1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2001
Commission file number 0 - 12784
WESTBANK CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2830731
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer I.D. No.)
225 PARK AVENUE, WEST SPRINGFIELD, MASSACHUSETTS 01090-0149
(Address of principal executive offices) (Zip Code)
(413) 747-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the
past 90 days.
YES X NO
---- ----
Common stock, par value $2.00 per share: 4,297,245 shares outstanding as of
July 31, 2001
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WESTBANK CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Comprehensive Income 5
Condensed Consolidated Statements of Stockholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7-9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-18
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 19
ITEM 2. Changes in Rights of Securities Holders 19
ITEM 3. Defaults by Company on its Senior Securities 19
ITEM 4. Submission of Matters to a Vote of Security Holders 19
ITEM 5. Other Information 19
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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3
ITEM 1. FINANCIAL STATEMENTS
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands, except per share data) June 30, 2001 December 31, 2000
- -------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks:
Non-interest bearing $ 16,846 $ 18,043
Interest bearing 923 227
Federal funds sold 570 5,249
- ---------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 18,339 23,519
- ---------------------------------------------------------------------------------------------------------
Investment securities available for sale 115,709 86,267
Investment securities held to maturity
(approximate market value of $5,320 in 2001 and $11,392 in 2000) 5,287 11,409
- ---------------------------------------------------------------------------------------------------------
Total securities 120,996 97,676
- ---------------------------------------------------------------------------------------------------------
Loans 437,621 432,901
Allowance for loan losses (4,074) (3,670)
- ---------------------------------------------------------------------------------------------------------
Net loans 433,547 429,231
Bank premises and equipment 6,861 7,292
Other real estate owned 137 541
Accrued interest receivable 3,435 3,977
Intangible assets 9,179 9,521
Other assets 2,684 2,839
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS $595,178 $574,596
=========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 65,530 $ 63,609
Interest bearing 406,386 435,531
- ---------------------------------------------------------------------------------------------------------
Total Deposits 471,916 499,140
Borrowed funds 66,910 20,992
Accrued interest payable 1,048 727
Other liabilities 1,855 1,877
- ---------------------------------------------------------------------------------------------------------
Total Liabilities 541,729 522,736
- ---------------------------------------------------------------------------------------------------------
Mandatory redeemable preferred stock 17,000 17,000
- ---------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock - $2.00 par value
Authorized - 9,000,000 shares
Issued - 4,253,059 shares in 2001 and
4,192,882 shares in 2000 8,567 8,567
Additional paid in capital 11,570 11,608
Retained earnings 16,608 15,408
Treasury stock (250) (526)
Accumulated other comprehensive income (loss) (46) (197)
- ---------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 36,449 34,860
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $595,178 $574,596
=========================================================================================================
See accompanying notes to condensed consolidated financial statements.
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WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
June 30 (unaudited) QUARTER ENDED SIX MONTHS ENDED
- --------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share data) 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------
Income:
Interest and fees on loans $8,436 $8,815 $16,943 $17,507
Interest and dividend income on securities 1,661 1,723 3,249 3,246
Interest on federal funds sold 18 28 70 96
- --------------------------------------------------------------------------------------------------------------
Total interest and dividend income 10,115 10,566 20,262 20,849
Interest expense 4,996 5,665 10,294 10,960
- --------------------------------------------------------------------------------------------------------------
Net interest income 5,119 4,901 9,968 9,889
Provision for loan losses 159 75 386 140
- --------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 4,960 4,826 9,582 9,749
- --------------------------------------------------------------------------------------------------------------
Non-interest income:
Investment security gains 31
Gain on sale of mortgages 243 243
Other non-interest income 744 606 1,473 1,184
- --------------------------------------------------------------------------------------------------------------
Total non-interest income 987 606 1,747 1,184
- --------------------------------------------------------------------------------------------------------------
Non-interest expenses:
Salaries and benefits 2,122 1,920 4,165 3,962
Other non-interest expense 1,762 1,509 3,321 3,189
Occupancy - net 365 332 754 686
- --------------------------------------------------------------------------------------------------------------
Total non-interest expense 4,249 3,761 8,240 7,837
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 1,698 1,671 3,089 3,096
Income taxes 580 592 1,051 1,116
- --------------------------------------------------------------------------------------------------------------
Net Income $1,118 $1,079 $ 2,038 $ 1,980
==============================================================================================================
Earnings per share
- Basic $0.26 $0.26 $0.48 $0.47
- Diluted $0.26 $0.25 $0.48 $0.46
Weighted average shares outstanding
- Basic 4,250,461 4,204,822 4,242,706 4,238,753
- Dilutive option shares 44,013 50,042 38,749 54,018
- Diluted 4,294,474 4,254,864 4,281,455 4,292,771
==============================================================================================================
See accompanying notes to condensed consolidated financial statements.
