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 MARCH 31, 1999
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 per share: 4,227,255 shares outstanding as of
April 30, 1999.
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WESTBANK CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income and Comprehensive Income 4
Condensed Consolidated Statements of Stockholders' Equity 5
Condensed Consolidated Statements of Comprehensive Income 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-17
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Securities and Use of Proceeds 18
ITEM 3. Defaults upon Senior Securities 18
ITEM 4. Submission of Matters to a Vote of Security Holders 18
ITEM 5. Other Information 18
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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3
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands) March 31, 1999 December 31, 1998
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks:
Non-interest bearing $10,718 $11,275
Interest bearing 2,193 1,896
Federal funds sold 275 1,069
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 13,186 14,240
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Investment securities available for sale 54,300 53,521
Investment securities held to maturity
(approximate market value of
$16,235 in 1999 and $30,673 in 1998) 16,166 30,468
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Total securities 70,466 83,989
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Loans $319,044 $293,482
Mortgage loans held-for-sale 2,198 2,346
Allowance for loan losses (2,669) (2,665)
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Net loans 318,573 293,163
Bank premises and equipment 6,937 6,911
Other real estate owned 347 466
Accrued interest receivable 2,407 2,457
Other assets 1,525 1,434
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $413,441 $402,660
================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $51,179 $51,395
Interest bearing 311,868 290,871
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Total Deposits 363,047 342,266
Borrowed funds 17,562 28,042
Accrued interest payable 470 429
Other liabilities 1,412 1,433
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 382,491 372,170
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock - $2 par value
Authorized - 9,000,000 shares
Issued - 4,214,209 shares in 1999 and
- 4,198,838 shares in 1998 8,429 8,397
Additional paid in capital 11,123 10,982
Retained earnings 11,538 10,897
Accumulated other comprehensive income(loss) (140) 214
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 30,950 30,490
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $413,441 $402,660
================================================================================================================================
See accompanying notes to condensed consolidated
financial statements.
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4
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollar amounts in thousands)
Three months ended March 31, 1999 1998
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Income:
Interest and fees on loans $6,029 $5,733
Interest and dividend income on securities 38 53
Interest on temporary investments 1,276 936
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 7,343 6,722
Interest expense 3,325 2,998
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Net interest income 4,018 3,724
Provision for loan losses 75 28
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 3,943 3,696
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Investment security gains(losses) 92 (3)
Other non-interest income 526 619
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 618 616
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Non-interest expenses:
Salaries and benefits 1,497 1,421
Other non-interest expense 1,110 1,153
Occupancy - net 308 262
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 2,915 2,836
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,646 1,476
Income taxes 625 593
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $1,021 $883
================================================================================================================================
Net income per share
- Basic $0.24 $0.22
- Diluted $0.24 $0.21
Weighted average shares outstanding
- Basic 4,210,870 4,047,864
- Dilutive Option Shares 127,855 170,820
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
- Diluted 4,338,725 4,218,684
================================================================================================================================
See accompanying notes to condensed consolidated
financial statements.
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WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1998 AND THREE MONTHS ENDED MARCH 31, 1999
(1999 Unaudited)
(Dollar amounts in thousands)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
NUMBER PAR PAID-IN RETAINED COMPREHENSIVE
OF SHARES VALUE CAPITAL EARNINGS INCOME/(LOSS) TOTAL
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1997 3,932,535 $7,865 $9,617 $9,376 $60 $26,918
Net income 3,377 3,377
Cash dividends declared
($.40 per share) (1,503) (1,503)
Cargill 5% stock dividend 17,389 35 93 (129) (1)
Shares issued:
Stock Option Plan 199,799 399 742 1,141
Dividend Reinvestment
and Stock Purchase Plan 49,115 98 530 628
Cargill interim loss for the
quarter ended 12/31/98 (224) (224)
Unrealized gain on
securities available for sale 154 154
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1998 4,198,838 8,397 10,982 10,897 214 30,490
Net income 1,021 1,021
Cash dividends declared
($.10 per share) (380) (380)
Shares issued:
Stock Option Plan 3,000 6 13 19
Dividend Reinvestment
and Stock Purchase Plan 12,371 26 128 154
Unrealized gain on
securities available for sale (354) (354)
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 1999 4,214,209 $8,429 $11,123 $11,538 $(140) $30,950
===============================================================================================================================
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
Three months ended March 31, 1999 1998
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------
Net Income $1,021 $883
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on securities available for sale,
net of income taxes (benefit) of ($252) in 1999
and $9 in 1998 (411) 15
Less: reclassification adjustment for gains (losses)
included in net income, net of income taxes of
$35 in 1999 and ($1) in 1998 57 (2)
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------
Other Comprehensive Income (354) 13
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $667 $896
=================================================================================================================
See accompanying notes to condensed
consolidated financial statements.
