10-Q 1 y54815e10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2001 Commission file number 0 - 12784 WESTBANK CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2830731 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer I.D. No.) 225 PARK AVENUE, WEST SPRINGFIELD, MASSACHUSETTS 01090-0149 (Address of principal executive offices) (Zip Code) (413) 747-1400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO Common stock, par value $2.00 per share: 4,315,795 shares outstanding as of October 31, 2001 WESTBANK CORPORATION AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION
Page ITEM 1. Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Stockholders' Equity 5 Condensed Consolidated Statements of Comprehensive Income 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7-9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-18 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 19 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 19 ITEM 2. Changes in Rights of Securities Holders 19 ITEM 3. Defaults by Company on its Senior Securities 19 ITEM 4. Submission of Matters to a Vote of Security Holders 19 ITEM 5. Other Events 19 ITEM 6. Exhibits and Reports on Form 8-K 19 Signatures 20
2 ITEM 1. FINANCIAL STATEMENTS WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Dollar amounts in thousands, except per share data) September 30, 2001 December 31, 2000 ------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks: Non-interest bearing $14,763 $18,043 Interest bearing 747 227 Federal funds sold 2,869 5,249 -------- -------- Total cash and cash equivalents 18,379 23,519 -------- -------- Investment securities available for sale 125,729 86,267 Investment securities held to maturity (estimated fair value of $2,211 in 2001 and $11,392 in 2000) 2,178 11,409 -------- -------- Total securities 127,907 97,676 -------- -------- Loans 453,776 432,901 Allowance for loan losses (4,090) (3,670) -------- -------- Net loans 449,686 429,231 Bank premises and equipment - net 6,665 7,292 Other real estate owned 117 541 Accrued interest receivable 3,823 3,977 Intangible assets 9,008 9,521 Other assets 10,416 2,839 -------- -------- TOTAL ASSETS $626,001 $574,596 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $69,384 $63,609 Interest bearing 447,655 435,531 -------- -------- Total deposits 517,039 499,140 Borrowed funds 48,056 20,992 Accrued interest payable 1,159 727 Other liabilities 4,033 1,877 -------- -------- Total liabilities 570,287 522,736 -------- -------- Mandatory redeemable preferred stock 17,000 17,000 -------- -------- Stockholders' Equity: Common stock - $2.00 par value Authorized - 9,000,000 shares Issued - 4,253,035 shares in 2001 and 4,222,520 shares in 2000 8,596 8,567 Additional paid in capital 11,678 11,608 Retained earnings 17,120 15,408 Treasury stock (385) (526) Accumulated other comprehensive income (loss) 1,705 (197) -------- -------- Total stockholders' equity 38,714 34,860 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $626,001 $574,596 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED (Dollar amounts in thousands, except per share data) 2001 2000 2001 2000 ----------------------------------------------------------------------------------------------------------------------------------- Income: Interest and fees on loans $8,459 $8,944 $25,402 $26,451 Interest and dividend income on securities 2,061 1,794 5,310 5,040 Interest on federal funds sold 20 101 90 197 --------- --------- --------- --------- Total interest and dividend income 10,540 10,839 30,802 31,688 Interest expense 5,349 6,192 15,643 17,152 --------- --------- --------- --------- Net interest income 5,191 4,647 15,159 14,536 Provision for loan losses 279 13 665 153 --------- --------- --------- --------- Net interest income after provision for loan losses 4,912 4,634 14,494 14,383 --------- --------- --------- --------- Non-interest income: Investment security gains 5 36 Gain on sale of mortgages 243 Other non-interest income 904 555 2,377 1,739 --------- --------- --------- --------- Total non-interest income 909 555 2,656 1,739 --------- --------- --------- --------- Non-interest expenses: Salaries and benefits 2,162 1,976 6,327 5,938 Other non-interest expense 1,911 1,667 5,232 4,856 Occupancy - net 356 339 1,110 1,025 --------- --------- --------- --------- Total non-interest expense 4,429 3,982 12,669 11,819 --------- --------- --------- --------- Income before income taxes 1,392 1,207 4,481 4,303 Income taxes 452 370 1,503 1,486 --------- --------- --------- --------- Net Income $940 $837 $2,978 $2,817 ========= ========= ========= ========= Earnings per share - Basic $0.22 $0.20 $0.70 $0.67 - Diluted $0.22 $0.20 $0.69 $0.66 Weighted average shares outstanding - Basic 4,262,573 4,206,430 4,249,328 4,230,001 - Dilutive option shares 72,218 38,861 71,921 48,675 --------- --------- --------- --------- - Diluted 4,334,791 4,245,291 4,321,249 4,278,676 ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements. 