UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2000
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 July 31, 2000
Common Stock, 36,051,952
No Par Value
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands)
- --------------------------------------------------------------------------
At June 30, At December 31,
2000 1999 1999
- --------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $248,471 $191,760 $255,738
Money market assets 250 250 250
Investment securities available for sale 939,209 1,012,175 982,337
Investment securities held to maturity,
with market values of:
$231,792 at June 30, 2000
$236,771 at June 30, 1999
$235,147 at December 31, 1999 234,523 236,413 237,154
Loans, gross 2,358,393 2,300,644 2,320,846
Allowance for loan losses (52,121) (51,720) (51,574)
- --------------------------------------------------------------------------
Loans, net of allowance for loan losses 2,306,272 2,248,924 2,269,272
Other real estate owned 2,062 3,065 3,269
Premises and equipment, net 42,429 44,562 44,016
Interest receivable and other assets 105,299 133,123 101,151
- --------------------------------------------------------------------------
Total assets $3,878,515 $3,870,272 $3,893,187
==========================================================================
Deposits:
Non-interest bearing $961,111 $814,496 911,556
Interest bearing:
Transaction 501,820 548,300 485,860
Savings 832,850 880,894 840,644
Time 838,090 836,803 827,284
- --------------------------------------------------------------------------
Total deposits 3,133,871 3,080,493 3,065,344
Short-term borrowed funds 391,875 371,149 462,345
Liability for interest, taxes and
other expenses 20,620 32,490 23,406
Notes payable 38,036 46,500 41,500
- --------------------------------------------------------------------------
Total liabilities 3,584,402 3,530,632 3,592,595
- --------------------------------------------------------------------------
Authorized - 150,000 shares of common stock
Issued and outstanding:
36,011 at June 30, 2000
38,722 at June 30, 1999
37,125 at December 31, 1999 183,301 194,128 186,435
Accumulated other comprehensive income:
Unrealized (loss) gain on securities
available for sale (6,996) 6,667 (4,521)
Retained earnings 117,808 138,845 118,678
- --------------------------------------------------------------------------
Total shareholders' equity 294,113 339,640 300,592
- --------------------------------------------------------------------------
Total liabilities and
shareholders' equity $3,878,515 $3,870,272 $3,893,187
==========================================================================
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
- ----------------------------------------------------------
(In thousands, except per share data)
- ------------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
- ------------------------------------------------------------------------------------
INTEREST INCOME
Loans $48,601 $46,383 $95,828 $92,622
Money market assets and funds sold 2 -- 6 --
Investment securities available for sale
Taxable 11,385 11,683 23,034 23,181
Tax-exempt 2,847 2,625 5,699 5,140
Investment securities held to maturity
Taxable 1,274 1,340 2,519 2,772
Tax-exempt 2,082 1,978 4,151 3,928
- ------------------------------------------------------------------------------------
Total interest income 66,191 64,009 131,237 127,643
INTEREST EXPENSE
Transaction deposits 1,043 988 1,959 1,937
Savings deposits 4,390 4,845 8,893 9,897
Time deposits 10,836 9,271 21,286 18,732
Short-term borrowed funds 5,145 3,434 9,654 6,093
Debt financing and notes payable 679 822 1,371 1,651
- ------------------------------------------------------------------------------------
Total interest expense 22,093 19,360 43,163 38,310
- ------------------------------------------------------------------------------------
NET INTEREST INCOME 44,098 44,649 88,074 89,333
Provision for loan losses 925 1,195 1,870 2,390
- ------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 43,173 43,454 86,204 86,943
NON-INTEREST INCOME
Service charges on deposit accounts 5,342 4,991 10,563 9,796
Merchant credit card 1,017 822 1,956 1,666
Financial services commissions 475 821 888 1,386
Mortgage banking 212 165 422 397
Trust fees 179 171 341 344
Other 3,243 2,670 6,253 5,198
- ------------------------------------------------------------------------------------
Total non-interest income 10,468 9,640 20,423 18,787
NON-INTEREST EXPENSE
Salaries and related benefits 12,865 12,555 25,202 25,473
Occupancy 2,874 3,021 5,933 5,963
Equipment 1,539 1,713 3,160 3,454
Data processing 1,506 1,496 3,048 2,960
Professional fees 438 330 798 743
Other real estate owned 75 155 104 189
Other 5,371 5,457 10,845 10,918
- ------------------------------------------------------------------------------------
Total non-interest expense 24,668 24,727 49,090 49,700
- ------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 28,973 28,367 57,537 56,030
Provision for income taxes 9,306 9,498 18,644 18,757
- ------------------------------------------------------------------------------------
NET INCOME $19,667 $18,869 $38,893 $37,273
====================================================================================
Comprehensive income:
Change in unrealized (loss) gain on
securities available for sale, net (411) (9,398) (2,475) (13,517)
- ------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $19,256 $9,471 $36,418 $23,756
====================================================================================
Average shares outstanding 36,220 39,046 36,423 39,337
Diluted average shares outstanding 36,714 39,674 36,886 39,971
PER SHARE DATA
Basic earnings $0.54 $0.48 $1.07 $0.95
Diluted earnings 0.54 0.48 1.05 0.93
Dividends paid 0.18 0.16 0.36 0.32
WESTAMERICA BANCORPORATION
STATEMENTS OF CASH FLOWS
- ------------------------
(In thousands)
- --------------------------------------------------------------------------
For the six months
ended June 30, 2000
2000 1999
- --------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $38,893 $37,273
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,825 4,174
Loan loss provision 1,870 2,390
Amortization of deferred net loan (cost)/fees 159 724
Increase in interest income receivable (461) (767)
(Increase)/decrease in other assets (3,882) 1,081
Increase in income taxes payable 1,041 1,162
Increase in interest expense payable 1,353 163
(Decrease)/increase in other liabilities (3,508) 3,874
Write-down/(gain on sales) of equipment 30 (46)
Originations of loans for resale (1,480) (16,569)
Proceeds from sale of loans originated for resale 1,480 14,376
Net gain on sale of property acquired
in satisfaction of debt (333) (274)
Write-down on property acquired in
in satisfaction of debt 64 88
- --------------------------------------------------------------------------
Net cash provided by operating activities 39,051 47,649
- --------------------------------------------------------------------------
INVESTING ACTIVITIES
Net disbursements of loans (39,547) (3,564)
Purchases of investment securities available for sale (24,776) (238,660)
Purchases of investment securities held to maturity (1,867) (20,833)
Purchases of property, plant and equipment (890) (1,351)
Proceeds from maturity of securities available for sale 62,846 190,477
Proceeds from maturity of securities held to maturity 4,498 11,413
Proceeds from sale of securities available for sale 788 344
Proceeds from sale of property and equipment 20 46
Proceeds from property acquired in satisfaction
of debt 1,994 1,748
- --------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 3,066 (60,380)
