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, 1997
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 #)
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 2, 1998 the aggregate
market value of the voting stock held by nonaffiliates of the
registrant was $49,180,963.
The number of shares outstanding of the registrants common
stock, $2.00 par value was 3,747,121 on March 2, 1998.
Portions of the Annual Report to Stockholders for the year
ended December 31, 1997 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 15, 1998 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, 1997, 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 1997 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 10
Rate/Volume Analysis of Interest Margin on Earning Assets 11
II. Investment Portfolio 12, 27, 28 and 37
III. Loan Portfolio 13, 28, 29 and 38
a. Types of Loans 13
b. Maturities and Sensitivities to Changes
in Interest Rates 8, 9 and 13
c. Risk Elements 14, 15 and 16
IV. Summary of Loan Loss Experience 14 and 15
V. Deposits 16, 17, 30, 37 and 38
VI. Return on Equity and Assets 17
VII. Short Term Borrowing 17, 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. Park West
also owns, with no material encumbrance, property in Ludlow on which
a general banking office is planned and currently under construction
with an opening projected for late April 1998. 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, 1997,
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, 1997, 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 19 of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1997,
wherein this subject is covered.
II - 1
<PAGE>
PART III
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pages 20 through 40 of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1997,
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 1998 Annual Meeting
scheduled for April 15, 1998, 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 1998 Annual Meeting
scheduled for April 15, 1998, 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 1998 Annual Meeting scheduled for
April 15, 1998, 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 1998 Annual Meeting
scheduled for April 15, 1998, 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, 1997:
WESTBANK CORPORATION
Page of
Annual
Report
Independent Auditors' Reports 40
Consolidated Balance Sheets at December 31, 1997 and 1996 20
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 21
Consolidated Statement of Stockholders' Equity from January 1, 1995,
to December 31, 1997 22
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 23
Notes to Consolidated Financial Statements 24 - 39
Current reports on Form 8-K Reporting other Events were filed by the
Registrant on:
November 21, 1998
November 19, 1998
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 18, 1998
Donald R. Chase
Chairman of the Board
/s/ Alfred C. Whitaker and Director March 18, 1998
Alfred C. Whitaker
Treasurer and Chief Financial
/s/ John M. Lilly Officer March 18, 1998
John M. Lilly
/s/ Roland O. Archambault Director March 18, 1998
Roland O. Archambault
/s/ Mark A. Beauregard Director March 18, 1998
Mark A. Beauregard
/s/ David R. Chamberland Director March 18, 1998
David R. Chamberland
/s/ Leroy F. Jarrett Director March 18, 1998
Leroy F. Jarrett
Vice Chairman of the Board
/s/ Ernest N. Laflamme, Jr. and Director March 18, 1998
Ernest N. Laflamme, Jr.
/s/ Paul J. McKenna Director March 18, 1998
Paul J. McKenna
/s/ Robert J. Perlak Corporate Clerk and Director March 18, 1998
Robert J. Perlak
/s/ George R. Sullivan Director March 18, 1998
George R. Sullivan
/s/ James E. Tremble Director March 18, 1998
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
Table of Contents
FINANCIAL HIGHLIGHTS 1
LETTER TO STOCKHOLDERS 3
BUSINESS - WESTBANK CORPORATION AND SUBSIDIARIES 4
SELECTED CONSOLIDATED FINANCIAL DATA 5
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS 6 - 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
INDEPENDENT AUDITORS' REPORT 40
CORPORATE DIRECTORY IBC
CORPORATE INFORMATION IBC
On the Cover
The future has never shone more brilliantly. However, opportunities
don't just appear like a rainbow. They must be discovered by
analyzing emerging trends and developing the capabilities to create
shareholder value. Westbank Corporation moves forward into the next
century of banking replenished by the success we enjoyed in 1997 and
emboldened with confidence.
<PAGE>
Financial Highlights
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the Year
(Dollars in Thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $3,231 $2,248 $2,353
Net interest income 12,784 11,842 11,721
Non-interest income 2,261 2,140 2,917
Non-interest expenses 9,313 9,272 8,515
Provision for loan losses 190 868 2,690
Year End
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------
Investment and
mortgage-backed securities $54,591 $35,682 $35,569
Loans, net 232,415 218,192 197,264
Allowance for loan losses 2,848 2,481 3,707
Total assets 308,265 284,909 253,777
Total deposits 271,560 255,491 227,962
Total stockholders' equity 23,751 19,745 17,703
Common Share Information
Basic weighted average
shares outstanding 3,487,160 3,285,093 3,181,742
Basic net income per share $.93 $.68 $.74
</TABLE>
(3) BAR GRAPH INSERTS
(1) CLOSING COMMON STOCK PRICE
1993 5.25
1994 5.25
1995 7.00
1996 9.50
1997 13.00
(2) BASIC EARNINGS
PER SHARE
1993 0.49
1994 0.69
1995 0.74
1996 0.68
1997 0.93
(3) BOOK VALUE
1993 4.25
1994 4.89
1995 5.50
1996 5.90
1997 6.63
<PAGE>
CHAIRMAN'S AND PRESIDENT'S LETTER
Westbank Corporation and Subsidiaries
Dear Shareholder:
It is with great pleasure and a deep sense of pride that we can
report to you that we have fulfilled our commitment to build
shareholder value and that we will continue to build a strong
momentum for "a bright future built on a solid foundation."
In our first joint letter to you in 1992, we articulated a new
strategy for Westbank Corporation that called for narrowing our
business focus, improving our cost structure, streamlining our
product offering, consolidating our data processing activities and
strengthening our balance sheet. The purpose of these actions, as
we said at the time, was to maximize Westbank's fundamental strength
as a full service commercial bank.
The success of this strategy can be seen most clearly in our 1997
performance with: Record Earnings! Record Return on Assets! and
Record Return on Equity!
Among the financial highlights, net income for 1997 was $3,231,000,
or $.93 per share. This represents an increase of $983,000, or 44%,
over the $2,248,000, or $.68 per share, for 1996. We are very
pleased with the results for the year, as each quarter improved
significantly over the previous quarter. This steady improvement
clearly demonstrates the success of our corporate strategies.
In addition to the attainment of record earnings, we also achieved a
record Return on Assets (ROA) of 1.07% and a record Return on Equity
(excluding tax benefits) of 15.03%. Our record-breaking results
were accomplished while investing significantly in the future of
Westbank. The newly established, indirect automobile lending unit
has done extremely well and the continued stability and growth of
our supermarket branches is very encouraging.
The success of our new Platinum Relationship Account, introduced
this past June, has exceeded expectations with deposit balances
totaling more than $15 million at this time. We feel that
relationship banking is the financial wave of the future and
Westbank intends to be a vigorous and innovative participant.
At year-end, assets totaled $308,265,000 an increase of $23,356,000
or 8.2%, as compared to the same period in 1996. Deposits increased
by $16,069,000 or 6.3%, and totaled $271,560,000.
Loans grew to $232,415,000 at December 31, 1997, an increase of
$14,223,000 or 6.5%, from December 31, 1996, while investments
increased by more than $18,909,000 or 53%, resulting in improved net
interest income of more than $900,000 compared to 1996.
The Corporation's allowance for loan losses totaled $2,848,000 at
December 31, 1997, with non-performing assets of $1,375,000,
representing .45% of assets. We have established a strong credit
culture. Strict underwriting guidelines and credit policies have
enabled Westbank to minimize the risk inherent in loan growth, while
benefiting from the increased demand in the market area. Our focus
on quality has contributed to a dramatic reduction in problem assets
and resulted in balanced, high-quality loan growth.
Westbank is a community-based banking company. As we expand into
new markets, we strive to maintain a strong community-based
identity, with local-level decision making. We offer our customers
personal, value-added service, not just locations.
While we are proud of our community bank personality, we are just as
proud of our ability to serve our large corporate customers who can
obtain all of their commercial banking services from Westbank.
Long-term relationships and consistent, reliable service are
paramount whether our customer is a large corporation or an
individual consumer. With a legal lending limit of $4.5 million
dollars, plus the ability to participate with other banks, we can
handle almost any loan request in Western Massachusetts.
We have focused our resources on what we do best: retail; small
business; middle market and selected large corporate banking. To
further strengthen those areas, we have been pursuing an expansion
program that has also greatly enhanced our competitive position.
Over the past several years, Westbank has invested in employing
highly talented and strongly motivated commercial lending personnel,
and with this knowledgeable corps of officers, we have been able to
benefit from a continued strong loan demand across Western
Massachusetts.
Our core businesses commercial banking, retail banking and asset
management provide the framework for our full line of financial
services. Traditional business lending such as loans for
equipment, expansion, working capital, including lines of credit and
small business administration loans are the building blocks for
long-term relationships.
Our commitment to local decision making and personal service makes
us stand out from an industry that is restructuring into large
regional and national networks. Westbank's strength lies in the
fact that we are independent and locally owned. This perception has
served our investors well.
<PAGE>
As a result of the Corporation's outstanding performance in 1997,
the Board of Directors approved an increase to $.10 a share in the
quarterly dividend representing an increase of 33% over the most
recent quarter. The increase in the dividend is the most prominent
sign of our continuing commitment to increasing shareholder value.
Over the past twelve months, we are proud to report that the
Corporation's stock price increased by 37% and closed the year at
$13.00, representing a market capitalization of more than $46.5
million.
Our overall size as a Corporation allows us to offer a depth and
breadth of sophisticated services that include managing
multi-million dollar trusts and providing personalized financial
planning in our Trust Department.
At Westbank, we build lifelong relationships to help our customers
reach their financial comfort zone. Our Trust professionals tailor
plans to meet the individual needs of each customer and help them
develop a solid strategy to manage and protect their assets. There
is no single "best" approach to financial planning; every
relationship is different. As customers move through the stages of
their lives, their needs change. Westbank understands those
changes, and can make sure that new investment needs are met with a
new mix of investment options. Our Trust Department continued a
pattern of strong gains in revenues and assets under management. At
year-end, fiduciary accounts totaled $117 million.
Today, Westbank Corporation has a solid foundation and a host of
competitive strengths for the future. Despite the day to day
challenges that lie ahead, the future is a bright one indeed. We
built that foundation on a "back to basics" strategy and, as we near
the successful completion of this critical stage of our development,
we are shifting our focus towards the future.
