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 September 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 November 7, 1994
Common Stock,
No Par Value 8,079,042
PART I. FINANCIAL INFORMATION
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, (Unaudited) December 31, (*)
------------------------- --------------
1994 1993 1993
---- ---- ----
ASSETS
Cash and cash equivalents $115,532 $119,794 $102,618
Money market assets 250 560 250
Trading account securities - - 10
Investment securities available for sale 169,807 - 168,819
Investment securities held to maturity
Market values: $600,515 at September 30, 1994
$691,782 at September 30, 1993
$563,563 at December 31, 1993 618,523 674,468 557,057
Loans, net of reserve for loan losses of:
$27,553 at September 30, 1994
$25,073 at September 30, 1993
$25,587 at December 31, 1993 1,063,123 1,089,955 1,089,152
Loan collateral substantively repossessed and OREO 12,830 26,114 17,905
Land held for sale 1,466 1,156 800
Investment in joint venture - 450 766
Premises and equipment, net 23,834 25,243 25,341
Interest receivable and other assets 46,719 74,959 41,701
---------- ---------- ----------
Total assets $2,052,084 $2,012,699 $2,004,419
========== ========== ==========
LIABILITIES
Deposits:
Non-interest bearing $374,705 $371,643 $369,820
Interest bearing:
Transaction 281,940 277,829 289,322
Savings 694,443 650,203 654,766
Time 363,889 441,328 417,320
---------- ---------- ----------
Total deposits 1,714,977 1,741,003 1,731,228
Funds purchased 133,654 71,195 69,064
Liability for interest, taxes and
other expenses 12,913 39,213 15,328
Notes and mortgages payable 27,517 15,553 36,352
---------- ---------- ----------
Total liabilities 1,889,061 1,866,964 1,851,972
SHAREHOLDERS' EQUITY
Authorized - 20,000 shares
Issued and outstanding:
8,075 at September 30, 1994
8,078 at September 30, 1993
8,080 at December 31, 1993 53,661 52,483 52,499
Capital surplus 10,289 10,831 10,831
Unrealized (losses) gains on securities
available for sale, net of tax (924) - 2,527
Retained earnings 99,997 82,421 86,590
---------- ---------- ----------
Total shareholders' equity 163,023 145,735 152,447
---------- ---------- ----------
Total liabilities and shareholders' equity $2,052,084 $2,012,699 $2,004,419
========== ========== ==========
<FN>
(*)Condensed from audited financial statements
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except when indicated)
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1994 1993 1994 1993
---- ---- ---- ----
INTEREST INCOME
Loans $23,378 $24,174 $69,189 $75,902
Money market assets and funds sold - 4 - 299
Trading account securities - - 1 6
Investment securities available for sale 2,351 - 7,010 -
Investment securities held to maturity 8,277 9,037 23,666 27,246
------- ------- ------- -------
Total interest income 34,006 33,215 99,866 103,453
INTEREST EXPENSE
Transaction deposits 702 811 2,098 3,501
Savings deposits 4,346 3,799 11,707 11,485
Time deposits 3,588 4,493 10,854 14,925
Funds purchased 1,345 345 3,568 1,179
Long-term debt 604 466 2,061 1,496
------- ------- ------- -------
Total interest expense 10,585 9,914 30,288 32,586
------- ------- ------- -------
NET INTEREST INCOME 23,421 23,301 69,578 70,867
Provision for loan losses 1,470 1,605 4,680 7,847
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 21,951 21,696 64,898 63,020
NON-INTEREST INCOME
Service charges on deposit accounts 2,951 3,178 8,909 9,627
Merchant credit card 539 609 1,669 1,735
Mortgage banking 133 618 653 1,158
Brokerage commissions 134 234 502 619
Net investment securities gains - (1) 539 68
Other 779 937 2,480 5,730
------- ------- ------- -------
Total non-interest income 4,536 5,575 14,752 18,937
NON-INTEREST EXPENSE
Salaries and related benefits 8,389 8,548 26,077 30,118
Occupancy 1,868 1,980 5,394 6,704
Equipment 1,241 1,077 3,546 4,969
FDIC insurance assessment 969 998 2,963 3,089
Data processing 926 903 2,795 2,804
Professional fees 479 473 1,418 2,346
Other real estate owned 271 350 596 10,971
Other 3,432 5,265 10,321 16,152
------- ------- ------- -------
Total non-interest expense 17,575 19,594 53,110 77,153
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 8,912 7,677 26,540 4,804
Provision for income taxes 2,626 2,552 8,237 730
------- ------- ------- -------
