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, 1996
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)
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 2, 1996
9,732,953
WESTAMERICA BANCORPORATION
- --------------------------
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
(Unaudited)
March 31,
--------------------- December 31,
(in thousands) 1996 1995 * 1995
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $154,433 $169,267 $182,133
Money market assets 250 250 250
Investment securities available for sale 659,767 179,644 620,337
Investment securities held to maturity, 235,286 635,215 242,175
with market values of:
$235,842 at March 31, 1996
$616,680 at March 31, 1995
$244,303 at December 31, 1995
Loans, net of reserve for loan losses of: 1,351,628 1,341,733 1,353,732
$33,781 at March 31, 1996
$33,052 at March 31, 1995
$33,508 at December 31, 1995
Other real estate owned 6,088 7,159 5,103
Premises and equipment, net 27,404 28,251 26,625
Interest receivable and other assets 51,810 57,693 60,589
---------- ---------- ----------
Total assets $2,486,666 $2,419,212 $2,490,944
========== ========== ==========
LIABILITIES
Deposits:
Non-interest bearing $481,796 $439,370 497,489
Interest bearing:
Transaction 353,331 337,072 356,099
Savings 696,198 774,634 716,871
Time 468,576 459,809 479,062
---------- ---------- ----------
Total deposits 1,999,901 2,010,885 2,049,521
Funds purchased 193,685 154,585 175,622
Liability for interest, taxes and
other expenses 20,178 15,982 21,864
Notes and mortgages payable 42,500 25,524 20,000
---------- ---------- ----------
Total liabilities 2,256,264 2,206,976 2,267,007
SHAREHOLDERS' EQUITY
Authorized - 50,000 shares
Common stock issued and outstanding: 95,903 94,903 94,786
9,778 at March 31, 1996
9,924 at March 31, 1995
9,793 at December 31, 1995
Unrealized gain (loss) on securities
available for sale, net of taxes 3,469 (844) 1,691
Retained earnings 131,030 118,177 127,460
---------- ---------- ----------
Total shareholders' equity 230,402 212,236 223,937
---------- ---------- ----------
Total liabilities
and shareholders' equity $2,486,666 $2,419,212 $2,490,944
========== ========== ==========
<FN>
* Restated on an historical basis to reflect the June 6, 1995 acquisition
of CapitolBank Sacramento and the July 17, 1995 acquisition of North Bay
Bancorp, on a pooling-of-interests basis.
</TABLE>
WESTAMERICA BANCORPORATION
- --------------------------
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------
(Unaudited)
Three months
ended March 31,
--------------------
(in thousands, except when indicated) 1996 1995*
------- -------
INTEREST INCOME
Loans $31,215 $32,145
Money market assets and funds sold -- 254
Investment securities available for sale 8,788 2,737
Investment securities held to maturity 3,321 8,523
------- -------
Total interest income 43,324 43,659
INTEREST EXPENSE
Transaction deposits 1,038 937
Savings deposits 4,702 5,331
Time deposits 6,130 5,177
Funds purchased 2,681 2,049
Notes and mortgages payable 556 505
Total interest expense 15,107 13,999
------- -------
Net interest income 28,217 29,660
Provision for loan losses 1,275 1,335
------- -------
Net interest income after
provision for loan losses 26,942 28,325
NON-INTEREST INCOME
Service charges on deposit accounts 3,184 3,153
Merchant credit card 683 528
Mortgage banking 345 371
Brokerage commissions 144 142
Trust fees 81 170
Net investment securities gains 14 --
Other 901 755
------- -------
Total non-interest income 5,352 5,119
NON-INTEREST EXPENSE
Salaries and related benefits 9,841 10,855
Occupancy 2,578 2,601
Equipment 1,345 1,434
Data processing 980 1,043
Professional fees 555 1,593
Other real estate owned 65 112
FDIC insurance 14 1,177
Other 3,488 3,589
------- -------
Total non-interest expense 18,866 22,404
Income before income taxes 13,428 11,040
Provision for income taxes 4,280 3,490
------- -------
NET INCOME $9,148 $7,550
======= =======
Average shares outstanding 9,768 9,913
PER SHARE DATA
Earnings per share (in dollars) $0.94 $0.76
Dividends declared (in dollars) 0.23 0.17
* Restated on an historical basis to reflect the June 6, 1995
acquisition of CapitolBank Sacramento and the July 17, 1995 acquisition
of North Bay Bancorp, on a pooling-of-interests basis.
