UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from .....to.......
Commission File Number 1-9383
WESTAMERICA BANCORPORATION
(Exact name of the registrant as specified in its charter)
CALIFORNIA
(State of incorporation)
94-2156203
(I.R.S. Employer Identification Number)
1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (415) 257-8000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock, no par value
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 by check mark if disclosure of delinquent files pursuant to item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by
non-affiliates of the registrant, computed by reference to
the closing price of the stock, as of March 20, 2000:
$819,200,000
Number of shares outstanding of each of the registrant's classes of common stock, as of March 20, 2000
Title of Class
Common Stock, no par value
Shares Outstanding
36,400,279
DOCUMENTS INCORPORATED BY REFERENCE
Document *
Proxy Statement dated March 20, 2000
for Annual Meeting of Shareholders
to be held on April 27, 2000
Incorporated into:
Part III
* Only selected portions of the documents specified are incorporated by reference into this report, as more particularly described herein. Except to the extent expressly incorporated herein by reference, such documents shall not be deemed to be filed as part of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART I Page
Item 1 Business 1
Item 2 Description of Properties 17
Item 3 Legal Proceedings 18
Item 4 Submission of Matters to a Vote of Security Holders 18
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 19
Item 6 Selected Financial Data 21
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 22
Item 8 Financial Statements and Supplementary Data 48
Item 9 Changes in and Disagreements on Accounting and Financial
Disclosure 79
PART III
Item 10 Directors and Executive Officers of the Registrant 79
Item 11 Executive Compensation 80
Item 12 Security Ownership of Certain Beneficial Owners and
Management 80
Item 13 Certain Relationships and Related Transactions 80
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 81
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PART I
ITEM I. Business
Certain statements in this Annual Report on Form 10-K
include forward-looking information within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, and are subject of the "safe harbor" created by
those sections. These forward-looking statements involve
certain risks and uncertainties that could cause actual
results to differ materially from those in the forward
looking statements. Such risks and uncertainties include,
but are not limited to, the following factors: competitive
pressure in the banking industry significantly increasing;
changes in the interest rate environment reducing margins;
general economic conditions, either nationally or
regionally, are less favorable than expected, resulting
in, among other things, a deterioration in credit quality
and an increase in the provision for possible loan losses;
changes in the regulatory environment, changes in business
conditions; volatility of rate sensitive deposits;
operational risks including data processing system
failures or fraud; asset/liability matching risks and
liquidity risks; and changes in the securities markets.
See also "Certain Additional Business Risks" herein and
other risk factors discussed elsewhere in this Report.
WESTAMERICA BANCORPORATION (the "Company") is a bank holding company registered under the Bank Holding Company Act of 1956 ("BHC"), as amended. The Company was incorporated under the laws of the State of California as "Independent Bankshares Corporation" on February 11, 1972. Its principal executive offices are located at 1108 Fifth Avenue, San Rafael, California 94901, and its telephone number is (415) 257-8000. The Company provides a full range of banking services to individual and corporate customers in Northern and Central California through its subsidiary banks, Westamerica Bank and Bank of Lake County (the "Banks"). The Banks are subject to competition from other financial institutions and regulations from certain agencies and undergo periodic examinations by those regulatory authorities. In addition, the Company also owns 100 percent of the capital stock of Westamerica Commercial Credit, Inc., a company engaged in financing accounts receivable and inventory lines of credit and term business loans and 100 percent of Community Banker Services Corporation, a company engaged in providing the Company and its subsidiaries data processing services and other support functions.
The Company was originally formed pursuant to a plan of
reorganization among three previously unaffiliated banks:
Bank of Marin, Bank of Sonoma County and First National
Bank of Mendocino County (formerly First National Bank of
Cloverdale). The reorganization was consummated on
December 31, 1972 and, on January 1, 1973, the Company
began operations as a bank holding company. Subsequently,
the Company acquired Bank of Lake County (a California
chartered bank) in 1974, Gold Country Bank in 1979 and
Vaca Valley Bank in 1981, in each case by the exchange of
the Company's Common Stock for the outstanding shares of
the acquired banks.
In mid-1983, the Company consolidated the six subsidiary banks into a single subsidiary bank. The consolidation was accomplished by the merger of the five state-chartered banks (Bank of Marin, Bank of Sonoma County, Bank of Lake County, Gold Country Bank and Vaca Valley Bank) into First National Bank of Mendocino County which subsequently changed its name to Westamerica Bank ("WAB"), a national banking association organized and existing under the laws of the United States.
In August, 1988, the Company formed a new bank, but named it Bank of Lake County, National Association, and effected the sale of WAB's assets and liabilities of its three Lake County branches to the newly formed bank.
In August, 1988, the sale of Bank of Lake County, National Association to Napa Valley Bancorp was consummated.
On February 28, 1992, the Company acquired John Muir National Bank through a merger of such bank with and into WAB in exchange for the issuance of the Company's Common Stock for all the outstanding shares of John Muir National Bank. The business transaction was accounted for on a pooling-of-interests basis.
On April 15, 1993, the Company acquired Napa Valley Bancorp, a bank holding company, whose subsidiaries included Napa Valley Bank, 88 percent interest in Bank of Lake County, 50 percent interest in Sonoma Valley Bank, Cession Valley Bank and Napa Valley Bancorp Services Corporation, which was established to provide data processing and other services to Napa Valley Bancorp's subsidiaries. This business transaction was accounted for on a pooling-of-interests basis. Shortly after, Cession Valley Bank was merged into WAB, the name of Napa Valley Bancorp Services Corporation was changed to Community Banker Services Corporation and the Company sold its 50
percent interest in Sonoma Valley Bank. The Company retained its 88 percent interest in Bank of Lake County.
In June 1993, the Company accepted from WAB a dividend in the form of all outstanding shares of capital stock of WAB's subsidiary, Weststar Mortgage Corporation, a California Corporation established to conduct mortgage banking activities. Immediately after the receipt of this dividend, the Company contributed all of the capital stock of Weststar Mortgage Corporation to its subsidiary, Community Banker Services Corporation.
WAB and Bank of Lake County became state-chartered banks in June 1993 and December 1993, respectively.
In December 1994, the Company completed the purchase of the remaining 12 percent investment in Bank of Lake County from outside investors, becoming the sole owner of Bank of Lake County.
On January 31, 1995, the Company acquired PV Financial, parent company of PV National Bank, through a merger of such bank with and into WAB in exchange for the issuance of shares of the Company's common stock for all the outstanding shares of PV Financial. The business combination was accounted for on a pooling-of-interests basis.
On June 6, 1995, the merger of CapitolBank Sacramento with and into WAB became effective. Under the terms of the merger, the Company issued shares of its common stock in exchange for all of CapitolBank Sacramento's common stock. The business combination was accounted for on a pooling-of-interests basis.
On July 17, 1995, the Company acquired North Bay Bancorp, parent company of Novato National Bank. Under the terms of the merger agreement, the Company issued shares of its common stock in exchange for all of the outstanding shares of common stock of North Bay Bancorp. The subsidiary bank was merged with and into WAB. The business combination was accounted for on a pooling-of-interests basis.
On April 12, 1996 Napa Valley Bank was merged into WAB.
In November 1996, the Company finalized the formation of a new subsidiary, Westamerica Commercial Credit, Inc. which engages in financing accounts receivable and inventory lines of credit and term business loans.
On April 12, 1997, the Company acquired ValliCorp Holdings, Inc., parent company of ValliWide Bank, the largest independent bank holding company headquartered in Central California. The acquisition became effective through the issuance of shares of the Company's common stock in exchange for all of the outstanding shares of ValliCorp Holdings, Inc. The business combination was accounted for on a pooling-of-interests basis. ValliWide Bank remained as a separate subsidiary bank of the Company.
On June 20, 1997, ValliWide Bank ceased to exist as a subsidiary of the Company, when it was merged with and into WAB.
On January 22, 1998, the Board of Directors of the Company authorized a three-to-one split of the Company's common stock in which each share of the Company's common stock is converted into three shares, with record and effective dates of February 10 and February 25, 1998, respectively.
At December 31, 1999, the Company had consolidated assets of approximately $3.89 billion, deposits of approximately $3.07 billion and shareholders' equity of approximately $300.6 million.
General
Westamerica Bancorporation is a community oriented bank holding company headquartered in San Rafael, California. The principal communities served are located in Northern and Central California, from Mendocino, Lake and Nevada Counties in the North, to Kern and San Luis Obispo counties in the South. The Company's strategic focus is on the banking needs of small businesses. The Company chose this particular focus in the late 1980's as it recognized that concentrating on a few niche markets was the key to the Company's profitable survival in the consolidating banking business.
Certain Additional Business Risks
The Company's business, financial condition and operating results can be impacted by a number of factors including, but not limited to, those set forth below, any one of which could cause the Company's actual results to vary materially from recent results or from the Company's anticipated future results.
Shares of Company Common Stock eligible for future sale could have a dilutive effect on the market for Company
Common Stock and could adversely affect the market price. The Articles of Incorporation of the Company authorize the issuance of 150 million shares of common stock (and two classes of 1 million shares each, denominated "Class B Common Stock" and "Preferred Stock", respectively) of which approximately 37.1 million were outstanding at December 31, 1999. Pursuant to its stock option plans, at December 31, 1999, the Company had exercisable options outstanding of 1.5 million. As of December 31, 1999, 1.1 million shares of Company Common Stock remained available for grants under the Company's stock option plans (and stock purchase plan). Sales of substantial amounts of Company Common Stock in the public market could adversely affect the market price of Common Stock.
A portion of the loan portfolio of the Company is dependent on real estate. At December 31, 1999, real estate served as the principal source of collateral with respect to approximately 56 percent of the Company's loan portfolio. A worsening of current economic conditions or rising interest rates could have an adverse effect on the demand for new loans, the ability of borrowers to repay outstanding loans, the value of real estate and other collateral securing loans and the value of the available-for-sale securities portfolio, as well as the Company's financial condition and results of operations in general and the market value of the Company's common stock. Acts of nature, including earthquakes and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact the Company's financial condition.
The Company is subject to certain operations risks, including, but not limited to, data processing system failures and errors and customers or employee fraud. The Company maintains a system of internal controls to mitigate against such occurrences and maintains insurance coverage for such risks, but should such an event occur that is not prevented or detected by the Company's internal controls, uninsured or in excess of applicable insurance limits, it could have a significant adverse impact on the Company's business, financial condition or results of operations. See also the section "Year 2000 Compliance" in the Management's Discussion and Analysis contained in this report.
Employees
At December 31, 1999, the Company and its subsidiaries employed 1,094 full-time equivalent staff. Employee relations are believed to be good.
The Effect of Government Policy on Banking
The earnings and growth of the Company are affected not only by local market area factors and general economic conditions, but also by government monetary and fiscal policies. Such policies influence the growth of loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact of future changes in such policies on the business and earnings of the Company cannot be predicted. Additionally, state and federal tax policies can impact banking organizations.
As a consequence of the extensive regulation of commercial banking activities in the United States, the business of the Company is particularly susceptible to being affected by the enactment of federal and state legislation which may have the effect of increasing or decreasing the cost of doing business, modifying permissible activities or enhancing the competitive position of other financial institutions. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of the Company.
Regulation and Supervision of Bank Holding Companies
The following is not intended to be an exhaustive description of the statutes and regulations applicable to the Company's or the Banks' business. The description of statutory and regulatory provisions is qualified in its entirety by reference to the particular statutory or regulatory provisions. Moreover, major new legislation and other regulatory changes affecting the Company, the Banks, banking, and the financial services industry in general have occurred in the last several years and can be expected to occur in the future. The nature, timing and impact of new and amended laws and regulations cannot be accurately predicted.
