1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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: 4,263,838 shares outstanding as of July
31, 1999
2
WESTBANK CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
----
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 8-10
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-19
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 20
ITEM 2. Changes in Rights of Securities Holders 20
ITEM 3. Defaults by Company on its Senior Securities 20
ITEM 4. Results of Votes on Matters Submitted
to a Vote of Security Holders 20
ITEM 5. Other Events 20
ITEM 6. Exhibits and Reports on Form 8-K 21
Signatures 22
2
3
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands) June 30, 1999 December 31, 1998
- - ---------------------------- ------------- -----------------
ASSETS
Cash and due from banks:
Non-interest bearing $ 12,310 $ 11,291
Interest bearing 1,506 1,880
Federal funds sold 866 1,069
-------- --------
Total cash and cash equivalents 14,682 14,240
-------- --------
Investment securities available for sale 57,635 53,712
Investment securities held to maturity
(fair value of $12,370 in 1999 and $30,817 in 1998) 12,560 30,616
-------- --------
Total securities 70,195 84,328
-------- --------
Loans 338,701 293,432
Mortgage loans held-for-sale 2,184 2,346
Allowance for loan losses (2,721) (2,665)
----- -----
Net loans 338,164 293,113
Bank premises and equipment 6,910 6,851
Accrued interest receivable 2,601 2,457
Other assets 1,871 1,634
-------- --------
TOTAL ASSETS $434,423 $402,623
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 51,223 $ 51,395
Interest bearing 318,861 290,872
-------- --------
Total Deposits 370,084 342,267
Borrowed funds 25,057 20,807
Federal Home Loan borrowing 7,000 7,000
Accrued interest payable 470 429
Other liabilities 846 1,630
-------- --------
Total Liabilities 403,457 372,133
-------- --------
Stockholders' Equity:
Common stock - $2 par value
Authorized - 9,000,000 shares
Issued - 4,229,931 shares in 1999 and
4,198,838 shares in 1998 8,460 8,397
Additional paid in capital 11,337 11,076
Retained earnings 12,094 10,803
Accumulated other comprehensive income (loss) (925) 214
-------- --------
Total Stockholders' Equity 30,966 30,490
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $434,423 $402,623
======== ========
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 SIX MONTHS ENDED
06-30-99 06-30-98 06-30-99 06-30-98
---------- ---------- ---------- ----------
Income:
Interest and fees on loans $ 6,504 $ 5,904 $ 12,533 $ 11,637
Interest on federal funds sold 35 130 73 183
Interest on securities 1,114 1,122 2,390 2,058
---------- ---------- ---------- ----------
7,653 7,156 14,996 13,878
Interest expense 3,481 3,383 6,806 6,381
---------- ---------- ---------- ----------
Net interest income 4,172 3,773 8,190 7,497
Provision for loan losses 2 12 77 40
---------- ---------- ---------- ----------
Net interest income after provision 4,170 3,761 8,113 7,457
---------- ---------- ---------- ----------
Investment security gains 0 142 92 139
Other non-interest income 492 499 1,018 1,118
---------- ---------- ---------- ----------
Total non-interest income 492 641 1,110 1,257
---------- ---------- ---------- ----------
Operating expense:
Salaries and benefits 1,470 1,417 2,967 2,838
Other operating expenses 1,163 1,204 2,273 2,357
Occupancy - net 306 236 614 498
---------- ---------- ---------- ----------
Total operating expenses 2,939 2,857 5,854 5,693
---------- ---------- ---------- ----------
Income before income taxes 1,723 1,545 3,369 3,021
Income taxes 652 589 1,277 1,182
---------- ---------- ---------- ----------
Net Income $ 1,071 $ 956 $ 2,092 $ 1,839
========== ========== ========== ==========
Earnings per share
- Basic $ 0.25 $ 0.23 $ 0.50 $ 0.45
- Diluted $ 0.25 $ 0.22 $ 0.48 $ 0.43
Weighted average shares outstanding
- Basic 4,225,943 4,139,880 4,218,407 4,108,567
- Dilutive option shares 94,132 169,808 118,172 163,590
- Diluted 4,320,075 4,309,688 4,336,579 4,272,157
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 SIX MONTHS ENDED
06-30-99 06-30-98 06-30-99 06-30-98
-------- -------- -------- --------
Net Income $ 1,071 $ 956 $ 2,092 $ 1,839
------- ------- ------- -------
Other comprehensive income:
Unrealized gain/(loss) on securities available for sale, net of income
taxes (benefits) of $(481) and $(145) for the quarter and $(733) and
$(134) for the six-month periods ended June 30, 1999
and 1998, respectively (785) (236) (1,196) (221)
Reclassification adjustment for gains included in net income, net of
income taxes of $35 for the six-month period ended June 30, 1999 and $54
and $53 for the three- and six-month
periods ended June 30, 1998 88 57 86
------- ------- ------- -------
Other comprehensive income (loss) (785) (148) (1,139) (135)
------- ------- ------- -------
Comprehensive Income $ 286 $ 808 $ 953 $ 1,704
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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6
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED JUNE 30, 1999
(1999 unaudited)
(Dollar amounts in thousands)
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
NUMBER PAR PAID IN RETAINED INCOME/
OF SHARES VALUE CAPITAL EARNINGS (LOSS) TOTAL
--------- ---------- ---------- ---------- ------------- ----------
BALANCE - DECEMBER 31, 1997 3,932,535 $ 7,865 $ 9,711 $ 9,282 $ 60 $ 26,918
Net income 3,377 3,377
Cash dividend declared
($.30 per share) (1,503) (1,503)
Stock dividend
(1% on Cargill Bancorp shares) 17,389 35 93 (129) (1)
Shares issued:
Stock Option Plan 199,799 399 742 1,141
Dividend Reinvestment
and Stock Purchase Plan 49,115 98 530 628
Cargill interim loss for the
quarter ended December 31, 1998 (224) (224)
Changes in unrealized gain on
securities available for sale 154 154
--------- ---------- ---------- ---------- ---------- ----------
BALANCE - DECEMBER 31, 1998 4,198,838 8,397 11,076 10,803 214 30,490
Net income 2,092 2,092
Cash dividend declared
($.20 per share) (801) (801)
Shares issued:
Stock Option Plan 5,301 11 23 34
Dividend Reinvestment
and Stock Purchase Plan 25,792 52 238 290
Changes in unrealized gain on
securities available for sale (1,139) (1,139)
--------- ---------- ---------- ---------- ---------- ----------
BALANCE - JUNE 30, 1999 4,229,931 $ 8,460 $ 11,337 $ 12,094 $ (925) $ 30,966
========= ========== ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
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7
WESTBANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
(Dollar amounts in thousands)
1999 1998
-------- --------
Operating activities:
Net income $ 2,092 $ 1,839
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 77 40
Depreciation and amortization 471 499
Provision for other real estate owned 27
Changes in assets and liabilities:
(Increase)/Decrease in accrued interest receivable (144) (257)
Realized gain on sale of securities (92) (139)
Realized (gain)/loss on sale of other real estate owned 19 10
Increase/(Decrease) in interest payable on deposits 41 115
(Increase)/Decrease in other assets (618) (505)
Increase/(Decrease) in other liabilities (784) (95)
-------- --------
Net cash provided by operating activities 1,062 1,534
-------- --------
Investing activities:
Investments and mortgage-backed securities:
Held to maturity:
Purchases (1,050) (20,103)
Proceeds from maturities and principal payments 19,106 20,741
Available for sale:
Purchases (20,686) (22,531)
Proceeds from sales 4,679 8,607
Proceeds from maturities 10,307 4,405
Purchases of premises and equipment (530) (989)
Net (increase)/decrease in loans (44,417) (19,339)
Proceeds from sale of other real estate owned 381 62
-------- --------
Net cash used in investing activities (32,210) (29,147)
-------- --------
Financing activities:
New increase/(decrease) in other borrowed funds 4,250 6,913
Net increase/(decrease) in deposits 27,817 32,957
Proceeds from exercise of stock options and stock purchase plan 324 1,367
Dividends paid (801) (749)
-------- --------
Net cash used in financing activities 31,590 40,488
-------- --------
Increase/(Decrease) in cash and cash equivalents 442 12,875
Cash and cash equivalents at beginning of period 14,240 16,526
-------- --------
Cash and cash equivalents at end of period $ 14,682 $ 29,401
======== ========
Cash paid during the period:
Interest on deposits and other borrowings $ 6,765 $ 6,266
Income taxes 1,191 1,172
Transfers of loans to other real estate owned 374
Sales of other real estate owned financed by the bank 135
See accompanying notes to condensed consolidated financial statements.
