UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934.
For Quarter Ended March 31, 1994
Commission File Number 1-9383
WESTAMERICA BANCORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2156203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1108 Fifth Avenue, San Rafael, California 94901
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code (415) 257-8000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date:
Title of Class Shares Outstanding at May 10, 1994
Common stock, 8,075,520
no par value
PART I. FINANCIAL INFORMATION
WESTAMERICA BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, (Unaudited) December 31,
------------------------ -------------
1994 1993* 1993
---- ---- ----
ASSETS
Cash and cash equivalents $110,268 $93,269 $102,618
Money market assets 250 12,390 250
Trading account securities -- 498 10
Investment securities available-for-sale 171,789 -- 168,819
Investment securities held-to-maturity
Market values: $590,638 at March 31, 1994
$644,866 at March 31, 1993
$563,563 at December 31, 1993 596,055 603,604 557,057
Loans, net of reserve for loan losses of:
$25,927 at March 31, 1994
$24,931 at March 31, 1993
$25,587 at December 31, 1993 1,064,603 1,158,368 1,089,152
Loan collateral substantively repossessed and OREO 14,988 34,080 17,905
Land held for sale 1,566 2,181 800
Investment in joint venture -- 1,856 766
Premises and equipment, net 24,568 26,796 25,341
Interest receivable and other assets 47,444 62,972 41,701
---------- ---------- ----------
Total assets $2,031,531 $1,996,014 $2,004,419
========== ========== ==========
LIABILITIES
Deposits:
Non-interest bearing $366,581 $292,071 $369,820
Interest bearing:
Transaction 290,543 366,634 289,322
Savings 675,205 581,980 654,766
Time 395,902 509,918 417,320
---------- ---------- ----------
Total deposits 1,728,231 1,750,603 1,731,228
Funds purchased 95,167 38,479 69,064
Liability for interest, taxes and
other expenses 17,545 41,340 15,328
Notes and mortgages payable 35,586 19,130 36,352
---------- ---------- ----------
Total liabilities 1,876,529 1,849,552 1,851,972
SHAREHOLDERS' EQUITY
Authorized - 20,000 shares
Issued and outstanding:
8,076 at March 31, 1994
8,037 at March 31, 1993
8,080 at December 31, 1993 53,482 52,692 52,499
Capital surplus 10,289 10,831 10,831
Unrealized gains on securities available-for-sale 501 -- 2,527
Retained earnings 90,730 82,939 86,590
---------- ---------- ----------
Total shareholders' equity 155,002 146,462 152,447
---------- ---------- ----------
Total liabilities and shareholders' equity $2,031,531 $1,996,014 $2,004,419
========== ========== ==========
<FN>
* 1993 data has been restated on an historical basis to reflect the April 15, 1993
acquisition of Napa Valley Bancorp on a pooling-of-interests basis.
WESTAMERICA BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data) Three months ended
March 31,
----------------------
1994 1993*
--------- ---------
INTEREST INCOME
Loans $22,719 $26,633
Money market assets and funds sold -- 65
Trading account securities -- 4
Investment securities available-for-sale 2,356 --
Investment securities held-to-maturity 7,403 9,244
--------- ---------
Total interest income 32,478 35,946
INTEREST EXPENSE
Transaction deposits 698 1,452
Savings deposits 3,587 3,943
Time deposits 3,728 5,462
Funds purchased 816 364
Long-term debt 828 551
--------- ---------
Total interest expense 9,657 11,772
--------- ---------
NET INTEREST INCOME 22,821 24,174
Provision for loan losses 1,605 1,550
--------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 21,216 22,624
--------- ---------
NON-INTEREST INCOME
Service charges on deposit accounts 2,969 3,083
Merchant credit card 540 477
Mortgage banking 313 254
Brokerage commissions 165 231
Net investment securities gains 539 (18)
Other 878 991
--------- ---------
Total non-interest income 5,404 5,018
--------- ---------
NON-INTEREST EXPENSE
Salaries and related benefits 9,141 11,873
Occupancy 1,743 2,048
Equipment 1,127 1,189
FDIC insurance assessment 997 1,069
Data processing 949 947
Professional fees 417 643
Other real estate owned 110 1,566
Other 3,300 3,979
--------- ---------
Total non-interest expense 17,784 23,314
--------- ---------
INCOME BEFORE INCOME TAXES 8,836 4,328
Provision for income taxes 2,841 1,308
--------- ---------
NET INCOME $5,995 $3,020
========= =========
Average shares outstanding 8,073 8,018
PER SHARE DATA
Earnings per share $0.74 $0.38
Dividends declared 0.15 0.14
* 1993 data has been restated on an historical basis to reflect the April 15,
1993, acquisition of Napa Valley Bancorp on a pooling-of-interests basis.
