UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1995
Commission File Number: 1-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA
(State or other jurisdiction of
incorporation or organization)
94-2156203
(I.R.S. Employer
Identification No.)
1108 Fifth Avenue, San Rafael, California 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (415) 257-8000
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 [ ]
Indicate the number of shares outstanding of each of the registrant
classes of common stock, as of the latest practicable date:
Title of Class
Common Stock,
No Par Value
Shares outstanding as of May 7, 1995
9,234,713
BALANCE SHEETS
- --------------
(in thousands)
March 31,
---------------- December 31,
1995 1994 * 1994 *
----- ------ ---------
ASSETS
Cash and cash equivalents $147,253 $124,307 $127,292
Money market assets 250 250 250
Investment securities available for sale 174,637 188,531 176,494
Investment securities held to maturity
with market values of: 597,020 603,293 605,962
$584,496 at March 31, 1995
$597,834 at March 31, 1994
$576,721 at December 31, 1994
Loans, net of reserve for loan losses of: 1,211,010 1,195,512 1,213,644
$30,208 at March 31, 1995
$27,864 at March 31, 1994
$29,434 at December 31, 1994
Other real estate owned 7,107 12,555 7,513
Premises and equipment, net 23,475 25,440 24,301
Interest receivable and other assets 54,050 51,582 54,170
---------- ---------- ----------
Total assets $2,214,802 $2,201,470 $2,209,626
========== ========== ==========
LIABILITIES
Deposits:
Non-interest bearing $395,864 $400,905 $421,658
Interest bearing:
Transaction 298,939 306,647 301,621
Savings 696,728 722,015 707,222
Time 420,009 449,446 417,040
---------- ---------- ----------
Total interest-bearing deposits 1,415,676 1,478,108 1,425,883
---------- ---------- ----------
Total deposits 1,811,540 1,879,013 1,847,541
Funds purchased 170,538 95,167 133,218
Liability for interest, taxes and
other expenses 14,886 18,813 17,719
Notes and mortgages payable 25,524 35,586 25,524
---------- ---------- ----------
Total liabilities 2,022,488 2,028,579 2,024,002
SHAREHOLDERS' EQUITY
Authorized - 20,000 shares
Common stock issued and outstanding: 66,637 65,547 65,677
9,225 at March 31, 1995
9,240 at March 31, 1994
9,221 at December 31, 1994
Capital surplus 10,289 10,289 10,289
Unrealized (loss) gain on securities
available for sale (738) 385 (1,905)
Retained earnings 116,126 96,670 111,563
---------- ---------- ----------
Total shareholders' equity 192,314 172,891 185,624
---------- ---------- ----------
Total liabilities and
shareholders' equity $2,214,802 $2,201,470 $2,209,626
========== ========== ==========
* 1994 data has been restated on a historical basis to reflect the January 31,
1995 acquisition of PV Financial on a pooling-of-interest basis.
STATEMENTS OF INCOME
- --------------------
(in thousands, except when indicated)
For the three months
ended March 31,
1995 1994
------- -------
INTEREST INCOME
Loans $28,379 $25,564
Money market assets and funds sold -- 94
Investment securities available for sale 2,596 2,431
Investment securities held to maturity 8,066 7,479
------- -------
Total interest income 39,041 35,568
INTEREST EXPENSE
Transaction deposits 736 765
Savings deposits 4,579 3,886
Time deposits 4,693 4,238
Funds purchased 2,231 816
Long-term debt 505 828
------- -------
Total interest expense 12,744 10,533
------- -------
NET INTEREST INCOME 26,297 25,035
Provision for loan losses 1,275 1,982
NET INTEREST INCOME AFTER ------- -------
PROVISION FOR LOAN LOSSES 25,022 23,053
NON-INTEREST INCOME
Service charges on deposit accounts 3,055 3,118
Merchant credit card 502 547
Mortgage banking 181 344
Brokerage commissions 139 165
Net investment securities gains -- 520
Other 719 1,085
------- -------
Total non-interest income 4,596 5,779
NON-INTEREST EXPENSE
Salaries and related benefits 9,362 9,944
Occupancy 2,048 1,949
Equipment 1,226 1,196
FDIC insurance assessment 1,044 1,081
Professional fees 998 496
Data processing 990 1,073
Other real estate owned 99 (180)
Other 3,097 3,559
------- -------
Total non-interest expense 18,864 19,118
------- -------
INCOME BEFORE INCOME TAXES 10,754 9,714
Provision for income taxes 3,516 3,214
------- -------
NET INCOME $7,238 $6,500
Average shares outstanding 9,220 9,234
PER SHARE DATA
Earnings per share $0.79 $0.70
Dividends declared 0.17 0.15
STATEMENTS OF CASH FLOWS
- ------------------------ For the three months
(In thousands) ended March 31,
1995 1994
------- -------
OPERATING ACTIVITIES
Net income $7,238 $6,500
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 941 1,314
Loan loss provision 1,275 1,698
Amortization of deferred loan (cost)/fees (331) 130
Increase in other assets (2,205) (2,967)
Increase in income taxes payable 3,258 1,294
Decrease in other liabilities (4,628) (752)
Gain on sales of investment securities
available for sale -- (520)
Loss on sales/write down of equipment 267 --
Originations of loans for resale (883) (13,475)
Proceeds from sale of loans originated
for resale 1,036 19,167
Gain on sale of property acquired in
satisfaction of debt (17) (525)