4 WESTBANK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 2000 AND NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED) (Dollar amounts in thousands)
ACCUMULATED COMMON STOCK OTHER ---------------------- ADDITIONAL COMPREHENSIVE NUMBER PAR PAID IN RETAINED TREASURY INCOME/ OF SHARES VALUE CAPITAL EARNINGS STOCK (LOSS) TOTAL ----------------------------------------------------------------------------------------------------------------------------------- BALANCE - DECEMBER 31, 1999 4,283,719 $8,567 $11,633 $13,317 $(1,974) $31,543 Net income 3,788 3,788 Cash dividend declared ($.40 per share) (1,697) (1,697) Treasury Shares: Redeemed (127,320) $(1,127) (1,127) Reissued 66,121 (25) 601 576 Unrealized gain (loss) on securities available for sale 1,777 1,777 --------- ------ ------- ------- ----- ------ ------- BALANCE - DECEMBER 31, 2000 4,222,520 8,567 11,608 15,408 (526) (197) 34,860 Net income 2,978 2,978 Cash dividend declared ($.30 per share) (1,266) (1,266) Shares issued under Dividend Reinvestment and Common Stock Purchase Plan 14,076 29 108 137 Treasury Shares: Redeemed (17,300) (161) (161) Reissued 33,739 (38) 302 264 Unrealized gain (loss) on securities available for sale 1,902 1,902 --------- ------ ------- ------- ----- ------ ------- BALANCE - SEPTEMBER 30, 2001 4,253,035 $8,596 $11,678 $17,120 $(385) $1,705 $38,714 ========= ====== ======= ======= ===== ====== =======
See accompanying notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollar amounts in thousands) QUARTER ENDED NINE MONTHS ENDED 09-30-01 09-30-00 09-30-01 09-30-00 -------------------------------------------------------------------------------------------- Net Income $940 $837 $2,978 $2,817 ------ ------ ------ ------ Other comprehensive income: Change in unrealized gain/(loss) on securities available for sale, net of income taxes (benefits) of $906 and $382 for the quarter and $994 and $319 for the nine-month periods ended September 30, 2001 and 2000, respectively 1,758 741 1,926 619 Reclassification adjustment for gains included in net income, net of income taxes of $2 for the quarter and $12 for the nine-month period ended September 30, 2001 (4) (24) Other comprehensive income 1,754 741 1,902 619 ------ ------ ------ ------ Comprehensive Income $2,694 $1,578 $4,880 $3,436 ====== ====== ====== ======
See accompanying notes to condensed consolidated financial statements. 5 WESTBANK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED) (Dollar amounts in thousands)
2001 2000 ------------ ------------ Operating activities: Net income $2,978 $2,817 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 665 153 Provision for other real estate owned 25 62 Depreciation and amortization 674 788 Intangible amortization 513 457 Realized gain on sale of securities (36) Realized gain on sale of other real estate owned (43) (50) Realized gain on sale of mortgages (243) (Increase)/Decrease in accrued interest receivable 154 (775) (Increase) in other assets (7,577) (915) Increase in accrued interest payable 432 386 Increase in other liabilities 940 691 ------- ----- Net cash (used in)/provided by operating activities (1,518) 3,614 ------- ----- Investing activities: Investments and mortgage-backed securities: Held to maturity: Purchases Proceeds from maturities and principal payments 9,231 306 Available for sale: Purchases (93,835) (21,389) Proceeds from sales 7,863 Proceeds from maturities 49,665 4,424 Purchases of premises and equipment (47) (363) Net increase in loans (20,886) (8,834) Proceeds from sale of other real estate owned 450 85 ------- ----- Net cash used in investing activities (47,559) (25,771) ------- ----- Financing activities: Net increase/(decrease)in borrowed funds 27,064 (12,118) Net increase in deposits 17,899 21,432 Treasury stock issued/(purchased), net 240 (650) Dividends paid (1,266) (1,274) ------- ----- Net cash provided by financing activities 43,937 7,390 ------- ----- Decrease in cash and cash equivalents (5,140) (14,767) Cash and cash equivalents at beginning of period 23,519 31,542 ------- ----- Cash and cash equivalents at end of period $18,379 $16,775 ======= ======= Cash paid during the period: Interest on deposits and other borrowings $15,211 $16,766 Income taxes 350 1,222 Supplemental disclosure of cash flow information: Transfers of loans to other real estate owned 153 357 Loans to facilitate the sale of other real estate owned 57
