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 June 30, 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 as of August 10, 1994
Common Stock, 8,078,322
No Par Value
PART I. FINANCIAL INFORMATION
WESTAMERICA BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, (Unaudited) December 31,
---------------------- ------------
1994 1993 1993(*)
---- ---- ----
ASSETS
Cash and cash equivalents $110,752 $128,710 $102,618
Money market assets 250 250 250
Trading account securities 15 -- 10
Investment securities available for sale 167,538 -- 168,819
Investment securities held to maturity
Market values: $606,863 at June 30, 1994
$608,657 at June 30, 1993
$563,563 at December 31, 1993 619,981 594,070 557,057
Loans, net of reserve for loan losses of:
$27,243 at June 30, 1994
$24,464 at June 30, 1993
$25,587 at December 31, 1993 1,042,900 1,104,238 1,089,152
Loan collateral substantively repossessed and OREO 12,030 26,112 17,905
Land held for sale 1,466 1,800 800
Investment in joint venture -- 500 766
Premises and equipment, net 24,328 24,684 25,341
Interest receivable and other assets 50,997 32,137 41,701
---------- ---------- ----------
Total assets $2,030,257 $1,912,501 $2,004,419
========== ========== ==========
LIABILITIES
Deposits:
Non-interest bearing $364,292 $322,476 $369,820
Interest bearing:
Transaction 275,542 273,336 289,322
Savings 690,949 660,387 654,766
Time 377,975 473,224 417,320
---------- ---------- ----------
Total deposits 1,708,758 1,729,423 1,731,228
Funds purchased 116,349 17,524 69,064
Liability for interest, taxes and
other expenses 18,102 7,856 15,328
Notes and mortgages payable 28,496 16,675 36,352
---------- ---------- ----------
Total liabilities 1,871,705 1,771,478 1,851,972
SHAREHOLDERS' EQUITY
Authorized - 20,000 shares
Issued and outstanding:
8,079 at June 30, 1994
8,064 at June 30, 1993
8,080 at December 31, 1993 53,542 51,704 52,499
Capital surplus 10,289 10,831 10,831
Unrealized (losses) gains on securities
available for sale (616) -- 2,527
Retained earnings 95,337 78,488 86,590
---------- ---------- ----------
Total shareholders' equity 158,552 141,023 152,447
---------- ---------- ----------
Total liabilities and shareholders' equity $2,030,257 $1,912,501 $2,004,419
========== ========== ==========
<FN>
(*) Condensed from audited financial statements.
WESTAMERICA BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except when indicated)
Three months ended Six months ended
June 30, June 30,
------------------ --------------------
1994 1993 1994 1993
---- ---- ---- ----
INTEREST INCOME
Loans $23,092 $25,095 $45,811 $51,728
Money market assets and funds sold -- 101 -- 167
Trading account securities 1 2 1 4
Investment securities available for sale 2,303 -- 4,659 --
Investment securities held to maturity 7,986 9,095 15,389 18,339
------- ------- ------- -------
Total interest income 33,382 34,293 65,860 70,238
INTEREST EXPENSE
Transaction deposits 698 1,229 1,396 2,681
Savings deposits 3,775 3,752 7,362 7,695
Time deposits 3,537 4,970 7,265 10,432
Funds purchased 1,407 470 2,223 834
Long-term debt 629 479 1,457 1,030
------- ------- ------- -------
Total interest expense 10,046 10,900 19,703 22,672
------- ------- ------- -------
NET INTEREST INCOME 23,336 23,393 46,157 47,566
Provision for loan losses 1,605 4,692 3,210 6,242
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 21,731 18,701 42,947 41,324
NON-INTEREST INCOME
Service charges on deposit accounts 2,989 3,366 5,958 6,450
Merchant credit card 590 649 1,130 1,126
Mortgage banking 208 286 521 540
Brokerage commissions 203 154 368 385
Net investment securities gains -- 87 539 69
Other 822 3802 1700 4792
------- ------- ------- -------
Total non-interest income 4,812 8,344 10,216 13,362
NON-INTEREST EXPENSE
Salaries and related benefits 8,547 9,697 17,688 21,570
Occupancy 1,783 2,676 3,526 4,724
Equipment 1,178 2,703 2,305 3,892
FDIC insurance assessment 997 1,023 1,994 2,092
