10-K 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, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-12784 WESTBANK CORPORATION Massachusetts 04-2830731 (State of Incorporation) (I.R.S. Employer Identification Number) 225 Park Avenue, West Springfield, Massachusetts 01090-0149 (Address of principal executive office) (Zip Code) (413) 747-1400 (Telephone Number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered NONE NONE Securities registered pursuant to Section 12(g) of the Act: Common stock, $2.00 Par Value Preferred stock, $5.00 Par Value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No Based on the closing sales price on March 3, 1995 the aggregate market value of the voting stock held by nonaffiliates of the registrant was $22,096,690. The number of shares outstanding of the registrants common stock, $2.00 par value was 3,156,670 on March 3, 1995. Portions of the Annual Report to Stockholders for the year ended December 31, 1994 are incorporated by reference into Parts I and II. Portions of the Proxy Statement issued by the Corporation in connection with the Annual Meeting to be held on April 19, 1995 are incorporated by reference into Part III. WESTBANK CORPORATION INDEX TO FORM 10-K PART I Item 1 Business I - 1 Item 2 Properties I - 2 Item 3 Legal Proceedings I - 2 Item 4 Submission of Matters to a vote of Security Holders I - 2 PART II Item 5 Market Price of the Corporation's Common Stock and Related Security Holder Matters II - 1 Item 6 Selected Financial Data II - 1 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations II - 1 Item 8 Financial Statements and Supplementary Data II - 1 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure II - 1 PART III Item 10 Directors and Executive Officers of the Registrant III - 1 Item 11 Executive Compensation III - 1 Item 12 Security Ownership of Certain Beneficial Owners and Management III - 1 Item 13 Certain Relationships and Related Transactions III - 1 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K IV - 1 Signatures IV - 2 Exhibit Index IV - 3 WESTBANK CORPORATION, WEST SPRINGFIELD, MASSACHUSETTS PART I ITEM 1 - BUSINESS Reference is made to Page 5 of the Corporation's Annual Report to Stockholders for the year ended December 31, 1994, wherein this subject is covered. STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES The following statistical tables and accompanying text provide required financial data about the Corporation and should be read in conjunction with the consolidated financial statements and related notes, appearing in the 1994 Annual Report to Stockholders and is incorporated herein by reference thereto: Page of Annual Report I - Distribution of Assets, Liabilities and Stockholders' Equity: Interest Rates and Interest Differential 9 Rate/Volume Analysis of Interest Margin on Earning Assets 10 II - Investment Portfolio 11, 26-28, 34 III - Loan Portfolio 12, 28, 29, 34 a. Types of Loans 12 b. Maturities and Sensitivity to Changes in Interest Rates 8 and 12 c. Nonperforming Loans/Assets 14 and 15 IV - Summary of Loan Loss Experience 13 and 14 V - Deposits 15, 30, 34 VI - Return on Equity and Assets 15 VII - Short Term Borrowing 15 and 30 I - 1 ITEM 2 - PROPERTIES The Corporation's principal banking subsidiary, Park West Bank and Trust Company ("Park West") operates eight banking offices located as follows: LOCATION OWNED LEASED TOTAL Agawam (Feeding Hills) 1 1 Chicopee 1 1 East Longmeadow 1 1 Holyoke 1 1 West Springfield 2 1 3 Westfield 1 1 5 3 8 All general banking offices except the one in Holyoke have drive-in facilities. Twenty-four hour automated teller machines are located in the three West Springfield branches, one each in Agawam, Chicopee, East Longmeadow and Westfield. Title to the properties described as owned in the foregoing table is held by the Bank with warranty deed with no material encumbrances. Park West owns, with no material encumbrances, land adjacent to the main office which is available for parking, and also through a subsidiary, owns one other property consisting of land, also used as a parking lot adjacent to the main office. The Bank also owns the property on which its former Operations Center was located and is presently leased. In addition, the Bank holds other real estate as a result of foreclosure proceedings. All of the property described as leased in the foregoing table is leased directly from independent parties. Management considers the terms and conditions of each of the existing leases to be in the aggregate favorable to the Bank. ITEM 3 - LEGAL PROCEEDINGS Certain litigation is pending against the Corporation and the Bank. Management, after consultation with legal counsel, does not anticipate that any liability arising out of such litigation will have a material effect on the Corporation's Financial Statements. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE I - 2 PART II ITEM 5 - MARKET FOR CORPORATION'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Reference is made to the inside back cover of the Corporation's Annual Report to Stockholders for the year ended December 31, 1994, wherein this subject is covered. ITEM 6 - SELECTED FINANCIAL DATA Reference is made to page 6 of the Corporation's Annual Report to Stockholders for the year ended December 31, 1994, wherein this subject is covered. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to pages 7 through 18 of the Corporation's Annual Report to Stockholders for the year ended December 31, 1994, wherein this subject is covered. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to pages 20 through 35 of the Corporation's Annual Report to Stockholders for the year ended December 31, 1994, wherein this subject is covered. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE II - 1 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION Reference is made to pages 3 through 6, of the Corporation's Proxy Statement to Stockholders for the 1994 Annual Meeting scheduled for April 19, 1995, wherein this subject is covered. ITEM 11 - EXECUTIVE COMPENSATION References is made to pages 8 through 11, of the Corporation's Proxy Statement to Stockholders for the 1994 Annual Meeting scheduled for April 19, 1995, wherein this subject is covered. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to pages 6 and 7, of the Corporation's Proxy Statement to Stockholders for the 1994 Annual Meeting scheduled for April 19, 1995, wherein this subject is covered. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is made to pages 6 through 12, of the Corporation's Proxy Statement to Stockholders for the 1994 Annual Meeting scheduled for April 19, 1995, wherein this subject is covered under the caption "Beneficial Ownership of Stock and Executive Compensation - Miscellaneous". III - 1 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as a part of this report: 1. Financial Statements The following financial statements are incorporated in this Annual Report on Form 10-K by reference to the Corporation's Annual Report to Stockholders for the year ended December 31, 1994: WESTBANK CORPORATION Page of Annual Report Independent Auditors' Reports 19 Consolidated Balance Sheets at December 31, 1994 and 1993 20 Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992 21 Consolidated Statement of Stockholders' Equity from January 1, 1992, to December 31, 1994 22 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 23 Notes to Consolidated Financial Statements 24 - 35 A current report on Form 8-K Reporting other Events was filed by the Registrant on: NONE 2. Financial Statement Schedules Financial Statement Schedules are omitted because they are inapplicable or not required. 3. Exhibits See accompanying Exhibit Index. IV - 1 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WESTBANK CORPORATION By: Donald R. Chase, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date Donald R. Chase President and Chief March 24, 1995 Executive Officer and Director Alfred C. Whitaker Chairman of the Board March 24, 1995 and Director John M. Lilly Treasurer and Chief Financial March 24, 1995 Officer Roland O. Archambault Director March 24, 1995 Mark A. Beauregard Director March 24, 1995 David R. Chamberland Director March 24, 1995 John E. Fitzgerald Director March 24, 1995 Leroy F. Jarrett Vice Chairman of the Board March 24, 1995 and Director Ernest N. Laflamme, Jr. Director March 24, 1995 Russell Mawdsley Director March 24, 1995 Paul J. McKenna Director March 24, 1995 Robert J. Perlak Corporate Clerk and Director March 24, 1995 James E. Tremble Director March 24, 1995 IV - 2 EXHIBIT INDEX Page No. 3. Articles of Organization, as amended ** (a) Articles of Organization, as amended * (b) By-Laws, as amended * 10.1 Employment Contract dated October 1, 1986, between William A. Franks, Jr. and Westbank Corporation *** 10.12 Termination Agreement dated February 20, 1987, between Donald R. Chase and Park West Bank and Trust Company *** 10.14 Termination Agreement dated February 20, 1987, between Stanley F. Osowski and CCB, Inc. *** 10.15 1985 Incentive Stock Option Plan for Key Employees * 13. 1994 Annual Report to Stockholders ARS (IFC, 1-36, IBC) 21. Subsidiaries of Registrant 27. Article 9 - Financial Data Schedule * Incorporated by reference to identically numbered exhibits contained in Registrant's Annual Report on Form 10-K for the year ended December 31, 1988 ** Incorporated by reference to identically numbered exhibits contained in Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 *** Incorporated by reference to identically numbered exhibits contained in Registrant's Annual Report on Form 10-K for the year ended December 31, 1986 IV - 3 EX-13 2 13. Westbank Corporation 1994 Annual Report to Stockholders Table of Contents Financial Highlights 1 Letter to Stockholders 2 Business - Westbank Corporation and Subsidiaries 5 Selected Consolidated Financial Data 6 Management's Discussion and Analysis - Financial Results 7 Independent Auditors' Reports 19 Consolidated Balance Sheets 20 Consolidated Statements of Income 21 Consolidated Statements of Stockholders' Equity 22 Consolidated Statements of Cash Flows 23 Notes to Consolidated Financial Statements 24 Corporate Directory 36 Corporate Information IBC On the Cover: The letter "W" on our front cover emblem was designed to depict two crossed "V's". They stand for "Vigilance" and "Vision". It was our vigilance that carried us through the turbulent early 1990's and brought us the success we enjoy today, and it is our vision that will insure that this success continues into the 21st century. (IFC) Financial Highlights Westbank Corporation and Subsidiaries
For the Year (Dollars in Thousands) 1994 1993 1992 ---------------------------------------------------------------------------------------------- Net income $2,175 $1,947 $756 Net interest income 10,847 10,073 9,843 Non-interest income 2,459 2,861 3,376 Non-interest expenses 8,852 8,275 8,209 Real estate owned expenses 1,236 1,797 1,956 Total non-interest expenses 10,088 10,072 10,165 Provision for loan losses 1,473 790 2,298 Year End (Dollars in Thousands) ---------------------------------------------------------------------------------------------- Investment and mortgage-backed securities $29,547 $31,979 $30,816 Loans 192,677 172,618 169,077 Allowance for loan losses 3,325 3,472 3,442 Total assets 243,313 228,863 234,448 Total deposits 218,563 202,431 211,745 Total stockholders' equity 15,344 13,271 11,292 Common Share Information Weighted average shares outstanding 3,203,985 3,190,486 3,138,327 Net income per share $.68 $.61 $.24
The following graphs illustrate the Corporation's net income, return on assets and return on equity for the years 1992 through 1994. (Dollars in Thousands) 1992 1993 1994 ----------------------------- Net Income $756 $1,947 $2,175 Return on Assets .32% .86% .93% Return on Equity 6.96% 15.80% 14.77% (1) Chairman's and President's Letter Westbank Corporation and Subsidiaries To Our Shareholders and Friends: American companies are undergoing a renaissance by revising the traditional ways of doing business. Those with a clear vision of the future and the capability to embrace change will successfully alter their operations and be rewarded. The challenge in banking is no less monumental than in other industries. To be successful in a rapidly changing environment requires vigilance, vision and adherence to a long-range strategy. Building upon success was the challenge your Management Team faced when entering 1994. Time is proving that our steady and consistent approach to enhancing shareholder value is the best way to ensure continued growth for Westbank. It has been gratifying to reach new goals, and for 1994 we can report achievements such as record earnings, improved net interest income, strong and healthy loan growth, and the declaration of a quarterly cash dividend. We began 1994 with challenges and are now setting higher standards and goals for 1995. We are pleased to report that Westbank Corporation continued to build on its solid foundation in 1994, earning a record $2,175,000, or $.68 per share, a 12% increase in earnings over the previous year. Most recently we achieved our thirteenth consecutive quarter of increased core earnings. Our net income denotes a .93% return on assets and a 14.77% return on total shareholders' equity ratios which reflect our determination to operate our franchise more efficiently and effectively. These ratios compare very favorably with those of our peers. We regret to inform you that in early 1995 an internal investigation revealed an alleged embezzlement by a former employee which resulted in a pre-tax loss of approximately $750,000. No depositor's accounts were affected and the Corporation anticipates recovery of a substantial portion of this loss from its bonding company. As a result of the discovery, however, the Corporation was required to recognize this loss in its fourth quarter and year-end financial statements for 1994. In spite of this temporary setback we continue to commit our resources to those lines of business where we see the opportunity for the greatest profitable growth. Targeted loan and demand deposit growth account for an improved net interest margin of 5% for 1994 and an expanded 5.2% margin during the last quarter of the year. For the year, net interest income improved by $774,000 or 8% compared to 1993. During the year, net loans grew by more than $20 million or 12% over 1993 and totaled $192.7 million at year-end 1994. Deposits grew to $218.6 million, an increase of $16.1 million, or 8%, over the previous year. Demand deposits have increased by 17% or $5.9 million. (2) Chairman's and President's Letter Westbank Corporation and Subsidiaries Assets totaled $243.3 million, a 6% yearly increase and the Corporation's capital rose to $15.3 million. Another indicator of Westbank's renewed health in 1994 was the improvement in our capital ratio from 5.80% in 1993 to 6.31% on December 31, 1994. Under the Federal Deposit Insurance Corporation guidelines, Westbank's capital ratio meets the regulatory criterion for an "adequately capitalized" bank. As a result of the Corporation's markedly improved financial condition, the Formal Regulatory Order was released in 1994 and upgraded to an informal Memorandum of Understanding. Encouraged by our results and confident in our future, the Board of Directors voted a cash dividend payment in the amount of $.05 per share payable on January 25, 1995 to stockholders of record on January 20, 1995. On February 15, 1995, the Board of Directors approved an amendment to the Corporation's Dividend Reinvestment and Common Stock Purchase Plan (subject to shareholder approval at the 1995 Annual Meeting of Shareholders). We know that this amendment will benefit the Corporation and the shareholders who choose to participate, along with the one-third of our shareholders already enrolled in the Plan. Details of the amendment can be found in the Corporation's 1995 Proxy Statement. We encourage you to vote for it. Over the past several years, Westbank has been vigilant in monitoring the costs associated with doing business, constantly looking for ways to reduce expenses while improving efficiency throughout the Corporation. The efficiencies achieved this past year are primarily attributed to converting our in-house data processing system to that of a service bureau. Today's consumers are more diverse, more sophisticated and more willing to comparison-shop for financial services. They are also more insistent that the companies they do business with are good corporate citizens. They want relationships with organizations that actively support their communities. That gives Westbank a competitive edge. A constant and caring community focus is well-ingrained in our corporate culture, built on a long-standing presence in the communities we serve. As a result of a compliance examination by the Office of the Commissioner of Banks, Westbank's subsidiary, Park West Bank and Trust Company, was assigned a Community Reinvestment Act (CRA) rating of "outstanding record of meeting community credit needs." Park West Bank was recognized for its programs to monitor credit needs and for developing and participating effectively in meeting these needs. A CRA marketing plan has been developed with emphasis on marketing credit services to minority and low-and-moderate-income groups in the community using all available media, including minority