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, 1999
Commission File Number: 1-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2156203
(State or other jurisdiction o (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 April 30, 1999
Common Stock, 39,183,994
No Par Value
<PAGE>
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(Unaudited)
At March 31, At December 31,
1999 1998 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $194,609 $212,616 $229,734
Money market assets 250 250 250
Investment securities available for sale 996,076 986,181 987,661
Investment securities held to maturity,
with market values of:
$241,281 at March 31, 1999
$249,718 at March 31, 1998
$233,790 at December 31, 1998 235,527 244,387 226,993
Loans, net of allowance for loan losses of:
$51,703 at March 31, 1999
$50,289 at March 31, 1998
$51,304 at December 31, 1998 2,236,982 2,202,594 2,246,593
Other real estate owned 3,862 6,392 4,315
Premises and equipment, net 45,305 47,293 45,971
Interest receivable and other assets 114,466 102,957 102,781
- -----------------------------------------------------------------------------------------
Total assets $3,827,077 $3,802,670 $3,844,298
=========================================================================================
LIABILITIES
Deposits:
Non-interest bearing $801,035 $813,319 $842,919
Interest bearing:
Transaction 565,040 543,724 600,502
Savings 874,909 943,542 903,141
Time 855,777 789,173 842,443
- -----------------------------------------------------------------------------------------
Total deposits 3,096,761 3,089,758 3,189,005
Short-term borrowed funds 265,656 200,616 203,671
Liability for interest, taxes and
other expenses 59,851 45,004 35,526
Debt financing and notes payable 47,600 52,500 47,500
- -----------------------------------------------------------------------------------------
Total liabilities 3,469,868 3,387,878 3,475,702
- -----------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Authorized - 150,000 shares
Common stock, issued and outstanding:
39,313 shares at March 31, 1999
42,707 shares at March 31, 1998
39,828 shares at December 31, 1998 196,915 200,463 195,156
Accumulated other comprehensive income:
Unrealized gain on securities
available for sale, net 16,065 19,555 20,184
Retained earnings 144,229 194,774 153,256
- -----------------------------------------------------------------------------------------
Total shareholders' equity 357,209 414,792 368,596
- -----------------------------------------------------------------------------------------
Total liabilities
and shareholders' equity $3,827,077 $3,802,670 $3,844,298
=========================================================================================
</TABLE>
<PAGE>
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
[CAPTION]
<TABLE>
- ----------------------------------------------------------------------------------
(Unaudited)
Three months ended
March 31,
1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans $46,239 $48,853
Investment securities available for sale
Taxable 11,499 12,010
Tax-exempt 2,514 2,392
Investment securities held to maturity
Taxable 1,431 1,513
Tax-exempt 1,951 1,887
- ----------------------------------------------------------------------------------
Total interest income 63,634 66,655
INTEREST EXPENSE
Transaction deposits 949 1,672
Savings deposits 5,052 6,138
Time deposits 9,461 9,976
Funds purchased 2,659 3,023
Debt financing and notes payable 829 918
- ----------------------------------------------------------------------------------
Total interest expense 18,950 21,727
- ----------------------------------------------------------------------------------
NET INTEREST INCOME 44,684 44,928
Provision for loan losses 1,195 1,395
- ----------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 43,489 43,533
NON-INTEREST INCOME
Service charges on deposit accounts 4,805 4,976
Merchant credit card 844 632
Mortgage banking 232 450
Financial services commissions 565 320
Trust fees 173 155
Other 2,528 2,452
- ----------------------------------------------------------------------------------
Total non-interest income 9,147 8,985
NON-INTEREST EXPENSE
Salaries and related benefits 12,918 13,181
Occupancy 2,942 2,896
Equipment 1,741 1,850
Professional fees 413 494
Data processing 1,464 1,332
Other real estate owned 34 (82)
Other 5,461 5,669
- ----------------------------------------------------------------------------------
Total non-interest expense 24,973 25,340
- ----------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 27,663 27,178
Provision for income taxes 9,258 9,083
- ----------------------------------------------------------------------------------
NET INCOME $18,405 $18,095
==================================================================================
Comprehensive income:
Unrealized (loss) gain on securities
available for sale, net (4,119) 1,632
- ----------------------------------------------------------------------------------
COMPREHENSIVE INCOME $14,286 $19,727
==================================================================================
Average shares outstanding 39,632 42,741
Diluted average shares outstanding 40,272 43,559
PER SHARE DATA
Basic earnings $0.46 $0.42
Diluted earnings 0.46 0.42
Dividends paid 0.16 0.12
</TABLE>
<PAGE>
WESTAMERICA BANCORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(Unaudited)
For the three months
ended March 31,
1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $18,405 $18,095
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,066 2,268
Loan loss provision 1,195 1,395
Amortization of deferred net loan (cost)/fees 568 (30)
(Increase) decrease in interest income receivable (552) 514
Decrease (increase) in other assets 107 (10,812)
Increase in income taxes payable 7,564 10,263
Decrease in interest expense payable (390) (156)
Increase (decrease) in other liabilities 8,208 (9,070)
Gain on sales/write down of equipment (46) (58)
Originations of loans for resale (7,554) (2,944)
Proceeds from sale of loans originated for resale 7,228 2,380
Net gain on sale of property acquired
in satisfaction of debt (105) (437)
Write down on property acquired in satisfaction of debt -- 51
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 36,694 11,459
- --------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net repayments of loans 7,916 5,989
Purchases of investment securities available for sale (116,585) (90,675)
Purchases of investment securities held to maturity (14,158) (23,618)
Purchases of property, plant and equipment (707) (411)
Proceeds from maturity of securities available for sale 100,879 110,422
Proceeds from maturity of securities held to maturity 5,624 10,190
Proceeds from sale of securities available for sale 182 120
Proceeds from sale of property and equipment 46 80
Proceeds from property acquired in satisfaction
of debt 816 3,298
- --------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (15,987) 15,395
- --------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease) increase in deposits (92,244) 11,257
Net increase (decrease) in short-term borrowings 61,985 (64,232)
Additions to notes payable 100 --
Exercise of stock options/issuance of shares 5,378 3,415
Retirement of stock (24,675) (10,359)
Dividends paid (6,376) (5,143)
- --------------------------------------------------------------------------------------------
Net cash used in financing activities (55,832) (65,062)
- --------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (35,125) (38,208)
Cash and cash equivalents at beginning of period 229,734 250,824
- --------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $194,609 $212,616
============================================================================================
Supplemental disclosure of non-cash activities:
Loans transferred to other real estate owned $258 $1,923
Depreciation of fixed assets charged against reserves 37 35
Supplemental disclosure of cash flow activity:
Unrealized (loss) gain on securities available for sale (4,119) 1,632
Interest paid for the period 19,340 21,884
</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, 1998.
