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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, 2002
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: 4,155,569 shares outstanding as of
October 31, 2002
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 7-10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-20
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 21
ITEM 4. Controls and Procedures 21
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 21
ITEM 2. Changes in Rights of Securities Holders 21
ITEM 3. Defaults by Company on its Senior Securities 21
ITEM 4. Submission of Matters to a Vote of Security Holders 21
ITEM 5. Other Events 21
ITEM 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Section 302 Certifications 23-24
2
ITEM 1. FINANCIAL STATEMENTS
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands, except per share data) September 30, 2002 December 31, 2001
- ------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks:
Non-interest bearing $ 21,679 $ 16,800
Interest bearing 314 332
Federal funds sold 46,085 319
- ------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 68,078 17,451
- ------------------------------------------------------------------------------------------------------
Securities available for sale 134,948 141,685
Securities held to maturity 485 757
(estimated fair value of $505 in 2002 and $779 in 2001)
- ------------------------------------------------------------------------------------------------------
Total securities 135,433 142,442
- ------------------------------------------------------------------------------------------------------
Loans 471,246 443,902
Allowance for loan losses 4,932 4,179
- ------------------------------------------------------------------------------------------------------
Net loans 466,314 439,723
- ------------------------------------------------------------------------------------------------------
Premises and equipment - net 6,018 6,516
Other real estate owned 0 204
Accrued interest receivable 2,970 3,285
Goodwill 8,837 8,837
Other assets 10,775 10,464
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 698,425 $ 628,922
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 82,253 $ 70,960
Interest bearing 493,294 438,889
- ------------------------------------------------------------------------------------------------------
Total deposits 575,547 509,849
Borrowed funds 58,943 57,666
Accrued interest payable 696 659
Other liabilities 4,500 4,732
- ------------------------------------------------------------------------------------------------------
Total liabilities 639,686 572,906
- ------------------------------------------------------------------------------------------------------
Mandatory redeemable preferred stock 17,000 17,000
- ------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock - $2.00 par value
Authorized - 9,000,000 shares
Issued - 4,315,795 shares in 2002 and 2001 8,632 8,632
Additional paid in capital 11,690 11,782
Retained earnings 21,086 17,787
Treasury stock (2,192) (431)
Accumulated other comprehensive income, net of tax 2,523 1,246
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 41,739 39,016
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 698,425 $ 628,922
======================================================================================================
See accompanying notes to condensed consolidated financial statements.
3
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
(Unaudited) September 30, September 30,
(Dollar amounts in thousands, except per share data) 2002 2001 2002(1) 2001
- ---------------------------------------------------------------------------------------------------------------------
Income:
Interest and fees on loans $ 7,952 $ 8,459 $ 24,009 $ 25,402
Interest and dividend income on securities 1,932 2,061 6,492 5,310
Interest on federal funds sold 153 20 185 90
- ---------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 10,037 10,540 30,686 30,802
Interest expense 4,642 5,349 13,635 15,643
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 5,395 5,191 17,051 15,159
Provision for loan losses 400 279 1,133 665
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 4,995 4,912 15,918 14,494
- ---------------------------------------------------------------------------------------------------------------------
Non-interest income:
Gain/(Loss) on securities available for sale 59 5 (218) 36
Gain on sale of mortgages 45 118 243
Other non-interest income 862 904 3,136 2,377
- ---------------------------------------------------------------------------------------------------------------------
Total non-interest income 966 909 3,036 2,656
- ---------------------------------------------------------------------------------------------------------------------
Non-interest expenses:
Salaries and benefits 2,220 2,162 6,741 6,327
Other non-interest expense 1,380 1,911 4,445 5,232
Occupancy - net 356 356 1,126 1,110
- ---------------------------------------------------------------------------------------------------------------------
Total non-interest expense 3,956 4,429 12,312 12,669
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,005 1,392 6,642 4,481
Income taxes 671 452 1,950 1,503
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 1,334 $ 940 $ 4,692 $ 2,978
=====================================================================================================================
Earnings per share
- Basic $ 0.32 $ 0.22 $ 1.11 $ 0.70
- Diluted $ 0.31 $ 0.22 $ 1.09 $ 0.69
Weighted average shares outstanding
- Basic 4,161,319 4,262,573 4,210,219 4,249,328
- Dilutive option shares 121,425 72,218 99,425 71,921
- ---------------------------------------------------------------------------------------------------------------------
- Diluted 4,282,744 4,334,791 4,309,644 4,321,249
=====================================================================================================================
(1) Net income for the nine months ended September 30, 2002 includes the
adoption of SFAS No. 147 ("Acquisition of Certain Financial Institutions").