See accompanying notes to condensed consolidated financial statements. 6 WESTBANK CORPORATION AND SUBSIDIARIES (UNAUDITED) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 NOTE A - GENERAL INFORMATION Westbank Corporation (hereinafter sometimes referred to as "the Corporation") is a registered Bank Holding Company organized to facilitate the expansion and diversification of the business of Westbank (hereinafter sometimes referred to as "the Bank") into additional financial services related to banking. Substantially all operating income and net income of the Corporation are presently accounted for by the Bank. NOTE B - CURRENT OPERATING ENVIRONMENT On September 7, 2001, the Corporation completed the merger of its wholly owned banking subsidiaries, Cargill Bank and Park West Bank and Trust Company. The consolidated bank is operating under the name Westbank as a Massachusetts state-chartered commercial bank and trust company. Westbank operates seventeen banking offices throughout western Massachusetts and northeastern Connecticut, and also operates a Trust Department providing services normally associated with holding property in a fiduciary or agency capacity. A full range of retail banking services is furnished to individuals, businesses and non-profit organizations. The primary source of revenue for Westbank is derived from providing loans to customers who are predominantly located in the Bank's service areas. 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 that can apply to a financial institution. As of September 30, 2001, Westbank's capital was at a level that placed the Bank in the "well capitalized" category as defined by FDICIA. FDICIA imposes a variety of other restrictions and requirements on insured banks. These include significant regulatory reporting requirements such as insuring that a system of risk-based deposit insurance premiums and civil money penalties for inaccurate deposit assessment reports 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. 7 NOTE C - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements for the quarter and nine months ended September 30, 2001 and 2000 have been prepared in accordance with accounting principles generally accepted in the United States of America ("generally accepted accounting principles") for interim information and with instructions for Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and nine-month period ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts. Actual results could differ significantly from these estimates. For further information, please refer to the Consolidated Financial Statements and footnotes thereto included in the Westbank Corporation's Annual Report on Form 10-K for the year ended December 31, 2000. NOTE D - COMMITMENTS AND CONTINGENT LIABILITIES In the normal course of business, there are outstanding commitments and contingent liabilities, such as standby letters of credit and commitments to extend credit. As of September 30, 2001, standby letters of credit amounted to $355,000 and loan commitments were $52,222,000 and unused balances available on home equity lines of credit were $13,668,000. Trust Assets - Property with a book value of $107,759,000 at September 30, 2001 held for customers in a fiduciary or agency capacity is not included in the accompanying balance sheet since such items are not assets of the Bank. NOTE E - STOCKHOLDERS' EQUITY The FDIC imposes leverage capital ratio requirements for state non-member banks. In addition, the FDIC has established risk-based capital requirements for insured institutions for Tier 1 risk-based capital of 4.00% and total risk-based capital of 8.0%. The capital ratios of the Bank as of September 30, 2001 were as follows: Leverage Capital Ratio 7.15% Tier 1 Risk-Based Capital 11.38% Total Risk-Based Capital 12.45%