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WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Dollars amounts in thousands)
Three months ended March 31 1999 1998
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Operating activities:
Net income $1,021 $883
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 75 28
Depreciation and amortization 233 203
Provision for other real estate owned 22 19
Decrease in accrued interest receivable 50 222
Realized gain on sale of other real estate owned (7) (13)
Increase in other assets (91) (175)
Increase in interest payable on deposits 41 16
Decrease in other liabilities (21) (71)
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating expenses 1,323 1,112
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Investing activities:
Investments and mortgage-backed securities:
Held to maturity:
Purchases (1,050) (19,235)
Proceeds from maturities and principal payments 15,352 14,722
Available for sale:
Purchases (8,000) (5,815)
Proceeds from sales 4,679 1,270
Proceeds from maturities and principal payments 2,542 2,190
Purchases of premises and equipment (259) (376)
Net increase (decrease) in loans (25,922) (3,530)
Proceeds from sale of other real estate owned 187 55
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,471) (10,719)
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Financing activities:
Net increase (decrease) in borrowings (10,480) 1,080
Net increase (decrease) in deposits 20,781 5,801
Proceeds from exercise of stock options and stock purchase plan 173 1,084
Dividends paid (380) (373)
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities 10,094 7,592
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (1,054) (2,015)
Cash and cash equivalents at beginning of period 14,240 16,526
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $13,186 $14,511
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Cash paid:
Interest on deposits and other borrowings $3,284 $2,984
Income taxes 462 195
Transfers of loans to other real estate owned 285
See notes to consolidated financial
statements.
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WESTBANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 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 its banking subsidiaries, Park
West Bank and Trust Company ("Park West") and Cargill Bank ("Cargill") into
additional financial services related to banking. Substantially all operating
income and net income of the Corporation are presently accounted for by Park
West and Cargill.
NOTE B - ACQUISITION OF CARGILL BANCORP, INC.
The Corporation completed the acquisition of Cargill Bancorp, Inc. ("Cargill")
on January 29, 1999. Cargill served as the holding company for Cargill Bank,
which will continue to operate its three banking offices in Northeastern
Connecticut and will retain its name and Connecticut charter as a separate
subsidiary of the Corporation. Under the terms of the merger agreement, each
share of Cargill was exchanged for 1.3655 shares of the Corporation. Westbank
issued a total of 400,164 shares. The transaction was accounted for using the
pooling-of-interests method and, accordingly, all historical financial data has
been restated to include both entities for all periods presented. Direct costs
of the merger accounted for by the pooling-of-interests method are expensed as
incurred. Merger-related costs expensed in the quarter ended December 31, 1998,
aggregate $536,000. These merger expenses included legal, accounting, regulatory
and severance costs, as well as integration costs.
Westbank's fiscal year ends December 31 and Cargill's fiscal year ends September
30. The financial statements combine the financial information of Westbank at
and for the quarters ended March 31, 1998 and 1999, and the year ended December
31, 1998, with financial information of Cargill for the quarters ended March 31,
1999 and December 31, 1997, and the year ended September 30, 1998. The Cargill
loss of $224,000 for the quarter ended December 31, 1998, has been included
directly in stockholders' equity in order to conform Cargill's reporting periods
to the Corporation's as of December 31, 1998. For the quarter ended December 31,
1998, Cargill had net interest income of $456,000 and a net loss of $224,000.
Included in operating expenses were $346,000 of merger and related costs that
were primarily the cause of their loss.