- --------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase/(decrease) in deposits 68,527 (137,312)
Net (decrease)/increase in short-term borrowings (70,470) 167,478
Repayments of notes payable (3,464) (1,000)
Exercise of stock options/issuance of shares 2,236 3,976
Repurchases/retirement of stock (33,035) (45,725)
Dividends paid (13,178) (12,660)
- --------------------------------------------------------------------------
Net cash used in financing activities (49,384) (25,243)
- --------------------------------------------------------------------------
Net decrease in cash and cash equivalents (7,267) (37,974)
Cash and cash equivalents at beginning of period 255,738 229,734
- --------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $248,471 $191,760
==========================================================================
Supplemental disclosure of non-cash activities:
Loans transferred to other real estate owned $518 $312
Supplemental disclosure of cash flow activity:
Unrealized (loss) gain on securities
available for sale (2,475) (13,517)
Interest paid for the period 41,810 38,148
Income tax payments for the period 18,350 17,596
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
In addition to historical information, this discussion includes
certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company's
actual results may differ materially from those included in the
forward-looking statements. The forward-looking statements involve
risks and uncertainties which include, but are not limited to,
changes in general economic conditions; competitive conditions in
the geographic and business areas in which the Company conducts its
operations; regulatory or tax changes that affect the cost of or
demand for the Company's products; the resolution of legal
proceedings and related matters. The reader is directed to
Westamerica Bancorporation's annual report on Form 10-K for the
year ended December 31, 1999, particularly the section entitled
"Cautionary Statement," for the purpose of the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995
for a discussion of factors which could affect the Company's
business and cause actual results to differ materially from those
expressed in any forward-looking statement made in this report.
For further information on the subject, please refer to the
"Forward-Looking Statement Disclosure" section of this report.
Westamerica Bancorporation (the "Company"), parent company of
Westamerica Bank, Bank of Lake County, Community Banker Services
Corporation and Westamerica Commercial Credit Inc., reported second
quarter 2000 net income of $19.7 million or $.54 diluted earnings
per share. These results compare to net income of $18.9 million or
$.48 diluted earnings per share for the first quarter of 1999. On a
year-to-date basis, the Company reported net income of $38.9
million representing $1.05 diluted earnings per share, compared to
$37.3 million or $.93 share for the same period of 1999.
Following is a summary of the components of net income for
the periods indicated:
- ------------------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
-------------------------------------------
(In millions) 2000 1999 2000 1999
- ------------------------------------------------------------------------------------
Net interest income* $47.6 $47.7 $94.9 $95.3
Provision for loan losses (0.9) (1.2) (1.9) (2.4)
Non-interest income 10.5 9.6 20.4 18.8
Non-interest expense (24.7) (24.7) (49.1) (49.7)
Provision for income taxes* (12.8) (12.5) (25.4) (24.7)
- ------------------------------------------------------------------------------------
Net income $19.7 $18.9 $38.9 $37.3
====================================================================================
Average total assets $3,840.1 $3,816.8 $3,831.3 $3,795.6
Net income (annualized) as
a percentage of average
total assets 2.06% 1.98% 2.04% 1.98%
====================================================================================
* Fully taxable equivalent basis (FTE)
During the second quarter of 2000, the Company's net income was
$19.7 million, $800 thousand higher than the same period in 1999.
Improvements in non-interest income and a lower loan loss provision
from continued improvements in credit quality were partially offset
by small reduction in net interest income, mainly resulting from
increased cost of funds in connection with increases in
higher-costing short-term borrowings and interest-bearing
liabilities rate, partially offset by higher earning-asset volume
and yields and higher volume of non-interest bearing demand
deposits.
Comparing the first six months of 2000 to the prior year, net
income increased $1.6 million. Included in this change are higher
service and fee income, lower operating costs and a lower loan loss
provision, partially offset by lower net interest income primarily
due to an increase in high-cost sort-term borrowed funds partially
offset by higher earning-asset and non-interest bearing demand
deposit average balances.
Higher income tax provisions in the second quarter and the first
six months of 2000 compared to the same periods in 1999 are mainly
a result of higher pretax earnings.
Net Interest Income
- -------------------
Following is a summary of the components of net interest income
for the periods indicated:
- ------------------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
-------------------------------------------
(In millions) 2000 1999 2000 1999
- ------------------------------------------------------------------------------------
Interest income 66.2 64.0 131.2 127.6
Interest expense (22.1) (19.4) (43.2) (38.3)
FTE adjustment 3.5 3.1 6.9 6.0
- ------------------------------------------------------------------------------------
Net interest income (FTE) $47.6 $47.7 $94.9 $95.3
====================================================================================
Net interest margin (FTE) 5.42% 5.45% 5.41% 5.49%
====================================================================================
The Company's primary source of revenue is net interest income, or
the difference between interest income on earning assets and
interest expense on interest-bearing liabilities. Net interest
income (FTE) during the second quarter of 2000 decreased $100 thousand
from the same period in 1999 to $47.6 million. Comparing the first six
months of 2000 with the previous year, net interest income
(FTE) decreased $400 thousand.
Interest Income
During the second quarter of 2000 interest income (FTE) increased
$2.6 million from the same period in 1999. Higher earning-asset
yields and average balances were the primary reasons for the change.
Loan yields increased 29 basis points from prior year, mostly in
categories where loans are tied to the prime rate which, on average,
rose 150 basis points from the second quarter of 1999. In addition,
following market trends, investment securities yields rose 19 basis
points from 1999. Adding to the favorable impact of higher yields,
average earning-asset balances increased $22.0 million from the
second quarter of 1999, as an increase in average loans of $32.5
million was partially offset by a $10.5 million decrease in average
investment securities balances. The increase in loan balances was
mainly concentrated in the sought-after indirect lending and
commercial loans with real estate collateral categories, partially
offset by decreases in commercial, construction, real estate
residential and direct consumer loans. The decrease in the
investment securities portfolio is the result of runoffs in U.S.