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 1999 net income of $18.4 million or $.46 diluted earnings
per share. These results compare to net income of $18.1 million or
$.42 diluted earnings per share and $18.8 million or $.46 diluted
earnings per share, respectively, for the first and fourth quarters
of 1998.
Following is a summary of the components of net income for
the periods indicated:
- --------------------------------------------------------------------------
For the three months ended
March 31, December 31,
--------------------- ------------
(In millions) 1999 1998 1998
- --------------------------------------------------------------------------
Net interest income* $47.6 $47.6 $48.5
Provision for loan losses (1.2) (1.4) (1.2)
Non-interest income 9.1 9.0 9.8
Non-interest expense (25.0) (25.3) (25.6)
Provision for income taxes* (12.1) (11.8) (12.7)
- --------------------------------------------------------------------------
Net income $18.4 $18.1 $18.8
==========================================================================
Average total assets $3,774.5 $3,746.5 $3,795.3
Net income (annualized) as
a percentage of average
total assets 1.98% 1.96% 1.96%
==========================================================================
* Fully taxable equivalent basis (FTE)
During the first three months of 1999, the Company's net income was
$18.4 million, $300 thousand higher than the same period in 1998.
A lower loan loss provision resulting from continued improvements
in credit quality, improvements in non-interest income and reduced
operating costs account for the change. Net interest income
remained unchanged from prior year, as higher average earning-asset
balances, higher demand deposit average balances and lower cost of
funds were offset by lower earning-asset yields and higher
interest-bearing liabilities average balances.
Comparing the first quarter of 1999 to the prior quarter, net
income decreased $400 thousand. Included in this change is lower
net interest income, principally due to lower earning-asset average
balances and yields, higher interest bearing liabilities average
balances and lower interest-free demand deposits, partially offset
by lower non-interest expense. In addition, service and fee income,
lower than the prior quarter, was partially offset by lower
non-interest expense.
<PAGE>
Net Interest Income
Following is a summary of the components of net interest income
for the periods indicated:
- --------------------------------------------------------------------------
For the three months ended
March 31, December 31,
--------------------- ------------
(In millions) 1999 1998 1998
- --------------------------------------------------------------------------
Interest income $63.6 $66.7 $65.7
Interest expense (18.9) (21.7) (20.1)
FTE adjustment 2.9 2.6 2.9
- --------------------------------------------------------------------------
Net interest income (FTE) $47.6 $47.6 $48.5
==========================================================================
Average earning assets $3,463.0 $3,429.5 $3,480.0
Net interest margin (FTE) 5.53% 5.59% 5.55%
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 1999 remained unchanged
from the same period in 1998 at $47.6 million. Comparing the first
quarter of 1999 with the previous quarter, net interest income
(FTE) decreased $900 thousand.
<PAGE>
Interest Income
During the first quarter of 1999 interest income (FTE) decreased
$3.1 million from the same period in 1998. Lower earning-asset
yields and lower investment securities average balances were
partially offset by increased loan balances and fees. Loan yields
decreased 64 basis points from prior year, mostly in categories
where loans are tied to the prime rate. Partially offsetting this
change, loan average balances increased $46.1 million, particularly
in the commercial category in part offset by lower consumer loans.
This increase in loan balances was partially offset by a decrease
of $12.6 million in the average balances of investment securities,
including lower U.S Treasury securities and participation
certificates, partially offset by higher corporate and tax-free
securities.
Comparing the first quarter of 1999 and the fourth quarter of 1998,
interest income (FTE) decreased $2.1 million. The effect of $17.0
million lower earning-assets average balances, combined with a 10
basis point reduction in average yields accounts for this
quarter-to-quarter change. Lower earning-asset average balances
were comprised of a $23.2 million decrease in investment
securities, particularly U.S. Treasury and participation
certificates, in part offset by a $6.2 million increase in loans,
for the most part in the commercial category. All categories of
loan yields decreased from prior quarter for a combined total of 18
basis points, while investment yields increased by 4 basis points
from the same period mainly in the participation certificates and
corporate securities categories.
Interest Expense
For the first quarter of 1999 interest expense was $2.8 million
lower than the first quarter of 1998. Following market trends
reflective of a general reduction in rates paid on deposits and
borrowed funds, total interest-bearing liability rates decreased 51
basis points from the first quarter of 1998. In addition,
interest-free demand deposit account average balances increased
$17.4 million from the first quarter of 1998. Partially offsetting
the resulting effect of lower cost of funds, interest-bearing
liabilities average balances increased $58.1 million from the first
quarter of 1998, comprised of a $51.2 million increase in deposits
and a $6.9 million increase in other short- and medium-term
borrowed funds.