The Company is a bank holding company subject to the Bank Holding Company Act of 1956, as amended ("BHCA"). The Company reports to, registers with, and may be examined by, the Board of Governors of the Federal Reserve System ("FRB"). The FRB also has the authority to examine the Company's subsidiaries.
The Company is also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such the Company and the Banks are subject to examination by, and may be required to file reports with, the California Commissioner of Financial Institutions (the "Commissioner").
The FRB has significant supervisory and regulatory authority over the Company and its affiliates. The FRB requires the Company to maintain certain levels of capital. See "Capital Standards." The FRB also has the authority to take enforcement action against any bank holding company that commits any unsafe or unsound practice, or violates certain laws, regulations or conditions imposed in writing by the FRB. See "Prompt Corrective Action and Other Enforcement Mechanisms."
Under the BHCA, a company generally must obtain the prior approval of the FRB before it exercises a controlling influence over a bank, or acquires directly or indirectly, more than 5% of the voting shares or substantially all of the assets of any bank or bank holding company. Thus, the Company is required to obtain the prior approval of the FRB before it acquires, merges or consolidates with any bank or bank holding company; any company seeking to acquire, merge or consolidate with the Company also would be required to obtain the prior approval of the FRB.
The Company is generally prohibited under the BHCA from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than banking, managing banks or providing services to affiliates of the holding company.
Financial Services Modernization Legislation
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999, also referred to as Financial Services Modernization Act. The Financial Services Modernization Act repeals the two affiliation provisions of the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal Reserve Member Banks with firms "engaged principally" in specified securities activities; and Section 32, which restricts officer, director or employee interlocks between a member bank and any company or person "primarily engaged" in specified securities activities. In addition, the Financial Services Modernization Act also contains provisions that expressly
preempt any state law restricting the establishment of financial affiliations, primarily related to insurance. The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial services providers by revising and expanding the BHCA framework to permit a holding company system to engage in a full range of financial activities through a new entity known as a Financial Holding Company. "Financial activities" is broadly defined to include not only banking, insurance and securities activities, but also merchant banking and additional activities that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.
Generally, the Financial Services Modernization Act:
Repeals historical restrictions on, and eliminates many federal and state law barriers to, affiliations among banks, securities firms, insurance companies, and other financial services providers;
Provides a uniform framework for the functional regulation of the activities of banks, savings institutions and their holding companies;
Broadens the activities that may be conducted by national banks, banking subsidiaries of bank holding companies and their financial subsidiaries;
Provides an enhanced framework for protecting the privacy of consumer information;
Adopts a number of provisions related to the capitalization, membership, corporate governance, and other measures designed to modernize the Federal Home Loan Bank system;
Modifies the laws governing the implementation of the Community Reinvestment Act, sometimes referred to as CRA; and
Addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.
In order for a company to take advantage of the ability to affiliate with other financial services providers, it must
become a "Financial Holding Company" as permitted under an amendment to the BHCA. To become a Financial Holding Company, a company would file a declaration with the Federal Reserve Board, electing to engage in activities permissible for Financial Holding Companies and certifying that the company is eligible to do so because all of its insured depository institution subsidiaries are well-capitalized and well-managed (see the section "Capital Standards"). In addition. the Federal Reserve Board must also determine that each of a holding company's insured depository institution subsidiaries has at least a "satisfactory" CRA rating (see the section "Community Reinvestment Act and Fair Lending Developments"). Westamerica Bancorporation meets the requirements to make an election to become a Financial Holding Company and Management is examining strategic business plans to determine whether, based upon market conditions, relative financial condition, regulatory capital requirements, general economic conditions, and other factors, it would be desirable to utilize any of the expanded powers provided in the Financial Services Modernization Act. No such election has been made as of the date of this Report.
The Financial Services Modernization Act also permits national banks to engage in expanded activities through the formation of financial subsidiaries. A national bank may have a subsidiary engaged in any activity authorized for national banks directly or any financial activity, except for insurance underwriting, insurance investments, real estate investment or development, or merchant banking, which may only be conducted through a subsidiary of a Financial Holding Company. Financial activities include all activities permitted under new sections of the BHCA or permitted by regulation.
A national bank seeking to have a financial subsidiary, and each of its depository institution affiliates, must be "well-capitalized" and "well-managed." The total assets of all financial subsidiaries may not exceed the lesser of 45% of a bank's total assets, or $50 billion. A national bank must exclude from its assets and equity all equity investments, including retained earnings, in a financial subsidiary. The assets of the subsidiary may not be consolidated with the bank's assets. The bank must also have policies and procedures to assess financial subsidiary risk and to protect the bank from such risks and potential liabilities.
Management does not believe that the Financial Services Modernization Act will have a material adverse effect on
the Company's operations in the near-term. However, to the extent that it permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. The Act may result in increased competition among smaller companies offering financial products and larger ones, many of which may have substantially more financial resources.
The FRB generally prohibits a bank holding company from declaring or paying a cash dividend which would impose undue pressure on the capital of subsidiary banks or would be funded only through borrowing or other arrangements that might adversely affect a bank holding company's financial position. The FRB's policy is that a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. See the section entitled "Restrictions on Dividends and Other Distributions" for additional restrictions on the ability of the Company and its subsidiary banks (the "Banks") to pay dividends.
Transactions between the Company and the Banks are subject to a number of other restrictions. FRB policies forbid the payment by bank subsidiaries of management fees which are unreasonable in amount or exceed the fair market value of the services rendered (or, if no market exists, actual costs plus a reasonable profit). The Company may only borrow from the Banks if the loan is secured by marketable obligations with a value of a designated amount in excess of the loan. Further, the Company may not sell a low-quality asset to a depository institution subsidiary.
Comprehensive amendments to federal regulation governing bank holding companies and change in bank control ("Regulation Y") became effective in 1997, and are intended to improve the competitiveness of bank holding companies by, among other things: (i) expanding the list of permissible nonbanking activities in which well-run bank holding companies may engage without prior FRB approval, (ii) streamlining the procedures for well-run bank holding companies to obtain approval to engage in other nonbanking activities and (iii) eliminating most of the anti-tying restrictions imposed upon bank holding companies and their nonbank subsidiaries. Amended Regulation Y also provides for a streamlining and expedited review process for bank acquisition proposals submitted by well-run bank holding companies and
eliminates certain duplicative reporting requirements when there has been a further change in bank control or in bank directors or officers after an earlier approved change. These changes to Regulation Y are subject to numerous qualifications, limitations and restrictions. In order for a bank holding company to qualify as "well-run," both it and the insured depository institutions that it controls must meet the "well capitalized" and "well managed" criteria set forth in Regulation Y.
Bank Supervision and Regulation
The Banks are California chartered banks insured by the Federal Deposit Insurance Corporation (the "FDIC"), and as such are subject to regulation, supervision and regular examination by the California Department of Financial Institutions ("DFI") and the FDIC. As members of the Federal Reserve System, the Banks' primary federal regulator is the FRB. The regulations of these agencies affect most aspects of the Banks' business and prescribe permissible types of loans and investments, the amount of required reserves, requirements for branch offices, the permissible scope of the Banks' activities and various other requirements.
In addition to federal banking law, the Banks are also subject to applicable provisions of California law. Under California law, a state chartered bank is subject to various restrictions on, and requirements regarding, its operations and administration including the maintenance of branch offices and automated teller machines, capital and reserve requirements, deposits and borrowings, stockholder rights and duties, and investments and lending activities.
California law permits a state chartered bank to invest in the stock and securities of other corporations, subject to a state-chartered bank receiving either general authorization or, depending on the amount of the proposed investment, specific authorization from the Commissioner. The FDIC Improvement Act ("FDICIA"), however, imposes limitations on the activities and equity investments of state chartered, federally insured banks. FDICIA also prohibits a state bank from engaging as a principal in any activity that is not permissible for a national bank, unless the bank is adequately capitalized and the FDIC approves the activity after determining that such activity does not pose a significant risk to the deposit insurance fund. The FDIC rules on activities generally permit subsidiaries of banks, without prior specific FDIC
authorization, to engage in those that have been approved by the FRB for bank holding companies because such activities are so closely related to banking to be a proper incident thereto. Other activities generally require specific FDIC prior approval, and the FDIC may impose additional restrictions on such activities on a case-by-case basis in approving applications to engage in otherwise impermissible activities.
Capital Standards
The federal banking agencies have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse agreements, which are recorded as off balance sheet items. A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off balance sheet items. The regulators measure risk-adjusted assets and off balance sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital generally consists of common stock, retained earnings, and certain types of qualifying preferred stock, less most other intangible assets. Tier 2 capital may consist of a limited amount of the allowance for loan and lease losses, certain types of preferred stock not qualifying as Tier 1 capital, term subordinated debt and certain other instruments with some characteristics of equity. The federal banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets and off balance sheet items of 8%, and a minimum ratio of Tier 1 capital to adjusted average risk-adjusted assets and off balance sheet items of 4%.
In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to adjusted average total assets, referred to as the leverage capital ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3% minimum. The effective minimum leverage ratio, for all practical purposes, must be at least 4% or 5%.
As of December 31, 1999, the Company's and the Banks'
respective ratios exceeded applicable regulatory requirements. See Note 8 to the consolidated financial statements for capital ratios of the Company and the Banks, compared to the standards for well-capitalized depository institutions and for minimum capital requirements.
Prompt Corrective Action and Other Enforcement Mechanisms
FDICIA requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. The law requires each federal banking agency to promulgate regulations defining the following five categories in which an insured institution will be placed, based on the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
If an insured depository institution is undercapitalized, it will be closely monitored by the appropriate federal banking agency. Undercapitalized institutions must submit an acceptable capital restoration plan with a guarantee of performance issued by the holding company. Further restrictions and sanctions are required to be imposed on insured depository institutions that are critically undercapitalized.
In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their business or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Additionally, a holding company's inability to serve as a source of strength to its subsidiary banking organizations could serve as an additional basis for a regulatory action against the holding company.
Safety and Soundness Standards
FDICIA also implemented certain specific restrictions and required federal banking regulators to adopt overall safety and soundness standards for depository institutions related to internal control, loan underwriting and
documentation and asset growth. Among other things, FDICIA limits the interest rates paid on deposits by undercapitalized institutions, restricts the use of brokered deposits, limits the aggregate extensions of credit by a depository institution to an executive officer, director, principal shareholder or related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized institutions for deposits by certain employee benefits accounts.
Restrictions on Dividends and Other Distributions
The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions which limit the amount available for such distribution depending upon the earnings, financial condition and cash needs of the institution, as well as general business conditions. FDICIA prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions, including dividends, if, after such transaction, the institution would be undercapitalized.
In addition to the restrictions imposed under federal law, banks chartered under California law generally may only pay cash dividends to the extent each payment does not exceed the lesser of retained earnings of the bank or the bank's net income for its last three fiscal years (less any distributions to shareholders during that period). In the event a bank desires to pay cash dividends in excess of such amount, the bank may pay a cash dividend with the prior approval of the Commissioner in an amount not exceeding the greatest of the bank's retained earnings, the bank's net income for its last fiscal year, or the bank's net income for its current fiscal year.
Regulators also have authority to prohibit a depository institution from engaging in business practices which are considered to be unsafe or unsound, possibly including payment of dividends or other payments under certain circumstances even if such payments are not expressly prohibited by statute.
Premiums for Deposit Insurance and Assessments for Examinations
All of the bank subsidiaries of the Company have their
deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC is authorized to borrow up to $30 billion from the United States Treasury; up to 90% of the fair market value of assets of institutions acquired by the FDIC as receiver from the Federal Financing Bank; and from depository institutions that are members of the BIF. Any borrowings not repaid by asset sales are to be repaid through insurance premiums assessed to member institutions. Such premiums must be sufficient to repay any borrowed funds within 15 years and provide insurance fund reserves of $1.25 for each $100 of insured deposits. FDICIA also provides authority for special assessments against insured deposits. No assurance can be given at this time as to what the future level of premiums will be.
