-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KqGxgCp5jix5b32hzTc/A6wcNtjTlNT2TwM5vIN0h+hmjBzcWSUa0EPty/H0+FVH 64+44vzFvXIUymqTWvvbaA== 0000914039-01-000080.txt : 20010329 0000914039-01-000080.hdr.sgml : 20010329 ACCESSION NUMBER: 0000914039-01-000080 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010321 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-K SEC ACT: SEC FILE NUMBER: 000-12784 FILM NUMBER: 1573255 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-K 1 y46663e10-k.txt 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, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-12784 WESTBANK CORPORATION Massachusetts 04-2830731 - - --------------------------- --------------------------------------------- (State of Incorporation) (I.R.S. Employer Identification Number) 225 Park Avenue, West Springfield, Massachusetts 01090-0149 - - ------------------------------------------------ ---------- (Address of principal executive office) (Zip Code)
(413) 747-1400 (Telephone Number) Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- ------------------- NONE NONE
Securities registered pursuant to Section 12(g) of the Act: Common stock, $2.00 Par Value Preferred stock, $5.00 Par Value -------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ Based on the closing sales price on March 1, 2001 the aggregate market value of the voting stock held by nonaffiliates of the registrant was $33,907,688. The number of shares outstanding of the registrants common stock, $2.00 par value was 4,238,461 on March 1, 2001. Portions of the Annual Report to Stockholders for the year ended December 31, 2000 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 18, 2001 are incorporated by reference into Part III. 2 WESTBANK CORPORATION INDEX TO FORM 10-K PART I Item 1 Business I - 1 Item 2 Properties I - 2 Item 3 Legal Proceedings I - 3 Item 4 Submission of Matters to a vote of Security Holders I - 3 PART II Item 5 Market for the Corporation's Common Stock and Related Stockholder Matters II - 1 Item 6 Selected Financial Data II - 1 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations II - 1 PART III Item 8 Financial Statements and Supplementary Data III - 1 Item 9 Changes in and Disagreements with Accountant on Accounting and Financial Disclosure III - 1 Item 10 Directors and Executive Officers of the Registrant III - 1 Item 11 Executive Compensation III - 1 Item 12 Security Ownership of Certain Beneficial Owners and Management III - 1 Item 13 Certain Relationships and Related Transactions III - 1 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K IV - 1 Signatures IV - 2 Exhibit Index IV - 3
3 WESTBANK CORPORATION, WEST SPRINGFIELD, MASSACHUSETTS PART I ITEM 1 BUSINESS Reference is made to Page 4 of the Corporation's Annual Report to Stockholders for the year ended December 31, 2000, 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 2000 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 and 10 Rate/Volume Analysis of Interest Margin on Earning Assets 11 II. Investment Portfolio 12, 28, 29 and 39 III. Loan Portfolio 13, 29, 30 and 39 a. Types of Loans 13 and 29 b. Maturities and Sensitivities to Changes in Interest Rates 8, 9 and 13 c. Risk Elements 8, 14, 15, 16, 29 and 30 IV. Summary of Loan Loss Experience 14 and 15 V. Deposits 16, 31 and 39 VI. Return on Equity and Assets 17 VII. Short Term Borrowing 17, 31, 32 and 39
I - 1 4 ITEM 2 PROPERTIES The Corporation had two principal banking subsidiaries, Park West Bank and Trust Company ("Park West") and Cargill Bank ("Cargill"). Park West operates thirteen banking offices located in western Massachusetts, as follows:
LOCATION OWNED LEASED TOTAL Agawam (Feeding Hills) 1 1 Chicopee 1 1 Chicopee - Supermarket 1 1 East Longmeadow 1 1 East Longmeadow - Supermarket 1 1 Holyoke 1 1 Ludlow 1 1 Southwick 1 1 West Springfield 2 1 3 Westfield 1 1 Westfield - Supermarket 1 1 TOTAL 6 7 13
All banking offices except the one in Holyoke have drive-in facilities and twenty-four hour automated teller machines. Title to the properties described as owned in the foregoing table is held by Park West with warranty deed with no material encumbrances. Park West owns, with no material encumbrances, land adjacent to the main office which is available for parking and, through a subsidiary, also owns one other property adjacent to the main office consisting of land also used as a parking lot. Cargill operates four banking offices located in northeast Connecticut, as follows:
LOCATION OWNED LEASED TOTAL Putnam 1 1 2 Woodstock 1 1 Danielson 1 1 TOTAL 2 2 4
All general banking facilities have drive-in facilities and twenty-four hour automated teller machines. Title to the properties described as owned in the foregoing table is held by Cargill with warranty deed with no material encumbrances. I-2 5 ITEM 3 LEGAL PROCEEDINGS Certain litigation is pending against the Corporation and the its subsidiaries. Management, after consultation with legal counsel, does not anticipate that any liability arising out of such litigation will have a material effect on the Corporation's Financial Statements. On January 17, 2001, the United States Office of Thrift Supervision ("OTS") and Cargill entered into a "Stipulation and Consent to the Issuance of an Order of Assessment of Civil Money Penalties" (the "Consent"), pursuant to which Cargill agreed to pay a fine of Fifteen Thousand Dollars ($15,000.00) due to Cargill's failure to inform OTS prior to the declaration of certain capital distributions and for filing an inaccurate Thrift Financial Report ("TFR") with respect to such distributions. The Bank believes that the items noted by OTS do not materially impact the financial statements of Cargill. Cargill is taking specific steps to ensure that it will comply with all applicable rules, agreements and regulations regarding the declaration of distributions. Upon payment of the fine, the Consent order was terminated on January 24, 2001. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE I-3 6 PART II ITEM 5 MARKET FOR CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Reference is made to the inside back cover of the Corporation's Annual Report to Stockholders for the year ended December 31, 2000, wherein this subject is covered. ITEM 6 SELECTED FINANCIAL DATA Reference is made to Page 5 of the Corporation's Annual Report to Stockholders for the year ended December 31, 2000, wherein this subject is covered. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to Pages 6 through 19 of the Corporation's Annual Report to Stockholders for the year ended December 31, 2000, wherein this subject is covered. Information Concerning Forward-Looking Statements. Westbank has made and may make in the future forward-looking statements concerning future performance, including, but not limited to, future earnings, and events or conditions which may affect such future performance. These forward-looking statements are based upon management's expectations and belief concerning possible future developments and the potential effect of such future developments on Westbank. There is no assurance that such future developments will be in accordance with management's expectations and belief or that the effect of any future developments on Westbank will be those anticipated by Westbank management. All assumptions that form the basis of any forward-looking statements regarding future performance, as well as events or conditions which may affect such future performance, are based on factors that are beyond Westbank's ability to control or predict with precision, including future market conditions and the behavior of other market participants. Among the factors that could cause actual results to differ materially from such forward-looking statements are the following: 1. The status of the economy in general, as well as in Westbank's primary market areas, western Massachusetts and northeastern Connecticut; 2. The real estate market in western Massachusetts and northeastern Connecticut; 3. Competition in Westbank's primary market area from other banks, especially in light of continued consolidation in the New England banking industry. 4. Any changes in federal and state bank regulatory requirements; 5. Changes in interest rates; and 6. The cost and other effects of unanticipated legal and administrative cases and proceedings, settlements and investigations. While Westbank periodically reassesses material trends and uncertainties affecting the Corporation's performance in connection with its preparation of management's discussion and analysis of results of operations and financial condition contained in its quarterly and annual reports, Westbank does not intend to review or revise any particular forward-looking statement in light of future events. II-1 7 PART III ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to Pages 20 through 42 of the Corporation's Annual Report to Stockholders for the year ended December 31, 2000, wherein this subject is covered. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Reference is made to Pages 4 through 9 of the Corporation's Proxy Statement to Stockholders for the 2001 Annual Meeting scheduled for April 18, 2001, wherein this subject is covered. ITEM 11 EXECUTIVE COMPENSATION References is made to Pages 10 through 13 of the Corporation's Proxy Statement to Stockholders for the 2001 Annual Meeting scheduled for April 18, 2001, wherein this subject is covered. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to Pages 8 and 9 of the Corporation's Proxy Statement to Stockholders for the 2001 Annual Meeting scheduled for April 18, 2001, wherein this subject is covered. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is made to Pages 8 through 16, of the Corporation's Proxy Statement to Stockholders for the 2001 Annual Meeting scheduled for April 18, 2001, wherein this subject is covered under the caption "Beneficial Ownership of Stock and Executive Compensation - Miscellaneous". III - 1 8 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as a part of this report: 1. Financial Statements The following financial statements are incorporated in this Annual Report on Form 10-K by reference to the Corporation's Annual Report to Stockholders for the year ended December 31, 2000: WESTBANK CORPORATION
Page of Annual Report Independent Auditors' Reports 43 Consolidated Balance Sheets at December 31, 2000 and 1999 20 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 21 Consolidated Statement of Stockholders' Equity from January 1, 1998, to December 31, 2000 22 Consolidated Statements of Comprehensive Income for the years ended December 31, 2000, 1999 and 1998 22 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 23 Notes to Consolidated Financial Statements 24 - 42
Current reports on Form 8-K Reporting other Events were filed by the Registrant on: NONE 2. Financial Statement Schedules Financial Statement Schedules are omitted because they are inapplicable or not required. 3 Exhibits See accompanying Exhibit Index. IV - 1 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WESTBANK CORPORATION By: /s/ Donald R. Chase ----------------------------------- Donald R. Chase President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date - - --------- ----- ---- President and /s/ Donald R. Chase Chief Executive Officer and Director March 19, 2001 - - --------------------------- Donald R. Chase Chairman of the Board /s/ Ernest N. Laflamme, Jr. and Director March 19, 2001 - - --------------------------- Ernest N. Laflamme, Jr. Treasurer and /s/ John M. Lilly Chief Financial Officer March 19, 2001 - - --------------------------- John M. Lilly /s/ Roland O. Archambault Director March 19, 2001 - - --------------------------- Roland O. Archambault /s/ Mark A. Beauregard Director March 19, 2001 - - --------------------------- Mark A. Beauregard Director March 19, 2001 - - --------------------------- David R. Chamberland /s/ G. Wayne McCary Director March 19, 2001 - - --------------------------- G. Wayne McCary /s/ Robert J. Perlak Corporate Clerk and Director March 19, 2001 - - --------------------------- Robert J. Perlak /s/ George R. Sullivan Director March 19, 2001 - - --------------------------- George R. Sullivan /s/ James E. Tremble Director March 19, 2001 - - --------------------------- James E. Tremble
IV-2 10 EXHIBIT INDEX
Page No. 3. Articles of Organization, as amended ** (a) Articles of Organization, as amended * (b) By-Laws, as amended * 10.1 Employment Contract dated October 1, 1986, between William A. Franks, Jr. and Westbank Corporation *** 10.12 Termination Agreement dated February 20, 1987, between Donald R. Chase and Park West Bank and Trust Company *** 10.14 Termination Agreement dated February 20, 1987, between Stanley F. Osowski and CCB, Inc. *** 10.15 1985 Incentive Stock Option Plan for Key Employees * 10.16 1995 Directors Stock Option Plan **** 10.17 1996 Stock Incentive Plan ***** 13. 1995 Annual Report to Stockholders ARS (IFC 1-36 IBC) 21. Subsidiaries of Registrant TO BE INCLUDED 27. Financial Data Schedule TO BE INCLUDED
* Incorporated by reference to identically numbered exhibits contained in Registrant's Annual Report on Form 10-K for the year ended December 31, 1988 ** Incorporated by reference to identically numbered exhibits contained in Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 *** Incorporated by reference to identically numbered exhibits contained in Registrant's Annual Report on Form 10-K for the year ended December 31, 1986 **** Incorporated by reference to identically numbered exhibits contained in Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 ***** Incorporated by reference to identically numbered exhibits contained in Registrant's 1996 Proxy Statement IV-3 EX-13 2 y46663ex13.txt EX-13 1 WESTBANK CORPORATION 2000 ANNUAL REPORT A YEAR OF TRANSITION 2
TABLE OF CONTENTS 1 Financial Highlights 2 Letter to Shareholders 4 Business - Westbank Corporation and Subsidiaries 5 Selected Consolidated Financial Data 6 Management's Discussion and Analysis - Financial Results 20 Consolidated Balance Sheets 21 Consolidated Statements of Income 22 Consolidated Statements of Stockholders' Equity 22 Consolidated Statements of Comprehensive Income 23 Consolidated Statements of Cash Flows 24 Notes to Consolidated Financial Statements 43 Independent Auditors' Reports 44 Corporate Directory IBC Corporate Information
ON THE COVER The road to success is often a winding one. But with a sound strategic plan, a highly capable management team and a dedicated staff of employees, Westbank Corporation is prepared to continue its journey into the 21st century. 3 FINANCIAL HIGHLIGHTS Westbank Corporation and Subsidiaries
FOR THE YEAR ENDED DECEMBER 31 (Dollars in Thousands) 2000 1999 1998 - - ---------------------- ---- ---- ---- Net income $ 3,788 $ 4,167 $ 3,377 Net interest income 19,417 17,121 15,339 Non-interest income 2,652 2,330 2,427 Non-interest expense 15,841 12,598 12,200 Provision for loan losses 472 77 41 YEAR END DECEMBER 31 (Dollars in Thousands) - - ---------------------- Investments $ 97,676 $ 81,320 $ 84,328 Loans, net 429,231 438,567 293,113 Allowance for loan losses 3,670 3,908 2,665 Total assets 574,596 576,150 402,623 Total deposits 499,140 478,896 342,267 Total stockholders' equity 34,860 31,543 30,490 COMMON SHARE INFORMATION Basic weighted average shares outstanding 4,229,105 4,244,402 4,143,009 Basic earnings per share $ .90 $ .98 $ .82
GROWTH IN ASSETS, LOANS AND DEPOSITS BAR CHART (Dollars in thousands)
Assets Loans Deposits ------ ----- -------- 1996 $331,803 $254,948 $298,014 1997 355,567 268,254 314,679 1998 402,623 293,113 342,267 1999 576,150 438,567 478,896 2000 574,596 429,231 499,140