Data processing 920 955 1,869 1,901
Professional fees 522 1,229 939 1,872
Other real estate owned 221 9,054 325 10,621
Other 3,583 6,908 6,890 10,886
------- ------- ------- -------
Total non-interest expense 17,751 34,245 35,536 57,558
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 8,792 (7,200) 17,627 (2,872)
Provision for (benefit from) income taxes 2,769 (3,130) 5,610 (1,821)
------- ------- ------- -------
NET INCOME (LOSS) $6,023 ($4,070) $12,017 ($1,051)
======= ======= ======= =======
Average shares outstanding 8,077 8,062 8,075 8,037
PER SHARE DATA
Earnings (losses) $0.75 ($0.50) $1.49 ($0.13)
Dividends declared 0.15 0.14 0.30 0.28
WESTAMERICA BANCORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
-----------------------
1994 1993
---- ----
(C>
OPERATING ACTIVITIES
Net income (loss) $12,017 ($1,051)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,895 1,974
Loan loss provision 3,210 6,242
Amortization of deferred net loan fees (536) (225)
Increase in interest income receivable (165) (1,245)
(Increase) decrease in other assets (3,781) 7,609
Increase (decrease) in income taxes payable 1,322 (4,853)
Increase (decrease) in interest expense payable 398 (689)
Decrease in other liabilities (1,878) (1,782)
Gain on sales of investment securities (539) (69)
Loss on sales/writedown of equipment 13 1,461
Originations of loans for resale (24,430) (44,665)
Proceeds from sale of loans originated for resale 22,239 44,562
Gain on sale of property acquired in satisfaction of debt (579) --
Write down on property acquired in satisfaction of debt 211 9,497
Write down on loan collateral substantively foreclosed 444 --
Net purchases of trading securities (5) --
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,836 16,766
-------- --------
INVESTING ACTIVITIES
Net repayments of loans 44,584 56,122
Purchases of investment securities available for sale (71,997) (176,463)
Purchases of investment securities held to maturity (134,313) --
Purchases of property, plant and equipment (895) (1,160)
Proceeds from maturity/sale of money market assets -- 1,116
Proceeds from maturity of securities available for sale 26,884 150,925
Proceeds from maturity of securities held to maturity 60,204 --
Proceeds from sale of securities available for sale 52,656 1,706
Proceeds from property acquired in satisfaction
of debt 5,196 3,681
Net repayments (additions) on loan collateral
substantively foreclosed 1,789 (4,784)
-------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (15,892) 31,143
-------- --------
FINANCING ACTIVITIES
Net decrease in deposits (22,470) (60,496)
Net increase in fed funds purchased 47,285 5,486
Principal payments on notes and mortgages (7,856) (2,662)
Issuance of shares of common stock 685 652
Retirement of stock (1,029) --
Dividends paid (2,425) (1,676)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 14,190 (58,696)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,134 (10,787)
-------- --------
Cash and cash equivalents at beginning of period 102,618 139,497
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $110,752 $128,710
======== ========
<FN>
Supplemental disclosure of non-cash activities
Loans transferred to other real estate owned and
substantively repossessed 1,185 12,639
Unrealized loss on securities available for sale 3,143 --
Supplemental disclosure of cash flow activity
Interest paid for the period 20,101 22,902
Income tax payments for the period 4,225 2,150
WESTAMERICA BANCORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 second
quarter 1994 net income of $6.0 million or $.75 per share. On a year to-
date basis, the Company reported net income of $12.0 million, or $1.49 per
share. This record level of earnings represents increases from second
quarter 1993 and June 1993 year-to-date, when the Company reported losses
of $4.1 million and $1.0 million, respectively, due to merger related
charges associated with the Napa Valley Bancorp acquisition.
