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, 2002 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: 4,155,569 shares outstanding as of October 31, 2002 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 7-10 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-20 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 21 ITEM 4. Controls and Procedures 21 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 21 ITEM 2. Changes in Rights of Securities Holders 21 ITEM 3. Defaults by Company on its Senior Securities 21 ITEM 4. Submission of Matters to a Vote of Security Holders 21 ITEM 5. Other Events 21 ITEM 6. Exhibits and Reports on Form 8-K 21 Signatures 22 Section 302 Certifications 23-24 2 ITEM 1. FINANCIAL STATEMENTS WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollar amounts in thousands, except per share data) September 30, 2002 December 31, 2001 - ------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks: Non-interest bearing $ 21,679 $ 16,800 Interest bearing 314 332 Federal funds sold 46,085 319 - ------------------------------------------------------------------------------------------------------ Total cash and cash equivalents 68,078 17,451 - ------------------------------------------------------------------------------------------------------ Securities available for sale 134,948 141,685 Securities held to maturity 485 757 (estimated fair value of $505 in 2002 and $779 in 2001) - ------------------------------------------------------------------------------------------------------ Total securities 135,433 142,442 - ------------------------------------------------------------------------------------------------------ Loans 471,246 443,902 Allowance for loan losses 4,932 4,179 - ------------------------------------------------------------------------------------------------------ Net loans 466,314 439,723 - ------------------------------------------------------------------------------------------------------ Premises and equipment - net 6,018 6,516 Other real estate owned 0 204 Accrued interest receivable 2,970 3,285 Goodwill 8,837 8,837 Other assets 10,775 10,464 - ------------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 698,425 $ 628,922 ====================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 82,253 $ 70,960 Interest bearing 493,294 438,889 - ------------------------------------------------------------------------------------------------------ Total deposits 575,547 509,849 Borrowed funds 58,943 57,666 Accrued interest payable 696 659 Other liabilities 4,500 4,732 - ------------------------------------------------------------------------------------------------------ Total liabilities 639,686 572,906 - ------------------------------------------------------------------------------------------------------ Mandatory redeemable preferred stock 17,000 17,000 - ------------------------------------------------------------------------------------------------------ Stockholders' Equity: Common stock - $2.00 par value Authorized - 9,000,000 shares Issued - 4,315,795 shares in 2002 and 2001 8,632 8,632 Additional paid in capital 11,690 11,782 Retained earnings 21,086 17,787 Treasury stock (2,192) (431) Accumulated other comprehensive income, net of tax 2,523 1,246 - ------------------------------------------------------------------------------------------------------ Total stockholders' equity 41,739 39,016 - ------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 698,425 $ 628,922 ====================================================================================================== See accompanying notes to condensed consolidated financial statements. 3 WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME Quarter Ended Nine Months Ended (Unaudited) September 30, September 30, (Dollar amounts in thousands, except per share data) 2002 2001 2002(1) 2001 - --------------------------------------------------------------------------------------------------------------------- Income: Interest and fees on loans $ 7,952 $ 8,459 $ 24,009 $ 25,402 Interest and dividend income on securities 1,932 2,061 6,492 5,310 Interest on federal funds sold 153 20 185 90 - --------------------------------------------------------------------------------------------------------------------- Total interest and dividend income 10,037 10,540 30,686 30,802 Interest expense 4,642 5,349 13,635 15,643 - --------------------------------------------------------------------------------------------------------------------- Net interest income 5,395 5,191 17,051 15,159 Provision for loan losses 400 279 1,133 665 - --------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 4,995 4,912 15,918 14,494 - --------------------------------------------------------------------------------------------------------------------- Non-interest income: Gain/(Loss) on securities available for sale 59 5 (218) 36 Gain on sale of mortgages 45 118 243 Other non-interest income 862 904 3,136 2,377 - --------------------------------------------------------------------------------------------------------------------- Total non-interest income 966 909 3,036 2,656 - --------------------------------------------------------------------------------------------------------------------- Non-interest expenses: Salaries and benefits 2,220 2,162 6,741 6,327 Other non-interest expense 1,380 1,911 4,445 5,232 Occupancy - net 356 356 1,126 1,110 - --------------------------------------------------------------------------------------------------------------------- Total