Write down on property acquired in
satisfaction of debt 27 211
Gain from real estate venture -- (14)
Net maturities of trading securities -- 10
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,978 12,071
-------- --------
INVESTING ACTIVITIES
Net repayments of loans 1,537 22,282
Purchases of investment securities
available for sale (10,918) (66,874)
Purchases of investment securities
held to maturity (6,419) (81,518)
Purchases of premises and equipment (383) (206)
Proceeds from maturity of securities
available for sale 14,800 31,335
Proceeds from maturity of securities
held to maturity 15,365 19,542
Proceeds from sale of securities
available for sale -- 52,837
Proceeds from property acquired in
satisfaction of debt 417 1,391
Net additions to property acquired in
satisfaction of debt (21) (230)
-------- --------
NET CASH PROVIDED BY(USED IN)
INVESTING ACTIVITIES 14,378 (21,441)
-------- --------
FINANCING ACTIVITIES
Net decrease in deposits (36,001) (10,488)
Net increase in funds purchased 37,320 26,103
Reduction on notes and mortgages payable -- (766)
Exercise of stock options/issuance of shares 1,425 642
Cash paid in lieu of fractional shares (10) --
Retirement of stock (1,759) (790)
Dividends on common stock (1,370) (1,339)
-------- --------
NET CASH (USED IN)PROVIDED BY
FINANCING ACTIVITIES (395) 13,362
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 19,961 3,992
-------- --------
Cash and cash equivalents at
beginning of the year 127,292 120,315
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $147,253 $124,307
======== ========
Supplemental disclosure of
non-cash activities:
Loans transferred to
other real estate owned -- 230
Supplemental disclosure of
cash flow activities:
Unrealized gain on securities
available for sale 1,167 2,142
Interest paid for the period 13,118 10,913
Income tax payments for the period -- 525
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Westamerica Bancorporation (the "Company"), parent company of
Westamerica Bank and Subsidiary, Napa Valley Bank, Bank of Lake
County and Community Banker Services Corporation and Subsidiary,
reported first quarter 1995 net income of $7.2 million or $.79 per
share. This compares with net income of $6.5 million or $.70 per
share for the first quarter of 1994 and $.76 per share for the fourth
quarter of 1994. All financial data has been restated on a historical
basis to reflect the January 31, 1995 acquisition of PV Financial on
a pooling-of-interest basis.
ACQUISITION
On January 31, 1995, the Company completed the acquisition of PV
Financial, parent company of Pacific Valley National Bank, on a
pooling-of-interests basis and accordingly, the Company's historical
consolidated financial statements were restated. The Company issued
approximately 1,180,000 shares in exchange for all of the outstanding
shares of PV Financial.
The following summarizes the separate results of the combined entities for
the periods shown prior to the combination:
(In thousands, except per share data)
Restated
PV Combined
Westamerica Financial Results
----------- --------- --------
Quarter ended 3/31/94:
Net interest income $22,821 $2,214 $25,035
Net income 5,995 505 6,500
Earnings per share 0.74 0.23 0.70
At March 31, 1994
Total assets $2,031,531 $169,939 $2,201,470
Total shareholders' equity 155,002 17,889 172,891
Quarter ended 12/31/94
Net interest income $23,545 $3,108 $26,653
Net income 6,369 663 7,032
Earnings per share 0.79 0.30 0.76
At December 31, 1994
Total assets $2,030,235 $179,391 $2,209,626
Total shareholders' equity 166,205 19,419 185,624
COMPONENTS OF NET INCOME
Following is a summary of the components of net income for the
periods indicated:
For the three months ended
March 31, December 31,
---------------- -----------
(In millions) 1995 1994 1994
----- ----- -----
Net interest income * $27.8 $26.1 $28.2
Provision for loan losses (1.3) (2.0) (1.6)
Non-interest income 4.6 5.8 4.9
Non-interest expense (18.9) (19.1) (19.7)
Provision for income taxes * (5.0) (4.3) (4.8)
----- ----- -----
Net income $7.2 $6.5 $7.0
===== ===== =====
* Fully taxable equivalent basis (FTE)
Components of Net Income as a Percent of Average Earning Assets
The components of net income (annualized) expressed as a percent of
average earning assets are summarized in the following table for the
periods indicated:
For the three months ended
March 31, December 31,
---------------- -----------
1995 1994 1994
----- ----- -----
Net interest income * 5.61% 5.33% 5.52%
Provision for loan losses -0.26% -0.40% -0.32%
Non-interest income 0.93% 1.18% 0.97%
Non-interest expense -3.80% -3.91% -3.86%
Provision for income taxes * -1.02% -0.87% -0.93%
----- ----- -----
Net income 1.46% 1.33% 1.38%
===== ===== =====
Net income (annualized)
as a percent of average
total assets 1.34% 1.20% 1.26%
* Fully taxable equivalent basis (FTE)
ANALYSIS OF NET INTEREST INCOME AND MARGIN
The Company continually manages its interest-earning assets and
interest- bearing liabilities adapting rapidly to changes in market
rates like the upward trend experienced in the first quarter of 1995.
