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, 1996
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 ID No.)
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 1, 1997 the aggregate
market value of the voting stock held by nonaffiliates of the
registrant was $30,575,342.
The number of shares outstanding of the registrants common
stock, $2.00 par value was 3,445,109 on March 1, 1997.
Portions of the Annual Report to Stockholders for the year
ended December 31, 1996 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 16, 1997 are
incorporated by reference into Part III.
<PAGE>
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 for the Corporation's Common Stock and
Related Stockholder 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
PART III
Item 8 Financial Statements and Supplementary Data III - 1
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure III - 1
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
<PAGE>
WESTBANK CORPORATION, WEST SPRINGFIELD, MASSACHUSETTS
PART I
ITEM 1 - BUSINESS
Reference is made to Page 4 of the Corporation's Annual Report
to Stockholders for the year ended December 31, 1996, 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 1996 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 and 37
III. Loan Portfolio 12, 28, 29 and 37
a. Types of Loans 12
b. Maturities and Sensitivities to Changes in Interest Rates 8 and 12
c. Risk Elements 13, 14 and 15
IV. Summary of Loan Loss Experience 13 and 14
V. Deposits 15, 16, 30, 37 and 38
VI. Return on Equity and Assets 16
VII. Short Term Borrowing 16, 31, 37 and 38
I - 1
<PAGE>
ITEM 2 - PROPERTIES
The Corporation's principal banking subsidiary, Park West Bank and Trust
Company ("Park West") operates eleven banking offices located as follows:
LOCATION OWNED LEASED TOTAL
Agawam (Feeding Hills) 1 1
Chicopee 1 1
Chicopee - Supermarket 1 1
East Longmeadow 1 1
East Longmeadow -
Supermarket 1 1
Holyoke 1 1
West Springfield 2 1 3
Westfield 1 1
Westfield - Supermarket 1 1
TOTAL 5 6 11
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, Westfield and the Banks three supermarket
branches.
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
Corporation 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
<PAGE>
PART II
ITEM 5 - MARKET FOR CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Reference is made to the inside back cover of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1996,
wherein this subject is covered.
Information Concerning Forward-Looking Statements.
Westbank has made and may make in the future forward looking
statements concerning future performance, including but not limited
to future earnings, and events or conditions which may affect such
future performance. These forward looking statements are based upon
management's expectations and belief concerning possible future
developments and the potential effect of such future developments on
Westbank. There is no assurance that such future developments will
be in accordance with management's expectations and belief or that
the effect of any future developments on Westbank will be those
anticipated by Westbank management.
All assumptions that form the basis of any forward looking
statements regarding future performance, as well as events or
conditions which may affect such future performance, are based on
factors that are beyond Westbank's ability to control or predict
with precision, including future market conditions and the behavior
of other market participants. Among the factors that could cause
actual results to differ materially from such forward looking
statements are the following:
1. The status of the economy in general, as well as in
Westbank's prime market area, Western Massachusetts;
2. The recovery of the real estate market in Western
Massachusetts;
3. Competition in Westbank's prime market area from other
banks, especially in light of continued consolidation in
the New England banking industry.
4. Any changes in federal and state bank regulatory
requirements;
5. Changes in interest rates; and
6. The cost and other effects of unanticipated legal and
administrative cases and proceedings, settlements and
investigations.
While Westbank periodically reassesses material trends and
uncertainties affecting the Corporation's performance in connection
with is preparation of management's discussion and analysis of
results of operations and financial condition contained in its
quarterly and annual reports, Westbank does not intend to review or
revise any particular forward looking statement in light of future
events.
ITEM 6 - SELECTED FINANCIAL DATA
Reference is made to page 5 of the Corporation's Annual Report
to Stockholders for the year ended December 31, 1996, wherein this
subject is covered.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to pages 6 through 18 of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1996,
wherein this subject is covered.
II - 1
<PAGE>
PART III
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pages 20 through 39 of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1996,
wherein this subject is covered.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
NONE
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to pages 3 through 6, of the Corporation's
Proxy Statement to Stockholders for the 1997 Annual Meeting
scheduled for April 16, 1997, wherein this subject is covered.
ITEM 11 - EXECUTIVE COMPENSATION
References is made to pages 8 through 12, of the Corporation's
Proxy Statement to Stockholders for the 1997 Annual Meeting
scheduled for April 16, 1997, 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 1997 Annual Meeting scheduled for
April 16, 1997, wherein this subject is covered.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to pages 6 through 15, of the Corporation's
Proxy Statement to Stockholders for the 1997 Annual Meeting
scheduled for April 16, 1997, wherein this subject is covered under
the caption "Beneficial Ownership of Stock and Executive
Compensation - Miscellaneous".
III - 1
<PAGE>
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, 1996:
WESTBANK CORPORATION
Page of
Annual
Report
Independent Auditors' Reports 19
Consolidated Balance Sheets at December 31, 1996 and 1995 20
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 21
Consolidated Statement of Stockholders' Equity from January 1, 1994,
to December 31, 1996 22
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 23
Notes to Consolidated Financial Statements 24 - 39
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
<PAGE>
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: "/s/ Donald R. Chase"
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
President and Chief
"/s/ Donald R. Chase" Executive Officer and Director March 19, 1997
Donald R. Chase
Chairman of the Board
"/s/ Alfred C. Whitaker" and Director March 19, 1997
Alfred C. Whitaker
Treasurer and Chief Financial
"/s/ John M. Lilly" Officer March 19, 1997
John M. Lilly
"/s/ Roland O. Archambault" Director March 19, 1997
Roland O. Archambault
"/s/ Mark A. Beauregard" Director March 19, 1997
Mark A. Beauregard
"/s/ David R. Chamberland" Director March 19, 1997
David R. Chamberland
"/s/ John E. Fitzgerald" Director March 19, 1997
John E. Fitzgerald
"/s/ Leroy F. Jarrett" Director March 19, 1997
Leroy F. Jarrett
Vice Chairman of the Board
"/s/ Ernest N. Laflamme, Jr." and Director March 19, 1997
Ernest N. Laflamme, Jr.
"/s/ Russell Mawdsley" Director March 19, 1997
Russell Mawdsley
"/s/ Paul J. McKenna" Director March 19, 1997
Paul J. McKenna
"/s/ Robert J. Perlak" Corporate Clerk and Director March 19, 1997
Robert J. Perlak
Director March 19, 1997
James E. Tremble
IV - 2
<PAGE>
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 *
10.16 1995 Directors Stock Option Plan ****
10.17 1996 Stock Incentive Plan *****
13. 1995 Annual Report to Stockholders ARS (IFC 1-36 IBC)
21. Subsidiaries of Registrant TO BE INCLUDED
27. Financial Data Schedule TO BE INCLUDED
* Incorporated by reference to identically numbered exhibits
contained in Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988
** Incorporated by reference to identically numbered exhibits
contained in Registrant's Annual Report on Form 10-K for the
year ended December 31, 1987
*** Incorporated by reference to identically numbered exhibits
contained in Registrant's Annual Report on Form 10-K for the
year ended December 31, 1986
**** Incorporated by reference to identically numbered exhibits
contained in Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995
***** Incorporated by reference to identically numbered exhibits
contained in Registrant's 1996 Proxy Statement
IV - 3
<PAGE>
Westbank Corporation
1996 Annual Report to Stockholders
Inside Front Cover
Table of Contents
Financial Highlights 1
Letter to Stockholders 2-3
Business - Westbank Corporation and Subsidiaries 4
Selected Consolidated Financial Data 5
Management's Discussion and Analysis - Financial Results 6-18
Independent Auditors' Report 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 24-39
Corporate Directory 40
Corporate Information IBC
On the Cover:
It is Westbank's deep roots frmed by the dedication and commitment
of our employees that continue to provide the strength and stability
to those communities we serve.
<PAGE>
Financial Highlights
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the Year
(Dollars in Thousands) 1996 1995 1994
- - - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $2,248 $2,353 $2,175
Net interest income 11,842 11,721 10,847
Non-interest income 2,140 2,917 2,459
Non-interest expenses 8,788 8,017 8,852
Real estate owned expenses 484 498 1,236
Total non-interest expenses 9,272 8,515 10,088
Provision for loan losses 868 2,690 1,473
Year End
(Dollars in Thousands)
- - - ---------------------------------------------------------------------------
Investment and
mortgage-backed securities $35,682 $35,569 $29,547
Loans, net 218,192 197,264 192,677
Allowance for loan losses 2,481 3,707 3,325
Total assets 284,909 253,777 243,313
Total deposits 255,491 227,962 218,563
Total stockholders' equity 19,745 17,703 15,344
Common Share Information
Weighted average
shares outstanding 3,404,242 3,271,875 3,203,985
Net income per share $.66 $.72 $.68
</TABLE>
GRAPH INSERT
COMMON STOCK VALUE SHAREHOLDERS' EQUITY BOOK VALUE
(Dollars in Thousands)
1992 $3.00 1992 $11,292 1992 $3.62
1993 $5.25 1993 $13,271 1993 $4.25
1994 $5.63 1994 $15,344 1994 $4.89
1995 $7.00 1995 $17,703 1995 $5.50
1996 $9.50 1996 $19,745 1996 $5.90
<PAGE>
Chairman's and President's Letter
Westbank Corporation and Subsidiaries
Dear Shareholder:
Building shareholder value, while recognizing the importance of
serving the needs of our customers and the communities in which they
reside, propelled Westbank Corporation to a year of solid
achievements in 1996. Net income for the year was $2.2 million
representing $0.66 per share.
Pre-tax earnings for 1996 were $3.8 million, an increase of more
than $400,000 or 12% compared to 1995 when earnings included a
non-recurring income of $700,000 and a tax benefit of $400,000.
Deposits grew by 12%, or $27.5 million, during the past year. As of
December 31, 1996, assets totaled $285 million compared to $254
million at year-end 1995, an increase of $31 million or 12%, and the
Corporation's capital level was $19.7 million, representing a
capital ratio of 6.93%.
This year's results represent a return on assets of .84% and a
return on shareholder equity of 12.11%, and underscore the strength
of Westbank Corporation's overall strategy: To create new business
opportunities by building strong relationships with our customers -
especially privately-owned or closely-held companies and retail
banking customers.
The Bank increased its loan portfolio by more than $20 million
during 1996. As a locally owned community bank, we remain committed
to increasing our loan business this coming year and meeting the
needs of our consumer and commercial clients, while maintaining the
strength and quality of our portfolio.
Equally exciting and crucial to our profitability was the
improvement in the quality of our loan portfolio. Our
non-performing assets declined by $5.2 million or 66% and account
for only 0.95% of total assets, down from 3.11% at year-end 1995.
While interest rates remained somewhat constant, the Residential
Mortgage Department experienced strong growth. Westbank continues
to be ranked as one of the top ten lenders in Western Massachusetts
in loan originations. During 1996, we granted 500 residential
mortgages totaling $50 million, representing a 10% increase over the
previous year. We also serviced 3,623 mortgages totaling over $300
million dollars. As in previous years, we converted a portion of
our mortgages into mortgage-backed securities for sale on Wall
Street, providing the Bank with excellent investment grade
securities and immediate liquidity.
When your roots are as deep into a community as Westbank's are, you
have a vested interest in seeing the community grow and prosper.
The communities we serve are our lifeblood. They provide the fuel
for our forward momentum and we, in turn, provide the resources for
their growth and prosperity.
As a community bank, our in-depth knowledge of our customers is a
competitive advantage over our larger rivals. At Westbank, we
recognize that no two customers are alike; each has unique needs.
This is why we offer an exceptionally wide range of personal banking
products. Our customers have come to expect high service levels,
innovative products, such as the Platinum Account, and the
individualized attention needed to meet their financial objectives.
By providing the products and personal assistance they require, many
customers continue to enjoy a long-term and valued relationship with
the Bank.
We constantly strive to maintain our ideology of hometown banking,
convenience and caring because we believe the communities we serve
deserve a bank which focuses on and continues to be an important
part of the local economy.