Treasury, participation certificates, asset backed and corporate
securities, partially offset by increases in U.S. Agency and
tax-free securities.
Comparing the first six months of 2000 with the same period in
1999, interest income (FTE) increased $4.5 million. The effect of a
15 basis point increase in average yields combined with a $41.7
million increase in earning-assets average balances and a $55.4
million reduction in interest-bearing liabilities average balances,
was partially offset by a 24 basis point increase in the cost of
funds, reflective of the rising rate environment experienced during
the first six months of 2000. This trend was followed by the
Company's average index rate which increased 121 basis points from
the first six months of 1999. Higher earning-asset average balances
were comprised of a $26.4 million increase in average loan
balances, particularly in commercial real estate and indirect
consumer lending, partially offset by decreases in the commercial,
real estate and other consumer categories, and a $15.3 million
increase in investment securities average balances, with increases
in U.S. Agency and tax-free securities, in part offset by runoffs
in U.S. Treasury, participation certificates, asset-backed and
corporate securities.
Interest Expense
For the second quarter of 2000 interest expense was $2.7 million
higher than the second quarter of 1999. Following a general increase
in rates paid on deposits and borrowed funds reflective of a
general increase market rates, total interest-bearing liability
rates increased 52 basis points from the second quarter of 1999. The
adverse effect on net interest income of interest-bearing
liabilities rate increases was partially offset by a $84.6 million
reduction in the corresponding average balances, including a
reduction of $142.6 million in interest-bearing deposits, and
smaller reductions in debt financing and long-term debt of $5.0
million and $4.0 million, respectively, partially offset by an
increase of $66.9 million in short-term borrowed funds. In
addition, interest-free demand deposits increased $143.1 million
from the second quarter of 1999, which includes the transfer,
during the third quarter of 1999, of certain interest-bearing
transaction deposits into the non-interest bearing category.
Interest expense increased $4.9 million from the first six months
of 1999, as an increase of 43 basis points on the rates paid on
interest-bearing liabilities was partially offset by a $55.4
million decrease in interest-bearing liability average balances and
a $132.2 million increase in interest-free demand deposits, which
includes the above-mentioned transfer of certain interest-bearing
transaction deposits into the non-interest bearing category. The
decrease in the average balance of interest-bearing liabilities
includes a reduction of $136.2 million in deposits, reductions in
debt financing and long-term debt of $5 million and $3.7 million,
respectively, in part compensated by an increase in short-term
fundings of $89.5 million. Reflecting market conditions, rates paid
on deposits and borrowed funds increased in almost all categories,
with the exception of long-term certificates of deposits and core
savings and other money market saving deposits.
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.
Net Interest Margin (FTE)
- -------------------------
The following summarizes the components of the Company's net
interest margin for the periods indicated:
- ------------------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
-------------------------------------------
(In millions) 2000 1999 2000 1999
- ------------------------------------------------------------------------------------
Yield on earning assets 7.93% 7.67% 7.86% 7.71%
Rate paid on interest-bearing
liabilities 3.44% 2.92% 3.36% 2.93%
- ------------------------------------------------------------------------------------
Net interest spread 4.49% 4.75% 4.50% 4.78%
Impact of all other net
non-interest bearing funds 0.93% 0.70% 0.91% 0.71%
- ------------------------------------------------------------------------------------
Net interest margin 5.42% 5.45% 5.41% 5.49%
====================================================================================
<PAGE
During the second quarter of 2000, the Company's rapid reaction to
changing market rates resulted in a reduction in net interest
margin of only 3 basis points when compared to the second quarter
of 1999. The unfavorable impact of an increase in the cost of
funds, triggered by market trends, was partially offset by the
effect of an increase of 26 basis points in earning-asset yields.
In addition, the net interest margin was favorably impacted by the
effect of a 23 basis points increase resulting from higher volume
of net non-interest bearing funds. This change reflects mostly a
$143.1 million increase in interest-free demand deposit accounts,
partially offset by the effect of the Company's share repurchase
programs, which more than offset the capital contributions
originated from higher net income, resulting in a $37.6 million
decrease in average equity capital from the second quarter of 1999.
On a year-to-date basis, the net interest margin decreased 8 basis
points when compared to the same period in 1999. The net effect of
a more rapid rise in the cost of funds than the yield on earning
assets - a 43 basis points increase in the rates paid on
interest-bearing liabilities and a 15 basis points increase in
earning-asset yields - was partially offset by the favorable impact
on the interest margin resulting from higher average balances
of net non-interest bearing funds combined with higher market
rates.
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.
Distribution of assets, liabilities and shareholders' equity:
For the three months ended
June 30, 2000
- ------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- ------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $411 $2 2.14 %
Investment securities:
Available for sale
Taxable 749,045 11,385 6.11
Tax-exempt 221,232 4,238 7.70
Held to maturity
Taxable 80,270 1,274 6.38
Tax-exempt 155,479 3,096 8.01
Loans:
Commercial 1,485,258 32,645 8.84
Real estate construction 43,705 1,381 12.71
Real estate residential 331,997 5,750 6.97
Consumer 457,800 9,893 8.69
- --------------------------------------------------------------------------
Earning assets 3,525,197 69,664 7.93
Other assets 314,906
- ---------------------------------------------------------------
Total assets $3,840,103
===============================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $937,523 $-- -- %
Savings and interest-bearing
transaction 1,322,227 5,434 1.65
Time less than $100,000 383,091 4,720 4.96
Time $100,000 or more 444,221 6,115 5.54
- --------------------------------------------------------------------------
Total interest-bearing deposits 2,149,539 16,269 3.04
Short-term borrowed funds 385,736 5,145 5.36
Debt financing and notes payable 38,036 679 7.17
- --------------------------------------------------------------------------
Total interest-bearing liabilities 2,573,311 22,093 3.44
Other liabilities 31,184
Shareholders' equity 298,085
- ---------------------------------------------------------------
Total liabilities and shareholders' equity $3,840,103
===============================================================
Net interest spread (1) 4.49 %
Net interest income and interest margin (2) $47,571 5.42 %
====================================================================================
(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.