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WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2000 AND SIX MONTHS ENDED JUNE 30, 2001
(2001 unaudited)
(Dollar amounts in thousands)
ACCUMULATED
COMMON STOCK OTHER
----------------- ADDITIONAL COMPREHENSIVE
NUMBER PAR PAID IN RETAINED TREASURY INCOME/
OF SHARES VALUE CAPITAL EARNINGS STOCK (LOSS) TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1999 4,283,719 $8,567 $11,633 $13,317 $(1,974) $31,543
Net income 3,788 3,788
Cash dividend declared
($.40 per share) (1,697) (1,697)
Treasury Shares:
Redeemed (127,320) $(1,127) (1,127)
Reissued 66,121 (25) 601 576
Unrealized gain (loss) on
securities available for sale 1,777 1,777
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2000 4,222,520 8,567 11,608 15,408 (526) (197) 34,860
Net income 2,038 2,038
Cash dividend declared
($.20 per share) (838) (838)
Treasury Shares:
Redeemed (3,200) (26) (26)
Reissued 33,739 (38) 302 264
Unrealized gain (loss) on
securities available for sale 151 151
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 2001 4,253,059 $8,567 $11,570 $16,608 $ (250) $ (46) $36,449
===========================================================================================================================
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
QUARTER ENDED SIX MONTHS ENDED
(Dollar amounts in thousands) 06-30-01 06-30-00 06-30-01 06-30-00
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $1,118 $1,079 $2,038 $1,980
- -----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income:
Change in unrealized gain/(loss) on securities available for sale, net of
income taxes (benefits) of $(264) and $(9) for the quarter and $(67) and
$(75) for the six-month periods
ended June 30, 2001 and 2000, respectively (512) 16 171 (122)
- -----------------------------------------------------------------------------------------------------------------------------------
Reclassification adjustment for gains included in net
income, net of income taxes of $11 for the six-month
period ended June 30, 2001 (20)
- -----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (512) 16 151 (122)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income $ 606 $1,095 $2,189 $1,858
===================================================================================================================================
See accompanying notes to condensed consolidated financial statements.
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WESTBANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
(Dollar amounts in thousands)
2001 2000
- -----------------------------------------------------------------------------------------------------
Operating activities:
Net income $ 2,038 $ 1,980
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 386 140
Provision for other real estate owned 25
Depreciation and amortization 478 525
Intangible amortization 342 286
Realized gain on sale of securities (31)
Realized gain on sale of other real estate owned (28)
Realized gain on sale of mortgages (243)
(Increase)/Decrease in accrued interest receivable 542 (605)
(Increase)/Decrease in other assets 155 (1,473)
Increase/(Decrease) in interest payable on deposits 321 (163)
Increase/(Decrease) in other liabilities (22) 1,186
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,963 1,876
- -----------------------------------------------------------------------------------------------------
Investing activities:
Investments and mortgage-backed securities:
Held to maturity:
Purchases
Proceeds from maturities and principal payments 6,122 208
Available for sale:
Purchases (67,370) (19,366)
Proceeds from sales 5,350
Proceeds from maturities 32,645 878
Purchases of premises and equipment (47) (200)
Net increase in loans (4,365) (7,423)
Proceeds from sale of other real estate owned 428 78
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (27,237) (25,825)
- -----------------------------------------------------------------------------------------------------
Financing activities:
Net increase in borrowed funds 45,918 3,973
Net increase / (decrease) in deposits (27,224) 8,196
Treasury stock (purchased)/issued, net 238 (794)
Dividends paid (838) (852)
- -----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 18,094 10,523
- -----------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (5,180) (13,426)
Cash and cash equivalents at beginning of period 23,519 31,542
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $18,339 $18,116
=====================================================================================================
Cash paid during the period:
Interest on deposits and other borrowings $10,316 $11,123
Income taxes 350 1,147
Supplemental disclosure of cash flow information:
Transfers of loans to other real estate owned 27 308
See accompanying notes to condensed consolidated financial statements.