Essential to our community roots, Westbank has always encouraged our
employees to become involved in community activities. This
involvement includes participation in many local fundraising drives.
Many of our officers serve on boards of directors of various
national and local organizations benefitting our communities. The
support Westbank provides, both volunteer and financial,
demonstrates the breadth of our commitment.
As a locally owned commercial bank, we also strive to help meet the
diverse credit needs of our customers. That is why we are
especially proud that Westbank retained its "Outstanding" Community
Reinvestment Act (CRA) rating following an examination by the Office
of the Commissioner of Banks this past fall. A previous
"Outstanding" rating by the Federal Deposit Insurance Corporation
(FDIC) resulted in the Bank receiving a special deposit of $1
million from the Commonwealth of Massachusetts.
<PAGE>
Providing our customers with high-quality, convenient banking
service has always been a cornerstone of Westbank's operating
philosophy, and, in 1996, we continued that tradition. Our branch
network grew with the opening of three new offices in local
supermarkets, namely the Big Y World Class Market and the Super Stop
& Shop. These branches allow convenient access for customers while
lowering the Bank's capital investment compared with the traditional
"brick and mortar" branch office. The success of this innovative
approach to banking can be measured by the increase of over $20
million in new deposits. The relocation of our Westfield office to
a more convenient downtown location has produced additional growth
for us in a very competitive market.
In 1996, the Trust Department achieved strong gains in revenues and
assets under management. At year-end, fiduciary accounts totaled
$106 million. This business provides personal, corporate and
employee benefit trust services, investment management, and a broad
spectrum of investment opportunities. Trust personnel actively work
with both commercial and retail bank representatives to provide
specialized investment management services to customers. A
successful employee referral program called "The President's Circle"
generates customer leads and contributes to the growth of the Trust
Department. Westbank's Trust team has been successful at developing
its own new business leads, with an aggressive marketing focus that
emphasizes high levels of personal service and commitment to
building strong, long-term customer relationships.
Responding to the continued improvement in the Corporation's
performance, the Board of Directors increased the quarterly dividend
by 25% from $0.06 to $0.075 per share. It is also gratifying to see
the value of the Corporation's stock respond to the Bank's financial
performance, as the market price of Westbank's stock increased by
36% in the past year. On April 4, 1997, two of our long-serving and
dedicated directors, John E. Fitzgerald and Russell Mawdsley, will
retire from the Board. We wish them well in their retirement.
With progressive strategies in place and the solid foundation we
have established, Westbank is well prepared for the challenges and
opportunities that lie ahead for a locally owned, independent,
commercial bank. By successfully implementing our business
strategies, taking calculated risks and remaining focused on our
long-term objectives, we believe Westbank Corporation will continue
to build shareholder value.
Westbank's success is directly attributable to the hard work and
dedication of our directors and employees and to the loyalty and
support of our customers and shareholders. On behalf of the Board
of Directors and employees of Westbank, we appreciate your loyalty
and support.
Sincerely,
"/s/ Alfred C. Whitaker" "/s/ Donald R. Chase"
Alfred C. Whitaker Donald R. Chase
CHAIRMAN OF THE BOARD PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
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.
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 eleven 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, 1996 amounted to $105,781,000 and is not included in
the accompanying financial statements since such items are not
assets of the Bank.
Employees
As of December 31, 1996, the Corporation and its subsidiaries had an
equivalent of 115 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 few 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.
<PAGE>
<TABLE>
Selected Consolidated Financial Data
Westbank Corporation and Subsidiaries
<CAPTION>
Years Ended December 31,
(Dollars in Thousands Except Share Amounts) 1996 1995 1994 1993 1992
- - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and dividend income $20,600 $20,261 $17,046 $16,809 $18,948
Interest expense 8,758 8,540 6,199 6,736 9,105
- - - ---------------------------------------------------------------------------------------------------------
Net interest income 11,842 11,721 10,847 10,073 9,843
Provision for loan losses 868 2,690 1,473 790 2,298
Non-interest income 2,140 2,917 2,459 2,861 3,376
Non-interest expense 9,272 8,515 10,088 10,072 10,165
- - - ---------------------------------------------------------------------------------------------------------
Income before income taxes
(benefit), extraordinary item and
cumulative effect of accounting change 3,842 3,433 1,745 2,072 756
Income taxes (benefit) 1,594 1,080 (430) 525 202
- - - ---------------------------------------------------------------------------------------------------------
Income before extraordinary
item and cumulative effect of
accounting change 2,248 2,353 2,175 1,547 554
Extraordinary item-tax benefit of
net operating loss carryforward 202
Cumulative effect of accounting change
for income taxes 400
- - - ---------------------------------------------------------------------------------------------------------
Net income $2,248 $2,353 $2,175 $1,947 $756
=========================================================================================================
Per common share data:
Net earnings per share before
extraordinary item and cumulative
effect of accounting change $.66 $.72 $.68 $.48 $.18
Extraordinary item $.06
Cumulative effect of accounting
change for income taxes $.13
- - - ---------------------------------------------------------------------------------------------------------
Net earnings per share $.66 $.72 $.68 $.61 $.24
=========================================================================================================
Cash dividends declared $.24 $.20
Ending book value $5.90 $5.50 $4.89 $4.25 $3.62
At December 31:
Total loans - net $218,192 $197,264 $192,677 $174,597 $175,065
Total assets 284,909 253,777 243,313 228,863 234,448
Total non-performing assets 2,698 7,904 7,435 7,042 12,348
Total deposits 255,491 227,962 218,563 202,431 211,745
Total stockholders' equity 19,745 17,703 15,344 13,271 11,292
Average for year:
Loans 209,141 197,562 182,676 171,814 174,546
Assets 266,134 253,024 232,922 227,579 235,614
Deposits 237,848 227,952 210,659 205,915 213,637
Stockholders' equity 18,561 16,755 14,722 12,322 10,855
Number of weighted average shares and
equivalent shares outstanding 3,404,242 3,271,875 3,203,985 3,190,486 3,138,327
Number of actual shares outstanding 3,346,802 3,221,603 3,138,167 3,125,506 3,115,689
Selected ratios:
Rate of return on average total assets .84% .93% .93% .86% .32%
Rate of return on average stockholders' equity 12.11% 14.04% 14.77% 15.80% 6.96%
Stockholders' equity to total assets at year end 6.93% 6.98% 6.31% 5.80% 4.82%
Average total stockholders' equity
to average total assets 6.97% 6.62% 6.32% 5.41% 4.61%
Allowance for loan losses to total loans at year end 1.12% 1.84% 1.70% 1.95% 1.93%
Non-performing loans as a percentage
of total loans at year end 1.07% 3.43% 3.00% 2.18% 4.76%
Net charge-offs as a percentage of average loans .96% 1.17% .89% .44% 1.38%
Other real estate owned as a percentage of total assets .12% .51% .64% 1.38% 1.82%
</TABLE>
<PAGE>
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 1996, the Corporation reported net income of $2,248,000, or $.66
per share, after providing $868,000 for loan losses and $390,000 for
write-down of other real estate owned (OREO). This compares to net
income for 1995 of $2,353,000, or $.72 per share. The Corporation's
1995 earnings reflected a provision for loan losses of $2,690,000
and $224,000 for write-down of OREO. Net interest income increased
$121,000 from 1995 to 1996.
Non-interest expense, excluding the write-down of OREO and related
operating expenses, amounted to $8,788,000 in 1996 compared to
$8,017,000 in 1995, an increase of $771,000, or 9%. The increase in
operating expenses for 1996 is a direct result of the Bank opening
three (3) new supermarket branches. Non- interest income decreased
by $777,000 from 1995 which reflected an insurance recovery totaling
$703,000. During 1996, Trust Department earnings increased by
$71,000 over 1995, while earnings on serviced mortgages declined by
$44,000, the result of fewer mortgages being serviced during 1996
versus 1995. Gains on sales of mortgages and other assets increased
by $83,000 over 1995.
Income taxes in 1996 totaled $1,594,000, an increase of $514,000
over 1995. Included in the 1995 results of operations is a tax
benefit totaling $400,000. The benefit during 1995 was primarily
attributable to the utilization of net operating loss carryforwards.
GRAPH INSERT
(Dollars in Thousands)
ASSET GROWTH DEPOSIT GROWTH NET LOAN GROWTH
1992 $234,448 $211,745 $175,065
1993 $228,863 $202,431 $174,597
1994 $243,313 $218,563 $192,677
1995 $253,777 $227,962 $197,264
1996 $284,909 $255,491 $218,192
At December 31, 1996, the Corporation's total assets were
$284,909,000, an increase of $31,132,000 or 12%, from $253,777,000
at year end 1995. The higher level of assets resulted primarily
through an increase in net loans and temporary investments totaling
$32,900,000 funded by the growth in deposits.
Non-performing assets amounted to $2,698,000, or .95% of total
assets at December 31, 1996, compared with $7,904,000 or 3.11% at
the end of 1995.
Between December 1995 and December 12, 1996, Park West operated
under a Memorandum of Understanding (the "Memorandum") with the
Federal Deposit Insurance Corporation (the "FDIC") and the
Commissioner of Banks for the Commonwealth of Massachusetts (the
"Commissioner"). On December 12, 1996 the Memorandum was released.
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, 1996, Park West's capital was at a level that placed
the Bank in the "well capitalized" category as defined by FDICIA.
<PAGE>
Management's Discussion and Analysis - Financial Results (continued)
Westbank Corporation and Subsidiaries
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 truth in savings disclosure requirements, and restrictions
on activities authorized by state law but not authorized for
national banks.
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 average assets.
(Dollars in Thousands) 1996 1995 1994
- - - ----------------------------------------------------------------------------
Stockholders' Equity
Common stock $6,694 $6,443 $6,276
Additional paid-in-capital 7,633 7,141 6,877
Retained earnings 5,517 4,053 2,334
Unrealized gain (loss) on
securities available for sale (99) 66 (143)
- - - ----------------------------------------------------------------------------
Total Capital $19,745 $17,703 $15,344
Ratio of Tier 1 leverage capital
to total average assets 7.12% 6.89% 6.38%
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; total risk-based, 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, 1996:
Tier 1 risk-based capital (minimum required 4%) 10.43%
Total risk-based capital (minimum required 8%) 11.69%
Asset/Liability Management and Interest Rate Sensitivity
The following table sets forth the distribution of the repricing of
Westbank's earning assets and interest bearing liabilities as of
December 31, 1996, 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.
<PAGE>
Management's Discussion and Analysis - Financial Results - (continued)
Westbank Corporation and Subsidiaries
<TABLE>
<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 $3,086 $3,928 $17,390 $11,278 $35,682
Interest bearing cash 48 48
Loans 45,052 39,152 67,000 69,784 220,988
Federal funds sold 12,890 12,890
- - - ------------------------------------------------------------------------------------------------------------
61,076 43,080 84,390 81,062 269,608
============================================================================================================
Interest Bearing Liabilities
Savings deposits 3,477 31,293 34,770
NOW Accounts 1,838 16,543 18,381
Money market accounts 12,493 12,493
Negotiated rate certificates 9,950 5,197 2,250 17,397
Other time deposits 46,758 55,460 25,515 2 127,735
Borrowed funds 8,769 8,769
- - - ------------------------------------------------------------------------------------------------------------
77,970 65,972 75,601 2 219,545
============================================================================================================
Interest Rate
Sensitivity Gap (16,894) (22,892) 8,789 81,060 $50,063
Cumulative Interest Rate
Sensitivity Gap $(16,894) $(39,786) $(30,997) $50,063
Interest Rate
Sensitivity Gap Ratio (6.27)% (8.49)% 3.25% 30.07% 18.56%
Cumulative Interest Rate
Sensitivity Gap Ratio (6.27)% (14.76)% (11.51)% 18.56%
</TABLE>
The presentation of a run off and repricing of savings accounts and
NOW accounts is based on the Corporation's historical experience
with $3,477,000 and $1,838,000, respectively, included in the three
month to one year category and the remainder placed in the one to
five year category of the interest bearing liabilities.
