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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 JUNE 30, 2003
Commission file number 0 - 12784
WESTBANK CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2830731
(State of other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
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: 4,389,431 shares outstanding as of July
31, 2003
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WESTBANK CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements Page
----
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 10-20
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. Results of Votes on Matters Submitted to a
Vote of Security Holders 21
ITEM 5. Other Events 21
ITEM 6. Exhibits and Reports on Form 8-K 21
Exhibit Index 22
Signatures 23
2
ITEM 1. FINANCIAL STATEMENTS
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2003
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (Unaudited) December 31, 2002
- ------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks:
Non-interest bearing $ 20,036 $ 18,967
Interest bearing 83 98
Federal funds sold 24,922 28,185
- ------------------------------------------------------------------------------------------
Total cash and cash equivalents 45,041 47,250
- ------------------------------------------------------------------------------------------
Securities available for sale 122,254 132,296
Securities held to maturity
(approximate fair value of
$334 in 2003 and $586 in 2002) 317 436
- ------------------------------------------------------------------------------------------
Total securities 122,571 132,732
- ------------------------------------------------------------------------------------------
Loans 456,593 478,832
Allowance for loan losses 5,122 5,111
- ------------------------------------------------------------------------------------------
Net loans 451,471 473,721
Premises and equipment, net 6,351 6,586
Bank-owned life insurance 8,529 8,333
Accrued interest receivable 2,634 3,037
Intangible assets 8,837 8,837
Other assets 4,404 2,367
- ------------------------------------------------------------------------------------------
TOTAL ASSETS $ 649,838 $ 682,863
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 72,493 $ 74,169
Interest bearing 464,790 487,578
- ------------------------------------------------------------------------------------------
Total deposits 537,283 561,747
Borrowed funds 46,403 56,392
Accrued interest payable 526 665
Other liabilities 4,419 4,447
- ------------------------------------------------------------------------------------------
Total liabilities 588,631 623,251
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Mandatorily redeemable preferred stock 17,000 17,000
- ------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock - $2 par value
Authorized - 9,000,000 shares
Issued - 4,523,485 shares in 2003 and 2002 9,047 9,047
Additional paid in capital 14,516 14,497
Retained earnings 20,731 18,780
Treasury stock (1,917) (2,091)
Accumulated other comprehensive income 1,830 2,379
- ------------------------------------------------------------------------------------------
Total Stockholders' Equity 44,207 42,612
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 649,838 $ 682,863
==========================================================================================
See accompanying notes to condensed consolidated financial statements.
3
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Income:
Interest and fees on loans $ 7,281 $ 7,988 $ 14,914 $ 16,057
Interest and dividend income on securities 1,598 2,189 3,267 4,560
Interest on federal funds sold 54 29 116 32
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Total interest and dividend income 8,933 10,206 18,297 20,649
Interest expense 3,584 4,449 7,432 8,993
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Net interest income 5,349 5,757 10,865 11,656
Provision for loan losses 0 433 0 733
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 5,349 5,324 10,865 10,923
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Gain/(Loss) on sale of securities 4 263 (277)
Gain/(Loss) on sale of loans 246 (54) 246 73
Other non-interest income 744 1,391 1,478 2,274
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest income 994 1,337 1,987 2,070
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Non-interest expenses:
Salaries and benefits 2,443 2,277 4,813 4,521
Other non-interest expense 1,421 1,493 2,768 3,065
Occupancy - net 365 396 810 770
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Total non-interest expense 4,229 4,166(1) 8,391 8,356(2)
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,114 2,495 4,461 4,637
Income taxes 612 555 1,453 1,279
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NET INCOME $ 1,502 $ 1,940(1) $ 3,008 $ 3,358(2)
- ---------------------------------------------------------------------------------------------------------------------------
Net income per share
- Basic $0.34 $0.46(1) $0.69 $0.79(2)
- Diluted $0.33 $0.45(1) $0.67 $0.78(2)
Weighted average shares outstanding
- Basic 4,381,490 4,205,618 4,363,070 4,234,669
- Dilutive Option Shares 155,566 122,819 151,515 99,796
- ---------------------------------------------------------------------------------------------------------------------------
- Diluted 4,537,056 4,328,437 4,514,585 4,334,465
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
(1) Net income for the quarter ended June 30, 2002 has been restated to
reflect the September 30, 2002 adoption of SFAS No. 147 ("Acquisition of
Certain Financial Institutions"). Accordingly, for the quarter ended June
30, 2002, non-interest expense has been reduced by $171,000, net income
has been increased by $102,000, and basic and diluted net income per share
were increased by $0.02 and $0.03 respectively for the removal of
amortization expenses related to goodwill.