Community Reinvestment Act and Fair Lending Developments
The Banks are subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of their local communities, including low and moderate income neighborhoods. In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities.
Pending Legislation and Regulations
There are pending legislative proposals to reform the Glass-Steagall Act to allow affiliations between banks and other firms engaged in "financial activities", including insurance companies and securities firms.
Certain other pending legislative proposals include bills to let banks pay interest on business checking accounts, to require "know your customer" policies, to cap consumer liability for stolen debit cards, and to give judges the authority to force high-income borrowers to repay their debts rather than cancel them through bankruptcy.
While the effect of such proposed legislation and regulatory reform on the business of financial institutions cannot be accurately predicted at this time, it seems likely that a significant amount of consolidating in the banking industry will continue.
Competition
In the past, an independent bank's principal competitors for deposits and loans have been other banks (particularly major banks), savings and loan associations and credit unions. To a lesser extent, competition was also provided by thrift and loans, mortgage brokerage companies and insurance companies. Other institutions, such as brokerage houses, mutual fund companies, credit card companies, and even retail establishments have offered new investment vehicles which also compete with banks for deposit business. The direction of federal legislation in recent years seems to favor competition between different types of financial institutions and to foster new entrants into the financial services market, and it is anticipated that this trend will continue.
The enactment of the Interstate Banking and Branching Act in 1994 and the California Interstate Banking and Branching Act of 1995 have increased competition within California. Regulatory reform, as well as other changes in federal and California law will also affect competition. While the impact of these changes, and of other proposed changes, cannot be predicted with certainty, it is clear that the business of banking in California will remain highly competitive.
According to information obtained by the Company through an independent market research firm, WAB was the third largest financial institution in terms of total deposits in Marin County at December 31, 1998, at which date it had approximately 12 percent of total deposits held in federally insured depository institutions in that county. According to the same source of information and in terms of total deposits, as of December 31, 1998 WAB ranked fourth in WAB's Sonoma-Mendocino counties service area, with approximately a 9 percent share of the market, fourth in the Fresno service area with approximately 8 percent of total deposits, and was fourth in the Solano county service area, with a market share of approximately 9 percent. Completion of the merger with ValliWide Bank in 1997 resulted in the formation of the "South Valley Region" encompassing portions of Kern, San Luis Obispo, Tulare and Kings counties. In terms of total deposits, WAB ranked, as of December 31, 1998, sixth among all financial institutions servicing the area with approximately 7 percent of the market. In addition, WAB's market share in the Sacramento-Placer-Nevada counties service area was approximately 6 percent, ranking sixth among its competitors. In the Yosemite service area, encompassing
offices throughout Stanislaus, Sonora, East Sonora and Merced counties, WAB ranked eighth among its competitors with 5 percent of total deposits. The share of the market for deposits and loans held by WAB in San Francisco and Alameda Counties is not significant. According to the same source of information, WAB ranked second in terms of total deposits in the Napa Valley service area as of December 31, 1998, with approximately 14 percent market share. The same source of data reports that BLC ranked second, in terms of total deposits, in market share in the Lake County service area with 16 percent of the total.
The Banks provide checking and savings deposit services as well as commercial, real estate and personal loans. In addition, most of the branches offer safe deposit facilities, automated teller units, collection services and other investment services.
The Banks believe that personal, prompt, professional service and community identity are important in the banking business. To this end, each one of the Banks has sought to retain its community identity and has emphasized personalized services through "big bank resources with small bank resourcefulness".
Competitive conditions continue to intensify as various legislative enactments have continued to dissolve historical barriers to the financial markets. Competition is expected to further increase in the state of California as a result of legislation enacted in 1994 and 1995.
Legislative changes, as well as technological and economic factors, can be expected to have an ongoing impact on competitive conditions within the financial services industry. As an active participant in the financial markets, the Company believes that it continually adapts to these changing competitive conditions.
ITEM 2. Properties
Branch Offices and Facilities
The Banks are engaged in the banking business through 90 offices in 22 counties in Northern and Central California including eleven offices in Marin County, eleven in Fresno County, nine in Sonoma County, seven in Napa County, six in Solano County, six in Kern County, five in Stanislaus County, five in Contra Costa County, four in Lake County, four in San Luis Obispo County, three in Mendocino County, three in Sacramento County, two in Nevada County, two in
Placer County, two in Tulare County, two in Tuolumne County, two in Alameda County, one in San Francisco County, one in Kern County, one in Madera County, one in Merced County, one in Yolo County and one in Kings County. All offices are constructed and equipped to meet prescribed security requirements.
The Company owns 37 branch office locations and one administrative building and leases 53 banking offices. Most of the leases contain multiple renewal options and provisions for rental increases, principally for changes in the cost of living index, property taxes and maintenance.
ITEM 3. Legal Proceedings
Neither the Company or its subsidiaries is a party to any material pending legal proceeding, nor is their property the subject of any material pending legal proceeding, except ordinary routine legal proceedings arising in the ordinary course of the Company's business, none of which are expected to have a material adverse impact upon the Company's business, financial position or results of operations.
ITEM 4. Submission of Matters to a Vote of Security
Holders
There were no matters submitted to a vote of the shareholders during the fourth quarter of 1999.
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters
1999: High Low ------------------------------------------------------------ First quarter $37.50 $31.63 Second quarter 37.13 30.00 Third quarter 36.50 28.94 Fourth quarter 35.13 26.63 1998: First quarter $35.25 $30.67 Second quarter 36.38 28.50 Third quarter 33.63 23.63 Fourth quarter 37.25 23.88 ============================================================ |
As of December 31, 1999, there were 8,710 shareholders of record of the Company's common stock.
The Company has paid cash dividends on its common stock in every quarter since its formation in 1972, and it is currently the intention of the Board of Directors of the Company to continue payment of cash dividends on a quarterly basis. There is no assurance, however, that any dividends will be paid since they are dependent upon earnings, financial condition and capital requirements of the Company and its subsidiaries. As of December 31, 1999, $136.7 million was available for payment of dividends by the Company to its shareholders, under applicable laws and regulations.
See Note 17 to the consolidated financial statements included in this report for additional information regarding the amount of cash dividends declared and paid on common stock for the two most recent fiscal years.
As discussed in Note 7 to the consolidated financial statements, in December 1986, the Company declared a dividend distribution of one common share purchase right (the "Right") for each outstanding share of common stock.
The terms of the Rights were amended and restated on September 28, 1989, on May 25, 1992 and on March 23, 1995. In addition, the Board of Directors of the Company approved a further amendment and restatement of the Shareholder Rights Plan on October 28, 1999, to become effective on November 19, 1999 and extend its maturity until December 31, 2004. The new amended plan is very similar in purpose and effect to the plan as it existed prior to this amendment, aimed at helping the Board of Directors to maximize shareholder value in the event of a change of control of the Company and otherwise resist actions that the Board considers likely to injure the Company of its shareholders. In addition to extending the maturity date of the plan an additional five years, the other material changes to be reflected in the 1999 Rights Amendment include: (1) an increase in the exercise price to $75.00 per share; (2) a decrease in the redemption price of each Right to $.001; (3) a reduction in the amount of securities required to be acquired for a person or entity to become an Acquiring Person, thus triggering the shareholders' rights from 15 percent to 10 percent; and (4) the replacement of the Rights Agent to Harris Trust and Savings Bank.
The Westamerica Rights are not exercisable until Distribution Date, defined as the earlier to occur of (I) a public announcement that, without the prior consent of the Company, a Person (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of securities having 10 percent or more of the voting power of all outstanding voting securities of the Company, or (ii) ten days (unless such date is extended by the Board of Directors) following the commencement of (or a public announcement of an intention to make) a tender offer or exchange offer which would result in any Person or group of related Persons becoming an Acquiring Person (the earlier of such dates being called the "Distribution Date"). Until the Distribution Date the Rights will be evidenced, with respect to any of the Common Stock certificates outstanding as of the Record Date, by such Common Stock certificate together with this Amended and Restated Summary of Rights. The 1999 Rights Agreement provides that, until the Distribution Date, the Rights will be transferred with and only with Common Stock certificates.
ITEM 6. Selected Financial Data
WESTAMERICA BANCORPORATION
FINANCIAL SUMMARY
=============================================================================================
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Year ended December 31
Interest income $257,656 $266,820 $270,670 $274,182 $283,704
Interest expense 78,456 86,665 88,054 91,700 95,627
---------------------------------------------------------------------------------------------
Net interest income 179,200 180,155 182,616 182,482 188,077
Provision for loan losses 4,780 5,180 7,645 12,306 15,229
Non-interest income 40,174 37,805 37,013 36,307 34,227
Non-interest expense 100,133 101,408 137,878 136,051 141,960
---------------------------------------------------------------------------------------------
Income before income taxes 114,461 111,372 74,106 70,432 65,115
Provision for income taxes 38,373 37,976 25,990 23,605 21,930
---------------------------------------------------------------------------------------------
Net income $76,088 $73,396 $48,116 $46,827 $43,185
=============================================================================================
Earnings per share:
Basic $1.97 $1.76 $1.12 $1.10 $0.99
Diluted 1.94 1.73 1.10 1.08 0.98
Per share:
Dividends paid $0.66 $0.52 $0.36 $0.30 $0.25
Book value at December 31 8.10 9.25 9.51 8.84 8.12
Average common shares outstanding 38,588 41,797 43,040 42,759 43,747
Average diluted common shares outstanding 39,194 42,524 43,827 43,358 44,274
Shares outstanding at December 31 37,125 39,828 42,799 42,889 43,228
At December 31
Loans, net 2,269,272 2,246,593 2,211,307 2,236,319 2,204,495
Total assets 3,893,187 3,844,298 3,848,444 3,866,774 3,880,979
Total deposits 3,065,344 3,189,005 3,078,501 3,228,700 3,270,907
Short-term borrowed funds 462,345 203,671 264,848 167,447 175,622
Debt financing and notes payable 41,500 47,500 52,500 58,865 40,932
Shareholders' equity 300,592 368,596 407,152 379,279 351,058
Financial Ratios:
For the year:
Return on assets 1.99% 1.94% 1.28% 1.24% 1.14%
Return on equity 23.31% 19.48% 12.71% 13.22% 12.73%
Net interest margin * 5.46% 5.52% 5.63% 5.54% 5.68%
Net loan losses to average loans 0.20% 0.20% 0.35% 0.51% 0.59%
Efficiency ratio * 43.19% 44.25% 60.15% 60.08% 63.86%
At December 31:
Equity to assets 7.72% 9.59% 10.58% 9.81% 9.05%
Total capital to risk-adjusted assets 11.75% 13.79% 14.76% 14.95% 14.39%
Loan loss reserve to loans 2.22% 2.23% 2.24% 2.23% 2.15%
|
* Fully taxable equivalent
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this Annual Report on Form 10-K include forward-looking information within the meaning of Section 27A of the Securities Act on 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risk and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry increases significantly; changes in the interest rate environment reduces margins; general economic conditions, either nationally or regionally, are less favorable than expected resulting in, among other things, a deterioration in the credit quality and an increase in the allowance for possible loan losses; changes in the regulatory environment; changes in business conditions; volatility of rate-sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching and liquidity risks; and changes in the securities markets. For further information on risks and uncertainties see also "Certain Additional Business Risks" and other risks factors discussed elsewhere in this report.