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8
WESTBANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER AND SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 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 and Cargill Bank (hereinafter sometimes referred to as "Park West" and
"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 for the year ended December 31, 1998,
aggregate $595,000. 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 June 30, 1998 and 1999, and the year ended December
31, 1998, with financial information of Cargill for the quarters ended June 30,
1999 and March 31, 1998, 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 June 30, 1998
Net interest income $3,282 $491 $3,773
Net income 885 71 956
Six months ended June 30, 1998
Net interest income $6,545 $952 $7,497
Net income 1,724 115 1,839
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9
WESTBANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER AND SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(Unaudited)
NOTE C - CURRENT OPERATING ENVIRONMENT
Park West operates thirteen banking offices located in Hampden County,
Massachusetts, and also operated 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 that can apply to a financial institution. As of June 30, 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
quarter and six months ended June 30, 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 or normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the quarter and six-month
period ended June 30, 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 June 30, 1999, standby letters of credit amounted to
$715,000 and loan commitments were $36,060,000 and unused balances available on
home equity lines of credit were $7,434,000.
Trust Assets - Property with a book value of $114,374,000 at June 30, 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.
9
10
WESTBANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER AND SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
(Unaudited)
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 8.0%.
The capital ratios of Park West and Cargill as of June 30, 1999 were as follows:
Park West Bank
and Trust Company Cargill Bank
----------------- ------------
Leverage Capital Ratio 7.11% 6.89%
Tier 1 Risk-Based Capital 10.59% 12.74%
Total Risk-Based Capital 11.53% 13.84%
As of June 30, 1999, both Park West and Cargill met the criteria which
classified them as well capitalized financial institutions.
NOTE G - BRANCH PURCHASE AGREEMENT
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
Phoenix Home Life Mutual Insurance to acquire the Connecticut banking division
of New London Trust, F.S.B., New London, New Hampshire.
The Connecticut division of New London Trust operates offices in Danielson and
Putnam, Connecticut, 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 Corporation will use the purchase method of
accounting for this acquisition. Upon completion, the New London Trust offices
in Danielson and Putnam, Connecticut, will become offices of Cargill Bank, which
will operate a total of five banking offices.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
Total consolidated assets amounted to $434,423,000 on June 30, 1999, compared to
$402,623,000 on December 31, 1998. As of June 30, 1999 and June 30, 1998,
earning assets amounted to, respectively, $413,452,000 or 95% of total assets
and $383,071,000 or 95% of total assets. Earning assets increased during the
first six months of 1999 as a result of an increase in loans. Deposits
originated throughout the Corporation's branch system and short-term borrowings
with the Federal Home Loan Bank, provided the funds to support the increase in
earning assets.