(2) Net income for the six-month period ended June 30, 2002 has been restated
to reflect the September 30, 2002 adoption of SFAS No. 147 ("Acquisition
of Certain Financial Institutions"). Accordingly, for the six months ended
June 30, 2002, non-interest expense has been reduced by $342,000, net
income has been increased by $205,000, and basic and diluted net income
per share both were increased by $0.05 for the removal of amortization
expenses related to goodwill.
4
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2002 AND SIX MONTHS ENDED JUNE 30, 2003
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
COMMON STOCK ACCUMULATED
------------ ADDITIONAL OTHER
NUMBER PAR PAID-IN RETAINED TREASURY COMPREHENSIVE
OF SHARES VALUE CAPITAL EARNINGS STOCK INCOME/(LOSS) TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE - JANUARY 1, 2002 4,266,383 $8,632 $11,782 $ 17,787 $ (431) $ 1,246 $39,016
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Net income 6,009 6,009
Cash dividends declared
($.40 per share) (1,849) (1,849)
Shares issued from treasury stock:
Stock option plan 54,055 (243) 547 304
Dividend reinvestment and
stock purchase plan 42,310 122 408 530
Changes in unrealized gain/(loss)
on securities available for sale 1,133 1,133
Income tax benefit for exercise of
non-qualified stock options 84 84
Five percent common stock dividend 207,690 415 2,752 (3,167)
Repurchase of common stock (202,658) (2,615) (2,615)
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BALANCE - DECEMBER 31, 2002 4,367,780 9,047 14,497 18,780 (2,091) 2,379 42,612
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(Unaudited)
Net income 3,008 3,008
Cash dividends declared
($.12 per share) (1,057) (1,057)
Shares issued from treasury stock:
Stock option plan 17,080 (100) 223 123
Dividend reinvestment and
stock purchase plan 24,428 36 315 351
Changes in unrealized gain/(loss)
on securities available for sale (549) (549)
Income tax benefit for exercise of
non-qualified stock options 83 83
Repurchase of common stock (25,727) (364) (364)
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BALANCE - JUNE 30, 2003 4,383,561 $9,047 $14,516 $ 20,731 $ (1,917) $ 1,830 $44,207
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See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (DOLLARD IN THOUSANDS)
Quarter Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 1,502 $1,940 $ 3,008 $3,358
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Unrealized gain (loss) on securities available for sale,
net of income taxes (benefit) of $66 and $872 for
the quarter and $(193) and $200 for the six-month
periods ended June 30, 2003 and 2002 respectively 128 1,693 (375) 389
Reclassification adjustment for gains (losses)
Included in net income, net of income taxes (benefit)
of $(1) and $0 for the second quarter of 2003 and
2002 respectively, and net of income taxes of $(89)
and $94 for the six months ended June 30, 2003
and 2002 respectively (3) (174) 183
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Other Comprehensive Income (Loss) 125 1,693 (549) 572
- ---------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 1,627 $3,633 $ 2,459 $3,930
===========================================================================================================================
See accompanying notes to condensed consolidated financial statements.