non-interest expense 3,956 4,429 12,312 12,669 - --------------------------------------------------------------------------------------------------------------------- Income before income taxes 2,005 1,392 6,642 4,481 Income taxes 671 452 1,950 1,503 - --------------------------------------------------------------------------------------------------------------------- Net Income $ 1,334 $ 940 $ 4,692 $ 2,978 ===================================================================================================================== Earnings per share - Basic $ 0.32 $ 0.22 $ 1.11 $ 0.70 - Diluted $ 0.31 $ 0.22 $ 1.09 $ 0.69 Weighted average shares outstanding - Basic 4,161,319 4,262,573 4,210,219 4,249,328 - Dilutive option shares 121,425 72,218 99,425 71,921 - --------------------------------------------------------------------------------------------------------------------- - Diluted 4,282,744 4,334,791 4,309,644 4,321,249 ===================================================================================================================== (1) Net income for the nine months ended September 30, 2002 includes the adoption of SFAS No. 147 ("Acquisition of Certain Financial Institutions"). In accordance with SFAS No. 147, the Corporation's statement of income for the nine-month period ended September 30, 2002 has been restated to remove the amortization expense that was recorded during the first two quarters of 2002. See accompanying notes to condensed consolidated financial statements. 4 WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 2001 AND NINE MONTHS ENDED SEPTEMBER 30, 2002 (Unaudited) (Dollar amounts in thousands, except per share data) ACCUMULATED COMMON STOCK OTHER -------------------- ADDITIONAL COMPREHENSIVE NUMBER PAR PAID IN RETAINED TREASURY INCOME/ OF SHARES VALUE CAPITAL EARNINGS STOCK (LOSS) TOTAL - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE - JANUARY 1, 2001 4,222,520 $ 8,567 $11,608 $15,408 $ (526) $ (197) $34,860 ================================================================================================================================== Net income 4,073 4,073 Cash dividend declared ($.40 per share) (1,694) (1,694) Shares issued: Stock option plan 4,400 9 9 18 Dividend reinvestment and stock purchase plan 27,676 56 209 265 Shares issued from treasury stock: Stock option plan 1,500 (6) 8 2 Dividend reinvestment and stock purchase plan 33,287 (38) 302 264 Changes in unrealized gain (loss) on securities available for sale 1,443 1,443 Repurchase of common stock (23,000) (215) (215) - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE - DECEMBER 31, 2001 4,266,383 $ 8,632 $11,782 $17,787 $ (431) $ 1,246 $39,016 ================================================================================================================================== Net income 4,692 4,692 Cash dividend declared ($.11 per share) (1,393) (1,393) Shares issued from treasury stock: Stock option plan 47,064 (194) 464 270 Dividend reinvestment and stock purchase plan 30,398 102 270 372 Changes in unrealized gain on securities available for sale 1,277 1,277 Repurchase of common stock (193,700) (2,495) (2,495) - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE - SEPTEMBER 30, 2002 4,150,145 $ 8,632 $11,690 $21,086 $(2,192) $ 2,523 $41,739 ================================================================================================================================== See accompanying notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollar amounts in thousands) Quarter Ended September 30, Nine Months Ended September 30, 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------- Net Income $ 1,334 $ 940 $ 4,692 $ 2,978 - --------------------------------------------------------------------------------------------------------------- Other comprehensive income: Change in unrealized gain/(loss) on securities available for sale, net of income taxes (benefits) of $366 and $906 for the quarter and $557 and $994 for the nine-month periods ended September 30, 2002 and 2001, respectively 744 1,758 1,131 1,926 Reclassification adjustment for gains included in net income, net of income tax (benefit) of $20 and $1 for the quarter and net income tax (benefit) of $(72) and $(12) for the nine-month periods ended September 30, 2002 and 2001, respectively (39) (4) 146 (24) - --------------------------------------------------------------------------------------------------------------- Other comprehensive income 705 1,754 1,277 1,902 - --------------------------------------------------------------------------------------------------------------- Comprehensive Income $ 2,039 $ 2,694 $ 5,969 $ 4,880 =============================================================================================================== See accompanying notes to condensed consolidated financial statements. 