1 4 CHAIRMAN AND PRESIDENT'S LETTER WESTBANK CORPORATION AND SUBSIDIARIES By all accounts, 2000 was a year unlike any other -- especially from a business perspective. It began with the infamous Y2K scare, saw the meteoric rise and shake-up of the dot com industry and featured a controversial presidential election that had to be decided in the U.S. Supreme Court. Even the economy, vibrant and robust in the fourth quarter of 1999, began to exhibit signs of a slowdown. All in all, it was a year of change -- a year of transition. For us, 2000 was also a year of transition. While some might consider this a clever spin on our financial performance, it is, in fact, an appropriate analogy for a number of reasons. We completed the integration of our Cargill Bank franchise. We endured a sustained period of high interest rates that had a direct impact on our residential and commercial mortgage portfolios. And we saw eroding consumer confidence and falling stock prices begin to take their toll on the local economy. As is often the case with a major acquisition, a significant dedication of resources was required to bring the Cargill Bank franchise in line with our corporate objectives. While we are now solidly positioned for future growth, a number of critical initiatives had to be implemented. We restructured the management team and replaced key personnel in a number of branches. We consolidated the number of Cargill Bank branch offices from five to four to reduce costs and increase our operating efficiency. We streamlined the Cargill Bank product line to better match that of our Park West Bank and Trust Company subsidiary. As a result of these initiatives, we absorbed $250,000 in non-recurring expenses and amortized $683,000 in goodwill associated with the merger. 2000 was also a challenging year for residential and commercial lending. A high interest rate environment, slowing economy and eroding consumer confidence resulted in lower than expected loan volume in our residential and commercial mortgage portfolios. Most significantly affected was the residential real estate market, as increased home prices and rising interest rates led to a cooling of what had been a relatively hot market. At Westbank Corporation, we place great emphasis on enhancing shareholder value. In fact, our long-term strategic plan is developed with that specific goal in mind. We fully realize that our loyal investors have come to expect great things from us and we want to continue to set the bar high. While extraneous factors certainly had an impact on our overall financial performance, there were several key areas that registered significant growth from the previous fiscal year. For the year ended December 31, 2000, earnings totaled $3,788,000 or $.89 per diluted share versus $4,167,000 or $.96 per diluted share for the year ended December 31, 1999. As of December 31, 2000, assets totaled $574.6 million, while investments grew to $97.7 million and loans totaled $429.2 million. As of year-end, deposits were $499.1 million, a $20.2 million increase compared to December 31, 1999, and the Corporation's shareholders' equity grew to $34.9 million, representing a book value of $8.26 per share. The Corporation's net interest margin improved significantly in the fourth quarter of 2000, a trend we believe will continue in 2001. This was achieved by closely monitoring the changing interest rate environment and aggressively managing the overall cost of funds. We also took advantage of falling interest rates in the fourth quarter and improved mortgage banking activity by selling $16 million in fixed rate residential mortgages. This transaction allowed the Corporation to execute some balance sheet restructuring, as well as enhance its earnings during the quarter. At year-end, the Corporation's allowance for loan losses totaled $3.7 million, representing .85% of total loans. At the same time, loan quality remained sound, with non-performing loans decreasing from $2.4 million to $2.2 million at the end of 2000. In addition to the ongoing conversion efforts at Cargill Bank, we also implemented a number of initiatives designed to retain and acquire market share at both subsidiaries. In June 2000, Park West Bank and Trust Company introduced a consumer debit card, providing customers with a convenient way to make point-of-sale purchases from their checking account -- without having to write a check or withdraw cash. In addition to cementing customer relationships, the consumer debit card program is expected to generate significant fee income in 2001. In July 2000, a Free Checking account program was introduced at both subsidiaries. Targeting new customers, this program features a free checking and savings account, free checks, free ATM transactions (at Park West Bank and Trust Company or Cargill Bank ATMs) and a free debit card. The goal of this product introduction is to generate new customer relationships and acquire low cost core deposits, thereby reducing each bank's overall cost of funds. It also provides a platform for cross-selling other profitable bank products and services like mortgages, home equity lines, and trust and investment services. In October 2000, Park West Bank and Trust Company relocated its Westfield supermarket office from the former Stop & Shop on Route 20 to the Big Y World Class Market on East Silver Street. A successful grand opening celebration was held and response to the new location has been favorable in terms of customer traffic and feedback. October also saw the introduction of a Small Business Checking account. This came after an internal analysis of both subsidiaries' business checking account portfolios and in response to the need for an account that caters to the growing number of small business start-ups. 2 5 [CHASE/LAFLAMME PHOTO] We also made significant strides in 2000 with regard to the development of our Internet banking product. The Web sites for Park West Bank and Trust Company, Cargill Bank and Westbank Corporation have been designed and are near completion. Once completed, these Web sites will be used to promote each bank's products and services and will serve as a conduit for accessing the Internet banking products for both consumer and business customers. The product rollout is scheduled for the 2nd quarter of 2001. A Web bill payment component is also being developed that would allow customers to pay their bills via the Internet. This service provides yet another way to acquire new accounts and solidifies existing customer relationships. It also places both subsidiaries in a more favorable competitive position in their respective marketplaces. Our Business Banking Division has historically been a mainstay of the Corporation and, as such, is one of our most important assets. Despite a less than favorable interest rate environment in 2000, our Business Banking team still managed to achieve growth of 8% in our commercial and industrial loan portfolio. In 2001, we will continue to support the calling efforts of the Business Banking team at both subsidiaries, while placing additional emphasis on both the Equipment Leasing Division and our commercial mortgage portfolio. Other planned Business Banking initiatives for 2001 include a corporate Internet banking product, a business debit card and the introduction of a package of small business services such as small business checking, equipment lease financing and business retirement plan products. 2000 also saw the expansion of our successful Indirect Lending division, which underwrites consumer auto loans through automobile dealerships. Additional staff were hired and a strategic plan was implemented to acquire new dealer relationships in northeastern Connecticut. Park West Bank and Trust Company and Cargill Bank had 50 dealer affiliations as of December 31, 2000. The Corporation's Trust and Investments Division increased its assets from $113.0 million in 1999 to $117.7 million in 2000, a 4% increase. Going forward, this division will continue to build long-term client relationships in Massachusetts and Connecticut, utilizing a disciplined investment strategy that controls risk and maximizes return. From a corporate perspective, the Corporation initiated a stock repurchase program in early 2000. This program was implemented because the Corporation believes it is a wise long-term investment. We have been conducting the repurchases from shareholders in open market trading through registered broker-dealers. As of December 31, 2000, we repurchased a total of 127,320 outstanding shares representing $1.1 million. Our goal is to repurchase 5% of our outstanding stock and that process is approximately 50% complete. Our primary goals in 2001 will be to increase market share, maintain asset quality and improve the Corporation's interest margins. We look forward to the challenges and opportunities that lie ahead, and remain as focused and committed as ever to building an even stronger Corporation for our shareholders, customers and employees. With a sound strategic plan, a highly capable management team and a dedicated staff of employees, we are confident that we are well positioned for future success. As we enter the second year of the new millennium, we embark not on an uncharted expedition, but rather a well-planned journey to success. Thank you for your loyalty, confidence and continued support of Westbank Corporation. Sincerely, Donald R. Chase Ernest N. Laflamme, Jr. President and Chairman of the Board Chief Executive Officer 3 6 Business Westbank Corporation and Subsidiaries CORPORATE ORGANIZATION Westbank Corporation (hereinafter sometimes referred to as "Westbank" or the "Corporation") is a registered Bank Holding Company organized to facilitate the expansion and diversification of the business of Park West Bank and Trust Company (hereinafter sometimes referred to as "Park West") and Cargill Bank (hereinafter sometimes referred to as "Cargill") into additional financial services related to banking. On January 29, 1999, Westbank became the owner of all the outstanding stock of Cargill Bancorp, Inc., a state chartered savings and loan association. PARK WEST BANK AND TRUST COMPANY Park West is chartered as a state bank and trust company by the Commonwealth of Massachusetts, is a member of the Federal Deposit Insurance Corporation ("FDIC"), and is subject to regulation by the Massachusetts Commissioner of Banks and the FDIC. A full range of retail banking services is furnished to individuals, businesses, and nonprofit organizations through thirteen banking offices located in Hampden County, Massachusetts. 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, 2000 amounted to $117,713,000 and is not included in the accompanying financial statements since such items are not assets of the Bank. CARGILL BANK Cargill is a Connecticut state chartered savings and loan association headquartered in Danielson, Connecticut. Cargill is a member of the FDIC and is subject to regulation by the State of Connecticut Department of Banking and the Office of Thrift Supervision ("OTS"). On October 29, 1999, Cargill completed its purchase of certain assets and assumption of certain liabilities of New London Trust, F.S.B. ("New London Trust"), including two branches in Putnam and Danielson, Connecticut, with such assets totaling $106,000,000. Cargill provides a full range of retail banking services to individuals, businesses and nonprofit organizations through four banking offices located in Windham County, Connecticut. Such services include a wide range of checking and savings accounts, loans, safe deposit facilities and automated teller machines at all branch locations. Cargill also provides lending, depository and related financial services to commercial, industrial, financial and governmental customers. In the lending area, these services include short- and long-term loans and revolving credit arrangements, letters of credit, inventory and accounts receivable financing, real estate construction lending, and mortgage loans. EMPLOYEES As of December 31, 2000, the Corporation and its subsidiaries had the equivalent of 168 full-time employees. COMPETITION Westbank's banking, real estate activity and trust services are competitive with other financial institutions. Its service area is in western Massachusetts and northeastern Connecticut. Westbank's competitors include other commercial banks, mutual savings banks, savings and loan associations, credit unions, consumer finance companies, loan offices, money market funds, and other financing organizations. Competition for trust services from major commercial banks is high, with continuing efforts by those banks to solicit new business. The Trust Department prides itself as one of the few remaining corporate fiduciaries providing personal services locally. Insurance companies, mutual savings banks, investment counseling firms, and other business firms and individuals also offer active competition for such business. 4 7 SELECTED CONSOLIDATED FINANCIAL DATA Westbank Corporation and Subsidiaries
Year ended December 31, (Dollars in Thousands Except Share Amounts) 2000 1999 1998 1997 1996 - - ------------------------------------------- ---- ---- ---- ---- ---- Interest and dividend income $ 42,645 $ 32,437 $ 28,631 $ 26,724 $ 24,059 Interest expense 23,228 15,316 13,292 12,091 10,524 --------- --------- --------- --------- --------- Net interest income 19,417 17,121 15,339 14,633 13,535 Provision for loan losses 472 77 41 306 944 Non-interest income 2,652 2,330 2,427 2,529 2,340 Non-interest expense 15,841 12,598 12,200 11,066 11,278 --------- --------- --------- --------- --------- Income before income taxes 5,756 6,776 5,525 5,790 3,653 Income taxes 1,968 2,609 2,148 2,406 1,516 --------- --------- --------- --------- --------- Net income $ 3,788 $ 4,167 $ 3,377 $ 3,384 $ 2,137 ========= ========= ========= ========= ========= Common share data: Earnings per share: Basic $ .90 $ .98 $ .82 $ .88 $ .59 Diluted $ .89 $ .96 $ .79 $ .85 $ .57 Cash dividends declared $ .40 $ .40 $ .40 $ .30 $ .24 Ending book value $ 8.26 $ 7.36 $ 7.26 $ 6.84 $ 6.19 AT DECEMBER 31: Total loans -- net $ 429,231 $ 438,567 $ 293,113 $ 268,254 $ 254,948 Total assets 574,596 576,150 402,623 355,567 331,803 Total non-performing assets 2,737 2,881 1,494 2,025 3,791 Total deposits 499,140 478,896 342,267 314,679 298,014 Total borrowings 20,992 46,546 27,807 11,884 9,269 Mandatory redeemable preferred stock 17,000 17,000 Total stockholders' equity 34,860 31,543 30,490 26,918 22,717 AVERAGE FOR YEAR: Loans 445,846 349,614 284,629 270,066 246,366 Assets 581,328 450,691 382,924 348,561 313,063 Deposits 488,396 384,410 335,110 312,725 280,855 Stockholders' equity 32,096 31,187 29,229 24,638 21,777 Weighted shares outstanding - basic 4,229,105 4,244,402 4,143,009 3,845,698 3,643,270 - diluted 4,273,384 4,333,326 4,272,682 4,003,015 3,762,419 SELECTED RATIOS: Rate of return on average total assets .65% .92% .88% .97% .68% Rate of return on average stockholders' equity 11.80% 13.36% 11.55% 13.73% 9.81% Allowance for loan losses to total loans at year end .85% .88% .90% 1.13% 1.05% Non-performing loans as a percentage of total loans at year end .51% .55% .35% .68% 1.23% Net charge-offs (recoveries) as a percentage of average loans .16% .14% .15% (.02%) .88% Other real estate owned as a percentage of total assets .09% .08% .12% .10% .19%
5 8 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS Westbank Corporation and Subsidiaries Management's discussion of operations and financial position is based on the selected consolidated financial data and should be read in conjunction with the consolidated financial statements and notes thereto. Effective January 29, 1999, Cargill Bank was merged with and into Westbank Corporation, pursuant to a plan of merger dated July 15, 1998. Each share of Cargill common stock was converted into 1.3655 shares of the Corporation's common stock. Approximately 400,164 of Westbank common shares were issued for the outstanding common stock of Cargill. The transaction was accounted for using the pooling-of-interests method and, accordingly, all historical financial data has been restated to include both entities for all periods presented. The restatement of the historical data is based on Westbank's fiscal year-end December 31 and Cargill's fiscal year-end September 30 for all periods prior to 1999. On October 29, 1999, Cargill Bank completed its acquisition of the Connecticut division of New London Trust. The two New London Trust offices became part of Cargill Bank. The acquisition resulted in $106 million of assets (loans of $84 million) and $106 million of liabilities being acquired as of October 29, 1999. The Corporation has accounted for this acquisition on the purchase accounting method. For 2000, the Corporation reported net income of $3,788,000, or $.90 per share basic and $.89 diluted, after providing $472,000 for loan losses. This compares to net income for 1999 of $4,167,000, or $.98 per share basic and $.96 diluted. The Corporation's 1999 earnings reflected a provision for loan losses of $77,000. Net interest income increased $2,296,000 from 1999 to 2000. Non-interest expense amounted to $15,841,000 in 2000 compared to $12,598,000 in 1999, an increase of $3,243,000, or 26%. The increase in operating expenses for 2000 is a result of the overall growth of the Corporation and the acquisition of the New London offices, as well as the amortization of goodwill associated with the branch acquisition totaling $683,000. Non-interest income increased by $322,000 compared to 1999. During 2000, Trust Department earnings grew by $26,000 versus 1999. Gains on sale of investments, other real estate and sale of mortgages increased by $22,000, while service charges on deposit accounts, other non-interest income and loan servicing fees grew by $274,000 compared to 1999. Income taxes in 2000 totaled $1,968,000, a decrease of $641,000 versus 1999. At December 31, 2000, the Corporation's total assets were $574,596,000, a decrease of $1,554,000 compared to year-end 1999. Non-performing assets amounted to $2,737,000 or .48% of total assets at December 31, 2000, compared with $2,881,000 or .50% at the end of 1999. 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, 2000, Park West's and Cargill's capital were at levels that placed each Bank in the "well capitalized" category as defined by FDICIA. FDICIA imposes a variety of other restrictions and requirements on insured banks. These include significant regulatory reporting requirements such as insuring that a system of risk-based deposit insurance premiums exists. In addition, FDICIA imposes a system of regulatory standards for bank and bank holding company operations, detailed truth in savings disclosure requirements, and restrictions on activities authorized by state law but not authorized for national banks. 6 9 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries COMPONENTS OF CAPITAL The following table presents the Corporation's components of capital as of December 31. The table also presents the ratio of capital to total assets. (Dollars in Thousands) 2000 1999 1998 - - ---------------------- ---- ---- ---- Stockholders' Equity Common stock $ 8,567 $ 8,567 $ 8,397 Additional paid-in-capital 11,608 11,633 11,076 Retained earnings 15,408 13,317 10,803 Treasury stock (526) Accumulated other comprehensive income (loss) (197) (1,974) 214 -------- -------- -------- Total Capital $ 34,860 $ 31,543 $ 30,490 ======== ======== ======== Ratio of capital to average total assets 6.45% 6.92% 7.53%