Changes in Results of Operations
For the quarter ended June 30, 1999, net income totaled $1,071,000, compared to
$956,000 for the quarter ended June 30, 1998. For the six months ended June 30,
1999, net income was $2,092,000, compared to $1,839,000 for the same period
during 1998. Included in the results for the six months ended June 30, 1999 is a
gain on the sale of securities available for sale totaling $92,000.
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 decrease on 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's provision for loan losses in the current quarter was $2,000,
compared to $12,000 for the same period in 1998. Loans written off against the
allowance for loan losses after recoveries amounted to $21,000 for the six
months ended June 30, 1999.
After giving effect to the actions described above, the allowance for loan
losses at June 30, 1999, totaled $2,721,000 or 0.80% of total loans, as compared
to $2,665,000 or 0.90% at December 31, 1998.
Non-performing past due loans at June 30, 1999, aggregated $840,000 or 0.25% of
total loans, compared to $1,099,000 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 0.19% and 0.27%.
Other real estate owned at June 30, 1999, totaled $85,000 and stands at 0.02% of
total assets at the end of the current quarter.
Management has made every effort to recognize all circumstances known at this
time that could affect the collectibility of loans and has reflected these in
the provision for loan losses, the write-down of other real estate owned and
impaired loans to fair value and other loans (watch list) monitored by
management, the charge-off of loans and the balance in the allowance for loan
losses. Management deems that the provision for 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.
11
12
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 with whom the Corporation has had continuous contact and updates as to
their Year 2000 readiness.
The Year 2000 Project also includes a contingency plan to be implemented in the
event 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
has developed a business resumption plan that would be implemented in this
event.
As of June 30, 1999, the Corporation has incurred approximately $218,000 in Year
2000-related expenses and has estimated that capital expenditures related to the
Year 2000 issue will total approximately $510,000.
As of June 30, 1999, the Corporation has completed testing of all critical
systems and believes that these systems are ready to operate without disruption
of service on January 1, 2000 and thereafter.
The Corporation has designed the Year 2000 Project based on 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.
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13
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 subsidiaries, Park West Bank and Trust Company
and Cargill Bank.
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-99 06-30-98 06-30-99 06-30-98
-------- -------- -------- --------
Interest and dividend income $7,653 $7,156 $14,996 $13,878
Interest expense 3,481 3,383 6,806 6,381
-------- -------- -------- --------
Net interest income $4,172 $3,773 $8,190 $7,497
======== ======== ======== ========
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands)
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
-------- ---- -------- ---- -------- ---- -------- ----
Earning Assets $403,316 7.59% $361,667 7.91% $394,995 7.59% $348,268 7.97%
-------- ---- -------- ---- -------- ---- -------- ----
Interest-bearing
liabilities 338,717 4.11 303,717 4.46 331,640 4.10 290,001 4.40
-------- ---- -------- ---- -------- ---- -------- ----
Interest rate spread 3.48 3.45 3.49 3.57
-------- ---- -------- ---- -------- ---- -------- ----
Interest-free resources
used to fund
earning assets 64,599 57,950 63,355 58,267
-------- ---- -------- ---- -------- ---- -------- ----
Total Sources of Funds $403,316 $361,667 $394,995 $348,268
======== ==== ======== ==== ======== ==== ======== ====
Net Yield on Earning Assets 4.14% 4.17% 4.15% 4.31%
======== ==== ======== ==== ======== ==== ======== ====
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14
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 06-30-99 SIX MONTHS ENDED 06-30-99
OVER OVER
QUARTER ENDED 06-30-98 SIX MONTHS ENDED 06-30-98
----------------------------- -----------------------------
CHANGE DUE TO CHANGE DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ------- ------- ------- ------- -------
Interest Income:
Loans $ 1,000 $ (400) $ 600 $ 1,668 $ (772) $ 896
Securities (52) 44 (8) 265 67 332
Federal funds (70) (25) (95) (75) (35) (110)
------- ------- ------- ------- ------- -------
Total Interest Earned 878 (381) 497 1,858 (740) 1,118
------- ------- ------- ------- ------- -------
Interest Expense:
Interest-bearing deposits 287 (265) 22 641 (457) 184
Other borrowed funds 80 (4) 76 218 23 241
------- ------- ------- ------- ------- -------
Total Interest Expense 367 (269) 98 859 (434) 425
------- ------- ------- ------- ------- -------
Net Interest Income $ 511 $ (112) $ 399 $ 999 $ (306) $ 693
======= ======= ======= ======= ======= =======
Net interest earned increased by $399,000 during the second quarter of 1999
compared to the second quarter of 1998. For the six-month period ended June 30,
1999, net interest income increased by $693,000 versus the same period of 1998.