WESTAMERICA BANCORPORATION
- --------------------------
STATEMENTS OF CASH FLOWS
- ------------------------
(Unaudited)
For the three
months ended
March 31,
------------------
(In thousands) 1996 1995*
------ ------
OPERATING ACTIVITIES
Net income $9,148 $7,550
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,050 1,196
Loan loss provision 1,275 1,335
Amortization of deferred net loan fees (447) (346)
Decrease in interest income receivable (178) 928
Increase in other assets (3,434) (3,142)
Decrease in income taxes payable 4,263 2,918
Decrease in interest expense payable (63) (924)
Increase in other liabilities (2,294) (4,983)
Gain on sales of investment securities (14) --
Net loss on sales/write down of equipment 29 267
Originations of loans for resale (2,461) (883)
Proceeds from sale of loans originated
for resale 1,636 2,186
Net loss (gain) on sale of property (12) (9)
acquired in satisfaction of debt
Write down on property acquired
in satisfaction of debt 36 27
-------- --------
Net cash provided by operating activities 8,534 6,120
-------- --------
INVESTING ACTIVITIES
Net repayments of loans 798 10,493
Purchases of investment securities
available for sale (66,660) (10,684)
Purchases of investment securities
held to maturity (6,121) (8,392)
Purchases of property, plant and equipment (2,434) (428)
Proceeds from maturity of securities
available for sale 30,849 14,800
Proceeds from maturity of securities
held to maturity 13,010 18,537
Proceeds from sale of securities
available for sale 6,972 --
Proceeds from sale of property and equipment 576 46
Proceeds from property acquired in
in satisfaction of debt 294 867
-------- --------
Net cash (used in) provided by
investing activities (22,716) 25,239
-------- --------
FINANCING ACTIVITIES
Net decrease in deposits (49,620) (60,807)
Net (decrease)/increase in short-term borrowings 18,063 19,159
Issuance of notes payable 22,500 --
Exercise of stock options/issuance of shares 1,847 1,738
Cash in lieu of fractional shares -- (10)
Retirement of stock (4,064) (1,759)
Dividends paid (2,244) (1,370)
-------- --------
Net cash provided by (used in)
financing activities (13,518) (43,049)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS (27,700) (11,690)
-------- --------
Cash and cash equivalents at beginning of year 182,133 180,957
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $154,433 $169,267
======== ========
Supplemental disclosure of non-cash and cash activities:
Loans transferred to other real estate owned 1,303 21
Unrealized gain on securities
available for sale 3,084 952
Interest paid for the period 15,171 14,001
Income tax payments for the period -- --
* Restated on an historical basis to reflect the June 6, 1995 acquisition
of CapitolBank Sacramento and the July 17, 1995 acquisition of North Bay
Bancorp, on a pooling-of-interests basis.
WESTAMERICA BANCORPORATION
- --------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
Westamerica Bancorporation (the "Company"), parent company of
Westamerica Bank, Napa Valley Bank, Bank of Lake County and
Community Banker Services Corporation and Subsidiary, reported
first quarter 1996 net income of $9.1 million or $.94 per share.
This compares with net income of $7.6 million or $.76 per share
for the first quarter of 1995 and $8.9 million or $.91 per share
for the fourth quarter of 1995. All financial data has been
restated on an historical basis to reflect the June 6, 1995
acquisition of CapitolBank Sacramento and the July 17, 1995
acquisition of North Bay Bancorp, on a pooling-of-interests
basis.
Acquisitions
On June 6, 1995, the merger of CapitolBank Sacramento with and
into the Company became effective. Following the terms of the
merger, the Company issued approximately 360,000 shares of the
Company's common stock to CapitolBank Sacramento shareholders.
The merger was accounted for as a pooling-of-interests business
combination and, accordingly, the consolidated financial
statements and the financial data for the periods prior to the
merger have been restated to include the accounts and results of
operations of CapitolBank Sacramento.
On July 17, 1995, the merger between the Company and North Bay
Bancorp, parent company of Novato National Bank, became
effective. Under the terms of the merger agreement, the Company
issued approximately 341,000 shares of its common stock in
exchange for all of the outstanding common stock of North Bay
Bancorp. This business combination was accounted for as a
pooling-of-interests business combination and, accordingly, the
consolidated financial statements and financial data for the
periods prior to the merger have been restated to include the
accounts and results of operations of North Bay Bancorp.
In all mergers, certain reclassifications have been made to
conform to the Company's presentation.
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) 1996 1995 1995
----- ----- -----
Net interest income * $30.0 $31.2 $30.5
Provision for loan losses (1.3) (1.3) (1.3)
Non-interest income 5.4 5.1 5.4
Non-interest expense (18.9) (22.4) (19.8)
Provision for income taxes * (6.1) (5.0) (5.9)
----- ----- -----
Net income $9.1 $7.6 $8.9
==== ==== ====
* 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,
----------------- ----------
1996 1995 1995
----- ----- -----
Net interest income (FTE) 5.36% 5.72% 5.45%
Provision for loan losses -0.23% -0.25% -0.23%
Non-interest income 0.96% 0.94% 0.97%
Non-interest expense -3.37% -4.11% -3.54%
Provision for income taxes (FTE) -1.09% -0.92% -1.06%
----- ----- -----
Net income 1.63% 1.38% 1.59%
==== ==== ====
Net income (annualized) as a percent
of average total assets 1.49% 1.27% 1.45%
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. First quarter 1996 net interest income (FTE) was
lower than the first and fourth quarters of 1995. The adverse
effect of a decrease in the average balance of low-cost
deposits, combined with higher rates paid on interest-bearing
liabilities and a decrease in average earning-asset yields, was
partially offset by higher earning-asset average balances.