Interest expense decreased $1.2 million from the fourth quarter of
1998, as a decrease of 14 basis points on the rates paid on
interest-bearing liabilities and a $30.3 million decrease in demand
deposit average balances were partially offset by a $19.2 million
increase in interest-bearing liability average balances. Reflecting
market conditions, rates paid decreased in all categories with the
exception of public certificates of deposit and overnight borrowed
funds; the net increase in average balances resulted from a $47.5
million increase in short- and medium-term borrowed funds partially
offset by a $28.3 million decrease in average interest-bearing
deposit balances, primarily money market and regular savings
account 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 quarterly 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 months ended
March 31, December 31,
--------------------- ------------
1999 1998 1998
- --------------------------------------------------------------------------
Yield on earning assets 7.75% 8.16% 7.85%
Rate paid on interest-bearing
liabilities 2.95% 3.46% 3.09%
- --------------------------------------------------------------------------
Net interest spread 4.80% 4.70% 4.76%
Impact of all other net
non-interest bearing funds 0.73% 0.89% 0.79%
- --------------------------------------------------------------------------
Net interest margin 5.53% 5.59% 5.55%
==========================================================================
During the first quarter of 1999, the Company's net interest margin
was 6 basis points lower than the first quarter of 1998 as the
favorable impact of a decrease in the cost of funds was more than
offset by the effect of a larger decrease in earning-asset yields
and the unfavorable impact of a reduction in the Company's average
non-interest bearing funds balances. As a result of the Company's
share repurchase programs, average equity capital decreased $46.3
million, partially offset by a $17.4 million increase in
interest-free demand deposit accounts.
The net interest margin was 2 basis points lower than the previous
quarter, due to the adverse effect of lower average balances of
non-interest bearing funds, partially offset by a higher net
interest spread, as a 14 basis points reduction in the rate paid on
interest-bearing liabilities more than offset the unfavorable
effect of a 10 basis points decline in earning asset yields.
<PAGE>
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.
<TABLE>
<CAPTION>
Distribution of assets, liabilities and shareholders' equity:
- ----------------------------------------------------------------------------------------
For the three months ended
March 31, 1999
- ----------------------------------------------------------------------------------------
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 758,674 11,499 6.15
Tax-exempt 191,536 3,593 7.61
Held to maturity
Taxable 88,839 1,431 6.53
Tax-exempt 145,579 2,776 7.73
Loans:
Commercial 1,472,275 31,055 8.55
Real estate construction 56,140 1,489 10.76
Real estate residential 373,006 6,517 7.09
Consumer 376,680 8,162 8.79
- --------------------------------------------------------------------------
Earning assets 3,462,979 66,522 7.75
Other assets 311,487
- ------------------------------------------------------------
Total assets $3,774,466
============================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $794,758 $-- -- %
Savings and interest-bearing
transaction 1,450,817 6,001 1.68
Time less than $100,000 423,983 4,727 4.52
Time $100,000 or more 425,325 4,734 4.51
- --------------------------------------------------------------------------
Total interest-bearing deposits 2,300,125 15,462 2.73
Funds purchased 257,855 2,659 4.18
Debt financing and notes payable 47,545 829 7.07
- --------------------------------------------------------------------------
Total interest-bearing liabilities 2,605,525 18,950 2.95
Other liabilities 31,314
Shareholders' equity 342,869
- ------------------------------------------------------------
Total liabilities and
shareholders' equity $3,774,466
============================================================
Net interest spread (1) 4.80 %
Net interest income and interest margin (2) $47,572 5.53 %
========================================================================================
</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 calculating the difference
between the weighted average yields on earning assets less the
interest expense (annualized) divided by the average balance of
earning assets.
<PAGE>
<TABLE>
<CAPTION>
Distribution of assets, liabilities and shareholders' equity:
- ----------------------------------------------------------------------------------------
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 calculating the difference
between the weighted average yields on earning assets less the
interest expense (annualized) divided by the average balance of
earning assets.
<PAGE>
<TABLE>
<CAPTION>
Distribution of assets, liabilities and shareholders' equity:
- ----------------------------------------------------------------------------------------
For the three months ended
December 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 $-- 0.00 %
Investment securities:
Available for sale
Taxable 777,292 11,961 6.11
Tax-exempt 191,194 3,485 7.23
Held to maturity
Taxable 93,553 1,394 5.91
Tax-exempt 145,787 2,791 7.60
Loans:
Commercial 1,446,224 31,870 8.74
Real estate construction 56,845 1,713 11.96
Real estate residential 386,778 6,807 6.98
Consumer 382,040 8,586 8.92
- --------------------------------------------------------------------------
Earning assets 3,479,963 68,607 7.85
Other assets 315,340
- ------------------------------------------------------------
Total assets $3,795,303
============================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $825,076 $-- -- %
Savings and interest-bearing
transaction 1,483,198 7,069 1.89
Time less than $100,000 428,285 5,179 4.80
Time $100,000 or more 416,920 4,907 4.67
- --------------------------------------------------------------------------
Total interest-bearing deposits 2,328,403 17,155 2.92
Funds purchased 207,094 2,102 4.03
Debt financing and notes payable 50,833 884 6.90
- --------------------------------------------------------------------------
Total interest-bearing liabilities 2,586,330 20,141 3.09
Other liabilities 35,449
Shareholders' equity 348,448
- ------------------------------------------------------------
Total liabilities and
shareholders' equity $3,795,303
============================================================
Net interest spread (1) 4.76 %
Net interest income and interest margin (2) $48,466 5.55 %
========================================================================================
</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 calculating the difference
between the weighted average yields on earning assets less the
interest expense (annualized) divided by the average balance of
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. As previously stated, appropriate
amounts are calculated on a fully taxable equivalent basis using
the current statutory federal tax rate.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Three months ended
March 31, 1999
compared with three months
ended March 31, 1998
-------------------------------------------
(In thousands) Volume Rate Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in
interest and fee income:
Investment securities:
Available for sale
Taxable ($330) ($181) ($511)
Tax-exempt 189 19 208
Held to maturity
Taxable (131) 49 (82)
Tax-exempt 129 (63) 66
Loans:
Commercial 1,660 (2,710) (1,050)
Real estate construction (241) (178) (419)
Real estate residential 115 (386) (271)