The following table sets forth the unaudited results of operations of the
combined entities for the periods prior to this acquisition:
(In thousands, except per share data)
Westbank Cargill Combined
---------------------------------------------------------------------------------------
Month ended January 31, 1999
Net interest income $1,192 $138 $1,330
Net income 355 21 376
Quarter ended March 31, 1998
Net interest income $3,263 $461 $3,724
Net income 839 44 883
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NOTE C - CURRENT OPERATING ENVIRONMENT
Park West operates thirteen banking offices located in Hampden County,
Massachusetts, and also operates a Trust Department providing services normally
associated with holding property in a fiduciary or agency capacity. A full range
of retail banking services is furnished to individuals, businesses and
non-profit organizations. Cargill Bank operates three offices in Windham County,
Connecticut. A full range of retail banking services is furnished to
individuals, businesses and non-profit organizations. The primary source of
revenue for Park West and Cargill is derived from providing loans to customers
who are predominantly located in Park West's and Cargill's service areas.
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 March 31, 1999,
Park West and Cargill's capital was at a level that placed the Banks in the
"well capitalized" category as defined by FDICIA.
FDICIA imposes a variety of other restrictions and requirements on insured
banks. These include significant regulatory reporting requirements such as
insuring that a system of risk-based deposit insurance premiums and civil money
penalties for inaccurate deposit assessment reports exists. In addition, FDICIA
imposes a system of regulatory standards for bank and bank holding company
operations, detailed truth in savings disclosure requirements, and restrictions
on activities authorized by state law but not authorized for national banks.
NOTE D - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for the
first quarter ended March 31, 1999 and 1998 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 three-month period
ended March 31, 1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
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, 1998.
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 March 31, 1999, standby letters of credit amounted to
$691,000 and loan commitments were $31,932,000, and unused balances available on
home equity lines of credit were $7,656,000.
Trust Assets - Property with a book value of $119,797,000 at March 31, 1999,
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.
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NOTE F - STOCKHOLDERS' EQUITY
The FDIC imposes leverage capital ratio requirements for state non-member Banks.
In addition, the FDIC has established risk-based capital requirements for
insured institutions for Tier 1 risk-based capital of 4.00% and total risk-based
capital of 8.00%.
The capital ratios of Park West and Cargill as of March 31, 1999, were as
follows:
Park West Bank
and Trust Company Cargill Bank
----------------- ------------
Leverage Capital Ratio 7.31% 6.92%
Tier 1 Risk-Based Capital 10.82% 14.01%
Total Risk-Based Capital 11.80% 15.24%
As of March 31, 1999, both Park West and Cargill met the criteria which
classified them as well-capitalized financial institution.
NOTE G - SUBSEQUENT EVENT
As part of its strategy of regional expansion through acquisition, on April 13,
1999, the Corporation announced the signing of a Branch Purchase Agreement with
the Phoenix Home Life Mutual Insurance to acquire the Connecticut banking
division of New London Trust, F.S.B., New London, NH.
The Connecticut division of New London Trust operates offices in Danielson and
Putnam, CT, with assets totaling $110 million. The acquisition, which is subject
to regulatory approval, is expected to be completed in the fourth quarter of
this year and the company will use the purchase method of accounting for this
acquisition. Upon completion, the New London Trust offices in Danielson and
Putnam, CT, will become offices of Cargill Bank, which will operate five banking
offices.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
CHANGES IN FINANCIAL CONDITION -
Total consolidated assets amounted to $413,441,000 on March 31, 1999, compared
to $402,660,000 on December 31, 1998. As of March 31, 1999, and March 31, 1998,
earning assets amounted to, respectively, $394,176,000 or 95% of total assets,
and $346,368,000 or 95% of total assets. Earning assets increased during the
first three months of 1999 as a result of increases in loans. Deposits
originated throughout the Bank's branch system provided the funds to support the
increase in earning assets.
CHANGES IN RESULTS OF OPERATIONS -
For the quarter ended March 31, 1999, net income totaled $1,021,000 compared to
$883,000 for the three-month period ended March 31, 1998.
Non-interest income was level during the first quarter of 1999 compared to the
first quarter of 1998, while non-interest expense increased by $79,000,
primarily the result of overall growth of the Corporation.
