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 June 30, 1998
Commission File Number: 1-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2156203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 Shares outstanding as of July 31, 1998
Common Stock, 42,165,413
No Par Value
<PAGE>
<TABLE>
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
- ------------------------------------------------------------------------------------------
(Unaudited)
At June 30, At December 31,
1998 1997 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $244,112 $231,007 $250,824
Money market assets 250 250 250
Investment securities available for sale 982,660 907,750 1,003,234
Investment securities held to maturity,
with market values of:
$243,423 at June 30, 1998
$232,114 at June 30, 1997
$236,896 at December 31, 1997 238,649 230,578 230,960
Loans, net of allowance for loan losses of:
$50,773 at June 30, 1998
$50,742 at June 30, 1997
$50,630 at December 31, 1997 2,240,124 2,218,296 2,211,307
Other real estate owned 5,812 7,286 7,381
Premises and equipment, net 47,010 61,593 48,412
Interest receivable and other assets 105,403 93,299 96,076
- ------------------------------------------------------------------------------------------
Total assets $3,864,020 $3,750,059 $3,848,444
==========================================================================================
LIABILITIES
Deposits:
Non-interest bearing $808,049 $797,618 $852,153
Interest bearing:
Transaction 523,130 524,197 554,825
Savings 904,029 997,581 902,381
Time 835,750 798,048 769,142
- ------------------------------------------------------------------------------------------
Total deposits 3,070,958 3,117,444 3,078,501
Short-term borrowed funds 277,274 151,460 264,848
Liability for interest, taxes and
other expenses 45,633 36,674 45,443
Debt financing and notes payable 52,500 57,500 52,500
- ------------------------------------------------------------------------------------------
Total liabilities 3,446,365 3,363,078 3,441,292
SHAREHOLDERS' EQUITY
Authorized - 150,000 shares of common stock
Issued and outstanding:
42,451 at June 30, 1998
43,192 at June 30, 1997
42,799 at December 31, 1997 200,140 195,901 198,517
Accumulated other comprehensive income:
Unrealized gain on securities
available for sale, net 19,538 10,966 17,923
Retained earnings 197,977 180,114 190,712
- ------------------------------------------------------------------------------------------
Total shareholders' equity 417,655 386,981 407,152
- ------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $3,864,020 $3,750,059 $3,848,444
==========================================================================================
</TABLE>
<PAGE>
<TABLE>
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
<CAPTION>
- ------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $49,219 $50,693 $98,072 $100,373
Money market assets and funds sold -- 178 -- 1,602
Investment securities:
Available for sale
Taxable 11,881 11,544 23,829 22,662
Tax-exempt 2,471 2,098 4,925 3,519
Held to maturity
Taxable 1,511 1,185 2,998 2,108
Tax-exempt 1,912 1,718 3,825 3,678
- ------------------------------------------------------------------------------------------------
Total interest income 66,994 67,416 133,649 133,942
INTEREST EXPENSE
Transaction deposits 1,671 1,628 3,343 3,304
Savings deposits 5,995 7,072 12,133 14,171
Time deposits 10,417 10,362 20,393 20,675
Short-term borrowed funds 3,345 1,857 6,368 3,862
Debt financing and notes payable 923 997 1,841 2,007
- ------------------------------------------------------------------------------------------------
Total interest expense 22,351 21,916 44,078 44,019
- ------------------------------------------------------------------------------------------------
NET INTEREST INCOME 44,643 45,500 89,571 89,923
Provision for loan losses 1,395 1,050 2,790 4,600
- ------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 43,248 44,450 86,781 85,323
NON-INTEREST INCOME
Service charges on deposit accounts 5,059 5,284 10,035 10,632
Merchant credit card 870 1,042 1,502 2,029
Mortgage banking 389 376 839 720
Financial services commissions 473 271 793 464
Trust fees 155 123 310 230
Other 2,638 2,381 5,090 5,190
- ------------------------------------------------------------------------------------------------
Total non-interest income 9,584 9,477 18,569 19,265
NON-INTEREST EXPENSE
Salaries and related benefits 12,715 21,995 25,896 37,217
Occupancy 2,815 8,159 5,711 15,748
Equipment 1,740 4,320 3,590 6,724
Data processing 1,559 1,851 2,891 3,411
Professional fees 627 5,060 1,121 8,022
Other real estate owned 167 249 85 841
Other 5,736 7,540 11,405 13,782
- ------------------------------------------------------------------------------------------------
Total non-interest expense 25,359 49,174 50,699 85,745
- ------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 27,473 4,753 54,651 18,843
Provision for income taxes 9,371 1,939 18,453 6,665
- ------------------------------------------------------------------------------------------------
NET INCOME $18,102 $2,814 $36,198 $12,178
================================================================================================
Comprehensive income:
Change in unrealized gain on securities
available for sale, net (34) 6,649 1,598 4,868
COMPREHENSIVE INCOME $18,068 $9,463 $37,796 $17,046
================================================================================================
Average shares outstanding 42,607 43,072 42,673 43,009
Diluted average shares outstanding 43,335 43,875 43,446 43,739
PER SHARE DATA
Basic earnings $0.42 $0.07 $0.85 $0.28
Diluted earnings 0.42 0.07 0.83 0.28
Dividends paid 0.12 0.09 0.24 0.17
</TABLE>
<PAGE>
<TABLE>
WESTAMERICA BANCORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
- ------------------------------------------------------------------------------------
(Unaudited)
For the six months
ended June 30,
1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $36,198 $12,178
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,448 4,238
Provision for loan losses 2,790 4,600
Amortization of deferred net loan (cost)/fees (36) (519)
Decrease in interest income receivable 388 968
Increase in other assets (10,141) (3,080)
Increase (decrease) in income taxes payable 5,152 (4,123)
Increase (decrease) in interest expense payable 897 (96)
(Decrease) increase in other liabilities (8,097) 6,948
Gain on sales of investment securities (29) (136)
Net (gain) loss on sales/write down
of equipment (62) 193
Originations of loans for resale (5,025) (6,985)
Proceeds from sale of loans
originated for resale 4,180 14,650
Net gain on sale of property acquired
in satisfaction of debt (813) (624)
Write-down on property acquired
in satisfaction of debt 325 940
Gain on sales of branches -- (678)
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 30,175 28,474
- ------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net (disbursements) repayments of loans (33,006) 5,670
Purchases of investment securities
available for sale (154,599) (191,274)
Purchases of investment securities
held to maturity (30,920) (51,097)
Purchases of property, plant and equipment (1,576) (3,148)
Proceeds from maturity of securities
available for sale 172,680 162,445
Proceeds from maturity of securities
held to maturity 23,231 35,951
Proceeds from sale of securities
available for sale 5,308 22,153
Proceeds from sale of property and equipment 84 1,502
Proceeds from sale of property acquired in
satisfaction of debt 4,337 3,185
- ------------------------------------------------------------------------------------
Net cash used in investing activities (14,461) (14,613)
- ------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (7,543) (111,256)
Net increase (decrease) in short-term borrowings 12,426 (15,987)
Repayments of notes payable -- (1,365)
Exercise of stock options/issuance of shares 4,767 10,994
Retirement of stock (21,801) (15,066)
Dividends paid (10,275) (5,351)
- ------------------------------------------------------------------------------------
Net cash used in financing activities (22,426) (138,031)
- ------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (6,712) (124,170)
Cash and cash equivalents at beginning of period 250,824 355,177
- ------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $244,112 $231,007
====================================================================================
Supplemental disclosure of non-cash activities:
Loans transferred to other real estate owned $2,280 $875
Depreciation of fixed assets charged
against reserves 97 --
Supplemental disclosure of cash flow activity:
Unrealized gain on securities
available for sale 1,614 4,950
Interest paid for the period 43,181 44,232
Income tax payments for the period 14,483 10,114
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
In addition to historical information, this discussion includes
certain forward-looking statements regarding events and trends
which may affect the Company's future results. Such statements are
subject to risks and uncertainties that could cause the Company's
actual results to differ materially. Such factors include, but are
not limited to, those described in this discussion and analysis.
