1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
Commission file number 0-12784
WESTBANK CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2830731
(State or other jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
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 per share: 3,797,774 shares outstanding
as of October 31, 1998.
2
WESTBANK CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
PAGE
ITEM 1.
Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Comprehensive Income 5
Condensed Consolidated Statements of Stockholders' Equity 6
Condensed Consolidated Statements of Cash Flows 7
Notes to Condensed Consolidated Financial Statements 8-9
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-18
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. Results of Votes on Matters Submitted to a Vote of Security Holders 19
ITEM 5. Other events 19
ITEM 6. Exhibits and Reports on Form 8-K 20
Signatures 21
2
3
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands) September 30, 1998 December 31, 1997
- - -----------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks:
Non-interest bearing $ 11,271 $ 9,603
Interest bearing 150 79
Federal Funds sold 16,165 3,678
- - -----------------------------------------------------------------------------------------------------
Total Cash and Cash equivalents 27,586 13,360
- - -----------------------------------------------------------------------------------------------------
Investment securities available for sale 39,503 20,088
Investment securities held to maturity
(fair value of $28,154 in 1998 and $34,655 in 1997) 27,838 34,503
- - -----------------------------------------------------------------------------------------------------
Total Securities 67,341 54,591
- - -----------------------------------------------------------------------------------------------------
Loans $ 251,938 $ 231,012
Mortgage loans held-for-sale 2,689 4,251
Allowance for loan losses (2,513) (2,848)
- - -----------------------------------------------------------------------------------------------------
Net-Loans 252,114 232,415
Bank premises and equipment 5,493 4,474
Accrued interest receivable 2,132 1,968
Other assets 2,357 1,457
- - -----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 357,023 $ 308,265
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 49,907 $ 48,638
Interest bearing 259,839 222,922
- - -----------------------------------------------------------------------------------------------------
Total Deposits 309,746 271,560
Borrowed funds 10,980 11,884
Federal Home Loan borrowing 7,000 0
Accrued interest payable 459 379
Other liabilities 1,852 691
- - -----------------------------------------------------------------------------------------------------
Total Liabilities 330,037 284,514
- - -----------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock - $2 par value
Authorized - 9,000,000 shares
Issued - 3,782,521 shares in 1998 and
- 3,581,377 shares in 1997 7,565 7,163
Additional paid in capital 9,902 8,819
Retained earnings 9,216 7,708
Accumulated other comprehensive income 303 61
- - -----------------------------------------------------------------------------------------------------
Total Stockholders' Equity 26,986 23,751
- - -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 357,023 $ 308,265
=====================================================================================================
See accompanying notes to condensed consolidated financial statements.
3
4
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollar amounts in thousands)
QUARTER ENDED NINE MONTHS ENDED
09-30-98 09-30-97 09-30-98 09-30-97
- - ---------------------------------------------------------------------------------------------------------------
Income:
Interest and fees on loans $ 5,422 $ 5,102 $ 15,553 $ 14,614
Interest on federal funds sold 117 66 266 218
Interest on securities 1,022 811 2,848 2,273
- - ---------------------------------------------------------------------------------------------------------------
6,561 5,979 18,667 17,105
Interest expense 3,161 2,740 8,722 7,685
- - ---------------------------------------------------------------------------------------------------------------
Net interest income 3,400 3,239 9,945 9,420
Provision for loan losses 0 0 19 190
- - ---------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,400 3,239 9,926 9,230
- - ---------------------------------------------------------------------------------------------------------------
Investment security gains 2 0 141 0
Other non-interest income 540 565 1,607 1,556
- - ---------------------------------------------------------------------------------------------------------------
Total non-interest income 542 565 1,748 1,556
- - ---------------------------------------------------------------------------------------------------------------
Operating Expenses::
Salaries and benefits 1,263 1,258 3,718 3,525
Other non-interest expense 973 928 3,011 2,831
Occupancy - net 247 211 667 657
- - ---------------------------------------------------------------------------------------------------------------
Total operating expenses 2,483 2,397 7,396 7,013
- - ---------------------------------------------------------------------------------------------------------------
Income before income taxes 1,459 1,407 4,278 3,773
Income taxes 549 589 1,644 1,581
- - ---------------------------------------------------------------------------------------------------------------
NET INCOME $ 910 $ 818 $ 2,634 $ 2,192
===============================================================================================================
Earnings per share:
-Basic $ 0.24 $ 0.23 $ 0.70 $ 0.63
-Diluted $ 0.24 $ 0.23 $ 0.68 $ 0.61
Weighted average shares outstanding:
-Basic 3,778,419 3,493,969 3,758,442 3,461,302