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) 1996 1995 1995
----- ----- -----
Interest income $43.3 $43.7 $43.7
Interest expense (15.1) (14.0) (14.9)
FTE adjustment 1.8 1.5 1.7
----- ----- -----
Net interest income (FTE) $30.0 $31.2 $30.5
===== ===== =====
Average earning assets $2,252 $2,212 $2,220
Net interest margin (FTE) 5.36% 5.72% 5.45%
Net interest income (FTE) decreased $1.2 million or 4 percent in
the first quarter of 1996 from the $31.2 million earned during
the first quarter of 1995. The effect of a $400,000 decrease in
interest income, mainly resulting from decreases in earning-
asset yields due to higher average balances in the lower
yielding investment securities portfolio, was partially offset
by a $300,000 increase in the FTE adjustment, as the Company's
average balance in tax-exempt securities and tax-free loans
increased $34 million and $24 million, respectively, from the
first quarter of 1995. Also contributing to the unfavorable
variance from the first quarter of 1995 was an increase of $1.1
million in interest expense, principally due to the effect of a
$47 million decrease in the average balances of low-cost
deposits and an increase of $55 million in the average balance
of higher-costing short-term purchased funds.
Compared to the three months ended December 31, 1995, net
interest income (FTE) decreased $500,000 or 2 percent, in part
due to a decrease of $400,000 in interest income. This decrease
was the result of fewer days of accruals and changes in the mix
of earning-assets average balances, which resulted in lower
earning-asset yields. In addition, interest expense increased
$200,000 from the fourth quarter of 1995, as a decrease in the
average balance of low-cost deposits was compensated by
increases in the average balance of higher costing
interest-bearing liabilities, including short-term borrowed
funds and long-term notes payable. The FTE adjustment for the
first quarter of 1996 was $100,000 higher than the previous
quarter due to higher average balances of municipal securities
and tax-exempt loan portfolio balances.
First quarter 1996 amortized loan fees of $273,000, which are
included in interest income on loans, were $453,000 lower than
the same period in 1995 and $17,000 lower than the three-month
period ended December 31, 1995.
Net Interest Margin (FTE)
For the three months ended
March 31, December 31,
----------------- ----------
1996 1995 1995
----- ----- -----
Yield on earning assets 8.06% 8.28% 8.11%
Cost of interest-bearing liabilities 3.44% 3.23% 3.43%
---- ---- ----
Net interest spread 4.62% 5.05% 4.68%
Impact of non-interest bearing funds 0.74% 0.67% 0.77%
---- ---- ----
Net interest margin 5.36% 5.72% 5.45%
==== ==== ====
The net interest margin during the first three months of 1996
was 36 basis points lower than the same period in 1995. The
average yield on earning assets for the first quarter of 1996
was 22 basis points lower than the same period in 1995 and the
rate paid on interest-bearing liabilities increased 21 basis
points from the same period a year ago. The increase in
interest-bearing liability rates was partially offset by the
favorable effect of increases in the average balance of
non-interest bearing deposits.
Compared with the previous quarter, first quarter 1996 net
interest margin was 9 basis points lower, resulting from a 5
basis point decrease in the yield on earning assets, a small
increase of 1 basis point in the rate paid on interest-bearing
liabilities and the unfavorable effect of decreases in
non-interest bearing funds.
Summary of Average Balances, Yields/Rates and Interest
Differential
The following tables present, for the periods indicated,
information regarding 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.
Distribution of assets, liabilities and shareholders' equity
For the three months ended
March 31, 1996
(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 631,431 9,516 6.06
Held to maturity 240,916 4,012 6.70
Loans:
Commercial 811,696 19,250 9.54
Real estate construction 50,840 1,524 12.06
Real estate residential 239,976 4,407 7.39
Consumer 277,059 6,412 9.31
--------- ------
Earning assets 2,252,168 45,121 8.06
Other assets 215,750
----------
Total assets $2,467,918
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $456,169 $-- -- %
Savings and interest-bearing
transaction 1,053,857 5,740 2.19
Time less than $100,000 306,913 3,863 5.06
Time $100,000 or more 169,338 2,267 5.38
--------- ------
Total interest-bearing deposits 1,530,108 11,870 3.12
Funds purchased 206,170 2,681 5.23
Notes and mortgages payable 30,086 556 7.43
--------- ------
Total interest-bearing liabilities 1,766,364 15,107 3.44
Other liabilities 22,653
Shareholders' equity 222,732
----------
Total liabilities and
shareholders' equity $2,467,918
==========
Net interest spread (1) 4.62 %
Net interest income and interest margin (2) $30,014 5.36 %
======= ====
(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 by total average earning assets.
