<PAGE> 1
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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-12784
WESTBANK CORPORATION
Massachusetts 04-2830731
(State of Incorporation) (I.R.S. Employer
Identification Number)
225 Park Avenue, West Springfield, Massachusetts 01090-0149
(Address of principal executive office) (Zip Code)
(413) 747-1400
(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $2.00 Par Value
Preferred stock, $5.00 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Based on the closing sales price on March 1, 2000 the aggregate market value of
the voting stock held by nonaffiliates of the registrant was $37,923,931.
The number of shares outstanding of the registrants common stock, $2.00 par
value was 4,273,119 on March 1, 2000.
Portions of the Annual Report to Stockholders for the year ended December 31,
1999 are incorporated by reference into Parts I and II.
Portions of the Proxy Statement issued by the Corporation in connection with the
Annual Meeting to be held on April 19, 2000 are incorporated by reference into
Part III.
<PAGE> 2
WESTBANK CORPORATION
INDEX TO FORM 10-K
PART I
Item 1 Business I-1
Item 2 Properties I-2
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a vote of Security Holders I-3
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 Accountant
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> 3
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, 1999, 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 1999
Annual Report to Stockholders and is incorporated herein by reference thereto:
<TABLE>
<CAPTION>
Page of
Annual Report
-------------
<S> <C>
I. Distribution of Assets, Liabilities and Stockholders' Equity:
Interest Rates and Interest Differential 9 and 10
Rate/Volume Analysis of Interest Margin on Earning Assets 11
II. Investment Portfolio 12, 28, 29 and 39
III. Loan Portfolio 13, 29, 30 and 39
a. Types of Loans 13
b. Maturities and Sensitivities to Changes in Interest Rates 8, 9 and 13
c. Risk Elements 8, 14, 15, 16, 29 and 30
IV. Summary of Loan Loss Experience 14 and 15
V. Deposits 16, 31 and 39
VI. Return on Equity and Assets 17
VII. Short Term Borrowing 17, 31, 32 and 38
</TABLE>
I - 1
<PAGE> 4
ITEM 2 PROPERTIES
The Corporation had two principal banking subsidiaries, Park West Bank and Trust
Company ("Park West") and Cargill Bank ("Cargill"). Park West operates thirteen
banking offices located in western Massachusetts, as follows:
<TABLE>
<CAPTION>
=================================================================
LOCATION OWNED LEASED TOTAL
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
<S> <C> <C> <C>
Agawam (Feeding Hills) 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
Chicopee 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
Chicopee - Supermarket 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
East Longmeadow 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
East Longmeadow - Supermarket 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
Holyoke 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
Ludlow 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
Southwick 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
West Springfield 2 1 3
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
Westfield 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
Westfield - Supermarket 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
TOTAL 6 7 13
=================================================================
</TABLE>
All banking offices except the one in Holyoke have drive-in facilities and
twenty-four hour automated teller machines.
Title to the properties described as owned in the foregoing table is held by
Park West 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, through a subsidiary, also owns one other property adjacent to
the main office consisting of land also used as a parking lot.
Cargill operates five banking offices located in northeast Connecticut, as
follows:
<TABLE>
<CAPTION>
=================================================================
LOCATION OWNED LEASED TOTAL
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
<S> <C> <C> <C>
Putnam 1 1 2
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
Woodstock 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
Quinebaug 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
Danielson 1 1
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------
TOTAL 3 2 5
=================================================================
</TABLE>
All general banking facilities have drive-in facilities and twenty-four hour
automated teller machines. Title to the properties described as owned in the
foregoing table is held by Cargill with warranty deed with no material
encumbrances.
I-2
<PAGE> 5
ITEM 3 LEGAL PROCEEDINGS
Certain litigation is pending against the Corporation and the its subsidiaries.
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-3
<PAGE> 6
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, 1999, wherein this subject is
covered.
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, 1999, 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, 1999, 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
primary market areas, western Massachusetts and northeastern
Connecticut;
2. The real estate market in western Massachusetts and
northeastern Connecticut;
3. Competition in Westbank's primary market area from other
banks, especially in light of continued consolidation in the
New England banking industry.
4. Any changes in federal and state bank regulatory requirements;
5. Changes in interest rates; and
6. The cost and other effects of unanticipated legal and
administrative cases and proceedings, settlements and
investigations.
While Westbank periodically reassesses material trends and uncertainties
affecting the Corporation's performance in connection with its preparation of
management's discussion and analysis of results of operations and financial
condition contained in its quarterly and annual reports, Westbank does not
intend to review or revise any particular forward-looking statement in light of
future events.
II-1
<PAGE> 7
PART III
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Pages 20 through 42 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1999, 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 4 through 8 of the Corporation's Proxy Statement to
Stockholders for the 2000 Annual Meeting scheduled for April 19, 2000, wherein
this subject is covered.
ITEM 11 EXECUTIVE COMPENSATION
References is made to Pages 8 through 11 of the Corporation's Proxy Statement to
Stockholders for the 2000 Annual Meeting scheduled for April 19, 2000, 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 2000 Annual Meeting scheduled for April 19, 2000, wherein
this subject is covered.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to Pages 6 through 13, of the Corporation's Proxy Statement to
Stockholders for the 2000 Annual Meeting scheduled for April 19, 2000, wherein
this subject is covered under the caption "Beneficial Ownership of Stock and
Executive Compensation - Miscellaneous".
III - 1
<PAGE> 8
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,
1999:
WESTBANK CORPORATION
<TABLE>
<CAPTION>
Page of
Annual
Report
-------
<S> <C>
Independent Auditors' Reports 43
Consolidated Balance Sheets at December 31, 1999 and 1998 20
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997 21
Consolidated Statement of Stockholders' Equity from January 1, 1997,
to December 31, 1999 22
Consolidated Statements of Comprehensive Income for the years
ended December 31, 1999, 1998 and 1997 22
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 23
Notes to Consolidated Financial Statements 24 - 42
</TABLE>
Current reports on Form 8-K Reporting other Events were filed by
the Registrant on:
NONE
2. Financial Statement Schedules
Financial Statement Schedules are omitted because they are
inapplicable or not required.
3 Exhibits
See accompanying Exhibit Index.
IV - 1
<PAGE> 9
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.
<TABLE>
<CAPTION>
Signature Title Date
- - - - - - - - - - - - - - - - - --------- ----- ----
<S> <C> <C>
/s/ Donald R. Chase President and
- - - - - - - - - - - - - - - - - ----------------------------- Chief Executive Officer and Director March 17, 2000
Donald R. Chase
/s/ Ernest N. Laflamme, Jr. Chairman of the Board
- - - - - - - - - - - - - - - - - ----------------------------- and Director March 17, 2000
Ernest N. Laflamme, Jr.
/s/ John M. Lilly Treasurer and
- - - - - - - - - - - - - - - - - ----------------------------- Chief Financial Officer March 17, 2000
John M. Lilly
/s/ Roland O. Archambault Director March 17, 2000
- - - - - - - - - - - - - - - - - -----------------------------
Roland O. Archambault
/s/ Mark A. Beauregard Director March 17, 2000
- - - - - - - - - - - - - - - - - -----------------------------
Mark A. Beauregard
/s/ David R. Chamberland Director March 17, 2000
- - - - - - - - - - - - - - - - - -----------------------------
David R. Chamberland
Director March 17, 2000
- - - - - - - - - - - - - - - - - -----------------------------
Leroy F. Jarrett
/s/ G. Wayne McCary Director March 17, 2000
- - - - - - - - - - - - - - - - - -----------------------------
G. Wayne McCary
/s/ Robert J. Perlak Corporate Clerk and Director March 17, 2000
- - - - - - - - - - - - - - - - - -----------------------------
Robert J. Perlak
/s/ George R. Sullivan Director March 17, 2000
- - - - - - - - - - - - - - - - - -----------------------------
George R. Sullivan
/s/ James E. Tremble Director March 17, 2000
- - - - - - - - - - - - - - - - - -----------------------------
James E. Tremble
</TABLE>
IV-2
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
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
</TABLE>
* Incorporated by reference to identically numbered exhibits contained in
Registrant's Annual Report on Form 10-K for the year ended December 31,
1988
** Incorporated by reference to identically numbered exhibits contained in
Registrant's Annual Report on Form 10-K for the year ended December 31,
1987
*** Incorporated by reference to identically numbered exhibits contained in
Registrant's Annual Report on Form 10-K for the year ended December 31,
1986
**** Incorporated by reference to identically numbered exhibits contained in
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995
***** Incorporated by reference to identically numbered exhibits contained in
Registrant's 1996 Proxy Statement
IV-3
<PAGE> 1
WESTBANK CORPORATION
1999 ANNUAL REPORT
A YEAR OF GROWTH AND PERFORMANCE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Highlights ............................................... 1
Letter to Stockholders ............................................. 2 - 3
Business - Westbank Corporation and Subsidiaries ................... 4
Selected Consolidated Financial Data ............................... 5
Management's Discussion and Analysis - Financial Results ........... 6 - 19
Consolidated Balance Sheets ........................................ 20
Consolidated Statements of Income .................................. 21
Consolidated Statements of Stockholders' Equity .................... 22
Consolidated Statements of Comprehensive Income .................... 22
Consolidated Statements of Cash Flows .............................. 23
Notes to Consolidated Financial Statements ......................... 24 - 42
Independent Auditors' Reports ...................................... 43
Corporate Directory ................................................ 44
Corporate Information .............................................. IBC
</TABLE>
ON THE COVER
Longevity and continued growth most often are accomplished through perseverance,
strong roots and the ability to withstand the elements. During the nineties,
Westbank's management and the Board of Directors provided the Corporation with a
strong foundation and the ability to flourish and rise above the crowd.
<PAGE> 3
FINANCIAL HIGHLIGHTS
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(Dollars in Thousands) 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 4,167 $ 3,377 $ 3,384
Net interest income 17,121 15,339 14,633
Non-interest income 2,330 2,427 2,529
Non-interest expense 12,598 12,200 11,066
Provision for loan losses 77 41 306
</TABLE>
<TABLE>
<CAPTION>
YEAR END DECEMBER 31
(Dollars in Thousands)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments and
mortgage-backed securities $ 81,320 $ 84,328 $ 60,213
Loans, net 438,567 293,113 268,254
Allowance for loan losses 3,908 2,665 3,057
Total assets 576,150 402,623 355,567
Total deposits 478,896 342,267 314,679
Total stockholders' equity 31,543 30,490 26,918
COMMON SHARE INFORMATION
Basic weighted average
shares outstanding 4,244,402 4,143,009 3,845,698
Basic earnings per share $ .98 $ .82 $ .88
</TABLE>
(Asset/Loans/Deposits Growth Bar Chart)
(in thousands)
<TABLE>
<CAPTION>
Year Assets Loans Deposits
- - - - - - - - - - - - - - - - - ---- ------ ----- --------
<S> <C> <C> <C>
1995 $299,590 $233,527 $269,478
1996 331,803 254,948 298,014
1997 355,567 268,254 314,679
1998 402,623 293,113 342,267
1999 576,150 438,567 478,896
</TABLE>
1
<PAGE> 4
CHAIRMAN'S AND PRESIDENT'S LETTER
Westbank Corporation and Subsidiaries
Dear Shareholder,
Some years are distinguished by solid financial achievements, others by the
execution of strategies that position a company's future. In 1999, we
accomplished both with a dedicated, talented team of employees and a loyal group
of shareholders.
Together, we have built a franchise that continues to grow in strength and
long-term value. In that context, 1999 was a year of across-the-board
achievement with record earnings, strong asset growth, continued excellence in
operating efficiency and two strategic bank acquisitions: Cargill Bancorp, Inc.,
of Putnam, Connecticut and the New London Trust, F.S.B., in Danielson,
Connecticut. We improved our competitive position in terms of both GROWTH and
PERFORMANCE. The future belongs to those who achieve excellence through
commitment and action.
Net income for the year ended December 31, 1999, totaled $4.2 million or $0.98
per basic share, an increase of $790 thousand or 23% compared to $3.4 million or
$0.82 per basic share for 1998.
As of December 31, 1999, assets totaled $576.2 million, an increase of $173.5
million or 43% compared to year-end 1998, while loans grew by $145.4 million or
50% and totaled $438.6 million. Deposits increased to $478.9 million at
year-end, representing growth of $136.6 million or 40% compared to the same
period in 1998. Stockholders' equity totaled $31.5 million and the Corporation's
capital ratio was 6.39%, while book value totaled $7.36. The significant growth
in assets and deposits is the result of the acquisition of Cargill Bancorp, Inc.
and the Connecticut division of New London Trust, F.S.B., as well as an
aggressive and effective marketing campaign. Operating income increased by $1.7
million, while operating expense growth was limited to less than 4% during 1999.
The strategy by which we achieved such results is simple to state: HARD WORK.