-Dilutive option shares 89,395 133,162 99,615 109,217
---------- --------- --------- ---------
-Diluted 3,867,814 3,627,131 3,858,057 3,570,519
========== ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
4
5
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollar amounts in thousands)
QUARTER ENDED NINE MONTHS ENDED
09-30-98 09-30-97 09-30-98 09-30-97
- - ------------------------------------------------------------------------------------------------------
Net Income $ 910 $ 818 $2,634 $2,192
- - ------------------------------------------------------------------------------------------------------
Other comprehensive income:
Unrealized gain on securities available for sale, net of
income taxes of $138 and $28 for the quarter and $202 and
$48 for the nine month period ended September 30, 1998 and
1997, respectively $ 226 $ 39 $ 330 $ 67
Less: reclassification adjustment for gains included in
net income, net of income taxes of $1 for the three month
and $53 for the nine month periods ended September 30,
1998 1 0 88 0
- - ------------------------------------------------------------------------------------------------------
Other comprehensive income 225 39 242 67
- - ------------------------------------------------------------------------------------------------------
Comprehensive Income $1,135 $ 857 $2,876 $2,259
======================================================================================================
See accompanying notes to condensed consolidated financial statements.
5
6
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997 AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(1998 Unaudited)
(Dollar amounts in thousands)
ACCUMULATED
COMMON STOCK OTHER
------------------------- ADDITIONAL COMREHENSIVE
NUMBER OF PAR PAID IN RETAINED INCOME/
SHARES VALUE CAPITAL EARNINGS (LOSS) TOTAL
- - -----------------------------------------------------------------------------------------------------------------------------
BALANCE-DECEMBER 31, 1996 3,346,802 $ 6,694 $ 7,633 $ 5,517 $ (99) $ 19,745
Net income -- -- -- 3,231 -- 3,231
Cash dividends declared
($.30 per share) -- -- -- (1,040) -- (1,040)
Shares issued:
Stock Option Plan 88,156 176 94 -- -- 270
Dividend Reinvestment
and Stock Purchase Plan 146,419 293 1,092 -- -- 1,385
Changes in unrealized gain on
securities available for sale -- -- -- -- 160 160
- - -----------------------------------------------------------------------------------------------------------------------------
BALANCE-DECEMBER 31, 1997 3,581,377 7,163 8,819 7,708 61 23,751
Net income 2,634 2,634
Cash dividend declared
($.30 per share) (1,126) (1,126)
Shares issued:
Stock Option Plan 167,757 345 771 1,116
Dividend Reinvestment
and Stock Purchase Plan 33,387 57 312 369
Changes in unrealized gain on
securities available for sale 242 242
- - -----------------------------------------------------------------------------------------------------------------------------
BALANCE-SEPTEMBER 30, 1998 3,782,521 $ 7,565 $ 9,902 $ 9,216 $ 303 $ 26,986
=============================================================================================================================
See accompanying notes to condensed consolidated financial statements.
6
7
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
(Dollar amounts in thousands)
1998 1997
- - -------------------------------------------------------------------------------------------------
Operating activities:
Net income $ 2,634 $ 2,192
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 19 190
Depreciation and amortization 613 491
Provision for other real estate owned 22 34
Accrued interest receivable (164) (210)
Realized gain on sale of securities (141)
Realized gain on sale of other real estate owned (33) (55)
Realized gain on sale of loans (101) (2)
(Gain) loss on sale of equipment (5)
Increase in interest payable on deposits 80 64
Increase in other assets (900) (283)
Increase in other liabilities 1,161 256
- - -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,190 2,672
- - -------------------------------------------------------------------------------------------------
Investing activities:
Investments and mortgage-backed securities:
Held to maturity:
Purchases (18,485) (24,912)
Proceeds from maturities and principal payments 25,150 11,008
Available for sale:
Purchases (33,198) (4,381)
Proceeds from sales 8,607
Proceeds from maturities 2,074 1,478
Purchases of premises and equipment (2,245) (692)
Net (increase) decrease in loans (15,728) (19,288)
Proceeds from sale of equipment 5
Proceeds from sale of other real estate owned 220 76
- - -------------------------------------------------------------------------------------------------
Net cash used in investing activities (33,605) (36,706)
- - -------------------------------------------------------------------------------------------------
Financing activities:
Net increase in borrowings 6,096 1,073
Net increase in deposits 38,186 32,016
Proceeds from exercise of stock options and stock purchase plan 1,485 1,043
Dividends paid (1,126) (775)
- - -------------------------------------------------------------------------------------------------
Net cash used in financing activities 44,641 33,357
- - -------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 14,226 (677)
Cash and cash equivalents at beginning of period 13,360 23,401
- - -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 27,586 $ 22,724
=================================================================================================
Cash paid during the period:
Interest on deposits and other borrowings $ 8,642 $ 7,621
Income taxes 1,697 1,754
Transfers of loans to other real estate owned 307 134
Sales of other real estate owned financed by the bank 48 71
See notes to consolidated financial statements.