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.
Distribution of Assets, Liabilities and
Stockholders' Equity - Interest Rates and Interest Differential
The following table presents the condensed average balance sheets
for 1996, 1995 and 1994. 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:
<PAGE>
<TABLE>
Management's Discussion and Analysis - Financial Results (continued)
Westbank Corporation and Subsidiaries
<CAPTION>
1996 1995 1994
Average Average Average
Interest Yield/ Interest Yield/ Interest Yield/
Average Income/ Rate Average Income/ Rate Average Income/ Rate
(Dollars in Thousands) Balance Expense Paid Balance Expense Paid Balance Expense Paid
- - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Securities:
U.S. Treasury $8,360 $535 6.40% $9,463 $600 6.34% $10,536 $679 6.44%
Federal agencies 24,625 1,647 6.69 24,034 1,596 6.64 17,728 1,072 6.05
Other securities 2,465 159 6.45 1,760 116 6.59 1,554 104 6.69
- - - -----------------------------------------------------------------------------------------------------------------------------
Total securities 35,450 2,341 6.60 35,257 2,312 6.56 29,818 1,855 6.22
- - - -----------------------------------------------------------------------------------------------------------------------------
Interest-bearing cash and
temporary investments 853 70 8.20 399 24 6.02 639 28 4.38
- - - -----------------------------------------------------------------------------------------------------------------------------
Loans: (b)
Commercial 34,865 3,285 9.42 36,106 3,675 10.18 33,537 2,920 8.71
Tax exempt-federal (a) 286 33 11.54 569 69 12.13
Real estate 154,501 12,941 8.38 144,566 12,406 8.58 130,668 10,530 8.06
Consumer 19,775 1,716 8.68 16,604 1,578 9.50 17,902 1,519 8.49
- - - -----------------------------------------------------------------------------------------------------------------------------
Total loans 209,141 17,942 8.58 197,562 17,692 8.96 182,676 15,038 8.23
- - - -----------------------------------------------------------------------------------------------------------------------------
Federal funds sold 4,845 247 5.10 4,182 244 5.83 3,759 148 3.94
- - - -----------------------------------------------------------------------------------------------------------------------------
Total earning assets 250,289 $20,600 8.23% 237,400 $20,272 8.54% 216,892 $17,069 7.87%
- - - -----------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (3,189) (3,349) (3,547)
Cash and due from banks 9,667 9,418 9,169
Other assets 9,367 9,555 10,408
- - - -----------------------------------------------------------------------------------------------------------------------------
Total assets $266,134 $253,024 $232,922
=============================================================================================================================
Liabilities and Stockholders' Equity
Interest-bearing deposits:
Savings $33,802 $749 2.21% $33,026 $696 2.11% $36,879 $778 2.11%
Money market 13,682 362 2.65 16,560 422 2.55 22,548 579 2.56
Negotiated rate
certificates 16,117 802 4.98 14,246 695 4.88 6,279 287 4.57
Other time deposits 131,348 6,590 5.02 124,122 6,456 5.20 109,242 4,355 3.99
- - - -----------------------------------------------------------------------------------------------------------------------------
Total time deposits 194,949 8,503 4.36 187,954 8,269 4.40 174,948 5,999 3.43
Borrowed funds 8,603 255 2.96 7,107 271 3.81 6,896 200 2.90
- - - -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 203,552 8,758 4.30 195,061 8,540 4.38 181,844 6,199 3.41
Demand deposits 42,898 39,998 35,711
Other liabilities 1,123 1,210 645
Stockholders' equity 18,561 16,755 14,722
=============================================================================================================================
Total liabilities and
stockholders' equity $266,134 $253,024 $232,922
=============================================================================================================================
Net interest income 11,842 11,732 10,870
Yield spread 3.93% 4.16% 4.46%
=============================================================================================================================
Net yield on earning assets 4.73% 4.94% 5.01%
=============================================================================================================================
Deduct-Tax equivalent
adjustment (a) 11 23
=============================================================================================================================
Net interest income $11,842 $11,721 $10,847
</TABLE>
(a) Interest income on non-taxable 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 to the extent actually received in cash or is applied
to reduce principal.
During 1996, the yield spread declined to 3.93% from 4.16% in 1995
down 23 basis points. The Corporation's net interest margin
decreased during 1996 to 4.73% from 4.94% in 1995 a decrease of 21
basis points. The section titled Rate/Volume Analysis further
describes the change in yields.
<PAGE>
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 1996 as compared with 1995
and 1995 compared with 1994.
<CAPTION>
1996 Compared With 1995 1995 Compared With 1994
- - - ----------------------------------------------------------------------------------------------------------------------
Increase Due to* Increase Due to*
(Dollars in Thousands) 1996 1995 (Decrease) Volume Rate 1995 1994 (Decrease) Volume Rate
- - - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned:
Securities:
U.S. Treasury $535 $600 $(65) $(70) $ 5 $600 $679 $(79) $(69) $(10)
Federal agencies 1,647 1,596 51 39 12 1,596 1,072 524 411 113
Other securities 159 116 43 45 (2) 116 104 12 14 (2)
Interest-bearing cash 70 24 46 35 11 24 28 (4) (13) 9
Loans:
Commercial 3,285 3,675 (390) (123) (267) 3,675 2,920 755 236 519
Tax exempt - federal 33 (33) (33) 33 69 (36) (33) (3)
Real estate 12,941 12,406 535 837 (302) 12,406 10,530 1,876 1,168 708
Consumer 1,716 1,578 138 282 (144) 1,578 1,519 59 (114) 173
Federal funds sold 247 244 3 35 (32) 244 148 96 18 78
- - - ----------------------------------------------------------------------------------------------------------------------
20,600 20,272 328 1,047 (719) 20,272 17,069 3,203 1,618 1,585
- - - ----------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings 749 696 53 18 35 696 778 (82) (82)
Money market 362 422 (60) (75) 15 422 579 (157) (155) (2)
Negotiated rate
certificates 802 698 104 93 11 698 287 411 388 23
Other time deposits 6,590 6,453 137 368 (231) 6,453 4,355 2,098 651 1,447
Borrowed funds 255 271 (16) 50 (66) 271 200 71 6 65
- - - ----------------------------------------------------------------------------------------------------------------------
8,758 8,540 218 454 (236) 8,540 6,199 2,341 808 1,533
- - - ----------------------------------------------------------------------------------------------------------------------
$11,842 $11,732 $110 $593 $(483) $11,732 $10,870 $862 $810 $52
======================================================================================================================
</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 1996 increased
to $11,842,000, up 1% from $11,732,000 in 1995. A 5.4% increase in
average earning assets and a 31 basis point decline in average rate
of return resulted in an increase in volume of $1,047,000 and a
decrease in rate of $719,000. An increase of 4.3% in average
interest bearing liabilities and a 8 basis point increase in average
rate of interest paid contributed to an increase in volume of
$454,000 and a decrease in rate of $236,000.
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, 1996, Westbank's ratio of such
assets to total deposits was 16.28% for 1996 compared to 16.61% for
1995. 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. Refer to Note 7 in the Notes To Consolidated Financial
Statements for a discussion of the Corporation's external sources of
liquidity.
<PAGE>
Management's Discussion and Analysis - Financial Results (continued)
Westbank Corporation and Subsidiaries
Investment Portfolio
GRAPH INSERT
INVESTMENT SECURITY MIX
U.S. TREASURIES $ 7,988,000
FEDERAL AGENCIES $16,292,000
MORTGAGE-BACKED SECURITIES $ 9,023,000
OTHER DEBTI SECURITIES $ 1,254,000
MARKETABLE EQUITY SECURITIES $ 1,125,000
<TABLE>
Refer to Note 2 in the Notes To Consolidated Financial Statements of
this report which covers the maturity distribution and market values
at December 31, 1996 of the securities portfolio. The following
table shows the amortized cost (in thousands) of the Corporation's
securities held to maturity at December 31:
<CAPTION>
1996 1995 1994
- - - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. Government obligations $5,998 $5,998 $6,499
Federal agency obligations 13,827 10,678 13,694
Mortgage-backed securities 216 274 331
Other debt securities 1,254 1,259 1,270
- - - ---------------------------------------------------------------------------------------------
Amortized cost $21,295 $18,209 $21,794
=============================================================================================
</TABLE>
<TABLE>
The following table shows the fair value (in thousands) of the Corporation's
securities available for sale at December 31:
<CAPTION>
1996 1995 1994
- - - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. Government obligations $1,990 $3,386 $3,586
Federal agency obligations 2,465 4,120 4,161
Mortgage-backed securities 8,807 8,941
Other debt securities 257 254
Equity securities 1,125 656 9
- - - ---------------------------------------------------------------------------------------------
14,387 17,360 8,010
Gross unrealized (gain) loss on
securities available for sale 170 (115) 248
- - - ---------------------------------------------------------------------------------------------
Amortized cost $14,557 $17,245 $8,258
=============================================================================================
</TABLE>
<TABLE>
The following table shows weighted average yields and maturity
distribution of debt securities at December 31, 1996:
<CAPTION>
Within 1 Year 1 to 5 Years 5 to 10 Years After 10 Years
Weighted Weighted Weighted Weighted Weighted Total
Average Amortized Average Amortized Average Amortized Average Amortized Average Amortized
Yield Cost Yield Cost Yield Cost Yield Cost Yield Cost
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Government
obligations 6.21% $4,235 6.27% $3,747 6.24% $7,982
Federal agency
obligations 5.66 1,750 5.93 13,586 6.89% $1,000 5.96 16,336
Other debt
securities 7.28 1,254 7.28 1,254
Mortgage-backed
securities 6.89% $9,169 6.89 9,169
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total debt
Securities $7,239 $17,333 $1,000 $9,169 $34,741
=================================================================================================================================
</TABLE>
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.
<PAGE>
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>
1996 1995 1994 1993 1992
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $35,523 $35,116 $34,306 $30,431 $31,006
- - - ---------------------------------------------------------------------------------------------------------------------------------
Real Estate:
Construction 6,071 7,550 8,517 8,491 6,501
Residential (1-4 family) 121,132 99,321 81,333 70,530 66,154
Residential (5 or more) 1,908 2,632 4,034 4,852 3,286
Commercial properties 41,261 47,566 58,310 53,768 57,225
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total Real Estate 170,372 157,069 152,194 137,641 133,166
- - - ---------------------------------------------------------------------------------------------------------------------------------
Consumer 15,093 8,896 9,383 9,282 11,231
- - - ---------------------------------------------------------------------------------------------------------------------------------
Lease financing 230 352 932 3,349
- - - ---------------------------------------------------------------------------------------------------------------------------------
Gross loans 220,988 201,311 196,235 178,286 178,752
Unearned discount (4)
Deferred loan origination
fees-net of costs (315) (340) (233) (217) (241)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total Loans 220,673 200,971 196,002 178,069 178,507
Allowance for loan
losses (2,481) (3,707) (3,325) (3,472) (3,442)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Net loans $218,192 $197,264 $192,677 $174,597 $175,065
=================================================================================================================================
</TABLE>
The Corporation's loan portfolio is not concentrated within a single
industry or a group of related industries, however, underlying
collateral values are dependent upon market fluctuations in the
Western Massachusetts area. The aggregate amount of loans to
executive officers, directors and organizations with which they are
associated amounted to $1,162,000, or 5.9% of stockholders' equity
as of December 31, 1996 compared to $1,334,000 or 7.5% as of
December 31, 1995.
GRAPH INSERT
LOAN MIX
COMMERCIAL $35,523,000
RESIDENTIAL REAL ESTATE $121,132,000
COMMERCIAL REAL ESTATE $49,240,000
CONSUMER $15,093,000
<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, 1996:
<CAPTION>
12 Months 1 - 5 After
(Dollars in Thousands) or Less Years 5 Years Total
- - - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $22,338 $10,891 $2,294 $35,523
Commercial real estate-construction 5,647 424 6,071
- - - -----------------------------------------------------------------------------------------------------
Totals $27,985 $11,315 $2,294 $41,594
=====================================================================================================
</TABLE>
Of the commercial loans which mature beyond one year approximately
$5,524,000 have fixed rates and the remaining $7,661,000 are
floating rate loans. Of the construction loans that mature after
one year, $394,000 are loans with floating rates.