As of September 30, 2001, the Bank met the criteria for a well-capitalized financial institution. 8 NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Number 141, "Business Combinations," ("SFAS No. 141") and Statement of Financial Account Standards Number 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that all business combinations be accounted for under the purchase method. The statement further requires separate recognition of intangible assets that meet one of two criteria. The statement applies to all business combinations initiated after June 30, 2001. SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provide 1) that goodwill should not be amortized, but shall be tested for impairment annually or more frequently, if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount and 2) that existing goodwill will continue to be amortized through the remainder of Fiscal 2001, at which time amortization should cease and a transitional goodwill impairment test would be performed. SFAS No. 142 is effective for the Corporation beginning January 1, 2002. The Corporation is currently evaluating the impact of the new accounting standards on existing goodwill and other intangible assets. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 Information Concerning Forward-Looking Statements The following forward-looking statements are made in accordance with the Private Securities Litigation Reform Act of 1995. The Corporation 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 that 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 the Corporation. 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 the Corporation will be those anticipated by management. All assumptions that form the basis of any forward-looking statements regarding future performance, as well as events or conditions that may affect such future performance, are based on factors that are beyond the Corporation'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 the Corporation's primary market areas of western Massachusetts and northeastern Connecticut; 2. The real estate market in western Massachusetts and northeastern Connecticut; 3. Competition in the Corporation'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; 6. The cost and other effects of unanticipated legal and administrative cases and proceedings, settlements and investigations; 7. Unanticipated changes in laws and regulations, including federal and state banking laws and regulations, to which the Corporation and its subsidiaries are subject; 8. Changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board or any regulatory agency having authority over the Corporation and/or its subsidiaries; and 9. Other risks and factors as discussed herein. While the Corporation 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, the Corporation does not intend to review or revise any particular forward-looking statement. 10 Changes in Financial Condition Total consolidated assets amounted to $626,001,000 on September 30, 2001, compared to $574,596,000 on December 31, 2000. As of September 30, 2001 and December 31, 2000, earning assets amounted to, respectively, $585,299,000 or 93% of total assets and $536,053,000 or 93% of total assets. Earning assets increased during the first nine months of 2001 as a result of an increase in loans and investments. Deposits and borrowings with the Federal Home Loan Bank funded the growth in assets. Changes in Results of Operations For the quarter ended September 30, 2001, net income totaled $940,000, compared to $837,000 for the quarter ended September 30, 2000. For the nine months ended September 30, 2001, net income was $2,978,000, compared to $2,817,000 for the same period during 2000. The quarter and nine months ended September 30, 2001, included expenses totaling approximately $270,000 relating to the merger of the Corporation's banking subsidiaries. The overall decrease in both interest income and interest expense reflects the decrease in interest rates on earning assets and the decrease in rates on interest-bearing liabilities, coupled with an increase in volume of earning assets and interest-bearing liabilities for the quarter ended September 30, 2001. Further analysis is provided in sections on "Net Interest Income", "Interest Rate Spread and Net Yield on Earning Assets", and "Changes in Net Interest Income." Allowance for Loan Losses and Non-Performing Assets The Corporation's provision for loan losses in the current quarter was $279,000, compared to $13,000 for the same period in 2000. Loans written off against the allowance for loan losses after recoveries amounted to $262,000 for the