In accordance with SFAS No. 147, the Corporation's statement of income for
the nine-month period ended September 30, 2002 has been restated to remove
the amortization expense that was recorded during the first two quarters of
2002.
See accompanying notes to condensed consolidated financial statements.
4
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2001 AND NINE MONTHS ENDED SEPTEMBER 30, 2002
(Unaudited)
(Dollar amounts in thousands, except per share data)
ACCUMULATED
COMMON STOCK OTHER
-------------------- ADDITIONAL COMPREHENSIVE
NUMBER PAR PAID IN RETAINED TREASURY INCOME/
OF SHARES VALUE CAPITAL EARNINGS STOCK (LOSS) TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE - JANUARY 1, 2001 4,222,520 $ 8,567 $11,608 $15,408 $ (526) $ (197) $34,860
==================================================================================================================================
Net income 4,073 4,073
Cash dividend declared
($.40 per share) (1,694) (1,694)
Shares issued:
Stock option plan 4,400 9 9 18
Dividend reinvestment and
stock purchase plan 27,676 56 209 265
Shares issued from treasury stock:
Stock option plan 1,500 (6) 8 2
Dividend reinvestment and
stock purchase plan 33,287 (38) 302 264
Changes in unrealized gain (loss)
on securities available for sale 1,443 1,443
Repurchase of common stock (23,000) (215) (215)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2001 4,266,383 $ 8,632 $11,782 $17,787 $ (431) $ 1,246 $39,016
==================================================================================================================================
Net income 4,692 4,692
Cash dividend declared
($.11 per share) (1,393) (1,393)
Shares issued from treasury stock:
Stock option plan 47,064 (194) 464 270
Dividend reinvestment and
stock purchase plan 30,398 102 270 372
Changes in unrealized gain on
securities available for sale 1,277 1,277
Repurchase of common stock (193,700) (2,495) (2,495)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE - SEPTEMBER 30, 2002 4,150,145 $ 8,632 $11,690 $21,086 $(2,192) $ 2,523 $41,739
==================================================================================================================================
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollar amounts in thousands)
Quarter Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Net Income $ 1,334 $ 940 $ 4,692 $ 2,978
- ---------------------------------------------------------------------------------------------------------------
Other comprehensive income:
Change in unrealized gain/(loss) on
securities available for sale, net of
income taxes (benefits) of $366 and
$906 for the quarter and $557 and $994
for the nine-month periods ended
September 30, 2002 and 2001, respectively 744 1,758 1,131 1,926
Reclassification adjustment for gains
included in net income, net of income tax
(benefit) of $20 and $1 for the quarter
and net income tax (benefit) of $(72) and
$(12) for the nine-month periods ended
September 30, 2002 and 2001, respectively (39) (4) 146 (24)
- ---------------------------------------------------------------------------------------------------------------
Other comprehensive income 705 1,754 1,277 1,902
- ---------------------------------------------------------------------------------------------------------------
Comprehensive Income $ 2,039 $ 2,694 $ 5,969 $ 4,880
===============================================================================================================
See accompanying notes to condensed consolidated financial statements.
