UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- ---------
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1997
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
to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the registrant
classes of common stock, as of the latest practicable date:
Title of Class Shares outstanding as of April 30, 1997
Common Stock,
No Par Value 14,357,496
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1997 1996 1996
----------- ----------- -----------
ASSETS (Unaudited)
Cash and cash equivalents $156,116 $154,433 $149,429
Money market assets 250 250 250
Investment securities available for sale 744,218 659,767 696,610
Investment securities held to maturity,
with market values of: 187,641 235,286 197,428
$188,802 at March 31, 1997
$235,842 at March 31, 1996
$199,872 at December 31, 1996
Loans, net of reserve for loan losses of: 1,430,259 1,351,628 1,409,318
$35,840 at March 31, 1997
$33,781 at March 31, 1996
$34,919 at December 31, 1996
Other real estate owned 6,200 6,088 6,091
Premises and equipment, net 34,616 27,404 34,895
Interest receivable and other assets 57,748 51,810 54,466
----------- ----------- -----------
Total assets $2,617,048 $2,486,666 $2,548,487
=========== =========== ===========
LIABILITIES
Deposits:
Non-interest bearing $497,560 $481,796 $515,451
Interest bearing:
Transaction 384,498 353,331 379,468
Savings 709,694 696,198 678,779
Time 521,157 468,576 507,698
----------- ----------- -----------
Total deposits 2,112,909 1,999,901 2,081,396
Funds purchased 186,972 193,685 161,147
Liability for interest, taxes
and other expenses 29,275 20,178 24,498
Notes and mortgages payable 42,500 42,500 42,500
----------- ----------- -----------
Total liabilities 2,371,656 2,256,264 2,309,541
SHAREHOLDERS' EQUITY
Authorized - 50,000 shares
Common stock issued and outstanding: 96,348 95,903 93,558
9,467 at March 31, 1997
9,778 at March 31, 1996
9,435 at December 31, 1996
Unrealized gain on securities
available for sale, net of taxes 7,001 3,469 7,817
Retained earnings 142,043 131,030 137,571
----------- ----------- -----------
Total shareholders' equity 245,392 230,402 238,946
----------- ----------- -----------
Total liabilities and
shareholders' equity $2,617,048 $2,486,666 $2,548,487
=========== =========== ===========
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three months ended
March 31,
1997 1996
-------- --------
INTEREST INCOME (Unaudited)
Loans $31,372 $31,215
Investment securities available for sale 9,900 8,788
Investment securities held to maturity 2,615 3,321
-------- --------
Total interest income 43,887 43,324
INTEREST EXPENSE
Transaction deposits 1,131 1,038
Savings deposits 4,875 4,702
Time deposits 6,420 6,130
Funds purchased 1,917 2,681
Notes and mortgages payable 757 556
-------- --------
Total interest expense 15,100 15,107
-------- --------
NET INTEREST INCOME 28,787 28,217
Provision for loan losses 1,050 1,275
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 27,737 26,942
NON-INTEREST INCOME
Service charges on deposit accounts 3,159 3,184
Merchant credit card 623 683
Mortgage banking 294 345
Financial services commissions 194 144
Trust fees 107 81
Securities gain 11 14
Other 1,158 901
-------- --------
Total non-interest income 5,546 5,352
-------- --------
NON-INTEREST EXPENSE
Salaries and related benefits 9,588 9,841
Occupancy 2,143 2,578
Equipment 1,200 1,345
Data processing 1,068 980
Professional fees 925 555
Other real estate owned 12 65
Other 3,679 3,502
-------- --------
Total non-interest expense 18,615 18,866
-------- --------
INCOME BEFORE INCOME TAXES 14,668 13,428
Provision for income taxes 4,714 4,280
-------- --------
NET INCOME $9,954 $9,148
======== ========
Average shares outstanding 9,435 9,768
PER SHARE DATA
Earnings per share $1.06 $0.94
Dividends declared 0.26 0.23
WESTAMERICA BANCORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the three months
ended March 31,
1997 1996
-------- --------
OPERATING ACTIVITIES
Net income $9,954 $9,148
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 975 1,050
Loan loss provision 1,050 1,275
Amortization of deferred net loan fees (286) (447)
Decrease (increase) in
interest income receivable 1,117 (178)
Increase in other assets (653) (3,434)
Increase in income taxes payable 4,714 4,263
Decrease in interest expense payable (420) (63)
Decrease in other liabilities (2,595) (2,294)
Gain on sales of investment securities (11) (14)
Net loss on sales/write-down of equipment 2 29
Originations of loans for resale (1,827) (2,461)
Proceeds from sale of loans
originated for resale 1,569 1,636
Net gain on sale of property
acquired in satisfaction of debt -- (12)
Write-down on property
acquired in satisfaction of debt 14 36
-------- --------
Net cash provided by
operating activities 13,603 8,534
INVESTING ACTIVITIES
Net (disbursements) repayments of loans (21,571) 798
Purchases of investment securities
available for sale (132,288) (66,660)
Purchases of investment securities
held to maturity (9,714) (6,121)
Purchases of property, plant and equipment (698) (2,434)
Proceeds from maturity of securities
available for sale 79,499 30,849