WESTAMERICA BANCORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
For the three months ended
March 31,
----------------------------
1994 1993 *
---- ----
OPERATING ACTIVITIES
Net income $5,995 $3,020
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 951 1,040
Loan loss provision 1,605 1,550
Amortization of deferred net loan fees 117 104
Decrease (increase) in interest income receivable 540 (257)
(Increase) decrease in other assets (2,661) 1,253
Increase in income taxes payable 1,294 360
Increase in interest expense payable 443 682
Decrease in other liabilities (1,658) (1,717)
(Gain) loss on sales of investment securities (539) 17
Originations of loans for resale (13,475) (11,225)
Proceeds from sale of loans originated for resale 17,759 15,106
Gain on sale of property acquired in satisfaction of debt (525) --
Write down on property acquired in satisfaction of debt 211 141
Write down on loan collateral substantively foreclosed 284 --
Net maturities/(purchases) of trading securities 10 (498)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,351 9,576
----------- -----------
INVESTING ACTIVITIES
Net repayments of loans 18,542 2,304
Purchases of money market assets -- (11,024)
Purchases of investment securities (148,392) (83,753)
Purchases of property, plant and equipment (178) (878)
Proceeds from maturity of securities 50,798 50,369
Proceeds from sale of securities 52,656 --
Proceeds from property acquired in satisfaction
of debt 1,391 796
Net additions to property acquired in satisfaction of debt (230) (2,336)
Net repayments on loan collateral
substantively foreclosed 1,786 1,824
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (23,627) (42,698)
---------- ----------
FINANCING ACTIVITIES
Net decrease in deposits (2,997) (39,315)
Net increase in fed funds purchased 26,103 26,441
Additions net of principal payments on notes and mortgages (766) --
Exercise of stock options/issuance of shares 585 592
Retirement of stock (790) --
Dividends paid (1,209) (824)
---------- ----------
NET CASH PROVIDED BY (USED IN) BY FINANCING ACTIVITIES 20,926 (13,106)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,650 (46,228)
---------- ----------
Cash and cash equivalents at beginning of year 102,618 139,497
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $110,268 $93,269
=========== ===========
Supplemental disclosure of cash flow activity
Loans transferred to other real estate owned and
substantively repossessed 230 3,144
Unrealized loss on securities available for sale 2,026 --
Interest paid for the period 10,100 12,436
Income tax payments for the period -- 150
<FN>
* 1993 data has been restated on an historical basis to reflect the April 15, 1993,
acquisition of Napa Valley Bancorp on a pooling-of-interests basis.
WESTAMERICA BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited) (In thousands)
Three Months Ended
March 31,
------------------
1994 1993 *
------ ------
BALANCE, beginning of period $152,447 $143,674
Net income for period 5,995 3,020
Cash dividends declared (1,209) (824)
Exercise of stock options-
24,964 in 1994 and 30,467 in 1993 585 592
Retirement of stock
28,425 shares in 1994 (790) --
Unrealized loss on securities available for sale (2,026) --
-------- --------
TOTAL SHAREHOLDERS' EQUITY, March 31, $155,002 $146,462
======== ========
* 1993 data has been restated on an historical basis to reflect the April 15,
1993 acquisition of Napa Valley Bancorp on a pooling-of-interests basis.
WESTAMERICA BANCORPORATION AND SUBSIDIARIES
CALCULATION OF AVERAGE SHARES OUTSTANDING
(Unaudited) (In thousands)
Three Months Ended
March 31,
------------------
1994 1993 *
------ ------
Shares outstanding at the beginning of periods 8,080 8,000
Effect of retirement of stock, stock options
exercised and performance shares issued
during the periods (7) 18
------ ------
Average outstanding shares for the periods 8,073 8,018
====== ======
* 1993 data has been restated on an historical basis to reflect the April
15, 1993 acquisition of Napa Valley Bancorp on a pooling-of-interests
basis.
The financial information of the Westamerica Bancorporation included herein
for March 31, 1994 and 1993 is unaudited; however, such information
reflects all adjustments which are, in the opinion of Management, necessary
for a fair statement of results for the interim periods. Those adjustments
are all normal and recurring in nature.
The results of operations for the three month period ended March 31, 1994
are not necessarily indicative of the results to be expected for the full
year. This report should be read in conjunction with Westamerica
Bancorporation's annual report on Form 10-K for the year ended December 31,
1993.
Certain amounts in prior periods have been restated to conform to the
current presentation.