Distribution of assets, liabilities and shareholders' equity:
For the three months ended
June 30, 1999
- ------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- ------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $250 $-- -- %
Investment securities:
Available for sale
Taxable 780,858 11,683 6.00
Tax-exempt 200,448 3,759 7.52
Held to maturity
Taxable 88,014 1,340 6.11
Tax-exempt 147,333 2,823 7.69
Loans:
Commercial 1,495,161 31,673 8.50
Real estate construction 51,793 1,440 11.15
Real estate residential 356,681 6,131 6.89
Consumer 382,614 8,195 8.59
- --------------------------------------------------------------------------
Earning assets 3,503,152 67,044 7.67
Other assets 313,653
- ---------------------------------------------------------------
Total assets $3,816,805
===============================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $794,454 $-- -- %
Savings and interest-bearing
transaction 1,448,778 5,833 1.61
Time less than $100,000 414,044 4,481 4.34
Time $100,000 or more 429,267 4,790 4.48
- --------------------------------------------------------------------------
Total interest-bearing deposits 2,292,089 15,104 2.64
Short-term borrowed funds 318,798 3,434 4.32
Debt financing and notes payable 47,050 822 7.01
- --------------------------------------------------------------------------
Total interest-bearing liabilities 2,657,937 19,360 2.92
Other liabilities 28,717
Shareholders' equity 335,697
- ---------------------------------------------------------------
Total liabilities and shareholders' equity $3,816,805
===============================================================
Net interest spread (1) 4.75 %
Net interest income and interest margin (2) $47,684 5.45 %
====================================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference
between the weighted average yields on earning assets less the
interest expense (annualized) divided by the average balance of
earning assets.
Distribution of assets, liabilities and shareholders' equity:
For the six months ended
June 30, 2000
- ------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- ------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $439 $6 2.83 %
Investment securities:
Available for sale
Taxable 758,358 23,034 6.11
Tax-exempt 220,941 8,430 7.67
Held to maturity
Taxable 81,057 2,519 6.25
Tax-exempt 155,369 6,131 7.94
Loans:
Commercial 1,484,251 64,688 8.76
Real estate construction 45,242 2,702 12.01
Real estate residential 333,720 11,529 6.95
Consumer 445,396 19,059 8.61
- --------------------------------------------------------------------------
Earning assets 3,524,773 138,098 7.86
Other assets 306,574
- ---------------------------------------------------------------
Total assets $3,831,347
===============================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $926,838 $-- -- %
Savings and interest-bearing
transaction 1,324,363 10,852 1.65
Time less than $100,000 387,655 9,331 4.84
Time $100,000 or more 447,880 11,955 5.37
- --------------------------------------------------------------------------
Total interest-bearing deposits 2,159,898 32,138 2.99
Short-term borrowed funds 377,847 9,654 5.14
Debt financing and notes payable 38,605 1,371 7.14
- --------------------------------------------------------------------------
Total interest-bearing liabilities 2,576,350 43,163 3.36
Other liabilities 31,437
Shareholders' equity 296,722
- ---------------------------------------------------------------
Total liabilities and shareholders' equity $3,831,347
===============================================================
Net interest spread (1) 4.50 %
Net interest income and interest margin (2) $94,935 5.41 %
====================================================================================
(1) Net interest spread represents the average yield earned 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.
Distribution of assets, liabilities and shareholders' equity:
For the six months ended
June 30, 1999
- ------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- ------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $250 $-- -- %
Investment securities:
Available for sale
Taxable 769,766 23,181 6.07
Tax-exempt 195,992 7,352 7.56
Held to maturity
Taxable 88,426 2,772 6.32
Tax-exempt 146,456 5,599 7.71
Loans:
Commercial 1,483,719 62,729 8.53
Real estate construction 53,967 2,929 10.94
Real estate residential 364,843 12,648 6.99
Consumer 379,647 16,357 8.69
- --------------------------------------------------------------------------
Earning assets 3,483,066 133,567 7.71
Other assets 312,570
- ---------------------------------------------------------------
Total assets $3,795,636
===============================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $794,606 $-- -- %
Savings and interest-bearing
transaction 1,449,798 11,834 1.65
Time less than $100,000 419,014 9,208 4.43
Time $100,000 or more 427,296 9,524 4.49
- --------------------------------------------------------------------------
Total interest-bearing deposits 2,296,108 30,566 2.68
Short-term borrowed funds 288,326 6,093 4.26
Debt financing and notes payable 47,297 1,651 7.04
- --------------------------------------------------------------------------
Total interest-bearing liabilities 2,631,731 38,310 2.93
Other liabilities 30,016
Shareholders' equity 339,283
- ---------------------------------------------------------------
Total liabilities and shareholders' equity $3,795,636
===============================================================
Net interest spread (1) 4.78 %
Net interest income and interest margin (2) $95,257 5.49 %
====================================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference
between the weighted average yields on earning assets less the
interest expense (annualized) divided by the average balance of
earning assets.
Rate and volume variances.
The following tables set forth a summary of the changes in interest
income and interest expense from changes in average asset and
liability balances (volume) and changes in average interest rates
for the periods indicated. Changes not solely attributable to
volume or rates have been allocated in proportion to the respective
volume and rate components.
- ------------------------------------------------------------------------------------
(In thousands) Three months ended
June 30, 2000
compared with three months
ended June 30, 1999
---------------------------
Volume Rate Total
- ------------------------------------------------------------------------------------
Increase (decrease) in
interest and fee income:
Money market assets and funds sold $0 $2 $2
Investment securities:
Available for sale
Taxable (550) 252 (298)
Tax-exempt 388 91 479
Held to maturity
Taxable (136) 70 (66)
Tax-exempt 155 118 273
Loans:
Commercial (191) 1,163 972
Real estate construction (561) 502 (59)
Real estate residential (448) 67 (381)
Consumer 1,603 95 1,698
- ------------------------------------------------------------------------------------
Total increase
in loans 403 1,827 2,230
- ------------------------------------------------------------------------------------
Total increase in interest
and fee income 260 2,360 2,620
- ------------------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (546) 147 (399)
Time less than $100,000 (268) 507 239
Time $100,000 or more 170 1,155 1,325
- ------------------------------------------------------------------------------------
Total (decrease) increase in
interest-bearing deposits (644) 1,809 1,165
- ------------------------------------------------------------------------------------
Short-term borrowed funds 795 916 1,711
Debt financing and notes payable (164) 21 (143)
- ------------------------------------------------------------------------------------
Total (decrease) increase in
interest expense (13) 2,746 2,733
- ------------------------------------------------------------------------------------
Increase (decrease) in
net interest income $273 ($386) ($113)
====================================================================================
Rate and volume variances.
