UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
Commission file number 0 - 12784
WESTBANK CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts
(State or other jurisdiction of incorporation or organization)
04 - 2830731
(I.R.S. Employer Identification 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: 3,137,211 shares
outstanding as of October 31, 1994.
WESTBANK CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statement of Stockholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Financial Statements 7 - 9
Management's Discussion and Analysis of Financial Condition
and Results of Operation 9 - 18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 19
ITEM 2. Changes in Rights of Security Holders 19
ITEM 3. Defaults by Company on its Senior Securities 19
ITEM 4. Results of Votes on Matters Submitted to a Vote
of Security Holders 19
ITEM 5. Other Information 19
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 20
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
(Dollar amounts in thousands)
September 30, December 31,
ASSETS 1994 1993
Cash and due from banks (Unaudited)
Non-interest bearing $ 11,593 $ 9,621
Interest bearing 369 353
Federal Funds sold 2,800 3,000
Securities available for sale
(approximate market value of $14,634 in 1994
and $5,234 in 1993) 14,634 4,945
Securities held to maturity (approximate market
value of $21,744 in 1994 and $27,904 in 1993) 22,167 26,633
Mortgage-backed securities (approximate
market value of $343 in 1994 and $422 in 1993) 345 401
Loans $ 183,940 $ 176,090
Allowance for loan losses (3,169) (3,472)
Net-loans 180,771 172,618
Bank premises and equipment 3,438 3,088
Other Real Estate Owned (OREO) $ 2,055 $ 3,601
In-substance foreclosures 795 1,979
Valuation allowance (396) (440)
Net-O.R.E.O. 2,454 5,140
Accrued interest receivable 1,614 1,560
Deferred income tax receivable 919 369
Prepaid/refundable income tax 64 50
Other assets 1,426 1,085
TOTAL ASSETS $ 242,594 $ 228,863
LIABILITIES AND EQUITY
Deposits
Non-interest bearing $ 38,822 $ 34,499
Interest bearing 182,309 167,932
Total Deposits 221,131 202,431
Borrowed funds 5,553 12,420
Accrued interest payable 195 541
Other liabilities 365 200
Total Liabilities 227,244 215,592
Stockholders' Equity
Preferred stock - $5 par value 0 0
Authorized - 100,000 shares
Issued - none
Common stock - $2 par value
Authorized - 9,000,000 shares
Issued - 3,136,561 in 1994 and
3,125,506 in 1993 6,273 6,251
Additional paid in capital 6,873 6,861
Retained earnings 2,270 159
Net unrealized loss on securities
available for sale (66) 0
Total Stockholders' Equity 15,350 13,271
TOTAL LIABILITIES AND EQUITY $ 242,594 $ 228,863
See accompanying notes to condensed consolidated financial statements.
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Unaudited)
(Dollar amounts in thousands)
Quarter Ended Nine Months Ended
09-30-94 09-30-93 09-30-94 09-30-93
Income:
Interest and fees on loans $ 3,771 $ 3,649 $ 10,921 $ 11,256
Interest from temporary investments 77 41 138 124
Interest and dividends from securities 474 499 1,370 1,421
Total interest and dividend income 4,322 4,189 12,429 12,801
Interest expense 1,602 1,612 4,504 5,294
Net interest income before provision
for loan losses 2,720 2,577 7,925 7,507
Provision for loan losses 219 210 931 515
Interest income after provision
for loan losses 2,501 2,367 6,994 6,992
Security gains 1 166 151 339
Other non-interest income 554 589 1,808 1,622
Income before operating expenses 3,056 3,122 8,953 8,953
Operating Expenses:
Salaries and benefits 1,001 914 2,860 2,742
Other real estate - prov. for losses 266 947 692 2,753
- operating expense 107 171 327 494
Other non-interest expense 877 300 2,517 964
Occupancy - net 202 147 561 497
Total operating expenses 2,453 2,479 6,957 7,450
Income before income taxes 603 643 1,996 1,503
Income taxes (benefit) (59) 228 (115) 390
Income before cumulative effect of change
in accounting principle 662 415 2,111 1,113
Cumulative effect of change in
accounting principle - income taxes 0 0 0 400
Net Income $ 662 $ 415 $ 2,111 $ 1,513
Earnings per share
before cumulative effect of change
in accounting principle $ 0.21 $ 0.13 $ 0.66 $ 0.35
Earnings per share
after cumulative effect of change
in accounting
principle - income taxes $ 0.21 $ 0.13 $ 0.66 $ 0.48
Weighted average of common and
common share equivalents 3,208,103 3,193,613 3,201,134 3,181,160
See accompanying notes to condensed consolidated financial statements.
WESTBANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1993 AND NINE MONTHS ENDED SEPT. 30, 1994
(1994 Unaudited)
(Dollar amounts in thousands)
NET UNREALIZED
LOSS ON
SECURITIES
COMMON STOCK ADDITIONAL RETAINED AVAILABLE
NUMBER OF PAR PAID IN EARNINGS FOR
SHARES VALUE CAPITAL (DEFICIT) SALE TOTAL
DECEMBER 31, 1992 3,115,689 $ 6,231 $ 6,849 $(1,788) $ 0 $ 11,292
Shares issued
under stock
option plan 5,700 12 12
Shares issued
under stock
purchase plan 4,117 8 12 20
Net income for
the year ended
December 31, 1993 1,947 1,947
DECEMBER 31, 1993 3,125,506 6,251 6,861 159 0 13,271
Shares issued
under stock
option plan 7,364 15 15
Shares issued
under stock
purchase plan 3,691 7 12 19
Net unrealized
loss on securities
available for sale (66) (66)
Net income for
nine months ended
September 30, 1994 2,111 2,111
BALANCE -
SEPT. 30, 1994 3,136,561 $ 6,273 $ 6,873 $ 2,270 $ (66) $ 15,350
See accompanying notes to condensed consolidated financial statements.
WESTBANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Unaudited)
(Dollar amounts in thousands)
NINE MONTHS ENDED
INCREASE/(DECREASE) IN CASH FLOW FROM: 9-30-94 9-30-93
OPERATING ACTIVITIES:
Net Income $ 2,111 $ 1,513
Adjustments to reconcile net income to
net cash from operating activities:
Provision for loan losses 931 515
Provision for depreciation and amortization 442 562
Charge off in carrying value of
other real estate owned 692 964
Gain on sale of investment securities (151) (339)
Increase/(decrease) In Cash Flow From:
Accrued interest receivable (54) (1)
Accrued interest payable (346) (250)
Income tax benefit (564) (475)
Other assets (341) 43
Other liabilities 165 (154)
2,885 2,378
INVESTING ACTIVITIES:
Proceeds from maturities of investments and
mortgage-backed securities 1,417 17,339
Proceeds from sales of securities available
for sale 5,479 10,022
Purchases of investment and mortgage-backed
securities (11,978) (28,622)
Loans - net of non cash transfers to other assets (8,384) 3,924
Proceeds from sale of other real estate owned and
in-substance foreclosures 1,294 1,288
Purchases of bank premises and equipment (792) (230)
(12,964) 3,721
FINANCING ACTIVITIES:
Increase/(decrease) in deposits 18,700 (5,119)
Increase/(decrease) in short term borrowings (6,867) (1,073)
Proceeds from exercise of stock options and
stock purchase plan 34 17
11,867 (6,175)
Increase/(decrease) in cash and cash equivalents 1,788 (76)
Cash and cash equivalents at beginning of period 12,974 17,607
Cash and cash equivalents at end of period $ 14,762 $ 17,531
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the nine months:
Interest on deposits and other borrowings $ 4,850 $ 5,365
Income taxes 270 455
Non-cash investing activities:
Transfer of loans to other real estate owned
and in-substance foreclosure $ 211 $ 118
See accompanying notes to condensed consolidated financial statements.
WESTBANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - GENERAL INFORMATION
Westbank Corporation (hereinafter sometimes referred to as
"Westbank") is a registered Bank Holding Company organized to
facilitate the expansion and diversification of the business of Park
West Bank and Trust Company (hereinafter sometimes referred to as
"Park West") into additional financial services related to banking
which are permitted by the Federal Bank Holding Company Act of 1956,
as amended. Westbank became the owner of all of Park West's
outstanding capital stock effective July 2, 1984.
On February 20, 1987, Westbank became the owner of all the
outstanding stock of Chicopee Co-operative Bank (hereinafter
sometimes referred to as "Chicopee"), a state-chartered stock
co-operative bank.