COMPONENTS OF NET INCOME
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) 1994 1993 1994 1993
---- ---- ---- ----
Net interest income * $24.6 $24.0 $48.5 $48.9
Provision for loan losses (1.6) (4.7) (3.2) (6.2)
Non-interest income 4.8 8.3 10.2 13.4
Non-interest expense (17.8) (34.2) (35.5) (57.6)
Provision for income taxes * (4.0) 2.5 (8.0) 0.5
----- ----- ----- -----
Net income $6.0 ($4.1) $12.0 ($1.0)
===== ===== ===== =====
* 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 For the six
months ended months ended
June 30, June 30,
-------------- -------------
1994 1993 1994 1993
---- ---- ---- ----
Net interest income (FTE) 5.31% 5.45% 5.30% 5.55%
Provision for loan losses -0.35% -1.06% -0.35% -0.71%
Non-interest income 1.04% 1.89% 1.12% 1.52%
Non-interest expense -3.84% -7.77% -3.89% -6.54%
Provision for income taxes (FTE) -0.86% 0.57% -0.87% 0.06%
----- ----- ----- -----
Net income 1.30% -0.92% 1.31% -0.12%
===== ===== ===== =====
Net income (annualized) as a percent
of average total assets 1.18% -0.83% 1.19% -0.11%
ANALYSIS OF NET INTEREST INCOME AND MARGIN
During the continued decline in interest rates in most of 1993, the
Company's interest-bearing liabilities were repriced downward which,
combined with a more favorable composition of lower costing demand and
savings account balances and declining volumes of higher costing time
deposits, prevented declining earning assets yields from significantly
eroding the Company's net interest margin. The level of market interest
rates increased during the first half of 1994. Although repricing of some
loans has taken place, the continuing growth in the Company's lower
yielding investment securities portfolio resulted in year-to-year decreases
in interest income. This is shown in the components of net interest income
and in the analysis of net interest margin summarized as follows for the
periods indicated:
For the three For the six
months ended months ended
June 30, June 30,
(In millions) -------------- ---------------
1994 1993 1994 1993
---- ---- ---- ----
Interest income $33.4 $34.2 $65.9 $70.3
Interest expense (10.0) (10.9) (19.7) (22.7)
FTE adjustment 1.2 0.7 2.3 1.3
----- ---- ---- ----
Net interest income $24.6 $24.0 $48.5 $48.9
===== ===== ===== =====
Net interest income (FTE) increased 2 percent to $24.6 million in the
second quarter of 1994 from the $24.0 million earned during the second
quarter of 1993. An $800,000 reduction in interest income, mostly due to
the lower yielding asset mix was offset by a $900,000 decrease in interest
expense, principally due to the higher volume of low-cost deposits, and a
$500,000 increase in the FTE adjustment, as the Company's average balance
in tax-exempt securities increased $75 million from the second quarter of
1993.
Compared to the first six months of 1993, net interest income decreased
$400,000 or 1 percent as a result of a decrease of $4.4 million in interest
income, a $3.0 million decrease in interest expense and an increase of $1.0
million in the FTE adjustment. Amortized loan fees, which are included in
interest and fee income on loans were $328,000 lower during the second
three months of 1994 than 1993 and $949,000 lower in the first six months
of 1994 than in the same period in 1993.
Analysis of Net Interest Margin (FTE)
For the three For the six
months ended months ended
June 30, June 30,
-------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
Yield on earning assets 7.48% 7.92% 7.45% 8.13%
Cost of interest-bearing liabilities 2.64% 2.91% 2.62% 3.03%
---- ---- ---- ----
Net interest spread 4.84% 5.01% 4.83% 5.10%
Impact of non-interest bearing funds 0.47% 0.44% 0.47% 0.45%
---- ---- ---- ----
Net interest margin 5.31% 5.45% 5.30% 5.55%
==== ==== ==== ====
SUMMARY OF AVERAGE BALANCES, YIELDS/RATES AND INTEREST DIFFERENTIAL
The average balances of low-cost deposits for the second quarter of 1994
increased $71 million from the same period of 1993, while higher-rate time
deposits decreased $110 million from prior year. The combination of these
changes in average balances and a general reduction in interest rates
resulted in a 41 basis points reduction in the weighted average rate paid
on total interest-bearing deposits. Second quarter 1994 purchased funds
average balances increased $92 million from the same period a year ago,
with an increase of 29 basis points in average rates paid; for comparable
periods, long-term debt average balances increased $12 million with a
reduction of 278 basis points in rates paid, in part as a result of
repaying higher cost long-term debt and replacing it with a lower rate,
ten-year subordinated capital note. The combination of these factors
resulted in an overall reduction in the weighted average rate paid on total
interest-bearing liabilities of 27 basis points from the second quarter of
1993.
Partially offsetting this favorable trend, 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 44
basis points from the second quarter of 1993.