Distribution of assets, liabilities and shareholders' equity
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 $17,653 $254 5.83 %
Trading account securities -- -- --
Investment securities :
Available for sale 190,177 2,798 5.97
Held to maturity 629,221 9,739 6.28
Loans:
Commercial 807,009 19,684 9.89
Real estate construction 67,225 1,940 11.71
Real estate residential 207,797 3,899 7.61
Consumer 293,230 6,868 9.50
--------- ------
Earning assets 2,212,312 45,182 8.28
Other assets 206,340
----------
Total assets $2,418,652
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $433,303 $-- -- %
Savings and interest-bearing
transaction 1,124,139 6,268 2.26
Time less than $100,000 304,725 3,354 4.46
Time $100,000 or more 151,943 1,823 4.86
--------- ------
Total interest-bearing deposits 1,580,807 11,445 2.94
Funds purchased 151,613 2,049 5.48
Notes and mortgages payable 25,524 505 8.02
--------- ------
Total interest-bearing liabilities 1,757,944 13,999 3.23
Other liabilities 18,507
Shareholders' equity 208,898
----------
Total liabilities and
shareholders' equity $2,418,652
==========
Net interest spread (1) 5.05 %
Net interest income and interest margin (2) $31,183 5.72 %
======= ====
(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 by total average earning assets.
* Restated on an historical basis to reflect the June 6, 1995
acquisition of CapitolBank Sacramento and the July 17, 1995
acquisition of North Bay Bancorp, on a pooling-of-interests basis.
Distribution of assets, liabilities and shareholders' equity
For the three months ended
December 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 279,853 4,233 6.00
Held to maturity 572,503 9,096 6.30
Loans:
Commercial 806,239 19,698 9.69
Real estate construction 55,665 1,550 11.05
Real estate residential 225,213 4,162 7.33
Consumer 280,359 6,658 9.42
--------- ------
Earning assets 2,220,082 45,397 8.11
Other assets 221,462
----------
Total assets $2,441,544
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $478,786 $-- -- %
Savings and interest-bearing
transaction 1,079,283 6,166 2.27
Time less than $100,000 307,551 4,000 5.16
Time $100,000 or more 170,132 2,364 5.51
--------- ------
Total interest-bearing deposits 1,556,966 12,530 3.19
Funds purchased 145,714 2,009 5.47
Notes and mortgages payable 20,000 356 7.06
--------- ------
Total interest-bearing liabilities 1,722,680 14,895 3.43
Other liabilities 21,010
Shareholders' equity 219,068
----------
Total liabilities and
shareholders' equity $2,441,544
==========
Net interest spread (1) 4.68 %
Net interest income and interest margin (2) $30,502 5.45 %
======= ====
(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 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 rates have been
allocated in proportion to the respective volume and rate
components.
Rate and volume variances Three months ended March 31, 1996
compared with
Three months ended March 31, 1995*
(In thousands) ----------------------------------
Volume Rate Total
------ ---- -----
(Decrease) increase in
interest and fee income:
Money market assets
and funds sold ($126) ($128) ($254)
Trading account securities -- -- --
Investment securities:
Available for sale 6,672 46 6,718
Held to maturity (6,425) 698 (5,727)
Loans:
Commercial 84 (518) (434)
Real estate construction (475) 59 (416)
Real estate residential 627 (119) 508
Consumer (334) (122) (456)
----- ----- -----
Total loans (98) (700) (798)
----- ----- -----
Total increase (decrease) in
interest and fee income 23 (84) (61)
----- ----- -----
(Decrease) increase in
interest expense:
Deposits:
Savings/interest-bearing (352) (176) (528)
Time less than $ 100,000 26 483 509
Time $ 100,000 or more 230 214 444
----- ----- -----
Total interest-bearing deposits (96) 521 425
Funds purchased 724 (92) 632
Notes and mortgages payable 87 (36) 51
----- ----- -----
Total increase in
interest expense 715 393 1,108
----- ----- -------
Decrease in
net interest income ($692) ($477) ($1,169)
===== ===== =======
* Restated on an historical basis to reflect the June 6, 1995
acquisition of CapitolBank Sacramento and the July 17, 1995
acquisition of North Bay Bancorp, on a pooling-of-interests basis.
Rate and volume variances Three months ended March 31, 1996
compared with
Three months ended December 31, 1995
(In thousands) ------------------------------------
Volume Rate Total
------ ---- -----
Increase (decrease) in
interest and fee income:
Money market assets
and funds sold $-- $-- $--
Trading account securities -- -- --
Investment securities:
Available for sale 5,241 42 5,283
Held to maturity (5,700) 616 (5,084)
Loans:
Commercial 329 (777) (448)
Real estate construction 480 (506) (26)
Real estate residential 220 25 245
Consumer (122) (124) (246)
----- ----- -----
Total loans 907 (1,382) (475)
----- ----- -----
Total increase (decrease) in
interest and fee income 448 (724) (276)
----- ----- -----
(Decrease) increase in
interest expense:
Deposits:
Savings/interest-bearing (176) (250) (426)
Time less than $ 100,000 (14) (123) (137)
Time $ 100,000 or more (16) (81) (97)
----- ----- -----
Total interest-bearing deposits (206) (454) (660)
Funds purchased 751 (79) 672
Notes and mortgages payable 181 19 200
----- ----- -----
Total increase (decrease) in
interest expense 726 (514) 212
----- ----- -----
Decrease in
net interest income ($278) ($210) ($488)
===== ===== =====
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 underwriting and
administration procedures and pursuing collection efforts with
troubled debtors.