On February 26, 1990, the merger of Chicopee Co-operative Bank into
Park West Bank and Trust company was completed with the Chicopee
Office becoming a full service office operating under the charter of
Park West.
Substantially all operating income and net income of the Corporation
are presently accounted for by Park West.
NOTE B - CURRENT OPERATING ENVIRONMENT
In March, 1992, Park West's Board of Directors entered into a Formal
Agreement ("Agreement") with the Federal Deposit Insurance
Corporation (the "FDIC")and the Commissioner of Banks for the
Commonwealth of Massachusetts (the "Commissioner"). The Agreement
requires Park West to take certain affirmative actions in response
to an examination by the FDIC and the Commissioner. The affirmative
actions required by the Agreement included, the development and
implementation of a written management plan and a plan to improve
Park West's earnings; the development and implementation of a
comprehensive policy for determining the adequacy of Park West's
allowance for loan and lease losses; the development and
implementation of a policy to lessen Park West's risk position with
respect to certain borrowers; the development and implementation of
a written funds management policy; the increase of Park West's Tier
1 capital to total asset ratio to 6% by June 30, 1994; an agreement
not to declare or pay dividends without the prior approval of the
FDIC and the Commissioner, as well as an agreement not to make any
payments to, or for the benefit of, any affiliated organization
without such prior approval. At September 30, 1994, the Bank met
the interim Tier 1 capital requirements outlined in the Agreement
and has submitted all of the required plans and policies as called
for under the Agreement. Park West anticipates that it will
continue to be able to comply with the terms of the Agreement.
Failure to do so could result in additional administrative actions
by the FDIC or the Commissioner, any of which actions could have a
substantial negative impact on Park West.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted into law on December 19, 1991 and imposes
significant new regulatory restrictions and requirements on banking
institutions insured by the FDIC and their holding companies.
Effective December 19, 1992, FDICIA established five capital
categories into which financial institutions are placed based on
capital level. The capital categories established by FDICIA are:
well capitalized; adequately capitalized; undercapitalized;
significantly undercapitalized; and critically under- capitalized.
Each capital category establishes different degrees of regulatory
restrictions which can apply to a financial institution. As of
September 30, 1994, Park West's capital was at a level that would
place the Bank in the well capitalized category.
FDICIA imposes a variety of other restrictions and requirements on
insured banks. These include significant new regulatory reporting
requirements for fiscal years commencing after December 31, 1992, a
system of risk-based deposit insurance premiums and civil money
penalties for inaccurate deposit assessment reports. In addition, a
system of regulatory standards for bank and bank holding company
operations, detailed new truth in savings disclosure requirements,
and restrictions on activities authorized by state law but not
authorized for national banks.
The weak economy and real estate market continues to impair the
financial results of the Corporation. Despite these weaknesses the
Corporation has managed significant improvements in the level of
non-performing assets. As a result of the continued aggressive
management of problem loans and an on-going expense reduction
program, the Board of Directors and management believe the
Corporation is positioned to sustain compliance with the Agreement
as well as the requirements of FDICIA.
NOTE C - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements for the quarter and nine months ended September 30, 1994
and 1993 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 nine month period ended
September 30, 1994, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1994.
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, 1993.
NOTE D - CHANGES IN ACCOUNTING PRINCIPLES
On January 1, 1994, the Bank adopted Statement on Financial
Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". This pronouncement
requires that securities classified as available for sale be
reported at fair value with unrealized gains and losses excluded
from earnings and reported as a separate component of stockholders'
equity. The effect of the implementation of this pronouncement was
to decrease stockholders' equity by approximately $66,000 (net of
tax effect) on September 30, 1994.
The Corporation adopted "SFAS 115" by categorizing all investments
with a maturity of less than three years as available for sale. In
addition, any mortgage-backed securities created out of the Banks
own inventory of residential real estate loans is also considered
available for sale. All other investments are considered to be held
to maturity.
The securities available for sale as disclosed in the accompanying
Consolidated Balance Sheet are stated at cost for 1993 and market
value for 1994.
There were no sales out of the investment portfolio during the first
three quarters of 1994.
NOTE E - EARNINGS PER SHARE
Earnings per share were computed by dividing net income by the
weighted average number of shares of common stock outstanding and
common stock equivalent shares arising from unexercised stock
options.