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WESTBANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER AND SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000
(Unaudited)
NOTE A - GENERAL INFORMATION
Westbank Corporation (hereinafter sometimes referred to as "Westbank" or the
"Corporation") is a registered Bank Holding Company organized to facilitate the
expansion and diversification of the business of Park West Bank and Trust
Company and Cargill Bank (hereinafter sometimes referred to as "Park West" or
"Cargill" and collectively as the "Banks") into additional financial services
related to banking. Substantially all operating income and net income of the
Corporation are presently accounted for by Park West and Cargill.
NOTE B - CURRENT OPERATING ENVIRONMENT
Park West operates thirteen banking offices located in Hampden County,
Massachusetts, and also operates a Trust Department providing services normally
associated with holding property in a fiduciary or agency capacity. A full range
of retail banking services is furnished to individuals, businesses and
non-profit organizations. Cargill Bank operates four offices in Windham County,
Connecticut. A full range of retail banking services is furnished to
individuals, businesses and non-profit organizations. The primary source of
revenue for Park West and Cargill is derived from providing loans to customers
who are predominantly located in Park West's and Cargill's service areas.
On April 19, 2001 and May 2, 2001 respectively, the Boards of Directors of Park
West and Cargill voted to merge Cargill Bank with and into Park West. Both Park
West and Cargill Bank are wholly-owned subsidiaries of Westbank Corporation. The
purpose of the merger is to consolidate the operations of both banks, resulting
in reduced operating costs through improved efficiencies and economies of scale.
The merger is subject to regulatory approval and the resultant financial
institution will operate under the name Westbank.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
imposes significant regulatory restrictions and requirements on banking
institutions insured by the FDIC and their holding companies. FDICIA established
capital categories into which financial institutions are placed based on capital
level. Each capital category establishes different degrees of regulatory
restrictions that can apply to a financial institution. As of June 30, 2001,
Park West and Cargill's capital was at a level that placed the Banks in the
"well capitalized" category as defined by FDICIA.
FDICIA imposes a variety of other restrictions and requirements on insured
banks. These include significant regulatory reporting requirements such as
insuring that a system of risk-based deposit insurance premiums and civil money
penalties for inaccurate deposit assessment reports exists. In addition, FDICIA
imposes a system of regulatory standards for bank and bank holding company
operations, detailed truth in savings disclosure requirements, and restrictions
on activities authorized by state law but not authorized for national banks.
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NOTE C - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for the
quarter and six months ended June 30, 20010 and 2000 have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("generally accepted accounting principles") for interim information and
with instructions for Form 10-Q. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting or normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the quarter and six-month
period ended June 30, 2001 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2001. In preparing such
financial statements, management is required to make estimates and assumptions
that effect the reported amounts. Actual results could differ significantly from
these estimates.
For further information, please refer to the Consolidated Financial Statements
and footnotes thereto included in the Westbank Corporation's Annual Report on
Form 10-K for the year ended December 31, 2000.
NOTE D - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments and
contingent liabilities, such as standby letters of credit and commitments to
extend credit. As of June 30, 2001, standby letters of credit amounted to
$367,000 and loan commitments were $ 45,588,000 and unused balances available on
home equity lines of credit were $13,027,000.
Trust Assets - Property with a book value of $108,884,000 at June 30, 2001 held
for customers in a fiduciary or agency capacity is not included in the
accompanying balance sheet since such items are not assets of the Bank.
NOTE E - STOCKHOLDERS' EQUITY
The FDIC imposes leverage capital ratio requirements for state non-member banks.
In addition, the FDIC has established risk-based capital requirements for
insured institutions for Tier 1 risk-based capital of 4.00% and total risk-based
capital of 8.0%.
