UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 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: 4,315,795 shares outstanding as of
October 31, 2001
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 Stockholders' Equity 5
Condensed Consolidated Statements of Comprehensive Income 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 Events 19
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
ITEM 1. FINANCIAL STATEMENTS
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands, except per share data) September 30, 2001 December 31, 2000
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks:
Non-interest bearing $14,763 $18,043
Interest bearing 747 227
Federal funds sold 2,869 5,249
-------- --------
Total cash and cash equivalents 18,379 23,519
-------- --------
Investment securities available for sale 125,729 86,267
Investment securities held to maturity
(estimated fair value of $2,211 in 2001 and $11,392 in 2000) 2,178 11,409
-------- --------
Total securities 127,907 97,676
-------- --------
Loans 453,776 432,901
Allowance for loan losses (4,090) (3,670)
-------- --------
Net loans 449,686 429,231
Bank premises and equipment - net 6,665 7,292
Other real estate owned 117 541
Accrued interest receivable 3,823 3,977
Intangible assets 9,008 9,521
Other assets 10,416 2,839
-------- --------
TOTAL ASSETS $626,001 $574,596
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $69,384 $63,609
Interest bearing 447,655 435,531
-------- --------
Total deposits 517,039 499,140
Borrowed funds 48,056 20,992
Accrued interest payable 1,159 727
Other liabilities 4,033 1,877
-------- --------
Total liabilities 570,287 522,736
-------- --------
Mandatory redeemable preferred stock 17,000 17,000
-------- --------
Stockholders' Equity:
Common stock - $2.00 par value
Authorized - 9,000,000 shares
Issued - 4,253,035 shares in 2001 and
4,222,520 shares in 2000 8,596 8,567
Additional paid in capital 11,678 11,608
Retained earnings 17,120 15,408
Treasury stock (385) (526)
Accumulated other comprehensive income (loss) 1,705 (197)
-------- --------
Total stockholders' equity 38,714 34,860
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $626,001 $574,596
======== ========
See accompanying notes to condensed consolidated financial statements.
3
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
(Dollar amounts in thousands, except per share data) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Income:
Interest and fees on loans $8,459 $8,944 $25,402 $26,451
Interest and dividend income on securities 2,061 1,794 5,310 5,040
Interest on federal funds sold 20 101 90 197
--------- --------- --------- ---------
Total interest and dividend income 10,540 10,839 30,802 31,688
Interest expense 5,349 6,192 15,643 17,152
--------- --------- --------- ---------
Net interest income 5,191 4,647 15,159 14,536
Provision for loan losses 279 13 665 153
--------- --------- --------- ---------
Net interest income after provision for loan losses 4,912 4,634 14,494 14,383
--------- --------- --------- ---------
Non-interest income:
Investment security gains 5 36
Gain on sale of mortgages 243
Other non-interest income 904 555 2,377 1,739
--------- --------- --------- ---------
Total non-interest income 909 555 2,656 1,739
--------- --------- --------- ---------
Non-interest expenses:
Salaries and benefits 2,162 1,976 6,327 5,938
Other non-interest expense 1,911 1,667 5,232 4,856
Occupancy - net 356 339 1,110 1,025
--------- --------- --------- ---------
Total non-interest expense 4,429 3,982 12,669 11,819
--------- --------- --------- ---------
Income before income taxes 1,392 1,207 4,481 4,303
Income taxes 452 370 1,503 1,486
--------- --------- --------- ---------
Net Income $940 $837 $2,978 $2,817
========= ========= ========= =========
Earnings per share
- Basic $0.22 $0.20 $0.70 $0.67
- Diluted $0.22 $0.20 $0.69 $0.66
Weighted average shares outstanding
- Basic 4,262,573 4,206,430 4,249,328 4,230,001
- Dilutive option shares 72,218 38,861 71,921 48,675
--------- --------- --------- ---------
- Diluted 4,334,791 4,245,291 4,321,249 4,278,676
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
4
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2000 AND NINE MONTHS ENDED SEPTEMBER 30, 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) $(1,127) (1,127)
Reissued 66,121 (25) 601 576
Unrealized gain (loss) on
securities available for sale 1,777 1,777
--------- ------ ------- ------- ----- ------ -------