Consumer (364) (422) (786)
- ----------------------------------------------------------------------------------------
Total increase (decrease)
in loans 1,170 (3,696) (2,526)
- ----------------------------------------------------------------------------------------
Total increase (decrease) in
interest and fee income 1,027 (3,872) (2,845)
- ----------------------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (60) (1,749) (1,809)
Time less than $ 100,000 (309) (593) (902)
Time $ 100,000 or more 811 (424) 387
- ----------------------------------------------------------------------------------------
Total increase (decrease) in
interest-bearing deposits 442 (2,766) (2,324)
Funds purchased 156 (520) (364)
Debt financing and notes payable (86) (3) (89)
- ----------------------------------------------------------------------------------------
Total increase (decrease) in
interest expense 512 (3,289) (2,777)
- ----------------------------------------------------------------------------------------
Increase (decrease) in net
interest income $515 ($583) ($68)
========================================================================================
</TABLE>
Rate and volume variances.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Three months ended
March 31, 1999
compared with three months
ended December 31, 1998
-------------------------------------------
(In thousands) Volume Rate Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in
interest and fee income:
Investment securities:
Available for sale
Taxable ($645) $183 ($462)
Tax-exempt 4 104 108
Held to maturity
Taxable (34) 71 37
Tax-exempt 1 (16) (15)
Loans:
Commercial 4,152 (4,967) (815)
Real estate construction (25) (199) (224)
Real estate residential (496) 206 (290)
Consumer (209) (215) (424)
- ----------------------------------------------------------------------------------------
Total increase (decrease)
in loans 3,422 (5,175) (1,753)
- ----------------------------------------------------------------------------------------
Total increase (decrease) in
interest and fee income 2,748 (4,833) (2,085)
- ----------------------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (173) (895) (1,068)
Time less than $ 100,000 (67) (385) (452)
Time $ 100,000 or more 265 (438) (173)
- ----------------------------------------------------------------------------------------
Total increase (decrease) in
interest-bearing deposits 25 (1,718) (1,693)
Funds purchased 482 75 557
Debt financing and notes payable (89) 34 (55)
- ----------------------------------------------------------------------------------------
Total increase (decrease) in
interest expense 418 (1,609) (1,191)
- ----------------------------------------------------------------------------------------
Increase (decrease) in net
interest income $2,330 ($3,224) ($894)
========================================================================================
</TABLE>
<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
reduce credit costs by enforcing underwriting and administration
procedures and aggressively pursuing collection efforts with
troubled debtors. The Company provided $1.2 million for loan losses
in the first quarter of 1999, $200 thousand lower than the same
period of 1998 and unchanged from the previous quarter. For further
information regarding net credit losses and the reserve for loan
losses, see the "Asset Quality" section of this report.
Non-interest Income
The following table summarizes the components of non-interest
income for the periods indicated.
- --------------------------------------------------------------------------
For the three months ended
March 31, December 31,
------------------- -----------
(In millions) 1999 1998 1998
- --------------------------------------------------------------------------
Deposit account fees $4.81 $4.98 $5.02
Merchant credit card 0.84 0.63 0.86
Financial services
commissions 0.57 0.32 0.45
Mortgage banking income 0.23 0.45 0.26
Trust fees 0.17 0.16 0.16
Other non-interest income 2.53 2.45 3.03
- --------------------------------------------------------------------------
Total $9.15 $8.99 $9.78
==========================================================================
The $160 thousand increase in non-interest income during the first
quarter of 1999 compared to the first quarter of 1998, was
comprised primarily of $250 thousand higher financial services
commissions, due to more aggressive marketing efforts resulting in
higher sales volume; $210 thousand higher merchant credit card
income resulting from fee repricing and increased volume; and $244
thousand higher commissions related to the sales of official checks.
Partially offsetting these changes, mortgage banking income was
$220 thousand lower than the same quarter in 1998, mainly due to
lower net gains from loans sold in the secondary market and lower
related retained servicing fees; deposit account fees were $170
thousand lower than the comparable quarter in 1998 due to lower
overdraft and returned item charges and lower activity charges on
personal accounts in part offset by higher fees on business
accounts on analysis; and $186 thousand lower gains on asset sales,
including real property and equipment.
Comparing the first three months of 1999 to the fourth quarter of
1998, non-interest income decreased $630 thousand. The largest
contributors to this change are lower gains on sales of real
property; a refund on prior years income tax returns received
during the fourth quarter of 1998; and lower deposit account fees
due to lower volume of overdraft and returned item charges and
lower fees assessed on demand deposit accounts on analysis. In
addition, mortgage banking income was $30 thousand lower than the
prior quarter, due to lower gains on sales of loans in the
secondary market and lower retained servicing fees; and merchant
credit card income was $20 thousand lower due to seasonal lower
volume of activity.
Partially offsetting these changes, financial services commissions
were $120 thousand higher than the prior quarter, primarily due to
increased sales volume; and trust fees also increased from the
fourth quarter of 1998.
<PAGE>
Non-interest expense
The following table summarizes the components of non-interest
expense for the periods indicated.
- --------------------------------------------------------------------------
For the three months ended
March 31, December 31,
------------------- -----------
(In millions) 1999 1998 1998
- --------------------------------------------------------------------------
Salaries and incentives $10.01 $9.91 $10.09
Other personnel 2.91 3.27 2.54
Occupancy 2.94 2.90 2.96
Equipment 1.74 1.85 1.88
Data processing services 1.46 1.33 1.52
Professional fees 0.41 0.49 0.55
Courier service 0.87 0.89 0.93
Stationery and supplies 0.37 0.41 0.48
Postage 0.62 0.56 0.52
Loan expense 0.36 0.31 0.31
Advertising/public relations 0.32 0.29 0.38
Merchant credit card 0.31 0.25 0.30
Operational losses 0.22 0.27 0.28
Other real estate owned and property
held for sale 0.03 (0.08) 0.20
Other non-interest expense 2.40 2.69 2.62
- --------------------------------------------------------------------------
Total $24.97 $25.34 $25.56
==========================================================================
Average full time equivalent staff 1,119 1,146 1,121
Non-interest expense to revenues
("efficiency ratio")(FTE) 44.03% 44.75% 43.87%
==========================================================================
Non-interest expense of $24.97 million in first quarter of 1999 was
$370 thousand lower than the same quarter in 1998, as the Company
continued to control costs through efficiencies and consolidation
of operations, reflected in the reduction of its efficiency ratio.