The average volume of low-cost deposits for the first half of 1994
increased $72 million or 6 percent from the same period in 1993, while
higher-rate time deposits decreased $113 million from the same period a
year ago, representing a 22 percent decrease. The average balances of
short-term purchased funds increased $80 million from the first six months
of 1993 with a 7 basis point reduction in average rates paid; long-term
debt increased $14 million from the same period in 1993 with a reduction in
the average rate of 254 basis points. Offsetting these favorable trends, a
lower yielding asset mix due to the continued runoff of construction,
commercial and installment loans replaced by lower yielding investment
securities, affected the average yield on earning assets, which declined 68
basis points from the first half of 1993.
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 average
interest-bearing liabilities and the resulting rates. 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 federal tax rate.
Distribution of assets, liabilities and shareholders' equity.
For the three months ended
June 30, 1994
(dollars in thousands) ----------------------------------
Interest Rates
Average income/ earned/
balance expense paid
-------- ------- -------
Assets
Money market assets and funds sold $250 $ -- %
Trading account securities 115 1 4.22
Investment securities 773,457 11,424 5.92
Loans:
Commercial 590,276 13,018 8.85
Real estate construction 40,541 1,043 10.32
Real estate residential 173,628 3,057 7.06
Consumer 278,288 6,071 8.75
---------- -----
Earning assets 1,856,555 34,614 7.48
Other assets 187,851
----------
Total assets $2,044,406
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $349,995 $ -- %
Savings and interest-bearing
transaction 968,324 4,471 1.85
Time less than $100,000 284,754 2,679 3.77
Time $100,000 or more 99,806 859 3.45
---------- -----
Total interest-bearing deposits 1,352,884 8,009 2.37
Funds purchased 143,746 1,407 3.93
Notes and mortgages payable 28,533 629 8.84
---------- -----
Total interest-bearing liabilities 1,525,163 10,045 2.64
Other liabilities 13,100
Shareholders' equity 156,148
----------
Total liabilities and shareholders' $2,044,406
==========
Net interest spread (1) 4.84%
Net interest income and interest margin (2) $24,569 5.31%
====== ====
(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.
Distribution of assets, liabilities and shareholders' equity.
For the three months ended
June 30, 1993
----------------------------------
(dollars in thousands) Interest Rates
Average income/ earned/
balance expense paid
-------- ------- -------
Assets
Money market assets and funds sold $7,607 $99 5.22%
Trading account securities 276 2 2.87
Investment securities 602,655 9,707 6.46
Loans:
Commercial 617,061 13,484 8.76
Real estate construction 59,399 1,183 7.99
Real estate residential 171,470 3,383 7.91
Consumer 310,329 7,086 9.16
---------- ------
Earning assets 1,768,797 34,944 7.92
Other assets 198,030
----------
Total assets $1,966,827
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $307,431 $ -- --%
Savings and interest-bearing
transaction 939,862 4,981 2.13
Time less than $100,000 348,574 3,656 4.21
Time $100,000 or more 146,431 1,314 3.60
---------- ------
Total interest-bearing deposits 1,434,867 9,951 2.78
Funds purchased 51,812 470 3.64
Notes and mortgages payable 16,519 479 11.62
---------- ------
Total interest-bearing liabilities 1,503,198 10,900 2.91
Other liabilities 11,322
Shareholders' equity 144,876
----------
Total liabilities and shareholders' $1,966,827
==========
Net interest spread (1) 5.01%
Net interest income and interest margin (2) $24,044 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 dividing net interest income
(annualized) by total average earning assets.
Distribution of assets, liabilities and shareholders' equity.
For the six months ended
June 30, 1994
(dollars in thousands) ----------------------------------
Interest Rates
Average income/ earned/
balance expense paid
-------- ------- -------
Assets
Money market assets and funds sold $250 $ -- --%
Trading account securities 66 1 4.47
Investment securities 751,095 22,159 5.95
Loans:
Commercial 597,432 25,680 8.67
Real estate construction 40,850 2,033 10.04
Real estate residential 172,696 6,144 7.17
Consumer 281,574 12,145 8.70
---------- ------
Earning assets 1,843,963 68,162 7.45
Other assets 188,286
----------
Total assets $2,032,249
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $348,587 $ -- --%
Savings and interest-bearing
transaction 960,766 8,757 1.84
Time less than $100,000 291,026 5,487 3.80
Time $100,000 or more 105,571 1,779 3.40
---------- ------
Total interest-bearing deposits 1,357,363 16,023 2.38
Funds purchased 126,567 2,223 3.54
Notes and mortgages payable 32,373 1,457 9.08
---------- ------
Total interest-bearing liabilities 1,516,303 19,703 2.62
Other liabilities 13,640
Shareholders' equity 153,719
----------
Total liabilities and shareholders' $2,032,249
==========
Net interest spread (1) 4.83%
Net interest income and interest margin (2) $48,459 5.30%
======= ====
(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.