quarter ended September 30, 2001. After giving effect to the actions described above, the allowance for loan losses at September 30, 2001 totaled $4,090,000 or .90% of total loans, as compared to $3,670,000 or .85% at December 31, 2000. Non-performing and past due loans at September 30, 2001 aggregated $1,668,000 or .37% of total loans, compared to $2,196,000 or .51% at December 31, 2000. The percentage of non-performing and past due loans compared to total assets on those same dates, respectively, amounted to .27% and .38%. Other real estate owned at September 30, 2001, totaled $117,000 and stands at .01% of total assets at the end of the current quarter and .09% at December 31, 2000. Management has made every effort to recognize all circumstances known at this time that could affect the collectibility of loans and has reflected these in the provision for loan losses, the write-down of other real estate owned and impaired loans to fair value and other loans (watch list) monitored by management, the charge-off of loans and the balance in the allowance for loan losses. Management believes that the provision for loan losses and the balance in the allowance for loan losses for the quarter and nine-months ended September 30, 2001 are adequate, based on results provided by the loan grading system and circumstances known at this time. 11 NET INTEREST INCOME The Corporation's earning assets include a diverse portfolio of earning instruments, ranging from the Corporation's core business of loan extensions to interest-bearing securities issued by federal, state and municipal authorities. These earning assets are financed through a combination of interest-bearing and interest-free sources. Net interest income, the most significant component of earnings, is the amount by which the interest generated by assets exceeds the interest expense on liabilities. For analytical purposes, the interest earned on tax exempt assets is adjusted to a "tax equivalent" basis to recognize the income tax savings, which facilitates comparison between taxable and tax exempt assets. The Corporation analyzes its performance by utilizing the concepts of interest rate spread and net yield on earning assets. The interest rate spread represents the difference between the yield on earning assets and interest paid on interest-bearing liabilities. The net yield on earning assets is the difference between the rate of interest on earning assets and the effective rate paid on all funds - interest-bearing liabilities as well as interest-free sources (primarily demand deposits and shareholders' equity). The balances and rates derived for the analysis of net interest income presented on the following pages reflect the consolidated assets and liabilities of the Corporation's principal earning subsidiary. (Dollar amounts in thousands)
QUARTER ENDED NINE MONTHS ENDED 09-30-01 09-30-00 09-30-01 09-30-00 ----------------------------------------------------------------------------------------------------------- Interest and dividend income $10,540 $10,839 $30,802 $31,688 Interest expense 5,349 6,192 15,643 17,152 -------- -------- ------- ------- Net interest income $5,191 $4,647 $15,159 $14,536 Tax equivalent adjustment 40 46 124 114 ======== ======== ======= ======= Net interest income (taxable equivalent) $5,231 $4,693 $15,283 $14,650 ======== ======== ======= =======
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS (Dollar amounts in thousands)
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2001 2000 2001 2000 ---------------------------------------------------------------------------------------------------------------------------- Average Average Average Average Balance Rate Balance Rate Balance Rate Balance Rate ---------------------------------------------------------------------------------------------------------------------------- Earning Assets $580,803 7.29% $556,944 7.82% $549,573 7.50% $543,794 7.80% Interest-bearing liabilities 514,075 4.16 497,680 4.98 481,748 4.33 485,838 4.71 -------- ---- -------- ---- -------- ---- -------- ---- Interest rate spread 3.13 2.84 3.17 3.09 ---- ---- ---- ---- Interest-free resources used to fund earning assets 66,728 59,264 67,825 57,956 -------- -------- -------- -------- Total Sources of Funds $580,803 $556,944 $549,573 $543,794 ======== ======== ======== ======== Net Yield on Earning Assets 3.61% 3.37% 3.70% 3.59% ==== ==== ==== ====
12 CHANGES IN NET INTEREST INCOME (Dollar amounts in thousands)