5
WESTBANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Dollar amounts in thousands)
Nine Months Ended September 30,
2002 2001
- ------------------------------------------------------------------------------------------------------
Operating activities:
Net income $ 4,692 $ 2,978
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for loan losses 1,133 665
Provision for other real estate owned 11 25
Investment accretion income (31)
Depreciation and amortization 570 674
Intangible amortization 513
Realized loss/(gain) on sale of securities 218 (36)
Gain on sale of other real estate owned (45) (43)
Gain on sale of mortgages (118) (243)
Decrease in accrued interest receivable 315 154
Increase in other assets (311) (7,577)
Increase in accrued interest payable 37 432
(Decrease)/Increase in other liabilities (232) 940
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 6,239 (1,518)
- ------------------------------------------------------------------------------------------------------
Investing activities:
Investments and mortgage-backed securities:
Held to maturity:
Proceeds from maturities and principal payments 272 9,231
Available for sale:
Purchases (51,166) (93,835)
Proceeds from sales 21,260 7,863
Proceeds from maturities and principal payments 61,202 49,665
Purchases of premises and equipment 72 (47)
Net increase in loans (51,293) (20,886)
Proceeds from sale of other real estate owned 312 450
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (19,341) (47,559)
- ------------------------------------------------------------------------------------------------------
Financing activities:
Net increase in borrowed funds 1,277 27,064
Net increase in deposits 65,698 17,899
Treasury stock purchased/(issued), net (1,853) 240
Dividends paid (1,393) (1,266)
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 63,729 43,937
- ------------------------------------------------------------------------------------------------------
Increase/(Decrease) in cash and cash equivalents 50,627 (5,140)
Cash and cash equivalents at beginning of period 17,451 23,519
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 68,078 $ 18,379
======================================================================================================
Cash paid during the period:
Interest on deposits and other borrowings $ 13,598 $ 15,211
Income taxes 3,585 350
Supplemental disclosure of cash flow information:
Transfers of loans to other real estate owned 74 153
Loans to facilitate the sale of other real estate owned 57
Securitization of loans into mortgage-backed securities 23,495
Unrealized gain on securities available for sale, net of taxes 1,277 1,902
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, 2002 AND SEPTEMBER 30, 2001
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
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,
2002, 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, 2002 and 2001 have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("generally accepted accounting principles"). Certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principals have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission
for interim reports. 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, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. 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, 2001.
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, 2002, standby letters of credit amounted to
$152,000, loan commitments were $45,971,000 and unused balances available on
home equity lines of credit were $19,148,000.
Trust Assets - Property with a book value of $152,983,000 at September 30, 2002
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.
The Massachusetts Department of Revenue ("DOR") has sent notices of intent to
assess taxes to several banks in the Commonwealth of Massachusetts. The notices
relate to DOR's intent to disallow the dividend-received deduction between a
bank and its subsidiary operating as a real estate investment trust ("REIT").
While the Corporation's subsidiary Westbank ("the Bank") has not received a
notice from the DOR, the Bank does operate a REIT similar to banks receiving
notices of assessment from the DOR.
Westbank believes that its tax treatment of the dividend-received deduction for
its REIT subsidiary is valid under Massachusetts law. Accordingly, the Bank
intends to continue its current accounting practice of calculating its tax
provision under the assumption that the dividend-received deduction is valid.
In the event that the dividend-received deduction from its REIT subsidiary is
disallowed, the Corporation would be required to record additional taxes of
approximately $641,000 for the years 2000, 2001 and 2002, exclusive of any
interest charge.
8
NOTE E - STOCKHOLDERS' EQUITY
The FDIC imposes leverage capital ratio requirements for state non-member banks
of 4%. 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 were as follows:
September 30, 2002 December 31, 2001
------------------ -----------------
Leverage Capital Ratio 6.80% 7.56%
Tier 1 Risk-Based Capital 10.97% 11.62%
Total Risk-Based Capital 12.16% 12.71%
As of September 30, 2002, the Bank met the criteria for a well-capitalized
financial institution.
Capital guidelines issued by the Federal Reserve Board require the Corporation
to maintain certain capital ratios. 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 (2) tiers.
For the 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 Corporation's "Tier 1" leverage and risk-based capital ratios are as
follows:
September 30, 2002 December 31, 2001
------------------ -----------------
Leverage Capital Ratio (minimum required 4.00%) 6.44% 6.71%
Tier 1 Capital (minimum required 4.00%) 10.29% 10.79%
Total Risk-Based Capital (minimum required 8.00%) 12.41% 13.03%
NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board("FASB") issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS No. 145"). The adoption of
SFAS No. 145 is not expected to have a material effect on the Corporation's
consolidated financial statements.
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
No. 146"). The adoption of SFAS No. 146 is not expected to have a material
effect on the Corporation's consolidated financial statements.
Effective January 1, 2002, the Corporation adopted Statement of Financial
Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and SFAS
No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142"). Initially, the
adoption of SFAS No. 141 and SFAS No. 142 did not have an effect on the
Corporation's consolidated financial statements. In October 2002, the FASB
issued SFAS No. 147, "Acquisition of Certain Financial Institutions" ("SFAS No.