WESTAMERICA BANCORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The results for the first quarter of 1993 have been restated on an
historical basis to reflect the April 15, 1993 acquisition of Napa Valley
Bancorp on a pooling-of-interests basis.
Westamerica Bancorporation, (the "Company"), parent company of Westamerica
Bank and Subsidiary, Napa Valley Bank and Subsidiary, Bank of Lake County
and Community Banker Services Corporation and Subsidiary, reported first
quarter 1994 net income of $6.0 million or $.74 per share. This record
level of earnings represents increases of 99 percent and 11 percent over
first quarter and fourth quarter 1993 earnings, respectively, when net
income was $3.0 million and $5.4 million. On a per share basis, first
quarter 1994 was 95 percent higher than the first quarter 1993 and 10
percent higher than the previous quarter.
COMPONENTS OF NET INCOME
Following is a summary of the components of net income for the
periods indicated:
For the three months ended
--------------------------
March 31, December 31,
------------- ------------
(In millions) 1994 1993 1993
---- ---- ----
Net interest income * $23.9 $24.8 $24.6
Provision for loan losses (1.6) (1.5) (1.6)
Non-interest income 5.4 5.0 5.0
Non-interest expense (17.8) (23.3) (19.5)
Provision for income taxes * (3.9) (2.0) (3.1)
----- ----- -----
Net income $6.0 $3.0 $5.4
===== ===== =====
* Fully taxable equivalent basis (FTE)
COMPONENTS OF NET INCOME AS A PERCENT OF AVERAGE EARNING ASSETS
The components of net income (annualized) expressed as a percent of
average earning assets are summarized in the following table for the
periods indicated:
For the three months ended
--------------------------
March 31, December 31,
------------- ------------
1994 1993 1993
---- ---- ----
Net interest income (FTE) 5.29% 5.65% 5.38%
Provision for loan losses -0.36% -0.35% -0.35%
Non-interest income 1.20% 1.14% 1.10%
Non-interest expense -3.94% -5.30% -4.27%
Provision for income taxes (FTE) -0.86% -0.45% -0.68%
----- ----- -----
Net income 1.33% 0.69% 1.18%
===== ===== =====
Net income (annualized) as a percent
of average total assets 1.20% 0.62% 1.06%
The average balances of low-cost deposits for the first quarter of
1994 increased $73 million from the same period of 1993, while
higher-rate time deposits decreased $116 million from prior year. The
combination of these changes in average balances and a general
reduction in interest rates resulted in a 63 basis points reduction
in the weighted average rate paid on total interest-bearing deposits.
While the average balances of short-term purchased funds and
long-term debt increased $68 million and $17 million, respectively,
from the first quarter of 1993, the average rate paid on these
funding sources decreased 54 and 235 basis points, respectively, from
the same period of 1993, following the market rate decline on
short-term borrowings. In addition, Westamerica Bank repaid higher
cost long-term debt and replaced it with lower rate, ten-year
subordinated notes. The combination of these factors resulted in an
overall reduction in the weighted average rate paid on total
interest-bearing liabilities of 55 basis points from the first
quarter of 1993. Partially offsetting this favorable trend,
declining market rates and a lower yielding asset mix due to the
continued runoff of loans replaced by lower yielding investment
securities, affected the average yield on earning assets, which
declined 90 basis points from the first quarter of 1993.
The decrease in net interest income of approximately $ 900,000 in the
first quarter of 1994 from the same quarter of the prior year was due
to the continued shift toward a lower yielding asset mix and a $19
million decrease in the average volume of low-cost deposits.
ANALYSIS OF NET INTEREST INCOME
Although interest rates continued to decline during most of 1993, the
downward repricing of interest-bearing liabilities and a more
favorable composition of lower costing demand and savings account
balances combined with declining volumes of higher costing time
deposits, prevented declining earning-asset yields from significantly
eroding the Company's net interest margin. Components of net interest
income are summarized as follows for the periods indicated:
For the three months ended
--------------------------
(In millions) March 31, December 31,
------------- ------------
1994 1993 1993
---- ---- ----
Interest income $32.5 $35.9 $33.5
Interest expense (9.7) (11.8) (9.7)
FTE adjustment 1.1 0.7 0.8
----- ---- ----
Net interest income $23.9 $24.8 $24.6
===== ===== =====
Net interest income (FTE) decreased $900,000 or 4 percent to $23.9
million in the first quarter of 1994 from the $24.8 million earned
during the first quarter of 1993. A $3.4 million reduction in
interest income, mostly due to the lower yielding asset mix was
partially offset by a $2.1 million decrease in interest expense,
principally due to the overall decline in market rates, and a
$400,000 increase in the FTE adjustment.