Average earning assets increased by $46,724,000 during the first six months of
1999. The average earning base was $394,992,000 compared to $348,268,000 in the
same period last year.
OPERATING EXPENSES
The components of total operating expenses for the periods and their percentage
of gross income are as follows:
(Dollars amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-99 06-30-98 06-30-99 06-30-98
--------------- --------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
Salaries and benefits $1,470 18.05% $1,417 18.17% $2,967 18.42% $2,838 18.75%
Other non-interest expense 1,163 14.28 1,204 15.44 2,273 14.11 2,357 15.57
Occupancy - net 306 3.75 236 3.03 614 3.82 498 3.29
------ ----- ------ ----- ------ ----- ------ -----
Total Operating Expenses $2,939 36.08% $2,857 36.64% $5,854 36.35% $5,693 37.61%
====== ===== ====== ===== ====== ===== ====== =====
For the six-month period ended June 30, 1999, operating expenses increased by
approximately $161,000 over the 1998 period. The increase was a result of
increases in salary and benefits totaling $129,000, occupancy expense totaling
$116,000 and a decrease in other non-interest expense of $84,000. The increases
are primarily the result of overall growth of the Corporation.
14
15
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
CAPITAL RATIOS
06-30-99 06-30-98
-------- --------
Ratio of "Tier 1" leverage capital
to total assets at end of period 7.34% 6.90%
Regulatory risk-based capital requirements take into account the different risk
categories of banking organizations by assigning risk weight to assets and the
credit equivalent amounts of off-balance sheet exposures.
In addition, capital is divided into two tiers. For this Corporation, Tier 1
includes the common stockholders' equity. 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 June 30, 1999:
Tier 1 Capital (minimum required 4.00%) 11.44%
Tier 2 Capital (minimum required 8.00%) 12.41%
INTEREST RATE SENSITIVITY
The following table sets forth the distribution of the repricing of the
Corporation's earning assets and interest-bearing liabilities as of June 30,
1999.
(Dollar amounts in thousands)
Three Over Three Over One
Months Months to Year to Over
or Less One Year Five Years Five Years Total
------- -------- ---------- ---------- -----
Earning Assets $ 56,457 $ 45,283 $115,516 $196,196 $413,452
Interest-Bearing
Liabilities 115,678 111,038 123,973 229 350,918
-------- -------- ------- -------- -------
Interest Rate
Sensitivity Gap $(59,221) $(65,755) $(8,457) $195,967 $62,534
======== ======== ======= ======== =======
Cumulative Interest
Rate
Sensitivity Gap $(59,221) $(124,976) $(133,433) $62,534
Interest Rate
Sensitivity
Gap Ratio (14.32)% (15.90)% (2.05)% 47.40% 15.12%
Cumulative Interest
Rate Sensitivity
Gap Ratio (14.32)% (30.23)% (32.27)% 15.12%
15
16
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY
Liquidity management requires close scrutiny of the mix and maturity of deposits
and borrowings and short-term investments. Cash and due from banks, federal
funds sold, investment securities and mortgage-backed securities, as compared to
deposits, are used by Westbank to compute its liquidity on a daily basis as
adjusted for regulatory purposes. In addition, Westbank is subject to Regulation
D of the Federal Reserve Bank (FRB), which requires depository institutions to
maintain reserve balances on deposit with the FRB based on certain average
depositor balances. Westbank is in compliance with Regulation D. Management of
Westbank believes that its current liquidity is sufficient to meet current and