newspapers and radio stations. (3) Chairman's and President's Letter Westbank Corporation and Subsidiaries Westbank's community-banking philosophy has earned it the Citizenship Award presented by the West Springfield St. Patrick's Parade Committee, The Harold G. Dickey Memorial Award for Outstanding Service to the West Springfield Boys and Girls Club, and the Greater Springfield Chamber of Commerce and Small Business Council of Greater Springfield Small Business Recognition Award. The banking industry continues to change and consolidate as the major financial intermediary in the U.S. economy. Westbank Corporation will remain focused on its role as a community bank. We think further consolidation of our industry is inevitable and feel that the combination of excellent customer service and traditional bank products will be the key for a successful bank of the future. Westbank is well-positioned to respond to the changing needs of our customers. Innovative and aggressive banking strategies constitute one part of our focus on building shareholder value. The other part is the addition of market share and product capability by establishing new branch offices. Our eighth branch office, located in the center of East Longmeadow, opened August 29, 1994. In the first six months we have exceeded our projected goals for the first year of operation. We will continue to seek new locations for branch offices that can add to our base of low-cost core deposits and expand our banking activities in areas of Western Massachusetts that are either fast-growing or where we are now under-represented. We spent 1994 solidifying the gains of our turnaround and refocusing our energies from managing risk to growing revenue by increasing our responsiveness to customers' needs. Today, we have the financial strength, organizational structure, corporate culture, and a management team capable of not only responding to emerging challenges, but truly capitalizing on the opportunities they present. In short, we are well-prepared to win in the complex financial-services marketplace of the '90s and beyond, and we fully expect to. We cannot recount the successes of the past three years without extending special acknowledgement to our dedicated Directors and Employees who have been at the heart of our dramatic revitalization and are now paving the way for continued improved results in 1995 and beyond. We thank them for their diligence and we thank you, our shareholders, for your loyal support. Sincerely, Alfred C. Whitaker Donald R. Chase Chairman of the Board President and Chief Executive Officer (4) Business Westbank Corporation and Subsidiaries Corporate Organization Westbank Corporation (hereinafter sometimes referred to as "Westbank" or the "Corporation") is a registered Bank Holding Company organized to facilitate the expansion and diversification of the business of Park West Bank and Trust Company (hereinafter sometimes referred to as "Park West" or the "Bank") into additional financial services related to banking which are permitted by the Federal Bank Holding Company Act of 1956, as amended. Westbank became the owner of all of Park West's outstanding capital stock effective July 2, 1984. Park West Bank and Trust Company Substantially all operating income and net income of the Corporation are presently accounted for by Park West. Park West is chartered as a state bank and trust company by the Commonwealth of Massachusetts, is a member of the Federal Deposit Insurance Corporation ("FDIC"), and is subject to regulation by the Massachusetts Commissioner of Banks and the FDIC. A full range of retail banking services is furnished to individuals, businesses, and nonprofit organizations through eight banking offices located in Hampden County. Such services include a wide range of checking and savings accounts, loans, safe deposit facilities, and automated teller machines at selected branch locations. Park West also provides lending, depository and related financial services to commercial, industrial, financial, and governmental customers. In the lending area, these include short and long term loans and revolving credit arrangements, letters of credit, inventory and accounts receivable financing, real estate construction lending, and mortgage loans. Park West also operates a Trust Department providing services normally associated with holding property in a fiduciary or agency capacity. The value of the property held by the Trust Department at December 31, 1994, amounted to $84,031,000. This amount, comprising part of the property, other than cash deposits, is not included in the accompanying financial statements since such items are not assets of the Bank. Employees As of December 31, 1994, the Corporation and its subsidiaries had an equivalent of 111 full time officers and staff. Competition Westbank's banking, real estate activity and trust services are competitive with other Massachusetts financial institutions. Its service area is in Western Massachusetts, primarily Hampden County. Westbank's competitors include other commercial banks, mutual savings banks, savings and loan associations, credit unions, consumer finance companies, loan offices, money market funds, and other financing organizations. Competition for trust services by major commercial banks is high, with continuing efforts by those banks to solicit new business. The Trust Department prides itself as one of the remaining corporate fiduciaries providing personal services locally. Insurance companies, mutual savings banks, investment counseling firms, and other business firms and individuals also offer active competition for such business. (5) Selected Consolidated Financial Data Westbank Corporation and Subsidiaries
Years Ended December 31, (Dollars in Thousands Except Share Amounts) 1994 1993 1992 1991 1990 --------------------------------------------------------------------------------------------------------------------------------- Interest and dividend income $17,046 $16,809 $18,948 $24,023 $30,305 Interest expense 6,199 6,736 9,105 14,210 19,290 --------------------------------------------------------------------------------------------------------------------------------- Net interest income 10,847 10,073 9,843 9,813 11,015 Provision for loan losses 1,473 790 2,298 5,375 6,965 Non-interest income 2,459 2,861 3,376 2,451 2,057 Non-interest expense 10,088 10,072 10,165 15,980 11,393 --------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes, extraordinary item and cumulative effect of accounting change 1,745 2,072 756 (9,091) (5,286) Income taxes (benefit) (430) 525 202 (800) (1,820) --------------------------------------------------------------------------------------------------------------------------------- Income (loss) before extraordinary item and cumulative effect of accounting change 2,175 1,547 554 (8,291) (3,466) Extraordinary item and cumulative effect of accounting change: Tax benefit of net operating loss carryforward -- -- 202 -- -- Cumulative effect of accounting change for income taxes -- 400 -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $2,175 $1,947 $756 $(8,291) $(3,466) ================================================================================================================================= Per common share data: Net earnings (loss) per share before extraordinary item and cumulative effect of accounting change $.68 $.48 $.18 $(2.66) $(1.11) Earnings per share attributable to: Extraordinary item -- -- .06 -- -- Cumulative effect of accounting change for income taxes -- .13 -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) per share $.68 $.61 $.24 $(2.66) $(1.11) ================================================================================================================================= Cash dividends declared (None) -- -- -- -- -- Ending book value $4.79 $4.16 $3.60 $3.38 $6.29 At December 31: Total loans _ net $192,677 $172,618 $169,077 $186,150 $217,214 Total assets 243,313 228,863 234,448 240,957 292,166 Total non-performing assets 7,435 7,042 12,348 17,948 25,317 Total deposits 218,563 202,431 211,745 217,490 254,227 Total stockholders' equity 15,344 13,271 11,292 10,536 18,832 Average for year: Loans $182,676 $171,814 $174,546 $205,873 $236,262 Assets 232,922 227,579 235,614 263,799 302,302 Deposits 210,659 205,915 213,637 232,793 262,555 Stockholders' equity 14,722 12,322 10,855 15,859 20,737 Number of weighted shares outstanding 3,203,985 3,190,486 3,138,327 3,115,689 3,114,310 Selected ratios: Rate of return (loss) on average total assets .93% .86% .32% (3.14)% (1.15)% Rate of return (loss) on average stockholders' equity 14.77% 15.80% 6.96% (52.28)% (16.71)% Stockholders' equity to total assets at year end 6.31% 5.80% 4.82% 4.37% 6.45% Average total stockholders' equity to average total assets 6.32% 5.41% 4.61% 6.01% 6.86% Allowance for loan losses to total loans at year end 1.70% 1.97% 2.00% 1.87% 1.87% Non-performing loans as a percentage of total loans at year end 3.00% 1.08% 1.45% 2.38% 2.14% Net charge-offs as a percentage of average loans .89% .44% 1.38% 2.90% 1.99% Other real estate owned and in-substance foreclosures as a percentage of total assets .64% 2.25% 4.38% 4.38% 5.89%
(6) Management's Discussion and Analysis - Financial Results Westbank Corporation and Subsidiaries Management's discussion of operations and financial position is based on the selected consolidated financial data and should be read in conjunction with the consolidated financial statements and notes thereto. For 1994, the Corporation reported net income of $2,175,000 or $.68 per share after providing $1,473,000 for loan losses and writing down other real estate owned (OREO) by $760,000, mainly in response to further declines in the real estate industry and the New England economy. This compares to net income for 1993 of $1,947,000, or $.61 per share. The Corporation's 1993 earnings reflect a provision for loan losses of $790,000 and a write-down of OREO of $1,164,000. Net interest income increased $774,000 from 1993 to 1994 because of increased interest and dividend income and decreased interest expense. Non-interest expense, excluding the write-down of OREO related operating expenses and an unusual expense of $750,000, amounted to $8,102,000 in 1994 compared to $8,275,000 in 1993, a decrease of $173,000, or 2%. During March 1995 the Corporation discovered an alleged employee defalcation of approximately $750,000. As a result of this unfortunate act other non-interest expense includes the writedown of the full amount of the unusual expense. The Corporation will be filing an insurance claim for the recovery of a substantial portion of this loss. We anticipate recovery will be realized during 1995. Non-interest income decreased by $402,000 from 1993 and reflects decreases in gains recognized upon sale of securities totaling $194,000, a reduction of gains on sale of mortgages totaling $110,000, and a reduction in service charges on deposit accounts totaling $161,000. The remaining non-interest income reflects general increases in service fees and Trust Department fees. Included in the 1994 results of operations is a tax benefit totaling $430,000. The benefit is primarily attributable to the utilization of net operating loss carryforwards of $237,000 and a decrease in the valuation allowance for deferred tax assets due to a change in judgement about the realizability of such deferred tax assets. The 1993 results reflect the cumulative effect of an accounting change for income taxes of $400,000 and the benefit of a change in the valuation allowance for deferred tax assets of $558,000. At December 31, 1994, the Corporation's total assets were $243,313,000, an increase of $14,450,000, or 6.3%, from $228,863,000 at year end 1993. The higher level of assets resulted primarily through an increase in net loans totaling $20,059,000. Non-performing assets amounted to $7,435,000, or 3.06% of total assets at December 31, 1994, compared with $7,042,000 or 3.08% at the end of 1993. Since March, 1992, Park West has been operating under a Formal Order (the "Formal Order") with the Federal Deposit Insurance Corporation and the Commissioner of Banks for the Commonwealth of Massachusetts. On December 22, 1994, as a result of the improved financial condition of the Bank, the Formal Order was released. The Formal Order was replaced with a Memorandum of Understanding (the "Memorandum"). The Memorandum is an informal agreement with the Federal Deposit Insurance Corporation (the "FDIC") and the Commissioner of Banks for the Commonwealth of Massachusetts (the "Commissioner") requiring Park West, among other things, to maintain a leverage capital ratio of at least 6%, to develop a written plan of action to lessen its risk exposure to certain borrowers and to refrain from extending or renewing credit to any borrower who has a loan or extension of credit with Park West that has been charged off or classified, without first obtaining majority approval of Park West's Board of Directors. Park West must maintain the allowance for loan losses at a level commensurate to the risk in the loan portfolio. The Memorandum requires Park West to obtain approval from the FDIC and the Commissioner prior to paying or declaring a dividend. Finally, Park West is required to make quarterly reports to the FDIC and the Commissioner detailing the form and manner of action taken to secure compliance with the Memorandum. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") imposes significant regulatory restrictions and requirements on banking institutions insured by the FDIC and their holding companies. FDICIA established capital categories into which financial institutions are placed based on capital level. Each capital category establishes different degrees of regulatory restrictions which can apply to a financial institution. As of December 31, 1994, Park West's capital was at a level that placed the Bank in the adequately capitalized category as defined by FDICIA. FDICIA imposes a variety of other restrictions and requirements on insured banks. These include significant regulatory reporting requirements such as insuring that a system of risk-based deposit insurance premiums and civil money penalties for inaccurate deposit assessment reports exist. In addition, FDICIA imposes a system of regulatory standards for bank and bank holding company operations, detailed new truth in savings disclosure requirements, and restrictions on activities authorized by state law but not authorized for national banks. The weak economy and real estate market continue to impair the financial results of the Corporation. Despite these weaknesses the Corporation has managed significant improvements in earnings and asset quality. As a result of the continued aggressive management of problem loans and an on-going expense reduction program, the board of directors and management believe the Corporation is positioned to comply with the Memorandum as well as the requirements of FDICIA. (7) Management's Discussion and Analysis - Financial Results (Continued) Westbank Corporation and Subsidiaries Components of Capital The following table presents the Corporation's components of Tier 1 leverage capital as of December 31. The table also presents the ratio of Tier 1 capital to total assets. (Dollars in Thousands) 1994 1993 -------------------------------------------------------------------------------- Stockholders' Equity Common stock $6,276 $6,251 Additional paid-in-capital 6,877 6,861 Retained earnings 2,334 159 Unrealized loss on securities available for sale (143) -- -------------------------------------------------------------------------------- Total Capital $15,344 $13,271 ================================================================================ Ratio of Tier 1 leverage capital to total assets 6.31% 5.80% Regulatory risk-based capital requirements take into account the different risk categories of banking organizations by assigning risk weights to assets and the credit equivalent amounts of off-balance sheet exposures. In addition, capital is divided into two tiers. In this Corporation, Tier 1 includes the common stockholders' equity; Tier 2, or supplementary capital, includes not only the equity, but also a portion of the allowance for loan losses. The following are the Corporation's risk-based capital ratios at December 31, 1994: Tier 1 risk-based capital (minimum required 4%) 8.54% Total risk-based capital (minimum required 8%) 9.80% Asset/Liability Management and Interest Rate Sensitivity The following table sets forth the distribution of the repricing of Westbank's earning assets and interest bearing liabilities as of December 31, 1994, the interest rate sensitivity gap, (i.e., interest rate sensitive assets less interest rate sensitive liabilities), the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio and the cumulative interest rate sensitivity gap ratio. The table also sets forth the time periods in which earning assets and interest-bearing liabilities will mature or may reprice in accordance with their contractual terms. However, the table does not necessarily indicate the impact of general interest rate movements on the net interest margin since the repricing of various categories of assets and liabilities is subject to competitive pressures and the needs of Westbank's customers. In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within such period and at different rates.