Maintenance of credit quality standards allowed the Company to
keep the level of its provision for loan losses at $1.3 million
in the first quarter of 1996, equal to the first and fourth
quarters of 1995. 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) 1996 1995 1995
----- ----- -----
Service charges on deposits accounts $3.18 $3.15 $3.21
Merchant credit card 0.68 0.53 0.65
Mortgage banking income 0.35 0.37 0.39
Brokerage commissions 0.14 0.14 0.14
Trust fees 0.08 0.17 0.12
Net investment securities gains 0.01 -- --
Other non-interest income 0.91 0.76 0.93
----- ----- -----
Total $5.35 $5.12 $5.44
===== ===== =====
Non-interest income during the first quarter of 1996 was
$230,000 higher than the first quarter of 1995. This variance
includes a $150,000 increase in merchant credit card fees and a
$30,000 increase in service charges on deposit accounts,
partially offset by a $90,000 decrease in trust fees and a
$20,000 decrease in mortgage banking income. The increase in
merchant credit card income was mainly due to higher volume,
while service charges on deposit accounts increased due to
higher account analysis charges, transaction account activity
and maintenance charges, partially offset by lower overdrafts,
returned items and savings account fees. The decline in mortgage
banking income was mostly due to lower mortgage refinancing
volume partially offset by reduced discounts net of premiums
from secondary market loan sales while the decrease in trust
fees was mainly due to lower volume.
The $90,000 decrease in non-interest income during the first
three months of 1996 compared to the fourth quarter of 1995,
resulted from decreases in service charges on deposit accounts,
trust fees and mortgage banking income partially offset by
higher merchant credit card income. The $30,000 reduction in
deposit account fees was principally due to lower overdraft,
returned items and savings deposit account charges that more
than offset the favorable variance resulting from higher
transaction account maintenance and analysis fees. The $40,000
decrease in mortgage banking income and the $30,000 increase in
merchant credit card income were due to the same reasons as the
change from the first quarter of 1995, while the $40,000
decrease in trust fees was mainly due to volume and timing of
annual fees.
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) 1996 1995 1995
----- ----- -----
Salaries $7.42 $8.32 $7.59
Other personnel 2.42 2.54 1.94
Occupancy 2.58 2.60 2.68
Equipment 1.35 1.43 1.58
Data processing services 0.98 1.04 1.03
Professional fees 0.56 1.59 0.31
Courier service 0.44 0.33 0.49
Stationery and supplies 0.37 0.40 0.39
Postage 0.37 0.38 0.50
Advertising/public relations 0.28 0.26 0.54
Loan expense 0.24 0.26 0.25
Operational losses 0.19 0.23 0.27
Merchant credit card 0.19 0.19 0.25
Other real estate owned 0.06 0.11 0.42
FDIC deposit insurance 0.01 1.18 0.19
Other non-interest expense 1.41 1.54 1.39
------ ------ ------
Total $18.87 $22.40 $19.82
====== ====== ======
Non-interest expense continues to show the effects of cost
controls and the benefits resulting from consolidation of
operations after the 1995 acquisitions. During the first quarter
of 1996, non-interest expense decreased $3.5 million from the
first quarter of 1995. All categories decreased, with the
exception of courier service and advertising and public
relations expenses. The variances include FDIC insurance
expense, lower by $1.2 million, due to the elimination of
premiums; professional fees, down $1.0 million, as the first
quarter of 1995 included one-time expenses related to the 1995
mergers; and salaries and other personnel expenses, down $1.0
million, from streamlining of operations as reflected in the
reduction of 130 full-time equivalent employees. In addition,
equipment expense decreased $80,000, as a result of 1995
merger-related fixed asset write-offs, data processing costs
were lower by $60,000 due to consolidations after the mergers
and other real estate owned was $50,000 lower than the first
quarter of prior year. Completing the variances from the first
quarter of 1995, operational losses and stationery and supplies
charges were lower by $40,000 and $30,000, respectively,
occupancy and loan expenses were lower by $20,000 each, and
postage was $10,000 lower than the first quarter in 1995.
Increases in non-interest expense during the first quarter of
1996 compared to the same period in 1995 occurred in courier
services and advertising/public relations expense, $110,000 and
$20,000, respectively.
Non-interest expense for the first three months of 1996 was
$950,000 lower than the preceding quarter. Other real estate
owned expenses were $360,000 lower, as the fourth quarter of
1995 included one-time losses on sales and write-downs to net
realizable value of property acquired in satisfaction of debt.
