UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number 0 - 12784
WESTBANK CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04 - 2830731
(State or other jurisdiction of inc. or org.) (I.R.S. Employer I.D. No.)
225 Park Avenue, West Springfield, Massachusetts 01090-0149
(Address of principal executive offices) (Zip Code)
(413) 747-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months ( or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Common stock, par value $2 per share: 3,780,531 shares
outstanding as of July 31, 1998.
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Comprehensive Income 5
Condensed Consolidated Statements of Stockholders' Equity 6
Condensed Consolidated Statements of Cash Flows 7
Notes to Condensed Consolidated Financial Statements 8-9
Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 19
ITEM 2. Changes in Rights of Securities Holders 19
ITEM 3. Defaults by Company on its Senior Securities 19
ITEM 4. Results of Votes on Matters Submitted to a Vote
of Security Holders 19
ITEM 5. Other events 19
ITEM 6. Exhibits and Reports on Form 8-K 20
Signatures 21
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands) June 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------
ASSETS
Cash and due from banks:
Non-interest bearing $ 11,554 $ 9,603
Interest bearing 114 79
Federal Funds sold 14,561 3,678
- -------------------------------------------------------------------------------
Total cash and cash equivalents 26,229 13,360
- -------------------------------------------------------------------------------
Investment securities available for sale 28,446 20,088
Investment securities held to maturity
(fair value of $33,184 in 1998 and $34,655 in 1997) 33,097 34,503
- -------------------------------------------------------------------------------
Total securities 61,543 54,591
- -------------------------------------------------------------------------------
Loans $252,957 $231,012
Mortgage loans held-for-sale 2,931 4,251
Allowance for loan losses (2,504) (2,848)
- -------------------------------------------------------------------------------
Net-loans 253,384 232,415
Bank premises and equipment 5,023 4,474
Accrued interest receivable 2,182 1,968
Other assets 2,561 1,457
- -------------------------------------------------------------------------------
TOTAL ASSETS $350,922 $308,265
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 45,890 $ 48,638
Interest bearing 258,762 222,922
- -------------------------------------------------------------------------------
Total Deposits 304,652 271,560
Borrowed funds 11,552 11,884
Federal Home Loan borrowing 7,000 0
Accrued interest payable 467 379
Other liabilities 1,207 691
- -------------------------------------------------------------------------------
Total Liabilities 324,878 284,514
- -------------------------------------------------------------------------------
Stockholders' Equity:
Common stock - $2 par value
Authorized - 9,000,000 shares
Issued - 3,767,313 shares in 1998 and
3,581,377 shares in 1997 7,535 7,163
Additional paid in capital 9,748 8,819
Retained earnings 8,683 7,708
Accumulated other comprehensive income 78 61
- -------------------------------------------------------------------------------
Total Stockholders' Equity 26,044 23,751
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $350,922 $308,265
===============================================================================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-98 06-30-97 06-30-98 06-30-97
- -------------------------------------------------------------------------------
Income:
Interest and fees on loans $ 5,152 $ 4,869 $ 10,131 $ 9,512
Interest and dividend income
on securities 999 792 1,826 1,462
Interest on temporary investments 113 37 149 152
- -------------------------------------------------------------------------------
Total interest and dividend income 6,264 5,698 12,106 11,126
Interest expense 2,982 2,534 5,561 4,945
- -------------------------------------------------------------------------------
Net interest income 3,282 3,164 6,545 6,181
Provision for loan losses 0 40 19 190
- -------------------------------------------------------------------------------
Net interest income after provision
for loan losses 3,282 3,124 6,526 5,991
- -------------------------------------------------------------------------------
Gain on securities available for sale 139 139
Other non-interest income 459 485 1,067 991
- -------------------------------------------------------------------------------
Total non-interest income 598 485 1,206 991
- -------------------------------------------------------------------------------
Non-interest expense:
Salaries and benefits 1,230 1,139 2,455 2,267
Other non-interest expense 1,033 961 2,038 1,903
Occupancy - net 195 223 420 446
- -------------------------------------------------------------------------------
Total non-interest expense 2,458 2,323 4,913 4,616
- -------------------------------------------------------------------------------
Income before income taxes 1,422 1,286 2,819 2,366
Income taxes 537 549 1,095 992