NET INCOME $6,286 $5,125 $18,303 $4,074
======= ======= ======= =======
Average shares outstanding 8,077 8,072 8,075 8,051
PER SHARE DATA
Earnings $.78 $.63 $2.27 $.51
Dividends declared .17 .14 .47 .42
WESTAMERICA BANCORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands) For the nine months ended
September 30,
-------------------------
1994 1993
----- -----
OPERATING ACTIVITIES
Net income $18,303 $4,074
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,810 2,771
Loan loss provision 4,680 7,847
Amortization of deferred net loan fees (801) (417)
Increase in interest income receivable (482) (1,065)
Increase in other assets (4,953) (4,126)
Decrease in income taxes payable (250) (3,117)
Increase (decrease) in interest expense payable 313 (595)
Increase (decrease) in other liabilities 584 (4,326)
Gain on sales of investment securities (539) (68)
Loss on sales/write-down of equipment 77 1,464
Originations of loans for resale (25,549) (66,542)
Proceeds from sale of loans originated for resale 23,506 69,788
Net gain on sale of property acquired in satisfaction of debt (523) --
Write-down on property acquired in satisfaction of debt 436 9,776
Gain on sale of Sonoma Valley Bank -- (669)
Write-down on loan collateral substantively foreclosed 444 --
Net maturities of trading securities 10 --
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,066 14,795
------- -------
INVESTING ACTIVITIES
Net repayments of loans 20,842 65,713
Purchases of money market assets -- (325)
Purchases of investment securities available for sale (89,981) --
Purchases of investment securities held to maturity (153,479) (347,912)
Purchases of property, plant and equipment (1,314) (2,519)
Proceeds from maturity/sale of money market assets -- 1,131
Proceeds from maturity of securities available for sale 42,063 --
Proceeds from maturity of securities held to maturity 80,786 243,496
Proceeds from sale of securities available for sale 52,656 114
Proceeds from sale of Sonoma Valley Bank -- 2,744
Proceeds from property acquired in satisfaction
of debt 6,152 3,189
Net repayments (additions) on loan collateral
substantively foreclosed 1,894 (4,573)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (40,381) (38,942)
------- -------
FINANCING ACTIVITIES
Net decrease in deposits (16,252) (48,915)
Net increase in fed funds purchased 64,590 59,157
Principal payments on notes and mortgages (8,835) (3,784)
Issuance of shares of common stock 942 1,376
Retirement of stock (1,415) --
Dividends paid (3,801) (3,390)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 35,229 4,444
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,914 (19,703)
Cash and cash equivalents at beginning of period 102,618 139,497
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $115,532 $119,794
======== ========
Supplemental disclosure of non-cash activities
Loans transferred to other real estate owned and
loan collateral substantively repossessed 3,328 14,817
Unrealized loss on securities available for sale 3,451 --
Supplemental disclosure of cash flow activity
Interest paid for the period 30,601 32,722
Income tax payments for the period 8,425 3,100
WESTAMERICA BANCORPORATION
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, Bank of Lake County and Community
Banker Services Corporation and Subsidiary, reported third quarter 1994 net
income of $6.3 million or $.78 per share. On a year-to-date basis, the
Company reported net income of $18.3 million, or $2.27 per share. This
record level of earnings represents increases from third quarter 1993 and
September 1993 year-to-date, when the Company reported earnings of $5.1
million and $4.1 million, respectively. The lower level of year-to-date
earnings in 1993 is attributable to merger related charges, recognized in
the second quarter of 1993, 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 nine
months ended months ended
September 30, September 30,
-------------- --------------
(in millions) 1994 1993 1994 1993
---- ---- ---- ----
Net interest income * $24.9 $24.0 $73.4 $72.9
Provision for loan losses (1.5) (1.6) (4.7) (7.8)
Non-interest income 4.5 5.6 14.8 18.9
Non-interest expense (17.6) (19.6) (53.1) (77.2)
Provision for income taxes * (4.0) (3.3) (12.1) (2.7)
---- ---- ----- ----
Net income $6.3 $5.1 $18.3 $4.1
==== ==== ===== ====