Westbank's goal is straight forward: to become the best commercial
bank in Western Massachusetts, in the minds of our shareholders,
customers, employees and the communities we serve. Senior
management's strategy will be to leverage the strengths of our
organization to extend our relationship-banking franchise and grow
revenues through increased marketing efforts.
Our primary objective remains the enhancement of shareholder value
through the judicious management of the capital entrusted to us by
our shareholders. To demonstrate that fact, we will continue to
measure our progress in terms of Return on Equity (ROE). With our
customers, we will concentrate on enhancing the depth and number of
our relationships through innovative new marketing strategies,
superior value, and exceptional service. We will continue to be an
involved participant in the local communities we serve.
Our record breaking year can be attributed to an excellent
management team, dedicated directors and hard working employees. In
all of our endeavors we were also supported by our customers and our
investors. We value their support and we will continue to work hard
to earn it, as we embark on the next phase to be the best bank and
have thousands of new customers proclaim that "Westbank is My Bank."
We are pleased to announce the appointment of George R. Sullivan to
the Board of Directors. Mr. Sullivan is the Executive Vice
President of the Sullivan Paper Company, Inc. a nationally renowned
paper company located in West Springfield, Massachusetts.
On behalf of the Board of Directors and employees of Westbank, we
appreciate your loyalty and thank you for your 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, 1997
amounted to $117,234,000 and is not included in the accompanying
financial statements since such items are not assets of the Bank.
Employees
As of December 31, 1997, the Corporation and its subsidiaries had
the equivalent of 127 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>
SELECTED CONSOLIDATED FINANCIAL DATA
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
Ended December 31,
(Dollars in Thousands Except Share Amounts) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and dividend income $23,156 $20,600 $20,261 $17,046 $16,809
Interest expense 10,372 8,758 8,540 6,199 6,736
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 12,784 11,842 11,721 10,847 10,073
Provision for loan losses 190 868 2,690 1,473 790
Non-interest income 2,261 2,140 2,917 2,459 2,861
Non-interest expense 9,313 9,272 8,515 10,088 10,072
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes
(benefit), and cumulative effect of accounting change 5,542 3,842 3,433 1,745 2,072
Income taxes (benefit) 2,311 1,594 1,080 (430) 525
- -------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting change 3,231 2,248 2,353 2,175 1,547
Cumulative effect of accounting change
for income taxes 400
- -------------------------------------------------------------------------------------------------------------------------------
Net income $3,231 $2,248 $2,353 $2,175 $1,947
===============================================================================================================================
Per common share data (1) :
Net earnings per share before
cumulative effect of accounting change:
Basic $.93 $.68 $.74 $.69 $.49
Diluted $.89 $.66 $.72 $.68 $.48
Cash dividends declared $.30 $.24 $.20
Ending book value $6.63 $5.90 $5.50 $4.89 $4.25
At December 31:
Total loans - net $232,415 $218,192 $197,264 $192,677 $174,597
Total assets 308,265 284,909 253,777 243,313 228,863
Total non-performing assets 1,375 2,698 7,904 7,435 7,042
Total deposits 271,560 255,491 227,962 218,563 202,431
Total stockholders' equity 23,751 19,745 17,703 15,344 13,271
Average for year:
Loans 232,529 209,141 197,562 182,676 171,814
Assets 300,996 266,134 253,024 232,922 227,579
Deposits 268,960 237,848 227,952 210,659 205,915
Stockholders' equity 21,491 18,561 16,755 14,722 12,322
Weighted shares outstanding - basic 3,487,160 3,285,093 3,181,742 3,132,934 3,118,725
Weighted average shares and
equivalent shares outstanding - diluted 3,612,919 3,404,242 3,271,875 3,203,985 3,190,486
Selected ratios:
Rate of return on average total assets 1.07% .84% .93% .93% .86%
Rate of return on average stockholders' equity 15.03% 12.11% 14.04% 14.77% 15.80%
Stockholders' equity to total assets at year end 7.70% 6.93% 6.98% 6.31% 5.80%
Average total stockholders' equity
to average total assets 7.14% 6.97% 6.62% 6.32% 5.41%
Allowance for loan losses to total loans at year end 1.21% 1.12% 1.84% 1.70% 1.95%
Non-performing loans as a percentage
of total loans at year end 0.58% 1.07% 3.43% 3.00% 2.18%
Net charge-offs (recoveries) as a percentage of
average loans (0.08)% 1.00% 1.17% .89% .44%
Other real estate owned as a percentage of total assets .05% .12% .51% .64% 1.38%
</TABLE>
(1) In 1993, the cumulative effect of accounting change was $.13
basic and $.13 diluted earnings per share resulting in net
earnings per share of $.62 basic and $.61 diluted.
<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. As of December 31, 1997, the Corporation as required under
the Statement of Financial Accounting Standards No. 128, Earnings
Per Share, adopted a new financial accounting standard. This new
standard requires that primary earnings per share be replaced with
basic earnings per share and that diluted earnings per share also be
disclosed. All earnings per share disclosures have been restated to
conform with this new standard. Earnings per share before
cumulative effect of accounting change prior to the adoption of this
statement was reported as: 1996, $.66; 1995, $.72; 1994, $.68; and
1993, $.49. In 1993 the cumulative effect of accounting change
before this restatement was $.13 per share.
For 1997, the Corporation reported net income of $3,231,000, or $.93
per share basic and $.89 diluted, after providing $190,000 for loan
losses and $29,000 for provision for other real estate owned (OREO).
This compares to net income for 1996 of $2,248,000, or $.68 per
share basic and $.66 diluted. The Corporation's 1996 earnings
reflected a provision for loan losses of $868,000 and $390,000 for
provision for OREO. Net interest income increased $942,000 from
1996 to 1997.
Non-interest expense, excluding the provision for OREO and related
operating expenses, amounted to $9,250,000 in 1997 compared to
$8,788,000 in 1996, an increase of $462,000, or 5%. The increase in
operating expenses for 1997 is a direct result of the overall growth
of the Bank. Non-interest income increased by $121,000 from 1996.
During 1997, Trust Department earnings increased by $40,000 over
1996. The gain on sale of investments and other real estate
increased by $171,000, while service charges on deposit accounts and
other non-interest income declined by $88,000 compared to 1996.
Income taxes in 1997 totaled $2,311,000, an increase of $717,000
over 1996.
(3) BAR GRAPH INSERTS - (IN THOUSANDS)
(1) ASSET GROWTH
1993 $228,863
1994 $243,313
1995 $253,777
1996 $284,909
1997 $308,265
(2) DEPOSIT GROWTH
1993 $202,431
1994 $218,563
1995 $227,962
1996 $255,491
1997 $271,560
(3) NET LOAN GROWTH
1993 $174,597
1994 $192,677
1995 $197,264
1996 $218,192
1997 $232,415
At December 31, 1997, the Corporation's total assets were
$308,265,000, an increase of $23,356,000 or 8%, from $284,909,000 at
year end 1996. The higher level of assets resulted primarily
through an increase in net loans, investments and federal funds
totaling $23,900,000 funded by the growth in deposits. During the
fourth quarter of 1997 the Corporation created a mortgage-backed
security totaling $9,300,000 from the Banks inventory of residential
mortgages. The mortgage-backed security was subsequently sold and
the Corporation recorded a gain on sale totaling $205,000.
Non-performing assets amounted to $1,375,000, or .45% of total
assets at December 31, 1997, compared with $2,698,000 or .95% at the
end of 1996. 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 establis hed 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, 1997, 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
reporting 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.
Components of Capital
The following table presents the Corporation's components of capital
as of December 31. The table also presents the ratio of capital to
total assets.
(Dollars in Thousands)
1997 1996 1995
- -------------------------------------------------------------------
Stockholders' Equity
Common stock $7,163 $6,694 $6,443
Additional paid-in-capital 8,819 7,633 7,141
Retained earnings 7,708 5,517 4,053
Unrealized gain (loss) on
securities available for sale 61 (99) 66
- -------------------------------------------------------------------
Total Capital $23,751 $19,745 $17,703
Ratio of capital
to total assets 7.70% 6.93% 6.98%
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:
1997 1996 1995
- -----------------------------------------------------------------------------
Tier 1 risk-based capital (minimum required 4%) 11.44% 10.43% 9.98%
Total risk-based capital (minimum required 8%) 12.71% 11.69% 11.24%
(1) BAR GRAPH INSERT - (IN THOUSANDS)
(1) STOCKHOLDERS' EQUITY
1993 $13,271
1994 $15,344
1995 $17,703
1996 $19,745
1997 $23,751
Discussion of Market Risk
Market risk is the risk of loss due to adverse changes in market
prices and rates. The management of this risk, coupled with
directives to build shareholder value and profitability, is an
integral part of the Corporation's overall operating strategy. The
Corporation's approach to risk management, primarily interest rate
risk management, is quite basic and concentrates on fundamental
strategies to restructure the balance sheet and composition of
assets and liabilities. Since the Corporation does not utilize
interest rate futures, swaps or options transactions, its
asset/liability profile is not complex. It reflects a simple
approach to managing risk through the use of fixed and adjustable
rate loans, rate insensitive checking accounts as well as a
combination of fixed and variable rate deposit products. Bank
policy includes required limits on the sensitivity of net interest
income under various interest rate scenarios.
The Bank seeks to control its interest rate risk exposure in a
manner that will allow for adequate levels of earnings and capital
over a range of possible interest rate environments. The Bank has
adopted formal policies and practices to monitor and manage interest
rate risk exposure. As part of this effort the Bank actively
manages interest rate risk through the use of a simulation model
which measures the sensitivity of future net interest income to
changes in interest rates. In addition, the Bank regularly monitors
interest rate sensitivity through gap analysis, which measures the
terms to maturity or next repricing date of interest earning assets
and interest bearing liabilities.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (continued)
Westbank Corporation and Subsidiaries
On a quarterly basis, an interest rate risk exposure compliance
report is prepared and presented to the Bank's Board of Directors.