5 WESTBANK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) (Dollar amounts in thousands) Nine Months Ended September 30, 2002 2001 - ------------------------------------------------------------------------------------------------------ Operating activities: Net income $ 4,692 $ 2,978 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses 1,133 665 Provision for other real estate owned 11 25 Investment accretion income (31) Depreciation and amortization 570 674 Intangible amortization 513 Realized loss/(gain) on sale of securities 218 (36) Gain on sale of other real estate owned (45) (43) Gain on sale of mortgages (118) (243) Decrease in accrued interest receivable 315 154 Increase in other assets (311) (7,577) Increase in accrued interest payable 37 432 (Decrease)/Increase in other liabilities (232) 940 - ------------------------------------------------------------------------------------------------------ Net cash provided by (used in) operating activities 6,239 (1,518) - ------------------------------------------------------------------------------------------------------ Investing activities: Investments and mortgage-backed securities: Held to maturity: Proceeds from maturities and principal payments 272 9,231 Available for sale: Purchases (51,166) (93,835) Proceeds from sales 21,260 7,863 Proceeds from maturities and principal payments 61,202 49,665 Purchases of premises and equipment 72 (47) Net increase in loans (51,293) (20,886) Proceeds from sale of other real estate owned 312 450 - ------------------------------------------------------------------------------------------------------ Net cash used in investing activities (19,341) (47,559) - ------------------------------------------------------------------------------------------------------ Financing activities: Net increase in borrowed funds 1,277 27,064 Net increase in deposits 65,698 17,899 Treasury stock purchased/(issued), net (1,853) 240 Dividends paid (1,393) (1,266) - ------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 63,729 43,937 - ------------------------------------------------------------------------------------------------------ Increase/(Decrease) in cash and cash equivalents 50,627 (5,140) Cash and cash equivalents at beginning of period 17,451 23,519 - ------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 68,078 $ 18,379 ====================================================================================================== Cash paid during the period: Interest on deposits and other borrowings $ 13,598 $ 15,211 Income taxes 3,585 350 Supplemental disclosure of cash flow information: Transfers of loans to other real estate owned 74 153 Loans to facilitate the sale of other real estate owned 57 Securitization of loans into mortgage-backed securities 23,495 Unrealized gain on securities available for sale, net of taxes 1,277 1,902 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, 2002 AND SEPTEMBER 30, 2001 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 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, 2002, 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, 2002 and 2001 have been prepared in accordance with accounting principles generally accepted in the United States of America ("generally accepted accounting principles"). Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principals have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission for interim reports. 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, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 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, 2001. 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, 2002, standby letters of credit amounted to $152,000, loan commitments were $45,971,000 and unused balances available on home equity lines of credit were $19,148,000. Trust Assets - Property with a book value of $152,983,000 at September 30, 2002 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. The Massachusetts Department of Revenue ("DOR") has sent notices of intent to assess taxes to several banks in the Commonwealth of Massachusetts. The notices relate to DOR's intent to disallow the dividend-received deduction between a bank and its subsidiary operating as a real estate investment trust ("REIT"). While the Corporation's subsidiary Westbank ("the Bank") has not received a notice from the DOR, the Bank does operate a REIT similar to banks receiving notices of assessment from the DOR. Westbank believes that its tax treatment of the dividend-received deduction for its REIT subsidiary is valid under Massachusetts law. Accordingly, the Bank intends to continue its current accounting practice of calculating its tax provision under the assumption that the dividend-received deduction is valid. In the event that the dividend-received deduction from its REIT subsidiary is disallowed, the Corporation would be required to record additional taxes of approximately $641,000 for the years 2000, 2001 and 2002, exclusive of any interest charge. 8 NOTE E - STOCKHOLDERS' EQUITY The FDIC imposes leverage capital ratio requirements for state non-member banks of 4%. 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 were as follows: September 30, 2002 December 31, 2001 ------------------ ----------------- Leverage Capital Ratio 6.80% 7.56% Tier 1 Risk-Based Capital 10.97% 11.62% Total Risk-Based Capital 12.16% 12.71% As of September 30, 2002, the Bank met the criteria for a well-capitalized financial institution. Capital guidelines issued by the Federal Reserve Board require the Corporation to maintain certain capital ratios. 