Three Over Three Over One Over Months Months to Year to Five (Dollars in Thousands) or Less A Year Five Years Years Total -------------------------------------------------------------------------------------------------------------------------------- Earning Assets Securities including mortgage-backed securities $-- $500 $27,710 $1,337 $29,547 Interest bearing cash 275 -- -- -- 275 Loans 50,723 51,151 49,421 44,707 196,002 Federal funds sold 1,000 -- -- -- 1,000 -------------------------------------------------------------------------------------------------------------------------------- 51,998 51,651 77,131 46,044 226,824 Interest Bearing Liabilities Savings deposits 34,963 180 -- -- 35,143 NOW Accounts 15,670 -- -- -- 15,670 Money market account 19,580 -- -- -- 19,580 Negotiated rate certificates 8,585 2,682 875 -- 12,142 Other time deposits 44,217 31,719 19,683 10 95,629 Borrowed funds 8,625 -- -- -- 8,625 -------------------------------------------------------------------------------------------------------------------------------- 131,640 34,581 20,558 10 186,789 -------------------------------------------------------------------------------------------------------------------------------- Interest Rate Sensitivity Gap (79,642) 17,070 56,573 46,034 40,035 Cumulative Interest Rate Sensitivity Gap $(79,642) $(62,572) $(5,999) $40,035 $-- ================================================================================================================================ Interest Rate Sensitivity Gap Ratio (35.11)% 7.53% 24.94% 20.30% 17.66% Cumulative Interest Rate Sensitivity Gap Ratio (35.11)% (27.58)% (2.64)% 17.66% --
Westbank seeks to manage the mix of asset and liability maturities to control the effect of changes in the general level of interest rates on net interest income. In periods of rising interest rates, Westbank's negative interest rate sensitivity gap as to earning assets and interest-bearing liabilities maturing in less than one year may cause a diminution of Westbank's income; correspondingly, in periods of declining interest rates, a negative interest rate sensitivity gap may provide additional income. Except for its effect on the general level of interest rates, inflation does not have a material impact on Westbank's earnings due to the rate of variability and short-term maturities of its earning assets. (8) Management's Discussion and Analysis - Financial Results (Continued) Westbank Corporation and Subsidiaries Distribution of Assets, Liabilities and Stockholders' Equity - Interest Rates and Interest Differential The following table presents the condensed average balance sheets for 1994, 1993 and 1992. The total dollar amount of interest income from earning assets and the resultant yields are calculated on a taxable equivalent basis. The interest paid on interest-bearing liabilities, expressed both in dollars and rates, is also shown in the table:
1994 1993 1992 Interest Average Interest Average Interest Average Average Income/ Yield Average Income/ Yield Average Income/ Yield (Dollars in Thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate -------------------------------------------------------------------------------------------------------------------------------- Assets Securities: U.S. Treasury $10,536 $679 6.44% $9,920 $653 6.58% $8,557 $586 6.85% Federal agencies 17,728 1,072 6.05 16,628 1,038 6.24 16,128 1,188 7.37 Tax exempt-federal (a) -- -- -- -- -- -- 15 1 6.67 Other securities 1,554 104 6.69 1,988 137 6.89 2,969 186 6.26 -------------------------------------------------------------------------------------------------------------------------------- Total securities 29,818 1,855 6.22 28,536 1,828 6.41 27,669 1,961 7.09 -------------------------------------------------------------------------------------------------------------------------------- Interest-bearing cash and temporary investments 639 28 4.38 3,326 97 2.92 2,701 134 4.96 -------------------------------------------------------------------------------------------------------------------------------- Loans: (b) Commercial 33,537 2,920 8.71 35,228 2,821 8.01 45,983 3,723 8.10 Tax exempt-federal (a) 569 69 12.13 822 69 8.39 1,038 92 8.86 Real estate 130,668 10,530 8.06 116,073 10,184 8.77 105,781 10,799 10.21 Consumer 17,902 1,519 8.49 19,691 1,702 8.64 21,744 2,070 9.52 -------------------------------------------------------------------------------------------------------------------------------- Total loans 182,676 15,038 8.23 171,814 14,776 8.60 174,546 16,684 9.56 -------------------------------------------------------------------------------------------------------------------------------- Federal funds sold 3,759 148 3.94 4,554 131 2.88 5,991 200 3.34 -------------------------------------------------------------------------------------------------------------------------------- Total earning assets 216,892 $17,069 7.87% 208,230 $16,832 8.08% 210,907 $18,979 9.00% -------------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses (3,547) (3,499) (3,709) Cash and due from banks 9,169 8,965 8,623 Other assets 10,408 13,883 19,793 -------------------------------------------------------------------------------------------------------------------------------- Total assets $232,922 $227,579 $235,614 ================================================================================================================================ Liabilities and Stockholders' Equity Interest-bearing deposits: Savings $36,879 $778 2.11% $37,529 $914 2.44% $36,542 $1,207 3.30% Money market 22,548 579 2.56 25,585 734 2.87 22,371 872 3.90 Negotiated rate certificates 6,279 287 4.57 5,412 270 4.99 7,034 422 6.00 Other time deposits 109,242 4,355 3.99 107,324 4,560 4.25 120,401 6,199 5.15 -------------------------------------------------------------------------------------------------------------------------------- Total time deposits 174,948 5,999 3.43 175,850 6,478 3.68 186,348 8,700 4.67 Borrowed funds 6,896 200 2.90 8,711 258 2.96 10,111 405 4.01 -------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 181,844 6,199 3.41 184,561 6,736 3.65 196,459 9,105 4.63 Demand deposits 35,711 30,065 27,289 Other liabilities 645 631 1,011 Stockholders' equity 14,722 12,322 10,855 -------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $232,922 $227,579 $235,614 ================================================================================================================================ Net interest income 10,870 10,096 9,874 Yield spread 4.46% 4.43% 4.37% ================================================================================================================================ Net yield on earning assets 5.01% 4.85% 4.68% ================================================================================================================================ Deduct-Tax equivalent adjustment (a) 23 23 31 -------------------------------------------------------------------------------------------------------------------------------- Net interest income $10,847 $10,073 $9,843 ================================================================================================================================
(a) Interest income on non-taxable investment securities and loans includes the effects of tax equivalent adjustments using the marginal federal tax rate of 34% in adjusting tax exempt interest income to a fully taxable basis. (b) Average loan balances above include non-accrual loans. When a loan is placed in non-accrual status, interest income is recorded only to the extent actually received in cash. During 1994, the yield spread increased to 4.46% from 4.43% in 1993, up 3 basis points. The Corporation's net interest margin increased during 1994 to 5.01% from 4.85% in 1993, an increase of 16 basis points. (9) Management's Discussion and Analysis - Financial Results (Continued) Westbank Corporation and Subsidiaries Rate/Volume Analysis of Interest Margin on Earning Assets The following table sets forth, for each major category of interest earning assets and interest bearing liabilities, the dollar amounts of interest income (calculated on a taxable equivalent basis) and interest expense and changes therein for 1994 as compared with 1993 and 1993 compared with 1992.
1994 Compared With 1993 1993 Compared With 1992 Increase Due to* Increase Due to* (Dollars in Thousands) 1994 1993 (Decrease) Volume Rate 1993 1992 (Decrease) Volume Rate -------------------------------------------------------------------------------------------------------------------------------- Interest earned: Securities: U.S. Treasury $679 $653 $26 $40 $(14) $653 $586 $67 $97 $(30) Federal agencies 1,072 1,038 34 68 (34) 1,038 1,188 (150) 37 (187) Tax exempt -federal -- -- -- -- -- -- 1 (1) (1) -- Other investments 104 137 (33) (29) (4) 137 186 (49) (66) 17 Interest-bearing cash 28 97 (69) (112) 43 97 134 (37) 26 (63) Loans: Commercial 2,920 2,821 99 (139) 238 2,821 3,723 (902) (862) (40) Tax exempt -federal 69 69 -- (25) 25 69 92 (23) (18) (5) Real estate 10,530 10,184 346 1,212 (866) 10,184 10,799 (615) 990 (1,605) Consumer 1,519 1,702 (183) (153) (30) 1,702 2,070 (368) (186) (182) Federal funds sold 148 131 17 (26) 43 131 200 (69) (44) (25) -------------------------------------------------------------------------------------------------------------------------------- 17,069 16,832 237 836 (599) 16,832 18,979 (2,147) (27) (2,120) -------------------------------------------------------------------------------------------------------------------------------- Interest expense: Savings 778 914 (136) (15) (121) 914 1,207 (293) 30 (323) Money market 579 734 (155) (81) (74) 734 872 (138) 114 (252) Negotiated rate certificates 287 270 17 40 (23) 270 422 (152) (88) (64) Other time deposits 4,355 4,560 (205) 79 (284) 4,560 6,199 (1,639) (629) (1,010) Borrowed funds 200 258 (58) (53) (5) 258 405 (147) (51) (96) -------------------------------------------------------------------------------------------------------------------------------- 6,199 6,736 (537) (30) (507) 6,736 9,105 (2,369) (624) (1,745) -------------------------------------------------------------------------------------------------------------------------------- $10,870 $10,096 $774 $866 $(92) $10,096 $9,874 $222 $597 $(375) ================================================================================================================================
*The dollar amount of changes in interest income and interest expense attributable to changes in rate/volume has been allocated between rate and volume based on changes in rates times the prior year's volume and the changes in volume times the prior year's rate. Net interest income on a taxable equivalent basis for 1994 increased to $10,870,000, up 7.7% from $10,096,000 in 1993. A 4.2% increase in average earning assets and a 21 basis point reduction in average rate of return resulted in an increase in volume of $836,000 and a reduction in rate of $599,000. A reduction of 1.5% in average interest bearing liabilities and a 24 basis point reduction in average rate of interest paid contributed to a reduction in volume and rate of $30,000 and $507,000, respectively. (10) Management's Discussion and Analysis - Financial Results (Continued) Westbank Corporation and Subsidiaries Liquidity Liquidity management requires close scrutiny of the mix and maturity of deposits and borrowings and short-term investments. Cash and due from banks, federal funds sold, investment securities and mortgage-backed securities, as compared to deposits, are used by Westbank to compute its liquidity on a daily basis as adjusted for regulatory purposes. At December 31, 1994, Westbank's ratio of such assets to total deposits was 25.6%. In addition, Westbank is subject to Regulation D of the Federal Reserve Bank (FRB), which requires depository institutions to maintain reserve balances on deposit with the FRB based on certain average depositor balances. Westbank is in compliance with Regulation D. Management of Westbank believes that its current liquidity is sufficient to meet current and anticipated funding needs. Investment Portfolio Refer to Notes 2 and 3 in the NOTES TO CONSOL-IDATED FINANCIAL STATEMENTS of this report which covers the maturity distribution and market values at December 31, 1994 of the securities portfolio. The following table shows the amortized cost (in thousands) of the Corporation's securities held to maturity at December 31:
1994 1993 1992 ---------------------------------------------------------------------------------------------- U. S. Government obligations $6,499 $10,691 $13,665 Federal agency obligations 13,694 14,304 13,909 Mortgage-backed securities 331 401 485 Other debt securities 1,270 1,637 2,756 Marketable equity securities -- 1 1 ---------------------------------------------------------------------------------------------- $21,794 $27,034 $30,816 ==============================================================================================
The following table shows the fair value (in thousands) of the Corporation's securities available for sale at December 31:
1994 1993 1992 ---------------------------------------------------------------------------------------------- U. S. Government obligations $3,329 $-- $-- Federal agency obligations 4,161 -- 503 Mortgage-backed securities -- 5,085 -- Other debt securities 254 -- -- Marketable equity securities 9 -- -- ---------------------------------------------------------------------------------------------- 7,753 5,085 503 Gross unrealized (gain) loss on securities available for sale 248 (140) (3) ---------------------------------------------------------------------------------------------- Amortized cost $8,001 $4,945 $500 ==============================================================================================
The following table shows weighted average yields of debt securities at December 31, 1994:
Weighted Average Yield(a) --------------------------------------------------------------------------------------------------------------------------------- Within 1 to 5 5 to 10 After 10 1 Year Years Years Years Total --------------------------------------------------------------------------------------------------------------------------------- U. S. Government obligations 4.125% 6.43% 8.375% --% 6.73% Federal agency obligations -- 6.06 8.05 -- 6.06 Other debt securities -- 7.52 -- -- 7.52 Mortgage-backed securities -- -- 8.25 8.25 8.25
(a) The weighted average yield has been computed by dividing annualized interest income, including the accretion of discount and the amortization of premiums, by the book value of securities outstanding. Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investment in Debt and Equity Securities" ("SFAS No. 115") was issued by the Financial Accounting Standards Board. SFAS No. 115 required specific accounting and reporting treatment in certain equity securities and all debt securities. These investments are required to be classified in three categories and accounted for as follows: Held to Maturity - Reported at amortized cost. Available for Sale - Reported at fair value, with unrealized gains/losses, net of income taxes excluded from earnings and reported as a separate component of shareholders' equity. Trading Securities - Reported at fair value with unrealized gains/losses included in earnings. The Corporation implemented SFAS No. 115 effective January 1, 1994 and the effect of implementing was an increase of the Corporation's capital of $233,000. (11) Management's Discussion and Analysis - Financial Results (Continued) Westbank Corporation and Subsidiaries Loan Portfolio The following table sets forth the classification (in thousands) of the Corporation's loans by major category at December 31:
1994 1993 1992 1991 1990 --------------------------------------------------------------------------------------------------------------------------------- Commercial $34,306 $30,431 $31,006 $41,577 $49,331 --------------------------------------------------------------------------------------------------------------------------------- Real Estate: Construction 8,517 8,491 6,501 5,980 4,066 Residential (1-4 family) 81,333 70,530 66,154 58,428 68,235 Residential (5 or more) 4,034 4,852 3,286 3,315 3,078 Commercial properties 58,310 51,789 51,237 62,157 70,951 --------------------------------------------------------------------------------------------------------------------------------- Total Real Estate 152,194 135,662 127,178 129,880 146,330 --------------------------------------------------------------------------------------------------------------------------------- Consumer 9,383 9,282 11,231 12,108 15,805 --------------------------------------------------------------------------------------------------------------------------------- Lease financing 352 932 3,349 6,348 10,305 --------------------------------------------------------------------------------------------------------------------------------- Gross loans 196,235 176,307 172,764 189,913 221,771 Unearned discount -- -- (4) (5) (30) Deferred loan origination fees-net of costs (233) (217) (241) (208) (382) --------------------------------------------------------------------------------------------------------------------------------- Total Loans 196,002 176,090 172,519 189,700 221,359 Allowance for loan losses (3,325) (3,472) (3,442) (3,550) (4,145) --------------------------------------------------------------------------------------------------------------------------------- Net loans $192,677 $172,618 $169,077 $186,150 $217,214 =================================================================================================================================
The Corporation's loan portfolio is not concentrated within a single industry or a group of related industries. The aggregate amount of loans to executive officers, directors and organizations with which they are associated amounted to $445,000, or 2.82% of stockholders' equity as of December 31, 1994. The following table provides the maturity distribution and sensitivity to changes in interest rates of commercial loans and commercial real estate construction loans at December 31, 1994:
6 Months 6 - 12 1 - 5 After (Dollars in Thousands) or Less Months Years 5 Years Total --------------------------------------------------------------------------------------------------------------------------------- Commercial $28,271 $2,184 $2,453 $1,398 $34,306 Real estate-construction 4,024 3,724 769 -- 8,517 --------------------------------------------------------------------------------------------------------------------------------- Totals $32,295 $5,908 $3,222 $1,398 $42,823 =================================================================================================================================