anticipated funding needs.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-99 06-30-98 06-30-99 06-30-98
-------- -------- -------- --------
Balance at beginning of period $2,669 $3,077 $2,665 $3,057
Provision charged to expense 2 12 77 40
------ ------ ------ ------
2,671 3,089 2,742 3,097
------ ------ ------ ------
Charge-offs:
Loans secured by real estate 300 340
Commercial and industrial loans 40 87 47
Consumer loans 22 13 40 26
------ ------ ------ ------
22 353 127 413
------ ------ ------ ------
Recoveries:
Loans secured by real estate 70 2 86 33
Commercial and industrial loans 15 15
Consumer loans 2 4 5 10
------ ------ ------ ------
72 6 106 58
------ ------ ------ ------
Net charge-offs (recoveries) (50) 347 21 355
------ ------ ------ ------
Balance at end of period $2,721 $2,742 $2,721 $2,742
====== ====== ====== ======
Net charge-offs to:
Average loans (.02)% .12% .01% .13%
Loans at end of period (.01)% .12% .01% .12%
Allowance for loan losses (1.84)% 12.65% .77% 12.98%
Allowance for loan losses as a percentage of:
Average loans .82% .97% .85% .99%
Loans at end of period .80% .95% .80% .95%
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.
16
17
WESTBANK CORPORATION AND SUBSIDIARIES
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(Dollar amounts in thousands)
06-30-99 03-31-99 12-31-98 09-30-98 06-30-98
-------- -------- -------- -------- --------
Non-Accrual Loans $595 $ 952 $ 869 $ 817 $ 828
---- ------ ------ ------ ------
Loans contracturally past
due 90 days or more
and still accruing 245 147 231 218 175
---- ------ ------ ------ ------
Total non-accrual, past due
and restructured loans $840 $1,099 $1,100 $1,035 $1,003
---- ------ ------ ------ ------
Non-accrual, past due and
restructured loans as a
percentage of total loans .25% .34% .37% .36% .35%
---- ------ ------ ------ ------
Allowance for loan losses as a
percentage of non-accrual,
past due and restructured loans 323.93% 264.52% 242.27% 265.80% 273.38%
---- ------ ------ ------ ------
Other real estate owned - net $ 85 $ 347 $ 466 $ 304 $ 571
---- ------ ------ ------ ------
Total non-performing assets $925 $1,446 $1,566 $1,339 $1,574
---- ------ ------ ------ ------
Non-performing assets as a
percentage of total assets .21% .35% .39% .33% .40%
---- ------ ------ ------ ------
17
18
WESTBANK CORPORATION AND SUBSIDIARIES
QUARTER-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
JUNE 30, 1999 JUNE 30, 1998
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Federal funds sold and
temporary investments $ 2,849 $ 35 4.91% $ 8,235 $ 130 6.31%
Securities 67,374 1,114 6.61 70,619 1,122 6.35
Loans 333,093 6,504 7.81 282,813 5,904 8.35
-------- ------ ---- -------- ------ ----
Total earning assets 403,316 $7,653 7.59% 361,667 $7,156 7.91%
Loan loss allowance (2,746) (3,061)
All other assets 22,916 21,972
-------- ------ ---- -------- ------ ----
TOTAL ASSETS $423,486 $380,578
======== ====== ==== ======== ====== ====
LIABILITIES AND EQUITY
Interest-bearing deposits $313,686 $3,230 4.12% $286,688 $3,208 4.48%
Borrowed funds 25,031 251 4.01 17,029 175 4.11
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities 338,717 $3,481 4.11 303,717 $3,383 4.46
-------- ------ ---- -------- ------ ----
Interest rate spread 3.48% 3.45%
Demand deposits 52,032 46,893
Other liabilities 1,617 1,192
Shareholders' equity 31,120 28,776
-------- ------ ---- -------- ------ ----
TOTAL LIABILITIES
AND EQUITY $423,486 $380,578
======== ====== ==== ======== ====== ====
NET INTEREST INCOME $4,172 $3,773
======== ====== ==== ======== ====== ====