The capital ratios of Park West and Cargill as of June 30, 2001 were as follows:
Park West Bank
and Trust Company Cargill Bank
Leverage Capital Ratio 7.74% 7.09%
Tier 1 Risk-Based Capital 11.34% 12.99%
Total Risk-Based Capital 12.38% 14.26%
As of June 30, 2001, both Park West and Cargill met the criteria which
classified them as well capitalized financial institutions.
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NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that all business combinations be accounted for
under the purchase method. The statement further requires separate recognition
of intangible assets that meet one of two criteria. The statement applies to all
business combinations initiated after June 30, 2001.
SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. The statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually or more frequently, if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. Existing
goodwill will continue to be amortized through the remainder of Fiscal 2001, at
which time amortization will cease and Westbank will perform a transitional
goodwill impairment test. SFAS No. 142 is effective for the Corporation
beginning January 1, 2002. The Corporation is currently evaluating the impact of
the new accounting standards on existing goodwill and other intangible assets.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
Information Concerning Forward-Looking Statements
The following forward-looking statements are made in accordance with the Private
Securities Litigation Reform Act of 1995.
Westbank has made, and may make in the future, forward-looking statements
concerning future performance, including, but not limited to, future earnings
and events or conditions that may affect such future performance. These
forward-looking statements are based upon management's expectations and belief
concerning possible future developments and the potential effect of such future
developments on Westbank. There is no assurance that such future developments
will be in accordance with management's expectations and belief or that the
effect of any future developments on Westbank will be those anticipated by
Westbank management.
All assumptions that form the basis of any forward-looking statements regarding
future performance, as well as events or conditions that may affect such future
performance, are based on factors that are beyond Westbank's ability to control
or predict with precision, including future market conditions and the behavior
of other market participants. Among the factors that could cause actual results
to differ materially from such forward-looking statements are the following:
1. The status of the economy in general, as well as in Westbank's prime
market areas of western Massachusetts and northeastern Connecticut;
2. The real estate market in western Massachusetts and northeastern
Connecticut;
3. Competition in Westbank's prime market area from other banks,
especially in light of continued consolidation in the New England
banking industry;
4. Any changes in federal and state bank regulatory requirements;
5. Changes in interest rates; and
6. The cost and other effects of unanticipated legal and administrative
cases and proceedings, settlements and investigations.
While Westbank periodically reassesses material trends and uncertainties
affecting the Corporation's performance in connection with its preparation of
management's discussion and analysis of results of operations and financial
condition contained in its quarterly and annual reports, Westbank does not
intend to review or revise any particular forward-looking statement.
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Changes in Financial Condition
Total consolidated assets amounted to $595,178,000 on June 30, 2001, compared to
$574,596,000 on December 31, 2000. As of June 30, 2001 and December 31, 2000,
earning assets amounted to, respectively, $560,110,000 or 94% of total assets
and $536,053,000 or 93% of total assets. Earning assets increased during the
first six months of 2001 as a result of an increase in loans and investments.
Borrowing with the Federal Home Loan Bank funded the growth in assets as
deposits (primarily time deposits) declined during the six-month period.
Changes in Results of Operations
For the quarter ended June 30, 2001, net income totaled $1,118,000, compared to
$1,079,000 for the quarter ended June 30, 2000. For the six months ended June
30, 2001, net income was $2,038,000, compared to $1,980,000 for the same period
during 2000. Included in the results for the six months ended June 30, 2001 was
a gain on the sale of mortgages totaling approximately $240,000.
An overall decrease in interest income and interest expense reflects a decrease
in volume and interest rates on earning assets and a decrease in volume and
rates on interest-bearing liabilities. Further analysis is provided in sections
on net interest revenue and supporting schedules.
Allowance for Loan Losses and Non-Performing Assets
The Corporation's provision for loan losses in the current quarter was $159,000,
compared to $75,000 for the same period in 2000. Loans written off against the
allowance for loan losses after recoveries amounted to $21,000 for the quarter
ended June 30, 2001.
After giving effect to the actions described above, the allowance for loan
losses at June 30, 2001, totaled $4,074,000 or .93% of total loans, as compared
to $3,670,000 or .85% at December 31, 2000.
