UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[mark one] [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-12784
WESTBANK CORPORATION
Massachusetts 04-2830731
(State of Incorporation) (I.R.S. Employer Identification Number)
225 Park Avenue, West Springfield, Massachusetts 01090-0149
(Address of principal executive office) (Zip Code)
(413) 747-1400
(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $2.00 Par Value
Preferred stock, $5.00 Par Value
(Title of Class)
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 ninety days.
Yes X No
Based on the closing sales price on March 3, 1995 the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
$22,096,690.
The number of shares outstanding of the registrants common stock, $2.00
par value was 3,156,670 on March 3, 1995.
Portions of the Annual Report to Stockholders for the year ended December
31, 1994 are incorporated by reference into Parts
I and II.
Portions of the Proxy Statement issued by the Corporation in connection
with the Annual Meeting to be held on April 19, 1995
are incorporated by reference into Part III.
WESTBANK CORPORATION
INDEX TO FORM 10-K
PART I
Item 1 Business I - 1
Item 2 Properties I - 2
Item 3 Legal Proceedings I - 2
Item 4 Submission of Matters to a vote of Security Holders I - 2
PART II
Item 5 Market Price of the Corporation's Common Stock and
Related Security Holder Matters II - 1
Item 6 Selected Financial Data II - 1
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations II - 1
Item 8 Financial Statements and Supplementary Data II - 1
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II - 1
PART III
Item 10 Directors and Executive Officers of the Registrant III - 1
Item 11 Executive Compensation III - 1
Item 12 Security Ownership of Certain Beneficial Owners and
Management III - 1
Item 13 Certain Relationships and Related Transactions III - 1
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K IV - 1
Signatures IV - 2
Exhibit Index IV - 3
WESTBANK CORPORATION, WEST SPRINGFIELD, MASSACHUSETTS
PART I
ITEM 1 - BUSINESS
Reference is made to Page 5 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1994, wherein this subject is
covered.
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The following statistical tables and accompanying text provide required
financial data about the Corporation and should be read in conjunction with
the consolidated financial statements and related notes, appearing in the
1994 Annual Report to Stockholders and is incorporated herein by reference
thereto:
Page of
Annual Report
I - Distribution of Assets, Liabilities and Stockholders'
Equity: Interest Rates and Interest Differential 9
Rate/Volume Analysis of Interest Margin on
Earning Assets 10
II - Investment Portfolio 11, 26-28, 34
III - Loan Portfolio 12, 28, 29, 34
a. Types of Loans 12
b. Maturities and Sensitivity to Changes in
Interest Rates 8 and 12
c. Nonperforming Loans/Assets 14 and 15
IV - Summary of Loan Loss Experience 13 and 14
V - Deposits 15, 30, 34
VI - Return on Equity and Assets 15
VII - Short Term Borrowing 15 and 30
I - 1
ITEM 2 - PROPERTIES
The Corporation's principal banking subsidiary, Park West Bank and Trust
Company ("Park West") operates eight banking offices located as follows:
LOCATION OWNED LEASED TOTAL
Agawam (Feeding Hills) 1 1
Chicopee 1 1
East Longmeadow 1 1
Holyoke 1 1
West Springfield 2 1 3
Westfield 1 1
5 3 8
All general banking offices except the one in Holyoke have drive-in
facilities. Twenty-four hour automated teller machines are located in the
three West Springfield branches, one each in Agawam, Chicopee, East
Longmeadow and Westfield.
Title to the properties described as owned in the foregoing table is
held by the Bank with warranty deed with no material encumbrances. Park West
owns, with no material encumbrances, land adjacent to the main office which
is available for parking, and also through a subsidiary, owns one other
property consisting of land, also used as a parking lot adjacent to the main
office. The Bank also owns the property on which its former Operations
Center was located and is presently leased. In addition, the Bank holds
other real estate as a result of foreclosure proceedings.
All of the property described as leased in the foregoing table is leased
directly from independent parties. Management considers the terms and
conditions of each of the existing leases to be in the aggregate
favorable to the Bank.
ITEM 3 - LEGAL PROCEEDINGS
Certain litigation is pending against the Corporation and the Bank.
Management, after consultation with legal counsel, does not anticipate that
any liability arising out of such litigation will have a material effect
on the Corporation's Financial Statements.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
I - 2
PART II
ITEM 5 - MARKET FOR CORPORATION'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Reference is made to the inside back cover of the Corporation's Annual
Report to Stockholders for the year ended December 31, 1994, wherein this
subject is covered.
ITEM 6 - SELECTED FINANCIAL DATA
Reference is made to page 6 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1994, wherein this subject is
covered.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to pages 7 through 18 of the Corporation's Annual
Report to Stockholders for the year ended December 31, 1994, wherein this
subject is covered.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pages 20 through 35 of the Corporation's Annual
Report to Stockholders for the year ended December 31, 1994, wherein this
subject is covered.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
II - 1
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
Reference is made to pages 3 through 6, of the Corporation's Proxy
Statement to Stockholders for the 1994 Annual Meeting scheduled for April 19,
1995, wherein this subject is covered.
ITEM 11 - EXECUTIVE COMPENSATION
References is made to pages 8 through 11, of the Corporation's Proxy
Statement to Stockholders for the 1994 Annual Meeting scheduled for April 19,
1995, wherein this subject is covered.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to pages 6 and 7, of the Corporation's Proxy Statement
to Stockholders for the 1994 Annual Meeting scheduled for April 19, 1995,
wherein this subject is covered.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to pages 6 through 12, of the Corporation's Proxy
Statement to Stockholders for the 1994 Annual Meeting scheduled for April 19,
1995, wherein this subject is covered under the caption "Beneficial Ownership
of Stock and Executive Compensation - Miscellaneous".
III - 1
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
1. Financial Statements
The following financial statements are incorporated in this Annual
Report on Form 10-K by reference to the Corporation's Annual Report to
Stockholders for the year ended December 31, 1994:
WESTBANK CORPORATION
Page of
Annual
Report
Independent Auditors' Reports 19
Consolidated Balance Sheets at December 31, 1994 and 1993 20
Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992 21
Consolidated Statement of Stockholders' Equity from January 1, 1992,
to December 31, 1994 22
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 23
Notes to Consolidated Financial Statements 24 - 35
A current report on Form 8-K Reporting other Events was filed by the
Registrant on:
NONE
2. Financial Statement Schedules
Financial Statement Schedules are omitted because they are
inapplicable or not required.
3. Exhibits
See accompanying Exhibit Index.
IV - 1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WESTBANK CORPORATION
By:
Donald R. Chase, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated.
Signature Title Date
Donald R. Chase President and Chief March 24, 1995
Executive Officer and Director
Alfred C. Whitaker Chairman of the Board March 24, 1995
and Director
John M. Lilly Treasurer and Chief Financial March 24, 1995
Officer
Roland O. Archambault Director March 24, 1995
Mark A. Beauregard Director March 24, 1995
David R. Chamberland Director March 24, 1995
John E. Fitzgerald Director March 24, 1995
Leroy F. Jarrett Vice Chairman of the Board March 24, 1995
and Director
Ernest N. Laflamme, Jr. Director March 24, 1995
Russell Mawdsley Director March 24, 1995
Paul J. McKenna Director March 24, 1995
Robert J. Perlak Corporate Clerk and Director March 24, 1995
James E. Tremble Director March 24, 1995
IV - 2
EXHIBIT INDEX
Page No.
3. Articles of Organization, as amended **
(a) Articles of Organization, as amended *
(b) By-Laws, as amended *
10.1 Employment Contract dated October 1, 1986, between
William A. Franks, Jr. and Westbank Corporation ***
10.12 Termination Agreement dated February 20, 1987, between
Donald R. Chase and Park West Bank and Trust Company ***
10.14 Termination Agreement dated February 20, 1987, between
Stanley F. Osowski and CCB, Inc. ***
10.15 1985 Incentive Stock Option Plan for Key Employees *
13. 1994 Annual Report to Stockholders ARS (IFC, 1-36, IBC)
21. Subsidiaries of Registrant
27. Article 9 - Financial Data Schedule
* 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
*** Incorporated by reference to identically numbered exhibits contained in
Registrant's Annual Report on Form 10-K for the year ended December 31, 1986
IV - 3
13. Westbank Corporation
1994 Annual Report to Stockholders
Table of Contents
Financial Highlights 1
Letter to Stockholders 2
Business - Westbank Corporation and Subsidiaries 5
Selected Consolidated Financial Data 6
Management's Discussion and Analysis -
Financial Results 7
Independent Auditors' Reports 19
Consolidated Balance Sheets 20
Consolidated Statements of Income 21
Consolidated Statements of Stockholders' Equity 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 24
Corporate Directory 36
Corporate Information IBC
On the Cover:
The letter "W" on our front cover emblem was designed to depict two crossed
"V's". They stand for "Vigilance" and "Vision".
It was our vigilance that carried us through the turbulent early 1990's
and brought us the success we enjoy today, and it is our vision that will
insure that this success continues into the 21st century.
(IFC)
<TABLE>
Financial Highlights
Westbank Corporation and Subsidiaries
<CAPTION>
For the Year
(Dollars in Thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $2,175 $1,947 $756
Net interest income 10,847 10,073 9,843
Non-interest income 2,459 2,861 3,376
Non-interest expenses 8,852 8,275 8,209
Real estate owned expenses 1,236 1,797 1,956
Total non-interest expenses 10,088 10,072 10,165
Provision for loan losses 1,473 790 2,298
Year End
(Dollars in Thousands)
----------------------------------------------------------------------------------------------
Investment and mortgage-backed securities $29,547 $31,979 $30,816
Loans 192,677 172,618 169,077
Allowance for loan losses 3,325 3,472 3,442
Total assets 243,313 228,863 234,448
Total deposits 218,563 202,431 211,745
Total stockholders' equity 15,344 13,271 11,292
Common Share Information
Weighted average shares outstanding 3,203,985 3,190,486 3,138,327
Net income per share $.68 $.61 $.24
</TABLE>
The following graphs illustrate the Corporation's net income, return on assets
and return on equity for the years 1992 through 1994.
(Dollars in Thousands)
1992 1993 1994
-----------------------------
Net Income $756 $1,947 $2,175
Return on Assets .32% .86% .93%
Return on Equity 6.96% 15.80% 14.77%
(1)
Chairman's and President's Letter
Westbank Corporation and Subsidiaries
To Our Shareholders and Friends:
American companies are undergoing a renaissance by revising the traditional
ways of doing business. Those with a clear vision of the future and the
capability to embrace change will successfully alter their operations and be
rewarded. The challenge in banking is no less monumental than in other
industries. To be successful in a rapidly changing environment requires
vigilance, vision and adherence to a long-range strategy.
Building upon success was the challenge your Management Team faced when
entering 1994. Time is proving that our steady and consistent approach to
enhancing shareholder value is the best way to ensure continued growth for
Westbank. It has been gratifying to reach new goals, and for 1994 we can
report achievements such as record earnings, improved net interest income,
strong and healthy loan growth, and the declaration of a quarterly cash
dividend. We began 1994 with challenges and are now setting higher standards
and goals for 1995.
We are pleased to report that Westbank Corporation continued to build on its
solid foundation in 1994, earning a record $2,175,000, or $.68 per share, a
12% increase in earnings over the previous year. Most recently we achieved
our thirteenth consecutive quarter of increased core earnings.
Our net income denotes a .93% return on assets and a 14.77% return on total
shareholders' equity ratios which reflect our determination to operate our
franchise more efficiently and effectively. These ratios compare very
favorably with those of our peers.
We regret to inform you that in early 1995 an internal investigation revealed
an alleged embezzlement by a former employee which resulted in a pre-tax loss
of approximately $750,000. No depositor's accounts were affected and the
Corporation anticipates recovery of a substantial portion of this loss from
its bonding company. As a result of the discovery, however, the Corporation
was required to recognize this loss in its fourth quarter and year-end
financial statements for 1994.
In spite of this temporary setback we continue to commit our resources to
those lines of business where we see the opportunity for the greatest
profitable growth. Targeted loan and demand deposit growth account for an
improved net interest margin of 5% for 1994 and an expanded 5.2% margin
during the last quarter of the year. For the year, net interest income
improved by $774,000 or 8% compared to 1993.
During the year, net loans grew by more than $20 million or 12% over 1993 and
totaled $192.7 million at year-end 1994. Deposits grew to $218.6 million, an
increase of $16.1 million, or 8%, over the previous year. Demand deposits
have increased by 17% or $5.9 million.
(2)
Chairman's and President's Letter
Westbank Corporation and Subsidiaries
Assets totaled $243.3 million, a 6% yearly increase and the Corporation's
capital rose to $15.3 million.
Another indicator of Westbank's renewed health in 1994 was the improvement
in our capital ratio from 5.80% in 1993 to 6.31% on December 31, 1994. Under
the Federal Deposit Insurance Corporation guidelines, Westbank's capital
ratio meets the regulatory criterion for an "adequately capitalized" bank.
As a result of the Corporation's markedly improved financial condition, the
Formal Regulatory Order was released in 1994 and upgraded to an informal
Memorandum of Understanding.
Encouraged by our results and confident in our future, the Board of Directors
voted a cash dividend payment in the amount of $.05 per share payable on
January 25, 1995 to stockholders of record on January 20, 1995. On February
15, 1995, the Board of Directors approved an amendment to the Corporation's
Dividend Reinvestment and Common Stock Purchase Plan (subject to shareholder
approval at the 1995 Annual Meeting of Shareholders). We know that this
amendment will benefit the Corporation and the shareholders who choose to
participate, along with the one-third of our shareholders already enrolled in
the Plan. Details of the amendment can be found in the Corporation's 1995
Proxy Statement. We encourage you to vote for it.
Over the past several years, Westbank has been vigilant in monitoring the
costs associated with doing business, constantly looking for ways to reduce
expenses while improving efficiency throughout the Corporation. The
efficiencies achieved this past year are primarily attributed to converting
our in-house data processing system to that of a service bureau.
Today's consumers are more diverse, more sophisticated and more willing to
comparison-shop for financial services. They are also more insistent that
the companies they do business with are good corporate citizens. They want
relationships with organizations that actively support their communities.
That gives Westbank a competitive edge. A constant and caring community
focus is well-ingrained in our corporate culture, built on a long-standing
presence in the communities we serve. As a result of a compliance
examination by the Office of the Commissioner of Banks, Westbank's
subsidiary, Park West Bank and Trust Company, was assigned a Community
Reinvestment Act (CRA) rating of "outstanding record of meeting community
credit needs."
