0000742070-95-000008.txt : 19950821 0000742070-95-000008.hdr.sgml : 19950821 ACCESSION NUMBER: 0000742070-95-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTBANK CORP CENTRAL INDEX KEY: 0000742070 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 042830731 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12784 FILM NUMBER: 95561024 BUSINESS ADDRESS: STREET 1: 225 PARK AVE STREET 2: PO BOX 149 CITY: WEST SPRINGFIELD STATE: MA ZIP: 01090-0149 BUSINESS PHONE: 4137471400 MAIL ADDRESS: STREET 1: 225 PARK AVE P O BOX 149 STREET 2: 225 PARK AVE P O BOX 149 CITY: WEST SPRINGFIELD STATE: MA ZIP: 01090-0149 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 Commission file number 0 - 12784 WESTBANK CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04 - 2830731 (State or other jurisdiction of inc. or org.) (I.R.S. Employer I.D. No.) 225 Park Avenue, West Springfield, Massachusetts 01090-0149 (Address of principal executive offices) (Zip Code) (413) 747-1400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months ( or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO Common stock, par value $2 per share: 3,193,743 shares outstanding as of July 31, 1995. WESTBANK CORPORATION AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Stockholders' Equity 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7-9 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-16 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 17 ITEM 2. Changes in Rights of Securities Holders 17 ITEM 3. Defaults by Company on its Senior Securities 17 ITEM 4. Results of Votes on Matters Submitted to a Vote of Security Holders 17 ITEM 5. Other Information 17 ITEM 6. Exhibits and Reports on Form 8-K 17 Signatures 18 WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1995 AND DECEMBER 31, 1994 (Dollar amounts in thousands)
ASSETS June 30, 1995 December 31, 1994 Cash and due from banks: (Unaudited) Non-interest bearing $ 11,807 $ 10,425 Interest bearing 19 275 Federal Funds sold 5,500 1,000 Total cash and cash equivalents 17,326 11,700 Securities available for sale (Amortized cost of $17,057 in 1995 and $8,001 in 1994) 17,209 7,753 Securities held to maturity (approximate market value of $20,510 in 1995 and $20,631 in 1994) 20,486 21,463 Mortgage-backed securities (approximate market value of $321 in 1995 and $327 in 1994) 309 331 Loans $ 195,580 $ 196,002 Allowance for loan losses (3,005) (3,325) Net-loans 192,575 192,677 Bank premises and equipment 3,538 3,417 Other real estate owned (OREO) - net of allowance for losses of $36 in 1995 and $231 in 1994 1,775 1,552 Accrued interest receivable 1,707 1,668 Deferred income taxes 1,506 1,245 Other assets 1,567 1,507 TOTAL ASSETS $ 257,998 $ 243,313 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Non-interest bearing $ 39,985 $ 40,399 Interest bearing 193,340 178,164 Total Deposits 233,325 218,563 Borrowed funds 6,329 8,625 Accrued interest payable 289 240 Other liabilities 1,216 541 Total Liabilities 241,159 227,969 Stockholders' Equity: Preferred stock - $5 par value 0 0 Authorized - 100,000 shares Issued - none Common stock - $2 par value Authorized - 9,000,000 shares Issued - 3,178,278 shares in 1995 and 3,138,167 shares in 1994 6,356 6,276 Additional paid in capital 6,974 6,877 Retained earnings 3,421 2,334 Net unrealized gain/(loss) on securities available for sale 88 (143) Total Stockholders' Equity 16,839 15,344 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 257,998 $ 243,313