This report, which includes consolidated financial statements
prepared in conformity with generally accepted accounting
principles, should be read in conjunction with Westamerica
Bancorporation's annual report on Form 10-K for the year ended
December 31, 1997.
On January 22, 1998, the Board of Directors of the Company
authorized a three-for-one stock split of the Company's common
stock in which each share of the Company's common stock was
converted into three shares. Consequently, all related information
in this report, including exhibits, has been restated to reflect
the effect of the stock split.
Westamerica Bancorporation (the "Company"), parent company of
Westamerica Bank, Bank of Lake County, Community Banker Services
Corporation and Westamerica Commercial Credit Inc., reported second
quarter 1998 net income of $18.1 million or $.42 diluted earnings
per share. These results compare to net income of $2.8 million or
$.07 diluted earnings per share for the second quarter of 1997.
On a year-to-date basis, the Company reported net income of $36.2
million representing $.83 diluted earnings per share, compared to
$12.2 million or $.28 diluted earnings per share for the same
period of 1997. Second quarter 1997 income was impacted by
approximately $18.8 million pretax one-time charges ($12.8 million
after tax) resulting from the merger of the Company with ValliCorp
Holdings, Inc. (the "Merger").
<PAGE>
Following is a summary of the components of net income for
the periods indicated:
- ---------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
----------------- -----------------
(In millions) 1998 1997 1998 1997
- ---------------------------------------------------------------------------
Net interest income* $47.5 $47.8 $95.1 $94.4
Provision for loan losses (1.4) (1.1) (2.8) (4.6)
Non-interest income 9.6 9.5 18.6 19.3
Non-interest expense (25.4) (49.2) (50.7) (85.7)
Provision for income taxes* (12.2) (4.2) (24.0) (11.2)
- ---------------------------------------------------------------------------
Net income $18.1 $2.8 $36.2 $12.2
===========================================================================
Average total assets $3,772.7 $3,729.3 $3,759.6 $3,753.6
Net income (annualized) as
a percentage of average
total assets 1.92% 0.30% 1.94% 0.65%
* Fully taxable equivalent basis (FTE)
During the second quarter of 1998, the Company's net income was
$18.1 million, $15.3 million higher than the same period in 1997.
Merger-related expenses incurred during the second quarter of 1997
account for the majority of the change. In addition, efficiencies
were achieved after the Merger through consolidation of operations,
staff reductions and other cost controls. The Company also
benefited from a small increase in non-interest income, but was
adversely affected by lower net interest income, due principally to
lower loan yields, a higher loan loss provision and increased
income taxes mainly due to higher pretax income.
Comparing the first six months of 1998 to the same period of 1997,
net income increased $24.0 million. The major component of this
change is the reduction in non-interest expense due to one-time
pre-Merger operating costs incurred during the first six months of
1997, including additions to the loan loss provision, combined with
cost reductions due to strict controls and consolidation of
operations achieved after the Merger. This reduction in
non-interest expense was partially offset by increased income taxes
due mainly to higher pre-tax income.
<PAGE>
Net Interest Income
- -------------------
Following is a summary of the components of net interest income
for the periods indicated:
- ---------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
----------------- -----------------
(In millions) 1998 1997 1998 1997
- ---------------------------------------------------------------------------
Interest income $67.0 $67.4 $133.6 $133.9
Interest expense (22.4) (21.9) (44.1) (44.0)
FTE adjustment 2.9 2.3 5.6 4.5
- ---------------------------------------------------------------------------
Net interest income (FTE) $47.5 $47.8 $95.1 $94.4
===========================================================================
Net interest margin (FTE) 5.49% 5.67% 5.54% 5.58%
The Company's primary source of revenue is net interest income, or
the difference between interest income on earning assets and
interest expense on interest-bearing liabilities. Net interest
income (FTE) during the second quarter of 1998 decreased $300
thousand from the same period in 1997 to $47.5 million. On a
year-to-date basis, 1998 net interest income increased $700
thousand from the first six months of 1997.
Interest Income
During the second quarter of 1998, interest income (FTE) increased
$200 thousand from the same period in 1997 primarily due to higher
volume and yields on investment securities and higher volume on
loans, partially offset by lower loan yields. Investment average
balances increased $63 million as increases in tax-free,
asset-backed, corporate and other securities, were partially offset
by reductions in short-term funds sold, U.S. Agency and Treasury
securities and participation certificates. Increases in investment
securities yields from the second quarter of 1997 occurred in
participation certificates and U.S. Treasury securities. Loan
average balances increased $12 million from prior year. Increases
in targeted commercial, residential real estate and indirect
consumer credits were partially offset by decreases in construction
and other installment loans. Loan yields decreased from the second
quarter of 1997 in almost all categories, mainly due to competitive
pressures.
<PAGE>
Comparing the first six months of 1998 with the same period of
1997, interest income (FTE) increased $800 thousand. The positive
effect of higher investment securities average balances and yields
was partially offset by lower average loan balances and yields. The
increase in the average balance of investment securities was
concentrated in asset-backed, corporate and tax-free securities,
partially offset by reductions in U.S. Agency and Treasury
securities, participation certificates and short-term funds sold.
The total yield on investment securities increased from the first
six months of 1997, as increases in participation certificates and
U.S. Agency and Treasury securities were partially offset by lower
yields on asset-backed, corporate and tax-free securities. Loan
average balances decreased from the first six months of 1997.
Consumer direct and indirect and construction average loan balances
decreased from prior year, partially offset by increases in
targeted commercial loans, residential real estate and personal
revolving lines of credit. All categories of loan yields
experienced decreases from the first six months of 1997 mainly due
to competitive pressure.
Interest Expense
For the second quarter of 1998 and offsetting the increase in
interest income (FTE), interest expense was $500 thousand higher
than the second quarter of 1997. The higher interest expense
resulted from $114 million higher average balance of higher-cost
short-term borrowings to compensate for a decrease of $83 million
in the average balance of lower-cost interest-bearing deposits.
On a year-to-date basis, interest expense increased $100 thousand,
mainly due to a $116 million decrease in the average balance of
lower-cost interest bearing deposits and a $97 million compensating
increase in short-term borrowings, partially offset by the
favorable effect of an increase of $14 million in interest-free
demand deposit average balances.