Park West Bank was recognized for its programs to monitor credit needs and
for developing and participating effectively in meeting these needs. A CRA
marketing plan has been developed with emphasis on marketing credit services
to minority and low-and-moderate-income groups in the community using all
available media, including minority newspapers and radio stations.
(3)
Chairman's and President's Letter
Westbank Corporation and Subsidiaries
Westbank's community-banking philosophy has earned it the Citizenship Award
presented by the West Springfield St. Patrick's Parade Committee, The Harold
G. Dickey Memorial Award for Outstanding Service to the West Springfield Boys
and Girls Club, and the Greater Springfield Chamber of Commerce and Small
Business Council of Greater Springfield Small Business Recognition Award.
The banking industry continues to change and consolidate as the major
financial intermediary in the U.S. economy. Westbank Corporation will remain
focused on its role as a community bank. We think further consolidation of
our industry is inevitable and feel that the combination of excellent
customer service and traditional bank products will be the key for a
successful bank of the future. Westbank is well-positioned to respond to
the changing needs of our customers.
Innovative and aggressive banking strategies constitute one part of our
focus on building shareholder value. The other part is the addition of
market share and product capability by establishing new branch offices.
Our eighth branch office, located in the center of East Longmeadow, opened
August 29, 1994. In the first six months we have exceeded our projected
goals for the first year of operation. We will continue to seek new
locations for branch offices that can add to our base of low-cost core
deposits and expand our banking activities in areas of Western Massachusetts
that are either fast-growing or where we are now under-represented.
We spent 1994 solidifying the gains of our turnaround and refocusing our
energies from managing risk to growing revenue by increasing our
responsiveness to customers' needs.
Today, we have the financial strength, organizational structure, corporate
culture, and a management team capable of not only responding to emerging
challenges, but truly capitalizing on the opportunities they present.
In short, we are well-prepared to win in the complex financial-services
marketplace of the '90s and beyond, and we fully expect to.
We cannot recount the successes of the past three years without extending
special acknowledgement to our dedicated Directors and Employees who have
been at the heart of our dramatic revitalization and are now paving the way
for continued improved results in 1995 and beyond. We thank them for their
diligence and we thank you, our shareholders, for your loyal support.
Sincerely,
Alfred C. Whitaker Donald R. Chase
Chairman of the Board President and Chief Executive Officer
(4)
Business
Westbank Corporation and Subsidiaries
Corporate Organization
Westbank Corporation (hereinafter sometimes referred to as "Westbank" or the
"Corporation") is a registered Bank Holding Company organized to facilitate
the expansion and diversification of the business of Park West Bank and Trust
Company (hereinafter sometimes referred to as "Park West" or the "Bank") into
additional financial services related to banking 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.
Park West Bank and Trust Company
Substantially all operating income and net income of the Corporation are
presently accounted for by Park West.
Park West is chartered as a state bank and trust company by the Commonwealth
of Massachusetts, is a member of the Federal Deposit Insurance Corporation
("FDIC"), and is subject to regulation by the Massachusetts Commissioner of
Banks and the FDIC. A full range of retail banking services is furnished to
individuals, businesses, and nonprofit organizations through eight banking
offices located in Hampden County. Such services include a wide range of
checking and savings accounts, loans, safe deposit facilities, and automated
teller machines at selected branch locations.
Park West also provides lending, depository and related financial services to
commercial, industrial, financial, and governmental customers. In the
lending area, these include short and long term loans and revolving credit
arrangements, letters of credit, inventory and accounts receivable
financing, real estate construction lending, and mortgage loans.
Park West also operates a Trust Department providing services normally
associated with holding property in a fiduciary or agency capacity. The
value of the property held by the Trust Department at December 31, 1994,
amounted to $84,031,000. This amount, comprising part of the property, other
than cash deposits, is not included in the accompanying financial statements
since such items are not assets of the Bank.
Employees
As of December 31, 1994, the Corporation and its subsidiaries had an
equivalent of 111 full time officers and staff.
Competition
Westbank's banking, real estate activity and trust services are competitive
with other Massachusetts financial institutions. Its service area is in
Western Massachusetts, primarily Hampden County. Westbank's competitors
include other commercial banks, mutual savings banks, savings and loan
associations, credit unions, consumer finance companies, loan offices,
money market funds, and other financing organizations.
Competition for trust services by major commercial banks is high, with
continuing efforts by those banks to solicit new business. The Trust
Department prides itself as one of the remaining corporate fiduciaries
providing personal services locally. Insurance companies, mutual savings
banks, investment counseling firms, and other business firms and individuals
also offer active competition for such business.
(5)
<TABLE>
Selected Consolidated Financial Data
Westbank Corporation and Subsidiaries
<CAPTION>
Years Ended December 31,
(Dollars in Thousands Except Share Amounts) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and dividend income $17,046 $16,809 $18,948 $24,023 $30,305
Interest expense 6,199 6,736 9,105 14,210 19,290
---------------------------------------------------------------------------------------------------------------------------------
Net interest income 10,847 10,073 9,843 9,813 11,015
Provision for loan losses 1,473 790 2,298 5,375 6,965
Non-interest income 2,459 2,861 3,376 2,451 2,057
Non-interest expense 10,088 10,072 10,165 15,980 11,393
---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes, extraordinary item
and cumulative effect of accounting change 1,745 2,072 756 (9,091) (5,286)
Income taxes (benefit) (430) 525 202 (800) (1,820)
---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item
and cumulative effect of accounting change 2,175 1,547 554 (8,291) (3,466)
Extraordinary item and
cumulative effect of accounting change:
Tax benefit of net operating loss carryforward -- -- 202 -- --
Cumulative effect of accounting change
for income taxes -- 400 -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $2,175 $1,947 $756 $(8,291) $(3,466)
=================================================================================================================================
Per common share data:
Net earnings (loss) per share before
extraordinary item and cumulative effect
of accounting change $.68 $.48 $.18 $(2.66) $(1.11)
Earnings per share attributable to:
Extraordinary item -- -- .06 -- --
Cumulative effect of accounting change
for income taxes -- .13 -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $.68 $.61 $.24 $(2.66) $(1.11)
=================================================================================================================================
Cash dividends declared (None) -- -- -- -- --
Ending book value $4.79 $4.16 $3.60 $3.38 $6.29
At December 31:
Total loans _ net $192,677 $172,618 $169,077 $186,150 $217,214
Total assets 243,313 228,863 234,448 240,957 292,166
Total non-performing assets 7,435 7,042 12,348 17,948 25,317
Total deposits 218,563 202,431 211,745 217,490 254,227
Total stockholders' equity 15,344 13,271 11,292 10,536 18,832
Average for year:
Loans $182,676 $171,814 $174,546 $205,873 $236,262
Assets 232,922 227,579 235,614 263,799 302,302
Deposits 210,659 205,915 213,637 232,793 262,555
Stockholders' equity 14,722 12,322 10,855 15,859 20,737
Number of weighted shares outstanding 3,203,985 3,190,486 3,138,327 3,115,689 3,114,310
Selected ratios:
Rate of return (loss) on average total assets .93% .86% .32% (3.14)% (1.15)%
Rate of return (loss) on average stockholders' equity 14.77% 15.80% 6.96% (52.28)% (16.71)%
Stockholders' equity to total assets at year end 6.31% 5.80% 4.82% 4.37% 6.45%
Average total stockholders' equity to average total assets 6.32% 5.41% 4.61% 6.01% 6.86%
Allowance for loan losses to total loans at year end 1.70% 1.97% 2.00% 1.87% 1.87%
Non-performing loans as a percentage
of total loans at year end 3.00% 1.08% 1.45% 2.38% 2.14%
Net charge-offs as a percentage of average loans .89% .44% 1.38% 2.90% 1.99%
Other real estate owned and in-substance foreclosures
as a percentage of total assets .64% 2.25% 4.38% 4.38% 5.89%
</TABLE>
(6)
Management's Discussion and Analysis - Financial Results
Westbank Corporation and Subsidiaries
Management's discussion of operations and financial position is based on the
selected consolidated financial data and should be read in conjunction with
the consolidated financial statements and notes thereto.
For 1994, the Corporation reported net income of $2,175,000 or $.68 per share
after providing $1,473,000 for loan losses and writing down other real estate
owned (OREO) by $760,000, mainly in response to further declines in the real
estate industry and the New England economy. This compares to net income for
1993 of $1,947,000, or $.61 per share. The Corporation's 1993 earnings
reflect a provision for loan losses of $790,000 and a write-down of OREO of
$1,164,000. Net interest income increased $774,000 from 1993 to 1994 because
of increased interest and dividend income and decreased interest expense.
Non-interest expense, excluding the write-down of OREO related operating
expenses and an unusual expense of $750,000, amounted to $8,102,000 in 1994
compared to $8,275,000 in 1993, a decrease of $173,000, or 2%.
During March 1995 the Corporation discovered an alleged employee defalcation
of approximately $750,000. As a result of this unfortunate act other
non-interest expense includes the writedown of the full amount of the unusual
expense. The Corporation will be filing an insurance claim for the recovery
of a substantial portion of this loss. We anticipate recovery will be
realized during 1995.
Non-interest income decreased by $402,000 from 1993 and reflects decreases in
gains recognized upon sale of securities totaling $194,000, a reduction of
gains on sale of mortgages totaling $110,000, and a reduction in service
charges on deposit accounts totaling $161,000. The remaining non-interest
income reflects general increases in service fees and Trust Department fees.
Included in the 1994 results of operations is a tax benefit totaling
$430,000. The benefit is primarily attributable to the utilization of net
operating loss carryforwards of $237,000 and a decrease in the valuation
allowance for deferred tax assets due to a change in judgement about the
realizability of such deferred tax assets.
The 1993 results reflect the cumulative effect of an accounting change for
income taxes of $400,000 and the benefit of a change in the valuation
allowance for deferred tax assets of $558,000.
At December 31, 1994, the Corporation's total assets were $243,313,000, an
increase of $14,450,000, or 6.3%, from $228,863,000 at year end 1993. The
higher level of assets resulted primarily through an increase in net loans
totaling $20,059,000.
Non-performing assets amounted to $7,435,000, or 3.06% of total assets at
December 31, 1994, compared with $7,042,000 or 3.08% at the end of 1993.
Since March, 1992, Park West has been operating under a Formal Order (the
"Formal Order") with the Federal Deposit Insurance Corporation and the
Commissioner of Banks for the Commonwealth of Massachusetts. On December 22,
1994, as a result of the improved financial condition of the Bank, the Formal
Order was released. The Formal Order was replaced with a Memorandum of
Understanding (the "Memorandum"). The Memorandum is an informal agreement
with the Federal Deposit Insurance Corporation (the "FDIC") and the
Commissioner of Banks for the Commonwealth of Massachusetts (the
"Commissioner") requiring Park West, among other things, to maintain a
leverage capital ratio of at least 6%, to develop a written plan of action to
lessen its risk exposure to certain borrowers and to refrain from extending
or renewing credit to any borrower who has a loan or extension of credit with
Park West that has been charged off or classified, without first obtaining
majority approval of Park West's Board of Directors. Park West must maintain
the allowance for loan losses at a level commensurate to the risk in the loan
portfolio. The Memorandum requires Park West to obtain approval from the
FDIC and the Commissioner prior to paying or declaring a dividend. Finally,
Park West is required to make quarterly reports to the FDIC and the
Commissioner detailing the form and manner of action taken to secure
compliance with the Memorandum.
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 December 31, 1994, Park West's capital was at a level that
placed the Bank in the adequately 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 exist.
In addition, FDICIA imposes 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 continue to impair the financial
results of the Corporation. Despite these weaknesses the Corporation has
managed significant improvements in earnings and asset quality. 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 comply with the Memorandum as well as the
requirements of FDICIA.
(7)
Management's Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Components of Capital
The following table presents the Corporation's components of Tier 1 leverage
capital as of December 31. The table also presents the ratio of Tier 1
capital to total assets.
(Dollars in Thousands) 1994 1993
--------------------------------------------------------------------------------
Stockholders' Equity
Common stock $6,276 $6,251
Additional paid-in-capital 6,877 6,861
Retained earnings 2,334 159
Unrealized loss on
securities available for sale (143) --
--------------------------------------------------------------------------------
Total Capital $15,344 $13,271
================================================================================
Ratio of Tier 1 leverage capital
to total assets 6.31% 5.80%
Regulatory risk-based capital requirements take into account the different
risk categories of banking organizations by assigning risk weights to assets
and the credit equivalent amounts of off-balance sheet exposures. In
addition, capital is divided into two tiers. In 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.
The following are the Corporation's risk-based capital ratios at December 31,
1994:
Tier 1 risk-based capital (minimum required 4%) 8.54%
Total risk-based capital (minimum required 8%) 9.80%
Asset/Liability Management and Interest Rate Sensitivity
<TABLE>
The following table sets forth the distribution of the repricing of
Westbank's earning assets and interest bearing liabilities as of December 31,
1994, the interest rate sensitivity gap, (i.e., interest rate sensitive
assets less interest rate sensitive liabilities), the cumulative interest
rate sensitivity gap, the interest rate sensitivity gap ratio and the
cumulative interest rate sensitivity gap ratio. The table also sets forth
the time periods in which earning assets and interest-bearing liabilities
will mature or may reprice in accordance with their contractual terms.
However, the table does not necessarily indicate the impact of general
interest rate movements on the net interest margin since the repricing of
various categories of assets and liabilities is subject to competitive
pressures and the needs of Westbank's customers. In addition, various assets
and liabilities indicated as repricing within the same period may in fact
reprice at different times within such period and at different rates.
<CAPTION>
Three Over Three Over One Over
Months Months to Year to Five
(Dollars in Thousands) or Less A Year Five Years Years Total
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning Assets
Securities including mortgage-backed securities $-- $500 $27,710 $1,337 $29,547
Interest bearing cash 275 -- -- -- 275
Loans 50,723 51,151 49,421 44,707 196,002
Federal funds sold 1,000 -- -- -- 1,000
--------------------------------------------------------------------------------------------------------------------------------
51,998 51,651 77,131 46,044 226,824
Interest Bearing Liabilities
Savings deposits 34,963 180 -- -- 35,143
NOW Accounts 15,670 -- -- -- 15,670
Money market account 19,580 -- -- -- 19,580
Negotiated rate certificates 8,585 2,682 875 -- 12,142
Other time deposits 44,217 31,719 19,683 10 95,629
Borrowed funds 8,625 -- -- -- 8,625
--------------------------------------------------------------------------------------------------------------------------------
131,640 34,581 20,558 10 186,789
--------------------------------------------------------------------------------------------------------------------------------
Interest Rate
Sensitivity Gap (79,642) 17,070 56,573 46,034 40,035
Cumulative Interest Rate
Sensitivity Gap $(79,642) $(62,572) $(5,999) $40,035 $--
================================================================================================================================
Interest Rate
Sensitivity Gap Ratio (35.11)% 7.53% 24.94% 20.30% 17.66%
Cumulative Interest Rate
Sensitivity Gap Ratio (35.11)% (27.58)% (2.64)% 17.66% --
</TABLE>
Westbank seeks to manage the mix of asset and liability maturities to control
the effect of changes in the general level of interest rates on net interest
income. In periods of rising interest rates, Westbank's negative interest
rate sensitivity gap as to earning assets and interest-bearing liabilities
maturing in less than one year may cause a diminution of Westbank's income;
correspondingly, in periods of declining interest rates, a negative interest
rate sensitivity gap may provide additional income. Except for its effect on
the general level of interest rates, inflation does not have a material
impact on Westbank's earnings due to the rate of variability and short-term
maturities of its earning assets.