NOTE F - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments
and contingent liabilities, such as, standby letters of credit and
commitments to extend credit. As of September 30, 1994 standby
letters of credit amounted to $738,000 and loan commitments were
$6,005,000 and unused balances available on home equity lines of
credit were $8,373,000.
Trust Assets - Property with a book value of $89,474,000 at
September 30, 1994 held for customers by a subsidiary in a fiduciary
or agency capacity, is not included in the accompanying Balance
Sheet since such items are not assets of the Bank.
NOTE G - STOCKHOLDERS' EQUITY
The FDIC imposes leverage capital ratio requirements for state
non-member Banks. The Bank's leverage capital ratio as of September
30, 1994 and December 31, 1993 was 6.44% and 5.90%, respectively.
In addition, the FDIC has established risk-based capital
requirements for insured institutions of, Tier 1 risk-based capital
of 4.00% and total risk-based capital of 8.00%. The Bank's
risk-based capital at September 30, 1994, for Tier 1 was 8.79% and
total risk-based capital was 10.05%.
As discussed in NOTE B, the Formal Agreement requires Park West to
increase its level of Tier 1 leverage capital and to comply with the
minimum requirements of risk-based capital. As of September 30,
1994, the Bank was in compliance with all required capital targets.
The Agreement required that Park West's Tier 1 leverage capital
ratio be increased to a minimum of 6% by June 30, 1994. As of
September 30, 1994 Park West Tier 1 leverage capital ratio was 6.44%
exceeding the requirement of the Agreement.
Under the agreement, the Corporation is prohibited from paying
dividends without the prior approval of the FDIC and the
Massachusetts Commissioner of Banks.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Total consolidated assets amounted to $242,594,000 on September 30,
1994, compared to $228,863,000 on December 31, 1993. As of
September 30, 1994 and September 30, 1993 earning assets amounted
to, respectively, $224,255,000 or 92% of total assets, and
$203,784,000 or 89% of total assets.
Operations reflect net income for the current quarter of $662,000 as
compared to a net income of $415,000 for the same quarter during
1993. For the nine months and year-to-date period September 30,
1994, net income totals $2,111,000 compared to net income of
$1,513,000 for the same period one year ago.
An overall reduction in interest income and interest expense
reflects an increase in loan volume and decreases in deposit volume
and interest rates on earning assets. Further analysis is provided
in sections on net interest income and supporting schedules. The
provision for loan losses was level in the current quarter compared
to the 1993 quarter, and an increase of $416,000 is reflected for
the nine month period. Decreases are noted in other real estate
provisions and operating expenses. Other real estate expense
totalled $343,000 for the current quarter compared with $447,000 a
year ago, a decrease of $104,000, these comparable expenses reflect
a decrease of $442,000 for the nine month period.
Non-performing past due loans/leases at September 30, 1994,
aggregated $5,941,000 or 3.23% of total loans/leases compared to
$1,902,000 or 1.08% at December 31, 1993. The percentage of
non-performing and past due loans compared to total assets on those
same dates respectively amounted to 2.45% and 0.83%.
During the second and third quarters of 1994, management moved four
loans totaling approximately $4,000,000 to a non-performing status.
The four credits identified above are not newly identified loan
problems as each loan has been listed on the Banks internal Watch
and Classified Loan list for a substantial period of time. The
classification to non-performing status is in response to further
deterioration of these four borrowers and managements' aggressive
action in an attempt to resolve them. Each of the loans is real
estate related.
Loans and leases written-off against the allowance for loan losses
after recoveries amounted to $1,004,000 in the current quarter
compared to net charge offs of $105,000 during the quarter ended
September 30, 1993.
After giving effect to the actions described above, the allowance
for loan losses at September 30, 1994, totalled $3,169,000 or 1.72%
of total loans as compared to $3,472,000 or 1.97% at December 31,
1993.
Other-real-estate-owned and in-substance foreclosures-net amounted
to $2,454,000 at September 30, 1994 compared to $5,140,000 at
December 31, 1993. The percentage as compared to total assets on
those same dates respectively amounted to 1.01% and 2.25%.