* 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 nine
months ended months ended
September 30, September 30,
-------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
Net interest income (FTE) 5.31% 5.43% 5.30% 5.51%
Provision for loan losses -0.31% -0.36% -0.34% -0.59%
Non-interest income 0.97% 1.26% 1.07% 1.43%
Non-interest expense -3.75% -4.43% -3.84% -5.83%
Provision for income taxes (FTE) -0.88% -0.74% -0.87% -0.21%
---- ---- ---- ----
Net income 1.34% 1.16% 1.32% 0.31%
==== ==== ==== ====
Net income (annualized) as a percent
of average total assets 1.22% 1.04% 1.20% 0.28%
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, prevented declining earning assets yields from
significantly eroding the Company's net interest margin. The level of
market interest rates increased during the first nine months of 1994 and,
through rapid repricing of loans, increases in tax-free investment
securities and conservative management of rates paid on interest-bearing
liabilities, resulted in year-to-year increases in net interest income on
an FTE basis, even after the continuing growth in the Company's lower-
yielding investment securities portfolio. 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 nine
months ended months ended
September 30, September 30,
(in millions) -------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
Interest income $34.0 $33.2 $99.9 $103.5
Interest expense (10.6) (9.9) (30.3) (32.6)
FTE adjustment 1.5 0.7 3.8 2.0
----- ----- ----- -----
Net interest income (FTE) $24.9 $24.0 $73.4 $72.9
===== ===== ===== =====
Net interest income (FTE) increased 4 percent to $24.9 million in the third
quarter of 1994 from the $24.0 million earned during the third quarter of
1993. An $800,000 increase in interest income, mostly due to increases in
market rates and a $800,000 increase in the FTE adjustment, as the
Company's average balance in tax-exempt securities increased $89 million
from the third quarter of 1993, were partially offset by a $700,000
increase in interest expense, principally due to the higher market rates
and an increase of $80 million in higher costing short-term purchased
funds.
Compared to the first nine months of 1993, net interest income (FTE)
increased $500,000 or 1 percent as a result of a decrease of $3.6 million
in interest income, a $2.3 million decrease in interest expense and an
increase of $1.8 million in the FTE adjustment. Amortized loan fees, which
are included in interest and fee income on loans were $183,000 lower during
the third quarter of 1994 compared to 1993 and $1.1 million lower in the
first nine months of 1994 than in the same period in 1993.
Analysis of Net Interest Margin (FTE)
For the three For the nine
months ended months ended
September 30, September 30,
-------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
Yield on earning assets 7.57% 7.67% 7.49% 7.97%
Cost of interest-bearing liabilities 2.78% 2.71% 2.67% 2.92%
---- ---- ---- ----
Net interest spread 4.79% 4.96% 4.82% 5.05%
Impact of non-interest bearing funds 0.52% 0.47% 0.48% 0.46%
---- ---- ---- ----
Net interest margin 5.31% 5.43% 5.30% 5.51%
==== ==== ==== ====
SUMMARY OF AVERAGE BALANCES, YIELDS/RATES AND INTEREST DIFFERENTIAL
During the third quarter of 1994, and following a continuing trend of
rising market rates , the Company's index rate increased 150 basis points
from the third quarter of 1993. On a year-to-date basis, 1994 the index
rate was 80 basis points higher than for the same period of 1993. The
Company repriced its floating rate assets and gradually has been adjusting
the rate paid on interest-bearing liabilities. Due to the runoff of loans
margin (FTE) decreased 12 basis points and 21 basis points, respectively,
from the third quarter and the first nine months of 1993. The Company's
current strategy focuses on loan growth.
Comparing the third quarter of 1994 with the same period in 1993, a lower
yielding asset mix, affected the average yield on earning assets, which
declined 10 basis points from the third quarter of 1993. The average
balances of low-cost deposits for the third quarter of 1994 increased $74
million from the same period of 1993. In addition, higher-rate average time
deposit balances decreased $85 million and long-term debt average balances
increased $12 million with a reduction of 281 basis points in rates paid.