(8)
Management's Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Distribution of Assets, Liabilities and Stockholders' Equity - Interest
Rates and Interest Differential
<TABLE>
The following table presents the condensed average balance sheets for 1994,
1993 and 1992. The total dollar amount of interest income from earning
assets and the resultant yields are calculated on a taxable equivalent
basis. The interest paid on interest-bearing liabilities, expressed both in
dollars and rates, is also shown in the table:
<CAPTION>
1994 1993 1992
Interest Average Interest Average Interest Average
Average Income/ Yield Average Income/ Yield Average Income/ Yield
(Dollars in Thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Securities:
U.S. Treasury $10,536 $679 6.44% $9,920 $653 6.58% $8,557 $586 6.85%
Federal agencies 17,728 1,072 6.05 16,628 1,038 6.24 16,128 1,188 7.37
Tax exempt-federal (a) -- -- -- -- -- -- 15 1 6.67
Other securities 1,554 104 6.69 1,988 137 6.89 2,969 186 6.26
--------------------------------------------------------------------------------------------------------------------------------
Total securities 29,818 1,855 6.22 28,536 1,828 6.41 27,669 1,961 7.09
--------------------------------------------------------------------------------------------------------------------------------
Interest-bearing cash and
temporary investments 639 28 4.38 3,326 97 2.92 2,701 134 4.96
--------------------------------------------------------------------------------------------------------------------------------
Loans: (b)
Commercial 33,537 2,920 8.71 35,228 2,821 8.01 45,983 3,723 8.10
Tax exempt-federal (a) 569 69 12.13 822 69 8.39 1,038 92 8.86
Real estate 130,668 10,530 8.06 116,073 10,184 8.77 105,781 10,799 10.21
Consumer 17,902 1,519 8.49 19,691 1,702 8.64 21,744 2,070 9.52
--------------------------------------------------------------------------------------------------------------------------------
Total loans 182,676 15,038 8.23 171,814 14,776 8.60 174,546 16,684 9.56
--------------------------------------------------------------------------------------------------------------------------------
Federal funds sold 3,759 148 3.94 4,554 131 2.88 5,991 200 3.34
--------------------------------------------------------------------------------------------------------------------------------
Total earning assets 216,892 $17,069 7.87% 208,230 $16,832 8.08% 210,907 $18,979 9.00%
--------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (3,547) (3,499) (3,709)
Cash and due from banks 9,169 8,965 8,623
Other assets 10,408 13,883 19,793
--------------------------------------------------------------------------------------------------------------------------------
Total assets $232,922 $227,579 $235,614
================================================================================================================================
Liabilities and Stockholders' Equity
Interest-bearing deposits:
Savings $36,879 $778 2.11% $37,529 $914 2.44% $36,542 $1,207 3.30%
Money market 22,548 579 2.56 25,585 734 2.87 22,371 872 3.90
Negotiated rate certificates 6,279 287 4.57 5,412 270 4.99 7,034 422 6.00
Other time deposits 109,242 4,355 3.99 107,324 4,560 4.25 120,401 6,199 5.15
--------------------------------------------------------------------------------------------------------------------------------
Total time deposits 174,948 5,999 3.43 175,850 6,478 3.68 186,348 8,700 4.67
Borrowed funds 6,896 200 2.90 8,711 258 2.96 10,111 405 4.01
--------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 181,844 6,199 3.41 184,561 6,736 3.65 196,459 9,105 4.63
Demand deposits 35,711 30,065 27,289
Other liabilities 645 631 1,011
Stockholders' equity 14,722 12,322 10,855
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $232,922 $227,579 $235,614
================================================================================================================================
Net interest income 10,870 10,096 9,874
Yield spread 4.46% 4.43% 4.37%
================================================================================================================================
Net yield on earning assets 5.01% 4.85% 4.68%
================================================================================================================================
Deduct-Tax equivalent
adjustment (a) 23 23 31
--------------------------------------------------------------------------------------------------------------------------------
Net interest income $10,847 $10,073 $9,843
================================================================================================================================
</TABLE>
(a) Interest income on non-taxable investment securities and loans
includes the effects of tax equivalent adjustments using the marginal
federal tax rate of 34% in adjusting tax exempt interest income to a
fully taxable basis.
(b) Average loan balances above include non-accrual loans. When a
loan is placed in non-accrual status, interest income is recorded only
to the extent actually received in cash.
During 1994, the yield spread increased to 4.46% from 4.43% in 1993, up 3
basis points. The Corporation's net interest margin increased during 1994 to
5.01% from 4.85% in 1993, an increase of 16 basis points.
(9)
Management's Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Rate/Volume Analysis of Interest Margin on Earning Assets
<TABLE>
The following table sets forth, for each major category of interest earning
assets and interest bearing liabilities, the dollar
amounts of interest income (calculated on a taxable equivalent basis) and
interest expense and changes therein for 1994 as compared with 1993 and
1993 compared with 1992.
<CAPTION>
1994 Compared With 1993 1993 Compared With 1992
Increase Due to* Increase Due to*
(Dollars in Thousands) 1994 1993 (Decrease) Volume Rate 1993 1992 (Decrease) Volume Rate
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned:
Securities:
U.S. Treasury $679 $653 $26 $40 $(14) $653 $586 $67 $97 $(30)
Federal agencies 1,072 1,038 34 68 (34) 1,038 1,188 (150) 37 (187)
Tax exempt -federal -- -- -- -- -- -- 1 (1) (1) --
Other investments 104 137 (33) (29) (4) 137 186 (49) (66) 17
Interest-bearing cash 28 97 (69) (112) 43 97 134 (37) 26 (63)
Loans:
Commercial 2,920 2,821 99 (139) 238 2,821 3,723 (902) (862) (40)
Tax exempt -federal 69 69 -- (25) 25 69 92 (23) (18) (5)
Real estate 10,530 10,184 346 1,212 (866) 10,184 10,799 (615) 990 (1,605)
Consumer 1,519 1,702 (183) (153) (30) 1,702 2,070 (368) (186) (182)
Federal funds sold 148 131 17 (26) 43 131 200 (69) (44) (25)
--------------------------------------------------------------------------------------------------------------------------------
17,069 16,832 237 836 (599) 16,832 18,979 (2,147) (27) (2,120)
--------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings 778 914 (136) (15) (121) 914 1,207 (293) 30 (323)
Money market 579 734 (155) (81) (74) 734 872 (138) 114 (252)
Negotiated rate
certificates 287 270 17 40 (23) 270 422 (152) (88) (64)
Other time deposits 4,355 4,560 (205) 79 (284) 4,560 6,199 (1,639) (629) (1,010)
Borrowed funds 200 258 (58) (53) (5) 258 405 (147) (51) (96)
--------------------------------------------------------------------------------------------------------------------------------
6,199 6,736 (537) (30) (507) 6,736 9,105 (2,369) (624) (1,745)
--------------------------------------------------------------------------------------------------------------------------------
$10,870 $10,096 $774 $866 $(92) $10,096 $9,874 $222 $597 $(375)
================================================================================================================================
</TABLE>
*The dollar amount of changes in interest income and interest expense
attributable to changes in rate/volume has been allocated between rate and
volume based on changes in rates times the prior year's volume and the
changes in volume times the prior year's rate.
Net interest income on a taxable equivalent basis for 1994 increased to
$10,870,000, up 7.7% from $10,096,000 in 1993. A 4.2% increase in average
earning assets and a 21 basis point reduction in average rate of return
resulted in an increase in volume of $836,000 and a reduction in rate of
$599,000. A reduction of 1.5% in average interest bearing liabilities and a
24 basis point reduction in average rate of interest paid contributed to a
reduction in volume and rate of $30,000 and $507,000, respectively.
(10)
Management's Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
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. At December 31, 1994,
Westbank's ratio of such assets to total deposits was 25.6%. 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.
Investment Portfolio
Refer to Notes 2 and 3 in the NOTES TO CONSOL-IDATED FINANCIAL STATEMENTS of
this report which covers the maturity distribution and market values at
December 31, 1994 of the securities portfolio.
<TABLE>
The following table shows the amortized cost (in thousands) of the
Corporation's securities held to maturity at December 31:
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. Government obligations $6,499 $10,691 $13,665
Federal agency obligations 13,694 14,304 13,909
Mortgage-backed securities 331 401 485
Other debt securities 1,270 1,637 2,756
Marketable equity securities -- 1 1
----------------------------------------------------------------------------------------------
$21,794 $27,034 $30,816
==============================================================================================
</TABLE>
<TABLE>
The following table shows the fair value (in thousands) of the Corporation's
securities available for sale at December 31:
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. Government obligations $3,329 $-- $--
Federal agency obligations 4,161 -- 503
Mortgage-backed securities -- 5,085 --
Other debt securities 254 -- --
Marketable equity securities 9 -- --
----------------------------------------------------------------------------------------------
7,753 5,085 503
Gross unrealized (gain) loss on
securities available for sale 248 (140) (3)
----------------------------------------------------------------------------------------------
Amortized cost $8,001 $4,945 $500
==============================================================================================
</TABLE>
<TABLE>
The following table shows weighted average yields of debt
securities at December 31, 1994:
<CAPTION>
Weighted Average Yield(a)
---------------------------------------------------------------------------------------------------------------------------------
Within 1 to 5 5 to 10 After 10
1 Year Years Years Years Total
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U. S. Government
obligations 4.125% 6.43% 8.375% --% 6.73%
Federal agency
obligations -- 6.06 8.05 -- 6.06
Other debt
securities -- 7.52 -- -- 7.52
Mortgage-backed
securities -- -- 8.25 8.25 8.25
</TABLE>
(a) The weighted average yield has been computed by dividing annualized
interest income, including the accretion of discount and the
amortization of premiums, by the book value of securities outstanding.
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investment in Debt and Equity Securities" ("SFAS No. 115") was issued by the
Financial Accounting Standards Board. SFAS No. 115 required specific
accounting and reporting treatment in certain equity securities and all debt
securities. These investments are required to be classified in three
categories and accounted for as follows:
Held to Maturity - Reported at amortized cost.
Available for Sale - Reported at fair value, with unrealized
gains/losses, net of income taxes excluded from earnings and
reported as a separate component of shareholders' equity.
Trading Securities - Reported at fair value with unrealized
gains/losses included in earnings.
The Corporation implemented SFAS No. 115 effective January 1, 1994 and the
effect of implementing was an increase of the Corporation's capital of
$233,000.
(11)
Management's Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Loan Portfolio
<TABLE>
The following table sets forth the classification (in thousands) of the
Corporation's loans by major category at December 31:
<CAPTION>
1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $34,306 $30,431 $31,006 $41,577 $49,331
---------------------------------------------------------------------------------------------------------------------------------
Real Estate:
Construction 8,517 8,491 6,501 5,980 4,066
Residential (1-4 family) 81,333 70,530 66,154 58,428 68,235
Residential (5 or more) 4,034 4,852 3,286 3,315 3,078
Commercial properties 58,310 51,789 51,237 62,157 70,951
---------------------------------------------------------------------------------------------------------------------------------
Total Real Estate 152,194 135,662 127,178 129,880 146,330
---------------------------------------------------------------------------------------------------------------------------------
Consumer 9,383 9,282 11,231 12,108 15,805
---------------------------------------------------------------------------------------------------------------------------------
Lease financing 352 932 3,349 6,348 10,305
---------------------------------------------------------------------------------------------------------------------------------
Gross loans 196,235 176,307 172,764 189,913 221,771
Unearned discount -- -- (4) (5) (30)
Deferred loan origination
fees-net of costs (233) (217) (241) (208) (382)
---------------------------------------------------------------------------------------------------------------------------------
Total Loans 196,002 176,090 172,519 189,700 221,359
Allowance for loan
losses (3,325) (3,472) (3,442) (3,550) (4,145)
---------------------------------------------------------------------------------------------------------------------------------
Net loans $192,677 $172,618 $169,077 $186,150 $217,214
=================================================================================================================================
</TABLE>
The Corporation's loan portfolio is not concentrated within a single industry
or a group of related industries. The aggregate amount of loans to executive
officers, directors and organizations with which they are associated amounted
to $445,000, or 2.82% of stockholders' equity as of December 31, 1994.
<TABLE>
The following table provides the maturity distribution and sensitivity to
changes in interest rates of commercial loans and commercial real estate
construction loans at December 31, 1994:
<CAPTION>
6 Months 6 - 12 1 - 5 After
(Dollars in Thousands) or Less Months Years 5 Years Total
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $28,271 $2,184 $2,453 $1,398 $34,306
Real estate-construction 4,024 3,724 769 -- 8,517
---------------------------------------------------------------------------------------------------------------------------------
Totals $32,295 $5,908 $3,222 $1,398 $42,823
=================================================================================================================================
</TABLE>
Of the commercial loans, approximately $25,713,000 are variable and reprice
within six months or less.
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS No. 114") addresses the accounting by
creditors for impairment of certain loans. It is applicable to all creditors
and to all loans, uncollateralized as well as collateralized, except large
groups of smaller balance homogeneous loans that are collectively
evaluated for impairment, loans that are measured at fair value or at the
lower of cost or fair value, leases, and debt securities as defined in SFAS
No. 115. It applies to all loans that are restructured in a troubled debt,
the restructuring involving a modification of terms.
SFAS No. 114 requires that impaired loans that are within the scope of the
Statement be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent.
The Statement is required to be adopted by the Corporation on January 1,
1995. No significant impact from the adoption of this statement is expected
on the Bank's financial condition or results of operations.