Distribution of assets, liabilities and shareholders' equity.
For the six months ended
June 30, 1993
(dollars in thousands) ----------------------------------
Interest Rates
Average income/ earned/
balance expense paid
-------- ------- -------
Assets
Money market assets and funds sold $8,476 $167 3.97%
Trading account securities 359 6 3.37
Investment securities 595,235 19,601 6.64
Loans:
Commercial 623,770 27,351 8.84
Real estate construction 60,632 2,721 9.05
Real estate residential 174,552 7,105 8.21
Consumer 312,891 14,613 9.42
---------- ------
Earning assets 1,775,915 71,564 8.13
Other assets 195,556
----------
Total assets $1,971,471
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $301,477 $ -- --%
Savings and interest-bearing
transaction 935,914 10,375 2.24
Time less than $100,000 360,450 7,729 4.32
Time $100,000 or more 149,606 2,702 3.64
---------- ------
Total interest-bearing deposits 1,445,970 20,806 2.90
Funds purchased 46,627 834 3.61
Notes and mortgages payable 17,878 1,031 11.62
Total interest-bearing liabilities 1,510,475 22,671 3.03
Other liabilities 14,115
Shareholders' equity 145,404
----------
Total liabilities and shareholders' $1,971,471
==========
Net interest spread (1) 5.10%
Net interest income and interest margin (2) $48,893 5.55%
======= ====
(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.
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 June 30, 1994
compared to
Three months ended June 30, 1993
--------------------------------
Volume Rate Total
--------------------------------
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold ($49) ($50) ($99)
Trading account securities (4) 3 (1)
Investment securities (1) 2,428 (711) 1,717
Loans:
Commercial (592) 126 (466)
Real estate construction (1,729) 1,589 (140)
Real estate residential 43 (369) (326)
Consumer (709) (306) (1,015)
-------- -------- --------
Total loans (2,987) 1,040 (1,947)
-------- -------- --------
Total (decrease) increase in
interest and fee income (612) 282 (330)
-------- -------- --------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing 157 (667) (510)
Time less than $ 100,000 (625) (352) (977)
Time $ 100,000 or more (403) (52) (455)
-------- -------- --------
Total interest-bearing (871) (1,071) (1,942)
Funds purchased 897 40 937
Notes and mortgages payable 224 (74) 150
-------- -------- --------
Total increase (decrease) in
interest expense 250 (1,105) (855)
-------- -------- --------
Increase (decrease) in
net interest income ($862) $1,387 $525
======== ======== ========
(1) Amounts calculated on a fully taxable equivalent basis
using the current statutory federal tax rate.
Six months ended June 30, 1994
compared to
Six months ended June 30, 1993
-------------------------------
Volume Rate Total
-------------------------------
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold ($82) ($85) ($167)
Trading account securities (8) 3 (5)
Investment securities (1) 4,245 (1,688) 2,558
Loans:
Commercial (1,139) (532) (1,671)
Real estate construction (1,033) 345 (688)
Real estate residential (75) (886) (961)
Consumer (1,399) (1,069) (2,468)
-------- -------- --------
Total loans (3,646) (2,142) (5,788)
-------- -------- --------
Total (decrease) increase in
interest and fee income $509 ($3,911) ($3,402)
-------- -------- --------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing 284 (1,902) (1,618)
Time less than $ 100,000 (1,378) (864) (2,242)
Time $ 100,000 or more (752) (171) (923)
-------- -------- --------
Total interest-bearing (1,846) (2,937) (4,783)
Funds purchased 1,404 (15) 1,389
Notes and mortgages payable 584 (158) 426
-------- -------- --------
Total increase (decrease) in
interest expense 142 (3,110) (2,968)
-------- --------- --------
Increase (decrease) in
net interest income $367 ($801) ($434)
======== ======== ========
(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 was $1.6 million in the second quarter of 1994,
compared to $4.7 million in the same period in 1993. During the second
quarter of 1993, a provision of $3.1 million was made to cover losses in
the loan portfolio of Napa Valley Bank, a subsidiary of Napa Valley Bancorp
which was acquired on April 15, 1993. For the first six months of 1994, the
provision for loan losses was $3.2 million, compared to $6.2 million in
1993, which was higher due to the second quarter 1993 provision at Napa
Valley Bank mentioned above.