This report presents an analysis of the change in net interest
income resulting from an increase or decrease in the level of
interest rates. All changes are measured as percentage changes from
the projected net interest income in the flat rate scenario. The
calculated estimates of change in net interest income are compared
to current limits established by manage- ment and approved by the
Board of Directors. The following is a summary of the interest rate
exposure report as of December 31, 1997:
Change in Interest Rates Percentage Change in
(In Basis Points) Net Interest Income
- -------------------------------------------------------------------
+200 (3.2)%
Level 0%
-200 3.7%
The model utilized to create the report presented above makes
various estimates at each level of interest rate change regarding
cash flows from principal repayments on loans and mortgage-backed
securities and/or call activity on investment securities. Actual
results could differ significantly from these estimates which would
result in significant differences in the calculated projected
change.
In order to reduce the exposure to interest rate fluctuations, the
Corporation has developed strategies to manage its liquidity,
shorten the effective maturities of certain interest-earning assets
and increase the effective maturities of certain interest bearing
liabilities. The Bank has focused its residential lending on a
combination of fixed and adjustable rate mortgages. Commercial
loans, commercial mortgages and consumer lending focus on adjustable
and short term loans. The Bank also attempts to maintain and/or
increase its savings and transaction accounts which are considered
relatively insensitive to changes in interest rates.
The Corporation also measures sensitivity to changes in interest
rates using interest rate sensitivity gap analysis which is the
difference between the cash flow amounts of interest-sensitive
assets and liabilities that will be refinanced (or repriced) during
a given period. For example, if the asset amount to be repriced
exceeds the corresponding liability amount for a certain day, month,
year, or longer period, the institution is in an asset-sensitive gap
position. In this situation, net interest income would increase if
market interest rates rose or decrease if market interest rates
fell. If, alternatively, more liabilities than assets will reprice,
the institution is in a liability-sensitive position. Accordingly,
net interest income would decline when rates rose and increase when
rates fell. Also, these examples assume that interest-rate changes
for assets and liabilities are of the same magnitude, whereas actual
interest-rate changes generally differ in magnitude for assets and
liabilities.
The following table sets forth the distribution of the repricing of
the Corporation's earning assets and interest bearing liabilities as
of December 31, 1997, 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 the Bank'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 $16,246 $14,337 $3,668 $20,340 $54,591
Interest bearing cash 79 79
Loans 49,414 36,671 84,951 64,498 235,534
Federal funds sold 3,678 3,678
- ------------------------------------------------------------------------------------------------------------
69,417 51,008 88,619 84,838 293,882
Interest Bearing Liabilities
Savings deposits 3,515 31,636 35,151
NOW Accounts 1,585 14,268 15,853
Money market accounts 25,167 25,167
Negotiated rate certificates 10,713 4,660 2,309 17,682
Other time deposits 47,008 52,142 29,917 2 129,069
Borrowed funds 11,884 11,884
- ------------------------------------------------------------------------------------------------------------
$94,772 $61,902 $78,130 $2 $234,806
============================================================================================================
Interest Rate
Sensitivity Gap $(25,355) $(10,894) $10,489 $84,836 $59,076
Cumulative Interest Rate
Sensitivity Gap $(25,355) $(36,249) $(25,760) $59,076
Interest Rate
Sensitivity Gap Ratio (8.63)% (3.71)% 3.57% 28.87% 20.10%
Cumulative Interest Rate
Sensitivity Gap Ratio (8.63)% (12.33)% (8.76)% 20.10%
</TABLE>
The presentation of a run off and repricing of savings accounts and
NOW accounts is based on the Corporation's historical experience
with $3,515,000 and $1,585,000, 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 1997, 1996 and 1995. 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 shown in the
table:
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (continued)
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
1997 1996 1995
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 $6,873 $424 6.17% $8,360 $535 6.40% $9,463 $600 6.34%
Federal agencies 39,476 2,627 6.65 24,625 1,647 6.69 24,034 1,596 6.64
Other securities 1,807 108 5.98 2,465 159 6.45 1,760 116 6.59
- ----------------------------------------------------------------------------------------------------------------------------------
Total securities 48,156 3,159 6.56 35,450 2,341 6.60 35,257 2,312 6.56
- ----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing cash and
temporary investments 88 7 7.95 853 70 8.20 399 24 6.02
- ----------------------------------------------------------------------------------------------------------------------------------
Loans: (b)
Commercial 37,375 3,586 9.59 34,865 3,285 9.42 36,106 3,675 10.18
Tax exempt-federal (a) 286 33 11.54
Real estate 169,892 14,117 8.31 154,501 12,941 8.38 144,566 12,406 8.58
Consumer 25,262 2,032 8.04 19,775 1,716 8.68 16,604 1,578 9.50
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans 232,529 19,735 8.33 209,141 17,942 8.58 197,562 17,692 8.96
Federal funds sold 4,800 255 5.31 4,845 247 5.10 4,182 244 5.83
- ----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 285,573 $23,156 8.11% 250,289 $20,600 8.23% 237,400 $20,272 8.54%
- ----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (2,628) (3,189) (3,349)
Cash and due from banks 9,776 9,667 9,418
Other assets 8,275 9,367 9,555
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $300,996 $266,134 $253,024
==================================================================================================================================
Liabilities and Stockholders' Equity
Interest-bearing deposits:
Savings $37,060 $936 2.53% $33,802 $749 2.21% $33,026 $696 2.11%
Money market 16,625 560 3.37 13,682 362 2.65 16,560 422 2.55
Negotiated rate certificates 18,032 894 4.96 16,117 802 4.98 14,246 695 4.88
Other time deposits 152,709 7,696 5.04 131,348 6,590 5.02 124,122 6,456 5.20
Total time deposits 224,426 10,086 4.49 194,949 8,503 4.36 187,954 8,269 4.40
Borrowed funds 8,989 286 3.18 8,603 255 2.96 7,107 271 3.81
Total interest-bearing liabilities 233,415 10,372 4.44 203,552 8,758 4.30 195,061 8,540 4.38
Demand deposits 44,534 42,898 39,998
Other liabilities 1,556 1,123 1,210
Stockholder's equity 21,491 18,561 16,755
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholder's equity $300,996 $266,134 $253,024
==================================================================================================================================
Net interest income 12,784 11,842 11,732
Yield spread 3.67% 3.93% 4.16%
==================================================================================================================================
Net Yield on earning assets 4.48% 4.73% 4.94%
==================================================================================================================================
Deduct-Tax equivalent
adjustment (a) 11
==================================================================================================================================
Net interest income $12,784 $11,842 $11,721
==================================================================================================================================
</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 1997, the yield spread declined to 3.67% from 3.93% in 1996,
down 26 basis points. The Corporation's net interest margin
decreased during 1997 to 4.48% from 4.73% in 1996, a decrease of 25
basis points 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)
Rate/Volume Analysis of Interest Margin on Earning Assets
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 1997 as compared with 1996
and 1996 compared with 1995.
<TABLE>
<CAPTION>
1997 Compared With 1996 1996 Compared With 1995
- -------------------------------------------------------------------------------------------------------------------------
Increase Due to* Increase Due to*
(Dollars in Thousands) 1997 1996 (Decrease) Volume Rate 1996 1995 (Decrease) Volume Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned:
Securities:
U.S. Treasury $424 $535 $(111) $(93) $(18) $535 $600 $(65) $(70) $5
Federal agencies 2,627 1,647 980 990 (10) 1,647 1,596 51 39 12
Other securities 108 159 (51) (40) (11) 159 116 43 45 (2)
Interest-bearing cash 7 70 (63) (60) (3) 70 24 46 35 11
Loans:
Commercial 3,586 3,285 301 240 61 3,285 3,675 (390) (123) (267)
Tax exempt - federal 33 (33) (33)
Real estate 14,117 12,941 1,176 1,284 (108) 12,941 12,406 535 837 (302)
Consumer 2,032 1,716 316 450 (134) 1,716 1,578 138 282 (144)
Federal funds sold 255 247 8 (2) 10 247 244 3 35 (32)
- -------------------------------------------------------------------------------------------------------------------------
23,156 20,600 2,556 2,769 (213) 20,600 20,272 328 1,047 (719)
- -------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings 936 749 187 74 113 749 696 53 18 35
Money market 560 362 198 87 111 362 422 (60) (75) 15
Negotiated rate
certificates 894 802 92 95 (3) 802 698 104 93 11
Other time deposits 7,696 6,590 1,106 1,079 27 6,590 6,453 137 368 (231)
Borrowed funds 286 255 31 11 20 255 271 (16) 50 (66)
- -------------------------------------------------------------------------------------------------------------------------
10,372 8,758 1,614 1,346 268 8,758 8,540 218 454 (236)
- -------------------------------------------------------------------------------------------------------------------------
$12,784 $11,842 $942 $1,423 $(481) $11,842 $11,732 $110 $593 $(483)
=========================================================================================================================
</TABLE>
* The dollar amount of changes in interest income and interest
expense attributable to changes in rate and 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 1997 increased
to $12,784,000, up 8% from $11,842,000 in 1996. A 14% increase in
average earning assets and a 12 basis point decline in average rate
of return resulted in an increase in volume of $2,769,000 and a
decrease in rate of $213,000. An increase of 15% in average
interest bearing liabilities and a 14 basis point increase in
average rate of interest paid contributed to an increase in volume
of $1,346,000 and a increase in rate of $268,000.