Non-performing past due loans at June 30, 2001 aggregated $2,091,000 or .48% of
total loans, compared to $2,196,000 or .51% at December 31, 2000. The percentage
of non-performing and past due loans compared to total assets on those same
dates, respectively, amounted to .35% and .38%.
Other real estate owned at June 30, 2001, totaled $137,000 and stands at .02% of
total assets at the end of the current quarter and .09% as of December 30, 2000.
Management has made every effort to recognize all circumstances known at this
time that could affect the collectibility of loans and has reflected these in
the provision for loan losses, the write-down of other real estate owned and
impaired loans to fair value and other loans (watch list) monitored by
management, the charge-off of loans and the balance in the allowance for loan
losses. Management deems that the provision for loan loss and the balance in the
allowance for loan losses for the quarter and six-months ended June 30, 2001 are
adequate, based on results provided by the loan grading system and circumstances
known at this time.
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NET INTEREST INCOME
The Corporation's earning assets include a diverse portfolio of earning
instruments, ranging from the Corporation's core business of loan extensions to
interest-bearing securities issued by federal, state and municipal authorities.
These earning assets are financed through a combination of interest-bearing and
interest-free sources.
Net interest income, the most significant component of earnings, is the amount
by which the interest generated by assets exceeds the interest expense on
liabilities. For analytical purposes, the interest earned on tax exempt assets
is adjusted to a "tax equivalent" basis to recognize the income tax savings,
which facilitates comparison between taxable and tax exempt assets.
The Corporation analyzes its performance by utilizing the concepts of interest
rate spread and net yield on earning assets. The interest rate spread represents
the difference between the yield on earning assets and interest paid on
interest-bearing liabilities. The net yield on earning assets is the difference
between the rate of interest on earning assets and the effective rate paid on
all funds - interest-bearing liabilities as well as interest-free sources
(primarily demand deposits and shareholders' equity).
The balances and rates derived for the analysis of net interest income presented
on the following pages reflect the consolidated assets and liabilities of the
Corporation's principal earning subsidiaries, Park West Bank and Trust Company
and Cargill Bank.
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-01 06-30-00 06-30-01 06-30-00
- ----------------------------------------------------------------------------------------------------
Interest and dividend income $10,115 $10,566 $20,262 $20,849
Interest expense 4,996 5,665 10,294 10,960
- ----------------------------------------------------------------------------------------------------
Net interest income $ 5,119 $ 4,901 $ 9,968 $ 9,889
Tax equivalent adjustment 39 36 84 68
- ----------------------------------------------------------------------------------------------------
Net interest income (taxable equivalent) $ 5,158 $ 4,937 $10,052 $ 9,957
====================================================================================================
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands)
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
- ---------------------------------------------------------------------------------------------------------------
Earning Assets $540,148 7.52% $542,974 7.81% $533,938 7.62% $537,227 7.79%
Interest-bearing
liabilities 469,932 4.25 485,124 4.67 465,554 4.42 479,918 4.57
- ---------------------------------------------------------------------------------------------------------------
Interest rate spread 3.27 3.14 3.20 3.22
- ---------------------------------------------------------------------------------------------------------------
Interest-free resources
used to fund
earning assets 70,216 57,850 68,384 57,309
- ---------------------------------------------------------------------------------------------------------------
Total Sources of Funds $540,148 $542,974 $533,938 $537,227
===============================================================================================================
Net Yield on Earning Assets 3.82% 3.64% 3.77% 3.71%
===============================================================================================================
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CHANGES IN NET INTEREST INCOME
(Dollar amounts in thousands)
QUARTER ENDED 06-30-01 SIX MONTHS ENDED 06-30-01
OVER OVER
QUARTER ENDED 06-30-00 SIX MONTHS ENDED 06-30-00
- -----------------------------------------------------------------------------------------------
CHANGE DUE TO CHANGE DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
- -----------------------------------------------------------------------------------------------
Interest Income:
Loans $(170) $(207) $(377) $(350) $(198) $(548)
Securities 107 (168) (61) 220 (217) 3
Federal funds (5) (5) (10) (28) 2 (26)
- -----------------------------------------------------------------------------------------------
Total Interest Earned (68) (380) (448) (158) (413) (571)
- -----------------------------------------------------------------------------------------------
Interest Expense:
Interest-bearing deposits (253) (331) (584) (242) (86) (328)
Other borrowed funds 128 (213) (85) (99) (239) (338)
- -----------------------------------------------------------------------------------------------
Total Interest Expense (125) (544) (669) (341) (325) (666)
Net Interest Income $ 57 $164 $221 $183 $ (88) $ 95
==============================================================================================
Net interest earned on a tax equivalent basis increased by $221,000 during the
second quarter of 2001 compared to the second quarter of 2000. For the six-month
period ended June 30, 2001, net interest income increased by $95,000 versus the
same period of 2000.