5
WESTBANK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited) (DOLLAR AMOUNTS IN THOUSANDS)
Six months ended June 30,
2003 2002
- -------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 3,008 $ 3,358
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 733
Provision for other real estate owned 11
Accretion of discount on investment securities (20) (27)
Depreciation and amortization 339 380
Realized loss/(gain) on sale of securities (263) 277
Gain on sale of mortgages (246) (73)
Gain on sale of other real estate owned (55)
(Increase)/Decrease in accrued interest receivable 403 (212)
(Increase) in bank-owned life insurance (196)
(Increase) in other assets (2,037) (253)
Increase/(Decrease) in accrued interest payable on deposits (139) 436
(Decrease) in other liabilities (28) (735)
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 821 3,840
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Investing activities:
Investments and mortgage-backed securities:
Held to maturity:
Proceeds from maturities and principal payments 119 193
Available for sale:
Purchases (21,392) (35,127)
Proceeds from sales 7,459 21,260
Proceeds from maturities and principal payments 49,267 47,958
Purchases of premises and equipment (104) (27)
Proceeds from loan sales 6,462
Net (increase) in loans (9,524) (48,186)
Proceeds from sale of other real estate owned 250
- -------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) investing activities 32,287 (13,679)
=======================================================================================================
Financing activities:
Net increase/(decrease) in deposits (24,464) 27,780
Net increase/(decrease) in borrowings (9,989) 3,335
Treasury stock (purchased)/issued, net 193 (23)
Dividends paid (1,057) (934)
- -------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) financing activities (35,317) 30,158
=======================================================================================================
Decrease in cash and cash equivalents (2,209) 20,319
Cash and cash equivalents at beginning of period 47,250 17,451
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 45,041 $ 37,770
=======================================================================================================
Cash paid:
Interest on deposits and other borrowings $ 7,571 $ 8,965
Income taxes 6,180 2,293
Supplemental disclosure of cash flow information:
Securitization of loans into mortgage-backed securities 26,079 23,495
See accompanying notes to condensed consolidated financial statements.
6
WESTBANK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Unaudited)
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 its banking subsidiary, 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 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for the
quarters and six-month periods ended June 30, 2003 and 2002 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 principles 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 six-month period ended June 30, 2003
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2003. 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 Annual Report on Form
10-K for the year ended December 31, 2002.
NOTE C - STOCK-BASED COMPENSATION
Prior to January 1, 2003, the Corporation accounted for stock-based employee
compensation under the intrinsic value method consistent with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related Interpretations, as permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123). Effective January 1, 2003, the Corporation adopted the fair value
recognition provisions of SFAS No. 123 prospectively to all employee awards
granted, modified or settled after January 1, 2003. In accordance with this
Statement, the Corporation began expensing the cost of the stock-based employee
compensation for all new employee awards granted.
The following table shows net income and earnings per share for the quarters
ended June 30, 2003 and 2002 and for the six month periods ended June 30, 2002
and 2003, as if the fair value based method had been applied to all outstanding
and unvested awards in each period.
7
Quarter Ended June 30, Six Months Ended June 30,
(DOLLARS IN THOUSANDS) 2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Net income:
Reported net income $ 1,502 $1,940 $3,008 $3,358
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects 47 67
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards net of related taxes
effects (1) 47 22 67 27
- ---------------------------------------------------------------------------------------------------------------------------
Pro forma net income $ 1,502 $1,918 $3,008 $3,331
===========================================================================================================================
Earnings per share:
Basic - as reported $0.34 $0.46 $0.69 $0.79
===========================================================================================================================
Basic - pro forma $0.34 $0.46 $0.69 $0.79
===========================================================================================================================
Diluted - as reported $0.33 $0.45 $0.67 $0.78
===========================================================================================================================
Diluted - pro forma $0.33 $0.44 $0.67 $0.77
===========================================================================================================================
(1) All previously awarded grants were fully amortized prior to January 2, 2003.
NOTE D - CONTINGENT LIABILITIES
On June 23, 2003, the Corporation's subsidiary Westbank ("the Bank") settled its
dispute with the Massachusetts Department of Revenue ("DOR") over a change in
state law regarding tax deductions for real estate investment trust ("REIT")
dividends for 2002 and prior tax years. The financial settlement with the DOR
had no material impact on the Corporation's financial results for the quarter
ended June 30, 2003.
8
NOTE E - RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2003, the Corporation adopted FASB Interpretation 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires a guarantor
entity, at the inception of a guarantee covered by the measurement provisions of
the interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Corporation has financial and
performance letters of credit. Financial letters of credit require the
Corporation to make payment if the customer's financial condition deteriorates,
as defined in the agreements. Performance letters of credit require the
Corporation to make payments if the customer fails to perform certain
non-financial contractual obligations. The Corporation previously did not record
a liability when guaranteeing obligations, unless it became probable that the
Corporation would have to perform under the guarantee. FIN 45 applies
prospectively to guarantees the Corporation issues or modifies subsequent to
December 31, 2002. The Corporation defines the initial fair value of the letters
of credit as the fee received from the customer. The fees collected as of June
30, 2003 were immaterial. The maximum potential undiscounted amount of future
payments of letters of credit under FIN 45 as of June 30, 2003 were
approximately $203,000, of which $193,000 will expire on January 15, 2004 and
$10,000 will expire on February 13, 2004. Amounts due under these letters of
credit would be reduced by any proceeds that the Corporation would be able to
obtain in liquidating the collateral for the loans, which varies depending on
the customer. The Corporation has not recorded any contingent liabilities
related to these letters of credit.