(12)
Management's Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Loan Loss Experience
The provision for loan losses is an amount added to the allowance against
which loan losses are charged. The provision for losses is dependent on
actual net write-offs and an evaluation as to the collectibility of the loan
portfolio taking into consideration such factors as the financial condition
of individual borrowers, historical loss experience with respect to various
portfolio segments, current and near term economic conditions, and the size
of the portfolio. Based on these reviews, the allowance for loan losses at
December 31, 1994, is deemed to be adequate by management. In the
determination of the allowance for loan losses management obtains independent
appraisals for a significant number of properties. Management has also
retained an independent loan review consultant to provide advice on the
adquacy of the loan loss allowance.
<TABLE>
The following table sets forth the historical relationship among the average
amount of loans outstanding, the allowance for loan losses, provision for
loan losses charged to operating expenses, losses charged off, recoveries and
selected ratios:
<CAPTION>
Year Ended December 31,
(Dollars in Thousands) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $3,472 $3,442 $3,550 $4,145 $1,887
Provision charged to expense 1,473 790 2,298 5,375 6,965
---------------------------------------------------------------------------------------------------------------------------------
4,945 4,232 5,848 9,520 8,852
---------------------------------------------------------------------------------------------------------------------------------
Charge-offs:
Loans secured by real estate 1,291 152 1,150 2,444 1,035
Construction/land development -- 230 344 821 1,363
Commercial and
industrial loans 480 638 866 2,286 2,158
Consumer loans 91 84 155 408 276
Lease financing receivables 7 55 100 218 97
---------------------------------------------------------------------------------------------------------------------------------
1,869 1,159 2,61 6,177 4,929
---------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Loans secured by real estate 25 259 20 31 119
Construction/land developing -- 11 25 114 --
Commercial and
industrial loans 204 45 11 14 58
Consumer loans 14 39 34 46 45
Lease financing receivables 6 45 119 2 --
---------------------------------------------------------------------------------------------------------------------------------
249 399 209 207 222
---------------------------------------------------------------------------------------------------------------------------------
Net charge-offs 1,620 760 2,406 5,970 4,707
---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $3,325 $3,472 $3,442 $3,550 $4,145
=================================================================================================================================
Average loans outstanding $182,676 $171,814 $174,546 $205,873 $236,262
=================================================================================================================================
Net charge-offs as a percentage
of average loans 89% .44% 1.38% 2.90% 1.99%
Net charge-offs as a percentage of
the allowance at January 1 46.66% 22.08% 67.77% 144.03% 249.44%
Allowance as a percentage of total
loans at December 31 1.70% 1.97% 2.00% 1.87% 1.87%
Allowance as a percentage of non-
performing loans
at December 31 56.52% 182.54% 137.19% 47.97% 51.15%
</TABLE>
(13)
Management's Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Allocation of the balance of the allowance for loan losses at December 31,
1994-applicable to:
Percentage of Loans
(Dollars in Thousands) Amount to Total Loans
--------------------------------------------------------------------------------
Loans secured by real estate $2,496 73.18%
Construction/land development 127 4.35
Commercial and industrial loans 514 17.50
Consumer loans 125 4.79
Lease financing receivables 63 .18
--------------------------------------------------------------------------------
$3,325 100.00%
================================================================================
The approach the Corporation uses in determining the adequacy of the
allowance for loan losses is the combination of a target reserve and 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 adequacy of the
collateral on these same loans. In addition, the Corporation allocates a
general reserve against the remainder of the loan portfolio.
Non-Performing Assets
Loans
<TABLE>
Loans on which interest and principal payments are 90 days or more past due
are placed on a non-accrual basis (earlier if deemed appropriate) and
interest is reversed unless management determines that the collectibility of
principal and interest is not reasonably considered in doubt. The following
table sets forth information with regard to non-performing loans as of the
end of each year indicated:
<CAPTION>
(Dollars in Thousands) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans on a non-accrual basis $4,890 $1,078 $1,365 $4,517 $4,733
=================================================================================================================================
Non-accrual loans as a percentage
of total net loans outstanding 2.54% .62% .81% 2.43% 2.18%
Non-accrual loans as a percentage
of total assets 2.01% .47% .58% 1.87% 1.62%
Loans contractually past due 90
days or more and still accruing $492 $330 $724 $2,884 $3,371
=================================================================================================================================
</TABLE>
The gross amount of interest that would have been accrued at the original
contract rate on loans on a non-accrual basis (in thousands) was $342, $126,
$124, $346, and $239 for 1994, 1993, 1992, 1991, and 1990, respectively. The
only income included in the results of operations is (in thousands) $20 of
interest income relating to these loans for 1994.
During the second and third quarters of 1994, management moved four loans
totaling approximately $4,000,000 to non-performing status. These four loans
were 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.
Restructured Loans
<TABLE>
A restructured loan is one for which the Corporation has modified the
contractual terms to provide a reduction in the rate of interest and, in most
instances, an extension of payments of principal or interest or both because
of a deterioration in the financial position of the borrower. Restructured
loans which are performing in accordance with their new terms are not
included in non-accrual loans unless concern exists as to the ultimate
collection of principal or interest. Restructured loans, which are
classified as accruing loans, amounted to $501,000 at December 31, 1994,
compared to $494,000 in 1993. The average current yield on these loans was
approximately 8.4%. The following is an analysis of interest income related
to restructured loans which are classified as accruing loans:
<CAPTION>
Year Ended December 31,
(Dollars in Thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income that would have been recognized if the
loans had been current at original contractual rates $50 $45 $12
Amount recognized as interest income 42 41 8
----------------------------------------------------------------------------------------------
Reduced interest income $8 $4 $4
==============================================================================================
</TABLE>
(14)
Management's Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Other Real Estate Owned and In-Substance Foreclosures
<TABLE>
The following table sets forth information regarding other real estate owned
and in-substance foreclosures:
<CAPTION>
(Dollars in Thousands) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Other real estate owned $1,552 $3,161 $4,271 $4,972 $4,917
In-substance foreclosures -- 1,979 5,988 5,575 12,296
---------------------------------------------------------------------------------------------------------------------------------
$1,552 $5,140 $10,259 $10,547 $17,213
=================================================================================================================================
Other real estate owned and in-substance
foreclosures as a percentage of total assets .64% 2.25% 4.38% 4.38% 5.89%
</TABLE>
Deposits
<TABLE>
The following table sets forth the average amounts of various classifications
of deposits:
<CAPTION>
(Dollars in Thousands) 1994 1993 1992
Amount Rate Amount Rate Amount Rate
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Savings $36,879 2.11% $37,529 2.44% $36,542 3.30%
Money market 22,548 2.56 25,585 2.87 22,371 3.90
Negotiated rate certificates 6,279 4.57 5,412 4.99 7,034 6.00
Other time deposits 109,242 3.99 107,324 4.25 120,401 5.15
---------------------------------------------------------------------------------------------------------------------------------
174,948 3.43 175,850 3.68 186,348 4.67
Demand deposits 35,711 -- 30,065 -- 27,289 --
---------------------------------------------------------------------------------------------------------------------------------
$210,659 -- $205,915 -- $213,637 --
=================================================================================================================================
</TABLE>
<TABLE>
Certificates of deposits of $100,000 and over at December 31, 1994 had the
following maturities:
<CAPTION>
3 Months 3 to 6 6 to 12 Over 12
(Dollars in Thousands) or Less Months Months Months Total
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Totals $8,585 $776 $1,906 $875 $12,142
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Return on Equity and Assets
<TABLE>
The Corporation's return on average assets, return on average equity and
average equity to average assets ratio, for each of the years ended December
31, were as follows:
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on average total assets .93% .86% .32%
Return on average stockholders' equity 14.77 15.80 6.96
Average stockholders' equity to average total assets 6.32 5.41 4.61
</TABLE>
Borrowings
<TABLE>
The following table summarizes borrowings. Average interest rates during
each year were computed by dividing total interest expense by the average
amount borrowed:
<CAPTION>
(Dollars in Thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at year end $8,625 $12,420 $10,102
Average amount outstanding $6,896 $8,711 $10,111
Maximum amount outstanding at any month-end $13,961 $12,420 $13,351
Average interest rate for the year 2.90% 2.96% 3.33%
Average interest rate on year-end balance 4.20% 2.94% 2.87%
</TABLE>
Management's Discussion and Analysis of the Statements of Income
In the following sections of Management's Discussion and Analysis of the
Statements of Income, the comparative results of 1994, 1993 and 1992 will be
covered in greater detail. The principal earning asset of the holding
company consists of a com- mercial bank, Park West Bank and Trust Company.
Noteworthy are the effects of sources of income from earning assets and
expense of interest-bearing liabilities. Presented below is a comparative
summary of percentages of increases and decreases for the three years ended
December 31, 1994. The significant changes are discussed in the analysis
that follow the summary.
(15)
<TABLE>
Management's Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
<CAPTION>
Percentage
of increase (decrease)
---------------------------------------------------------------------------------------------------------------------------------
1994 1993
Over Over
(Dollars in Thousands) 1994 1993 1992 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $10,847 $10,073 $9,843 7.68% 2.34%
Provision for loan losses 1,473 790 2,298 86.46 (65.62)
Non-interest income 2,459 2,861 3,376 (14.05) (15.25)
Non-interest expense 10,088 10,072 10,165 (7.29) (.91)
Income taxes (benefit) (430) 525 202 -- 159.90
---------------------------------------------------------------------------------------------------------------------------------
Net income before
extraordinary item and cumulative
effect of accounting change 2,175 1,547 554 68.71 179.24
Extraordinary item and cumulative
effect of accounting change:
Tax benefit of net operating
loss carryforward -- -- 202 -- --
Cumulative effect of accounting
change for income taxes -- 400 -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Net Income $2,175 $1,947 $756 34.05% 157.54%
=================================================================================================================================
</TABLE>
Comparison of 1994 with 1993
Interest Income
Westbank's earning assets include a diverse portfolio of interest earning
instruments ranging from Westbank'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.
Total interest income for 1994 amounted to $17,046,000 as compared to
$16,809,000 for 1993, an increase of $237,000, or 1.41% which is a result of
an increase in average earning assets of $8,662,000 or 4.2% combined with a
21 basis point reduction in the average earning interest rate.
Interest Expense
Interest expense for 1994 on deposits and borrowings amounted to $6,199,000
as compared to $6,736,000 in 1993, a decrease of $537,000 or 7.97%. A
decrease in the average interest bearing liabilities of $2,717,000, as well
as, a decrease in the average rate of interest paid in 1994 of 24 basis
points compared to 1993, contributed to the overall interest expense
reduction.
Net Interest Income
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" using statutory rates to
recognize the income tax savings which facilitates comparison between taxable
and tax exempt assets.
Westbank's management attempts to analyze 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
stockholders' equity).
<TABLE>
The following table sets forth Westbank's net interest income on a taxable
equivalent basis:
<CAPTION>
(Dollars in Thousands) 1994 1993
----------------------------------------------------------------------------------------------
<S> <C> <C>
Total interest income $17,046 $16,809
Total interest expense 6,199 6,736
----------------------------------------------------------------------------------------------
Net interest income 10,847 10,073
Tax equivalent adjustment
to interest income 23 23
----------------------------------------------------------------------------------------------
Net interest income
(taxable equivalent) $10,870 $10,096
==============================================================================================
</TABLE>
The RATE/VOLUME ANALYSIS OF INTEREST
MARGIN ON EARNING ASSETS section includes and sets forth each major category
of interest earning assets and interest bearing liabilities which result in
net interest income.
(16)
Management's Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Provision for Loan Losses
The 1994 provision for loan losses totalled $1,473,000 compared with $790,000
in 1993, an increase of 86%. A full discussion appears previously under the
heading of LOAN LOSS EXPERIENCE.
Non-Interest Income
Income from sources other than interest was $2,459,000 in 1994, a decrease of
$402,000 from the prior year. During 1994, service fees and Trust Department
fees remained level when compared to 1993, while income from gain on sale of
securities, mortgages and service charges on deposit accounts were
responsible for the overall decline in non-interest income.
Non-Interest Expense
<TABLE>
The components of other operating expenses at December 31 are as follows:
<CAPTION>
Percentage
Increase
(Dollars in Thousands) 1994 1993 (Decrease)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and benefits $3,939 $3,656 7.7%
Occupancy 555 504 10.1
Write-down of other
real estate owned 760 1,164 (34.7)
Other real estate
owned expense 476 633 (24.8)
Other non-interest expense 4,358 4,115 5.9
-------------------------------------------------------------------------------------------
$10,088 $10,072 .2%
===========================================================================================
</TABLE>
Overall non-interest expense increased by $16,000 compared to 1993.
Other real estate owned expenses declined by $561,000 compared to 1993, the
result of less real estate under management by the Bank during the current
year. Salaries and benefits as well as occupancy expense increased by
$334,000, the impact of a new branch office opened during 1994. Other
non-interest expense increased by $243,000. During March 1995 the bank
discovered an alleged employee defalcation which caused the Corporation to
charge $750,000 to other non-interest expense during 1994. The remaining
other non-interest expense declined by more than $500,000, the result of
continued cost reduction measures, including the savings generated from
the Bank's conversion to a data processing service bureau versus an in
house system.
Income Taxes
The Financial Accounting Standards Board issued a Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No. 109")
in February, 1992. 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 No. 109, resulting in a $400,000
benefit which has been reported as a cumulative effect of the change in
accounting principle.
For the year ended December 31, 1994 Westbank recorded a tax benefit of
$430,000, which is primarily the result of the utilization of net operating
loss carryforwards of $237,000 and a decrease in a valuation allowance of
$771,000 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.
Net Income
The net income for 1994 of $2,175,000, or $.68 per share, is based on a
weighted average of 3,203,985 shares outstanding, compared with a net income
for 1993 of $1,947,000, or $.61 based on a weighted average of 3,190,486
shares outstanding.
(17)
Management's Discussion and Analysis - Financial Results (Continued)
Westbank Corporation and Subsidiaries
Comparison of 1993 with 1992
Interest Income
Total interest income for 1993 amounted to
$16,809,000 as compared to $18,948,000 for 1992, a decrease of $2,139,000, or
11.3%, which is a result of a decrease in average earning assets of
$2,677,000 or 1.3% combined with a 92 basis point reduction in average
earning interest rate.
Interest Expense
Interest expense for 1993 on deposits and borrowings amounted to $6,736,000
as compared to $9,105,000 in 1992, a decrease of $2,369,000, or 26%. A
decrease in the average interest bearing liabilities of $11,898,000, as well
as a decrease in the average rate of interest paid in 1993 of 98 basis points
compared to 1992, contributed to the overall interest expense reduction. The
decrease was a result of an overall decline in interest rates.