Proceeds from maturity of securities
held to maturity 19,501 13,010
Proceeds from sale of securities
available for sale 3,708 6,972
Proceeds from sale of property and equipment -- 576
Proceeds from property
acquired in satisfaction of debt 1 294
-------- --------
Net cash used in
investing activities (61,562) (22,716)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 31,513 (49,620)
Net increase in short-term borrowings 25,825 18,063
Additions to notes and mortgages payable -- 22,500
Exercise of stock options/issuance of shares 3,247 1,847
Cash in lieu of fractional shares -- --
Retirement of stock (3,605) (4,064)
Dividends paid (2,334) (2,244)
-------- --------
Net cash provided by (used in)
financing activities 54,646 (13,518)
Net increase (decrease) in cash
and cash equivalents 6,687 (27,700)
Cash and cash equivalents at
beginning of period 149,429 182,133
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $156,116 $154,433
========= =========
Supplemental disclosure of non-cash activities:
Loans transferred to other
real estate owned 124 1,303
Unrealized net (loss) gain on securities
available for sale (816) 3,084
Supplemental disclosure of cash flow activity:
Interest paid for the period 15,520 15,171
Income tax payments for the period -- --
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Westamerica Bancorporation (the "Company"), parent company of
Westamerica Bank, Bank of Lake County and Community Banker
Services Corporation, reported first quarter 1997 net income
of $10.0 million or $1.06 per share. These results compare to
reported net income of $9.1 million or $.94 per share and
$9.8 million or $1.04 per share, respectively, for first and
fourth quarters of 1996. In addition to historical information
this discussion includes certain forward-looking statements
regarding events and trends which may affect the Company's
future results. Such statements are subject to risk and
uncertainties that could cause the Company's actual results
to differ materially. Such factors include, but are not
limited to, those described in this discussion and
analysis.
Components of Net Income
Following is a summary of the components of net income for
the periods indicated:
For the three months ended
March 31, December 31,
-------------- --------------
(In millions) 1997 1996 1996
------ ------ ------
Net interest income * $30.8 $30.0 $31.1
Provision for loan losses (1.1) (1.3) (1.1)
Non-interest income 5.6 5.4 5.8
Non-interest expense (18.6) (18.9) (19.3)
Provision for income taxes * (6.7) (6.1) (6.7)
------ ------ ------
Net income $10.0 $9.1 $9.8
===== ===== =====
Average total assets $2,516.9 $2,467.9 $2,509.9
Net income (annualized) as a
percentage of average total assets 1.60% 1.49% 1.55%
- ---------------
* Fully taxable equivalent basis (FTE)
During the first three months of 1997, the Company's net
income was $900,000 higher than the same period in 1996. The
Company benefited in 1997 from increased net interest income,
a lower loan loss provision, higher non-interest income and
continuing expense controls, in part offset by higher income
taxes.
Comparing the first quarter of 1997 to the prior quarter,
net income increased $200,000. Lower non-interest expense,
due to one-time expenses incurred during the fourth quarter
of 1996 in connection with the merger with ValliCorp
Holdings, Inc., was the major contributor to the variance,
which was partially offset by lower net interest income and
lower non-interest income.
Analysis of Net Interest Income and Margin
The Company continually manages its interest-earning assets
and interest-bearing liabilities and the Company adapts
rapidly to changes in market rates. First quarter net
interest income (FTE) was higher than the comparable period
in 1996 by $800,000, as the favorable effect of a higher
level of earning assets and increased balances of low-cost
deposits which resulted in lower cost of funds, were
partially offset by lower yields on earning assets. In
addition, the FTE adjustment increased $200,000 principally
due to a $34 million increase in the Company's average
balance of tax-exempt loans.
Comparing the first quarter of 1997 with the fourth quarter
of 1996, net interest income decreased $300,000. The change
was mainly due the unfavorable effect of lower non-interest
bearing deposits partially offset by higher yields on earning
assets.
These variances are shown in the components of net interest
income and in the analysis of net interest margin summarized
as follows for the periods indicated:
Net Interest Income
For the three months ended
March 31, December 31,
-------------- --------------
(In millions) 1997 1996 1996
------ ------ ------
Interest income $43.9 $43.3 $44.3
Interest expense (15.1) (15.1) (15.2)
FTE adjustment 2.0 1.8 2.0
------ ------ ------
Net interest income (FTE) $30.8 $30.0 $31.1
===== ===== =====
Average earning assets $2,320.4 $2,252.2 $2,317.3
Net interest margin (FTE) 5.39% 5.36% 5.34%
First quarter 1997 loan fees of $257,000, which are included
in interest income on loans, were $16,000 lower than the same
period in 1996 and $13,000 lower than the prior quarter.