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, 1997, Westbank's ratio of such
assets to total deposits was 20.74% for 1997 compared to 16.28% for
1996. 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
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, 1997 of the securities portfolio. The following
table shows the amortized cost (in thousands) of the Corporation's
securities held to maturity at December 31:
(1) PIE CHART - (IN THOUSANDS)
INVESTMENT SECURITY MIX
MARKETABLE EQUITY SECURITIES $1,303
U.S. TREASURIES $6,304
FEDERAL AGENCIES $33,581
MORTGAGE-BACKED SECURITIES $13,298
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. Government obligations $4,246 $5,998 $5,998
Federal agency obligations 30,081 13,827 10,678
Mortgage-backed securities 176 216 274
Other debt securities 1,254 1,259
- ------------------------------------------------------------------------------------
Amortized cost $34,503 $21,295 $18,209
====================================================================================
</TABLE>
The following table shows the fair value (in thousands) of the
Corporation's securities available for sale at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. Government obligations $2,058 $1,990 $3,386
Federal agency obligations 3,486 2,465 4,120
Mortgage-backed securities 13,219 8,807 8,941
Equity securities 1,325 1,125 656
Other debt securities 257
- ------------------------------------------------------------------------------------
20,088 14,387 17,360
Gross unrealized (gain) loss on
securities available for sale (105) 170 (115)
====================================================================================
Amortized cost $19,983 $14,557 $17,245
====================================================================================
</TABLE>
The following table shows weighted average yields and maturity
distribution of debt securities at December 31, 1997:
<TABLE>
<CAPTION>
Within 1 Year 1 to 5 Years 5 to 10 Years After 10 Years Total
Weighted Weighted Weighted Weighted Weighted
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 5.92% $5,308 6.53% $996 6.01% $6,304
Federal agency
obligations 4.88 4,000 6.60 16,581 7.08% $13,000 6.58 33,581
Mortgage-backed
securities 8.24 176 6.60% $13,122 6.62 13,298
- ----------------------------------------------------------------------------------------------------------------------------------
Total debt
Securities 5.48% $9,308 6.59% $17,577 6.33% $13,176 6.60% $13,122 6.52% $53,183
==================================================================================================================================
</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
The following table sets forth the classification (in thousands) of the
Corporation's loans by major category at December 31:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $41,031 $35,523 $35,116 $34,306 $30,431
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate:
Construction 5,249 6,071 7,550 8,517 8,491
Residential (1-4 family) 120,504 121,132 99,321 81,333 70,530
Residential (5 or more) 1,828 1,908 2,632 4,034 4,852
Commercial properties 50,931 41,261 47,566 58,310 53,768
- -----------------------------------------------------------------------------------------------------------------------------------
Total Real Estate 178,512 170,372 157,069 152,194 137,641
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer 15,991 15,093 8,896 9,383 9,282
- -----------------------------------------------------------------------------------------------------------------------------------
Lease financing 230 352 932
- -----------------------------------------------------------------------------------------------------------------------------------
Gross loans 235,534 220,988 201,311 196,235 178,286
Deferred loan origination
fees-net of costs (271) (315) (340) (233) (217)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Loans 235,263 220,673 200,971 196,002 178,069
Allowance for loan
losses (2,848) (2,481) (3,707) (3,325) (3,472)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loans $232,415 $218,192 $197,264 $192,677 $174,597
===================================================================================================================================
</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 $1,904,000, or 8.0% of stockholders' equity
as of December 31, 1997 compared to $1,162,000 or 5.9% as of
December 31, 1996.
(1) PIE CHART INSERT - (IN THOUSANDS)
LOAN MIX
COMMERCIAL REAL ESTATE $58,008
CONSUMER LOANS $15,991
RESIDENTIAL REAL ESTATE $120,504
COMMERCIAL LOANS $41,031
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, 1997:
<TABLE>
<CAPTION>
12
Months 1 - 5 After
(Dollars in Thousands) or Less Years 5 Years Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $25,404 $13,822 $1,805 $41,031
Commercial real estate-construction 5,249 5,249
- -------------------------------------------------------------------------------------------------------------------------------
Totals $30,653 $13,822 $1,805 $46,280
===============================================================================================================================
</TABLE>
Of the commercial loans which mature beyond one year approximately
$6,248,000 have fixed rates and the remaining $9,379,000 are
floating rate loans.
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 $9,629,000 and $29,210,000,
respectively, at December 31, 1997 and $7,100,000 and $28,719,000,
respectively, in 1996. See further discussion in Note 12 to the
Consolidated Financial Statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (continued)
Westbank Corporation and Subsidiaries
Loan Loss Experience
The provision for loan losses is an amount added to the allowance
against which loan losses are charged. The provision for losses is
dependent on actual net write-offs and an evaluation as to the
collectibility of the loan portfolio taking into consideration such
factors as the financial condition of individual borrowers,
historical loss experience with respect to various portfolio
segments, current and near term economic conditions, and the size of
the portfolio. Based on these reviews, the allowance for loan
losses at December 31, 1997, 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.
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:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $2,481 $3,707 $3,325 $3,472 $3,442
Provision charged to expense 190 868 2,690 1,473 790
- ----------------------------------------------------------------------------------------------------------------------------------
2,671 4,575 6,015 4,945 4,232
- ----------------------------------------------------------------------------------------------------------------------------------
Charge-offs:
Loans secured by real estate 337 1,688 2,129 1,291 152
Construction/land development 190 230
Commercial and
industrial loans 190 503 230 480 638
Consumer loans 106 82 119 91 84
Lease financing receivables 5 7 55
- ----------------------------------------------------------------------------------------------------------------------------------
633 2,463 2,483 1,869 1,159
- ----------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Loans secured by real estate 354 324 24 25 259
Construction/land developing 14 75 11
Commercial and
industrial loans 444 10 45 204 45
Consumer loans 11 19 25 14 39
Lease financing receivables 1 2 6 6 45
- ----------------------------------------------------------------------------------------------------------------------------------
810 369 175 249 399
- ----------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) (177) 2,094 2,308 1,620 760
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $2,848 $2,481 $3,707 $3,325 $3,472
==================================================================================================================================
Average loans outstanding $232,529 $209,141 $197,562 $182,676 $171,814
==================================================================================================================================
Net charge-offs (recoveries) as a percentage
of average loans (0.08)% 1.00% 1.17% .89% .44%
Net charge-offs (recoveries) as a percentage of
the allowance at January 1 (7.13)% 56.49% 69.41% 46.66% 22.08%
Allowance as a percentage of total
loans at December 31 1.21% 1.12% 1.84% 1.70% 1.95%
Allowance as a percentage of
non-performing loans
at December 31 232.30% 105.08% 53.76% 56.52% 89.46%
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (continued)
Westbank Corporation and Subsidiaries
Allocation of the balance as of December 31 of the allowance for
loan losses applicable to:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
% 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 Amount Loans Amount Loans
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by
real estate $1,595 73.53% $1,582 74.31% $2,717 74.23% $2,496 73.18% $1,619 72.39%
Construction/land
development 79 2.23 91 2.75 150 3.76 127 4.35 4.79
Commercial and industrial
loans 615 17.44 656 16.10 687 17.47 514 17.50 285 17.09
Consumer loans 189 6.80 152 6.84 89 4.43 125 4.79 5.21
Lease financing receivables 64 .11 63 .18 .52
Unallocated 370 1,568
- ----------------------------------------------------------------------------------------------------------------------------
$2,848 100.00% $2,481 100.00% $3,707 100.00% $3,325 100.00% $3,472 100.00%
============================================================================================================================
</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
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:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans on a non-accrual basis $1,042 $2,079 $6,180 $4,890 $3,057
================================================================================================================================
Non-accrual loans as a percentage
of total net loans outstanding .45% .95% 3.13% 2.54% 1.75%
Non-accrual loans as a percentage
of total assets .34% .73% 2.44% 2.01% 1.34%
Loans contractually past due 90
days or more and still accruing $184 $282 $277 $492 $330
</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 $59, $178, $296, $399, and $252, for 1997, 1996,
1995, 1994, and 1993, 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 1996 is attributable to the
continued resolution of non-performing loans throughout 1997. The
increase in the allowance for loan losses is a direct result of the
loan recoveries recognized during 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (continued)
Westbank Corporation and Subsidiaries
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
1997 and 1996 on impaired loans was not significant. At December
31, 1997 and 1996, the recorded investment in impaired loans was
$960,000 and $1,836,000 respectively, for which no additional
specific allowance for loan losses was recorded. For the twelve
months ended December 31, 1997, the average recorded investment in
impaired loans was $1,272,000 compared to $3,267,000 for year end
1996.
(1) BAR GRAPH INSERT - (IN THOUSANDS)
NON-PERFORMING ASSETS
1993 $7,042
1994 $7,435
1995 $7,904
1996 $2,698
1997 $1,375
Restructured Loans
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 described in Note 1 to the
financial statements Restructured loans, which are classified as
accruing loans, amounted to $439,000 in 1995, $501,000 in 1994, and
$494,000 in 1993. The following is an analysis of interest income
related to restructured loans which are classified as accruing
loans:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income that would have
been recognized if the
loans had been current
at original contractual rates $46 $50 $45
Amount recognized as
interest income 43 42 41
- -----------------------------------------------------------------------------------------------------------------------------
Reduced interest income $3 $8 $4
=============================================================================================================================
Other Real Estate Owned
</TABLE>
The following table sets forth information regarding other real
estate owned at December 31:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Other real estate owned - net $149 $337 $1,300 $1,552 $3,161
Other real estate owned as a
percentage of total assets .05% .12% .51% .64% 1.38%
</TABLE>
Deposits
The following table sets forth the average amounts of various
classifications of deposits:
<TABLE>
<CAPTION>
1997 1996 1995
(Dollars in Thousands) Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Savings $37,060 2.53% $33,802 2.21% $33,026 2.11%
Money market 16,625 3.37 13,682 2.65 16,560 2.55
Negotiated rate certificates 18,032 4.96 16,117 4.98 14,246 4.90
Other time deposits 152,709 5.04 131,348 5.02 124,122 5.20
- -----------------------------------------------------------------------------------------------------------------------
224,426 4.49% 194,949 4.36% 187,954 4.40%
Demand deposits 44,534 42,898 39,998
- -----------------------------------------------------------------------------------------------------------------------
$268,960 $237,847 $227,952
=======================================================================================================================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (continued)
Westbank Corporation and Subsidiaries
Certificates of deposits of $100,000 and over at December 31, 1997 had the
following maturities:
<TABLE>
<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 $10,713 $2,297 $2,363 $2,309 $17,682
===================================================================================================================================
</TABLE>
Return on Equity and Assets
The Corporation's return on average equity and assets
for each of the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Return on average total assets 1.07% .84% .93%
Return on average stockholders' equity 15.03 12.11 14.04
Average stockholders' equity to average total assets 7.14 6.97 6.62
Dividend payout ratio 32.16 34.88 26.94
</TABLE>
(1) BAR GRAPH INSERT - (PERCENT)
(1) RETURN ON ASSETS
1993 .86%
1994 .93%
1995 .93%
1996 .84%
1997 1.07%
Borrowings
The following table summarizes borrowings. Average interest rates
during each year were computed by dividing total interest expense by
the average amount borrowed:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at year end $11,884 $8,769 $7,177
Average amount outstanding 8,989 8,603 7,107
Maximum amount outstanding at any month-end 13,536 12,294 9,675
Average interest rate for the year 3.18% 2.95% 3.78%
Average interest rate on year-end balance 3.15 2.89 3.38
</TABLE>
Statements of Income
In the following sections of Management's Discussion and Analysis of
the Statements of Income, the comparative results of 1997, 1996 and
1995 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, 1997. The significant changes are discussed in the
analysis that follow the summary.