See accompanying notes to condensed consolidated financial statements. WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Dollar amounts in thousands) (Unaudited) QUARTER ENDED SIX MONTHS ENDED 06-30-95 06-30-94 06-30-95 06-30-94 Income: Interest and fees on loans $ 4,460 $ 3,634 $ 8,699 $ 7,150 Interest on temporary investments 80 47 112 61 Interest and dividends on securities 579 413 1,074 896 Total interest and dividend income 5,119 4,094 9,885 8,107 Interest expense 2,211 1,496 4,137 2,902 Net interest income 2,908 2,598 5,748 5,205 Provision for loan losses 350 365 800 712 Interest income after provision for loan losses 2,558 2,233 4,948 4,493 Operating Income: Security gains 0 0 0 150 Other non-interest income 523 658 1,035 1,254 Total Operating Income 523 658 1,035 1,404 Operating Expenses: Salaries and benefits 945 951 1,901 1,859 Other real estate-provision for losses 100 185 110 426 -operating expenses 90 116 210 220 Other non-interest expense 949 808 1,788 1,640 Occupancy - net 166 174 353 359 Total operating expenses 2,250 2,234 4,362 4,504 Income before income taxes 831 657 1,621 1,393 Income taxes (benefit) 284 124 219 (56) Net Income $ 547 $ 533 $ 1,402 $ 1,449 Net income per share $ 0.17 $ 0.17 $ 0.43 $ 0.45 Weighted average shares of common stock and common share equivalents 3,253,803 3,202,174 3,238,007 3,197,527
See accompanying notes to condensed consolidated financial statements. WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1994 AND SIX MONTHS ENDED JUNE 30, 1995 (1995 Unaudited)
(Dollar amounts in thousands) NET UNREALIZED GAIN (LOSS) ON COMMON STOCK ADDITIONAL SECURITIES NUMBER OF PAR PAID IN RETAINED AVAILABLE SHARES VALUE CAPITAL EARNINGS FOR SALE TOTAL 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 Net income for six months ended June 30, 1995 1,402 1,402 Cash Dividend Declared: Amount Declaration Record Paid $0.05 1/10/95 1/20/95 1/25/95 (157) (157) $0.05 4/19/95 5/01/95 5/03/95 (158) (158) Shares issued under Dividend Reinvestment Plan 15,626 31 53 84 Shares issued under stock option plan 13,442 27 4 31 Shares issued under stock purchase plan 11,043 22 40 62 Unrealized gain on securities available for sale for the year 231 231 BALANCE - JUNE 30, 1995 3,178,278 $6,356 $6,974 $3,421 $ 88 $16,839
See accompanying notes to condensed consolidated financial statements. WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994 (Unaudited)
(Dollar amounts in thousands) Six Months Ended 06-30-95 06-30-94 Operating activities: Net income $ 1,402 $1,449 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 800 712 Depreciation and amortization 238 301 Provision for other real estate owned 110 426 Increase in interest payable on deposits 49 (38) (Increase) decrease in accrued interest receivable (39) (79) Realized gain on sale of securities 0 (150) Realized (gain) loss on sale of other real estate owned (2) 0 Realized loss on sale of premises and equipment 15 0 Decrease (increase) in other assets (163) (8) Increase (decrease) in other liabilities 119 124 Decrease (increase) in income taxes refundable 103 (38) Increase in deferred taxes (261) (400) Increase in accrued income taxes 556 0 Net cash provided by operating activities 2,927 2,299 Investing activities: Investments and mortgage-backed securities: Held to maturity: Purchases (1,500) (1,250) Proceeds from maturities 2,500 1,432 Available for sale: Purchases (9,971) (250) Proceeds from sales 0 4,936 Proceeds from maturities 794 0 Purchases of premises and equipment (374) (488) Net (increase) decrease in loans (1,409) (4,761) Proceeds from sale of other real estate owned 331 1,619 Net cash provided by (used in) investing activities (9,629) 1,238 Financing activities: Net increase (decrease) in borrowings (2,296) (6,317) Net increase (decrease) in deposits 14,762 17,540 Proceeds from exercise of stock options and stock purchase plan 177 26 Dividends paid (315) 0 Net cash used by financing activities 12,328 11,249 Increase (decrease) in cash and cash equivalents 5,626 12,310 Cash and cash equivalents at beginning of year 11,700 12,974 Cash and cash equivalents at end of year $17,326 $25,284 Cash paid during the year: Interest on deposits and other borrowings 4,088 2,939 Income taxes 0 270 Transfers of loans to other real estate owned 845 314 Sales of other real estate owned financed by the bank 134 742
