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, 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 May 4, 1998
Common Stock, 42,714,584
No Par Value
<PAGE>
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(Unaudited) At
At March 31, December 31,
1998 1997 * 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $212,616 $320,083 $250,824
Money market assets 250 250 250
Investment securities
available for sale 986,181 948,115 1,003,234
Investment securities
held to maturity,
with market values of:
$249,718 at March 31, 1998
$206,373 at March 31, 1997
$236,896 at December 31, 1997 244,387 205,150 230,960
Loans, net of allowance
for loan losses of:
$50,289 at March 31, 1998
$51,027 at March 31, 1997
$50,630 at December 31, 1997 2,202,594 2,200,836 2,211,307
Other real estate owned 6,392 8,130 7,381
Premises and equipment, net 47,293 62,292 48,412
Interest receivable and other assets 102,957 92,620 96,076
- -----------------------------------------------------------------------------------------
Total assets $3,802,670 $3,837,476 $3,848,444
=========================================================================================
LIABILITIES
Deposits:
Non-interest bearing $813,319 $762,886 $852,153
Interest bearing:
Transaction 543,724 553,903 554,825
Savings 943,542 1,029,997 902,381
Time 789,173 816,280 769,142
- -----------------------------------------------------------------------------------------
Total deposits 3,089,758 3,163,066 3,078,501
Short-term borrowed funds 200,616 193,397 264,848
Liability for interest, taxes and
other expenses 45,004 38,574 45,443
Debt financing and notes payable 52,500 58,178 52,500
- -----------------------------------------------------------------------------------------
Total liabilities 3,387,878 3,453,215 3,441,292
- -----------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Authorized - 150,000 shares
Common stock, issued and outstanding:
42,707 shares at March 31, 1998
43,152 shares at March 31, 1997
42,799 shares at December 31, 1997 200,463 191,580 198,517
Accumulated other
comprehensive income:
Unrealized gain on securities
available for sale, net 19,555 4,245 17,923
Retained earnings 194,774 188,436 190,712
- -----------------------------------------------------------------------------------------
Total shareholders' equity 414,792 384,261 407,152
- -----------------------------------------------------------------------------------------
Total liabilities
and shareholders' equity $3,802,670 $3,837,476 $3,848,444
=========================================================================================
</TABLE>
* Restated on a historical basis to reflect the April 12, 1997, acquisition of
ValliCorp Holdings, Inc. on a pooling-of-interests basis
<PAGE>
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
- -----------------------------------------------------------------------------
(Unaudited)
Three months
ended March 31,
1998 1997 *
- -----------------------------------------------------------------------------
INTEREST INCOME
Loans $48,853 $49,679
Money market assets and funds sold -- 1,424
Investment securities available for sale
Taxable 12,010 10,844
Tax-exempt 2,392 1,683
Investment securities held to maturity
Taxable 1,513 1,074
Tax-exempt 1,887 1,822
- -----------------------------------------------------------------------------
Total interest income 66,655 66,526
INTEREST EXPENSE
Transaction deposits 1,672 1,676
Savings deposits 6,138 7,099
Time deposits 9,976 10,312
Funds purchased 3,023 2,005
Debt financing and notes payable 918 1,011
- -----------------------------------------------------------------------------
Total interest expense 21,727 22,103
- -----------------------------------------------------------------------------
NET INTEREST INCOME 44,928 44,423
Provision for loan losses 1,395 3,550
- -----------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 43,533 40,873
NON-INTEREST INCOME
Service charges on deposit accounts 4,976 5,348
Merchant credit card 632 987
Mortgage banking 450 344
Financial services commissions 320 194
Trust fees 155 107
Other 2,452 2,809
- -----------------------------------------------------------------------------
Total non-interest income 8,985 9,789
NON-INTEREST EXPENSE
Salaries and related benefits 13,181 14,719
Occupancy 2,896 7,589
Equipment 1,850 2,404
Professional fees 494 2,963
Data processing 1,332 1,561
Other real estate owned (82) 592
Other 5,669 6,744
- -----------------------------------------------------------------------------
Total non-interest expense 25,340 36,572
- -----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 27,178 14,090
Provision for income taxes 9,083 4,725
- -----------------------------------------------------------------------------
NET INCOME $18,095 $9,365
=============================================================================
Comprehensive income:
Unrealized gain (loss) on securities
available for sale, net 1,632 (1,781)
- -----------------------------------------------------------------------------
COMPREHENSIVE INCOME $19,727 $7,584
=============================================================================
Average shares outstanding 42,741 42,945
Diluted average shares outstanding 43,559 43,602
PER SHARE DATA
Basic earnings $0.42 $0.22
Diluted earnings 0.42 0.21
Dividends paid 0.12 0.08
* Restated on a historical basis to reflect the April 12, 1997, acquisition of
ValliCorp Holdings, Inc. on a pooling-of-interests basis
<PAGE>
WESTAMERICA BANCORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
- -----------------------------------------------------------------------------
(Unaudited)
Three months
ended March 31,
1998 1997 *
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $18,095 $9,365
