taxes 282 (104) (107)
- - --------------------------------------------------------------------------------
Total income taxes $ 1,968 $ 2,609 $ 2,148
================================================================================
The differences between the effective tax rate and the federal statutory tax
rate on income before taxes are reconciled as follows:
2000 1999 1998
================================================================================
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit .2 4.0 4.4
Other .1 .5 .5
- - --------------------------------------------------------------------------------
34.3% 38.5% 38.9%
================================================================================
32
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31 are presented below:
(Dollars in Thousands) 2000 1999
================================================================================
Deferred tax assets:
Other real estate owned $ 6
Deferred loan fees 186
Unrealized loss on securities 98 1,080
Reserve for loan losses 1,094
Non-accrual interest 69 20
Amortization 71 92
Other 53 113
- - --------------------------------------------------------------------------------
Total deferred tax assets 1,385 1,497
- - --------------------------------------------------------------------------------
Deferred tax liabilities:
Bond accretion 4
Depreciation 243 237
Allowance for loan losses 1,342 122
Deferred FNMA premium 1 1
Other 21 93
- - --------------------------------------------------------------------------------
Total gross deferred tax liabilities 1,607 457
- - --------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (222) $ 1,040
================================================================================
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. Management considers the
scheduled reversal of deferred tax assets and liabilities 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 in which the
deferred tax assets are deductible, management believes it is more likely than
not that the Corporation will realize the benefits of these deductible
differences, net of the recorded valuation allowance.
10 - PENSION PLAN
The Corporation has a defined contribution pension plan (money purchase),
covering substantially all of its employees at Park West and Cargill Bank.
Contributions to the money purchase plan are a percentage of individual
employees' salary. Total pension expense for 2000, 1999 and 1998 amounted to
$425,000, $242,000 and $212,000, respectively. At December 31, 2000, the most
recent plan year end of the money purchase plan, total plan assets were
$4,233,000. The money purchase plan assets are invested in money market funds,
government bonds, corporate and government agency bonds and marketable
securities.
11 - STOCK OPTIONS
The Corporation has four fixed-option plans that reserve shares of common stock
for issuance to executives, key employees and directors. During 2000, 1999 and
1998, no compensation cost was required to be recognized for the stock option
plans. Had compensation costs for the Corporation's four stock option plans been
determined based on the fair value at the grant date for awards in 2000, 1999
and 1998 consistent with the provisions of SFAS No. 123, the Corporation's net
earnings and earnings per share would have been as follows:
33
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
(Dollars in Thousands, except per share data) 2000 1999 1998
================================================================================
Net earnings - as reported $3,788 $4,167 $3,377
Net earnings - pro forma 3,762 4,096 2,709
Earnings per share - as reported - Basic .90 .98 .82
- Diluted .89 .96 .79
Earnings per share - pro forma - Basic .89 .97 .65
- Diluted .88 .95 .63
The Corporation offers shares of common stock to officers and key employees
pursuant to the 1985 Incentive Stock Option Plan. As of December 31, 2000, all
options granted are exercisable. The following is a summary of the changes in
options outstanding:
2000 1999 1998
================================================================================
Options granted and exercisable
at the beginning of the year 39,828 44,284 191,466
Options exercised:
at $2.50 (350)
at $6.00 (1,000) (3,301) (146,832)
Options terminated at $6.00 (1,155)
- - --------------------------------------------------------------------------------
Options granted and exercisable
at the end of the year 38,828 39,828 44,284
================================================================================
Unless exercised the options will expire ten years after granting. No options
are available for future grants.
The Corporation adopted a Cargill Directors and Officers Stock Option Plan
during 1992.
The following is a summary of the changes in options outstanding under the
Cargill Directors and Officers Stock Option Plan:
2000 1999 1998
================================================================================
Options granted and exercisable
at the beginning of the year 43,908 65,862 97,479
Options exercised at $4.02 (21,954) (31,617)
- - --------------------------------------------------------------------------------
Options granted and exercisable
at the end of the year 43,908 43,908 65,862
================================================================================
Unless exercised the options will expire twenty years after granting. No options
are available for future grants.