<TABLE>
<CAPTION>
Percentage of
increase (decrease)
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996
Over Over
(Dollars in Thousands) 1997 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $12,784 $11,842 $11,721 7.95% 1.02%
Provision for loan losses 190 868 2,690 (78.11) (67.73)
Non-interest income 2,261 2,140 2,917 5.65 (26.64)
Non-interest expense 9,313 9,272 8,515 0.44 8.89
Income taxes 2,311 1,594 1,080 44.98 47.59
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $3,231 $2,248 $2,353 43.73% (4.46)%
==============================================================================================================================
</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 1997 amounted to $23,156,000 as compared
to $20,600,000 for 1996 and $20,261,000 for 1995. For 1997 this
represents an increase of $2,556,000 or 12.4% over 1996, while
interest income increased by $339,000 or 1.7% in 1996 versus 1995.
The increase in 1997 is the result of an increase in average earning
assets of $35,284,000 or 14% offset by a decrease of 12 basis points
in average earning interest rate. The increase in 1996 over 1995 is
the result of an increase in average earning assets of $12,889,000
combined with a 31 basis point increase in average earning interest
rate.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (continued)
Interest Expense
Interest expense for 1997 on deposits and borrowings amounted to
$10,372,000 as compared to $8,758,000 in 1996 and $8,540,000 for
1995. Interest expense increased by $1,614,000 or 18% during 1997
compared to 1996 and 1996 interest expense increased by $218,000 or
2.5% versus 1995. The 1997 increase is the result of an increase of
average interest bearing liabilities of $29,863,000 and a 14 basis
point increase in the average rate of interest paid compared to
1996. The increase in interest expense during 1996 versus 1995 is
the result of an increase of average interest bearing liabilities of
$8,491,000 combined with a decline of 8 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.
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).
(1) BAR GRAPH INSERT - (IN THOUSANDS)
NET INTEREST INCOME
1993 $10,073
1994 $10,847
1995 $11,721
1996 $11,842
1997 $12,784
The following table sets forth Westbank's net interest income
on a taxable equivalent basis:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total interest income $23,156 $20,600 $20,261
Total interest expense 10,372 8,758 8,540
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 12,784 11,842 11,721
Tax equivalent adjustment
to interest income 11
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income
(taxable equivalent) $12,784 $11,842 $11,732
================================================================================================================================
</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 1997 provision for loan losses totaled $190,000 compared with
$868,000 in 1996, a decrease of 78%. During 1996, the provision
decreased by $1,822,000 versus 1995 representing a decrease of 68%.
The decrease in the provision for loan losses during 1997 is
directly attributable to the decrease in non-performing loans and
the significant amount ($810,000) of loan recoveries recognized
during 1997. A full discussion appears previously under the
headings of LOAN LOSS EXPERIENCE and NON-PERFORMING ASSETS.
Non-Interest Income
Income from sources other than interest was $2,261,000 in 1997, an
increase of $121,000 from the prior year and a decrease of $656,000
versus 1995. Non-interest income for 1997 reflects an increase in
Trust Department earnings of $40,000, a decrease in service charges
on deposit accounts and other non-interest income of $88,000 and
increases from the gain on sale of investments and other real estate
totaling $169,000 compared to 1996. 1995 included an insurance
recovery totaling $703,000.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (continued)
Westbank Corporation and Subsidiaries
Non-Interest Expense
The components of other operating expenses at December 31 are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and benefits $4,730 $4,376 $3,845
Occupancy 633 648 513
Other real estate
owned expenses and provision 63 484 498
Other non-interest expense 3,887 3,764 3,659
- -----------------------------------------------------------------------------------------
$9,313 $9,272 $8,515
=========================================================================================
</TABLE>
Overall non-interest expense increased during 1997 by $41,000 versus
1996 and $798,000 compared to 1995. During 1997, salaries and
benefits increased by $354,000 attributable to overall corporate
growth during 1997. Occupancy remained level with 1996. Finally,
other non-interest expense and depreciation and amortization expense
increased in 1997 by $123,000, also the result of overall 1997
growth.
Income Taxes
For the year ended December 31, 1997 Westbank Corporation recorded a
tax expense of $2,311,000 compared to 1996, when the Corporation
recorded a tax expense of $1,594,000. The higher tax expense for
1997 was the result of higher pre-tax earnings during 1997. Income
taxes for 1996 were $1,594,000, which included the expiration of net
operating loss carryforwards and a change in the valuation allowance
of $101,000 pertaining to deferred tax assets.
Net Income
The net income for 1997 of $3,231,000, or $.93 per share basic and
$.89 per share diluted, is based on a weighted average of 3,487,160
basic and 3,612,919 diluted shares outstanding, compared with a net
income for 1996 of $2,248,000, or $.68 per share basic and $.66 per
share diluted based on a weighted average of 3,285,093 basic and
3,404,242 diluted. 1995 earnings was $2,353,000, or $.74 per share
basic and $.72 per share diluted and based on weighted average
shares of 3,181,742 basic and 3,271,875 diluted.
(1) BAR GRAPH INSERT - (IN THOUSANDS)
NET INCOME
1993 $1,947
1994 $2,175
1995 $2,353
1996 $2,248
1997 $3,231
Accounting Changes
The Corporation is required to adopt two new accounting standards in
1998, Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, and No. 131, disclosures about
Segments of an Enterprise and Related Information. For further
discussion see the Summary of Significant Policies in the Notes to
the Financial Statements. Year 2000 Costs Mindful of the need to
sustain the integrity of its computer systems as the year 2000
approaches, Westbank has taken steps to ensure that all systems are
ready to operate accurately on and beyond the year 2000. We fully
understand the need to prevent disruption of computer and technical
systems, and the Corporation is committed to providing our customers
with high quality service.
While most of our systems already comply with year 2000
requirements, Westbank has in place an action plan to ensure the
continued integrity of our systems beyond the turn of the century.
This plan entails identifying, reviewing, and testing all our
operating systems during the past year and in 1998. Final
verification of our readiness is scheduled to be completed by year
end 1998. In addition, the FDIC monitors our preparedness for the
year 2000. It is the Corporation's goal that all of Westbank's
systems will meet year 2000 requirements by December 31, 1998. The
Corporation believes the costs to modify current systems to be year
2000 compliant will not be significant to the Corporation's
financial results.
<PAGE>
CONSOLIDATED BALANCE SHEETS
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands, except share amounts) 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks:
Non-interest bearing $9,603 $10,463
Interest bearing 79 48
- --------------------------------------------------------------------------------------------------------------------------
9,682 10,511
Federal funds sold 3,678 12,890
- --------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 13,360 23,401
Securities (Note 2):
Investment securities available for sale 20,088 14,387
Investment securities held to maturity
(fair value of $34,655 in 1997 and $21,357 in 1996) 34,503 21,295
- --------------------------------------------------------------------------------------------------------------------------
Total securities 54,591 35,682
- --------------------------------------------------------------------------------------------------------------------------
Loans, net of allowance for loan losses
of $2,848 in 1997 and $2,481 in 1996 (Note 3) 228,164 212,726
Mortgage loans held for sale 4,251 5,466
Property and equipment (Note 4) 4,474 4,339
Other real estate owned, net of allowance for losses
of $200 in 1997 and $195 in 1996 (Note 5) 149 337
Accrued interest receivable 1,968 1,636
Other assets 1,308 1,322
- --------------------------------------------------------------------------------------------------------------------------
Total assets $308,265 $284,909
==========================================================================================================================
Liabilities and Stockholders' Equity
Deposits (Note 6):
Non-interest bearing $48,638 $44,715
Interest bearing 222,922 210,776
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 271,560 255,491
Borrowed funds (Note 7) 11,884 8,769
Interest payable on deposits 379 328
Other liabilities 691 576
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 284,514 265,164
Commitments and contingent liabilities (Notes 12 and 13)
Stockholders' equity (Note 15):
Preferred stock, par value $5 per share, authorized
100,000 shares; none issued
Common stock, par value $2 per share,
authorized 9,000,000 shares; issued and outstanding
3,581,377 shares in 1997 and 3,346,802 shares in 1996 7,163 6,694
Additional paid-in capital 8,819 7,633
Retained earnings 7,708 5,517
Unrealized gain (loss) on securities available for sale 61 (99)
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 23,751 19,745
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $308,265 $284,909
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLDIATED STATEMENTS OF INCOME
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31,
(Dollars in Thousands, except share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $19,735 $17,942 $17,681
Interest and dividend income from securities 3,159 2,383 2,312
Interest from interest bearing cash
and Federal funds sold 262 275 268
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 23,156 20,600 20,261
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 9,227 7,701 7,574
Interest on certificates of deposit - $100,000
or more 859 802 695
Interest on borrowed funds 286 255 271
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 10,372 8,758 8,540
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for
loan losses 12,784 11,842 11,721
Provision for loan losses (Note 3) 190 868 2,690
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 12,594 10,974 9,031
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Trust department income 465 425 354
Service charges on deposits 669 716 851
Gain on sale of securities available for sale 219 112 145
Gain on sale of other real estate owned 67 3 13
Other non-interest income (Note 14) 841 884 1,554
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 2,261 2,140 2,917
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and wages 3,927 3,647 3,181
Pension and employee benefits (Note 9) 803 729 664
Occupancy expense 633 648 513
Depreciation and amortization expense 653 618 453
Other real estate owned expenses 63 484 498
Other non-interest expense (Note 14) 3,234 3,146 3,206
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 9,313 9,272 8,515
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,542 3,842 3,433
Income taxes (Note 8) 2,311 1,594 1,080
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $3,231 $2,248 $2,353
===================================================================================================================================
Earnings per share (Note 11):
- Basic $.93 $.68 $.74
- Diluted $.89 $.66 $.72
===================================================================================================================================
Weighted average shares outstanding:
- Basic 3,487,160 3,285,093 3,181,742
- Diluted 3,612,919 3,404,242 3,271,875
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S 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, 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
($.24 per share) (784) (784)
Shares issued:
Stock option plan 30,584 61 25 86
Dividend reinvestment
and stock purchase plan 94,615 190 467 657
Change in unrealized gain (loss)
on securities available for sale (165) (165)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 3,346,802 6,694 7,633 5,517 (99) 19,745
Net income 3,231 3,231
Cash dividends declared
($.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 (loss) on
securities available for sale 160 160
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 3,581,377 $7,163 $8,819 $7,708 $61 $23,751
==================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31,
(Dollars in Thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $3,231 $2,248 $2,353
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Provision for loan losses 190 868 2,690
Provision for other real estate owned 29 390 224
Depreciation and amortization 653 618 453
Realized gain on sale of securities (219) (112) (145)
Realized gain on sale of other real estate owned (67) (3) (13)
Realized gain on miscellaneous assets (83)
Deferred income taxes 74 461 728
Change in:
Loans held for sale (8,099) (279) (4,001)
Accrued interest receivable (332) 22 10
Other assets 14 503 (394)
Interest payable on deposits 51 19 69
Other liabilities 115 (50) 85
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (4,360) 4,602 2,059
- -----------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Securities:
Held to maturity:
Purchases (26,912) (11,329) (4,500)
Proceeds from maturities 13,704 8,243 8,085
Available for sale:
Purchases (8,155) (2,988) (15,319)
Proceeds from sales 10,019 2,857 4,912
Proceeds from maturities 2,160 6,858 1,308
Proceeds on sale of miscellaneous assets 296
Purchases of premises and equipment (788) (1,030) (960)
Net increase in loans (15,674) (26,484) (3,847)
Proceeds from sale of other real estate owned 166 1,145 965
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (25,480) (22,432) (9,356)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Repayment of borrowed funds (2,676)
Net increase in deposits 16,069 27,529 9,399
Net increase in short-term borrowings 3,115 1,592 1,228
Proceeds from exercise of stock options
and stock purchase plan 1,655 743 431
Dividends paid (1,040) (784) (634)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities 19,799 29,080 7,748
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (10,041) 11,250 451
Cash and cash equivalents at beginning of year 23,401 12,151 11,700
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $13,360 $23,401 $12,151
- -----------------------------------------------------------------------------------------------------------------------------------
Cash paid during the year:
Interest on deposits and other borrowings $10,035 $8,739 $8,471
Income taxes 1,988 1,243 520
Supplemental disclosure of cash flow information:
Securitization of loans into mortgage-backed securities $9,314 $3,639
Transfers of loans to other real estate owned 134 1,115 $375
Transfer of miscellaneous asset from other real estate owned
to premises and equipment 291
Loans to facilitate the sale of other real estate owned 120 667 340
</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 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.