147"). SFAS No. 147 removes acquisitions of financial institutions from the
scope of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift
Institutions" and FASB Interpretation No. 9, "Applying APB Opinions No. 16 and
17 When a Savings and Loan Association or Similar Association is Acquired in a
Business Combination Accounted for by the Purchase Method" and requires that
those transactions be accounted for in accordance with SFAS No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." In
addition, SFAS No. 147 amends SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", to include in its scope long-term customer
relationship intangible assets of financial institutions. SFAS No. 147 is
effective for periods beginning after October 1, 2002, with early
9
NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
adoption permitted. The Corporation elected to adopt SFAS No. 147 early, as of
September 30, 2002. Upon adoption of SFAS No. 147, the Corporation reclassified
its unidentifiable intangible asset to goodwill and ceased amortization,
retroactive to January 1, 2002. In accordance with SFAS No. 147, the
Corporation's statement of income for the nine-month period ended September 30,
2002 has been restated to remove the amortization expense of $342,000 ($205,000
net of taxes) that was recorded during the first two quarters of 2002. The
effect on earnings per share and diluted earnings per share is $0.05 and $0.04
for the nine months ended September 30, 2002. Additionally, the Corporation was
required to perform a transitional impairment test in accordance with the
provisions of SFAS No. 142. As a result of this testing, no impairment charges
were recorded. See Note G.
NOTE G - GOODWILL
Effective January 1, 2002, the Corporation adopted SFAS No. 142 and, effective
September 30, 2002, the Corporation adopted SFAS No. 147. In accordance with
these statements, the Corporation has ceased amortization of goodwill and has
performed a transitional goodwill impairment test. As a result of the
transitional impairment test, management has determined that no impairment
existed as of January 1, 2002, the date of adoption of SFAS No. 142.
The following table shows net income and earnings per share for the three and
nine months ended September 30, 2002 and 2001, as if the Corporation had been
accounting for goodwill under SFAS No. 142 and SFAS No. 147 for all periods
presented.
Quarter Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------
Net Income:
Reported net income $1,334 $ 940 $4,692 $2,978
Goodwill amortization, net of tax 113 339
- ----------------------------------------------------------------------------------------
Adjusted net income $1,334 $1,053 $4,692 $3,317
========================================================================================
Basic Earnings per Share:
Reported earnings per share $ 0.32 $ 0.22 $ 1.11 $ 0.70
Goodwill amortization, net of tax 0.03 0.08
- ----------------------------------------------------------------------------------------
Adjusted basic earnings per share $ 0.32 $ 0.25 $ 1.11 $ 0.78
========================================================================================
Diluted Earnings per Share:
Reported earnings per share $ 0.31 $ 0.22 $ 1.09 $ 0.69
Goodwill amortization, net of tax 0.02 0.08
- ----------------------------------------------------------------------------------------
Adjusted diluted earnings per share $ 0.31 $ 0.24 $ 1.09 $ 0.77
========================================================================================
In accordance with SFAS No. 147, net income and earnings per share for the first
and second quarters of 2002 have been restated to remove amortization expense.
Restated net income and diluted earnings per share for the three-month period
ended March 31, 2002 were $1,418,000 and $0.33, respectively, and net income and
diluted earnings per share for the three- and six-month periods ended June 30,
2002 was $1,940,000 and $0.46, and $3,358,000, and $0.45, respectively.
The carrying amount of goodwill as of September 30, 2002 and December 31, 2001
was $8,837,000. There were no other intangible assets at September 30, 2002 or
December 31, 2001.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
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.
Critical Accounting Policies
Management believes that Westbank's "Critical Accounting Policies" relate to
accounting for Securities and Loans, including revenue recognition.
11
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 that have been identified as assets for which
there is not a positive intent to hold to maturity, including all marketable
equity securities, are classified as available for sale with unrealized gains
(losses), net of income taxes, reported as a separate component of stockholders'
equity. The Corporation determines if securities will be classified as
held-to-maturity or available-for-sale at the time of purchase. In addition, any
mortgage-backed securities created out of the Corporation's own inventory of
residential real estate loans are also considered available for sale. Gains and
losses on sales of available-for-sale securities are recognized in non-interest
income at the time of sale on a specific identification basis. Securities that
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.
Loans
Loans have been reduced by deferred loan fees and the allowance for loan losses.