7
8
WESTBANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
NOTE A - GENERAL INFORMATION
Westbank Corporation (hereinafter sometimes referred to as "Westbank" or the
"Corporation") is a registered Bank Holding Company organized to facilitate the
expansion and diversification of the business of Park West Bank and Trust
Company (hereinafter sometimes referred to as "Park West" or the "Bank") into
additional financial services related to banking. Substantially all operating
income and net income of the Corporation are presently accounted for by Park
West.
NOTE B - CURRENT OPERATING ENVIRONMENT
The Bank operates thirteen banking offices located in Hampden County 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 are furnished to individuals, businesses and non-profit organizations.
The Corporation's primary source of revenue is derived from providing loans to
customers, predominately located in Western Massachusetts. The Bank opened a
full service office in the town of Southwick, Massachusetts on October 5, 1998.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
imposes significant regulatory restrictions and requirements on banking
institutions insured by the FDIC and their holding companies. FDICIA established
capital categories into which financial institutions are placed based on capital
level. Each capital category establishes different degrees of regulatory
restrictions which can apply to a financial institution. As of September 30,
1998, Park West'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. The
Corporation is in compliance with all such reporting requirements and reporting
standards.
NOTE C - MERGER AGREEMENT WITH CARGILL BANCORP, INC.
On July 15, 1998, the Corporation entered into an agreement to acquire Cargill
Bancorp, Inc., which is a Delaware corporation and the holding company for
Cargill Bank, a $47.0 million asset Connecticut chartered stock savings and loan
association headquartered in Putnam, Connecticut.
Under the terms of the agreement, Cargill Bancorp will be merged into Westbank
Corporation. Cargill Bancorp will retain its local identity and remain a
separate subsidiary of Westbank Corporation. Each share of Cargill Bancorp
common stock will be exchanged for 1.3008 shares of Westbank common stock,
provided that the average closing price of Westbank's common stock during the
20-day pricing period ending five days before the last regulatory approval is
obtained is greater than or equal to $13.07. If Westbank's average closing price
is less than $13.07 but greater than or equal to $12.00, then Cargill Bancorp
shareholders will receive shares of Westbank common stock having a value of
$17.00 per share. Cargill Bancorp has certain rights to terminate the agreement
if Westbank's average closing price is below $12.00 per share unless Westbank
agrees to deliver shares of Westbank common stock having a value of $17.00 in
exchange for each share of Cargill Bancorp common stock.
The merger is subject to approval of Cargill Bancorp shareholders and the
receipt of regulatory approval. On November 3, 1998, the Corporation filed a
registration statement to register approximately 565,096 shares of common stock
in order to facilitate this merger. The Corporation contemplates that the merger
will be effective in 1998 and will be accounted for by using the pooling of
interest method. Cargill Bancorp, Inc. has scheduled a shareholders meeting for
December 16, 1998, to vote on the proposed merger.
8
9
NOTE D - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for the
quarter and nine months ended September 30, 1998 and 1997 have been prepared in
accordance with generally accepted accounting principles for interim information
and with instructions for Form 10-Q. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting 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, 1998, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
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, 1997.
NOTE E - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments and
contingent liabilities, such as, standby letters of credit and commitments to
extend credit. As of September 30, 1998 standby letters of credit amounted to
$596,000 and loan commitments were $31,020,000 and unused balances available on
home equity lines of credit were $7,870,000.
Trust Assets - Property with a book value of $119,957,000 at September 30, 1998
held for customers in a fiduciary or agency capacity, is not included in the
accompanying balance sheet since such items are not assets of the Bank.
NOTE F - STOCKHOLDERS' EQUITY
The FDIC imposes leverage capital ratio requirements for state non-member Banks.