Equally important this past year was the successful capital-raising venture
totaling $17 million through the Westbank Corporation trust preferred
securities, which were issued to support the acquisition of the New London Trust
offices.
The company's strength was reflected in our 1999 financial performance. The
strong rate of growth, driven by successful strategic acquisitions, was a
determining factor in the financial performance achieved during a period in
which we integrated the acquired banks and confronted the Year 2000 (Y2K) issue.
This strong performance supports Westbank's mission to achieve superior
financial returns for our investors and build shareholder value.
The ongoing creation of value for the Corporation's shareholders is the key
measure of success. As shareholders, you expect it. Three elements to creating
value are:
- - - - - - - - - - - - - - - - - - Investing corporate resources wisely,
- - - - - - - - - - - - - - - - - - Planning for the future and
- - - - - - - - - - - - - - - - - - Providing fully personalized service and business execution.
The success of the Corporation was, in large part, a result of strategic
initiatives undertaken in the early 1990's, ongoing investments in personnel,
our branch network, new financial products and technology. At Westbank, we
depend on technology to enhance products and services and to help contain
delivery costs. The Corporation committed considerable resources to the
challenges surrounding the Year 2000 (Y2K) issue. We were prepared for a smooth
transition into the next millennium and accomplished this without incident.
Investments in technology are imperative in most industries, especially banking.
We are pleased to announce that we will be introducing a fully integrated
Internet banking program with which you can access your accounts and conduct
banking transactions from your home or your business. We also will be
implementing a debit card program that will further enhance our delivery system
for individuals and businesses.
Our subsidiary banks will continue to concentrate their efforts on the line of
business we know well: corporate banking. At Park West Bank and Trust Company,
we have built a strong and reliable middle market lending capability and
developed a strong credit culture that emphasizes credit quality. We will
replicate this successful formula at Cargill Bank in the northeastern
Connecticut banking market. Cargill and New London Trust were traditional thrift
banks who emphasized residential lending. We intend to build upon those
strengths and add the corporate banking product lines to this new market in
order to compete more effectively for market share and growth.
Critical to our success is our excellent staff of commercial lenders who have
built strong relationships with the customers they serve. The numbers speak for
themselves, but at the heart of the effort are the well-trained, experienced and
innovative loan professionals who make it happen each and every day. However,
building on these positive results will require a strong effort, as we
anticipate increased levels of competitive pressure in every area of traditional
lending.
Spurred by favorable interest rates through most of the year and an effective
construction loan radio advertising campaign, Westbank became a leader in
residential construction loans in western Massachusetts, with residential
mortgage originations reaching near record levels of production. Westbank
continues to differentiate itself from the competition on the basis of customer
service and product delivery. As measured by delinquency and loss experience,
loan quality has remained consistently favorable. We also look for growth in the
Bank's portfolio of serviced loans, where Westbank administers loans sold into
the secondary market. In addition to being an excellent source of fee income,
this activity makes possible ongoing contact with borrowers and creates
excellent opportunities to cross-sell other Bank products and services.
2
<PAGE> 5
With Westbank Corporation stock being traded on NASDAQ, the stock price did not
reflect the Bank's strong performance in 1999 but, instead, followed the general
trends in financial stocks. To be sure, the year now ended witnessed the
continuation - indeed, the acceleration - of the remarkable bull market in
technology stocks, thus adversely affecting the small cap financial stocks. We
are mindful of the opportunities faced by investors as they value Westbank
Corporation stock vis-a-vis technology stocks. While it simply is not possible
to accurately forecast this environment, it is possible to place it in the
context of the past and for the investor in a well-managed commercial community
bank, willing to assume average risks in search for above-average rewards. None
of us can predict the future with accuracy, nor can we be certain that the past
will be its prologue.
With stock value in mind, on February 16, 2000, the Corporation implemented a
Stock Repurchase Program of its common stock. The Company intends to repurchase
up to 5% of the outstanding shares of its common stock or approximately 214,000
of its outstanding shares.
The Stock Repurchase Program is being implemented because the Company believes
the common stock is a good long-term investment opportunity for the Company,
based on the current market price of the common stock. The Corporation has
reviewed the impact on return on equity and earnings per share of this Stock
Repurchase Program and, based on the price-to-book value ratio of the common
stock, believes the investment in the common stock is an appropriate use of the
Company's funds relative to other investment opportunities available to the
Company at this time, given current market and economic conditions. As a result,
the Company believes that the common stock will provide an acceptable return
that generally is equal to or more attractive than similarly safe and sound
investments.
The Company intends to conduct its repurchase from shareholders through
registered broker-dealers in open market purchase transactions. The Company will
hold the shares as treasury shares and may use such shares to fund any stock
benefit or compensation plan, to provide shares for either stock dividends or
the Company's dividend reinvestment plan, or for any other purpose deemed
advisable by the Company's Board of Directors.
The Company believes the repurchase of the shares to be consistent with its
objectives to enhance long-term stockholder value.
The retirement of Leroy F. Jarrett, one of the Bank's founding Directors,
brought to a close a thirty-nine-year career at Westbank Corporation. Roy served
with distinction on various corporate committees, including the Executive
Committee. He also was the Vice Chairman of the Board from 1991 to 1995. We are
grateful to him for his many contributions, integrity and hard work.
[PHOTO OF DONALD R. CHASE]
Donald R. Chase
The banking industry has entered the new millennium faced with many challenges.
The industry expects higher interest rates as the Federal Reserve attempts to
slow economic growth and control inflation. A tight labor market is expected to
continue and productivity is projected to rise. Internet banking will continue
to grow and thrive as society embraces the use of e-commerce. Westbank intends
to roll out its own Internet banking solution this year. The pressure to gain
and retain market share will continue to be as intense as ever, with new
competitors emerging. As the market value of small cap bank stocks improves,
mergers and acquisitions will accelerate. Westbank is positioned to take
advantage of these opportunities when presented.
While much of our success will be determined by events beyond our control, such
as the performance of the financial markets, we can control our corporate
strategy and we can manage an organization to implement it successfully. So, as
we stand on the brink of a new millennium, with the aspirations that accompany
such thresholds, we stand at the very pinnacle of our success. We are confident
that the strategy that has provided such outstanding results for our
shareholders in the past decade will continue to do precisely that in the decade
that lies ahead.
We appreciate your loyalty, confidence and support of Westbank Corporation.
Sincerely,
/s/ DONALD R. CHASE /s/ ERNEST N. LAFLAMME, JR.
DONALD R. CHASE ERNEST N. LAFLAMME, JR.
President and Chairman of the Board
Chief Executive Officer
3
<PAGE> 6
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. On January 29, 1999, Westbank
became the owner of all the outstanding stock of Cargill Bank (hereinafter
sometimes referred to as "Cargill"), a state chartered savings and loan
association.
PARK WEST BANK AND TRUST COMPANY
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 thirteen 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, 1999, amounted to
$113,008,000 and is not included in the accompanying financial statements since
such items are not assets of the Bank.
CARGILL BANK
Cargill is a Connecticut state chartered savings and loan association
headquartered in Putnam, Connecticut. Cargill is a member of the FDIC and is
subject to regulation by the State of Connecticut Department of Banking and the
Office of Thrift Supervision ("OTS"). On October 29, 1999, Cargill completed its
purchase of certain assets and assumption of certain liabilities of New London
Trust, F.S.B., including two branches in Putnam and Danielson, Connecticut, with
such assets totaling $106,000,000. Cargill provides a full range of retail
banking services to individuals, businesses and nonprofit organizations through
five banking offices located in Windham County, Connecticut. Such services
include a wide range of checking and savings accounts, loans, safe deposit
facilities and automated teller machines at all branch locations.
Cargill also provides lending, depository and related financial services to
commercial, industrial, financial and governmental customers. In the lending
area, these services 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.
EMPLOYEES
As of December 31, 1999, the Corporation and its subsidiaries had the equivalent
of 186 full-time officers and staff.
COMPETITION
Westbank's banking, real estate activity and trust services are competitive with
other western Massachusetts and northeast Connecticut financial institutions.
Its service area is in western Massachusetts and northeast Connecticut.
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.
4
<PAGE> 7
SELECTED CONSOLIDATED FINANCIAL DATA
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31,
(Dollars in Thousands, except share amounts) 1999 1998 1997 1996 1995
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and dividend income $ 32,437 $ 28,631 $ 26,724 $ 24,059 $ 23,475
Interest expense 15,316 13,292 12,091 10,524 10,145
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Net interest income 17,121 15,339 14,633 13,535 13,330
Provision for loan losses 77 41 306 944 2,907
Non-interest income 2,330 2,427 2,529 2,340 3,104
Non-interest expense 12,598 12,200 11,066 11,278 9,969
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 6,776 5,525 5,790 3,653 3,558
Income taxes 2,609 2,148 2,406 1,516 1,132
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,167 $ 3,377 $ 3,384 $ 2,137 $ 2,426
================================================================================================================================
Common share data:
Earnings per share:
Basic $ .98 $ .82 $ .88 $ .59 $ .69
Diluted $ .96 $ .79 $ .85 $ .57 $ .67
Cash dividends declared $ .40 $ .40 $ .30 $ .24 $ .20
Ending book value $ 7.36 $ 7.26 $ 6.84 $ 6.19 $ 5.80
AT DECEMBER 31:
Total loans -- net $ 438,567 $ 293,113 $ 268,254 $ 254,948 $ 233,527
Total assets 576,150 402,623 355,567 331,803 299,590
Total non-performing assets 2,881 1,494 2,025 3,791 8,655
Total deposits 478,896 342,267 314,679 298,014 269,478
Total borrowings 46,546 27,807 11,884 9,269 7,677
Mandatory redeemable trust preferred stock 17,000
Total stockholders' equity 31,543 30,490 26,918 22,717 20,786
AVERAGE FOR YEAR:
Loans 349,614 284,629 270,066 246,366 232,423
Assets 450,691 382,924 348,561 313,063 297,676
Deposits 384,410 335,110 312,725 280,855 269,105
Stockholders' equity 31,187 29,229 24,638 21,777 19,741
Weighted shares outstanding - Basic 4,244,402 4,143,009 3,845,698 3,643,270 3,539,919
- Diluted 4,333,326 4,272,682 4,003,015 3,762,419 3,630,052
SELECTED RATIOS:
Rate of return on average total assets .92% .88% .97% .68% .81%
Rate of return on average stockholders' equity 13.36% 11.55% 13.73% 9.81% 12.29%
Average total stockholders' equity
to average total assets 6.92% 7.63% 7.07% 6.96% 6.63%
Allowance for loan losses to total loans at year end .88% .90% 1.13% 1.05% 1.65%
Non-performing loans as a percentage
of total loans at year end .56% .37% .68% 1.23% 2.89%
Net charge-offs (recoveries) as a
percentage of average loans .14% .15% (.02)% .88% 1.03%
Other real estate owned as a percentage of total assets .08% .12% .10% .19% .53%
</TABLE>
5
<PAGE> 8
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. Effective January 29, 1999,
Cargill Bancorp, Inc., and its subsidiary ("Cargill") were merged with and into
Westbank Corporation, pursuant to a plan of merger dated July 15, 1998. Each
share of Cargill common stock was converted into 1.3655 shares of the
Corporation's common stock. Approximately 400,164 of Westbank common shares were
issued for the outstanding common stock of Cargill.
The transaction was accounted for using the pooling-of-interests method and,
accordingly, all historical financial data has been restated to include both
entities for all periods presented. The restatement of the historical data is
based on Westbank's fiscal year-end December 31 and Cargill's fiscal year-end
September 30 for all periods prior to 1999.
On October 29, 1999, Cargill Bank completed its acquisition of the Connecticut
division of New London Trust, F.S.B. The two New London Trust offices became
part of Cargill Bank, increasing its number of offices to five. The acquisition
resulted in $106 million of assets (loans of $84 million) and $106 million of
liabilities being acquired as of October 29, 1999. The Corporation has accounted
for this acquisition on the purchase accounting method.
For 1999, the Corporation reported net income of $4,167,000, or $.98 per share
basic and $.96 diluted, after providing $77,000 for loan losses. This compares
to net income for 1998 of $3,377,000, or $.82 per share basic and $.79 diluted.
The Corporation's 1998 earnings reflected a provision for loan losses of
$41,000. Net interest income increased $1,782,000 from 1998 to 1999.
Non-interest expense amounted to $12,598,000 in 1999 compared to $12,200,000 in
1998, an increase of $398,000, or 3.3%. The increase in operating expenses for
1999 is a result of the overall growth of the Corporation. Non-interest income
declined by $97,000 compared to 1998. During 1999, Trust Department earnings
were level with 1998. Gains on sale of investments, other real estate and sale
of mortgages declined by $174,000, while service charges on deposit accounts,
other non-interest income and loan servicing fees increased by $73,000 compared
to 1998. Income taxes in 1999 totaled $2,609,000, an increase of $461,000 versus
1998.