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 judgments 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 1996 and 1995 financial
statements have been reclassified to conform to the 1997
presentation.
Accounting Standard Changes
In 1997, the Financial Accounting Standards Board issued a Statement
of Financial Accounting Standards SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for reporting and
displaying of comprehensive income and SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, which
establishes standards for the way public companies report
information about operating segments in both interim and annual
financial statements and related disclosures. The Corporation has
not determined what, if any, impact SFAS No. 131 will have on the
operating segments reported nor the related disclosures. The
standards will be effective for the Corporation's 1998 fiscal year.
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 $1,978,000 for 1997.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
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 se curities 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 in
other income 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 expensed 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.
The Corporation does not engage in trading activities.
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 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 based
on the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral
if the loan is collateral dependent. The 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, the financial condition of individual borrowers and the
related performance of individual loans in relation to contract
terms. The provision for loan losses charged to operating expense
is based upon management's judgment of the amount necessary to
maintain the allowance at a level adequate to absorb losses. Loan
losses are charged against the allowance for loan losses when
management believes the collectibility of the principal is unlikely.
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. The total cost of mortgage loans sold
is allocated to the mortgage servicing rights and the loans (without
the mortgage servicing rights) based on their relative fair value.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
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.
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.
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities
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 is 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 did not have a material impact on the Corporation's
financial statements.
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 $117,234,000 and $105,781,000 at
December 31, 1997 and 1996, 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.
Earnings Per Share
As of December 31, 1997, the Corporation, as required under the
Statement of Financial Accounting Standards SFAS No. 128, Earnings
Per Share, adopted a new financial accounting standard. This new
standard requires that primary earnings per share be replaced with
basic earnings per share and that diluted earnings per share also be
disclosed. Basic earnings per share is the result of dividing
earnings available for common stockholders by the weighted average
number of common shares outstanding during the period. Diluted
earnings per share gives effect to all potentially dilutive common
shares that were outstanding during the period. All earnings per
share data has been restated to conform to this new standard. Net
earnings per share as prev iously reported for the years ending
December 31, 1996 and 1995 was $.66 and $.72.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
2 - Securities
Investment securities held to maturity at December 31 are as follows:
<TABLE>
<CAPTION>
1997
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 $4,246 $35 $1 $4,280 $34
Federal agency obligations 30,081 117 8 30,190 109
Mortgage-backed securities 176 9 185 9
- -------------------------------------------------------------------------------------------------------------------------------
$34,503 $161 $9 $34,655 $152
===============================================================================================================================
</TABLE>
<TABLE>
<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>
During 1997 and 1996 there were no sales of investment securities
classified as held to maturity.
Investment securities available for sale at December 31 are as follows:
<TABLE>
<CAPTION>
1997
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 $2,058 $2,058
Federal agency obligations 3,500 $3 $17 3,486 $(14)
Equity securities 1,303 22 1,325 22
Mortgage-backed securities 13,122 97 13,219 97
- -------------------------------------------------------------------------------------------------------------------------------
$19,983 $122 $17 $20,088 $105
===============================================================================================================================
</TABLE>
<TABLE>
<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>
During 1997 and 1996, the Corporation recognized gross gains on
securities available for sale totaling $219,000 and $112,000,
respectively, from the sale of mortgage-backed securities.
The contractual maturities of securities, other than equity
securities, as of December 31, 1997 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
Amortized Fair
(Dollars in Thousands) cost value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Held to Maturity:
Within 1 year $6,750 $6,728
Over 1 year to 5 years 14,577 14,676
Over 5 years to 10 years 13,176 13,251
- ----------------------------------------------------------------------------------------------------------
Total bond and debt obligations $34,503 $34,655
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Amortized Fair
(Dollars in Thousands) cost value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Available for Sale:
Within 1 year $2,558 $2,552
Over 1 year to 5 years 3,000 2,992
Over 10 years 13,122 13,219
- ----------------------------------------------------------------------------------------------------------
Total bond and
debt obligations $18,680 $18,763
==========================================================================================================
</TABLE>
Securities totaling $14,746,000 at December 31, 1997 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) 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $41,031 $35,523
Real estate construction 5,249 6,071
Real estate 173,263 164,301
Consumer 15,991 15,093
- ----------------------------------------------------------------------------------------------------------
235,534 220,988
Allowance for loan losses (2,848) (2,481)
Deferred loan origination fees (271) (315)
- ----------------------------------------------------------------------------------------------------------
$232,415 $218,192
==========================================================================================================
</TABLE>
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $2,481 $3,707 $3,325
Provision for loan losses 190 868 2,690
Loans charged off (633) (2,463) (2,483)
Recoveries 810 369 175
- ----------------------------------------------------------------------------------------------------------------------------
$2,848 $2,481 $3,707
============================================================================================================================
</TABLE>
The aggregate principal balance of non-accrual loans was $1,042,000,
$2,079,000 and $6,180,000 at December 31, 1997, 1996 and 1995,
respectively. Contractual interest income which was not recognized
on such non-accrual loans was $59,000, $178,000 and $296,000 for
1997, 1996 and 1995, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
The Corporation did not sell any loans with recourse during 1997 or
1996. The remaining recourse exposure on prior sales was $3,084,000
at December 31, 1997. 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 $178,512,000 in real estate loans at December 31, 1997,
$120,504,000 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 $58,008,000 in
outstanding principal at December 31, 1997. 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 $41,031,000 at December 31, 1997 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, for directors,
policy-making officers and major stockholders during the years ended
December 31:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $1,162 $1,334
New loans granted 2,741 389
Repayments of principal (1,999) (561)
- ------------------------------------------------------------------------------------------------------------
Balance at end of year $1,904 $1,162
============================================================================================================
</TABLE>
At December 31, 1997 and 1996, the recorded investment in impaired
loans was $960,000, and $1,836,000, respectively, for which no
additional specific allowance for loan losses was recorded. For the
twelve months ended December 31, 1997 and 1996, the average recorded
investment in impaired loans was $1,272,000 and $3,267,000,
respectively. Interest income recognized during 1997 on impaired
loans was not significant.
The Corporation had no commitments to lend additional funds to
borrowers having loans which are on non-accrual status, are 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 $128,442,000 and $136,713,000 at December 31, 1997 and 1996,
respectively.
4 - Property and Equipment
Major classes of property and equipment at December 31 are summarized as
follows:
<TABLE>
<CAPTION>
Estimated
(Dollars in Thousands) 1997 1996 Lives
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property (including
land of $1,029) $3,163 $2,973 30-40 years
Furniture and equipment 3,063 5,039 3-10 years
Leasehold and building
improvements 2,516 2,401 5-15 years
Motor vehicles 105 103 3 years
- -------------------------------------------------------------------------------------------------------------------------------
8,847 10,516
Accumulated depreciation 4,373 6,177
- -------------------------------------------------------------------------------------------------------------------------------
Property and Equipment $4,474 $4,339
===============================================================================================================================
</TABLE>
5 - Other Real Estate Owned
At December 31, other real estate owned consisted of properties
acquired through foreclosure as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate acquired through foreclosure - net of OREO provision $149 $337
============================================================================================================
</TABLE>
Changes in the allowance for other real estate owned losses are
summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $195 $65 $231
Provision for other real estate owned charged to operations 29 390 224
Write-downs (net of payments) (24) (260) (390)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $200 $195 $65
===============================================================================================================================
</TABLE>
Certain sales of other real estate owned were financed by the Bank,
aggregating approximately $120,000 and $667,000 in 1997 and 1996,
respectively. Net non cash transfer of loans to other real estate
owned were $134,000; $1,115,000 and $375,000 for the years ended
December 31, 1997; 1996 and 1995, respectively.