BALANCE - DECEMBER 31, 2000 4,222,520 8,567 11,608 15,408 (526) (197) 34,860
Net income 2,978 2,978
Cash dividend declared
($.30 per share) (1,266) (1,266)
Shares issued under Dividend Reinvestment
and Common Stock Purchase Plan 14,076 29 108 137
Treasury Shares:
Redeemed (17,300) (161) (161)
Reissued 33,739 (38) 302 264
Unrealized gain (loss) on
securities available for sale 1,902 1,902
--------- ------ ------- ------- ----- ------ -------
BALANCE - SEPTEMBER 30, 2001 4,253,035 $8,596 $11,678 $17,120 $(385) $1,705 $38,714
========= ====== ======= ======= ===== ====== =======
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollar amounts in thousands) QUARTER ENDED NINE MONTHS ENDED
09-30-01 09-30-00 09-30-01 09-30-00
- --------------------------------------------------------------------------------------------
Net Income $940 $837 $2,978 $2,817
------ ------ ------ ------
Other comprehensive income:
Change in unrealized
gain/(loss) on securities
available for sale, net of
income taxes (benefits) of
$906 and $382 for the
quarter and $994 and $319
for the nine-month periods
ended September 30, 2001 and
2000, respectively 1,758 741 1,926 619
Reclassification
adjustment for gains
included in net income,
net of income taxes of $2
for the quarter and $12
for the nine-month period
ended September 30, 2001 (4) (24)
Other comprehensive income 1,754 741 1,902 619
------ ------ ------ ------
Comprehensive Income $2,694 $1,578 $4,880 $3,436
====== ====== ====== ======
See accompanying notes to condensed consolidated financial statements.
5
WESTBANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED)
(Dollar amounts in thousands)
2001 2000
------------ ------------
Operating activities:
Net income $2,978 $2,817
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 665 153
Provision for other real estate owned 25 62
Depreciation and amortization 674 788
Intangible amortization 513 457
Realized gain on sale of securities (36)
Realized gain on sale of other real estate owned (43) (50)
Realized gain on sale of mortgages (243)
(Increase)/Decrease in accrued interest receivable 154 (775)
(Increase) in other assets (7,577) (915)
Increase in accrued interest payable 432 386
Increase in other liabilities 940 691
------- -----
Net cash (used in)/provided by operating activities (1,518) 3,614
------- -----
Investing activities:
Investments and mortgage-backed securities:
Held to maturity:
Purchases
Proceeds from maturities and principal payments 9,231 306
Available for sale:
Purchases (93,835) (21,389)
Proceeds from sales 7,863
Proceeds from maturities 49,665 4,424
Purchases of premises and equipment (47) (363)
Net increase in loans (20,886) (8,834)
Proceeds from sale of other real estate owned 450 85
------- -----
Net cash used in investing activities (47,559) (25,771)
------- -----
Financing activities:
Net increase/(decrease)in borrowed funds 27,064 (12,118)
Net increase in deposits 17,899 21,432
Treasury stock issued/(purchased), net 240 (650)
Dividends paid (1,266) (1,274)
------- -----
Net cash provided by financing activities 43,937 7,390
------- -----
Decrease in cash and cash equivalents (5,140) (14,767)
Cash and cash equivalents at beginning of period 23,519 31,542
------- -----
Cash and cash equivalents at end of period $18,379 $16,775
======= =======
Cash paid during the period:
Interest on deposits and other borrowings $15,211 $16,766
Income taxes 350 1,222
Supplemental disclosure of cash flow information:
Transfers of loans to other real estate owned 153 357
Loans to facilitate the sale of other real estate owned 57
See accompanying notes to condensed consolidated financial statements.
6
WESTBANK CORPORATION AND SUBSIDIARIES (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
NOTE A - GENERAL INFORMATION
Westbank Corporation (hereinafter sometimes referred to as "the Corporation") is
a registered Bank Holding Company organized to facilitate the expansion and
diversification of the business of Westbank (hereinafter sometimes referred to
as "the Bank") into additional financial services related to banking.
Substantially all operating income and net income of the Corporation are
presently accounted for by the Bank.
NOTE B - CURRENT OPERATING ENVIRONMENT
On September 7, 2001, the Corporation completed the merger of its wholly owned
banking subsidiaries, Cargill Bank and Park West Bank and Trust Company. The
consolidated bank is operating under the name Westbank as a Massachusetts
state-chartered commercial bank and trust company.