The Bank's leverage capital ratio as of September 30, 1998 and December 31, 1997
was 7.20% and 7.04%, respectively. In addition, the FDIC has established
risk-based capital requirements for insured institutions of, Tier 1 risk-based
capital of 4.00% and total risk-based capital of 8.00%. The Bank's risk-based
capital at September 30, 1998, for Tier 1 was 11.38% and total risk-based
capital was 12.54%, which meets the FDIC criteria for a well-capitalized
financial institution.
9
10
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CHANGES IN FINANCIAL CONDITION -
Total consolidated assets amounted to $357,023,000 on September 30, 1998,
compared to $308,265,000 on December 31, 1997. As of September 30, 1998 and
September 30, 1997, earning assets amounted to, respectively, $338,283,000 or
95% of total assets, and $303,049,000, or 94% of total assets. Earning assets
increased during the first nine months of 1998 as a result of increases in
securities, loans and temporary funds. Deposits originated throughout the Bank's
branch system, as well as a $7,000,000, 5 year fixed rate borrowing through the
Federal Home Loan Bank provided the funds to support the increase in earning
assets.
CHANGES IN RESULTS OF OPERATIONS -
For the quarter ended September 30, 1998, net income totaled $910,000 compared
to $818,000 for the quarter ended September 30, 1997. For the nine months ended
September 30, 1998, net income was $2,634,000 compared to $2,192,000 for the
same period during 1997. Included in the results for the nine months ended
September 30, 1998 is a gain on the sale of securities available for sale
totaling $141,000.
An overall increase in interest income and interest expense reflects an increase
in volume and decrease in interest rates on earning assets and an increase in
volume and rates on interest-bearing deposits. Further analysis is provided in
sections on net interest revenue and supporting schedules.
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS -
The Corporation did not record a provision for loan losses in either the current
quarter or the same period in 1997. Loans written off against the allowance for
loan losses after recoveries amounted to $354,000 for the nine months ended
September 30, 1998. During the second quarter of 1998 the Corporation sold a
pool of classified loans totaling $1,772,000. As a result of the classified loan
sale the Corporation charged-off $266,000 to the allowance for loan loss during
the second quarter. The entire loss from the sale of classified loans had been
previously reserved for.
After giving effect to the actions described above, the allowance for loan
losses at September 30, 1998 totaled $2,513,000 or .99% of total loans, as
compared to $2,848,000 or 1.21% at December 31, 1997.
Non-performing past due loans at September 30, 1998 aggregated $563,000 or 0.23%
of total loans compared to $1,226,000 or 0.52% at December 31, 1997. The
percentage of non-performing and past due loans compared to total assets on
those same dates, respectively, amounted to 0.21% and 0.27%. The change in
non-performing loans was primarily the result of the sale of classified loans
described above.
Other real estate owned at September 30, 1998 totaled $199,000 and stands at
0.05% of total assets at the end of the current quarter.
Management has made every effort to recognize all circumstances known at this
time which could affect the collectibility of loans and has reflected these in
the provision for loan losses, the write down of other real estate owned and
impaired loans to fair value and other loans (watch list) monitored by
management, the charge-off of loans and the balance in the allowance for loan
losses. Management deems that the provision for the quarter, and the balance in
the allowance for loan losses, are adequate based on results provided by the
loan grading system and circumstances known at this time.
YEAR 2000
Mindful of the need to sustain the integrity of its computer systems as the year
2000 approaches, the Corporation has taken steps to ensure that all systems are
ready to operate accurately on and beyond the year 2000. The Corporation is
heavily dependent upon its computer systems. In the event that the Corporation's
computer systems are not yet year 2000 compliant by January 1, 2000, the
Corporation would face significant operational difficulties. The Corporation
fully understands the need to prevent disruption of computer and technical
systems, and the Corporation is committed to providing its customers with high
quality service, and believes that all its computer systems will be year 2000
compliant by January 1, 2000.
10
11
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
YEAR 2000(Continued)
While many of its systems are already year 2000 compliant, the Corporation has
prepared an action plan to ensure the continued integrity of its systems beyond
the turn of the century. The plan includes the following five phases:
(1) the awareness phase; (2) the assessment phase; (3) the renovation phase; (4)
the validation phase; and (5) the implementation phase. The Corporation is
currently in the renovation and validation phases of the plan and intends to
complete these phases by December 31, 1998.