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 (2) tiers. For the 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 Corporation's "Tier 1" leverage and risk-based capital ratios are as follows: September 30, 2002 December 31, 2001 ------------------ ----------------- Leverage Capital Ratio (minimum required 4.00%) 6.44% 6.71% Tier 1 Capital (minimum required 4.00%) 10.29% 10.79% Total Risk-Based Capital (minimum required 8.00%) 12.41% 13.03% NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS In April 2002, the Financial Accounting Standards Board("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). The adoption of SFAS No. 145 is not expected to have a material effect on the Corporation's consolidated financial statements. In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). The adoption of SFAS No. 146 is not expected to have a material effect on the Corporation's consolidated financial statements. Effective January 1, 2002, the Corporation adopted Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142"). Initially, the adoption of SFAS No. 141 and SFAS No. 142 did not have an effect on the Corporation's consolidated financial statements. In October 2002, the FASB issued SFAS No. 147, "Acquisition of Certain Financial Institutions" ("SFAS No. 147"). SFAS No. 147 removes acquisitions of financial institutions from the scope of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions" and FASB Interpretation No. 9, "Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or Similar Association is Acquired in a Business Combination Accounted for by the Purchase Method" and requires that those transactions be accounted for in accordance with SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." In addition, SFAS No. 147 amends SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", to include in its scope long-term customer relationship intangible assets of financial institutions. SFAS No. 147 is effective for periods beginning after October 1, 2002, with early 9 NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) adoption permitted. The Corporation elected to adopt SFAS No. 147 early, as of September 30, 2002. Upon adoption of SFAS No. 147, the Corporation reclassified its unidentifiable intangible asset to goodwill and ceased amortization, retroactive to January 1, 2002. In accordance with SFAS No. 147, the Corporation's statement of income for the nine-month period ended September 30, 2002 has been restated to remove the amortization expense of $342,000 ($205,000 net of taxes) that was recorded during the first two quarters of 2002. The effect on earnings per share and diluted earnings per share is $0.05 and $0.04 for the nine months ended September 30, 2002. Additionally, the Corporation was required to perform a transitional impairment test in accordance with the provisions of SFAS No. 142. As a result of this testing, no impairment charges were recorded. See Note G. NOTE G - GOODWILL Effective January 1, 2002, the Corporation adopted SFAS No. 142 and, effective September 30, 2002, the Corporation adopted SFAS No. 147. In accordance with these statements, the Corporation has ceased amortization of goodwill and has performed a transitional goodwill impairment test. As a result of the transitional impairment test, management has determined that no impairment existed as of January 1, 2002, the date of adoption of SFAS No. 142. The following table shows net income and earnings per share for the three and nine months ended September 30, 2002 and 2001, as if the Corporation had been accounting for goodwill under SFAS No. 142 and SFAS No. 147 for all periods presented. Quarter Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------- Net Income: Reported net income $1,334 $ 940 $4,692 $2,978 Goodwill amortization, net of tax 113 339 - ---------------------------------------------------------------------------------------- Adjusted net income $1,334 $1,053 $4,692 $3,317 ======================================================================================== Basic Earnings per Share: Reported earnings per share $ 0.32 $ 0.22 $ 1.11 $ 0.70 Goodwill amortization, net of tax 0.03 0.08 - ---------------------------------------------------------------------------------------- Adjusted basic earnings per share $ 0.32 $ 0.25 $ 1.11 $ 0.78 ======================================================================================== Diluted Earnings per Share: Reported earnings per share $ 0.31 $ 0.22 $ 1.09 $ 0.69 Goodwill amortization, net of tax 0.02 0.08 - ---------------------------------------------------------------------------------------- Adjusted diluted earnings per share $ 0.31 $ 0.24 $ 1.09 $ 0.77 ======================================================================================== In accordance with SFAS No. 147, net income and earnings per share for the first and second quarters of 2002 have been restated to remove amortization expense. Restated net income and diluted earnings per share for the three-month period ended March 31, 2002 were $1,418,000 and $0.33, respectively, and net income and diluted earnings per share for the three- and six-month periods ended June 30, 2002 was $1,940,000 and $0.46, and $3,358,000, and $0.45, respectively. The carrying amount of goodwill as of September 30, 2002 and December 31, 2001 was $8,837,000. There were no other intangible assets at September 30, 2002 or December 31, 2001. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 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. Critical Accounting Policies Management believes that Westbank's "Critical Accounting Policies" relate to accounting for Securities and Loans, including revenue recognition. 11 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 that 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. Gains and losses on sales of available-for-sale securities are recognized in non-interest income at the time of sale on a specific identification basis. Securities that 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. Loans Loans have been reduced by deferred loan fees and the allowance for loan losses. Interest income on loans is recorded on an accrual basis. 