Regulatory risk-based capital requirements take into account the different risk categories of banking organizations by assigning risk weights to assets and the credit equivalent amounts of off-balance sheet exposures. In addition, capital is divided into two tiers. In this Corporation, Tier 1 includes the common stockholders' equity and a portion of the mandatory redeemable preferred stock; total risk-based, or supplementary capital includes not only the equity but also a portion of the allowance for loan losses and a portion of the mandatory redeemable preferred stock. The following are the Corporation's risk-based capital ratios at December 31:
2000 1999 1998 ---- ---- ---- Tier 1 risk-based capital (minimum required 4%) 10.34% 10.17% 11.94% Total risk-based capital (minimum required 8%) 12.85% 12.50% 13.00%
DISCUSSION OF MARKET RISK Market risk is the risk of loss due to adverse changes in market prices and rates. The management of this risk, coupled with directives to build shareholder value and profitability, is an integral part of the Corporation's overall operating strategy. The Corporation's approach to risk management, primarily interest rate risk management, concentrates on fundamental strategies to structure the balance sheet and the composition of assets and liabilities. Since the Corporation does not utilize interest rate futures, swaps or options transactions, its asset/liability profile is not complex. It reflects a simple approach to managing risk through the use of fixed and adjustable rate loans and investments, rate-insensitive checking accounts as well as a combination of fixed and variable rate deposit products and borrowed funds. Bank policy includes required limits on the sensitivity of net interest income under various interest rate scenarios. The Bank seeks to control its interest rate risk exposure in a manner that allows for adequate levels of earnings and capital over a range of possible interest rate environments. The Bank has adopted formal policies and practices to monitor and manage interest rate risk exposure. As part of this effort, the Bank actively manages interest rate risk through the use of a simulation model that measures the sensitivity of future net interest income to changes in interest rates. In addition, the Bank regularly monitors interest rate sensitivity through gap analysis, which measures the terms to maturity or next repricing date of interest-earning assets and interest-bearing liabilities. 7 10 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries On a quarterly basis, an interest rate risk exposure compliance report is prepared and presented to the Bank's Board of Directors. This report presents an analysis of the change in net interest income resulting from an increase or decrease in the level of interest rates. All changes are measured as percentage changes from the projected net interest income in the flat rate scenario. The calculated estimates of change in net interest income are compared to current limits established by management and approved by the Board of Directors. The following is a summary of the interest rate exposure report as of December 31, 2000 and 1999:
Percentage Change in Change in Interest Rates Net Interest Income (In Basis Points) 2000 1999 ----------------- ---- ---- +200 0% (3.00%) Level 0% 0% -200 (1.00%) 2.00%
The model utilized to create the results presented above makes various estimates at each level of interest rate change regarding cash flows from principal repayments on loans and mortgage-backed securities and/or call activity on investment securities. Actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change. In order to reduce the exposure to interest rate fluctuations, the Corporation has developed strategies to manage its liquidity, shorten the effective maturities of certain interest-earning assets and increase the effective maturities of certain interest-bearing liabilities. The Bank has focused its residential lending on a combination of fixed and adjustable rate mortgages. Commercial loans, commercial mortgages and consumer lending focus on adjustable and short term loans. The Bank also attempts to maintain and/or increase its savings and transaction accounts, which are considered relatively insensitive to changes in interest rates. The Corporation also measures sensitivity to changes in interest rates using interest rate sensitivity gap analysis which is the difference between the cash flow amounts of interest-sensitive assets and liabilities that will be refinanced (or repriced) during a given period. For example, if the asset amount to be repriced exceeds the corresponding liability amount for a certain day, month, year, or longer period, the institution is in an asset-sensitive gap position. In this situation, net interest income would increase if market interest rates rose or decrease if market interest rates fell. If, alternatively, more liabilities than assets will reprice, the institution is in a liability-sensitive position. Accordingly, net interest income would decline when rates rise and increase when rates fall. Also, these examples assume that interest-rate changes for assets and liabilities are of the same magnitude, whereas actual interest-rate changes generally differ in magnitude for assets and liabilities. The following table sets forth the distribution of the repricing of the Corporation's earning assets and interest-bearing liabilities as of December 31, 2000, the interest rate sensitivity gap, (i.e., interest rate sensitive assets less interest rate sensitive liabilities), the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio and the cumulative interest rate sensitivity gap ratio. The table also sets forth the time periods in which earning assets and interest-bearing liabilities will mature or may reprice in accordance with their contractual terms. However, the table does not necessarily indicate the impact of general interest rate movements on the net interest margin since the repricing of various categories of assets and liabilities is subject to competitive pressures and the needs of the Bank's customers. In addition, various assets and liabilities indicated as repricing within the same period may, in fact, reprice at different times within such period and at different rates. 8 11 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries
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 Investments $ 5,517 $ 396 $ 14,378 $ 77,385 $ 97,676 Interest bearing cash 127 100 227 Loans 64,378 71,536 146,783 150,204 432,901 Federal funds sold 5,249 5,249 --------- --------- --------- --------- --------- 75,271 71,932 161,261 227,589 536,053 INTEREST BEARING LIABILITIES Savings deposits 10,485 94,374 104,859 NOW accounts 2,965 26,679 29,644 Money market accounts 18,849 18,849 Other time deposits 113,714 114,633 53,494 338 282,179 Borrowed funds and preferred stock 13,992 7,000 17,000 37,992 --------- --------- --------- --------- --------- $ 146,555 $ 128,083 $ 181,547 $ 17,338 $ 473,523 ========= ========= ========= ========= ========= Interest Rate Sensitivity Gap $ (71,284) $ (56,151) $ (20,286) $ 210,251 $ 62,530 Cumulative Interest Rate Sensitivity Gap (71,284) (127,435) (147,721) 62,530 Interest Rate Sensitivity Gap Ratio (13.30)% (10.47)% (3.78)% 39.22% 11.67% Cumulative Interest Rate Sensitivity Gap Ratio (13.30)% (23.77)% (27.55)% 11.67%
The presentation of a run off and repricing of savings accounts and NOW accounts is based on the Corporation's historical experience with $10,485,000 and $2,965,000, respectively, included in the three-month to one-year category and the remainder placed in the one- to five-year category of the interest-bearing liabilities. Westbank seeks to manage the mix of asset and liability maturities to control the effect of changes in the general level of interest rates on net interest income. Except for its effect on the general level of interest rates, inflation does not have a material impact on Westbank's earnings due to the rate of variability and short-term maturities of its earning assets. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY - INTEREST RATES AND INTEREST DIFFERENTIAL The following table presents the condensed average balance sheets for 2000, 1999 and 1998. The total dollar amount of interest income from earning assets and the resultant yields are calculated on a taxable equivalent basis. The interest paid on interest-bearing liabilities, expressed both in dollars and rates, is shown in the table: 9 12 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries
2000 1999 1998 Average Average Average Interest Yield/ Interest Yield/ Interest Yield/ Average Income/ Rate Average Income/ Rate Average Income/ Rate (Dollars in Thousands) Balance Expense Paid Balance Expense Paid Balance Expense Paid - - ---------------------- ------- ------- ---- ------- ------- ---- ------- ------- ---- ASSETS Securities: U.S. Treasury $ 534 $ 32 6.00% $ 812 $ 49 6.03% $ 3,663 $ 221 6.03% Federal agencies 90,018 6,422 7.12 69,536 4,638 6.67 61,856 3,994 6.46 Tax exempt federal (a) 616 42 6.82 284 20 7.04 Other securities 4,007 292 7.29 1,910 155 8.12 4,969 304 6.12 --------- --------- ---- --------- --------- ---- --------- --------- ---- Total securities 95,175 6,788 7.13 72,542 4,862 6.70 70,488 4,519 6.41 --------- --------- ---- --------- --------- ---- --------- --------- ---- Interest-bearing cash and temporary investments 765 41 5.36 2,559 123 4.81 792 29 3.66 --------- --------- ---- --------- --------- ---- --------- --------- ---- Loans: (b) Commercial 60,064 5,608 9.34 52,356 4,221 8.06 41,129 3,810 9.26 Tax exempt federal (a) 4,653 413 8.88 2,191 198 9.04 Real estate 333,757 26,008 7.79 258,639 20,120 7.78 213,377 17,400 8.15 Consumer 47,372 3,708 7.83 36,428 2,815 7.73 30,123 2,435 8.08 --------- --------- ---- --------- --------- ---- --------- --------- ---- Total loans 445,846 35,737 8.02 349,614 27,354 7.82 284,629 23,645 8.31 --------- --------- ---- --------- --------- ---- --------- --------- ---- Federal funds sold 3,793 234 6.17 3,287 171 5.20 7,761 438 5.64 --------- --------- ---- --------- --------- ---- --------- --------- ---- Total earning assets 545,579 $ 42,800 7.84% 428,002 $ 32,510 7.60% 363,670 $ 28,631 7.87% --------- --------- ---- --------- --------- ---- --------- --------- ---- Allowance for loan losses (3,937) (3,019) (2,920) Cash and due from banks 14,054 12,033 11,120 Other assets 25,632 13,675 11,054 --------- --------- ---- --------- --------- ---- --------- --------- ---- Total assets $ 581,328 $ 450,691 $ 382,924 ========= ========= ==== ========= ========= ==== ========= ========= ==== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings $ 127,764 $ 3,365 2.63% $ 63,611 $ 1,742 2.74% $ 50,588 $ 1,382 2.73% Money market 24,021 765 3.18 29,465 883 3.00 31,663 1,195 3.77 Negotiated rate certificates 50,391 2,899 5.75 34,934 1,754 5.02 22,977 1,118 4.87 Other time deposits 225,609 12,464 5.52 202,834 9,296 4.58 181,085 8,967 4.95 --------- --------- ---- --------- --------- ---- --------- --------- ---- Total time deposits 427,785 19,493 4.56 330,844 13,675 4.13 286,313 12,662 4.42 Borrowed funds/preferred stock 57,717 3,735 6.47 33,001 1,641 4.97 16,906 630 3.73 --------- --------- ---- --------- --------- ---- --------- --------- ---- Total interest-bearing liabilities 485,502 23,228 4.78 363,845 15,316 4.21 303,219 13,292 4.38 Demand deposits 60,610 53,566 48,797 Other liabilities 3,120 2,093 1,679 Stockholders' equity 32,096 31,187 29,229 --------- --------- ---- --------- --------- ---- --------- --------- ---- Total liabilities and stockholders' equity $ 581,328 $ 450,691 $ 382,924 ========= ========= ==== ========= ========= ==== ========= ========= ==== Net interest income 19,572 17,194 15,339 Yield spread 3.06 3.39 3.49 Net yield on earning assets 3.59% 4.02% 4.22% Deduct tax equivalent adjustment 155 73 --------- --------- ---- --------- --------- ---- --------- --------- ---- Net interest income $ 19,417 $ 17,121 $ 15,339 ========= ========= ==== ========= ========= ==== ========= ========= ====
(a) Tax equivalent basis. Interest income on non-taxable investment securities and loans includes the effects of the tax equivalent adjustments using the marginal federal tax rate of 34% in adjusting tax exempt interest income to a fully taxable basis. (b) Average loan balances above include non-accrual loans. When a loan is placed in non-accrual status, interest income is recorded to the extent actually received in cash or is applied to reduce principal. During 2000, the yield spread declined to 3.06% versus 3.39% in 1999. The Corporation's net interest margin decreased during 2000 to 3.59% from 4.02% in 1999, a decrease of 43 basis points. During 1999, the yield declined by 1- basis points versus 1998. The Corporation's net interest margin decreased during 1999 to 4.02% from 4.22% in 1998, a decrease of 20 basis points. The section titled Rate/Volume Analysis further describes the change in yields. 10 13 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries RATE/VOLUME ANALYSIS OF INTEREST MARGIN ON EARNING ASSETS The following table sets forth, for each major category of interest-earning assets and interest-bearing liabilities, the dollar amounts of interest income (calculated on a taxable equivalent basis) and interest expense and changes therein for 2000 as compared with 1999 and 1999 compared with 1998.
2000 Compared With 1999 1999 Compared With 1998 ----------------------- ----------------------- Increase Due to Increase Due to (Dollars in Thousands) 2000 1999 (Decrease) Volume Rate 1999 1998 (Decrease) Volume Rate - - ---------------------- ---- ---- ---------- ------ ---- ---- ---- --------- ------ ---- Interest earned: Securities: U.S. Treasury $ 32 $ 49 $ (17) $ (17) $ 49 $ 221 $ (172) $ (172) Federal agencies 6,422 4,638 1,784 1,444 $ 340 4,638 3,994 644 510 $ 134 Tax exempt federal 42 20 22 23 (1) 20 20 20 Other securities 292 155 137 151 (14) 155 304 (149) (227) 78 Interest-bearing cash 41 123 (82) (98) 16 123 29 94 82 12 Loans: Commercial 5,608 4,221 1,387 667 720 4,221 3,810 411 947 (536) Tax exempt federal 413 198 215 219 (4) 198 198 198 Real estate 26,008 20,120 5,888 5,857 31 20,120 17,400 2,720 3,552 (832) Consumer 3,708 2,815 893 856 37 2,815 2,435 380 490 (110) Federal funds sold 234 171 63 29 34 171 438 (267) (235) (32) ------- ------- ------- ------ ------- ------- ------- ------ ------ ------ 42,800 32,510 10,290 9,131 1,159 32,510 28,631 3,879 5,165 (1,286) ------- ------- ------- ------ ------- ------- ------- ------ ------ ------ Interest expense: Savings 3,365 1,742 1,623 1,687 (64) 1,742 1,382 360 356 4 Money market 765 883 (118) (177) 59 883 1,195 (312) (80) (232) Negotiated rate certificates 2,899 1,754 1,145 861 284 1,754 1,118 636 600 36 Other time deposits 12,464 9,296 3,168 1,121 2,047 9,296 8,967 329 1,028 (699) Borrowed funds 3,735 1,641 2,094 1,493 601 1,641 630 1,011 749 262 ------- ------- ------- ------ ------- ------- ------- ------ ------ ------- 23,228 15,316 7,912 4,985 2,927 15,316 13,292 2,024 2,653 (629) ------- ------- ------- ------ ------- ------- ------- ------ ------ ------- Net interest income $19,572 $17,194 $ 2,378 $4,146 $(1,768) $17,194 $15,339 $1,855 $2,512 $ (657) ======= ======= ======= ====== ======= ======= ======= ====== ====== =======