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,268 2,648
Loan loss provision 1,395 3,550
Amortization of deferred net loan
(cost)/fees (30) (286)
Decrease in interest income
receivable 514 1,882
(Increase) decrease in other assets (10,812) 1,602
Increase in income taxes payable 10,263 4,714
Decrease in interest expense
payable (156) (420)
Decrease in other liabilities (9,070) (2,067)
Gain on sales of investment
securities -- (11)
(Gain) loss on sales/write-down of
equipment (58) 2
Originations of loans for resale (2,944) (5,341)
Proceeds from sale of loans
originated for resale 2,380 13,318
Net gain on sale of property
acquired in satisfaction of debt (437) (260)
Write down on property acquired
in satisfaction of debt 51 751
Gain on sales of loans -- (515)
- -----------------------------------------------------------------------------
Net cash provided by
operating activities 11,459 28,932
- -----------------------------------------------------------------------------
INVESTING ACTIVITIES
Net repayments of loans 5,989 24,781
Purchases of investment securities
available for sale (90,675) (159,858)
Purchases of investment securities
held to maturity (23,618) (9,714)
Purchases of property,
plant and equipment (411) (782)
Proceeds from maturity of securities
available for sale 110,422 97,249
Proceeds from maturity of securities
held to maturity 10,190 20,004
Proceeds from sale of securities
available for sale 120 3,708
Proceeds from sale of property,
plant and equipment 80 29
Proceeds from property acquired in
satisfaction of debt 3,298 2,043
- -----------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 15,395 (22,540)
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 11,257 (65,635)
Net (decrease) increase in
short-term borrowed funds (64,232) 25,950
Additions net of principal payments
on notes and mortgages payable -- (522)
Exercise of stock options/issuance
of shares 3,415 4,660
Retirement of stock (10,359) (3,605)
Dividends paid (5,143) (2,334)
- -----------------------------------------------------------------------------
Net cash used in
financing activities (65,062) (41,486)
- -----------------------------------------------------------------------------
Net decrease in cash and
cash equivalents (38,208) (35,094)
Cash and cash equivalents
at beginning of period 250,824 355,177
- -----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $212,616 $320,083
=============================================================================
Supplemental disclosure of
non-cash activities
Loans transferred to
other real estate owned $1,923 $272
Depreciation of fixed assets
charged against reserves 35 --
Supplemental disclosure of
cash flow activity:
Unrealized gain (loss) on
securities available for sale 1,631 (2,176)
Interest paid for the period 21,884 22,524
Conversion of subordinated
debt to stock -- 165
Deletions of property,
plant and equipment -- 268
Dividends declared but not paid -- 1,505
* Restated on a historical basis to reflect the April 12, 1997, acquisition of
ValliCorp Holdings, Inc. on a pooling-of-interests basis
<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.
All financial information has been restated on a historical basis
to reflect the ValliCorp Holdings, Inc. ("ValliCorp") acquisition
on April 12, 1997 (the "Merger") using the pooling-of-interests
method of accounting.
Westamerica Bancorporation (the "Company"), parent company of
Westamerica Bank, Bank of Lake County, Community Banker Services
Corporation and Westamerica Commercial Credit Inc., reported first
quarter 1998 net income of $18.1 million or $.42 diluted earnings
per share. These results compare to net income of $9.4 million or
$.21 diluted earnings per share and $18.3 million or $.42 diluted
earnings per share, respectively, for the first and fourth quarter
of 1997.
On January 22, 1998, the Board of Directors of the Company
authorized a three-for-one stock split of the Company common stock
in which each share of the Company's common stock was converted into
three shares. Consequently, all related information in this report
has been restated to reflect the effect of the stock split.
Following is a summary of the components of net income for
the periods indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
For the three months ended
March 31, December 31,
--------------------- ------------
(In millions) 1998 1997 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income* $47.6 $46.6 $49.0
Provision for loan losses (1.4) (3.6) (1.4)
Non-interest income 9.0 9.8 9.0
Non-interest expense (25.3) (36.6) (25.9)
Provision for income taxes* (11.8) (6.8) (12.4)
- -----------------------------------------------------------------------------------------
Net income $18.1 $9.4 $18.3
=========================================================================================
Average total assets $3,746.5 $3,777.8 $3,757.8
Net income (annualized) as
a percentage of average
total assets 1.96% 1.01% 1.93%
</TABLE>
* Fully taxable equivalent basis (FTE)
<PAGE>
During the first three months of 1998, the Company's net income was
$18.1 million, $8.7 million higher than the same period in 1997.
Higher net interest income, resulting mainly due to higher
earning-asset yields, higher interest-free demand deposits and
lower volume of interest-bearing liabilities, a lower loan loss
provision and reduced expenses due to pre-Merger ValliCorp
operating costs, were partially offset by lower service fees and
other non-interest income.
Comparing the first quarter of 1998 to the prior quarter, net
income decreased $200 thousand. Lower net interest income,
principally due to lower earning-asset yields and lower
interest-free demand deposits, was partially offset by lower
non-interest expense.