In all periods, the Company has attempted continuously to reduce
high-rate time deposits while increasing the balances of more
profitable, lower-cost transaction accounts, minimizing the effect
of adverse cyclical trends.
<PAGE>
Net Interest Margin (FTE)
- -------------------------
The following summarizes the components of the Company's net
interest margin for the periods indicated:
- ---------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
----------------- -----------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------
Yield on earning assets 8.08% 8.27% 8.12% 8.18%
Rate paid on interest-bearing
liabilities 3.47% 3.44% 3.46% 3.43%
- ---------------------------------------------------------------------------
Net interest spread 4.61% 4.83% 4.66% 4.75%
Impact of all other net
non-interest bearing funds 0.88% 0.84% 0.88% 0.83%
- ---------------------------------------------------------------------------
Net interest margin 5.49% 5.67% 5.54% 5.58%
===========================================================================
During the second quarter of 1998, the Company's net interest
margin of 5.49 percent was 18 basis points lower than the first
quarter of 1997, as the favorable effect of higher net non-interest
bearing funds was more than offset by a 19 basis point decline in
earning-asset yields, mostly due to lower loan yields, and an
increase of 3 basis points in the rate paid on interest-bearing
liabilities.
Comparing the first six months of 1998 with the same period in the
prior year, the net interest margin decreased 4 basis points.
Earning-asset yields were 6 basis points lower, mainly due to lower
loan yields, and the rate paid on interest-bearing liabilities
increased 3 basis points as higher rates paid on short-term
borrowed funds were partially offset by a reduction in deposit and
debt financing rates and the favorable impact of higher
non-interest bearing funds including higher demand deposit average
balances.
Summary of Average Balances, Yields/Rates and Interest Differential
- -------------------------------------------------------------------
The following tables present, for the periods indicated,
information regarding the Company's 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.
<PAGE>
Distribution of assets, liabilities and shareholders' equity:
For the three months ended
June 30, 1998
- ---------------------------------------------------------------------------
(Dollars in thousands)
Interest Rates
Average income/ earned/
balance expense paid
- ---------------------------------------------------------------------------
Assets
Money market assets and funds sold $250 $-- -- %
Investment securities:
Taxable 874,032 13,392 6.15
Tax-exempt 323,193 6,265 7.78
Loans:
Commercial 1,420,988 32,458 9.16
Real estate construction 60,580 1,748 11.57
Real estate residential 390,855 7,004 7.19
Consumer 390,561 8,942 9.18
- ----------------------------------------------------------------
Earning assets 3,460,459 69,809 8.08
Other assets 312,268
- -------------------------------------------------------
Total assets $3,772,727
=======================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $768,625 $-- -- %
Savings and interest-bearing
transaction 1,450,749 7,666 2.12
Time less than $100,000 441,214 5,578 5.07
Time $100,000 or more 373,126 4,839 5.20
- ----------------------------------------------------------------
Total interest-bearing deposits 2,265,089 18,083 3.20
Short-term borrowed funds 264,916 3,345 5.06
Debt financing and notes payable 52,500 923 7.05
- ----------------------------------------------------------------
Total interest-bearing liabilities 2,582,505 22,351 3.47
Other liabilities 27,326
Shareholders' equity 394,271
- -------------------------------------------------------
Total liabilities and shareholders' equity $3,772,727
=======================================================
Net interest spread (1) 4.61 %
Net interest income and interest margin (2) $47,458 5.49 %
===========================================================================
(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.
<PAGE>
Distribution of assets, liabilities and shareholders' equity:
For the three months ended
June 30, 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
Interest Rates
Average income/ earned/
balance expense paid
- ---------------------------------------------------------------------------
Assets
Money market assets and funds sold $12,573 $178 5.68 %
Investment securities:
Taxable 854,885 12,729 5.97
Tax-exempt 266,089 5,450 8.22
Loans:
Commercial 1,372,867 31,903 9.32
Real estate construction 91,106 2,476 10.90
Real estate residential 359,881 7,116 7.93
Consumer 426,632 9,883 9.29
- ----------------------------------------------------------------
Earning assets 3,384,033 69,735 8.27
Other assets 345,303
- -------------------------------------------------------
Total assets $3,729,336
=======================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $768,157 $-- -- %
Savings and interest-bearing
transaction 1,543,980 8,700 2.26
Time less than $100,000 482,560 6,124 5.09
Time $100,000 or more 321,950 4,238 5.28
- ----------------------------------------------------------------
Total interest-bearing deposits 2,348,490 19,062 3.26
Short-term borrowed funds 150,857 1,857 4.94
Debt financing and notes payable 58,126 997 6.88
- ----------------------------------------------------------------
Total interest-bearing liabilities 2,557,473 21,916 3.44
Other liabilities 28,519
Shareholders' equity 375,187
- -------------------------------------------------------
Total liabilities and shareholders' equity $3,729,336
=======================================================
Net interest spread (1) 4.83 %
Net interest income and interest margin (2) $47,819 5.67 %
===========================================================================
(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.
<PAGE>
Distribution of assets, liabilities and shareholders' equity:
For the six months ended
June 30, 1998
- ---------------------------------------------------------------------------
(Dollars in thousands)
Interest Rates
Average income/ earned/
balance expense paid
- ---------------------------------------------------------------------------
Assets
Money market assets and funds sold $250 $-- -- %
Investment securities:
Taxable 875,568 26,827 6.18
Tax-exempt 321,649 12,448 7.80
Loans:
Commercial 1,414,118 64,563 9.21
Real estate construction 62,708 3,656 11.76
Real estate residential 378,887 13,791 7.34
Consumer 391,800 17,891 9.21
- ----------------------------------------------------------------
Earning assets 3,444,980 139,176 8.12
Other assets 314,632
- -------------------------------------------------------
Total assets $3,759,612
=======================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $772,971 $-- -- %
Savings and interest-bearing
transaction 1,456,459 15,476 2.14
Time less than $100,000 445,418 11,108 5.03
Time $100,000 or more 355,165 9,285 5.27
- ----------------------------------------------------------------
Total interest-bearing deposits 2,257,042 35,869 3.20
Short-term borrowed funds 255,447 6,368 5.03
Debt financing and notes payable 52,500 1,841 7.07
- ----------------------------------------------------------------
Total interest-bearing liabilities 2,564,989 44,078 3.46
Other liabilities 29,935
Shareholders' equity 391,717
- -------------------------------------------------------
Total liabilities and shareholders' equity $3,759,612
=======================================================
Net interest spread (1) 4.66 %
Net interest income and interest margin (2) $95,098 5.54 %
===========================================================================
(1) Net interest spread represents the average yield earned on
interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest income
(annualized) by total average earning assets.