- -------------------------------------------------------------------------------
Net Income $ 885 $ 737 $ 1,724 $ 1,374
===============================================================================
Net income per share
-Basic $ 0.24 $ 0.21 $ 0.46 $ 0.40
-Diluted $ 0.23 $ 0.21 $ 0.45 $ 0.39
Weighted average shares outstanding
-Basic 3,763,504 3,473,046 3,744,757 3,473,046
-Dilutive option shares 111,192 81,079 105,138 70,039
-Diluted 3,874,696 3,554,125 3,849,895 3,543,085
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(Unaudited)
(Dollar amounts in thousands)
QUARTER ENDED SIX MONTHS ENDED
06-30-98 06-30-97 06-30-98 06-30-97
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $885 $737 $1,724 $1,374
Other comprehensive income:
Unrealized gain/(loss) on securities
available for sale, net of income taxes
(benefits) of $34 and $105 for the
quarter and $42 and $(20) for the
six month period ended June 30, 1998
and 1997, respectively. $50 $156 $64 $28
Less: reclassification adjustment for
gains included in net income, net of
income taxes of $31 for the three and
six month periods ended June 30, 1998. 47 0 47 0
- ----------------------------------------------------------------------------------------
Other comprehensive income 3 156 17 28
- ----------------------------------------------------------------------------------------
Comprehensive Income $888 $893 $1,741 $1,402
========================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997 AND SIX MONTHS ENDED JUNE 30, 1998
(1998 Unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMREHENSIVE
NUMBER OF PAR PAID IN RETAINED INCOME/
SHARES VALUE CAPITAL EARNINGS (LOSS) TOTAL
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE-DECEMBER 31, 1996 3,346,802 $ 6,694 $ 7,633 $ 5,517 $ (99) $ 19,745
Net income - - - 3,231 - 3,231
Cash dividends declared
($.30 per share) - - - (1,040) - (1,040)
Shares issued:
Stock Option Plan 88,156 176 94 - - 270
Dividend Reinvestment
and Stock Purchase Plan 146,419 293 1,092 - - 1,385
Changes in unrealized gain on
securities available for sale - - - - 160 160
- ----------------------------------------------------------------------------------------------
BALANCE-DECEMBER 31, 1997 3,581,377 7,163 8,819 7,708 61 23,751
Net income 1,724 1,724
Cash dividend declared
($.20 per share) (749) (749)
Shares issued:
Stock Option Plan 164,257 328 665 993
Dividend Reinvestment
and Stock Purchase Plan 21,679 44 264 308
Changes in unrealized gain on
securities available for sale 17 17
- ----------------------------------------------------------------------------------------------
BALANCE-JUNE 30, 1998 3,767,313 $ 7,535 $ 9,748 $ 8,683 $ 78 $ 26,044
==============================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $1,724 $1,374
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 19 190
Depreciation and amortization 377 327
Provision for other real estate owned 22 23
Changes in assets and liabilities:
(Increase) Decrease in accrued interest receivable (214) (359)
Realized gain on sale of securities (139)
Realized (gain) loss on sale of other real estate owned (30)
Realized (gain) loss on sale of equipment (14)
Increase (decrease) in interest payable on deposits 88 43
(Increase) decrease in other assets (1,104) (216)
Increase (decrease) in other liabilities 516 557
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 1,259 1,925
- ------------------------------------------------------------------------------------
Investing activities:
Investments and mortgage-backed securities:
Held to maturity:
Purchases (18,485) (13,480)
Proceeds from maturities and principal payments 19,891 5,492
Available for sale:
Purchases (21,109) (4,013)
Proceeds from sales 8,607
Proceeds from maturities 4,005 861
Purchases of premises and equipment (926) (447)
Net (increase) decrease in loans (20,685) (13,164)
Proceeds from sale of equipment 14
Proceeds from sale of other real estate owned 76
- ------------------------------------------------------------------------------------
Net cash used in investing activities (28,702) (24,661)
- ------------------------------------------------------------------------------------
Financing activities:
Net increase (decrease) in other borrowed funds (332) 2,009
Increase in Federal Home Loan borrowings 7,000
Net increase (decrease) in deposits 33,092 18,871
Proceeds from exercise of stock options and stock purchase plan 1,301 620
Dividends paid (749) (515)
- ------------------------------------------------------------------------------------
Net cash used in financing activities 40,312 20,985
- ------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 12,869 (1,751)
Cash and cash equivalents at beginning of period 13,360 23,401
- ------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $26,229 $21,650
====================================================================================
Cash paid during the period:
Interest on deposits and other borrowings $5,473 $4,902
Income taxes 1,172 950
Transfers of loans to other real estate owned 247 85
Sales of other real estate owned financed by the bank 135
</TABLE>
See notes to consolidated financial statements.