In January 2003, the FASB issued FASB Interpretation 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin 51, "Consolidated Financial Statements", for
certain entities that do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties or in which equity investors do not have the characteristics of a
controlling financial interest ("variable interest entities"). Variable interest
entities, within the scope of FIN 46, will be required to be consolidated by
their primary beneficiary. The primary beneficiary is determined to be the party
that absorbs a majority of the entity's expected losses, receives a majority of
its expected returns, or both. FIN 46 applies immediately to variable interest
entities created after January 31, 2003 and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003 to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. The Corporation does not anticipate FIN 46 will have a
material impact on its consolidated financial position or results of operations.
On May 15, 2003, the FASB issued Statement 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity."
Statement 150 requires the reclassification of certain financial instruments
from either equity or mezzanine presentation to liabilities and requires an
issuer of those financial statements to recognize changes in fair value of
redemption amount, as applicable, in earnings. On July 1, 2003, the Corporation
will adopt FASB Statement 150, requiring the Corporation to change the
classification of mandatorily redeemable preferred stock in the statement of
financial position from the mezzanine to liabilities. The change will not have a
material impact on the Corporation's results of operations.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
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 the Corporation's 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. Changes in interest rates;
5. The cost and other effects of unanticipated legal and administrative
cases and proceedings, settlements and investigations;
6. Changes in laws and regulations, including federal and state banking
laws and regulations, to which the Corporation and its subsidiaries are
subject;
7. 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
8. Disruption in general economic conditions due to military or terrorist
activity.
Forward-looking statements speak only as of the date they were made. 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
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 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 fair value are written down to estimated fair
value, establishing a new cost basis with the amount of the write-down expensed
as a realized loss. The Corporation does not engage in trading activities.
Mortgage-backed securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts determined by a method that
approximates the level-yield method. Management has the positive ability and the
intent to hold these assets until maturity.
LOANS
Loans have been reduced by deferred loan fees and the allowance for loan losses.
Interest 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 and the loan is in the process of collection. 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 appropriateness of the allowance for loan losses is evaluated quarterly by
management. Factors considered in evaluating the appropriateness 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 an appropriate level to absorb losses.
Management also retains an independent loan review consultant to provide advice
on the appropriateness of the loan loss allowance. Loan losses are charged
against the allowance for loan losses when management believes the
collectibility of the principal is doubtful.
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or fair value in the aggregate. There were no
mortgage loans originated and intended for sale. Net unrealized losses are
recognized through a valuation allowance charged to income as of June 30, 2003.
11
RECENT ACCOUNTING PRONOUNCEMENTS -
On January 1, 2003, the Corporation adopted FASB Interpretation 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires a guarantor
entity, at the inception of a guarantee covered by the measurement provisions of
the interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Corporation has financial and
performance letters of credit. Financial letters of credit require the
Corporation to make payment if the customer's financial condition deteriorates,
as defined in the agreements. Performance letters of credit require the
Corporation to make payments if the customer fails to perform certain
non-financial contractual obligations. The Corporation previously did not record
a liability when guaranteeing obligations, unless it became probable that the
Corporation would have to perform under the guarantee. FIN 45 applies
prospectively to guarantees the Corporation issues or modifies subsequent to
December 31, 2002. The Corporation defines the initial fair value of the letters
of credit as the fee received from the customer. The fees collected as of June
30, 2003 were immaterial. The maximum potential undiscounted amount of future
payments of letters of credit under FIN 45 as of June 30, 2003 were
approximately $203,000, of which $193,000 will expire on January 15, 2004 and
$10,000 will expire on February 13, 2004. Amounts due under these letters of
credit would be reduced by any proceeds that the Corporation would be able to
obtain in liquidating the collateral for the loans, which varies depending on
the customer. The Corporation has not recorded any contingent liabilities
related to these letters of credit.