- ------------------------------------------------------------------------------------
(In thousands) Six months ended
June 30, 2000
compared with six months
ended June 30, 1999
---------------------------
Volume Rate Total
- ------------------------------------------------------------------------------------
Increase (decrease) in
interest and fee income:
Money market assets and funds sold $0 $6 $6
Investment securities:
Available for sale
Taxable (242) 95 (147)
Tax-exempt 969 109 1,078
Held to maturity
Taxable (223) (30) (253)
Tax-exempt 359 173 532
Loans:
Commercial 25 1,934 1,959
Real estate construction (570) 343 (227)
Real estate residential (1,043) (76) (1,119)
Consumer 2,860 (158) 2,702
- ------------------------------------------------------------------------------------
Total increase in loans 1,272 2,043 3,315
- ------------------------------------------------------------------------------------
Total increase in interest
and fee income 2,135 2,396 4,531
- ------------------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (996) 14 (982)
Time less than $100,000 (527) 650 123
Time $100,000 or more 483 1,948 2,431
- ------------------------------------------------------------------------------------
Total (decrease) increase in
interest-bearing deposits (1,040) 2,612 1,572
- ------------------------------------------------------------------------------------
Short-term borrowed funds 2,143 1,418 3,561
Debt financing and notes payable (304) 24 (280)
- ------------------------------------------------------------------------------------
Total increase in
interest expense 799 4,054 4,853
- ------------------------------------------------------------------------------------
Increase (decrease) in
net interest income $1,336 ($1,658) ($322)
====================================================================================
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 $925 thousand for loan
losses in the second quarter of 2000, $270 thousand lower than the
same period of 1999; for the first six months of 2000, $1.9 million
were provided, representing $520 thousand less than the same period
of 1999. For further information regarding net credit losses and
the reserve for loan losses, see the "Asset Quality" section of
this report.
Non-interest Income
- -------------------
The following table summarizes the components of non-interest
income for the periods indicated.
- ------------------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
-------------------------------------------
(In millions) 2000 1999 2000 1999
- ------------------------------------------------------------------------------------
Service charges on deposit
accounts $5.34 $4.99 $10.56 $9.80
Merchant credit card 1.02 0.82 1.96 1.67
Financial services
commissions 0.47 0.82 0.89 1.39
Debit card fees 0.35 0.07 0.56 0.07
Mortgage banking income 0.21 0.17 0.42 0.40
Trust fees 0.18 0.17 0.34 0.34
Other non-interest income 2.90 2.60 5.69 5.12
- ------------------------------------------------------------------------------------
Total $10.47 $9.64 $20.42 $18.79
====================================================================================
The $830 thousand increase in non-interest income during the second
quarter of 2000 compared to the second quarter of 1999, was
comprised primarily of $350 thousand higher service charges on
deposit accounts including higher overdraft and returned item
charges primarily due to the effect of a program implemented in the
third quarter of 1999 through which charges escalate following a
tiered system based on number of occurrences, $280 thousand in
higher debit card fees as the new product was launched in the
second quarter of 1999 and it has yielded increasingly higher fees
since its implementation due to increasing usage, and $200 thousand
higher merchant credit card income primarily due to increased sales
volume and fee repricing. In addition, the $300 thousand higher
other non-interest income includes $99 thousand higher safe deposit
box fee income, $81 thousand increased fees from issuing official
checks, $72 thousand higher settlement fees from ATM network
servicers and $29 thousand higher gains on the sale of properties
acquired in satisfaction of debt. Partially offsetting these
changes, financial services commissions were $350 thousand lower
than the second quarter of 1999 due to lower sales volumes.
Comparing the first six months of 2000 to the same period in 1999,
non-interest income decreased $1.63 million. The largest
contributor to this change is deposit accounts service fees, $760
thousand higher than prior year, in part due to the new overdraft
and returned item fee program put in effect during the third
quarter of 1999. In addition, other non-interest income was $570
thousand higher than 1999, including $202 thousand higher safe
deposit box rental income, $146 thousand higher gains on the sale
of official checks due to increased commissions from changing to an
outside servicer, $135 thousand higher ATM related fees primarily
due to higher volume of activity and $52 thousand higher gains on
sales of properties acquired in satisfaction of debt. Completing
the year-to-date change from 1999, debit card income was $490
thousand higher than prior year as the new product was introduced
during the third quarter of 1999; merchant credit card income
was $290 thousand higher than the first six months of 1999 due to
higher volume and fee repricing; and mortgage banking income was
$20 thousand higher than prior year mainly due to $107 thousand
higher net gains on the sale of loans in the secondary markets,
partially offset by $50 thousand lower retained servicing fees and
$32 thousand lower mortgage banking income due to decreased
refinancing volume.
Non-interest Expense
- --------------------
The following table summarizes the components of non-interest
expense for the periods indicated.
- ------------------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
-------------------------------------------
(In millions) 2000 1999 2000 1999
- ------------------------------------------------------------------------------------
Salaries and incentives $10.11 $9.86 $19.68 $19.87
Other personnel 2.76 2.69 5.52 5.60
Occupancy 2.87 3.02 5.93 5.96
Equipment 1.54 1.71 3.16 3.45
Data processing services 1.51 1.50 3.05 2.96
Courier service 0.86 0.80 1.69 1.66
Postage 0.48 0.50 1.03 1.12
Professional fees 0.44 0.33 0.80 0.74
Merchant credit card 0.37 0.36 0.78 0.67
Stationery and supplies 0.33 0.39 0.73 0.76
Advertising/public relations 0.30 0.36 0.58 0.66
Loan expense 0.28 0.36 0.54 0.71
Operational losses 0.21 0.33 0.50 0.55
Other real estate owned 0.07 0.16 0.10 0.19
Other non-interest expense 2.54 2.36 5.00 4.80
- ------------------------------------------------------------------------------------
Total $24.67 $24.73 $49.09 $49.70
====================================================================================
Average full time equivalent staff 1,076 1,100 1,076 1,109
Non-interest expense to revenues
("efficiency ratio")(FTE) 42.50% 43.14% 42.55% 43.58%
====================================================================================
Non-interest expense of $24.67 million in second quarter of 2000 was
$60 thousand lower than the same quarter in 1999, as the Company
continued to control costs through efficiencies and consolidation
of operations, reflected in the continued improvements in the
efficiency ratio. Included in this change are $170 thousand lower
equipment expense, a result of lower depreciation costs mainly
because equipment acquired through mergers reached fully
depreciated lives, and lower service maintenance costs primarily
due renegotiated contracts, partially offset by increased repair
and maintenance costs; $150 thousand lower occupancy costs,
primarily due to lower rental costs mostly due to reconfiguration
of facilities partially offset by increased lease expense, lower
depreciation expenses related to assets reaching fully depreciated
lives and increased utilities and real estate taxes. Also included
in this change are $120 thousand lower operational losses, mainly
due to controlled sundry losses in connection with fraudulent
activity at the branches; $90 thousand lower other real estate
owned costs, as properties continue to be sold and write-downs have
also decreased; $80 thousand lower loan expense due to the
implementation of stricter controls related to costs charged back
to customers; and $60 thousand, $30 thousand and $20 thousand lower
stationery and supplies costs, advertising/public relations
expenses and postage, respectively, primarily due to continuing
costs controls implemented by the Company. Partially offsetting
these changes, employee related costs were $320 thousand higher
than the second quarter of the prior year, primarily due to
increased executive bonus accruals in anticipation of year-end 2000
payouts, and reduced deferrals related to costs originating new
loans; professional fees were $110 thousand higher than the second
three months of 1999, mostly from higher legal fees, due to
increased merger and acquisitions related costs and expenses
resulting from problem credits; and courier costs were $60 thousand
higher than the comparable period of prior year. Included in the
Other non-interest expense category, are higher customers checks
costs due to lower rebates from the issuer, higher seminars and
employee education costs and higher costs incurred in the launching
of new products (debit card).