Average earning assets declined by $3,289,000 during the first six months of
2001. The average earning base was $533,938,000 compared to $537,227,000 in the
same period last year.
OPERATING EXPENSES
The components of total operating expenses for the periods and their percentage
of gross income are as follows:
(Dollars amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-01 06-30-00 06-30-01 06-30-00
- ----------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
- ---------------------------------------------------------------------------------------------------------------
Salaries and benefits $2,122 19.11% $1,920 17.19% $4,165 18.92% $3,962 17.98%
Other non-interest expense 1,762 15.87 1,509 13.51 3,321 15.09 3,189 14.47
Occupancy - net 365 3.29 332 2.96 754 3.43 686 3.12
- ---------------------------------------------------------------------------------------------------------------
Total Operating Expenses $4,249 38.27% $3,761 33.66% $8,240 37.44% $7,837 35.57%
==============================================================================================================
For the six-month period ended June 30, 2001, operating expenses increased by
approximately $403,000 over the 2000 period. The increase was a result of
increases in salary and benefits totaling $203,000, occupancy expense totaling
$68,000 and an increase in other non-interest expense of $132,000. The increases
are a result of the overall growth of the Corporation, coupled with inflationary
increases.
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CAPITAL RATIOS
06-30-01 06-30-00
-------- --------
The following is the Corporation's
ratio of "Tier 1" leverage capital to
total assets at end of period 7.00% 6.23%
Regulatory risk-based capital requirements take into account the different risk
categories of banking organizations by assigning risk weight to assets and the
credit equivalent amounts of off-balance sheet exposures.
In addition, capital is divided into two tiers. For this Corporation, Tier 1
includes the common stockholders' equity 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. Net unrealized
gain/(losses) on securities available for sale are not permitted to be included
for regulatory capital purposes.
The following are the Corporation's risk-based capital ratios at June 30, 2001:
Tier 1 Capital (minimum required 4.00%) 10.93%
Tier 2 Capital (minimum required 8.00%) 13.41%
INTEREST RATE SENSITIVITY
The following table sets forth the distribution of the repricing of the
Corporation's earning assets and interest-bearing liabilities as of June 30,
2001.
(Dollar amounts in thousands)
Three Over Three Over One
Months Months to Year to Over
or Less One Year Five Years Five Years Total
- ----------------------------------------------------------------------------------------------
Earning Assets $ 75,502 $ 76,985 $144,360 $263,263 $560,110
Interest-Bearing
Liabilities 133,150 150,984 182,378 23,784 490,296
- ----------------------------------------------------------------------------------------------
Interest Rate
Sensitivity Gap $ (57,648) $(73,999) $ (38,018) $239,479 $69,814
==============================================================================================
Cumulative Interest
Rate
Sensitivity Gap $ (57,648) $(131,647) $(169,665) $ 69,814
Interest Rate
Sensitivity
Gap Ratio (10.29)% (13.21)% (6.79)% 42.76%
Cumulative Interest
Rate Sensitivity
Gap Ratio (10.29)% (23.50)% (30.29)% 12.46%
14
15
LIQUIDITY
The Corporation's liquidity represents the ability to meet loan commitments,
deposit withdrawals and any other cash needs as they arise. Funds to meet
liquidity are available by converting liquid assets or by generating new
deposits or through other funding sources. Factors affecting a bank's liquidity
needs include changes in interest rates, demand for loan products and general
economic conditions. The Corporation has alternative sources of liquidity,
including federal funds lines of credit, lines of credit available through the
Federal Home Loan Bank of Boston and repurchase agreements. Management believes
that the Corporation's level of liquidity is adequate to meet current and future
funding needs.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-01 06-30-00 06-30-01 06-30-00
- -----------------------------------------------------------------------------------
Balance at beginning of period $3,936 $3,820 $3,670 $3,908
Provision charged to expense 159 75 386 140
- -----------------------------------------------------------------------------------
4,095 3,895 4,056 4,048
- -----------------------------------------------------------------------------------
Charge-offs:
Loans secured by real estate 7 7 138
Commercial and industrial loans 19 31