See notes to consolidated financial statements. WESTBANK CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - GENERAL INFORMATION Westbank Corporation (hereinafter sometimes referred to as "Westbank") 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") 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. Substantially all operating income and net income of the Corporation are presently accounted for by Park West. NOTE B - CURRENT OPERATING ENVIRONMENT From March, 1992 until December 22, 1994 Park West had 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") was enacted into law on December 19, 1991 and imposes significant new regulatory restrictions and requirements on banking institutions insured by the FDIC and their holding companies. Effective December 19, 1992, FDICIA established five capital categories into which financial institutions are placed based on capital level. The capital categories established by FDICIA are: well capitalized; adequately capitalized; undercapitalized; significantly undercapitalized; and critically under- capitalized. Each capital category establishes different degrees of regulatory restrictions which can apply to a financial institution. As of June 30, 1995, Park West's capital was at a level that placed the Bank in the well capitalized category. FDICIA imposes a variety of other restrictions and requirements on insured banks. These include significant new regulatory reporting requirements for fiscal years commencing after December 31, 1992, a system of risk-based deposit insurance premiums and civil money penalties for inaccurate deposit assessment reports. In addition, 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 continues to impair the financial results of the Corporation. Despite these weaknesses the Corporation has managed significant improvements in the level of non-performing assets. As a result of the continued aggressive management of problem loans and an on-going expense containment program, the Board of Directors and management believe the Corporation is positioned to sustain compliance with the Memorandum as well as the requirements of FDICIA. NOTE C - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements for the second quarter ended June 30, 1995 and 1994 have been prepared in accordance with generally accepted accounting principles for interim information and with instructions for Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 1995, are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. For further information, please refer to the Consolidated Financial Statements and footnotes thereto included in the Westbank Corporation's Annual Report on Form 10-K for the year ended December 31, 1994. NOTE D - CHANGES IN ACCOUNTING PRINCIPLES On January 1, 1995 the Bank adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting for Creditors for Impairment of a Loan - Income Recognition and Disclosures". SFAS No. 114 prescribes the methodology under which certain loans are to be measured for impairment. Generally, a loan is considered impaired when management believes it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. SFAS No. 118 amends SFAS No. 114 be eliminating certain income recognition provisions and by expanding the disclosure requirements. Adoption of these standards did not have a material effect on the Bank's financial condition or results of operations. The Bank measures impairment of commercial loans by using the present value of expected future cash flows discounted at the loan's effective interest rate. Commercial real estate loans are generally measured based on the fair value of the underlying collateral. Smaller balance homogenous loans, including residential real estate and consumer loans, are collectively evaluated for impairment. The Bank evaluates each impaired loan to determine the income recognition policy. Generally, income is recorded only on a cash basis for impaired loans. Interest income recognized in the first six months of 1995 on impaired loans was not significant. At June 30, 1995, the recorded investment in impaired loans was $1,101,000, for which no specific allowance for loan losses was recorded. For the six months ended June 30, 1995, the average recorded investment in impaired loans was $1,526,000. NOTE E - STOCKHOLDERS' EQUITY The FDIC