The Corporation adopted a Directors Stock Option Plan during 1995.
The following is a summary of the changes in options outstanding under the
Directors Stock Option Plan:
2000 1999 1998
=================================================================================
Options granted and exercisable
at the beginning of the year 51,000 46,000 53,000
Options granted and exercisable:
at $12.875 9,000
at $14.75 3,000
at $12.00 10,000
at $8.75 8,000
at $8.8125 3,000
Options exercised at $6.00 (4,000) (15,000)
at $7.125 (1,000) (2,000)
at $9.375 (2,000)
- - ---------------------------------------------------------------------------------
Options granted and exercisable
at the end of the year 62,000 51,000 46,000
=================================================================================
Options available for future grants 37,000 48,000 58,000
=================================================================================
Unless exercised, the options will expire ten years after granting.
34
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
The Corporation adopted an incentive stock option plan during 1996 for directors
and employees. At the 1998 Annual Meeting of Shareholders, the 1996 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 the
1996 Incentive Stock Option Plan:
2000 1999 1998
==================================================================================================
Options available 27,000 119,500 36,500
Options authorized 200,000
==================================================================================================
Options granted and exercisable at the beginning of the year 349,000 256,500 141,500
- - --------------------------------------------------------------------------------------------------
Options granted and exercisable to directors at $9.00 8,000
Options granted and exercisable to directors at $15.25 10,000
Options granted and exercisable to employees at $13.375 107,000
Options granted and exercisable to directors at $10.50 9,000
Options granted and exercisable to employees at $10.125 83,500
Options exercised at $8.00 (2,000)
- - --------------------------------------------------------------------------------------------------
Options granted and exercisable at the end of the year 357,000 349,000 256,500
- - --------------------------------------------------------------------------------------------------
Options available for future grants 19,000 27,000 119,500
==================================================================================================
Unless exercised, options granted to directors expire twenty years and one day
from date of granting. Options to employees expire as determined by the Board of
Directors upon the issuance of each grant.
12 - EARNINGS PER SHARE
The following is a reconciliation of the shares and earnings per share utilized
for the basic and diluted earnings per share computations.
Shares Per Share
================================================================================
Basic Earnings Per Share:
2000 4,229,105 $ .90
1999 4,244,402 .98
1998 4,143,009 .82
Effect of Dilutive Option Shares:
2000 44,279 .01
1999 88,924 .02
1998 129,673 .03
Diluted Earnings Per Share:
2000 4,273,384 .89
1999 4,333,326 .96
1998 4,272,682 .79
13 - LEASES
The Corporation leases certain facilities under long-term operating lease
agreements. The following is a schedule of future minimum lease payments for
such operating leases as of December 31, 2000:
(Dollars in Thousands)
================================================================================
2001 $ 355
2002 360
2003 289
2004 265
2005 263
After 2005 117
- - --------------------------------------------------------------------------------
Total minimum lease payments $1,649
================================================================================
Rent expense for 2000, 1999 and 1998 amounted to $358,000, $291,000 and
$274,000, respectively.
35
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
14 - 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.
The following table summarizes the
contractual value of financial instruments and other commitments at December 31:
(Dollars in Thousands) 2000 1999
================================================================================
Commitments to grant loans $ 8,460 $ 4,604
Stand-by letters of credit and financial guarantees 631 835
Commitments to advance funds under existing loan agreements 38,569 38,827
The Corporation 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 Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation 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.
In the normal course of business, 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
operations.
15 - OTHER NON-INTEREST EXPENSE
The components of other non-interest 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) 2000 1999 1998
================================================================================
Merger related expenses $595
Advertising $612 $432 385
Supplies 464 324
16 - STOCKHOLDERS' EQUITY AND REGULATORY MATTERS
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
addresses 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.