Included in this change are $260 thousand lower employee-related
expenses, a result of reductions in full-time equivalent staff
partially offset by increased incentive compensation program
expenses; $110 thousand lower equipment costs, mainly due to lower
expenses related to assets reaching fully depreciated lives; and
$80 thousand lower professional fees, primarily legal, in
connection with lower costs related to non-performing loans. In
addition, operational losses were $50 thousand lower than the first
quarter of 1998 and stationery and supplies and courier service
costs were $40 thousand and $20 thousand, respectively, lower than
prior year.
<PAGE>
Partially offsetting these changes, data processing services were
$130 thousand higher than the comparable quarter in 1998, mainly
due to increased costs related to the implementation of the Year
2000 compliance program; $110 thousand higher costs in connection
with properties acquired in satisfaction of debt; $60 thousand
higher merchant credit card related costs primarily due to
increased volume; $60 thousand higher postage expense; $50 thousand
higher loan expense; $30 thousand higher occupancy costs due to
lower rental income from subleased properties and escalating
building repairs and maintenance costs; and $30 thousand higher
advertising and public relation expenses due to increased marketing
research and business development costs. The change in other
non-interest expense includes lower regulatory agency assessments
and telephone costs, and higher rebates received from vendors
related to the sale of checks, partially offset by higher
correspondent service charges and recruiting costs.
Comparing the first quarter of 1999 with the fourth quarter of
1998, non-interest expense decreased $590 thousand. Costs related
to properties acquired in satisfaction of debt were $170 thousand
lower, mainly due to reduced write-downs; professional fees,
primarily legal costs in connection with problem credits, were $140
thousand lower; and equipment expenses were $140 thousand lower
than the prior quarter primarily due to reduced costs related to
lease and maintenance contracts. In addition, stationery and
supplies costs were $110 thousand lower than the fourth quarter of
1998 due to seasonal lower purchases of inventories; data
processing costs were $60 thousand lower mainly due to reduced
costs related to standard processing; and operational losses and
courier services were, each, $60 thousand lower than the prior
quarter. Included in the change in other non-interest expense are
lower check printing costs and lower litigation settlement costs.
Partially offsetting these expense reductions from the prior
quarter, employee related expenses were $290 thousand higher,
primarily due to increased payroll taxes and matching contributions
to the Company's pension plans; postage expense was $100 thousand
higher due to increased seasonal volume; and loan expenses were $50
thousand higher primarily due to costs incurred on behalf of loan
customers that may not be recoverable.
<PAGE>
Provision for Income Tax
During the first quarter of 1999, the Company recorded income tax
expense of $9.3 million compared to $9.1 million and $9.8 million,
respectively, in the first and fourth quarters of 1998. The 1999
provision represents an effective tax rate of 33.5 percent,
compared to 33.4 percent and 34.4 percent, respectively, for the
first and fourth quarters of 1998. The provision for income taxes
for all periods presented is primarily attributable to the
respective level of earnings and the incidence of allowable
deductions.
Asset Quality
The Company closely monitors the markets in which it conducts its
lending operations and 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 March 31, December 31,
------------------- ------------
(In millions) 1999 1998 1998
- --------------------------------------------------------------------------
Classified loans $52.0 $67.8 $67.5
Other classified assets 3.9 6.4 4.3
- --------------------------------------------------------------------------
Total classified assets $55.9 $74.2 $55.1
==========================================================================
Allowance for loan losses as a
percentage of classified loans 99% 74% 76%
Classified loans at March 31, 1999, decreased $15.8 million or 23
percent to $52.0 million from March 31, 1998, reflecting the
continued enforcing of the Company's strict credit standards. The
decrease was principally due to reductions of classified commercial
and commercial real estate loans. Other classified assets decreased
$2.5 million from March 31, 1998, 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 $15.5 million decrease in classified loans
from December 31, 1998, was principally due to reductions in
commercial loans with real estate collateral. The $400 thousand
reduction in other classified assets from December 31, 1998, 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 March 31, December 31,
------------------- ------------
(In millions) 1999 1998 1998
- --------------------------------------------------------------------------
Performing non-accrual loans $2.28 $1.40 $1.80
Non-performing,
non-accrual loans 6.21 13.68 6.73
- --------------------------------------------------------------------------
Total non-accrual loans 8.49 15.08 8.53
Loans 90 days past due and
still accruing 0.30 0.66 0.52
- --------------------------------------------------------------------------
Total non-performing loans 8.79 15.74 9.05
- --------------------------------------------------------------------------
Restructured loans -- -- --
Other real estate owned 3.86 6.39 4.32
- --------------------------------------------------------------------------
Total non-performing assets $12.65 $22.13 $13.37
==========================================================================
Allowance for loan losses
as a percentage of
non-performing loans 588% 319% 567%
Performing non-accrual loans increased $880 thousand to $2.28
million at March 31, 1999, from $1.40 million at March 31, 1998 and
$480 thousand from $1.80 million outstanding at December 31, 1998.
Non-performing, non-accrual loans of $6.21 million at March 31,
1999, decreased $7.47 million from March 31, 1998, primarily due to
sales, payoffs and foreclosures of commercial real estate loans,
and $520 thousand from December 31, 1998, mainly due to payoffs and
write-offs of loans with real estate collateral and commercial
loans. The $2.53 million and $460 thousand decreases in other real
estate owned balances from March 31 and December 31, 1998,
respectively, were due to liquidations, write-downs and liquidations
net of foreclosures of properties acquired in satisfaction of debt.