Net Interest Income
Following is a summary of the components of net interest income
for the periods indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
For the three months ended
March 31, December 31,
--------------------- ------------
(In millions) 1998 1997 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $66.7 $66.5 $68.3
Interest expense (21.7) (22.1) (21.9)
FTE adjustment 2.6 2.2 2.6
- -----------------------------------------------------------------------------------------
Net interest income (FTE) $47.6 $46.6 $49.0
=========================================================================================
Average earning assets $3,429.5 $3,440.8 $3,431.4
Net interest margin (FTE) 5.59% 5.49% 5.67%
</TABLE>
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 first quarter of 1998 increased $1.0
million from the same period in 1997 to $47.6 million. Comparing
the first quarter of 1998 with the previous quarter, net interest
income (FTE) decreased $1.4 million.
<PAGE>
During the first quarter of 1998 interest income (FTE) increased
$600 thousand from the same period in 1997 primarily due to higher
average volume and yields on investment securities partially offset
by a decrease in loan average balances. Investment average balances
for the first three months of 1998 increased $7 million as
reductions in short-term funds sold, participation certificates and
U.S. Agency and Treasury securities were partially offset by
increases in tax-free, corporate, asset backed and other
securities. Increases in investment securities yields from the
first quarter of 1997 occurred in U.S. Agency and Treasury
securities and participation certificates. Loan average balances
decreased $18 million from prior year. Most categories of consumer
and construction loan balances decreased from prior year, in part
offset by increases in targeted commercial credits.
Comparing the first quarter of 1998 with the fourth quarter of
1997, interest income (FTE) decreased $1.6 million. Lower loan
average balances and yields were in part offset by higher
investment securities average balances and a small increase in
yields. Commercial and construction loan average balances decreased
$14 million from the prior quarter, mostly as a result of cyclical
trends, in part offset by increases in the average balance of the
consumer loan portfolio for a total loan balance decrease of $10
million from the previous quarter. Yields on loans experienced
small decreases from the prior quarter in all categories with the
exception of real estate construction. Investment securities
average balances increased $8 million from the fourth quarter of
1997, as increases in tax-free municipal, asset backed and
corporate securities were partially offset by decreases in U.S.
Treasury, Agency and participation certificates. A small yield
increase in the investment securities portfolio when compared to
the previous quarter was primarily due to an increase the return of
the in U.S. Treasury securities portfolio.
Complementing the increase in interest income from the first
quarter of 1997, interest expense decreased $400 thousand, the
result of a $27 million increase in interest-free demand deposits
reducing the cost of funds, partially offset by a small increase in
the rate paid on interest-bearing liabilities. Comparing the first
quarter of 1998 with the previous quarter, interest expense
decreased $200 thousand mostly as a result of a reduction in the
cost of funds.
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 quarterly trends.
<PAGE>
Net Interest Margin (FTE)
The following summarizes the components of the Company's net
interest margin for the periods indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
For the three months ended
March 31, December 31,
--------------------- ------------
1998 1997 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Yield on earning assets 8.16% 8.10% 8.20%
Rate paid on interest-bearing
liabilities 3.46% 3.42% 3.45%
- -----------------------------------------------------------------------------------------
Net interest spread 4.70% 4.68% 4.75%
Impact of all other net
non-interest bearing funds 0.89% 0.81% 0.92%
- -----------------------------------------------------------------------------------------
Net interest margin 5.59% 5.49% 5.67%
=========================================================================================
</TABLE>
During the first quarter of 1998, the Company's net interest margin
was 10 basis points higher than the first quarter of 1997 as
increased average balances of non-interest bearing funds (including
demand deposits) and higher earning-assets yields were partially
offset by an increase in the rate paid on interest bearing
liabilities including short-term borrowings.
The net interest margin was 8 basis points lower than the previous
quarter, due to the adverse effect of lower average balances of
non-interest bearing funds, lower yields on earning assets and a
small increase in the rate paid on interest-bearing liabilities.