However, the average rate paid on low-cost deposits increased 7 basis
points from the third quarter of 1993, and third quarter 1994 purchased
funds average balances increased $80 million from the same period a year
ago, with an increase of 114 basis points in average rates paid. The
combination of these factors resulted in an overall increase in the
weighted average rate paid on total interest-bearing liabilities of 7 basis
points from the third quarter of 1993. The average volume of low-cost
deposits for the first nine months of 1994 increased $73 million or 6
percent from the same period in 1993, while higher-rate time deposits
decreased $104 million from the same period a year ago, representing a 21
percent decrease. Long-term debt average balances increased $14 million
from the same period in 1993 with a reduction in the average rate of 262
basis points. Offsetting these favorable trends, average balances of short-
term purchased funds increased $80 million from the first nine months of
1993 with a 33 basis point increase in rates paid. In addition, 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 48 basis
points from the first nine months 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
September 30, 1994
(dollars in thousands) ---------------------------
Interest Rates
Average income/ earned/
balance expense paid
Assets -------- ------- -------
Money market assets and funds sold $250 $-- -- %
Trading account securities 5 -- 0.00
Investment securities 786,909 12,116 6.11
Loans:
Commercial 582,987 13,103 8.92
Real estate construction 38,909 1,038 10.59
Real estate residential 179,391 3,119 6.90
Consumer 272,718 6,118 8.90
--------- ------
Earning assets 1,861,169 35,494 7.57
Other assets 191,137
----------
Total assets $2,052,306
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $365,187 $-- -- %
Savings and interest-bearing
transaction 992,002 5,048 2.02
Time less than $100,000 277,927 2,735 3.90
Time $100,000 or more 91,405 853 3.70
--------- ------
Total interest-bearing deposits 1,361,334 8,636 2.52
Funds purchased 122,834 1,345 4.35
Notes and mortgages payable 28,179 604 8.50
--------- ------
Total interest-bearing liabilities 1,512,347 10,585 2.78
Other liabilities 14,103
Shareholders' equity 160,669
---------
Total liabilities and shareholders' equity $2,052,306
==========
Net interest spread (1) 4.79 %
Net interest income and interest margin (2) $24,908 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
September 30, 1993
(dollars in thousands) ---------------------------
Interest Rates
Average income/ earned/
balance expense paid
Assets -------- ------- -------
Money market assets and funds sold $725 $4 2.00 %
Trading account securities 10 -- --
Investment securities 632,170 9,726 6.10
Loans:
Commercial 608,466 13,417 8.75
Real estate construction 53,250 914 6.81
Real estate residential 161,258 3,134 7.71
Consumer 296,937 6,709 8.96
--------- ------
Earning assets 1,752,816 33,904 7.67
Other assets 202,439
---------
Total assets $1,955,255
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $343,575 $-- -- %
Savings and interest-bearing
transaction 939,769 4,610 1.95
Time less than $100,000 328,116 3,367 4.07
Time $100,000 or more 126,576 1,126 3.53
--------- ------
Total interest-bearing deposits 1,394,461 9,103 2.59
Funds purchased 42,688 345 3.21
Notes and mortgages payable 16,338 466 11.31
--------- ------
Total interest-bearing liabilities 1,453,487 9,914 2.71
Other liabilities 15,551
Shareholders' equity 142,642
---------
Total liabilities and shareholders' equity $1,955,255
==========
Net interest spread (1) 4.96 %
Net interest income and interest margin (2) $23,990 5.43 %
======= ====
(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 nine months ended
September 30, 1994
(dollars in thousands) ---------------------------
Interest Rates
Average income/ earned/
balance expense paid
Assets -------- ------- -------
Money market assets and funds sold $250 $-- -- %
Trading account securities 46 1 3.94
Investment securities 763,033 34,466 6.04
Loans:
Commercial 592,617 38,592 8.71
Real estate construction 40,202 3,071 10.21
Real estate residential 174,928 9,263 7.08
Consumer 278,622 18,263 8.76
--------- ------
Earning assets 1,849,698 103,656 7.49
Other assets 189,237
---------
Total assets $2,038,935
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $354,120 $-- -- %
Savings and interest-bearing
transaction 971,179 13,805 1.90
Time less than $100,000 286,659 8,222 3.83
Time $100,000 or more 100,849 2,632 3.49
--------- ------
Total interest-bearing deposits 1,358,687 24,659 2.43
Funds purchased 125,322 3,568 3.81
Notes and mortgages payable 30,975 2,061 8.90
--------- ------
Total interest-bearing liabilities 1,514,984 30,288 2.67
Other liabilities 13,795
Shareholders' equity 156,036
---------
Total liabilities and shareholders' equity $2,038,935
==========
Net interest spread (1) 4.82 %
Net interest income and interest margin (2) $73,368 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 nine months ended
September 30, 1993
(dollars in thousands) ---------------------------
Interest Rates
Average income/ earned/
balance expense paid
Assets -------- ------- -------
Money market assets and funds sold $11,356 $299 3.51 %
Trading account securities 243 6 3.15
Investment securities 602,083 29,262 6.50