Westbank operates seventeen banking offices throughout western Massachusetts and
northeastern Connecticut, 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. The primary source of revenue for
Westbank is derived from providing loans to customers who are predominantly
located in the Bank's service areas.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
imposes significant regulatory restrictions and requirements on banking
institutions insured by the FDIC and their holding companies. FDICIA established
capital categories into which financial institutions are placed based on capital
level. Each capital category establishes different degrees of regulatory
restrictions that can apply to a financial institution. As of September 30,
2001, Westbank's capital was at a level that placed the Bank in the "well
capitalized" category as defined by FDICIA.
FDICIA imposes a variety of other restrictions and requirements on insured
banks. These include significant regulatory reporting requirements such as
insuring that a system of risk-based deposit insurance premiums and civil money
penalties for inaccurate deposit assessment reports exists. In addition, FDICIA
imposes a system of regulatory standards for bank and bank holding company
operations, detailed truth in savings disclosure requirements, and restrictions
on activities authorized by state law but not authorized for national banks.
7
NOTE C - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for the
quarter and nine months ended September 30, 2001 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 of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the quarter and
nine-month period ended September 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 affect 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 September 30, 2001, standby letters of credit amounted to
$355,000 and loan commitments were $52,222,000 and unused balances available on
home equity lines of credit were $13,668,000.
Trust Assets - Property with a book value of $107,759,000 at September 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 the Bank as of September 30, 2001 were as follows:
Leverage Capital Ratio 7.15%
Tier 1 Risk-Based Capital 11.38%
Total Risk-Based Capital 12.45%
As of September 30, 2001, the Bank met the criteria for a well-capitalized
financial institution.
8
NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 141, "Business Combinations," ("SFAS No.
141") and Statement of Financial Account Standards Number 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"). 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
provide 1) 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 and 2)
that existing goodwill will continue to be amortized through the remainder of
Fiscal 2001, at which time amortization should cease and a transitional goodwill
impairment test would be performed. 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.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER AND NINE MONTHS ENDED SEPTEMBER 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.
The Corporation 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 the Corporation. 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 the Corporation will be those
anticipated by 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 the Corporation'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 the Corporation's
primary market areas of western Massachusetts and northeastern
Connecticut;
2. The real estate market in western Massachusetts and northeastern
Connecticut;
3. Competition in the Corporation's primary 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;
6. The cost and other effects of unanticipated legal and administrative
cases and proceedings, settlements and investigations;
7. Unanticipated changes in laws and regulations, including federal and
state banking laws and regulations, to which the Corporation and its
subsidiaries are subject;
8. Changes in accounting policies and practices, as may be adopted by the
Financial Accounting Standards Board or any regulatory agency having
authority over the Corporation and/or its subsidiaries; and
9. Other risks and factors as discussed herein.
While the Corporation 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, the Corporation does
not intend to review or revise any particular forward-looking statement.
10
Changes in Financial Condition
Total consolidated assets amounted to $626,001,000 on September 30, 2001,
compared to $574,596,000 on December 31, 2000. As of September 30, 2001 and
December 31, 2000, earning assets amounted to, respectively, $585,299,000 or 93%
of total assets and $536,053,000 or 93% of total assets. Earning assets
increased during the first nine months of 2001 as a result of an increase in
loans and investments. Deposits and borrowings with the Federal Home Loan Bank
funded the growth in assets.
Changes in Results of Operations
For the quarter ended September 30, 2001, net income totaled $940,000, compared
to $837,000 for the quarter ended September 30, 2000. For the nine months ended
September 30, 2001, net income was $2,978,000, compared to $2,817,000 for the
same period during 2000. The quarter and nine months ended September 30, 2001,
included expenses totaling approximately $270,000 relating to the merger of the
Corporation's banking subsidiaries.
The overall decrease in both interest income and interest expense reflects the
decrease in interest rates on earning assets and the decrease in rates on
interest-bearing liabilities, coupled with an increase in volume of earning
assets and interest-bearing liabilities for the quarter ended September 30,
2001. Further analysis is provided in sections on "Net Interest Income",
"Interest Rate Spread and Net Yield on Earning Assets", and "Changes in Net
Interest Income."