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:
<TABLE>
<CAPTION>
For the three months ended
March 31, 1998
- -----------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Money market assets and
funds sold $250 $-- -- %
Investment securities:
Available for sale
Taxable 780,303 12,010 6.24
Tax-exempt 181,440 3,385 7.57
Held to maturity
Taxable 96,802 1,513 6.34
Tax-exempt 138,665 2,710 7.93
Loans:
Commercial 1,407,249 32,105 9.25
Real estate construction 64,836 1,908 11.93
Real estate residential 366,919 6,788 7.50
Consumer 393,038 8,948 9.23
- -----------------------------------------------------------------------------
Earning assets 3,429,502 69,367 8.16 %
Other assets 316,996
- ---------------------------------------------------------------
Total assets $3,746,498
===============================================================
Liabilities and shareholders'
equity
Deposits:
Non-interest bearing demand $777,318 $-- -- %
Savings and interest-bearing
transaction 1,462,168 7,810 2.17
Time less than $100,000 449,622 5,629 5.08
Time $100,000 or more 337,204 4,347 5.23
- -----------------------------------------------------------------------------
Total interest-bearing
deposits 2,248,994 17,786 3.21
Funds purchased 245,978 3,023 4.98
Debt financing and notes payable 52,500 918 7.09
- -----------------------------------------------------------------------------
Total interest-bearing
liabilities 2,547,472 21,727 3.46 %
Other liabilities 32,544
Shareholders' equity 389,164
- ---------------------------------------------------------------
Total liabilities and
shareholders' equity $3,746,498
===============================================================
Net interest spread (1) 4.70
Net interest income and interest margin (2) $47,640 5.59 %
=========================================================================================
</TABLE>
(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:
<TABLE>
<CAPTION>
For the three months ended
March 31, 1997
- -----------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Money market assets and
funds sold $105,047 $1,424 5.50 %
Investment securities:
Available for sale
Taxable 752,913 10,844 5.84
Tax-exempt 123,122 2,405 7.92
Held to maturity
Taxable 78,120 1,074 5.58
Tax-exempt 131,335 2,644 8.16
Loans:
Commercial 1,352,744 30,402 9.11
Real estate construction 101,155 2,611 10.47
Real estate residential 355,050 7,199 8.22
Consumer 441,320 10,109 9.29
- -----------------------------------------------------------------------------
Earning assets 3,440,806 68,712 8.10 %
Other assets 336,973
- ---------------------------------------------------------------
Total assets $3,777,779
===============================================================
Liabilities and shareholders'
equity
Deposits:
Non-interest bearing demand $750,348 $-- -- %
Savings and interest-bearing
transaction 1,579,843 8,775 2.25
Time less than $100,000 495,112 6,151 5.04
Time $100,000 or more 322,293 4,161 5.24
- -----------------------------------------------------------------------------
Total interest-bearing
deposits 2,397,248 19,087 3.23
Funds purchased 166,324 2,005 4.89
Debt financing and notes payable 58,475 1,011 7.01
- -----------------------------------------------------------------------------
Total interest-bearing
liabilities 2,622,047 22,103 3.42 %
Other liabilities 28,352
Shareholders' equity 377,032
- ---------------------------------------------------------------
Total liabilities and
shareholders' equity $3,777,779
===============================================================
Net interest spread (1) 4.68
Net interest income and interest margin (2) $46,609 5.49 %
=========================================================================================
</TABLE>
(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:
<TABLE>
<CAPTION>
For the three months ended
December 31, 1997
- -----------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Money market assets and
funds sold $626 $5 3.17 %
Investment securities:
Available for sale
Taxable 784,137 12,167 6.16
Tax-exempt 173,489 3,411 7.80
Held to maturity
Taxable 98,173 1,541 6.23
Tax-exempt 133,189 2,632 7.84
Loans:
Commercial 1,415,783 33,151 9.29
Real estate construction 70,671 2,046 11.49
Real estate residential 358,606 6,651 7.36
Consumer 396,749 9,292 9.29
- -----------------------------------------------------------------------------
Earning assets 3,431,423 70,896 8.20 %
Other assets 326,372
- ---------------------------------------------------------------
Total assets $3,757,795
===============================================================
Liabilities and shareholders'
equity
Deposits:
Non-interest bearing demand $819,897 $-- -- %
Savings and interest-bearing
transaction 1,488,875 8,427 2.25
Time less than $100,000 465,228 5,993 5.11
Time $100,000 or more 323,264 4,301 5.28
- -----------------------------------------------------------------------------
Total interest-bearing
deposits 2,277,367 18,721 3.26
Funds purchased 181,194 2,170 4.75
Debt financing and notes payable 55,833 974 6.92
- -----------------------------------------------------------------------------
Total interest-bearing
liabilities 2,514,394 21,865 3.45 %
Other liabilities 39,924
Shareholders' equity 383,580
- ---------------------------------------------------------------
Total liabilities and
shareholders' equity $3,757,795
===============================================================
Net interest spread (1) 4.75
Net interest income and interest margin (2) $49,031 5.67 %
=========================================================================================
</TABLE>
(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.
<TABLE>
- -----------------------------------------------------------------------------------------
Three months ended
March 31, 1998
compared with three months
ended March 31, 1997
-----------------------------------------
(In thousands) Volume Rate Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in
interest and fee income:
Money market assets
and funds sold ($711) ($713) ($1,424)
Investment securities:
Available for sale
Taxable 404 762 1,166
Tax-exempt (1) 1,083 (103) 980
Held to maturity
Taxable 279 160 439
Tax-exempt (1) 139 (73) 66
Loans:
Commercial (1) 1,238 465 1,703
Real estate construction (1,153) 450 (703)
Real estate residential 254 (665) (411)
Consumer (1,100) (61) (1,161)
- -----------------------------------------------------------------------------------------
Total (decrease) increase
in loans (1) (761) 189 (572)
- -----------------------------------------------------------------------------------------
Total increase in interest
and fee income (1) 433 222 655
- -----------------------------------------------------------------------------------------
Increase (decrease) in
interest expense
Deposits:
Savings/interest-bearing (637) (328) (965)
Time less than $ 100,000 (570) 48 (522)
Time $ 100,000 or more 192 (6) 186
- -----------------------------------------------------------------------------------------
Total decrease in
interest-bearing deposits (1,015) (286) (1,301)
Funds purchased 978 40 1,018
Debt financing and
notes payable (105) 12 (93)
- -----------------------------------------------------------------------------------------
Total decrease in
interest expense (142) (234) (376)
- -----------------------------------------------------------------------------------------
Increase in net
interest income (1) $575 $456 $1,031
=========================================================================================
</TABLE>
(1) Amounts calculated on a fully taxable equivalent basis
using the current statutory federal tax rate.