At December 31, 1999, the Corporation's total assets were $576,150,000, an
increase of $173,527,000 or 43%, from $402,623,000 at year-end 1998. The higher
level of assets resulted primarily from the acquisition of the New London Trust
offices totaling approximately $106,000,000 and normal operating growth of
approximately $68,000,000. The growth in assets was funded largely by the
assumption of New London Trust deposits of $106,000,000 and overall deposit
growth at the banking subsidiaries.
Non-performing assets amounted to $2,881,000 or .50% of total assets at December
31, 1999, compared with $1,494,000 or .37% at the end of 1998.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
imposes significant regulatory restrictions and requirements on banking
institutions insured by the FDIC and their holding companies. FDICIA established
capital categories into which financial institutions are placed based on capital
level. Each capital category establishes different degrees of regulatory
restrictions which can apply to a financial institution. As of December 31,
1999, Park West's and Cargill's capital was at a level that placed each Bank in
the "well capitalized" category as defined by FDICIA.
FDICIA imposes a variety of other restrictions and requirements on insured
banks. These include significant regulatory reporting requirements such as
insuring that a system of risk-based deposit insurance premiums and civil money
penalties for inaccurate deposit 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.
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
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.
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Stockholders' Equity
Common stock $ 8,567 $ 8,397 $ 7,865
Additional paid-in-capital 11,633 11,076 9,711
Retained earnings 13,317 10,803 9,282
Accumulated other
comprehensive income (loss) (1,974) 214 60
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Total Capital $ 31,543 $ 30,490 $ 26,918
===============================================================================
Ratio of capital
to average total assets 6.92% 7.53% 7.44%
</TABLE>
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 and a portion of the mandatory redeemable preferred stock;
total risk-based, or supplementary capital includes not only the equity but also
a portion of the allowance for loan losses and a portion of the mandatory
redeemable preferred stock.
The following are the Corporation's risk-based capital ratios at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 risk-based capital (minimum required 4%) 10.17% 11.94% 11.57%
Total risk-based capital (minimum required 8%) 12.50% 13.00% 12.77%
</TABLE>
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 and investments, rate-insensitive checking accounts as well as a
combination of fixed and variable rate deposit products and borrowed funds. 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
that 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.
7
<PAGE> 10
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 management and approved by the Board of Directors. The
following is a summary of the interest rate exposure report as of December 31,
1999 and 1998:
<TABLE>
<CAPTION>
Percentage Change in
Change in Interest Rates Net Interest Income
(In Basis Points) 1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C>
+200 (3.00)% (5.21)%
Level 0% 0%
-200 2.00% (0.71)%
</TABLE>
The change in net interest income between 1999 and 1998 when rates decline 200
basis points was primarily the result of the low interest rate environment
during 1998. In the prior year, many deposit rates were not able to be decreased
by the full 200 basis points. The inability to reduce deposit rates would have
caused net interest income to decline during a falling interest rate environment
despite the Corporation being liability-sensitive.
The model utilized to create the results 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 rise and increase when rates fall. 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,
1999, 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.
8
<PAGE> 11
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 $ 1,662 $ 15,555 $ 64,103 $ 81,320
Interest bearing cash 275 $ 695 177 1,147
Loans 64,473 64,848 150,082 163,072 442,475
Federal funds sold 13,389 13,389
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
79,799 65,543 165,814 227,175 538,331
INTEREST BEARING LIABILITIES
Savings deposits 8,657 77,909 86,566
NOW accounts 3,108 27,974 31,082
Money market accounts 32,694 32,694
Other time deposits 96,995 127,450 44,466 268,911
Borrowed funds and preferred stock 39,547 7,000 17,222 63,769
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------
$ 169,236 $ 139,215 $ 157,349 $ 17,222 $ 483,022
=============================================================================================================
Interest Rate
Sensitivity Gap $ (89,437) $ (73,672) $ 8,465 $ 209,953 $ 55,309
Cumulative Interest Rate
Sensitivity Gap (89,437) (163,109) (154,644) 55,309
Interest Rate
Sensitivity Gap Ratio (16.61)% (13.69)% 1.57% 39.00% 10.27%
Cumulative Interest Rate
Sensitivity Gap Ratio (16.61)% (30.30)% (28.73)% 10.27%
</TABLE>
The presentation of a run off and repricing of savings accounts and NOW accounts
is based on the Corporation's historical experience with $8,657,000 and
$3,108,000, 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 1999, 1998
and 1997. 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:
9
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
1999 1998 1997
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 $ 812 $ 49 6.03% $ 3,663 $ 221 6.03% $ 6,978 $ 430 6.16%
Federal agencies 69,536 4,638 6.67 61,856 3,994 6.46 42,072 2,833 6.73
Tax exempt federal (a) 284 20 7.04
Other securities 1,910 155 8.12 4,969 304 6.12 3,835 240 6.26
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Total securities 72,542 4,862 6.70 70,488 4,519 6.41 52,885 3,503 6.62
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing cash and
temporary investments 2,559 123 4.81 792 29 3.66 1,340 73 5.45
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Loans: (b)
Commercial 52,356 4,221 8.06 41,129 3,810 9.26 38,058 3,640 9.56
Tax exempt federal (a) 2,191 198 9.04
Real estate 258,639 20,120 7.78 213,377 17,400 8.15 205,984 17,153 8.33
Consumer 36,428 2,815 7.73 30,123 2,435 8.08 26,024 2,100 8.07
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Total loans 349,614 27,354 7.82 284,629 23,645 8.31 270,066 22,893 8.48
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Federal funds sold 3,287 171 5.20 7,761 438 5.64 4,800 255 5.31
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 428,002 $32,510 7.60% 363,670 $28,631 7.87% 329,091 $26,724 8.12%
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (3,019) (2,920) (2,840)
Cash and due from banks 12,033 11,120 10,888
Other assets 13,675 11,054 11,422
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Total assets $450,691 $382,924 $348,561
==================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings $ 63,611 $ 1,742 2.74% $ 50,588 $ 1,382 2.73% $ 47,020 $ 1,160 2.47%
Money market 29,465 883 3.00 31,663 1,195 3.77 17,132 572 3.34
Negotiated rate certificates 34,934 1,754 5.02 22,977 1,118 4.87 18,528 922 4.98
Other time deposits 202,834 9,296 4.58 181,085 8,967 4.95 184,165 9,146 4.97
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Total time deposits 330,844 13,675 4.13 286,313 12,662 4.42 266,845 11,800 4.42
Borrowed funds/preferred stock 33,001 1,641 4.97 16,906 630 3.73 9,065 291 3.21
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 363,845 15,316 4.21 303,219 13,292 4.38 275,910 12,091 4.38
Demand deposits 53,566 48,797 45,880
Other liabilities 2,093 1,679 2,133
Stockholders' equity 31,187 29,229 24,638
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $450,691 $382,924 $348,561
==================================================================================================================================
Net interest income 17,194 15,339 14,633
Yield spread 3.49% 3.49% 3.74%
Net yield on earning assets 4.02% 4.22% 4.45%
Deduct tax equivalent adjustment 73
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income $17,121 $15,339 $14,633
==================================================================================================================================
</TABLE>
(a) Tax equivalent basis. Interest income on non-taxable investment securities
and loans includes the effects of the 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 1999, the yield spread remained level at 3.49% versus 1998. The
Corporation's net interest margin decreased during 1999 to 4.02% from 4.22% in
1998, a decrease of 20 basis points.
During 1998, the yield spread declined to 3.49% from 3.74% in 1997, down 25
basis points. The Corporation's net interest margin decreased during 1998 to
4.22% from 4.45% in 1997, a decrease of 23 basis points. The section titled
Rate/Volume Analysis further describes the change in yields.
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
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 1999 as compared with 1998 and 1998 compared with 1997.
<TABLE>
<CAPTION>
1999 Compared With 1998 1998 Compared With 1997
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Increase Due to* Increase Due to*
(Dollars in Thousands) 1999 1998 (Decrease) Volume Rate 1998 1997 (Decrease) Volume Rate
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned:
Securities:
U.S. Treasury $ 49 $ 221 $ (172) $ (172) $ 221 $ 430 $ (209) $ (200) $ (9)
Federal agencies 4,638 3,994 644 510 $ 134 3,994 2,833 1,161 1,281 (120)
Tax exempt federal 20 20 20
Other securities 155 304 (149) (227) 78 304 240 64 69 (5)
Interest-bearing cash 123 29 94 82 12 29 73 (44) (24) (20)
Loans:
Commercial 4,221 3,810 411 947 (536) 3,810 3,640 170 286 (116)
Tax exempt federal 198 198 198
Real estate 20,120 17,400 2,720 3,552 (832) 17,400 17,153 247 600 (353)
Consumer 2,815 2,435 380 490 (110) 2,435 2,100 335 332 3
Federal funds sold 171 438 (267) (235) (32) 438 255 183 166 17
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
32,510 28,631 3,879 5,165 (1,286) 28,631 26,724 1,907 2,510 (603)
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings 1,742 1,382 360 356 4 1,382 1,160 222 93 129
Money market 883 1,195 (312) (80) (232) 1,195 572 623 540 83
Negotiated rate certificates 1,754 1,118 636 600 36 1,118 922 196 218 (22)
` Other time deposits 9,296 8,967 329 1,028 (699) 8,967 9,146 (179) (142) (37)
Borrowed funds 1,641 630 1,011 749 262 630 291 339 285 54
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
15,316 13,292 2,024 2,653 (629) 13,292 12,091 1,201 994 207
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income $17,194 $15,339 $1,855 $2,512 $ (657) $15,339 $14,633 $ 706 $1,516 $(810)
==================================================================================================================================
</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 for 1999 increased to $17,194,000, up 12% from $15,339,000
in 1998. An 18% increase in average earning assets and a 27 basis point decline
in average rate of return resulted in an increase in volume of $5,165,000 and a
decrease in rate of $1,286,000. An increase of 20% in average interest-bearing
liabilities and a 17 basis point decline in average rate of interest paid
contributed to an increase in volume of $2,653,000 and in increase in rate of
$629,000.
Net interest income for 1998 increased to $15,339,000, up 5% from $14,633,000 in
1997. An 11% increase in average earning assets and a 25 basis point decline in
average rate of return resulted in an increase in volume of $2,510,000 and a
decrease in rate of $603,000. An increase of 10% in average interest-bearing
liabilities and a 1 basis point increase in average rate of interest paid
contributed to an increase in volume of $994,000 and an increase in rate of
$207,000.
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. 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.
11
<PAGE> 14
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, 1999 of
the securities portfolio. The following table shows the amortized cost (in
thousands) of the Corporation's securities held to maturity at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. Government obligations $ 499 $ 998 $ 4,246
Federal agency obligations 9,459 26,890 32,927
Mortgage-backed securities 1,846 2,728 2,330
Other debt securities 99
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Amortized cost $11,804 $30,616 $39,602
================================================================================
</TABLE>
The following table shows the fair value (in thousands) of the Corporation's
securities available for sale at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. Government obligations $ 11 $ 928 $ 2,058
Federal agency obligations 50,379 26,667 3,486
Mortgage-backed securities 16,504 24,372 13,502
Municipal bonds 598
Equity securities 2,024 1,745 1,664
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
69,516 53,712 20,710
Gross unrealized (gain) loss on
securities available for sale 3,053 (352) (104)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Amortized cost $ 72,569 $ 53,360 $ 20,606
===============================================================================
</TABLE>
The following table shows weighted average yields and maturity distribution of
debt securities at December 31, 1999:
<TABLE>
<CAPTION>
Within 1 Year 1 to 5 Years 5 to 10 Years After 10 Years Total
Average Amortized Average Amortized Average Amortized Average Amortized Average Amortized
Yield Cost Yield Cost Yield Cost Yield Cost Yield Cost
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Government
obligations 5.5% $11 6.39% $ 499 6.37% $ 510
Federal agency
obligations 6.44 14,028 6.89% $45,183 6.41% $ 3,000 6.77 62,211
Mortgage-backed
securities 6.67 1,053 6.84 790 6.36 17,170 6.40 19,013
Municipal bonds 4.59 615 4.59 615
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Total debt
Securities 5.5% $11 6.46% $15,580 6.86% $46,588 6.37% $20,170 6.67% $82,349
==============================================================================================================================
</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.