The Corporation relies on outside providers for its core banking software and
data processing. The Corporation's plan will apply to such vendors. To date, the
Bank has incurred approximately $46,000 in year 2000 related expenses, and has
estimated that capital expenditures related to the year 2000 issue will total
approximately $300,000. The Corporation believes at this time that its efforts
are adequate to address its year 2000 concerns.
The Corporation has designed its plan to address its year 2000 concerns based
upon guidance from the Federal Financial Institutions Examining Council. In
addition, the FDIC monitors the Corporation's preparation for the year 2000 on a
periodic basis.
The information presented with respect to year 2000 compliance is forward
looking information. As such, it is subject to risks and uncertainties that
would cause actual results to differ materially from the projected results
discussed in this report.
11
12
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
NET INTEREST INCOME
The Corporation's earning assets include a diverse portfolio of earning
instruments ranging from the Corporation's core business of loan extensions to
interest-bearing securities issued by federal, state and municipal authorities.
These earning assets are financed through a combination of interest-bearing and
interest-free sources.
Net interest income, the most significant component of earnings, is the amount
by which the interest generated by assets exceeds the interest expense on
liabilities.
The Corporation analyzes its performance by utilizing the concepts of interest
rate spread and net yield on earning assets. The interest rate spread represents
the difference between the yield on earning assets and interest paid on
interest-bearing liabilities. The net yield on earning assets is the difference
between the rate of interest on earning assets and the effective rate paid on
all funds - interest-bearing liabilities, as well as, interest-free sources
(primarily demand deposits and shareholders' equity).
The balances and rates derived for the analysis of net interest income presented
on the following pages reflect the consolidated assets and liabilities of the
Corporation's principal earning subsidiary, Park West Bank and Trust Company.
(Dollar amounts in thousands)
QUARTER ENDED NINE MONTHS ENDED
09-30-98 09-30-97 09-30-98 09-30-97
- - ------------------------------------------------------------------------------------
Interest and dividend income $ 6,561 $ 5,979 $18,667 $17,105
Interest expense 3,161 2,740 8,722 7,685
- - ------------------------------------------------------------------------------------
Net interest income $ 3,400 $ 3,239 $ 9,945 $ 9,420
=====================================================================================
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands)
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1998 1997 1998 1997
- - ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
- - ------------------------------------------------------------------------------------------------------------------------------------
Earning Assets $331,496 7.92% $293,287 8.15% $313,350 7.94% 281,194 8.11%
- - ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities 274,596 4.60 241,791 4.53 256,669 4.53 231,223 4.43
- - ------------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.32 3.62 3.41 3.68
- - ------------------------------------------------------------------------------------------------------------------------------------
Interest-free
resources used to fund
earning assets 56,900 51,496 56,681 49,971
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Sources of
Funds $331,496 3.82 $293,287 3.73 $313,350 3.71 281,194 3.64
====================================================================================================================================
Net Yield on Earning Assets 4.10% 4.42% 4.23% 4.47%
====================================================================================================================================
12
13
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
CHANGES IN NET INTEREST INCOME
(Dollar amounts in thousands)
QUARTER ENDED 9-30-98 NINE MONTHS ENDED 09-30-98
OVER OVER
QUARTER ENDED 9-30-97 NINE MONTHS ENDED 09-30-97
- - ---------------------------------------------------------------------------------------------
CHANGE DUE TO CHANGE DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
- - ---------------------------------------------------------------------------------------------
Interest Income:
Loans $ 405 $ (85) $ 320 $1,154 $ (215) $ 939
Securities 237 (26) 211 639 (64) 575
Federal Funds 54 (3) 51 30 18 48
- - ---------------------------------------------------------------------------------------------
Total Interest Earned 696 (114) 582 1,823 (261) 1,562
- - ---------------------------------------------------------------------------------------------
Interest Expense:
Interest bearing deposits 275 24 299 667 144 811
Other Borrowed Funds 88 34 122 172 54 226
- - ---------------------------------------------------------------------------------------------
Total Interest Expense 363 58 421 839 198 1,037
- - ---------------------------------------------------------------------------------------------
Net Interest Income $ 333 $ (172) $ 161 $ 984 $ (459) $ 525
=============================================================================================
Net interest earned increased by $161,000 during the third quarter of 1998
compared to the third quarter of 1997. For the nine month period ended September
30, 1998 net interest income increased by $525,000 versus the same period of
1997.