Advertising/public relations expenses decreased $260,000 as
prior quarter included increased year-end related charges and
equipment expense was $230,000 lower than the preceding quarter
mainly due to lower write-offs and depreciation, repairs and
maintenance expenses. In addition, FDIC insurance expense was
lower by $180,000 due to the elimination of premiums in 1996,
postage was $130,000 lower, and occupancy decreased by $100,000
principally due to lower utilities and depreciation expense,
partially offset by higher rental expense. Other major variances
from the fourth quarter of 1995 include operational losses and
merchant credit card, lower by $80,000 and $60,000,
respectively, data processing services and courier service,
lower by $50,000 each, and stationery and supplies costs, lower
than the fourth quarter of 1995 by $20,000. Partially offsetting
these variances, personnel-related expense was, in the first
quarter of 1996, $310,000 higher than the fourth quarter of
1995, principally due to increased payroll taxes and increased
expenses related to the Company's retirement and pension plans,
partially offset by lower salaries resulting mainly from the
reduction of 18 in full-time equivalent staff, and professional
fees were $250,000 higher than the preceding quarter as legal,
accounting and consulting expenses were $180,000, $50,000 and
$40,000, respectively, higher than the fourth quarter of 1995.
Provision for Income Tax
The Company recorded income tax expense of $4.3 million in the
first quarter of 1996, representing an effective tax rate of 32
percent, compared to $3.5 million in the first quarter of 1995
and $4.2 million in the preceding quarter, representing
effective tax rates, in both cases, of 32 percent. 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 exposure to loans with high credit risk and increase
diversification of earning assets. 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 assets have a higher degree of risk
and receive an elevated level of attention to ensure collection.
The following is a summary of classified assets on the dates
indicated:
At March 31, At December 31,
(In millions) ----------------- ----------
1996 1995 1995
----- ----- -----
Classified loans $48.4 $47.7 $44.9
Other classified assets 6.1 7.2 5.1
----- ----- -----
Total classified assets $54.5 $54.9 $50.0
===== ===== =====
Reserve for loan losses
as a percentage of
classified loans 70% 69% 75%
Classified loans at March 31, 1996, increased $700,000 or 1
percent to $48.4 million from March 31, 1995. The $1.1 million
or 15 percent decrease from prior year of other classified
assets was due to sales and writedowns of properties classified
as 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 when 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.
Generally, 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:
At March 31, At December 31,
(In millions) ----------------- ----------
1996 1995 1995
----- ----- -----
Performing non-accrual loans $1.96 $3.18 $2.46
Non-performing, non-accrual
loans 6.44 7.94 7.49
---- ---- ----
Total non-accrual loans 8.40 11.12 9.95
Loans 90 days past due and
still accruing 0.16 0.54 0.27
---- ----- -----
Total non-performing loans 8.56 11.66 10.22
Other real estate owned 6.09 7.16 5.10
------ ------ ------
Total non-performing assets $14.65 $18.82 $15.32
====== ====== ======
Reserve for loan losses
as a percentage of
non-performing loans 394% 283% 329%
Performing non-accrual loans decreased $1.22 million to $1.96
million at March 31, 1996 from $3.18 million at March 31, 1995
and decreased $500,000 from $2.46 million outstanding at
December 31, 1995. Non-performing non-accrual loans of $6.44
million at March 31, 1996, decreased $1.50 million from March
31, 1995 and decreased $1.05 million from December 31, 1995. The
$2.72 million and $1.55 million reductions in total non-accrual
loans from March 31 and December 31, 1995, respectively, were
principally due to payoffs and writeoffs of loans with real
estate collateral and commercial loans. The $1.07 million
decrease in other real estate owned balances from March 31, 1995
was due to liquidations and sales while the $99,000 increase
from December 31, 1995 was due to the combination of additions
from non-accrual loans with real estate collateral net of
liquidations and sales. The amount of gross interest income that
would have been recorded for non-accrual loans for the three
months ending March 31, 1996, if all such loans had been current
in accordance with their original terms, was $214,000. The
amount of interest income that was recognized on non-accrual
loans from cash payments made during the three months ended
March 31, 1996 totaled $79,000, representing an annualized yield
of 3.60 percent. Cash payments received which were applied
against the book balance of non-accrual loans outstanding at
March 31, 1996, totaled $285,000.
Reserve for loan losses
It is the position of the Company that, even though the
strategy to improve credit quality is reflected in the declining
balances of non-accrual loans, the increased levels of the loan
loss reserve is adequate to provide for losses that can be
estimated based on anticipated specific and general conditions
as determined by Management. These include credit loss
experience, the amount of past due, non-performing and
classified loans, recommendations of regulatory authorities and
prevailing economic conditions. 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 purely mathematical
formula, Management considers the reserve for loan losses for
the periods presented, to be adequate as a reserve against
inherent losses. Management continues to evaluate the loan
portfolio and assess current economic conditions that will
dictate future required reserve levels.