Net Interest Income
<TABLE>
Net interest income, is the Corporation's most significant component of
earnings. The following table sets forth Westbank's net interest income on a
taxable equivalent basis:
<CAPTION>
(Dollars in Thousands) 1993 1992
----------------------------------------------------------------------------------------------
<S> <C> <C>
Total interest income $16,809 $18,948
Total interest expense 6,736 9,105
----------------------------------------------------------------------------------------------
Net interest income 10,073 9,843
Tax equivalent adjustment
to interest income 23 31
----------------------------------------------------------------------------------------------
Net interest income
(taxable equivalent) $10,096 $9,874
==============================================================================================
</TABLE>
The RATE/VOLUME ANALYSIS OF INTEREST
MARGIN ON EARNING ASSETS section includes and sets forth each major category
of interest earning assets and interest bearing liabilities which result in
net interest income.
Provision for Loan Losses
The 1993 provision for loan losses totalled $790,000 compared with $2,298,000
in 1992 a decrease of 66%. A full discussion appears previously under the
heading of LOAN LOSS EXPERIENCE.
Non-Interest Income
Income from sources other than interest was $2,861,000 in 1993, a decrease of
$515,000 over the prior year. A decrease in the gain on sale of securities
and mortgage servicing rights is responsible for the overall decline in
income.
Non-Interest Expense
<TABLE>
The components of other operating expenses at
December 31, are as follows:
<CAPTION>
(Dollars in Thousands) 1993 1992
----------------------------------------------------------------------------------------------
<S> <C> <C>
Salaries and benefits $3,656 $3,681
Occupancy 504 470
Write-down of other
real estate owned 1,164 1,263
Other real estate
owned expense 633 693
Other non-interest expense 4,115 4,058
----------------------------------------------------------------------------------------------
$10,072 $10,165
==============================================================================================
</TABLE>
Overall non-interest expense declined by $93,000, or 1%, compared to 1992.
Write-down of other real estate owned contributed to the majority of the
decrease.
Income Taxes
The Corporation's provision for income taxes during 1993 was $525,000
compared to $202,000 in 1992. Westbank's effective tax rate for 1993 was
25.3%.
Extraordinary Item
During 1992, the Corporation recognized an extraordinary item totaling
$202,000. The extraordinary item is the result of the recognition of a tax
benefit of the Corporation's net operating loss carryforwards.
Cumulative Effect of Accounting Change
Effective January 1, 1993, the Corporation adopted SFAS No. 109, resulting in
a $400,000 benefit which has been reported as a cumulative effect of a change
in accounting principle.
Net Income
The net income for 1993 of $1,947,000, or $.61 per share, is based on a
weighted average of 3,190,486 shares outstanding, compared with a net income
for 1992 of $756,000, or $.24 per share, based on a weighted average of
3,138,327 shares outstanding.
(18)
Independent Auditors' Report
Westbank Corporation and Subsidiaries
Independent Auditors' Report
The Stockholders and Board of Directors,
Westbank Corporation
We have audited the accompanying consolidated balance sheet of Westbank
Corporation and Subsidiaries (the "Corporation") as of December 31, 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Westbank Corporation and Subsidiaries at December 31, 1994 and the
consolidated results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
As described in Note 1, the Corporation changed its method of accounting for
securities as of January 1, 1994.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
March 28, 1995
Independent Auditors' Report
The Stockholders and Board of Directors,
Westbank Corporation
We have audited the accompanying consolidated balance sheet of Westbank
Corporation and Subsidiaries as of December 31, 1993, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the years in the two-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Westbank
Corporation and Subsidiaries at December 31, 1993 and the results of their
operations and cash flows for each of the years in the two-year period ended
December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note l to the financial statements, in 1993 the Corporation
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."
KPMG PEAT MARWICK LLP
Springfield, Massachusetts
January 28, 1994
(19)
<TABLE>
Consolidated Balance Sheets
Westbank Corporation and Subsidiaries
<CAPTION>
December 31,
(Dollars in Thousands, except share amounts) 1994 1993
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks:
Non-interest bearing $10,425 $9,621
Interest bearing 275 353
---------------------------------------------------------------------------------------------------------------------------------
10,700 9,974
Federal funds sold 1,000 3,000
---------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 11,700 12,974
Securities (notes 2 and 3):
Investment securities available for sale (amortized cost of $8,001) 7,753 --
Investment securities (fair value of $20,631 in 1994
and $27,398 in 1993) 21,463 26,633
---------------------------------------------------------------------------------------------------------------------------------
29,216 26,633
Mortgage-backed securities available for sale (fair value of $5,085) -- 4,945
Mortgage-backed securities (fair value of $327 in 1994
and $422 in 1993) 331 401
---------------------------------------------------------------------------------------------------------------------------------
331 5,346
---------------------------------------------------------------------------------------------------------------------------------
Total securities 29,547 31,979
Loans, net of allowance for loan losses of $3,325 in 1994
and $3,472 in 1993 (note 4) 192,677 172,618
---------------------------------------------------------------------------------------------------------------------------------
Property and equipment (note 5) 3,417 3,088
Other real estate owned, net of allowance for losses
of $231 in 1994 and $440 in 1993 (note 6) 1,552 5,140
Accrued interest receivable 1,668 1,560
Deferred premium on loans sold 112 180
Deferred income taxes (note 9) 1,245 369
Income taxes refundable (note 9) 103 50
Other assets 1,292 905
---------------------------------------------------------------------------------------------------------------------------------
Total assets $243,313 $228,863
=================================================================================================================================
Liabilties and Stockholders' Equity
Deposits (note 7):
Non-interest bearing $40,399 $34,499
Interest bearing 178,164 167,932
---------------------------------------------------------------------------------------------------------------------------------
Total deposits 218,563 202,431
Borrowed funds (note 8) 8,625 12,420
Interest payable on deposits 240 541
Other liabilities 541 200
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 227,969 215,592
Commitments and contingent liabilities (notes 12 and 13)
Stockholders' equity (note 15):
Preferred stock, par value $5 per share, authorized
100,000 shares; none issued
Common stock, par value $2 per share,
authorized 9,000,000 shares; issued and outstanding
3,138,167 shares in 1994 and 3,125,506 shares in 1993 6,276 6,251
Additional paid-in capital 6,877 6,861
Retained earnings 2,334 159
Unrealized loss on securities available for sale, net (143) --
---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 15,344 13,271
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $243,313 $228,863
=================================================================================================================================
See notes to consolidated financial statements.
</TABLE>
(20)
<TABLE>
Consolidated Statements of Income
Westbank Corporation and Subsidiaries
<CAPTION>
Years ended December 31,
(Dollars in Thousands, except share amounts) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $15,015 $14,756 $16,653
Interest from temporary investments 176 147 334
Interest and dividend income from securities 1,855 1,906 1,961
---------------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 17,046 16,809 18,948
---------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on time deposits 5,712 6,207 8,278
Interest on certificates of deposit - $100,000 or more 287 270 422
Interest on borrowed funds 200 259 405
---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 6,199 6,736 9,105
---------------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for loan losses 10,847 10,073 9,843
Provision for loan losses (note 4) 1,473 790 2,298
---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 9,374 9,283 7,545
Non-interest income:
Trust department income 329 316 302
Service charges on deposits 962 1,123 1,022
Gain on sale of mortgage loans and servicing rights 77 187 337
Gain on sale of securities 145 339 645
Gain on sale of other real estate owned 82 43 93
Other non-interest income (note 14) 864 853 977
---------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 2,459 2,861 3,376
---------------------------------------------------------------------------------------------------------------------------------
Income before non-interest expense 11,833 12,144 10,921
---------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and wages 3,331 3,099 3,191
Pension and employee benefits (note 10) 608 557 490
Occupancy expense 555 504 470
Depreciation and amortization expense 550 787 932
Write-down of other real estate owned 760 1,164 1,263
Other real estate owned expenses 476 633 693
Other non-interest expense (note 14) 3,808 3,328 3,126
---------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 10,088 10,072 10,165
---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary item
and cumulative effect of accounting change 1,745 2,072 756
Income taxes (benefit) (note 9) (430) 525 202
---------------------------------------------------------------------------------------------------------------------------------
Net income before extraordinary item and cumulative effect
of accounting change 2,175 1,547 554
Extraordinary item - tax benefit of net operating loss carryforward -- -- 202
Cumulative effect of accounting change for income taxes (note 9) -- 400 --
---------------------------------------------------------------------------------------------------------------------------------
Net income $2,175 $1,947 $756
=================================================================================================================================
Net earnings per share before extraordinary item and cumulative
effect of accounting change $.68 $.48 $.18
Net earnings per share attributable to extraordinary item -- .06
Net earnings per share attributable to cumulative effect of
accounting change -- .13 --
---------------------------------------------------------------------------------------------------------------------------------
Net earnings per share $.68 $.61 $.24
=================================================================================================================================
Weighted average shares and equivalent shares outstanding 3,203,985 3,190,486 3,138,327
=================================================================================================================================
See notes to consolidated financial statements.
</TABLE>
(21)
<TABLE>
Consolidated Statements of Stockholders' Equity
Westbank Corporation and Subsidiaries
<CAPTION>
Retained Unrealized
Common Stock Additional earnings gain (loss)
Par paid-in (accumulated on securities
(Dollars in Thousands, except share amounts) Shares Value capital deficit) available for sale Total
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 3,115,689 $6,231 $ 6,849 $(2,544) $-- $10,536
Net income -- -- -- 756 -- 756
---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 3,115,689 6,231 6,849 (1,788) -- 11,292
Net income -- -- -- 1,947 -- 1,947
Shares issued under stock
option plan 5,700 12 -- -- -- 12
Shares issued under stock
purchase plan 4,117 8 12 -- -- 20
---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 3,125,506 6,251 6,861 159 -- 13,271
Net income -- -- -- 2,175 -- 2,175
Shares issued under stock
option plan 7,864 16 -- -- -- 16
Shares issued under stock
purchase plan 4,797 9 16 -- -- 25
Cumulative effect of implementing
accounting standard for investments
as of January 1, 1994 -- -- -- -- 233 233
Unrealized loss on securities
available for sale for the year -- -- -- -- (376) (376)
---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 3,138,167 $6,276 $6,877 $ 2,334 $(143) $15,344
=================================================================================================================================
See notes to consolidated financial statements.
</TABLE>
(22)
<TABLE>
Consolidated Statements of Cash Flows
Westbank Corporation and Subsidiaries
<CAPTION>
For the years ended December 31,
(Dollars in Thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $2,175 $1,947 $756
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,473 790 2,298
Depreciation and amortization 550 787 932
Provision for other real estate owned 760 1,164 1,263
Decrease in interest payable on deposits (301) (308) --
(Increase) decrease in accrued interest receivable (108) 174 316
Realized gain on sale of securities (145) (339) (645)
Realized gain on sale of other real estate owned (82) (43) (93)
Realized loss on sale of premises and equipment -- -- 8
Decrease (increase) in other assets (319) 197 506
Increase (decrease) in other liabilities 341 (229) (300)
Decrease (increase) in income taxes refundable (53) (6) 597
Increase in deferred taxes (876) (400) --
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,415 3,734 5,638
---------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Investments and mortgage-backed securities:
Held to maturity:
Purchases (5,747) -- --
Proceeds from maturities 169 -- --
Available for sale:
Purchases (6,740) -- --
Proceeds from sales 7,738 -- --
Proceeds from maturities 7,014 -- --
Investments:
Purchases -- (23,908) (42,746)
Proceeds from sales -- 15,514 30,017
Proceeds from maturities -- 7,570 7,107
Purchases of premises and equipment (879) (318) (746)
Net (increase) decrease in loans (21,808) (4,097) 12,462
Proceeds from sale of other real estate owned 3,186 3,836 1,689
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (17,067) (1,403) 7,783
---------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from borrowed funds 15,099 969 3,249
Repayment of borrowed funds (15,716) (797) (4,788)
Net increase (decrease) in borrowings (3,178) 2,146 319
Net increase (decrease) in deposits 16,132 (9,314) (5,745)
Proceeds from exercise of stock options and stock purchase plan 41 32 --
---------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities 12,378 (6,964) (6,965)
---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,274) (4,633) 6,456
Cash and cash equivalents at beginning of year 12,974 17,607 11,151
---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $11,700 $12,974 $17,607
=================================================================================================================================
Cash paid during the year:
Interest on deposits and other borrowings $6,499 $7,044 $9,541
Income taxes 366 500 --
See notes to consolidated financial statements.
</TABLE>
(23)
Notes to Consolidated Financial Statements
Westbank Corporation and Subsidiaries
1 - Summary of Significant Accounting Policies
The accounting and reporting policies of Westbank Corporation (the
"Corporation") and its subsidiaries are in conformity with generally accepted
accounting principles and general practices within the banking industry. The
following is a description of the more significant policies.
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiary, Park West Bank and Trust Company ("Park
West"), its subsidiaries, Lorac Leasing Corp., and PWB&T Inc. All material
intercompany balances and transactions have been eliminated upon
consolidation. Certain amounts in the 1993 and 1992 financial statements
have been reclassified to conform to the 1994 presentation.
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the
allowances for loan losses and other real estate owned, management obtains
independent appraisals for significant properties.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowances for losses on
loans and other real estate owned. Such agencies may require the Bank to
recognize additions to the allowances based on their judgments about
information available to them at the time of their examination.
Cash and Cash Equivalents
The Corporation defines cash and due from banks,interest-bearing deposits
and federal funds sold to be cash equivalents.
Securities
Securities that management has the positive intent and ability to hold until
maturity are stated at cost, adjusted for amortization of premiums and
accretion of discounts. Those securities which have been identified as
assets for which there is not a positive intent to hold to maturity,
including all marketable equity securities, are classified as available for
sale. The Corporation classifies all securities 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 are also considered available for sale. All other securities are
classified as held to maturity. Gains and losses on sales of securities are
recognized at the time of sale on a specific identification basis.
Mortgage-backed securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts determined by a method
that does not materially differ from the level-yield method. Management has
the positive ability and the intent to hold these assets until maturity.
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investment in Debt and Equity Securities" ("SFAS No. 115") addresses the
accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt securities.
Those investments are to be classified in three categories and accounted for
as follows:
Held to Maturity Securities - reported at amortized cost.
Trading Securities - reported at fair value with unrealized gains/losses
included in earnings.
Available for Sale - reported at fair value, with unrealized gains/losses,
net of income taxes, excluded from earnings and reported as a separate
component of shareholders' equity.
Effective January 1, 1994, the Corporation adopted SFAS No. 115 resulting in
an increase of $233,000 to stockholders' equity representing the net
unrealized gain on investment securities available for sale, net of related
income taxes. At the time the Corporation adopted SFAS No. 115, investment
securities with a book value of $14,947,000 and market value of $15,350,000
were reclassified as available for sale.
(24)
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
Loans
Loans have been reduced by unadvanced loan funds, deferred loan fees, and the
allowance for loan losses.