Average earning assets increased by $32,156,000 during the first nine months of
1998. The average earning base was $313,350,000 compared to $281,194,000 in the
same period last year.
OPERATING EXPENSES
The components of total operating expenses for the periods and their percentage
of gross income are as follows:
(Dollar amounts in thousands)
QUARTER ENDED NINE MONTHS ENDED
09-30-98 09-30-97 09-30-98 09-30-97
- - --------------------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
- - --------------------------------------------------------------------------------------------------------------------------------
Salaries and benefits $1,263 17.78% $1,258 19.22 $3,718 18.21% $3,525 18.89%
Other non-interest expense 973 13.70 928 14.19 3,011 14.75 2,831 15.17
Occupancy - net 247 3.48 211 3.22 667 3.27 657 3.52
- - --------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses $2,483 34.96% $2,397 36.63% $7,396 36.23% $7,013 37.58%
================================================================================================================================
For the nine month period ended September 30, 1998, operating expenses increased
by approximately $383,000 over the 1997 period. The increase was a result of
increases in salary and benefits totaling $193,000 and non-interest expense
totaling $180,000. The increases are primarily the result of overall growth and
branch expansion of the Corporation.
13
14
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
CAPITAL RATIOS
9/30/98 9/30/97
------- -------
Ratio of "Tier 1" leverage capital
to total assets at end of period 7.56% 6.94%
Regulatory risk-based capital requirements take into account the different risk
categories of banking organizations by assigning risk weights to assets and the
credit equivalent amounts of off-balance sheet exposures.
In addition, capital is divided into two tiers. For this Corporation, Tier 1
includes the common stockholders' equity; Tier 2, or supplementary capital,
includes not only the equity, but also, a portion of the allowance for loan
losses, net unrealized gain/(losses) on securities available for sale are not
permitted to be included for regulatory capital purposes.
The following are the Corporation's risk-based capital ratios at September 30,
1998:
Tier 1 Capital (minimum required 4.00%) 11.66%
Tier 2 Capital (minimum required 8.00%) 12.76%
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, 1998.
(Dollar amounts in thousands)
Three Over three Over One Over
Months Months to Year to Five
or less One Year Five Years Years Total
- - ------------------------------------------------------------------------------------------------
Earning Assets $ 67,545 $ 34,308 $ 98,549 $ 137,881 $ 338,283
Interest Bearing
Liabilities 90,172 86,284 101,363 0 277,819
- - ------------------------------------------------------------------------------------------------
Interest Rate
Sensitivity Gap $ (22,627) $ (51,976) $ (2,814) $ 137,881 $ 60,464
================================================================================================
Cumulative Interest
Rate
Sensitivity Gap $ (22,627) $ (74,603) $ (77,417) $ 60,464
Interest Rate
Sensitivity
Gap Ratio (6.69)% (15.36)% (0.83)% 40.75%
Cumulative Interest
Rate Sensitivity
Gap Ratio (6.69)% (22.05)% (22.88)% 17.87%
14
15
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
LIQUIDITY
Cash and due from banks, federal funds sold, investment securities,
mortgage-backed securities and loans available for sale, as compared to deposits
and short term liabilities, are used by the Corporation to compute its liquidity
on a daily basis. At September 30, 1998, the Corporation's ratio of such assets
to total deposits and borrowed funds was 24.48% .