Net Interest Margin (FTE)
For the three months ended
March 31, December 31,
-------------- --------------
1997 1996 1996
------ ------ ------
Average yield on earning assets 8.03% 8.06% 7.95%
Average cost of interest-bearing
liabilities 3.43% 3.44% 3.43%
------- ------- -------
Net interest spread 4.60% 4.62% 4.52%
Impact of non-interest
bearing demand 0.79% 0.74% 0.82%
------- ------- -------
Net interest margin 5.39% 5.36% 5.34%
====== ====== ======
The net interest margin during the first quarter of 1997 was
three basis points higher than the same period in 1996. The
average yield on earning assets in 1997 was three basis
points lower than in 1996 as loan yields, 25 basis points
lower than the first quarter of 1996, were partially offset
by higher investment yields. This combined unfavorable effect
was partially offset by an increase in non-interest bearing
demand deposits and a small reduction in the rate on
interest-bearing liabilities.
Comparing the first three months of 1997 with the fourth
quarter of 1996, the net interest margin increased five basis
points. The unfavorable effect of reduced average balances
of non-interest bearing demand deposits was partially offset
by higher yields on earning assets, mainly due to higher
yields on the Company's securities portfolio.
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present, for the periods indicated,
information regarding the Company's consolidated average
assets, liabilities and shareholders' equity, the amounts of
interest income from average earning assets and the resulting
yields, and the amount of interest expense paid on
interest-bearing liabilities. Average loan balances include
non-performing loans. Interest income includes proceeds from
loans on non-accrual status only to the extent cash payments
have been received and applied as interest income. Yields on
securities and certain loans have been adjusted upward to
reflect the effect of income thereon exempt from federal
income taxation at the current statutory tax rate.
Distribution of assets, liabilities and shareholders' equity.
For the three months ended
March 31, 1997
----------------------------
Interest Rates
(dollars in thousands) Average income/ earned/
balance expense paid
---------- -------- --------
Assets
Money market assets and funds sold $250 $-- -- %
Investment securities available for sale 678,793 10,574 6.32
Investment securities held to maturity 191,433 3,381 7.16
Loans:
Commercial 861,257 19,566 9.21
Real estate construction 40,789 1,171 11.64
Real estate residential 281,409 5,148 7.42
Consumer 266,474 6,085 9.26
---------- -------
Earning assets 2,320,405 45,925 8.03
Other assets 196,468
----------
Total assets $2,516,873
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $476,956 $-- -- %
Savings and interest-bearing
transaction 1,071,077 6,006 2.27
Time less than $100,000 300,416 3,701 5.00
Time $100,000 or more 212,491 2,719 5.19
---------- -------
Total interest-bearing deposits 1,583,984 12,426 3.18
Funds purchased 159,115 1,917 4.89
Notes and mortgages payable 42,500 757 7.22
---------- -------
Total interest-bearing liabilities 1,785,599 15,100 3.43
Other liabilities 19,517
Shareholders' equity 234,801
----------
Total liabilities and
shareholders' equity $2,516,873
==========
Net interest spread (1) 4.60 %
Net interest income and interest margin (2) $30,825 5.39 %
======== =====
(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
March 31, 1996
----------------------------
Interest Rates
(dollars in thousands) Average income/ earned/
balance expense paid
---------- -------- --------
Assets
Money market assets and funds sold $250 $-- -- %
Investment securities available for sale 631,431 9,516 6.06
Investment securities held to maturity 240,916 4,012 6.70
Loans:
Commercial 811,696 19,250 9.54
Real estate construction 50,840 1,524 12.06
Real estate residential 239,976 4,407 7.39
Consumer 277,059 6,412 9.31
---------- -------
Earning assets 2,252,168 45,121 8.06
Other assets 215,750
----------
Total assets $2,467,918
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $456,169 $-- -- %
Savings and interest-bearing
transaction 1,053,857 5,740 2.19
Time less than $100,000 306,913 3,863 5.06
Time $100,000 or more 169,338 2,267 5.38
---------- -------
Total interest-bearing deposits 1,530,108 11,870 3.12
Funds purchased 206,170 2,681 5.23
Notes and mortgages payable 30,086 556 7.43
---------- -------
Total interest-bearing liabilities 1,766,364 15,107 3.44
Other liabilities 22,653