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. The most significant of these are
commitments to grant loans and commitments to advance funds under
existing loan agreements which were $7,100,000 and $28,719,000,
respectively, at December 31, 1996 and $6,682,000 and $23,900,000,
respectively, in 1995. See further discussion in Note 12 to the
Consolidated Financial Statements.
<PAGE>
Management's Discussion and Analysis - Financial Results (continued)
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, 1996, 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 adequacy 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:
Year Ended December 31,
<CAPTION>
(Dollars in Thousands) 1996 1995 1994 1993 1992
- - - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $3,707 $3,325 $3,472 $3,442 $3,550
Provision charged to expense 868 2,690 1,473 790 2,298
- - - -------------------------------------------------------------------------------------------------------
4,575 6,015 4,945 4,232 5,848
- - - -------------------------------------------------------------------------------------------------------
Charge-offs:
Loans secured by real estate 1,688 2,129 1,291 152 1,150
Construction/land development 190 230 344
Commercial and
industrial loans 503 230 480 638 866
Consumer loans 82 119 91 84 155
Lease financing receivables 5 7 55 100
- - - -------------------------------------------------------------------------------------------------------
2,463 2,483 1,869 1,159 2,615
- - - -------------------------------------------------------------------------------------------------------
Recoveries:
Loans secured by real estate 324 24 25 259 20
Construction/land developing 14 75 11 25
Commercial and
industrial loans 10 45 204 45 11
Consumer loans 19 25 14 39 34
Lease financing receivables 2 6 6 45 119
- - - -------------------------------------------------------------------------------------------------------
369 175 249 399 209
- - - -------------------------------------------------------------------------------------------------------
Net charge-offs 2,094 2,308 1,620 760 2,406
- - - -------------------------------------------------------------------------------------------------------
Balance at end of year $2,481 $3,707 $3,325 $3,472 $3,442
=======================================================================================================
Average loans outstanding $209,141 $197,562 $182,676 $171,814 $174,546
=======================================================================================================
Net charge-offs as a percentage
of average loans 1.00% 1.17% .89% .44% 1.38%
Net charge-offs as a percentage of
the allowance at January 1 56.49% 69.41% 46.66% 22.08% 67.77%
Allowance as a percentage of total
loans at December 31 1.12% 1.84% 1.70% 1.95% 1.93%
Allowance as a percentage of
non-performing loans
at December 31 105.08% 53.76% 56.52% 89.46% 40.51%
</TABLE>
<PAGE>
Management's Discussion and Analysis - Financial Results (continued)
Westbank Corporation and Subsidiaries
<TABLE>
Allocation of the balance of the allowance for loan losses applicable to:
<CAPTION>
(Dollars in Thousands) 1996 1995 1994 1993 1992
- - - ---------------------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amounts Loans Amount Loans
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by
real estate $1,582 74.31% $2,717 74.23% $2,496 73.18% $1,619 72.39% $1,474 70.82%
Construction/land
development 91 2.75 150 3.76 127 4.35 4.79 3.64
Commercial and industrial
loans 656 16.10 687 17.47 514 17.50 285 17.09 287 17.37
Consumer loans 152 6.84 89 4.43 125 4.79 5.21 6.29
Lease financing receivables 64 .11 63 .18 .52 1.88
Unallocated 1,568 N/A 1,681 N/A
- - - ----------------------------------------------------------------------------------------------------------------------------------
$2,481 100.00% $3,707 100.00% $3,325 100.00% $3,472 100.00% $3,442 100.00%
==================================================================================================================================
</TABLE>
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) 1996 1995 1994 1993 1992
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans on a non-accrual basis $2,079 $6,180 $4,890 $3,057 $7,353
- - - -----------------------------------------------------------------------------------------------------------------------------------
Non-accrual loans as a percentage
of total net loans outstanding .95% 3.13% 2.54% 1.75% 4.20%
Non-accrual loans as a percentage
of total assets .73% 2.44% 2.01% 1.34% 3.14%
Loans contractually past due 90
days or more and still accruing $282 $277 $492 $330 $724
===================================================================================================================================
</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 $178, $354, $342, $126, and $124 for 1996, 1995,
1994, 1993, and 1992, respectively. Interest income included in the
results of operations relating to these loans was $20,000 in 1994.
The decrease in non-accrual loans from 1995 is attributable to the
resolution of one large commercial mortgage during March 1996 and
the sale of a pool of non-performing loans in May of 1996.
The decrease in the allowance for loan losses is a direct result of
charging off previously reserved amounts during 1996 which are
directly related to the loans referred to above.
As described in Note 1 to the Consolidated Financial Statements, on
January 1, 1995 the Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan," as amended by SFAS No. 118, "Accounting for Creditors
for Impairment of a Loan - Income Recognition and Disclosures."
Under this guidance the Bank measures impairment of commercial loans
by using the present value of expected future cash flows discounted
at the loan's effective interest rate. Commercial real estate loans
are generally measured based on the fair value of the underlying
collateral.
<PAGE>
Management's Discussion and Analysis - Financial Results (continued)
Westbank Corporation and Subsidiaries
Smaller balance homogenous loans, including residential real estate
and consumer loans, are collectively evaluated for impairment. As a
result of adopting SFAS 114, in-substance foreclosures totaling
$1,979,000 and $5,988,000 as of December 31, 1993 and 1992,
respectively, were reclassified to loans and are included in
non-accrual loans above.
The Bank evaluates each impaired loan to determine the appropriate
income recognition practice. Generally, income is recorded only on
a cash basis for impaired loans. Interest income recognized during
1996 on impaired loans was not significant. At December 31, 1996
and 1995, the recorded investment in impaired loans was $1,836,000
and $4,735,000 respectively, for which no additional specific
allowance for loan losses was recorded. For the twelve months ended
December 31, 1996, the average recorded investment in impaired loans
was $3,267,000 compared to $2,201,000 for year end 1995.
GRAPH INSERT
(Dollars in Thousands)
NON-PERFORMING ASSETS
1992 $12,348
1993 $7,042
1994 $7,435
1995 $7,904
1996 $2,698
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 modified prior to
January 1, 1995 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 and are not
considered to be impaired. Those entered into after January 1, 1995
are considered to be impaired as defined by SFAS No. 114 described
above. Restructured loans, which are classified as accruing loans,
amounted to $0 in 1996, $439,000 in 1995, $501,000 in 1994, $494,000
in 1993 and $420,000 in 1992. 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) 1996 1995 1994 1993 1992
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income that would have
been recognized if the
loans had been current
at original contractual rates $46 $50 $45 $12
Amount recognized as
interest income 43 42 41 8
- - - ---------------------------------------------------------------------------------------------------------------
Reduced interest income $0 $3 $8 $4 $4
===============================================================================================================
</TABLE>
Other Real Estate Owned
<TABLE>
The following table sets forth information regarding other real
estate owned at December 31:
<CAPTION>
(Dollars in Thousands) 1996 1995 1994 1993 1992
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Other real estate owned - net $337 $1,300 $1,552 $3,161 $4,271
Other real estate owned as a
percentage of total assets .12% .51% .64% 1.38% 1.82%
</TABLE>
Deposits
<TABLE>
The following table sets forth the average amounts of various
classifications of deposits:
<CAPTION>
1996 1995 1994
(Dollars in Thousands) Amount Rate Amount Rate Amount Rate
- - - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Savings $33,802 2.21% $33,026 2.11% $36,879 2.11%
Money market 13,682 2.65 16,560 2.55 22,548 2.56
Negotiated rate certificates 16,117 4.98 14,246 4.90 6,279 4.57
Other time deposits 131,348 5.02 124,122 5.20 109,242 3.99
- - - -----------------------------------------------------------------------------------------------------
194,949 4.36% 187,954 4.40% 174,948 3.43%
Demand deposits 42,898 39,998 35,711
- - - -----------------------------------------------------------------------------------------------------
$237,847 $227,952 $210,659
=====================================================================================================
</TABLE>
<PAGE>
Management's Discussion and Analysis - Financial Results (continued)
Westbank Corporation and Subsidiaries
<TABLE>
Certificates of deposits of $100,000 and over at December 31, 1996 had the
following maturities:
<CAPTION>
3 Months 3 to 6 6 to 12 1 Year to
(Dollars in Thousands) or Less Months Months 5 Years Total
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Totals $9,951 $3,425 $1,771 $2,250 $17,397
- - - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Return on Equity and Assets
<TABLE>
The Corporation's return on average equity and assets for each of
the years ended December 31, were as follows:
<CAPTION>
1996 1995 1994
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on average total assets .84% .93% .93%
Return on average stockholders' equity 12.11 14.04 14.77
Average stockholders' equity to average total assets 6.97 6.62 6.32
Dividend payout ratio 34.88 26.94
</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) 1996 1995 1994
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at year end $8,769 $7,177 $8,625
Average amount outstanding 8,603 7,107 6,896
Maximum amount outstanding at any month-end 12,294 9,675 13,961
Average interest rate for the year 2.95% 3.78% 2.90%
Average interest rate on year-end balance 2.89 3.38 4.20
</TABLE>
Management's Discussion and Analysis of the Statements of Income
<TABLE>
In the following sections of Management's Discussion and Analysis of
the Statements of Income, the comparative results of 1996, 1995 and
1994 will be covered in greater detail. The principal earning
assets of the holding company consist of a commercial 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, 1996. The significant changes are discussed in the
analysis that follow the summary.
<CAPTION>
Percentage
of increase (decrease)
- - - --------------------------------------------------------------------------------------------------------------------
1996 1995
Over Over
(Dollars in Thousands) 1996 1995 1994 1995 1994
- - - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $11,842 $11,721 $10,847 1.02% 8.06%
Provision for loan losses 868 2,690 1,473 (67.73) 82.62
Non-interest income 2,140 2,917 2,459 (26.64) 18.63
Non-interest expense 9,272 8,515 10,088 8.89 (15.59)
Income taxes (benefit) 1,594 1,080 (430) 47.59
- - - --------------------------------------------------------------------------------------------------------------------
Net Income $2,248 $2,353 $2,175 (4.46)% 8.18%
====================================================================================================================
</TABLE>
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 1996 amounted to $20,600,000 as compared
to $20,261,000 for 1995 and $17,046,000 for 1994. For 1996 this
represents an increase of $339,000 or 1.7% over 1995, while interest
income increased by $3,215,000 or 19% in 1995 versus 1994. The
increase in 1996 is the result of an increase in average earning
assets of $12,889,000 or 5% offset by a decrease of 31 basis points
in average earning interest rate. The increase in 1995 over 1994 is
the result of an increase in average earning assets of $20,508,000
combined with a 67 basis point increase in average earning interest
rate.
<PAGE>
Management's Discussion and Analysis - Financial Results (continued)
Westbank Corporation and Subsidiaries
Interest Expense
Interest expense for 1996 on deposits and borrowings amounted to
$8,758,000 as compared to $8,540,000 in 1995 and $6,199,000 for
1994. Interest expense increased by $218,000 or 2.5% during 1996
compared to 1995 and 1995 interest expense increased by $2,341,000
or 37% versus 1994. The 1996 increase is the result of an increase
of average interest bearing liabilities of $8,491,000 and a 8 basis
point decline in the average rate of interest paid compared to 1995.
The increase in interest expense during 1995 versus 1994 is the
result of an increase of average interest bearing liabilities of
$13,217,000 combined with an increase of 97 basis points on average
interest rate paid.
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.
GRAPH INSERT
(Dollars in Thousands)
NET INTEREST INCOME
1992 $9,843
1993 $10,073
1994 $10,847
1995 $11,721
1996 $11,842
Westbank's management analyzes its performance by utilizing the
concepts of interest rate spread and net yield on earning assets.