Interest on commercial and real estate loans is accrued on the principal
amount of loans outstanding. Interest on discounted installment loans is
recognized by a method which approximates the interest method. Interest on
other loans, is calculated by using the simple interest method on daily
balances of the principal amount
outstanding.
Non-accrual loans are loans on which the accrual of interest ceases when the
collection of principal or interest payments is determined to be doubtful by
management. It is the general policy of the Corporation to discontinue the
accrual of interest when principal or interest payments are delinquent 90
days or more unless the loan principal and interest are determined by
management to be fully collectible (or sooner if conditions warrant). Any
unpaid amounts previously accrued on these loans are reversed from income,
and thereafter interest is recognized only to the extent payments are
received and any doubt concerning collectibility has been removed.
The adequacy of the allowance for loan losses is evaluated regularly by
management. Factors considered in evaluating the adequacy of the allowance
include the size of the portfolio, previous loss experience, current economic
conditions and their effect on borrowers and the financial condition of
individual borrowers and the related performance of individual loans in
relation to contract terms. The provision for loan losses charged to
operating expense is based upon management's judgment of the amount necessary
to maintain the allowance at a level adequate to absorb losses. Loan losses
are charged against the allowance for loan losses when management believes
the collectibility of the principal is unlikely.
Loan origination fees, net of certain direct loan origination costs, are
deferred and recognized as income over the life of the related loan as an
adjustment to the loan's yield.
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS No. 114") was issued by the Financial
Accounting Standards Board. This Statement addresses the accounting by
creditors for impairment of certain loans. It is applicable to all creditors
and to all loans, uncollateralized as well as collateralized except large
groups of smaller balance homogeneous loans that are collectively evaluated
for impairment, loans that are measured at fair value or at the lower of cost
or fair value, leases, and debt securities. It applies to all loans that are
restructured in a troubled debt restructuring involving a modification of
terms. SFAS No. 114 requires that impaired loans that are within the scope
of the Statement be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent.
This Statement applies to the Corporation's financial
statements as of January 1, 1995. Management believes that it is currently
substantially in compliance with SFAS No. 114 and no significant impact from
adoption is expected on the Bank's financial condition or results of
its operations.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method for
book purposes. Amortization of leasehold improvements is charged over the
terms of the respective leases, including option periods or the estimated
useful lives of the improvements, whichever is shorter. Gains and losses are
recognized upon disposal of assets. The cost of maintenance and repairs is
charged to income as incurred, whereas significant renewals are capitalized.
Other Real Estate Owned and In-substance Foreclosures
Other real estate owned ("OREO") includes properties the Bank has acquired
through foreclosure and properties deemed to be foreclosed in substance.
OREO is recorded at the lower of cost or fair value at the date of
acquisition, less estimated selling costs. At the time of foreclosure, the
excess, if any, of the loan amount over the fair value of the asset acquired
is charged off against the allowance for loan losses. Operating expenses to
administer OREO properties are charged directly to operating expenses.
Valuation allowances are established subsequent to acquisition, as necessary,
based upon management's continuing assessment of the fair values of the
properties. Non-performing loans are considered "in-substance foreclosures"
when the borrower is deemed to have little or no equity in the collateral, is
not expected to rebuild such equity in the foreseeable future and proceeds
for repayment of the loan are expected to come only from the operation or
sale of the collateral. Loans meeting this criteria are carried at the lower
of the loan amount or collateral fair value, less estimated selling costs.
(25)
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
Deferred Premium on Loans Sold
The Corporation sells mortgage loans resulting in gains or losses which are
deferred at the time of the sale when the average interest rate on the loans
sold, after normal servicing fees, differs from the agreed yield to the
buyer. The premium or discount which results from these sales is amortized
using the interest method over the estimated remaining life of the loans,
adjusted for estimated prepayments. Such amortization is charged against
operations based upon amounts considered necessary by management to reflect
accelerated prepayment experience.
Income Taxes
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109") established the asset and liability method of
accounting for income taxes. Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. To the extent that
current available evidence about the future raises doubt about the
realization of a deferred tax asset, a valuation allowance must be
established. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS
No. 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Corporation adopted SFAS No. 109 on January 1, 1993, and reported the
cumulative effect of that change in the statement of income for the year
ended December 31, 1993.
Pursuant to the deferred method under Accounting Principles Board Opinion 11
("APB 11"), which was applied in 1992, deferred income taxes are recognized
for income and expense items that are reported in different years for
financial reporting purposes and income tax purposes using the tax rate
applicable for the year of the calculation. Under APB 11, deferred taxes
were not adjusted for subsequent changes in tax rates.
Pension Plan
The Corporation has a trusteed contributory defined contribution pension plan
covering substantially all employees. The Corporation's policy is to fund
accrued pension cost.
Trust Department
Assets held by the Corporation for customers in a fiduciary or agency
capacity are not included in the consolidated financial statements, as such
items are not assets of the Corporation. Such assets totaled approximately
$84,031,000 and $84,600,000 at December 31, 1994 and 1993, respectively.
Trust income is recognized on a cash basis. The amounts recognized under
this method are not materially different from amounts that would be
recognized on the accrual basis.
Net Earnings Per Share
The computation of earnings per share is based on the weighted average number
of shares of common stock and common stock equivalents outstanding during the
year.
2 - Securities
Investment securities held to maturity at December 31 are
as follows:
1994
------------------------------------------------------------------------------
Gross and net
Amortized Fair unrealized
(Dollars in Thousands) cost value losses
------------------------------------------------------------------------------
U.S. Government obligations $6,499 $6,269 $(230)
Federal agency obligations 13,694 13,117 (577)
Other debt securities 1,270 1,245 (25)
------------------------------------------------------------------------------
Total bonds and debt obligations $21,463 $20,631 $(832)
==============================================================================
(26)
<TABLE>
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
<CAPTION>
1993
---------------------------------------------------------------------------------------------------------------------------------
Gross Gross Net
Amortized Fair unrealized unrealized unrealized
(Dollars in Thousands) cost value gains losses loss
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government obligations $10,691 $11,159 $468 $-- $468
Federal agency obligations 14,304 14,502 213 (15) 198
Other debt securities 1,637 1,729 92 -- 92
---------------------------------------------------------------------------------------------------------------------------------
Total bonds and debt obligations 26,632 27,390 773 (15) 758
Marketable equity securities 1 8 7 -- 7
---------------------------------------------------------------------------------------------------------------------------------
$26,633 $27,398 $780 $(15) $765
=================================================================================================================================
Investment securities available for sale at December 31 are as follows:
1994
---------------------------------------------------------------------------------------------------------------------------------
Gross Gross Net
Amortized Fair unrealized unrealized unrealized
(Dollars in Thousands) cost value gains losses loss
---------------------------------------------------------------------------------------------------------------------------------
U.S. Government obligations $3,394 $3,329 $-- $(65) $(65)
Federal agency obligations 4,350 4,161 -- (189) (189)
Other debt securities 255 254 -- (1) (1)
Equity securities 2 9 7 -- 7
---------------------------------------------------------------------------------------------------------------------------------
$8,001 $7,753 $7 $(255) $(248)
=================================================================================================================================
</TABLE>
At December 31, 1994, the net unrealized losses, net of tax effect,
on available-for-sale securities that was included as a separate component
of stockholders' equity was $143,000. During the year ended December 31,
1994 there were no sales of investment securities classified as held to
maturity.
<TABLE>
Gross realized gains and losses on securities available for sale (1994) and
investment securities (1993 and 1992) are summarized as follows:
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
Net Net
Gross Gross Net Gross Gross realized Gross Gross realized
realized realized realized realized realized gains realized realized gains
(Dollars in Thousands) gains losses losses gains losses (losses) gains losses (losses)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
obligations $2 $(7) $(5) $-- $-- $-- $41 $-- $41
Federal agency
obligations 1 (1) -- -- -- -- 63 -- 63
Other debt securities -- -- -- 1 (1) -- 32 -- 32
Marketable equity securities -- -- -- -- -- -- -- (25) (25)
---------------------------------------------------------------------------------------------------------------------------------
$3 $(8) $(5) $1 $(1) $-- $136 $(25) $111
=================================================================================================================================
</TABLE>
Proceeds from sales of investments in debt securities, excluding
mortgage-backed securities, were $2,497,000, $500,000 and $3,567,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.
(27)
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
The contractual maturities of securities as of December 31, 1994 are
summarized in the following tables. Actual maturities may differ from
contractual maturities because certain issuers have the right to call or
prepay obligations.
Amortized Fair Percent
(Dollars in Thousands) cost value of total
------------------------------------------------------------------------------
Held to Maturity:
Within 1 year $500 $494 2%
Over 1 year to 5 years 19,958 19,147 93
Over 5 years to 10 years 1,005 990 5
------------------------------------------------------------------------------
Total bond and
debt obligations $21,463 $20,631 100%
==============================================================================
Amortized Fair Percent
(Dollars in Thousands) cost value of total
------------------------------------------------------------------------------
Available for Sale:
Within 1 year $500 $496 6%
Over 1 year to 3 years 7,501 7,257 94
------------------------------------------------------------------------------
Total bond and
debt obligations $8,001 $7,753 100%
==============================================================================
Securities carried at $11,072,000 at December 31, 1994 and $13,244,000 at
December 31, 1993 were pledged to secure public deposits, repurchase
agreements and for other purposes as required by law.
3 - Mortgage-Backed Securities
All mortgage-backed securities are classified as held to maturity, unless
created from mortgages originated by the Bank (none at December 31, 1994).
The mortgage-backed securities held to maturity are as follows:
1994
------------------------------------------------------------------------------
Gross and net
Amortized Fair unrealized
(Dollars in Thousands) cost value (losses)
------------------------------------------------------------------------------
GNMA mortgage-
backed securities $331 $327 $(4)
==============================================================================
1993
------------------------------------------------------------------------------
Gross and net
Amortized Fair unrealized
(Dollars in Thousands) cost value gains
------------------------------------------------------------------------------
GNMA mortgage-
backed securities $401 $422 $21
==============================================================================
The amortized cost and approximate market value of mortgage-backed securities
available for sale are as follows:
1993
------------------------------------------------------------------------------
Gross and net
Amortized Fair unrealized
(Dollars in Thousands) cost value gains
------------------------------------------------------------------------------
FNMA $4,945 $5,085 $140
==============================================================================
<TABLE>
Gross realized gains and losses relating to mortgage-backed securities are
as follows (all sales were from the available for sale classification):
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------------------
Gross and net Gross and net Gross and net
realized realized realized
(Dollars in Thousands) gains gains gains
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
FHLMC mortgage-backed
securities $-- $-- $16
FNMA mortgage-backed
securities 150 339 518
---------------------------------------------------------------------------------------
$150 $339 $534
=======================================================================================
</TABLE>
The mortgage-backed securities at December 31, 1994 mature through normal
amortization with final payments due between January 15, 2004 and May 15,
2006. Mortgage-backed securities carried at $186,000 at December 31, 1994
and $220,000 at December 31, 1993 were pledged to secure borrowings (see
note 8). Proceeds from sales of mortgage-backed securities were $4,979,000,
$10,014,000 and $18,450,000 for the years ended December 31, 1994, 1993 and
1992, respectively.
4 - Loans And Allowance for Loan Losses
Loans consisted of the following at December 31:
(Dollars in Thousands) 1994 1993
------------------------------------------------------------------------------
Commercial $34,306 $30,431
Real estate 152,194 135,662
Consumer 9,383 9,282
Lease financing 352 932
------------------------------------------------------------------------------
196,235 176,307
Allowance for loan losses (3,325) (3,472)
Deferred loan origination fees,
net of costs (233) (217)
------------------------------------------------------------------------------
$192,677 $172,618
==============================================================================
Changes in the allowance for loan losses are summarized as follows:
(Dollars in Thousands) 1994 1993 1992
------------------------------------------------------------------------------
Balance, beginning of year $3,472 $3,442 $3,550
Provision for loan losses 1,473 790 2,298
Loans charged off (1,869) (1,159) (2,615)
Recoveries 249 399 209
------------------------------------------------------------------------------
$3,325 $3,472 $3,442
==============================================================================
The aggregate principal balance of non-accrual loans was $4,890,000,
$1,078,000 and $1,365,000 at December 31, 1994, 1993 and 1992, respectively.
Contractual interest income which was not recognized on such non-accrual
loans was $342,000, $126,000 and $124,000 for 1994, 1993 and 1992,
respectively. The only income included in the results of operations
for these non-accrual loans was $20,000 in 1994.
(28)
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
The Corporation did not sell any loans with recourse during 1994. The
remaining recourse exposure on prior sales was $5,685,000 at December 31,
1994. Management does not believe that its recourse obligations subject the
Corporation to any material risk of loss in the future. The Corporation has
suffered no losses as a result of these recourse obligations.
Of the $152,194,000 in real estate loans at December 31, 1994, $81,333,000
are collateralized by 1-4 family dwellings originated with an 80% or less
loan-to-value ratio. The majority of the collateral for these loans is
located in the bank's direct market area of Western Massachusetts.
Commercial real estate and real estate construction loans represented
$66,827,000 in outstanding principal at December 31, 1994. These loans
encompass a wider region extending throughout Massachusetts and Southern New
England. Most are collateralized by commercial real estate developments.
Commercial loans both collateralized and uncollateralized of $34,306,000 at
December 31, 1994 represent loans made to businesses in Western
Massachusetts.
The Bank has had, and expects to have in the future, banking transactions in
the ordinary course of business with its directors and officers. Such loans,
in the opinion of management, do not include more than the risk of normal
collectibility nor other unfavorable features.
The following summarizes the activity with respect to indebtedness, both
direct and indirect, with an aggregate of $60,000 or more for the directors,
policy-making officers and major stockholders during the years ended December
31:
(Dollars in Thousands) 1994 1993
------------------------------------------------------------------------------
Balance at beginning of year $1,148 $ 2,057
New loans granted 543 267
Repayments of principal (831) (1,176)
Resignation of director (415) --
------------------------------------------------------------------------------
Balance at end of year $445 $1,148
==============================================================================
The Corporation restructured loans totaling $501,000, $494,000 and $420,000
at December 31, 1994, 1993 and 1992, respectively, which resulted in interest
rates being reduced. The reduction of interest income is summarized as
follows:
(Dollars in Thousands) 1994 1993 1992
------------------------------------------------------------------------------
Gross income if at
original terms $50 $45 $12
Actual income recorded
during the year 42 41 8
------------------------------------------------------------------------------
Reduction of interest income $8 $4 $4
==============================================================================
The Corporation had no commitments to lend additional funds to these
borrowers.