PROVISION AND ALLOWANCE FOR LOAN LOSSES
(Dollar amounts in thousands)
QUARTER ENDED NINE MONTHS ENDED
09-30-98 09-30-97 09-30-98 09-30-97
- - --------------------------------------------------------------------------------------------------
Balance at beginning of period $ 2,504 $ 2,560 $ 2,848 $ 2,481
Provision charged to expense 19 190
- - --------------------------------------------------------------------------------------------------
2,504 2,560 2,867 2,671
- - --------------------------------------------------------------------------------------------------
Charge-offs:
Loans secured by real estate 10 340 249
Commercial and industrial loans 2 12 49 155
Consumer loans 9 8 33 50
- - --------------------------------------------------------------------------------------------------
11 30 422 454
- - --------------------------------------------------------------------------------------------------
Recoveries:
Loans secured by real estate 5 22 32 152
Commercial and industrial loans 15 201 30 376
Consumer loans 2 6 9
Lease financing receivables 1
- - --------------------------------------------------------------------------------------------------
20 225 68 538
- - --------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) (9) (195) 354 (84)
- - --------------------------------------------------------------------------------------------------
Balance at end of period $ 2,513 $ 2,755 $ 2,513 $ 2,755
- - --------------------------------------------------------------------------------------------------
Net Charge-offs (recoveries) to:
Average loans (.001)% (.08)% 1.43% (.04)%
Loans at end of period (.001)% (.08)% 1.39% (.03)%
Allowance for loan losses (.36)% (7.08)% 14.09% (3.05)%
Allowance for loan losses as a percentage of:
Average loans 0.97% 1.15% 1.01% 1.20%
Loans at end of period 0.99% 1.15% 0.99% 1.15%
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
16
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(Dollar amounts in thousands)
09-30-98 06-30-98 03-31-98 12-31-97 09-30-97
- - ------------------------------------------------------------------------------------------
Non-Accrual Loans:
Loans secured by real estate $ 301 $ 290 $ 595 $ 983 $ 897
Construction/Land development 3 2 3
Commercial and Industrial Loans 18 24 37 37 6
Consumer Loans 26 1 19 9
- - ------------------------------------------------------------------------------------------
$ 345 $ 317 $ 635 $1,042 $ 912
- - ------------------------------------------------------------------------------------------
Loans Contractually past due
90 days or more still accruing:
Loans secured by real estate $ 162 $ 143 $ 193 $ 170 $ 198
Commercial and Industrial Loans 35 24 24 18
Consumer Loans 21 8 6 14 54
- - ------------------------------------------------------------------------------------------
$ 218 $ 175 $ 223 $ 184 $ 270
- - ------------------------------------------------------------------------------------------
Total non-accrual, past
due and restructured loans $ 563 $ 492 $ 858 $1,226 $1,182
- - ------------------------------------------------------------------------------------------
Non-accrual, past due and
restructured loans as a
percentage of total loans 0.23% 0.19% 0.36% 0.52% 0.49%
- - ------------------------------------------------------------------------------------------
Allowance for loan losses as
a percentage of non-accrual,
past due and restructured
loans 446.36% 508.94% 332.40% 232.30% 233.08%
- - ------------------------------------------------------------------------------------------
Other real estate owned - net $ 199 $ 269 $ 379 $ 149 $ 277
- - ------------------------------------------------------------------------------------------
Total non-performing assets $ 762 $ 761 $1,237 $1,375 $1,459
- - ------------------------------------------------------------------------------------------
Non-performing assets as a
percentage of total assets 0.21% 0.22% 0.39% 0.45% 0.45%
- - ------------------------------------------------------------------------------------------
16
17
\WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
QUARTERLY AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
- - ---------------------------------------------------------------------------------------------------------------------
QUARTER ENDED QUARTER ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
Balance Interest Rate Balance Interest Rate
- - ---------------------------------------------------------------------------------------------------------------------
Federal Funds sold and
temporary investments $ 8,919 $ 117 5.25% $ 4,807 $ 66 5.49%
Securities 63,927 1,022 6.39 49,221 811 6.59
Loans 258,650 5,422 8.39 239,259 5,102 8.53
- - ---------------------------------------------------------------------------------------------------------------------
Total earning assets $ 331,496 $ 6,561 7.92% $ 293,287 $ 5,979 8.15%
- - ---------------------------------------------------------------------------------------------------------------------
Loan loss allowance (2,508) (2,692)
All other assets 18,564 18,766
- - ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 347,552 $ 309,361
=====================================================================================================================
LIABILITIES AND EQUITY
Interest bearing deposits $ 257,149 $ 2,979 4.63 $ 233,504 $ 2,680 4.59
Borrowed funds 17,447 182 4.17 8,287 60 2.90
- - ---------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities $ 274,596 $ 3,161 4.60 $ 241,791 $ 2,740 4.53
- - ---------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.32% 3.62%
Demand deposits 45,495 44,265
Other liabilities 1,051 1,536
Shareholders' equity 26,410 21,769
- - ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $ 347,552 $ 309,361
=====================================================================================================================
NET INTEREST INCOME $ 3,400 $ 3,239
=====================================================================================================================
Interest Earned/Earning Assets 7.92% 8.15%
Interest Expense/Earning Assets 3.82% 3.73%