QUARTER ENDED 09-30-01 NINE MONTHS ENDED 09-30-01 OVER OVER QUARTER ENDED 09-30-00 NINE MONTHS ENDED 09-30-00 ------------------------------------------------------------------------------------------------------------------- CHANGE DUE TO CHANGE DUE TO VOLUME RATE TOTAL VOLUME RATE TOTAL ------------------------------------------------------------------------------------------------------------------- Interest Income: Loans $(73) $(418) $(491) $(423) $(616) $(1,039) Securities 444 (177) 267 664 (394) 270 Federal funds (21) (60) (81) (49) (58) (107) ---- ---- ---- ---- ---- ---- Total Interest Earned 350 (655) (305) 192 (1,068) (876) ---- ---- ---- ---- ---- ---- Interest Expense: Interest-bearing deposits (231) (812) (1,043) (473) (898) (1,371) Other borrowed funds 332 (132) 200 233 (371) (138) ---- ---- ---- ---- ---- ---- Total Interest Expense 101 (944) (843) (240) (1,269) (1,509) ---- ---- ---- ---- ---- ---- Net Interest Income (taxable equivalent) $249 $289 $538 $432 $201 $633 ==== ==== ==== ==== ==== ====
Net interest earned on a tax equivalent basis increased by $538,000 during the third quarter of 2001 compared to the third quarter of 2000. For the nine-month period ended September 30, 2001, net interest income increased by $633,000 versus the same period of 2000. Average earning assets increased by $23,859,000 and $5,779,000 during the three and nine months ended September 30, 2001. OPERATING EXPENSES The components of total operating expenses for the periods and their percentage of gross income are as follows: (Dollars amounts in thousands)
QUARTER ENDED NINE MONTHS ENDED 09-30-01 09-30-00 09-30-01 09-30-00 ----------------------------------------------------------------------------------------------------------------------- Amount Percent Amount Percent Amount Percent Amount Percent ----------------------------------------------------------------------------------------------------------------------- Salaries and benefits $2,162 18.88% $1,976 17.34% $6,327 18.91% $5,938 17.76% Other non-interest expense 1,911 16.69 1,667 14.63 5,232 15.64 4,856 14.53 Occupancy - net 356 3.11 339 2.98 1,110 3.32 1,025 3.07 ------ ----- ------ ----- ------- ----- ------- ----- Total Operating Expenses $4,429 38.68% $3,982 34.95% $12,669 37.87% $11,819 35.36% ====== ===== ====== ===== ======= ===== ======= =====
For the nine-month period ended September 30, 2001, operating expenses increased by approximately $850,000 over the 2000 period. The increase was a result of increases in salary and benefits totaling $389,000, occupancy expense totaling $85,000 and an increase in other non-interest expense of $376,000. Included in the three-month and nine-month periods ended September 30, 2001 were $270,000 in expenses related to the merger of the Corporation's banking subsidiaries. The remaining increases are a result of the overall growth of the Corporation, coupled with inflationary increases. 13 CAPITAL RATIOS
09-30-01 09-30-00 -------- -------- The following is the Corporation's ratio of "Tier 1" leverage capital to total assets at end of period 6.58% 6.20%
Regulatory risk-based capital requirements take into account the different risk categories of banking organizations by assigning risk weight to assets and the credit equivalent amounts of off-balance sheet exposures. In addition, capital is divided into two tiers. For this Corporation, Tier 1 includes the common stockholders' equity 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. Net unrealized gain/(losses) on securities available for sale are not permitted to be included for regulatory capital purposes. The following are the Corporation's risk-based capital ratios at September 30, 2001: Tier 1 Capital (minimum required 4.00%) 11.53% Tier 2 Capital (minimum required 8.00%) 12.61%
INTEREST RATE SENSITIVITY The following table sets forth the distribution of the repricing of the Corporation's earning assets and interest-bearing liabilities as of September 30, 2001. (Dollar amounts in thousands)
Three Over Three Over One Months Months to Year to Over or Less One Year Five Years Five Years Total ------------------------------------------------------------------------------------------------------------------- Earning Assets $82,957 $69,293 $143,545 $289,504 $585,299 Interest-Bearing Liabilities 99,127 190,473 197,814 25,297 512,711 --------- --------- ---------- -------- ------- Interest Rate Sensitivity Gap $(16,170) $(121,180) $(54,269) $264,207 $72,588 ========= ========= ========== ======== ======= Cumulative Interest Rate Sensitivity Gap $(16,170) $(137,350) $(191,619) $72,588 Interest Rate Sensitivity Gap Ratio (2.76)% (20.70)% (9.27)% 45.14% Cumulative Interest Rate Sensitivity Gap Ratio (2.76)% (23.47)% (32.74)% 12.40%