Loans:
Commercial 618,669 40,705 8.80
Real estate construction 58,171 3,635 8.36
Real estate residential 170,120 10,239 8.05
Consumer 307,573 21,323 9.27
--------- -------
Earning assets 1,768,215 105,469 7.97
Other assets 197,851
---------
Total assets $1,966,066
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $315,509 $-- -- %
Savings and interest-bearing
transaction 937,199 14,986 2.14
Time less than $100,000 349,672 11,096 4.24
Time $100,000 or more 141,929 3,828 3.61
--------- -------
Total interest-bearing deposits 1,428,800 29,910 2.80
Funds purchased 45,315 1,180 3.48
Notes and mortgages payable 17,365 1,496 11.52
--------- -------
Total interest-bearing liabilities 1,491,480 32,586 2.92
Other liabilities 14,594
Shareholders' equity 144,483
---------
Total liabilities and shareholders' equity $1,966,066
==========
Net interest spread (1) 5.05 %
Net interest income and interest margin (2) $72,883 5.51 %
======= ====
(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
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. Amounts are calculated on a fully taxable equivalent basis
using the current statutory federal tax rate
Three months ended 9-30-94
compared to
three months ended 9-30-93
----------------------------
(in thousands) Volume Rate Total
------ ---- -----
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold ($2) ($2) ($4)
Trading account securities -- -- --
Investment securities 2,383 7 2,390
Loans:
Commercial (582) 268 (314)
Real estate construction (118) 242 124
Real estate residential (249) 234 (15)
Consumer (544) (47) (591)
-------- -------- --------
Total loans (1,493) 697 (796)
-------- -------- --------
Total increase in interest and
fee income 888 702 1,590
-------- -------- --------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing 261 177 438
Time less than $100,000 (497) (135) (632)
Time $100,000 or more (332) 59 (273)
-------- -------- --------
Total interest-bearing (568) 101 (467)
Funds purchased 840 160 1,000
Notes and mortgages payable 211 (73) 138
-------- -------- --------
Total increase in
interest expense 483 188 671
-------- -------- --------
Increase in net
interest income $405 $514 $919
======== ======== ========
RATE AND VOLUME VARIANCES. Amounts are calculated on a fully taxable
equivalent basis using the current statutory federal tax rate.
Nine months ended 9-30-94
compared to
nine months ended 9-30-93
----------------------------
(in thousands) Volume Rate Total
------ ---- -----
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold ($148) ($151) ($299)
Trading account securities (6) 1 (5)
Investment securities 7,072 (1,868) 5,204
Loans:
Commercial (1,700) (413) (2,113)
Real estate construction (2,017) 1,453 (564)
Real estate residential 300 (1,276) (976)
Consumer (1,938) (1,122) (3,060)
-------- -------- --------
Total loans (5,355) (1,358) (6,713)
-------- -------- --------
Total increase in interest and
fee income $1,563 ($3,376) ($1,813)
-------- -------- --------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing 573 (1,754) (1,181)
Time less than $100,000 (1,874) (1,000) (2,874)
Time $100,000 or more (1,076) (120) (1,196)
-------- -------- --------
Total interest-bearing (2,377) (2,874) (5,251)
Funds purchased 2,269 119 2,388
Notes and mortgages payable 796 (231) 565
-------- -------- --------
Total increase in
interest expense 688 (2,986) (2,298)
-------- -------- --------
Increase in net
interest income $875 ($390) $485
======== ======== ========
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.
Continuing improvements in credit quality allowed the Company to lower its
provision for loan losses to $1.5 million in the third quarter of 1994,
compared to $1.6 million in the same period in 1993. The Company
anticipates a further reduction to $1.4 million in the fourth quarter of
1994. For the first nine months of 1994, the provision for loan losses was
$4.7 million, compared to $7.8 million in the same period of 1993. The
higher level in 1993 includes a provision of $3.1 million made to recognize
losses in the loan portfolio of Napa Valley Bank, a subsidiary of Napa
Valley Bancorp which was acquired on April 15, 1993.
NON-INTEREST INCOME
The following table summarizes the components of non-interest income
for the periods indicated.
For the three For the nine
months ended months ended
September 30, September 30,
-------------- --------------
(in millions) 1994 1993 1994 1993
---- ---- ---- ----
Service charges on deposits accounts $2.95 $3.18 $8.91 $9.63
Merchant credit card 0.54 0.61 1.67 1.74
Mortgage banking income 0.13 0.62 0.65 1.16
Brokerage commissions 0.13 0.23 0.50 0.62
Net investment securities gains - - 0.54 0.07
Other non-interest income 0.79 0.94 2.48 5.72
----- ----- ----- -----
Total $4.54 $5.58 $14.75 $18.94
===== ===== ===== =====
The $1.04 million decrease in non-interest income during the third quarter
of 1994 compared to the third quarter of 1993 resulted from decreases in
all categories, including $490,000 lower mortgage banking income and
$230,000 lower service charges on deposit accounts. As interest rates rose,
mortgage banking income decreased mostly due to reduced mortgage
refinancing volumes. The lower service charges on deposit accounts are
partially attributable to higher average balances maintained by customers.