Shareholders' equity 222,732
----------
Total liabilities and
shareholders' equity $2,467,918
==========
Net interest spread (1) 4.62 %
Net interest income and interest margin (2) $30,014 5.36 %
======== =====
(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
December 31, 1996
----------------------------
Interest Rates
(dollars in thousands) Average income/ earned/
balance expense paid
---------- -------- --------
Assets
Money market assets and funds sold $250 $-- -- %
Investment securities available for sale 688,313 10,647 6.15
Investment securities held to maturity 197,987 3,505 7.04
Loans:
Commercial 848,290 19,701 9.24
Real estate construction 41,410 1,233 11.85
Real estate residential 270,263 4,954 7.29
Consumer 270,831 6,264 9.20
---------- -------
Earning assets 2,317,344 46,304 7.95
Other assets 192,515
----------
Total assets $2,509,859
==========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $502,340 $-- -- %
Savings and interest-bearing
transaction 1,059,681 6,056 2.27
Time less than $100,000 302,837 3,799 4.99
Time $100,000 or more 209,212 2,755 5.24
---------- -------
Total interest-bearing deposits 1,571,730 12,610 3.19
Funds purchased 148,014 1,812 4.87
Notes and mortgages payable 42,500 757 7.09
----------
Total interest-bearing liabilities 1,762,244 15,179 3.43
Other liabilities 18,702
Shareholders' equity 226,573
----------
Total liabilities and
shareholders' equity $2,509,859
==========
Net interest spread (1) 4.52 %
Net interest income and interest margin (2) $31,125 5.34 %
======== =====
(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.
Three months ended
March 31, 1997
compared with
three months
ended March 31, 1996
-------------------------
(In thousands) Volume Rate Total
------- ------- -------
Increase (decrease) in
interest and fee income:
Investment securities available for sale $677 $381 $1,058
Investment securities held to maturity (953) 322 (631)
Loans:
Commercial 715 (399) 316
Real estate construction (301) (52) (353)
Real estate residential 722 19 741
Consumer (289) (38) (327)
------- ------- -------
Total loans 847 (470) 377
------- ------- -------
Total increase in interest and
fee income 571 233 804
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing 80 186 266
Time less than $ 100,000 (100) (62) (162)
Time $ 100,000 or more 527 (75) 452
------- ------- -------
Total interest-bearing deposits 507 49 556
Funds purchased (593) (171) (764)
Notes and mortgages payable 216 (15) 201
------- ------- -------
Total increase (decrease) in
interest expense 130 (137) (7)
------- ------- -------
Increase in net
interest income (1) $441 $370 $811
======= ======= =======
(1) Amounts calculated on a fully taxable equivalent basis
using the current statutory federal tax rate.
Three months ended
March 31, 1997
compared with
three months
ended December 31, 1996
-------------------------
(In thousands) Volume Rate Total
------- ------- -------
Increase (decrease) in
interest and fee income:
Investment securities available for sale $79 ($152) ($73)
Investment securities held to maturity (255) 131 (124)
Loans:
Commercial (165) 30 (135)
Real estate construction (29) (33) (62)
Real estate residential 137 57 194
Consumer (299) 120 (179)
------- ------- -------
Total loans (356) 174 (182)
------- ------- -------
Total (decrease) increase in interest and
fee income (532) 153 (379)
(Decrease) increase in interest expense:
Deposits:
Savings/interest-bearing (49) (1) (50)
Time less than $ 100,000 (114) 16 (98)
Time $ 100,000 or more (90) 54 (36)
------- ------- -------
Total interest-bearing deposits (253) 69 (184)
Funds purchased 102 3 105
Notes and mortgages payable 0 0 0
------- ------- -------
Total (decrease) increase in
interest expense (151) 72 (79)
------- ------- -------
(Decrease) increase in net
interest income (1) ($381) $81 ($300)
======= ======= =======
(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 underwriting and
administration procedures and aggressively pursuing
collection efforts with troubled debtors. Maintenance of
credit quality standards allowed the Company to hold the
level of its provision for loan losses at approximately $1.1
million in the first quarter of 1997, equal to the prior
quarter but $200,000 lower than the first quarter of 1996.
For further information regarding net credit losses and the
reserve for loan losses, see the "Asset Quality" section of
this report.
Non-interest Income
The following table summarizes the components of non-interest
income for the periods indicated.