An overall increase in interest income and interest expense reflects an increase
in volume and a decrease in interest rates on earning assets and
interest-bearing deposits. Further analysis is provided in sections on net
interest revenue and supporting schedules.
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS -
An increase of $47,000 has been reflected in the provision for loan losses in
the quarter, with $75,000 being provided compared to $28,000 in 1998. Loans
written off against the allowance for loan losses after recoveries amounted to
$71,000 for the first three months of 1999 versus $9,000 for the same period of
1998.
After giving effect to the actions described above, the allowance for loan
losses at March 31, 1999, totaled $2,669,000 or 0.83% of total loans, as
compared to $2,665,000 or 0.90% at December 31, 1998.
Non-performing past due loans at March 31, 1999, aggregated $1,099,000 or 0.34%
of total loans compared to $1,100,000 or 0.37% at December 31, 1998. The
percentage of non-performing and past due loans compared to total assets on
those same dates, respectively, amounted to 0.27% and 0.27%.
Other real estate owned declined during the most recent quarter by $87,000
compared to 1998 and totals $347,000. The percentage of other real estate owned
to total assets as of March 31, 1999, and December 31, 1998, amounted to 0.08%
and 0.12% respectively.
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
deciding as to the provision for loan losses, the writing 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.
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YEAR 2000
The Corporation has taken steps to ensure that all of its computer systems (the
"systems") are ready to operate accurately on and beyond January 1, 2000. In the
event that the Corporation's systems are not Year 2000 compliant as of 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 services without interruption.
While the Corporation has determined that many of the Systems are Year 2000
compliant, the Corporation has prepared an action plan (the "Year 2000 project")
to ensure the continued integrity of its systems. The Year 2000 Project includes
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 implementation phase.
The Corporation relies on outside providers for the core banking software and
data processing portions of the Systems. The Year 2000 Project applies to such
vendors.
The Year 2000 Project also includes a contingency plan to be implemented in the
event that the Year 2000 Project reveals that any of the Systems are not Year
2000 compliant. In addition, in the event that, despite the Year 2000 Project,
the Corporation experiences disruption due to Year 2000 problems, the
Corporation is developing a business resumption plan, which should be complete
by June 30, 1999.
As of March 31, 1999, the Corporation has incurred approximately $125,000 in
Year 2000-related expenses, and has estimated that capital expenditures related
to the Year 2000 issue will total approximately $300,000.
The Corporation has designed the Year 2000 Project 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 set forth above is designed to be a "Year 2000 Readiness
Disclosure," as that term is defined in the Year 2000 Information Readiness and
Disclosure Act. This information is forward-looking information and, 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.
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).
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The balances and rates derived for the analysis of net interest income presented
on the following pages reflect the consolidated assets and liabilities of the
Corporation's principal earning subsidiaries, Park West Bank and Trust Company
and Cargill Bank
(Dollar amounts in thousands)
Quarter ended March 31, 1999 1998
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Interest and dividend income $7,343 $6,722
Interest expense 3,325 2,998
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $4,018 $3,724
===================================================================================================================
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands)
Quarter ended March 31, 1999 1998
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Average Average
Balance Rate Balance Rate
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Earning Assets $386,667 7.60% $334,869 8.03%
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities 324,564 4.10% 276,285 4.34%
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.50 3.69
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Interest-free resources used
to fund earning assets 62,103 58,584
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Total Sources of Funds $386,667 3.44 $334,869 3.58
===================================================================================================================
NET YIELD ON EARNING ASSETS 4.16% 4.45%
===================================================================================================================
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CHANGES IN NET INTEREST INCOME
(Dollar amounts in thousands)
QUARTER ENDED MARCH 31, 1999
OVER
QUARTER ENDED MARCH 31, 1998
----------------------------
CHANGE DUE TO
VOLUME RATE TOTAL
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
Interest Income:
Loans $668 $(370) $298
Securities 317 23 340
Federal Funds (5) (10) (15)
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
Total Interest Earned 980 (357) 623
Interest Expense:
Interest-bearing deposits 354 (192) 162
Other borrowed funds 138 27 165
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
Total Interest Expense 492 (165) 327
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $488 $(192) $296
=============================================================================================================
Net interest earned increased to $4,018,000 in the first quarter of 1999, up
$296,000 as compared with the comparable period of 1998.