imposes leverage capital ratio requirements for state non-member Banks. The Bank's leverage capital ratio as of June 30, 1995 and December 31, 1994 was 6.60% and 6.36%, respectively. In addition, the FDIC has established risk-based capital requirements for insured institutions of, Tier 1 risk-based capital of 4.00% and total risk-based capital of 8.00%. The Bank's risk-based capital at June 30, 1995, for Tier 1 was 9.05% and total risk-based capital was 10.30%. As discussed in NOTE B, on December 22, 1994, in conjunction with an examination by the Commissioner the Formal Order was eliminated and replaced with a Memorandum of Understanding. Park West is presently in compliance with the Memorandum and management believes that the Bank will be able to comply with all of the terms of the Memorandum in the future. Management is not aware of any regulatory recommendations which will have a material impact on the Corporation's liquidity, capital resources or results of operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Changes in Financial Condition - Total consolidated assets amounted to $257,998,000 on June 30, 1995, compared to $243,313,000 on December 31, 1994. As of June 30, 1995 and June 30, 1994 earning assets amounted to, respectively, $239,103,000, or 93% of total assets, and $223,499,000, or 92% of total assets. Earning assets increased during the first six months of 1995 as a result of the origination of residential mortgages. During the first six months of 1995 the Corporation securitized approximately $10 million of residential mortgages into Mortgage-Backed Securities, which were placed into the Corporation's securities available for sale account. The increase in earning assets was funded through an increase in deposits of approximately $15 million. Changes in results of Operations - Operations reflect net income for the current quarter of $547,000 as compared to a net income of $533,000 for the same quarter during 1994. For the six month period ended June 30, 1995, net income totaled $1,402,000 compared to net income of $1,449,000 for the same period one year ago. An overall increase in interest income and interest expense reflects an increase in volume and interest rates on earning assets, and interest bearing deposits. Further analysis is provided in sections on net interest revenue and supporting schedules. For the six months ended June 30, 1995 the Corporation recorded tax expense totaling $219,000 versus a benefit of $56,000 for the same period of 1994. The increase in tax expense for 1995 is the result of the Corporation's utilization of net operating loss carryforward in 1994. Allowance for loan/lease losses and non-performing assets - A slight decrease has been reflected in the provision for loan losses in the current quarter with $350,000 being provided compared to $365,000 in the 1994 quarter. For the six month period ended June 30, 1995 the provision for loan losses increased by $88,000 compared to the same period one year ago. The year to date increase in the provision for loan/lease losses is the result of managements review and analysis of the adequacy of the Corporation's allowance for loan and lease losses. Loans and leases written-off against the allowance for loan/lease losses after recoveries amounted to $1,120,000 for the first six months of 1995 versus $230,000 for the same period of 1994. The increase in net charge-offs during the 1995 period is the result of the deterioration of two (2) loans secured by real estate for which the Corporation had provided for in the allowance for loan/lease losses in prior periods. After giving effect to the actions described above, the allowance for loan/lease losses at June 30, 1995, totalled $3,005,000 or 1.54% of total loans/leases as compared to $3,325,000 or 1.70% at December 31, 1994. Non-performing past due loans/leases at June 30, 1995, aggregated $3,873,000 or 1.98% of total loan/leases compared to $5,883,000 or 3.00% at December 31, 1994. The percentage of non-performing and past due loan/leases compared to