Of the commercial loans, approximately $25,713,000 are variable and reprice within six months or less. Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114") addresses the accounting by creditors for impairment of certain loans. It is applicable to all creditors and to all loans, uncollateralized as well as collateralized, except large groups of smaller balance homogeneous loans that are collectively evaluated for impairment, loans that are measured at fair value or at the lower of cost or fair value, leases, and debt securities as defined in SFAS No. 115. It applies to all loans that are restructured in a troubled debt, the restructuring involving a modification of terms. SFAS No. 114 requires that impaired loans that are within the scope of the Statement be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The Statement is required to be adopted by the Corporation on January 1, 1995. No significant impact from the adoption of this statement is expected on the Bank's financial condition or results of operations. (12) Management's Discussion and Analysis - Financial Results (Continued) Westbank Corporation and Subsidiaries Loan Loss Experience The provision for loan losses is an amount added to the allowance against which loan losses are charged. The provision for losses is dependent on actual net write-offs and an evaluation as to the collectibility of the loan portfolio taking into consideration such factors as the financial condition of individual borrowers, historical loss experience with respect to various portfolio segments, current and near term economic conditions, and the size of the portfolio. Based on these reviews, the allowance for loan losses at December 31, 1994, is deemed to be adequate by management. In the determination of the allowance for loan losses management obtains independent appraisals for a significant number of properties. Management has also retained an independent loan review consultant to provide advice on the adquacy of the loan loss allowance. The following table sets forth the historical relationship among the average amount of loans outstanding, the allowance for loan losses, provision for loan losses charged to operating expenses, losses charged off, recoveries and selected ratios:
Year Ended December 31, (Dollars in Thousands) 1994 1993 1992 1991 1990 --------------------------------------------------------------------------------------------------------------------------------- Balance at beginning of year $3,472 $3,442 $3,550 $4,145 $1,887 Provision charged to expense 1,473 790 2,298 5,375 6,965 --------------------------------------------------------------------------------------------------------------------------------- 4,945 4,232 5,848 9,520 8,852 --------------------------------------------------------------------------------------------------------------------------------- Charge-offs: Loans secured by real estate 1,291 152 1,150 2,444 1,035 Construction/land development -- 230 344 821 1,363 Commercial and industrial loans 480 638 866 2,286 2,158 Consumer loans 91 84 155 408 276 Lease financing receivables 7 55 100 218 97 --------------------------------------------------------------------------------------------------------------------------------- 1,869 1,159 2,61 6,177 4,929 --------------------------------------------------------------------------------------------------------------------------------- Recoveries: Loans secured by real estate 25 259 20 31 119 Construction/land developing -- 11 25 114 -- Commercial and industrial loans 204 45 11 14 58 Consumer loans 14 39 34 46 45 Lease financing receivables 6 45 119 2 -- --------------------------------------------------------------------------------------------------------------------------------- 249 399 209 207 222 --------------------------------------------------------------------------------------------------------------------------------- Net charge-offs 1,620 760 2,406 5,970 4,707 --------------------------------------------------------------------------------------------------------------------------------- Balance at end of year $3,325 $3,472 $3,442 $3,550 $4,145 ================================================================================================================================= Average loans outstanding $182,676 $171,814 $174,546 $205,873 $236,262 ================================================================================================================================= Net charge-offs as a percentage of average loans 89% .44% 1.38% 2.90% 1.99% Net charge-offs as a percentage of the allowance at January 1 46.66% 22.08% 67.77% 144.03% 249.44% Allowance as a percentage of total loans at December 31 1.70% 1.97% 2.00% 1.87% 1.87% Allowance as a percentage of non- performing loans at December 31 56.52% 182.54% 137.19% 47.97% 51.15%
(13) Management's Discussion and Analysis - Financial Results (Continued) Westbank Corporation and Subsidiaries Allocation of the balance of the allowance for loan losses at December 31, 1994-applicable to: Percentage of Loans (Dollars in Thousands) Amount to Total Loans -------------------------------------------------------------------------------- Loans secured by real estate $2,496 73.18% Construction/land development 127 4.35 Commercial and industrial loans 514 17.50 Consumer loans 125 4.79 Lease financing receivables 63 .18 -------------------------------------------------------------------------------- $3,325 100.00% ================================================================================ The approach the Corporation uses in determining the adequacy of the allowance for loan losses is the combination of a target reserve and general reserve allocation. Quarterly, based on an internal review of the loan portfolio, the Corporation identifies required reserve allocations targeted to recognized problem loans that, in the opinion of management, have potential loss exposure or questions relative to the adequacy of the collateral on these same loans. In addition, the Corporation allocates a general reserve against the remainder of the loan portfolio. Non-Performing Assets Loans 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:
(Dollars in Thousands) 1994 1993 1992 1991 1990 --------------------------------------------------------------------------------------------------------------------------------- Loans on a non-accrual basis $4,890 $1,078 $1,365 $4,517 $4,733 ================================================================================================================================= Non-accrual loans as a percentage of total net loans outstanding 2.54% .62% .81% 2.43% 2.18% Non-accrual loans as a percentage of total assets 2.01% .47% .58% 1.87% 1.62% Loans contractually past due 90 days or more and still accruing $492 $330 $724 $2,884 $3,371 =================================================================================================================================
The gross amount of interest that would have been accrued at the original contract rate on loans on a non-accrual basis (in thousands) was $342, $126, $124, $346, and $239 for 1994, 1993, 1992, 1991, and 1990, respectively. The only income included in the results of operations is (in thousands) $20 of interest income relating to these loans for 1994. During the second and third quarters of 1994, management moved four loans totaling approximately $4,000,000 to non-performing status. These four loans were not newly identified loan problems, as each loan has been listed on the Banks internal watch and classified loan list for a substantial period of time. The classification to non-performing status is in response to further deterioration of these four borrowers and managements' aggressive action in an attempt to resolve them. Each of the loans is real estate related. Restructured Loans A restructured loan is one for which the Corporation has modified the contractual terms to provide a reduction in the rate of interest and, in most instances, an extension of payments of principal or interest or both because of a deterioration in the financial position of the borrower. Restructured loans which are performing in accordance with their new terms are not included in non-accrual loans unless concern exists as to the ultimate collection of principal or interest. Restructured loans, which are classified as accruing loans, amounted to $501,000 at December 31, 1994, compared to $494,000 in 1993. The average current yield on these loans was approximately 8.4%. The following is an analysis of interest income related to restructured loans which are classified as accruing loans:
Year Ended December 31, (Dollars in Thousands) 1994 1993 1992 ---------------------------------------------------------------------------------------------- Interest income that would have been recognized if the loans had been current at original contractual rates $50 $45 $12 Amount recognized as interest income 42 41 8 ---------------------------------------------------------------------------------------------- Reduced interest income $8 $4 $4 ==============================================================================================
(14) Management's Discussion and Analysis - Financial Results (Continued) Westbank Corporation and Subsidiaries Other Real Estate Owned and In-Substance Foreclosures The following table sets forth information regarding other real estate owned and in-substance foreclosures:
(Dollars in Thousands) 1994 1993 1992 1991 1990 --------------------------------------------------------------------------------------------------------------------------------- Other real estate owned $1,552 $3,161 $4,271 $4,972 $4,917 In-substance foreclosures -- 1,979 5,988 5,575 12,296 --------------------------------------------------------------------------------------------------------------------------------- $1,552 $5,140 $10,259 $10,547 $17,213 ================================================================================================================================= Other real estate owned and in-substance foreclosures as a percentage of total assets .64% 2.25% 4.38% 4.38% 5.89%
Deposits The following table sets forth the average amounts of various classifications of deposits:
(Dollars in Thousands) 1994 1993 1992 Amount Rate Amount Rate Amount Rate --------------------------------------------------------------------------------------------------------------------------------- Savings $36,879 2.11% $37,529 2.44% $36,542 3.30% Money market 22,548 2.56 25,585 2.87 22,371 3.90 Negotiated rate certificates 6,279 4.57 5,412 4.99 7,034 6.00 Other time deposits 109,242 3.99 107,324 4.25 120,401 5.15 --------------------------------------------------------------------------------------------------------------------------------- 174,948 3.43 175,850 3.68 186,348 4.67 Demand deposits 35,711 -- 30,065 -- 27,289 -- --------------------------------------------------------------------------------------------------------------------------------- $210,659 -- $205,915 -- $213,637 -- =================================================================================================================================
Certificates of deposits of $100,000 and over at December 31, 1994 had the following maturities:
3 Months 3 to 6 6 to 12 Over 12 (Dollars in Thousands) or Less Months Months Months Total --------------------------------------------------------------------------------------------------------------------------------- Totals $8,585 $776 $1,906 $875 $12,142 ---------------------------------------------------------------------------------------------------------------------------------
Return on Equity and Assets The Corporation's return on average assets, return on average equity and average equity to average assets ratio, for each of the years ended December 31, were as follows:
1994 1993 1992 ------------------------------------------------------------------------------------------------------------------ Return on average total assets .93% .86% .32% Return on average stockholders' equity 14.77 15.80 6.96 Average stockholders' equity to average total assets 6.32 5.41 4.61
Borrowings The following table summarizes borrowings. Average interest rates during each year were computed by dividing total interest expense by the average amount borrowed:
(Dollars in Thousands) 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------- Balance at year end $8,625 $12,420 $10,102 Average amount outstanding $6,896 $8,711 $10,111 Maximum amount outstanding at any month-end $13,961 $12,420 $13,351 Average interest rate for the year 2.90% 2.96% 3.33% Average interest rate on year-end balance 4.20% 2.94% 2.87%
Management's Discussion and Analysis of the Statements of Income In the following sections of Management's Discussion and Analysis of the Statements of Income, the comparative results of 1994, 1993 and 1992 will be covered in greater detail. The principal earning asset of the holding company consists of a com- mercial bank, Park West Bank and Trust Company. Noteworthy are the effects of sources of income from earning assets and expense of interest-bearing liabilities. Presented below is a comparative summary of percentages of increases and decreases for the three years ended December 31, 1994. The significant changes are discussed in the analysis that follow the summary. (15) Management's Discussion and Analysis - Financial Results (Continued) Westbank Corporation and Subsidiaries
Percentage of increase (decrease) --------------------------------------------------------------------------------------------------------------------------------- 1994 1993 Over Over (Dollars in Thousands) 1994 1993 1992 1993 1992 --------------------------------------------------------------------------------------------------------------------------------- Net interest income $10,847 $10,073 $9,843 7.68% 2.34% Provision for loan losses 1,473 790 2,298 86.46 (65.62) Non-interest income 2,459 2,861 3,376 (14.05) (15.25) Non-interest expense 10,088 10,072 10,165 (7.29) (.91) Income taxes (benefit) (430) 525 202 -- 159.90 --------------------------------------------------------------------------------------------------------------------------------- Net income before extraordinary item and cumulative effect of accounting change 2,175 1,547 554 68.71 179.24 Extraordinary item and cumulative effect of accounting change: Tax benefit of net operating loss carryforward -- -- 202 -- -- Cumulative effect of accounting change for income taxes -- 400 -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Net Income $2,175 $1,947 $756 34.05% 157.54% =================================================================================================================================
Comparison of 1994 with 1993 Interest Income Westbank's earning assets include a diverse portfolio of interest earning instruments ranging from Westbank's core business of loan extensions to interest-bearing securities issued by federal, state and municipal authorities. These earning assets are financed through a combination of interest-bearing and interest-free sources. Total interest income for 1994 amounted to $17,046,000 as compared to $16,809,000 for 1993, an increase of $237,000, or 1.41% which is a result of an increase in average earning assets of $8,662,000 or 4.2% combined with a 21 basis point reduction in the average earning interest rate. Interest Expense Interest expense for 1994 on deposits and borrowings amounted to $6,199,000 as compared to $6,736,000 in 1993, a decrease of $537,000 or 7.97%. A decrease in the average interest bearing liabilities of $2,717,000, as well as, a decrease in the average rate of interest paid in 1994 of 24 basis points compared to 1993, contributed to the overall interest expense reduction. Net Interest Income Net interest income, the most significant component of earnings, is the amount by which the interest generated by assets exceeds the interest expense on liabilities. For analytical purposes, the interest earned on tax exempt assets is adjusted to a "tax equivalent basis" using statutory rates to recognize the income tax savings which facilitates comparison between taxable and tax exempt assets. Westbank's management attempts to analyze its performance by utilizing the concepts of interest rate spread and net yield on earning assets. The interest rate spread represents the difference between the yield on earning assets and interest paid on interest-bearing liabilities. The net yield on earning assets is the difference between the rate of interest on earning assets and the effective rate paid on all funds, interest-bearing liabilities, as well as interest-free sources (primarily demand deposits and stockholders' equity). The following table sets forth Westbank's net interest income on a taxable equivalent basis:
(Dollars in Thousands) 1994 1993 ---------------------------------------------------------------------------------------------- Total interest income $17,046 $16,809 Total interest expense 6,199 6,736 ---------------------------------------------------------------------------------------------- Net interest income 10,847 10,073 Tax equivalent adjustment to interest income 23 23 ---------------------------------------------------------------------------------------------- Net interest income (taxable equivalent) $10,870 $10,096 ==============================================================================================
The RATE/VOLUME ANALYSIS OF INTEREST MARGIN ON EARNING ASSETS section includes and sets forth each major category of interest earning assets and interest bearing liabilities which result in net interest income. (16) Management's Discussion and Analysis - Financial Results (Continued) Westbank Corporation and Subsidiaries Provision for Loan Losses The 1994 provision for loan losses totalled $1,473,000 compared with $790,000 in 1993, an increase of 86%. A full discussion appears previously under the heading of LOAN LOSS EXPERIENCE. Non-Interest Income Income from sources other than interest was $2,459,000 in 1994, a decrease of $402,000 from the prior year. During 1994, service fees and Trust Department fees remained level when compared to 1993, while income from gain on sale of securities, mortgages and service charges on deposit accounts were responsible for the overall decline in non-interest income. Non-Interest Expense The components of other operating expenses at December 31 are as follows:
Percentage Increase (Dollars in Thousands) 1994 1993 (Decrease) ------------------------------------------------------------------------------------------- Salaries and benefits $3,939 $3,656 7.7% Occupancy 555 504 10.1 Write-down of other real estate owned 760 1,164 (34.7) Other real estate owned expense 476 633 (24.8) Other non-interest expense 4,358 4,115 5.9 ------------------------------------------------------------------------------------------- $10,088 $10,072 .2% ===========================================================================================