Allowance for Loan Losses and Non-Performing Assets
The Corporation's provision for loan losses in the current quarter was $279,000,
compared to $13,000 for the same period in 2000. Loans written off against the
allowance for loan losses after recoveries amounted to $262,000 for the quarter
ended September 30, 2001.
After giving effect to the actions described above, the allowance for loan
losses at September 30, 2001 totaled $4,090,000 or .90% of total loans, as
compared to $3,670,000 or .85% at December 31, 2000.
Non-performing and past due loans at September 30, 2001 aggregated $1,668,000 or
.37% 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 .27% and .38%.
Other real estate owned at September 30, 2001, totaled $117,000 and stands at
.01% of total assets at the end of the current quarter and .09% at December 31,
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 believes that the provision for loan losses and the balance
in the allowance for loan losses for the quarter and nine-months ended September
30, 2001 are adequate, based on results provided by the loan grading system and
circumstances known at this time.
11
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 subsidiary.
(Dollar amounts in thousands)
QUARTER ENDED NINE MONTHS ENDED
09-30-01 09-30-00 09-30-01 09-30-00
- -----------------------------------------------------------------------------------------------------------
Interest and dividend income $10,540 $10,839 $30,802 $31,688
Interest expense 5,349 6,192 15,643 17,152
-------- -------- ------- -------
Net interest income $5,191 $4,647 $15,159 $14,536
Tax equivalent adjustment 40 46 124 114
======== ======== ======= =======
Net interest income (taxable equivalent) $5,231 $4,693 $15,283 $14,650
======== ======== ======= =======
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands)
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
- ----------------------------------------------------------------------------------------------------------------------------
Earning Assets $580,803 7.29% $556,944 7.82% $549,573 7.50% $543,794 7.80%
Interest-bearing
liabilities 514,075 4.16 497,680 4.98 481,748 4.33 485,838 4.71
-------- ---- -------- ---- -------- ---- -------- ----
Interest rate spread 3.13 2.84 3.17 3.09
---- ---- ---- ----
Interest-free resources
used to fund
earning assets 66,728 59,264 67,825 57,956
-------- -------- -------- --------
Total Sources of Funds $580,803 $556,944 $549,573 $543,794
======== ======== ======== ========
Net Yield on Earning Assets 3.61% 3.37% 3.70% 3.59%
==== ==== ==== ====
12
CHANGES IN NET INTEREST INCOME
(Dollar amounts in thousands)
QUARTER ENDED 09-30-01 NINE MONTHS ENDED 09-30-01
OVER OVER
QUARTER ENDED 09-30-00 NINE MONTHS ENDED 09-30-00
- -------------------------------------------------------------------------------------------------------------------
CHANGE DUE TO CHANGE DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
- -------------------------------------------------------------------------------------------------------------------
Interest Income:
Loans $(73) $(418) $(491) $(423) $(616) $(1,039)
Securities 444 (177) 267 664 (394) 270
Federal funds (21) (60) (81) (49) (58) (107)
---- ---- ---- ---- ---- ----
Total Interest Earned 350 (655) (305) 192 (1,068) (876)
---- ---- ---- ---- ---- ----
Interest Expense:
Interest-bearing deposits (231) (812) (1,043) (473) (898) (1,371)
Other borrowed funds 332 (132) 200 233 (371) (138)
---- ---- ---- ---- ---- ----
Total Interest Expense 101 (944) (843) (240) (1,269) (1,509)
---- ---- ---- ---- ---- ----
Net Interest Income
(taxable equivalent) $249 $289 $538 $432 $201 $633
==== ==== ==== ==== ==== ====
Net interest earned on a tax equivalent basis increased by $538,000 during the
third quarter of 2001 compared to the third quarter of 2000. For the nine-month
period ended September 30, 2001, net interest income increased by $633,000
versus the same period of 2000.
Average earning assets increased by $23,859,000 and $5,779,000 during the three
and nine months ended September 30, 2001.