Consumer loans 32 15 59 24
- -----------------------------------------------------------------------------------
39 34 66 193
- -----------------------------------------------------------------------------------
Recoveries:
Loans secured by real estate 2 22 59 22
Commercial and industrial loans 12 9 18 9
Consumer loans 4 4 7 10
- -----------------------------------------------------------------------------------
18 35 84 41
- -----------------------------------------------------------------------------------
Net charge-offs (recoveries) 21 (1) (18) 152
- -----------------------------------------------------------------------------------
Balance at end of period $4,074 $3,896 $4,074 $3,896
===================================================================================
Net charge-offs to:
Average loans .00% .00% .00% .03%
Loans at end of period .00% .00% .00% .03%
Allowance for loan losses .01% .00% (.01%) 3.90%
Allowance for loan losses
as a percentage of:
Average loans .93% .88% .94% .88%
Loans at end of period .93% .87% .93% .87%
The approach the Corporation uses in determining the adequacy of the allowance
for loan losses is the combination of a target reserve and a general reserve
allocation. Quarterly, based on an internal review of the loan portfolio, the
Corporation identifies required reserve allocations targeted to recognized
problem loans that, in the opinion of management, have potential loss exposure
or questions relative to the depth of the collateral on these same loans. In
addition, the Corporation allocates a general reserve against the remainder of
the loan portfolio.
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16
WESTBANK CORPORATION AND SUBSIDIARIES
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(Dollar amounts in thousands)
06-30-01 03-31-01 12-31-00 09-30-00 06-30-00
- -----------------------------------------------------------------------------------------
Non-Accrual Loans $1,926 $2,441 $1,778 $1,693 $ 691
- -----------------------------------------------------------------------------------------
Loans contracturally past
due 90 days or more
and still accruing 165 355 418 364 778
- -----------------------------------------------------------------------------------------
Total non-accrual, past due
and restructured loans $2,091 $2,796 $2,196 $2,057 $1,469
- -----------------------------------------------------------------------------------------
Non-accrual, past due and
restructured loans as a
percentage of total loans 0.48% 0.65% 0.51% 0.46% 0.33%
- -----------------------------------------------------------------------------------------
Allowance for loan losses as a
percentage of non-accrual,
past due and restructured loans 194.84% 140.77% 167.12% 168.21% 265.21%
- -----------------------------------------------------------------------------------------
Other real estate owned - net $ 137 $ 135 $ 541 $ 605 $ 640
- -----------------------------------------------------------------------------------------
Total non-performing assets $2,228 $2,931 $2,737 $ 2,662 $2,141
- -----------------------------------------------------------------------------------------
Non-performing assets as a
percentage of total assets 0.37% 0.52% 0.48% 0.45% 0.36%
- -----------------------------------------------------------------------------------------
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WESTBANK CORPORATION AND SUBSIDIARIES
QUARTER-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
- ---------------------------------------------------------------------------------------------------------
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
JUNE 30, 2001 JUNE 30, 2000
Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------
Federal funds sold and
temporary investments $ 1,553 $ 18 4.64% $ 1,933 $ 28 5.79%
Securities 102,457 1,665 6.50 96,242 1,726 7.17
Loans 436,138 8,471 7.77 444,799 8,848 7.96
- ----------------------------------------------------------------------------------------------------------
Total earning assets $ 540,148 $ 10,154 7.52% $542,974 $10,602 7.81%
- ----------------------------------------------------------------------------------------------------------
Loan loss allowance (4,068) (3,982)
All other assets 37,264 39,708
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 573,344 $578,700
==========================================================================================================
LIABILITIES AND EQUITY
Interest-bearing deposits $ 400,796 $ 4,075 4.07% $424,377 $4,659 4.39%
Borrowed funds 69,136 921 5.33 60,747 1,006 6.62
- ----------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 469,932 4,996 4.25 485,124 5,665 4.67