CHANGES IN FINANCIAL CONDITION -
Total consolidated assets amounted to $649,838,000 on June 30, 2003 compared to
$682,863,000 on December 31, 2002. As of June 30, 2003 and December 31, 2002,
earning assets amounted to, respectively, $604,169,000 or 93% of total assets
and $639,847,000 or 94% of total assets. Earning assets decreased during the
first six months of 2003 as a result of a decrease in loans, federal funds sold
and securities. A decrease in deposits and a decrease in borrowed funds offset
the decrease in earning assets.
CHANGES IN RESULTS OF OPERATIONS -
For the quarter ended June 30, 2003, net income totaled $1,502,000 compared to
$1,940,000 for the quarter ended June 30, 2002. During the second quarter of
2003, the Corporation securitized approximately $26,000,000 in residential loans
and sold another $6,500,000 of real estate loans in the secondary mortgage
market. For the six months ended June 30, 2003, net income was $3,008,000,
compared to $3,358,000 for the same period during 2002.
Non-interest income declined by $993,000 during the second quarter of 2003
compared to the second quarter of 2002. During the second quarter of 2003, the
Corporation recognized a gain on sale of securities available for sale and a
gain on sale of loans totaling $4,000 and $246,000 respectively, while other
non-interest income totaled $744,000. Included in other non-interest income is
$271,250 in write-downs of the Bank's mortgage servicing assets. During the
second quarter of 2002, the Corporation's non-interest income included $579,000
in life insurance proceeds. Non-interest expense totaled $4,229,000 for the
quarter ended June 30, 2003, an increase of $63,000 versus the second quarter of
2002.
The overall decrease in interest income reflects a decrease in volume and a
decline in interest rates on earning assets, while the decrease in interest
expense reflects a decrease in interest-bearing liabilities and a decrease in
rates as compared to the second quarter of 2002. Further analysis is provided in
sections on net interest revenue and supporting schedules.
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS -
A decrease of $60,000 has been reflected in the allowance for loan losses at
June 30, 2003 as compared to June 30, 2002. The Corporation recorded no
provision for the quarter ended June 30, 2003 as compared to $433,000 in 2002.
Loans written off against the allowance for loan losses after recoveries
amounted to net charge-offs of $60,000 for the quarter ended June 30, 2003
versus net charge-offs of $38,000 for the same period of 2002.
The allowance for loan losses at June 30, 2003 totaled $5,122,000 or 1.12% of
total loans, as compared to $5,111,000 or 1.07% at December 31, 2002.
Non-performing past due loans at June 30, 2003 aggregated $1,462,000 or 0.32% of
total loans compared to $1,558,000 or 0.33% at December 31, 2002. The percentage
of non-performing and past due loans compared to total assets on those same
dates, respectively, amounted to 0.23% and 0.23%.
Management has made every effort to evaluate all circumstances known at this
time that could affect the collectibility of loans and has reflected these in
determining the provision for loan losses, the writing down of other real estate
owned and impaired loans to fair value and other loans (watch list) monitored by
management, the charge-off of loans 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 the results of
management's loan reserve evaluation process and circumstances known at this
time.
12
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 that
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 stockholders' 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, Westbank.