* The dollar amount of changes in interest income and interest expense attributable to changes in rate and volume has been allocated between rate and volume based on changes in rates times the prior year's volume and the changes in volume times the prior year's rate. Net interest income for 2000 increased to $19,572,000, up 14% from $17,194,000 in 1999. A 27% increase in average earning assets and a 24 basis point increase in average rate of return resulted in an increase in volume of $9,131,000 and an increase in rate of $1,159,000. An increase of 33% in average interest-bearing liabilities and a 57 basis point increase in average rate of interest paid contributed to an increase in volume of $4,985,000 and in increase in rate of $2,927,000. Net interest income for 1999 increased to $17,194,000, up 12% from $15,339,000 in 1998. An 18% increase in average earning assets and a 27 basis point decline in average rate of return resulted in an increase in volume of $5,165,000 and a decrease in rate of $1,286,000. An increase of 20% in average interest-bearing liabilities and a 17 basis point increase in average rate of interest paid contributed to an increase in volume of $2,653,000 and a decrease in rate of $629,000. LIQUIDITY Liquidity management requires close scrutiny of the mix and maturity of deposits and borrowings and short-term investments. Cash and due from banks, federal funds sold, investment securities and mortgage-backed securities, as compared to deposits, are used by Westbank to compute its liquidity on a daily basis as adjusted for regulatory purposes. In addition, Westbank is subject to Regulation D of the Federal Reserve Bank (FRB), which requires depository institutions to maintain reserve balances on deposit with the FRB based on certain average depositor balances. Westbank is in compliance with Regulation D. Management of Westbank believes that its current liquidity is sufficient to meet current and anticipated funding needs. Refer to Note 7 in the Notes To Consolidated Financial Statements for a discussion of the Corporation's external sources of liquidity. 11 14 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries
INVESTMENT PORTFOLIO MIX PIE CHART (Dollars in thousands) U.S. Government $ 537 Federal agencies 71,253 Mortgage-backed securities 20,417 Municipal bonds 614 Other securities 5,150
INVESTMENT PORTFOLIO Refer to Note 2 in the Notes to Consolidated Financial Statements of this report which covers the maturity distribution and fair values at December 31, 2000 of the securities portfolio. The following table shows the amortized cost (in thousands) of the Corporation's securities held to maturity at December 31:
2000 1999 1998 ---- ---- ---- U. S. Government obligations $ 499 $ 499 $ 998 Federal agency obligations 9,448 9,459 26,890 Mortgage-backed securities 1,462 1,846 2,728 ------- ------- ------- Amortized cost $11,409 $11,804 $30,616 ======= ======= =======
The following table shows the fair value (in thousands) of the Corporation's securities available for sale at December 31:
2000 1999 1998 ---- ---- ---- U. S. Government obligations $ 38 $ 11 $ 928 Federal agency obligations 61,465 50,379 26,667 Mortgage-backed securities 18,929 16,504 24,372 Municipal bonds 624 598 Equity securities 5,211 2,024 1,745 -------- -------- -------- 86,267 69,516 53,712 Gross unrealized (gain) loss on securities available for sale 295 3,053 (352) -------- -------- -------- Amortized cost $ 86,562 $ 72,569 $ 53,360 ======== ======== ========
The following table shows weighted average yields and maturity distribution of debt securities at December 31, 2000:
Within 1 Year 1 to 5 Years 5 to 10 Years After 10 Years Total Average Amortized Average Amortized Average Amortized Average Amortized Average Amortized Yield Cost Yield Cost Yield Cost Yield Cost Yield Cost ----- ---- ----- ---- ----- ---- ----- ---- ----- ---- U. S. Government obligations 6.23% $ 537 6.23% $ 537 Federal agency obligations 6.27 998 6.43% $13,179 7.07% $53,376 6.58% $ 3,700 6.91 71,253 Mortgage-backed securities 5.84 381 6.45 433 6.42 621 6.74 18,982 6.71 20,417 Municipal bonds 4.71 614 4.71 614 ---- ------ ---- ------- ---- ------- ---- ------- ---- ------- Total debt Securities 6.17 $1,916 6.43% $13,612 7.03% $54,611 6.71% $22,682 6.85% $92,821 ==== ====== ==== ======= ==== ======= ==== ======= ==== =======
The weighted average yield has been computed by dividing annualized interest income, including the accretion of discount and the amortization of premiums, by the book value of securities outstanding. 12 15 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries LOAN PORTFOLIO The following table sets forth the classification (in thousands) of the Corporation's loans by major category at December 31:
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Commercial $ 60,652 $ 56,276 $ 41,760 $ 41,661 $ 36,153 --------- --------- --------- --------- --------- Real Estate: Construction 5,160 5,952 5,998 5,302 6,662 Residential (1-4 family) 248,059 263,832 168,744 152,896 153,781 Commercial properties 84,833 85,385 60,348 55,127 45,506 --------- --------- --------- --------- --------- Total Real Estate 338,052 355,169 235,090 213,325 205,949 --------- --------- --------- --------- --------- Consumer 34,578 31,556 19,277 16,648 15,943 --------- --------- --------- --------- --------- Gross loans 433,282 443,001 296,127 271,634 258,045 Deferred loan origination fees-net of costs (381) (526) (349) (323) (398) --------- --------- --------- --------- --------- Total Loans 432,901 442,475 295,778 271,311 257,647 Allowance for loan losses (3,670) (3,908) (2,665) (3,057) (2,699) --------- --------- --------- --------- --------- Net loans $ 429,231 $ 438,567 $ 293,113 $ 268,254 $ 254,948 ========= ========= ========= ========= =========
The Corporation's loan portfolio is not concentrated within a single industry or a group of related industries; however, underlying collateral values are dependent upon market fluctuations in the western Massachusetts and northeastern Connecticut areas. The aggregate amount of loans to executive officers, directors and organizations with which they are associated amounted to $3,798,000 or 11% of stockholders' equity as of December 31, 2000, compared to $3,266,000 or 10.4% as of December 31, 1999. 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, 2000:
LOAN MIX PIE CHART Commercial loans $ 60,652 Consumer loans 34,578 Residential real estate 248,059 Commercial real estate 89,993
12 Months 1 - 5 After (Dollars in Thousands) or Less Years 5 Years Total - - ---------------------- ------- ----- ------- ----- Commercial $44,556 $15,455 $ 641 $60,652 Commercial real estate-construction 5,160 5,160 ------- ------- ------- ------- Totals $49,716 $15,455 $ 641 $65,812 ======= ======= ======= =======
Of the commercial loans which mature beyond one year, approximately $15,009,000 have fixed rates and the remaining $1,087,000 are floating rate loans. In the normal course of business, various commitments and contingent liabilities are outstanding, such as guarantees, standby letters of credit, commitments to extend credit and various financial instruments with off-balance-sheet risk that are not reflected in the financial statements. The most significant of these are commitments to grant loans and commitments to advance funds under existing loan agreements which were $8,460,000 and $38,569,000, respectively, at December 31, 2000 and $4,604,000 and $38,827,000, respectively, in 1999. See further discussion in Note 14 to the Consolidated Financial Statements. 13 16 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries LOAN LOSS EXPERIENCE The provision for loan losses is an amount added to the allowance against which loan losses are charged. The provision for losses is dependent on actual net write-offs and an evaluation of the collectibility of the loan portfolio, taking into consideration such factors as the financial condition of individual borrowers, historical loss experience with respect to various portfolio segments, current and near-term economic conditions, and the size of the portfolio. Based on these reviews, the allowance for loan losses at December 31, 2000, is deemed to be adequate by management. In the determination of the allowance for loan losses, management obtains independent appraisals for a significant number of properties. Management has also retained an independent loan review consultant to provide advice on the adequacy of the loan loss allowance. The following table sets forth the historical relationship among the average amount of loans outstanding, the allowance for loan losses, provision for loan losses charged to operating expenses, losses charged off, recoveries and selected ratios:
Year Ended December 31, (Dollars in Thousands) 2000 1999 1998 1997 1996 - - ---------------------- ---- ---- ---- ---- ---- Balance at beginning of year $ 3,908 $ 2,665 $ 3,057 $ 2,699 $ 3,924 Provision charged to expense 472 77 41 306 944 Acquisition 1,669 --------- --------- --------- --------- --------- 4,380 4,411 3,098 3,005 4,868 --------- --------- --------- --------- --------- Charge-offs: Loans secured by real estate 163 78 318 394 1,745 Construction/land development 190 Commercial and industrial loans 538 455 153 250 510 Consumer loans 88 90 47 116 94 --------- --------- --------- --------- --------- 789 623 518 760 2,539 --------- --------- --------- --------- --------- Recoveries: Loans secured by real estate 32 79 42 354 324 Construction/land development 14 14 Commercial and industrial loans 27 15 30 445 12 Consumer loans 20 12 13 13 20 --------- --------- --------- --------- --------- 79 120 85 812 370 --------- --------- --------- --------- --------- Net charge-offs (recoveries) 710 503 433 (52) 2,169 --------- --------- --------- --------- --------- Balance at end of year $ 3,670 $ 3,908 $ 2,665 $ 3,057 $ 2,699 ========= ========= ========= ========= ========= Average loans outstanding $ 445,846 $ 349,614 $ 284,629 $ 270,066 $ 246,366 ========= ========= ========= ========= ========= Net charge-offs (recoveries) as a percentage of average loans 0.16% 0.14% 0.15% (0.02)% 0.88% Net charge-offs (recoveries) as a percentage of the allowance at January 1 18.17 18.87 14.16 (1.93) 55.28 Allowance as a percentage of total loans at December 31 0.85 0.88 0.90 1.13 1.05 Allowance as a percentage of non-performing loans at December 31 167.12 160.23 259.24 166.87 85.41
14 17 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries Allocation of the balance as of December 31 of the allowance for loan losses applicable to:
(Dollars in Thousands) 2000 1999 1998 1997 1996 - - ---------------------- ---- ---- ---- ---- ---- % of % of % of % of % of Total Total Total Total Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- Loans secured by real estate $2,212 76.83% $2,986 78.84% $1,764 77.38% $2,083 76.55% $1,763 77.23% Construction/land development 17 1.19 64 1.34 70 2.03 83 1.97 94 2.58 Commercial and industrial loans 1,164 14.00 581 12.70 628 14.10 697 15.35 685 14.01 Consumer loans 277 7.98 277 7.12 203 6.49 194 6.13 157 6.18 ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- $3,670 100.00% $3,908 100% $2,665 100% $3,057 100% $2,699 100% ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
The approach the Corporation uses in determining the adequacy of the allowance for loan losses is the combination of a target reserve and general reserve allocation. Quarterly, based on an internal review of the loan portfolio, the Corporation identifies required reserve allocations targeted to recognized problem loans that, in the opinion of management, have potential loss exposure or questions relative to the adequacy of the collateral on these same loans. In addition, the Corporation allocates a general reserve against the remainder of the loan portfolio. The increase in the allowance for loan losses from 1998 to 1999 is primarily the result of the acquisition of a loan loss allowance totaling $1,669,000 related to the loans acquired with the purchase of the New London Trust offices. NON-PERFORMING ASSETS LOANS Loans on which interest and principal payments are 90 days or more past due are placed on a non-accrual basis (earlier, if deemed appropriate) and interest is reversed unless management determines that the collectibility of principal and interest is not reasonably considered in doubt. The following table sets forth information with regard to non-performing loans as of the end of each year indicated:
(Dollars in Thousands) 2000 1999 1998 1997 1996 - - ---------------------- ---- ---- ---- ---- ---- Loans on a non-accrual basis $ 1,778 $ 2,001 $ 797 $ 1,648 $ 2,878 ========= ========= ========= ========= ========= Non-accrual loans as a percentage of total net loans outstanding 0.41% 0.46% 0.27% 0.61% 1.13% Non-accrual loans as a percentage of total assets 0.31% 0.35% 0.20% 0.46% 0.87% Loans contractually past due 90 days or more and still accruing $ 418 $ 438 $ 231 $ 184 $ 282
The gross amount of interest that would have been accrued at the original contract rate on loans on a non-accrual basis was $159,000, $77,000, $35,000, $79,000 and $240,000 for 2000, 1999, 1998, 1997 and 1996, respectively. 15 18 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries The Bank evaluates each impaired loan to determine the appropriate income recognition practice. Generally, income is recorded only on a cash basis for impaired loans. Interest income recognized during 2000 and 1999 on impaired loans was not significant. At December 31, 2000 and 1999, the recorded investment in impaired loans was $1,778,000 and $2,365,000 respectively, for which no additional specific allowance for loan losses was recorded. For the twelve months ended December 31, 2000, the average recorded investment in impaired loans was $1,184,000 compared to $874,000 for 1999. RESTRUCTURED LOANS A restructured loan is one for which the Corporation has modified the contractual terms to provide a reduction in the rate of interest and, in most instances, an extension of payments of principal or interest or both because of a deterioration in the financial position of the borrower. Restructured loans are considered to be impaired as described in Note 1 to the financial statements. OTHER REAL ESTATE OWNED The following table sets forth information regarding other real estate owned at December 31:
(Dollars in Thousands) 2000 1999 1998 1997 1996 - - ---------------------- ---- ---- ---- ---- ---- Other real estate owned - net $541 $442 $466 $353 $631 Other real estate owned as a percentage of total assets .09% .08% .12% .10% .19%
DEPOSITS The following table sets forth the average amounts of various classifications of deposits:
2000 1999 1998 (Dollars in Thousands) Amount Rate Amount Rate Amount Rate - - ---------------------- ------ ---- ------ ---- ------ ---- Savings $127,764 2.63% $ 63,611 2.74% $ 50,588 2.73% Money market 24,021 3.18 29,465 3.00 31,663 3.77 Certificates of deposit 50,391 5.75 34,934 5.02 22,977 4.87 Other time deposits 225,609 5.52 202,834 4.58 181,085 4.95 -------- ---- --------- ---- --------- ---- 427,785 4.56% 330,844 4.13% 286,313 4.42% Demand deposits 60,610 53,566 48,797 -------- ---- --------- ---- --------- ---- $488,395 $384,410 $335,110 ======== ==== ========= ==== ========= ====
Certificates of deposit of $100,000 and over at December 31, 2000 had the following maturities:
3 Months 3 to 6 6 to 12 1 Year to (Dollars in Thousands) or Less Months Months 5 Years Total - - ---------------------- ------- ------ ------ ------- ----- ======= ====== ====== ====== ======= Totals $33,226 $7,923 $6,962 $5,128 $53,239 ======= ====== ====== ====== =======
DEPOSIT MIX PIE CHART (Dollars in thousands) Demand deposits $ 63,609 Savings deposits 104,859 NOW accounts 29,643 Money market accounts 18,849 Other time deposits 282,179
16 19 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries RETURN ON EQUITY AND ASSETS The Corporation's return on average equity and assets for each of the years ended December 31 were as follows:
2000 1999 1998 ---- ---- ---- Return on average total assets .65% .92% .88% Return on average stockholders' equity 11.80% 13.36% 11.55% Average stockholders' equity to average total assets 5.52% 6.92% 7.63% Dividend payout ratio 44.80% 39.67% 44.54%
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) 2000 1999 1998 - - ---------------------- ---- ---- ---- Balance at year end $20,992 $46,546 $27,807 Average amount outstanding 40,717 28,751 16,442 Maximum amount outstanding at any month-end 50,742 46,769 28,307 Average interest rate for the year 5.16% 5.37% 3.83% Average interest rate on year-end balance 4.02% 4.97 3.85
STATEMENTS OF INCOME In the following sections of Management's Discussion and Analysis of the Statements of Income, the comparative results of 2000, 1999 and 1998 will be covered in greater detail. As of December 31, 2000, the principal earning assets of the holding company consist of a commercial bank, Park West Bank and Trust Company, and a Connecticut state-chartered savings and loan association, Cargill Bank. Noteworthy are the effects of sources of income from earning assets and expense of interest-bearing liabilities. Presented below is a comparative summary of percentages of increases and decreases for the three years ended December 31, 2000. The significant changes are discussed in the analysis that follow the summary.