Interest income on loans is recorded on an accrual basis. 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 ninety
(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 loans in accordance with SFAS No. 114,
"Accounting for Impairment of a Loan", as Amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures"
(collectively, SFAS No. 114). A loan is recognized as impaired when it is
probable that either principal or interest are not collectible in accordance
with the terms of the loan agreement. Measurement of impairment for commercial
loans is generally based on 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. If
the estimated fair value of the impaired loan is less than the related recorded
amount, a specific valuation allowance is established or a write-down is charged
against the allowance for loan losses. Smaller balance homogenous loans,
including residential real estate and consumer loans, are excluded from the
provisions of SFAS No. 114. Generally, income is recorded only on a cash basis
for impaired loans.
The adequacy of the allowance for loan losses is evaluated quarterly by
management. Factors considered in evaluating the adequacy of the allowance
include the size and concentration 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.
12
Changes in Financial Condition
Total consolidated assets amounted to $698,425,000 on September 30, 2002,
compared to $628,922,000 on December 31, 2001. As of September 30, 2002 and
December 31, 2001, earning assets amounted to, respectively, $653,078,000 or 94%
of total assets and $586,995,000 or 93% of total assets. Earning assets
increased during the first nine months of 2002 as a result of an increase in
loans and federal funds sold. 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, 2002, net income totaled $1,334,000,
compared to $940,000 for the quarter ended September 30, 2001. For the nine
months ended September 30, 2002, net income was $4,692,000, compared to
$2,978,000 for the same period during 2001.
Non-interest income increased by $57,000 during the third quarter of 2002
compared to the third quarter of 2001. During the third quarter of 2002, the
Corporation recognized a gain on the sale of securities available for sale of
$59,000 and a gain on the sale of mortgages totaling $45,000, while other
non-interest income totaled $862,000. Included in other non-interest income are
$225,000 in life insurance proceeds and $151,000 in write-downs of the Bank's
mortgage servicing assets. Non-interest expense totaled $3,956,000 for the
quarter ended September 30, 2002, a decrease of $473,000 versus the quarter
ended September 30, 2001, which included $270,000 of expenses related to the
merger of the Corporation's banking subsidiaries and $171,000 of goodwill
amortization.
An 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,
2002. 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 $400,000,
compared to $279,000 for the same period in 2001. Loans written off against the
allowance for loan losses after recoveries amounted to $151,000 for the quarter
ended September 30, 2002.
After giving effect to the actions described above, the allowance for loan
losses at September 30, 2002 totaled $4,932,000 or 1.05% of total loans, as
compared to $4,179,000 or 0.94% at December 31, 2001.
Non-performing and past due loans at September 30, 2002 aggregated $3,271,000 or
0.69% of total loans, compared to $1,830,000 or 0.41% at December 31, 2001. The
percentage of non-performing and past due loans compared to total assets on
those same dates, respectively, amounted to 0.47% and 0.32%. The increase in
non-performing loans in the current quarter is primarily the result of one
classified commercial mortgage loan being moved to non-performing status.
Other real estate owned decreased by $204,000 compared to 2001; as of September
30, 2002, the Corporation had no other real estate owned. The percentage of
other real estate owned to total assets as of September 30, 2002 and December
31, 2001 amounted to 0% and 0.01%, respectively.
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 the quarter and the balance
in the allowance for loan losses, are adequate, based on results provided by the
loan grading system and circumstances known at this time.
13
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).