The interest rate spread represents the difference between the yield
on earning assets and interest paid on interest-bearing liabilities.
The net yield on earning assets is the difference between the rate
of interest on earning assets and the effective rate paid on all
funds, interest-bearing liabilities, as well as interest-free
sources (primarily demand deposits and stockholders' equity).
<TABLE>
The following table sets forth Westbank's net interest income on a
taxable equivalent basis:
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Total interest income $20,600 $20,261 $17,046
Total interest expense 8,758 8,540 6,199
- - - -------------------------------------------------------------------------------
Net interest income 11,842 11,721 10,847
Tax equivalent adjustment
to interest income 11 23
- - - -------------------------------------------------------------------------------
Net interest income
(taxable equivalent) $11,842 $11,732 $10,870
===============================================================================
</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 1996 provision for loan losses totaled $868,000 compared with
$2,690,000 in 1995, a decrease of 68%. During 1995, the provision
increased by $1,217,000 over 1994 representing an increase of 83%.
The decrease in the provision for loan losses during 1996 is
directly attributable to the decrease in non-performing loans
primarily during the second quarter. A full discussion appears
previously under the headings of LOAN LOSS EXPERIENCE and
NON-PERFORMING ASSETS.
<PAGE>
Management's Discussion and Analysis - Financial Results (continued)
Westbank Corporation and Subsidiaries
Non-Interest Income
Income from sources other than interest was $2,140,000 in 1996, a
decrease of $777,000 from the prior year and a decrease of $319,000
versus 1994. Non-interest income for 1996 reflects an increase in
Trust Department earnings of $71,000, a decrease in service charges
on deposit accounts of $135,000 and increases from the gain on sale
of other assets totaling $83,000 compared to 1995. 1995 also
reflects the recovery of an insurance claim totaling $703,000.
Non-Interest Expense
<TABLE>
The components of other operating expenses at December 31 are as follows:
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
- - - -------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and benefits $4,376 $3,845 $3,939
Occupancy 648 513 555
Write-down of other
real estate owned 390 224 760
Other real estate
owned expense 94 274 476
Other non-interest expense 3,764 3,659 4,358
- - - -------------------------------------------------------------------------
$9,272 $8,515 $10,088
=========================================================================
</TABLE>
Overall non-interest expense increased during 1996 by $757,000
versus 1995 and declined by $816,000 compared to 1994. During 1996,
salaries and benefits increased by $531,000 primarily the result of
opening three supermarket branches during 1996 and the associated
staffing requirements. Similarly, occupancy increased by $135,000
as a result of the new branches described above. Finally, other
non-interest expense and depreciation and amortization expense
increased in 1996 by $105,000, the result of expenses related to the
new supermarket offices.
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.
For the year ended December 31, 1996 Westbank Corporation recorded a
tax expense of $1,594,000 compared to 1995, when the Corporation
recorded a tax expense of $1,080,000. The higher tax expense for
1996 was primarily the result of the expiration of net operating
loss carryforwards and a change in the valuation allowance of
$101,000 pertaining to deferred tax assets offset by the provision
for current taxes. Income taxes for 1994 was a benefit of $430,000,
which was primarily the result of the utilization of net operating
loss carryforwards.
Net Income
The net income for 1996 of $2,248,000, or $.66 per share, is based
on a weighted average of 3,404,242 shares outstanding, compared with
a net income for 1995 of $2,353,000, or $.72, based on a weighted
average of 3,271,875 shares outstanding and net income for 1994 of
$2,175,000, or $.68, based on a weighted average shares of
3,203,985.
<PAGE>
Independent's Auditor's Report
Westbank Corporation and Subsidiaries
The Stockholders and Board of Directors,
Westbank Corporation
We have audited the accompanying consolidated balance sheets of
Westbank Corporation and Subsidiaries (the "Corporation") as of
December 31, 1996 and 1995, and the related consolidated statements
of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. 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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. These 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 consolidated
financial position of Westbank Corporation and Subsidiaries at
December 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1996 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
January 28, 1997
<PAGE>
Consolidated Balance Sheets
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands, except share amounts) 1996 1995
- - - -----------------------------------------------------------------------------------------------------
<C> <C> <C>
Assets
Cash and due from banks:
Non-interest bearing $10,463 $11,195
Interest bearing 48 56
- - - -----------------------------------------------------------------------------------------------------
10,511 11,251
Federal funds sold 12,890 900
- - - -----------------------------------------------------------------------------------------------------
Total cash and cash equivalents 23,401 12,151
- - - -----------------------------------------------------------------------------------------------------
Securities (Note 2):
Investment securities available for sale 14,387 17,360
Investment securities held to maturity
(fair value of $21,357 in 1996 and $18,402 in 1995) 21,295 18,209
- - - -----------------------------------------------------------------------------------------------------
Total securities 35,682 35,569
- - - -----------------------------------------------------------------------------------------------------
Mortgage loans held for sale 5,466 8,826
Loans, net of allowance for loan losses
of $2,481 in 1996 and $3,707 in 1995 (Note 3) 212,726 188,438
Property and equipment (Note 4) 4,339 3,643
Other real estate owned, net of allowance for losses
of $195 in 1996 and $65 in 1995 (Note 5) 337 1,300
Accrued interest receivable 1,636 1,658
Deferred income taxes (Note 8) 364
Other assets (Note 8) 1,322 1,828
- - - -----------------------------------------------------------------------------------------------------
Total assets $284,909 $253,777
=====================================================================================================
Liabilities and Stockholders' Equity
Deposits (Note 6):
Non-interest bearing $44,715 $43,981
Interest bearing 210,776 183,981
- - - -----------------------------------------------------------------------------------------------------
Total deposits 255,491 227,962
Borrowed funds (Note 7) 8,769 7,177
Interest payable on deposits 328 309
Other liabilities 576 626
- - - -----------------------------------------------------------------------------------------------------
Total liabilities 265,164 236,074
Commitments and contingent liabilities (Notes 11 and 12)
Stockholders' equity (Note 14):
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
3,346,802 shares in 1996 and 3,221,603 shares in 1995 6,694 6,443
Additional paid-in capital 7,633 7,141
Retained earnings 5,517 4,053
Unrealized gain (loss) on securities available for sale (99) 66
- - - -----------------------------------------------------------------------------------------------------
Total stockholders' equity 19,745 17,703
- - - -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $284,909 $253,777
=====================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Income
Westbank Corporation and Subsidiaries
<TABLE>
Years ended December 31,
<CAPTION>
(Dollars in Thousands, except share amounts) 1996 1995 1994
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $17,942 $17,681 $15,015
Interest from interest bearing cash
and Federal funds sold 275 268 176
Interest and dividend income from securities 2,383 2,312 1,855
- - - ------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 20,600 20,261 17,046
- - - ------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 7,701 7,574 5,712
Interest on certificates of deposit - $100,000
or more 802 695 287
Interest on borrowed funds 255 271 200
- - - ------------------------------------------------------------------------------------------------------------------------
Total interest expense 8,758 8,540 6,199
- - - ------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for
loan losses 11,842 11,721 10,847
Provision for loan losses (Note 3) 868 2,690 1,473
- - - ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 10,974 9,031 9,374
- - - ------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Trust department income 425 354 329
Service charges on deposits 716 851 962
Gain (loss) on sale of mortgage loans/
servicing rights 4 (4) 77
Gain on sale of securities available for sale 112 145 145
Gain on sale of other real estate owned 3 13 82
Other non-interest income (Note 13) 880 1,558 864
- - - ------------------------------------------------------------------------------------------------------------------------
Total non-interest income 2,140 2,917 2,459
- - - ------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and wages 3,647 3,181 3,331
Pension and employee benefits (Note 9) 729 664 608
Occupancy expense 648 513 555
Depreciation and amortization expense 618 453 550
Provision for other real estate owned 390 224 760
Other real estate owned expenses 94 274 476
Other non-interest expense (Note 13) 3,146 3,206 3,808
- - - ------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 9,272 8,515 10,088
- - - ------------------------------------------------------------------------------------------------------------------------
Income before income taxes (benefit) 3,842 3,433 1,745
Income taxes (benefit) (Note 8) 1,594 1,080 (430)
- - - ------------------------------------------------------------------------------------------------------------------------
Net income $2,248 $2,353 $2,175
========================================================================================================================
Net earnings per share $.66 $.72 $.68
========================================================================================================================
Weighted average shares and equivalent
shares outstanding 3,404,242 3,271,875 3,203,985
========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Stockholders' Equity
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION> Unrealized
Common Stock Additional gain (loss)
Par paid-in Retained on securities
(Dollars in Thousands, except share amounts) Shares Value capital earnings available for sale Total
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 3,125,506 $6,251 $6,861 $159 $13,271
Net income 2,175 2,175
Shares issued:
Stock option plan 7,864 16 16
Dividend reinvestment
and stock purchase plan 4,797 9 16 25
Cumulative effect of implementing
accounting standard for securities
as of January 1, 1994 $233 233
Changes in unrealized gain (loss) on
securities available for sale (376) (376)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 3,138,167 6,276 6,877 2,334 (143) 15,344
Net income 2,353 2,353
Cash dividends declared
($.20 per share) (634) (634)
Shares issued:
Stock option plan 16,342 33 4 37
Dividend reinvestment
and stock purchase plan 67,094 134 260 394
Change in unrealized gain (loss)
on securities available for sale 209 209
- - - ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 3,221,603 6,443 7,141 4,053 66 17,703
Net income 2,248 2,248
Cash dividends declared
($.24 per share) (784) (784)
Shares issued:
Stock option plan 30,584 61 25 86
Dividend reinvestment
and stock purchase plan 94,615 190 467 657
Change in unrealized gain (loss)
on securities available for sale (165) (165)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 3,346,802 $6,694 $7,633 $5,517 $(99) $19,745
=================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
Westbank Corporation and Subsidiaries
<TABLE>
For the years ended December 31,
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
- - - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $2,248 $2,353 $2,175
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 868 2,690 1,473
Provision for other real estate owned 390 224 760
Depreciation and amortization 618 453 550
Realized gain on sale of securities (112) (145) (145)
Realized gain on sale of other real estate owned (3) (13) (82)
Realized gain on miscellaneous assets (83)
Amortization/accretion of deferred fees (3)
Deferred income taxes (benefit) 461 881 (876)
Change in:
Loans held for sale (279) (4,154)
Accrued interest receivable 22 10 (108)
Other assets 506 (394) (372)
Interest payable on deposits 19 69 (301)
Other liabilities (50) 85 341
- - - ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,602 2,059 3,415
- - - ---------------------------------------------------------------------------------------------------------------------
Investing activities:
Securities:
Held to maturity:
Purchases (11,329) (4,500) (5,747)
Proceeds from maturities 8,243 8,085 169
Available for sale:
Purchases (2,988) (15,319) (6,740)
Proceeds from sales 2,857 4,912 7,738
Proceeds from maturities 6,858 1,308 7,014
Proceeds on sale of miscellaneous assets 296
Purchases of premises and equipment (1,030) (960) (879)
Net increase in loans (26,484) (3,847) (21,808)
Proceeds from sale of other real estate owned 1,145 965 3,186
- - - ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (22,432) (9,356) (17,067)
- - - ---------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from borrowed funds 15,099
Repayment of borrowed funds (2,676) (15,716)
Net increase in deposits 27,529 9,399 16,132
Net increase (decrease) in short-term borrowings 1,592 1,228 (3,178)
Proceeds from exercise of stock options
and stock purchase plan 743 431 41
Dividends paid (784) (634)
- - - ---------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities 29,080 7,748 12,378
- - - ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 11,250 451 (1,274)
Cash and cash equivalents at beginning of year 12,151 11,700 12,974
- - - ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $23,401 $12,151 $11,700
=====================================================================================================================
Cash paid during the year:
Interest on deposits and other borrowings $8,739 $8,471 $6,499
Income taxes 1,243 520 366
Supplemental disclosure of cash flow information:
Securitization of loans into mortgage-backed securities $3,639
Transfers of loans to other real estate owned 1,115 $375 $276
Transfer of miscellaneous asset from other real estate owned
to premises and equipment 291
Loans to facilitate the sale of other real estate owned 667 340 961
</TABLE>
See notes to consolidated financial statements.