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) 1994 1993 1994 1993
---- ---- ---- ----
Service charges on deposits accounts $2.99 $3.37 $5.96 $6.45
Merchant credit card 0.59 0.65 1.13 1.13
Mortgage banking income 0.21 0.29 0.52 0.54
Brokerage commissions 0.20 0.15 0.37 0.39
Net investment securities gains -- 0.09 0.54 0.07
Other non-interest income 0.82 3.79 1.70 4.78
----- ----- ------ ------
Total $4.81 $8.34 $10.22 $13.36
===== ===== ====== ======
The $3.53 million decrease in non-interest income during the second quarter
of 1994 compared to the second quarter of 1993 resulted mainly from the
recognition, in 1993, of a $1.3 million deferred gain on an earlier sale of
automobile receivables, a $669,000 gain on the sale of the Company's 50
percent shareholding in Sonoma Valley Bank, a one branch subsidiary bank in
Sonoma, income received on income tax refunds in the amount of $909,000 and
$238,000 gain on the sale of Napa Valley Bank's cardholder portfolio. In
addition, the second quarter of 1994 realized lower fee income from service
charges on deposits accounts, merchant credit card fees and mortgage
banking income.
The $3.1 million decrease in the first six months of 1994 compared with the
same period in 1993, in mostly due to the aforementioned transactions,
partially offset by $539,000 in gains from the first quarter 1994 sale of
securities available for sale.
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) 1994 1993 1994 1993
---- ---- ---- ----
Salaries $6.79 $7.62 $13.99 $17.49
Other personnel 1.76 2.08 3.70 4.08
Occupancy 1.78 2.68 3.53 4.72
Equipment 1.18 2.70 2.31 3.89
FDIC deposit insurance 1.00 1.02 1.99 2.09
Data processing services 0.92 0.96 1.87 1.90
Professional fees 0.52 1.23 0.94 1.87
Operational losses 0.41 0.30 0.56 0.41
Loan expense 0.32 0.38 0.71 0.75
Postage 0.32 0.36 0.65 0.70
Courier service 0.31 0.35 0.63 0.59
Stationery and supplies 0.29 0.80 0.59 1.19
Advertising and public relations 0.26 0.78 0.51 1.10
Other real estate owned 0.22 9.06 0.33 10.62
Merchant credit card 0.20 0.34 0.40 0.54
Other non-interest expense 1.47 3.58 2.83 5.62
------ ------ ------ ------
$17.75 $34.24 $35.54 $57.56
====== ====== ====== ======
The higher level of non-interest expense in the second quarter of 1993 and
in the first six months of 1993 is the direct result of merger related OREO
expenses and other costs associated with the Napa Valley Bancorp merger.
1993 OREO expense includes the write-down of assets acquired in the merger
to net realizable value. Occupancy and equipment expenses in 1993 also
include one-time merger related expenses including write-offs of excess
capacity and equipment and obsolete inventories of stationary and supplies.
The higher 1993 levels of professional fees is also the result of merger
activities.
The merger related expenses totaled $14.1 million in the second quarter of
1993 and $16.3 million in the first half of 1993.
Excluding these charges, non-interest expense continues to show the effects
of cost controls at the Company and the benefits resulting from the
consolidation of operations after the merger with Napa Valley Bancorp. For
the first six months and for the second quarter of 1994, expenses are down
in all categories with the exception of operational losses. Significant
expense reductions were achieved in the areas of salaries and other
personnel expenses, marketing and loan related expenses.
PROVISION FOR INCOME TAX
The Company's provision for income tax for the second quarter and the first
six months of 1994 totaled $2.8 million and $5.6 million, respectively,
compared to tax benefits of $3.1 million and $1.8 million, respectively,
for comparable periods in 1993. The results for 1994 are directly
attributable to pretax earnings; the benefits recognized in 1993 result
from the operating losses reported during the merger with Napa Valley
Bancorp.