Compared to the fourth quarter of 1993, net interest income decreased
$700,000 or 3 percent, as a result of a $1.0 million decline in
interest income, partially offset by a $300,000 increase in the FTE
adjustment. The reasons for the change are similar to those that
explain the changes from the first quarter of 1993.
Amortized loan fees, which are included in interest and fee income on
loans were $ 621,000 lower during the first three months of 1994 than
1993 and $ 88,000 lower in the first three months of 1994 than in the
fourth quarter of 1993.
Analysis of Net Interest Margin (FTE)
For the three months ended
--------------------------
March 31, December 31,
------------- ------------
1994 1993 1993
---- ---- ----
Yield on earning assets 7.43% 8.33% 7.50%
Cost of interest-bearing liabilities 2.60% 3.15% 2.59%
---- ---- ----
Net interest spread 4.83% 5.18% 4.91%
Impact of non-interest bearing funds 0.46% 0.47% 0.47%
---- ---- ----
Net interest margin 5.29% 5.65% 5.38%
==== ==== ====
SUMMARY OF AVERAGE BALANCES, YIELDS/RATES AND INTEREST DIFFERENTIAL
The following tables present, for the periods indicated, information
regarding the consolidated average assets, liabilities and
shareholders' equity, the amounts of interest income from average
earning assets and the resulting yields, and the amount of interest
expense paid on interest-bearing liabilities. Average loan balances
include non-performing loans. Interest income includes proceeds from loans
on non-accrual status only to the extent cash payments have been received
and applied as interest income. Yields on securities and certain loans
have been adjusted upward to reflect the effect of income thereon exempt
from federal income taxation at the current statutory tax rate.
Distribution of Assets, Liabilities and Shareholders' Equity
For the three months ended
March 31, 1994
(dollars in thousands) ---------------------------
Interest Rates
Average income/ earned/
balance expense paid
Assets ----- ----- -----
Money market assets and funds sold $250 $ -- -- %
Trading account securities 18 -- --
Investment securities 728,732 10,828 6.03
Loans:
Commercial 604,588 12,569 8.43
Real estate construction 41,159 991 9.76
Real estate residential 171,763 3,087 7.29
Consumer 284,860 6,072 8.64
-------- -----
Earning assets 1,831,370 33,547 7.43
Other assets 188,723
--------
Total assets $2,020,093
=========
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $347,178
Savings and interest-bearing
transaction 953,210 4,285 1.82 %
Time less than $100,000 297,297 2,809 3.83
Time $100,000 or more 111,336 919 3.35
-------- -----
Total interest-bearing deposits 1,361,843 8,013 2.39
Funds purchased 109,388 816 3.03
Notes and mortgages payable 36,213 828 9.27
-------- -----
Total interest-bearing liabilities 1,507,444 9,657 2.60
Other liabilities 14,181
Shareholders' equity 151,290
--------
Total liabilities and shareholders' equity $2,020,093
=========
Net interest spread (1) 4.83 %
Net interest income and interest margin (2) $23,890 5.29 %
====== ====
(1) Net interest spread represents the average yield earned on interest-
earning assets less the average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest income
(annualized) by total average earning assets.
For the three months ended
March 31, 1993 *
(dollars in thousands) ---------------------------
Interest Rates
Average income/ earned/
balance expense paid
Assets ----- ----- -----
Money market assets and funds sold $9,345 $65 2.82 %
Trading account securities 442 4 3.67
Investment securities 587,816 9,919 6.84
Loans:
Commercial 630,479 13,845 8.91
Real estate construction 61,864 1,538 10.08
Real estate residential 177,633 3,722 8.50
Consumer 315,454 7,528 9.68
-------- ------
Earning assets 1,783,033 36,621 8.33
Other assets 193,083
--------
Total assets $1,976,116
=========
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $295,523
Savings and interest-bearing
transaction 931,965 5,394 2.35 %
Time less than $100,000 372,326 4,074 4.44
Time $100,000 or more 152,781 1,388 3.68
-------- -----
Total interest-bearing deposits 1,457,072 10,856 3.02
Funds purchased 41,443 364 3.56
Notes and mortgages payable 19,238 552 11.64
-------- -----
Total interest-bearing liabilities 1,517,753 11,772 3.15
Other liabilities 16,908
Shareholders' equity 145,932
--------
Total liabilities and shareholders' equity $1,976,116
=========
Net interest spread (1) 5.18 %
Net interest income and interest margin (2) $24,849 5.65 %
====== ====
(1) Net interest spread represents the average yield earned on interest-
earning assets less the average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by dividing net interest income
(annualized) by total average earning assets.