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 ninety (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 loans in accordance with SFAS No. 114, "Accounting for Impairment of a Loan", as Amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" (collectively, SFAS No. 114). A loan is recognized as impaired when it is probable that either principal or interest are not collectible in accordance with the terms of the loan agreement. Measurement of impairment for commercial loans is generally based on 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. If the estimated fair value of the impaired loan is less than the related recorded amount, a specific valuation allowance is established or a write-down is charged against the allowance for loan losses. Smaller balance homogenous loans, including residential real estate and consumer loans, are excluded from the provisions of SFAS No. 114. Generally, income is recorded only on a cash basis for impaired loans. The adequacy of the allowance for loan losses is evaluated quarterly by management. Factors considered in evaluating the adequacy of the allowance include the size and concentration 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. 12 Changes in Financial Condition Total consolidated assets amounted to $698,425,000 on September 30, 2002, compared to $628,922,000 on December 31, 2001. As of September 30, 2002 and December 31, 2001, earning assets amounted to, respectively, $653,078,000 or 94% of total assets and $586,995,000 or 93% of total assets. Earning assets increased during the first nine months of 2002 as a result of an increase in loans and federal funds sold. 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, 2002, net income totaled $1,334,000, compared to $940,000 for the quarter ended September 30, 2001. For the nine months ended September 30, 2002, net income was $4,692,000, compared to $2,978,000 for the same period during 2001. Non-interest income increased by $57,000 during the third quarter of 2002 compared to the third quarter of 2001. During the third quarter of 2002, the Corporation recognized a gain on the sale of securities available for sale of $59,000 and a gain on the sale of mortgages totaling $45,000, while other non-interest income totaled $862,000. Included in other non-interest income are $225,000 in life insurance proceeds and $151,000 in write-downs of the Bank's mortgage servicing assets. Non-interest expense totaled $3,956,000 for the quarter ended September 30, 2002, a decrease of $473,000 versus the quarter ended September 30, 2001, which included $270,000 of expenses related to the merger of the Corporation's banking subsidiaries and $171,000 of goodwill amortization. An 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, 2002. 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 $400,000, compared to $279,000 for the same period in 2001. Loans written off against the allowance for loan losses after recoveries amounted to $151,000 for the quarter ended September 30, 2002. After giving effect to the actions described above, the allowance for loan losses at September 30, 2002 totaled $4,932,000 or 1.05% of total loans, as compared to $4,179,000 or 0.94% at December 31, 2001. Non-performing and past due loans at September 30, 2002 aggregated $3,271,000 or 0.69% of total loans, compared to $1,830,000 or 0.41% at December 31, 2001. The percentage of non-performing and past due loans compared to total assets on those same dates, respectively, amounted to 0.47% and 0.32%. The increase in non-performing loans in the current quarter is primarily the result of one classified commercial mortgage loan being moved to non-performing status. Other real estate owned decreased by $204,000 compared to 2001; as of September 30, 2002, the Corporation had no other real estate owned. The percentage of other real estate owned to total assets as of September 30, 2002 and December 31, 2001 amounted to 0% and 0.01%, respectively. 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 the quarter and the balance in the allowance for loan losses, are adequate, based on results provided by the loan grading system and circumstances known at this time. 13 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). (Dollar amounts in thousands) Quarter Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------- Interest and dividend income $10,037 $10,540 $30,686 $30,802 Interest expense 4,642 5,349 13,635 15,643 - ---------------------------------------------------------------------------------------- Net interest income 5,395 $ 5,191 17,051 $15,159 Tax equivalent adjustment 61 40 150 124 - ---------------------------------------------------------------------------------------- Net interest income (taxable equivalent) $ 5,456 $ 5,231 $17,201 $15,283 ======================================================================================== INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS (Dollar amounts in thousands) Quarter Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------------------------------------- Average Average Average Average Balance Rate Balance Rate Balance Rate Balance Rate - ---------------------------------------------------------------------------------------------------------------------- Earning Assets $639,312 6.32% $580,803 7.29% $618,118 6.65% $549,573 7.50% - ---------------------------------------------------------------------------------------------------------------------- Interest-bearing liabilities 