<PAGE>
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.
Nature of Business
The Corporation operates eleven banking offices located in Hampden
County and also operates a Trust Department pro-viding services
normally associated with holding property in a fiduciary or agency
capacity. A full range of retail banking services are furnished to
individuals, businesses and non-profit organizations. The
Corporation's primary source of revenue is derived from providing
loans to customers, predominately located in Western Massachusetts.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and effect the reported
amounts of income and expenses for each year. 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 judgements about information available to them at the time of
their examination.
Basis of Presentation
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiary, Park West Bank and
Trust Company ("Park West" or the "Bank"), its subsidiaries, Lorac
Leasing Corp., Park West Securities Corporation and PWB&T Inc. All
material intercompany balances and transactions have been eliminated
upon consolidation. Certain amounts in the 1995 and 1994 financial
statements have been reclassified to conform to the 1996
presentation.
Cash and Cash Equivalents
The Corporation defines cash and due from banks and federal funds
sold to be cash and cash equivalents.
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. These balances can be in the form of either
vault cash or funds left on deposit with the Federal Reserve Bank.
The average amount of these balances was $1,625,000 for 1996.
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 with unrealized gains (losses), net
of income taxes, reported as a separate component of stockholders'
equity. The Corporation classifies all securities with an original
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. Securities
which have experienced an other than temporary decline in value are
written down to estimated fair value, establishing a new cost basis
with the amount of the write-down included in expense as a realized
loss.
Mortgage-backed securities held to maturity are stated at cost,
adjusted for amortization of premiums and accretion of discounts
determined by a method that approximates the level-yield method.
Management has the positive ability and the intent to hold these
assets until maturity.
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
Loans
Loans have been reduced by 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 installment and
other loans is calculated by using the simple interest method on
daily balances of the principal amount outstanding. 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.
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 earlier unless the loan
principal and interest are determined by management to be fully
collectible. Any unpaid amounts previously accrued on these loans
are reversed from income. Interest received on a loan in
non-accrual status is applied to reduce principal or, if management
determines that the principal is collectible, applied to interest on
a cash basis. A loan is returned to accrual status after the
borrower has brought the loan current and has demonstrated
compliance with the loan terms for a sufficient period and
management's doubts concerning collectibility have been removed.
The Bank measures impairment of commercial loans by using the
present value of expected future cash flows discounted at the loan's
effective interest rate. Commercial real estate loans are generally
measured based on the fair value of the underlying collateral.
Smaller balance homogenous loans, including residential real estate
and consumer loans, are collectively evaluated for impairment. The
Bank evaluates each impaired loan to determine the appropriate
income recognition practice. Generally, income is recorded only on
a cash basis for impaired loans.
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 judgement 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.
Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of cost or fair value in the
aggregate. Net unrealized losses are recognized through a valuation
allowance charged to income.
On January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan," which requires that certain impaired loans,
except large groups of smaller balance homogeneous loans that are
collectively evaluated for impairment, 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. SFAS No. 114 was modified by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures," and was adopted concurrently by the
Corporation. The adoption of these new standards did not have any
material impact on the Corporation's financial statements.
As of January 1, 1996, the Bank adopted SFAS No. 122, "Accounting
for Mortgage Servicing Rights." This statement requires allocation
of the total cost of mortgage loans to the mortgage servicing rights
and the loans (without the mortgage servicing rights) based on their
relative fair value. The adoption of this statement did not have a
material impact on the Corporation's financial statements.
Effective January 1, 1997, SFAS No. 122 was superseded by SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." See "New Accounting Standards"
below.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method. 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.
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
Other Real Estate Owned
Other real estate owned ("OREO") includes properties the Bank has
acquired through foreclosure. 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. Loans granted in
conjunction with sales of OREO are required to comply with the
Bank's standard underwriting criteria, including receipt of an
adequate down payment. Income Taxes
The asset and liability method of accounting for income taxes is
utilized. 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. 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.
Pension Plan
The Corporation has a trusteed 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 $105,781,000 and $102,315,000 at
December 31, 1996 and 1995, 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.
New Accounting Standards - SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities," specifies accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities and for distinguishing whether a transfer of financial
assets in exchange for cash or other consideration should be
accounted for as a sale or as a pledge of collateral in a secured
borrowing. SFAS No. 125 is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring
after December 31, 1996, except for certain provisions (relating to
the accounting for secured borrowings and collateral and the
accounting for transfers and servicing of repurchase agreements,
dollar rolls, securities lending and similar transactions) which
have been deferred until January 1, 1998 in accordance with SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." The adoption of these standards is not expected
to have a material impact on the Corporation's financial statements.
2 - Securities
<TABLE>
Investment securities held to maturity at December 31 are as follows:
<CAPTION>
1996
- - - ------------------------------------------------------------------------------------------------------
Gross Gross Net
Amortized unrealized unrealized Fair unrealized
(Dollars in Thousands) cost gains losses value gain
- - - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government obligations $5,998 $49 $11 $6,036 $38
Federal agency obligations 13,827 33 22 13,838 11
Other debt securities 1,254 7 1,261 7
Mortgage-backed securities 216 6 222 6
- - - ------------------------------------------------------------------------------------------------------
$21,295 $95 $33 $21,357 $62
======================================================================================================
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
1995
- - - -------------------------------------------------------------------------------------------------------------------------
Gross Gross Net
Amortized unrealized unrealized Fair unrealized
(Dollars in Thousands) cost gains losses value gain
- - - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government obligations $5,998 $136 $6,134 $136
Federal agency obligations 10,678 44 $27 10,695 17
Other debt securities 1,259 28 1,287 28
Mortgage-backed securities 274 12 286 12
- - - -------------------------------------------------------------------------------------------------------------------------
$18,209 $220 $27 $18,402 $193
=========================================================================================================================
</TABLE>
During 1996 and 1995 there were no sales of investment securities
classified as held to maturity.
<TABLE>
Investment securities available for sale at December 31 are as follows:
<CAPTION>
1996
- - - -------------------------------------------------------------------------------------------------------------------------
Gross Gross Net
Amortized unrealized unrealized Fair unrealized
(Dollars in Thousands) cost gains losses value gain/(loss)
- - - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government obligations $1,985 $5 $1,990 $5
Federal agency obligations 2,500 3 $38 2,465 (35)
Equity securities 1,111 14 1,125 14
Mortgage-backed securities 8,961 154 8,807 (154)
- - - -------------------------------------------------------------------------------------------------------------------------
$14,557 $22 $192 $14,387 $(170)
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1995
- - - -------------------------------------------------------------------------------------------------------------------------
Gross Gross Net
Amortized unrealized unrealized Fair unrealized
(Dollars in Thousands) cost gains losses value gain/(loss)
- - - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government obligations $3,349 $39 $2 $3,386 $37
Federal agency obligations 4,199 79 4,120 (79)
Other debt securities 253 4 257 4
Equity securities 645 11 656 11
Mortgage-backed securities 8,799 142 8,941 142
- - - -------------------------------------------------------------------------------------------------------------------------
$17,245 $196 $81 $17,360 $115
=========================================================================================================================
</TABLE>
During 1996 and 1995, the Corporation recognized gross gains on
securities available for sale totaling $112,000 and $145,000,
respectfully, from the sale of mortgage-backed securities.
The contractual maturities of securities, other than equity
securities, as of December 31, 1996 are summarized in the following
tables. Actual maturities may differ from contractual maturities
because certain issuers have the right to call or prepay
obligations.
For the purposes of the maturity table, mortgage-backed securities,
which are not due at a single maturity date, have been allocated
over maturity groupings based on the contractual maturities of
underlying collateral. The mortgage- backed securities may mature
earlier than their contractual maturities because of principal
repayments.
<TABLE>
<CAPTION>
Amortized Fair Percent
(Dollars in Thousands) cost value of total
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Held to Maturity:
Within 1 year $4,754 $4,767 22%
Over 1 year to 5 years 15,325 15,368 72
Over 5 years to 10 years 1,000 1,001 5
Over 10 years 216 221 1
- - - ------------------------------------------------------------------------------------------------------------
Total bond and debt obligations $21,295 $21,357 100%
============================================================================================================
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
Amortized Fair Percent
(Dollars in Thousands) cost value of total
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Available for Sale:
Within 1 year $2,485 $2,485 19%
Over 1 year to 5 years 2,000 1,970 15
Over 10 years 8,961 8,807 66
- - - ------------------------------------------------------------------------------------------------------------
Total bond and
debt obligations $13,446 $13,262 100%
============================================================================================================
</TABLE>
Securities totaling $11,122,000 at December 31, 1996 were pledged to
secure public deposits, repurchase agreements and for other purposes
as required by law.
3 - Loans and Allowance for Loan Losses
Loans consisted of the following at December 31:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995
- - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $35,523 $35,116
Real estate construction 6,071 7,550
Real estate 158,835 140,693
Consumer 15,093 8,896
Lease financing 230
- - - -----------------------------------------------------------------------------------------------------------------
215,522 192,485
Allowance for loan losses (2,481) (3,707)
Deferred loan origination fees (315) (340)
- - - -----------------------------------------------------------------------------------------------------------------
$212,726 $188,438
=================================================================================================================
</TABLE>
<TABLE>
Changes in the allowance for loan losses are summarized as follows:
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
- - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $3,707 $3,325 $3,472
Provision for loan losses 868 2,690 1,473
Loans charged off (2,463) (2,483) (1,869)
Recoveries 369 175 249
- - - -----------------------------------------------------------------------------------------------------------------
$2,481 $3,707 $3,325
=================================================================================================================
</TABLE>
The aggregate principal balance of non-accrual loans was $2,079,000,
$6,180,000 and $4,890,000 at December 31, 1996, 1995 and 1994,
respectively. Contractual interest income which was not recognized
on such non-accrual loans was $178,000, $354,000 and $342,000 for
1996, 1995 and 1994, respectively. The only income included in the
results of operations for these non- accrual loans was $20,000
during 1994.
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
The Corporation did not sell any loans with recourse during 1996 or
1995. The remaining recourse exposure on prior sales was $3,902,000
at December 31, 1996. 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 $170,372,000 in real estate loans at December 31, 1996,
$121,132,000 are collateralized by 1-4 family dwellings. 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 $49,240,000 in
outstanding principal at December 31, 1996. 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 $3 5,523,000 at December 31, 1996 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 normal risk of 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:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1996 1995
- - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $1,334 $687
New loans granted 389 1,268
Repayments of principal (561) (621)
- - - -----------------------------------------------------------------------------------------------------------------
Balance at end of year $1,162 $1,334
=================================================================================================================
</TABLE>
The Corporation restructured loans totaling $0, $439,000 and
$501,000 at December 31, 1996, 1995 and 1994, respectively, which
resulted in interest rates being reduced. The reduction of interest
income in these years was not material.
At December 31, 1996, the recorded investment in impaired loans was
$1,836,000, for which no additional specific allowance for loan
losses was recorded. For the twelve months ended December 31, 1996
and 1995, the average recorded investment in impaired loans was
$3,267,000 and $2,201,000, respectively. Interest income recognized
during 1996 on impaired loans was not significant.
The Corporation had no commitments to lend additional funds to
borrowers having loans which are on non-accrual, impaired or
restructured.
The Corporation services loans for others which are not included in
the consolidated balance sheets. The unpaid balances of these loans
totaled $136,713,000 and $153,923,000 at December 31, 1996 and 1995,
respectively.