* 1993 data has been restated on an historical basis to reflect the April
15, 1993 acquisition of Napa Valley Bancorp on a pooling-of-interests
basis.
For the three months ended
December 31, 1993 *
(dollars in thousands) ---------------------------
Interest Rates
Average income/ earned/
balance expense paid
Assets ----- ----- -----
Money market assets and funds sold $288 $ -- -- %
Trading account securities 5 -- --
Investment securities 704,049 10,580 5.96
Loans:
Commercial 607,920 13,110 8.56
Real estate construction 45,640 1,110 9.65
Real estate residential 163,153 3,082 7.49
Consumer 291,548 6,403 8.71
-------- ------
Earning assets 1,812,603 34,285 7.50
Other assets 208,695
--------
Total assets $2,021,298
=========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $376,941
transaction 942,305 4,319 1.82 %
Time less than $100,000 311,474 3,080 3.92
Time $100,000 or more 116,233 1,009 3.44
-------- -----
Total interest-bearing deposits 1,370,012 8,408 2.43
Funds purchased 92,598 758 3.25
Notes and mortgages payable 19,741 520 10.45
-------- -----
Total interest-bearing liabilities 1,482,351 9,686 2.59
Other liabilities 14,828
Shareholders' equity 147,178
--------
Total liabilities and shareholders' equity $2,021,298
=========
Net interest spread (1) 4.91 %
Net interest income and interest margin (2) $24,599 5.38 %
====== ====
Rate and volume variances. The following table sets forth a summary
of the changes in interest income and interest expense from changes
in average assets and liability balances (volume) and changes in
average interest rates for the periods indicated. Changes not solely
attributable to volume or rates have been allocated in proportion
to the respective volume and rate components.
(In thousands)
Three months ended March 31, 1994
compared with
Three months ended March 31, 1993
---------------------------------
Volume Rate Total
- --------------------------------------------------------------
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold ($32) ($33) ($65)
Trading account securities (2) (2) (4)
Investment securities (1) 1,812 (903) 909
Loans:
Commercial (555) (721) (1,276)
Real estate construction (500) (47) (547)
Real estate residential (120) (515) (635)
Consumer (693) (763) (1,456)
- --------------------------------------------------------------
Total loans (1,868) (2,046) (3,914)
- --------------------------------------------------------------
Total decrease in interest
and fee income (90) (2,984) (3,074)
- --------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing 126 (1,235) (1,109)
Time less than $ 100,000 (754) (511) (1,265)
Time $ 100,000 or more (351) (118) (469)
- --------------------------------------------------------------
Total interest-bearing (979) (1,864) (2,843)
Funds purchased 498 (46) 452
Notes and mortgages payable 359 (83) 276
- --------------------------------------------------------------
Total (decrease) increase in
interest expense (123) (1,992) (2,115)
- --------------------------------------------------------------
Increase (decrease) in
net interest income $32 ($991) ($959)
==============================================================
(1) Amounts calculated on a fully taxable equivalent basis
using the current statutory federal tax rate.
Three months ended March 31, 1994
compared with
Three months ended December 31, 1993
---------------------------------
Volume Rate Total
- --------------------------------------------------------------
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold $ -- $ -- $ --
Trading account securities -- -- --
Investment securities (1) 190 58 248
Loans:
Commercial (148) (393) (541)
Real estate construction (136) 17 (119)
Real estate residential 10 (5) 5
Consumer (247) (84) (331)
- --------------------------------------------------------------
Total loans (520) (466) (986)
- --------------------------------------------------------------
Total decrease in interest
and fee income ($330) ($408) ($738)
- --------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (28) (6) (34)
Time less than $ 100,000 (181) (90) (271)
Time $ 100,000 or more (55) (35) (90)
- --------------------------------------------------------------
Total interest-bearing (263) (132) (395)
Funds purchased 92 (34) 58
Notes and mortgages payable 355 (47) 308
- --------------------------------------------------------------
Total (decrease) increase in
interest expense 184 (213) (29)
- --------------------------------------------------------------
Increase (decrease) in
net interest income ($514) ($195) ($709)
==============================================================
(1) Amounts calculated on a fully taxable equivalent basis
using the current statutory federal tax rate.
PROVISION FOR LOAN LOSSES
The level of the provision for loan losses during each of the periods
presented reflects the Company's continued efforts to improve loan quality
by enforcing strict underwriting and administration procedures and
aggressively pursuing collection efforts with troubled debtors. The
provision for loan losses remained at $1.6 million in the first three
months of 1994, the same as in the last quarter of 1993 and up from $1.5
million in the same period of 1993.