Overall non-interest expense increased by $16,000 compared to 1993. Other real estate owned expenses declined by $561,000 compared to 1993, the result of less real estate under management by the Bank during the current year. Salaries and benefits as well as occupancy expense increased by $334,000, the impact of a new branch office opened during 1994. Other non-interest expense increased by $243,000. During March 1995 the bank discovered an alleged employee defalcation which caused the Corporation to charge $750,000 to other non-interest expense during 1994. The remaining other non-interest expense declined by more than $500,000, the result of continued cost reduction measures, including the savings generated from the Bank's conversion to a data processing service bureau versus an in house system. Income Taxes The Financial Accounting Standards Board issued a Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No. 109") in February, 1992. The Statement requires the recognition of deferred tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. Effective January 1, 1993, the Corporation prospectively adopted SFAS No. 109, resulting in a $400,000 benefit which has been reported as a cumulative effect of the change in accounting principle. For the year ended December 31, 1994 Westbank recorded a tax benefit of $430,000, which is primarily the result of the utilization of net operating loss carryforwards of $237,000 and a decrease in a valuation allowance of $771,000 pertaining to deferred tax assets offset by the provision for current taxes. The decrease in such valuation reserve is due to the continued profitable performance of the Bank and the resultant consideration of the realizability of deferred tax assets. Net Income The net income for 1994 of $2,175,000, or $.68 per share, is based on a weighted average of 3,203,985 shares outstanding, compared with a net income for 1993 of $1,947,000, or $.61 based on a weighted average of 3,190,486 shares outstanding. (17) Management's Discussion and Analysis - Financial Results (Continued) Westbank Corporation and Subsidiaries Comparison of 1993 with 1992 Interest Income Total interest income for 1993 amounted to $16,809,000 as compared to $18,948,000 for 1992, a decrease of $2,139,000, or 11.3%, which is a result of a decrease in average earning assets of $2,677,000 or 1.3% combined with a 92 basis point reduction in average earning interest rate. Interest Expense Interest expense for 1993 on deposits and borrowings amounted to $6,736,000 as compared to $9,105,000 in 1992, a decrease of $2,369,000, or 26%. A decrease in the average interest bearing liabilities of $11,898,000, as well as a decrease in the average rate of interest paid in 1993 of 98 basis points compared to 1992, contributed to the overall interest expense reduction. The decrease was a result of an overall decline in interest rates. Net Interest Income Net interest income, is the Corporation's most significant component of earnings. The following table sets forth Westbank's net interest income on a taxable equivalent basis:
(Dollars in Thousands) 1993 1992 ---------------------------------------------------------------------------------------------- Total interest income $16,809 $18,948 Total interest expense 6,736 9,105 ---------------------------------------------------------------------------------------------- Net interest income 10,073 9,843 Tax equivalent adjustment to interest income 23 31 ---------------------------------------------------------------------------------------------- Net interest income (taxable equivalent) $10,096 $9,874 ==============================================================================================
The RATE/VOLUME ANALYSIS OF INTEREST MARGIN ON EARNING ASSETS section includes and sets forth each major category of interest earning assets and interest bearing liabilities which result in net interest income. Provision for Loan Losses The 1993 provision for loan losses totalled $790,000 compared with $2,298,000 in 1992 a decrease of 66%. A full discussion appears previously under the heading of LOAN LOSS EXPERIENCE. Non-Interest Income Income from sources other than interest was $2,861,000 in 1993, a decrease of $515,000 over the prior year. A decrease in the gain on sale of securities and mortgage servicing rights is responsible for the overall decline in income. Non-Interest Expense The components of other operating expenses at December 31, are as follows:
(Dollars in Thousands) 1993 1992 ---------------------------------------------------------------------------------------------- Salaries and benefits $3,656 $3,681 Occupancy 504 470 Write-down of other real estate owned 1,164 1,263 Other real estate owned expense 633 693 Other non-interest expense 4,115 4,058 ---------------------------------------------------------------------------------------------- $10,072 $10,165 ==============================================================================================
Overall non-interest expense declined by $93,000, or 1%, compared to 1992. Write-down of other real estate owned contributed to the majority of the decrease. Income Taxes The Corporation's provision for income taxes during 1993 was $525,000 compared to $202,000 in 1992. Westbank's effective tax rate for 1993 was 25.3%. Extraordinary Item During 1992, the Corporation recognized an extraordinary item totaling $202,000. The extraordinary item is the result of the recognition of a tax benefit of the Corporation's net operating loss carryforwards. Cumulative Effect of Accounting Change Effective January 1, 1993, the Corporation adopted SFAS No. 109, resulting in a $400,000 benefit which has been reported as a cumulative effect of a change in accounting principle. Net Income The net income for 1993 of $1,947,000, or $.61 per share, is based on a weighted average of 3,190,486 shares outstanding, compared with a net income for 1992 of $756,000, or $.24 per share, based on a weighted average of 3,138,327 shares outstanding. (18) Independent Auditors' Report Westbank Corporation and Subsidiaries Independent Auditors' Report The Stockholders and Board of Directors, Westbank Corporation We have audited the accompanying consolidated balance sheet of Westbank Corporation and Subsidiaries (the "Corporation") as of December 31, 1994, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Westbank Corporation and Subsidiaries at December 31, 1994 and the consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. As described in Note 1, the Corporation changed its method of accounting for securities as of January 1, 1994. DELOITTE & TOUCHE LLP Hartford, Connecticut March 28, 1995 Independent Auditors' Report The Stockholders and Board of Directors, Westbank Corporation We have audited the accompanying consolidated balance sheet of Westbank Corporation and Subsidiaries as of December 31, 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 1993. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Westbank Corporation and Subsidiaries at December 31, 1993 and the results of their operations and cash flows for each of the years in the two-year period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Note l to the financial statements, in 1993 the Corporation adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." KPMG PEAT MARWICK LLP Springfield, Massachusetts January 28, 1994 (19) Consolidated Balance Sheets Westbank Corporation and Subsidiaries
December 31, (Dollars in Thousands, except share amounts) 1994 1993 --------------------------------------------------------------------------------------------------------------------------------- Assets Cash and due from banks: Non-interest bearing $10,425 $9,621 Interest bearing 275 353 --------------------------------------------------------------------------------------------------------------------------------- 10,700 9,974 Federal funds sold 1,000 3,000 --------------------------------------------------------------------------------------------------------------------------------- Total cash and cash equivalents 11,700 12,974 Securities (notes 2 and 3): Investment securities available for sale (amortized cost of $8,001) 7,753 -- Investment securities (fair value of $20,631 in 1994 and $27,398 in 1993) 21,463 26,633 --------------------------------------------------------------------------------------------------------------------------------- 29,216 26,633 Mortgage-backed securities available for sale (fair value of $5,085) -- 4,945 Mortgage-backed securities (fair value of $327 in 1994 and $422 in 1993) 331 401 --------------------------------------------------------------------------------------------------------------------------------- 331 5,346 --------------------------------------------------------------------------------------------------------------------------------- Total securities 29,547 31,979 Loans, net of allowance for loan losses of $3,325 in 1994 and $3,472 in 1993 (note 4) 192,677 172,618 --------------------------------------------------------------------------------------------------------------------------------- Property and equipment (note 5) 3,417 3,088 Other real estate owned, net of allowance for losses of $231 in 1994 and $440 in 1993 (note 6) 1,552 5,140 Accrued interest receivable 1,668 1,560 Deferred premium on loans sold 112 180 Deferred income taxes (note 9) 1,245 369 Income taxes refundable (note 9) 103 50 Other assets 1,292 905 --------------------------------------------------------------------------------------------------------------------------------- Total assets $243,313 $228,863 ================================================================================================================================= Liabilties and Stockholders' Equity Deposits (note 7): Non-interest bearing $40,399 $34,499 Interest bearing 178,164 167,932 --------------------------------------------------------------------------------------------------------------------------------- Total deposits 218,563 202,431 Borrowed funds (note 8) 8,625 12,420 Interest payable on deposits 240 541 Other liabilities 541 200 --------------------------------------------------------------------------------------------------------------------------------- Total liabilities 227,969 215,592 Commitments and contingent liabilities (notes 12 and 13) Stockholders' equity (note 15): Preferred stock, par value $5 per share, authorized 100,000 shares; none issued Common stock, par value $2 per share, authorized 9,000,000 shares; issued and outstanding 3,138,167 shares in 1994 and 3,125,506 shares in 1993 6,276 6,251 Additional paid-in capital 6,877 6,861 Retained earnings 2,334 159 Unrealized loss on securities available for sale, net (143) -- --------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 15,344 13,271 --------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $243,313 $228,863 ================================================================================================================================= See notes to consolidated financial statements.
(20) Consolidated Statements of Income Westbank Corporation and Subsidiaries
Years ended December 31, (Dollars in Thousands, except share amounts) 1994 1993 1992 --------------------------------------------------------------------------------------------------------------------------------- Interest and dividend income: Interest and fees on loans $15,015 $14,756 $16,653 Interest from temporary investments 176 147 334 Interest and dividend income from securities 1,855 1,906 1,961 --------------------------------------------------------------------------------------------------------------------------------- Total interest and dividend income 17,046 16,809 18,948 --------------------------------------------------------------------------------------------------------------------------------- Interest expense: Interest on time deposits 5,712 6,207 8,278 Interest on certificates of deposit - $100,000 or more 287 270 422 Interest on borrowed funds 200 259 405 --------------------------------------------------------------------------------------------------------------------------------- Total interest expense 6,199 6,736 9,105 --------------------------------------------------------------------------------------------------------------------------------- Net interest income before provision for loan losses 10,847 10,073 9,843 Provision for loan losses (note 4) 1,473 790 2,298 --------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 9,374 9,283 7,545 Non-interest income: Trust department income 329 316 302 Service charges on deposits 962 1,123 1,022 Gain on sale of mortgage loans and servicing rights 77 187 337 Gain on sale of securities 145 339 645 Gain on sale of other real estate owned 82 43 93 Other non-interest income (note 14) 864 853 977 --------------------------------------------------------------------------------------------------------------------------------- Total non-interest income 2,459 2,861 3,376 --------------------------------------------------------------------------------------------------------------------------------- Income before non-interest expense 11,833 12,144 10,921 --------------------------------------------------------------------------------------------------------------------------------- Non-interest expense: Salaries and wages 3,331 3,099 3,191 Pension and employee benefits (note 10) 608 557 490 Occupancy expense 555 504 470 Depreciation and amortization expense 550 787 932 Write-down of other real estate owned 760 1,164 1,263 Other real estate owned expenses 476 633 693 Other non-interest expense (note 14) 3,808 3,328 3,126 --------------------------------------------------------------------------------------------------------------------------------- Total non-interest expense 10,088 10,072 10,165 --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes, extraordinary item and cumulative effect of accounting change 1,745 2,072 756 Income taxes (benefit) (note 9) (430) 525 202 --------------------------------------------------------------------------------------------------------------------------------- Net income before extraordinary item and cumulative effect of accounting change 2,175 1,547 554 Extraordinary item - tax benefit of net operating loss carryforward -- -- 202 Cumulative effect of accounting change for income taxes (note 9) -- 400 -- --------------------------------------------------------------------------------------------------------------------------------- Net income $2,175 $1,947 $756 ================================================================================================================================= Net earnings per share before extraordinary item and cumulative effect of accounting change $.68 $.48 $.18 Net earnings per share attributable to extraordinary item -- .06 Net earnings per share attributable to cumulative effect of accounting change -- .13 -- --------------------------------------------------------------------------------------------------------------------------------- Net earnings per share $.68 $.61 $.24 ================================================================================================================================= Weighted average shares and equivalent shares outstanding 3,203,985 3,190,486 3,138,327 ================================================================================================================================= See notes to consolidated financial statements.
(21) Consolidated Statements of Stockholders' Equity Westbank Corporation and Subsidiaries
Retained Unrealized Common Stock Additional earnings gain (loss) Par paid-in (accumulated on securities (Dollars in Thousands, except share amounts) Shares Value capital deficit) available for sale Total --------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1991 3,115,689 $6,231 $ 6,849 $(2,544) $-- $10,536 Net income -- -- -- 756 -- 756 --------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1992 3,115,689 6,231 6,849 (1,788) -- 11,292 Net income -- -- -- 1,947 -- 1,947 Shares issued under stock option plan 5,700 12 -- -- -- 12 Shares issued under stock purchase plan 4,117 8 12 -- -- 20 --------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 3,125,506 6,251 6,861 159 -- 13,271 Net income -- -- -- 2,175 -- 2,175 Shares issued under stock option plan 7,864 16 -- -- -- 16 Shares issued under stock purchase plan 4,797 9 16 -- -- 25 Cumulative effect of implementing accounting standard for investments as of January 1, 1994 -- -- -- -- 233 233 Unrealized loss on securities available for sale for the year -- -- -- -- (376) (376) --------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 3,138,167 $6,276 $6,877 $ 2,334 $(143) $15,344 ================================================================================================================================= See notes to consolidated financial statements.
(22) Consolidated Statements of Cash Flows Westbank Corporation and Subsidiaries
For the years ended December 31, (Dollars in Thousands) 1994 1993 1992 --------------------------------------------------------------------------------------------------------------------------------- Operating activities: Net income $2,175 $1,947 $756 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,473 790 2,298 Depreciation and amortization 550 787 932 Provision for other real estate owned 760 1,164 1,263 Decrease in interest payable on deposits (301) (308) -- (Increase) decrease in accrued interest receivable (108) 174 316 Realized gain on sale of securities (145) (339) (645) Realized gain on sale of other real estate owned (82) (43) (93) Realized loss on sale of premises and equipment -- -- 8 Decrease (increase) in other assets (319) 197 506 Increase (decrease) in other liabilities 341 (229) (300) Decrease (increase) in income taxes refundable (53) (6) 597 Increase in deferred taxes (876) (400) -- --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 3,415 3,734 5,638 --------------------------------------------------------------------------------------------------------------------------------- Investing activities: Investments and mortgage-backed securities: Held to maturity: Purchases (5,747) -- -- Proceeds from maturities 169 -- -- Available for sale: Purchases (6,740) -- -- Proceeds from sales 7,738 -- -- Proceeds from maturities 7,014 -- -- Investments: Purchases -- (23,908) (42,746) Proceeds from sales -- 15,514 30,017 Proceeds from maturities -- 7,570 7,107 Purchases of premises and equipment (879) (318) (746) Net (increase) decrease in loans (21,808) (4,097) 12,462 Proceeds from sale of other real estate owned 3,186 3,836 1,689 --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (17,067) (1,403) 7,783 --------------------------------------------------------------------------------------------------------------------------------- Financing activities: Proceeds from borrowed funds 15,099 969 3,249 Repayment of borrowed funds (15,716) (797) (4,788) Net increase (decrease) in borrowings (3,178) 2,146 319 Net increase (decrease) in deposits 16,132 (9,314) (5,745) Proceeds from exercise of stock options and stock purchase plan 41 32 -- --------------------------------------------------------------------------------------------------------------------------------- Net cash used by financing activities 12,378 (6,964) (6,965) --------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (1,274) (4,633) 6,456 Cash and cash equivalents at beginning of year 12,974 17,607 11,151 --------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $11,700 $12,974 $17,607 ================================================================================================================================= Cash paid during the year: Interest on deposits and other borrowings $6,499 $7,044 $9,541 Income taxes 366 500 -- See notes to consolidated financial statements.