(DOLLAR AMOUNTS IN THOUSANDS)
Quarter Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------
Interest and dividend income $8,933 $ 10,206 $18,297 $ 20,649
Interest expense 3,584 4,449 7,432 8,993
- ----------------------------------------------------------------------------------------------------
Net interest income 5,349 5,757 10,865 11,656
Tax equivalent adjustment 27 51 50 89
- ----------------------------------------------------------------------------------------------------
NET INTEREST INCOME (TAXABLE EQUIVALENT) $ 5,376 $ 5,808 $10,915 $ 11,745
====================================================================================================
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(DOLLAR AMOUNTS IN THOUSANDS)
Quarter Ended June 30, Six Months Ended June 30,
- ------------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------------------------------------
Earning assets $604,565 5.93% $609,753 6.73% $613,847 5.98% $ 607,521 6.82%
- ------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities 521,869 2.75 532,410 3.34 532,166 2.79 534,671 3.36
- ------------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.18 3.39 3.19 3.46
- ------------------------------------------------------------------------------------------------------------------------
Interest-free resources used
to fund earning assets 82,696 77,343 81,667 72,850
- ------------------------------------------------------------------------------------------------------------------------
Total Sources of Funds $604,565 $609,753 $613,847 $ 607,521
- ------------------------------------------------------------------------------------------------------------------------
NET YIELD ON EARNING ASSETS 3.56% 3.81% 3.56% 3.87%
========================================================================================================================
13
CHANGES IN NET INTEREST INCOME
(DOLLAR AMOUNTS IN THOUSANDS)
QUARTER ENDED JUNE 30, 2003
OVER
QUARTER ENDED JUNE 30, 2002
- --------------------------------------------------------------------------------
CHANGE DUE TO
VOLUME RATE TOTAL
- --------------------------------------------------------------------------------
Interest Income:
Loans $ (67) $ (651) $ (718)
Securities (316) (288) (604)
Federal funds 57 (32) 25
- --------------------------------------------------------------------------------
Total Interest Earned (326) (971) (1,297)
Interest Expense:
Interest-bearing deposits 49 (737) (688)
Other borrowed funds (215) 38 (177)
- --------------------------------------------------------------------------------
Total Interest Expense (166) (699) (865)
- --------------------------------------------------------------------------------
NET INTEREST INCOME $ (160) $ (272) $ (432)
================================================================================
For the quarter June 30, 2003, a decrease in average earning assets of
$5,188,000 or 0.85% and a 80-basis-point decrease in average rate of return
resulted in a decrease in volume of $326,000 and a decrease in rate of $971,000.
A decrease in average interest-bearing liabilities of $10,541,000 or 1.98% and a
59-basis-point decrease in average rate of interest paid contributed to a
decrease in volume of $166,000 and a decrease in rate of $699,000. Net interest
earned on a tax equivalent basis decreased to $5,376,000 for the second quarter
of 2003, down $432,000 as compared with the quarter ended June 30, 2002.
14
CHANGES IN NET INTEREST INCOME
(DOLLAR AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 2003
OVER
SIX MONTHS ENDED JUNE 30, 2002
- --------------------------------------------------------------------------------
CHANGE DUE TO
VOLUME RATE TOTAL
- --------------------------------------------------------------------------------
Interest Income:
Loans $ 373 $(1,541) $(1,168)
Securities (718) (589) (1,307)
Federal funds 113 (29) 84
- --------------------------------------------------------------------------------
Total Interest Earned (232) (2,159) (2,391)
Interest Expense:
Interest-bearing deposits 311 (1,560) (1,249)
Other borrowed funds (368) 56 (312)
- --------------------------------------------------------------------------------
Total Interest Expense (57) (1,504) (1,561)
- --------------------------------------------------------------------------------
NET INTEREST INCOME $ (175) $ (655) $ (830)
================================================================================
For the six-month period ended June 30, 2003, an increase in average earning
assets of $6,326,000 or 1.04% and an 84-basis-point decrease in average rate of
return resulted in a decrease in volume of $232,000 and a decrease in rate of
$2,159,000. A decrease in average interest-bearing liabilities of $2,505,000 or
0.47% and a 57-basis-point decrease in average rate of interest paid contributed
to a decrease in volume of $57,000 and a decrease in rate of $1,504,000. Net
interest earned on a tax equivalent basis decreased to $10,915,000 for the
six-month period ended June 30, 2003, down $830,000 as compared with the six
months ended June 30, 2002.
OPERATING EXPENSES
The components of total operating expenses for the periods and their percentage
of interest income and non-interest income are as follows:
(DOLLAR AMOUNTS IN THOUSANDS)
Quarter Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent
- ---------------------------------------------------------------------------------------------------------------------------
Salaries and benefits $ 2,443 24.61% $ 2,277 19.73% $4,813 23.73% $4,521 19.90%
Other non-interest expense 1,421 14.31 1,493 12.93 2,768 13.65 3,065 13.49
Occupancy - net 365 3.68 396 3.43 810 3.99 770 3.39
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 4,229 42.60% $ 4,166 36.09% $8,391 41.37% $8,356 36.78%
===========================================================================================================================
For the three-month period ended June 30, 2003, operating expenses increased by
approximately $63,000 versus the 2002 period. Salaries and benefits increased by
$166,000, while other non-interest expense and occupancy decreased by $72,000
and $31,000 respectively.