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) 1994 1993 1993
---- ---- ----
Service charges on deposits accounts $2.97 $3.08 $3.18
Merchant credit card 0.54 0.48 0.48
Mortgage banking income 0.31 0.25 0.31
Brokerage commissions 0.17 0.23 0.22
Net investment securities gains 0.54 -- --
Other non-interest income 0.87 0.98 0.82
----- ----- -----
Total $5.40 $5.02 $5.01
===== ===== =====
The $380,000 increase in non-interest income during the first quarter
of 1994 compared to the first quarter of 1993 resulted mainly from
$540,000 gains from the sales of securities available-for-sale. This
favorable variances, and increases in merchant credit card and mortgage
banking income, were partially offset by lower service charges on deposits
accounts and lower brokerage commissions.
The $390,000 increase from the fourth quarter of 1993 was due to the
same reasons, with the exception of mortgage banking income, which
remained unchanged.
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) 1994 1993 1993
---- ---- ----
Salaries $7.20 $9.87 $7.11
Other personnel 1.94 2.00 1.78
Occupancy 1.74 2.05 1.92
Equipment 1.13 1.19 1.23
FDIC deposit insurance 1.00 1.07 0.99
Data processing services 0.95 0.95 0.85
Professional fees 0.42 0.64 0.73
Loan expense 0.38 0.37 0.44
Stationery and supplies 0.30 0.39 0.31
Advertising and public relations 0.24 0.32 0.42
Merchant credit card 0.20 0.20 0.21
Other real estate owned 0.11 1.57 0.52
Other non-interest expense 2.17 2.69 2.98
----- ----- -----
$17.78 $23.31 $19.49
===== ===== =====
Non-interest expense continues to show the effects of the strong cost
controls the Company has pursued and the benefits resulting from the
consolidation of operations after the merger with Napa Valley
Bancorp, resulting in declines of $5.53 million from the first
quarter of 1993 and $1.70 million from the fourth quarter of 1993.
The decline in non-interest expense during the first quarter of 1994
when compared to the same period in 1993 occurs at all levels with
the exception of loan expense. The largest declines are shown in
salaries, down $ 2.67 million and other real estate owned, down $1.46
million from the same quarter in 1993.
The pattern repeats when comparing the first quarter of 1994 with the
fourth quarter of 1993: expenses are reduced in most categories with
the exception of personnel, data processing and FDIC insurance
expenses.
PROVISION FOR INCOME TAX
The Company's provision for income tax totaled $2.8 million in the first
quarter of 1994 compared to $1.3 million in the first quarter of 1993, and
$2.3 million in the fourth quarter of 1993. The increased provision is
largely attributable to the higher level of pretax earnings.
ASSET QUALITY
The Company closely monitors the markets in which it conducts its
lending operations. While the recent recession had an adverse impact
on the Company's primary market areas, such impact has not had a
material, adverse effect on the Company's liquidity and capital
resources. The Company continues its strategy to control its exposure
to loans with higher credit risk and increase diversification of
credit risk. Asset reviews are performed using grading standards and
criteria similar to those employed by bank regulatory agencies.
Assets receiving lesser grades fall under the "classified assets"
category which includes all non-performing assets. These occur when
known information about possible credit problems causes doubts about
the ability of such borrowers to comply with loan repayment terms.
These loans have varying degrees of uncertainty and may become
non-performing assets. Classified assets receive an elevated level of
attention by Management to ensure collection.
NON-PERFORMING ASSETS
Non-performing assets include non-accrual loans, loans 90 days past due and
still accruing, other real estate owned and loans classified as
substantively foreclosed. Loans are placed on non-accrual status upon
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. Loans secured by
real estate with temporarily impaired values and commercial loans to
borrowers experiencing financial difficulties are placed on non-accrual
status even though the borrowers continue to repay the loans as scheduled.
Such loans are classified as "performing non-accrual" and are included in
total non-performing assets.Performing non-accrual loans are reinstated
to accrual status when improvements in credit quality eliminate the
doubt as to the full collectibility of both interest and principal.
When the ability to fully collect non-accrual loan principal is in
doubt, cash payments received are applied against the principal balance
of the loan until such time as full collection of the remaining recorded
balance is expected. Any subsequent interest received is recorded as
interest income on a cash basis.