(23) Notes to Consolidated Financial Statements Westbank Corporation and Subsidiaries 1 - Summary of Significant Accounting Policies The accounting and reporting policies of Westbank Corporation (the "Corporation") and its subsidiaries are in conformity with generally accepted accounting principles and general practices within the banking industry. The following is a description of the more significant policies. Basis of Presentation and Consolidation The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, Park West Bank and Trust Company ("Park West"), its subsidiaries, Lorac Leasing Corp., and PWB&T Inc. All material intercompany balances and transactions have been eliminated upon consolidation. Certain amounts in the 1993 and 1992 financial statements have been reclassified to conform to the 1994 presentation. The financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan losses and other real estate owned, management obtains independent appraisals for significant properties. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowances for losses on loans and other real estate owned. Such agencies may require the Bank to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Cash and Cash Equivalents The Corporation defines cash and due from banks,interest-bearing deposits and federal funds sold to be cash equivalents. Securities Securities that management has the positive intent and ability to hold until maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Those securities which have been identified as assets for which there is not a positive intent to hold to maturity, including all marketable equity securities, are classified as available for sale. The Corporation classifies all securities with a maturity of less than three years as available for sale. In addition, any mortgage-backed securities created out of the Banks own inventory of residential real estate loans are also considered available for sale. All other securities are classified as held to maturity. Gains and losses on sales of securities are recognized at the time of sale on a specific identification basis. Mortgage-backed securities held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts determined by a method that does not materially differ from the level-yield method. Management has the positive ability and the intent to hold these assets until maturity. Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investment in Debt and Equity Securities" ("SFAS No. 115") addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Those investments are to be classified in three categories and accounted for as follows: Held to Maturity Securities - reported at amortized cost. Trading Securities - reported at fair value with unrealized gains/losses included in earnings. Available for Sale - reported at fair value, with unrealized gains/losses, net of income taxes, excluded from earnings and reported as a separate component of shareholders' equity. Effective January 1, 1994, the Corporation adopted SFAS No. 115 resulting in an increase of $233,000 to stockholders' equity representing the net unrealized gain on investment securities available for sale, net of related income taxes. At the time the Corporation adopted SFAS No. 115, investment securities with a book value of $14,947,000 and market value of $15,350,000 were reclassified as available for sale. (24) Notes to Consolidated Financial Statements (Continued) Westbank Corporation and Subsidiaries Loans Loans have been reduced by unadvanced loan funds, deferred loan fees, and the allowance for loan losses. Interest on commercial and real estate loans is accrued on the principal amount of loans outstanding. Interest on discounted installment loans is recognized by a method which approximates the interest method. Interest on other loans, is calculated by using the simple interest method on daily balances of the principal amount outstanding. Non-accrual loans are loans on which the accrual of interest ceases when the collection of principal or interest payments is determined to be doubtful by management. It is the general policy of the Corporation to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more unless the loan principal and interest are determined by management to be fully collectible (or sooner if conditions warrant). Any unpaid amounts previously accrued on these loans are reversed from income, and thereafter interest is recognized only to the extent payments are received and any doubt concerning collectibility has been removed. The adequacy of the allowance for loan losses is evaluated regularly by management. Factors considered in evaluating the adequacy of the allowance include the size of the portfolio, previous loss experience, current economic conditions and their effect on borrowers and the financial condition of individual borrowers and the related performance of individual loans in relation to contract terms. The provision for loan losses charged to operating expense is based upon management's judgment of the amount necessary to maintain the allowance at a level adequate to absorb losses. Loan losses are charged against the allowance for loan losses when management believes the collectibility of the principal is unlikely. Loan origination fees, net of certain direct loan origination costs, are deferred and recognized as income over the life of the related loan as an adjustment to the loan's yield. Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114") was issued by the Financial Accounting Standards Board. This Statement addresses the accounting by creditors for impairment of certain loans. It is applicable to all creditors and to all loans, uncollateralized as well as collateralized except large groups of smaller balance homogeneous loans that are collectively evaluated for impairment, loans that are measured at fair value or at the lower of cost or fair value, leases, and debt securities. It applies to all loans that are restructured in a troubled debt restructuring involving a modification of terms. SFAS No. 114 requires that impaired loans that are within the scope of the Statement be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. This Statement applies to the Corporation's financial statements as of January 1, 1995. Management believes that it is currently substantially in compliance with SFAS No. 114 and no significant impact from adoption is expected on the Bank's financial condition or results of its operations. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method for book purposes. Amortization of leasehold improvements is charged over the terms of the respective leases, including option periods or the estimated useful lives of the improvements, whichever is shorter. Gains and losses are recognized upon disposal of assets. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals are capitalized. Other Real Estate Owned and In-substance Foreclosures Other real estate owned ("OREO") includes properties the Bank has acquired through foreclosure and properties deemed to be foreclosed in substance. OREO is recorded at the lower of cost or fair value at the date of acquisition, less estimated selling costs. At the time of foreclosure, the excess, if any, of the loan amount over the fair value of the asset acquired is charged off against the allowance for loan losses. Operating expenses to administer OREO properties are charged directly to operating expenses. Valuation allowances are established subsequent to acquisition, as necessary, based upon management's continuing assessment of the fair values of the properties. Non-performing loans are considered "in-substance foreclosures" when the borrower is deemed to have little or no equity in the collateral, is not expected to rebuild such equity in the foreseeable future and proceeds for repayment of the loan are expected to come only from the operation or sale of the collateral. Loans meeting this criteria are carried at the lower of the loan amount or collateral fair value, less estimated selling costs. (25) Notes to Consolidated Financial Statements (Continued) Westbank Corporation and Subsidiaries Deferred Premium on Loans Sold The Corporation sells mortgage loans resulting in gains or losses which are deferred at the time of the sale when the average interest rate on the loans sold, after normal servicing fees, differs from the agreed yield to the buyer. The premium or discount which results from these sales is amortized using the interest method over the estimated remaining life of the loans, adjusted for estimated prepayments. Such amortization is charged against operations based upon amounts considered necessary by management to reflect accelerated prepayment experience. Income Taxes Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109") established the asset and liability method of accounting for income taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. To the extent that current available evidence about the future raises doubt about the realization of a deferred tax asset, a valuation allowance must be established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Corporation adopted SFAS No. 109 on January 1, 1993, and reported the cumulative effect of that change in the statement of income for the year ended December 31, 1993. Pursuant to the deferred method under Accounting Principles Board Opinion 11 ("APB 11"), which was applied in 1992, deferred income taxes are recognized for income and expense items that are reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of the calculation. Under APB 11, deferred taxes were not adjusted for subsequent changes in tax rates. Pension Plan The Corporation has a trusteed contributory defined contribution pension plan covering substantially all employees. The Corporation's policy is to fund accrued pension cost. Trust Department Assets held by the Corporation for customers in a fiduciary or agency capacity are not included in the consolidated financial statements, as such items are not assets of the Corporation. Such assets totaled approximately $84,031,000 and $84,600,000 at December 31, 1994 and 1993, respectively. Trust income is recognized on a cash basis. The amounts recognized under this method are not materially different from amounts that would be recognized on the accrual basis. Net Earnings Per Share The computation of earnings per share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the year. 2 - Securities Investment securities held to maturity at December 31 are as follows: 1994 ------------------------------------------------------------------------------ Gross and net Amortized Fair unrealized (Dollars in Thousands) cost value losses ------------------------------------------------------------------------------ U.S. Government obligations $6,499 $6,269 $(230) Federal agency obligations 13,694 13,117 (577) Other debt securities 1,270 1,245 (25) ------------------------------------------------------------------------------ Total bonds and debt obligations $21,463 $20,631 $(832) ============================================================================== (26) Notes to Consolidated Financial Statements (Continued) Westbank Corporation and Subsidiaries
1993 --------------------------------------------------------------------------------------------------------------------------------- Gross Gross Net Amortized Fair unrealized unrealized unrealized (Dollars in Thousands) cost value gains losses loss --------------------------------------------------------------------------------------------------------------------------------- U.S. Government obligations $10,691 $11,159 $468 $-- $468 Federal agency obligations 14,304 14,502 213 (15) 198 Other debt securities 1,637 1,729 92 -- 92 --------------------------------------------------------------------------------------------------------------------------------- Total bonds and debt obligations 26,632 27,390 773 (15) 758 Marketable equity securities 1 8 7 -- 7 --------------------------------------------------------------------------------------------------------------------------------- $26,633 $27,398 $780 $(15) $765 ================================================================================================================================= Investment securities available for sale at December 31 are as follows: 1994 --------------------------------------------------------------------------------------------------------------------------------- Gross Gross Net Amortized Fair unrealized unrealized unrealized (Dollars in Thousands) cost value gains losses loss --------------------------------------------------------------------------------------------------------------------------------- U.S. Government obligations $3,394 $3,329 $-- $(65) $(65) Federal agency obligations 4,350 4,161 -- (189) (189) Other debt securities 255 254 -- (1) (1) Equity securities 2 9 7 -- 7 --------------------------------------------------------------------------------------------------------------------------------- $8,001 $7,753 $7 $(255) $(248) =================================================================================================================================
At December 31, 1994, the net unrealized losses, net of tax effect, on available-for-sale securities that was included as a separate component of stockholders' equity was $143,000. During the year ended December 31, 1994 there were no sales of investment securities classified as held to maturity. Gross realized gains and losses on securities available for sale (1994) and investment securities (1993 and 1992) are summarized as follows:
1994 1993 1992 --------------------------------------------------------------------------------------------------------------------------------- Net Net Gross Gross Net Gross Gross realized Gross Gross realized realized realized realized realized realized gains realized realized gains (Dollars in Thousands) gains losses losses gains losses (losses) gains losses (losses) --------------------------------------------------------------------------------------------------------------------------------- U.S. Government obligations $2 $(7) $(5) $-- $-- $-- $41 $-- $41 Federal agency obligations 1 (1) -- -- -- -- 63 -- 63 Other debt securities -- -- -- 1 (1) -- 32 -- 32 Marketable equity securities -- -- -- -- -- -- -- (25) (25) --------------------------------------------------------------------------------------------------------------------------------- $3 $(8) $(5) $1 $(1) $-- $136 $(25) $111 =================================================================================================================================
Proceeds from sales of investments in debt securities, excluding mortgage-backed securities, were $2,497,000, $500,000 and $3,567,000 for the years ended December 31, 1994, 1993 and 1992, respectively. (27) Notes to Consolidated Financial Statements (Continued) Westbank Corporation and Subsidiaries The contractual maturities of securities as of December 31, 1994 are summarized in the following tables. Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations. Amortized Fair Percent (Dollars in Thousands) cost value of total ------------------------------------------------------------------------------ Held to Maturity: Within 1 year $500 $494 2% Over 1 year to 5 years 19,958 19,147 93 Over 5 years to 10 years 1,005 990 5 ------------------------------------------------------------------------------ Total bond and debt obligations $21,463 $20,631 100% ============================================================================== Amortized Fair Percent (Dollars in Thousands) cost value of total ------------------------------------------------------------------------------ Available for Sale: Within 1 year $500 $496 6% Over 1 year to 3 years 7,501 7,257 94 ------------------------------------------------------------------------------ Total bond and debt obligations $8,001 $7,753 100% ============================================================================== Securities carried at $11,072,000 at December 31, 1994 and $13,244,000 at December 31, 1993 were pledged to secure public deposits, repurchase agreements and for other purposes as required by law. 3 - Mortgage-Backed Securities All mortgage-backed securities are classified as held to maturity, unless created from mortgages originated by the Bank (none at December 31, 1994). The mortgage-backed securities held to maturity are as follows: 1994 ------------------------------------------------------------------------------ Gross and net Amortized Fair unrealized (Dollars in Thousands) cost value (losses) ------------------------------------------------------------------------------ GNMA mortgage- backed securities $331 $327 $(4) ============================================================================== 1993 ------------------------------------------------------------------------------ Gross and net Amortized Fair unrealized (Dollars in Thousands) cost value gains ------------------------------------------------------------------------------ GNMA mortgage- backed securities $401 $422 $21 ============================================================================== The amortized cost and approximate market value of mortgage-backed securities available for sale are as follows: 1993 ------------------------------------------------------------------------------ Gross and net Amortized Fair unrealized (Dollars in Thousands) cost value gains ------------------------------------------------------------------------------ FNMA $4,945 $5,085 $140 ============================================================================== Gross realized gains and losses relating to mortgage-backed securities are as follows (all sales were from the available for sale classification):
1994 1993 1992 --------------------------------------------------------------------------------------- Gross and net Gross and net Gross and net realized realized realized (Dollars in Thousands) gains gains gains --------------------------------------------------------------------------------------- FHLMC mortgage-backed securities $-- $-- $16 FNMA mortgage-backed securities 150 339 518 --------------------------------------------------------------------------------------- $150 $339 $534 =======================================================================================