Both the Corporation and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Corporation's or banking subsidiaries' financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, a bank must meet specific capital guidelines that
involve quantitative measures of a bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. A
bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require a bank to maintain minimum amounts and ratios (as defined in the
regulations) of total and Tier I capital to risk-weighted assets and of Tier I
capital to average assets. Management believes, as of December 31, 2000, that
the Corporation meets all capital adequacy requirements to which it is subject.
36
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
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 and a portion of the mandatory redeemable preferred stock;
total risk-based, or supplementary capital includes not only the equity but also
a portion of the allowance for loan losses and a portion of the mandatory
redeemable preferred stock.
As of December 31, 2000, the most recent notification from the Federal Deposit
Insurance Corporation categorized both Park West and Cargill as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, a bank must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios. There are no conditions or events since that
notification that management believes have changed the institution's category.
Included in Cargill's capital is approximately $15.5 million contributed in 1999
by the holding company in connection with the trust preferred offering. (Note 8)
The Corporation's, Park West's and Cargill's actual capital amounts and ratios
are also presented in the following table:
Minimum Capital
to be considered
well capitalized
under Prompt
Minimum Capital Corrective Action
Actual Adequacy Purposes Provisions
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
===========================================================================================================================
December 31, 2000
Total Capital (To risk-weighted assets):
Park West $33,601 12.13% $22,163 8.00% $27,704 10.00%
Cargill 10,826 12.90 6,711 8.00 8,389 10.00
Holding Company 46,200 12.84 28,788 8.00 N/A N/A
Tier I Capital (To risk-weighted assets):
Park West 31,093 11.22 11,082 4.00 16,623 6.00
Cargill 9,776 11.65 3,356 4.00 5,033 6.00
Holding Company 37,194 10.34% 14,394 4.00 N/A N/A
Tier I Capital (To average assets):
Park West 31,093 7.38 16,856 4.00 21,070 5.00
Cargill 9,776 6.44 6,073 4.00 7,592 5.00
Holding Company 37,194 6.45 23,077 4.00 N/A N/A
December 31, 1999
Total Capital (To risk-weighted assets):
Park West 31,389 11.66 21,533 8.00 26,917 10.00
Cargill 10,088 12.55 6,429 8.00 8,036 10.00
Holding Company 44,454 12.50 28,452 8.00 N/A N/A
Tier I Capital (To risk-weighted assets):
Park West 29,031 10.79 10,767 4.00 16,150 6.00
Cargill 9,077 11.30 3,215 4.00 4,822 6.00
Holding Company 36,175 10.17 14,226 4.00 N/A N/A
Tier I Capital (To average assets):
Park West 29,031 7.01 16,557 4.00 20,697 5.00
Cargill 9,077 5.81 6,237 4.00 7,796 5.00
Holding Company 36,175 6.92 20,904 4.00 N/A N/A
37
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
On November 19, 1997, the Board of Directors of the Corporation adopted an
Amended and Restated Shareholder Rights Plan (the "Rights Plan"). Pursuant to
the terms of the Rights Plan, the Board of Directors declared a dividend
distribution to stockholders of record as of the close of business on December
4, 1997 (the "Record Date") of one Preferred Stock Purchase Right (a "Right")
for each outstanding share of Common Stock of the Corporation. In addition, one
Right automatically attaches to each share of Common Stock issued subsequent to
the Record Date, until November 19, 2007. Each Right entitles the registered
holder to purchase from the Corporation a unit of one ten-thousandths of a share
(a "Unit") of Series A Junior Participating Cumulative Preferred Stock, par
value $5.00 per share ("Preferred Stock"), at a cash exercise price of $60.00
per share of Common Stock, subject to adjustment. The Corporation has reserved
12,000 shares of Preferred Stock for issuance upon exercise of the Rights.