The following is a summary of non-performing assets for the periods
indicated:
For the three months ended
--------------------------
(In millions) March 31, December 31,
------------- ------------
1994 1993 1993
---- ---- ----
Performing non-accrual loans $1.76 $1.43 $1.85
Non-performing, non-accrual loans 7.63 7.51 7.22
------ ------ ------
Total non-accrual loans 9.39 8.94 9.07
Loans 90 days past due and still
accruing 0.22 1.04 0.32
Loan collateral substantively
foreclosed 2.43 18.47 5.38
Other real estate owned 12.55 15.61 12.53
------ ------ ------
Total non-performing assets $24.59 $44.06 $27.30
====== ====== ======
Reserve for loan losses as a percentage
of non-accrual loans and loans 90 days
past due and still accruing 270% 250% 272%
Performing non-accrual loans increased $330,000 at March 31, 1994 from
$1.43 million at March 31, 1993 and decreased $90,000 from $1.85 million at
December 31, 1993. Non-performing non-accrual loans of $7.63 million at
March 31, 1994, increased $120,000 and $410,000, respectively, from March
31, 1993 and December 31, 1993. The increases in total non-accrual loans
from March 31,1993, were principally due to commercial and construction
loan additions. The decreases in loans substantively foreclosed and OREO
were due to loan payoffs, partial write-downs, liquidations and receipt of
loan collateral in satisfaction of debt. The amount of gross interest
income that would have been recorded for non-accrual loans for the three
months ending March 31, 1994, if all such loans had been current in
accordance with their original terms during the period was $228,000. The
amount of interest income that was recognized on non-accrual loans from
cash payments made during the three months ended March 31, 1994 totaled
$86,000 representing an annualized yield of 3.35 percent. Cash payments
received which were applied against the book balance of non-accrual loans
outstanding at March 31, 1994, totaled $233,000.
The Company's allowance for loan losses is maintained at a level estimated
to be adequate to provide for losses that can be reasonably anticipated
based upon specific conditions, credit loss experience, the amount of past
due, non-performing and classified loans, recommendations of regulatory
authorities, prevailing economic conditions and other factors. The reserve
is allocated to segments of the loan portfolio based in part on
quantitative analyses of historical credit loss experience. Criticized and
classified loan balances are analyzed using both a linear regression model
and standard allocation percentages. The results of these analyses are
applied to current criticized and classified loan balances to allocate the
reserve to the respective segments of the loan portfolio. In addition,
loans with similar characteristics not usually criticized using regulatory
guidelines due to their small balances and numerous accounts, are analyzed
based on the historical rate of net losses and delinquency trends grouped
by the number of days the payments on these loans are delinquent. While
these factors are judgmental and may not be reduced to a mathematical
formula, the $25.9 million reserve for loan losses, which constituted 2.38
percent of total loans at March 31, 1994 is considered to be adequate as a
reserve against inherent losses. The loan portfolio in continuously
evaluated against current economic conditions that will dictate future
reserve levels.
The following table summarizes the loan loss provision, net credit losses
and loan loss reserve for the periods indicated:
Balances at
--------------------------
(In millions) March 31, December 31,
------------- ------------
Reserve for loan losses 1994 1993 1993
---- ---- ----
Balance, beginning of period $25.6 $24.8 $25.1
Loan loss provision 1.6 1.5 1.6
Credit losses (1.7) (1.7) (1.8)
Credit loss recoveries 0.4 0.3 0.7
----- ----- -----
Net credit losses (1.3) (1.4) (1.1)
Balance, end of period $25.9 $24.9 $25.6
====== ====== ======
Reserve for loan losses as a
percentage of loans outstanding 2.38% 2.11% 2.30%
In May, 1993, the Financial Accounting Standards Board ("FASB") issued
Statement No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS 114") which addresses the accounting treatment of certain impaired
loans and amends FASB Statements No. 5 and No. 15. SFAS 114 is effective
January 1, 1995 but earlier implementation is encouraged. A loan is
considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Under SFAS 114, impairment
is measured based on the present value of the expected future cash flows
discounted at the loan's effective interest rate. Alternatively, impairment
may be measured by using the loan's observable market price or the fair
value of the collateral if repayment is expected to be provided solely
by the underlying collateral. The Company intends to implement SFAS 114
in January 1995. The impact of implementation on the financial statements
has not been determined, since measurement will be contingent upon the
inventory of impaired loans outstanding as of January 1, 1995.
ASSET AND LIABILITY MANAGEMENT
The fundamental objective of the Company's management of assets and
liabilities is to maximize its economic value while maintaining
adequate liquidity and a conservative level of interest rate risk. The
Company's principal sources of asset liquidity are investment securities
available for sale. At March 31, 1994, investment securities available for
sale totaled $171.8 million. The Company generates significant liquidity
from its operating activities. The Company's profitability in the first
quarter of 1994 and 1993 generated increases in the cash flow provided
from operations for such periods of $10.4 million and $9.6 million,
respectively. Additional cash flow is provided by financing activities,
from customer deposits and short-term borrowings from banks. After a
$39.3 million seasonal decrease in customer deposits partially offset
by a $26.4 million increase in short-term purchased funds in the first
quarter 1993, the Company's loss of deposits during the first quarter 1994
was only $3.0 million, and the increase in short-term purchased funds was
$26.1 million.