total assets on those same dates, respectively amounted to 1.50%, and 2.42%. The decline in non-performing loans/leases represents the resolution, charge-off and/or transfer to other real estate owned of problem loans during the six months ended June 30, 1995. Other real estate owned declined during the six month period of 1995 by $332,000 compared to the same period of 1994, resulting in reduced other real estate provisions and operating expenses of $326,000 for the six months ended June 30, 1995 versus June 30, 1994. Other real estate owned-net, amounted to $1,775,000 at June 30, 1995, compared to $1,552,000 at December 31, 1994. The percentage as compared to total assets on those same dates respectively amounted to 0.69%, and 0.64%. Management has made every effort to recognize all circumstances known at this time which could affect the collectibility of loan/leases and has reflected these in deciding as to the provision for loan/lease losses, the writing down of other real estate owned and impaired loans to fair value and other loans (Watch List) monitored by management, the charge-off of loans/leases and the balance in the allowance for losses. Management deems that the provision for the quarter, and the balance in the allowance for loan/lease losses, are adequate based on results provided by the grading system and circumstances known at this time. NET INTEREST INCOME The Corporation's earning assets include a diverse portfolio of earning instruments ranging from the Corporation's core business of loan extensions to interest-bearing securities issued by federal, state and municipal authorities. These earning assets are financed through a combination of interest-bearing and interest-free sources. Net interest income, the most significant component of earnings, is the amount by which the interest generated by assets exceeds the interest expense on liabilities. For analytical purposes, the interest earned on tax exempt assets is adjusted to a "tax equivalent" basis to recognize the income tax savings which facilitates comparison between taxable and tax exempt assets. The Corporation analyzes its performance by utilizing the concepts of interest rate spread and net yield on earning assets. The interest rate spread represents the difference between the yield on earning assets and interest paid on interest-bearing liabilities. The net yield on earning assets is the difference between the rate of interest on earning assets and the effective rate paid on all funds - interest-bearing liabilities, as well as, interest-free sources (primarily demand deposits and shareholders' equity). The balances and rates derived for the analysis of net interest income presented on the following pages reflect the consolidated assets and liabilities of the Corporation's principal earning subsidiary, Park West Bank and Trust Company. QUARTER ENDED SIX MONTHS ENDED (Dollar amounts in thousands) 06-30-95 06-30-94 06-30-95 06-30-94 Interest income $ 5,119 $ 4,094 $ 9,885 $ 8,107 Interest expense 2,211 1,496 4,137 2,902 Net interest income 2,908 2,598 5,748 5,205 Tax equivalent adjustment 4 5 7 11 Net interest income (taxable equivalent) $ 2,912 $ 2,603 $ 5,755 $ 5,216 INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands) QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1995 1994 1995 1994 (Taxable Equivalent) Average Average Average Average Balance Rate Balance Rate Balance Rate Balance Rate Earning Assets $236,920 8.65% $213,428 7.68% $232,936 8.49% $210,799 7.70% Interest-bearing liabilities 197,319 4.48 180,208 3.32 194,013 4.26 178,269 3.26 Interest rate spread 4.17 4.36 4.23 4.44 Interest-free resources used to fund earning assets 39,601 33,220 38,923 32,530 Total Sources of Funds$236,920 3.73 $213,428 2.80 $232,936 3.55 $210,799 2.75 Net Yield on Earning Assets 4.92% 4.88% 4.94% 4.95%
CHANGES IN NET INTEREST INCOME