Currently, the Rights are not exercisable and are attached to and trade with the
outstanding shares of Common Stock. The Rights will separate from the Common
Stock and become exercisable upon the earliest to occur of (i) the close of
business on the tenth calendar day following the first public announcement that
a person or group of affiliated or associated persons has acquired beneficial
ownership of 15% or more of the outstanding shares of the Corporation's Common
Stock (an "Acquiring Person"), (ii) the close of business on the tenth business
day (or such date as the Board of Directors may determine) following the
commencement of a tender offer or exchange offer that would result upon its
consummation in a person or a group becoming the beneficial owner of 15% of the
outstanding shares of the Corporation's Common Stock, or (iii) the determination
by the Board of Directors that any person is an "Adverse Person."
Upon the occurrence of any one of the above events, each holder of a Right
(other than the Acquiring Person or the Adverse Person, as the case may be) is
entitled to acquire such number of Units of the Preferred Stock of the
Corporation as are equivalent to such number of shares of Common Stock having a
value twice the current exercise price of the Right. If the Corporation is
acquired in a merger or other business combination transaction, after any such
event each holder of a Right is then entitled to purchase, at the then current
exercise price, shares of the acquiring company's common stock having a value of
twice the exercise price of the Right.
Until a Right is exercised, the holder has no rights as a stockholder of the
Corporation (beyond those rights as an existing stockholder), including the
right to vote or to receive dividends. While the distribution of the Rights is
not taxable to stockholders or to the Corporation, stockholders may, depending
upon the circumstances, recognize taxable income in the event the Rights become
exercisable for Units, other securities of the Corporation, other consideration
or for shares of common stock of an acquiring company.
The Rights may be redeemed in whole by the Corporation, under certain
circumstances, at a price of $.001 per Right. The Rights and the Rights Plan
expire on November 19, 2007.
Cargill's retained earnings at December 31, 2000 include $458,000 that is set
aside in accordance with existing provisions of the Internal Revenue Code to
absorb losses on loans. If, in the future, this amount were used for any other
purposes, a tax liability could be incurred. It is not anticipated that such
amount will be made available for dividends or that a tax thereon will be
imposed.
Cargill previously converted from a state chartered mutual savings and loan
association to a state chartered stock savings and loan association. At the time
of conversion, Cargill established a liquidation account in an amount equal to
Cargill's net worth. In the event of a complete liquidation of Cargill (and only
in such event), each eligible account holder will be entitled to receive a
liquidation distribution from the liquidation account before any liquidation
distribution may be made with respect to capital stock. The balance in the
liquidation account at December 31, 2000 was $85,000. Cargill may not declare or
pay a cash dividend on or purchase any of its stock if the effect would be to
reduce the net worth of Cargill below either the amount of the liquidation
account or the capital requirements of its regulators.
17 - 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, 2000 and 1999, the ESOP held no shares of the Corporation's stock.
38
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
18 - 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:
2000 1999
===============================================================================================
Carrying Estimated Carrying Estimated
(Dollars in Thousands) Amount Fair Value Amount Fair Value
- - -----------------------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 18,270 $ 18,270 $ 18,153 $ 18,153
Federal funds sold 5,249 5,249 13,389 13,389
Investment securities held to maturity 11,409 11,392 11,804 11,472
Investment securities available for sale 86,267 86,267 69,516 69,516
Loans 429,231 432,745 438,567 438,158
Liabilities:
Deposits 499,140 499,382 478,896 476,671
Borrowed funds 20,992 21,264 46,546 46,546
Mandatory redeemable preferred stock 17,000 18,630 17,000 17,213
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 matures 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.
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, including loans held for
sale, 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.
DEPOSITS
The fair value of deposits with no stated maturity, such as non-interest bearing
demand deposits, regular savings, NOW accounts and money market 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 AND MANDATORY REDEEMABLE PREFERRED STOCK
The fair value of such borrowings and mandatory redeemable preferred stock was
estimated by utilizing future cash flows discounted using current borrowing
rates for similar instruments. For short-term borrowings, the carrying amount
approximates the fair value due to their short-term nature.