6 - Deposits
Deposit accounts by type as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Demand deposit $48,638 $44,715
Regular - Savings 35,151 34,770
N.O.W. 15,853 18,381
Money market deposits 25,167 12,493
IRA's 28,582 27,575
Other time deposits 118,169 117,557
- ------------------------------------------------------------------------------------------------------------
$271,560 $255,491
============================================================================================================
</TABLE>
At December 31, 1997, the scheduled maturities of other time
deposits and IRA deposits with a fixed maturity are as follows:
(Dollars in Thousands)
- ---------------------------------------------------------------
1998 $103,262
1999 23,549
2000 7,207
2001 1,903
2002 and thereafter 2
- ---------------------------------------------------------------
$135,923
===============================================================
Certificates of deposit with balances greater than or equal to
$100,000 amounted to $17,682,000 and $17,397,000 as of December 31,
1997 and 1996, respectively. Interest paid on these deposits
totaled approximately $894,000 and $802,000, respectively. At
December 31, 1997, 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
Borrowed funds as of December 31 are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short Term Borrowings:
Securities sold under agreements
to repurchase $8,020 $6,838
Purchased federal funds 270 220
Treasury tax and loan notes 3,594 1,711
- ------------------------------------------------------------------------------------------------------------
Total borrowed funds $11,884 $8,769
============================================================================================================
</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, 1997, the book balance
of the pledged securities was $9,749,000 and the fair value was
$9,782,000. The above short term borrowings mature daily.
The following table summarizes borrowings. Average interest rates
during each year were computed by dividing total interest expense by
the average amount borrowed:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at year end $11,884 $8,769 $7,177
Average amount outstanding 8,989 8,603 7,107
Maximum amount outstanding at any month-end 13,536 12,294 9,675
Average interest rate for the year 3.18% 2.95% 3.78%
Average interest rate on year-end balance 3.15% 2.89% 3.38%
</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, 1997 or 1996. The Bank had additional short term borrowing
capacity through the Federal Home Loan Bank of $5,688,000 through
its Ideal Way program that was unused at year end 1997.
8 - Income Taxes
The income tax provisions (benefits) were as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax:
Federal $1,836 $917 $148
State 403 317 204
- ------------------------------------------------------------------------------------------------------------------------------
Total current 2,239 1,234 352
- ------------------------------------------------------------------------------------------------------------------------------
Deferred tax:
Deferred taxes 74 461 728
Change in valuation allowance for deferred tax assets (2) (101)
- ------------------------------------------------------------------------------------------------------------------------------
Total deferred 72 360 728
- ------------------------------------------------------------------------------------------------------------------------------
Total income taxes $2,311 $1,594 $1,080
==============================================================================================================================
</TABLE>
The differences between the effective tax rate and the federal
statutory tax rate on income before taxes are reconciled as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
Change in valuation allowance for deferred tax asset 1.0
State income taxes, net of federal benefit 6.0 7.0 8.0
Deferred tax benefits realized currently (10.5)
Other .7
- ------------------------------------------------------------------------------------------------------------------------------
41.7% 41.0% 31.5%
==============================================================================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
December 31 are presented below:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other real estate owned $84 $81
Deferred loan fees 112 131
State tax net operating loss carryforward 99 168
Non-accrual interest 48 159
Unrealized gain/loss on securities 71
Other 39 26
- ------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 382 636
Valuation allowance (99) (101)
- ------------------------------------------------------------------------------------------------------------
Net deferred tax assets 283 535
- ------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Bond accretion 17 25
Unrealized gain on securities 44
Depreciation 150 153
Allowance for loan losses 249 440
Deferred FNMA premium 5
Prepaid pension 26 9
- ------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 491 627
- ------------------------------------------------------------------------------------------------------------
Net deferred tax liability $(208) $(92)
============================================================================================================
</TABLE>
As of December 31, 1997, the state net operating loss carryforward
to future periods amounted to approximately $1,277,000 which expire
during 1998. 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 1997, 1996 and 1995 amounted to $201,000,
$213,000 and $216,000, respectively. At May 31, 1997 the most
recent plan year, total plan assets were $2,859,000 and the vested
balance was $2,788,000. The pension plan assets are invested in
money market funds, government bonds, corporate and government
agency bonds and marketable securities.
10 - Stock Options
The Corporation accounts for stock-based compensation using the
intrinsic value.
The Corporation has three fixed option plans which reserve shares of
common stock for issuance to executives, key employees and
directors. During 1997, 1996 and 1995 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 1997, 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:
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings - as reported $3,231,000 $2,248,000 $2,353,000
Net earnings - pro forma $3,136,000 $1,966,000 $2,297,000
Earnings per share - as reported - Basic $.93 $.68 $.74
- Diluted $.89 $.66 $.72
Earnings per share - pro forma - Basic $.90 $.60 $.72
- Diluted $.87 $.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, 67,913 options at a price of $2 per share were
issued. As of December 31, 1997, 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>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options granted and exercisable
at the beginning of the year 277,122 307,706 325,949
Options exercised:
at $2.00 (27,741) (16,268) (8,142)
at $2.50 (27,450) (9,200) (8,200)
at $3.50 (20,302) (5,116)
at $6.00 (10,163)
Options canceled (1,901)
- ------------------------------------------------------------------------------------------------------------------------------
Options granted and exercisable
at the end of the year 191,466 277,122 307,706
==============================================================================================================================
</TABLE>
Unless exercised the options will expire ten years after granting.
No options are available for future grants.
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:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options authorized 125,000
Options granted and exercisable
at the beginning of the year 44,000 33,000
Options granted and exercisable:
at $6.00 33,000
at $7.125 11,000
at $9.375 11,000
Options exercised at $6.00 (2,000)
- ------------------------------------------------------------------------------------------------------------------------------
Options granted and exercisable
at the end of the year 53,000 44,000 33,000
- ------------------------------------------------------------------------------------------------------------------------------
Options available for future grants 70,000 81,000 92,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Unless exercised, the options will expire twenty years after
granting.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
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:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options authorized 178,500
- --------------------------------------------------------------------------------------------------------
Options granted and exercisable at the beginning of the year 133,000
Options granted and exercisable to directors at $8.00 11,000
Options granted and exercisable to employees at $8.125 122,500
Options granted and exercisable to directors at $9.00 9,000
Options exercised at $8.125 (500)
Options terminated (500)
- --------------------------------------------------------------------------------------------------------
Options granted and exercisable at the end of the year 141,500 133,000
- --------------------------------------------------------------------------------------------------------
Options available for future grants 36,500 45,500
- --------------------------------------------------------------------------------------------------------
</TABLE>
11 - Earnings Per Share
The following is a reconciliation of the shares and earnings per
share utilized for the basic and diluted earnings per share
computations for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Shares Per Share
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic Earnings Per Share:
1997 3,487,160 $.93
1996 3,285,093 .68
1995 3,181,742 .74
Effect of Dilutive Option Shares:
1997 125,759 $.04
1996 119,149 .02
1995 90,133 .02
Diluted Earnings Per Share:
1997 3,612,919 $.89
1996 3,404,242 .66
1995 3,271,875 .72
</TABLE>
12 - 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, 1997:
(Dollars in Thousands)
- -------------------------------------------------------------------
1998 $ 229
1999 246
2000 247
2001 271
2002 274
After 2002 1,532
- -------------------------------------------------------------------
Total minimum lease payments $2,799
===================================================================
Rent expense for 1997, 1996 and 1995 amounted to $236,000, $223,000
and $116,000, respectively.
13 - Commitments, Contingent Liabilities
and Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, various commitments and contingent
liabilities are outstanding, such as guarantees, standby letters of
credit, commitments to extend credit and various financial
instruments with off-balance-sheet risk that are not reflected in
the financial statements. Financial instruments with
off-balance-sheet risk involve elements of credit risk, interest
rate risk, liquidity risk and market risk. Management does not
anticipate any significant losses as a result of these transactions.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
The following table summarizes the contractual value of financial instruments
and other commitments at December 31:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to grant loans $9,629 $7,100
Stand-by letters of credit and financial guarantees 1,022 812
Commitments to advance funds under existing loan agreements 29,210 28,719
</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.
14 - Other Non-Interest Income and Expense
The components of other non-interest income and expense, which are
in excess of 1% of the aggregate of total interest income and
non-interest income and not shown separately on the consolidated
statements of income, are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in Thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Loan servicing fees $472 $484 $513
Insurance recovery 703
Expenses:
Computer operations and supplies 232
Service bureau expense 654 556 542
Federal Deposit Insurance
Corporation assessment 433
Professional fees 322 260
Advertising 314 321 284
</TABLE>
15 - Stockholders' Equity and Regulatory Matters
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, 1997, that the Bank meets
all capital adequacy requirements to which it is subject.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
As of December 31, 1997, 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.