The $4.19 million decrease in non-interest income during the first nine
months of 1994 compared to the same period in 1993 resulted mainly from the
recognition, in 1993, of a $1.32 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 a $238,000 gain on the sale of Napa Valley Bank's credit card
portfolio. In addition, the non-interest income year-to-date variance from
prior year includes lower service charges on deposit accounts and mortgage
banking income, $720,000 and $510,000, respectively. Partially offsetting
these changes, the first nine months of 1994 includes $540,000 in
securities gains realized from the available-for-sale securities portfolio,
which was repositioned due to rising market interest rates.
NON-INTEREST EXPENSE
The following table summarizes the components of non-interest expense for
the periods indicated.
For the three For the nine
months ended months ended
September 30, September 30,
-------------- --------------
(in millions) 1994 1993 1994 1993
---- ---- ---- ----
Salaries $7.28 $7.52 $22.36 $25.88
Other personnel 1.11 1.03 3.72 4.24
Occupancy 1.87 1.98 5.39 6.70
Equipment 1.24 1.08 3.55 4.97
FDIC deposit insurance 0.97 1.00 2.96 3.09
Data processing services 0.93 0.90 2.80 2.80
Professional fees 0.48 0.47 1.42 2.35
Loan expense 0.36 0.37 1.06 1.12
Postage 0.37 0.33 1.02 1.02
Courier service 0.32 0.30 0.94 0.89
Stationery and supplies 0.35 0.41 0.93 1.60
Advertising and public relations 0.36 0.30 0.86 1.40
Operational losses 0.20 1.21 0.76 1.62
Merchant credit card 0.21 0.34 0.61 0.88
Other real estate owned 0.27 0.35 0.60 10.97
Other non-interest expense 1.26 2.00 4.13 7.62
------ ------ ------ ------
$17.58 $19.59 $53.11 $77.15
====== ====== ====== ======
Non-interest expense continues to show the effects of cost controls and the
benefits resulting from the consolidation of operations after the merger
with Napa Valley Bancorp. For the third quarter of 1994, expenses decreased
in most categories from the third quarter of 1993, including employee
related expenses, occupancy, stationery and supplies, other real estate
owned and merchant credit card. In addition, a decrease in operational
losses reflects the inclusion, in the third quarter of 1993, of an isolated
case in a Westamerica Bank branch. The lower FDIC deposit insurance charges
are due, in part, to the strengthened condition of the Napa Valley Bank
subsidiary. The Company anticipates further decreases in 1995 as the Bank
Insurance Fund reserves increase to meet levels mandated by Congress.
Partially offsetting these favorable variances, increases in third quarter
1994 non-interest expense included equipment expense, due to one-time
writeoffs following the closure of three Westamerica Bank branches, and
advertising and public relations expenses, which includes charges related
to a marketing campaign geared to stimulate growth in the Company's loan
portfolio.
The higher level of non-interest expense in the first nine months of 1993
is the direct result of merger related OREO expenses and other costs
associated with the Napa Valley Bancorp merger. OREO expense in 1993
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 writeoffs 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 one-time merger related expenses totaled an estimate of $16.3 million
recognized in the first half of 1993.
PROVISION FOR INCOME TAX
The Company's provision for income tax for the third quarter and the first
nine months of 1994 totaled $2.6 million and $8.2 million, respectively,
compared to $2.6 million and $730,000, respectively, for comparable
periods in 1993. The results for 1994 and the third quarter of 1993 are
directly attributable to pretax earnings; the lower provision recognized
during the first nine months of 1993 result from the operating losses
reported during the second quarter of 1993, due to the merger with Napa
Valley Bancorp. Also, the provision for income taxes in 1994 was
comparatively higher than 1993 to reflect the increases in federal and
franchise statutory rates.
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.
The following is a summary of classified assets on the dates indicated:
September 30, December 31,
(in millions) --------------- -------
1994 1993 1993
---- ---- ----
Classified loans $45.74 $46.35 $45.66
Other classified assets 12.83 26.11 17.91
------ ------ ------
Total classified assets $58.57 $72.46 $63.57
====== ====== ======
Reserve for loan losses as a percentage
of classified loans 60% 54% 56%
Classified loans at September 30, 1994, decreased $610,000 to $45.7 million
from a year ago levels, reflecting improvements in borrowers' financial
condition and satisfaction of debt. The improvement is primarily due to the
repayment of classified real estate construction loans. Other classified
assets, which decreased $13.3 million from prior year, include decreases in
loan collateral substantively foreclosed and other real estate owned of
$8.4 million and $4.9 million, respectively.