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 NINE MONTHS ENDED
09-30-01 09-30-00 09-30-01 09-30-00
- -----------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
- -----------------------------------------------------------------------------------------------------------------------
Salaries and benefits $2,162 18.88% $1,976 17.34% $6,327 18.91% $5,938 17.76%
Other non-interest expense 1,911 16.69 1,667 14.63 5,232 15.64 4,856 14.53
Occupancy - net 356 3.11 339 2.98 1,110 3.32 1,025 3.07
------ ----- ------ ----- ------- ----- ------- -----
Total Operating Expenses $4,429 38.68% $3,982 34.95% $12,669 37.87% $11,819 35.36%
====== ===== ====== ===== ======= ===== ======= =====
For the nine-month period ended September 30, 2001, operating expenses increased
by approximately $850,000 over the 2000 period. The increase was a result of
increases in salary and benefits totaling $389,000, occupancy expense totaling
$85,000 and an increase in other non-interest expense of $376,000. Included in
the three-month and nine-month periods ended September 30, 2001 were $270,000 in
expenses related to the merger of the Corporation's banking subsidiaries. The
remaining increases are a result of the overall growth of the Corporation,
coupled with inflationary increases.
13
CAPITAL RATIOS
09-30-01 09-30-00
-------- --------
The following is the Corporation's
ratio of "Tier 1" leverage capital to
total assets at end of period 6.58% 6.20%
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 September 30,
2001:
Tier 1 Capital (minimum required 4.00%) 11.53%
Tier 2 Capital (minimum required 8.00%) 12.61%
INTEREST RATE SENSITIVITY
The following table sets forth the distribution of the repricing of the
Corporation's earning assets and interest-bearing liabilities as of September
30, 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 $82,957 $69,293 $143,545 $289,504 $585,299
Interest-Bearing
Liabilities 99,127 190,473 197,814 25,297 512,711
--------- --------- ---------- -------- -------
Interest Rate
Sensitivity Gap $(16,170) $(121,180) $(54,269) $264,207 $72,588
========= ========= ========== ======== =======
Cumulative Interest
Rate
Sensitivity Gap $(16,170) $(137,350) $(191,619) $72,588
Interest Rate
Sensitivity
Gap Ratio (2.76)% (20.70)% (9.27)% 45.14%
Cumulative Interest
Rate Sensitivity
Gap Ratio (2.76)% (23.47)% (32.74)% 12.40%
14
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 NINE MONTHS ENDED
09-30-01 09-30-00 09-30-01 09-30-00
- -------------------------------------------------------------------------------------------------------
Balance at beginning of period $4,073 $3,896 $3,670 $3,908
Provision charged to expense 279 13 665 153
----- ----- ----- -----
4,352 3,909 4,335 4,061
----- ----- ----- -----
Charge-offs:
Loans secured by real estate 0 25 7 163
Commercial and industrial loans 233 410 233 441
Consumer loans 34 29 93 53
----- ----- ----- -----
267 464 333 657
----- ----- ----- -----
Recoveries:
Loans secured by real estate 1 9 60 31
Commercial and industrial loans 1 1 18 10
Consumer loans 3 5 10 15
----- ----- ----- -----
5 15 88 56
----- ----- ----- -----
Net charge-offs 262 449 245 601
----- ----- ----- -----
Balance at end of period $4,090 $3,460 $4,090 $3,460
====== ====== ====== ======
Net charge-offs to:
Average loans .10% .10% .10% .13%
Loans at end of period .10% .10% .10% .13%
Allowance for loan losses 6.41% 12.98% 5.97% 17.37%
Allowance for loan losses as a percentage of:
Average loans .91% .77% .93% .78%
Loans at end of period .90% .77% .90% .77%
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.