<PAGE>
Distribution of assets, liabilities and shareholders' equity:
For the six months ended
June 30, 1997
- ---------------------------------------------------------------------------
(Dollars in thousands)
Interest Rates
Average income/ earned/
balance expense paid
- ---------------------------------------------------------------------------
Assets
Money market assets and funds sold $58,811 $1,602 5.49 %
Investment securities:
Taxable 842,958 24,770 5.93
Tax-exempt 260,273 10,375 8.04
Loans:
Commercial 1,362,806 62,305 9.22
Real estate construction 96,131 5,085 10.67
Real estate residential 357,465 14,315 8.08
Consumer 433,976 19,994 9.29
- ----------------------------------------------------------------
Earning assets 3,412,420 138,446 8.18
Other assets 341,138
- -------------------------------------------------------
Total assets $3,753,558
=======================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $759,253 $-- -- %
Savings and interest-bearing
transaction 1,561,912 17,475 2.26
Time less than $100,000 488,836 12,276 5.06
Time $100,000 or more 322,121 8,399 5.26
- ----------------------------------------------------------------
Total interest-bearing deposits 2,372,869 38,150 3.24
Short-term borrowed funds 158,591 3,862 4.91
Debt financing and notes payable 58,300 2,007 6.94
- ----------------------------------------------------------------
Total interest-bearing liabilities 2,589,760 44,019 3.43
Other liabilities 28,436
Shareholders' equity 376,109
- -------------------------------------------------------
Total liabilities and shareholders' equity $3,753,558
=======================================================
Net interest spread (1) 4.75 %
Net interest income and interest margin (2) $94,427 5.58 %
===========================================================================
(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.
<PAGE>
Rate and volume variances.
The following tables set forth a summary of the changes in interest
income and interest expense from changes in average asset 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.
- --------------------------------------------------------------------------
(In thousands) Three months ended
June 30, 1998
compared with three months
ended June 30, 1997
---------------------------
Volume Rate Total
- --------------------------------------------------------------------------
Increase (decrease) in
interest and fee income:
Money market assets and funds sold ($88) ($90) ($178)
Investment securities:
Taxable 289 374 663
Tax-exempt 1,086 (271) 815
Loans:
Commercial 1,081 (526) 555
Real estate construction (892) 164 (728)
Real estate residential 1,257 (1,369) (112)
Consumer (827) (114) (941)
- --------------------------------------------------------------------------
Total increase (decrease)
in loans 619 (1,845) (1,226)
- --------------------------------------------------------------------------
Total increase (decrease) in
interest and fee income 1,906 (1,832) 74
- --------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (509) (525) (1,034)
Time less than $100,000 (523) (23) (546)
Time $100,000 or more 663 (62) 601
- --------------------------------------------------------------------------
Total decrease in
interest-bearing deposits (369) (610) (979)
- --------------------------------------------------------------------------
Short-term borrowed funds 1,439 49 1,488
Debt financing and notes payable (100) 26 (74)
- --------------------------------------------------------------------------
Total increase (decrease) in
interest expense 970 (535) 435
- --------------------------------------------------------------------------
Increase (decrease) in
net interest income (1) $936 ($1,297) ($361)
==========================================================================
(1) Amounts calculated on a fully taxable equivalent basis
using the current statutory federal tax rate.
<PAGE>
Rate and volume variances.
- --------------------------------------------------------------------------
(In thousands) Six months ended
June 30, 1998
compared with six months
ended June 30, 1997
---------------------------
Volume Rate Total
- --------------------------------------------------------------------------
Increase (decrease) in
interest and fee income:
Money market assets and funds sold ($799) ($803) ($1,602)
Investment securities:
Taxable 978 1,079 2,057
Tax-exempt 2,365 (292) 2,073
Loans:
Commercial 2,343 (85) 2,258
Real estate construction (2,024) 595 (1,429)
Real estate residential 1,008 (1,532) (524)
Consumer (1,927) (176) (2,103)
- --------------------------------------------------------------------------
Total decrease in loans (600) (1,198) (1,798)
- --------------------------------------------------------------------------
Total increase (decrease) in
interest and fee income 1,944 (1,214) 730
- --------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (1,146) (853) (1,999)
Time less than $100,000 (1,083) (85) (1,168)
Time $100,000 or more 864 22 886
- --------------------------------------------------------------------------
Total decrease in
interest-bearing deposits (1,365) (916) (2,281)
- --------------------------------------------------------------------------
Short-term borrowed funds 2,413 93 2,506
Debt financing and notes payable (204) 38 (166)
- --------------------------------------------------------------------------
Total increase (decrease) in
interest expense 844 (785) 59
- --------------------------------------------------------------------------
Increase (decrease) in
net interest income $1,100 ($429) $671
==========================================================================
(1) Amounts calculated on a fully taxable equivalent basis
using the current statutory federal tax rate.
<PAGE>
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 aggressively pursuing collection efforts with
troubled debtors. The Company provided $1.4 million for loan losses
in the second quarter of 1998, $300 thousand higher than the same
period of 1997 and unchanged from the previous quarter. On a
year-to-date basis, the $2.8 million 1998 provision was $1.8
million lower than the first six months in 1997, mainly because the
first quarter of 1997 provision included $2.5 million recorded by
ValliCorp prior to the Merger, conforming to upgraded credit
standards and workout strategies for loans and properties. 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 For the six
months ended months ended
June 30, June 30,
----------------- -----------------
(In millions) 1998 1997 1998 1997
- -----------------------------------------------------------------------
Deposit account fees $5.06 $5.28 $10.04 $10.63
Merchant credit card 0.87 1.04 1.50 2.03
Mortgage banking income 0.39 0.38 0.84 0.72
Financial services
commissions 0.47 0.27 0.79 0.46
Trust fees 0.16 0.12 0.31 0.23
Other non-interest income 2.63 2.39 5.09 5.20
- -----------------------------------------------------------------------
Total $9.58 $9.48 $18.57 $19.27
=======================================================================
The $100 thousand increase in non-interest income during the second
quarter of 1998 compared to the second quarter of 1997, was
comprised of higher net gains on asset sales, included in the other
non-interest income category, $200 thousand higher financial
services commissions resulting from increased sales and a higher
share of fees earned by the agent managing certain investments of
the Company's customers, and $40 thousand higher trust fees mainly
due to increased personal and retirement plan business. Partially
offsetting these changes, deposit account fees were $220 thousand
lower than the second quarter of 1997, principally due to account
runoff after the Merger and merchant credit card income was $170
thousand lower than prior year.
Comparing the first six months of 1998 to the same period of 1997,
non-interest income decreased $700 thousand. The largest
contributors to this variance are $590 thousand lower deposit
account fees, mostly due to account runoff after the Merger, and
$530 thousand lower merchant credit card income. In addition, other
non-interest income was $110 thousand lower than the first six
months of 1997 mainly due to lower asset sales. Partially
offsetting these changes, financial services commissions were $330
thousand higher than prior year primarily due to higher sales
volume and increased third-party asset management fees, mortgage
banking income was $120 thousand higher mainly due to higher
refinancing volume, and trust fees were $80 thousand higher due to
increased personal and retirement plan business and higher court
fees assigned to the Company during the first quarter of 1998.
<PAGE>
Non-interest Expense
- --------------------
The following table summarizes the components of non-interest
expense for the periods indicated.