ASSET QUALITY
The Company closely monitors the markets in which it conducts its lending
operations. The Company continues its strategy to control its exposure to
loans with higher 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. These lesser grades
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 on the dates indicated:
(In millions) June 30, December 31,
------------- -----------
1994 1993 1993
---- ---- ----
Performing non-accrual loans $1.50 $0.77 $1.85
Non-performing, non-accrual loans 7.64 11.23 7.22
------ ------ ------
Total non-accrual loans 9.14 12.00 9.07
Loans 90 days past due and still
accruing 0.15 1.31 0.32
Loan collateral substantively
foreclosed 2.27 10.60 5.38
Other real estate owned 9.76 15.51 12.53
------ ------ ------
Total non-performing assets $21.32 $39.42 $27.30
====== ====== ======
Reserve for loan losses as a percentage
of non-accrual loans and loans 90 days
past due and still accruing 293% 184% 272%
Performing non-accrual loans increased $73,000 at June 30, 1994 from
$770,000 at June 30, 1993 and decreased $350,000 from $1.85 million at
December 31, 1993. Non-performing non-accrual loans of $7.64 million at
June 30, 1994, decreased $3.59 million from June 30, 1993 and increased
$420,000 from December 31, 1993. The reduction in total non-accrual loans
from June 30, 1993, was principally due to commercial and construction loan
deletions. The decreases in loans substantively foreclosed and OREO were
due to loan payoffs, partial write-downs, liquidations and sale of loan
collateral that had been received 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 ending June 30, 1994, if all such loans had
been current in accordance with their original terms during the period was
$235,000 and $473,000, respectively. The amount of interest income that was
recognized on non-accrual loans from cash payments made during the three
and six months ended June 30, 1994 totaled $97,000 and $183,000,
respectively, representing annualized yields of 3.97 percent and 3.66
percent. Cash payments received which were applied against the book balance
of non-accrual loans outstanding at June 30, 1994, totaled $247,000.
The Company's reserve 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 $27.2 million reserve for loan losses, which constituted 2.55
percent of total loans at June 30, 1994, is considered to be adequate as a
reserve against inherent losses. The loan portfolio is continuously
evaluated considering 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:
For the three For the six
months ended months ended
(In millions) June 30, June 30,
-------------- -------------
1994 1993 1994 1993
---- ---- ---- ----
Balance, beginning of period $25.9 $24.9 $25.6 $24.7
Loan loss provision 1.6 4.7 3.2 6.2
Credit losses (0.9) (5.0) (2.6) (6.6)
Credit loss recoveries 0.6 0.5 1.0 0.8
----- ----- ----- -----
Net credit losses (0.3) (4.5) (1.6) (5.8)
Sale of Sonoma Valley Bank -- (0.7) -- (0.7)
Balance, end of period $27.2 $24.4 $27.2 $24.4
====== ====== ====== ======
Reserve for loan losses as a
percentage of loans outstanding 2.55% 2.17%
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.
Under SFAS 114, 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 June 30, 1994, investment securities
available for sale totaled $167.5 million.
The Company generates significant liquidity from its operating activities.
The Company's profitability in the first six months of 1994 was the main
contributor of the $9.8 million increase in the cash flow provided from
operations. The Company's net income for the first six months of 1993,
before non-cash charges related to write-downs of assets acquired in
satisfaction of debt in the second quarter of 1993, was the main reason for
the $ 16.8 million increase in cash flow provided by operating activities
for the first six months of 1993.
Additional cash flow is provided by and used in financing activities,
primarily customer deposits and short-term borrowings from banks. In the
first six months of 1993, financing activities used $58.7 million, which
included a $60.5 million decrease in customer deposits partially offset by
a $5.5 million increase in short-term purchased funds. In the first six
months of 1994, financing activities provided $14.2 million as the decrease
in deposits was reduced to $22.5 million, while the increase in short-term
purchased funds was $47.3 million.
The Company uses cash flows from operating and financing activities to make
investments in investments securities, loans and money market assets.
Continuing with the strategy to reduce the Company's exposure to loans with
higher credit risk, net loan repayments were $44.6 million during the first
six months of 1994 compared to $56.1 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 $66.6 million and $22.7 million during the first
six 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
and liabilities in the current interest rate environment.
Interest rate 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 June 30, 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 3.55 percent from the date the first two swaps were
entered through June 30, 1994 and 3.73 percent from the date the second two
swaps were entered through June 30, 1994. The effect of entering into these
contracts resulted in a decrease to net interest income of $245,000 for the
first six months of 1994 compared to a decrease of $402,000 during the
comparable period in 1993. At June 30, 1994, the fair value of the interest
rate swaps was a loss of $1.2 million.