The following table summarizes the loan loss provision, net
credit losses and loan loss reserve for the periods indicated:
For the three months ended
March 31, December 31,
(In millions) ----------------- ----------
1996 1995 1995
----- ----- -----
Balance, beginning of period $33.5 $32.5 $33.1
Loan loss provision 1.3 1.3 1.3
Credit losses (1.5) (1.5) (1.4)
Credit loss recoveries 0.5 0.8 0.5
----- ----- -----
Net credit losses (1.0) (0.7) (0.9)
----- ----- -----
Balance, end of period $33.8 $33.1 $33.5
===== ===== =====
Reserve for loan losses
as a percentage of
loans outstanding 2.44% 2.40% 2.42%
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. In evaluating the 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, which are used as a basis for the calculations only and
do not represent exposure to risk for the Company. The risk to
the Company is associated with interest rate fluctuations and
with the counterparty's ability to meet interest payment
obligations. 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. During the first quarter of 1995,
the Company was a party in two interest rate swaps with notional
amounts totaling $60 million. The Company paid a variable rate
based on three-month LIBOR and received an average fixed rate of
4.11 percent. The effect of entering into these contracts
resulted in a reduction of net interest income of $290,000 for
the first three months of 1995. The Company was not a party in
interest rate swaps during the first three months of 1996.
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 ten percent even
under alternate assumed interest rate changes of plus or minus
200 basis points. The results of the model indicated that the
mix of interest rate sensitive assets and liabilities at March
31, 1996 and 1995 did not expose the Company to an unacceptable
level of interest rate risk.
Liquidity
The Company's principal source of asset liquidity is investment
securities available for sale. At March 31, 1996, investment
securities available for sale totaled $659.8 million. This
represents an increase of $480.1 million from March 31, 1995
resulting, in large part, from a one-time reclassification, at
December 31, 1995, of $329.4 million of securities held to
maturity to available for sale, that provided greater
flexibility for managing the securities portfolio. This
reclassification followed a special report issued by the
Financial Accounting Standards Board, "A Guide to Implementation
of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities - Questions and Answers", which
allowed companies to reassess the appropriateness of the
classifications of all securities and account for any
reclassification at fair value.
The Company generates significant liquidity from its operating
activities. The Company's profitability in the first three months
of 1996 and 1995 was the main contributor to the cash flows
provided from operations for such periods of $8.5 million and
$6.1 million, respectively.
Additional cash flow is provided by and used in financing
activities, primarily customer deposits, short-term borrowings
from banks and extensions of long-term debt. In the first three
months of 1996, $13.5 million was used in financing activities,
as a $49.6 million decrease in deposits combined with other cash
flow uses including dividends paid to shareholders and
retirement of stock, was only partially offset by an increase
of $18.1 million in purchased funds, a $1.8 million increase in
common stock from option exercises and the issuance of $22.5
million of the Company's Senior Notes. These Notes, bearing
interest at 7.11 percent, mature February 1, 2006. These results
compare to the first three months of 1995, when $43.0 million
was used in financing activities, mainly comprised of a $60.8
million decrease in customers' deposits, plus retirement of
stock and dividends paid to shareholders, partially offset by a
$19.2 million increase in short-term purchased funds.
The Company uses cash flows from operating and financing
activities primarily to invest in securities and loans. During
the first three months of 1996, net repayments of loans were
$798,000 compared to $10.5 million during the same period in
1995. Due to the absence of growth in loan balances, the Company
continued to increase its investment securities portfolio in
1996. Purchases of investment securities net of maturities and
sales totaled $22.0 million for the first three months of 1996,
compared to proceeds from maturities net of purchases of $14.3
million in the same period of 1995.
The Company anticipates increasing its cash levels from
operations through the end of 1996 due to increased
profitability and retained earnings. For the same period, it is
anticipated that the investment securities portfolio and demand
for loans will moderately increase. The growth in deposit
balances is expected to follow the anticipated growth in loan
and investment balances through the end of 1996.
Capital Resources
The current and projected capital position of the Company and
the impact of capital plans and long-term strategies is reviewed
regularly by Management.
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 $230.4 million at March 31, 1996, representing an increase
of $18.2 million or 9 percent from March 31, 1995 and an
increase of $6.5 million, or 3 percent, from December 31, 1995.
As a result of the Company's profitability and the retention of
earnings, the ratio of equity to total assets increased to 9.3
percent at March 31, 1996, from 8.8 percent a year ago and 9.0
percent at year-end 1995. The ratio of Tier I capital to
risk-adjusted assets was 12.98 percent at March 31, 1996
compared to 13.03 percent at March 31, 1995 and 12.77 percent at
December 31, 1995. Total capital to risk-adjusted assets was
15.38 percent at March 31, 1996 compared to 15.51 percent at
March 31, 1995 and 15.18 percent at December 31, 1995. The
following summarizes the ratios of capital to risk-adjusted
assets for the periods indicated:
At
At March 31, December 31,
----------------- ----------
1996 1995 1995
----- ----- -----
Tier I Capital 12.98% 13.03% 12.77%
Total Capital 15.38% 15.51% 15.18%
Leverage ratio 9.19% 8.81% 9.12%
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". Since
1994, the Board of Directors has approved the repurchase of up
to 838,150 shares of common stock from time to time, subject to
appropriate regulatory and acquisition accounting requirements.