The following discussion addresses information pertaining to the financial condition and results of operations of Westamerica Bancorporation and Subsidiaries (the "Company") that may not be otherwise apparent from a review of the consolidated financial statements and related footnotes. It should be read in conjunction with those statements and notes found on pages 49 through 76, as well as with the other information presented throughout the report.
NET INCOME
The Company achieved earnings of $76.1 million in 1999, representing a 4 percent increase from the $73.4 million earned in 1998 and 58 percent higher than 1997 earnings of $48.1 million.
Components of Net Income
---------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------
(In millions)
Net interest income * $191.6 $191.4 $192.2
Provision for loan losses (4.8) (5.2) (7.6)
Non-interest income 40.2 37.8 37.0
Non-interest expense (100.1) (101.4) (137.9)
Taxes * (50.8) (49.2) (35.6)
---------------------------------------------------------------------------------
Net income $76.1 $73.4 $48.1
==================================================================================
Net income as a percentage of
average total assets 1.99% 1.94% 1.28%
==================================================================================
Average total assets $3,828.3 $3,778.5 $3,749.7
==================================================================================
|
* Fully taxable equivalent (FTE)
Diluted earnings per share in 1999 were $1.94, compared to $1.73
and $1.10 in 1998 and 1997, respectively.
Earnings in 1999 were favorably affected, compared to 1998, by
increased non-interest income, a reduction in non-interest expense
reflective of continued expense controls, a lower loan loss provision
in recognition of improvements in the credit quality of the loan
portfolio, and a slight increase in net interest income primarily
due to higher average earning-asset balances partially offset by
lower net interest margin.
During 1998, the Company benefited from lower non-interest expense
reflecting cost controls exercised after the ValliCorp Holdings,
Inc. merger (the "Merger"), a lower loan loss provision resulting
from improved credit quality and lower net credit losses, and
higher non-interest income. Prior year non-interest expense
included approximately $18.8 million ($12.8 million after tax) in
charges associated with the Merger effected on April 12, 1997.
Lower net interest income was primarily the result of lower
earning-asset yields in part offset by a decrease in funding costs.
The Company's return on average total assets was 1.99 percent in 1999, compared to 1.94 percent and 1.28 percent in 1998 and 1997, respectively. Return on average equity in 1999 was 23.31 percent, compared to 19.48 percent and 12.71 percent in the two previous years.
NET INTEREST INCOME
The Company's primary source of revenue is net interest income, which is the difference between interest income on earning assets and interest expense on interest-bearing liabilities. Net interest income (FTE) in 1999 increased $200 thousand from 1998 to $191.6 million. Comparing 1998 to 1997, net interest income (FTE) decreased $800 thousand.
Components of Net Interest Income
---------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------
(In millions)
Interest income $257.7 $266.8 $270.7
Interest expense (78.5) (86.7) (88.1)
FTE adjustment 12.4 11.3 9.6
---------------------------------------------------------------------------------
Net interest income (FTE) $191.6 $191.4 $192.2
=================================================================================
Net interest margin (FTE) 5.46% 5.52% 5.63%
=================================================================================
|
Interest income (FTE) decreased $8.0 million from 1998 to 1999, primarily due to a 33 basis point decrease in earning-asset yields, a combination of 47 basis points lower loan yields and a 4 basis points decrease in investments yields. These changes were reflective of a general decline in market rates, resulting in all categories of loan and investment securities yields being lower than the prior year. Partially offsetting these changes, earning-asset average balances increased $47.1 million from 1998, with loan and investment securities average balances increasing $30.3 million and $17.5 million, respectively, from 1998. The increase in loan balances was primarily concentrated in targeted commercial credits with real estate collateral and automobile dealer paper, partially offset by decreases in commercial,
residential real estate and other consumer loans, including revolving lines of credit. The increase in investment securities portfolio balances was comprised of higher U.S. agency, tax-free state and municipal securities as well as corporate securities, partially offset by decreases in U.S. Treasury and participation certificates average balances. The revenue decrease in 1999 was more than offset by a $8.2 million decrease in interest expense. This was the result of a decrease of 36 basis points in rates paid on interest-bearing liabilities combined with a $65.7 million increase in the average balance of interest-free demand deposits, in part offset by a $36.4 million increase in the interest-bearing liabilities average balances.
Interest income (FTE) in 1998 decreased $2.2 million from 1997, primarily due to a 34 basis point decrease in loan yields, reflecting the general interest rate environment, partially offset by an increase of 9 basis points in investment yields, resulting in a combined decrease of 18 basis points in earning-asset yields. The effect of this decline was in part offset by a $50.9 million increase in average balances, with loans and investment securities growing $14.1 million and $36.8 million, respectively, from 1997 levels. The increase in loans was concentrated in targeted commercial and residential real estate credits, and the increase in investment balances was primarily due to increases in tax-free and corporate securities. The decrease in interest income during 1998 was partially offset by a $1.4 million reduction in interest expense. This decrease was primarily due to a reduction of 13 basis points in rates paid on deposits combined with an $11.0 million increase in the average balance of non-interest bearing demand deposits, in part offset by a $19.8 million increase in the average balance of interest-bearing liabilities.
The following tables present, for the periods indicated, information
regarding the consolidated average assets, liabilities and
shareholders' equity, the amounts of interest income from average
earning assets and the resulting yields, and the amount of interest
expense paid on interest-bearing liabilities.
Average loan balances include non-performing loans. Interest income
includes proceeds from loans on non-accrual status only to the extent
cash payments have been received and applied as interest income.
Yields on securities and certain loans have been adjusted upward to
reflect the effect of income thereon exempt from federal income
taxation at the current statutory tax rate.
Distribution of assets, liabilities and shareholders' equity Yields/rates and interest margin
---------------------------------------------------------------------------------
Full Year 1999
-----------------------------------
Interest Rates
Average income/ earned/
balance expense paid
---------------------------------------------------------------------------------
(Dollars in thousands)
Assets
Money market assets and funds sold $308 $4 1.30 %
Trading account securities
Investment securities
Taxable 862,589 52,151 6.05
Tax-exempt 357,294 26,994 7.56
Loans:
Commercial 1,493,045 126,939 8.50
Real estate construction 52,825 5,822 11.02
Real estate residential 352,578 24,335 6.90
Consumer 393,938 33,855 8.59
---------- ---------
Earning assets 3,512,577 270,100 7.69
Other assets 315,673
-----------
Total assets $3,828,250
===========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $857,650
Savings and interest-bearing
transaction 1,409,391 23,358 1.66 %
Time less than $100,000 410,092 18,106 4.42
Time $100,000 or more 425,949 19,446 4.57
---------- ---------
Total interest-bearing deposits 2,245,432 60,910 2.71
Funds purchased 321,829 14,285 4.44
Debt financing and notes payable 46,482 3,261 7.02
---------- ---------
Total interest-bearing liabilities 2,613,743 78,456 3.00
Other liabilities 30,380
Shareholders' equity 326,477
-----------
Total liabilities and shareholders' equity $3,828,250
===========
Net interest spread (1) 4.69 %
Net interest income and interest margin (2) $191,644 5.46 %
========= ======
(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 by total
average earning assets.
|
Distribution of assets, liabilities and shareholders' equity. Yields/rates and interest margin
---------------------------------------------------------------------------------
Full Year 1998
-----------------------------------
Interest Rates
Average income/ earned/
balance expense paid
---------------------------------------------------------------------------------
(Dollars in thousands)
Assets
Money market assets and funds sold $1,003 $42 4.23 %
Trading account securities
Investment securities
Taxable 854,315 53,699 6.29
Tax-exempt 348,040 24,889 7.15
Loans:
Commercial 1,427,788 129,258 9.05
Real estate construction 60,123 7,089 11.79
Real estate residential 386,066 27,729 7.18
Consumer 388,106 35,340 9.11
---------- ---------
Earning assets 3,465,440 278,046 8.02
Other assets 313,012
-----------
Total assets $3,778,452
===========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $791,952
Savings and interest-bearing
transaction 1,461,764 30,264 2.07 %
Time less than $100,000 438,052 21,840 4.99
Time $100,000 or more 381,754 19,247 5.04
---------- ---------
Total interest-bearing deposits 2,281,570 71,351 3.13
Funds purchased 243,736 11,670 4.79
Debt financing and notes payable 52,083 3,644 7.00
---------- ---------
Total interest-bearing liabilities 2,577,389 86,665 3.36
Other liabilities 32,259
Shareholders' equity 376,852
-----------
Total liabilities and shareholders' equity $3,778,451
===========
Net interest spread (1) 4.66 %
Net interest income and interest margin (2) $191,381 5.52 %
========= ======
(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 by total
average earning assets.
|
Distribution of assets, liabilities and shareholders' equity. Yields/rates and interest margin
---------------------------------------------------------------------------------
Full Year 1997
-----------------------------------
Interest Rates
Average income/ earned/
balance expense paid
---------------------------------------------------------------------------------
(Dollars in thousands)
Assets
Money market assets and funds sold $30,125 $1,635 5.43 %
Trading account securities
Investment securities
Taxable 849,564 51,158 6.02
Tax-exempt 286,851 22,730 7.92
Loans:
Commercial 1,394,425 129,473 9.29
Real estate construction 85,409 9,386 10.99
Real estate residential 350,825 27,138 7.74
Consumer 417,389 38,756 9.29
---------- ---------
Earning assets 3,414,588 280,276 8.21
Other assets 335,063
-----------
Total assets $3,749,651
===========
Liabilities and shareholders' equity
Deposits
Non-interest bearing demand $781,001
Savings and interest-bearing
transaction 1,533,939 34,742 2.26 %
Time less than $100,000 479,692 24,425 5.09
Time $100,000 or more 323,840 17,097 5.28
---------- ---------
Total interest-bearing deposits 2,337,471 76,264 3.26
Funds purchased 162,592 7,803 4.80
Debt financing and notes payable 57,483 3,987 6.94
---------- ---------
Total interest-bearing liabilities 2,557,547 88,054 3.44
Other liabilities 32,498
Shareholders' equity 378,605
-----------
Total liabilities and shareholders' equity $3,749,651
===========
Net interest spread (1) 4.77 %
Net interest income and interest margin (2) $192,222 5.63 %
========= ======
(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 by total
average earning assets.
|
For the years ended
December 31, 1999 compared with 1998
---------------------------------------------------------------------
Volume Rate Total
---------------------------------------------------------------------
(In thousands)
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold ($19) ($19) ($38)
Trading account securities 0 0 0
Investment securities (1)
Taxable 527 (2,075) (1,548)
Tax-exempt 674 1,431 2,105
Loans:
Commercial (1) 6,992 (9,311) (2,319)
Real estate construction (824) (443) (1,267)
Real estate residential (2,341) (1,053) (3,394)
Consumer 542 (2,027) (1,485)
---------------------------------------------------------------------
Total loans (1) 4,369 (12,834) (8,465)
---------------------------------------------------------------------
Total increase (decrease) in
interest and fee income (1) 5,551 (13,497) (7,946)
---------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (1,051) (5,855) (6,906)
Time less than $ 100,000 (1,337) (2,397) (3,734)
Time $ 100,000 or more 1,085 (886) 199
---------------------------------------------------------------------
Total interest-bearing (1,303) (9,138) (10,441)
Funds purchased 3,386 (771) 2,615
Notes and mortgages payable (393) 10 (383)
---------------------------------------------------------------------
Total increase (decrease)
in interest expense 1,690 (9,899) (8,209)
---------------------------------------------------------------------
Increase (decrease) in
net interest income (1) $3,861 ($3,598) $263
=====================================================================
|
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
Rate and volume variances.