14 LIQUIDITY The Corporation's liquidity represents the ability to meet loan commitments, deposit withdrawals and any other cash needs as they arise. Funds to meet liquidity are available by converting liquid assets or by generating new deposits or through other funding sources. Factors affecting a bank's liquidity needs include changes in interest rates, demand for loan products and general economic conditions. The Corporation has alternative sources of liquidity, including federal funds lines of credit, lines of credit available through the Federal Home Loan Bank of Boston and repurchase agreements. Management believes that the Corporation's level of liquidity is adequate to meet current and future funding needs. PROVISION AND ALLOWANCE FOR LOAN LOSSES (Dollar amounts in thousands)
QUARTER ENDED NINE MONTHS ENDED 09-30-01 09-30-00 09-30-01 09-30-00 ------------------------------------------------------------------------------------------------------- Balance at beginning of period $4,073 $3,896 $3,670 $3,908 Provision charged to expense 279 13 665 153 ----- ----- ----- ----- 4,352 3,909 4,335 4,061 ----- ----- ----- ----- Charge-offs: Loans secured by real estate 0 25 7 163 Commercial and industrial loans 233 410 233 441 Consumer loans 34 29 93 53 ----- ----- ----- ----- 267 464 333 657 ----- ----- ----- ----- Recoveries: Loans secured by real estate 1 9 60 31 Commercial and industrial loans 1 1 18 10 Consumer loans 3 5 10 15 ----- ----- ----- ----- 5 15 88 56 ----- ----- ----- ----- Net charge-offs 262 449 245 601 ----- ----- ----- ----- Balance at end of period $4,090 $3,460 $4,090 $3,460 ====== ====== ====== ====== Net charge-offs to: Average loans .10% .10% .10% .13% Loans at end of period .10% .10% .10% .13% Allowance for loan losses 6.41% 12.98% 5.97% 17.37% Allowance for loan losses as a percentage of: Average loans .91% .77% .93% .78% Loans at end of period .90% .77% .90% .77%
The approach the Corporation uses in determining the adequacy of the allowance for loan losses is the combination of a target reserve and a general reserve allocation. Quarterly, based on an internal review of the loan portfolio, the Corporation identifies required reserve allocations targeted to recognized problem loans that, in the opinion of management, have potential loss exposure or questions relative to the depth of the collateral on these same loans. In addition, the Corporation allocates a general reserve against the remainder of the loan portfolio. 15 WESTBANK CORPORATION AND SUBSIDIARIES NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS (Dollar amounts in thousands)
09-30-01 06-30-01 03-31-01 12-31-00 09-30-00 ------------------------------------------------------------------------------------------------------------ Non-Accrual Loans $1,570 $1,926 $2,441 $1,778 $1,693 ------ ------ ------ ------ ------ Loans contractually past due 90 days or more and still accruing 98 165 355 418 364 ------ ------ ------ ------ ------ Total non-accrual, past due and restructured loans 1,668 2,091 2,796 2,196 2,057 ------ ------ ------ ------ ------ Non-accrual, past due and restructured loans as a percentage of total loans 0.37% 0.48% 0.65% 0.51% 0.46% ------ ------ ------ ------ ------ Allowance for loan losses as a percentage of non-accrual, past due and restructured loans 245.20% 194.84% 140.77% 167.12% 168.21% ------ ------ ------ ------ ------ Other real estate owned - net $117 $137 $135 $541 $605 ------ ------ ------ ------ ------ Total non-performing assets $1,785 $2,228 $2,931 $2,737 $2,662 ------ ------ ------ ------ ------ Non-performing assets as a percentage of total assets 0.29% 0.37% 0.52% 0.48% 0.45% ------ ------ ------ ------ ------
16 WESTBANK CORPORATION AND SUBSIDIARIES QUARTER-TO-DATE AVERAGE BALANCES INTEREST EARNED - INTEREST EXPENSE (Dollar amounts in thousands)