(Dollar amounts in thousands)
Quarter Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------
Interest and dividend income $10,037 $10,540 $30,686 $30,802
Interest expense 4,642 5,349 13,635 15,643
- ----------------------------------------------------------------------------------------
Net interest income 5,395 $ 5,191 17,051 $15,159
Tax equivalent adjustment 61 40 150 124
- ----------------------------------------------------------------------------------------
Net interest income (taxable equivalent) $ 5,456 $ 5,231 $17,201 $15,283
========================================================================================
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Dollar amounts in thousands)
Quarter Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
- ----------------------------------------------------------------------------------------------------------------------
Earning Assets $639,312 6.32% $580,803 7.29% $618,118 6.65% $549,573 7.50%
- ----------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities 558,509 3.32 514,075 4.16 542,617 3.35 481,748 4.33
- ----------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.00 3.13 3.30 3.17
- ----------------------------------------------------------------------------------------------------------------------
Interest-free resources used
to fund earning assets 80,803 66,728 75,501 67,825
- ----------------------------------------------------------------------------------------------------------------------
Total Sources of Funds $639,312 $580,803 $618,118 $549,573
- ----------------------------------------------------------------------------------------------------------------------
Net Yield on Earning Assets 3.42% 3.61% 3.71% 3.70%
======================================================================================================================
14
CHANGES IN NET INTEREST INCOME
(Dollar amounts in thousands)
Quarter Ended Nine Months Ended
September 30, 2002 September 30, 2002
Over Over
Quarter Ended Nine Months Ended
September 30, 2001 September 30, 2001
- --------------------------------------------------------------------------------
Change Due To Change Due To
Volume Rate Total Volume Rate Total
- --------------------------------------------------------------------------------
Interest Income:
Loans $409 $ (895) $(486) $1,266 $(2,633) $(1,367)
Securities 58 (187) (129) 1,605 (423) 1,182
Federal funds 141 (8) 133 174 (79) 95
- --------------------------------------------------------------------------------
Total Interest Earned 608 (1,090) (482) 3,045 (3,135) (90)
- --------------------------------------------------------------------------------
Interest Expense:
Interest-bearing deposits 549 (1,106) (557) 1,258 (3,508) (2,250)
Other borrowed funds (191) 41 (150) 620 (378) 242
- --------------------------------------------------------------------------------
Total Interest Expense 358 (1,065) (707) 1,878 (3,886) (2,008)
- --------------------------------------------------------------------------------
Net Interest Income
(tax equivalent basis) $250 $ (25) $225 $1,167 $ 751 $1,918
================================================================================
For the quarter ended September 30, 2002, an increase in average earning assets
of $58,509,000 or 10.07% and a 97-basis-point decrease in average rate of return
resulted in an increase in volume of $608,000 and a decrease in rate of
$1,090,000. An increase in average interest-bearing liabilities of $44,434,000
or 8.64% and an 84-basis-point decrease in average rate of interest paid
contributed to an increase in volume of $358,000 and a decrease in rate of
$1,065,000. Net interest earned on a tax equivalent basis increased to
$5,456,000 in the third quarter of 2002, up $225,000 as compared with the
quarter ended September 30, 2001.
For the nine months ended September 30, 2002, an increase in average earning
assets of $68,545,000 or 12.47% and an 85-basis-point decrease in average rate
of return resulted in an increase in volume of $3,045,000 and a decrease in rate
of $3,135,000. An increase in average interest-bearing liabilities of
$60,869,000 or 12.64% and a 98-basis-point decrease in average rate of interest
paid contributed to an increase in volume of $1,878,000 and a decrease in rate
of $3,886,000. Net interest earned on a tax equivalent basis increased to
$17,201,000 through September 30, 2002, up $1,918,000 versus the same period of
2001.
15
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 Quarter Ended
September 30, September 30,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
- ------------------------------------------------------------------------------------------------------------
Salaries and benefits $ 2,220 20.18% $ 2,162 18.88% $ 6,741 19.99% $ 6,327 18.91%
Other non-interest expense 1,380 12.54 1,911 16.69 4,445 13.18 5,232 15.64
Occupancy - net 356 3.24 356 3.11 1,126 3.34 1,110 3.32
- ------------------------------------------------------------------------------------------------------------
Total Operating Expenses $ 3,956 35.96% $ 4,429 38.68% $12,312 36.51% $12,669 37.87%
============================================================================================================
For the three-month period ended September 30, 2002, operating expenses
decreased by approximately $473,000 versus the 2001 period. The decrease was the
result of a decrease in other non-interest expense totaling $531,000, and an
increase in salary and benefits totaling $58,000. The Corporation ceased the
amortization of goodwill, in accordance with FASB No. 147, during the third
quarter of 2002. Included in operating expenses during the third quarter and
nine months ended September 30, 2001 were goodwill amortization expenses
totaling $171,000 and $513,000 respectively. In addition, the Corporation
reflected $270,000 in expenses during the third quarter of 2001 related to the
merger of the Corporation's banking subsidiaries on September 7, 2001.
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, 2002.