The adverse effect of a decrease in the average balance of low-cost
deposits from the first and fourth quarters of 1994 combined with a
higher level of interest rates paid on interest-bearing liabilities
was more than offset by increased yields on earning assets, resulting
in an net interest income (FTE) higher than the same quarter of 1994
and only one percent lower than the fourth quarter of 1994. These
variances are shown in the components of net interest income and in
the analysis of net interest margin summarized as follows for the
periods indicated:
Net Interest Income For the three months ended
March 31, December 31,
(In millions) ---------------- -----------
1995 1994 1994
----- ----- -----
Interest income $39.0 $35.5 $38.5
Interest expense (12.7) (10.5) (11.8)
FTE adjustment 1.5 1.1 1.5
------ ------ ------
Net interest income * $27.8 $26.1 $28.2
====== ====== ======
Average earning assets $2,013 $1,986 $2,024
Net interest margin * 5.61% 5.33% 5.52%
* Fully taxable equivalent basis (FTE)
Net interest income (FTE) increased $1.7 million or 7 percent in the
first quarter of 1995 from the $26.1 million earned during the first
quarter of 1994. A $3.5 million increase in interest income, mostly
due to increases in market rates and a $400,000 increase in the FTE
adjustment, as the Company's average balance in tax-exempt securities
increased $60 million from the first quarter of 1994, were partially
offset by a $2.2 million increase in interest expense, principally
due to the decrease in the average balances of low-cost deposits,
higher market rates and an increase of $55 million in higher costing
short-term purchased funds.
Compared to the three months ended December 31, 1994, net interest
income (FTE) decreased $400,000 or 1 percent as a result of an
increase of $900,000 in interest expense, partially offset by a
$500,000 increase in interest income.
Amortized loan fees for the first three months of 1995 of $451,000,
which are included in interest income on loans, were $43,000 higher
during the first quarter of 1995 compared to the same period in 1994
and $57,000 lower than the three-month period ended December 31, 1994.
Net Interest Margin (FTE)
For the three months ended
March 31, December 31,
---------------- -----------
1995 1994 1994
----- ----- -----
Yield on earning assets 8.17% 7.47% 7.84%
Cost of interest-bearing
liabilities 3.23% 2.63% 2.93%
----- ----- -----
Net interest spread 4.94% 4.84% 4.91%
Impact of non-interest
bearing funds 0.67% 0.48% 0.61%
----- ----- -----
Net interest margin 5.61% 5.32% 5.52%
===== ===== =====
The average yield on earning assets for the three-month period ended
March 31, 1995 was 69 basis points higher than the same period in
1994 and 33 basis points higher than the three months ended December
31, 1994. The effect of these changes, combined with a more favorable
impact of non-interest bearing funds, more than offset the increased
cost of interest-bearing liabilities, which were, for the three
months ended March 31, 1995, 60 and 30 basis points, respectively,
higher than the three months ended March 31 and December 31, 1994.
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present, for the periods indicated, information
regarding the consolidated average assets, liabilities and
shareholders' equity, the amounts of interest income from average
earning assets and the resulting yields, and the amount of interest
expense paid on interest-bearing liabilities.
Average loan balances include non-performing loans. Interest income
includes proceeds from loans on non-accrual status only to the extent
cash payments have been received and applied as interest income.
Yields on securities and certain loans have been adjusted upward to
reflect the effect of income thereon exempt from federal income
taxation at the current statutory tax rate. Amortized loan fees,
which are included in interest and fee income on loans, were $43,000
million higher in the first three months of 1995 than the same period
of 1994 and $57,000 lower than the previous quarter.
For the three months ended
March 31, 1995
(Dollars in thousands) -------------------------------
Interest Rates
Average income/ earned/
balance expense paid
Assets -------- -------- -------
Money market assets and
funds sold $250 $-- --%
Trading account securities -- -- --
Investment securities
available for sale 174,236 2,657 6.18
Investment securities
held to maturity 601,464 9,283 6.26
Loans:
Commercial 722,404 17,493 9.82
Real estate construction 32,601 976 12.14
Real estate residential 198,399 3,545 7.25
Consumer 283,272 6,609 9.46
---------- -------
Earning assets 2,012,626 40,563 8.17
Other assets 186,075
----------
Total assets $2,198,701
==========
Liabilities and
shareholders' equity
Deposits
Non-interest bearing demand $388,845 $-- --%
Interest-bearing transaction
and savings 994,534 5,315 2.17
Time less than $100,000 286,594 3,146 4.45
Time $100,000 or more 130,027 1,547 4.83
---------- -------
Total interest-bearing
deposits 1,411,155 10,008 2.88
Funds purchased 164,152 2,231 5.51
Notes and mortgages payable 25,523 505 8.02
---------- -------
Total interest-bearing
liabilities 1,600,830 12,744 3.23
Other liabilities 19,631
Shareholders' equity 189,395
----------
Total liabilities and
shareholders' equity $2,198,701
==========
Net interest spread (1) 4.94%
Net interest income and
interest margin (2) $27,819 5.61%
======= =====
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest
income (annualized) by total average earning assets.