12
<PAGE> 15
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>
1999 1998 1997 1996 1995
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial $ 56,276 $ 41,760 $ 41,661 $ 36,153 $ 36,080
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------
Real Estate:
Construction 5,952 5,998 5,302 6,662 8,526
Residential (1-4 family) 263,832 168,744 152,896 153,781 132,530
Commercial properties 85,385 60,348 55,127 45,506 51,059
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------
Total Real Estate 355,169 235,090 213,325 205,949 192,115
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------
Consumer 31,556 19,277 16,648 15,943 9,701
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------
Gross loans 443,001 296,127 271,634 258,045 237,896
Deferred loan origination
fees-net of costs (526) (349) (323) (398) (445)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------
Total Loans 442,475 295,778 271,311 257,647 237,451
Allowance for loan
losses (3,908) (2,665) (3,057) (2,699) (3,924)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------
Net loans $ 438,567 $ 293,113 $ 268,254 $ 254,948 $ 233,527
=====================================================================================================
</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 and Northeastern
Connecticut areas. The aggregate amount of loans to executive officers,
directors and organizations with which they are associated amounted to
$3,266,000 or 10.4% of stockholders' equity as of December 31, 1999, compared to
$3,041,000 or 10% as of December 31, 1998.
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, 1999:
(Loan Mix Pie Chart)
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
Residential Real Estate...............$269,784
Commercial Loans...................... 56,276
Commercial Real Estate................ 85,385
Consumer Loans........................ 31,556
</TABLE>
<TABLE>
<CAPTION>
12 Months 1 - 5 After
(Dollars in Thousands) or Less Years 5 Years Total
===================================================================================
<S> <C> <C> <C> <C>
Commercial $42,723 $12,229 $ 1,324 $56,276
Commercial real estate-construction 5,952 5,952
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
Totals $48,675 $12,229 $ 1,324 $62,228
===================================================================================
</TABLE>
Of the commercial loans which mature beyond one year, approximately $13,157,000
have fixed rates and the remaining $396,000 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 $4,604,000 and $38,827,000, respectively, at December 31,
1999 and $9,281,000 and $31,457,000, respectively, in 1998. See further
discussion in Note 14 to the Consolidated Financial Statements.
13
<PAGE> 16
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 of 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,
1999, 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) 1999 1998 1997 1996 1995
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 2,665 $ 3,057 $ 2,699 $ 3,924 $ 3,402
Provision charged to expense 77 41 306 944 2,907
Acquisition 1,669
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
4,411 3,098 3,005 4,868 6,309
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
Charge-offs:
Loans secured by real estate 78 318 394 1,745 2,180
Construction/land development 190 12
Commercial and
industrial loans 455 153 250 510 246
Consumer loans 90 47 116 94 122
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
623 518 760 2,539 2,560
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
Recoveries:
Loans secured by real estate 79 42 354 324 24
Construction/land development 14 14 75
Commercial and
industrial loans 15 30 445 12 51
Consumer loans 12 13 13 20 25
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
120 85 812 370 175
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) 503 433 (52) 2,169 2,385
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 3,908 $ 2,665 $ 3,057 $ 2,699 $ 3,924
==========================================================================================================================
Average loans outstanding $ 349,614 $ 284,629 $ 270,066 $ 246,366 $ 232,422
==========================================================================================================================
Net charge-offs (recoveries) as a percentage
of average loans 0.14% 0.15% (0.02)% 0.88% 1.03%
Net charge-offs (recoveries) as a percentage of
the allowance at January 1 18.87 14.16 (1.93) 55.28 70.11
Allowance as a percentage of total
loans at December 31 0.88 0.90 1.13 1.05 1.65
Allowance as a percentage of
non-performing loans
at December 31 160.23 259.24 166.87 85.41 55.42
</TABLE>
14
<PAGE> 17
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>
1999 1998 1997 1996 1995
% OF % of % of % of % of
TOTAL Total Total Total Total
(Dollars in Thousands) 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 $2,986 78.84% $1,764 77.38% $2,083 76.55% $1,763 77.23% $2,898 77.17%
Construction/land
development 64 1.34 70 2.03 83 1.97 94 2.58 156 3.58
Commercial and industrial
loans 581 12.70 628 14.10 697 15.35 685 14.01 776 15.17
Consumer loans 277 7.12 203 6.49 194 6.13 157 6.18 94 4.08
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
$3,908 100% $2,665 100% $3,057 100% $2,699 100% $3,924 100%
==============================================================================================================================
</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. The increase in the allowance for loan losses from 1998 to
1999 is primarily the result of the acquisition of a loan loss allowance
totaling $1,669,000 related to the loans acquired with the purchase of the New
London Trust offices.
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) 1999 1998 1997 1996 1995
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans on a non-accrual basis $ 2,001 $ 797 $ 1,648 $ 2,878 $ 6,578
==========================================================================================================
Non-accrual loans as a percentage
of total net loans outstanding 0.46% 0.27% 0.61% 1.13% 2.82%
Non-accrual loans as a percentage
of total assets 0.35% 0.20% 0.46% 0.87% 2.20%
Loans contractually past due 90
days or more and still accruing $ 438 $ 231 $ 184 $ 282 $ 503
</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 $77,000,
$35,000, $79,000, $240,000 and $331,000 for 1999, 1998, 1997, 1996 and 1995,
respectively. The increase in non-accrual loans from 1999 is attributable to the
loans acquired with the purchase of the New London Trust branches. The
Corporation charged off approximately $400,000 in loans during the last quarter
of 1999. This charge-off amount was in anticipation of a sale of a
non-performing loan pool, which closed after year-end.
15
<PAGE> 18
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 1999 and 1998 on impaired
loans was not significant. At December 31, 1999 and 1998, the recorded
investment in impaired loans was $2,365,000 and $1,419,000 respectively, for
which no additional specific allowance for loan losses was recorded. For the
twelve months ended December 31, 1999, the average recorded investment in
impaired loans was $874,000 compared to $1,366,000 for 1998.
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
are considered to be impaired as described in Note 1 to the financial
statements.
OTHER REAL ESTATE OWNED
The following table sets forth information regarding other real estate owned at
December 31:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997 1996 1995
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Other real estate owned - net $442 $466 $353 $631 $1,574
Other real estate owned as a
percentage of total assets .08% .12% .10% .19% .53%
</TABLE>
DEPOSITS
The following table sets forth the average amounts of various classifications of
deposits:
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in Thousands) AMOUNT RATE Amount Rate Amount Rate
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Savings $ 63,611 2.74% $ 50,588 2.73% $ 47,020 2.47%
Money market 29,465 3.00 31,663 3.77 17,132 3.34
Negotiated rate certificates 34,934 5.02 22,977 4.87 18,528 4.98
Other time deposits 202,834 4.58 181,085 4.95 184,165 4.97
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------
330,844 4.13% 286,313 4.42% 266,845 4.42%
Demand deposits 53,566 48,797 45,880
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------
$ 384,410 $ 335,110 $ 312,725
====================================================================================================
</TABLE>
(DEPOSIT MIX PIE CHART)
(as of December 31, 1999)
(in thousands)
<TABLE>
<CAPTION>
- - - - - - - - - - - - - - - - - ---------------------------------------
<S> <C>
Demand Deposits $ 59,643
Savings Deposits 86,566
NOW Deposits 31,082
Money Market Deposits 32,694
Other Time Deposits 268,911
=======================================
</TABLE>
Certificates of deposits of $100,000 and over at December 31, 1999 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 $25,576 $9,768 $11,511 $5,394 $52,249
=============================================================================================
</TABLE>
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
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>
1999 1998 1997
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on average total assets .92% .88% .97%
Return on average stockholders' equity 13.36 11.55 13.73
Average stockholders' equity to average total assets 6.92 7.63 7.07
Dividend payout ratio 39.67 44.54 30.76
</TABLE>
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) 1999 1998 1997
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at year end $46,546 $27,807 $11,884
Average amount outstanding 28,751 16,442 9,065
Maximum amount outstanding at any month-end 46,769 28,307 14,036
Average interest rate for the year 5.37% 3.83% 3.20%
Average interest rate on year-end balance 4.97 3.85 3.15
</TABLE>
STATEMENTS OF INCOME
In the following sections of Management's Discussion and Analysis of the
Statements of Income, the comparative results of 1999, 1998 and 1997 will be
covered in greater detail. As of December 31, 1999, the principal earning assets
of the holding company consist of a commercial bank, Park West Bank and Trust
Company, and a Connecticut state-chartered savings and loan association, Cargill
Bank. 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, 1999. The significant changes are discussed in the analysis that
follow the summary.
<TABLE>
<CAPTION>
Percentage of
increase (decrease)
1999 1998
Over Over
(Dollars in Thousands) 1999 1998 1997 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $17,121 $15,339 $14,633 11.62% 4.82%
Provision for loan losses 77 41 306 87.80 (86.60)
Non-interest income 2,330 2,427 2,529 (4.00) (4.03)
Non-interest expense 12,598 12,200 11,066 3.16 10.25
Income taxes 2,609 2,148 2,406 17.67 (10.72)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------
Net Income $ 4,167 $ 3,377 $ 3,384 23.39% (0.21)%
======================================================================================
</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 1999 amounted to $32,437,000 as compared to
$28,631,000 for 1998 and $26,724,000 for 1997. For 1999 this represents an
increase of $3,806,000 or 13% over 1998, while interest income increased by
$1,907,000 or 7% in 1998 versus 1997. The increase in 1999 is the result of an
increase in average earning assets of $64,332,000 or 18%, offset by a decrease
of 20 basis points in average earning interest rate. The increase in 1998 over
1997 is the result of an increase in average earning assets of $34,579,000
offset by a 25 basis point decrease in average earning interest rate.
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
INTEREST EXPENSE
Interest expense for 1999 on deposits and borrowings amounted to $15,316,000 as
compared to $13,292,000 in 1998 and $12,091,000 for 1997. Interest expense
increased by $2,024,000 or 15% during 1999 compared to 1998 and 1998 interest
expense increased by $1,201,000 or 10% versus 1997. The 1999 increase is the
result of an increase in average interest-bearing liabilities of $60,626,000 and
a 17 basis point decrease in the average rate of interest paid compared to 1998.
The increase in interest expense during 1998 versus 1997 is the result of an
increase of average interest-bearing liabilities of $27,309,000 combined with a
1 basis point increase in 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. 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).
NET INTEREST INCOME BAR CHART
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
(in thousands)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$13,330 $13,535 $14,633 $15,339 $17,121
</TABLE>
The following table sets forth Westbank's net interest income:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total interest income $32,437 $28,631 $26,724
Total interest expense 15,316 13,292 12,091
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Net interest income $17,121 $15,339 $14,633
================================================================================
</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 1999 provision for loan losses totaled $77,000 compared with $41,000 in
1998, an increase of 88%. During 1998, the provision decreased by $265,000
versus 1997. The decrease in the provision for loan losses during 1998 versus
1997 is directly attributable to the decrease in non-performing loans and the
overall credit quality of the Bank's loan portfolio. 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 $2,330,000 in 1999, a decrease of
$97,000 from the prior year and a decrease of $199,000 versus 1997. Non-interest
income for 1999 reflects an increase in Trust Department earnings of $4,000, an
increase in service charges on deposit accounts and other non-interest income of
$251,000, a decrease in loan servicing income of $178,000 and decreases from the
gain on sale of investments, other real estate and mortgages totaling $174,000
compared to 1998.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED)
Westbank Corporation and Subsidiaries
NON-INTEREST EXPENSE
The components of other operating expenses are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and benefits $ 6,541 $ 5,797 $ 5,461
Occupancy 881 802 794
Other non-interest expense 5,153 5,497 4,590
Other real estate
owned expenses and provision 23 104 221
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
$12,598 $12,200 $11,066
================================================================================
</TABLE>
(Operating Expenses Bar Chart)
(as a percentage of average assets)
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
3.34% 3.60% 3.17% 3.19% 2.79%
</TABLE>
Overall non-interest expense increased during 1999 by $398,000 versus 1998 and
by $1,532,000 compared to 1997. During 1999, salaries and benefits increased by
$744,000, attributable to overall corporate growth and the staff requirements
for the addition of the branch offices acquired during 1999. Occupancy increased
by $79,000 versus 1998. Finally, other non-interest expense and depreciation and
amortization expense decreased in 1999 by $344,000, the result of the
recognition of approximately $595,000 of merger expense related to the
acquisition of Cargill Bancorp, Inc., recorded during 1998.
INCOME TAXES
For the year ended December 31, 1999, Westbank Corporation recorded a tax
expense of $2,609,000 compared to 1998, when the Corporation recorded a tax
expense of $2,148,000.
NET INCOME
The net income for 1999 of $4,167,000, or $.98 per share basic and $.96 per
share diluted, is based on a weighted average of 4,244,402 basic and 4,333,326
diluted shares outstanding, compared with a net income for 1998 of $3,377,000,
or $.82 per share basic and $.79 per share diluted based on a weighted average
of 4,143,009 basic and 4,272,682 diluted. Net income in 1997 was $3,384,000, or
$.88 per share basic and $.85 per share diluted and based on weighted average
shares of 3,845,698 basic and 4,003,015 diluted.
(Net Income Bar Chart)
(in thousands)
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$2,426 $2,137 $3,384 $3,377 $4,167
</TABLE>
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which will be effective in 2001.