The mortgage-backed securities at December 31, 1994 mature through normal amortization with final payments due between January 15, 2004 and May 15, 2006. Mortgage-backed securities carried at $186,000 at December 31, 1994 and $220,000 at December 31, 1993 were pledged to secure borrowings (see note 8). Proceeds from sales of mortgage-backed securities were $4,979,000, $10,014,000 and $18,450,000 for the years ended December 31, 1994, 1993 and 1992, respectively. 4 - Loans And Allowance for Loan Losses Loans consisted of the following at December 31: (Dollars in Thousands) 1994 1993 ------------------------------------------------------------------------------ Commercial $34,306 $30,431 Real estate 152,194 135,662 Consumer 9,383 9,282 Lease financing 352 932 ------------------------------------------------------------------------------ 196,235 176,307 Allowance for loan losses (3,325) (3,472) Deferred loan origination fees, net of costs (233) (217) ------------------------------------------------------------------------------ $192,677 $172,618 ============================================================================== Changes in the allowance for loan losses are summarized as follows: (Dollars in Thousands) 1994 1993 1992 ------------------------------------------------------------------------------ Balance, beginning of year $3,472 $3,442 $3,550 Provision for loan losses 1,473 790 2,298 Loans charged off (1,869) (1,159) (2,615) Recoveries 249 399 209 ------------------------------------------------------------------------------ $3,325 $3,472 $3,442 ============================================================================== The aggregate principal balance of non-accrual loans was $4,890,000, $1,078,000 and $1,365,000 at December 31, 1994, 1993 and 1992, respectively. Contractual interest income which was not recognized on such non-accrual loans was $342,000, $126,000 and $124,000 for 1994, 1993 and 1992, respectively. The only income included in the results of operations for these non-accrual loans was $20,000 in 1994. (28) Notes to Consolidated Financial Statements (Continued) Westbank Corporation and Subsidiaries The Corporation did not sell any loans with recourse during 1994. The remaining recourse exposure on prior sales was $5,685,000 at December 31, 1994. Management does not believe that its recourse obligations subject the Corporation to any material risk of loss in the future. The Corporation has suffered no losses as a result of these recourse obligations. Of the $152,194,000 in real estate loans at December 31, 1994, $81,333,000 are collateralized by 1-4 family dwellings originated with an 80% or less loan-to-value ratio. The majority of the collateral for these loans is located in the bank's direct market area of Western Massachusetts. Commercial real estate and real estate construction loans represented $66,827,000 in outstanding principal at December 31, 1994. These loans encompass a wider region extending throughout Massachusetts and Southern New England. Most are collateralized by commercial real estate developments. Commercial loans both collateralized and uncollateralized of $34,306,000 at December 31, 1994 represent loans made to businesses in Western Massachusetts. The Bank has had, and expects to have in the future, banking transactions in the ordinary course of business with its directors and officers. Such loans, in the opinion of management, do not include more than the risk of normal collectibility nor other unfavorable features. The following summarizes the activity with respect to indebtedness, both direct and indirect, with an aggregate of $60,000 or more for the directors, policy-making officers and major stockholders during the years ended December 31: (Dollars in Thousands) 1994 1993 ------------------------------------------------------------------------------ Balance at beginning of year $1,148 $ 2,057 New loans granted 543 267 Repayments of principal (831) (1,176) Resignation of director (415) -- ------------------------------------------------------------------------------ Balance at end of year $445 $1,148 ============================================================================== The Corporation restructured loans totaling $501,000, $494,000 and $420,000 at December 31, 1994, 1993 and 1992, respectively, which resulted in interest rates being reduced. The reduction of interest income is summarized as follows: (Dollars in Thousands) 1994 1993 1992 ------------------------------------------------------------------------------ Gross income if at original terms $50 $45 $12 Actual income recorded during the year 42 41 8 ------------------------------------------------------------------------------ Reduction of interest income $8 $4 $4 ============================================================================== The Corporation had no commitments to lend additional funds to these borrowers. The Corporation serviced loans for others totaling $155,539,000 and $127,630,000 at December 31, 1994 and 1993, respectively. 5 - Property and Equipment Major classes of property and equipment at December 31 are summarized as follows: Estimated (Dollars in Thousands) 1994 1993 Lives ------------------------------------------------------------------------------ Property (including land of $1,094) $3,004 $2,712 30-40 years Furniture and equipment 5,841 5,921 3-10 years Motor vehicles 131 128 3 years Leasehold and building improvements 1,392 1,243 5-15 years ------------------------------------------------------------------------------ 10,368 10,004 Accumulated depreciation (6,951) (6,916) ------------------------------------------------------------------------------ $3,417 $3,088 ============================================================================== Depreciation and amortization relating to property and equipment and charged to operating expense amounted to $550,000 in 1994, $787,000 in 1993 and $932,000 in 1992. 6 - Other Real Estate Owned and In-Substance Foreclosures At December 31, other real estate owned consisted of properties acquired through foreclosure and properties considered by management to be in-substance foreclosures as follows: (Dollars in Thousands) 1994 1993 ------------------------------------------------------------------------------ Real estate acquired through foreclosure $1,552 $3,161 In-substance foreclosure -- 1,979 ------------------------------------------------------------------------------ $1,552 $5,140 ============================================================================== Changes in the allowance for other real estate owned losses are summarized as follows: (Dollars in Thousands) 1994 1993 1992 ------------------------------------------------------------------------------ Balance, beginning of year $440 $123 $210 Provision for other real estate owned charged to operations 760 1,164 1,263 Write-downs (net of payments) (969) (847) (1,350) ------------------------------------------------------------------------------ Balance, end of year $231 $440 $123 ============================================================================== Certain sales of other real estate owned were financed by the Bank, aggregating approximately $961,000 and $1,531,000 in 1994 and 1993. Net non cash transfer of loans to (from) other real estate owned and in-substance foreclosures were $276,000, ($162,000) and $2,571,000 for the years ended December 31, 1994, 1993 and 1992, respectively. (29) Notes to Consolidated Financial Statements (Continued) Westbank Corporation and Subsidiaries 7 - Deposits Deposit accounts by type as of December 31 are summarized as follows: (Dollars in Thousands) 1994 1993 ------------------------------------------------------------------------------ Demand deposits $40,399 $34,499 Regular - Savings 35,143 36,814 N.O.W. 15,670 17,184 Money market deposits 19,580 24,405 IRA's 26,546 24,784 Certificates of deposit 81,225 64,745 ------------------------------------------------------------------------------ $218,563 $202,431 ============================================================================== Certificates of deposit with balances greater than or equal to $100,000 amounted to $12,142,000 and $4,466,000 as of December 31, 1994 and 1993, respectively. Interest paid on the deposits totaled approximately $287,000 and $270,000, respectively. 8 - Borrowed Funds Borrowed funds as of December 31 are as follows: (Dollars in Thousands) 1994 1993 ------------------------------------------------------------------------------ Securities sold under agreements to repurchase $2,676 $3,293 Purchased federal funds -- 300 ------------------------------------------------------------------------------ 2,676 3,593 ------------------------------------------------------------------------------ Other Borrowings: Securities sold under agreements to repurchase 4,246 4,584 Treasury and loan notes 1,703 4,243 ------------------------------------------------------------------------------ 5,949 8,827 ------------------------------------------------------------------------------ $8,625 $12,420 ============================================================================== The securities pledged under the repurchase agreements include U.S. Government and Federal agency obligations. At December 31, 1994, the book balance was $7,245,000 and the market value was $7,114,000. At December 31, 1993 the book balance of these securities was $7,994,000 with a market value of $8,129,000. Securities sold under agreements to repurchase mature at various dates through March 22, 1995. The above other borrowings mature daily. The Corporation maintains lines of credit with the Fleet Bank of Massachusetts for $3,000,000 and the Bank of Boston for $1,500,000. Both are revolving lines of credit with no set expiration date. There were no amounts outstanding against either line as of December 31, 1994 or 1993. 9 - Income Taxes The income taxes were as follows: (Dollars in Thousands) 1994 1993 1992 ------------------------------------------------------------------------------ Current tax expense: Federal $25 $50 $-- State 316 475 -- ------------------------------------------------------------------------------ Total current 341 525 -- ------------------------------------------------------------------------------ Deferred tax expense (benefit): Deferred tax expense -- 558 202 Change in valuation allowance for deferred tax assets (771) (558) -- ------------------------------------------------------------------------------ Total deferred (771) -- 202 ------------------------------------------------------------------------------ Extraordinary item: Tax benefit of net operating loss carryforward utilized -- -- (202) ------------------------------------------------------------------------------ -- -- (202) ------------------------------------------------------------------------------ Total (benefit) expense $(430) $525 $-- ============================================================================== The 1994 current federal tax expense is net of $237,000 in tax benefit of operating loss carryforwards. The differences between the effective tax rate and the federal statutory tax rate on income before taxes are reconciled as follows: 1994 1993 1992 ------------------------------------------------------------------------------ Federal statutory rate 34.0% 34.0% 34.0% Increase (reduction) in taxes resulting from: Reduction in valuation allowance for deferred tax asset (44.2) (27.0) -- Tax exempt state and municipal income -- -- (2.2) State income taxes 12.0 15.1 -- Tax benefit of financial statement net operating loss carryforward (17.0) -- (27.7) Other (9.4) 3.2 (4.1) ------------------------------------------------------------------------------ (24.6)% 25.3% --% ============================================================================== (30) Notes to Consolidated Financial Statements (Continued) Westbank Corporation and Subsidiaries The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 are presented below: (Dollars in Thousands) 1994 1993 ------------------------------------------------------------------------------ Deferred tax assets: Allowance for loan losses $-- $309 Other real estate owned 809 888 Deferred loan fees 98 88 State tax net operating loss carryforward 286 200 Alternative minimum tax credit carryover 318 315 Depreciation 125 -- Non-accrual interest 210 150 Federal tax net operating loss carryforward 225 520 Unrealized loss on securities 105 -- Other 75 96 ------------------------------------------------------------------------------ Total gross deferred tax assets 2,251 2,566 Valuation allowance (662) (1,755) ------------------------------------------------------------------------------ Net deferred tax assets 1,589 811 ------------------------------------------------------------------------------ Deferred tax liabilities: Allowance for loan losses 58 -- Leases, net of residual value 197 369 Deferred FNMA premium 47 73 Prepaid pension 42 -- ------------------------------------------------------------------------------ Total gross deferred tax liabilities 344 442 ------------------------------------------------------------------------------ Net deferred tax assets $1,245 $369 ============================================================================== The net change in the total valuation allowance for the year ended December 31, 1994 was a decrease of $1,093,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax assets and liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Corporation will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 1994. Deferred tax expense results from timing differences in the recognition of revenue and expense for tax and financial statement purposes. The primary sources and the tax effect of these differences for December 31 are as follows: (Dollars in Thousands) 1992 ------------------------------------------------------------------------------ Provision for loan losses $479 Excess tax losses on sales of other real estate owned 1,474 Deferred loan fees (11) Lease financing transactions (325) Provision for loss on other real estate owned deferred for tax purposes (429) Deferred FNMA premiums (88) Limitation on recognition of deferred tax benefit due to net operating losses (1,092) Other (8) ------------------------------------------------------------------------------ $-- ============================================================================== At December 31, 1994, the Corporation has net operating loss carryforwards for tax purposes of approximately $662,000 which expire in the year 2007. For tax purposes, the Corporation has a minimum tax credit carryforward of approximately $318,000 which may be carried over indefinitely. 10 - Pension Plan Park West Bank and Trust Company, a wholly-owned subsidiary of the Corporation, has a contributory defined contribution pension plan (money purchase), covering substantially all of its employees. Contributions to the pension plan are a percentage of individual employees' salary. Total pension expense for 1994, 1993 and 1992 amounted to $216,000, $198,000 and $216,000, respectively. At May 31, 1994, the most recent plan year, total plan assets were $1,774,000 and the vested balance was $1,696,000. 11 - Stock Options The Corporation offers shares of common stock to officers and key employees pursuant to the 1985 Incentive Stock Option Plan. On April 16, 1992, all outstanding options were canceled and 67,913 options at a price of $2 per share were issued. As of December 31, 1994, all options granted are exercisable. At the 1994 Annual Meeting of Shareholders the 1985 Incentive Stock Option Plan was amended to increase the number of shares reserved for issuance by 200,000 shares. The following is a summary of the changes in options outstanding: (31) Notes to Consolidated Financial Statements (Continued) Westbank Corporation and Subsidiaries 1994 1993 1992 ------------------------------------------------------------------------------ Options outstanding at the beginning of year 134,916 67,913 37,557 Options granted at fair value: at $2.00 -- -- 67,913 at $2.50 -- 52,400 -- at $3.50 -- 20,303 -- at $6.00 200,000 -- -- Options exercised (7,864) (5,700) -- Options canceled -- -- (37,557) ------------------------------------------------------------------------------ Options outstanding at the end of year 327,052 134,916 67,913 ============================================================================== Shares available for future grants -- -- 72,703 ============================================================================== Unless exercised, the options will expire ten years after granting. 12 - Leases The Corporation leases certain facilities under long-term lease agreements. The following is a schedule of future minimum lease payments for operating leases as of December 31, 1994: Year ending December 31, (Dollars in Thousands) ---------------------------------------------- 1995 $106 1996 100 1997 74 1998 71 1999 42 After 1999 126 ---------------------------------------------- Total minimum lease payments $519 ============================================== Rent expense for 1994, 1993 and 1992 amounted to $109,000, $113,000 and $95,000, respectively. 13 - Commitments, Contingent Liabilities and Financial Instruments with Off-Balance-Sheet Risk In the normal course of business, various commitments and contingent liabilities are outstanding, such as guarantees, standby letters of credit, commitments to extend credit and various financial instruments with off-balance-sheet risk that are not reflected in the financial statements. Financial instruments with off-balance-sheet risk involve elements of credit risk, interest rate risk, liquidity risk and market risk. Management does not anticipate any significant losses as a result of these transactions. The following table summarizes the contractual value of financial instruments and other commitments and contingent liabilities at December 31: (Dollars in Thousands) 1994 1993 ------------------------------------------------------------------------------ Commitments to grant loans $6,116 $10,314 Performance letters of credit and financial guarantees 892 1,091 Commitments to advance funds under existing loan agreements 34,127 32,411 Commitments for the sale and delivery of mortgage loans to FMNA -- 3,219 The Bank uses the same credit policies in making commitment and conditional obligations as it does for on-balance-sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may be expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property plant and equipment and income-producing commercial properties. Certain litigation is pending against the Corporation. Management, after consultation with legal counsel, does not anticipate that any ultimate liability arising out of such litigation will have a material effect on the Corporation's financial statements. 