For the three months ended
March 31, 1994
(Dollars in thousands) -------------------------------
Interest Rates
Average income/ earned/
balance expense paid
Assets -------- -------- -------
Money market assets and
funds sold $11,320 $94 3.37%
Trading account securities 18 -- 5.97
Investment securities
available for sale 186,298 2,591 5.64
Investment securities
held to maturity 556,547 8,260 6.02
Loans:
Commercial 723,825 15,252 8.55
Real estate construction 49,249 1,146 9.43
Real estate residential 174,153 3,135 7.30
Consumer 288,666 6,159 8.65
---------- -------
Earning assets 1,990,076 36,637 7.47
Other assets 198,370
----------
Total assets $2,188,446
==========
Liabilities and
shareholders' equity
Deposits
Non-interest bearing demand $380,130 $-- --%
Interest-bearing transaction
and savings 1,016,551 4,651 1.86
Time less than $100,000 318,534 3,013 3.84
Time $100,000 or more 143,594 1,225 3.46
---------- -------
Total interest-bearing
deposits 1,478,679 8,889 2.44
Funds purchased 109,388 816 3.03
Notes and mortgages payable 36,213 828 9.27
---------- -------
Total interest-bearing
liabilities 1,624,280 10,533 2.63
Other liabilities 14,962
Shareholders' equity 169,074
----------
Total liabilities and
shareholders' equity $2,188,446
==========
Net interest spread (1) 4.84%
Net interest income and
interest margin (2) $26,104 5.32%
======= =====
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest
income (annualized) by total average earning assets.
For the three months ended
December 31, 1994
(Dollars in thousands) -------------------------------
Interest Rates
Average income/ earned/
balance expense paid
Assets -------- -------- -------
Money market assets and
funds sold $15,438 $206 5.29%
Trading account securities 11 -- 7.86
Investment securities
available for sale 161,423 2,367 5.82
Investment securities
held to maturity 616,174 9,514 6.13
Loans:
Commercial 716,643 17,044 9.44
Real estate construction 40,084 1,032 10.21
Real estate residential 194,944 3,400 6.92
Consumer 279,359 6,428 9.13
---------- -------
Earning assets 2,024,076 39,991 7.84
Other assets 194,175
----------
Total assets $2,218,251
==========
Liabilities and
shareholders' equity
Deposits
Non-interest bearing demand $413,563 $-- --%
Interest-bearing transaction
and savings 1,034,645 5,378 2.06
Time less than $100,000 291,558 3,048 4.15
Time $100,000 or more 123,313 1,289 4.15
---------- -------
Total interest-bearing
deposits 1,449,516 9,715 2.66
Funds purchased 128,935 1,571 4.83
Notes and mortgages payable 25,835 551 8.45
---------- -------
Total interest-bearing
liabilities 1,604,286 11,837 2.93
Other liabilities 16,136
Shareholders' equity 184,266
----------
Total liabilities and
shareholders' equity $2,218,251
==========
Net interest spread (1) 4.91%
Net interest income and
interest margin (2) $28,154 5.52%
======= =====
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest
income (annualized) by total average earning assets.
Rate and volume variances. The following table sets forth a summary
of the changes in interest income and interest expense from changes
in average assets and liability balances (volume) and changes in
average interest rates for the periods indicated. Changes not solely
attributable to volume or rate have been allocated in proportion to
the respective volume and rate components.
Three months ended March 31, 1995
compared with
Three months ended March 31, 1994
(In thousands) ---------------------------------
Volume Rate Total
------ ---- -----
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold ($46) ($48) ($94)
Trading account securities -- -- --
Investment securities
available for sale (135) 201 66
Investment securities
held to maturity 685 338 1,023
Loans:
Commercial (30) 2,271 2,241
Real estate construction (1,131) 961 (170)
Real estate residential 433 (23) 410
Consumer (112) 562 450
------ ------ ------
Total loans (840) 3,771 2,931
------ ------ ------
Total (decrease) increase in
interest and fee income (336) 4,262 3,926
Increase (decrease) in
interest expense:
Deposits:
Interest-bearing/savings (98) 762 664
Time less than $ 100,000 (220) 353 133
Time $ 100,000 or more (102) 424 322
------ ------ ------
Total interest-bearing
deposits (420) 1,539 1,119
Funds purchased 535 880 1,415
Notes and mortgages payable (222) (101) (323)
------ ------ ------
Total (decrease) increase
in interest expense (107) 2,318 2,211
------ ------ ------
(Decrease) increase in
net interest income ($229) $1,944 $1,715
====== ====== ======
Amounts calculated on a fully taxable equivalent basis using the
current statutory federal tax rate.
Three months ended March 31, 1995
compared with
Three months ended December 31, 1994
(In thousands) -----------------------------------
Volume Rate Total
------ ---- -----
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold ($102) ($104) ($206)
Trading account securities -- -- --
Investment securities
available for sale 162 128 290
Investment securities
held to maturity (2,646) 2,415 (231)
Loans:
Commercial 74 375 449
Real estate construction 4,638 (4,694) (56)
Real estate residential 40 105 145
Consumer 50 131 181
------ ------ ------
Total loans 4,802 (4,083) 719
------ ------ ------
Total increase (decrease) in
interest and fee income 2,215 (1,643) $572
Increase (decrease) in
interest expense:
Deposits:
Interest-bearing/savings 203 (266) (63)
Time less than $ 100,000 (29) 127 98
Time $ 100,000 or more 65 193 258
------ ------ ------
Total interest-bearing
deposits 239 54 293
Funds purchased 435 225 660
Notes and mortgages payable (9) (37) (46)
------ ------ ------
Total increase in
interest expense 665 242 907
------ ------ ------
Increase (decrease) in
net interest income $1,550 ($1,885) ($335)
====== ======= ======
Amounts calculated on a fully taxable equivalent basis using the
current statutory federal tax rate.