Total non-performing assets amounted to $8,395,000 at September 30,
1994 compared to $7,042,000 at December 31, 1993. The percentage of
non-performing assets to total assets on those same dates amounted
to 3.47% versus 3.08%
Management has made every effort to recognize all circumstances
known at this time which could affect the collectibility of loans
and has reflected such circumstances in deciding as to the provision
for loan losses, the writing down of other real estate owned and
in-substance foreclosures to fair value less estimated selling
costs, the charge-off of loans and the balance in the allowance for
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.
NET INTEREST INCOME
The Corporation's earning assets include a diverse portfolio of
earning instruments ranging from the Corporation's core business of
loan extensions to interest-bearing securities issued by federal,
state and municipal authorities. These earning assets are financed
through a combination of interest-bearing and interest-free sources.
Net interest income, the most significant component of earnings, is
the amount by which the interest generated by assets exceeds the
interest expense on liabilities. For analytical purposes, the
interest earned on tax exempt assets is adjusted to a "tax
equivalent" basis to recognize the income tax savings which
facilitates comparison between taxable and tax exempt assets.
The Corporation analyzes its performance by utilizing the concepts
of interest rate spread and net yield on earning assets. The
interest rate spread represents the difference between the yield on
earning assets and interest paid on interest-bearing liabilities.
The net yield on earning assets is the difference between the rate
of interest on earning assets and the effective rate paid on all
funds - interest-bearing liabilities, as well as, interest-free
sources (primarily demand deposits and shareholders' equity).
The balances and rates derived for the analysis of net interest
revenue presented on the following pages reflect the consolidated
assets and liabilities of the Corporation's principal earning
subsidiary, Park West Bank and Trust Company.
(Dollar amounts in thousands)
Quarter Ended Nine Months Ended
9-30-94 9-30-93 9-30-94 9-30-93
Interest revenue $ 4,322 $ 4,189 $12,429 $12,801
Interest expense 1,602 1,612 4,504 5,294
Net interest income 2,720 2,577 7,925 7,507
Tax equivalent adjustment 8 5 19 18
Net interest income (taxable equivalent) $ 2,728 $ 2,582 $ 7,944 $ 7,525
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands)
Quarter Ended September 30,
1994 1993
(Taxable Equivalent) Average Average
Balance Rate Balance Rate
Earning Assets $221,395 7.81% $208,261 8.05%
Interest-bearing
liabilities 185,977 3.45 183,354 3.52
Interest rate spread 4.36 4.53
Interest-free
resources used to
fund earning assets 35,418 24,907
Total Sources of Funds $221,395 2.89 $208,261 3.10
Net Yield on Earning Assets 4.92% 4.95%
Nine Months Ended September 30,
1994 1993
(Taxable Equivalent) Average Average
Balance Rate Balance Rate
Earning Assets $214,253 7.75% $208,378 8.19%
Interest-bearing
liabilities 180,838 3.32 187,106 3.77
Interest rate spread 4.43 4.42
Interest-free
resources used to
fund earning assets 33,415 21,272
Total Sources of Funds $214,253 2.80 $208,378 3.38
Net Yield on Earning Assets 4.95% 4.81%
CHANGES IN NET INTEREST EARNED
(Dollar amounts in thousands)
QUARTER ENDED SEPT. 30, 1994 NINE MONTHS ENDED SEPT. 30, 1994
(Taxable Equivalent) O V E R O V E R
QUARTER ENDED SEPT. 30, 1993 NINE MONTHS ENDED SEPT. 30, 1993
CHANGE DUE TO CHANGE DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
Interest Earned:
Loans/Leases $ 285 $ (160) $ 125 $ 553 $ (887) $ (334)
Securities (37) 12 (25) (86) 35 (51)
Federal funds 18 18 36 (12) 26 14
Total Interest
Earned 266 (130) 136 455 (826) (371)
Interest Expense:
Interest bearing
deposits 47 (35) 12 (141) (596) (737)
Other Borrowed
Funds (19) (3) (22) (33) (20) (53)
Total Interest
Expense $ 28 $ (38) $ (10) $ (174) $ (616) $ (790)
Net Interest
Income $ 238 $ (92) $ 146 $ 629 $ (210) $ 419
Net interest earned on a taxable equivalent basis increased to
$2,728,000 in the third quarter of 1994, up $146,000 as compared
with the same period of 1993. Average earning assets increased
during the third quarter of 1994. The average earning base was
$221,395,000 compared to $208,261,000 in the same period last year,
a increase of $13,134,000. For the nine month period ended
September 30, 1994, net interest earned on a tax equivalent basis
increased to $7,944,000 up by $419,000 as compared with the
comparable period of 1993 or 5.6%. Average earning assets increased
by $5,875,000 or 2.8% and the net yield on earning assets increased
to 4.94% from 4.81% for the nine month period ending September 30,
1994 compared to September 30, 1993.