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(Unaudited)
NOTE A - GENERAL INFORMATION
Westbank Corporation (hereinafter sometimes referred to as
"Westbank" or the "Corporation") is a registered Bank Holding
Company organized to facilitate the expansion and diversification of
the business of Park West Bank and Trust Company (hereinafter
sometimes referred to as "Park West" or the "Bank") into additional
financial services related to banking. Substantially all operating
income and net income of the Corporation are presently accounted for
by Park West.
NOTE B - CURRENT OPERATING ENVIRONMENT
The Bank operates twelve banking offices located in Hampden County
and also operates a Trust Department providing services normally
associated with holding property in a fiduciary or agency capacity.
A full range of retail banking services 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.
Pending regulatory approval, the Bank plans to open a full service
office in the town of Southwick, Massachusetts. The targeted
opening date for this new office is October, 1998.
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 June
30, 1998, Park West's capital was at a level that placed the Bank in
the "well capitalized" category as defined by FDICIA.
FDICIA imposes a variety of other restrictions and requirements on
insured banks. These include significant regulatory reporting
requirements such as insuring that a system of risk-based deposit
insurance premiums and civil money penalties for inaccurate deposit
assessment reports exists. In addition, FDICIA imposes a system of
regulatory standards for bank and bank holding company operations,
detailed truth in savings disclosure requirements, and restrictions
on activities authorized by state law but not authorized for
national banks.
NOTE C - MERGER AGREEMENT WITH CARGILL BANCORP, INC.
On July 15, 1998, the Corporation entered into an agreement to
acquire Cargill Bancorp, Inc., which is a Delaware corporation and
the holding company for Cargill Bank, a $47.0 million asset
financial institution headquartered in Putnam, Connecticut.
Under the terms of the agreement, Cargill Bancorp will be merged
into Westbank Corporation. Cargill Bancorp will retain its local
identity and remain a separate subsidiary of Westbank Corporation.
Each share of Cargill Bancorp common stock will be exchanged for
1.3008 shares of Westbank common stock, provided that the average
closing price of Westbank's common stock during the 20-day pricing
period ending five days before the last regulatory approval is
obtained is greater than or equal to $13.07. If Westbank's average
closing price is less than $13.07 but greater than or equal to
$12.00, then Cargill Bancorp shareholders will receive shares of
Westbank common stock having a value of $17.00 per share. Cargill
Bancorp has certain rights to terminate the agreement if Westbank's
average closing price is below $12.00 per share unless Westbank
agrees to deliver shares of Westbank common stock having a value of
$17.00 in exchange for each share of Cargill Bancorp common stock.
The merger is subject to approval of Cargill Bancorp shareholders
and the receipt of regulatory approval.
<PAGE>
NOTE D - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements for the quarter and six months ended June 30, 1998 and
1997 have been prepared in accordance with generally accepted
accounting principles for interim information and with instructions
for Form 10-Q. Accordingly, they do not include all of the
information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the quarter and six month period
ended June 30, 1998, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.
For further informatimn, please refer to the Consolidated Financial
Statements and footnotes thereto included in the Westbank
Corporation's Annual Report on Form 10-K for the year ended December
31, 1997.
NOTE E - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments
and contingent liabilities, such as, standby letters of credit and
commitments to extend credit. As of June 30, 1998 standby letters
of credit amounted to $627,000 and loan commitments were $30,609,055
and unused balances available on home equity lines of credit were
$7,864,233.