Comparing the first six months of 2000 with 1999, non-interest
expense decreased $610 thousand. Equipment expense decreased $290
thousand primarily due to reduced depreciation costs as assets
added through acquisitions reach fully depreciated lives and lower
lease/maintenance costs due to renegotiated contracts; employee
related costs were lower by $270 thousand mainly due to reduced
bonus accruals in 2000 as 1999 included an adjustment to correct
prior year's underaccruals, lower incentive payouts, lower payroll
taxes and lower expenses related to employer contributions and
administration of retirement and pension plans, partially offset by
increased group insurance costs and other performance-based
supplemental retirement program costs as well as lower deferrals in
connection with costs associated with originating new loans. In
addition, loan expense was $170 thousand lower than the first six
months of 1999, mostly due to lower appraisal fees, commissions and
repossession costs in part offset by increased credit report
expenses; postage was $90 thousand lower than 1999; and other real
estate owned expenses were also $90 thousand lower than prior year,
primarily due to lower write-downs and maintenance costs due to
fewer number of properties as the Company actively pursues to
reduce its number through sales. Other non-interest expense
categories lower than prior year include $80 thousand lower
advertising/public relations costs primarily due to reduced
expenses recorded in the first six months of 2000 related to the
production and distribution of shareholders' reports; $50 thousand
lower operational losses mostly due to reduced fraudulent activity
and sundry losses pending resolution, and $30 thousand, each, lower
occupancy and stationery and supplies costs, mostly due to lower
depreciation costs and purchases and usage of inventories,
respectively. Partially offsetting these changes from the first six
months of 1999, merchant credit card expenses increased $110
thousand, primarily due to higher volume and fee restructuring;
data processing services increased $90 thousand mainly due to
contract renegotiations with the Company's principal servicer;
professional fees were $60 thousand higher mostly from higher legal
fees, due to increased mergers and acquisitions related costs and
other corporate matters, including the formation of the Company's
new subsidiaries; and $30 thousand higher courier expenses.
Included in the $200 higher other non-interest expense, are
increased seminars and education costs and higher expenses in
connection with printing customers checks.
Provision for Income Tax
- ------------------------
During the second quarter of 2000, the Company recorded income tax
expense of $9.3 million, $200 thousand lower than the second
quarter of 1999; on a year-to-date basis, income tax expense was
$18.6 million for 2000 compared to $18.8 million in 1999. The
current provision represents an effective tax rate of 32.1 percent,
compared to 33.5 percent, for the second quarter of 1999; for the
first six months of 2000, the effective tax rate was 32.4 percent,
compared to 33.5 recorded in 1999. The provision for income taxes
for all periods presented is primarily attributable to the
respective level of earnings and the incidence of allowable
deductions, particularly higher revenues recognized from tax-exempt
loans and state and municipal securities.
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 June 30, December 31,
---------------- ------------
(In millions) 2000 1999 1999
- --------------------------------------------------------------------------
Classified loans $38.0 $45.7 $41.3
Other classified assets 2.1 3.1 3.3
- --------------------------------------------------------------------------
Total classified assets $40.1 $48.8 $44.6
==========================================================================
Allowance for loan losses as a
as a percentage of
classified loans 137% 113% 125%
==========================================================================
Classified loans at June 30, 2000, decreased $7.7 million or 17
percent to $38.0 million from June 30, 1999, reflecting the
continued enforcing of the Company's strict credit standards and a
continuing stronger economy. The decrease was principally due to
reductions of classified commercial and commercial real estate
loans. Other classified assets decreased $1.0 million from June 30,
1999, 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 $3.3
million decrease in classified loans from December 31, 1999, was
principally due to reductions in commercial and commercial real
estate loans. The $1.2 million reduction in other classified assets
from December 31, 1999, was mainly due to sales and write-downs of
other real estate owned properties.
Non-performing Assets
- ---------------------
Non-performing assets include non-accrual loans, loans 90 days past
due as to principal or interest and still accruing, and other real
estate owned. Loans are placed on non-accrual status when reaching
90 days or more delinquent, unless the loan is well secured and in
the process of collection. Interest previously accrued on loans
placed on non-accrual status is charged against interest income. In
addition, loans secured by real estate with temporarily impaired
values and commercial loans to borrowers experiencing financial
difficulties are placed on non-accrual status even though the
borrowers continue to repay the loans as scheduled. Such loans are
classified as "performing non-accrual" and are included in total
non-performing assets. When the ability to fully collect
non-accrual loan principal is in doubt, cash payments received are
applied against the principal balance of the loan until such time
as full collection of the remaining recorded balance is expected.
Any subsequent interest received is recorded as interest income on
a cash basis.