These purchases are made periodically in the open market and
lessen the dilutive impact of issuing new shares to meet stock
performance, option plans and other requirements. Pursuant to
this program, 340,650 shares had been purchased through March
31, 1996.
Interim Periods
The financial information of the Company included herein for
March 1996 and 1995 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, 1996 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, 1995.
On October 23, 1995, the Financial Accounting Standards Board
Issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). The recognition provisions and
disclosure requirements of SFAS 123 are effective January 1,
1996. SFAS 123 allows an entity to either (i) retain the current
method of accounting for stock compensation (principally APB
Opinion No. 25) for purposes of preparing its basic financial
statements or (ii) to adopt a new fair value based method that
is established by the provisions of SFAS 123. Companies may
continue to apply the accounting provisions of APB Opinion No.
25 in determining net income. However, they must apply the
disclosure requirements of SFAS 123. The Company will retain its
current method of accounting for stock compensation and thus
the adoption of SFAS 123 will not have an impact on the
Company's financial results.
In January 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("SFAS 121"). Under the provisions of SFAS 121,
long-lived assets and certain identifiable intangibles to be
held and used by an entity are required to be reviewed for
impairment whenever events or changes indicate that the carrying
amount of those assets may not be recoverable. The adoption of
SFAS 121 did not have any effect on the Company's financial
statements.
In January 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights" ("SFAS 122"), which amends Statement
No.65. SFAS 122 eliminated the accounting distinction to
recognize as separate assets the rights to service mortgage
loans for others depending on how the servicing rights were
acquired, whether by purchase of loans or by origination of
loans. SFAS 122 also requires the assessment of capitalized
mortgage servicing rights for impairment to be based on the
current value of those rights. The adoption of SFAS 122 did not
have a material impact on the Company's financial statements.
Certain amounts in prior periods have been restated to conform
to the current presentation.
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 8, 1996 /s/ DENNIS R. HANSEN
--------------------
Dennis R. Hansen
Senior Vice President
and Controller
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) Form 8-K: None
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 154433 161734
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 7533
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 659767 179644
<INVESTMENTS-CARRYING> 235286 635215
<INVESTMENTS-MARKET> 235842 616680
<LOANS> 1385409 1374785
<ALLOWANCE> 33781 33052
<TOTAL-ASSETS> 2486666 2419212
<DEPOSITS> 1999901 2010885
<SHORT-TERM> 193685 154585
<LIABILITIES-OTHER> 20178 15982
<LONG-TERM> 42500 25524
0 0
0 0
<COMMON> 95903 94903
<OTHER-SE> 134499 117333
<TOTAL-LIABILITIES-AND-EQUITY> 2486666 2419212
<INTEREST-LOAN> 31215 32145
<INTEREST-INVEST> 12109 11514
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 43324 43659
<INTEREST-DEPOSIT> 11870 11445
<INTEREST-EXPENSE> 15107 13999
<INTEREST-INCOME-NET> 28217 29660
<LOAN-LOSSES> 1275 1335
<SECURITIES-GAINS> 14 0
<EXPENSE-OTHER> 18866 22404
<INCOME-PRETAX> 13428 11040
<INCOME-PRE-EXTRAORDINARY> 13428 11040
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9148 7550
<EPS-PRIMARY> .94 .76
<EPS-DILUTED> .94 .94
<YIELD-ACTUAL> 5.36 5.72
<LOANS-NON> 8401 11123
<LOANS-PAST> 160 540
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 33508 32450
<CHARGE-OFFS> 1519 1470
<RECOVERIES> 517 737
<ALLOWANCE-CLOSE> 33781 33052
<ALLOWANCE-DOMESTIC> 20309 19003
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 13472 14049
</TABLE>
Exhibit 11
WESTAMERICA BANCORPORATION
- --------------------------
COMPUTATION OF EARNINGS PER SHARE ON
COMMON AND COMMON EQUIVALENT SHARES AND
ON COMMON SHARES ASSUMING FULL DILUTION
- ---------------------------------------
Three months
ended March 31,
(In thousands, except ------------------
per share data) 1996 1995 *
------ ------
Weighted average number of common
shares outstanding 9,768 9,913
Add exercise of options reduced by
the number of shares that could
have been purchased with the
proceeds from such exercise 159 154
------ ------
Total 9,927 10,067
Net income $9,148 $7,550
Primary earnings per share $.94 $.76
==== ====
Fully-diluted earnings per share $.92 $.75
==== ====
* Restated on an historical basis to reflect the June 6, 1995
acquisition of CapitolBank Sacramento and the July 17, 1995
acquisition of North Bay Bancorp, on a pooling-of-interests
basis.