Trust Assets - Property with a book value of $115,895,000 at June
30, 1998 held for customers in a fiduciary or agency capacity, is
not included in the accompanying balance sheet since such items are
not assets of the Bank.
NOTE F - STOCKHOLDERS' EQUITY
The FDIC imposes leverage capital ratio requirements for state
non-member Banks. The Bank's leverage capital ratio as of June 30,
1998 and December 31, 1997 was 7.15% and 7.04%, respectively. In
addition, the FDIC has established risk-based capital requirements
for insured institutions of, Tier 1 risk-based capital of 4.00% and
total risk-based capital of 8.00%. The Bank's risk-based capital at
June 30, 1998, for Tier 1 was 10.72% and total risk- based capital
was 11.97%, which meets the FDIC criteria for a well-capitalized
financial institution.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Chanees in Financial Condition - Total consolidated assets amounted
to $350,922,000 on June 30, 1998, compared to $308,265,000 on
December 31, 1997. As of June 30, 1998 and June 30, 1997, earning
assets amounted to, respectively, $332,106,000 or 95% of total
assets, and $288,151,000, or 94% of total assets. Earning assets
increased during the first six months of 1998 as a result of
increases in securities, loans and temporary funds. Deposits
originated throughout the Bank's branch system, as well as a
$7,000,000, 5 year fixed rate borrowing through the Federal Home
Loan Bank provided the funds to support the increase in earning
assets.
Changes in Results of Operations - For the quarter ended June 30,
1998, net income totaled $885,000 compared to $737,000 for the
quarter ended June 30, 1997. For the six months ended June 30,
1998, net income was $1,724,000 compared to $1,374,000 for the same
period during 1997. Included in the results for the six months
ended June 30, 1998 is a gain on the sale of securities available
for sale totaling $139,000.
An overall increase in interest income and interest expense reflects
an increase in volume and decrease in interest rates on earning
assets and an increase in volume and rates on interest-bearing
deposits. Further analysis is provided in sections on net interest
revenue and supporting schedules.
Allowance for Loan Losses and Non-Performing Assets - The
Corporation did not record a provision for loan losses in the
current quarter compared to $40,000 for the same period in 1997.
Loans written off against the allowance for loan losses after
recoveries amounted to $363,000 for the six months ended June 30,
1998. During the current quarter the Corporation sold a pool of
classified loans totaling $1,772,000. As a result of the classified
loan sale the Corporation charged-off $266,000 to the allowance for
loan loss. The entire loss from the sale of classified loans had
been previously reserved for.
After giving effect to the actions described above, the allowance
for loan losses at June 30, 1998 totaled $2,504,000 or .98% of total
loans, as compared to $2,848,000 or 1.21% at December 31, 1997.
Non-performing past due loans at June 30, 1998 aggregated $492,000
or 0.19% of total loans compared to $1,226,000 or 0.52% at December
31, 1997. The percentage of non-performing and past due loans
compared to total assets on those same dates, respectively, amounted
to 0.14% and 0.27%. The change in non-performing loans was
primarily the result of the sale of classified loans described
above.
Other real estate owned at June 30, 1998 totaled $269,000 and stands
at 0.08% of total assets at the end of the current quarter.
Management has made every effort to recognize all circumstances
known at this time which could affect the collectibility of loans
and has reflected these in the provision for loan losses, the write
down of other real estate owned and impaired loans to fair value and
other loans (watch list) monitored by management, the charge-off of
loans and the balance in the allowance for loan losses. Management
deems that the provision for the quarter, and the balance in the
allowance for loan losses, are adequate based on results provided by
the loan grading system and circumstances known at this time.
Year 2000 Mindful of the need to sustain the integrity of its
computer systems as the year 2000 approaches, the Corporation has
taken steps to ensure that all systems are ready to operate
accurately on and beyond the year 2000. The Corporation fully
understands the need to prevent disruption of computer and technical
systems, and the Corporation is committed to providing its customers
with high quality service.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Year 2000(Continued)
While most of its systems are already year 2000 compliant, the
Corporation has prepared an action plan to ensure the continued
integrity of its systems beyond the turn of the century. The plan
includes the following five phases:
(1) the awareness phase; (2) the assessment phase; (3) the
renovation phase; (4) the validation phase; and (5) the
implementation phase. The Corporation is currently in the
renovation and validation phases of the plan and intends to complete
these phases by December 31, 1998.