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) September 30, December 31,
------------- ---------
1994 1993 1993
---- ---- ----
Performing non-accrual loans $2.13 $0.77 $1.85
Non-performing non-accrual loans 5.04 6.69 7.22
------ ------ ------
Total non-accrual loans 7.17 7.46 9.07
Loans 90 days past due and still
accruing 0.15 0.40 0.32
------ ------ ------
Total non-performing loans 7.32 7.86 9.39
Loan collateral substantively
foreclosed 2.01 10.39 5.38
Other real estate owned 10.82 15.72 12.53
------ ------ ------
Total non-performing assets $20.15 $33.97 $27.30
====== ====== ======
Reserve for loan losses as a percentage
of non-performing loans 377% 319% 272%
Performing non-accrual loans increased $1.36 million at September 30, 1994
from $770,000 at September 30, 1993 and increased $280,000 from $1.85
million at December 31, 1993. Non-performing non-accrual loans of $5.04
million at September 30, 1994, decreased $1.65 million and $2.18 million
from September 30, 1993 and December 31, 1993, respectively. The reduction
in total non-accrual loans from September 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 nine months ending
September 30, 1994, if all such loans had been current in accordance with
their original terms during the period was $170,000 and $643,000,
respectively. The amount of interest income that was recognized on non-
accrual loans from cash payments made during the three and nine months
ended September 30, 1994 totaled $119,000 and $302,000, respectively,
representing annualized yields of 6.31 percent and 4.40 percent,
respectively. Cash payments received which were applied against the book
balance of non-accrual loans outstanding at September 30, 1994, totaled
$236,000.
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 $27.6 million reserve for loan losses, which constituted 2.53
percent of total loans at September 30, 1994, is considered to be adequate
as a reserve against inherent losses. As of September 30, 1994 $17.3 million
of the total reserve for loan losses was specifically allocated to loan
balances; the unallocated portion of the reserve was $10.3 million. 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 nine
months ended months ended
(in millions) September 30, September 30,
-------------- --------------
Reserve for loan losses 1994 1993 1994 1993
---- ---- ---- ----
Balance, beginning of period $27.2 $24.5 $25.6 $24.7
Loan loss provision 1.5 1.6 4.7 7.8
Credit losses (1.7) (1.7) (4.3) (8.2)
Credit loss recoveries 0.6 0.7 1.6 1.5
----- ----- ----- -----
Net credit losses (1.1) (1.0) (2.7) (6.7)
Sale of Sonoma Valley Bank - - - (0.7)
----- ----- ----- -----
Balance, end of period $27.6 $25.1 $27.6 $25.1
===== ===== ===== =====
Reserve for loan losses as a
percentage of loans outstanding 2.53% 2.25%
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. In October 1994, the
FASB issued Statement No. 118 "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures", which amended the income
recognition and disclosure provision of SFAS 114. SFAS 114 and SFAS 118 are
effective January 1, 1995.
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 and SFAS 118 in January 1995. The
impact of implementation on the financial statements will not be material.
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 liquidity are current period earnings
and investment securities available for sale. At September 30, 1994,
investment securities available for sale totaled $169.8 million.
Another significant source of asset liquidity is generated by the Company's
operating activities. The Company's profitability in the first nine months
of 1994 was the main contributor to the $ 18.1 million increase in the cash
flow provided from operations. The Company's net income for the first nine
months of 1993, before second quarter 1993 non-cash charges related to
asset write-downs and an increased loan loss provision following the Napa
Valley Bancorp merger, was the main reason for the $ 14.8 million increase
in cash flow provided by operating activities for the first nine 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 nine months of 1994, financing activities provided $35.2 million,
including an increase of $64.6 million in short-term purchased funds
partially offset by a reduced decline in deposit balances of $16.3 million,
a reduction of $8.8 million in long-term debt and other cash flow uses
including dividends paid to shareholders and retirement of stock. In the
first nine months of 1993, financing activities provided $4.4 million,
which included a $59.2 million increase in short-term purchased funds
partially offset by a $48.9 million decrease in customer deposits,
reductions to long-term debt and dividends paid to shareholders.
The Company uses cash flows from operating and financing activities
primarily to make investments in investment securities and loans.
Reflecting the Company's strategy to reduce exposure to loans with higher
credit risk, net loan repayments were $20.8 million during the first nine
months of 1994. This compares to $65.7 million for the same period in 1993,
which included the sale of a subsidiary bank with $ 37.2 million in loan
balances. The net repayment of loans resulted in added liquidity for the
Company, which was used to increase its investment securities portfolio by
$68.0 million and $104.3 million during the first nine months of 1994 and
1993, respectively. The Company's current strategy is to grow the loan
portfolio with high quality loans extended to financially strong customers
in the markets served by the three subsidiary banks.