The amount of gross interest income that would have been recorded
for non-accrual loans for the three months ended March 31, 1999, if
all such loans had been current in accordance with their original
terms, was $152 thousand, compared to $337 thousand and $134
thousand, respectively, for the first and fourth quarters of 1998.
The amount of interest income that was recognized on non-accrual
loans from cash payments made during the three months ended March
31, 1999, totaled $112 thousand, compared to $148 thousand for the
comparable period in 1998 and $183 thousand for the fourth quarter
of 1998. These cash payments represent annualized yields of 6.13
percent for the first quarter of 1999 compared to 3.74 percent and
9.09 percent, respectively, for the first and fourth quarters of
1998. Total cash payments received which were applied against the
book balance of non-accrual loans outstanding at March 31, 1999,
totaled approximately $1.2 million.
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 $51.7 million
allowance for loan losses, which constituted 2.26 percent of total
loans at March 31, 1999, 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 months ended
March 31, December 31,
------------------- ------------
(In millions) 1999 1998 1998
- --------------------------------------------------------------------------
Balance, beginning
of period $51.3 $50.6 $51.1
Loan loss provision 1.2 1.4 1.2
Loans charged off (1.5) (2.9) (2.2)
Recoveries of previously
charged-off loans 0.7 1.2 1.2
- --------------------------------------------------------------------------
Net credit losses (0.8) (1.7) (1.0)
- --------------------------------------------------------------------------
Balance, end of period $51.7 $50.3 $51.3
==========================================================================
Allowance for loan losses
as a percentage
of loans outstanding 2.26% 2.23% 2.23%
==========================================================================
<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 risk is a simulation model to project changes in net interest
income ("NII") that result from forecast changes in interest rates.
The analysis calculates the difference between a NII forecast over
a 12-month period using a flat interest rate scenario, and a NII
forecast using a rising or falling rate scenario where the Fed
Funds rate is made to rise or fall evenly by 200 basis points over
the 12-month forecast interval triggering a response in the other
forecasted rates. It is the policy of the Company to require that
such simulated NII changes should be always less than 10 percent or
steps must be taken to reduce interest-rate risk. According to the
same policy, if the simulated changes in NII reach 7.5 percent, a
closer look at the risk will be put in place to determine what
steps could be taken to control risk should it grow worse. The
results of the model indicate that the mix of interest rate
sensitive assets and liabilities at March 31, 1999 would not result
in a fluctuation of NII that would exceed the parameters
established by Company policy.
At March 31, 1999 and 1998, the Company had no derivative financial
instruments outstanding. As the Company believes that the
derivative financial instrument disclosures contained within the
notes to the financial statements of its 1998 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, 1999, there were no
substantial changes in the information on market risk that was
disclosed in the Company's 1998 and 1997 Form 10-Ks.
<PAGE>
Liquidity
- ---------
The Company's principal source of asset liquidity is marketable
investment securities available for sale. At March 31, 1999,
investment securities available for sale totaled $996 million,
representing an increase of $9.9 million from March 31, 1998. In
addition, the Company generates significant liquidity from its
operating activities. The Company's profitability during the first
three months of 1999 and 1998 generated substantial cash flows,
which are included in the total provided from operations of $36.7
million and $11.5 million, respectively. Additional cash flows may
be provided by financing activities, primarily the acceptance of
deposits and borrowings from banks.
During 1999, the effect of the Company's stock repurchase programs
and dividends paid to shareholders were $24.7 million and $6.4
million, respectively. These cash outflows were combined with other
net cash used in financing activities totaling $24.7 million, which
include lower deposit balances partially offset by an increase in
short-term borrowings and an increase in equity from issuance of
stock. This compares with cash used by the Company during the first
three months of 1998 for its share repurchase programs and
dividends paid to shareholders of $10.4 million and $5.1 million,
respectively. These first quarter of 1998 cash outflows, added to a
$64.2 million decrease in short-term borrowed funds more than
offset a $11.3 million increase in deposit balances and a $3.4
million increase in equity from issuance of stock. These were the
factors affecting the total cash outflows used in financing
activities for the first quarters of 1999 and 1998 of $55.8 million
and $65.1 million, respectively.
The Company uses cash flows from operating and financing activities
primarily to invest in loans and investment securities. Purchases
of investment securities net of maturities increased $24.1 million
during the first three months of 1999 compared to a decrease of
$6.4 million during the comparable period in 1998. Proceeds from
net repayments of loans totaled $7.9 million and $6.0 million for
the first three months of 1999 and 1998, respectively.
The Company anticipates increasing its cash level from operations
through 1999 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 categories. The growth in deposit balances is expected to
follow the anticipated growth in loan balances.
Line of Credit
On July 31, 1998, the Company entered into an agreement with a
well-established financial institution establishing a line of
credit for general corporate purposes including the repurchase of
its stock. The line of credit has a one-year term and an available
commitment amount ranging from $60 million, during the first nine
months, reduced by $7.5 million during each of the following three
months to $37.5 million. The interest rate of this line of credit
is set by the lender based on various factors including costs and
desired return, general economic conditions and other factors.
At March 31, 1999, there were no outstanding balances drawn on this
line.
<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.
Since the beginning of 1994 and through March 31, 1999, the Board
of Directors of the Company has authorized the repurchase of
4,252,150 shares of the Company's common stock from time to time,
subject to appropriate regulatory and other accounting
requirements. The Company acquired 250,000 shares of its common
stock in the open market during the first three months of 1999,
996,000 in 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 to these systematic repurchases, a new plan to
repurchase up to 3,000,000 of the Company's shares of common stock
(the "Program") was approved by the Board of Directors on June 25,
1998. The Company's strong capital position and healthy
profitability contributed to the initiation of the Program, which
was being implemented to optimize the Company's use of equity
capital and enhance shareholder value. Pursuant to the Program, the
Company repurchased 2,088,900 shares of its common stock during the
last six months of 1998, at an average price of approximately $30
per share, and 326,700 during the first quarter of 1999 at an
average price of approximately $33 per share.