<PAGE>
Rate and volume variances.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Three months ended
March 31, 1998
compared with three months
ended December 31, 1997
-----------------------------------------
(In thousands) Volume Rate Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in
interest and fee income:
Money market assets
and funds sold ($2) ($3) ($5)
Investment securities:
Available for sale
Taxable 84 (241) (157)
Tax-exempt (1) (75) 49 (26)
Held to maturity
Taxable 100 (128) (28)
Tax-exempt (1) 62 16 78
Loans:
Commercial (1) (627) (419) (1,046)
Real estate construction (262) 124 (138)
Real estate residential 74 63 137
Consumer (205) (139) (344)
- -----------------------------------------------------------------------------------------
Total decrease in loans (1) (1,020) (371) (1,391)
- -----------------------------------------------------------------------------------------
Total decrease in interest and
fee income (1) (851) (678) (1,529)
- -----------------------------------------------------------------------------------------
Increase (decrease) in
interest expense
Deposits:
Savings/interest-bearing (208) (409) (617)
Time less than $ 100,000 (305) (59) (364)
Time $ 100,000 or more 59 (13) 46
- -----------------------------------------------------------------------------------------
Total decrease in
interest-bearing deposits (454) (481) (935)
Funds purchased 751 102 853
Debt financing and
notes payable (95) 39 (56)
- -----------------------------------------------------------------------------------------
Total increase (decrease)
in interest expense 202 (340) (138)
- -----------------------------------------------------------------------------------------
Decrease in net
interest income (1) ($1,053) ($338) ($1,391)
=========================================================================================
</TABLE>
(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
for the first quarter of 1998, compared to $3.6 million for the
same period in 1997 and unchanged from the previous quarter. The
first quarter of 1997 provision includes $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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
For the three months ended
March 31, December 31,
--------------------- ------------
(In millions) 1998 1997 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposit account fees $4.98 $5.35 $5.03
Merchant credit card 0.63 0.99 0.79
Mortgage banking income 0.45 0.34 0.41
Financial services
commissions 0.32 0.19 0.37
Trust fees 0.16 0.11 0.12
Other non-interest income 2.45 2.81 2.25
- -----------------------------------------------------------------------------------------
Total $8.99 $9.79 $8.97
=========================================================================================
</TABLE>
The $800 thousand decrease in non-interest income during the first
quarter of 1998 compared to the first quarter of 1997, included
$370 thousand lower deposit account fees principally due to
increased demand deposit balances and account runoff after the
Merger, and $360 thousand lower merchant credit card income.
Partially offsetting these changes, mortgage banking income was
$110 thousand higher than the first quarter of 1998 mainly due to
higher refinancing volume, financial services commissions were
$130 thousand higher than the first quarter of 1997 resulting from
increased share of fees earned by the agent managing certain
investments of the Company's customers, and trust fees were $50
thousand higher than the comparable period of the prior year
including higher fees from increased personal and retirement plan
business. In addition, lower net gains realized on asset sales were
the major contributor to the decrease in the other non-interest
income category.
<PAGE>
Comparing the first three months of 1998 to the fourth quarter in
1997, non-interest income increased $20 thousand. The largest
contributors to this variance are lower merchant credit card
income, lower deposit account fees mostly due to fewer number of
days in the current quarter and lower financial services commissions
principally due to lower sales volume. Partially offsetting these
changes, mortgage banking income increased from the previous
quarter due to higher refinancing volume and trust fees were higher
due to increased court fees assigned to the Company recognized
during the first quarter of 1998. The increase in the other
non-interest income category is principally due to gains realized
on sales of property acquired in satisfaction of debt.
Non-interest expense
The following table summarizes the components of non-interest
expense for the periods indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
For the three months ended
March 31, December 31,
--------------------- ------------
(In millions) 1998 1997 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and incentives $9.91 $11.47 $10.06
Other personnel 3.27 3.25 2.65
Occupancy 2.90 7.59 3.10
Equipment 1.85 2.40 1.93
Data processing services 1.33 1.56 1.44
Professional fees 0.49 2.96 0.48
Courier service 0.89 0.81 0.93
Stationery and supplies 0.41 0.60 0.54
Postage 0.56 0.57 0.55
Loan expense 0.31 0.48 0.38
Advertising/public relations 0.29 0.59 0.45
Merchant credit card 0.25 0.50 0.33
Operational losses 0.27 0.30 0.45
Other real estate owned and
property held for sale (0.08) 0.59 0.19
Other non-interest expense 2.69 2.90 2.45
- -----------------------------------------------------------------------------------------
Total $25.34 $36.57 $25.93
=========================================================================================
</TABLE>
<PAGE>
During the first quarter of 1998, non-interest expense decreased
$11.23 million from the first quarter of 1997, reflecting the
effect of operation consolidations, efficiencies achieved and
branch closures as a result of the Merger. The decrease affected
all categories of non-interest expense, with the exception of other
personnel, which included an increase in an incentive compensation
program tied to the market price of the Company's common stock, and
courier services expense. The largest variance from the first
quarter of 1997 was occupancy costs, $4.69 million lower,
principally due to facilities closures (including branches) after
the Merger and asset write-offs recognized by ValliCorp prior to
the Merger. Other significant variances from the first quarter of
1997 include $2.47 million lower professional fees mainly due to
reduced investment banker fees, and salaries and incentives, lower
by $1.56 million, as the first quarter of 1997 included one-time
restructuring costs at ValliCorp prior to the Merger and the
Company experienced a reduction of 377 full-time equivalent staff
from the first quarter 1997 average. In addition, other real estate
and expenses related to properties held for sale decreased $670
thousand from prior year, furniture and equipment costs decreased
$550 thousand mainly due to branch closures and write-offs, and
advertising and public relations costs decreased $300 thousand as
the first quarter of 1997 included additional expenses in
preparation for the Merger. Other expense reductions from the first
quarter of 1997 can be seen in data processing, merchant credit
card, loan expense, stationery and supplies and operational losses.