The following is a summary of non-performing assets on the dates
indicated:
- --------------------------------------------------------------------------
At
At June 30, December 31,
---------------- ------------
(In millions) 2000 1999 1999
- --------------------------------------------------------------------------
Performing non-accrual loans $6.61 $1.93 $3.46
Non-performing,
non-accrual loans 2.05 7.37 5.50
- --------------------------------------------------------------------------
Total non-accrual loans 8.66 9.30 8.96
Loans 90 days past due and
still accruing 0.21 0.42 0.58
- --------------------------------------------------------------------------
Total non-performing loans 8.87 9.72 9.54
- --------------------------------------------------------------------------
Restructured loans -- -- --
Other real estate owned 2.06 3.07 3.27
- --------------------------------------------------------------------------
Total non-performing assets $10.93 $12.79 $12.81
==========================================================================
Allowance for loan losses
as a percentage of
non-performing loans 588% 532% 540%
==========================================================================
Performing non-accrual loans increased $4.68 million to $6.61
million at June 30, 2000, from $1.93 million at June 30, 1999, and
$3.15 million from $3.46 million outstanding at December 31, 1999.
Non-performing, non-accrual loans of $2.05 million at June 30,
2000, decreased $5.32 million from June 30, 1999, and $3.45 million
from December 31, 1999. The increases in performing non-accrual
loans from prior periods presented resulted primarily from the
addition of commercial real estate loans, while the decrease in
non-performing non-accrual loans from prior year and prior
quarter-end reflects payoffs and sales of commercial and commercial
real estate loans. The $1.01 million and $1.21 million decreases
in other real estate owned balances from June 30 and December 31,
1999, respectively, were due to write-downs and liquidations net of
foreclosures of real estate properties acquired in satisfaction of
debt.
The amount of gross interest income that would have been recorded
for non-accrual loans for the three and six months ended June,
2000, if all such loans had been current in accordance with their
original terms, was $211 thousand and $440 thousand, respectively,
compared to $199 thousand and $351 thousand, respectively, for the
first three and six months of 1999.
The amount of interest income that was recognized on non-accrual
loans from all cash payments, including those related to interest
owed from prior years, made during the three and six months ended
June 30, 2000, totaled $252 thousand and $624 thousand,
respectively, compared to $370 thousand and $482 thousand,
respectively, for the comparable periods in 1999. These cash
payments represent annualized yields of 12.08 percent and 15.61
percent, respectively, for the first quarter and the first six
months of 2000 compared to 15.66 percent and 11.51 percent,
respectively, for the first three and six months of 1999. Total
cash payments received, including those recorded in prior years,
which were applied against the book balance of non-accrual loans
outstanding at June 30, 2000, totaled approximately $401 thousand.
The overall credit quality of the loan portfolio continues to be
strong and improving; however, the total non-performing assets
could fluctuate from period to period. The performance of any
individual loan can be impacted by external factors such as the
interest rate environment or factors particular to the borrower.
The Company expects to maintain the level of non-performing assets;
however, the Company can give no assurance that additional
increases in non-accrual loans will not occur in the future.
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 $52.1 million
allowance for loan losses, which constituted 2.21 percent of total
loans at June 30, 2000, to be adequate as a reserve against
inherent losses. However, while the Company's policy is to charge
off in the current period those loans on which the loss is
considered probable, the risk exists of future losses which cannot
be precisely quantified or attributed to particular loans or
classes of loans. Management continues to evaluate the loan
portfolio and assess current economic conditions that will dictate
future required allowance levels.
The following table summarizes the loan loss provision, net credit
losses and allowance for loan losses for the periods indicated:
- ------------------------------------------------------------------------------------
For the three For the six
months ended months ended
June 30, June 30,
-------------------------------------------
(In millions) 2000 1999 2000 1999
- ------------------------------------------------------------------------------------
Balance, beginning
of period $52.0 $51.7 $51.6 $51.3
Loan loss provision 0.9 1.2 1.9 2.4
Loans charged off (1.5) (2.3) (3.4) (3.7)
Recoveries of previously
charged-off loans 0.7 1.1 2.0 1.7
- ------------------------------------------------------------------------------------
Net credit losses (0.8) (1.2) (1.4) (2.0)
- ------------------------------------------------------------------------------------
Balance, end of period $52.1 $51.7 $52.1 $51.7
====================================================================================
Allowance for loan losses
as a percentage
of loans outstanding 2.21% 2.25%
===============================================================
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 June 30, 2000 would not result
in a fluctuation of NII that would exceed the parameters
established by Company policy.
At June 30, 2000 and 1999, 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 1999 Form 10-K
substantially conform with the accounting policy requirements of
these rule amendments, no further interim disclosure has been
provided. The rule amendments that require expanded disclosure of
quantitative and qualitative information about market risk were
effective with the 1997 Form 10-K. At June 30, 2000, there were no
substantial changes in the information on market risk that was
disclosed in the Company's Form 10-Ks since 1997.
Liquidity
- ---------
The Company's principal source of asset liquidity is marketable
investment securities available for sale. At June 30, 2000,
investment securities available for sale totaled $939 million,
representing a decrease of $73.0 million from June 30, 1999. In
addition, the Company generates significant liquidity from its
operating activities. The Company's profitability during the first
six months of 2000 and 1999 generated substantial cash flows, which
are included in the totals provided from operations of $39.1 million
and $47.6 million, respectively. Additional cash flows may be
provided by financing activities, primarily the acceptance of
deposits and borrowings from banks.
During the first six months of 2000, the effect of the Company's
stock repurchase programs and dividends paid to shareholders were
$33.0 million and $13.2 million, respectively. These cash outflows,
added to a $70.5 million reduction in short-term borrowed funds and
a $3.5 million reduction in long-term debt partially offset by a
$68.5 million increase in deposits and a $2.2 million increase
resulting from the issuance of new shares of common stock primarily
to meet stock option program requirements, are included in the net
cash used in financing activities during the first six months of
2000, totaling $49.4 million. This compares to the first six months
of 1999, when the cash used in financing activities totaled $25.2
million. This amount includes cash outflows related to the
Company's stock repurchase programs and dividends paid to
shareholders of $45.7 million and $12.7 million, respectively, in
addition to a $137.3 million reduction in deposit balances. These
uses of funds were partially offset by a $167.5 million increase in
short-term borrowings and a $4.0 million increase in equity from
the issuance of stock resulting from option exercises.
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 decreased $41.5 million
during the first six months of 2000 compared to an increase of
$57.3 million during the comparable period in 1999. Net
disbursements of loans totaled $39.5 million and $3.6 million for
the first six months of 2000 and 1999, respectively.
The Company anticipates increasing its cash level from operations
through 2000 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
stock. The line of credit, which had a one-year term and an
available commitment ranging from $60.0 million to $37.5 million,
was canceled in the third quarter of 1999. The Company replaced this
available source of cash inflow with increased cash dividends from
its affiliates.