For the three months ended
March 31, December 31,
-------------- ------------
(In millions) 1997 1996 1996
------ ------ ------
Deposit account fees $3.16 $3.18 $3.20
Merchant credit card 0.62 0.68 0.64
Mortgage banking income 0.29 0.35 0.30
Financial services commissions 0.19 0.14 0.22
Trust fees 0.11 0.08 0.11
Net investment securities gain (loss 0.01 0.01 (0.01)
Other non-interest income 1.17 0.91 1.30
------- ------- -------
Total $5.55 $5.35 $5.76
====== ====== ======
The $200,000 increase in non-interest income during the first
quarter of 1997 compared to the first quarter of 1996,
included $50,000 higher financial services commissions,
resulting from increased share of fees earned by the agent
managing certain investments of the Company's customers, and
higher trust fees. In addition, the gain on sale of assets
was the major contributor to the increase in the "Other"
non-interest income category. Partially offsetting these
favorable variances, merchant credit card income decreased
$60,000 from the first quarter of 1996 due to a reduced level
of activity, and mortgage banking fees were $60,000 lower
than the same period mainly due to lower refinancing volume.
Comparing the first quarter of 1997 to the fourth quarter of
1996, non-interest income decreased $210,000. The largest
contributor to this variance was a gain on sale of assets in
the prior quarter, which accounts for the largest item
included in the "Other" non-interest income category variance
of $130,000. In addition, deposit account fees were $40,000
lower than prior quarter principally due to lower account
analysis fees, and financial services commissions and
merchant credit card income were $30,000 and $20,000,
respectively, lower than the fourth quarter of 1996.
Non-interest expense
The following table summarizes the components of
non-interest expense for the periods indicated.
For the three months ended
March 31, December 31,
-------------- ------------
1997 1996 1996
(In millions) ------- ------- -------
Salaries and incentives $7.21 $7.42 $7.45
Other personnel 2.38 2.42 2.14
Occupancy 2.14 2.58 2.40
Equipment 1.20 1.35 1.33
Data processing services 1.07 0.98 1.05
Professional fees 0.93 0.56 0.85
Courier service 0.53 0.44 0.57
Stationery and supplies 0.44 0.37 0.38
Postage 0.33 0.37 0.42
Loan expense 0.32 0.24 0.31
Advertising/public relations 0.29 0.28 0.48
Merchant credit card 0.22 0.19 0.21
Operational losses 0.17 0.19 0.21
Other real estate owned 0.01 0.06 0.10
Other non-interest expense 1.38 1.42 1.43
------- ------- -------
Total $18.62 $18.87 $19.33
======= ======= =======
Non-interest expense continues to show the effects of cost
controls and the benefits resulting from consolidation of
operations. During the first quarter of 1997, non-interest
expense decreased $260,000 from the first quarter of 1996.
Reductions in non-interest expense include occupancy costs,
lower by $440,000, due to lower rental expenses partially
offset by higher depreciation costs (in part due to the move
of administrative offices to a new owned facility), and
salaries and incentives, lower by $210,000, mostly as a
result of a reduction of incentive accruals partially offset
by higher salaries and other compensation. Lower costs from
the first quarter of 1996 also include $150,000 lower
furniture and equipment expenses, mostly due to lower
depreciation costs, lower write-downs and maintenance costs
related to property acquired in satisfaction of debt, lower
postage costs and decreased operational losses. Partially
offsetting these favorable variances, professional fees and
data processing costs were $370,000 and $90,000,
respectively, higher than the first quarter of 1996,
principally due to increased costs related to mergers and
acquisitions. In addition, increased courier, loan related,
stationery and supplies and merchant credit card related
expenses are included in the year-to-year variance.
Comparing the first quarter of 1997 with the fourth quarter of
1996, non-interest expense decreased $720,000. Occupancy and
equipment costs were lower by $260,000 and $130,000,
respectively, including higher rental income, lower moving
expenses, lower equipment depreciation, lower furniture and
equipment write-offs and lower repairs and maintenance.
Salaries and incentives were $240,000 lower than the prior
quarter, principally due to the reduction of certain
accruals, and were offset by higher other personnel costs
including increased payroll taxes recognized during the first
quarter of 1997. Reduction in expenses from the prior quarter
also include $190,000 lower advertising and public relations
costs due to cyclical related activity, $90,000 lower costs
related to real property acquired in satisfaction of debt due
to lower write-downs and maintenance costs partially offset
by lower gain on sales of properties, $90,000 lower postage
expenses and $40,000, each, lower operational losses and
courier costs. Increases in non-interest expense from the
fourth quarter of 1996 include $80,000 higher professional
fees due to increased merger and acquisition costs, and
higher stationery and supplies and data processing services,
$60,000 and $20,000, respectively.
Provision for Income Tax
During the first quarter of 1997, the Company recorded income
tax expense of $4.7 million compared to $4.3 million and $4.7
million, respectively, in the first and fourth quarters of
1996. The 1997 provision represents an effective tax rate of
32.1 percent, compared to 31.9 percent and 32.7 percent,
respectively, for the first and fourth quarters of 1996. The
provision for income taxes for all periods presented is
directly attributable to the respective level of earnings and
the incidence of non-tax deductible expenses in connection
with mergers and acquisitions.