------------------------------------------------------------------------------------------------------------------ FOR THE QUARTER ENDED FOR THE QUARTER ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 Balance Interest Rate Balance Interest Rate ------------------------------------------------------------------------------------------------------------------ Federal funds sold and temporary investments $3,195 $ 20 2.50% $6,493 $101 6.22% Securities 130,493 2,065 6.33 99,627 1,798 7.22 Loans 447,115 8,495 7.60 450,824 8,986 7.97 ------- ----- ---- ------- ----- ---- Total earning assets $580,803 $10,580 7.29% $556,944 $10,885 7.82% ------- ------- ---- ------- ----- ---- Allowance for loan loss (4,176) (4,101) All other assets 43,878 40,474 ------- ------- TOTAL ASSETS $620,505 $593,317 ======= ======= LIABILITIES AND EQUITY Interest-bearing deposits $423,414 $4,250 4.01% $443,818 $5,293 4.77% Borrowed funds 90,661 1,099 4.85 53,862 899 6.68 ------- ------ ---- ------- ----- ---- Total interest-bearing liabilities 514,075 5,349 4.16 497,680 6,192 4.98 ------- ------ ---- ------- ----- ---- Interest rate spread 3.13% 2.84% Demand deposits 64,690 60,166 Other liabilities 4,334 3,278 Shareholders' equity 37,406 32,193 -------- -------- TOTAL LIABILITIES AND EQUITY $620,505 $593,317 ======== ======== NET INTEREST INCOME (taxable equivalent) $5,231 $4,693 ====== ====== Interest Earned/Earning Assets 7.29% 7.82% Interest Expense/Earning Assets 3.68 4.45 ---- ---- Net Yield on Earning Assets 3.61% 3.37% ==== ==== Deduct Tax Equivalent Adjustment 40 46 ------ ------ NET INTEREST INCOME $5,191 $4,647 ====== ======
17 WESTBANK CORPORATION AND SUBSIDIARIES YEAR-TO-DATE AVERAGE BALANCES INTEREST EARNED - INTEREST EXPENSE (Dollar amounts in thousands)
------------------------------------------------------------------------------------------------------------------ NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 Balance Interest Rate Balance Interest Rate ------------------------------------------------------------------------------------------------------------------ Federal funds sold and temporary investments $ 2,821 $ 90 4.25% $ 4,485 $ 197 5.86% Securities 108,559 5,321 6.53 94,014 5,051 7.16 Loans 438,193 25,515 7.76 445,295 26,554 7.95 ------- ------ ---- ------- ------ ---- Total earning assets 549,573 $30,926 7.50% 543,794 $31,802 7.80% ------- ------ ---- ------- ------ ---- Allowance for loan loss (4,015) (4,027) All other assets 39,293 39,841 ------- ------- TOTAL ASSETS $584,851 $579,608 ======== ======== LIABILITIES AND EQUITY Interest-bearing deposits $413,185 $12,929 4.17% $427,500 $14,300 4.46% Borrowed funds 68,563 2,714 5.27 58,338 2,852 6.52 ------- ------ ---- ------- ------ ---- Total interest-bearing liabilities 481,748 $15,643 4.33 485,838 17,152 4.71 ------- ------ ---- ------- ------ ---- Interest rate spread 3.17% 3.09% Demand deposits 62,851 59,339 Other liabilities 3,895 2,913 Shareholders' equity 36,357 31,518 ------- ------- TOTAL LIABILITIES AND EQUITY $584,851 $579,608 ======== ======== NET INTEREST INCOME (TAXABLE EQUIVALENT) $15,283 $14,650 ======= ======= Interest Earned/Earning Assets 7.50% 7.80% Interest Expense/Earning Assets 3.80 4.21 ---- ----- Net Yield on Earning Assets 3.70% 3.59% ==== ==== Deduct Tax Equivalent Adjustment 124 114 ------- ------- NET INTEREST INCOME (TAXABLE EQUIVALENT) $15,159 $14,536 ======= =======
18 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Corporation's assessment of its sensitivity to market risk since its presentation in the 2000 Annual Report filed with the Securities and Exchange Commission. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings Certain litigation is pending against the Corporation and its subsidiaries. Management, after consultation with legal counsel, does not anticipate that any liability arising out of such litigation will have a material effect on the Corporation's financial statements. ITEM 2. Changes in Rights of Securities Holders - NONE ITEM 3. Defaults by Company on its Senior Securities - NONE ITEM 4. Results of Votes on Matters Submitted to a Vote of Security Holders - NONE ITEM 5. Other Events None. ITEM 6. Exhibits and Reports on Form 8-K EXHIBIT INDEX
Page No. 3. Articles of Organization, as amended ** (a) Articles of Organization, as amended * (b) By-Laws, as amended * 10. Material Contracts - None * 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. b. Reports on Form 8-K - None
19 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized. WESTBANK CORPORATION Date: November 13, 2001 /s/ Donald R. Chase ________________________________________ Donald R. Chase President and Chief Executive Officer Date: November 13, 2001 /s/ John M. Lilly ________________________________________ John M. Lilly Treasurer and Chief Financial Officer 20