558,509 3.32 514,075 4.16 542,617 3.35 481,748 4.33 - ---------------------------------------------------------------------------------------------------------------------- Interest rate spread 3.00 3.13 3.30 3.17 - ---------------------------------------------------------------------------------------------------------------------- Interest-free resources used to fund earning assets 80,803 66,728 75,501 67,825 - ---------------------------------------------------------------------------------------------------------------------- Total Sources of Funds $639,312 $580,803 $618,118 $549,573 - ---------------------------------------------------------------------------------------------------------------------- Net Yield on Earning Assets 3.42% 3.61% 3.71% 3.70% ====================================================================================================================== 14 CHANGES IN NET INTEREST INCOME (Dollar amounts in thousands) Quarter Ended Nine Months Ended September 30, 2002 September 30, 2002 Over Over Quarter Ended Nine Months Ended September 30, 2001 September 30, 2001 - -------------------------------------------------------------------------------- Change Due To Change Due To Volume Rate Total Volume Rate Total - -------------------------------------------------------------------------------- Interest Income: Loans $409 $ (895) $(486) $1,266 $(2,633) $(1,367) Securities 58 (187) (129) 1,605 (423) 1,182 Federal funds 141 (8) 133 174 (79) 95 - -------------------------------------------------------------------------------- Total Interest Earned 608 (1,090) (482) 3,045 (3,135) (90) - -------------------------------------------------------------------------------- Interest Expense: Interest-bearing deposits 549 (1,106) (557) 1,258 (3,508) (2,250) Other borrowed funds (191) 41 (150) 620 (378) 242 - -------------------------------------------------------------------------------- Total Interest Expense 358 (1,065) (707) 1,878 (3,886) (2,008) - -------------------------------------------------------------------------------- Net Interest Income (tax equivalent basis) $250 $ (25) $225 $1,167 $ 751 $1,918 ================================================================================ For the quarter ended September 30, 2002, an increase in average earning assets of $58,509,000 or 10.07% and a 97-basis-point decrease in average rate of return resulted in an increase in volume of $608,000 and a decrease in rate of $1,090,000. An increase in average interest-bearing liabilities of $44,434,000 or 8.64% and an 84-basis-point decrease in average rate of interest paid contributed to an increase in volume of $358,000 and a decrease in rate of $1,065,000. Net interest earned on a tax equivalent basis increased to $5,456,000 in the third quarter of 2002, up $225,000 as compared with the quarter ended September 30, 2001. For the nine months ended September 30, 2002, an increase in average earning assets of $68,545,000 or 12.47% and an 85-basis-point decrease in average rate of return resulted in an increase in volume of $3,045,000 and a decrease in rate of $3,135,000. An increase in average interest-bearing liabilities of $60,869,000 or 12.64% and a 98-basis-point decrease in average rate of interest paid contributed to an increase in volume of $1,878,000 and a decrease in rate of $3,886,000. Net interest earned on a tax equivalent basis increased to $17,201,000 through September 30, 2002, up $1,918,000 versus the same period of 2001. 15 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 Quarter Ended September 30, September 30, 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------------ Amount Percent Amount Percent Amount Percent Amount Percent - ------------------------------------------------------------------------------------------------------------ Salaries and benefits $ 2,220 20.18% $ 2,162 18.88% $ 6,741 19.99% $ 6,327 18.91% Other non-interest expense 1,380 12.54 1,911 16.69 4,445 13.18 5,232 15.64 Occupancy - net 356 3.24 356 3.11 1,126 3.34 1,110 3.32 - ------------------------------------------------------------------------------------------------------------ Total Operating Expenses $ 3,956 35.96% $ 4,429 38.68% $12,312 36.51% $12,669 37.87% ============================================================================================================ For the three-month period ended September 30, 2002, operating expenses decreased by approximately $473,000 versus the 2001 period. The decrease was the result of a decrease in other non-interest expense totaling $531,000, and an increase in salary and benefits totaling $58,000. The Corporation ceased the amortization of goodwill, in accordance with FASB No. 147, during the third quarter of 2002. Included in operating expenses during the third quarter and nine months ended September 30, 2001 were goodwill amortization expenses totaling $171,000 and $513,000 respectively. In addition, the Corporation reflected $270,000 in expenses during the third quarter of 2001 related to the merger of the Corporation's banking subsidiaries on September 7, 2001. 