For further discussion, see the Summary of Significant Accounting Policies in
the Notes to the Financial Statements.
[BARCHART]
19
<PAGE> 22
CONSOLIDATED BALANCE SHEETS
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands, except share amounts) 1999 1998
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks:
Non-interest bearing $ 17,006 $ 11,291
Interest bearing 1,147 1,880
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
18,153 13,171
Federal funds sold 13,389 1,069
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Total cash and cash equivalents 31,542 14,240
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Securities (Note 2):
Investment securities available for sale 69,516 53,712
Investment securities held to maturity
(fair value of $11,472 in 1999 and $30,817 in 1998) 11,804 30,616
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Total securities 81,320 84,328
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Loans, net of allowance for loan losses
of $3,908 in 1999 and $2,665 in 1998 (Note 3) 436,411 290,767
Mortgage loans held for sale (Note 3) 2,156 2,346
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Total loans 438,567 293,113
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Property and equipment (Note 4) 7,809 6,851
Other real estate owned, net of allowance for losses
$31 in 1999 (Note 5) 442 466
Accrued interest receivable 3,243 2,457
Intangible assets, net of amortization $100 9,971
Other assets 3,256 1,168
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Total assets $ 576,150 $ 402,623
========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 6):
Non-interest bearing $ 59,643 $ 51,395
Interest bearing 419,253 290,872
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Total deposits 478,896 342,267
Borrowed funds (Note 7) 46,546 27,807
Interest payable on deposits 732 429
Other liabilities 1,433 1,630
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Total liabilities 527,607 372,133
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Mandatory redeemable preferred stock (Note 8) 17,000
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 13 and 14)
Stockholders' equity (Notes 11 and 16):
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
4,283,719 shares in 1999 and 4,198,838 shares in 1998 8,567 8,397
Additional paid-in capital 11,633 11,076
Retained earnings 13,317 10,803
Accumulated other comprehensive income (loss) (1,974) 214
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Total stockholders' equity 31,543 30,490
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 576,150 $ 402,623
========================================================================================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 23
CONSOLIDATED STATEMENTS OF INCOME
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31,
(Dollars in Thousands, except share amounts) 1999 1998 1997
================================================================================================
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 27,288 $ 23,645 $ 22,893
Interest and dividend income from securities 4,855 4,614 3,569
Interest from interest-bearing cash
and federal funds sold 294 372 262
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Total interest and dividend income 32,437 28,631 26,724
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits (Note 6) 13,773 12,662 11,800
Interest on borrowed funds (Note 7) 1,543 630 291
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Total interest expense 15,316 13,292 12,091
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Net interest income 17,121 15,339 14,633
Provision for loan losses (Note 3) 77 41 306
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 17,044 15,298 14,327
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Non-interest income:
Trust department income 502 498 465
Service charges on deposits 938 766 808
Loan servicing 292 470 494
Gain on sale of securities available for sale 92 141 259
Gain on sale of other real estate owned (Note 5) 34 43 67
Gain on sale of mortgages 4 120 5
Other non-interest income 468 389 431
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Total non-interest income 2,330 2,427 2,529
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Non-interest expense:
Compensation and benefits (Note 10) 6,541 5,797 5,461
Depreciation and amortization 968 851 772
Data processing 945 808 751
Occupancy expense 881 802 794
Other real estate owned expenses (Note 5) 23 104 221
Other non-interest expense (Note 15) 3,240 3,838 3,067
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Total non-interest expense 12,598 12,200 11,066
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Income before income taxes 6,776 5,525 5,790
Income taxes (Note 9) 2,609 2,148 2,406
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
Net income $ 4,167 $ 3,377 $ 3,384
================================================================================================
Earnings per share (Note 12):
- Basic $ .98 $ .82 $ .88
- Diluted $ .96 $ .79 $ .85
================================================================================================
Weighted average shares outstanding (Note 12):
- Basic 4,244,402 4,143,009 3,845,698
- Diluted 4,333,326 4,272,682 4,003,015
================================================================================================
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 24
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
Par paid-in Retained Comprehensive
(Dollars in Thousands, except share amounts) Shares Value capital earnings Income/(Loss) Total
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 3,671,428 $7,343 $ 8,386 $ 7,087 $ (99) $ 22,717
Net income 3,384 3,384
Cash dividends declared ($.30 per share) (1,040) (1,040)
Stock dividend
(5% on Cargill Bancorp shares) 16,076 32 117 (149)
Shares issued:
Stock option plan 98,612 197 116 313
Dividend reinvestment
and stock purchase plan 146,419 293 1,092 1,385
Changes in unrealized gain (loss) on
securities available for sale 159 159
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 3,932,535 7,865 9,711 9,282 60 26,918
Net income 3,377 3,377
Cash dividends declared ($.40 per share) (1,503) (1,503)
Stock dividend
(5% on Cargill Bancorp shares) 17,389 35 93 (129) (1)
Shares issued:
Stock option plan 199,799 399 742 1,141
Dividend reinvestment
and stock purchase plan 49,115 98 530 628
Cargill interim loss for the quarter
ended December 31, 1998 (Note 1) (224) (224)
Changes in unrealized gain (loss) on
securities available for sale 154 154
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 4,198,838 8,397 11,076 10,803 214 30,490
Net income 4,167 4,167
Cash dividends declared ($.40 per share) (1,653) (1,653)
Shares issued:
Stock option plan 30,255 61 78 139
Dividend reinvestment
and stock purchase plan 54,626 109 479 588
Changes in unrealized gain (loss) on
securities available for sale (2,188) (2,188)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 4,283,719 $8,567 $ 11,633 $ 13,317 $ (1,974) $ 31,543
===============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years ended December 31,
(Dollars in Thousands) 1999 1998 1997
=============================================================================================
<S> <C> <C> <C>
Net Income $ 4,167 $ 3,377 $ 3,384
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
Unrealized gain (loss) on securities available for sale,
net of income taxes (benefit) of ($1,376) in 1999,
$150 in 1998, and ($271) in 1997 (2,245) 246 327
Less: reclassification adjustment for gains
included in net income, net of income taxes of
$35 in 1999, $49 in 1998 and $76 in 1997 57 92 168
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss) (2,188) 154 159
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
Comprehensive Income $ 1,979 $ 3,531 $ 3,543
=============================================================================================
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31,
(Dollars in Thousands) 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 4,167 $ 3,377 $ 3,384
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Cargill interim loss for period ended December 31, 1998 (224)
Provision for loan losses 77 41 306
Provision for other real estate owned 31 22 109
Depreciation and amortization 968 851 772
Intangible amortization 100
Realized gain on sale of securities (92) (141) (259)
Realized gain on sale of other real estate owned (34) (43) (67)
Realized gain on sale of mortgages (4) (120) (5)
Deferred income taxes (104) (107) 164
Change in assets and liabilities net of effects from purchase of New
London Trust:
Loans held for sale 190 2,100 (8,099)
Accrued interest receivable (786) (217) (314)
Other assets (2,138) 814 90
Interest payable on deposits 303 44 51
Other liabilities (316) 36 147
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 2,362 6,433 (3,721)
=============================================================================================================================
Investing activities:
Securities:
Held to maturity:
Purchases (1,050) (21,473) (28,920)
Proceeds from maturities 19,862 30,459 15,557
Available for sale:
Purchases (35,627) (41,210) (8,748)
Proceeds from sales 4,679 8,607 10,019
Proceeds from maturities 11,723 5,164 2,484
Purchases of premises and equipment (1,926) (1,801) (835)
Net increase in loans (144,797) (32,987) (15,210)
Proceeds from sale of other real estate owned 382 618 791
Assumption of liabilities of New London
Trust, net of cash acquired (9,971)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (156,725) (52,623) (24,862)
=============================================================================================================================
Financing activities:
Net increase in deposits 136,629 27,588 16,660
Net increase in short-term borrowings 18,962 8,923 2,615
Increase in long-term borrowings 7,000
Proceeds from mandatory redeemable preferred stock 17,000
Proceeds from exercise of stock options
and stock purchase plan 727 1,897 1,698
Dividends paid (1,653) (1,504) (1,040)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 171,665 43,904 19,933
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 17,302 (2,286) (8,650)
Cash and cash equivalents at beginning of year 14,240 16,526 25,176
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 31,542 $ 14,240 $ 16,526
=============================================================================================================================
Cash paid during the year:
Interest on deposits and other borrowings $ 15,013 $ 13,075 $ 11,754
Income taxes 2,600 2,103 1,990
Supplemental disclosure of cash flow information:
Securitization of loans into mortgage-backed securities 5,067 9,314
Transfers of loans to other real estate owned 701 806
Loans to facilitate the sale of other real estate owned 618 120
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 26
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
As of December 31, 1999, the Corporation operates two banking subsidiaries (the
"Banks"), Park West Bank and Trust Company ("Park West") with thirteen banking
offices and a trust department located in Hampden County, Massachusetts, and
Cargill Bank ("Cargill") with five offices in Windham County, Connecticut. 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 and Northeast Connecticut.
MERGER WITH CARGILL BANCORP, INC.
Effective January 29, 1999, Cargill Bancorp, Inc., and its subsidiary
("Cargill") were merged with and into Westbank Corporation ("Westbank"),
pursuant to a plan of merger dated July 15, 1998. Each share of Cargill common
stock was converted into 1.3655 shares of the Corporation's common stock. A
total of 400,164 Westbank common shares were issued for the outstanding common
stock of Cargill.
The transaction was accounted for using the pooling-of-interests method and,
accordingly, all historical financial data has been restated to include both
entities for all periods presented. Directs costs of mergers accounted for by
the pooling-of-interests method are expensed as incurred. Merger-related costs
expensed in 1998 aggregated $595,000. These merger expenses included legal,
accounting, regulatory and severance costs, as well as integration costs such as
conversions, abandonments and relocations, etc. The restatement of the
historical financial data is based on Westbank's fiscal year end December 31 and
Cargill's fiscal year end September 30. The Cargill loss of $224,000 for the
quarter ended December 31, 1998, has been included directly in stockholders'
equity in order to conform Cargill's reporting periods to the Corporation's as
of December 31, 1998. For the quarter ended December 31, 1998, Cargill had net
interest income of $456,000 and a net loss of $224,000. Included in operating
expenses were $346,000 of merger and related costs that were primarily the cause
of their loss.
The following table presents summary results of operations for the companies for
the immediate periods prior to the merger:
<TABLE>
<CAPTION>
(Dollars in Thousands) Westbank Cargill Combined
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
MONTH ENDED JANUARY 29, 1999:
NET INTEREST INCOME $ 1,192 $ 138 $ 1,330
NET INCOME 355 21 376
1998 Year:
Net interest income $13,442 $ 1,897 $15,339
Net income 3,256 121 3,377
1997 Year:
Net interest income $12,784 $ 1,849 $14,633
Net income 3,231 153 3,384
</TABLE>
ACQUISITION OF BRANCHES
On October 29, 1999, the Corporation completed its acquisition of the
Connecticut division of New London Trust, F.S.B. The two New London Trust
offices became part of Cargill Bank, increasing its number of offices to five.
The acquisition was allocated as follows:
<TABLE>
<S> <C>
Cash and cash equivalents $ 8,722
Loans 83,895
Other real estate owned 498
Bank premises and equipment 1,877
Intangible assets 10,071
Other assets 995
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total Assets $106,058
================================================================================
Deposits $105,516
Other liabilities 542
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total Liabilities $106,058
================================================================================
</TABLE>
The corporation has accounted for this acquisition on the purchase accounting
method, including the results of their operations since October 29, 1999. The
intangible assets are being amortized over fifteen years.
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
The pro forma results of operations for the years ended December 31, 1999 and
1998, as if this acquisition had occurred at the beginning of these years, were
as follows:
<TABLE>
<CAPTION>
1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C>
Net interest income $ 19,986 $ 18,256
Net income 4,520 3,467
Basic earnings per share $ 1.07 $ .84
Diluted earnings per share $ 1.04 $ .81
</TABLE>
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiaries, Park West Bank and Trust Company, its
subsidiaries, Lorac Leasing Corp., Park West Securities Corporation and PWB&T
Inc., and Cargill Bank. All material intercompany balances and transactions have
been eliminated upon consolidation. Certain amounts in the 1998 and 1997
financial statements have been reclassified to conform to the 1999 presentation.
The Corporation operates two community banks offering different products and
services. Since the Corporation derives a significant portion of its revenue and
expense from the Banks, no meaningful allocation of its resources is possible.
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 affect 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, the valuation of
real estate acquired in connection with foreclosures or in satisfaction of
loans, and intangible assets. 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 Corporation's allowances for losses on loans and other
real estate owned. Such agencies may require the Corporation to recognize
additions to the allowances based on their judgments about information available
to them at the time of their examination.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (the "FASB") issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
established accounting and reporting standards for derivative instruments
including derivative activities. This statement will be effective for the
Corporation's fiscal 2001 financial statements. The Corporation has not
determined the effect of this standard on its financial statements.