Average earning assets increased by $51,798,000 during the first quarter of
1999. The average earning base was $386,667,000 compared to $334,869,000 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
------------------------------------------
3-31-99 3-31-98
Amount Percent Amount Percent
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Salaries and benefits $1,497 18.80% $1,421 19.36%
Other non-interest expense 1,110 13.94 1,153 15.71
Occupancy - net 308 3.88 262 3.58
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $2,915 36.62% $2,836 38.65%
===================================================================================================================
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CAPITAL RATIOS
03/31/99 12/31/98
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------
The following is the Corporation's
ratio of "Tier I" leverage capital
to total assets at end of period 7.52% 7.56%
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 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 March 31, 1999:
Tier 1 Capital (minimum required 4.00%) 11.69%
Total Risk-Based Capital (minimum required 8.00%) 12.70%
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 March 31,
1999:
(Dollar amounts in thousands)
Three Over Three Over One
Months Months to Year to Over Five
or Less One Year Five Years Years Total
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Earning Assets $57,308 $48,297 $111,112 $177,459 $394,176
Interest-Bearing
Liabilities 124,415 79,026 123,795 2,194 329,430
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
Interest Rate
Sensitivity Gap $(67,107) $(30,729) $(12,683) $175,265 $64,746
===================================================================================================================
Cumulative Interest
Rate Sensitivity Gap $(67,107) $(97,836) $(110,519) $64,746
Interest Rate
Sensitivity Gap Ratio (17.02)% (7.80)% (3.22)% 44.46%
Cumulative Interest
Rate Sensitivity Gap Ratio (17.02)% (24.82)% (28.04)% 16.43%
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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 needs 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 March 31, 1999 1998
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $2,665 $3,057
Provision charged to expense 75 29
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
2,740 3,086
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Less charge-offs:
Loans secured by real estate 0 40
Commercial and industrial loans 87 7
Consumer loans 18 13
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
105 60
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Add-recoveries:
Loans secured by real estate 16 30
Commercial and industrial loans 15 15
Consumer loans 3 6
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
34 51
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Net charge-offs 71 9
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD $2,669 $3,077
===========================================================================================================================
Net charge-offs to:
Average loans .02% .00%
Loans at end of period .02% .00%
Allowance for loan losses 2.69% .29%
Allowance for loan losses as a percentage of:
Average loans .87% 1.13%
Loans at end of period .83% 1.04%
The approach the Corporation uses in determining the adequacy of the allowance
for loan losses is the combination of a target reserve and a general reserve
allocation. Quarterly, based on an internal review of the loan portfolio, the
Corporation identifies required reserve allocations targeted to recognized
problem loans that, in the opinion of management, have potential loss exposure
or questions relative to the depth of the collateral on these same loans. In
addition, the Corporation allocates a general reserve against the remainder of
the loan portfolio.