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, 2002. (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 $ 131,845 $ 65,593 $ 154,226 $ 301,414 $ 653,078 Interest-Bearing Liabilities 117,165 167,298 267,543 17,231 569,237 - ------------------------------------------------------------------------------------------------------- Interest Rate Sensitivity Gap $ 14,680 $(101,705) $(113,317) $ 284,183 $ 83,841 ======================================================================================================= Cumulative Interest Rate Sensitivity Gap $ 14,680 $ (87,025) $(200,342) $ 83,841 Interest Rate Sensitivity Gap Ratio 2.25% (15.57)% (17.35)% 43.51% Cumulative Interest Rate Sensitivity Gap Ratio 2.25% (13.33)% (30.68)% 12.84% 16 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 September 30, September 30, 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------ Balance at beginning of period $4,683 $4,073 $4,179 $3,670 Provision charged to expense 400 279 1,133 665 - ------------------------------------------------------------------------------------------ 5,083 4,352 5,312 4,335 - ------------------------------------------------------------------------------------------ Less charge-offs: Loans secured by real estate 9 0 133 7 Commercial and industrial loans 123 233 159 233 Consumer loans 28 34 170 93 - ------------------------------------------------------------------------------------------ 160 267 462 333 - ------------------------------------------------------------------------------------------ Add recoveries: Loans secured by real estate 0 1 16 60 Commercial and industrial loans 6 1 34 18 Consumer loans 3 3 32 10 - ------------------------------------------------------------------------------------------ 9 5 82 88 - ------------------------------------------------------------------------------------------ Net charge-offs 151 262 380 245 - ------------------------------------------------------------------------------------------ Balance at end of period $4,932 $4,090 $4,932 $4,090 ========================================================================================== Net charge-offs to: Average loans .03% .10% .08% .10% Loans at end of period .03% .10% .08% .10% Allowance for loan losses at January 1 3.61% 6.41% 9.09% 5.97% Allowance for loan losses at September 30 as a percentage of: Average loans 1.05% .91% 1.07% .93% Loans at end of period 1.05% .90% 1.05% .90% The approach the Corporation uses in determining the adequacy of the allowance for loan losses is an exposure method based on the Corporation's loan loss history. 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, based on the overall mix of the loan portfolio and the loss history of each loan category. 17 NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS (Dollar amounts in thousands) 9-30-02 06-30-02 03-31-02 12-31-01 09-30-01 - ------------------------------------------------------------------------------------------------ Non-Accrual Loans $2,246 $1,412 $1,160 $1,040 $1,570 - ------------------------------------------------------------------------------------------------ Loans contractually past due 90 days or more and still accruing 1,028 307 195 790 98 - ------------------------------------------------------------------------------------------------ Total non-accrual, past due and restructured loans 3,274 1,719 1,355 1830 1,668 - ------------------------------------------------------------------------------------------------ Non-accrual, past due and restructured loans as a percentage of total loans 0.69% 0.37% 0.30% 0.41% 0.37% - ------------------------------------------------------------------------------------------------ Allowance for loan losses as a percentage of non-accrual, past due and restructured loans 150.64% 272.43% 316.46% 228.36% 245.20% - ------------------------------------------------------------------------------------------------ Other real estate owned - net $ 130 $ 204 $ 117 - ------------------------------------------------------------------------------------------------ Total non-performing assets $3,274 $1,719 $1,485 $2,034 $1,785 - ------------------------------------------------------------------------------------------------ Non-performing assets as a percentage of total assets 0.47% 0.26% 0.23% 0.32% 0.29% - ------------------------------------------------------------------------------------------------ 18 QUARTER-TO-DATE AVERAGE BALANCES INTEREST EARNED - INTEREST EXPENSE (Dollar amounts in thousands) Quarter Ended September 30, 2002 2001 - ---------------------------------------------------------------------------------------------------------- Balance Interest(1) Rate Balance Interest(1) Rate - ---------------------------------------------------------------------------------------------------------- Federal funds sold and temporary investments $ 36,131 $ 153 1.69% $ 3,195 $ 20 2.50% Securities 134,192 1,936 5.77 130,493 2,065 6.33 Loans 468,989 8,009 6.83 447,115 8,495 7.60 - ---------------------------------------------------------------------------------------------------------- Total earning assets 639,312 $ 10,098 6.32% 580,803 $ 10,580 7.29% - ---------------------------------------------------------------------------------------------------------- Loan loss allowance (4,768) (4,176) All other assets 44,793 43,878 - ---------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 679,337 $ 620,505 ========================================================================================================== LIABILITIES AND EQUITY Interest-bearing deposits $ 483,020 $ 3,693 3.06% $ 423,414 $ 4,250 4.01% Borrowed funds 75,489 949 5.03 90,661 1,099 4.85 - ---------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 558,509 $ 4,642 3.32 514,075 $ 5,349 4.16 - ---------------------------------------------------------------------------------------------------------- Interest rate spread 3.00% 3.13% Demand deposits 73,725 64,690 Other liabilities 5,610 4,334 