4 - Property and Equipment
<TABLE>
Major classes of property and equipment at December 31 are
summarized as follows:
<CAPTION>
Estimated
(Dollars in Thousands) 1996 1995 Lives
- - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property (including
land of $1,029) $2,973 $2,686 30-40 years
Furniture and equipment 5,039 6,387 3-10 years
Motor vehicles 103 157 3 years
Leasehold and building
improvements 2,401 1,780 5-15 years
- - - ----------------------------------------------------------------------------------------------------------------------------
10,516 11,010
- - - ----------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation 6,177 7,367
- - - ----------------------------------------------------------------------------------------------------------------------------
$4,339 $3,643
============================================================================================================================
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
5 - Other Real Estate Owned
<TABLE>
At December 31, other real estate owned consisted of properties
acquired through foreclosure as follows:
<CAPTION>
(Dollars in Thousands) 1996 1995
- - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate acquired through foreclosure $337 $1,300
============================================================================================================================
</TABLE>
<TABLE>
Changes in the allowance for other real estate owned losses are
summarized as follows:
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
- - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $65 $231 $440
Provision for other real estate owned charged to operations 390 224 760
Write-downs (net of payments) (260) (390) (969)
- - - ----------------------------------------------------------------------------------------------------------------------------
Balance, end of year $195 $65 $231
============================================================================================================================
</TABLE>
Certain sales of other real estate owned were financed by the Bank,
aggregating approximately $667,000 and $340,000 in 1996 and 1995,
respectively. Net non cash transfer of loans to other real estate
owned were $1,115,000, $375,000 and $276,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
6 - Deposits
<TABLE>
Deposit accounts by type as of December 31 are summarized as follows:
<CAPTION>
(Dollars in Thousands) 1996 1995
- - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Demand deposit $44,715 $43,981
Regular - Savings 34,770 31,928
N.O.W. 18,381 17,113
Money market deposits 12,493 15,027
IRA's 27,575 27,542
Other time deposits 117,557 92,371
- - - ----------------------------------------------------------------------------------------------------------------------------
$255,491 $227,962
============================================================================================================================
</TABLE>
At December 31, 1996, the scheduled maturities of other time
deposits and IRA deposits with a fixed maturity are as follows:
(Dollars in Thousands)
- - - ---------------------------------------------
1997 $104,943
1998 20,320
1999 5,619
2000 1,828
2001 and thereafter 2
- - - ---------------------------------------------
$132,712
=============================================
Certificates of deposit with balances greater than or equal to
$100,000 amounted to $17,397,000 and $12,954,000 as of December 31,
1996 and 1995, respectively. Interest paid on these deposits
totaled approximately $802,000 and $695,000, respectively. At
December 31, 1996, investment securities totaling $500,000 are
pledged to secure deposits of the Trust Department.
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
7 - Borrowed Funds
<TABLE>
Borrowed funds as of December 31 are as follows:
<CAPTION>
(Dollars in Thousands) 1996 1995
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Short Term Borrowings:
Securities sold under agreements
to repurchase $6,838 $6,621
Purchased federal funds 220 190
Treasury tax and loan notes 1,711 366
- - - ---------------------------------------------------------------------------------------------------
$8,769 $7,177
===================================================================================================
</TABLE>
The securities pledged under the repurchase agreements include U.S.
Government and Federal agency obligations which were under the
control of the Corporation. At December 31, 1996, the book balance
was $7,121,000 and the fair value was $7,093,000. The above short
term borrowings mature daily.
<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) 1996 1995 1994
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at year end $8,769 $7,177 $8,625
Average amount outstanding 8,603 7,107 6,896
Maximum amount outstanding at any month-end 12,294 9,675 13,961
Average interest rate for the year 2.95% 3.78% 2.90%
Average interest rate on year-end balance 2.89 3.38 4.20
</TABLE>
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, 1996 or 1995. The Bank had additional short term borrowing
capacity through the Federal Home Loan Bank of $9,746,000 through
its Ideal Way program that was unused at year end 1996.
8 - Income Taxes
<TABLE>
The income tax provisions (benefits) were as follows:
<CAPTION>
(Dollars in Thousands) 1996 1995 1994
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax:
Federal $917 $148 $25
State 317 204 316
- - - ---------------------------------------------------------------------------------------------------
Total current 1,234 352 341
- - - ---------------------------------------------------------------------------------------------------
Deferred tax (benefit):
Deferred taxes 461 728
Change in valuation allowance for deferred tax assets (101) (771)
- - - ---------------------------------------------------------------------------------------------------
Total deferred 360 728 (771)
- - - ---------------------------------------------------------------------------------------------------
Total income tax provision (benefit) $1,594 $ 1,080 $(430)
===================================================================================================
</TABLE>
<TABLE>
The differences between the effective tax rate and the federal
statutory tax rate on income before taxes are reconciled as follows:
<CAPTION>
1996 1995 1994
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
Reduction in valuation allowance for deferred tax asset (44.2)
State income taxes, net of federal benefit 7.0 8.0 12.0
Deferred tax benefits realized currently (10.5) (17.0)
Other (9.4)
- - - ---------------------------------------------------------------------------------------------------
41.0% 31.5% (24.6)%
===================================================================================================
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
<TABLE>
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:
<CAPTION>
(Dollars in Thousands) 1996 1995
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $36
Other real estate owned $81 61
Deferred loan fees 131 143
State tax net operating loss carryforward 168 182
Non-accrual interest 159 210
Unrealized gain/loss on securities 71
Other 26 11
- - - ---------------------------------------------------------------------------------------------------
Total gross deferred tax assets 636 643
Valuation allowance (101)
- - - ---------------------------------------------------------------------------------------------------
Net deferred tax assets 535 643
- - - ---------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Bond accretion 25 24
Unrealized gain on securities 48
Depreciation 153 10
Allowance for loan losses 440
Leases, net of residual value 146
Deferred FNMA premium 16
Prepaid pension 9 35
- - - ---------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 627 279
- - - ---------------------------------------------------------------------------------------------------
Net deferred tax (liability) asset $(92) $364
===================================================================================================
</TABLE>
As of December 31, 1995, the state net operating loss carryforward
to future periods amounted to approximately $2,042,000.
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 recorded valuation allowance.
9 - Pension Plan
The Bank has a 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 1996, 1995 and 1994 amounted to $213,000,
$216,000 and $216,000, respectively. At May 31, 1996, the most
recent plan year, total plan assets were $2,330,000 and the vested
balance was $2,271,000. The pension plan assets are invested in
money market funds, government bonds, corporate and government
agency bonds and marketable securities.
10 - Stock Options
On January 1, 1996 the Corporation adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement
encourages, but does not require, employers to adopt a fair value
method of accounting for employee stock-based compensation. The
Corporation continues to account for stock-based compensation using
the intrinsic value under Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees." Regardless of the method
used for employee stock-based arrangements, SFAS No. 123 requires
increased disclosures of stock-based compensation arrangements with
employees. The Corporation has adopted SFAS No. 123 through a
separate disclosure to the financial statements.
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
The Corporation has three fixed option plans which reserve shares of
common stock for issuance to executives, key employees and
directors. The Corporation has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." During 1996, 1995 and
1994 no compensation cost was required to be recognized for the
stock option plans. Had compensation costs for the Corporation's
three stock option plans been determined based on the fair value at
the grant date for awards in 1996 and 1995 consistent with the
provisions of SFAS No. 123, the Corporation's net earnings and
earnings per share would have been as follows:
<TABLE>
<CAPTION>
1996 1995
- - - ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings - as reported $2,248,000 $2,353,000
Net earnings - pro forma $1,966,000 $2,297,000
Earnings per share - as reported $.66 $.72
Earnings per share - pro forma $.58 $.70
</TABLE>
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,
1995, 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:
<TABLE>
<CAPTION>
1996 1995 1994
- - - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at the beginning of year 307,706 325,949 134,916
Options granted at fair value:
at $6.00 200,000
Options exercised:
at $2.00 (16,268) (8,142) (7,264)
at $2.50 (9,200) (8,200) (600)
at $6.00 (5,116)
Options canceled (1,901) (1,103)
- - - ---------------------------------------------------------------------------------------------
Options outstanding at the end of year 277,122 307,706 325,949
=============================================================================================
</TABLE>
Unless exercised the options will expire ten years after granting.
No options are available for future grants.
<TABLE>
The Corporation adopted a Directors Stock Option Plan during 1995
which was approved at the 1995 Annual Meeting of Shareholders. The
following is a summary of the changes in options outstanding under
the Directors Stock Option Plan:
<CAPTION>
1996 1995
- - - ---------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at the beginning of the year 92,000
Options authorized during 1995 125,000
Options granted and exercisable at fair value $6.00 (33,000)
Options granted and exercisable at fair value $7.125 (11,000)
- - - ---------------------------------------------------------------------------------------------
Options available for future grants 81,000 92,000
=============================================================================================
</TABLE>
Unless exercised, the options will expire twenty years after granting.
<TABLE>
The Corporation adopted an incentive stock option plan during 1996
for directors and employees, which was approved at the 1996 Annual
Meeting of Shareholders. The following is a summary of the changes
in the 1996 Incentive Stock Option Plan:
<CAPTION>
1996
- - - ---------------------------------------------------------------------------------------------
<S> <C>
Options outstanding at the beginning of the year
Options authorized during 1996 178,500
Options granted and exercisable to directors at $8.00 (11,000)
Options granted and exercisable to employees at $8.125 (122,500)
- - - ---------------------------------------------------------------------------------------------
Options available for future grants 45,000
=============================================================================================
</TABLE>
Unless exercised, director stock options will expire twenty years
after grant, while employee options will expire ten years after
grant.
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
11 - Leases
The Corporation leases certain facilities under long-term operating
lease agreements. The following is a schedule of future minimum
lease payments for such operating leases as of December 31, 1996:
(Dollars in Thousands)
- - - ---------------------------------------------------------
1997 $236
1998 204
1999 204
2000 204
2001 232
After 2001 1,655
- - - ---------------------------------------------------------
Total minimum lease payments $2,735
=========================================================
Rent expense for 1996, 1995 and 1994 amounted to $223,000, $116,000
and $109,000, respectively.
12 - 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.
<TABLE>
The following table summarizes the contractual value of financial
instruments and other commitments at December 31:
<CAPTION>
(Dollars in Thousands) 1996 1995
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to grant loans $7,100 $6,682
Stand-by letters of credit and financial guarantees 812 1,658
Commitments to advance funds under existing loan agreements 28,719 23,900
</TABLE>
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 condition or results
of operations.
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
13 - Other Non-Interest Income and Expense
<TABLE>
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:
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1996 1995 1994
- - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Loan servicing fees $484 $513 $499
Insurance recovery 703
Expenses:
Computer operations and supplies 232 379
Service bureau expense 556 542 102
Federal Deposit Insurance
Corporation assessment 433 584
Professional fees 322 260 329
Advertising 321 284 241
Unusual item 750
</TABLE>
During March 1995 the Bank discovered an alleged employee
defalcation of approximately $750,000. Included in the financial
statements for 1994 is the write-down of this unusual item, while
the 1995 financial statements reflect the recovery of this item
based on an insurance refund of $703,000 (as shown above).
14 - Stockholders' Equity and Regulatory Matters
As a federally insured banking institution, Park West is subject to
regulation by the Federal Deposit Insurance Corporation (the
"FDIC"). Since December 1995, Park West has been operating under a
Memorandum of Understanding (the "Memorandum") with the FDIC and the
Commissioner of Banks for the Commonwealth of Massachusetts (the
"Commissioner"). On December 12, 1996 the Memorandum was released.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") addresses 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.
Both the Corporation and the Bank are subject to various regulatory
capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect
on the Corporation's or Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1996, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Bank as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, Tier I
leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have
changed the institution's category.