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 $2,564,000 for 1999.
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 determines if securities will be classified as held to
maturity or available for sale at the time of purchase. In addition, any
mortgage-backed securities created out of the Corporation's own inventory of
residential real estate loans are also considered available for sale. Gains and
losses on sales of securities are recognized in non-interest 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. The Corporation does not engage in trading activities.
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.
25
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
LOANS
Loans have been reduced by deferred loan fees and the allowance for loan losses.
Interest on commercial and real estate loans is accrued on the principal amount
of loans outstanding. Interest on installment and other loans is calculated by
using the simple interest method on daily balances of the principal amount
outstanding. Loan origination fees, net of certain direct loan origination
costs, are deferred and recognized as income over the life of the related loan
as an adjustment to the loan's yield.
Non-accrual loans are loans on which the accrual of interest ceases when the
collection of principal or interest payments is determined to be doubtful by
management. It is the general policy of the Corporation to discontinue the
accrual of interest when principal or interest payments are delinquent 90 days,
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 Corporation 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 Corporation 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.
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 Corporation 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 Corporation's standard underwriting criteria, including receipt
of an adequate down payment.
26
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
LOAN SALES AND SERVICING RIGHTS
The Corporation sells loans in the secondary market and retains the related
servicing rights. Mortgage servicing rights are recognized as an asset when
loans are sold with servicing retained, by allocating the cost of an originated
mortgage loan between the loan and the servicing right based on estimated
relative fair values. The cost allocated to the servicing right is capitalized
as a separate asset and amortized in proportion to, and over the period of,
estimated net servicing income.
Capitalized mortgage servicing rights are evaluated for impairment by comparing
the asset's unamortized cost to its current estimated fair value. Fair values
are estimated using a discounted cash flow approach, which considers future
servicing income and costs, current market interest rates, and anticipated
prepayment and default rates. In making impairment evaluations, mortgage
servicing rights are stratified based on one or more of the predominant risk
characteristics of the underlying loans. The Corporation has stratified its
servicing portfolio for this purpose between fixed and adjustable rate loans.
Impairment losses, if any, are recognized through a valuation allowance for each
impaired stratum. Adjustments to the valuation allowance are charged or credited
to income.
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 will
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.
STOCK OPTIONS
The Corporation measures compensation cost of stock options on the intrinsic
value of the common stock options granted. Intrinsic value is the excess of the
market value of the common stock over the exercise price at the date of grant.
Because stock options are granted with fixed terms and with an exercise price
equal to the market price of the common stock at the date of grant, there is no
measured compensation cost of stock options. The pro forma disclosures for net
income and earnings per share as if a fair value-based method of accounting had
been applied are contained in these Notes to the Consolidated Financial
Statements.
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 $113,008,000 and
$119,797,000 at December 31, 1999 and 1998, 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
Basic earnings per share is the result of dividing earnings available to common
stockholders by the weighted average number of common shares outstanding during
the year. Diluted earnings per share gives effect to all potentially dilutive
common shares that were outstanding during the year.
27
<PAGE> 30
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>
1999
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 $ 499 $ 1 $ 500 $ 1
Federal agency obligations 9,459 $ 313 9,146 (313)
Mortgage-backed securities 1,846 8 28 1,826 (20)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------
$ 11,804 $ 9 $ 341 $11,472 $ (332)
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1998
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 $ 998 $ 28 $ 1,026 $ 28
Federal agency obligations 26,890 145 27,035 145
Mortgage-backed securities 2,728 30 $ 2 2,756 28
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------
$ 30,616 $203 $ 2 $ 30,817 $ 201
=================================================================================================
</TABLE>
During 1999 and 1998 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>
1999
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 $ 11 $ 11
Federal agency obligations 52,765 $2,386 50,379 $(2,386)
Equity securities 1,996 $ 28 2,024 28
Mortgage-backed securities 17,182 3 681 16,504 (678)
Municipal bonds 615 17 598 (17)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------
$ 72,569 $ 31 $3,084 $ 69,516 $(3,053)
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1998
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 $ 928 $ 928
Federal agency obligations 26,629 $ 124 $ 86 26,667 $ 38
Equity securities 1,716 29 1,745 29
Mortgage-backed securities 24,087 299 14 24,372 285
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------
$ 53,360 $ 452 $ 100 $ 53,712 $ 352
=================================================================================================
</TABLE>
During 1999, 1998 and 1997, the Corporation recognized gross gains on securities
available for sale totaling $92,000, $141,000 and $259,000, respectively.
The contractual maturities of held-to-maturity and available-for-sale
securities, other than equity securities, as of December 31, 1999, 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 following December 31, 1999 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.
28
<PAGE> 31
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:
Over 1 year to 5 years $ 3,388 $ 3,367
Over 5 years to 10 years 7,780 7,470
Over 10 years 636 635
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total debt obligations $11,804 $11,472
================================================================================
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
(Dollars in Thousands) COST VALUE
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C>
Available for Sale:
Within 1 year $ 11 $ 11
Over 1 year to 5 years 12,192 11,749
Over 5 years to 10 years 38,808 37,175
Over 10 years 19,562 18,557
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total debt obligations $70,573 $67,492
================================================================================
</TABLE>
At December 31, 1999 securities with a book value and fair value of $20,681,000
and $19,758,000, respectively, 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) 1999 1998
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 56,276 $ 41,760
Real estate construction 5,952 5,998
Real estate 349,217 229,092
Consumer 31,556 19,277
443,001 296,127
Allowance for loan losses (3,908) (2,665)
Deferred loan origination fees (526) (349)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
$ 438,567 $ 293,113
===============================================================================
</TABLE>
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 2,665 $ 3,057 $ 2,699
Acquisition 1,669
Provision for loan losses 77 41 306
Loans charged off (623) (518) (760)
Recoveries 120 85 812
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Balance, end of year $ 3,908 $ 2,665 $ 3,057
===============================================================================
</TABLE>
The aggregate principal balance of non-accrual loans was $2,001,000 and $797,000
at December 31, 1999 and 1998 respectively. Contractual interest income that was
not recognized on such non-accrual loans was $77,000, $35,000 and $79,000 for
1999, 1998 and 1997, respectively.
29
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
The Corporation did not sell any loans with recourse during 1999 or 1998. The
remaining recourse exposure on prior sales was $1,230,000 at December 31, 1999.
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 $349,217,000 in real estate loans at December 31, 1999, $268,953,000 are
collateralized by 1-4 family dwellings. The majority of the collateral for these
loans is located in the Corporation's market area of western Massachusetts and
northeast Connecticut. Commercial real estate and real estate construction loans
represented $86,217,000 in outstanding principal at December 31, 1999. 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 $56,276,000 at
December 31, 1999, represent loans made to businesses primarily in western
Massachusetts and northeastern Connecticut.
The Corporation 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) 1999 1998
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 3,041 $ 2,386
New loans granted 766 886
Repayments of principal (541) (231)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Balance at end of year $ 3,266 $ 3,041
===============================================================================
</TABLE>
At December 31, 1999 and 1998, the recorded investment in impaired loans was
$2,365,000 and $1,419,000, respectively, for which no additional specific
allowance for loan losses was recorded. For the years ended December 31, 1999,
1998 and 1997, the average recorded investment in impaired loans was $874,000,
$1,366,000 and $2,080,000 respectively. Interest income recognized during 1999,
1998 and 1997 on impaired loans was not significant.
The Corporation had no commitments to lend additional funds to borrowers having
loans that are on non-accrual status, 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
$97,622,000, $115,391,000 and $133,359,000 at December 31, 1999, 1998 and 1997,
respectively.
4 - PROPERTY AND EQUIPMENT
Major classes of property and equipment at December 31 are summarized as
follows:
<TABLE>
<CAPTION>
Estimated
(Dollars in Thousands) 1999 1998 Lives
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Property (including land of $1,514
in 1999 and $1,546 in 1998) $ 7,091 $ 5,214 15-40 years
Capital lease building 263 263 15 years
Furniture and equipment 4,857 4,167 3-10 years
Leasehold and building
improvements 2,461 2,825 5-15 years
Motor vehicles 114 114 3 years
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
14,786 12,583
Accumulated depreciation 6,977 5,732
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Property and Equipment $ 7,809 $ 6,851
================================================================================
</TABLE>
30
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
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) 1999 1998
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------
<S> <C> <C>
Real estate acquired through foreclosure - net of OREO allowance $442 $466
====================================================================================
</TABLE>
Changes in the allowance for other real estate owned losses are summarized as
follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 200 $195
Acquisition $31
Provision for other real estate owned charged to operations 22 29
Write-downs (net of payments) (222) (24)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------
Balance, end of year $31 $200
=========================================================================================
</TABLE>
6 - DEPOSITS
Deposit accounts by type as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 RATE 1998 Rate
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand deposit $ 59,643 $ 51,395
Savings 86,566 2.97% 53,689 2.87%
NOW accounts 31,082 .49 25,993 .45
Money market accounts 32,694 3.29 29,659 2.54
Other time deposits 268,911 5.04 181,531 5.29
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
$478,896 $342,267
===============================================================================
</TABLE>
At December 31, 1999, the scheduled maturities of other time deposits and IRA
deposits with a fixed maturity are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
<S> <C>
2000 $230,009
2001 28,637
2002 8,570
2003 794
2004 and after 901
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
$268,911
==============================================================================
</TABLE>
Certificates of deposit with balances greater than or equal to $100,000 amounted
to $52,249,000 and $26,880,000 as of December 31, 1999 and 1998, respectively.
Interest paid on these deposits totaled approximately $1,754,000 and $1,250,000,
respectively.
7 - BORROWED FUNDS
Short-term borrowings as of December 31 are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under agreements
to repurchase $ 9,212 $11,953
Purchased federal funds 270
FHLB advance 26,740 7,310
Treasury tax and loan notes 3,594 1,274
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total short term borrowings $39,546 $20,807
================================================================================
</TABLE>
The above short-term borrowings generally mature daily.
31
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
The following information relates to long-term debt as of December 31:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C>
FHLB Term advance 5.87% due May 12, 2003 $7,000 $7,000
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
</TABLE>
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) 1999 1998 1997
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at year end $43,546 $27,807 $11,884
Average amount outstanding 28,751 16,442 9,065
Maximum amount outstanding at any month-end 46,769 28,307 14,036
Average interest rate for the year 5.37% 3.83% 3.20%
Average interest rate on year-end balance 4.97% 3.85% 3.15%
</TABLE>
The Corporation maintains a revolving line of credit with the Fleet Bank of
Massachusetts for $3,000,000 that is renewed on an annual basis. There were no
amounts outstanding against this line as of December 31, 1999 or 1998. The
Corporation had additional short term borrowing capacity through the Federal
Home Loan Bank of $7,244,000 through its Ideal Way program that was unused at
year-end 1999. Advances from the Federal Home Loan Bank of Boston (FHLB) are
collateralized by the Company's holdings of FHLB stock and residential real
estate loans.
8 - MANDATORY REDEEMABLE PREFERRED STOCK
On September 30, 1999, the Corporation completed its offering of 1,700,000
shares, 9.6% trust preferred stock, each with a liquidation amount of $10. The
$17 million trust preferred debentures are due September 30, 2029. Quarterly
cash distributions were paid beginning December 31, 1999. Of the $17 million in
proceeds, the Corporation contributed $15.5 million of the net proceeds to
Cargill Bank as equity capital to support the acquisition of two Connecticut
branches of New London Trust, F.S.B. (see Note 1).
9 - INCOME TAXES
The income taxes (benefits) were as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax:
Federal $ 2,327 $ 1,943 $ 1,836
State 386 312 408
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
Total current 2,713 2,255 2,244
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
Deferred tax:
Deferred taxes (104) (107) 164
Change in valuation allowance for deferred tax assets (2)
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
Total deferred (104) (107) 162
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
Total income taxes $ 2,609 $ 2,148 $ 2,406
==============================================================================================
</TABLE>
The differences between the effective tax rate and the federal statutory tax
rate on income before taxes are reconciled as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
<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 4.0 4.4 6.1
Other .5 .5 .5
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
38.5% 38.9% 41.6%
===================================================================================
</TABLE>
32
<PAGE> 35
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) 1999 1998
================================================================================
<S> <C> <C>
Deferred tax assets:
Other real estate owned $ 6
Deferred loan fees 186 $ 122
Unrealized loss on securities 1,080
Reserve for loan losses 96
Deferred income 17
Accrued expenses not deducted for tax 176
Non-accrual interest 20 11
Amortization 92 12
Other 113 95
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total deferred tax assets 1,497 529
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Deferred tax liabilities:
Bond accretion 4 8
Unrealized gain (loss) on securities 151
Depreciation 237 345
Allowance for loan losses 122 193
Deferred FNMA premium 1 4
Earned income not yet taxed 141
Other 93 37
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total gross deferred tax liabilities 457 879
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Net deferred tax asset (liability) $1,040 $(350)
================================================================================
</TABLE>
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 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 in which the
deferred tax assets are deductible, management believes it is more likely than
not that the Corporation will realize the benefits of these deductible
differences, net of the recorded valuation allowance.