14 - Other Non-Interest Income and Expense The components of other non-interest income and expense, which are in excess of 1% of the aggregate of total interest income and non-interest income and not shown separately on the consolidated statements of income, are as follows: Years Ended December 31, (Dollars in Thousands) 1994 1993 1992 ------------------------------------------------------------------------------ Income: Loan fees $499 $375 $437 Expenses: Computer operations and supplies 481 537 592 Federal Deposit Insurance Corporation assessment 584 634 491 Insurance 149 193 213 Professional fees 329 204 236 Audits and exams 206 211 120 Advertising 241 179 110 Unusual item 750 -- -- During March 1995 the bank discovered an alleged employee defalcation of approximately $750,000. Included in the financial statements for 1994 is the writedown of this unusual item (shown above). (32) Notes to Consolidated Financial Statements (Continued) Westbank Corporation and Subsidiaries 15 - Stockholders' Equity and Regulatory Matters As a federally insured banking institution, Park West Bank and Trust Company ("Park West") is subject to regulation by the Federal Deposit Insurance Corporation (the "FDIC"). In February 1992, Park West's Board of Directors agreed to enter into a Stipulation and Consent (the "Consent Agreement") with the FDIC and the Commissioner of Banks for the Commonwealth of Massachusetts (the "Commissioner"). The Consent Agreement provided for a cease and desist order (the "Order") issued by the FDIC, which required Park West to take certain affirmative actions in response to an examination by the FDIC and the Commissioner. On December 22, 1994, in conjunction with an examination by the Commissioner the Order was eliminated and replaced with a Memorandum of Understanding (the "Memorandum"). The Memorandum requires, among other items: Park West's Tier 1 capital to total asset ratio remain at or above 6%; Park West to submit written plans to further reduce classified assets; the Bank to review and/or revise its Asset/Liability Management Policy; and not declare or pay any dividends without prior approval by the FDIC and the Commissioner. Park West management believes that the Bank will be able to comply with all of the terms of the Memorandum. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") includes significant changes to the legal and regulatory environment for insured depository institutions, including reductions in insurance coverage for certain kinds of deposits, increased supervision by the federal regulatory agencies, increased reporting requirements for insured institutions, and new regulations concerning internal controls, accounting, and operations. Under the prompt corrective action provisions of FDICIA, specific capital categories were defined based on an institution's capital ratios. To be considered "adequately capitalized" an institution must generally have a leverage ratio of at least 4%, a Tier 1 risk-based capital ratio of at least 4%, and a total risk-based capital ratio of at least 8%. At December 31, 1994, the Bank's leverage ratio was 6.36%, Tier 1 risk-based ratio was 8.52% and total risk-based ratio was 9.77%, based on leverage capital of $15,288,000, Tier 1 capital of $15,288,000, and total risk-based capital of $17,709,000, as defined. At Dec-ember 31, 1994, the institution is classified as "adequately capitalized" as defined under FDICIA as described above. Westbank Corporation has adopted a Shareholders Rights Plan. The plan provides for the distribution of one Common Stock Purchase Right for each outstanding share of Common Stock of the Corporation to stockholders of record at the close of business on January 2, 1990. Each Right entitles the registered holder to purchase from the Corporation one share of Common Stock, par value $2 per share (the "Common Stock"), at a cash Exercise Price of $36 per share of Common Stock, subject to adjustment. The Purchase Rights will be exercisable for shares of common stock having a market value of two times the exercise price in the event that the Board of Directors determines that the Corporation may be the subject of an adverse takeover. In the event that the Corporation is acquired in a merger in which the Corporation is not the surviving corporation or 50 percent or more of the Corporation's assets or earning power is sold, the Purchase Rights will be exercisable for common stock of the acquiring corporation having a market value of two times the exercise price. The Purchase Rights may be redeemed in whole by the Corporation, under certain circumstances, at a price of $.0001 per Purchase Right. The Purchase Rights expire on January 2, 2000. On January 10, 1995, the Corporation declared a dividend of $.05 per share to common shareholders of record on January 20, 1995 payable January 25, 1995. 16 - Employee Stock Ownership Plan The Corporation established an Employees' Stock Ownership Plan ("ESOP"). The ESOP has been funded by a $100 contribution from the Corporation. At December 31, 1994 and 1993, the ESOP held no shares of the Corporation's stock. (33) Notes to Consolidated Financial Statements (Continued) Westbank Corporation and Subsidiaries 17 - Fair Value of Financial Instruments 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:
1994 1993 --------------------------------------------------------------------------------------------------------------------------------- Carrying Estimated Carrying Estimated (Dollars in Thousands) Amount FairValue Amount Fair Value --------------------------------------------------------------------------------------------------------------------------------- Assets: Cash and due from banks $10,700 $10,700 $9,974 $9,974 Federal funds sold 1,000 1,000 3,000 3,000 Investment securities 21,463 20,631 26,633 27,398 Securities available for sale 7,753 7,753 -- -- Mortgage-backed securities 331 327 5,346 5,507 Loans 192,677 187,308 172,618 175,963 Accrued interest receivable 1,668 1,668 1,560 1,560 Liabilities: Deposits 218,563 217,537 202,431 202,958 Borrowed funds 8,625 8,625 12,420 12,395 Interest payable on deposits 240 240 541 541
Cash and Due from Banks and Federal Funds Sold The carrying amount for cash and due from banks approximates fair value. The carrying amounts for short-term investments approximate fair value because they mature in 90 days or less and do not present unanticipated credit concerns. Investment Securities, Securities Available for Sale and Mortgage-Backed Securities The fair value of investment securities and mortgage-backed securities, except certain state and municipal securities, is estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations, so fair value estimates are based on quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued. Loans Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial real estate, residential mortgage, and other consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories. The fair value of performing loans, except residential mortgages, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Corporation's historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. Fair value for significant non-performing loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information. Accrued Interest Receivable, Interest Payable on Deposits The carrying amount for these items approximate the fair value due to their short-term nature. Deposits The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, regular savings, and NOW accounts, and money market and checking accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. Borrowed Funds The fair value of such borrowings was estimated by utilizing future cash flows discounted using the Bank's current borrowing rate for similar instruments. (34) Notes to Consolidated Financial Statements (Continued) Westbank Corporation and Subsidiaries Commitments to Extend Credit 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.
8 - Summary of Unaudited Quarterly Financial Information 1994 1993 (Dollars in Thousands, except per share amounts) Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year --------------------------------------------------------------------------------------------------------------------------------- Interest income $4,013 $4,094 $4,322 $4,617 $17,046 $4,277 $4,335 $4,189 $4,008 $16,809 Interest expense 1,406 1,496 1,602 1,695 6,199 1,880 1,802 1,612 1,442 6,736 --------------------------------------------------------------------------------------------------------------------------------- Net interest income 2,607 2,598 2,720 2,922 10,847 2,397 2,533 2,577 2,566 10,073 Provision for loan losses 347 365 219 542 1,473 225 80 210 275 790 Non-interest income 876 535 555 493 2,459 678 722 826 635 2,861 Non-interest expense 2,400 2,111 2,453 3,124 10,088 2,429 2,736 2,550 2,357 10,072 --------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 736 657 603 (251) 1,745 421 439 643 569 2,072 Income tax expense (benefit) (180) 124 (59) (315) (430) 80 82 228 135 525 --------------------------------------------------------------------------------------------------------------------------------- Net income before cumulative effect of accounting change 916 533 662 64 2,175 341 357 415 434 1,547 Cumulative effect of accounting change for income taxes -- -- -- -- -- 400 -- -- -- 400 --------------------------------------------------------------------------------------------------------------------------------- Net income $916 $533 $662 $64 $2,175 $41 $357 $415 $434 $1,947 ================================================================================================================================== Net earnings per share $.28 $.17 $.21 $.02 $.68 $.23 $.11 $.13 $.14 $.61 ==================================================================================================================================
19 - Condensed Parent Company Only Financial Statements
December 31, (Dollars in Thousands) 1994 1993 ------------------------------------------------------------------------------------------------------------------ Balance Sheets Assets Investment in subsidiaries $15,287 $13,235 Other assets 57 36 ------------------------------------------------------------------------------------------------------------------ Total assets $15,344 $13,271 ================================================================================================================== Stockholders' equity Preferred stock, par value $5 per share, authorized100,000 shares; none issued Common stock, par value $2 per share, authorized 9,000,000 shares, issued and outstanding 3,138,167 shares in 1994 and 3,125,506 shares in 1993 6,276 6,251 Additional paid-in capital 6,877 6,861 Retained earnings 2,191 159 ------------------------------------------------------------------------------------------------------------------ Total stockholders' equity $15,344 $13,271 ==================================================================================================================
1994 1993 1992 --------------------------------------------------------------------------------------------------------------------------------- Statements of Income Other income (expense) - net $(20) $4 $-- Income (loss) before undistributed income of subsidiaries (20) 4 -- Undistributed income of subsidiaries 2,195 1,943 756 Net income $2,175 $1,947 $756 Statements of Cash Flows Operating activities: Net income $2,175 $1,947 $756 Undistributed income of subsidiaries (2,195) (1,943) (756) Increase in other assets (21) (36) -- Net cash used in operating activities (41) (32) -- Financing activities - Proceeds from exercise of stock options 41 32 -- Cash and cash equivalents at end of year $-- $-- $--
(35) Corporate Directory Westbank Corporation and Subsidiaries Directors Westbank Corporation Alfred C. Whitaker John E. Fitzgerald Chairman of the Board Private Investor Westbank Corporation Sales Consultant Leroy F. Jarrett President and Treasurer Roland O. Archambault New England Church Interiors Owner Park Supply Company Ernest N. Laflamme, Jr. Treasurer Mark A. Beauregard City of Chicopee Attorney at Law President Resnic, Beauregard, Waite & Driscoll Laflamme Oil Co. David R. Chamberland Russell Mawdsley President President and Treasurer Chicopee Building Supply, Inc Russell-Hall, Inc. Donald R. Chase Paul J. McKenna, D.M.D. President and Chief Executive Officer Orthodontist Westbank Corporation President and Chief Executive Officer Robert J. Perlak Park West Bank and Trust Company Private Investor James E. Tremble President Valley Cinema, Inc. Park West Bank and Trust Company Roland O. Archambault Ernest N. Laflamme, Jr. Owner Treasurer Park Supply Company City of Chicopee President Mark A. Beauregard Laflamme Oil Co. Attorney at Law Resnic, Beauregard, Waite & Driscoll Russell Mawdsley President and Treasurer David R. Chamberland Russell-Hall, Inc. President Chicopee Building Supply, Inc. Paul J. McKenna, D.M.D. Orthodontist Donald R. Chase President and Chief Executive Officer Robert J. Perlak Park West Bank and Trust Company Private Investor President and Chief Executive Officer Westbank Corporation James E. Tremble President John E. Fitzgerald Valley Cinema, Inc. Private Investor Alfred C. Whitaker Leroy F. Jarrett Chairman of the Board President and Treasurer Westbank Corporation New England Church Interiors Lorac Leasing Corp. Leroy F. Jarrett Paul J. McKenna, D.M.D. Chairman Orthodontist President and Treasurer New England Church Interiors Robert J. Perlak Private Investor David R. Chamberland President James E. Tremble President Chicopee Building Supply, Inc. Valley Cinema, Inc. Donald R. Chase President and Chief Executive Officer Park West Bank and Trust Company President and Chief Executive Officer Westbank Corporation Officers Westbank Corporation Alfred C. Whitaker Donald R. Chase Chairman of the Board President and Chief Executive Officer Assistant Corporate Clerk John M. Lilly Leroy F. Jarrett Treasurer and Chief Financial Officer Vice Chairman of the Board Robert J. Perlak Corporate Clerk Park West Bank and Trust Company Donald R. Chase Residential Real Estate President and Chief Executive Officer Stanley F. Osowski Robert J. Perlak Senior Vice President Corporate Clerk Wolfgang A. Adametz Alfred C. Whitaker Assistant Vice President Assistant Clerk Elizabeth A. Wilk Assistant Vice President Finance Division John M. Lilly Executive Vice President and Treasurer Loan Credit and Collections Irving M. Walker, Jr., CMA Trenton E. Taylor Accounting Officer Vice President Patricia M. Reidy Assistant Treasurer EDP/Operations Division Roger M. Roberge Loan Division EDP Officer Gary L. Briggs Executive Vice President Marketing Gerard E. Drapeau Joseph L. Rolak Vice President Director of Marketing and Vice President Paul W. Kenyon Vice President Compliance Richard H. Lempke Vice President Jane M. Knapp Compliance Officer Richard N. Hanchett Assistant Vice President Branch Administration/Personnel Jeffrey M. Smith Assistant Vice President Kathleen A. Jalbert Vice President Allen J. Miles Commercial Loan Officer H. Ellen Bellows Branch Manager John E. O'Brien Loan Operations Officer Auditing Division Lloyd S. Hall, CBA Director of Auditing Trust Division Robert A. Gibowicz Senior Trust Officer (36) Corporate Information Westbank Corporation and Subsidiaries Westbank Corporation Westbank Tower, 225 Park Avenue West Springfield, MA 01089-3310 (413) 747-1400 Annual Meeting The Annual Meeting of Stockholders of Westbank Corporation will be held on Wednesday, April 19, 1995 at nine o'clock in the morning at the Carriage House at Storrowton Tavern, 1305 Memorial Avenue, West Springfield, Massachusetts. Transfer Agent and Registrar Park West Bank and Trust Company Independent Accountants Deloitte & Touche LLP Hartford, Connecticut Corporate Counsel Doherty, Wallace, Pillsbury and Murphy, P.C. Springfield, Massachusetts Information Service Westbank Corporation welcomes stockholder and public interest in our services and activities. Questions pertaining to material presented in this Report and requests for a copy of the Annual Report (Form 10-K) filed with the Securities and Exchange Commission should be directed to John M. Lilly, Treasurer and Chief Financial Officer, at the above address. Equal Opportunity Employer The Corporation has maintained its commitment to equal opportunity and affirmative action in employment and personnel policies and pledges to recruit, hire, train and promote persons in all job classifications without regard to race, color, religion, sex, national origin, veterans status, age or handicap. Common Stock - Market Information The table below shows cash dividend data and the range of bid prices by quarter for the Corporation's common stock. The source of the bid ranges is the local newspaper's listing of the NASD regional market quotations: 1994 1993 Bid Bid High Low High Low ------------------------------------------------------ First $5 1/4 $5 $3 3/4 $3 Second 6 1/4 5 5 1/8 3 3/4 Third 6 1/4 5 5 1/8 5 1/8 Fourth 6 5 1/4 5 1/4 5 1/8 The above quotations of the Corporation's common stock represent prices between dealers. They do not include retail markup, markdown or commissions and do not represent actual transactions. No dividends were declared in 1994 and 1993. At January 31, 1995 the Corporation had 1,065 stockholders. Westbank Corporation's common stock is traded on the NASDAQ National Market Exchange, the trading symbol is "WBKC". For information on the Westbank Corporation Dividend Reinvestment and Stock Purchase Plan, call: Park West Bank and Trust Company, Trust Department (413) 747-1482. The following firms make a market in Westbank Corporation's Common Stock: Advest, Inc. First Albany Corporation Herzog, Heine, Geduld, Inc. McConnell, Budd & Downes, Inc. Ryan, Beck & Co., Inc. Design: Robert Farrell Associates, Inc./Printing:Sterling Press (IBC) EX-21 3 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 EX-27 4
9 0000742070 WESTBANK CORPORATION 1000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 10425 275 1000 0 7753 21794 20958 196002 3325 243313 218563 8865 541 0 15344 0 0 0 243313 15015 1855 176 17046 5999 200 10847 1473 145 10088 1745 0 0 0 2175 .68 .68 5.01 4890 492 501 5883 3472 1869 249 3325 3325 0 0