(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 $ 131,845 $ 65,593 $ 154,226 $ 301,414 $ 653,078
Interest-Bearing
Liabilities 117,165 167,298 267,543 17,231 569,237
- -------------------------------------------------------------------------------------------------------
Interest Rate
Sensitivity Gap $ 14,680 $(101,705) $(113,317) $ 284,183 $ 83,841
=======================================================================================================
Cumulative Interest
Rate Sensitivity Gap $ 14,680 $ (87,025) $(200,342) $ 83,841
Interest Rate
Sensitivity Gap Ratio 2.25% (15.57)% (17.35)% 43.51%
Cumulative Interest Rate
Sensitivity Gap Ratio 2.25% (13.33)% (30.68)% 12.84%
16
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
September 30, September 30,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------
Balance at beginning of period $4,683 $4,073 $4,179 $3,670
Provision charged to expense 400 279 1,133 665
- ------------------------------------------------------------------------------------------
5,083 4,352 5,312 4,335
- ------------------------------------------------------------------------------------------
Less charge-offs:
Loans secured by real estate 9 0 133 7
Commercial and industrial loans 123 233 159 233
Consumer loans 28 34 170 93
- ------------------------------------------------------------------------------------------
160 267 462 333
- ------------------------------------------------------------------------------------------
Add recoveries:
Loans secured by real estate 0 1 16 60
Commercial and industrial loans 6 1 34 18
Consumer loans 3 3 32 10
- ------------------------------------------------------------------------------------------
9 5 82 88
- ------------------------------------------------------------------------------------------
Net charge-offs 151 262 380 245
- ------------------------------------------------------------------------------------------
Balance at end of period $4,932 $4,090 $4,932 $4,090
==========================================================================================
Net charge-offs to:
Average loans .03% .10% .08% .10%
Loans at end of period .03% .10% .08% .10%
Allowance for loan losses at January 1 3.61% 6.41% 9.09% 5.97%
Allowance for loan losses at
September 30 as a percentage of:
Average loans 1.05% .91% 1.07% .93%
Loans at end of period 1.05% .90% 1.05% .90%
The approach the Corporation uses in determining the adequacy of the allowance
for loan losses is an exposure method based on the Corporation's loan loss
history. 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, based on the overall mix of the loan portfolio and the loss
history of each loan category.
17
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(Dollar amounts in thousands)
9-30-02 06-30-02 03-31-02 12-31-01 09-30-01
- ------------------------------------------------------------------------------------------------
Non-Accrual Loans $2,246 $1,412 $1,160 $1,040 $1,570
- ------------------------------------------------------------------------------------------------
Loans contractually past
due 90 days or more
and still accruing 1,028 307 195 790 98
- ------------------------------------------------------------------------------------------------
Total non-accrual, past due
and restructured loans 3,274 1,719 1,355 1830 1,668
- ------------------------------------------------------------------------------------------------
Non-accrual, past due and
restructured loans as a
percentage of total loans 0.69% 0.37% 0.30% 0.41% 0.37%
- ------------------------------------------------------------------------------------------------
Allowance for loan losses as a
percentage of non-accrual,
past due and restructured loans 150.64% 272.43% 316.46% 228.36% 245.20%
- ------------------------------------------------------------------------------------------------
Other real estate owned - net $ 130 $ 204 $ 117
- ------------------------------------------------------------------------------------------------
Total non-performing assets $3,274 $1,719 $1,485 $2,034 $1,785
- ------------------------------------------------------------------------------------------------
Non-performing assets as a
percentage of total assets 0.47% 0.26% 0.23% 0.32% 0.29%
- ------------------------------------------------------------------------------------------------
18
QUARTER-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
Quarter Ended September 30,
2002 2001
- ----------------------------------------------------------------------------------------------------------
Balance Interest(1) Rate Balance Interest(1) Rate
- ----------------------------------------------------------------------------------------------------------
Federal funds sold and
temporary investments $ 36,131 $ 153 1.69% $ 3,195 $ 20 2.50%
Securities 134,192 1,936 5.77 130,493 2,065 6.33
Loans 468,989 8,009 6.83 447,115 8,495 7.60
- ----------------------------------------------------------------------------------------------------------
Total earning assets 639,312 $ 10,098 6.32% 580,803 $ 10,580 7.29%
- ----------------------------------------------------------------------------------------------------------
Loan loss allowance (4,768) (4,176)
All other assets 44,793 43,878
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 679,337 $ 620,505
==========================================================================================================
LIABILITIES AND EQUITY
Interest-bearing deposits $ 483,020 $ 3,693 3.06% $ 423,414 $ 4,250 4.01%
Borrowed funds 75,489 949 5.03 90,661 1,099 4.85
- ----------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 558,509 $ 4,642 3.32 514,075 $ 5,349 4.16
- ----------------------------------------------------------------------------------------------------------
Interest rate spread 3.00% 3.13%
Demand deposits 73,725 64,690
Other liabilities 5,610 4,334
Shareholders' equity 41,493 37,406
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $ 679,337 $ 620,505
==========================================================================================================
NET INTEREST INCOME
(TAX EQUIVALENT) $ 5,456 $ 5,231
==========================================================================================================
Interest Earned/Earning Assets 6.32% 7.29%
Interest Expense/Earning Assets 2.90 3.68
- ----------------------------------------------------------------------------------------------------------
Net Yield on Earning Assets 3.42% 3.61%
Deduct Tax Equivalent Adjustment 61 40
- ----------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
(TAX EQUIVALENT) $ 5,395 $ 5,191
==========================================================================================================
(1) Amounts shows are adjusted to a "tax equivalent" basis.