Percentage of increase (decrease) 2000 1999 Over Over (Dollars in Thousands) 2000 1999 1998 1999 1998 - - ---------------------- ---- ---- ---- ---- ---- Net interest income $19,417 $17,121 $15,339 13.41% 11.62% Provision for loan losses 472 77 41 512.99 87.80 Non-interest income 2,652 2,330 2,427 13.82 (4.00) Non-interest expense 15,841 12,598 12,200 25.74 3.26 Income taxes 1,968 2,609 2,148 (24.57) 21.46 ------- ------- ------- ----- ----- Net Income $ 3,788 $ 4,167 $ 3,377 (9.09)% 23.39% ======= ======= ======= ===== =====
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 2000 amounted to $42,645,000 as compared to $32,437,000 for 1999 and $28,631,000 for 1998. For 2000 this represents an increase of $10,208,000 or 31% over 1999, while interest income increased by $3,806,000 or 13% in 1999 versus 1998. The increase in 2000 is the result of an increase in average earning assets of $117,577,000 or 27%, and an increase of 24 basis points in average earning interest rate. The increase in 1999 over 1998 is the result of an increase in average earning assets of $64,332,000 offset by a 27 basis point decrease in average earning interest rate. 17 20 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries INTEREST EXPENSE Interest expense for 2000 on deposits and borrowings amounted to $23,228,000 as compared to $15,316,000 in 1999 and $13,292,000 for 1998. Interest expense increased by $7,912,000 or 52% during 2000 compared to 1999 and 1999 interest expense increased by $2,024,000 or 15% versus 1998. The 2000 increase is the result of an increase in average interest-bearing liabilities of $121,657,000 and a 57 basis point increase in the average rate of interest paid compared to 1999. The increase in interest expense during 1999 versus 1998 is the result of an increase of average interest-bearing liabilities of $60,626,000 combined with a 17 basis point decrease in average interest rate paid. NET INTEREST INCOME Net interest income, the most significant component of earnings, is the amount by which the interest generated by assets exceeds the interest expense on liabilities. Westbank's management analyzes its performance by utilizing the concepts of interest rate spread and net yield on earning assets. The interest rate spread represents the difference between the yield on earning assets and interest paid on interest-bearing liabilities. The net yield on earning assets is the difference between the rate of interest on earning assets and the effective rate paid on all funds, interest-bearing liabilities, as well as interest-free sources (primarily demand deposits and stockholders' equity). The following table sets forth Westbank's net interest income:
(Dollars in Thousands) 2000 1999 1998 ================================================================================ Total interest income $42,645 $32,437 $28,631 Total interest expense 23,228 15,316 13,292 - - -------------------------------------------------------------------------------- Net interest income $19,417 $17,121 $15,339 ================================================================================
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. NET INTEREST INCOME BAR CHART (Dollars in thousands) 1996 $13,535 1997 14,633 1998 15,339 1999 17,121 2000 19,417
PROVISION FOR LOAN LOSSES The 2000 provision for loan losses totaled $472,000 compared with $77,000 in 1999. The increase in the provision for loan losses during 2000 is directly attributable to the charge off of one commercial loan totaling approximately $400,000. During 1999, the provision increased by $36,000 versus 1998. A full discussion appears previously under the headings of LOAN LOSS EXPERIENCE and NON-PERFORMING ASSETS. NON-INTEREST INCOME Income from sources other than interest was $2,652,000 in 2000, a increase of $322,000 from the prior year and an increase of $225,000 versus 1998. Non-interest income for 2000 reflects an increase in Trust Department earnings of $26,000, an increase in service charges on deposit accounts and other non-interest income of $156,000, an increase in loan servicing income of $118,000 and a net increase from the gain on sale of investments, other real estate and mortgages totaling $22,000 compared to 1999. 18 21 MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL RESULTS (CONTINUED) Westbank Corporation and Subsidiaries NON-INTEREST EXPENSE The components of other operating expenses are as follows:
(Dollars in Thousands) 2000 1999 1998 ================================================================================ Salaries and benefits $ 7,940 $ 6,541 $ 5,797 Occupancy 983 881 802 Other non-interest expense 6,120 5,053 5,497 Goodwill amortization 683 100 Other real estate owned expenses and provision 115 23 104 - - -------------------------------------------------------------------------------- $15,841 $12,598 $12,200 ================================================================================
OPERATING EXPENSE BAR CHART (as a percentage of assets) 1996 3.60% 1997 3.17 1998 3.19 1999 2.79 2000 2.61
(Excludes amortization of goodwill) Overall non-interest expense increased during 2000 by $3,243,000 versus 1999 and by $398,000 compared to 1998. During 2000, salaries and benefits increased by $1,399,000, attributable to overall corporate growth and the staff requirements for the addition of the branch offices acquired during 1999. Occupancy increased by $102,000 versus 1999. Other non-interest expense and depreciation and amortization expense increased in 2000 by $967,000, also the result of the branches acquired during 1999. Goodwill amortization during 2000 totaled $683,000, representing amortization of the premium paid on deposits acquired with the branch acquisition. INCOME TAXES For the year ended December 31, 2000, Westbank Corporation recorded a tax expense of $1,968,000 compared to 1999, when the Corporation recorded a tax expense of $2,609,000. NET INCOME The net income for 2000 of $3,788,000, or $.90 per share basic and $.89 per share diluted, is based on a weighted average of 4,229,105 basic and 4,273,384 diluted shares outstanding, compared with a net income for 1999 of $4,167,000, or $.98 per share basic and $.96 per share diluted based on a weighted average of 4,244,402 basic and 4,333,326 diluted. Net income in 1998 was $3,337,000, or $.82 per share basic and $.79 per share diluted and based on weighted average shares of 4,143,009 basic and 4,272,682 diluted. NEW ACCOUNTING STANDARDS In 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of Effective Date of FASB Statement No. 133, which establishes accounting and reporting standards for derivatives, derivative instruments embedded in other contracts and for hedging activities. In 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for certain derivatives, derivative instruments embedded in other contracts and for certain hedging activities. These statements are effective for the Corporation's fiscal 2001 financial statements. Management has determined that the adoption of these standards will have no significant impact on the Corporation's consolidated financial statements. 19 22 CONSOLIDATED BALANCE SHEETS Westbank Corporation and Subsidiaries
December 31, (Dollars in Thousands, except share amounts) 2000 1999 ==================================================================================== ASSETS Cash and due from banks: Non-interest bearing $ 18,043 $ 17,006 Interest bearing 227 1,147 - - ------------------------------------------------------------------------------------ 18,270 18,153 Federal funds sold 5,249 13,389 - - ------------------------------------------------------------------------------------ Total cash and cash equivalents 23,519 31,542 - - ------------------------------------------------------------------------------------ Securities (Note 2): Investment securities available for sale 86,267 69,516 Investment securities held to maturity (fair value of $11,392 in 2000 and $11,472 in 1999) 11,409 11,804 - - ------------------------------------------------------------------------------------ Total securities 97,676 81,320 - - ------------------------------------------------------------------------------------ Loans, net of allowance for loan losses of $3,670 in 2000 and $3,908 in 1999 (Note 3) 427,381 436,411 Mortgage loans held for sale 1,850 2,156 - - ------------------------------------------------------------------------------------ Total loans 429,231 438,567 - - ------------------------------------------------------------------------------------ Property and equipment (Note 4) 7,292 7,809 Other real estate owned, net of allowance for losses $31 in 1999 (Note 5) 541 442 Accrued interest receivable 3,977 3,243 Intangible assets, net of amortization of $683 in 2000 and $100 in 1999 9,521 9,971 Other assets 2,839 3,256 - - ------------------------------------------------------------------------------------ Total assets $ 574,596 $ 576,150 ==================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits (Note 6): Non-interest bearing $ 63,609 $ 59,643 Interest bearing 435,531 419,253 - - ------------------------------------------------------------------------------------ Total deposits 499,140 478,896 Borrowed funds (Note 7) 20,992 46,546 Interest payable on deposits 727 732 Other liabilities 1,877 1,433 - - ------------------------------------------------------------------------------------ Total liabilities 522,736 527,607 - - ------------------------------------------------------------------------------------ Mandatory redeemable preferred stock (Note 8) 17,000 17,000 - - ------------------------------------------------------------------------------------ Commitments and contingent liabilities (Notes 13 and 14) - - ------------------------------------------------------------------------------------ Stockholders' equity (Notes 11 and 16): Preferred stock, par value $5 per share, authorized 100,000 shares; none issued Common stock, par value $2 per share, authorized 9,000,000 shares; issued and outstanding 4,222,520 shares in 2000 and 4,283,719 shares in 1999 8,567 8,567 Additional paid-in capital 11,608 11,633 Retained earnings 15,408 13,317 Treasury stock (61,199 shares at cost) (526) Accumulated other comprehensive income (loss) (197) (1,974) - - ------------------------------------------------------------------------------------ Total stockholders' equity 34,860 31,543 - - ------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $ 574,596 $ 576,150 ====================================================================================
See notes to consolidated financial statements. 20 23 CONSOLIDATED STATEMENTS OF INCOME Westbank Corporation and Subsidiaries
Years ended December 31, (Dollars in Thousands, except share amounts) 2000 1999 1998 ========================================================================================== Interest and dividend income: Interest and fees on loans $ 35,596 $ 27,288 $ 23,645 Interest and dividend income from securities 6,774 4,855 4,614 Interest from interest-bearing cash and federal funds sold 275 294 372 - - ------------------------------------------------------------------------------------------ Total interest and dividend income 42,645 32,437 28,631 - - ------------------------------------------------------------------------------------------ Interest expense: Interest on deposits (Note 6) 21,125 13,773 12,662 Interest on borrowed funds (Note 7) 2,103 1,543 630 - - ------------------------------------------------------------------------------------------ Total interest expense 23,228 15,316 13,292 - - ------------------------------------------------------------------------------------------ Net interest income 19,417 17,121 15,339 Provision for loan losses (Note 3) 472 77 41 - - ------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 18,945 17,044 15,298 - - ------------------------------------------------------------------------------------------ Non-interest income: Trust department income 528 502 498 Service charges on deposits 1,070 938 766 Loan servicing 410 292 470 Gain on sale of securities available for sale 92 141 Gain on sale of other real estate owned (Note 5) 16 34 43 Gain on sale of mortgages 136 4 120 Other non-interest income 492 468 389 - - ------------------------------------------------------------------------------------------ Total non-interest income 2,652 2,330 2,427 - - ------------------------------------------------------------------------------------------ Non-interest expense: Compensation and benefits (Note 10) 7,940 6,541 5,797 Depreciation and amortization 992 968 851 Data processing 1,639 945 808 Occupancy expense 983 881 802 Other real estate owned expenses (Note 5) 115 23 104 Other non-interest expense (Note 15) 3,489 3,140 3,838 Goodwill amortization 683 100 - - ------------------------------------------------------------------------------------------ Total non-interest expense 15,841 12,598 12,200 - - ------------------------------------------------------------------------------------------ Income before income taxes 5,756 6,776 5,525 Income taxes (Note 9) 1,968 2,609 2,148 - - ------------------------------------------------------------------------------------------ Net income $ 3,788 $ 4,167 $ 3,377 ========================================================================================== Earnings per share (Note 12): - Basic $ .90 $ .98 $ .82 - Diluted $ .89 $ .96 $ .79 ========================================================================================== Weighted average shares outstanding (Note 12): - Basic 4,229,105 4,244,402 4,143,009 - Diluted 4,273,384 4,333,326 4,272,682 ==========================================================================================
See notes to consolidated financial statements. 21 24 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Westbank Corporation and Subsidiaries
Accumulated Common Stock Additional Other Par paid-in Retained Treasury Comprehensive (Dollars in Thousands, except share amounts) Shares Value capital earnings Stock Income/(Loss) Total ==================================================================================================================================== Balance, December 31, 1997 3,932,535 $7,865 $ 9,711 $ 9,282 $ 60 $26,918 Net income 3,377 3,377 Cash dividends declared ($.40 per share) (1,503) (1,503) Stock dividend (5% on Cargill Bancorp shares) 17,389 35 93 (129) (1) Shares issued: Stock option plan 199,799 399 742 1,141 Dividend reinvestment and stock purchase plan 49,115 98 530 628 Cargill interim loss for the quarter ended December 31, 1998 (Note 1) (224) (224) Changes in unrealized gain (loss) on securities available for sale 154 154 - - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1998 4,198,838 8,397 11,076 10,803 214 30,490 Net income 4,167 4,167 Cash dividends declared ($.40 per share) (1,653) (1,653) Shares issued: Stock option plan 30,255 61 78 139 Dividend reinvestment and stock purchase plan 54,626 109 479 588 Changes in unrealized gain (loss) on securities available for sale (2,188) (2,188) - - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1999 4,283,719 8,567 11,633 13,317 (1,974) 31,543 Net income 3,788 3,788 Cash dividends declared ($.40 per share) (1,697) (1,697) Shares reissued from Treasury stock: Stock option plan 1,000 (3) $ 6 3 Dividend reinvestment and stock purchase plan 65,121 (22) 595 573 Changes in unrealized gain (loss) on securities available for sale 1,777 1,777 Repurchase of common stock (127,320) (1,127) (1,127) - - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2000 4,222,520 $8,567 $ 11,608 $ 15,408 $ (526) $ (197) $34,860 ====================================================================================================================================
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31,
(Dollars in Thousands) 2000 1999 1998 ================================================================================================= Net Income $ 3,788 $ 4,167 $ 3,377 - - ------------------------------------------------------------------------------------------------- Unrealized gain (loss) on securities available for sale, net of income taxes (benefit) of $915 in 2000, ($1,376) in 1999 and $150 in 1998 1,777 (2,245) 246 Less: reclassification adjustment for gains included in net income, net of income taxes of $35 in 1999 and $49 in 1998 57 (92) - - ------------------------------------------------------------------------------------------------- Other Comprehensive Income (Loss) 1,777 (2,188) 154 - - ------------------------------------------------------------------------------------------------- Comprehensive Income $ 5,565 $ 1,979 $ 3,531 =================================================================================================
See notes to consolidated financial statements. 22 25 CONSOLIDATED STATEMENTS OF CASH FLOWS Westbank Corporation and Subsidiaries
Years ended December 31, (Dollars in Thousands) 2000 1999 1998 ======================================================================================================= Operating activities: Net income $ 3,788 $ 4,167 $ 3,377 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Cargill interim loss for period ended December 31, 1998 (224) Provision for loan losses 472 77 41 Provision for other real estate owned 62 31 22 Depreciation and amortization 992 968 851 Intangible amortization 623 100 Realized gain on sale of securities (92) (141) Realized gain on sale of other real estate owned (16) (34) (43) Realized gain on sale of mortgages (136) (4) (120) Deferred income taxes 282 (104) (107) Change in assets and liabilities net of effects from purchase of New London Trust: Loans held for sale 306 190 2,100 Accrued interest receivable (734) (786) (217) Other assets 417 (2,138) 814 Interest payable on deposits (5) 303 44 Other liabilities 385 (316) 36 - - ------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 6,436 2,362 6,433 ======================================================================================================= Investing activities: Securities: Held to maturity: Purchases (1,050) (21,473) Proceeds from maturities 395 19,862 30,459 Available for sale: Purchases (22,773) (35,627) (41,210) Proceeds from sales 1,779 4,679 8,607 Proceeds from maturities 7,000 11,723 5,164 Purchases of premises and equipment (475) (1,926) (1,801) Net (increase)/decrease in loans 7,311 (144,797) (32,987) Proceeds from sale of other real estate owned 258 382 618 Assumption of liabilities of New London Trust, net of cash acquired (173) (9,971) - - ------------------------------------------------------------------------------------------------------- Net cash used in investing activities (6,678) (156,725) (52,623) ======================================================================================================= Financing activities: Net increase in deposits 20,244 136,629 27,588 Net increase/(decrease) in short-term borrowings (25,777) 18,962 8,923 Increase in long-term borrowings 7,000 Proceeds from mandatory redeemable preferred stock 17,000 Proceeds from exercise of stock options and stock purchase plan 576 727 1,897 Treasury stock repurchases (1,127) Dividends paid (1,697) (1,653) (1,504) - - ------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (7,781) 171,665 43,904 - - ------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (8,023) 17,302 (2,286) Cash and cash equivalents at beginning of year 31,542 14,240 16,526 - - ------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 23,519 $ 31,542 $ 14,240 ======================================================================================================= Cash paid during the year: Interest on deposits and other borrowings $ 23,233 $ 15,013 $ 13,075 Income taxes 1,717 2,600 2,103 Supplemental disclosure of cash flow information: Securitization of loans into mortgage-backed securities 5,067 Transfers of loans to other real estate owned 290 701 Loans to facilitate the sale of other real estate owned 618
See notes to consolidated financial statements. 23 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Westbank Corporation and Subsidiaries 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Westbank Corporation (the "Corporation") and its subsidiaries are in conformity with generally accepted accounting principles and general practices within the banking industry. The following is a description of the more significant policies. NATURE OF BUSINESS As of December 31, 2000, the Corporation operates two banking subsidiaries (the "Banks"), Park West Bank and Trust Company ("Park West") with thirteen banking offices and a trust department located in Hampden County, Massachusetts, and Cargill Bank ("Cargill") with four offices in Windham County, Connecticut. A full range of retail banking services are furnished to individuals, businesses and non-profit organizations. The Corporation's primary source of revenue is derived from providing loans to customers, predominately located in western Massachusetts and northeastern Connecticut. MERGER WITH CARGILL BANCORP, INC. Effective January 29, 1999, Cargill Bancorp, Inc., and its subsidiary ("Cargill") were merged with and into Westbank Corporation ("Westbank"), pursuant to a plan of merger dated July 15, 1998. Each share of Cargill common stock was converted into 1.3655 shares of the Corporation's common stock. A total of 400,164 Westbank common shares were issued for the outstanding common stock of Cargill. The transaction was accounted for using the pooling-of-interests method and, accordingly, all historical financial data has been restated to include both entities for all periods presented. Directs costs of mergers accounted for by the pooling-of-interests method are expensed as incurred. Merger-related costs expensed in 1998 aggregated $595,000. These merger expenses included legal, accounting, regulatory and severance costs, as well as integration costs such as conversions, abandonments and relocations, etc. The restatement of the historical financial data is based on Westbank's fiscal year end December 31 and Cargill's fiscal year end September 30. The Cargill loss of $224,000 for the quarter ended December 31, 1998, has been included directly in stockholders' equity in order to conform Cargill's reporting periods to the Corporation's as of December 31, 1998. For the quarter ended December 31, 1998, Cargill had net interest income of $456,000 and a net loss of $224,000. Included in operating expenses were $346,000 of merger and related costs that were primarily the cause of their loss. The following table presents summary results of operations for the companies for the immediate periods prior to the merger:
(Dollar amounts in thousands) Westbank Cargill Combined -------- ------- -------- Month Ended January 29,1999: Net interest income $ 1,192 $ 138 $ 1,330 Net income 355 21 376 1998 Year: Net interest income $13,442 $ 1,897 $15,339 Net income 3,256 121 3,377
ACQUISITION OF BRANCHES On October 29, 1999, the Corporation completed its acquisition of the Connecticut division of New London Trust, F.S.B. The two New London Trust offices became part of Cargill Bank. The acquisition was allocated as follows: Cash and cash equivalents $ 8,722 Loans 83,895 Other real estate owned 498 Bank premises and equipment 1,877 Intangible assets 10,071 Other assets 995 - - -------------------------------------------------------------------------------- Total Assets $106,058 ================================================================================ Deposits $105,516 Other liabilities 542 - - -------------------------------------------------------------------------------- Total Liabilities $106,058 ================================================================================
The corporation has accounted for this acquisition on the purchase accounting method, including the results of their operations since October 29, 1999. The intangible assets are being amortized over fifteen years. 24 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries The pro forma results of operations for the years ended December 31, 1999 and 1998, as if this acquisition had occurred at the beginning of these years, were as follows:
1999 1998 ---- ---- Net interest income $ 19,986 $ 18,256 Net income 4,520 3,467 Basic earnings per share $ 1.07 $ .84 Diluted earnings per share $ 1.04 $ .81
BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries, Park West Bank and Trust Company, its subsidiaries, Lorac Leasing Corp., Park West Securities Corporation, Park West Real Estate Investment Trust, Inc., PWB&T Inc., and Cargill Bank. All material intercompany balances and transactions have been eliminated upon consolidation. Certain amounts in the 1999 and 1998 financial statements have been reclassified to conform to the 2000 presentation. The Corporation operates two community banks offering different products and services. Since the Corporation derives a significant portion of its revenue and expense from the Banks, no meaningful allocation of its resources is possible. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and affect the reported amounts of income and expenses for each year. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and intangible assets. In connection with the determination of the allowances for loan losses and other real estate owned, management obtains independent appraisals for significant properties. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowances for losses on loans and other real estate owned. Such agencies may require the Corporation to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. NEW ACCOUNTING STANDARDS In 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of Effective Date of FASB Statement No. 133, which establishes accounting and reporting standards for derivatives, derivative instruments embedded in other contracts and for hedging activities. In 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for certain derivatives, derivative instruments embedded in other contracts and for certain hedging activities. These statements are effective for the Corporation's fiscal 2001 financial statements. Management has determined that the adoption of these standards will have no significant impact on the Corporation's consolidated financial statements. CASH AND CASH EQUIVALENTS The Corporation defines cash and due from banks and federal funds sold to be cash and cash equivalents. The Bank is required to maintain reserve balances with the Federal Reserve Bank. These balances can be in the form of either vault cash or funds left on deposit with the Federal Reserve Bank. The average amount of these balances was $3,484,000 for 2000. SECURITIES Securities that management has the positive intent and ability to hold until maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Those securities which have been identified as assets for which there is not a positive intent to hold to maturity, including all marketable equity securities, are classified as available for sale with unrealized gains (losses), net of income taxes, reported as a separate component of stockholders' equity. The Corporation determines if securities will be classified as held to maturity or available for sale at the time of purchase. In addition, any mortgage-backed securities created out of the Corporation's own inventory of residential real estate loans are also considered available for sale. 25 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries Gains and losses on sales of securities are recognized in non-interest income at the time of sale on a specific identification basis. Securities which have experienced an other than temporary decline in value are written down to estimated fair value, establishing a new cost basis with the amount of the write-down expensed as a realized loss. The Corporation does not engage in trading activities. Mortgage-backed securities held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts determined by a method that approximates the level-yield method. Management has the positive ability and the intent to hold these assets until maturity. LOANS Loans have been reduced by deferred loan fees and the allowance for loan losses. Interest on commercial and real estate loans is accrued on the principal amount of loans outstanding. Interest on installment and other loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. Loan origination fees, net of certain direct loan origination costs, are deferred and recognized as income over the life of the related loan as an adjustment to the loan's yield. Non-accrual loans are loans on which the accrual of interest ceases when the collection of principal or interest payments is determined to be doubtful by management. It is the general policy of the Corporation to discontinue the accrual of interest when principal or interest payments are delinquent 90 days, unless the loan principal and interest are determined by management to be fully collectible. Any unpaid amounts previously accrued on these loans are reversed from income. Interest received on a loan in non-accrual status is applied to reduce principal or, if management determines that the principal is collectible, applied to interest on a cash basis. A loan is returned to accrual status after the borrower has brought the loan current and has demonstrated compliance with the loan terms for a sufficient period, and management's doubts concerning collectibility have been removed. The Corporation measures impairment of commercial loans by using the present value of expected future cash flows discounted at the loan's effective interest rate. Commercial real estate loans are generally measured based on the fair value of the underlying collateral. Smaller balance homogenous loans, including residential real estate and consumer loans, are collectively evaluated for impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral-dependent. The Corporation evaluates each impaired loan to determine the appropriate income recognition practice. Generally, income is recorded only on a cash basis for impaired loans. The adequacy of the allowance for loan losses is evaluated regularly by management. Factors considered in evaluating the adequacy of the allowance include the size of the portfolio, previous loss experience, current economic conditions and their effect on borrowers, the financial condition of individual borrowers and the related performance of individual loans in relation to contract terms. The provision for loan losses charged to operating expense is based upon management's judgment of the amount necessary to maintain the allowance at a level adequate to absorb losses. Loan losses are charged against the allowance for loan losses when management believes the collectibility of the principal is unlikely. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses are recognized through a valuation allowance charged to income. PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method. Amortization of leasehold improvements is charged over the terms of the respective leases, including option periods or the estimated useful lives of the improvements, whichever is shorter. Gains and losses are recognized upon disposal of assets. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals are capitalized. OTHER REAL ESTATE OWNED Other real estate owned ("OREO") includes properties the Corporation has acquired through foreclosure. OREO is recorded at the lower of cost or fair value at the date of acquisition, less estimated selling costs. At the time of foreclosure, the excess, if any, of the loan amount over the fair value of the asset acquired is charged off against the allowance for loan losses. Operating expenses to administer OREO properties are charged directly to operating expenses. Valuation allowances are established subsequent to acquisition, as necessary, based upon management's continuing assessment of the fair values of the properties. Loans granted in conjunction with sales of OREO are required to comply with the Corporation's standard underwriting criteria, including receipt of an adequate down payment. 26 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries LOAN SALES AND SERVICING RIGHTS The Corporation sells loans in the secondary market and retains the related servicing rights. Mortgage servicing rights are recognized as an asset when loans are sold with servicing retained, by allocating the cost of an originated mortgage loan between the loan and the servicing right based on estimated relative fair values. The cost allocated to the servicing right is capitalized as a separate asset and amortized in proportion to, and over the period of, estimated net servicing income. Capitalized mortgage servicing rights are evaluated for impairment by comparing the asset's unamortized cost to its current estimated fair value. Fair values are estimated using a discounted cash flow approach, which considers future servicing income and costs, current market interest rates, and anticipated prepayment and default rates. In making impairment evaluations, mortgage servicing rights are stratified based on one or more of the predominant risk characteristics of the underlying loans. The Corporation has stratified its servicing portfolio for this purpose between fixed and adjustable rate loans. Impairment losses, if any, are recognized through a valuation allowance for each impaired stratum. Adjustments to the valuation allowance are charged or credited to income. INCOME TAXES The asset and liability method of accounting for income taxes is utilized. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. To the extent that current available evidence about the future raises doubt about the realization of a deferred tax asset, a valuation allowance will be established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. PENSION PLAN The Corporation has a trusteed defined contribution pension plan covering substantially all employees. The Corporation's policy is to fund accrued pension cost. STOCK OPTIONS The Corporation measures compensation cost of stock options on the intrinsic value of the common stock options granted. Intrinsic value is the excess of the market value of the common stock over the exercise price at the date of grant. Because stock options are granted with fixed terms and with an exercise price equal to the market price of the common stock at the date of grant, there is no measured compensation cost of stock options. TRUST DEPARTMENT Assets held by the Corporation for customers in a fiduciary or agency capacity are not included in the consolidated financial statements, as such items are not assets of the Corporation. Such assets totaled approximately $117,713,000 and $113,008,000 at December 31, 2000 and 1999, respectively. Trust income is recognized on a cash basis. The amounts recognized under this method are not materially different from amounts that would be recognized on the accrual basis. EARNINGS PER SHARE Basic earnings per share is the result of dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share gives effect to all potentially dilutive common shares that were outstanding during the year. 27 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries 2 - SECURITIES Investment securities held to maturity at December 31 are as follows:
2000 Gross Gross Net Amortized unrealized unrealized Fair unrealized (Dollars in Thousands) cost gains losses value gain/(loss) =================================================================================================== U.S. Government obligations $ 499 $ 3 $ 502 $ 3 Federal agency obligations 9,448 2 $ 45 9,405 (43) Mortgage-backed securities 1,462 28 5 1,485 23 - - --------------------------------------------------------------------------------------------------- $ 11,409 $ 33 $ 50 $ 11,392 $ (17) ===================================================================================================
1999 Gross Gross Net Amortized unrealized unrealized Fair unrealized (Dollars in Thousands) cost gains losses value gain/(loss) =================================================================================================== U.S. Government obligations $ 499 $ 1 $ 500 $ 1 Federal agency obligations 9,459 $ 313 9,146 (313) Mortgage-backed securities 1,846 8 28 1,826 (20) - - --------------------------------------------------------------------------------------------------- $ 11,804 $ 9 $ 341 $ 11,472 ($ 332) ===================================================================================================
During 2000, 1999 and 1998 there were no sales of investment securities classified as held to maturity. Investment securities available for sale at December 31 are as follows:
2000 Gross Gross Net Amortized unrealized unrealized Fair unrealized (Dollars in Thousands) cost gains losses value gain/(loss) =================================================================================================== U.S. Government obligations $ 38 $ 38 Federal agency obligations 61,805 $ 162 $ 502 61,465 $ (340) Equity securities 5,150 61 5,211 61 Mortgage-backed securities 18,955 90 116 18,929 (26) Municipal bonds 614 10 624 10 - - --------------------------------------------------------------------------------------------------- $ 86,562 $ 323 $ 618 $ 86,267 $ (295) ===================================================================================================
1999 Gross Gross Net Amortized unrealized unrealized Fair unrealized (Dollars in Thousands) cost gains losses value gain/(loss) =================================================================================================== U.S. Government obligations $ 11 $ 11 Federal agency obligations 52,765 $ 2,386 50,379 ($ 2,386) Equity securities 1,996 $ 28 2,024 28 Mortgage-backed securities 17,182 3 681 16,504 (678) Municipal bonds 615 17 598 (17) - - --------------------------------------------------------------------------------------------------- $ 72,569 $ 31 $ 3,084 $ 69,516 ($ 3,053) ===================================================================================================
During 2000, 1999 and 1998, the Corporation recognized gross gains on securities available for sale totaling $0, $92,000 and $141,000, respectively. The contractual maturities of held-to-maturity and available-for-sale securities, other than equity securities, as of December 31, 2000, are summarized in the following tables. Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations. For the purposes of the following December 31, 2000 maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the contractual maturities of underlying collateral. The mortgage-backed securities may mature earlier than their contractual maturities because of principal repayments. 28 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries
Amortized Fair (Dollars in Thousands) cost value ================================================================================= Held to Maturity: Within 1 year $ 1,722 $ 1,743 Over 1 year to 5 years 1,631 1,630 Over 5 years to 10 years 7,367 7,330 Over 10 years 689 689 - - --------------------------------------------------------------------------------- Total debt obligations $11,409 $11,392 =================================================================================
Amortized Fair (Dollars in Thousands) cost value ================================================================================= Available for Sale: Within 1 year $ 203 $ 203 Over 1 year to 5 years 11,958 11,919 Over 5 years to 10 years 47,500 47,337 Over 10 years 21,751 21,597 - - --------------------------------------------------------------------------------- Total debt obligations $81,412 $81,056 =================================================================================
At December 31, 2000 securities with a book value and fair value of $27,499,000 and $27,344,000, respectively, were pledged to secure public deposits, repurchase agreements and for other purposes as required by law. 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES Loans consisted of the following at December 31:
(Dollars in Thousands) 2000 1999 ================================================================================= Commercial $ 60,652 $ 56,276 Real estate construction 5,160 5,952 Real estate 332,892 349,217 Consumer 34,578 31,556 - - --------------------------------------------------------------------------------- 433,282 443,001 Allowance for loan losses (3,670) (3,908) Deferred loan origination fees (381) (526) - - --------------------------------------------------------------------------------- $ 429,231 $ 438,567 =================================================================================
Changes in the allowance for loan losses are summarized as follows:
(Dollars in Thousands) 2000 1999 1998 ================================================================================= Balance, beginning of year $ 3,908 $ 2,665 $ 3,057 Acquisition 1,669 Provision for loan losses 472 77 41 Loans charged off (789) (623) (518) Recoveries 79 120 85 - - --------------------------------------------------------------------------------- Balance, end of year $ 3,670 $ 3,908 $ 2,665 =================================================================================
The aggregate principal balance of non-accrual loans was $1,778,000 and $2,001,000 at December 31, 2000 and 1999, respectively. Contractual interest income that was not recognized on such non-accrual loans was $159,000, $77,000 and $35,000 for 2000, 1999 and 1998, respectively. 29 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries The Corporation did not sell any loans with recourse during 2000 or 1999. The remaining recourse exposure on prior sales was $919,297 at December 31, 2000. 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 $332,892,000 in real estate loans at December 31, 2000, $248,059,000 are collateralized by 1-4 family dwellings. The majority of the collateral for these loans is located in the Corporation's market area of Western Massachusetts and Northeast Connecticut. Commercial real estate and real estate construction loans represented $89,993,000 in outstanding principal at December 31, 2000. These loans encompass a wider region extending throughout Massachusetts and Southern New England. Most are collateralized by commercial real estate. Commercial loans both collateralized and uncollateralized of $60,652,000 at December 31, 2000, represent loans made to businesses primarily in western Massachusetts and northeastern Connecticut. The Corporation has had, and expects to have in the future, banking transactions in the ordinary course of business with its directors and officers. Such loans, in the opinion of management, do not include more than the normal risk of collectibility nor other unfavorable features. The following summarizes the activity with respect to indebtedness, both direct and indirect, for directors, policy-making officers and major stockholders during the years ended December 31:
(Dollars in Thousands) 2000 1999 ================================================================================= Balance at beginning of year $ 3,266 $ 3,041 New loans granted 1,915 766 Repayments of principal/sold (1,383) (541) - - --------------------------------------------------------------------------------- Balance at end of year $ 3,798 $ 3,266 =================================================================================
At December 31, 2000 and 1999, the recorded investment in impaired loans was $1,778,000 and $2,365,000, respectively, for which no additional specific allowance for loan losses was recorded. For the years ended December 31, 2000, 1999 and 1998, the average recorded investment in impaired loans was $1,184,000, $874,000 and $1,366,000, respectively. Interest income recognized during 2000, 1999 and 1998 on impaired loans was not significant. The Corporation had no commitments to lend additional funds to borrowers having loans that are on non-accrual status, impaired or restructured. The Corporation services loans for others which are not included in the consolidated balance sheets. The unpaid balances of these loans totaled $84,966,000, $97,622,000 and $115,391,000 at December 31, 2000, 1999 and 1998, respectively. 4 - PROPERTY AND EQUIPMENT Major classes of property and equipment at December 31 are summarized as follows:
Estimated (Dollars in Thousands) 2000 1999 Lives ================================================================================ Property (including land of $1,664 in 2000 and $1,514 in 1999) $ 7,191 $ 7,091 15-40 years Capital lease building 263 263 15 years Furniture and equipment 4,517 4,857 3-10 years Leasehold and building improvements 2,624 2,461 5-15 years Motor vehicles 114 114 3 years - - -------------------------------------------------------------------------------- 14,709 14,786 Accumulated depreciation 7,417 6,977 - - -------------------------------------------------------------------------------- Property and Equipment $ 7,292 $ 7,809 ================================================================================
30 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries 5 - OTHER REAL ESTATE OWNED At December 31, other real estate owned consisted of properties acquired through foreclosure as follows:
(Dollars in Thousands) 2000 1999 ================================================================================ Real estate acquired through foreclosure - net of OREO allowance $541 $442 ================================================================================
Changes in the allowance for other real estate owned losses are summarized as follows:
(Dollars in Thousands) 2000 1999 1998 =============================================================================================== Balance, beginning of year $ 31 $ 200 Acquisition $ 31 Provision for other real estate owned charged to operations 62 22 Write-downs (net of payments) (93) (222) - - ----------------------------------------------------------------------------------------------- Balance, end of year $ $ 31 $ ===============================================================================================
6 - DEPOSITS Deposit accounts by type as of December 31 are summarized as follows:
(Dollars in Thousands) 2000 Rate 1999 Rate ================================================================================ Demand deposit $ 63,609 $ 59,643 Savings 104,859 3.34% 86,566 2.97% NOW accounts 29,644 .64 31,082 .49 Money market accounts 18,849 3.16 32,694 3.29 Other time deposits 282,179 6.09 268,911 5.04 - - -------------------------------------------------------------------------------- $499,140 $478,896 ================================================================================
At December 31, 2000, the scheduled maturities of other time deposits and IRA deposits with a fixed maturity are as follows:
(Dollars in Thousands) ================================================================================ 2001 $225,328 2002 43,616 2003 8,465 2004 820 2005 and after 3,950 - - -------------------------------------------------------------------------------- $282,179 ================================================================================
Certificates of deposit with balances greater than or equal to $100,000 amounted to $53,239,000 and $52,249,000 as of December 31, 2000 and 1999, respectively. Interest paid on these deposits totaled approximately $2,898,000 and $1,754,000, respectively. 7 - BORROWED FUNDS Short-term borrowings as of December 31 are as follows:
(Dollars in Thousands) 2000 1999 ================================================================================ Securities sold under agreements to repurchase $11,937 $ 9,212 Purchased federal funds 400 FHLB advance 26,740 Treasury tax and loan notes 1,655 3,594 - - -------------------------------------------------------------------------------- Total short term borrowings $13,992 $39,546 ================================================================================
The above short-term borrowings generally mature daily. 31 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries The following information relates to long-term debt as of December:
(Dollars in Thousands) 2000 1999 ================================================================================ FHLB Term advance 5.87% due May 12, 2003 $7,000 $7,000 ================================================================================
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) 2000 1999 1998 ================================================================================ Balance at year end $20,992 $46,546 $27,807 Average amount outstanding 40,717 28,751 16,442 Maximum amount outstanding at any month-end 50,742 46,769 28,307 Average interest rate for the year 5.16% 5.37% 3.83% Average interest rate on year-end balance 4.02% 4.97% 3.85%
The Corporation maintains a revolving line of credit with the Fleet Bank of Massachusetts for $3,000,000 that is renewed on an annual basis. There were no amounts outstanding against this line as of December 31, 2000 or 1999. The Corporation had short term borrowing capacity through the Federal Home Loan Bank of $7,244,000 through its Ideal Way program that was unused at year-end 2000. Advances from the Federal Home Loan Bank of Boston (FHLB) are collateralized by the Company's holdings of FHLB stock and residential real estate loans. 8 - MANDATORY REDEEMABLE PREFERRED STOCK On September 30, 1999, the Corporation completed its offering of 1,700,000 shares, 9.6% trust preferred stock, each with a liquidation amount of $10. The $17 million trust preferred debentures are due September 30, 2029. Quarterly cash distributions were paid beginning December 31, 1999. Of the $17 million in proceeds, the Corporation contributed $15.5 million of the net proceeds to Cargill Bank as equity capital to support the acquisition of two Connecticut branches of New London Trust, F.S.B. (see Note 1). 9 - INCOME TAXES The income taxes (benefits) were as follows:
(Dollars in Thousands) 2000 1999 1998 ================================================================================ Current tax: Federal $ 1,569 $ 2,327 $ 1,943 State 117 386 312 - - -------------------------------------------------------------------------------- Total current 1,686 2,713 2,255 - - -------------------------------------------------------------------------------- Deferred taxes 282 (104) (107) - - -------------------------------------------------------------------------------- Total income taxes $ 1,968 $ 2,609 $ 2,148 ================================================================================
The differences between the effective tax rate and the federal statutory tax rate on income before taxes are reconciled as follows:
2000 1999 1998 ================================================================================ Federal statutory rate 34.0% 34.0% 34.0% State income taxes, net of federal benefit .2 4.0 4.4 Other .1 .5 .5 - - -------------------------------------------------------------------------------- 34.3% 38.5% 38.9% ================================================================================
32 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31 are presented below:
(Dollars in Thousands) 2000 1999 ================================================================================ Deferred tax assets: Other real estate owned $ 6 Deferred loan fees 186 Unrealized loss on securities 98 1,080 Reserve for loan losses 1,094 Non-accrual interest 69 20 Amortization 71 92 Other 53 113 - - -------------------------------------------------------------------------------- Total deferred tax assets 1,385 1,497 - - -------------------------------------------------------------------------------- Deferred tax liabilities: Bond accretion 4 Depreciation 243 237 Allowance for loan losses 1,342 122 Deferred FNMA premium 1 1 Other 21 93 - - -------------------------------------------------------------------------------- Total gross deferred tax liabilities 1,607 457 - - -------------------------------------------------------------------------------- Net deferred tax asset (liability) $ (222) $ 1,040 ================================================================================
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax assets and liabilities and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Corporation will realize the benefits of these deductible differences, net of the recorded valuation allowance. 10 - PENSION PLAN The Corporation has a defined contribution pension plan (money purchase), covering substantially all of its employees at Park West and Cargill Bank. Contributions to the money purchase plan are a percentage of individual employees' salary. Total pension expense for 2000, 1999 and 1998 amounted to $425,000, $242,000 and $212,000, respectively. At December 31, 2000, the most recent plan year end of the money purchase plan, total plan assets were $4,233,000. The money purchase plan assets are invested in money market funds, government bonds, corporate and government agency bonds and marketable securities. 11 - STOCK OPTIONS The Corporation has four fixed-option plans that reserve shares of common stock for issuance to executives, key employees and directors. During 2000, 1999 and 1998, no compensation cost was required to be recognized for the stock option plans. Had compensation costs for the Corporation's four stock option plans been determined based on the fair value at the grant date for awards in 2000, 1999 and 1998 consistent with the provisions of SFAS No. 123, the Corporation's net earnings and earnings per share would have been as follows: 33 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries
(Dollars in Thousands, except per share data) 2000 1999 1998 ================================================================================ Net earnings - as reported $3,788 $4,167 $3,377 Net earnings - pro forma 3,762 4,096 2,709 Earnings per share - as reported - Basic .90 .98 .82 - Diluted .89 .96 .79 Earnings per share - pro forma - Basic .89 .97 .65 - Diluted .88 .95 .63
The Corporation offers shares of common stock to officers and key employees pursuant to the 1985 Incentive Stock Option Plan. As of December 31, 2000, all options granted are exercisable. The following is a summary of the changes in options outstanding:
2000 1999 1998 ================================================================================ Options granted and exercisable at the beginning of the year 39,828 44,284 191,466 Options exercised: at $2.50 (350) at $6.00 (1,000) (3,301) (146,832) Options terminated at $6.00 (1,155) - - -------------------------------------------------------------------------------- Options granted and exercisable at the end of the year 38,828 39,828 44,284 ================================================================================
Unless exercised the options will expire ten years after granting. No options are available for future grants. The Corporation adopted a Cargill Directors and Officers Stock Option Plan during 1992. The following is a summary of the changes in options outstanding under the Cargill Directors and Officers Stock Option Plan:
2000 1999 1998 ================================================================================ Options granted and exercisable at the beginning of the year 43,908 65,862 97,479 Options exercised at $4.02 (21,954) (31,617) - - -------------------------------------------------------------------------------- Options granted and exercisable at the end of the year 43,908 43,908 65,862 ================================================================================
Unless exercised the options will expire twenty years after granting. No options are available for future grants. The Corporation adopted a Directors Stock Option Plan during 1995. The following is a summary of the changes in options outstanding under the Directors Stock Option Plan:
2000 1999 1998 ================================================================================= Options granted and exercisable at the beginning of the year 51,000 46,000 53,000 Options granted and exercisable: at $12.875 9,000 at $14.75 3,000 at $12.00 10,000 at $8.75 8,000 at $8.8125 3,000 Options exercised at $6.00 (4,000) (15,000) at $7.125 (1,000) (2,000) at $9.375 (2,000) - - --------------------------------------------------------------------------------- Options granted and exercisable at the end of the year 62,000 51,000 46,000 ================================================================================= Options available for future grants 37,000 48,000 58,000 =================================================================================
Unless exercised, the options will expire ten years after granting. 34 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries The Corporation adopted an incentive stock option plan during 1996 for directors and employees. At the 1998 Annual Meeting of Shareholders, the 1996 Incentive Stock Option Plan was amended to increase the number of shares reserved for issuance by 200,000 shares. The following is a summary of the changes in the 1996 Incentive Stock Option Plan:
2000 1999 1998 ================================================================================================== Options available 27,000 119,500 36,500 Options authorized 200,000 ================================================================================================== Options granted and exercisable at the beginning of the year 349,000 256,500 141,500 - - -------------------------------------------------------------------------------------------------- Options granted and exercisable to directors at $9.00 8,000 Options granted and exercisable to directors at $15.25 10,000 Options granted and exercisable to employees at $13.375 107,000 Options granted and exercisable to directors at $10.50 9,000 Options granted and exercisable to employees at $10.125 83,500 Options exercised at $8.00 (2,000) - - -------------------------------------------------------------------------------------------------- Options granted and exercisable at the end of the year 357,000 349,000 256,500 - - -------------------------------------------------------------------------------------------------- Options available for future grants 19,000 27,000 119,500 ==================================================================================================
Unless exercised, options granted to directors expire twenty years and one day from date of granting. Options to employees expire as determined by the Board of Directors upon the issuance of each grant. 12 - EARNINGS PER SHARE The following is a reconciliation of the shares and earnings per share utilized for the basic and diluted earnings per share computations.
Shares Per Share ================================================================================ Basic Earnings Per Share: 2000 4,229,105 $ .90 1999 4,244,402 .98 1998 4,143,009 .82 Effect of Dilutive Option Shares: 2000 44,279 .01 1999 88,924 .02 1998 129,673 .03 Diluted Earnings Per Share: 2000 4,273,384 .89 1999 4,333,326 .96 1998 4,272,682 .79
13 - LEASES The Corporation leases certain facilities under long-term operating lease agreements. The following is a schedule of future minimum lease payments for such operating leases as of December 31, 2000:
(Dollars in Thousands) ================================================================================ 2001 $ 355 2002 360 2003 289 2004 265 2005 263 After 2005 117 - - -------------------------------------------------------------------------------- Total minimum lease payments $1,649 ================================================================================
Rent expense for 2000, 1999 and 1998 amounted to $358,000, $291,000 and $274,000, respectively. 35 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries 14 - COMMITMENTS, CONTINGENT LIABILITIES AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK In the normal course of business, various commitments and contingent liabilities are outstanding, such as guarantees, standby letters of credit, commitments to extend credit and various financial instruments with off-balance-sheet risk that are not reflected in the financial statements. Financial instruments with off-balance-sheet risk involve elements of credit risk, interest rate risk, liquidity risk and market risk. Management does not anticipate any significant losses as a result of these transactions. The following table summarizes the contractual value of financial instruments and other commitments at December 31:
(Dollars in Thousands) 2000 1999 ================================================================================ Commitments to grant loans $ 8,460 $ 4,604 Stand-by letters of credit and financial guarantees 631 835 Commitments to advance funds under existing loan agreements 38,569 38,827
The Corporation uses the same credit policies in making commitment and conditional obligations as it does for on-balance-sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may be expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. In the normal course of business, certain litigation is pending against the Corporation. Management, after consultation with legal counsel, does not anticipate that any ultimate liability arising out of such litigation will have a material effect on the Corporation's financial condition or results of operations. 15 - OTHER NON-INTEREST EXPENSE The components of other non-interest expense, which are in excess of 1% of the aggregate of total interest income and non-interest income, and not shown separately on the consolidated statements of income, are as follows:
Years Ended December 31, (Dollars in Thousands) 2000 1999 1998 ================================================================================ Merger related expenses $595 Advertising $612 $432 385 Supplies 464 324
16 - STOCKHOLDERS' EQUITY AND REGULATORY MATTERS The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") addresses the legal and regulatory environment for insured depository institutions, including reductions in insurance coverage for certain kinds of deposits, increased supervision by the federal regulatory agencies, increased reporting requirements for insured institutions, and new regulations concerning internal controls, accounting, and operations. Both the Corporation and the Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation's or banking subsidiaries' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, a bank must meet specific capital guidelines that involve quantitative measures of a bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. A bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require a bank to maintain minimum amounts and ratios (as defined in the regulations) of total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. Management believes, as of December 31, 2000, that the Corporation meets all capital adequacy requirements to which it is subject. 36 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries Regulatory risk-based capital requirements take into account the different risk categories of banking organizations by assigning risk weights to assets and the credit equivalent amounts of off-balance sheet exposures. In addition, capital is divided into two tiers. In this Corporation, Tier 1 includes the common stockholders' equity and a portion of the mandatory redeemable preferred stock; total risk-based, or supplementary capital includes not only the equity but also a portion of the allowance for loan losses and a portion of the mandatory redeemable preferred stock. As of December 31, 2000, the most recent notification from the Federal Deposit Insurance Corporation categorized both Park West and Cargill as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, a bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios. There are no conditions or events since that notification that management believes have changed the institution's category. Included in Cargill's capital is approximately $15.5 million contributed in 1999 by the holding company in connection with the trust preferred offering. (Note 8) The Corporation's, Park West's and Cargill's actual capital amounts and ratios are also presented in the following table:
Minimum Capital to be considered well capitalized under Prompt Minimum Capital Corrective Action Actual Adequacy Purposes Provisions (Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio =========================================================================================================================== December 31, 2000 Total Capital (To risk-weighted assets): Park West $33,601 12.13% $22,163 8.00% $27,704 10.00% Cargill 10,826 12.90 6,711 8.00 8,389 10.00 Holding Company 46,200 12.84 28,788 8.00 N/A N/A Tier I Capital (To risk-weighted assets): Park West 31,093 11.22 11,082 4.00 16,623 6.00 Cargill 9,776 11.65 3,356 4.00 5,033 6.00 Holding Company 37,194 10.34% 14,394 4.00 N/A N/A Tier I Capital (To average assets): Park West 31,093 7.38 16,856 4.00 21,070 5.00 Cargill 9,776 6.44 6,073 4.00 7,592 5.00 Holding Company 37,194 6.45 23,077 4.00 N/A N/A December 31, 1999 Total Capital (To risk-weighted assets): Park West 31,389 11.66 21,533 8.00 26,917 10.00 Cargill 10,088 12.55 6,429 8.00 8,036 10.00 Holding Company 44,454 12.50 28,452 8.00 N/A N/A Tier I Capital (To risk-weighted assets): Park West 29,031 10.79 10,767 4.00 16,150 6.00 Cargill 9,077 11.30 3,215 4.00 4,822 6.00 Holding Company 36,175 10.17 14,226 4.00 N/A N/A Tier I Capital (To average assets): Park West 29,031 7.01 16,557 4.00 20,697 5.00 Cargill 9,077 5.81 6,237 4.00 7,796 5.00 Holding Company 36,175 6.92 20,904 4.00 N/A N/A