(Dollar amounts in thousands) QUARTER ENDED JUNE 30, 1995 SIX MONTHS ENDED JUNE 30, 1995 (Taxable Equivalent) O V E R O V E R QUARTER ENDED JUNE 30, 1994 SIX MONTHS ENDED JUNE 30, 1994 CHANGE DUE TO CHANGE DUE TO VOLUME RATE TOTAL VOLUME RATE TOTAL Interest Income: Loans/leases $ 320 $ 505 $ 825 $ 735 $ 810 $ 1,525 Securities 125 41 166 136 42 178 Federal funds 7 26 33 9 42 51 Total Interest Earned 452 572 1,024 880 894 1,774 Interest Expense: Interest bearing deposits 158 543 701 290 895 1,185 Other Borrowed Funds (2) 16 14 (9) 59 50 Total Interest Expense $ 156 $ 559 $ 715 $ 281 $ 954 $ 1,235 Net Interest Income $ 296 $ 13 $ 309 $ 599 $ (60) $ 539
Net interest earned on a taxable equivalent basis increased to $2,912,000 in the second quarter of 1995, up $309,000 as compared with the same period of 1994. Average earning assets increased during the second quarter of 1995. The average earning base was $236,920,000 compared to $213,428,000 in the same period last year, an increase of $23,492,000. For the six month period ended June 30, 1995, net interest earned on a tax equivalent basis increased to $5,755,000 up by $539,000 as compared with the comparable period of 1994 or 10%. Average earning assets increased by $22,137,000 or 10% and the net yield on earning assets decreased to 4.94% from 4.95% for the six month period ending June 30, 1995 compared to June 30, 1994. OPERATING EXPENSES The components of total operating expenses for the periods and their percentage of gross income are as follows:
(Dollar amounts in thousands) QUARTER ENDED SIX MONTHS ENDED 6-30-95 6-30-94 6-30-95 6-30-94 Amount Percent Amount Percent Amount Percent Amount Percent Salaries and benefits $ 945 16.75% $ 951 20.01% $1,901 17.41% $1,859 19.55% Other real estate - provision for losses 100 1.77 185 3.89 110 1.01 426 4.48 - operating expense 90 1.60 116 2.44 210 1.92 220 2.31 Other non-interest expense 949 16.82 808 17.00 1,788 16.37 1,640 17.24 Occupancy - net 166 2.94 174 3.67 353 3.24 359 3.78 Total Operating Expenses $2,250 39.88% $2,234 47.01% $4,362 39.95 $4,504 47.36%
For the six month period operating expenses declined by approximately $142,000 primarily the result of reduced other real estate owned expenses due to the change in other real estate holdings as discussed in the non-performing asset section on page 9 and 10. COMPONENTS OF CAPITAL
(Dollar amounts in thousands) June 30, 1995 December 31, 1994 Stockholders' Equity: Common Stock $ 6,356 $ 6,276 Additional paid-in capital 6,974 6,877 Retained earnings 3,421 2,334 Net unrealized gain/(loss) on securities available for sale 88 (143) Total Stockholders' Equity $16,839 $15,344 Ratio of "Tier 1" leverage capital to total assets at end of period 6.53% 6.31%
Regulatory risk-based capital requirements, which became effective on December 31, 1990, take into account the different risk categories of banking organizations by assigning risk weights to assets and the credit equivalent amounts of off-balance sheet exposures. In addition, capital is divided into two tiers. For this Corporation, Tier 1 includes the common stockholders' equity; Tier 2, or supplementary capital, includes not only the equity, but also, a portion of the allowance for loan losses, net unrealized gain/(losses) on securities available for sale are not permitted to be included for regulatory capital purposes. The following are the Corporation's risk-based capital ratios at June 30, 1995: Tier 1 Capital (minimum required 4.00%) 9.05% Tier 2 Capital (minimum required 8.00%) 10.30% Under the Memorandum, the Corporation is prohibited from paying dividends without the prior approval of the FDIC and the Massachusetts Commissioner of Banks. LIQUIDITY Cash and due from banks, federal funds sold, investment securities, mortgage-backed securities and loans available for sale, as compared to deposits and short term liabilities, are used by the Corporation to compute its liquidity on a daily basis. At June 30, 1995, the Corporation's ratio of such assets to total deposits and borrowed funds was 28.00%. INTEREST RATE SENSITIVITY The following table sets forth the distribution of the repricing of the Corporation's earning assets and interest bearing liabilities as of June 30, 1995.