---------------------------------------------------------------------
For the years ended
December 31, 1998 compared with 1997
---------------------------------------------------------------------
Volume Rate Total
---------------------------------------------------------------------
(In thousands)
Increase (decrease) in
interest and fee income:
MMkt. assets and funds sold ($1,298) ($295) ($1,593)
Trading account securities 0 0 0
Investment securities (1)
Taxable 291 1,589 1,880
Tax-exempt 4,212 (1,392) 2,820
Loans:
Commercial (1) 4,850 (5,065) (215)
Real estate construction (3,048) 751 (2,297)
Real estate residential 2,050 (1,459) 591
Consumer (2,678) (738) (3,416)
---------------------------------------------------------------------
Total loans (1) 1,174 (6,511) (5,337)
---------------------------------------------------------------------
Total increase (decrease) in
interest and fee income (1) 4,379 (6,609) (2,230)
---------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (1,585) (2,893) (4,478)
Time less than $ 100,000 (2,085) (500) (2,585)
Time $ 100,000 or more 2,873 (723) 2,150
---------------------------------------------------------------------
Total interest-bearing (797) (4,116) (4,913)
Funds purchased 3,885 (18) 3,867
Notes and mortgages payable (378) 35 (343)
---------------------------------------------------------------------
Total increase (decrease) in
interest expense 2,710 (4,099) (1,389)
---------------------------------------------------------------------
Increase (decrease) in
net interest income (1) $1,669 ($2,510) ($841)
=====================================================================
|
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $4.8 million for 1999, compared to $5.2 million in 1998 and $7.6 million in 1997. The reductions in the provision in 1999 and 1998 reflect the results of the Company's continuing efforts to improve loan quality by enforcing strict underwriting and administration procedures and aggressively pursuing collection efforts. For further information regarding net credit losses and the reserve for loan losses, see the "Asset Quality" section of this report.
INVESTMENT PORTFOLIO
The Company maintains a securities portfolio consisting of U.S Treasury, U.S. Government agencies and corporations, state and political subdivisions, asset-backed and other securities. Investment securities are held in safekeeping by an independent custodian.
The objective of the investment securities held to maturity is to strengthen the portfolio yield, and to provide collateral to pledge for federal, state and local government deposits and other borrowing facilities. The investments held to maturity had an average term to maturity of 105 months at December 31, 1999 and, on the same date, those investments included $212.3 million in fixed rate and $24.8 million in adjustable rate securities.
Investment securities available for sale are generally used to supplement the Banks' liquidity. Unrealized net gains and losses on these securities are recorded as an adjustment to equity, net of taxes, and are not reflected in the current earnings of the Company. If a security is sold, any gain or loss is recorded as a charge to earnings and the equity adjustment is reversed. At December 31, 1999, the Company held $982.3 million classified as investments available for sale. At December 31, 1999, an unrealized loss of $4.0 million net of taxes of $2.9 million related to these securities, was held in shareholders' equity.
The Company had no trading securities at December 31, 1999.
For more information on investment securities, see Notes 1 and 2 to the consolidated financial statements.
The following table shows the carrying amount (fair value) of the Company's investment securities available for sale as of the dates indicated:
---------------------------------------------------------------------------------
At December 31, 1999 1998 1997
---------------------------------------------------------------------------------
(In thousands)
U.S. Treasury $183,478 $248,610 $277,790
U.S. Government agencies and corporations 195,300 121,304 181,124
States and political subdivisions 234,780 213,315 203,405
Asset backed securities 143,591 165,398 184,377
Other 225,188 239,034 156,538
---------------------------------------------------------------------------------
Total $982,337 $987,661 $1,003,234
=================================================================================
|
The following table sets forth the relative maturities and yields of the Company's available-for-sale securities (stated at amortized cost) at December 31, 1999. Weighted average yields have been computed by dividing annual interest income, adjusted for amortization of premium and accretion of discount, by the amortized cost value of the related security. Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis using the current statutory rate.
Available for sale
-------------------------------------------------------------------------------------------------------------------
After one After five
Within but within but within After ten Mortgage-
one year five years ten years years backed Other Total
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
U.S. Treasury $20,133 $164,806 $-- $-- $-- $-- $184,939
Interest rate 5.07% 5.79% --% --% --% --% 5.71%
U.S. Government agencies
and corporations 11,003 178,660 110 94 -- -- 189,867
Interest rate 5.26% 5.99% 8.95% 8.81% --% --% 5.95%
States and political
subdivisions 8,363 24,855 78,821 126,611 -- -- 238,650
Interest rate 7.29% 6.74% 8.00% 7.32% --% --% 7.48%
Asset-backed $-- 138,362 5,930 -- 144,292
Interest rate --% 6.03% 6.07% --% --% --% 6.03%
Other securities 15,842 184,761 100 -- -- -- 200,703
Interest rate 5.95% 6.20% 7.94% --% --% --% 6.18%
-------------------------------------------------------------------------------------------------------------------
Subtotal 55,341 691,444 84,961 126,705 -- -- 958,451
Interest rate 5.69% 6.03% 7.87% 7.32% --% --% 6.35%
Mortgage Backed -- -- -- -- 10,741 -- 10,741
Interest rate --% --% --% --% 6.40% --% 6.40%
Other without set maturities -- -- -- -- -- 20,069 20,069
Interest rate --% --% --% --% --% 8.82% 8.82%
-------------------------------------------------------------------------------------------------------------------
Total $55,341 $691,444 $84,961 $126,705 $10,741 $20,069 $989,261
Interest rate 5.69% 6.03% 7.87% 7.32% 6.40% 8.82% 6.40%
===================================================================================================================
|
The following table shows the carrying amount (amortized cost) and fair value of the Company's investment securities held to maturity as of the dates indicated:
---------------------------------------------------------------------------------
At December 31, 1999 1998 1997
---------------------------------------------------------------------------------
(In thousands)
U.S. Treasury $-- $-- $--
U.S. Government agencies and corporations 70,418 69,235 83,656
States and political subdivisions 155,813 147,119 136,965
Asset backed securities -- -- --
Other 10,923 10,639 10,339
---------------------------------------------------------------------------------
Total $237,154 $226,993 $230,960
=================================================================================
Fair value $235,147 $233,790 $236,896
=================================================================================
|
The following table sets forth the relative maturities and yields of the Company's held-to-maturity securities at December 31, 1999. Weighted average yields have been computed by dividing annual interest income, adjusted for amortization of premium and accretion of discount, by the amortized value of the related security. Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis using the current statutory rate.
Held to maturity
-------------------------------------------------------------------------------------------------------------------
After one After five
Within but within but within After ten Mortgage-
one year five years ten years years backed Other Total
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
U.S. Treasury $-- $-- $-- $-- $-- $-- $--
Interest rate --% --% --% --% --% --% --%
U.S. Government Agencies
and Corporations $-- $-- $-- $-- $-- $-- $--
Interest rate --% --% --% --% --% --% --%
States and Political
Subdivisions 3,261 28,119 90,044 34,389 -- -- 155,813
Interest rate 10.87% 7.70% 7.86% 7.52% --% --% 7.82%
Asset Backed $-- $-- $-- $-- $-- $-- $--
Interest rate --% --% --% --% --% --% --%
Other $-- $-- $-- $-- -- 10,923 10,923
Interest rate --% --% --% --% --% 5.74% 5.74%
-------------------------------------------------------------------------------------------------------------------
Subtotal 3,261 28,119 90,044 34,389 -- 10,923 166,736
Interest rate 10.87% 7.70% 7.86% 7.52% --% 5.74% 7.68%
Mortgage Backed -- -- -- -- 70,418 -- 70,418
Interest rate --% --% --% --% 6.11% --% 6.11%
-------------------------------------------------------------------------------------------------------------------
Total $3,261 $28,119 $90,044 $34,389 $70,418 $10,923 $237,154
Interest rate 10.87% 7.70% 7.86% 7.52% 6.11% 5.74% 7.22%
===================================================================================================================
|
LOAN PORTFOLIO
The following table shows the composition of the loan portfolio of
the Company by type of loan and type of borrower, on the dates
indicated:
-------------------------------------------------------------------------------------------------------------------
At December 31, 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------
(in thousands)
Commercial and commercial real estate 1,502,237 1,476,912 1,437,118 1,455,984 1,260,082
Real estate construction 50,928 57,998 66,782 101,136 128,901
Real estate residential 337,002 384,128 361,909 276,951 378,971
Consumer 434,803 385,204 404,382 462,734 502,441
Unearned income (4,124) (6,345) (8,254) (9,565) (12,248)
-------------------------------------------------------------------------------------------------------------------
Gross loans $2,320,846 $2,297,897 $2,261,937 $2,287,240 $2,258,147
Allowance for loan losses (51,574) (51,304) (50,630) (50,921) (48,494)
-------------------------------------------------------------------------------------------------------------------
Net loans $2,269,272 $2,246,593 $2,211,307 $2,236,319 $2,209,653
===================================================================================================================
|
Maturities and sensitivities of selected loans to changes in interest rates
The following table shows the maturity distribution and interest rate sensitivity of commercial and real estate construction loans at December 31, 1999. Balances exclude loans to individuals and residential mortgages totaling $767.7 million. These types of loans are typically paid in monthly installments over a number of years.
-------------------------------------------------------------------------------------------------------
Within One to After
One Year Five Years Five Years Total
-------------------------------------------------------------------------------------------------------
(In thousands)
Commercial and commercial real estate * $702,161 $397,762 $402,314 $1,502,237
Real estate construction 50,928 -- -- 50,928
-------------------------------------------------------------------------------------------------------
Total $753,089 $397,762 $402,314 $1,553,165
=======================================================================================================
Loans with fixed interest rates $242,623 $397,762 $402,314 $1,042,699
Loans with floating interest rates 510,466 -- -- 510,466
-------------------------------------------------------------------------------------------------------
Total $753,089 $397,762 $402,314 $1,553,165
=======================================================================================================
* Includes demand loans
|
COMMITMENTS AND LETTERS OF CREDIT
It is not the policy of the Company to issue formal commitments on lines of credit except to a limited number of well established and financially responsible local commercial enterprises. Such commitments can be either secured or unsecured and are typically in the form of revolving lines of credit for seasonal working capital needs. Occasionally, such commitments are in the form of Letters of Credit to facilitate the customers' particular business transactions. Commitment fees generally are not charged except where Letters of Credit are involved. Commitments and lines of credit typically mature within one year. For further information, see Note 12 to the consolidated financial statements.
ASSET QUALITY
The Company closely monitors the markets in which it conducts its lending operations and continues its strategy to control exposure to loans with higher credit risk and increase diversification of earning assets. 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.
At December 31, 1999 1998
---------------------------------------------------------------------
(In millions)
Classified loans $41.3 $50.8
Other classified assets 3.3 4.3
---------------------------------------------------------------------
Total classified assets $44.6 $55.1
=====================================================================
|
Classified loans at December 31, 1999 decreased $9.5 million or 19 percent to $41.3 million from December 31, 1998, reflecting the implementation of the Company's active work-out standards and charge-offs. Other classified assets decreased $1.0 million from prior year, due to sales and write-downs of properties acquired in satisfaction of debt ("other real estate owned") partially offset by new foreclosures on loans with real estate collateral.
Non-performing assets
Non-performing assets include non-accrual loans, loans 90 or more days past due and still accruing and other real estate owned. 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. In addition, some 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 by Management as "performing non-accrual" and are included in total non-performing assets. When the ability to fully collect non-accrual loan principal is in doubt, payments received are applied against the principal balance of the loans until such time as full collection of the remaining recorded balance is expected. Any additional interest payments received after that point are recorded as interest income on a cash basis. 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.