39
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
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.
19 - SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
(Dollars in thousands, except per share amounts)
2000
------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Interest income $10,283 $10,566 $10,839 $10,957
Interest expense 5,295 5,665 6,192 6,076
------------------------------------------------------------------
Net interest income 4,988 4,901 4,647 4,881
Provision for losses 65 75 13 319
Non-interest income 578 606 555 913
Non-interest expense 4,076 3,761 3,982 4,022
------------------------------------------------------------------
Income before income taxes 1,425 1,671 1,207 1,453
Income taxes 524 592 370 482
------------------------------------------------------------------
Net income $ 901 $ 1,079 $ 837 $ 971
==================================================================
Earnings per share - Basic $ .21 $ .26 $ .20 $ .23
- Diluted $ .21 $ .25 $ .20 $ .23
==================================================================
1999
------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Interest income $ 7,343 $ 7,653 $ 7,954 $ 9,487
Interest expense 3,325 3,481 3,697 4,812
------------------------------------------------------------------
Net interest income 4,018 4,172 4,257 4,675
Provision for losses 75 2
Non-interest income 618 492 601 619
Non-interest expense 2,915 2,939 2,988 3,756
------------------------------------------------------------------
Income before income taxes 1,646 1,723 1,870 1,538
Income taxes 625 652 735 597
------------------------------------------------------------------
Net income $ 1,021 $ 1,071 $ 1,135 $ 941
==================================================================
Earnings per share - Basic $ .24 $ .25 $ .27 $ .22
- Diluted $ .24 $ .25 $ .26 $ .21
==================================================================
40
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
20 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
December 31,
(Dollars in Thousands) 2000 1999
================================================================================
BALANCE SHEETS
Assets
Cash $ 69 $ 1,096
Investment in subsidiaries 50,216 46,097
Other investments 41 9
Other assets 1,541 1,357
- - --------------------------------------------------------------------------------
Total assets $ 51,867 $ 48,559
================================================================================
Liabilities $ 7 $ 16
- - --------------------------------------------------------------------------------
Mandatory redeemable preferred stock 17,000 17,000
- - --------------------------------------------------------------------------------
Stockholders' equity
Preferred stock - none
Common stock, par value $2 per share 8,567 8,567
Additional paid-in capital 11,608 11,633
Retained earnings 15,408 13,317
Treasury stock (526)
Accumulated other comprehensive loss (197) (1,974)
- - --------------------------------------------------------------------------------
Stockholders' equity 34,860 31,543
- - --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 51,867 $ 48,559
================================================================================
(Dollars in Thousands) 2000 1999 1998
================================================================================
STATEMENTS OF INCOME
Dividend from subsidiary $ 2,598 $ 600 $ 100
Interest income (expense) (1,617) (385) 85
Other income (expense) - net (135) (85) (735)
- - --------------------------------------------------------------------------------
Income (loss) before taxes and
undistributed income of subsidiaries 846 130 (550)
Income tax benefit 600 159 215
Undistributed income of subsidiaries 2,342 3,878 3,712
- - --------------------------------------------------------------------------------
Net income $ 3,788 $ 4,167 $ 3,377
================================================================================
41
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
20 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
December 31,
(Dollars in Thousands) 2000 1999 1998
=====================================================================================================
STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income $ 3,788 $ 4,167 $ 3,377
Cargill interim loss for quarter ended 12/31/98 (224)
Operating activities:
Equity in income of subsidiaries (2,342) (3,878) (3,622)
Increase in other assets (184) (595) (418)