37 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries On November 19, 1997, the Board of Directors of the Corporation adopted an Amended and Restated Shareholder Rights Plan (the "Rights Plan"). Pursuant to the terms of the Rights Plan, the Board of Directors declared a dividend distribution to stockholders of record as of the close of business on December 4, 1997 (the "Record Date") of one Preferred Stock Purchase Right (a "Right") for each outstanding share of Common Stock of the Corporation. In addition, one Right automatically attaches to each share of Common Stock issued subsequent to the Record Date, until November 19, 2007. Each Right entitles the registered holder to purchase from the Corporation a unit of one ten-thousandths of a share (a "Unit") of Series A Junior Participating Cumulative Preferred Stock, par value $5.00 per share ("Preferred Stock"), at a cash exercise price of $60.00 per share of Common Stock, subject to adjustment. The Corporation has reserved 12,000 shares of Preferred Stock for issuance upon exercise of the Rights. Currently, the Rights are not exercisable and are attached to and trade with the outstanding shares of Common Stock. The Rights will separate from the Common Stock and become exercisable upon the earliest to occur of (i) the close of business on the tenth calendar day following the first public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding shares of the Corporation's Common Stock (an "Acquiring Person"), (ii) the close of business on the tenth business day (or such date as the Board of Directors may determine) following the commencement of a tender offer or exchange offer that would result upon its consummation in a person or a group becoming the beneficial owner of 15% of the outstanding shares of the Corporation's Common Stock, or (iii) the determination by the Board of Directors that any person is an "Adverse Person." Upon the occurrence of any one of the above events, each holder of a Right (other than the Acquiring Person or the Adverse Person, as the case may be) is entitled to acquire such number of Units of the Preferred Stock of the Corporation as are equivalent to such number of shares of Common Stock having a value twice the current exercise price of the Right. If the Corporation is acquired in a merger or other business combination transaction, after any such event each holder of a Right is then entitled to purchase, at the then current exercise price, shares of the acquiring company's common stock having a value of twice the exercise price of the Right. Until a Right is exercised, the holder has no rights as a stockholder of the Corporation (beyond those rights as an existing stockholder), including the right to vote or to receive dividends. While the distribution of the Rights is not taxable to stockholders or to the Corporation, stockholders may, depending upon the circumstances, recognize taxable income in the event the Rights become exercisable for Units, other securities of the Corporation, other consideration or for shares of common stock of an acquiring company. The Rights may be redeemed in whole by the Corporation, under certain circumstances, at a price of $.001 per Right. The Rights and the Rights Plan expire on November 19, 2007. Cargill's retained earnings at December 31, 2000 include $458,000 that is set aside in accordance with existing provisions of the Internal Revenue Code to absorb losses on loans. If, in the future, this amount were used for any other purposes, a tax liability could be incurred. It is not anticipated that such amount will be made available for dividends or that a tax thereon will be imposed. Cargill previously converted from a state chartered mutual savings and loan association to a state chartered stock savings and loan association. At the time of conversion, Cargill established a liquidation account in an amount equal to Cargill's net worth. In the event of a complete liquidation of Cargill (and only in such event), each eligible account holder will be entitled to receive a liquidation distribution from the liquidation account before any liquidation distribution may be made with respect to capital stock. The balance in the liquidation account at December 31, 2000 was $85,000. Cargill may not declare or pay a cash dividend on or purchase any of its stock if the effect would be to reduce the net worth of Cargill below either the amount of the liquidation account or the capital requirements of its regulators. 17 - EMPLOYEE STOCK OWNERSHIP PLAN The Corporation established an Employees' Stock Ownership Plan ("ESOP"). The ESOP has been funded by a $100 contribution from the Corporation. At December 31, 2000 and 1999, the ESOP held no shares of the Corporation's stock. 38 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value estimates, methods, and assumptions are set forth below for the Corporation's financial instruments. The following table represents the carrying amount and estimated fair value of the Corporation's financial instruments at December 31:
2000 1999 =============================================================================================== Carrying Estimated Carrying Estimated (Dollars in Thousands) Amount Fair Value Amount Fair Value - - ----------------------------------------------------------------------------------------------- Assets: Cash and due from banks $ 18,270 $ 18,270 $ 18,153 $ 18,153 Federal funds sold 5,249 5,249 13,389 13,389 Investment securities held to maturity 11,409 11,392 11,804 11,472 Investment securities available for sale 86,267 86,267 69,516 69,516 Loans 429,231 432,745 438,567 438,158 Liabilities: Deposits 499,140 499,382 478,896 476,671 Borrowed funds 20,992 21,264 46,546 46,546 Mandatory redeemable preferred stock 17,000 18,630 17,000 17,213
CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD The carrying amount for cash and due from banks and for federal funds sold approximates fair value and matures in 90 days or less. INVESTMENT SECURITIES The fair value of securities, except certain state and municipal securities, is estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. LOANS Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, such as commercial, commercial real estate, residential mortgage and other consumer. Each loan category is further segmented into fixed and adjustable rate interest terms, and by performing and non-performing categories. The fair value of performing loans, except residential mortgages, is calculated by discounting scheduled cash flows through the estimated maturity, using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Corporation's historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions. For performing residential mortgage loans, including loans held for sale, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates, using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. Fair value for significant non-performing loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined, using available market information and specific borrower information. DEPOSITS The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, regular savings, NOW accounts and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. BORROWED FUNDS AND MANDATORY REDEEMABLE PREFERRED STOCK The fair value of such borrowings and mandatory redeemable preferred stock was estimated by utilizing future cash flows discounted using current borrowing rates for similar instruments. For short-term borrowings, the carrying amount approximates the fair value due to their short-term nature. 39 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries COMMITMENTS TO EXTEND CREDIT The stated value of commitments to extend credit approximates fair value, as the current fees charged for similar commitments does not differ significantly from quoted fees. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. Such differences are not considered significant. 19 - SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION (Dollars in thousands, except per share amounts)
2000 ------------------------------------------------------------------ First Quarter Second Quarter Third Quarter Fourth Quarter ------------- -------------- ------------- -------------- Interest income $10,283 $10,566 $10,839 $10,957 Interest expense 5,295 5,665 6,192 6,076 ------------------------------------------------------------------ Net interest income 4,988 4,901 4,647 4,881 Provision for losses 65 75 13 319 Non-interest income 578 606 555 913 Non-interest expense 4,076 3,761 3,982 4,022 ------------------------------------------------------------------ Income before income taxes 1,425 1,671 1,207 1,453 Income taxes 524 592 370 482 ------------------------------------------------------------------ Net income $ 901 $ 1,079 $ 837 $ 971 ================================================================== Earnings per share - Basic $ .21 $ .26 $ .20 $ .23 - Diluted $ .21 $ .25 $ .20 $ .23 ==================================================================
1999 ------------------------------------------------------------------ First Quarter Second Quarter Third Quarter Fourth Quarter ------------- -------------- ------------- -------------- Interest income $ 7,343 $ 7,653 $ 7,954 $ 9,487 Interest expense 3,325 3,481 3,697 4,812 ------------------------------------------------------------------ Net interest income 4,018 4,172 4,257 4,675 Provision for losses 75 2 Non-interest income 618 492 601 619 Non-interest expense 2,915 2,939 2,988 3,756 ------------------------------------------------------------------ Income before income taxes 1,646 1,723 1,870 1,538 Income taxes 625 652 735 597 ------------------------------------------------------------------ Net income $ 1,021 $ 1,071 $ 1,135 $ 941 ================================================================== Earnings per share - Basic $ .24 $ .25 $ .27 $ .22 - Diluted $ .24 $ .25 $ .26 $ .21 ==================================================================
40 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries 20 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS December 31,
(Dollars in Thousands) 2000 1999 ================================================================================ BALANCE SHEETS Assets Cash $ 69 $ 1,096 Investment in subsidiaries 50,216 46,097 Other investments 41 9 Other assets 1,541 1,357 - - -------------------------------------------------------------------------------- Total assets $ 51,867 $ 48,559 ================================================================================ Liabilities $ 7 $ 16 - - -------------------------------------------------------------------------------- Mandatory redeemable preferred stock 17,000 17,000 - - -------------------------------------------------------------------------------- Stockholders' equity Preferred stock - none Common stock, par value $2 per share 8,567 8,567 Additional paid-in capital 11,608 11,633 Retained earnings 15,408 13,317 Treasury stock (526) Accumulated other comprehensive loss (197) (1,974) - - -------------------------------------------------------------------------------- Stockholders' equity 34,860 31,543 - - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 51,867 $ 48,559 ================================================================================
(Dollars in Thousands) 2000 1999 1998 ================================================================================ STATEMENTS OF INCOME Dividend from subsidiary $ 2,598 $ 600 $ 100 Interest income (expense) (1,617) (385) 85 Other income (expense) - net (135) (85) (735) - - -------------------------------------------------------------------------------- Income (loss) before taxes and undistributed income of subsidiaries 846 130 (550) Income tax benefit 600 159 215 Undistributed income of subsidiaries 2,342 3,878 3,712 - - -------------------------------------------------------------------------------- Net income $ 3,788 $ 4,167 $ 3,377 ================================================================================
41 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Westbank Corporation and Subsidiaries 20 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
December 31, (Dollars in Thousands) 2000 1999 1998 ===================================================================================================== STATEMENTS OF CASH FLOWS Cash flows from operating activities: Net income $ 3,788 $ 4,167 $ 3,377 Cargill interim loss for quarter ended 12/31/98 (224) Operating activities: Equity in income of subsidiaries (2,342) (3,878) (3,622) Increase in other assets (184) (595) (418) Increase (decrease) in other liabilities (9) (156) 151 - - ----------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 1,253 (462) (736) - - ----------------------------------------------------------------------------------------------------- Cash flows from investing activities: Investment securities (purchases) maturities (32) 918 450 Contribution of capital to subsidiary (15,500) - - ----------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (32) (14,582) 450 - - ----------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from mandatory redeemable preferred stock issue 17,000 Proceeds from stock options exercised 3 139 1,141 Proceeds from dividend reinvestment and optional stock purchases 573 588 628 Treasury shares redeemed (1,127) Dividends paid (1,697) (1,653) (1,504) - - ----------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (2,248) 16,074 265 - - ----------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (1,027) 1,030 (21) Cash and cash equivalents at the beginning of the year 1,096 66 87 - - ----------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the year $ 69 $ 1,096 $ 66 =====================================================================================================
42 45 INDEPENDENT AUDITORS' REPORT Westbank Corporation and Subsidiaries Shareholders and Board of Directors, Westbank Corporation We have audited the consolidated balance sheets of Westbank Corporation and subsidiaries (the "Corporation") as of December 31, 2000 and 1999 and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger on January 29, 1999, of Cargill Bancorp, Inc., and subsidiary and Westbank Corporation and subsidiaries, which has been accounted for as a pooling of interests as described in Note 1 to the consolidated financial statements. We did not audit the consolidated statements of operations, comprehensive income, stockholders' equity and cash flows of Cargill Bancorp, Inc., for the year ended September 30, 1998, which statements reflect net interest income of $1,897,000 for the year ended September 30, 1998. Those statements were audited by other auditors whose report dated October 30, 1998, has been furnished to us and our opinion, insofar as it relates to the amounts included for Cargill Bancorp, Inc., and subsidiary for 1998 is based solely on the report of such other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of Westbank Corporation and subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Hartford, Connecticut January 29, 2001 Shareholders and Board of Directors, Cargill Bancorp, Inc. We have audited the consolidated statements of operations, comprehensive income, changes in stockholders' equity and cash flows of Cargill Bancorp, Inc., and subsidiary for the year ended September 30, 1998. 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 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 results of its operations and its cash flows of Cargill Bancorp, Inc., and subsidiary for the year ended September 30, 1998, in conformity with generally accepted accounting principles. SNYDER & HALLER Hartford, Connecticut October 30, 1998 43 46 CORPORATE DIRECTORY AND INFORMATION Westbank Corporation and Subsidiaries DIRECTORS Westbank Corporation and Park West Bank and Trust Company - - -------------------------------------------------------------------------------- ERNEST N. LAFLAMME, JR. Chairman of the Board, Westbank Corporation Treasurer, City of Chicopee ROLAND O. ARCHAMBAULT President and Owner, Pinnacle Raceway MARK A. BEAUREGARD Attorney at Law, Resnic, Beauregard, Waite & Driscoll DAVID R. CHAMBERLAND President, Chicopee Building Supply, Inc. DONALD R. CHASE President and Chief Executive Officer, Westbank Corporation President and Chief Executive Officer, Park West Bank and Trust Company G. WAYNE MCCARY President and Chief Executive Officer, Eastern States Exposition ROBERT J. PERLAK Corporate Clerk, Westbank Corporation Private Investor GEORGE R. SULLIVAN Chief Executive Officer, Sullivan Paper Company, Inc. JAMES E. TREMBLE President, Valley Communications Systems, Inc. CARGILL BANK - - -------------------------------------------------------------------------------- JOHN J. MAHER Chairman of the Board, Cargill Bank Attorney at Law, Maher and Cotnoir GARY L. BRIGGS Executive Vice President, Cargill Bank Executive Vice President, Park West Bank and Trust Company DONALD R. CHASE, President and Chief Executive Officer, Westbank Corporation RAYMOND P. FAUCHER Co-owner, Superior Bakery/Superior Cake Products KENNETH R. LACASSE President and Chief Executive Officer, Cargill Bank ELLIS H. PAINE President & Owner, EHPCO, Inc. DANIEL S. ROVERO Mayor, Putnam, Connecticut FREDERICK J. WITKOWSKI President (Retired), Johnson Corrugated Products Corp. H. DEXTER YOUNG Corporate Clerk, Cargill Bank Owner, Valleyside Farm OFFICERS WESTBANK CORPORATION - - -------------------------------------------------------------------------------- DONALD R. CHASE President and Chief Executive Officer JOHN M. LILLY Treasurer and Chief Financial Officer GARY L. BRIGGS Executive Vice President KATHLEEN A. JALBERT Senior Vice President TRENTON E. TAYLOR Senior Vice President LLOYD S. HALL Director of Auditing PARK WEST BANK AND TRUST COMPANY - - -------------------------------------------------------------------------------- DONALD R. CHASE President and Chief Executive Officer AUDITING DIVISION LLOYD S. HALL, CBA Director of Auditing COMPLIANCE JANE M. KNAPP Vice President BRANCH ADMINISTRATION/ HUMAN RESOURCES KATHLEEN A. JALBERT Senior Vice President DEBORAH A. KUMIEGA Assistant Vice President SUSAN M. ALDRICH Human Resources Officer EDP/OPERATIONS S. STEVE KONIECKI Senior Vice President FINANCE DEPARTMENT JOHN M. LILLY Executive Vice President and Treasurer IRVING M. WALKER, JR., CMA Controller LOAN DIVISION GARY L. BRIGGS Executive Vice President PAUL M. ACCORSI Senior Vice President DAVID M. BARSZCZ Vice President CLIFFORD R. BORDEAUX Vice President GERARD E. DRAPEAU Vice President RICHARD N. HANCHETT Vice President JOSEPH S. LEMAY Vice President JOSEPH P. YOUNG Vice President JOHN E. O'BRIEN Loan Operations Officer MICHAEL J. HARRINGTON Commercial Loan Officer J. KEVIN HOURIHAN Dealer Account Officer LOAN CREDIT AND COLLECTION TRENTON E. TAYLOR Senior Vice President PATRICIA A. NEBOSKY Assistant Vice President MARKETING JAMES P. HICKEY, JR. Vice President RESIDENTIAL REAL ESTATE STANLEY F. OSOWSKI Senior Vice President WOLFGANG A. ADAMETZ Vice President TRUST DIVISION ROBERT A. GIBOWICZ Senior Trust Officer CARGILL BANK - - -------------------------------------------------------------------------------- KENNETH R. LACASSE President and Chief Executive Officer HOWARD STANTON, III Senior Vice President and Chief Financial Officer GARY L. BRIGGS Executive Vice President DENISE M. BREWER Senior Vice President S. STEVE KONIECKI Senior Vice President STANLEY F. OSOWSKI Senior Vice President TRENTON E. TAYLOR Senior Vice President KATHRYN J. SAUCIER Assistant Vice President ALMA D. MOREY Branch Administration Officer 44 47 CORPORATE INFORMATION Westbank Corporation and Subsidiaries WESTBANK CORPORATION Westbank Tower, 225 Park Avenue West Springfield, MA 01089-3310 (413) 747-1400 ANNUAL MEETING The Annual Meeting of Stockholders of Westbank Corporation will be held on Wednesday, April 18, 2001, at nine o'clock in the morning at the Carriage House at Storrowton Tavern, 1305 Memorial Avenue, West Springfield, Massachusetts. TRANSFER AGENT AND REGISTRAR Park West Bank and Trust Company - Trust Department INDEPENDENT AUDITORS Deloitte & Touche LLP Hartford, Connecticut CORPORATE COUNSEL Doherty, Wallace, Pillsbury and Murphy, P.C. Springfield, Massachusetts INFORMATION SERVICE Westbank Corporation welcomes stockholder and public interest in our services and activities. Questions pertaining to material presented in this Report and requests for a copy of the Annual Report (Form 10-K) filed with the Securities and Exchange Commission should be directed to John M. Lilly, Treasurer and Chief Financial Officer, at the above address. COMMON STOCK - MARKET INFORMATION The table below shows cash dividend data and the range of bid prices by quarter for the Corporation's common stock. The source of the bid ranges is the local newspaper's listing of the NASDAQ regional market quotations. - - -------------------------------------------------------------------------------- 2000 1999 Bid Bid High Low Dividend High Low Dividend - - -------------------------------------------------------------------------------- First $9 7/8 $8 1/4 $0.10 $12 7/8 $10 1/2 $0.10 Second 9 7 7/8 0.10 10 1/2 9 1/8 0.10 Third 8 3/4 7 9/16 0.10 11 15/16 10 0.10 Fourth 8 5/8 6 7/8 0.10 10 5/8 8 3/8 0.10
The above quotations of the Corporation's common stock represent prices between dealers. They do not include retail markup, markdown or commissions. At January 31, 2001, the Corporation had 1,311 stockholders. Westbank Corporation's common stock is traded on the NASDAQ National Market Exchange, the trading symbol is "WBKC." For information on the Westbank Corporation Dividend Reinvestment and Stock Purchase Plan, call: Park West Bank and Trust Company, Trust Department (413) 747-1400. The following firms make a market in Westbank Corporation's common stock: Advest Inc. Keefe, Bruyette & Woods, Inc. McConnell, Budd & Downes, Inc. Moors & Cabot, Inc. Ryan, Beck & Co., Inc. Tucker Anthony Incorporated EQUAL OPPORTUNITY EMPLOYER The Corporation has maintained its commitment to equal opportunity and affirmative action in employment and personnel policies and pledges to recruit, hire, train and promote persons in all job classifications without regard to race, color, religion, sex, national origin, veterans status, age or handicap. IBC EX-21 3 y46663ex21.txt EX-21 1 Exhibit 21 21. SUBSIDIARIES OF THE REGISTRANT 1. Park West Bank and Trust Company - Massachusetts a. Lorac Leasing Corp. - Massachusetts b. P W B & T, Inc. - Massachusetts c. Park West Securities Corporation - Massachusetts d. Park West Real Estate Investment Trust, Inc. 2. Cargill Bank - Connecticut 3. Westbank Capital Trust I - Delaware 225 Park Avenue West Springfield, Massachusetts 01089 -----END PRIVACY-ENHANCED MESSAGE-----