PROVISION FOR LOAN LOSSES
The level of the provision for loan losses during each of the periods
presented reflects the Company's continued efforts to improve loan
quality by enforcing strict underwriting and administration
procedures and aggressively pursuing collection efforts with troubled
debtors.
Continuing improvements in credit quality allowed the Company to
further lower its provision for loan losses to $1.3 million in the
first quarter of 1995, compared to $1.7 million in the same period in
1994 and $1.6 million in the preceding quarter. For further
information regarding net credit losses and the reserve for loan
losses, see the "Asset Quality" section of this report.
NON-INTEREST INCOME
The following table summarizes the components of non-interest income
for the periods indicated.
For the three months ended
March 31, December 31,
(In millions) ---------------- -----------
1995 1994 1994
----- ----- -----
Service charges on deposits $3.06 $3.12 $3.09
Merchant credit card 0.50 0.55 0.59
Mortgage banking income 0.18 0.34 0.20
Brokerage commissions 0.14 0.17 0.15
Net investment securities gains - 0.52 (0.56)
Other non-interest income 0.72 1.08 1.47
----- ----- -----
Total non-interest income $4.60 $5.78 $4.94
===== ===== =====
The $1.18 million decrease in non-interest income during the first
quarter of 1995 compared to the first quarter of 1994 resulted from
decreases in all categories, including $160,000 lower mortgage
banking income resulting from reduced mortgage refinancing volumes,
$60,000 lower service charges on deposit accounts and lower merchant
credit card and brokerage commissions of $50,000 and $30,000,
respectively. In addition, the sale of securities available for sale
contributed $520,000 to the non-interest income realized during the
first quarter of 1994. The $340,000 decrease in non-interest income
during the first three months of 1995 compared to the fourth quarter
of 1994 resulted mainly from the recognition, during the last three
months of 1994, of a $660,000 favorable settlement with the Franchise
Tax Board in connection with prior years' amended income tax returns.
This variance is included in the "Other non-interest income"
category. Partially offsetting this variance, sales of securities
available for sale in the fourth quarter of 1994 resulted in losses,
in that quarter, of $560,000. In addition, merchant credit card
income, service charges on deposits, mortgage banking income and
brokerage commissions for the first quarter of 1995 were lower than
the preceding quarter.
NON-INTEREST EXPENSE
The following table summarizes the components of non-interest expense
for the periods indicated.
For the three months ended
March 31, December 31,
(In millions) ---------------- -----------
1995 1994 1994
----- ----- -----
Salaries $7.52 $8.32 $7.79
Other personnel 1.84 1.62 1.42
Occupancy 2.05 1.95 2.16
Equipment 1.23 1.20 1.38
FDIC deposit insurance 1.04 1.08 0.96
Professional fees 1.00 0.49 0.82
Data processing services 0.99 1.07 1.04
Stationery and supplies 0.36 0.34 0.35
Postage 0.34 0.35 0.35
Courier service 0.31 0.32 0.30
Advertising/public relations 0.23 0.27 0.42
Operational losses 0.21 0.16 0.32
Loan expense 0.20 0.40 0.37
Merchant credit card 0.18 0.20 0.21
Other real estate owned 0.10 0.10 0.45
Other non-interest expense 1.26 1.53 1.36
------ ------ ------
Total non-interest expense $18.86 $19.40 $19.70
====== ====== ======
Non-interest expense continues to show the effects of cost controls
and the benefits resulting from consolidation of operations. During
the first quarter of 1995, non-interest expense decreased $540,000
from the first quarter of 1994. Salaries expense decreased $800,000,
mainly from the a reduction of 31 full-time equivalent employees
resulting from consolidations of operations following the January 31,
1995 PV Financial merger. In addition, loan expense decreased
$200,000, data processing services decreased $80,000 and advertising
and public relations and FDIC deposit insurance decreased $40,000,
each, from the same period in 1994. Partially offsetting these
variances, professional fees, including legal expenses, were $510,000
higher than the first quarter of 1994 due to the recognition, in
1995, of one-time charges related to 1995 acquisition activities.
Other expenses which were higher than the first quarter of 1994
include other personnel expenses of $220,000, occupancy of $100,000
and operational losses of $50,000.
Non-interest expense for the first three months of 1995 was $840,000
lower than the preceding quarter. Other real estate owned expenses
were $350,000 lower, as the fourth quarter of 1994 included one-time
losses on sales and write-downs to net realizable value of property
acquired in satisfaction of debt. Salaries were $270,000 lower,
mainly due to lower incentive compensation and the reduction of 8
full-time equivalent staff. Other major variances from the fourth
quarter of 1994 include advertising/public relations and loan
expenses, $190,000 and $170,000, respectively, lower than the fourth
quarter of 1994, and equipment and occupancy, lower than the
preceding quarter by $150,000 and $110,000, respectively, mainly due
to fourth quarter 1994 write-offs in connection with branch closures.
Partially offsetting these variances, other personnel related expense
was, in the first quarter of 1995, $420,000 higher than the fourth
quarter of 1994, principally due to increased payroll taxes and
increased expenses related to the Company's retirement and pension
plans.