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NON-ACCRUAL, PAST DUE AND NON-PERFORMING LOANS
(Dollar amounts in thousands)
03-31-99 12-31-98 09-30-98 06-30-98 03-31-98
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Non-accrual loans $952 $869 $817 $828 $1,443
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Loans contractually past
due 90 days or more
still accruing 147 231 218 175 223
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Total non-accrual, past due
and restructured loans $1,099 $1,100 $1,035 $1,003 $1,666
===========================================================================================================================
Non-accrual, past due and
restructured loans as a
percentage of total loans 0.34% 0.37% 0.36% 0.35% 0.61%
===========================================================================================================================
Allowance for loan losses as a
percentage of non-accrual, past
due and restructured loans 264.52% 242.27% 265.80% 273.38% 184.69%
OTHER REAL ESTATE
Other real estate owned - net $347 $466 $304 $571 $642
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $1,446 $1,566 $1,339 $1,574 $2,308
===========================================================================================================================
Non-performing assets as a
percentage of total assets 0.35% 0.39% 0.33% 0.40% 0.63%
===========================================================================================================================
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QUARTER-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
Three months ended March 31, 1999 1998
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Balance Interest Rate Balance Interest Rate
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Federal funds sold and
temporary investments $3,898 $38 3.90% $4,317 $53 4.91%
Securities 77,266 1,276 6.60 58,127 936 6.44
Loans 305,503 6,029 7.89 272,425 5,733 8.41
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Total earning assets 386,667 $7,343 7.60% 334,869 $6,722 8.03%
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Loan loss allowance (2,681) (3,143)
All other assets 22,615 21,270
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $406,601 $352,996
====================================================================================================================
LIABILITIES AND EQUITY
Interest bearing deposits $299,707 $3,080 4.11% $266,008 $2,918 4.39%
Borrowed funds 24,857 245 3.94 10,277 80 3.11
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 324,564 3,325 4.10 276,285 2,998 4.34
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.50% 3.69%
Demand deposits 49,222 47,107
Other liabilities 1,939 1,628
Shareholders' equity 30,876 27,976
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $406,601 $352,996
====================================================================================================================
NET INTEREST INCOME $4,018 $3,724
Interest Earned/Earning Assets 7.60% 8.03%
Interest Expense/Earning Assets 3.44 3.58
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
NET YIELD ON EARNING ASSETS 4.16% 4.45%
====================================================================================================================
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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. 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 that may affect such future
performance. These forward-looking statements are based upon
management's expectations and belief concerning possible future
developments and the potential effect of such future developments on
Westbank. There is no assurance that such future developments will be
in accordance with management's expectations and belief or that the
effect of any future developments on Westbank will be those anticipated
by Westbank management.
All assumptions that form the basis of any forward-looking statements
regarding future performance, as well as events or conditions 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 areas of Western Massachusetts and Northeastern
Connecticut;
2. The real estate market in Western Massachusetts and Northeastern
Connecticut;
3. Competition in Westbank's prime market area from other banks,
especially in light of continued consolidation in the New England
banking industry;
4. Any changes in federal and state bank regulatory requirements;
5. Changes in interest rates; and
6. The cost and other effects of unanticipated legal and
administrative cases and proceedings, settlements and
investigations.
While Westbank periodically reassesses material trends and
uncertainties affecting the Corporation's performance in connection
with its preparation of management's discussion and analysis of results
of operations and financial condition contained in its quarterly and
annual reports, Westbank does not intend to review or revise any
particular forward-looking statement.
b. Registration on Form S-3
None
c. Registration of Form S-8
None
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ITEM 6. Exhibits and Reports on Form 8
a. Exhibits
EXHIBIT INDEX
Page No.
--------
3. Articles of Organization, as amended **
(a) Articles of Organization, as amended *
(b) By-Laws, as amended *
10. Material Contracts
(a) Stock Purchase Agreement dated April 12, 1999, among SunLife
Assurance Company of Canada (U.S.), New London Trust, F.S.B., and
PM Holdings, Inc., PM Trust Holding Company, Lake Sunapee Bank,
F.S.B., Mascoma Savings Bank and Cargill Bank.
(b) Purchase and Assumption Agreement dated April 12, 1999, among PM
Holdings, Inc., PM Trust Holding Company, Cargill Bank, Lake
Sunapee Bank F.S.B., and Mascoma Savings Bank.
(c) Asset and Liability Allocation Agreement dated April 12, 1999,
among Lake Sunapee Bank, F.S.B., Mascoma Savings Bank and Cargill
Bank.
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 February 3, 1999, the registrant filed a
current report on Form 8-K regarding the acquisition of Cargill
Bancorp, Inc. Subsequent to March 31, 1999, the registrant filed the
following reports on Form 8-K:
On April 22, 1999, the registrant filed a report on Form 8-K
regarding the agreement to purchase the Connecticut branches of
the New London Trust, F.S.B.
On April 23, 1999, the registrant filed a report on Form 8-K that
reported the Corporation's first quarter earnings for 1999.
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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: May 13,1999 /S/ DONALD R. CHASE
---------------------------------------------
Donald R. Chase
President and Chief Executive Officer
Date: May 13,1999 /S/ JOHN M. LILLY
---------------------------------------------
John M. Lilly
Treasurer and Chief Financial Officer
20