The Company expects its cash provided by operations to increase through the
end of 1994 due to retained profits. For the same period, it is
anticipated that the investment securities portfolio and demand for loans
will moderately increase. It is also anticipated that deposit balances will
grow through the end of the current year.
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 and credit risk associated
with the counterparty's ability to meet its interest payment obligation.
The Company minimizes this credit risk by entering into contracts with
well-capitalized money-center banks, and by requiring settlement of only
the net difference between the exchanged interest payments.
As of September 30, 1994, the Company had entered into four interest rate
swaps. Two of these contracts have notional amounts totaling $50 million
and 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 three-month London Interbank
Offering Rate ("LIBOR"). The other two contracts, have notional amounts
totaling $60 million and terminate in August of 1995. The Company pays a
variable rate based on three-month LIBOR and receives an average fixed rate
of interest of 4.11 percent. The three-month LIBOR rate has averaged 3.75
percent from the date the first two swaps were entered through September
30, 1994 and 4.00 percent from the date the second two swaps were entered
through September 30, 1994. The effect of entering into these contracts
resulted in a decrease to net interest income of $403,000 for the first
nine months of 1994 compared to a decrease of $557,000 during the
comparable period in 1993. At September 30, 1994, the fair value of the
interest rate swaps was a loss of $1.0 million.
In October 1994, the FASB issued statement No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments",
(SFAS 119) which requires disclosures about derivative financial
instruments. SFAS 119 is effective for financial statements issued for
fiscal years ending after December 15, 1994. The Company's adoption of
SFAS 119 will not impact earnings or capital.
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, based on the
current and projected portfolio mix, the effects on net interest income of
changes in market interest rates. Under the Company's policy and practice,
the projected amount of net interest income over the ensuing twelve months
is not allowed to fluctuate more than five percent even under alternate
assumed interest rate changes of plus or minus 200 basis points. The
results of the model indicate that the mix of interest rate sensitive
assets and liabilities at September 30, 1994 does 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 $163.0 million at September 30,
1994, representing an increase of $17.3 million or 12 percent from
September 30, 1993 and an increase of $10.6 million, or 7 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
7.94 percent at September 30, 1994, from 7.24 percent a year ago. The ratio
of Tier I capital to risk-adjusted assets increased to 12.39 percent at
September 30, 1994 compared to 10.43 percent at September 30, 1993 and
11.11 percent at December 31, 1993. Total capital to risk-adjusted assets
increased to 15.17 percent at September 30, 1994 compared to 12.24 percent
at September 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:
September 30, December 31,
------------ ------------
1994 1993 1993
---- ---- ----
Tier I Capital 12.39% 10.43% 11.11%
Total Capital 15.17% 12.24% 14.40%
Leverage ratio 7.97% 7.41% 7.42%
The risk-based capital ratios improved in 1994 due to 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 September 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 nine-month period ended September 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
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11: Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
(b) Reports on Form 8-K : On July 28, 1994, the Company filed
Form 8-K announcing the signing of a Definitive Agreement
under which all of the outstanding shares of PV Financial,
parent of Pacific Valley National Bank, will be exchanged for
shares of the Company's Common Stock pursuant to a tax-free
exchange.
Exhibit 11
WESTAMERICA BANCORPORATION
COMPUTATION OF EARNINGS PER SHARE ON
COMMON AND COMMON EQUIVALENT SHARES
AND ON COMMON SHARES ASSUMING FULL DILUTION
For the three months For the nine months
ended September 30, ended September 30,
--------------------- ---------------------
1994 1993 1994 1993
---- ---- ---- ----
Weighted average number of
common shares outstanding 8,076,665 8,072,044 8,075,492 8,050,841
Assumed exercise on
certain options 90,347 72,421 82,029 73,636
--------- --------- --------- ---------
Total 8,167,012 8,144,465 8,157,521 8,124,477
========= ========= ========= =========
Net income (in thousands) $6,286 $5,125 $18,303 $4,074
Fully-diluted
earnings per share $0.77 $0.63 $2.24 $0.50
====== ====== ====== ======
Primary earnings per share $0.78 $0.63 $2.27 $0.51
====== ====== ====== ======
SIGNATURES
Pursuant to the requirements of 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: November 9, 1994 Dennis R. Hansen
---------------- -------------------------
Dennis R. Hansen
Senior Vice President and
Controller