Increase (decrease) in other liabilities (9) (156) 151
- - -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,253 (462) (736)
- - -----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment securities (purchases) maturities (32) 918 450
Contribution of capital to subsidiary (15,500)
- - -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (32) (14,582) 450
- - -----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from mandatory
redeemable preferred stock issue 17,000
Proceeds from stock options exercised 3 139 1,141
Proceeds from dividend reinvestment
and optional stock purchases 573 588 628
Treasury shares redeemed (1,127)
Dividends paid (1,697) (1,653) (1,504)
- - -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (2,248) 16,074 265
- - -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,027) 1,030 (21)
Cash and cash equivalents at the beginning of the year 1,096 66 87
- - -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 69 $ 1,096 $ 66
=====================================================================================================
42
45
INDEPENDENT AUDITORS' REPORT
Westbank Corporation and Subsidiaries
Shareholders and Board of Directors,
Westbank Corporation
We have audited the consolidated balance sheets of Westbank Corporation and
subsidiaries (the "Corporation") as of December 31, 2000 and 1999 and the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. 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. The consolidated financial statements give
retroactive effect to the merger on January 29, 1999, of Cargill Bancorp, Inc.,
and subsidiary and Westbank Corporation and subsidiaries, which has been
accounted for as a pooling of interests as described in Note 1 to the
consolidated financial statements. We did not audit the consolidated statements
of operations, comprehensive income, stockholders' equity and cash flows of
Cargill Bancorp, Inc., for the year ended September 30, 1998, which statements
reflect net interest income of $1,897,000 for the year ended September 30, 1998.
Those statements were audited by other auditors whose report dated October 30,
1998, has been furnished to us and our opinion, insofar as it relates to the
amounts included for Cargill Bancorp, Inc., and subsidiary for 1998 is based
solely on the report of such other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Westbank Corporation and subsidiaries at December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
January 29, 2001
Shareholders and Board of Directors,
Cargill Bancorp, Inc.
We have audited the consolidated statements of operations, comprehensive income,
changes in stockholders' equity and cash flows of Cargill Bancorp, Inc., and
subsidiary for the year ended September 30, 1998. 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 its operations and its cash
flows of Cargill Bancorp, Inc., and subsidiary for the year ended September 30,
1998, in conformity with generally accepted accounting principles.
SNYDER & HALLER
Hartford, Connecticut
October 30, 1998
43
46
CORPORATE DIRECTORY AND INFORMATION
Westbank Corporation and Subsidiaries
DIRECTORS
Westbank Corporation and Park West Bank and Trust Company
- - --------------------------------------------------------------------------------
ERNEST N. LAFLAMME, JR.
Chairman of the Board,
Westbank Corporation
Treasurer,
City of Chicopee
ROLAND O. ARCHAMBAULT
President and Owner,
Pinnacle Raceway
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
G. WAYNE MCCARY
President and Chief Executive Officer,
Eastern States Exposition
ROBERT J. PERLAK
Corporate Clerk,
Westbank Corporation
Private Investor
GEORGE R. SULLIVAN
Chief Executive Officer,
Sullivan Paper Company, Inc.
JAMES E. TREMBLE
President,
Valley Communications Systems, Inc.
CARGILL BANK
- - --------------------------------------------------------------------------------
JOHN J. MAHER
Chairman of the Board,
Cargill Bank
Attorney at Law,
Maher and Cotnoir
GARY L. BRIGGS
Executive Vice President,
Cargill Bank
Executive Vice President,
Park West Bank and Trust Company
DONALD R. CHASE,
President and Chief Executive Officer,
Westbank Corporation
RAYMOND P. FAUCHER
Co-owner,
Superior Bakery/Superior Cake Products
KENNETH R. LACASSE
President and Chief Executive Officer,
Cargill Bank
ELLIS H. PAINE
President & Owner,
EHPCO, Inc.
DANIEL S. ROVERO
Mayor,
Putnam, Connecticut
FREDERICK J. WITKOWSKI
President (Retired),
Johnson Corrugated Products Corp.