10 - PENSION PLAN
The Corporation has a defined contribution pension plan (money purchase),
covering substantially all of its employees at Park West and Cargill Bank.
Contributions to the money purchase plan are a percentage of individual
employees' salary. Total pension expense for 1999, 1998 and 1997 amounted to
$242,000, $212,000 and $204,000, respectively. At December 31, 1999, the most
recent plan year end of the money purchase plan, total plan assets were
$4,187,000. The money purchase plan assets are invested in money market funds,
government bonds, corporate and government agency bonds and marketable
securities.
11 - STOCK OPTIONS
The Corporation has four fixed-option plans which reserve shares of common stock
for issuance to executives, key employees and directors. During 1999, 1998 and
1997, no compensation cost was required to be recognized for the stock option
plans. Had compensation costs for the Corporation's four stock option plans been
determined based on the fair value at the grant date for awards in 1999, 1998
and 1997 consistent with the provisions of SFAS No. 123, the Corporation's net
earnings and earnings per share would have been as follows:
33
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in Thousands, except per share data) 1999 1998 1997
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings - as reported $ 4,167 $ 3,377 $ 3,384
Net earnings - pro forma 4,096 2,709 3,003
Earnings per share - as reported - Basic .98 .82 .88
- Diluted .96 .79 .85
Earnings per share - pro forma - Basic .97 .65 .78
- Diluted .95 .63 .75
</TABLE>
The Corporation offers shares of common stock to officers and key employees
pursuant to the 1985 Incentive Stock Option Plan. As of December 31, 1999, all
options granted are exercisable. The following is a summary of the changes in
options outstanding:
<TABLE>
<CAPTION>
1999 1998 1997
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Options granted and exercisable
at the beginning of the year 44,284 191,466 277,122
Options exercised:
at $2.00 (27,741)
at $2.50 (350) (27,450)
at $3.50 (20,302)
at $6.00 (3,301) (146,832) (10,163)
Options terminated at $6.00 (1,155)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Options granted and exercisable
at the end of the year 39,828 44,284 191,466
===============================================================================
</TABLE>
Unless exercised the options will expire ten years after granting. No options
are available for future grants.
The Corporation adopted a Cargill Directors and Officers Stock Option Plan
during 1992.
The following is a summary of the changes in options outstanding under the
Cargill Directors and Officers Stock Option Plan:
<TABLE>
<CAPTION>
1999 1998 1997
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Options granted and exercisable
at the beginning of the year 65,862 97,479 107,935
Options exercised at $4.02 (21,954) (31,617) (10,456)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Options granted and exercisable
at the end of the year 43,908 65,862 97,479
===============================================================================
</TABLE>
Unless exercised the options will expire twenty years after granting. No options
are available for future grants.
The Corporation adopted a Directors Stock Option Plan during 1995.
The following is a summary of the changes in options outstanding under the
Directors Stock Option Plan:
<TABLE>
<CAPTION>
1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Options granted and exercisable
at the beginning of the year 46,000 53,000 44,000
Options granted and exercisable:
at $7.125
at $9.375 11,000
at $12.875 9,000
at $14.75 3,000
at $12.00 10,000
Options exercised at $6.00 (4,000) (15,000) (2,000)
at $7.125 (1,000) (2,000)
at $9.375 (2,000)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Options granted and exercisable
at the end of the year 51,000 46,000 53,000
================================================================================
Options available for future grants 48,000 58,000 70,000
================================================================================
</TABLE>
Unless exercised, the options will expire twenty years after granting.
34
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
The Corporation adopted an incentive stock option plan during 1996 for directors
and employees. At the 1998 Annual Meeting of Shareholders, the 1996 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 the
1996 Incentive Stock Option Plan:
<TABLE>
<CAPTION>
1999 1998 1997
============================================================================================================
<S> <C> <C> <C>
Options available 119,500 36,500 45,500
Options authorized 200,000
============================================================================================================
Options granted and exercisable at the beginning of the year 256,500 141,500 133,000
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------
Options granted and exercisable to directors at $9.00 9,000
Options granted and exercisable to directors at $15.25 10,000
Options granted and exercisable to employees at $13.375 107,000
Options granted and exercisable to directors at $10.50 9,000
Options granted and exercisable to employees at $10.125 83,500
Options exercised at $8.125 (500)
Options exercised at $8.00 (2,000)
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------
Options granted and exercisable at the end of the year 349,000 256,500 141,500
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------
Options available for future grants 27,000 119,500 36,500
============================================================================================================
</TABLE>
12 - 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.
<TABLE>
<CAPTION>
Shares Per Share
================================================================================
<S> <C> <C>
Basic Earnings Per Share:
1999 4,244,402 $.98
1998 4,143,009 .82
1997 3,845,698 .88
Effect of Dilutive Option Shares:
1999 88,924 .02
1998 129,673 .03
1997 157,317 .03
Diluted Earnings Per Share:
1999 4,333,326 .96
1998 4,272,682 .79
1997 4,003,015 .85
</TABLE>
13 - 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, 1999:
<TABLE>
<CAPTION>
(Dollars in Thousands)
===============================================================================
<S> <C>
2000 $ 334
2001 232
2002 216
2003 145
2004 121
After 2004 578
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Total minimum lease payments $1,626
===============================================================================
</TABLE>
Rent expense for 1999, 1998 and 1997 amounted to $291,000, $274,000 and
$273,000, respectively.
35
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
14 - COMMITMENTS, CONTINGENT LIABILITIES AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
In the normal course of business, various commitments and contingent liabilities
are outstanding, such as guarantees, standby letters of credit, commitments to
extend credit and various financial instruments with off-balance-sheet risk that
are not reflected in the financial statements. Financial instruments with
off-balance-sheet risk involve elements of credit risk, interest rate risk,
liquidity risk and market risk. Management does not anticipate any significant
losses as a result of these transactions.
The following table summarizes the contractual value of financial instruments
and other commitments at December 31:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
<S> <C> <C>
Commitments to grant loans $ 4,604 $ 9,281
Stand-by letters of credit and financial guarantees 835 1,012
Commitments to advance funds under existing loan agreements 38,827 31,457
</TABLE>
The Corporation 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 Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation 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.
In the normal course of business, 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.
15 - OTHER NON-INTEREST EXPENSE
The components of other non-interest 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) 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Merger related expenses $595
Advertising $432 385 $350
Supplies 324 277
</TABLE>
16 - 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 Banks 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 banking subsidiaries' financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, a bank must meet specific capital guidelines that
involve quantitative measures of a bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. A
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 a bank to maintain minimum amounts and ratios (as defined in the
regulations) of total and Tier I capital to risk-weighted assets and of Tier I
capital to average assets. Management believes, as of December 31, 1999, that
the Corporation meets all capital adequacy requirements to which it is subject.
36
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
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 and a portion of the mandatory redeemable preferred stock;
total risk-based, or supplementary capital includes not only the equity but also
a portion of the allowance for loan losses and a portion of the mandatory
redeemable preferred stock.
As of December 31, 1999, the most recent notification from the Federal Deposit
Insurance Corporation categorized both Park West and Cargill as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, a bank must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios. There are no conditions or events since that
notification that management believes have changed the institution's category.
Included in Cargill's capital is approximately $15.5 million contributed by the
holding company in connection with the preferred trust offering. (Note 8)
The Corporation's, Park West's and Cargill'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, 1999
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS):
PARK WEST $31,389 11.66% $21,533 8.00% $26,917 10.00%
CARGILL 10,088 12.55 6,429 8.00 8,036 10.00
HOLDING COMPANY 44,454 12.50 28,452 8.00 N/A N/A
TIER I CAPITAL
(TO RISK-WEIGHTED ASSETS):
PARK WEST 29,031 10.79 10,767 4.00 16,150 6.00
CARGILL 9,077 11.30 3,215 4.00 4,822 6.00
HOLDING COMPANY 36,175 10.17 14,226 4.00 N/A N/A
TIER I CAPITAL
(TO AVERAGE ASSETS):
PARK WEST 29,031 7.01 16,557 4.00 20,697 5.00
CARGILL 9,077 5.81 6,237 4.00 7,796 5.00
HOLDING COMPANY 36,175 6.92 20,904 4.00 N/A N/A
December 31, 1998
Total Capital
(To risk-weighted assets):
Park West $27,890 12.20% $18,291 8.00% $22,864 10.00%
Cargill 3,475 14.93 1,862 8.00 2,327 10.00
Holding Company 32,946 13.00 20,281 8.00 N/A N/A
Tier I Capital (To risk-weighted assets):
Park West 25,510 11.16 9,146 4.00 13,718 6.00
Cargill 3,189 13.70 931 4.00 1,396 6.00
Holding Company 30,281 11.94 10,141 4.00 N/A N/A
Tier I Capital (To average assets):
Park West 25,510 7.24 14,102 4.00 17,628 5.00
Cargill 3,189 6.69 1,907 4.00 2,364 5.00
Holding Company 30,281 7.53 16,092 4.00 N/A N/A
</TABLE>
37
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
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 attaches 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.
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, or (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 as 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 company's 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.
Cargill's retained earnings at December 31, 1999, include $458,000 that is set
aside in accordance with existing provisions of the Internal Revenue Code to
absorb losses on loans. If, in the future, this amount were used for any other
purposes, a tax liability could be incurred. It is not anticipated that such
amount will be made available for dividends or that a tax thereon will be
imposed.
Cargill previously converted from a state chartered mutual savings and loan
association to a state chartered stock savings and loan association. At the time
of conversion, Cargill established a liquidation account in an amount equal to
Cargill's net worth. In the event of a complete liquidation of Cargill (and only
in such event), each eligible account holder will be entitled to receive a
liquidation distribution from the liquidation account before any liquidation
distribution may be made with respect to capital stock. The balance in the
liquidation account at December 31, 1999 was $85,000. Cargill may not declare or
pay a cash dividend on or purchase any of its stock if the effect would be to
reduce the net worth of Cargill below either the amount of the liquidation
account or the capital requirements of its regulators.
17 - 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, 1999 and 1998, the ESOP held no shares of the Corporation's stock.
38
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
18 - 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>
1999 1998
CARRYING ESTIMATED Carrying Estimated
(Dollars in Thousands) AMOUNT FAIR VALUE Amount Fair Value
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 18,153 $ 18,153 $ 13,171 $ 13,171
Federal funds sold 13,389 13,389 1,069 1,069
Investment securities held to maturity 11,804 11,472 30,616 30,817
Investment securities available for sale 69,516 69,516 53,712 53,712
Loans 438,567 438,158 293,113 301,442
Liabilities:
Deposits 478,896 476,671 342,267 343,814
Borrowed funds 46,546 46,546 27,807 27,807
Mandatory redeemable preferred stock 17,000 17,213
</TABLE>
CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD
The carrying amount for cash and due from banks and for federal funds sold
approximates fair value and matures in 90 days or less.
INVESTMENT SECURITIES
The fair value of securities, except certain state and municipal securities, is
estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers.
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as commercial, commercial
real estate, residential mortgage and other consumer. Each loan category is
further segmented into fixed and adjustable rate interest terms, and by
performing and non-performing categories.
The fair value of performing loans, except residential mortgages, is calculated
by discounting scheduled cash flows through the estimated maturity, using
estimated market discount rates that reflect the credit and interest rate risk
inherent in the loan. The estimate of maturity is based on the Corporation's
historical experience with repayments for each loan classification, modified, as
required, by an estimate of the effect of current economic and lending
conditions. For performing residential mortgage loans, including loans held for
sale, fair value is estimated by discounting contractual cash flows adjusted for
prepayment estimates, using discount rates based on secondary market sources
adjusted to reflect differences in servicing and credit costs.
Fair value for significant non-performing loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are discounted
using a rate commensurate with the risk associated with the estimated cash
flows. Assumptions regarding credit risk, cash flows and discount rates are
judgmentally determined, using available market information and specific
borrower information.
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 AND MANDATORY REDEEMABLE PREFERRED STOCK
The fair value of such borrowings and mandatory redeemable preferred stock was
estimated by utilizing future cash flows discounted using current borrowing
rates for similar instruments. For short-term borrowings, the carrying amount
approximates the fair value due to their short-term nature.
39
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
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.