Shareholders' equity 41,493 37,406 - ---------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 679,337 $ 620,505 ========================================================================================================== NET INTEREST INCOME (TAX EQUIVALENT) $ 5,456 $ 5,231 ========================================================================================================== Interest Earned/Earning Assets 6.32% 7.29% Interest Expense/Earning Assets 2.90 3.68 - ---------------------------------------------------------------------------------------------------------- Net Yield on Earning Assets 3.42% 3.61% Deduct Tax Equivalent Adjustment 61 40 - ---------------------------------------------------------------------------------------------------------- NET INTEREST INCOME (TAX EQUIVALENT) $ 5,395 $ 5,191 ========================================================================================================== (1) Amounts shows are adjusted to a "tax equivalent" basis. 19 YEAR-TO-DATE AVERAGE BALANCES INTEREST EARNED - INTEREST EXPENSE (Dollar amounts in thousands) Nine Months Ended September 30, 2002 2001 - -------------------------------------------------------------------------------------------------------- Balance Interest(1) Rate Balance Interest(1) Rate - -------------------------------------------------------------------------------------------------------- Federal funds sold and temporary investments $ 13,854 $ 185 1.78% $ 2,821 $ 90 4.25% Securities 143,450 6,503 6.04 108,559 5,321 6.53 Loans 460,814 24,148 6.99 438,193 25,515 7.76 - -------------------------------------------------------------------------------------------------------- Total earning assets 618,118 $ 30,836 6.65% 549,573 $ 30,926 7.50% - -------------------------------------------------------------------------------------------------------- Loan loss allowance (4,459) (4,015) All other assets 45,077 39,293 - -------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 658,736 $ 584,851 ======================================================================================================== LIABILITIES AND EQUITY Interest-bearing deposits $ 457,017 $ 10,679 3.12% $ 413,185 $ 12,929 4.17% Borrowed funds 85,600 2,956 4.60 68,563 2,714 5.27 - -------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 542,617 $ 13,635 3.35 481,748 $ 15,643 4.33 - -------------------------------------------------------------------------------------------------------- Interest rate spread 3.30% 3.17% Demand deposits 70,697 62,851 Other liabilities 5,460 3,895 Shareholders' equity 39,962 36,357 - -------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 658,736 $ 584,851 ======================================================================================================== NET INTEREST INCOME (tax equivalent) $ 17,201 $ 15,283 ======================================================================================================== Interest Earned/Earning Assets 6.65% 7.50% Interest Expense/Earning Assets 2.94 3.80 - -------------------------------------------------------------------------------------------------------- Net Yield on Earning Assets 3.71% 3.70% Deduct Tax Equivalent Adjustment 150 124 - -------------------------------------------------------------------------------------------------------- NET INTEREST INCOME (TAX EQUIVALENT) $ 17,051 $ 15,159 ======================================================================================================== (1) Amounts shown are adjusted to a "tax equivalent" basis. 20 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 2001 Annual Report filed with the Securities and Exchange Commission. ITEM 4. CONTROLS AND PROCEDURES Within 90 days prior to the filing date of this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation's management, including the Corporation's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions's rules and forms. There were no significant changes in the Corporation's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluations. 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 a. Exhibits Exhibit 99.1 - Certification of Periodic Report b. Reports on Form 8-K - NONE EXHIBIT INDEX Page No. -------- 3. Articles of Organization, as amended ** (a) Articles of Organization, as amended * (b) By-Laws, as amended * * 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. 21 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: 11/12/02 /s/ Donald R. Chase ------------- ------------------------------------- Donald R. Chase President and Chief Executive Officer Date: 11/12/02 /s/ John M. Lilly ------------- ------------------------------------- John M. Lilly Treasurer and Chief Financial Officer 22 SECTION 302 CERTIFICATIONS SARBANES-OXLEY ACT OF 2002 I, Donald R. Chase, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Westbank Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining the disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data, and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: 11/12/02 /s/ Donald R. Chase ------------- ------------------------------------- Donald R. Chase President and Chief Executive Officer 23 SECTION 302 CERTIFICATIONS SARBANES-OXLEY ACT OF 2002 I, John M. Lilly, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Westbank Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data, and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: 11/12/02 /s/ John M. Lilly ------------- ------------------------------------- John M. Lilly Treasurer and Chief Financial Officer 24