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
9-30-94 9-30-93
Amount Percent Amount Percent
Salaries and benefits $1,001 20.52% $ 914 18.49%
Other real estate -
charge-off expense 266 5.46 300 6.07
operating expense 107 2.19 147 2.97
Other non-interest expense 877 17.98 947 19.15
Occupancy - net 202 4.15 171 3.46
Total Operating Expenses $2,453 50.30% $2,479 50.14%
NINE MONTHS ENDED
9-30-94 9-30-93
Amount Percent Amount Percent
Salaries and benefits $2,860 19.88% $2,742 18.57%
Other real estate -
charge-off expense 692 4.81 964 6.53
operating expense 327 2.27 497 3.37
Other non-interest expense 2,517 17.49 2,753 18.65
Occupancy - net 561 3.90 494 3.35
Total Operating Expense $6,957 48.35% $7,450 50.47%
INCOME TAXES
In February, 1992, the Financial Accounting Standards Board issued a
statement of financial accounting standard No. 109, "Accounting for
Income Taxes" ("SFAS 109"). The statement requires the recognition
of deferred tax assets, net of applicable reserves, related to net
operating loss carryforwards and certain temporary differences.
Effective January 1, 1993, the Corporation prospectively adopted
SFAS 109, resulting in a $400,000 benefit which has been reported as
a cumulative effect of change in accounting principle.
During the first nine months of 1994 Westbank recorded a tax benefit
of $115,000 which is primarily the result of a decrease in the
valuation reserve of $550,000 pertaining to deferred tax assets
offset by the provision for current taxes. The decrease in such
valuation reserve is due to the continued profitable performance of
the Bank and the resultant consideration of the realizability of
deferred tax assets and is in accordance with the guidance in
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes".
COMPONENTS OF CAPITAL
September 30, December 30,
(Dollar amounts in thousands) 1994 1993
Stockholders' Equity:
Common stock $ 6,273 $ 6,251
Additional paid-in capital 6,873 6,861
Retained earnings 2,270 159
Net unrealized gain/(loss)
on securities available for sale (66) 0
Total Stockholders' Equity $15,350 $13,271
Ratio of "Tier 1" leverage capital
to total assets at end of period 6.33% 5.80%
Regulatory risk-based capital requirements, which became effective
on December 31, 1990, take into account the different risk
categories of banking organizations by assigning risk weights to
assets and the credit equivalent amounts of off-balance sheet
exposures.
In addition, capital is divided into two tiers. For this
Corporation, Tier 1 includes the common stockholders' equity; Tier
2, or supplementary capital, includes not only the equity, but also,
a portion of the allowance for loan losses, net unrealized
gain/(losses) on securities available for sale are not permitted to
be included for regulatory capital purposes.
The following are the Corporation's risk-based capital ratios at
September 30, 1994:
Tier 1 Capital (minimum required 4.00%) 8.79%
Tier 2 Capital (minimum required 8.00%) 10.05%
The Agreement requires that Park West's Tier 1 leverage capital
ratio be increased to a minimum of 6% by June 30, 1994. Under the
Agreement capital ratio targets have been set in six month
intervals. At September 30, 1994 the Agreement required Park West's
Tier 1 leverage capital to be at a minimum of 6.00%. For Park West,
Tier 1 leverage capital is calculated using quarterly average
assets. At September 30, 1994 Park West's Tier 1 leverage capital
to average assets was 6.44%, which is above the interim target
established by the Agreement.
Under the Agreement, the Corporation is prohibited from paying
dividends without the prior approval of the FDIC and the
Massachusetts Commissioner of Banks.
INTEREST RATE SENSITIVITY
The following table sets forth the distribution of the repricing of
the Corporation's earning assets and interest bearing liabilities as
of September 30, 1994.