- ---------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
----------------- -----------------
(In millions) 1998 1997 1998 1997
- ---------------------------------------------------------------------------
Salaries and employee benefits $12.72 $22.00 $25.90 $37.22
Occupancy 2.82 8.16 5.71 15.75
Equipment 1.74 4.32 3.59 6.72
Data processing services 1.56 1.85 2.89 3.41
Courier service 0.88 0.78 1.77 1.60
Professional fees 0.63 5.06 1.12 8.02
Postage 0.50 0.70 1.06 1.28
Stationery and supplies 0.50 0.78 0.91 1.39
Loan expense 0.42 0.45 0.72 0.93
Advertising/public relations 0.39 0.45 0.68 1.04
Operational losses 0.28 0.23 0.55 0.53
Merchant credit card 0.29 0.48 0.54 0.99
Other real estate owned and
property held for sale 0.17 0.25 0.09 0.84
Other non-interest expense 2.46 3.66 5.17 6.03
- ---------------------------------------------------------------------------
Total $25.36 $49.17 $50.70 $85.75
===========================================================================
During the second quarter of 1998, non-interest expense decreased
$23.81 million from the second quarter of 1997, as the 1997 period
included $18.8 million in one-time Merger costs, and reflecting the
effect of operation consolidations, efficiencies achieved and
branch closures after the Merger. The decrease affected all
categories of non-interest expense, with the exception of small
increases in courier services expense and operational losses. The
largest variance from the second quarter of 1997 was salaries and
employee benefits expense, $9.28 million lower, as 1997 included
one-time restructuring costs after the Merger combined with a
reduction of 176 full-time equivalent staff from the 1997 second
quarter 1997 average. Other large variances from the same period of
1997 include occupancy expenses, $5.34 million lower, principally
due to facilities closures after the Merger and asset write-offs
recognized by ValliCorp prior to the Merger; professional fees,
$4.43 million lower, due to reduced legal, consultant and
investment banker fees; and equipment expenses, $2.58 million
lower, mainly due to branch closures and write-offs effected in
1997 related to the Merger. In addition, other expense reductions
from the second quarter of 1997 can be seen in data processing,
stationery and supplies, postage, merchant credit card, other real
estate owned, advertising and public relations and loan related
expenses, primarily due to higher costs incurred in 1997 in
preparation for and as a result of the Merger.
<PAGE>
Comparing the first six months of 1998 with the comparable period
in 1997, non-interest expense decreased $35.05 million. The reasons
listed above for the changes between the second quarter of 1998 and
the second quarter of 1997, are similar to those explaining the
changes between the first six months of both years, with the
addition of certain items included in the first quarter of 1997,
also related to the ValliCorp Merger, such as higher
employee-related, professional fees, occupancy and furniture and
equipment costs primarily due to compensation settlements and
higher branch restructuring costs at ValliWide Bank prior to the
merger with and into Westamerica Bank.
Provision for Income Tax
- ------------------------
During the second quarter of 1998, the Company recorded income tax
expense of $9.4 million compared to $1.9 million in the second of
1997. On a year-to-date basis, income tax expense was $18.5 million
for 1998 compared to $6.7 million in 1997. The provisions recorded
for the second quarter and first six months of 1998 represent
effective tax rates of 34.1 percent and 33.8 percent, respectively,
compared to 40.8 percent and 35.4 percent, respectively, for the
comparable periods of 1997. The provision for income taxes for all
periods presented is primarily attributable to the respective level
of earnings and the incidence of non-tax deductible expenses in
connection with mergers and acquisitions. Actual tax rates include
the effect of non-taxable interest income and other allowable
deductions.
<PAGE>
Asset Quality
- -------------
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 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 and potential
problem loans, and receive an elevated level of attention to ensure
collection.
The following is a summary of classified assets on the dates
indicated:
- --------------------------------------------------------------------
At
At June 30, December 31,
--------------- ------------
(In millions) 1998 1997 1997
- --------------------------------------------------------------------
Classified loans $56.6 $74.1 $67.5
Other classified assets 5.8 7.3 7.4
- --------------------------------------------------------------------
Total classified assets $62.4 $81.4 $74.9
====================================================================
Allowance for loan losses as a
percentage of classified loans 90% 68% 75%
Classified loans at June 30, 1998, decreased $17.5 million or 24
percent to $56.6 million from June 30, 1997, reflecting the
implementation of the Company's strict standards for loans acquired
through the Merger. The decrease was principally due to reductions
of commercial and commercial real estate loans. Other classified
assets decreased $1.5 million from June 30, 1997, due to sales and
write-downs of properties acquired in satisfaction of debt ("other
real estate owned") partially offset by new foreclosures on loans
with real estate collateral. The $10.9 million decrease in
classified loans from December 31, 1997, was principally due to
reductions in commercial loans with real estate collateral. The
$1.6 million reduction in other classified assets from December 31,
1997, was mainly due to sales and write-downs of other real estate
owned properties.
<PAGE>
Non-performing Assets
- ---------------------
Non-performing assets include non-accrual loans, loans 90 days past
due as to principal or interest 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. In
addition, 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. 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
At June 30, December 31,
---------------- -------------
(In millions) 1998 1997 1997
- --------------------------------------------------------------------
Performing non-accrual loans $1.90 $9.39 $1.65
Non-performing, non-accrual loans 6.64 11.40 16.50
- --------------------------------------------------------------------
Total non-accrual loans 8.54 20.79 18.15
Loans 90 days past due and
still accruing 0.48 0.55 1.01
- --------------------------------------------------------------------
Total non-performing loans 9.02 21.34 19.16
- --------------------------------------------------------------------
Restructured loans -- 0.22 --
Other real estate owned 5.81 7.29 7.38
- --------------------------------------------------------------------
Total non-performing assets $14.83 $28.85 $26.54
====================================================================
Allowance for loan losses as a
percentage of non-performing loans 563% 235% 264%
<PAGE>
Performing non-accrual loans decreased $7.49 million to $1.90
million at June 30, 1998, from $9.39 million at June 30,1997 and
increased $250 thousand from $1.65 million outstanding at December
31, 1997. Non-performing, non-accrual loans of $6.64 million at
June 30, 1998, decreased $4.76 million and $9.86 million from June
30 and December 31, 1997, respectively, mainly due to payoffs and
write-offs of loans with real estate collateral and commercial
loans. The $1.48 million and $1.57 million decreases in other real
estate owned balances from June 30 and December 31, 1997,
respectively, were due to liquidations, write-downs and sales net
of additions of non-accrual loans with real estate collateral.
The amount of gross interest income that would have been recorded
for non-accrual loans for the three and six months ended June 30,
1998, if all such loans had been current in accordance with their
original terms, was $226 thousand and $563 thousand, respectively,
compared to $495 thousand and $667 thousand, respectively, for the
comparable periods in 1997.
The amount of interest income that was recognized on non-accrual
loans from cash payments made during the three and six months ended
June 30, 1998, totaled $130 thousand and $278 thousand,
respectively, representing second quarter and year-to-date
annualized yields of 5.34 percent and 4.35 percent, respectively.
This compares to $120 thousand and $220 thousand, respectively, for
the same periods in 1997, representing annualized yields of 2.45
percent and 3.28 percent. Total cash payments received which were
applied against the book balance of non-accrual loans outstanding
at June 30, 1998, totaled approximately $727 thousand.
The overall credit quality of the loan portfolio continues to be
strong and improving; however, the total non-performing assets
could fluctuate from period to period. The performance of any
individual loan can be impacted by external factors such as the
interest rate environment or factors particular to the borrower.
The Company expects to maintain the level of non-performing assets;
however, the Company can give no assurance that additional
increases in non-accrual loans will not occur in the future.