Comparing the first quarter of 1998 with the fourth quarter of
1997, non-interest expense decreased $590 thousand. Occupancy and
equipment costs were lower by $200 thousand and $80 thousand,
respectively, including lower rent expense net of rental income,
lower utilities costs, moving expenses and lower repairs and
maintenance expenses partially offset by higher janitorial expenses
and property taxes. Other real estate owned and property held for
sale related costs decreased $270 thousand due to lower write-downs
net of gains on sales, and operational losses were $180 thousand
lower than the prior quarter principally due to reduced sundry
losses. In addition, marketing related and stationery and supplies
costs were $160 thousand and $130 thousand, respectively, lower
than the fourth quarter of 1997. These decreases were primarily due
to lower advertising, business development and marketing research
costs and lower printing and purchases of inventory supplies. Other
reduced non-interest expense categories include data processing and
courier services, loan related expenses and merchant credit card
costs.
<PAGE>
Provision for Income Tax
During the first quarter of 1998, the Company recorded income tax
expense of $9.1 million compared to $4.7 million and $9.8 million,
respectively, in the first and fourth quarters of 1997. The 1998
provision represents an effective tax rate of 33.4 percent,
compared to 33.5 percent and 34.8 percent, respectively, for the
first and fourth quarters 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.
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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
At
At March 31, December 31,
----------------------- ------------
(In millions) 1998 1997 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Classified loans $67.8 $65.5 $67.5
Other classified assets 6.4 8.1 7.4
- -----------------------------------------------------------------------------------------
Total classified assets $74.2 $73.6 $74.9
=========================================================================================
Allowance for loan losses as a
percentage of classified loans 74% 78% 75%
</TABLE>
Classified loans at March 31, 1998, increased $2.3 million
or 4 percent to $67.8 million from March 31, 1997,
reflecting the implementation of the Company's strict
standards for loans acquired through the Merger. The
increase was principally due to additions of construction,
commercial and commercial real estate loans. Other
classified assets decreased $1.7 million from March 31,
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 $300 thousand increase in
classified loans from December 31, 1997, was principally
due to increases in construction real estate loans
partially offset by reductions in commercial real estate
loans.
<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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
At
At March 31, December 31,
(In millions) ----------------------- ------------
1998 1997 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Performing non-accrual loans $1.40 $2.58 $1.65
Non-performing,
non-accrual loans 13.68 17.64 16.50
- -----------------------------------------------------------------------------------------
Total non-accrual loans 15.08 20.22 18.15
Loans 90 days past due and
still accruing 0.66 0.53 1.01
- -----------------------------------------------------------------------------------------
Total non-performing loans 15.74 20.75 19.16
- -----------------------------------------------------------------------------------------
Restructured loans -- 0.22 --
Other real estate owned 6.39 8.13 7.38
- -----------------------------------------------------------------------------------------
Total non-performing assets $22.13 $29.10 $26.54
=========================================================================================
Allowance for loan losses
as a percentage of
non-performing loans 319% 243% 264%
</TABLE>
Performing non-accrual loans decreased $1.18 million to
$1.40 million at March 31, 1998, from $2.58 million at
March 31, 1997 and decreased $250 thousand from $1.65
million outstanding at December 31, 1997. Non-performing
non-accrual loans of $13.68 million at March 31, 1998,
decreased $3.96 million and $2.82 million from March 31
and December 31, 1997, respectively, mainly due to payoffs
and write-offs of loans with real estate collateral and
commercial loans. The $1.74 million and $990 thousand
decreases in other real estate owned balances from March
31 and December 31, 1997, respectively, were due to
liquidations, write-downs and sales net of additions from
non-accrual loans with real estate collateral.
<PAGE>
The amount of gross interest income that would have been
recorded for non-accrual loans for the three months ended
March 31, 1998, if all such loans had been current in
accordance with their original terms, was $337 thousand
compared to $172 thousand during the first three months of
1997 and $456 thousand during the fourth quarter of 1997.