Interest Earned/Earning Assets 7.59% 7.91%
Interest Expense/Earning Assets 3.45 3.74
-------- ------ ---- -------- ------ ----
Net Yield on Earning Assets 4.14% 4.17%
======== ====== ==== ======== ====== ====
18
19
WESTBANK CORPORATION AND SUBSIDIARIES
YEAR-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Federal funds sold and
temporary investments $ 3,374 $ 73 4.33% $ 6,276 $ 183 5.83%
Securities 72,321 2,390 6.61 64,373 2,058 6.39
Loans 319,300 12,533 7.85 277,619 11,637 8.38
-------- ------- ---- -------- ------- ----
Total earning assets 394,995 $14,996 7.59% 348,268 $13,878 7.97%
-------- ------- ---- -------- ------- ----
Loan loss allowance (2,714) (3,102)
All other assets 22,766 21,621
-------- ------- ---- -------- ------- ----
TOTAL ASSETS $415,047 $366,787
======== ======= ==== ======== ======= ====
LIABILITIES AND EQUITY
Interest-bearing deposits $306,696 $6,310 4.11% $276,348 $6,126 4.43%
Borrowed funds 24,944 496 3.98 13,653 255 3.74
-------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities 331,640 $6,806 4.10 290,001 $6,381 4.40
-------- ------- ---- -------- ------- ----
Interest rate spread 3.49% 3.57%
Demand deposits 50,627 47,000
Other liabilities 1,782 1,410
Shareholders' equity 30,998 28,376
-------- ------- ---- -------- ------- ----
TOTAL LIABILITIES
AND EQUITY $415,047 $366,787
======== ======= ==== ======== ======= ====
NET INTEREST INCOME $8,190 $7,497
======== ======= ==== ======== ======= ====
Interest Earned/Earning Assets 7.59% 7.97%
Interest Expense/Earning Assets 3.44 3.66
-------- ------- ---- -------- ------- ----
Net Yield on Earning Assets 4.15% 4.31%
======== ======= ==== ======== ======= ====
19
20
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. 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 that may
affect such future performance, are based on factors that are beyond
Westbank's ability to control or predict with precision, including
future market conditions and the behavior of other market participants.
Among the factors that could cause actual results to differ materially
from such forward-looking statements are the following:
1. The status of the economy in general, as well as in Westbank's
prime market areas of Western Massachusetts and Northeastern
Connecticut;
2. The real estate market in Western Massachusetts and
Northeastern Connecticut;
3. Competition in Westbank's prime market area from other banks,
especially in light of continued consolidation in the New
England banking industry;
4. Any changes in federal and state bank regulatory requirements;
5. Changes in interest rates; and
6. The cost and other effects of unanticipated legal and
administrative cases and proceedings, settlements and
investigations.
While Westbank periodically reassesses material trends and
uncertainties affecting the Corporation's performance in connection
with its preparation of Management's Discussion and Analysis of Results
of Operations and Financial Condition contained in its quarterly and
annual reports, Westbank does not intend to review or revise any
particular forward-looking statements.
b. Registration on Form S-3
None.
c. Registration of Form S-8
None
20
21
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.
21
22
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: August 11, 1999 /s/ Donald R. Chase
----------------------------------------
Donald R. Chase
President and Chief Executive Officer
Date: August 11, 1999 /s/ John M. Lilly
----------------------------------------
John M. Lilly
Treasurer and Chief Financial Officer
22