<PAGE>
Allowance for Loan Losses
- -------------------------
The Company's allowance for loan losses is maintained at a level
estimated to be adequate to provide for losses that can be
estimated based upon specific and general conditions. These include
credit loss experience, the amount of past due, non-performing and
classified loans, recommendations of regulatory authorities,
prevailing economic conditions and other factors. The allowance is
allocated to segments of the loan portfolio based in part on
quantitative analyses of historical credit loss experience, in
which criticized and classified loan balances are analyzed using a
linear regression model to determine standard allocation
percentages. The results of this analysis 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. A portion of the allowance is also
allocated to impaired loans. Management considers the $50.8 million
allowance for loan losses, which constituted 2.22 percent of total
loans at June 30, 1998, to be adequate as a reserve against
inherent losses. However, while the Company's policy is to charge
off in the current period those loans on which the loss is
considered probable, the risk exists of future losses which cannot
be precisely quantified or attributed to particular loans or
classes of loans. Management continues to evaluate the loan
portfolio and assess current economic conditions that will dictate
future required allowance levels.
The following table summarizes the loan loss provision, net credit
losses and allowance for loan losses for the periods indicated:
- -------------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
---------------- ------------------
(In millions) 1998 1997 1998 1997
- -------------------------------------------------------------------------------
Balance, beginning $50.3 $51.0 $50.6 $50.9
of period
Loan loss provision 1.4 1.1 2.8 4.6
Loans charged off (1.9) (2.3) (4.7) (6.7)
Recoveries of previously
charged-off loans 1.0 0.9 2.1 1.9
- -------------------------------------------------------------------------------
Net credit losses (0.9) (1.4) (2.6) (4.8)
- -------------------------------------------------------------------------------
Balance, end of period $50.8 $50.7 $50.8 $50.7
===============================================================================
Allowance for loan losses
as a percentage
of loans outstanding 2.22% 2.24%
<PAGE>
Asset and Liability Management
- ------------------------------
The fundamental objective of the Company's management of assets and
liabilities is to maximize economic value while maintaining
adequate liquidity and a conservative level of interest rate risk.
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 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 10 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 June 30, 1998 would not result in a fluctuation
of net income exceeding 10 percent.
The Securities and Exchange Commission (SEC) has approved rule
amendments to clarify and expand existing disclosure requirements
for derivative financial instruments. The amendments require
enhanced disclosure of accounting policies for derivative financial
instruments in the footnotes to the financial statements. In
addition, the amendments expand existing disclosure requirements to
include quantitative and qualitative information about market risk
inherent in market risk sensitive instruments. The required
quantitative and qualitative information should be disclosed
outside the financial statements and related notes thereto. The
enhanced accounting policy disclosure requirements are effective
for filings that include financial statements for fiscal periods
ending after June 15, 1997. As the Company believes that the
derivative financial instrument disclosures contained within the
notes to the financial statements of its 1997 Form 10-K
substantially conform with the accounting policy requirements of
these rule amendments, no further interim disclosure has been
provided. The rule amendments that require expanded disclosure of
quantitative and qualitative information about market risk were
effective with the 1997 Form 10-K. At June 30, 1998, there were no
substantial changes in the information on market risk that was
disclosed in the Company's 1997 Form 10-K. At June 30, 1998 and
1997, the Company had no derivative financial instruments
outstanding.
<PAGE>
Liquidity
- ---------
The Company's principal source of asset liquidity is marketable
investment securities available for sale. At June 30, 1998,
investment securities available for sale totaled $982.7 million.
This represents an increase of $74.9 million from June 30, 1997.
The Company generates significant liquidity from its operating
activities. The Company's profitability during the first six
months of 1998 and 1997 and the proceeds from sale of loans
originated for resale in 1997 were the main contributors to the
cash flows from operations for such periods of $30.2 million and
$28.5 million, respectively.
Cash flows are provided by and used in financing activities,
primarily customer deposits, short-term borrowings from banks,
extensions of long-term debt and repurchases of the Company's
Common Stock. During the first six months of 1998, $22.4 million
was used by financing activities, including a $7.5 million decrease
in deposits and cash outflows used for repurchasing the Company's
common stock and dividends paid to shareholders of $21.8 million
and $10.3 million, respectively. These uses of cash were partially
offset by $12.4 million provided by an increase in short-term
borrowings and $4.8 million resulting from the issuance of new
shares of common stock, principally for stock option exercises.
During the first six months of 1997, cash used in financing
activities totaled $138.0 million. Deposit balances decreased
$111.3 million, short-term borrowings decreased $16.0 million and
repurchases of the Company's common stock and dividends paid to
shareholders were $15.1 million and $5.4 million, respectively.
Partially offsetting this outflow of cash, issuance of new shares
of common stock were $11.0 million, primarily due to meet stock
option exercise requirements.
<PAGE>
The Company uses cash flows from operating and financing activities
primarily to invest in investment securities and loans. Following
the Company's strategy to increase balances in its loan portfolio,
during the first six months of 1998 net disbursements of loans were
$33.0 million, compared to repayments of $5.7 million during the
same period in 1997. The Company moderately increased its
investment securities portfolio in 1998, reflected in an increase
of $15.7 million during the first six months of 1998 in investment
securities net of maturities and sales. This compares to an
increase of $21.8 million during the same period of 1997.
The Company anticipates increasing its cash level from operations
through the end of 1998 due to increased profitability and retained
earnings. For the same period, it is anticipated that demand for
loans will continue to increase, particularly in the commercial and
real estate construction categories. The growth in deposit balances
is expected to follow the anticipated growth in loan balances
through the end of 1998.
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 $417.7 million at June 30, 1998, representing an increase of
$30.7 million or 8 percent from June 30, 1997, and an increase of
$10.5 million, or 3 percent, from December 31, 1997. As a result of
the Company's profitability and the retention of earnings, the
ratio of equity to total assets increased to 10.8 percent at June
30, 1998, from 10.3 percent a year ago and 10.6 percent as of
December 31, 1997. The ratio of Tier I capital to risk-adjusted
assets was 12.91 percent at June 30, 1998, compared to 12.68
percent at June 30, 1997, and 12.82 percent at December 31, 1997.
Total capital to risk-adjusted assets was 14.83 percent at June 30,
1998, compared to 14.64 percent at June 30, 1997, and 14.76 percent
at December 31, 1997.
<PAGE>
The following summarizes the ratios of capital to risk-adjusted
assets for the periods indicated:
- ---------------------------------------------------------------------
June 30, December 31,
-------------------- -------------
1998 1997 1997
- ---------------------------------------------------------------------
Tier I Capital 12.91% 12.68% 12.82%
Total Capital 14.83% 14.64% 14.76%
Leverage ratio 10.20% 9.67% 9.97%
The risk-based capital ratios increased at June 30, 1998, compared
to June 30 and December 31, 1997, as the increase in equity,
principally due to the generation and retention of earnings,
outpaced the increase in risk-weighted 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 the regulatory
definition of "well capitalized".