The Corporation serviced loans for others totaling $155,539,000 and
$127,630,000 at December 31, 1994 and 1993, respectively.
5 - Property and Equipment
Major classes of property and equipment at December 31 are summarized as
follows:
Estimated
(Dollars in Thousands) 1994 1993 Lives
------------------------------------------------------------------------------
Property (including
land of $1,094) $3,004 $2,712 30-40 years
Furniture and equipment 5,841 5,921 3-10 years
Motor vehicles 131 128 3 years
Leasehold and building
improvements 1,392 1,243 5-15 years
------------------------------------------------------------------------------
10,368 10,004
Accumulated depreciation (6,951) (6,916)
------------------------------------------------------------------------------
$3,417 $3,088
==============================================================================
Depreciation and amortization relating to property and equipment and charged
to operating expense amounted to $550,000 in 1994, $787,000 in 1993 and
$932,000 in 1992.
6 - Other Real Estate Owned and
In-Substance Foreclosures
At December 31, other real estate owned consisted of properties acquired
through foreclosure and properties considered by management to be
in-substance foreclosures as follows:
(Dollars in Thousands) 1994 1993
------------------------------------------------------------------------------
Real estate acquired through foreclosure $1,552 $3,161
In-substance foreclosure -- 1,979
------------------------------------------------------------------------------
$1,552 $5,140
==============================================================================
Changes in the allowance for other real estate owned losses are summarized as
follows:
(Dollars in Thousands) 1994 1993 1992
------------------------------------------------------------------------------
Balance, beginning of year $440 $123 $210
Provision for other real estate
owned charged to operations 760 1,164 1,263
Write-downs (net of payments) (969) (847) (1,350)
------------------------------------------------------------------------------
Balance, end of year $231 $440 $123
==============================================================================
Certain sales of other real estate owned were financed by the Bank,
aggregating approximately $961,000 and $1,531,000 in 1994 and
1993. Net non cash transfer of loans to (from) other real estate owned
and in-substance foreclosures were $276,000, ($162,000) and $2,571,000 for
the years ended December 31, 1994, 1993 and 1992, respectively.
(29)
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
7 - Deposits
Deposit accounts by type as of December 31 are summarized as follows:
(Dollars in Thousands) 1994 1993
------------------------------------------------------------------------------
Demand deposits $40,399 $34,499
Regular - Savings 35,143 36,814
N.O.W. 15,670 17,184
Money market deposits 19,580 24,405
IRA's 26,546 24,784
Certificates of deposit 81,225 64,745
------------------------------------------------------------------------------
$218,563 $202,431
==============================================================================
Certificates of deposit with balances greater than or equal to $100,000
amounted to $12,142,000 and $4,466,000 as of December 31, 1994 and 1993,
respectively. Interest paid on the deposits totaled approximately $287,000
and $270,000, respectively.
8 - Borrowed Funds
Borrowed funds as of December 31 are as follows:
(Dollars in Thousands) 1994 1993
------------------------------------------------------------------------------
Securities sold under agreements
to repurchase $2,676 $3,293
Purchased federal funds -- 300
------------------------------------------------------------------------------
2,676 3,593
------------------------------------------------------------------------------
Other Borrowings:
Securities sold under agreements
to repurchase 4,246 4,584
Treasury and loan notes 1,703 4,243
------------------------------------------------------------------------------
5,949 8,827
------------------------------------------------------------------------------
$8,625 $12,420
==============================================================================
The securities pledged under the repurchase agreements include U.S.
Government and Federal agency obligations. At December 31, 1994, the book
balance was $7,245,000 and the market value was $7,114,000.
At December 31, 1993 the book balance of these securities was $7,994,000 with
a market value of $8,129,000. Securities sold under agreements to repurchase
mature at various dates through March 22, 1995. The above other borrowings
mature daily.
The Corporation maintains lines of credit with the Fleet Bank of
Massachusetts for $3,000,000 and the Bank of Boston for $1,500,000. Both are
revolving lines of credit with no set expiration date. There were no amounts
outstanding against either line as of December 31, 1994 or 1993.
9 - Income Taxes
The income taxes were as follows:
(Dollars in Thousands) 1994 1993 1992
------------------------------------------------------------------------------
Current tax expense:
Federal $25 $50 $--
State 316 475 --
------------------------------------------------------------------------------
Total current 341 525 --
------------------------------------------------------------------------------
Deferred tax expense (benefit):
Deferred tax expense -- 558 202
Change in valuation allowance
for deferred tax assets (771) (558) --
------------------------------------------------------------------------------
Total deferred (771) -- 202
------------------------------------------------------------------------------
Extraordinary item:
Tax benefit of net operating loss
carryforward utilized -- -- (202)
------------------------------------------------------------------------------
-- -- (202)
------------------------------------------------------------------------------
Total (benefit) expense $(430) $525 $--
==============================================================================
The 1994 current federal tax expense is net of $237,000 in tax benefit of
operating loss carryforwards.
The differences between the effective tax rate and the federal statutory tax
rate on income before taxes are reconciled as follows:
1994 1993 1992
------------------------------------------------------------------------------
Federal statutory rate 34.0% 34.0% 34.0%
Increase (reduction) in taxes
resulting from:
Reduction in valuation allowance
for deferred tax asset (44.2) (27.0) --
Tax exempt state and
municipal income -- -- (2.2)
State income taxes 12.0 15.1 --
Tax benefit of financial statement
net operating loss carryforward (17.0) -- (27.7)
Other (9.4) 3.2 (4.1)
------------------------------------------------------------------------------
(24.6)% 25.3% --%
==============================================================================
(30)
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31 are presented below:
(Dollars in Thousands) 1994 1993
------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $-- $309
Other real estate owned 809 888
Deferred loan fees 98 88
State tax net operating loss carryforward 286 200
Alternative minimum tax credit carryover 318 315
Depreciation 125 --
Non-accrual interest 210 150
Federal tax net operating loss carryforward 225 520
Unrealized loss on securities 105 --
Other 75 96
------------------------------------------------------------------------------
Total gross deferred tax assets 2,251 2,566
Valuation allowance (662) (1,755)
------------------------------------------------------------------------------
Net deferred tax assets 1,589 811
------------------------------------------------------------------------------
Deferred tax liabilities:
Allowance for loan losses 58 --
Leases, net of residual value 197 369
Deferred FNMA premium 47 73
Prepaid pension 42 --
------------------------------------------------------------------------------
Total gross deferred tax liabilities 344 442
------------------------------------------------------------------------------
Net deferred tax assets $1,245 $369
==============================================================================
The net change in the total valuation allowance for the year ended December
31, 1994 was a decrease of $1,093,000. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax assets and liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon
the level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Corporation will realize
the benefits of these deductible differences, net of the existing valuation
allowances at December 31, 1994.
Deferred tax expense results from timing differences in the recognition of
revenue and expense for tax and financial statement purposes. The primary
sources and the tax effect of these differences for December 31 are as
follows:
(Dollars in Thousands) 1992
------------------------------------------------------------------------------
Provision for loan losses $479
Excess tax losses on sales of other real estate owned 1,474
Deferred loan fees (11)
Lease financing transactions (325)
Provision for loss on other real estate owned
deferred for tax purposes (429)
Deferred FNMA premiums (88)
Limitation on recognition of deferred tax benefit
due to net operating losses (1,092)
Other (8)
------------------------------------------------------------------------------
$--
==============================================================================
At December 31, 1994, the Corporation has net operating loss carryforwards
for tax purposes of approximately $662,000 which expire in the year 2007.
For tax purposes, the Corporation has a minimum tax credit carryforward of
approximately $318,000 which may be carried over indefinitely.
10 - Pension Plan
Park West Bank and Trust Company, a wholly-owned subsidiary of the
Corporation, has a contributory defined contribution pension plan (money
purchase), covering substantially all of its employees. Contributions to the
pension plan are a percentage of individual employees' salary. Total pension
expense for 1994, 1993 and 1992 amounted to $216,000, $198,000 and $216,000,
respectively. At May 31, 1994, the most recent plan year, total plan assets
were $1,774,000 and the vested balance was $1,696,000.
11 - Stock Options
The Corporation offers shares of common stock to officers and key employees
pursuant to the 1985 Incentive Stock Option Plan. On April 16, 1992, all
outstanding options were canceled and 67,913 options at a price of $2 per
share were issued. As of December 31, 1994, all options granted are
exercisable. At the 1994 Annual Meeting of Shareholders the 1985 Incentive
Stock Option Plan was amended to increase the number of shares reserved for
issuance by 200,000 shares. The following is a summary of the changes in
options outstanding:
(31)
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
1994 1993 1992
------------------------------------------------------------------------------
Options outstanding
at the beginning of year 134,916 67,913 37,557
Options granted at fair value:
at $2.00 -- -- 67,913
at $2.50 -- 52,400 --
at $3.50 -- 20,303 --
at $6.00 200,000 -- --
Options exercised (7,864) (5,700) --
Options canceled -- -- (37,557)
------------------------------------------------------------------------------
Options outstanding
at the end of year 327,052 134,916 67,913
==============================================================================
Shares available for future grants -- -- 72,703
==============================================================================
Unless exercised, the options will expire ten years after granting.
12 - Leases
The Corporation leases certain facilities under long-term lease agreements.
The following is a schedule of future minimum lease payments for operating
leases as of December 31, 1994:
Year ending December 31,
(Dollars in Thousands)
----------------------------------------------
1995 $106
1996 100
1997 74
1998 71
1999 42
After 1999 126
----------------------------------------------
Total minimum lease payments $519
==============================================
Rent expense for 1994, 1993 and 1992 amounted to $109,000, $113,000 and
$95,000, respectively.
13 - Commitments, Contingent Liabilities
and Financial Instruments with
Off-Balance-Sheet Risk
In the normal course of business, various commitments and contingent
liabilities are outstanding, such as guarantees, standby
letters of credit, commitments to extend credit and various financial
instruments with off-balance-sheet risk that are not reflected in the
financial statements. Financial instruments with off-balance-sheet risk
involve elements of credit risk, interest rate risk, liquidity risk and
market risk. Management does not anticipate any significant losses as a
result of these transactions.
The following table summarizes the contractual value of financial instruments
and other commitments and contingent liabilities at December 31:
(Dollars in Thousands) 1994 1993
------------------------------------------------------------------------------
Commitments to grant loans $6,116 $10,314
Performance letters of
credit and financial guarantees 892 1,091
Commitments to advance funds
under existing loan agreements 34,127 32,411
Commitments for the sale and
delivery of mortgage loans to FMNA -- 3,219
The Bank uses the same credit policies in making commitment and conditional
obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since commitments may be expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based
on management's credit evaluation of the borrower. Collateral held varies
but may include accounts receivable, inventory, property plant and equipment
and income-producing commercial properties.
Certain litigation is pending against the Corporation. Management, after
consultation with legal counsel, does not anticipate that any ultimate
liability arising out of such litigation will have a material effect on the
Corporation's financial statements.
14 - Other Non-Interest Income and Expense
The components of other non-interest income and expense, which are in excess
of 1% of the aggregate of total interest income and non-interest income and
not shown separately on the consolidated statements of income, are as
follows:
Years Ended December 31,
(Dollars in Thousands) 1994 1993 1992
------------------------------------------------------------------------------
Income:
Loan fees $499 $375 $437
Expenses:
Computer operations
and supplies 481 537 592
Federal Deposit Insurance
Corporation assessment 584 634 491
Insurance 149 193 213
Professional fees 329 204 236
Audits and exams 206 211 120
Advertising 241 179 110
Unusual item 750 -- --
During March 1995 the bank discovered an alleged employee defalcation of
approximately $750,000. Included in the financial statements for 1994 is the
writedown of this unusual item (shown above).
(32)
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
15 - Stockholders' Equity and
Regulatory Matters
As a federally insured banking institution, Park West Bank and Trust Company
("Park West") is subject to regulation by the Federal Deposit Insurance
Corporation (the "FDIC"). In February 1992, Park West's Board of Directors
agreed to enter into a Stipulation and Consent (the "Consent Agreement") with
the FDIC and the Commissioner of Banks for the Commonwealth of Massachusetts
(the "Commissioner"). The Consent Agreement provided for a cease and desist
order (the "Order") issued by the FDIC, which required Park West to take
certain affirmative actions in response to an examination by the FDIC and the
Commissioner.
On December 22, 1994, in conjunction with an examination by the Commissioner
the Order was eliminated and replaced with a Memorandum of Understanding (the
"Memorandum"). The Memorandum requires, among other items: Park West's Tier
1 capital to total asset ratio remain at or above 6%; Park West to submit
written plans to further reduce classified assets; the Bank to review and/or
revise its Asset/Liability Management Policy; and not declare or pay any
dividends without prior approval by the FDIC and the Commissioner. Park West
management believes that the Bank will be able to comply with all of the
terms of the Memorandum.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
includes significant changes to the legal and regulatory environment for
insured depository institutions, including reductions in insurance coverage
for certain kinds of deposits, increased supervision by the federal
regulatory agencies, increased reporting requirements for insured
institutions, and new regulations concerning internal controls, accounting,
and operations.
Under the prompt corrective action provisions of FDICIA, specific capital
categories were defined based on an institution's capital ratios. To be
considered "adequately capitalized" an institution must generally have a
leverage ratio of at least 4%, a Tier 1 risk-based capital ratio of at least
4%, and a total risk-based capital ratio of at least 8%.
At December 31, 1994, the Bank's leverage ratio was 6.36%, Tier 1 risk-based
ratio was 8.52% and total risk-based ratio was 9.77%, based on leverage
capital of $15,288,000, Tier 1 capital of $15,288,000, and total risk-based
capital of $17,709,000, as defined. At Dec-ember 31, 1994, the institution
is classified as "adequately capitalized" as defined under FDICIA as
described above.
Westbank Corporation has adopted a Shareholders Rights Plan. The plan
provides for the distribution of one Common Stock Purchase Right for each
outstanding share of Common Stock of the Corporation to stockholders of
record at the close of business on January 2, 1990. Each Right entitles
the registered holder to purchase from the Corporation one share of Common
Stock, par value $2 per share (the "Common Stock"), at a cash Exercise Price
of $36 per share of Common Stock, subject to adjustment.
The Purchase Rights will be exercisable for shares of common stock having a
market value of two times the exercise price in the event that the Board of
Directors determines that the Corporation may be the subject of an adverse
takeover. In the event that the Corporation is acquired in a merger in which
the Corporation is not the surviving corporation or 50 percent or more of the
Corporation's assets or earning power is sold, the Purchase Rights will be
exercisable for common stock of the acquiring corporation having a market
value of two times the exercise price. The Purchase Rights may be redeemed
in whole by the Corporation, under certain circumstances, at a price of
$.0001 per Purchase Right. The Purchase Rights expire on January 2, 2000.