19 - SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1999
FIRST SECOND THIRD FOURTH
(Dollars in Thousands, except per share amounts) QUARTER QUARTER QUARTER QUARTER
=============================================================================================================================
<S> <C> <C> <C> <C>
Interest income $7,343 $7,653 $7,954 $9,487
Interest expense 3,325 3,481 3,697 4,812
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Net interest income 4,018 4,172 4,257 4,675
Provision for losses 75 2
Non-interest income 618 492 601 619
Non-interest expense 2,915 2,939 2,988 3,756
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,646 1,723 1,870 1,538
Income taxes 625 652 735 597
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Net income $1,021 $1,071 $1,135 $ 941
=============================================================================================================================
Earnings per share - Basic $ .24 $ .25 $ .27 $ .22
- Diluted $ .24 $ .25 $ .26 $ .21
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1998
First Second Third Fourth
Quarter Quarter Quarter Quarter
=============================================================================================================================
<S> <C> <C> <C> <C>
Interest income $6,722 $7,156 $7,450 $7,303
Interest expense 2,998 3,383 3,577 3,334
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Net interest income 3,724 3,773 3,873 3,969
Provision for losses 28 12 1
Non-interest income 616 641 589 581
Non-interest expense 2,836 2,857 2,838 3,669
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,476 1,545 1,624 880
Income taxes 593 589 619 347
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Net income $ 883 $ 956 $1,005 $ 533
=============================================================================================================================
Earnings per share - Basic $ .21 $ .23 $ .24 $ .13
- Diluted $ .21 $ .22 $ .24 $ .12
=============================================================================================================================
</TABLE>
40
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
20 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands) 1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEETS
Assets
Cash $ 1,096 $ 66
Investment in subsidiaries 46,097 28,912
Other investments 9 922
Other assets 1,357 762
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total assets $ 48,559 $ 30,662
================================================================================
Liabilities $ 16 $ 172
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Mandatory redeemable preferred stock 17,000
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Stockholders' equity
Preferred stock - none
Common stock, par value $2 per share 8,567 8,397
Additional paid-in capital 11,633 11,076
Retained earnings 13,317 10,803
Accumulated other comprehensive income (loss) (1,974) 214
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Stockholders' equity 31,543 30,490
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 48,559 $ 30,662
================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands) 1999 1998 1997
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF INCOME
Dividend from subsidiary $ 600 $ 100 $ 550
Interest income (expense) (385) 85 38
Other income (expense) - net (85) (735) (144)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Income (loss) before taxes and
undistributed income of subsidiaries 130 (550) 444
Income tax benefit 159 215 2
Undistributed income of subsidiaries 3,878 3,712 2,938
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Net income $ 4,167 $ 3,377 $ 3,384
===============================================================================
</TABLE>
41
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Westbank Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands) 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income $ 4,167 $ 3,377 $ 3,384
Cargill interim loss for quarter ended 12/31/98 (224)
Operating activities:
Equity in income of subsidiaries (3,878) (3,622) (2,938)
Increase in other assets (595) (418) (33)
Increase (decrease) in other liabilities (156) 151 2
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (462) (736) 415
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment securities (purchases) maturities 918 450 (1,039)
Contribution of capital to subsidiary (15,500)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (14,582) 450 (1,039)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from mandatory
redeemable preferred stock issue 17,000
Proceeds from stock options exercised 139 1,141 314
Proceeds from dividend reinvestment
and optional stock purchases 588 628 1,385
Dividends paid (1,653) (1,504) (1,041)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 16,074 265 658
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,030 (21) 34
Cash and cash equivalents at the beginning of the year 66 87 53
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 1,096 $ 66 $ 87
====================================================================================================================
</TABLE>
42
<PAGE> 45
INDEPENDENT AUDITORS' REPORTS
Westbank Corporation and Subsidiaries
The Shareholders and Board of Directors,
Westbank Corporation
We have audited the consolidated balance sheets of Westbank Corporation and
subsidiaries (the "Corporation") as of December 31, 1999 and 1998 and the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements give
retroactive effect to the merger on January 29, 1999, of Cargill Bancorp, Inc.,
and subsidiary and Westbank Corporation and subsidiaries, which has been
accounted for as a pooling of interests as described in Note 1 to the
consolidated financial statements. We did not audit the consolidated balance
sheets of Cargill Bancorp, Inc., as of September 30, 1998, or the related
statements of income, comprehensive income, stockholders' equity and cash flows
of Cargill Bancorp, Inc., for each of the two years in the period ended
September 30, 1998, which statements reflect total assets of $48,241,000 as of
September 30, 1998, and net interest income of $1,897,000 and $1,849,000 for the
years ended September 30, 1998 and 1997, respectively. Those statements were
audited by other auditors whose report dated October 30, 1998, has been
furnished to us and our opinion, insofar as it relates to the amounts included
for Cargill Bancorp, Inc., and subsidiary for 1998 and 1997 is based solely on
the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Westbank Corporation and subsidiaries at December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
January 19, 2000
Shareholders and Board of Directors,
Cargill Bancorp, Inc.
We have audited the consolidated statements of financial condition of Cargill
Bancorp, Inc., and subsidiary as of September 30, 1998, and the related
consolidated statements of operations, comprehensive income, changes in
stockholders' equity and cash flows for the years ended September 30, 1998 and
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. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used, and significant estimates made, by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cargill Bancorp,
Inc., and subsidiary as of September 30, 1998, and the results of its operations
and its cash flows for the years ended September 30, 1998 and 1997, in
conformity with generally accepted accounting principles.
SNYDER & HALLER
Hartford, Connecticut
October 30, 1998
43
<PAGE> 46
CORPORATE DIRECTORY
Westbank Corporation and Subsidiaries
DIRECTORS
WESTBANK CORPORATION AND PARK WEST BANK AND TRUST COMPANY
ERNEST N. LAFLAMME, JR.
Chairman of the Board,
WESTBANK CORPORATION
Treasurer, City of Chicopee
ROLAND O. ARCHAMBAULT
President and Owner,
PINNACLE RACEWAY
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
G. WAYNE MCCARY
President and
Chief Executive Officer,
EASTERN STATES EXPOSITION
ROBERT J. PERLAK
Corporate Clerk,
WESTBANK CORPORATION
Private Investor
GEORGE R. SULLIVAN
Chief Executive Officer,
SULLIVAN PAPER COMPANY, INC.
JAMES E. TREMBLE
President,
VALLEY COMMUNICATIONS
SYSTEMS, INC.
CARGILL BANK
JOHN J. MAHER
Chairman of the Board,
CARGILL BANK
Attorney at Law,
MAHER AND COTNOIR
GARY L. BRIGGS
Executive Vice President,
CARGILL BANK
Executive Vice President,
PARK WEST BANK AND
TRUST COMPANY
DONALD R. CHASE,
President and
Chief Executive Officer,
WESTBANK CORPORATION
SHAWN C. DONOHOE
Project Manager,
RIVER MILL INDUSTRIAL COMPLEX
RAYMOND P. FAUCHER
Co-owner,
SUPERIOR BAKERY/
SUPERIOR CAKE PRODUCTS
KENNETH R. LACASSE
President and
Chief Executive Officer,
CARGILL BANK
ELLIS H. PAINE
President & Owner,
EHPCO, INC.
DANIEL S. ROVERO
Mayor,
PUTNAM, CONNECTICUT
FREDERICK J. WITKOWSKI
President (Retired),
JOHNSON CORRUGATED
PRODUCTS CORP.
H. DEXTER YOUNG
Corporate Clerk,
CARGILL BANK
Owner,
VALLEYSIDE FARM
OFFICERS
WESTBANK CORPORATION
DONALD R. CHASE
President and
Chief Executive Officer
JOHN M. LILLY
Treasurer and
Chief Financial Officer
GARY L. BRIGGS
Executive Vice President
KATHLEEN A. JALBERT
Senior Vice President
TRENTON E. TAYLOR
Senior Vice President
LLOYD S. HALL
Director of Auditing
PARK WEST BANK AND TRUST COMPANY
DONALD R. CHASE
President and
Chief Executive Officer
AUDITING DIVISION
LLOYD S. HALL, CBA
Director of Auditing
BRANCH ADMINISTRATION/
HUMAN RESOURCES
KATHLEEN A. JALBERT
Senior Vice President
DEBORAH A. KUMIEGA
Assistant Vice President
GARY B. SZYMANIAK
Community Banking Officer
COMPLIANCE
JANE M. KNAPP
Vice President
EDP/OPERATIONS
S. STEVE KONIECKI
Senior Vice President
FINANCE DEPARTMENT
JOHN M. LILLY
Executive Vice President
and Treasurer
IRVING M. WALKER, JR.
Controller
LOAN DIVISION
GARY L. BRIGGS
Executive Vice President
PAUL M. ACCORSI
Senior Vice President
DAVID M. BARSZCZ
Vice President
GERARD E. DRAPEAU
Vice President
RICHARD N. HANCHETT
Vice President
MICHAEL M. LEFEBVRE
Vice President
CLIFFORD R. BORDEAUX
Assistant Vice President
JOSEPH S. LEMAY
Assistant Vice President
JOHN E. O'BRIEN
Loan Operations Officer
LOAN CREDIT AND COLLECTION
TRENTON E. TAYLOR
Senior Vice President
PATRICIA A. NEBOSKY
Assistant Vice President
MARKETING
JOSEPH L. ROLAK
Director of Marketing
and Vice President
RESIDENTIAL REAL ESTATE
STANLEY F. OSOWSKI
Senior Vice President
WOLFGANG A. ADAMETZ
Vice President
TRUST DIVISION
ROBERT A. GIBOWICZ
Senior Trust Officer
CARGILL BANK
KENNETH R. LACASSE
President and
Chief Executive Officer
HOWARD STANTON, III
Senior Vice President and
Chief Financial Officer
GARY L. BRIGGS
Executive Vice President
S. STEVE KONIECKI
Senior Vice President
STANLEY F. OSOWSKI
Senior Vice President
TRENTON E. TAYLOR
Senior Vice President
ANTHONY CAPUANO, JR.
Vice President,
Senior Loan Officer
ELAINE C. DESSERT
Assistant Vice President
J. THOMAS MORRISON
Assistant Vice President
KATHRYN J. SAUCIER
Assistant Vice President
44
<PAGE> 47
CORPORATE INFORMATION
Westbank Corporation and Subsidiaries
WESTBANK CORPORATION
Westbank Tower, 225 Park Avenue
West Springfield, MA 01089-3310
(413) 747-1400
ANNUAL MEETING
The Annual Meeting of Stockholders of Westbank Corporation will be held on
Wednesday, April 19, 2000, 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
newspaper's listing of the NASDAQ regional market quotations.
<TABLE>
<CAPTION>
1999 1998
BID Bid
HIGH LOW DIVIDEND High Low Dividend
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $12 7/8 $10 1/2 $0.10 $17 1/4 $12 $0.10
Second 10 1/2 9 1/8 0.10 16 5/8 13 7/8 0.10
Third 11 15/16 10 0.10 14 3/4 10 3/8 0.10
Fourth 10 5/8 8 3/8 0.10 13 9 3/8 0.10
</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, 2000, the Corporation had 1,354 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) 747-1400. The following firms make a market in Westbank Corporation's
common stock:
Advest Inc.
First Albany Corporation
Keefe, Bruyette & Woods, Inc.
McConnell, Budd & Downes, Inc.
Moors & Cabot, Inc.
Ryan, Beck & Co., Inc.
Tucker Anthony Incorporated
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: Hadley Printing Company, Inc.
<PAGE> 48
[RECTANGLE BOX GRAPHIC]
<PAGE> 1
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
2. Cargill Bank - Connecticut
3. Westbank Capital Trust I - Delaware
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,006
<INT-BEARING-DEPOSITS> 1,147
<FED-FUNDS-SOLD> 13,389
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,516
<INVESTMENTS-CARRYING> 11,804
<INVESTMENTS-MARKET> 11,472
<LOANS> 438,567
<ALLOWANCE> 3,908
<TOTAL-ASSETS> 576,150
<DEPOSITS> 478,896
<SHORT-TERM> 39,546
<LIABILITIES-OTHER> 2,165
<LONG-TERM> 7,000
17,000
0
<COMMON> 31,543
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 576,150
<INTEREST-LOAN> 27,288
<INTEREST-INVEST> 4,855
<INTEREST-OTHER> 294
<INTEREST-TOTAL> 32,437
<INTEREST-DEPOSIT> 13,773
<INTEREST-EXPENSE> 15,316
<INTEREST-INCOME-NET> 17,121
<LOAN-LOSSES> 77
<SECURITIES-GAINS> 92
<EXPENSE-OTHER> 12,598
<INCOME-PRETAX> 6,776
<INCOME-PRE-EXTRAORDINARY> 6,776
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,167
<EPS-BASIC> .98
<EPS-DILUTED> .96
<YIELD-ACTUAL> 4.02
<LOANS-NON> 2,001
<LOANS-PAST> 438
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,439
<ALLOWANCE-OPEN> 2,665
<CHARGE-OFFS> 623
<RECOVERIES> 120
<ALLOWANCE-CLOSE> 3,908
<ALLOWANCE-DOMESTIC> 3,908
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