Since the beginning of 1994 and through June 30, 1998, the Board of
Directors of the Company has authorized the repurchase of 6,252,150
shares of the Company's common stock from time to time, subject to
appropriate regulatory and other accounting requirements. The
Company acquired 496,000 shares of its common stock in the open
market during the first six months of 1998, 1,040,886 in 1997, and
1,207,800, 721,350 and 93,000 in 1996, 1995 and 1994, respectively.
So far, these repurchases have been made periodically in the open
market with the intention to lessen the dilutive impact of issuing
new shares to meet stock performance, option plans, acquisitions
and other requirements.
In addition of these systematic repurchases, a new plan to
repurchase the Company's shares of common stock (the "Program") was
approved by the Board of Directors on June 25, 1998. The
open-ended Program states that, as conditions warrant, the Company
is authorized to purchase up to an aggregate of 3 million shares of
its outstanding shares of common stock. This amount represents up
to about 7 percent of the Company's outstanding shares of common
stock. Under the provisions of the Program, the Company could
purchase these shares from time to time through open market and
privately negotiated transactions. The timing of the purchases and
the exact number of shares to be purchased will depend on market
conditions. The Company's strong capital position and healthy
profitability contributed to the initiation of this Program, which
is being implemented to optimize the Company's use of equity
capital and enhance shareholder value.
<PAGE>
Year 2000 Compliance
- --------------------
The Company has undertaken a major project to ensure that its
internal operating systems will be fully capable of processing Year
2000 transactions. The initial phase of the project was to assess
and identify all internal business processes requiring modification
and to develop comprehensive renovation plans as needed. This phase
was largely completed in late 1997. The second phase, expected to
be accomplished by the end of 1998, will be to execute those
renovation plans and begin testing systems by simulating Year 2000
data conditions. Testing and implementation is planned to be
completed during the first half of 1999.
The primary cost of the project has been and will continue to be
the reallocation of internal resources, and therefore does not
represent incremental expense to the Company. The estimated value
of internal resources allocated to Year 2000 compliance efforts in
1997 was approximately $300 thousand. The Company estimates the
total such cost of compliance will be approximately $3.0 million.
It is not expected that Year 2000 compliance expenditures will have
a material effect on the Company's results of operations, liquidity
and capital resources. The Company relies upon third-party software
vendors and service providers for substantially all of its
electronic data processing and does not operate any proprietary
programs which are critical to the Company's operations. Thus, the
focus of the Company is to monitor the progress of its primary
software providers towards compliance with Year 2000 issues and
prepare to test actual data of the Company in simulated processing
of future sensitive dates.
As well as evaluating its own internal operating systems, the Company
has also inquired with its major customers and suppliers as to their
ability to meet Year 2000 requirements.
<PAGE>
Interim Periods
- ---------------
In June, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which
amends the disclosure requirements of Statement No. 52, "Foreign
Currency Translations" and of Statement No. 107, "Disclosures about
Fair Value of Financial Instruments." SFAS 133 supersedes
Statements No. 80 "Accounting for Future Contracts", No. 105
"Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with
Concentrations of Credit Risk" and No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments." Under the provisions of SFAS 133, the Company is
required to recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure
those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c)
a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an
available-for-sale security or a foreign-currency-denominated
forecasted transaction. The accounting for changes in the fair
value of a derivative (that is, gain and losses) depends on the
intended use of the derivative and the resulting operation.
SFAS 133 is effective for all fiscal quarters of fiscal years
beginning June 15, 1999, with early application encouraged, but it
is permitted only as of the beginning of any fiscal quarter that
begins after the issuance of the statement. SFAS 133 should not be
applied retroactively to financial statements of prior periods.
The Company does not expect that the adoption of SFAS 133
will have a material impact on its financial condition.
<PAGE>
SIGNATURES
Pursuant to the requirements of the 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: August 3, 1998 /s/ DENNIS R. HANSEN
--------------------
Dennis R. Hansen
Senior Vice President
and Controller
Chief Accounting Officer
<PAGE>
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
Proxies for the Annual Meeting of shareholders held on April 21,
1998, were solicited pursuant Regulation 14A of the Securities
Exchange Act of 1934. The Report of Inspector of election
indicates that 33,065,843 shares of the Common Stock of the
Company, out of 42,687,270 shares outstanding, were present at the
meeting. The following matters were submitted to a vote of the
shareholders:
1.- Election of directors:
Withheld/
For Exceptions
------ ------
Etta Allen 32,848,667 217,176
Louis E. Bartolini 32,776,488 289,355
Don Emerson 32,768,915 296,928
Louis H. Herwaldt 32,908,231 157,612
Arthur C. Latno, Jr. 32,897,442 168,401
Patrick D. Lynch 32,820,504 245,339
Catherine C. MacMillan 32,786,209 279,634
Patrick J. Mon Pere 32,906,532 159,311
Ronald A. Nelson 32,912,872 152,971
Carl R. Otto 32,917,532 148,311
David L. Payne 32,845,999 219,844
Michael J. Ryan 32,767,711 298,132
Edward B. Sylvester 32,891,977 173,866
2.- Ratification of independent certified public accountant firm.
A proposal to ratify the selection of KPMG Peat Marwick LLP as
independent certified public accountants for the Company for
1997.
For : 32,760,389
Against : 26,254
Abstain : 279,200
<PAGE>
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) Exhibit 27 : Financial Data Schedule
(c) Reports on Form 8-K
On July 7, 1998, the Company filed a Report on Form 8-K
in connection with an open-ended stock repurchase plan
whereby the Company was authorized to repurchase, as
conditions warrant, up to an aggregate of 3,000,000
shares of its common stock through open market and
privately negotiated transactions.