The following table summarizes the non-performing assets of the Company for the periods indicated:
-------------------------------------------------------------------------------------------------------
At December 31, 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------
(In millions)
Performing non-accrual loans $3.5 $1.8 $1.6 $4.3 $2.4
Non-performing non-accrual loans 5.5 6.8 16.5 12.5 25.0
-------------------------------------------------------------------------------------------------------
Non-accrual loans 9.0 8.6 18.1 16.8 27.4
-------------------------------------------------------------------------------------------------------
Restructured loans -- -- -- 0.2 0.3
Loans 90 or more days past due
and still accruing 0.5 0.5 1.0 1.8 1.7
Other real estate owned 3.3 4.3 7.4 9.9 7.6
-------------------------------------------------------------------------------------------------------
Total non-performing assets $12.8 $13.4 $26.5 $28.7 $37.0
=======================================================================================================
Allowance for loan losses as a
percentage of non-accrual loans
and loans 90 or more days past
due and still accruing 540% 564% 265% 271% 165%
Allowance for loan losses as a percentage
of total non-performing assets 402% 383% 191% 177% 131%
=======================================================================================================
|
Performing non-accrual loans increased $1.7 million to $3.5 million at December 31, 1999 while non-performing non-accrual loans decreased $1.3 million to $5.5 million during the same period, primarily due to the sales, payoffs and foreclosures of commercial and commercial real estate loans. The $1.0 million decrease in other real estate owned balances from December 31, 1998 was due to write-downs and liquidations net of foreclosures on real estate property acquired in satisfaction of debt. The decrease in non-performing loans from 1997 to 1998 was primarily due to sales, payoffs and foreclosures of commercial loans with real estate collateral acquired through the Merger. The decrease in other real estate owned balances at December 31, 1998 from December 31, 1997 was also due to write-downs and liquidations net of foreclosures.
The amount of gross interest income that would have been recorded for non-accrual loans if all such loans had been current in accordance with their original terms while outstanding during the period, was $751 thousand in 1999, $855 thousand in 1998 and $1.6 million in 1997. The amount of interest income that was recognized on non-accrual loans from cash payments made in 1999, 1998 and 1997 was $473 thousand, $573 thousand and $462 thousand, respectively. Cash payments received, which were applied against the book balance of performing and non-performing non-accrual loans outstanding at December 31, 1999, totaled approximately $356 thousand, compared to $952 thousand and $573 thousand in 1998 and 1997, respectively.
The overall credit quality of the loan portfolio continues to be strong; however, the total non-performing assets could fluctuate from year to year. The performance of any individual loan can be impacted by external factors such as the interest rate environment or factors particular to the borrower. The Company expects to maintain non-performing asset levels; however, no assurance can be given that additional increases in non-accrual loans will not occur in future periods.
Loan loss experience
The Company's allowance for loan losses is maintained at a level estimated to be adequate to provide for losses that can be reasonably anticipated based upon specific conditions, credit loss experience, the amount of past due, non-performing loans and classified loans, recommendations of regulatory authorities, prevailing economic conditions and other factors. The allowance is allocated to segments of the loan portfolio based in part on quantitative analyses of historical credit loss experience, in which criticized and classified loan balances are analyzed using a linear regression model to determine standard allocation percentages. The results of this analysis are applied to current criticized and classified loan balances to allocate the allowance to the respective segments of the loan portfolio. 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 those loans are delinquent. A portion of the allowance is also allocated to impaired loans. Management considers the $51.6 million allowance for loan losses, which constituted 2.22 percent of total loans at December 31, 1999, to be adequate as a reserve against inherent losses. However, while the Company's policy is to charge off in the current period those loans on which the loss is considered probable, the risk exists of future losses which cannot be precisely quantified or attributed to particular loans or classes of loans. Management continues to evaluate the loan portfolio and assess current economic conditions that will dictate future allowance levels.
The following table summarizes the loan loss experience of the Company for the periods indicated:
-------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------
(In thousands)
Total loans outstanding $2,320,846 $2,297,897 $2,261,937 $2,287,240 $2,258,147
Average loans outstanding during the period 2,292,386 2,262,083 2,248,048 2,249,520 2,254,946
Analysis of the reserve
Beginning balance $51,304 $50,630 $50,921 $48,494 $46,580
Additions to the reserve charged to
operating expense 4,780 5,180 7,645 12,306 15,229
Allowance acquired through merger 0 0 0 1,665 0
Credit losses:
Commercial and commercial real estate (5,071) (5,113) (6,825) (7,998) (7,395)
Real estate construction (94) -- (962) (781) (1,401)
Real estate residential (18) (97) (374) (1,862) (3,682)
Consumer (2,754) (3,358) (4,323) (5,376) (3,742)
-------------------------------------------------------------------------------------------------------
Total (7,937) (8,568) (12,484) (16,017) (16,220)
Credit loss recoveries
Commercial and commercial real estate 2,052 2,305 2,499 2,227 1,518
Real estate construction -- 10 160 44 3
Real estate residential -- 1 34 72 26
Consumer 1,375 1,746 1,855 2,130 1,358
-------------------------------------------------------------------------------------------------------
Total 3,427 4,062 4,548 4,473 2,905
-------------------------------------------------------------------------------------------------------
Net credit losses (4,510) (4,506) (7,936) (11,544) (13,315)
-------------------------------------------------------------------------------------------------------
Balance, end of period $51,574 $51,304 $50,630 $50,921 $48,494
=======================================================================================================
Net credit losses to average loans 0.20% 0.20% 0.35% 0.51% 0.59%
Allowance for loan losses as a percentage
of loans outstanding 2.22% 2.23% 2.24% 2.23% 2.15%
|
Allocation of the Allowance for Loan Losses
The following table presents the allocation of the allowance for loan losses as of December 31 for the years indicated:
-------------------------------------------------------------------------------------------------------------------
1999 Loans 1998 Loans 1997 Loans
Allocation as Allocation as Allocation as
of the Percent of the Percent of the Percent
Allowance of Total Allowance of Total Allowance of Total
Balance Loans Balance Loans Balance Loans
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Commercial $23,523 65% $22,240 64% $22,649 63%
Real estate construction 2,042 2 4,055 3 4,374 3
Real estate residential 877 14 310 17 87 16
Consumer 4,670 19 4,260 16 4,356 18
Unallocated portion of the reserve 20,462 "-- 20,439 "-- 19,164 "--
-------------------------------------------------------------------------------------------------------------------
Total $51,574 100% $51,304 100% $50,630 100%
===================================================================================================================
--------------------------------------------------------------------------------------------
1996 Loans 1995 Loans
Allocation as Allocation as
of the Percent of the Percent
Reserve of Total Reserve of Total
Balance Loans Balance Loans
--------------------------------------------------------------------------------------------
(Dollars in thousands)
Commercial $22,743 64% $21,849 56%
Real estate construction 3,471 4 5,683 6
Real estate residential 2,489 12 1,733 16
Consumer 6,543 20 6,401 22
Unallocated portion of the reserve 15,675 "-- 12,828 "--
--------------------------------------------------------------------------------------------
Total $50,921 100% $48,494 100%
============================================================================================
|
The Company considers a loan to be impaired when, based on current information and events, it is "probable" that it will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. The measurement of impairment may be based on (I) the present value of the expected cash flows of the impaired loan discounted at the loan's original effective interest rate, (ii) the observable market price of the impaired loan or (iii) the fair value of the collateral of a collateral-dependent loan. The Company does not apply this definition to large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment. In measuring impairment, the Company reviews all commercial and construction loans classified "Substandard" and "Doubtful" that meet materiality thresholds of $250 thousand and $100 thousand, respectively. The Company considers classified loans below the established thresholds to represent immaterial loss risk. All loans classified as "Loss" are considered impaired. Commercial and construction loans that are not classified, and large groups of smaller-balance homogeneous loans such as installment, personal revolving credit, residential real estate and student loans, are evaluated collectively for impairment under the Company's standard loan loss reserve methodology. The Company generally identifies loans to be reported as impaired when such loans are in non-accrual status or are considered troubled debt restructurings due to the granting of a below-market rate of interest or a partial forgiveness of indebtedness on an existing loan.
At December 31, 1999 1998
---------------------------------------------------------------------
(In thousands)
Non-accrual loans $8,960 $8,532
Other 6,146 6,504
---------------------------------------------------------------------
Total impaired loans $15,106 $15,036
=====================================================================
Specific reserves $2,105 $1,255
=====================================================================
|
The $6.1 million balance in loans classified as impaired as of December 31, 1999, other than non-accrual loans, is due to two commercial real estate loans, with combined principal outstanding balances of $5.1 million, having collateral exposure that may preclude ultimate full repayment, and one credit classified as a troubled debt restructuring with principal outstanding of $1.0 million. Payments on these credits were current as of December 31, 1999.
The average balance of the Company's impaired loans for the year ended December 31, 1999 was $15.5 million compared to $15.9 million in 1998. The amount of that recorded investment for which there is no related allowance for credit losses was $0. In general, the Company does not recognize any interest income on troubled debt restructurings or loans that are classified as non-accrual. For other impaired loans, interest income may be recorded as cash is received, provided that the Company's recorded investment in such loans is deemed collectible.
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.
In adjusting the Company's asset/liability position, Management attempts to manage interest rate risk while enhancing net interest margins. At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, Management may increase the Company's interest rate risk position in order to increase its net interest margin. The Company's results of operations and net portfolio values remain vulnerable to increases in interest rates and to fluctuations in the difference between long- and short-term interest rates.
The primary analytical tool used by the Company to quantify interest rate risk is a simulation model to project changes in net interest income ("NII") that result from forecast changes in interest rates. This analysis calculates the difference between a NII forecast over a 12-month period using a flat interest rate scenario and a NII forecast using a rising (or falling) rate scenario, where the Federal Funds rate, serving as a "driver," is made to rise (or fall) evenly by 200 basis points over the 12-month forecast interval triggering a response in the other rates. Company policy requires that such simulated changes in NII should always be less than 10 percent or steps must be taken to reduce interest rate risk. According to the same policy, if the simulated changes in NII reach 7.5 percent, a closer inspection of the risk will be put in place to determine what steps could be taken to control risk.
Changes in Estimated Increase
Interest (Decrease) in NII
Rates Estimated -----------------------
(Basis Points) NII Amount Amount Percent
---------------------------------------------------------
(Dollars in millions)
+200 $189.0 ($4.0) -2.1%
-- 193.0 -- --
-200 195.1 2.1 1.1%
=========================================================
|
The Company does not currently engage in trading activities or use derivative instruments to control interest rate risk, even though such activities may be permitted with the approval of the Company's Board of Directors.
Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange risk, equity price risk and commodity price risk, do not arise in the normal course of the Company's business activities.
Interest rate sensitivity analysis
The following table summarizes the interest rate sensitivity gaps inherent in the Company's asset and liability portfolios at December 31, 1999:
===================================================================================================================
Repricing within (days)
-------------------------------------------------------------------------------------------------------------------
Non-
0-90 91-180 181-365 Over 365 Repricing Total
-------------------------------------------------------------------------------------------------------------------
(In millions)
Assets
Investment securities $29 $33 $72 $1,085 $0 $1,219
Loans 773 108 192 1,248 0 2,321
Other assets 0 0 0 0 353 353
-------------------------------------------------------------------------------------------------------------------
Total assets $802 $141 $264 $2,333 $353 $3,893
===================================================================================================================
Liabilities
Non-interest bearing $-- $-- $-- $-- $912 $912
Interest-bearing:
Transaction 486 -- -- -- -- 486
Money market savings 171 171 251 -- -- 593
Passbook savings 247 -- -- -- -- 247
Time 556 137 88 46 -- 827
Short-term borrowings 274 41 147 0 -- 462
Debt financing and notes payable -- -- -- 42 -- 42
Other liabilities -- -- -- -- 23 23
Shareholders' equity -- -- -- -- 301 301
-------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,734 $349 $486 $88 $1,236 $3,893
===================================================================================================================
Net (liabilities) assets subject
to repricing ($932) ($208) ($222) $2,245 ($883)
-------------------------------------------------------------------------------------------------------------------
Cumulative net (liabilities) assets
subject to repricing ($932) ($1,140) ($1,362) $883 $0
===================================================================================================================
|
The repricing terms of the table above do not represent contractual principal maturity, but rather principal cash flows available for repricing. The interest rate sensitivity report shown above categorizes interest-bearing transaction deposits and savings deposits as repricing within 30 days. However, it is the experience of Management that the historical interest rate volatility of these interest-bearing transaction and savings deposits can be similar to liabilities with longer repricing dates, depending on market conditions. Moreover, the degree to which these deposits respond to changes in money market rates usually is less than the response of interest-rate sensitivity loans. These factors cause the cumulative net liability position shown above to indicate a much greater degree of liability sensitivity than Management believes really exists based on the additional analysis previously discussed.