The amount of interest income that was recognized on
non-accrual loans from cash payments made during the three
months ended March 31, 1998 totaled $148 thousand,
representing a year-to-date annualized yield of 3.74
percent. This compares to $100 thousand in cash payments
received during the first three months of 1997
representing an annualized yield of 2.09 percent and $53
thousand in cash payments received during the fourth
quarter of 1997 yielding 1.07 percent. Total cash payments
received which were applied against the book balance of
non-accrual loans outstanding at March 31, 1998, totaled
approximately $1.8 million.
The overall credit quality of the loan portfolio continues
to be strong; 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
continue to reduce non-performing assets; however, the
Company can give no assurance that additional increases in
non-accrual loans will not occur in the future.
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
$50.3 million allowance for loan losses, which constituted
2.23 percent of total loans at March 31, 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.
<PAGE>
The following table summarizes the loan loss provision,
net credit losses and allowance for loan losses for the
periods indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Three months ended
March 31, December 31,
----------------------- ------------
(In millions) 1998 1997 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of period $50.6 $50.9 $50.8
Loan loss provision 1.4 3.6 1.4
Loans charged off (2.9) (4.5) (2.9)
Recoveries of previously
charged-off loans 1.2 1.0 1.3
- -----------------------------------------------------------------------------------------
Net credit losses (1.7) (3.5) (1.6)
- -----------------------------------------------------------------------------------------
Balance, end of period $50.3 $51.0 $50.6
=========================================================================================
Allowance for loan losses
as a percentage of
non-performing loans 2.23% 2.27% 2.24%
</TABLE>
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 March 31, 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 March 31, 1998, there were no
substantial changes in the information on market risk that was
disclosed in the Company's 1997 Form 10-K. At March 31, 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 March 31, 1998,
investment securities available for sale totaled $986.2 million.
This represents an increase of $38.1 million from March 31,
1997.
The Company generates significant liquidity from its operating
activities. The Company's profitability during the first three
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 $11.5 million and
$28.9 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 three months of 1998, $65.1 million
was used by financing activities, including a $64.2 million
decrease in short-term borrowed funds, a $10.4 million cash outflow
used for purchasing the Company's common stock and dividends paid
to shareholders in the amount of $5.1 million. These uses of cash
were partially offset by $11.3 million provided by an increase in
deposit balances and $3.4 million resulting from the issuance of
new shares of common stock, principally for stock option exercises.
During the first quarter of 1997, cash used in financing activities
totaled $41.5 million. Deposit balances decreased $65.6 million and
repurchases of the Company's common stock and dividends paid to
shareholders were $3.6 million and $2.3 million, respectively.
Partially offsetting this outflow of cash, short-term borrowings
increased $26.0 million and issuance of shares of common stock were
$4.7 million, to meet stock option exercise requirements.
The Company uses cash flows from operating and financing activities
primarily to invest in investment securities and loans. During the
first three months of 1998, net repayments of loans were $6.0
million compared to $24.8 million during the same period in 1997.
The Company maintained the level of its investment securities
portfolio in 1998, reflected in a small decrease of $6.4 million
during the first three months of 1998 in investment securities net
of maturities and sales. This compares to an increase of $48.6
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 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.
<PAGE>
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 $414.8 million at March 31, 1998, representing an increase
of $30.5 million or 8 percent from March 31, 1997 and an
increase of $7.6 million, or 2 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 10.9
percent at March 31, 1998, from 10.0 percent a year ago and 10.6
percent as of December 31, 1997. The ratio of Tier I capital to
risk-adjusted assets was 13.03 percent at March 31, 1998,
compared to 13.18 percent at March 31, 1997 and 12.82 percent
at December 31, 1997. Total capital to risk-adjusted assets was
14.97 percent at March 31, 1998 compared to 15.16 percent at
March 31, 1997, and 14.76 percent at December 31, 1997.
The following summarizes the ratios of capital to risk-adjusted
assets for the periods indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
March 31, December 31,
-------------------- -------------
1998 1997 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I Capital 13.03% 13.18% 12.82%
Total Capital 14.97% 15.16% 14.76%
Leverage ratio 10.18% 9.67% 9.97%
</TABLE>
The risk-based capital ratios increased at March 31, 1998 compared
to March 31 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 March 31, 1998, the Board
of Directors of the Company authorized the repurchase of 3,252,150
shares of common stock from time to time, subject to appropriate
regulatory and other accounting requirements. These purchases are
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.
Pursuant to this program, the Company acquired 246,500 shares of
its common stock in the open market during the first quarter of
1998, 1,040,886 in 1997, and 1,207,800, 721,350 and 93,000 in 1996,
1995 and 1994, respectively.
<PAGE>
Year 2000 Compliance
The Company has undertaken a major project to ensure that its
internal operating systems, as well as those of its major customers
and suppliers, 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.
Interim Periods
New Statements of Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). Under the provisions
of SFAS 130, the Company is required to report comprehensive income
in its financial statements; the term comprehensive income
describes the total of all components of comprehensive income
including net income as well as other revenues, expenses, gains and
losses that are included in comprehensive income but excluded from
earnings (net income). The Company started to report comprehensive
income as part of the statement of income, including other
comprehensive income items added separately to net income resulting
in total comprehensive income. SFAS 130 is effective with the
year-end 1998 financial statements; however, the total
comprehensive income is required in the financial statements for
interim periods beginning in 1998. The Company adopted SFAS 130 as
of January 1, 1998; the adoption of the statement did not have a
material impact on the Company's financial statements.