The Company uses cash flows from operating and financing activities to make
investment in securities, loans and money market assets. Continuing with
the strategy to reduce its exposure to loans with higher credit risk, net
loan repayments were $18.5 million during the first quarter 1994 compared
to $2.3 million for the same period in 1993. The net repayment of loans
resulted in added liquidity for the Company, which was used to increase its
investment securities and money market assets portfolios by $44.9 million
and $44.4 million during the first three months of 1994 and 1993,
respectively.
Although interest rate risk is influenced by market forces, it can be
controlled by monitoring and managing the repricing characteristics of
assets and liabilities. In evaluating exposure to interest rate risk,
the Company considers the effects of various factors in implementing
interest rate risk management activities, including interest rate
swaps, utilized to hedge the impact of interest rate fluctuations on
interest-bearing assets, liabilities and savings deposits in the current
interest rate environment. Swaps are agreements to exchange interest
payments computed on notional amounts. The notional amounts do not
represent exposure to credit risk; however, these agreements expose the
Company to market risks associated with fluctuations of interest rates. As
of March 31, 1994, the Company had entered into four interest rate swaps.
The first two contracts have notional amounts totaling $25 million each and
the second two contracts have notional amounts totaling $30 million each.
On the first two contracts, which are scheduled to terminate in November
and December of 1994, the Company pays an average fixed rate of interest of
5.06 percent and receives a variable rate of interest based on the London
Interbank Offering Rate ("LIBOR"); on the second two contracts, scheduled
to terminate in August of 1995, the Company pays a variable rate based on
LIBOR and receives an average fixed rate of interest of 4.11 percent. The
LIBOR rate has averaged 3.39 percent from the date the first two swaps were
entered through March 31, 1994 and 3.44 percent from the date the second
two swaps were entered through March 31, 1994. The effect of entering into
these contracts resulted in a decrease to net interest income of $130,000
for the three months ended March 31, 1994. At March 31, 1994, the fair
value of the interest rate swaps was a loss of $ 906,000.
The primary analytical tool used by the Company to gauge interest-rate
sensitivity is a simulation model used by many major banks and bank
regulators. The industry standard model is used to simulate the effects on
net interest income of changes in market interest rates that are up to 1 to
3 percent higher or 1 to 3 percent lower than current levels depending on
rising or declining interest rates from current levels. The results of the
model indicate that the mix of interest rate sensitive assets and
liabilities at March, 1994 would not expose the Company to an unacceptable
level of interest rate risk.
CAPITAL RESOURCES
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
increased $8.5 million or 6 percent from the previous year and
increased $2.6 million, or 2 percent, from December 31, 1993. As a
result of the Company's profitability and the retention of earnings,
the ratio of equity to total assets increased to 7.63 percent at March
31, 1994, from 7.34 percent a year ago. The ratio of Tier I capital to
risk-adjusted assets increased to 11.55 percent at March 31, 1994
compared to 10.13 percent at March 31, 1993 and 11.11 percent at
December 31, 1993. Total capital to risk-adjusted assets increased to
14.87 percent at March 31, 1994 compared to 12.11 percent at March
31, 1993 and 14.40 percent at December 31, 1993.
The following summarizes the ratios of capital to risk-adjusted
assets for the periods indicated:
At March 31, At December 31,
-------------- -------------
1994 1993 1993
---- ---- ----
Tier I capital 11.55% 10.13% 11.11%
Total capital 14.87% 12.11% 14.40%
Leverage ratio 7.60% 7.55% 7.42%
The risk-based capital ratios improved in 1994 due a more rapid
growth in equity than total assets, in conjunction with the decline
in loan volumes and increase in investment securities, which reduced
the level of risk-adjusted assets.
Capital ratios are reviewed on a regular basis to ensure that capital
exceeds the prescribed regulatory minimums and is adequate to meet
the Company's future needs. All ratios are in excess of the regulatory
definitions of "well capitalized".
PART II- OTHER INFORMATION
Item I- 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 Securitiy Holders
None
Item 5- Other information
None
Item 6- Exhibits and Reports on Form 8-K
Exhibit 11 Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
SIGNATURES
Pursuant to the requirements of the Securities 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 11, 1994 Dennis R. Hansen
------------ ------------------------------
Dennis R. Hansen
Senior Vice President and
Controller