Asset Quality
The Company closely monitors the markets in which it conducts
its lending operations. The Company continues its strategy to
control exposure to loans with high credit risk and increase
diversification of earning assets into less risky
investments. Asset reviews are performed using grading
standards and criteria similar to those employed by bank
regulatory agencies. Assets receiving lesser grades fall
under the "classified assets" category, which includes all
non-performing assets and potential problem loans, and
receive an elevated level of attention to ensure collection.
The following is a summary of classified assets on the dates
indicated:
At
At March 31 December 31
(In millions) ------------- ------------
1997 1996 1996
------ ------ ------
Classified loans $34.7 $48.4 $32.0
Other classified assets 6.2 6.1 6.1
------ ------ ------
Total classified assets $40.9 $54.5 $38.1
====== ====== ======
Reserve for loan losses
as a percentage of
classified loans 103% 70% 109%
Classified loans at March 31, 1997, decreased $13.7 million
or 28 percent to $34.7 million from March 31, 1996,
principally due to sales and pay-offs of loans with real
estate collateral and transfers to the other real estate
owned category. The $2.7 million increase of classified loans
from December 31, 1996 was principally due to increases in
unsecured lines of credit and commercial loans partially
offset by reductions in SBA loans.
Non-performing assets
Non-performing assets include non-accrual loans, loans 90
days past due as to principal or interest and still accruing
and other real estate owned. Loans are placed on non-accrual
status when reaching 90 days or more delinquent, unless the
loan is well secured and in the process of collection.
Interest previously accrued on loans placed on non-accrual
status is charged against interest income. In addition, loans
secured by real estate with temporarily impaired values and
commercial loans to borrowers experiencing financial
difficulties are placed on non-accrual status even though the
borrowers continue to repay the loans as scheduled. Such
loans are classified as "performing non-accrual" and are
included in total non-performing assets. Performing
non-accrual loans are reinstated to accrual status when
improvements in credit quality eliminate Management's doubt
as to the full collectibility of both interest and principal
and the loan is brought current. When the ability to fully
collect non-accrual loan principal is in doubt, cash payments
received are applied against the principal balance of the
loan until such time as full collection of the remaining
recorded balance is expected. Any subsequent interest
received is recorded as interest income on a cash basis.
The following is a summary of non-performing assets on the
dates indicated:
At
At March 31 December 31
(In millions) -------------- -----------
1997 1996 1996
------- ------- -------
Performing non-accrual loans $2.58 $1.96 $4.29
Non-performing, non-accrual loans 4.93 6.44 3.33
------- ------- -------
Total non-accrual loans 7.51 8.40 7.62
Loans 90 days past due and
still accruing 0.22 0.16 0.22
------- ------- -------
Total non-performing loans 7.73 8.56 7.84
------- ------- -------
Other real estate owned 6.20 6.09 6.09
------- ------- -------
Total non-performing assets $13.93 $14.65 $13.93
======= ======= =======
Reserve for loan losses
as a percentage of
non-performing loans 464% 395% 445%
Performing non-accrual loans increased $620,000 to $2.58
million at March 31, 1997 from $1.96 million at March 31,
1996 and decreased $1.71 million from $4.29 million
outstanding at December 31, 1996. Non-performing non-accrual
loans of $4.93 million at March 31, 1997, decreased $1.51
million from March 31, 1996 and increased $1.60 million from
December 31, 1996. The $890,000 and $110,000 reductions in
total non-accrual loans from March 31 and December 31,
1996, respectively, were principally due to payoffs and
writeoffs of loans with real estate collateral and commercial
loans. The $110,000 increases in other real estate owned
balances from March 31, 1996 and December 31, 1996, were due to
additions from non-accrual loans with real estate collateral
net of liquidations, write-downs and sales.
The amount of gross interest income that would have been
recorded for non-accrual loans for the three months ended
March 31, 1997, if all such loans had been current in
accordance with their original terms, was $172,000. The
amount of interest income that was recognized on non-accrual
loans from cash payments made during the three months ended
March 31, 1997 totaled $100,000, represented a year-to-date
annualized yield of 5.50 percent. Cash payments received
which were applied against the book balance of non-accrual
loans outstanding at March 31, 1997, totaled $111,000.
Reserve for loan losses
It is the position of the Company that, even though the
strategy to improve credit quality is reflected in the
declining balances of non-accrual loans, the level of
the loan loss reserve is adequate to provide for losses
that can be estimated based on anticipated specific and
general conditions as determined by Management. These
include credit loss experience, the amount of past due,
non-performing and classified loans, recommendations of
regulatory authorities and prevailing economic
conditions. 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 purely
mathematical formula, Management considers the reserve for
loan losses, for the periods presented, to be adequate as a
reserve against inherent losses. Management continues to
evaluate the loan portfolio and assess current economic
conditions that will dictate future required reserve levels.