Liquidity
The principal sources of asset liquidity are marketable investment securities available for sale. At December 31, 1999, investment securities available for sale totaled $982.3 million. In addition, the Company generated significant liquidity from its operating activities. The Company's profitability in 1999, 1998 and 1997 generated substantial cash flows, included in the total provided from operations, of $95.9 million, $63.3 million and $78.7 million, respectively. Additional cash flows may be provided by financing activities, primarily the acceptance of customer deposits and short- and long-term borrowings from banks.
During 1999, the effect of the Company's stock repurchase program and dividends paid to shareholders of $100.2 million and $25.6 million, respectively, in addition to a $123.7 million decrease in customers' deposits and the repayment of $6.0 million in long-term debt and debt financing, was offset by an increase of $258.7 million in short-term borrowings. The combination of these factors resulted in a total of $7.8 million in net cash provided by financing activities during 1999. Conversely, during 1998, customers' deposits increased $110.5 million and stock issued primarily for stock option exercises totaled $12.5 million, but these cash inflows were offset by cash used by the Company for its share repurchase program and other retirement of stock activities, totaling $104.8 million, dividends paid to the Company's shareholders for $21.9 million and reductions in short-term borrowings and debt financing in the amounts of $61.2 million and $5.0 million, respectively. During 1997, decreases in deposits of $150.2 million, repurchases and retirements of the Company's common stock of $35.6 and dividends paid to shareholders and retirement of repayments of notes payable and debt financing of $13.4 million and $6.4 million, respectively, were partially offset by a $97.4 million increase in short-term borrowings. These were the major factors affecting net cash flows used in financing activities of $69.9 million and $91.3 million, respectively, for the years 1998 and 1997.
The Company uses cash to make investments in loans and in investment securities. Net disbursements of loans were $29.7 million in 1999 and, in addition, during 1999, the Company increased by $47.5 million its investment securities portfolio, primarily in U.S. agencies and municipal securities, partially offset by decreases in U.S. Treasury and asset-backed securities. Net disbursements of loans were $42.4 million in 1998, compared to net repayments of loan balances of $9.1 million in 1997. As a result of the increase in loan volume in 1998, the Company reduced its investment in securities by $23.4 million in 1998. However, the intention of the Company is to increase loan volume without jeopardizing credit quality; this was the primary reason for investing excess cash flows in lower-risk investment securities in 1997, which increased $106.2 million during that year.
The Company anticipates increasing its cash levels through the end of 2000 mainly due to increased profitability and retained earnings. For the same period, it is anticipated that the investment securities portfolio and demand for loans will continue to increase moderately. The growth in deposit balances is expected to follow the anticipated growth in loan and investment balances through the end of 2000.
Line of credit
On July 31, 1998, the Company entered into an agreement with a well-established financial institution, establishing a line of credit for general corporate purposes including the repurchase of its stock. The line of credit has a one-year term and an available commitment amount ranging from $60 million, during the first nine months, reduced by $7.5 million during each of the following three months to $37.5 million. The interest rate on this line of credit is set by the lender based on various factors, including costs and desired return, general economic conditions and other factors. During the third quarter of 1999, the Company elected to cancel this line of credit, replacing this available source of cash inflow with increased cash dividends from its affiliates.
CAPITAL RESOURCES
The current and projected capital position of the Company and the impact of capital plans and long-term strategies is reviewed regularly by Management. The Company's capital position represents the level of capital available to support continued operations and expansion.
Since the beginning of 1994 and through December 31, 1999, the Board of Directors of the Company has authorized the repurchase of 5.3 million shares of the Company's common stock from time to time, subject to appropriate regulatory and other accounting requirements. The Company acquired 1.0 million shares of its common stock in the open market during 1999, 996 thousand in 1998, 1.0 million in 1997, and 1.2 million, 721 thousand and 93 thousand in 1996, 1995 and 1994, respectively. These repurchases were made periodically in the open market with the intention to lessen the dilutive impact of issuing new shares to meet stock performance, option plans, acquisitions and other requirements.
In addition to these systematic repurchases, a new plan to repurchase 1.75 million additional shares of the Company's common stock was approved by the Board of Directors on August 26, 1999. This program supercedes the authorization of repurchasing 3.0 million additional shares of the Company's common stock approved by the Board of Directors on June 25, 1998. The Company's strong capital position and healthy profitability contributed to the initiation of these programs, which were being implemented to optimize the Company's use of equity capital and enhance shareholder value. Pursuant to these programs, the Company repurchased 1.7 million and 2.1 million shares of its common stock during 1999 and 1998, respectively. The average price of these repurchases were $33 and $30 per share, respectively, for 1999 and 1998.
The Company's primary capital resource is shareholders' equity, which decreased $68.0 million or 18 percent from the previous year end and decreased $106.6 million or 26 percent from December 31, 1997. The ratio of total risk-based capital to risk-adjusted assets was 11.75 percent at December 31, 1999, compared to 13.79 percent at December 31, 1998. Tier I risk-based capital to risk-adjusted assets was 9.82 percent at December 31, 1999, compared to 11.87 percent at December 31, 1998.
Minimum
Regulatory
Capital
At December 31, 1999 1998 Requirements
---------------------------------------------------------------------
Tier I Capital 9.82% 11.87% 4.00%
Total Capital 11.75% 13.79% 8.00%
Leverage ratio 7.48% 9.39% 4.00%
=====================================================================
|
The risk-based capital ratios declined in 1999 mainly due to reductions in equity capital resulting primarily from share repurchase programs. 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."
FINANCIAL RATIOS
The following table shows key financial ratios for the periods indicated:
------------------------------------------------------------------------------------------------------- At December 31, 1999 1998 1997 ------------------------------------------------------------------------------------------------------- Return on average total assets 1.99% 1.94% 1.28% Return on shareholders' equity 23.31% 19.48% 12.71% Average shareholders' equity as a percentage of: Average total assets 8.53% 9.97% 10.10% Average total loans 14.24% 16.66% 16.84% Average total deposits 10.52% 12.26% 12.14% Dividend payout ratio (diluted EPS) 34.00% 30.00% 33.00% ======================================================================================================= |
DEPOSIT CATEGORIES
The Company primarily attracts deposits from local businesses and professionals, as well as through retail certificates of deposit, savings and checking accounts.
The following table summarizes the Company's average daily amount of deposits and the rates paid for the periods indicated:
-------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------------------------
Percentage Percentage
Average of Total Average of Total
Balance Deposits Rate * Balance Deposits Rate *
-------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Non-interest bearing demand $857,650 27.6% --% $791,952 25.8% --%
Interest bearing:
Transaction 536,067 17.3% 0.70% 554,834 18.0% 1.14%
Savings 873,324 28.1% 2.25% 906,930 29.5% 2.64%
Time less than $100 thousand 410,092 13.2% 4.42% 438,052 14.3% 4.99%
Time $100 thousand or more 425,949 13.7% 4.57% 381,754 12.4% 5.04%
-------------------------------------------------------------------------------------------------------
Total $3,103,082 100.00% 2.71% $3,073,522 100.00% 3.13%
=======================================================================================================
|
1997
---------------------------------------------------------------------
Percentage
Average of Total
Balance Deposits Rate *
---------------------------------------------------------------------
(Dollars in thousands)
Non-interest bearing demand $781,001 25.0% --%
Interest bearing:
Transaction 548,139 17.6% 1.22%
Savings 985,800 31.6% 2.84%
Time less than $100 thousand 479,692 15.4% 5.09%
Time $100 thousand or more 323,840 10.4% 5.28%
---------------------------------------------------------------------
Total $3,118,472 100.00% 3.26%
=====================================================================
|
* Rate is computed based on interest-bearing deposits
In 1999, total average deposits increased $29.6 million or 1 percent from 1998 primarily due to aggressive policies in place resulting in a combined increase of $46.9 million in demand deposits and interest-bearing transaction accounts. (The increase of $65.7 million in non-interest bearing demand deposits was partially offset by a $18.8 million decrease in interest-bearing transaction accounts primarily due to the transfer, during the third quarter of 1999, of certain interest-bearing transaction deposits into the non interest-bearing category). In addition, to compensate the combined total year-to-year balance runoff of $61.6 million in savings account and retail certificates of deposit balances, time certificates of deposit of $100 thousand or more increased $44.2 million or 12 percent from 1998.
In 1998, total average deposits decreased 1 percent from 1997 primarily due to decreases in savings and retail certificates of deposits as a result of the anticipated runoff of business reflective of market conditions. However, to counteract this effect, time certificates of deposit of $100 thousand or more increased 18 percent, and aggressive policies in place resulted in a 1 percent increase in the average balance of non-interest bearing and transaction demand accounts.
At December 31,
1999
---------------------------------------------------------------------
(In thousands)
Three months or less $359,956
Over three through six months 44,275
Over six through twelve months 24,404
Over twelve months 3,285
---------------------------------------------------------------------
Total $431,920
=====================================================================
|
SHORT-TERM BORROWINGS
The following table sets forth the short-term borrowings of the Company
for the periods indicated:
---------------------------------------------------------------------------------
At December 31, 1999 1998 1997
---------------------------------------------------------------------------------
(In thousands)
Federal funds purchased $254,000 $50,000 $50,000
Other borrowed funds:
Retail repurchase agreements 59,552 28,693 103,346
Other 148,793 124,978 111,502
---------------------------------------------------------------------------------
Total other borrowed funds $208,345 $153,671 $214,848
---------------------------------------------------------------------------------
Total funds purchased $462,345 $203,671 $264,848
=================================================================================
|
Further detail of the other borrowed funds is as follows:
---------------------------------------------------------------------------------
At December 31, 1999 1998 1997
---------------------------------------------------------------------------------
(Dollars in thousands)
Outstanding:
Average for the year $178,848 $195,415 $153,013
Maximum during the year 265,741 247,799 227,463
Interest rates:
Average for the year 3.91% 4.61% 4.73%
Average at period end 4.15% 3.49% 4.76%
=================================================================================
NON-INTEREST INCOME
Components of non-interest income
---------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------
(In millions)
Service charges on deposit accounts $20.3 $20.1 $20.6
Merchant credit card 3.6 3.2 3.7
Financial services commissions 2.7 1.7 1.2
Mortgage banking 0.8 1.4 1.5
Trust fees 0.7 0.6 0.5
Other 12.1 10.8 9.5
---------------------------------------------------------------------------------
Total $40.2 $37.8 $37.0
=================================================================================
|
Non-interest income was $40.2 million in 1999, $2.4 million higher than 1998. Financial services commissions were $1.0 million higher than 1998 due to more aggressive marketing efforts resulting in higher sales volume on all products, including annuities, securities and life insurance. Merchant credit card income was $400 thousand higher than 1998, mainly due to fee restructuring and higher sales volume; service charges on deposit accounts were $200 thousand higher than 1998 including higher fees from overdraft and non-sufficient funds returned items, primarily due to the effect of new programs implemented in 1999 using a process of price escalators determined by volume by customer; and trust fees were $100 thousand higher than 1998. A litigation settlement of $1.5 million accounted for the majority of the increase in the other non-interest income category. Partially offsetting these increases from prior year, mortgage banking income was $600 thousand lower than 1998, due to declining servicing income, lower gains on sales of loans in the secondary market and lower banking fees due to reduced refinancing volume.