The Corporation's and the Bank's actual capital amounts and ratios are also
presented in the following table:
<TABLE>
<CAPTION>
Minimum Capital
to be considered
well capitalized
under Prompt
Minimum Capital Corrective Action
Actual Adequacy Purposes Provisions
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Total Capital
(To risk weighted assets):
Bank $24,535 11.97% $16,397 8.00% $20,496 10.00%
Holding Company 26,277 12.71 16,535 8.00 20,669 10.00
Tier I Capital
(To risk weighted assets)
Bank 21,969 10.70 8,198 4.00 12,298 6.00
Holding Company 23,690 11.44 8,268 4.00 12,401 6.00
Tier I Capital
(To average assets):
Bank 21,969 7.04 12,493 4.00 15,617 5.00
Holding Company 23,690 7.55 12,544 4.00 15,680 5.00
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 18,915 10.00
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 11,359 6.00
Tier I Capital
(To average assets):
Bank 19,182 6.93 11,072 4.00 13,839 5.00
Holding Company 19,745 7.12 11,092 4.00 13,866 5.00
</TABLE>
On November 19, 1997, the Board of Directors of the Corporation
adopted an Amended and Restated Shareholder Rights Plan (the "Rights
Plan"). Pursuant to the terms of the Rights Plan, the Board of
Directors declared a dividend distribution to stockholders of record
as of the close of business on December 4, 1997 (the "Record Date")
of one Preferred Stock Purchase Right (a "Right") for each
outstanding share of Common Stock of the Corporation. In addition,
one Right automatically attache s to each share of Common Stock
issued subsequent to the Record Date, until November 19, 2007. Each
Right entitles the registered holder to purchase from the
Corporation, a unit of one ten-thousandths of a share (a "Unit") of
Series A Junior Participating Cumulative Preferred Stock, par value
$5.00 per share ("Preferred Stock"), at a cash exercise price of
$60.00 per share of Common Stock, subject to adjustment. The
Corporation has reserved 12,000 shares of Preferred Stock for
issuance upon exercise of the Rights.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
Currently, the Rights are not exercisable and are attached to and
trade with the outstanding shares of Common Stock. The Rights will
separate from the Common Stock and become exercisable upon the
earliest to occur of (i) the close of business on the tenth calendar
day following the first public announcement that a person or group
of affiliated or associated persons has acquired beneficial
ownership of 15% or more of the outstanding shares of the
Corporation's Common Stock (an "Acquiring Person"), (ii) the close
of business on the tenth business day (or such date as the Board of
Directors may determine) following the commencement of a tender
offer or exchange offer that would result upon its consummation in a
person or a group becoming the beneficial owner of 15% of the
outstanding shares of the Corporation's Common Stock, (iii) the
determination by the Board of Directors that any person is an
"Adverse Person."
Upon the occurrence of any one of the above events, each holder of a
Right (other than the Acquiring Person or the Adverse Person, as the
case may be) is entitled to acquire such number of Units of the
Preferred Stock of the Corporation which are equivalent to such
number of shares of Common Stock having a value twice the current
exercise price of the Right. If the Corporation is acquired in a
merger or other business combination transaction after any such
event, each holder of a Right is then entitled to purchase at the
then current exercise price, shares of the acquiring companies
common stock having a value of twice the exercise price of the
Right.
Until a Right is exercised, the holder has no rights as a
stockholder of the Corporation (beyond those rights as an existing
stockholder), including the right to vote or to receive dividends.
While the distribution of the Rights is not taxable to stockholders
or to the Corporation, stockholders may, depending upon the
circumstances, recognize taxable income in the event the Rights
become exercisable for Units, other securities of the Corporation,
other consideration or for shares of common stock of an acquiring
company.
The Rights may be redeemed in whole by the Corporation, under
certain circumstances, at a price of $.001 per Right. The Rights
and the Rights Plan expire on November 19, 2007.
16 - Employee Stock Ownership Plan
The Corporation established an Employees' Stock Ownership Plan
("ESOP"). The ESOP has been funded by a $100 contribution from the
Corporation. At December 31, 1997 and 1996, the ESOP held no shares
of the Corporation's stock.
17 - Fair Value of Financial Instruments
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:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(Dollars in Thousands) Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $9,682 $9,682 $10,511 $10,511
Federal funds sold 3,678 3,678 12,890 12,890
Investment securities held to maturity 34,503 34,655 21,295 21,357
Investment securities available for sale 20,088 20,088 14,387 14,387
Loans 232,415 233,841 218,192 217,991
Accrued interest receivable 1,968 1,968 1,636 1,636
Liabilities:
Deposits 271,560 272,097 255,491 255,579
Borrowed funds 11,884 11,884 8,769 8,769
Interest payable on deposits 379 379 328 328
Cash and Due from Banks and Federal Funds Sold
</TABLE>
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
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. 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.
<TABLE>
18 - Summary of Unaudited Quarterly Financial Information - (Unaudited)
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
(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 $5,428 $5,698 $5,979 $6,051 $23,156 $4,952 $5,053 $5,190 $5,405 $20,600
Interest expense 2,411 2,534 2,740 2,687 10,372 2,071 2,147 2,242 2,298 8,758
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 3,017 3,164 3,239 3,364 12,784 2,881 2,906 2,948 3,107 11,842
Provision for loan losses 150 40 190 140 352 176 200 868
Non-interest income 506 485 565 705 2,261 604 551 489 496 2,140
Non-interest expense 2,293 2,323 2,397 2,300 9,313 2,352 2,250 2,267 2,403 9,272
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,080 1,286 1,407 1,769 5,542 993 855 994 1,000 3,842
Income taxes 443 549 589 730 2,311 429 350 421 394 1,594
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $637 $737 $818 $1,039 $3,231 $564 $505 $573 $606 $2,248
Earnings per share
- Basic $.19 $.22 $.23 $.29 $.93 $.17 $.15 $.18 $.18 $.68
- Diluted $.18 $.21 $.22 $.28 $.89 $.17 $.15 $.17 $.17 $.66
==================================================================================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Westbank Corporation and Subsidiaries
19 - Condensed Parent Company Only Financial Statements
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance Sheets
Assets
Cash $31 $30
Investment in subsidiaries 22,030 19,083
Other investments 1,372 333
Other assets 339 307
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $23,772 $19,753
==================================================================================================================================
Liabilities $21 $8
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock - none
Common stock, par value $2 per share 7,163 $6,694
Additional paid-in capital 8,819 7,633
Retained earnings 7,769 5,418
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholder's equity 23,751 19,745
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $23,772 $19,753
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Statements of Income
<S> <C> <C> <C>
Dividend from subsidiary $520 $520 $429
Interest income 38 19 8
- ----------------------------------------------------------------------------------------------------------------------------------
Other income (expense) - net (114) (117) (33)
Income before taxes and
undistributed income of subsidiaries 444 422 404
Income tax benefit 24
Undistributed income of subsidiaries 2,787 1,802 1,949
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $3,231 $2,248 $2,353
==================================================================================================================================
1997 1996 1995
Statements of Cash Flows
Cash flows from operating activities:
Net income $3,231 $2,248 $2,353
Operating Activities:
Equity in income of subsidiaries (2,787) (1,802) (1,949)
Increase in other assets (32) (307)
Increase in other liabilities 13 8
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 425 147 404
Cash flows from investing activities:
Purchase of investment securities (1,039) (88) (190)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from stock options exercised 270 86 37
Proceeds from dividend reinvestment and optional
stock purchases 1,385 657 394
Dividends paid (1,040) (785) (634)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities 615 (42) (203)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1 17 11
Cash and cash equivalents at the beginning of
the year 30 13 2
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $31 $30 $13
==================================================================================================================================
</TABLE>
<PAGE>
INDEPENDENT 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, 1997 and 1996, and the related consolidated statements
of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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, 1997 and 1996, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Hartford, Connecticut
February 6, 1998
<PAGE>
CORPORATE DIRECTOR AND INFORMATION
Westbank Corporation and Subsidiaries
Directors
Westbank Corporation and
Park West Bank and Trust Company
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
Leroy F. Jarrett
President and Treasurer
(Retired)
New England Church Interiors
Ernest N. Laflamme, Jr.
Treasurer
City of Chicopee
Paul J. McKenna, D.M.D.
Orthodontist
Robert J. Perlak
Private Investor
George R. Sullivan
Executive Vice President
Sullivan Paper Company, Inc.
James E. Tremble
President
Valley Cinema, Inc.
Officers
Westbank Corporation
Alfred C. Whitaker
Chairman of the Board
Assistant Corporate Clerk
Ernest N. Laflamme, Jr.
Vice Chairman of the Board
Donald R. Chase
President and Chief Executive Officer
John M. Lilly
Treasurer and Chief Financial Officer
Robert J. Perlak
Corporate Clerk
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
Joseph S. Lemay
Assistant Vice President
Allen J. Miles, III
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
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
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 15, 1998 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 - Trust Department
Independent Auditors
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.
Common Stock - Market Information
The table below shows cash dividend data and the range of bid prices
by quarter for the Corporation's common stock. The source of the
bid ranges is the local newspa- per's listing of the NASD regional
market quotations:
<TABLE>
<CAPTION>
1997 1996
Bid Bid
High Low Dividend High Low Dividend
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $10 $8 3/4 $0.075 $8 1/4 $6 3/4 $0.06
Second 9 1/2 8 1/2 0.075 8 3/4 7 5/8 0.06
Third 11 8 5/8 0.075 8 3/8 7 1/4 0.06
Fourth 13 5/8 10 5/8 0.075 9 3/4 7 1/2 0.06
</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, 1998 the Corporation had 1,202
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.
Keefe, Bruyette & Woods, Inc.
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
21. SUBSIDIARIES OF THE REGISTRANT
1. Park West Bank and Trust Company - Massachusetts
a. Lorac Leasing Corp. - Massachusetts
b. P W B & T, Inc. - Massachusetts
c. 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 9603
<INT-BEARING-DEPOSITS> 79
<FED-FUNDS-SOLD> 3678
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20088
<INVESTMENTS-CARRYING> 34503
<INVESTMENTS-MARKET> 34655
<LOANS> 232415
<ALLOWANCE> 2848
<TOTAL-ASSETS> 308265
<DEPOSITS> 271560
<SHORT-TERM> 11884
<LIABILITIES-OTHER> 1070
<LONG-TERM> 0
0
0
<COMMON> 23751
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 308265
<INTEREST-LOAN> 19735
<INTEREST-INVEST> 3159
<INTEREST-OTHER> 262
<INTEREST-TOTAL> 23156
<INTEREST-DEPOSIT> 10086
<INTEREST-EXPENSE> 286
<INTEREST-INCOME-NET> 12784
<LOAN-LOSSES> 190
<SECURITIES-GAINS> 219
<EXPENSE-OTHER> 9313
<INCOME-PRETAX> 5542
<INCOME-PRE-EXTRAORDINARY> 3231
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3231
<EPS-PRIMARY> .93
<EPS-DILUTED> .89
<YIELD-ACTUAL> 4.48
<LOANS-NON> 1042
<LOANS-PAST> 184
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1226
<ALLOWANCE-OPEN> 2481
<CHARGE-OFFS> 633
<RECOVERIES> 810
<ALLOWANCE-CLOSE> 2848
<ALLOWANCE-DOMESTIC> 2848
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