For the six-month period ended June 30, 2003, operating expenses increased by
approximately $35,000 versus the 2002 period. Salaries and benefits increased by
$292,000, while other non-interest expense decreased by $297,000 and occupancy
increased by $40,000. The net increase of approximately $35,000 is a direct
result of the Corporation's continued commitment to control other non-interest
expenses.
15
INTEREST RATE SENSITIVITY
The following table sets forth the distribution of the repricing of the
Corporation's earning assets and interest-bearing liabilities as of June 30,
2003.
(DOLLAR AMOUNTS IN THOUSANDS)
Three Over Three Over One
Months Months to Year to Over Five
or Less One Year Five Years Years Total
- --------------------------------------------------------------------------------------------------------------------
Earning Assets $117,772 $ 51,308 $164,664 $270,425 $604,169
Interest-Bearing
Liabilities 139,414 108,320 263,122 17,337 528,193
- --------------------------------------------------------------------------------------------------------------------
Interest Rate
Sensitivity Gap $(21,642) $(57,012) $(98,458) $253,088 $ 75,976
====================================================================================================================
Cumulative Interest
Rate Sensitivity Gap $(21,642) $(78,654) $(177,112) $ 75,976
Interest Rate
Sensitivity Gap Ratio (3.58)% (9.44)% (16.30)% 41.89%
Cumulative Interest
Rate Sensitivity Gap Ratio (3.58)% (13.02)% (29.31)% 12.58%
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 needs 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.
16
PROVISION AND ALLOWANCE FOR LOAN LOSSES
(DOLLAR AMOUNTS IN THOUSANDS)
Quarter Ended June 30, Six Months Ended June 30,
- -------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------
Balance at beginning of period $5,182 $4,288 $5,111 $4,179
Provision for loan losses 433 733
- -------------------------------------------------------------------------------------------------------
5,182 4,721 5,111 4,912
- -------------------------------------------------------------------------------------------------------
Less charge-offs:
Loans secured by real estate 2 20 6 124
Commercial and industrial loans 32 4 32 36
- -------------------------------------------------------------------------------------------------------
Consumer loans 27 43 67 142
- -------------------------------------------------------------------------------------------------------
61 67 105 302
- -------------------------------------------------------------------------------------------------------
Add recoveries:
Loans secured by real estate 15 100 16
Commercial and industrial loans 8 13 28
Consumer loans 1 6 3 29
- -------------------------------------------------------------------------------------------------------
1 29 116 73
- -------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) 60 38 (11) 229
- -------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD $5,122 $4,683 $5,122 $4,683
=======================================================================================================
Net charge-offs (recoveries) to:
Average loans .01% .01% Nil .05%
Loans at end of period .01% .01% Nil .05%
Allowance for loan losses at January 1 1.17% .89% (.22)% 5.50%
Allowance for loan losses at June 30
as a percentage of
Average loans 1.12% 1.02% 1.10% 1.03%
Loans at end of period 1.12% 1.00% 1.12% 1.00%
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 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 NON-PERFORMING LOANS
(DOLLAR AMOUNTS IN THOUSANDS)
6-30-03 3-31-03 12-31-02 9-30-02 6-30-02
- ------------------------------------------------------------------------------------------------------
Non-accrual loans $1,116 $1,052 $1,372 $2,246 $1,412
- ------------------------------------------------------------------------------------------------------
Loans contractually past
due 90 days or more
still accruing 346 373 186 1,025 307
- ------------------------------------------------------------------------------------------------------
Total non-accrual, past due
and restructured loans 1,462 1,425 1,558 3,271 1,719
- ------------------------------------------------------------------------------------------------------
Non-accrual, past due and
restructured loans as a
percentage of total loans 0.32% 0.30% 0.33% 0.69% 0.37%
- ------------------------------------------------------------------------------------------------------
Allowance for loan losses as a
percentage of non-accrual,
past due and restructured loans 350.34% 363.90% 328.05% 150.64% 272.43%
- ------------------------------------------------------------------------------------------------------
Other real estate owned - net
- ------------------------------------------------------------------------------------------------------
Total non-performing assets $1,462 $1,425 $1,558 $3,271 $1,719
Non-performing assets as a
percentage of total assets 0.23% 0.22% 0.23% 0.47% 0.26%
- ------------------------------------------------------------------------------------------------------
18
QUARTER-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(DOLLAR AMOUNTS IN THOUSANDS)
Quarter ended June 30,
2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Balance Interest(1) Rate Balance Interest(1) Rate