15
WESTBANK CORPORATION AND SUBSIDIARIES
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(Dollar amounts in thousands)
09-30-01 06-30-01 03-31-01 12-31-00 09-30-00
- ------------------------------------------------------------------------------------------------------------
Non-Accrual Loans $1,570 $1,926 $2,441 $1,778 $1,693
------ ------ ------ ------ ------
Loans contractually past
due 90 days or more
and still accruing 98 165 355 418 364
------ ------ ------ ------ ------
Total non-accrual, past due
and restructured loans 1,668 2,091 2,796 2,196 2,057
------ ------ ------ ------ ------
Non-accrual, past due and
restructured loans as a
percentage of total loans 0.37% 0.48% 0.65% 0.51% 0.46%
------ ------ ------ ------ ------
Allowance for loan losses as a
percentage of non-accrual,
past due and restructured loans 245.20% 194.84% 140.77% 167.12% 168.21%
------ ------ ------ ------ ------
Other real estate owned - net $117 $137 $135 $541 $605
------ ------ ------ ------ ------
Total non-performing assets $1,785 $2,228 $2,931 $2,737 $2,662
------ ------ ------ ------ ------
Non-performing assets as a
percentage of total assets 0.29% 0.37% 0.52% 0.48% 0.45%
------ ------ ------ ------ ------
16
WESTBANK CORPORATION AND SUBSIDIARIES
QUARTER-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------
Federal funds sold and
temporary investments $3,195 $ 20 2.50% $6,493 $101 6.22%
Securities 130,493 2,065 6.33 99,627 1,798 7.22
Loans 447,115 8,495 7.60 450,824 8,986 7.97
------- ----- ---- ------- ----- ----
Total earning assets $580,803 $10,580 7.29% $556,944 $10,885 7.82%
------- ------- ---- ------- ----- ----
Allowance for loan loss (4,176) (4,101)
All other assets 43,878 40,474
------- -------
TOTAL ASSETS $620,505 $593,317
======= =======
LIABILITIES AND EQUITY
Interest-bearing deposits $423,414 $4,250 4.01% $443,818 $5,293 4.77%
Borrowed funds 90,661 1,099 4.85 53,862 899 6.68
------- ------ ---- ------- ----- ----
Total interest-bearing liabilities 514,075 5,349 4.16 497,680 6,192 4.98
------- ------ ---- ------- ----- ----
Interest rate spread 3.13% 2.84%
Demand deposits 64,690 60,166
Other liabilities 4,334 3,278
Shareholders' equity 37,406 32,193
-------- --------
TOTAL LIABILITIES
AND EQUITY $620,505 $593,317
======== ========
NET INTEREST INCOME
(taxable equivalent) $5,231 $4,693
====== ======
Interest Earned/Earning Assets 7.29% 7.82%
Interest Expense/Earning Assets 3.68 4.45
---- ----
Net Yield on Earning Assets 3.61% 3.37%
==== ====
Deduct Tax Equivalent Adjustment 40 46
------ ------
NET INTEREST INCOME $5,191 $4,647
====== ======
17
WESTBANK CORPORATION AND SUBSIDIARIES
YEAR-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------
Federal funds sold and
temporary investments $ 2,821 $ 90 4.25% $ 4,485 $ 197 5.86%
Securities 108,559 5,321 6.53 94,014 5,051 7.16
Loans 438,193 25,515 7.76 445,295 26,554 7.95
------- ------ ---- ------- ------ ----
Total earning assets 549,573 $30,926 7.50% 543,794 $31,802 7.80%
------- ------ ---- ------- ------ ----
Allowance for loan loss (4,015) (4,027)
All other assets 39,293 39,841
------- -------
TOTAL ASSETS $584,851 $579,608
======== ========
LIABILITIES AND EQUITY
Interest-bearing deposits $413,185 $12,929 4.17% $427,500 $14,300 4.46%
Borrowed funds 68,563 2,714 5.27 58,338 2,852 6.52
------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities 481,748 $15,643 4.33 485,838 17,152 4.71
------- ------ ---- ------- ------ ----
Interest rate spread 3.17% 3.09%
Demand deposits 62,851 59,339
Other liabilities 3,895 2,913
Shareholders' equity 36,357 31,518
------- -------
TOTAL LIABILITIES
AND EQUITY $584,851 $579,608
======== ========
NET INTEREST INCOME
(TAXABLE EQUIVALENT) $15,283 $14,650
======= =======
Interest Earned/Earning Assets 7.50% 7.80%
Interest Expense/Earning Assets 3.80 4.21
---- -----
Net Yield on Earning Assets 3.70% 3.59%
==== ====
Deduct Tax Equivalent Adjustment 124 114
------- -------
NET INTEREST INCOME
(TAXABLE EQUIVALENT) $15,159 $14,536
======= =======
18
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-K
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
* 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
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
WESTBANK CORPORATION
Date: November 13, 2001 /s/ Donald R. Chase
________________________________________
Donald R. Chase
President and Chief Executive Officer
Date: November 13, 2001 /s/ John M. Lilly
________________________________________
John M. Lilly
Treasurer and Chief Financial Officer
20