PROVISION FOR INCOME TAX
The Company recorded income tax expense of $3.5 million in the first
quarter of 1995, representing an effective tax rate of 33 percent,
compared to $3.2 million in each of the first and fourth quarters of
1994, representing effective tax rates of 33 percent and 32 percent,
respectively. The increased expense in the current quarter is
directly attributable to the higher level of earnings.
ASSET QUALITY
Classified Assets
The Company closely monitors the markets in which it conducts its
lending operations. The Company continues its strategy to control its
exposure to loans with higher credit risk and increase
diversification of earning assets into less risky investments. Asset
reviews are performed using grading standards and criteria similar to
those employed by bank regulatory agencies. Assets receiving lesser
grades fall under the "classified assets" category which includes all
non-performing assets. These lesser grades occur when known
information about possible credit problems causes doubts about the
ability of such borrowers to comply with loan repayment terms. These
loans have varying degrees of uncertainty and may become
non-performing assets. Classified assets receive an elevated level of
attention by Management to ensure collection.
The following is a summary of classified assets on the dates
indicated:
Balances as of
March 31, December 31,
(In millions) ---------------- -----------
1995 1994 1994
----- ----- -----
Classified loans $40.5 $52.9 $42.1
Other classified assets 7.1 12.5 7.5
----- ----- -----
Total classified assets $47.6 $65.4 $49.6
===== ===== =====
Reserve for loan losses as a
percentage of classified loans 75% 53% 70%
Classified loans at March 31, 1995, decreased $12.4 million to $40.5
million from a year ago levels, reflecting improvements in borrowers'
financial condition and satisfaction of debt. The improvement is
primarily due to the repayment of classified real estate construction
loans. Other classified assets, which decreased $5.4 million from
prior year, were due to decreases in other real estate owned.
Non-performing assets
Non-performing assets include non-accrual loans, loans 90 days past
due and still accruing and other real estate owned. Loans are placed
on non-accrual status upon reaching 90 days or more delinquent,
unless the loan is well secured and in the process of collection.
Interest previously accrued on loans placed on non-accrual status is
charged against interest income. Loans secured by real estate with
temporarily impaired values and commercial loans to borrowers
experiencing financial difficulties are placed on non-accrual status
even though the borrowers continue to repay the loans as scheduled.
Such loans are classified as "performing non-accrual" and are
included in total non-performing assets.
Performing non-accrual loans are reinstated to accrual status when
improvements in credit quality eliminate the doubt as to the full
collectibility of both interest and principal. When the ability to
fully collect non-accrual loan principal is in doubt, cash payments
received are applied against the principal balance of the loan until
such time as full collection of the remaining recorded balance is
expected. Any subsequent interest received is recorded as interest
income on a cash basis.
The following is a summary of non-performing assets on the dates
indicated:
Balances as of
March 31, December 31,
(In millions) ---------------- -----------
1995 1994 1994
Non-accrual loans: ----- ----- -----
Performing $2.54 $1.76 $1.94
Non-performing 6.24 11.60 5.78
------ ------ ------
Total non-accrual loans 8.78 13.36 7.72
Loans 90 days past due and
still accruing 0.54 0.39 1.78
------ ------ ------
Total non-performing loans 9.32 13.75 9.50
Other real estate owned 7.11 12.55 7.51
------ ------ ------
Total non-performing assets $16.43 $26.30 $17.01
====== ====== ======
Reserve for loan losses
as a percentage of
non-performing loans 324% 203% 310%
Performing non-accrual loans increased $780,000 at March 31, 1995
from $1.76 million at March 31, 1994 and increased $600,000 from
$1.94 million at December 31, 1994. Non-performing non-accrual loans
of $6.24 million at March 31, 1995, decreased $5.36 million from
March 31, 1994 and increased $460,000 from December 31, 1994. The
$4.58 million reduction in total non-accrual loans from March 31,
1994, was principally due to construction loan payoffs and sales. The
$5.44 million decrease in OREO balances from March 31, 1994 were due
to loan payoffs, partial write-downs, liquidations and sale of loan
collateral that had been received in satisfaction of debt. The $1.06
million increase in non-accrual loans from December 31, 1994 was
mainly due to commercial loan additions while the $400,000 reduction
in OREO balances was mainly due to sales of related properties. The
amount of gross interest income that would have been recorded for
non-accrual loans for the three months ending March 31, 1995, if all
such loans had been current in accordance with their original terms
during the period was $162,000. The amount of interest income that
was recognized on non-accrual loans from cash payments made during
the three months ended March 31, 1995 totaled $216,000 representing
an annualized yield of 12.5 percent. Cash payments received which
were applied against the book balance of non-accrual loans
outstanding at March 31, 1995, totaled $287,000.