The Corporation relies on outside providers for its core banking
software and data processing. The Corporation's plan will apply to
such vendors. To date, the Bank has incurred approximately $25,000
in year 2000 related expenses, and has estimated that capital
expenditures related to the year 2000 issue will total approximately
$300,000. The Corporation believes at this time that its efforts
are adequate to address its year 2000 concerns.
The Corporation has designed its plan to address its year 2000
concerns based upon guidance from the Federal Financial Institutions
Examining Council. In addition, the FDIC monitors the Corporation's
preparation for the year 2000 on a periodic basis.
The information presented with respect to year 2000 compliance is
forward looking information. As such, it is subject to risks and
uncertainties that would cause actual results to differ materially
from the projected results discussed in this report.
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (Continued)
NET INTEREST INCOME
The Corporation's earning assets include a diverse portfolio of
earning instruments ranging from the Corporation's core business of
loan extensions to interest-bearing securities issued by federal,
state and municipal authorities. These earning assets are financed
through a combination of interest-bearing and interest-free sources.
Net interest income, the most significant component of earnings, is
the amount by which the interest generated by assets exceeds the
interest expense on liabilities.
The Corporation analyzes its performance by utilizing the concepts
of interest rate spread and net yield on earning assets. The
interest rate spread represents the difference between the yield on
earning assets and interest paid on interest-bearing liabilities.
The net yield on earning assets is the difference between the rate
of interest on earning assets and the effective rate paid on all
funds - interest-bearing liabilities, as well as, interest-free
sources (primarily demand deposits and shareholders' equity).
The balances and rates derived for the analysis of net interest
income presented on the following pages reflect the consolidated
assets and liabilities of the Corporation's principal earning
subsidiary, Park West Bank and Trust Company.
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
06-30-98 06-30-97 06-30-98 06-30-97
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest and dividend income $6,264 $5,698 $12,106 $11,126
Interest expense 2,982 2,534 5,561 4,945
- ---------------------------------------------------------------------------------------------
Net interest income $3,282 $3,164 $6,545 $6,181
=============================================================================================
</TABLE>
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets $317,493 7.89% $279,168 8.16% $304,277 7.96% $275,149 8.09%
- ------------------------------------------------------------------------------------------------
Interest-bearing
liabilities 260,722 4.57 229,261 4.42% 247,707 4.49 225,941 4.38
- ------------------------------------------------------------------------------------------------
Interest rate spread 3.32 3.74 3.47 3.71
- ------------------------------------------------------------------------------------------------
Interest-free
resources used to
fund earning assets 56,771 49,907 56,570 49,208
- ------------------------------------------------------------------------------------------------
Total Sources of Funds $317,493 3.76 $279,168 3.63 $304,277 3.66 $275,149 3.59
================================================================================================
Net Yield on Earning Assets 4.13% 4.53% 4.30% 4.50%
================================================================================================
</TABLE>
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (Continued)
CHANGES IN NET INTEREST INCOME
(Dollar amounts in thousands)
QUARTER ENDED 06-30-98 SIX MONTHS ENDED 06-30-98
O V E R O V E R
QUARTER ENDED 06-30-97 SIX MONTHS ENDED 06-30-97
- -------------------------------------------------------------------------------
CHANGE DUE TO CHANGE DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
- -------------------------------------------------------------------------------
Interest Income:
Loans $434 $(151) $283 $749 $(130) $619
Securities 223 (16) 207 402 (38) 364
Federal funds 62 14 76 (24) 21 (3)
- -------------------------------------------------------------------------------
Total Interest Earned 719 (153) 566 1,127 (147) 980
- -------------------------------------------------------------------------------
Interest Expense:
Interest bearing deposits 285 81 366 390 120 510
Other Borrowed Funds 64 18 82 86 20 106
- -------------------------------------------------------------------------------
Total Interest Expense $349 $ 99 $448 $476 $140 $616
- -------------------------------------------------------------------------------
Net Interest Income $370 $(252) $118 $651 $(287) $364
===============================================================================
Net interest earned increased by $118,000 during the second quarter
of 1998 compared to the second quarter of 1997. For the six month
period ended June 30, 1998 net interest income increased by $364,000
versus the same period of 1997.