<PAGE>
Exhibit 11
<TABLE>
WESTAMERICA BANCORPORATION
Computation of Earnings Per Share on Common and
Common Equivalent Shares and on Common Shares
Assuming Full Dilution
<CAPTION>
- ------------------------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
(In thousands, except per share data) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding - basic 42,607 43,072 42,673 43,009
Add exercise of options
reduced by the number of
shares that could have
been purchased with the
proceeds of such exercise 728 803 773 730
- ------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding - diluted 43,335 43,875 43,446 43,739
==========================================================================================
Net income $18,102 $2,814 $36,198 $12,178
Basic earnings per share $0.42 $0.07 $0.85 $0.28
Diluted earnings per share $0.42 $0.07 $0.83 $0.28
</TABLE>
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1998 JAN-01-1998 APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1998 JUN-30-1997 JUN-30-1997
<CASH> 244,112 244,112 231,007 231,007
<INT-BEARING-DEPOSITS> 0 0 0 0
<FED-FUNDS-SOLD> 0 0 0 0
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 982,660 982,660 907,750 907,750
<INVESTMENTS-CARRYING> 238,649 238,649 230,578 230,578
<INVESTMENTS-MARKET> 243,423 243,423 232,114 232,114
<LOANS> 2,290,897 2,290,897 2,269,038 2,269,038
<ALLOWANCE> 50,773 50,773 50,742 50,742
<TOTAL-ASSETS> 3,864,020 3,864,020 3,750,059 3,750,059
<DEPOSITS> 3,070,958 3,070,958 3,117,444 3,117,444
<SHORT-TERM> 277,274 277,274 151,460 151,460
<LIABILITIES-OTHER> 45,633 45,633 36,674 36,674
<LONG-TERM> 52,500 52,500 57,500 57,500
0 0 0 0
0 0 0 0
<COMMON> 200,140 200,140 195,901 195,901
<OTHER-SE> 217,515 217,515 191,080 191,080
<TOTAL-LIABILITIES-AND-EQUITY> 3,864,020 3,864,020 3,750,059 3,750,059
<INTEREST-LOAN> 49,219 98,072 50,693 100,373
<INTEREST-INVEST> 17,775 35,577 16,545 31,967
<INTEREST-OTHER> 0 0 178 1,602
<INTEREST-TOTAL> 66,994 133,649 67,416 133,942
<INTEREST-DEPOSIT> 18,083 35,869 19,062 38,150
<INTEREST-EXPENSE> 22,351 44,078 21,916 44,019
<INTEREST-INCOME-NET> 44,643 89,571 45,500 89,923
<LOAN-LOSSES> 1,395 2,790 1,050 4,600
<SECURITIES-GAINS> 29 29 125 136
<EXPENSE-OTHER> 25,359 50,699 49,174 85,745
<INCOME-PRETAX> 27,473 54,651 4,753 18,843
<INCOME-PRE-EXTRAORDINARY> 18,102 36,198 2,814 12,178
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 18,102 36,198 2,814 12,178
<EPS-PRIMARY> 0.42 0.85 0.07 0.28
<EPS-DILUTED> 0.42 0.83 0.07 0.28
<YIELD-ACTUAL> 5.49 5.54 5.67 5.58
<LOANS-NON> 8,538 8,538 20,787 20,787
<LOANS-PAST> 477 477 551 551
<LOANS-TROUBLED> 1,258 1,258 1,304 1,304
<LOANS-PROBLEM> 0 0 0 0
<ALLOWANCE-OPEN> 50,289 50,630 51,027 50,920
<CHARGE-OFFS> 1,865 4,744 2,220 6,732
<RECOVERIES> 954 2,097 885 1,954
<ALLOWANCE-CLOSE> 50,773 50,773 50,742 50,742
<ALLOWANCE-DOMESTIC> 28,990 28,990 33,197 33,197
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 21,783 21,783 17,545 17,545
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 253,083 231,007 246,485
<INT-BEARING-DEPOSITS> 0 0 0
<FED-FUNDS-SOLD> 67,000 0 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 948,115 907,750 974,149
<INVESTMENTS-CARRYING> 205,150 230,578 234,731
<INVESTMENTS-MARKET> 206,373 232,114 237,497
<LOANS> 2,251,863 2,269,038 2,256,422
<ALLOWANCE> 51,027 50,742 50,764
<TOTAL-ASSETS> 3,837,476 3,750,059 3,816,895
<DEPOSITS> 3,163,066 3,117,444 3,105,176
<SHORT-TERM> 193,397 151,460 205,476
<LIABILITIES-OTHER> 38,574 36,674 49,690
<LONG-TERM> 58,178 57,500 57,500
0 0 0
0 0 0
<COMMON> 191,580 195,901 196,994
<OTHER-SE> 192,681 191,080 202,059
<TOTAL-LIABILITIES-AND-EQUITY> 3,837,476 3,750,059 3,816,895
<INTEREST-LOAN> 49,679 100,373 151,606
<INTEREST-INVEST> 15,423 31,967 49,184
<INTEREST-OTHER> 1,424 1,602 1,629
<INTEREST-TOTAL> 66,526 133,942 202,419
<INTEREST-DEPOSIT> 19,087 38,150 57,544
<INTEREST-EXPENSE> 22,103 44,019 66,189
<INTEREST-INCOME-NET> 44,423 89,923 136,230
<LOAN-LOSSES> 3,550 4,600 6,250
<SECURITIES-GAINS> 11 136 136
<EXPENSE-OTHER> 36,572 85,745 111,948
<INCOME-PRETAX> 14,090 18,843 46,073
<INCOME-PRE-EXTRAORDINARY> 9,365 12,178 29,838
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 9,365 12,178 29,838
<EPS-PRIMARY> 0.21 0.28 0.69
<EPS-DILUTED> 0.21 0.28 0.68
<YIELD-ACTUAL> 5.49 5.58 5.62
<LOANS-NON> 20,217 20,787 20,318
<LOANS-PAST> 529 551 748
<LOANS-TROUBLED> 1,304 1,304 1,302
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 50,920 50,920 50,920
<CHARGE-OFFS> 4,512 6,732 9,626
<RECOVERIES> 1,069 1,954 3,220
<ALLOWANCE-CLOSE> 51,027 50,742 50,764
<ALLOWANCE-DOMESTIC> 34,411 33,197 32,359
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 16,616 17,545 18,405
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 231,216 253,323 342,867
<INT-BEARING-DEPOSITS> 0 0 0
<FED-FUNDS-SOLD> 100,000 80,200 77,700
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 858,444 846,771 876,701
<INVESTMENTS-CARRYING> 258,428 237,263 219,744
<INVESTMENTS-MARKET> 259,117 236,088 220,620
<LOANS> 2,226,512 2,239,826 2,301,541
<ALLOWANCE> 46,549 46,615 49,795
<TOTAL-ASSETS> 3,775,204 3,761,104 3,856,759
<DEPOSITS> 3,126,566 3,095,472 3,220,093
<SHORT-TERM> 202,359 222,183 172,660
<LIABILITIES-OTHER> 27,660 24,567 33,366
<LONG-TERM> 63,409 63,387 63,896
0 0 0
0 0 0
<COMMON> 178,941 175,933 186,007
<OTHER-SE> 176,269 179,562 180,737
<TOTAL-LIABILITIES-AND-EQUITY> 3,775,204 3,761,104 3,856,759
<INTEREST-LOAN> 51,695 102,985 154,224
<INTEREST-INVEST> 15,685 31,007 46,401
<INTEREST-OTHER> 1,216 2,360 3,370
<INTEREST-TOTAL> 68,596 136,352 203,995
<INTEREST-DEPOSIT> 19,420 38,297 57,609
<INTEREST-EXPENSE> 23,115 45,871 68,750
<INTEREST-INCOME-NET> 45,481 90,481 135,245
<LOAN-LOSSES> 3,200 6,002 9,154
<SECURITIES-GAINS> 25 47 56
<EXPENSE-OTHER> 36,965 68,256 101,221
<INCOME-PRETAX> 13,800 33,697 51,543
<INCOME-PRE-EXTRAORDINARY> 9,360 22,468 34,371
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 9,360 22,468 34,371
<EPS-PRIMARY> 0.22 0.53 0.81
<EPS-DILUTED> 0.21 0.51 0.79
<YIELD-ACTUAL> 5.55 5.54 5.52
<LOANS-NON> 18,854 19,388 23,095
<LOANS-PAST> 1,577 3,044 651
<LOANS-TROUBLED> 257 257 257
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 48,494 48,494 48,494
<CHARGE-OFFS> 6,162 9,867 12,568
<RECOVERIES> 1,017 1,986 3,049
<ALLOWANCE-CLOSE> 46,549 46,615 49,794
<ALLOWANCE-DOMESTIC> 22,551 22,583 25,617
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 23,998 24,032 24,177
</TABLE>