The Company's reserve for loan losses is maintained at a level
estimated to be adequate to provide for losses that can be reasonably
anticipated based upon specific conditions, credit loss experience,
the amount of past due, non-performing and classified loans,
recommendations of regulatory authorities, prevailing economic
conditions and other factors. The reserve is allocated to segments
of the loan portfolio based in part on quantitative analyses of
historical credit loss experience. Criticized and classified loan
balances are analyzed using both a linear regression model and
standard allocation percentages. The results of these analyses
are applied to current criticized and classified loan balances to
allocate the reserve to the respective segments of the loan
portfolio. In addition, loans with similar characteristics not
usually criticized using regulatory guidelines due to their small
balances and numerous accounts, are analyzed based on the historical
rate of net losses and delinquency trends grouped by the number of
days the payments on these loans are delinquent. While these factors
are judgmental and may not be reduced to a mathematical formula, the
$30.2 million reserve for loan losses, which constituted 2.43
percent of total loans at March 31, 1995, is considered to be
adequate as a reserve against inherent losses. The loan portfolio is
continuously evaluated considering current economic conditions that
dictate required reserve levels.
The following table summarizes the loan loss reserve, loan loss
provision and net credit losses for the periods indicated:
For the three months ended
March 31, December 31,
(In millions) ---------------- -----------
1995 1994 1994
----- ----- -----
Reserve for loan losses balance
beginning of period $29.4 $27.5 $29.4
Loan loss provision 1.3 2.0 1.6
Credit losses (1.2) (2.0) (2.0)
Credit loss recoveries 0.7 0.4 0.4
----- ----- -----
Net credit losses (0.5) (1.6) (1.6)
----- ----- -----
Balance, end of period $30.2 $27.9 $29.4
===== ===== =====
Reserve for loan losses as a
percentage of loans outstanding 2.43% 2.28% 2.37%
In May, 1993, the Financial Accounting Standards Board ("FASB")
issued Statement No. 114, "Accounting by Creditors for Impairment of
a Loan" ("SFAS 114"), which addresses the accounting treatment of
certain impaired loans and amends FASB Statements No. 5 and No. 15.
In October 1994, the FASB issued Statement No. 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures", which amended the income recognition and disclosure
provisions of SFAS 114. SFAS 114 and SFAS 118 were effective January
1, 1995. Under SFAS 114, a loan is considered impaired when, based on
current information and events, it is probable that a creditor will
be unable to collect all amounts due according to the contractual
terms of the loan agreement. Under SFAS 114, impairment is measured
based on the present value of the expected future cash flows
discounted at the loan's effective interest rate. Alternatively,
impairment may be measured by using the loan's observable market
price or the fair value of the collateral if repayment is expected to
be provided solely by the underlying collateral. The Company
implemented SFAS 114 and SFAS 118 in January 1995. The impact of
implementation on the financial statements was not material.
ASSET AND LIABILITY MANAGEMENT
The fundamental objective of the Company's management of assets and
liabilities is to maximize its economic value while maintaining
adequate liquidity and a conservative level of interest rate risk.
The Company's principal sources of liquidity are current period
earnings and investment securities available for sale. At March 31,
1995, investment securities available for sale totaled $174.6 million.
The Company generates significant liquidity from its operating
activities. The Company's profitability in the first three months of
1995 and 1994 was the main contributor to the cash flows provided
from operations for such years of $6.0 million and $12.1 million,
respectively.
Additional cash flow is provided by and used in financing activities,
primarily customer deposits and short-term borrowings from banks. In
the first three months of 1995, $395,000 were used in financing
activities, as a $36.0 million decrease in deposits combined with
other cash flow uses including dividends paid to shareholders and
retirement of stock were partially offset by a $37.3 million increase
in purchased funds. In the first three months of 1994, financing
activities provided $13.4 million, which included a $26.1 million
increase in short-term purchased funds partially offset by a $10.5
million decrease in customer deposits, and other uses including
reductions of long-term debt and dividends paid to shareholders.
The Company uses cash flows from operating and financing activities
primarily to make investments in investment securities and loans. Net
loan repayments leveled off during the first three months of 1995
compared to a decrease of $20.5 million during the same period of
1994. Due to the reduced level of loan repayment in 1995 as a result
of the Company's current strategy to grow the loan portfolio with
high quality loans extended to financially strong customers in the
markets served by the three subsidiary banks, net purchases of
investment securities decreased $12.8 million during the first three
months of 1995. The net repayment of loans during the first three
months of 1994 provided added liquidity for the Company, and was the
main contributor to the increase of $44.7 million in the investment
securities portfolio.
The Company expects its cash provided by operations to increase
through the end of 1995 due to retained profits. For the same
period, it is anticipated that the investment securities portfolio
and demand for loans will moderately increase. It is also anticipated
that deposit balances will increase through the end of the current
year.
Although interest rate risk is influenced by market forces, it can be
controlled by monitoring and managing the repricing characteristics
of assets and liabilities. In evaluating exposure to interest rate
risk, the Company considers the effects of various factors in
implementing interest rate risk management activities, including
interest rate swaps, utilized to hedge the impact of interest rate
fluctuations on interest-bearing assets and liabilities in the
current interest rate environment.
Interest rate swaps are agreements to exchange interest payments
computed on notional amounts. The notional amounts do not represent
exposure to credit risk. However, these agreements expose the Company
to market risks associated with fluctuations of interest rates and
credit risk associated with the counterparty's ability to meet its
interest payment obligation. The Company minimizes this credit risk
by entering into contracts with well-capitalized money-center banks,
and by requiring settlement of only the net difference between the
exchanged interest payments. At March 31, 1995, the Company was
engaged into two interest rate swaps. These contracts have notional
amounts totaling $60.0 million and expire in August 1995. The Company
pays a variable rate based on three-month LIBOR and receives an
average fixed rate of interest of 4.11 percent. The three-month LIBOR
rate has averaged 4.65 percent from the date these two swaps were
entered through March 31, 1995. The Company had entered into four
interest rate swaps at March 31, 1994, with notional amounts totaling
$110.0 million, including the two outstanding as of March 31, 1995.