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 $357.2 million at March 31, 1999. This amount, which is
reflective of the effect of common stock market repurchases and
dividends paid to shareholders partially offset by the generation
and retention of earnings, represents a decrease of $57.6 million
or 14 percent from March 31, 1998, and a decrease of $11.4 million,
or 3 percent, from December 31, 1998. As a consequence of the
decrease in shareholders' equity, the Company's ratio of equity to
total assets decreased to 9.33 percent at March 31, 1999, from
10.91 percent and 9.59 percent at March 31 and December 31, 1998,
respectively. The ratio of Tier I capital to risk-adjusted assets
was 11.69 percent at March 31, 1999, compared to 13.03 percent at
March 31, 1998, and 11.87 percent at December 31, 1998. Total
capital to risk-adjusted assets was 13.62 percent at March 31,
1999, compared to 14.97 percent at March 31, 1998, and 13.79
percent at December 31, 1998.
The following summarizes the ratios of capital to risk-adjusted
assets for the periods indicated:
- --------------------------------------------------------------------------
Minimum
March 31, December 31, Regulatory
-------------------- ------------- Capital
1999 1998 1998 Requirements
- --------------------------------------------------------------------------
Tier I Capital 11.69% 13.03% 11.87% 4.00%
Total Capital 13.62% 14.97% 13.79% 8.00%
Leverage ratio 9.16% 10.18% 9.39% 4.00%
The risk-based capital ratios decreased at March 31, 1999, compared
to March 31 and December 31, 1998, primarily due to the decrease in
the total level of shareholders' equity. Capital ratios are
reviewed by Management on a regular basis to ensure that capital
exceeds the prescribed regulatory minimums and is adequate to meet
the Company's future needs. As shown in the table above, all ratios
are in excess of the regulatory definition of "well capitalized".
<PAGE>
Year 2000 Compliance
The potential impact of the Year 2000 compliance issue on the
financial services industry could be material, as virtually every
aspect of the industry and processing of transactions will be
affected. Due to the size of the task facing the financial services
industry and the interdependent nature of its transactions, the
Company may be adversely affected by this problem, depending on
whether it and the entities with which it does business address
this issue successfully. The impact of Year 2000 issues on the
Company will then depend not only on corrective actions that the
Company takes, but also on the way in which Year 2000 issues are
addressed by governmental agencies, businesses and other third
parties that provide services or data to, or receive services or
data from, the Company, or whose financial condition or operational
capability is important to the Company.
The Company's State of Readiness
The Company engages the services of third-party software vendors
and service providers for substantially all of its electronic data
processing. Thus, the focus of the Company is to monitor the
progress of its primary software providers toward Year 2000
compliance and prepare to test future-date sensitive data of the
Company in simulated processing.
The Company's Year 2000 compliance program has been divided into
phases, each of them common to all sections of the process: (1)
inventorying date-sensitive information technology and other
business systems; (2) assigning priorities to identified items and
assessing the efforts required for Year 2000 compliance of those
determined to be material to the Company; (3) upgrading or
replacing material items that are determined not to be Year 2000
compliant and testing material items; (4) assessing the status of
third party risks; and (5) designing and implementing contingency
and business continuation plans.
As part of the on-going supervision of the banking industry, bank
regulatory agencies are continuously surveying the Company's
progression and results of each one of these phases.
In the first phase, the Company conducted a thorough evaluation of
current information technology systems, software and embedded
technologies, resulting in the identification of 43 mission
critical systems that could be affected by Year 2000 issues.
Non-information technology systems such as climate control systems,
elevators and vault security equipment, were also surveyed. This
stage of the Year 2000 process is complete.
<PAGE>
In phase two of the process, results from the inventory were
assessed to determine the Year 2000 impact and what actions were
required to obtain Year 2000 compliance. For the Company's internal
systems, actions needed ranged from application upgrades on data
processing mainframe computer services to management reporting and
satellite software systems. The Company opted for a course of
action that will result in upgrading or replacing all critical
internal systems. This stage of the Year 2000 compliance process is
complete.
The third phase includes the upgrading, replacement and/or
retirement of systems, and testing. This stage of the Year 2000
process is ongoing; the Company estimates that the software
conversion phase was approximately 98 percent completed at March
31, 1999. Each of the upgrades and/or replacements, to the extent
economically feasible, has been run through a test environment
before being implemented, and has been also tested to see how well
it integrates with the Company's overall data processing
environment. Final "future-date" testing of system upgrades and
replacements is scheduled to be completed by the end of the second
quarter of 1999.
The fourth phase, assessing third-party risks, includes the process
of identifying and prioritizing critical suppliers and customers at
the direct interface level, as well as other material relationships
with third parties, including various exchanges, clearing houses,
correspondent other banks, telecommunication companies, public
utilities and credit customers. Included in the credit analysis
process, the Company has implemented a project plan for assessing
the Year 2000 readiness of its credit customers, and has completed
its initial assessment of the response of significant customers.
The evaluations undertaken to assess all third-party risks include
communicating with the third parties about their plans and progress
in addressing Year 2000 issues. Detailed evaluations of the most
critical third parties have been completed and, as of March 31,
1999, no significant problems have been identified.
<PAGE>
Contingency Plan
The final phase of the Company's Year 2000 compliance program
relates to contingency plans. The Company maintains contingency
plans in the normal course of business designed to be deployed in
the event of various potential business interruptions. These plans
have been expanded to address Year 2000-specific interruptions such
as power and telecommunication infrastructure failures, and will
continue to be supplemented if and when the results of systems
integration testing identify additional business functions at risk.