- ----------------------------------------------------------------------------------------------------------
Interest rate spread 3.27% 3.14%
Demand deposits 63,426 59,733
Other liabilities 3,722 2,672
Shareholders' equity 36,264 31,171
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $573,344 $578,700
==========================================================================================================
NET INTEREST INCOME $5,158 $4,937
==========================================================================================================
Interest Earned/Earning Assets 7.52% 7.81%
Interest Expense/Earning Assets 3.70 4.17
- ----------------------------------------------------------------------------------------------------------
Net Yield on Earning Assets 3.82% 3.64%
Deduct Tax Equivalent Adjustment 39 36
- ----------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $5,119 $4,901
==========================================================================================================
17
18
WESTBANK CORPORATION AND SUBSIDIARIES
YEAR-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
- -------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------
Federal funds sold and
temporary investments $ 2,631 $ 70 5.32% $ 3,483 $ 96 5.51%
Securities 97,595 3,256 6.67 91,208 3,253 7.13
Loans 433,712 17,020 7.85 442,536 17,568 7.94
- -------------------------------------------------------------------------------------------------------
Total earning assets 533,938 $ 20,346 7.62% 537,227 $ 20,917 7.79%
- -------------------------------------------------------------------------------------------------------
Loan loss allowance (3,935) (3,990)
All other assets 37,214 39,298
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 567,217 $572,535
=======================================================================================================
LIABILITIES AND EQUITY
Interest-bearing deposits $ 408,069 $ 8,679 4.25% $419,341 $ 9,007 4.26%
Borrowed funds 57,485 1,615 5.62 60,577 1,953 6.45
- -------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 465,554 $ 10,294 4.42 479,918 10,960 4.57
- -------------------------------------------------------------------------------------------------------
Interest rate spread 3.20% 3.22%
Demand deposits 61,933 58,925
Other liabilities 3,887 2,517
Shareholders' equity 35,843 31,175
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $ 567,217 $572,535
=======================================================================================================
NET INTEREST INCOME $ 10,052 $9,957
=======================================================================================================
Interest Earned/Earning Assets 7.62% 7.79%
Interest Expense/Earning Assets 3.85 4.08
- -------------------------------------------------------------------------------------------------------
Net Yield on Earning Assets 3.77% 3.71%
Deduct Tax Equivalent Adjustment 84 68
- -------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 9,968 $9,889
=======================================================================================================
18
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Corporation's assessment of its
sensitivity to market risk since its presentation in the 2000 Annual Report
filed with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Certain litigation is pending against the Corporation and its
subsidiaries. Management, after consultation with legal counsel,
does not anticipate that any liability arising out of such
litigation will have a material effect on the Corporation's
financial statements.
ITEM 2. Changes in Rights of Securities Holders - NONE
ITEM 3. Defaults by Company on its Senior Securities - NONE
ITEM 4. Results of Votes on Matters Submitted to a Vote of Security Holders
- NONE
ITEM 5. Other Events
None.
ITEM 6. Exhibits and Reports on Form 8
EXHIBIT INDEX
Page No.
--------
3. Articles of Organization, as amended **
(a) Articles of Organization, as amended *
(b) By-Laws, as amended *
10. Material Contracts - None
27. Financial Data Schedule To be included
* Incorporated by reference to identically numbered exhibits contained in
Registrant's Annual Report on Form 10-K for the year ended December 31,
1988.
** Incorporated by reference to identically numbered exhibits contained in
Registrant's Annual Report on Form 10-K for the year ended December 31,
1987.
b. Reports on Form 8-K - None
19
20
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
WESTBANK CORPORATION
Date: August 10, 2001 /s/
------------------------------------
Donald R. Chase
President and Chief Executive Officer
Date: August 10, 2001 /s/
------------------------------------
John M. Lilly
Treasurer and Chief Financial Officer
20