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 June 30, 2000, the Board of
Directors of the Company has authorized the repurchase of 5,252,150
shares of the Company's common stock from time to time, subject to
appropriate regulatory and other accounting requirements. The
Company acquired 500,000 shares of its common stock in the open
market during the first six months of 2000, (250,000 in the second
quarter), 1,000,000 in 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 1,750,000 of the Company's shares of common stock
(the "Program") was approved by the Board of Directors on August
26, 1999. 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 797,261 shares of its common stock during 1999
at an average price of approximately $31 per share, and 670,000
during the first two quarters of 2000 (200,500 in the second
quarter), at an average price of approximately $26 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 $294.1 million at June 30, 2000. This amount, which is
reflective of the effect of common stock repurchases and dividends
paid to shareholders partially offset by the generation and
retention of earnings, represents a decrease of $45.5 million or 13
percent from June 30, 1999, and a decrease of $6.5 million, or 2
percent, from December 31, 1999. As a consequence of the decrease
in shareholders' equity, the Company's ratio of equity to total
assets decreased to 7.58 percent at June 30, 2000, from 8.78
percent and 7.72 percent at June 30 and December 31, 1999,
respectively. The ratio of Tier I capital to risk-adjusted assets
was 9.87 percent at June 30, 2000, compared to 10.95 percent at
June 30, 1999, and 9.82 percent at December 31, 1999. Total
capital to risk-adjusted assets was 11.51 percent at June 30,
2000, compared to 12.87 percent at June 30, 1999, and 11.75
percent at December 31, 1999.
The following summarizes the ratios of capital to risk-adjusted
assets for the periods indicated:
- ------------------------------------------------------------------------------------
At Minimum
At June 30, December 31, Regulatory
------------------- ------------ Capital
2000 1999 1999 Requirements
- ------------------------------------------------------------------------------------
Tier I Capital 9.87% 10.95% 9.82% 4.00%
Total Capital 11.51% 12.87% 11.75% 8.00%
Leverage ratio 7.60% 8.61% 7.48% 4.00%
The risk-based capital ratios decreased at June 30, 2000, compared
to June 30, 1999, primarily due to the decrease in the total level
of shareholders' equity due to the Company's common stock
repurchases and dividends paid to shareholders, partially offset by
increased net income. From December 31, 1999, the Tier I capital
ratio increased, as the favorable effect of net income and issuance
of stock due to option exercises, was partially offset by the
reduction in equity due to common stock repurchases and dividends
paid to shareholders; the reduction in the Total Capital ratio from
December 31, 1999, includes a reduction in the allowable portion
of a subordinated capital note issued by Westamerica Bank, which is
discounted, for regulatory capital purposes, as it approaches
maturity. 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".
Forward-Looking Statement Disclosure
- ------------------------------------
Readers are cautioned that forward-looking statements contained in
this report 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."
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.
Interim Periods
- ---------------
In June, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which
amends the disclosure requirements of Statement No. 52, "Foreign
Currency Translations" and of Statement No. 107, "Disclosures about
Fair Value of Financial Instruments." Under the provisions of SFAS
133, the Company is required to recognize all derivatives as either
assets or liabilities in the statement of financial condition and
measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of
the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c)
a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an
available-for-sale security or a foreign-currency-denominated
forecasted transaction. The accounting for changes in the fair
value of a derivative (that is, gain and losses) depends on the
intended use of the derivative and the resulting operation. SFAS
No. 133 would have been effective for all fiscal years beginning
after June 15, 1999, except that SFAS No. 137 ("Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS No. 133") delayed the effective date of SFAS
No. 133 for one year. The effective date is for all fiscal quarters
beginning after all fiscal years after June 30, 2000. Earlier
application is permitted. Certain sections of SFAS No. 133 were
amended in June, 2000, when the FASB issued SFAS No. 138, an
amendment of SFAS No. 133, which nullifies or modifies the
consensuses reached in a number of issues addressed by the emerging
issues task force.
Retroactive
application of SFAS No. 133 is not permitted. The Company does not
believe that the adoption of SFAS 133 will have a material impact on
its financial statements.
On March 31, 2000, the Financial Accounting Standards Board
("FASB") issued FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - an interpretation of
APB Opinion No. 25." This Interpretation provides guidance for
issues that have arisen in applying APB Opinion No. 25 Accounting
for Stock Issued to Employees. FIN 44 applies prospectively to new
awards, exchanges of awards in a business combination,
modifications to outstanding awards, and changes in grantee status
that occur on or after July 1, 2000, except for the provisions
related to repricing and the definition of an employee which apply
to awards issued after December 15, 1998. The provisions related to
modifications to fixed stock option awards are effective for awards
modified after January 12, 2000.
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: July 31, 2000 /s/ DENNIS R. HANSEN
--------------------
Dennis R. Hansen
Senior Vice President
and Controller
Chief Accounting Officer
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
Due to the nature of the banking business, the Subsidiary
Banks are at times party to various legal actions; all
such actions are of a routine nature and arise in the normal
course of business of the Subsidiary Banks.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
Proxies for the Annual Meeting of shareholders held on April 27,
2000, were solicited pursuant Regulation 14A of the Securities
Exchange Act of 1934. The Report of Inspector of election
indicates that 28,343,279 shares of the Common Stock of the
Company, out of 36,574,930 shares outstanding, were present at the
meeting. The following matters were submitted to a vote of the
shareholders:
1.- Election of directors:
Withheld/
For Exceptions
------ ------
Etta Allen 27,886,267 457,012
Louis E. Bartolini 27,790,950 552,329
Don Emerson 27,968,798 374,481
Louis H. Herwaldt 28,056,059 287,220
Arthur C. Latno, Jr. 27,804,748 538,531
Patrick D. Lynch 27,796,180 547,099
Catherine C. MacMillan 27,841,938 501,341
Patrick J. Mon Pere 27,691,352 651,927
Ronald A. Nelson 28,060,234 283,045
Carl R. Otto 27,923,816 419,463
David L. Payne 25,704,382 2,638,897
Michael J. Ryan 27,763,996 579,283
Edward B. Sylvester 28,000,356 342,923
2.- Ratification of independent certified public accountant firm.
A proposal to ratify the selection of KPMG LLP as independent
certified public accountants for the Company for 2000.
For : 27,994,018
Against : 39,055
Abstain : 310,206
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