The following table summarizes the loan loss provision,
net credit losses and loan loss reserve for the periods
indicated:
Three months ended
March 31, December
(In millions) -------------- ----------
1997 1996 1996
------- ------- -------
Balance, beginning of period $34.9 $33.5 $34.4
Loan loss provision 1.1 1.3 1.1
Loans charged off (0.7) (1.5) (1.6)
Recoveries of previously charged-off 0.5 0.5 1.0
------- ------- -------
Net credit losses (0.2) (1.0) (0.6)
------- ------- -------
Balance, end of period $35.8 $33.8 $34.9
======= ======= =======
Reserve for loan losses
as a percentage of
loans outstanding 2.44% 2.44% 2.42%
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 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 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 10
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 March 31, 1997 would not result in a
fluctuation of net income exceeding 10 percent.
Liquidity
The Company's principal source of asset liquidity is
marketable investment and money market securities available
for sale. At March 31, 1997, investment securities available
for sale totaled $744.2 million. This represents an increase
of $84.5 million from March 31, 1996.
The Company generates significant liquidity from its
operating activities. The Company's profitability during the
first three months of 1997 and 1996 was the main contributor
to the cash flows from operations for such periods of $13.6
million and $8.5 million, respectively.
Additional cash flows are provided by and used in financing
activities, primarily customer deposits, short-term
borrowings from banks and extensions of long-term debt. During
the first three months of 1997, $54.6 million was provided by
financing activities, as a $31.5 million increase in
deposits, a $25.8 million increase in short-term borrowings
and a $3.2 million increase in common stock from stock option
exercises were partially offset by cash flow uses of $3.6
million and $2.3 million in the form of retirement of stock
and dividends to shareholders, respectively. This compares to
the first three months of 1996, when $13.5 million was used
in financing activities due to a $49.6 million decrease in
deposits combined with other cash flow uses including
retirement of stock and dividends to shareholders of $4.1
million and $2.2 million, respectively, partially offset by a
$18.1 million increase in short-term borrowed funds, a $1.8
million increase in common stock from stock option exercises
and the issuance of $22.5 million of the Company's Senior
Notes, bearing interest at 7.11 percent and maturing in
February of 2006.
The Company uses cash flows from operating and financing
activities primarily to invest in securities and loans.
During the first three months of 1997, net disbursements of
loans were $21.6 million compared to net repayments of loans
of $800,000 during the same period in 1996. The Company
continued to grow its investment securities portfolio in
1997, reflected in the $39.3 million increase in investment
securities, net of maturities and sales, for the first three
months of 1997, compared to an increase of $22.0 million
during the same period of 1996. Costs related to the new
facility to consolidate the Company's operations and back
office functions to Fairfield, California, were the main
reason for the $2.4 million increase in purchases of
property, plant and equipment, during the first three months
of 1996.
The Company anticipates increasing its cash level from
operations through the end of 1997 due to increased
profitability and retained earnings. For the same period, it
is anticipated that the investment securities portfolio and
demand for loans will moderately increase. The growth in
deposit balances is expected to follow the anticipated growth
in loan and investment balances through the end of 1997.
Capital Resources
The current and projected capital position of the Company and
the impact of capital plans and long-term strategies is
reviewed regularly by Management.
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 $245.4 million at March 31,
1997, representing an increase of $15.0 million or 7 percent
from March 31, 1996 and an increase of $6.4 million, or 3
percent, from December 31, 1996. As a result of the Company's
profitability and the retention of earnings, the ratio of
equity to total assets increased to 9.4 percent at March 31,
1997, from 9.2 percent a year ago. The ratio of Tier I
capital to risk-adjusted assets was 12.76 percent at March
31, 1997 compared to 12.98 percent at March 31, 1996 and
12.61 percent at December 31, 1996. Total capital to
risk-adjusted assets was 15.09 percent at March 31, 1997
compared to 15.38 percent at March 31, 1996 and 14.96 percent
at December 31, 1996.
The following summarizes the ratios of capital to
risk-adjusted assets for the periods indicated:
At March 31 December 31
------------- -----------
1997 1996 1996
------ ------ ------
Tier I Capital 12.76% 12.98% 12.61%
Total Capital 15.09% 15.38% 14.96%
Leverage ratio 9.41% 9.19% 9.20%
The risk-based capital ratios declined at March 31, 1997
compared to March 31, 1996 as the increase in total assets
outpaced the growth in equity. In addition, the level of
risk-adjusted assets increased, due to the increase in loan
balances. Capital ratios are reviewed on a regular basis to
ensure that capital exceeds the prescribed regulatory
minimums and is adequate to meet the Company's future needs.