The primary analytical tool used by the Company to gauge interest-rate
sensitivity is a simulation model used by many major banks and bank
regulators. This industry standard model is used to simulate the effects on
net interest income of changes in market interest rates that range from 1
to 3 percent higher or 1 to 3 percent lower than current levels. The
results of the model indicate that the mix of interest rate sensitive
assets and liabilities at June 30, 1994 do 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 was $158.6 million at June 30, 1994,
representing an increase of $17.5 million or 12 percent from June 30, 1993
and an increase of $6.1 million, or 4 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 7.81 percent at June 30, 1994,
from 7.37 percent a year ago. The ratio of Tier I capital to risk-adjusted
assets increased to 12.12 percent at June 30, 1994 compared to 10.43
percent at June 30, 1993 and 11.11 percent at December 31, 1993. Total
capital to risk-adjusted assets increased to 14.90 percent at June 30, 1994
compared to 12.24 percent at June 30, 1993 and 14.40 percent at December
31, 1993.
The following summarizes the ratios of capital to risk-adjusted assets for
the periods indicated:
June 30, December 31,
-------------- -----------
1994 1993 1993
---- ---- ----
Tier I Capital 12.12% 10.43% 11.11%
Total Capital 14.90% 12.24% 14.40%
Leverage ratio 7.76% 7.20% 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 regulatory
definitions of "well capitalized".
INTERIM PERIODS
The financial information of the Company included herein for June 30, 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 normal and recurring
in nature.
The results of operations for the six month period ended June 30, 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.
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 26,
1994, were solicited pursuant to Regulation 14A of the
Securities Exchange Act of 1934. The following matters were
submitted to a vote of the shareholders:
1.- Election of directors.
For Withheld
--------- -------
Etta Allen 5,917,387 45,487
Louis E. Bartolini 5,914,129 48,745
Charles I. Daniels, Jr. 5,913,611 49,263
Don Emerson 5,926,085 36,789
Arthur C. Latno, Jr. 5,961,132 1,742
Patrick D. Lynch 5,953,571 9,303
Catherine Cope MacMillan 5,915,219 47,655
James A. Maggetti 5,922,378 40,496
Dwight H. Murray, Jr., M.D. 5,923,731 39,143
Ronald A. Nelson 5,962,374 500
Carl R. Otto 5,916,483 46,391
David L. Payne 5,951,050 11,824
Edward B. Sylvester 5,959,614 3,260
2.- Ratification of independent certified public accountant
firm. A proposal to ratify the selection of KPMG Peat
Marwick as independent certified public accountants for
the Company for 1994.
For 5,835,168
Against 46,120
Abstain 81,586
3.- Proposal to change the method of compensation of the
directors.
For 559,427
Against 3,988,109
Abstain 353,202
4.- Proposal to change the method of compensation of the C.E.O.
For 617,569
Against 3,946,688
Abstain 336,210
Item 5 - Other Information
On July 25, 1994 the Company and PV Financial, parent Company of
Pacific Valley National Bank, announced the signing of a
Definitive Agreement under which the Company will acquire all of
the outstanding shares of PV Financial pursuant to a tax-free
exchange of the Company's common stock.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11: Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
(b) Reports on Form 8-K : None
Exhibit 11
Westamerica Bancorporation
Computation of Earnings Per Share on Common and
Common Equivalent Shares and on
Common Shares Assuming Full Dilution
For the three For the six
months ended months ended
June 30, June 30,
--------------- ----------------
1994 1993 1994 1993
---- ---- ---- ----
Weighted average number of common
shares outstanding 8,077,109 8,062,351 8,074,896 8,036,776
Assumed exercise of
certain options 81,439 75,604 77,699 74,244
--------- --------- --------- ---------
Total 8,158,548 8,137,955 8,152,595 8,111,020
========= ========= ========= =========
Net (loss) income (in thousands) $6,023 ($4,070) $12,017 ($1,051)
Fully-diluted earnings per share $0.74 ($0.50) $1.47 ($0.13)
======= ======= ======= =======
Primary earnings per share $0.75 ($0.50) $1.49 ($0.13)
======= ======= ======= =======
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 August 5, 1994 Dennis R. Hansen
-------------- ------------------------------
Dennis R. Hansen, Senior
Vice President and Controller