Average earning assets increased by $29,128,000 during the first six
months of 1998. The average earning base was $304,277,000 compared
to $275,149,000 in the same period last year.
OPERATING EXPENSES
The components of total operating expenses for the periods and their
percentage of gross income are as follows: (Dollar amounts in
thousands)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
06-30-98 06-30-97 06-30-98 06-30-97
- ----------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits $1,230 19.64% $1,139 18.42% $2,455 18.44% $2,267 18.71%
Other non-interest expense 1,033 16.50 961 15.54 2,038 15.30 1,903 15.70
Occupancy - net 195 3.11 223 3.61 420 3.16 446 3.68
- ----------------------------------------------------------------------------------------------------------------
Total Operating Expenses $2,458 39.25% $2,323 37.57% $4,913 36.90% $4,616 38.09%
================================================================================================================
</TABLE>
For the six month period ended June 30, 1998, operating expenses
increased by approximately $297,000 over the 1997 period. The
increase was a result of increases in salary and benefits totaling
$188,000 and non-interest expense totaling $135,000. The increases
are primarily the result of overall growth of the Corporation.
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (Continued)
CAPITAL RATIOS
6/30/98 6/30/97
- ------------------------------------------------------------------------------
Ratio of "Tier 1" leverage capital
to total assets at end of period 7.42% 6.90%
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. For this
Corporation, Tier 1 includes the common stockholders' equity; Tier
2, or supplementary capital, includes not only the equity, but also,
a portion of the allowance for loan losses, net unrealized
gain/(losses) on securities available for sale are not permitted to
be included for regulatory capital purposes.
The following are the Corporation's risk-based capital ratios at
June 30, 1998:
Tier 1 Capital (minimum required 4.00%) 11.69%
Tier 2 Capital (minimum required 8.00%) 12.94%
INTEREST RATE SENSITIVITY
The following table sets forth the distribution of the repricing of
the Corporation's earning assets and interest bearing liabilities as
of June 30, 1998.
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three Over Three Over One Over
Months Months to Year to Five
or Less One Year Five Years Years Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning Assets $67,643 $38,202 $94,620 $131,641 $332,106
Interest Bearing
Liabilities 91,137 86,409 99,768 0 277,314
- ----------------------------------------------------------------------------------
Interest Rate
Sensitivity Gap $(23,494) $(48,207) $(5,148) $131,641 $54,792
==================================================================================
Cumulative Interest
Rate
Sensitivity Gap $(23,494) $(71,701) $(76,849) $54,792
Interest Rate
Sensitivity
Gap Ratio (7.07)% (14.52)% (1.55)% 39.64%
Cumulative Interest
Rate Sensitivity
Gap Ratio (7.07)% (21.59)% (23.14)% 16.50%
</TABLE>
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (Continued)
LIQUIDITY
Cash and due from banks, federal funds sold, investment securities,
mortgage-backed securities and loans available for sale, as compared
to deposits and short term liabilities, are used by the Corporation
to compute its liquidity on a daily basis. At June 30, 1998, the
Corporation's ratio of such assets to total deposits and borrowed
funds was 22.93%.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
06-30-98 06-30-97 06-30-98 06-30-97
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $2,852 $2,424 $2,848 $2,481
Provision charged to expense 0 40 19 190
- -------------------------------------------------------------------------------------------
2,852 2,464 2,867 2,671
- -------------------------------------------------------------------------------------------
Charge-offs:
Loans secured by real estate 300 155 340 239
Commercial and industrial loans 40 12 47 143
Consumer loans 13 28 24 42
- -------------------------------------------------------------------------------------------
353 195 411 424
- -------------------------------------------------------------------------------------------
Recoveries:
Loans secured by real estate 2 111 27 130
Commercial and industrial loans 0 174 15 175
Consumer loans 3 6 6 8
- -------------------------------------------------------------------------------------------
5 291 48 313
- -------------------------------------------------------------------------------------------
Net charge-offs (recoveries) 348 (96) 363 111
- -------------------------------------------------------------------------------------------
Balance at end of period $2,504 $2,560 $2,504 $2,560
===========================================================================================
Net Charge-offs to:
Average loans 1.40% (.04)% 1.49% .05%
Loans at end of period 1.36% (.04)% 1.42% .05%
Allowance for loan losses 13.90% (3.75)% 14.50% 4.34%
Allowance for loan losses
as a percentage of:
Average loans 1.01% 1.12% 1.03% 1.14%
Loans at end of period 0.98% 1.10% 0.98% 1.10%
</TABLE>
The approach the Corporation uses in determining the adequacy of the
allowance for loan losses is the combination of a target reserve and
a general reserve allocation. Quarterly, based on an internal
review of the loan portfolio, the Corporation identifies required
reserve allocations targeted to recognized problem loans that, in
the opinion of management, have potential loss exposure or questions
relative to the depth of the collateral on these same loans. In
addition, the Corporation allocates a general reserve against the
remainder of the loan portfolio.