All ratios are in excess of the regulatory definition of
"well capitalized".
Since the beginning of 1994, the Board of Directors of the
Company has authorized the repurchase of 914,050 shares of
common stock from time to time, subject to appropriate
regulatory and other accounting requirements. These purchases
are made periodically in the open market and lessen the
dilutive impact of issuing new shares to meet stock
performance, option plans, acquisitions and other
requirements. Pursuant to this program, 674,050 shares had
been purchased through December 31, 1996 and 12,500 were
purchased during the first quarter of 1997.
Interim Periods
Acquisition
On April 12, 1997, the merger of ValliCorp Holdings, Inc.
("ValliCorp"), parent of ValliWide Bank, with and into the
Company became effective as of 12:01 a.m. Pacific Time. The
merger, which was announced on November 12, 1996, was
approved by a majority of the Company's and of ValliCorp's
shareholders on February 24, 1997. Federal Reserve Board
approval was received on March 19, 1997. Under the terms of
the Agreement and plan of Reorganization among ValliCorp,
ValliWide bank and the Company, dated November 11, 1996, as
amended ("Agreement and Plan of Reorganization"), each share
of ValliCorp Common Stock will be exchanged for .3479 shares
of the Company's Common Stock. The exchange ratio of .3479
was calculated pursuant to the Agreement and Plan of
Reorganization. No gain or loss for tax purposes will be
recognized by ValliCorp shareholders, except with respect of
cash received in lieu of fractional shares. Based on the
closing price of the Company's Common Stock on April 11,
1997, the acquisition was values at approximately $290
million or $20.11 per share.
New Statements of Financial Accounting Standards
In February, 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 establishes standards for computing
and presenting earnings per share ("EPS") and applies
to entities with publicly held common stock or
potential common stock. SFAS 128 simplifies the
standards for computing earnings per share previously
found in APB Opinion No. 15, "Earnings per Share", and
replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of
the income statement and requires a reconciliation of
the numerator and denominator of the basic EPS
computation to the numerator and denominator of the
diluted EPS computation. SFAS 128 is effective for
financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier
application is not permitted. This statement requires
restatement of all prior-period EPS data presented.
The pro forma EPS amounts computed using this statement for
the three-month periods ended March 31, 1997 and 1996
are as follows:
Per Share
Quarter Ended March 31, 1997 Net Income Shares Amount
(Dollars and shares in thousands, --------- --------- ---------
except per share amounts)
Basic EPS:
Income available to common
shareholders $9,954 9,435 $1.06
Effect of Dilutive Securities:
Stock options outstanding -- 219
------- -------
Diluted EPS:
Income available to common
shareholders plus assumed
conversions $9,954 9,654 $1.03
======= ======= =======
Per Share
Quarter Ended March 31, 1996 Net Income Shares Amount
(Dollars and shares in thousands, --------- --------- ---------
except per share amounts)
Basic EPS:
Income available to common
shareholders $9,148 9,768 $0.94
Effect of Dilutive Securities:
Stock options outstanding -- 159
------- -------
Diluted EPS:
Income available to common
shareholders plus assumed
conversions $9,148 9,927 $0.92
======= ======= =======
In February, 1997, the FASB issued SFAS No. 129, "Disclosure
of Information About Capital Structure" (SFAS 129). SFAS 129
establishes standards for disclosing information about an
entity's capital structure and applies to all entities. This
statement is effective for financial statements for periods
ending after December 15, 1997. Management does not believe
that the adoption of this statement will have a material
impact on the Company's consolidated financial positions or
results of operations.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
WESTAMERICA BANCORPORATION
(Registrant)
Date: May 2, 1997 /s/ DENNIS R. HANSEN
--------------------
Dennis R. Hansen
Senior Vice President
and Controller
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) Report on Form 8-K :
On April 22, 1997, the Company filed a report on
Form 8-K announcing that on April 12, 1997, the
merger of ValliCorp Holdings, Inc. ("ValliCorp"),
parent company of ValliWide Bank, with and into
Westamerica Bancorporation (the "Company")
became effective as of 12:01 a.m. Pacific Time. The
merger, which was announced on November 12, 1996,
was approved by a majority of the Company's and
ValliCorp's shareholders on February 24, 1997.
WESTAMERICA BANCORPORATION
Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
Three months ended
March 31,
--------------------
(In thousands, except per share data) 1997 1996
------- -------
Weighted average number of common shares
outstanding 9,435 9,768
Add exercise of options reduced by the
number of shares that could have
been purchased with the proceeds
from such exercise 219 159
------- -------
Total 9,654 9,927
======= =======
Net income $9,954 $9,148
Fully-diluted earnings per share $1.03 $0.92
====== ======
Primary earnings per share $1.06 $0.94
====== ======