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
<TABLE>
The Corporation's and the Bank's actual capital amounts and ratios
are also presented in the following table:
<CAPTION>
Minimum Capital
to be considered
well capitalized
under Prompt
For Minimum Capital Corrective Action
Actual Adequacy Purposes Provisions
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
- - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital
(To risk weighted assets):
Bank $21,544 11.41% $15,105 8.00% $18,817 10.00%
Holding Company 22,112 11.69 15,132 8.00 N/A N/A
Tier I Capital
(To risk weighted assets):
Bank 19,182 10.16 7,552 4.00 11,328 6.00
Holding Company 19,745 10.43 7,572 4.00 N/A N/A
Tier I Capital
(To average assets):
Bank 19,182 6.93 11,072 4.00 16,608 5.00
Holding Company 19,745 7.12 11,092 4.00 N/A N/A
As of December 31, 1995
Total Capital
(To risk weighted assets):
Bank 19,613 11.07 14,173 8.00 17,717 10.00
Holding Company 19,939 11.24 14,191 8.00 N/A N/A
Tier I Capital
(To risk weighted assets):
Bank 17,380 9.81 7,087 4.00 10,630 6.00
Holding Company 17,703 9.98 7,095 4.00 N/A N/A
Tier I Capital
(To average assets):
Bank 17,380 6.87 10,119 4.00 12,649 5.00
Holding Company 17,703 6.89 10,278 4.00 N/A N/A
</TABLE>
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.
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
15 - 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, 1996 and 1995, the ESOP held no shares
of the Corporation's stock.
16 - 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>
1996 1995
- - - ------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(Dollars in Thousands) Amount Fair Value Amount FairValue
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $10,511 $10,511 $11,251 $11,251
Federal funds sold 12,890 12,890 900 900
Investment securities held to maturity 21,295 21,357 18,209 18,402
Investment securities available for sale 14,387 14,387 17,360 17,360
Loans 218,192 217,991 197,264 199,623
Accrued interest receivable 1,636 1,636 1,658 1,658
Liabilities:
Deposits 255,491 255,579 227,962 228,550
Borrowed funds 8,769 8,769 7,177 7,177
Interest payable on deposits 328 328 309 309
</TABLE>
Cash and Due from Banks and Federal Funds Sold
The carrying amount for cash and due from banks and for federal
funds sold approximates fair value and mature in 90 days or less.
Investment Securities
The fair value of securities, except certain state and municipal
securities, is estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers.
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, including
loans held for sale, 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.
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
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, NOW accounts,
and money market 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. For short-term borrowings the carrying amount
approximates the fair value due to their short-term nature.
Commitments to Extend Credit
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.
17 - Summary of Unaudited Quarterly Financial Information
<TABLE>
<CAPTION>
1996 1995
- - - -----------------------------------------------------------------------------------------------------------------------------------
(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 $4,952 $5,053 $5,190 $5,405 $20,600 $4,766 $5,119 $5,338 $5,038 $20,261
Interest expense 2,071 2,147 2,242 2,298 8,758 1,926 2,211 2,278 2,125 8,540
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 2,881 2,906 2,948 3,107 11,842 2,840 2,908 3,060 2,913 11,721
Provision for loan losses 140 352 176 200 868 450 350 1,190 700 2,690
Non-interest income 604 551 489 496 2,140 512 523 599 1,283 2,917
Non-interest expense 2,352 2,250 2,267 2,403 9,272 2,112 2,250 1,780 2,373 8,515
- - - -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 993 855 994 1,000 3,842 790 831 689 1,123 3,433
Income tax expense (benefit) 429 350 421 394 1,594 (65) 284 354 507 1,080
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net income $564 $505 $573 $606 $2,248 $855 $547 $335 $616 $2,353
Net earnings per share $.17 $.15 $.17 $.17 $.66 $.26 $.17 $.10 $.19 $.72
===================================================================================================================================
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (continued)
Westbank Corporation and Subsidiaries
18 - Condensed Parent Company Only Financial Statements
<TABLE>
December 31,
<CAPTION>
(Dollars in Thousands) 1996 1995
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance Sheets
Assets
Cash $30 $13
Investment in subsidiaries 19,083 17,445
Other investments 333 245
Other assets 307
- - - ------------------------------------------------------------------------------------------------------------------------
Total assets $19,753 $17,703
========================================================================================================================
Liabilities $8
Stockholders' equity
Preferred stock - none
Common stock, par value $2 per share $6,694 $6,443
Additional paid-in capital 7,633 7,141
Retained earnings 5,418 4,119
- - - ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 19,745 17,703
- - - ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $19,753 $17,703
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statements of Income
Dividend from subsidiary $520 $429
Interest income 19 8
Other income (expense) - net (117) (33) $(20)
- - - ------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and
undistributed income of subsidiaries 422 404 (20)
Income tax benefit 24
Undistributed income of subsidiaries 1,802 1,949 2,195
- - - ------------------------------------------------------------------------------------------------------------------------
Net income $2,248 $2,353 $2,175
========================================================================================================================
1996 1995 1994
- - - ------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Cash flows from operating activities:
Net income $2,248 $2,353 $2,175
Operating Activities:
Equity in income of subsidiaries (1,802) (1,949) (2,195)
Increase in other assets (307)
Increase in other liabilities 8
- - - ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 147 404 (20)
- - - ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investment securities (88) (190) (19)
- - - ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from stock options exercised 86 37 16
Proceeds from dividend reinvestment and optional
stock purchases 657 394 25
Dividends paid (785) (634)
- - - ------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (42) (203) 41
- - - ------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 17 11 2
Cash and cash equivalents at the beginning of
the year 13 2
- - - ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $30 $13 $2
========================================================================================================================
</TABLE>
<PAGE>
Corporate Directory
Westbank Corporation and Subsidiaries
A Tribute To
John E. Fitzgerald and Russell Mawdsley
The retirement of John E. Fitzgerald, one of the Bank's founding
Directors, brought to a close a 35-year career at Westbank Corporation.
Russell Mawdsley joined Westbank as a result of the merger of Park
national Bank of Holyoke into Westbank on July 16, 1976. Both Jack
and Russ servced with distinction on various corporate committees
including the Executive Committee. We are greateful to them for their
many contributions, integrity and hard work, during a period of great
change for the banking industry.
Directors
Westbank Corporation
Alfred C. Whitaker
Chairman of the Board
Westbank Corporation
Sales Consultant
Roland O. Archambault
Owner
Park Supply Company
Mark A. Beauregard
Attorney at Law
Resnic, Beauregard, Waite & Driscoll
David R. Chamberland
President
Chicopee Building Supply, Inc.
Donald R. Chase
President and Chief Executive Officer
Westbank Corporation
President and Chief Executive Officer
Park West Bank and Trust Company
John E. Fitzgerald
Private Investor
Leroy F. Jarrett
President and Treasurer
New England Church Interiors
Ernest N. Laflamme, Jr.
Treasurer
City of Chicopee
President
Laflamme Oil Co.
Russell Mawdsley
President and Treasurer
Russell-Hall, Inc.
Paul J. McKenna, D.M.D.
Orthodontist
Robert J. Perlak
Private Investor
James E. Tremble
President
Valley Cinema, Inc.
Park West Bank and Trust Company
Roland O. Archambault
Owner
Park Supply Company
Mark A. Beauregard
Attorney at Law
Resnic, Beauregard, Waite & Driscoll
David R. Chamberland
President
Chicopee Building Supply, Inc.
Donald R. Chase
President and Chief Executive Officer
Park West Bank and Trust Company
President and Chief Executive Officer
Westbank Corporation
John E. Fitzgerald
Private Investor
Leroy F. Jarrett
President and Treasurer
New England Church Interiors
Ernest N. Laflamme, Jr.
Treasurer
City of Chicopee
President
Laflamme Oil Co.
Russell Mawdsley
President and Treasurer
Russell-Hall, Inc.
Paul J. McKenna, D.M.D.
Orthodontist
Robert J. Perlak
Private Investor
James E. Tremble
President
Valley Cinema, Inc.
Alfred C. Whitaker
Sales Consultant
Officers
Westbank Corporation
Alfred C. Whitaker
Chairman of the Board
Assistant Corporate Clerk
Ernest N. Laflamme, Jr.
Vice Chairman of the Board
Robert J. Perlak
Corporate Clerk
Donald R. Chase
President and Chief Executive Officer
John M. Lilly
Treasurer and Chief Financial Officer
Park West Bank and Trust Company
Donald R. Chase
President and Chief Executive Officer
Robert J. Perlak
Corporate Clerk
Alfred C. Whitaker
Assistant Clerk
Finance Division
John M. Lilly
Executive Vice President and Treasurer
Irving M. Walker, Jr., CMA
Accounting Officer
Loan Division
Gary L. Briggs
Executive Vice President
Paul M Accorsi
Vice president
David M. Barszcz
Vice President
Clifford R. Bordeaux
Assistant Vice President
Gerard E. Drapeau
Vice President
Richard N. Hanchett
Vice President
Allen J. Miles
Vice President
John E. O'Brien
Loan Operations Officer
Residential Real Estate
Stanley F. Osowski
Senior Vice President
Wolfgang A. Adametz
Vice President
Elizabeth A. Wilk
Assistant Vice President
Loan Credit & Collection
Trenton E. Taylor
Senior Vice President
EDP/Operations Division
Roger M. Roberge
EDP Officer
Marketing
Joseph L. Rolak
Director of Marketing and Vice President
Compliance
Jane M. Knapp
Vice President
Branch Administration/
Human Resources
Kathleen A. Jalbert
Senior Vice President
H. Ellen Bellows
Branch Manager
Auditing Division
Lloyd S. Hall, CBA
Director of Auditing
Trust Division
Robert A. Gibowicz
Senior Trust Officer
<PAGE>
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 16, 1997 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.
Design: Robert Farrell Associates, Inc./Printing Sterling Press
Common Stock - Market Information
<TABLE>
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:
<CAPTION>
1996 1995
Bid Bid
High Low Dividend High Low Dividend
<S> <C> <C> <C> <C> <C> <C>
First $8 1/4 $6 3/4 $0.06 $7 1/8 $5 $0.05
Second 8 3/4 7 5/8 0.06 6 7/8 6 1/8 0.05
Third 8 3/8 7 1/4 0.06 7 1/4 6 1/2 0.05
Fourth 9 3/4 7 1/2 0.06 7 1/8 6 3/4 0.05
</TABLE>
The above quotations of the Corporation's common stock represent
prices between dealers. They do not include retail markup, markdown
or commissions.
At January 31, 1997 the Corporation had 1,097 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.
Herzog, Heine, Geduld, Inc.
McConnell, Budd & Downes, Inc.
Ryan, Beck & Co., Inc.
<PAGE>
EXHIBIT INDEX
21. SUBSIDIARIES OF THE REGISTRANT
1. Park West Bank and Trust Company - Massachusetts
1. Lorac Leasing Corp. - Massachusetts
2. P W B & T, Inc. - Massachusetts
3. Park West Securities Corporation - Massachusetts
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000742070
<NAME> WESTBANK CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10463
<INT-BEARING-DEPOSITS> 48
<FED-FUNDS-SOLD> 12890
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14387
<INVESTMENTS-CARRYING> 21295
<INVESTMENTS-MARKET> 21357
<LOANS> 220673
<ALLOWANCE> 2481
<TOTAL-ASSETS> 284909
<DEPOSITS> 255491
<SHORT-TERM> 8769
<LIABILITIES-OTHER> 904
<LONG-TERM> 0
0
0
<COMMON> 19745
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 284909
<INTEREST-LOAN> 17942
<INTEREST-INVEST> 2383
<INTEREST-OTHER> 275
<INTEREST-TOTAL> 20600
<INTEREST-DEPOSIT> 8503
<INTEREST-EXPENSE> 8758
<INTEREST-INCOME-NET> 11842
<LOAN-LOSSES> 868
<SECURITIES-GAINS> 112
<EXPENSE-OTHER> 9272
<INCOME-PRETAX> 3842
<INCOME-PRE-EXTRAORDINARY> 2248
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2248
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
<YIELD-ACTUAL> 4.73
<LOANS-NON> 2079
<LOANS-PAST> 282
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2361
<ALLOWANCE-OPEN> 3707
<CHARGE-OFFS> 2463
<RECOVERIES> 369
<ALLOWANCE-CLOSE> 2481
<ALLOWANCE-DOMESTIC> 2481
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