<PAGE>
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
06-30-98 03-31-98 12-31-97 09-30-97 06-30-97
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans:
Loans secured by real estate $290 $595 $ 983 $ 897 $1,143
Construction/Land development 3 2 3 0 33
Commercial and Industrial Loans 24 37 37 6 240
Consumer Loans 0 1 19 9 5
- -------------------------------------------------------------------------------------
$317 $635 $1,042 $ 912 $1,421
- -------------------------------------------------------------------------------------
Loans Contractually
past due 90 days or more
still accruing:
Loans secured by real estate $143 $193 $ 170 $ 198 $15
Commercial and Industrial Loans 24 24 0 18 0
Consumer Loans 8 6 14 54 10
- -------------------------------------------------------------------------------------
$175 $223 $ 184 $ 270 $25
- -------------------------------------------------------------------------------------
Total non-accrual, past
due and restructured loans $492 $858 $1,226 $1,182 $1,446
- -------------------------------------------------------------------------------------
Non-accrual, past due and
restructured loans
as a percentage of total loans 0.19% 0.36% 0.52% 0.49% 0.62%
- -------------------------------------------------------------------------------------
Allowance for loan
losses as a percentage of
non accrual, past due and
restructured loans 508.94% 332.40% 232.30% 233.08% 177.04%
- -------------------------------------------------------------------------------------
Other real estate owned - net $269 $379 $149 $277 $323
- -------------------------------------------------------------------------------------
Total non-performing assets $761 $1,237 $1,375 $1,459 $1,769
- -------------------------------------------------------------------------------------
Non-performing assets as a
percentage of total assets 0.22% 0.39% 0.45% 0.45% 0.57%
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
QUARTERLY TO DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
JUNE 30, 1998 JUNE 30, 1997
Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal Funds sold and
temporary investments $ 6,552 $ 113 6.90% $2,781 $37 5.32%
Securities 61,987 999 6.45 48,233 792 6.57
Loans 248,954 5,152 8.28 228,154 4,869 8.54
- ------------------------------------------------------------------------------------------------------
Total earning assets $317,493 $6,264 7.89 279,168 $5,698 8.16
- ------------------------------------------------------------------------------------------------------
Loan loss allowance (2,818) (2,500)
All other assets 18,602 18,128
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $333,277 $294,796
======================================================================================================
LIABILITIES AND EQUITY
Interest bearing deposits $244,182 $2,816 4.61 $219,436 $2,450 4.47
Borrowed funds 16,540 166 4.01 9,825 84 3.42
- ------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 260,722 $2,982 4.57 229,261 $2,534 4.42
- ------------------------------------------------------------------------------------------------------
Interest rate spread 3.32% 3.74%
Demand deposits 45,917 43,037
Other liabilities 1,033 1,687
Shareholders' equity 25,605 20,811
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $333,277 $294,796
======================================================================================================
NET INTEREST INCOME $3,282 $3,164
======================================================================================================
Interest Earned/Earning Assets 7.89% 8.16%
Interest Expense/Earning Assets 3.76 3.63
- ------------------------------------------------------------------------------------------------------
Net Yield on Earning Assets 4.13% 4.53%
======================================================================================================
</TABLE>
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
YEAR TO DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal Funds sold and
temporary investments $4,561 $149 6.53% $5,747 $ 152 5.29%
Securities 56,844 1,826 6.42 44,426 1,462 6.58
Loans 242,872 10,131 8.34 224,976 9,512 8.46