(Dollar amounts in thousands)
Over Three Over One Year
Three Months Months to to Over
or Less One Year Five Years Five Years Total
Earning Assets $ 73,374 $ 48,064 $ 65,332 $ 37,485 $ 224,255
Interest Bearing
Liabilities 111,909 14,107 61,836 7 187,859
Interest Rate
Sensitivity Gap $ (38,535) $ 33,957 $ 3,496 $ 37,478 $ 36,396
Cumulative Interest
Rate
Sensitivity Gap $ (38,535) $ (4,578) $ (1,082) $ 36,396
Interest Rate
Sensitivity
Gap Ratio (17.18)% 15.14% 1.56% 16.71%
Cumulative Interest
Rate Sensitivity
Gap Ratio (17.18)% (2.04)% (.48)% 16.23%
LIQUIDITY
Cash and due from banks, federal funds sold, investment securities,
mortgage backed securities and loans available for sale, as compared
to deposits and short term liabilities, are used by the Corporation
to compute its liquidity on a daily basis. At September 30, 1994,
the Corporation's ratio of such assets to total deposits and
borrowed funds was 29.33%.
PROVISION AND ALLOWANCE FOR LOAN/LEASE LOSSES
(Dollar amounts in thousands)
QUARTER ENDED NINE MONTHS ENDED
9-30-94 9-30-93 9-30-94 9-30-93
Balance at beginning of period $ 3,954 $ 3,339 $ 3,472 $ 3,442
Provision charged to expense 219 210 931 515
$ 4,173 $ 3,549 $ 4,403 $ 3,957
Less Charge-offs:
Loans secured by real estate 657 0 924 45
Construction/land developing 0 0 0 230
Commercial and industrial loans 345 324 473 468
Consumer loans 10 36 33 75
Lease financing receivables 0 0 7 55
$ 1,012 $ 360 $ 1,437 $ 873
Add-Recoveries:
Loans secured by real estate 2 189 9 248
Commercial and industrial loans 0 15 178 33
Consumer loans 3 23 12 34
Lease financing receivables 3 28 4 45
8 255 203 360
Net charge-offs 1,004 105 1,234 513
Balance at end of period $ 3,169 $ 3,444 $ 3,169 $ 3,444
Net Charge-offs to:
Average loans/leases .55% .06% .68% .30%
Loans/leases at end of period .55% .06% .67% .30%
Allowance for loan/lease losses 31.68% 3.05% 38.94% 14.90%
Allowance for loan/lease losses
as a percentage of:
Average loans/leases 1.73% 2.03% 1.76% 2.01%
Loans/leases at end of period 1.72% 2.02% 1.72% 2.02%
During the second and third quarters of 1994, non-accrual loans
increased by $4,290,000, the result of further deterioration of four
previously identified problem loans.
In response to the increase in non-accrual loans, the Corporation
increased the balance of the allowance for loans/leases loss by more
than $600,000 during the second quarter of 1994. The loan charge
offs reflected in the current quarter are primarily a direct result
of these four loans. Further discussion is located in the
Management Discussion and Analysis of Financial Condition section of
this report.
The approach the Corporation uses in determining the adequacy of the
Allowance for Loan/Lease 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.<PAGE>
NON-ACCRUAL, PAST DUE
AND RESTRUCTURED LOANS
(Dollar amounts in thousands)
9-30-94 6-30-94 3-31-94 12-31-93 9-30-93
Non-Accrual Loans:
Loans secured by real estate $ 4,182 $ 3,898 $ 513 $ 524 $ 585
Construction/Land development 0 84 91 91 99
Commercial and Industrial Loans 1,132 483 466 445 392
Consumer Loans 53 19 7 18 24
5,367 4,484 1,077 1,078 1,100
Loans Contractually
past due 90 days or more
still accruing:
Loans secured by real estate 81 229 921 285 92
Construction/Land development 0 0 22 0 0
Commercial and Industrial Loans 5 49 16 5 26
Consumer Loans 36 23 18 31 15
Lease financing receivables 0 0 7 9 0
122 301 984 330 133
Restructured Loans * 452 456 617 494 955
Total non-accrual, past
due and restructured loans $ 5,941 $ 5,241 $ 2,678 $ 1,902 $ 2,188
Non-accrual, past due and
restructured loans
as a percentage of total loans 3.23% 2.87% 1.50% 1.08% 1.29%
Allowance for Loan/Lease
losses as a percentage of
non accrual, past due and
restructured Loans 53.34% 75.44% 129.31% 182.54% 157.40%
OTHER REAL ESTATE
Other real estate owned - net $ 1,659 $ 2,107 $ 2,360 $ 3,161 $ 3,036
In substance foreclosure 795 1,302 1,791 1,979 2,886
Total Other Real Estate $ 2,454 $ 3,409 $ 4,151 $ 5,140 $ 5,922
* As of September 30, 1994, 100% of restructured loans are performing in
compliance with modified terms of their restructuring.