- --------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
temporary investments $ 21,797 $ 54 0.99% $ 3,794 $ 29 3.06%
Securities 125,311 1,602 5.11 144,680 2,206 6.10
Loans 457,457 7,304 6.39 461,279 8,022 6.96
- --------------------------------------------------------------------------------------------------------------------------
Total earning assets 604,565 $8,960 5.93% 609,753 10,257 6.73%
- --------------------------------------------------------------------------------------------------------------------------
Loan loss allowance (5,200) (4,405)
All other assets 42,082 44,583
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $641,447 $649,931
==========================================================================================================================
LIABILITIES AND EQUITY
Interest-bearing deposits $457,923 $2,772 2.42% $451,420 $3,460 3.07%
Borrowed funds 63,946 812 5.08 80,990 989 4.89
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
Liabilities 521,869 $3,584 2.75 532,410 4,449 3.34
- --------------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.18% 3.39%
Demand deposits 72,275 72,708
Other liabilities 4,077 5,265
Shareholders' equity 43,226 39,548
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $641,447 $5,376 $649,931
==========================================================================================================================
Net Interest Income (tax equivalent basis) $5,808
Interest Earned/Earning Assets 5.93% 6.73%
Interest Expense/Earning Assets 2.37 2.92
- --------------------------------------------------------------------------------------------------------------------------
Net Yield on Earning Assets 3.56% 3.81%
Deduct tax equivalent adjustment 27 51
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $5,349 $5,757
==========================================================================================================================
(1) Amounts shown are adjusted to a "tax equivalent" basis.
19
QUARTER-TO-DATE AVERAGE BALANCES
INTEREST EARNED - INTEREST EXPENSE
(DOLLAR AMOUNTS IN THOUSANDS)
Six months ended June 30,
2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Balance Interest(1) Rate Balance Interest(1) Rate
- --------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
temporary investments $ 23,294 $ 116 1.00% $ 2,714 $ 32 2.36%
Securities 122,953 3,274 5.33 148,080 4,581 6.19
Loans 467,600 14,957 6.40 456,727 16,125 7.06
- --------------------------------------------------------------------------------------------------------------------------
Total earning assets 613,847 $18,347 5.98% 607,521 20,738 6.82%
- --------------------------------------------------------------------------------------------------------------------------
Loan loss allowance (5,178) (4,306)
All other assets 42,475 45,256
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $651,144 $648,471
==========================================================================================================================
LIABILITIES AND EQUITY
Interest-bearing deposits $464,621 $ 5,737 2.47% $444,016 $ 6,986 3.15%
Borrowed funds 67,545 1,695 5.02 90,655 2,007 4.43
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
Liabilities 532,166 $ 7,432 2.79 534,671 8,993 3.36
- --------------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.19% 3.46%
Demand deposits 71,752 69,183
Other liabilities 4,342 5,421
Shareholders' equity 42,884 39,196
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $651,144 $648,471
==========================================================================================================================
Net Interest Income (tax equivalent basis) $10,915 $11,745
Interest Earned/Earning Assets 5.98% 6.82%
Interest Expense/Earning Assets 2.42 2.95
- --------------------------------------------------------------------------------------------------------------------------
Net Yield on Earning Assets 3.56% 3.87%
Deduct tax equivalent adjustment 50 89
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $10,865 $11,656
==========================================================================================================================
(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 2002 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 Commission'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 affect 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
21
EXHIBIT INDEX
3. Articles of Organization, as amended*
(a) Articles of Organization, as amended*
(b) Bylaws, as amended*
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32 Section 906 Certification of Chief Executive Officer
and Chief Financial Officer
* Incorporated by reference to identically numbered exhibits contained in
Registrant's Annual Report on Form 10-K for the year ended December 31,
1988.
b. Reports on Form 8-K -- NONE.
22
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
WESTBANK CORPORATION
Date: August 11, 2003 /s/ Donald R. Chase
---------------------------------------
Donald R. Chase
President and Chief Executive Officer
Date: August 11, 2003 /s/ John M. Lilly
---------------------------------------
John M. Lilly
Treasurer and Chief Financial Officer
23