- ------------------------------------------------------------------------------------------------------
Total earning assets $304,277 $12,106 7.96 275,149 $11,126 8.09
- ------------------------------------------------------------------------------------------------------
Loan loss allowance (2,870) (2,518)
All other assets 18,120 17,810
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $319,527 $290,441
======================================================================================================
LIABILITIES AND EQUITY
Interest bearing deposits $234,299 $5,315 4.54 $217,254 $4,805 4.42
Borrowed funds 13,408 246 3.67 8,687 140 3.22
- ------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 247,707 $5,561 4.49 225,941 $4,945 4.38
- ------------------------------------------------------------------------------------------------------
Interest rate spread 3.47% 3.71%
Demand deposits 45,609 42,457
Other liabilities 1,032 1,564
Shareholders' equity 25,179 20,479
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $319,527 $290,441
======================================================================================================
NET INTEREST INCOME $6,545 $6,181
======================================================================================================
Interest Earned/Earning Assets 7.96% 8.09%
Interest Expense/Earning Assets 3.66 3.59
- ------------------------------------------------------------------------------------------------------
Net Yield on Earning Assets 4.30% 4.50%
======================================================================================================
</TABLE>
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - None
ITEM 2. Changes in Rights of Securities Holders - None
ITEM 3. Defaults by Company on its Senior Securities - None
ITEM 4. Results of Votes on Matters Submitted to a Vote of Security
Holders - None
ITEM 5. Other Events
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 its preparation of
management's discussion and analysis of results of
operations and financial condition contained in its
quarterly and annual reports, Westbank does not intend
to review or revise any particular forward looking
statement in light of future events.
<PAGE>
ITEM 6. Exhibits and Reports on Form 8
a. Exhibits
EXHIBIT INDEX
Page No.
3.1 Articles of Organization, as amended *
3.2 By-Laws, as amended **
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 in exhibit 5.1 contained in the
Registrant's Current Report filed on February 2, 1998.
b. Reports on Form-8 - On July 15, 1998 the Registrant filed a
Curent Report on Form 8-K regarding the proposed acquisition of
Cargill Bancorp, Inc. and Cargill Bank.
<PAGE>
WESTBANK CORPORATION AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Quarterly Report to be signed on
its behalf by the undersigned thereunto duly authorized.
WESTBANK CORPORATION
Date: August 10, 1998 /s/Donald R. Chase
Donald R. Chase
President and Chief Executive Officer
Date: August 10, 1998 /s/John M. Lilly
John M. Lilly
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 11554
<INT-BEARING-DEPOSITS> 114
<FED-FUNDS-SOLD> 14561
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28446
<INVESTMENTS-CARRYING> 33097
<INVESTMENTS-MARKET> 33184
<LOANS> 255888
<ALLOWANCE> 2504
<TOTAL-ASSETS> 350922
<DEPOSITS> 304652
<SHORT-TERM> 11552
<LIABILITIES-OTHER> 1674
<LONG-TERM> 7000
0
0
<COMMON> 26044
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 350922
<INTEREST-LOAN> 10131
<INTEREST-INVEST> 1826
<INTEREST-OTHER> 149
<INTEREST-TOTAL> 12106
<INTEREST-DEPOSIT> 5315
<INTEREST-EXPENSE> 5561
<INTEREST-INCOME-NET> 6545
<LOAN-LOSSES> 19
<SECURITIES-GAINS> 139
<EXPENSE-OTHER> 4913
<INCOME-PRETAX> 2819
<INCOME-PRE-EXTRAORDINARY> 2819
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1724
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.45
<YIELD-ACTUAL> 4.30
<LOANS-NON> 317
<LOANS-PAST> 175
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 492
<ALLOWANCE-OPEN> 2848
<CHARGE-OFFS> 411
<RECOVERIES> 48
<ALLOWANCE-CLOSE> 2504
<ALLOWANCE-DOMESTIC> 2504
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