(Dollar amounts in thousands) Over Three Over One Three Months Months to Year to Over or Less One Year Five Years Five Years Total Earning Assets $ 77,383 $ 51,658 $ 71,724 $ 38,338 $239,103 Interest Bearing Liabilities 67,653 54,362 77,654 0 199,669 Interest Rate Sensitivity Gap $ 9,730 $ (2,704) $ (5,930) $ 38,338 $ 39,434 Cumulative Interest Rate Sensitivity Gap $ 9,730 $ 7,026 $ 1,096 $ 39,434 Interest Rate Sensitivity Gap Ratio 4.07% (1.13)% (2.48)% 16.04% Cumulative Interest Rate Sensitivity Gap Ratio 4.07% 2.94% 0.46% 16.50% PROVISION AND ALLOWANCE FOR LOAN/LEASE LOSSES (Dollar amounts in thousands) QUARTER ENDED SIX MONTHS ENDED 6-30-95 6-30-94 6-30-95 6-30-94 Balance at beginning of period $ 2,740 $ 3,463 $ 3,325 $ 3,472 Provision charged to expense 350 365 800 712 $ 3,090 $ 3,828 $ 4,125 $ 4,184 Less Charge-offs: Loans secured by real estate 105 0 896 267 Commercial and industrial loans 0 0 204 128 Consumer loans 28 15 85 23 Lease financing receivables 5 7 5 7 $ 138 $ 22 $ 1,190 $ 425 Add-Recoveries: Loans secured by real estate 10 7 10 7 Commercial and industrial loans 39 136 41 178 Consumer loans 3 5 16 9 Lease financing receivables 1 0 3 1 53 148 70 195 Net charge-offs (recoveries) 85 (126) 1,120 230 Balance at end of period $ 3,005 $ 3,954 $ 3,005 $ 3,954 Net Charge-offs (recoveries) to: Average loans/leases .04% (.07%) .57% 1.30% Loans/leases at end of period .04% (.07%) .57% 1.30% Allowance for loan/lease losses 2.83% 3.19% 37.27% 5.82% Allowance for loan/lease losses as a percentage of: Average loans/leases 1.53% 2.18% 1.53% 2.22% Loans/leases at end of period 1.54% 2.17% 1.54% 2,17% The approach the Corporation uses in determining the adequacy of the Allowance for Loan/Lease Losses is the combination of a target reserve and a general reserve allocation. Quarterly, based on an internal review of the Loan Portfolio, the Corporation identifies required reserve allocations targeted to recognized problem loans that, in the opinion of management, have potential loss exposure or questions relative to the depth of the collateral on these same loans. In addition, the Corporation allocates a general reserve against the remainder of the Loan Portfolio. NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(Dollar amounts in thousands) Non-Accrual Loans: 06-30-95 03-31-95 12-31-94 09-30-94 06-30-94 Loans secured by real estate $ 2,745 $ 3,302 $ 4,173 $ 4,977 $ 5,200 Construction/Land development 52 58 68 0 84 Commercial and Industrial Loans 299 357 570 1,132 483 Consumer Loans 16 24 79 53 19 3,112 3,741 4,890 6,162 5,786 Loans Contractually past due 90 days or more still accruing: Loans secured by real estate 201 117 260 81 229 Commercial and Industrial Loans 50 0 216 5 49 Consumer Loans 14 8 16 36 23 265 125 492 122 301 Restructured Loans 496 498 501 452 456 Total non-accrual, past due and restructured loans $ 3,873 $ 4,364 $ 5,883 $ 6,736 $ 6,543 Non-accrual, past due and restructured loans as a percentage of total loans 1.98% 2.24% 3.00% 3.65% 3.55% Allowance for loan losses as a percentage of non accrual, past due and restructured loans 77.59% 62.79% 56.52% 47.04% 60.43% OTHER REAL ESTATE Other real estate owned - net $ 1,775 $ 1,540 $ 1,552 $ 1,659 $ 2,107 Total non-performing assets $ 5,648 $ 5,904 $ 7,435 $ 8,395 $ 8,650 Non-performing assets as a percentage of total assets 2.19% 2.38% 3.06% 3.46% 3.58%