H. DEXTER YOUNG
Corporate Clerk,
Cargill Bank
Owner,
Valleyside Farm
OFFICERS
WESTBANK CORPORATION
- - --------------------------------------------------------------------------------
DONALD R. CHASE
President and Chief Executive Officer
JOHN M. LILLY
Treasurer and Chief Financial Officer
GARY L. BRIGGS
Executive Vice President
KATHLEEN A. JALBERT
Senior Vice President
TRENTON E. TAYLOR
Senior Vice President
LLOYD S. HALL
Director of Auditing
PARK WEST BANK AND TRUST COMPANY
- - --------------------------------------------------------------------------------
DONALD R. CHASE
President and Chief Executive Officer
AUDITING DIVISION
LLOYD S. HALL, CBA
Director of Auditing
COMPLIANCE
JANE M. KNAPP
Vice President
BRANCH ADMINISTRATION/
HUMAN RESOURCES
KATHLEEN A. JALBERT
Senior Vice President
DEBORAH A. KUMIEGA
Assistant Vice President
SUSAN M. ALDRICH
Human Resources Officer
EDP/OPERATIONS
S. STEVE KONIECKI
Senior Vice President
FINANCE DEPARTMENT
JOHN M. LILLY
Executive Vice President and Treasurer
IRVING M. WALKER, JR., CMA
Controller
LOAN DIVISION
GARY L. BRIGGS
Executive Vice President
PAUL M. ACCORSI
Senior Vice President
DAVID M. BARSZCZ
Vice President
CLIFFORD R. BORDEAUX
Vice President
GERARD E. DRAPEAU
Vice President
RICHARD N. HANCHETT
Vice President
JOSEPH S. LEMAY
Vice President
JOSEPH P. YOUNG
Vice President
JOHN E. O'BRIEN
Loan Operations Officer
MICHAEL J. HARRINGTON
Commercial Loan Officer
J. KEVIN HOURIHAN
Dealer Account Officer
LOAN CREDIT AND COLLECTION
TRENTON E. TAYLOR
Senior Vice President
PATRICIA A. NEBOSKY
Assistant Vice President
MARKETING
JAMES P. HICKEY, JR.
Vice President
RESIDENTIAL REAL ESTATE
STANLEY F. OSOWSKI
Senior Vice President
WOLFGANG A. ADAMETZ
Vice President
TRUST DIVISION
ROBERT A. GIBOWICZ
Senior Trust Officer
CARGILL BANK
- - --------------------------------------------------------------------------------
KENNETH R. LACASSE
President and Chief Executive Officer
HOWARD STANTON, III
Senior Vice President and
Chief Financial Officer
GARY L. BRIGGS
Executive Vice President
DENISE M. BREWER
Senior Vice President
S. STEVE KONIECKI
Senior Vice President
STANLEY F. OSOWSKI
Senior Vice President
TRENTON E. TAYLOR
Senior Vice President
KATHRYN J. SAUCIER
Assistant Vice President
ALMA D. MOREY
Branch Administration Officer
44
47
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 18, 2001, 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 - Trust Department
INDEPENDENT AUDITORS
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 NASDAQ regional market quotations.
- - --------------------------------------------------------------------------------
2000 1999
Bid Bid
High Low Dividend High Low Dividend
- - --------------------------------------------------------------------------------
First $9 7/8 $8 1/4 $0.10 $12 7/8 $10 1/2 $0.10
Second 9 7 7/8 0.10 10 1/2 9 1/8 0.10
Third 8 3/4 7 9/16 0.10 11 15/16 10 0.10
Fourth 8 5/8 6 7/8 0.10 10 5/8 8 3/8 0.10
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, 2001, the Corporation had 1,311 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) 747-1400. The following firms make a market in Westbank Corporation's
common stock:
Advest Inc.
Keefe, Bruyette & Woods, Inc.
McConnell, Budd & Downes, Inc.
Moors & Cabot, Inc.
Ryan, Beck & Co., Inc.
Tucker Anthony Incorporated
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.
IBC