On January 10, 1995, the Corporation declared a dividend of $.05 per share to
common shareholders of record on January 20, 1995 payable January 25, 1995.
16 - Employee Stock Ownership Plan
The Corporation established an Employees' Stock Ownership Plan ("ESOP"). The
ESOP has been funded by a $100 contribution from the Corporation. At
December 31, 1994 and 1993, the ESOP held no shares of the Corporation's
stock.
(33)
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
17 - Fair Value of Financial Instruments
<TABLE>
Fair value estimates, methods, and assumptions are set forth below for the
Corporation's financial instruments. The following table represents the
carrying amount and estimated fair value of the Corporation's financial
instruments at December 31:
<CAPTION>
1994 1993
---------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(Dollars in Thousands) Amount FairValue Amount Fair Value
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $10,700 $10,700 $9,974 $9,974
Federal funds sold 1,000 1,000 3,000 3,000
Investment securities 21,463 20,631 26,633 27,398
Securities available for sale 7,753 7,753 -- --
Mortgage-backed securities 331 327 5,346 5,507
Loans 192,677 187,308 172,618 175,963
Accrued interest receivable 1,668 1,668 1,560 1,560
Liabilities:
Deposits 218,563 217,537 202,431 202,958
Borrowed funds 8,625 8,625 12,420 12,395
Interest payable on deposits 240 240 541 541
</TABLE>
Cash and Due from Banks and Federal Funds Sold
The carrying amount for cash and due from banks approximates fair value. The
carrying amounts for short-term investments approximate fair value because
they mature in 90 days or less and do not present unanticipated credit
concerns.
Investment Securities, Securities Available
for Sale and Mortgage-Backed Securities
The fair value of investment securities and mortgage-backed securities,
except certain state and municipal securities, is estimated based on bid
prices published in financial newspapers or bid quotations received from
securities dealers. The fair value of certain state and municipal securities
is not readily available through market sources other than dealer quotations,
so fair value estimates are based on quoted market prices of similar
instruments, adjusted for differences between the quoted instruments and the
instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, and other consumer. Each loan category is
further segmented into fixed and adjustable rate interest terms and by
performing and non-performing categories.
The fair value of performing loans, except residential mortgages, is
calculated by discounting scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the credit and interest
rate risk inherent in the loan. The estimate of maturity is based on the
Corporation's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of
current economic and lending conditions. For performing residential mortgage
loans, fair value is estimated by discounting contractual cash flows adjusted
for prepayment estimates using discount rates based on secondary market
sources adjusted to reflect differences in servicing and credit costs.
Fair value for significant non-performing loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discount rates are judgmentally determined using available market information
and specific borrower information.
Accrued Interest Receivable,
Interest Payable on Deposits
The carrying amount for these items approximate the fair value due to their
short-term nature.
Deposits
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, regular savings, and NOW accounts, and money market
and checking accounts, is equal to the amount payable on demand. The fair
value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities.
Borrowed Funds
The fair value of such borrowings was estimated by utilizing future cash
flows discounted using the Bank's current borrowing rate for similar
instruments.
(34)
Notes to Consolidated Financial Statements (Continued)
Westbank Corporation and Subsidiaries
Commitments to Extend Credit
<TABLE>
The stated value of commitments to extend credit approximates fair value as
the current fees charged for similar commitments does not differ
significantly from quoted fees. For fixed-rate loan commitments, fair value
also considers the difference between current levels of interest rates and
the committed rates. Such differences are not considered significant.
<CAPTION>
8 - Summary of Unaudited Quarterly Financial Information
1994 1993
(Dollars in Thousands, except per share amounts) Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $4,013 $4,094 $4,322 $4,617 $17,046 $4,277 $4,335 $4,189 $4,008 $16,809
Interest expense 1,406 1,496 1,602 1,695 6,199 1,880 1,802 1,612 1,442 6,736
---------------------------------------------------------------------------------------------------------------------------------
Net interest income 2,607 2,598 2,720 2,922 10,847 2,397 2,533 2,577 2,566 10,073
Provision for loan losses 347 365 219 542 1,473 225 80 210 275 790
Non-interest income 876 535 555 493 2,459 678 722 826 635 2,861
Non-interest expense 2,400 2,111 2,453 3,124 10,088 2,429 2,736 2,550 2,357 10,072
---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 736 657 603 (251) 1,745 421 439 643 569 2,072
Income tax expense (benefit) (180) 124 (59) (315) (430) 80 82 228 135 525
---------------------------------------------------------------------------------------------------------------------------------
Net income before cumulative
effect of accounting change 916 533 662 64 2,175 341 357 415 434 1,547
Cumulative effect of accounting
change for income taxes -- -- -- -- -- 400 -- -- -- 400
---------------------------------------------------------------------------------------------------------------------------------
Net income $916 $533 $662 $64 $2,175 $41 $357 $415 $434 $1,947
==================================================================================================================================
Net earnings per share $.28 $.17 $.21 $.02 $.68 $.23 $.11 $.13 $.14 $.61
==================================================================================================================================
</TABLE>
<TABLE>
19 - Condensed Parent Company Only Financial Statements
<CAPTION>
December 31,
(Dollars in Thousands) 1994 1993
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance Sheets
Assets
Investment in subsidiaries $15,287 $13,235
Other assets 57 36
------------------------------------------------------------------------------------------------------------------
Total assets $15,344 $13,271
==================================================================================================================
Stockholders' equity
Preferred stock, par value $5 per share,
authorized100,000 shares; none issued
Common stock, par value $2 per share, authorized 9,000,000 shares,
issued and outstanding 3,138,167 shares in 1994 and 3,125,506 shares in 1993 6,276 6,251
Additional paid-in capital 6,877 6,861
Retained earnings 2,191 159
------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $15,344 $13,271
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statements of Income
Other income (expense) - net $(20) $4 $--
Income (loss) before undistributed income of subsidiaries (20) 4 --
Undistributed income of subsidiaries 2,195 1,943 756
Net income $2,175 $1,947 $756
Statements of Cash Flows
Operating activities:
Net income $2,175 $1,947 $756
Undistributed income of subsidiaries (2,195) (1,943) (756)
Increase in other assets (21) (36) --
Net cash used in operating activities (41) (32) --
Financing activities - Proceeds from exercise of stock options 41 32 --
Cash and cash equivalents at end of year $-- $-- $--
</TABLE>
(35)
Corporate Directory
Westbank Corporation and Subsidiaries
Directors
Westbank Corporation
Alfred C. Whitaker John E. Fitzgerald
Chairman of the Board Private Investor
Westbank Corporation
Sales Consultant Leroy F. Jarrett
President and Treasurer
Roland O. Archambault New England Church Interiors
Owner
Park Supply Company Ernest N. Laflamme, Jr.
Treasurer
Mark A. Beauregard City of Chicopee
Attorney at Law President
Resnic, Beauregard, Waite & Driscoll Laflamme Oil Co.
David R. Chamberland Russell Mawdsley
President President and Treasurer
Chicopee Building Supply, Inc Russell-Hall, Inc.
Donald R. Chase Paul J. McKenna, D.M.D.
President and Chief Executive Officer Orthodontist
Westbank Corporation
President and Chief Executive Officer Robert J. Perlak
Park West Bank and Trust Company Private Investor
James E. Tremble
President
Valley Cinema, Inc.
Park West Bank and Trust Company
Roland O. Archambault Ernest N. Laflamme, Jr.
Owner Treasurer
Park Supply Company City of Chicopee
President
Mark A. Beauregard Laflamme Oil Co.
Attorney at Law
Resnic, Beauregard, Waite & Driscoll Russell Mawdsley
President and Treasurer
David R. Chamberland Russell-Hall, Inc.
President
Chicopee Building Supply, Inc. Paul J. McKenna, D.M.D.
Orthodontist
Donald R. Chase
President and Chief Executive Officer Robert J. Perlak
Park West Bank and Trust Company Private Investor
President and Chief Executive Officer
Westbank Corporation James E. Tremble
President
John E. Fitzgerald Valley Cinema, Inc.
Private Investor
Alfred C. Whitaker
Leroy F. Jarrett Chairman of the Board
President and Treasurer Westbank Corporation
New England Church Interiors
Lorac Leasing Corp.
Leroy F. Jarrett Paul J. McKenna, D.M.D.
Chairman Orthodontist
President and Treasurer
New England Church Interiors Robert J. Perlak
Private Investor
David R. Chamberland
President James E. Tremble
President
Chicopee Building Supply, Inc. Valley Cinema, Inc.
Donald R. Chase
President and Chief Executive Officer
Park West Bank and Trust Company
President and Chief Executive Officer
Westbank Corporation
Officers
Westbank Corporation
Alfred C. Whitaker Donald R. Chase
Chairman of the Board President and Chief Executive Officer
Assistant Corporate Clerk
John M. Lilly
Leroy F. Jarrett Treasurer and Chief Financial Officer
Vice Chairman of the Board
Robert J. Perlak
Corporate Clerk
Park West Bank and Trust Company
Donald R. Chase Residential Real Estate
President and Chief Executive Officer
Stanley F. Osowski
Robert J. Perlak Senior Vice President
Corporate Clerk
Wolfgang A. Adametz
Alfred C. Whitaker Assistant Vice President
Assistant Clerk
Elizabeth A. Wilk
Assistant Vice President
Finance Division
John M. Lilly
Executive Vice President and Treasurer Loan Credit and Collections
Irving M. Walker, Jr., CMA Trenton E. Taylor
Accounting Officer Vice President
Patricia M. Reidy
Assistant Treasurer EDP/Operations Division
Roger M. Roberge
Loan Division EDP Officer
Gary L. Briggs
Executive Vice President Marketing
Gerard E. Drapeau Joseph L. Rolak
Vice President Director of Marketing and
Vice President
Paul W. Kenyon
Vice President
Compliance
Richard H. Lempke
Vice President Jane M. Knapp
Compliance Officer
Richard N. Hanchett
Assistant Vice President
Branch Administration/Personnel
Jeffrey M. Smith
Assistant Vice President Kathleen A. Jalbert
Vice President
Allen J. Miles
Commercial Loan Officer H. Ellen Bellows
Branch Manager
John E. O'Brien
Loan Operations Officer
Auditing Division
Lloyd S. Hall, CBA
Director of Auditing
Trust Division
Robert A. Gibowicz
Senior Trust Officer
(36)
Corporate Information
Westbank Corporation and Subsidiaries
Westbank Corporation
Westbank Tower, 225 Park Avenue
West Springfield, MA 01089-3310
(413) 747-1400
Annual Meeting
The Annual Meeting of Stockholders of Westbank Corporation will be held on
Wednesday, April 19, 1995 at nine o'clock in the morning at the Carriage
House
at Storrowton Tavern, 1305 Memorial Avenue, West Springfield,
Massachusetts.
Transfer Agent and Registrar
Park West Bank and Trust Company
Independent Accountants
Deloitte & Touche LLP
Hartford, Connecticut
Corporate Counsel
Doherty, Wallace, Pillsbury and Murphy, P.C.
Springfield, Massachusetts
Information Service
Westbank Corporation welcomes stockholder and
public interest in our services and activities. Questions pertaining to
material presented in this Report and requests for a copy of the Annual
Report (Form 10-K) filed with the Securities and Exchange Commission should
be directed to John M. Lilly, Treasurer and Chief Financial Officer, at the
above address.
Equal Opportunity Employer
The Corporation has maintained its commitment to equal opportunity and
affirmative action in employment and personnel policies and pledges to
recruit, hire, train and promote persons in all job classifications without
regard to race, color, religion, sex, national origin, veterans status, age
or handicap.
Common Stock - Market Information
The table below shows cash dividend data and the range of bid prices by
quarter for the Corporation's common stock. The source of the bid ranges is
the local newspaper's listing of the NASD regional market quotations:
1994 1993
Bid Bid
High Low High Low
------------------------------------------------------
First $5 1/4 $5 $3 3/4 $3
Second 6 1/4 5 5 1/8 3 3/4
Third 6 1/4 5 5 1/8 5 1/8
Fourth 6 5 1/4 5 1/4 5 1/8
The above quotations of the Corporation's common stock represent prices
between dealers. They do not include retail markup, markdown or commissions
and do not represent actual transactions. No dividends were declared in
1994 and 1993.
At January 31, 1995 the Corporation had 1,065 stockholders.
Westbank Corporation's common stock is traded on
the NASDAQ National Market Exchange, the trading symbol is "WBKC". For
information on the Westbank Corporation Dividend Reinvestment and Stock
Purchase Plan, call: Park West Bank and Trust Company, Trust Department
(413) 747-1482.
The following firms make a market in Westbank Corporation's Common Stock:
Advest, Inc.
First Albany Corporation
Herzog, Heine, Geduld, Inc.
McConnell, Budd & Downes, Inc.
Ryan, Beck & Co., Inc.
Design: Robert Farrell Associates, Inc./Printing:Sterling Press
(IBC)
21. SUBSIDIARIES OF THE REGISTRANT
1. Park West Bank and Trust Company - Massachusetts
a. Lorac Leasing Corp. - Massachusetts
b. P W B & T, Inc. - Massachusetts
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000742070
<NAME> WESTBANK CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 10425
<INT-BEARING-DEPOSITS> 275
<FED-FUNDS-SOLD> 1000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7753
<INVESTMENTS-CARRYING> 21794
<INVESTMENTS-MARKET> 20958
<LOANS> 196002
<ALLOWANCE> 3325
<TOTAL-ASSETS> 243313
<DEPOSITS> 218563
<SHORT-TERM> 8865
<LIABILITIES-OTHER> 541
<LONG-TERM> 0
<COMMON> 15344
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 243313
<INTEREST-LOAN> 15015
<INTEREST-INVEST> 1855
<INTEREST-OTHER> 176
<INTEREST-TOTAL> 17046
<INTEREST-DEPOSIT> 5999
<INTEREST-EXPENSE> 200
<INTEREST-INCOME-NET> 10847
<LOAN-LOSSES> 1473
<SECURITIES-GAINS> 145
<EXPENSE-OTHER> 10088
<INCOME-PRETAX> 1745
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2175
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
<YIELD-ACTUAL> 5.01
<LOANS-NON> 4890
<LOANS-PAST> 492
<LOANS-TROUBLED> 501
<LOANS-PROBLEM> 5883
<ALLOWANCE-OPEN> 3472
<CHARGE-OFFS> 1869
<RECOVERIES> 249
<ALLOWANCE-CLOSE> 3325
<ALLOWANCE-DOMESTIC> 3325
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