19
YEAR-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(Dollar amounts in thousands)
Nine Months Ended September 30,
2002 2001
- --------------------------------------------------------------------------------------------------------
Balance Interest(1) Rate Balance Interest(1) Rate
- --------------------------------------------------------------------------------------------------------
Federal funds sold and
temporary investments $ 13,854 $ 185 1.78% $ 2,821 $ 90 4.25%
Securities 143,450 6,503 6.04 108,559 5,321 6.53
Loans 460,814 24,148 6.99 438,193 25,515 7.76
- --------------------------------------------------------------------------------------------------------
Total earning assets 618,118 $ 30,836 6.65% 549,573 $ 30,926 7.50%
- --------------------------------------------------------------------------------------------------------
Loan loss allowance (4,459) (4,015)
All other assets 45,077 39,293
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 658,736 $ 584,851
========================================================================================================
LIABILITIES AND EQUITY
Interest-bearing deposits $ 457,017 $ 10,679 3.12% $ 413,185 $ 12,929 4.17%
Borrowed funds 85,600 2,956 4.60 68,563 2,714 5.27
- --------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 542,617 $ 13,635 3.35 481,748 $ 15,643 4.33
- --------------------------------------------------------------------------------------------------------
Interest rate spread 3.30% 3.17%
Demand deposits 70,697 62,851
Other liabilities 5,460 3,895
Shareholders' equity 39,962 36,357
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $ 658,736 $ 584,851
========================================================================================================
NET INTEREST INCOME
(tax equivalent) $ 17,201 $ 15,283
========================================================================================================
Interest Earned/Earning Assets 6.65% 7.50%
Interest Expense/Earning Assets 2.94 3.80
- --------------------------------------------------------------------------------------------------------
Net Yield on Earning Assets 3.71% 3.70%
Deduct Tax Equivalent Adjustment 150 124
- --------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
(TAX EQUIVALENT) $ 17,051 $ 15,159
========================================================================================================
(1) Amounts shown are adjusted to a "tax equivalent" basis.
20
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 2001 Annual Report
filed with the Securities and Exchange Commission.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the filing date of this report, the Corporation carried
out an evaluation, under the supervision and with the participation of the
Corporation's management, including the Corporation's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Corporation's disclosure controls and procedures. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Corporation's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Corporation in the reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions's rules and forms.
There were no significant changes in the Corporation's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their evaluations.
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
a. Exhibits
Exhibit 99.1 - Certification of Periodic Report
b. Reports on Form 8-K - NONE
EXHIBIT INDEX
Page No.
--------
3. Articles of Organization, as amended **
(a) Articles of Organization, as amended *
(b) By-Laws, as amended *
* 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.
21
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: 11/12/02 /s/ Donald R. Chase
------------- -------------------------------------
Donald R. Chase
President and Chief Executive Officer
Date: 11/12/02 /s/ John M. Lilly
------------- -------------------------------------
John M. Lilly
Treasurer and Chief Financial Officer
22
SECTION 302 CERTIFICATIONS
SARBANES-OXLEY ACT OF 2002
I, Donald R. Chase, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Westbank
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining the disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data, and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: 11/12/02 /s/ Donald R. Chase
------------- -------------------------------------
Donald R. Chase
President and Chief Executive Officer
23
SECTION 302 CERTIFICATIONS
SARBANES-OXLEY ACT OF 2002
I, John M. Lilly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Westbank
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data, and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: 11/12/02 /s/ John M. Lilly
------------- -------------------------------------
John M. Lilly
Treasurer and Chief Financial Officer
24