The two remaining swaps, with notional amounts totaling $50.0 million
expire in November and December of 1994. The effect of entering into
these contracts resulted in a decrease to net interest income of
$290,000 for the first three months of 1995 compared to a decrease of
$103,000 during the comparable period in 1994. At March 31, 1995, the
fair value of the interest rate swaps was a loss of $510,000. In
October 1994, the FASB issued statement No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments", (SFAS 119) which requires disclosures about derivative
financial instruments. SFAS 119 is effective for financial statements
issued for fiscal years ending after December 15, 1994.
The primary analytical tool used by the Company to gauge
interest-rate sensitivity is a simulation model used by many major
banks and bank regulators. This industry standard model is used to
simulate, based on the current and projected portfolio mix, the
effects on net interest income of changes in market interest rates.
Under the Company's policy and practice, the projected amount of net
interest income over the ensuing twelve months is not allowed to
fluctuate more than five percent even under alternate assumed
interest rate changes of plus or minus 200 basis points. The results
of the model indicate that the mix of interest rate sensitive assets
and liabilities at March 31, 1995 does not expose the Company to an
unacceptable level of interest rate risk.
CAPITAL RESOURCES
The Company's capital position represents the level of capital
available to support continued operations and expansion. The
Company's primary capital resource is shareholders' equity which
was $192.3 million at March 31, 1995, representing an increase of
$19.4 million or 11 percent from March 31, 1994 and an increase
of $6.7 million, or 4 percent, from December 31, 1994. As a result
of the Company's profitability and the retention of earnings, the
ratio of equity to total assets increased to 8.7 percent at March 31,
1995, from 7.9 percent a year ago and 8.4 percent at year-end 1994.
The ratio of Tier I capital to risk-adjusted assets increased to
13.00 percent at September 30, 1994 compared to 11.60 percent at
March 31, 1994 and 12.60 percent at December 31, 1994. Total
capital to risk-adjusted assets increased to 15.61 percent at
March 31, 1995 compared to 14.71 percent at March 31, 1994
and 15.20 percent at December 31, 1994.
The following summarizes the ratios of capital to risk-adjusted
assets on the dates indicated:
Ratios at
March 31, December 31,
---------------- -----------
1995 1994 1994
----- ----- -----
Tier I Capital 13.00% 11.60% 12.60%
Total Capital 15.61% 14.71% 15.20%
Leverage ratio 8.78% 7.87% 8.44%
The risk-based capital ratios improved in 1995 due to a more rapid
growth in equity than total assets, in conjunction with the decline
in loan volumes and increase in investment securities, which reduced
the level of risk-adjusted assets.
Capital ratios are reviewed on a regular basis to ensure that capital
exceeds the prescribed regulatory minimums and is adequate to meet
the Company's future needs. All ratios are in excess of regulatory
definitions of "well capitalized".
INTERIM PERIODS
The financial information of the Company included herein for March
1995 and 1994 is unaudited; however, such information reflects all
adjustments which are, in the opinion of Management, necessary for a
fair statement of results for the interim periods. Those adjustments
are normal and recurring in nature.
The results of operations for the three-month period ended March 31,
1995 are not necessarily indicative of the results to be expected
for the full year. This report should be read in conjunction with
Westamerica Bancorporation's annual report on Form 10-K for the
year ended December 31, 1994.
Certain amounts in prior periods have been restated to conform
to the current presentation.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the
Subsidiary Banks are at times party to various
legal actions; all such actions are of a routine
nature and arise in the normal course of business
of the Subsidiary Banks.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11: Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
(b) Reports on Form 8-K:
On February 3, 1995, the Company filed a Form 8-K
containing the consent of Arthur Andersen LLP with respect
to the consolidated financial statements of Napa Valley
Bancorp as of and for the years ended December 31, 1992
and 1991, which had been restated in the Company's
financial statements for the fiscal years ended December
31, 1992 and 1991, which financial statements were filed
with the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
On February 13, 1995, the Company filed a Form 8-K
announcing the consummation of the merger between PV
Financial with and into Westamerica Bancorporation
effective as of the close of business on January 31, 1995.
SIGNATURES
Pursuant to the requirements of Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
WESTAMERICA BANCORPORATION
(Registrant)
Date: May 11, 1995 Dennis R. Hansen
------------------------
Dennis R. Hansen
Senior Vice President and
Controller
Exhibit 11
WESTAMERICA BANCORPORATION
COMPUTATION OF EARNINGS PER SHARE ON
COMMON AND COMMON EQUIVALENT SHARES
AND ON COMMON SHARES ASSUMING FULL DILUTION
For the three
months ended
March 31,
-------------------
1995 1994
------ ------
Weighted average number of common shares
outstanding 9,220,081 9,233,552
Assumed exercise on certain options 153,641 74,107
--------- ---------
Total 9,373,722 9,307,659
========= =========
Net income (in thousands) $7,238 $6,500
Fully-diluted earnings per share $0.77 $0.70
===== =====
Primary earnings per share $0.79 $0.70
===== =====
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