Such enhancements to existing plans will likely include remediation
of systems, reinstallation of software, installation of third-party
vendor software or some combination of alternatives.
Costs
As the Company relies upon third-party software vendors and service
providers for substantially all of its electronic data processing,
the primary cost of the Year 2000 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 the Year
2000 project is approximately $3.9 million, of which $3.5 million
had been expended through March 31, 1999. The priority given to
Year 2000 work may result in extending the time for completing some
other technology projects; these delays are not expected to have a
material effect on the Company's business. The Company's total cost
associated with required modifications to become Year 2000
compliant is not expected to be material to its results of
operations, liquidity and capital resources.
Risks
Failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business
activities or operations. The Company believes that, with the
implementation of new or upgraded business systems and completion
of the Year 2000 project as scheduled, the possibility of
significant interruptions of normal operations due to the failure
of those systems will be reduced. However, the Company is also
dependent upon the power and telecommunications infrastructure
within the United States, and processes large volumes of
transactions through various clearing houses and correspondent
banks. The most reasonably likely worst case scenario would be that
the Company may experience disruption in its operations if any of
these third-party suppliers reported a system failure. Although the
Company's Year 2000 Project will reduce the level of uncertainty
about the compliance and readiness of its material third-party
providers, due to the general uncertainty over Year 2000 readiness
of these third-party suppliers, the Company is unable to determine
at this time whether the consequences of Year 2000 failures will
have a material impact.
<PAGE>
Forward-Looking Statement Disclosure
Readers are cautioned that forward-looking statements contained in
this section should be read in conjunction with the Company's
disclosures under the heading "Cautionary Statement for the
Purposes of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995." In addition, the preceding
statements concerning Year 2000 compliance are hereby designated as
Year 2000 readiness disclosures under the Year 2000 Information and
Readiness Disclosure Act.
Cautionary Statement for the Purposes of the Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995."
The Company is including the following cautionary statement to take
advantage of the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995 for any forward-looking statement
made by, or on behalf of, the Company. The factors identified in
this cautionary statement are important factors (but not
necessarily all important factors) that could cause actual results
to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company.
Where any such forward-looking statement includes a statement of
the assumptions of bases underlying such forward-looking statement,
the Company cautions that, while it believes such assumptions or
bases to be reasonable and makes them in good faith, assumed facts
or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can
be material, depending on the circumstances. Where, in any
forward-looking statement, the Company, expresses an expectation or
belief as to future results, such expectation or belief is
expressed in good faith and believed to have a reasonable basis,
but there can be no assurance that the statement of expectation or
belief will result, or be achieved or accomplished.
Taking into account the foregoing, the following are identified as
important risk factors that could cause actual results to differ
materially from those expressed in any forward-looking statement
made by, or on behalf of, the Company:
The dates on which the Company believes the Year 2000 project will
be completed are based on Management's best estimates, which were
derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved, or that there will
not be a delay in, or increased costs associated with, the
implementation of the Year 2000 Project. Specific factors that
might cause differences between the estimates and actual results
include, but are not limited to, the availability and cost of
trained personnel, ability to locate and correct all computer
related issues, timely responses to and corrections by third
parties and suppliers, the availability to implement interfaces
between new systems and the systems not being replaced, and similar
uncertainties. Due to the general uncertainty inherent in the Year
2000 problem, resulting in part from the uncertainty of the Year
2000 readiness of third parties, the Company cannot ensure its
ability to timely and cost-effectively resolve problems associated
with the Year 2000 issue that may affect its operations and
business, or expose it to third-party liability.
<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 4, 1999 /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) Exhibit 27:
Financial Data Schedule
(c) 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) 1999 1998
- ----------------------------------------------------------------------------
Weighted average number of common
shares outstanding - basic 39,632 42,741
Add exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 640 818
- ----------------------------------------------------------------------------
Weighted average number of common
shares outstanding - diluted 40,272 43,559
============================================================================
Net income $18,405 $18,095
Basic earnings per share $0.46 $0.42
Diluted earnings per share $0.46 $0.42
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 194,609 212,616
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 996,076 986,181
<INVESTMENTS-CARRYING> 235,527 244,387
<INVESTMENTS-MARKET> 241,281 249,718
<LOANS> 2,288,685 2,252,883
<ALLOWANCE> 51,703 50,289
<TOTAL-ASSETS> 3,827,077 3,802,670
<DEPOSITS> 3,096,761 3,089,758
<SHORT-TERM> 265,656 200,616
<LIABILITIES-OTHER> 59,851 45,004
<LONG-TERM> 47,600 52,500
0 0
0 0
<COMMON> 196,915 200,463
<OTHER-SE> 160,294 214,329
<TOTAL-LIABILITIES-AND-EQUITY> 3,827,077 3,802,670
<INTEREST-LOAN> 46,239 48,853
<INTEREST-INVEST> 17,395 17,802
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 63,634 66,655
<INTEREST-DEPOSIT> 15,462 17,786
<INTEREST-EXPENSE> 18,950 21,727
<INTEREST-INCOME-NET> 44,684 44,928
<LOAN-LOSSES> 1,195 1,395
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 24,973 25,340
<INCOME-PRETAX> 27,663 27,178
<INCOME-PRE-EXTRAORDINARY> 18,405 18,095
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 18,405 18,095
<EPS-PRIMARY> 0.46 0.42
<EPS-DILUTED> 0.46 0.42
<YIELD-ACTUAL> 7.75 8.16
<LOANS-NON> 8,490 15,074
<LOANS-PAST> 297 662
<LOANS-TROUBLED> 1,057 1,261
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 51,304 50,630
<CHARGE-OFFS> 1,462 2,879
<RECOVERIES> 666 1,143
<ALLOWANCE-CLOSE> 51,703 50,289
<ALLOWANCE-DOMESTIC> 28,911 30,136
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 22,792 20,153
</TABLE>