- - ---------------------------------------------------------------------------------------------------------------------
Net Yield on Earning Assets 4.10% 4.42%
=====================================================================================================================
17
18
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
YEAR TO DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
- - ----------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
Balance Interest Rate Balance Interest Rate
- - ----------------------------------------------------------------------------------------------------------------------
Federal Funds sold and
temporary investments $ 6,014 $ 266 5.90% $ 5,433 $ 218 5.35%
Securities 59,205 2,848 6.41 46,024 2,273 6.58
Loans 248,131 15,553 8.36 229,737 14,614 8.48
- - ----------------------------------------------------------------------------------------------------------------------
Total earning assets $ 313,350 $ 18,667 7.94 $ 281,194 $ 17,105 8.11
- - ----------------------------------------------------------------------------------------------------------------------
Loan loss allowance (2,750) (2,576)
All other assets 18,269 18,128
- - ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 328,869 $ 296,746
=======================================================================================================================
LIABILITIES AND EQUITY
Interest bearing deposits $ 241,915 $ 8,294 4.57 $ 222,670 $ 7,483 4.48
Borrowed funds 14,754 428 3.87 8,553 202 3.15
- - ----------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 256,669 $ 8,722 4.53 231,223 $ 7,685 4.43
- - ----------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.41% 3.68%
Demand deposits 45,571 43,060
Other liabilities 1,039 1,554
Shareholders' equity 25,590 20,909
- - ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $ 328,869 $ 296,746
======================================================================================================================
NET INTEREST INCOME $ 9,945 $ 9,420
======================================================================================================================
Interest Earned/Earning Assets 7.94% 8.11%
Interest Expense/Earning Assets 3.71 3.64
- - ----------------------------------------------------------------------------------------------------------------------
Net Yield on Earning Assets 4.23% 4.47%
======================================================================================================================
18
19
WESTBANK CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - NONE
ITEM 2. Changes in Rights of Securities Holders - NONE
ITEM 3. Defaults by Company on its Senior Securities - NONE
ITEM 4. Results of Votes on Matters Submitted to a Vote of Security Holders -
NONE
ITEM 5. Other Events
a. The Corporation filed a registration statement under Form S-4/A on
November 3, 1998, regarding shares to be issued in connection with the
acquisition of Cargill Bancorp, Inc.
b. Information Concerning Forward-Looking Statements.
Westbank has made and may make in the future forward looking statements
concerning future performance, including but not limited to future
earnings, and events or conditions which may affect such future
performance. These forward looking statements are based upon management's
expectations and belief concerning possible future developments and the
potential effect of such future developments on Westbank. There is no
assurance that such future developments will be in accordance with
management's expectations and belief or that the effect of any future
developments on Westbank will be those anticipated by Westbank
management.
All assumptions that form the basis of any forward looking statements
regarding future performance, as well as events or conditions which may
affect such future performance, are based on factors that are beyond
Westbank's ability to control or predict with precision, including future
market conditions and the behavior of other market participants. Among
the factors that could cause actual results to differ materially from
such forward looking statements are the following:
1. The status of the economy in general, as well as in Westbank's prime
market area, Western Massachusetts;
2. The condition of the real estate market in Western Massachusetts;
3. The effect of the merger with Cargill Bancorp, Inc.
4. Competition in Westbank's prime market area from other banks,
especially in light of continued consolidation in the New England
banking industry.
5. Any changes in federal and state bank regulatory requirements;
6. Changes in interest rates; and
7. The cost and other effects of unanticipated legal and administrative
cases and proceedings, settlements and investigations.
While Westbank periodically reassesses material trends and
uncertainties affecting the Corporation's performance in connection
with its preparation of management's discussion and analysis of
results of operations and financial condition contained in its
quarterly and annual reports, Westbank does not intend to review or
revise any particular forward looking statement in light of future
events.
19
20
ITEM 6. Exhibits and Reports on Form 8
a. Exhibits
EXHIBIT INDEX
PAGE NO.
3.1 Articles of Organization, as amended *
3.2 By-Laws, as amended **
27. Financial Data Schedule TO BE INCLUDED
* Incorporated by reference to identically numbered exhibits contained
in Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988
** Incorporated by reference to identically numbered exhibits contained
in Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987
b. Reports on Form 8-K On July 15, 1998, the Registrant filed a Current
Report on Form 8-K regarding the proposed acquisition of Cargill Bancorp,
and Cargill Bank.
20
21
WESTBANK CORPORATION AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
WESTBANK CORPORATION
Date: November 10, 1998 /S/ DONALD R. CHASE
----------------------------------
Donald R. Chase
President and Chief Executive Officer
Date: November 10, 1998 /S/ JOHN M. LILLY
----------------------------------
John M. Lilly
Treasurer and Chief Financial Officer
21