WESTBANK CORPORATION AND SUBSIDIARIES QUARTERLY AVERAGE BALANCES INTEREST EARNED - INTEREST EXPENSE (RATES ON A TAX EQUIVALENT BASIS)
(Dollar amounts in thousands) FOR THE QUARTER ENDED FOR THE QUARTER ENDED June 30, 1995 June 30, 1994 Balance Interest Rate Balance Interest Rate Federal Funds sold and temporary investments $ 5,664 $ 80 5.65% $ 5,003 $ 47 3.76% Securities 34,830 579 6.65 27,133 413 6.09 Loans/leases 196,426 4,464 9.09 181,292 3,639 8.03 Total earning assets 236,920 $ 5,123 8.65 213,428 $ 4,099 7.68 Loan/lease loss allowance (2,869) (3,526) All other assets 18,794 19,574 TOTAL ASSETS $252,845 $229,476 LIABILITIES AND EQUITY Interest bearing deposits $191,257 $ 2,155 4.51 $173,847 $ 1,454 3.35 Borrowed funds 6,062 56 3.70 6,361 42 2.64 Total interest bearing liabilities 197,319 $ 2,211 4.48 180,208 $ 1,496 3.32 Interest rate spread 4.17% 4.36% Demand deposits 38,153 34,368 Other liabilities 902 471 Shareholders' equity 16,471 14,429 TOTAL LIABILITIES AND EQUITY $252,845 $229,476 Net Interest Income $ 2,912 $ 2,603 Interest Earned/Earning Assets 8.65% 7.68% Interest Expense/Earning Assets 3.73 2.80 Net Yield on Earning Assets 4.92% 4.88% Deduct - Tax Equivalent Adjustment 4 5 NET INTEREST INCOME $ 2,908 $ 2,598
WESTBANK CORPORATION AND SUBSIDIARIES YEAR TO DATE AVERAGE BALANCES INTEREST EARNED - INTEREST EXPENSE (RATES ON A TAX EQUIVALENT BASIS)
(Dollar amounts in thousands) SIX MONTHS ENDED SIX MONTHS ENDED June 30, 1995 June 30, 1994 Balance Interest Rate Balance Interest Rate Federal Funds sold and temporary investments $ 3,820 $ 112 5.86% $ 3,534 $ 61 3.45% Securities 33,079 1,074 6.49 28,786 896 6.23 Loans/leases 196,037 8,706 8.88 178,479 7,161 8.02 Total earning assets 232,936 $ 9,892 8.49 210,799 $ 8,118 7.70 Loan/lease loss allowance (3,065) (3,498) All other assets 18,804 19,573 TOTAL ASSETS $248,675 $226,874 LIABILITIES AND EQUITY Interest bearing deposits $186,576 $ 3,984 4.27 $170,238 $ 2,799 3.29 Borrowed funds 7,437 153 4.11 8,031 103 2.57 Total interest bearing liabilities 194,013 $ 4,137 4.26 178,269 $ 2,902 3.26 Interest rate spread 4.23% 4.44% Demand deposits 37,596 33,829 Other liabilities 854 592 Shareholders' equity 16,212 14,184 TOTAL LIABILITIES AND EQUITY $248,675 $226,874 Net Interest Income $ 5,755 $ 5,216 Interest Earned/Earning Assets 8.49% 7.70% Interest Expense/Earning Assets 3.55 2.75 Net Yield on Earning Assets 4.94% 4.95% Deduct - Tax Equivalent Adjustment 7 11 NET INTEREST INCOME $ 5,748 $ 5,205
PART II - OTHER INFORMATION ITEM 1. Legal Proceedings None ITEM 2. Changes in Rights of Securities Holders None ITEM 3. Defaults by Company on its Senior Securities None ITEM 4. Results of Votes on Matters Submitted to a Vote of Security Holders None ITEM 5. Other Information None ITEM 6. Exhibits and Reports on Form 8 The Corporation filed a report on Form 8-K on March 31, 1995 reporting the discovery of an alleged defalcation by a former employee of the Corporation. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized. WESTBANK CORPORATION Date: August 10, 1995 Donald R. Chase President and Chief Executive Officer Date: August 10, 1995 John M. Lilly, Treasurer and Chief Financial Officer EX-27 2
9 0000742070 WESTBANK CORPORATION 1000 6-MOS DEC-31-1995 JAN-01-1995 JAN-30-1995 11807 19 5500 0 17209 20795 20831 195580 3005 257998 233325 6329 1505 0 6356 0 0 0 257998 8699 1074 112 9885 3984 4137 5748 800 0 4362 1621 0 0 0 1402 .43 .43 4.94 3112 265 496 3873 3325 1190 70 3005 3005 0 0