WESTBANK CORPORATION AND SUBSIDIARIES
QUARTERLY AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(RATES ON A TAX EQUIVALENT BASIS)
(Dollar amounts in thousands)
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
ASSETS Balance Interest Rate Balance Interest Rate
Federal funds sold and
temporary investments $ 7,376 $ 77 4.18% $ 5,397 $ 41 3.04%
Securities 30,370 474 6.24 32,840 499 6.08
Loans/Leases 183,649 3,779 8.23 170,024 3,654 8.60
Total earning assets $221,395 $ 4,330 7.81 $208,261 $ 4,194 8.05
Loan/Lease loss allowance (3,917) (3,447)
All other assets 19,963 22,484
TOTAL ASSETS $237,441 $227,298
LIABILITIES AND EQUITY
Interest bearing deposits $180,574 $ 1,563 3.46 $175,366 $ 1,551 3.54
Borrowed funds 5,403 39 2.89 7,988 61 3.05
Total interest bearing
liabilities 185,977 $ 1,602 3.45 183,354 $ 1,612 3.52
Interest rate spread 4.36% 4.53%
Demand deposits 35,808 30,735
Other liabilities 728 607
Shareholders' equity 14,928 12,602
TOTAL LIABILITIES
AND EQUITY $237,441 $227,298
Net interest income $ 2,728 $ 2,582
Interest Earned/Earning Assets 7.81% 8.05%
Interest Expense/Earning Assets 2.89 3.10
Net Yield on Earning Assets 4.92% 4.95%
Deduct - Tax Equivalent Adjustment 8 5
NET INTEREST INCOME $ 2,720 $ 2,577
WESTBANK CORPORATION AND SUBSIDIARIES
YEAR TO DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(RATES ON A TAX EQUIVALENT BASIS)
(Dollar amounts in thousands)
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
ASSETS Balance Interest Rate Balance Interest Rate
Federal Funds sold and
temporary investments $ 4,738 $ 138 3.88% $ 5,568 $ 124 2.97%
Securities 29,313 1,370 6.23 31,207 1,421 6.07
Loans/Leases 180,202 10,940 8.09 171,603 11,274 8.76
Total earning assets 214,253 $12,448 7.75 208,378 $12,819 8.19
Loan/Lease loss allowance (3,637) ( 3,492)
All other assets 19,780 23,779
TOTAL ASSETS $230,396 $228,665
LIABILITIES AND EQUITY
Interest bearing deposits $173,683 $ 4,361 3.35 $178,498 $ 5,098 3.81
Borrowed funds 7,155 143 2.66 8,608 196 3.04
Total interest bearing
liabilities 180,838 $ 4,504 3.32 187,106 $ 5,294 3.77
Interest rate spread 4.43% 4.42%
Demand deposits 34,488 28,798
Other liabilities 637 663
Shareholders' equity 14,433 12,098
TOTAL LIABILITIES
AND EQUITY $230,396 $228,665
Net Interest Income $ 7,944 $ 7,525
Interest Earned/Earning Assets 7.75% 8.19%
Interest Expense/Earning Assets 2.80 3.38
Net Yield on Earning Assets 4.95% 4.81%
Deduct - Tax Equivalent Adjustment 19 18
NET INTEREST INCOME $ 7,925 $ 7,507
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Rights of Security 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 Information
None
ITEM 6. Exhibits and Reports on Form 8-K
None
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Quarterly Report to be
signed on its behalf by the undersigned thereunto duly authorized.
WESTBANK CORPORATION
Date: November 8, 1994
Donald R. Chase
President and Chief Executive Officer
Date: November 8, 1994
John M. Lilly
Treasurer and Chief Financial Officer
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