<PAGE>
In June of 1997, the Financial Accounting Standards Board ("FASB")
issued the Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). Under the provisions of SFAS 131, an
entity is required to report selected information about operating
segments in annual financial statements and interim financial
reports. It also establishes standards for related disclosures
about products and services, geographic areas and major customers.
The Statement uses a "management approach" to identify operating
segments and defines an operating segment as a component of an
enterprise (I) for which discrete financial information is
available; (ii) that engages in business activities that may earn
revenues and incur expenses (including revenues and expenses
relating to transactions with other components of the same
enterprise) and (iii) whose operating results are regularly
reviewed by the enterprise's chief operating decision maker.
Reportable segments (aggregated if appropriate) are operating
segments that meet specified quantitative thresholds based on
revenues, profit or loss and assets, using a ten percent rule. SFAS
131 is effective for fiscal years beginning after December 15,
1997. Segment information that is presented for comparative
purposes is to be restated to conform to the requirements of SFAS
131 unless it is impracticable to do so. The required interim
disclosures are not required to be made in the initial year of
application but the information for the interim periods for the
initial year is required as comparative information in the second
year of application.
In February, 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132") which
amends the disclosure requirements of Statements No. 87 "Employers'
Accounting for Pensions", No. 88 "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pensions Plans and
for Termination Benefits" and No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions". While SFAS 132
revises employers' disclosures about pension and other
postretirement benefit plans, it does not change the measurement of
recognition of those plans. SFAS 132 standardizes the disclosure
requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in
the benefit obligation and fair values of plan assets that will
facilitate financial analysis, and eliminates certain disclosures
that are no longer useful as they were when amended Statements No.
88 and No. 106 were issued. SFAS 132 is effective for fiscal years
beginning after December 15, 1997. Earlier application is
encouraged. Restatement of disclosures for earlier periods provided
for comparative purposes is required unless the information is not
readily available, in which case the notes to the financial
statements should include all available information and a
description of the information not available.
<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: May 7, 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
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11:
Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
(b) Reports on Form 8-K
None
<PAGE>
Exhibit 11
WESTAMERICA BANCORPORATION
Computation of Earnings Per Share on Common and
Common Equivalent Shares and on Common Shares
Assuming Full Dilution
- ----------------------------------------------------------------------------
For the three months
ended March 31,
(In thousands, except per share data) 1998 1997 *
- ----------------------------------------------------------------------------
Weighted average number of common
shares outstanding - basic 42,741 42,945
Add exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 818 657
- ----------------------------------------------------------------------------
Weighted average number of common
shares outstanding - diluted 43,559 43,602
============================================================================
Net income $18,095 $9,365
Basic earnings per share $0.42 $0.22
Diluted earnings per share $0.42 $0.21
* Restated on a historical basis to reflect the April 12, 1997, acquisition
of ValliCorp Holdings, Inc. on a pooling-of-interests basis
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 212,616 253,083
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 67,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 986,181 948,115
<INVESTMENTS-CARRYING> 244,387 205,150
<INVESTMENTS-MARKET> 249,718 206,373
<LOANS> 2,252,883 2,251,863
<ALLOWANCE> 50,289 51,027
<TOTAL-ASSETS> 3,802,670 3,837,476
<DEPOSITS> 3,089,758 3,163,066
<SHORT-TERM> 200,616 193,397
<LIABILITIES-OTHER> 45,004 38,574
<LONG-TERM> 52,500 58,178
0 0
0 0
<COMMON> 200,463 191,580
<OTHER-SE> 214,329 192,681
<TOTAL-LIABILITIES-AND-EQUITY> 3,802,670 3,837,476
<INTEREST-LOAN> 48,853 49,679
<INTEREST-INVEST> 17,802 15,423
<INTEREST-OTHER> 0 1,424
<INTEREST-TOTAL> 66,655 66,526
<INTEREST-DEPOSIT> 17,786 19,087
<INTEREST-EXPENSE> 21,727 22,103
<INTEREST-INCOME-NET> 44,928 44,423
<LOAN-LOSSES> 1,395 3,550
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 25,340 36,572
<INCOME-PRETAX> 27,178 14,090
<INCOME-PRE-EXTRAORDINARY> 27,178 14,090
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 18,095 9,365
<EPS-PRIMARY> 0.42 0.22
<EPS-DILUTED> 0.42 0.21
<YIELD-ACTUAL> 8.16 8.10
<LOANS-NON> 15,074 20,217
<LOANS-PAST> 662 529
<LOANS-TROUBLED> 0 224
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 50,630 50,920
<CHARGE-OFFS> 2,879 4,512
<RECOVERIES> 1,143 1,069
<ALLOWANCE-CLOSE> 50,289 51,027
<ALLOWANCE-DOMESTIC> 30,136 34,411
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 20,153 16,616
</TABLE>