Non-interest income was $37.8 million in 1998, $800 thousand higher than 1997. Gains realized on asset sales were $1.3 million higher than prior year. Financial services commissions were $500 thousand higher than 1997 primarily due to higher sales volume and additional products offered. Trust fees were $100 thousand higher due to the Company's continuing efforts to expand personal and retirement plan business. Unfavorable non-interest income year-to-year changes from 1997 include $500 thousand lower deposit account fees, including lower volume of account maintenance, and lower overdrafts and returned item fees, as business customers maintained larger account balances to compensate for these services. In addition, merchant credit card income was $500 thousand lower than 1997 and mortgage banking income was $100 thousand lower, mainly due to declining servicing income.
NON-INTEREST EXPENSE
Components of non-interest expense
---------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------
(In millions)
Salaries $40.0 $40.0 $50.4
Other personnel benefits 10.7 11.1 12.1
Occupancy 12.2 11.6 22.2
Equipment 6.9 7.4 10.8
Professional fees 1.7 2.3 9.2
Data processing 6.0 5.9 6.2
Stationery and supplies 1.6 1.8 2.5
Advertising and public relations 1.3 1.4 1.9
Merchant credit card 1.4 1.2 1.7
Loan expense 1.3 1.5 1.7
Operational losses 1.2 1.0 1.2
Other real estate owned 0.3 0.3 1.0
Insurance 0.1 0.2 0.5
FDIC insurance assessment 0.4 0.4 0.4
Other 15.0 15.3 16.1
---------------------------------------------------------------------------------
Total $100.1 $101.4 $137.9
=================================================================================
Average full-time equivalent staff 1,098 1,135 1,288
Non-interest expense to
revenues ("efficiency ratio")(FTE) 43.2% 44.2% 60.1%
=================================================================================
|
Non-interest expense decreased $1.3 million in 1999 compared to 1998. Major decreases from 1998 relate to the Company's efforts to implement new and continue to enforce existing cost-control programs. Professional fees were $600 thousand lower than 1998, including lower legal fees, primarily due to reduced problem-credit related expenses, and lower accounting costs primarily due to a reduced number of special projects, including income tax-related, undertaken in 1999; equipment expenses were $500 thousand lower than prior year primarily due to lower depreciation costs and lower lease and maintenance expenses resulting from contract renegotiations; and other personnel benefits was $400 thousand lower than 1998 primarily due to reduced expenses related to some of the Company's compensation plans. Other expense reductions from 1998 include $200 thousand lower stationery and supplies costs, mainly due to lower printing costs and purchases of inventories; $200 thousand lower loan expense primarily due to reduced appraisal fees and costs related to foreclosures on properties acquired in satisfaction of debt ("other real estate owned"); $100 thousand lower advertising and public relations expense, including decreased costs in connection with the publication of shareholders' reports, and $100 thousand lower insurance expenses resulting from more beneficial cost characteristics in connection with newly negotiated policies. Partially offsetting these favorable changes from prior year, occupancy costs were $600 thousand higher than 1998, including increased maintenance, utilities and rental costs; merchant credit card related costs were $200 thousand higher than prior year mainly due to increased processing expenses and increased assessments from credit card servicers; and operational losses were $200 thousand higher than 1998.
Non-interest expense of $101.4 million in 1998 was $36.5 million lower than 1997. The reduction reflects successful efforts to control costs through efficiencies and consolidation of operations. In addition, approximately $18.8 million in one-time costs related to the Merger were included in 1997. All non-interest expense categories decreased from 1997 levels. Occupancy and equipment costs were $14.0 million lower, mainly due to expenses related to facilities closures. Employee related expenses were $11.4 million lower due to one-time Merger related costs in 1997 and streamlining of operations in 1998, as reflected in the reduction of 153 full-time equivalent staff. In addition, professional fees were reduced $6.9 million from prior year, and stationery and supplies and other real estate owned costs decreased $700 thousand, each, from 1997 levels also due to increased Merger costs incurred in 1997. The reductions from 1997 in merchant credit card and advertising and public relations costs of $500 thousand each, data processing and insurance costs of $300 thousand each, and loan expenses and operational losses of $200 thousand each, are also mainly due to post-Merger efficiencies.
The ratio of average assets per full-time equivalent staff was $3.49 million in 1999 compared to $3.33 million and $2.91 million in 1998 and 1997, respectively. The reduction of the average number of full-time equivalent staff from 1,288 in 1997 to 1,135 and 1,098 in 1998 and 1999, respectively, is reflective of the Company's strategy to improve efficiency.
PROVISION FOR INCOME TAX
The provision for income tax (FTE) increased by $1.6 million in 1999 mainly as a result of higher pretax income partially offset by an increase in tax-exempt interest income from municipal securities and loans. The 1999 provision of $38.4 million reflects an effective tax rate of 33.5 percent compared to provisions of $38.0 million in 1998 and $26.0 million in 1997, representing effective tax rates of 34.1 percent and 35.1 percent, respectively.
YEAR 2000 COMPLIANCE
During 1999, the Company successfully completed efforts to ensure that its internal operating systems, as well as those of its major customers and suppliers, were fully capable of processing so-called Year 2000 transactions. The primary cost of the project was the reallocation of internal resources, and therefore did not represent incremental expense to the Company. The estimated value of internal resources allocated to Year 2000 compliance efforts in 1999 was approximately $800 thousand and the cost of compliance incurred prior to 1999 was approximately $3.1 million.
The Company did not experience any failures of its computerized systems resulting from Year 2000 issues, nor does it have any information that indicates any of its vendors or service providers may be unable to sell goods or services to the Company or that any customers may be unable to meet the Company's lending requirements because of Year 2000 issues.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company is including the following cautionary statement to take advantage of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statement made by, or on behalf of, the Company. The factors identified in this cautionary statement are important factors (but not necessarily all important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.
Where any such forward-looking statement includes a statement of the assumptions of bases underlying such forward-looking statement, the Company cautions that, while it believes such assumptions or bases to be reasonable and makes them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, the Company expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result, or be achieved or accomplished.
PENDING ACQUISITION
On March 15, 2000, the Company and First Counties Bank announced the signing of a Definitive Merger Agreement under which the Company will acquire all of the outstanding shares of common stock of First Counties Bank pursuant to a tax-free exchange of shares. The Agreement, which has been approved by the Boards of Directors of both companies, is subject to conditions usual and customary for merger transactions of this type, including approval by First Counties Bank shareholders, approval by regulatory authorities, and satisfaction of other terms and conditions. The merger will be accounted for under the purchase method of accounting. On March 17, 2000, the Company filed a Report on Form 8-K on the subject.
ITEM 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets as of December 31, 1999 and 1998 49
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997 50
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1999, 1998 and 1997 51
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 52
Notes to Consolidated Financial Statements 53
Independent Auditors' Report 77
Management's Letter of Financial Responsibility 78
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====================================================================================================
Balances as of December 31, 1999 1998
----------------------------------------------------------------------------------------------------
ASSETS (In thousands)
Cash and cash equivalents (Note 15) $255,738 $229,734
Money market assets 250 250
Investment securities available for sale (Note 2) 982,337 987,661
Investment securities held to maturity; market values of
$235,147 in 1999 and $233,790 in 1998 (Note 2) 237,154 226,993
Loans, net of an allowance for loan losses of:
$51,574 in 1999 and $51,304 in 1998 (Notes 3,4 and 14) 2,269,272 2,246,593
Other real estate owned 3,269 4,315
Premises and equipment, net (Note 5) 44,016 45,971
Interest receivable and other assets (Note 9) 101,151 102,781
----------------------------------------------------------------------------------------------------
Total assets $3,893,187 $3,844,298
====================================================================================================
LIABILITIES
Deposits:
Non-interest bearing $911,556 $842,919
Interest bearing:
Transaction 485,860 600,502
Savings 840,644 903,141
Time (Notes 2 and 6) 827,284 842,443
----------------------------------------------------------------------------------------------------
Total deposits 3,065,344 3,189,005
Short-term borrowed funds (Notes 2 and 6) 462,345 203,671
Liability for interest, taxes and
other expenses (Note 9) 23,406 35,526
Debt financing and notes payable (Note 6) 41,500 47,500
----------------------------------------------------------------------------------------------------
Total liabilities 3,592,595 3,475,702
----------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Notes 7 and 15)
Common Stock (no par value)
Authorized - 150,000 shares
Issued and outstanding - 37,125 in 1999 and 39,828 in 1998 186,435 195,156
Accumulated other comprehensive income:
Unrealized (loss) gain on securities available for sale, net (4,521) 20,184
Retained earnings 118,678 153,256
----------------------------------------------------------------------------------------------------
Total shareholders' equity 300,592 368,596
----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $3,893,187 $3,844,298
====================================================================================================
See accompanying notes to consolidated financial statements.
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=============================================================================================
For the years ended December 31, 1999 1998 1997
---------------------------------------------------------------------------------------------
(In thousands, except per share data)
INTEREST INCOME
Loans $186,652 $195,656 $201,999
Money market assets and funds sold 4 42 1,635
Investment securities:
Available for sale
Taxable 46,838 47,785 46,620
Tax-exempt 10,744 9,713 7,957
Held to maturity
Taxable 5,313 5,914 5,199
Tax-exempt 8,105 7,710 7,260
---------------------------------------------------------------------------------------------
Total interest income 257,656 266,820 270,670
INTEREST EXPENSE
Transaction deposits 3,736 6,321 6,706
Savings deposits 19,622 23,943 28,036
Time deposits (Note 6) 37,552 41,087 41,522
Short-term borrowed funds (Note 6) 14,285 11,670 7,803
Debt financing and notes payable (Note 6) 3,261 3,644 3,987
---------------------------------------------------------------------------------------------
Total interest expense 78,456 86,665 88,054
---------------------------------------------------------------------------------------------
NET INTEREST INCOME 179,200 180,155 182,616
Provision for loan losses (Note 3) 4,780 5,180 7,645
---------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 174,420 174,975 174,971
---------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 20,316 20,052 20,624
Merchant credit card 3,605 3,229 3,737
Financial services commissions 2,650 1,676 1,153
Mortgage banking 777 1,437 1,521
Trust fees 697 626 504
Other 12,129 10,785 9,474
---------------------------------------------------------------------------------------------
Total non-interest income 40,174 37,805 37,013
NON-INTEREST EXPENSE
Salaries and related benefits (Note 13) 50,706 51,094 62,485
Occupancy (Notes 5 and 11) 12,153 11,582 22,166
Furniture and equipment (Notes 5 and 11) 6,874 7,372 10,799
Data processing 5,967 5,940 6,234
Professional fees 1,652 2,250 9,185
Other real estate owned and property held for sale 299 339 1,121
Other 22,482 22,831 25,888
---------------------------------------------------------------------------------------------
Total non-interest expense 100,133 101,408 137,878
INCOME BEFORE INCOME TAXES 114,461 111,372 74,106
Provision for income taxes (Note 9) 38,373 37,976 25,990
---------------------------------------------------------------------------------------------
NET INCOME $76,088 $73,396 $48,116
=============================================================================================
Comprehensive income, net:
Change in unrealized (loss) gain on securities
available for sale, net (24,705) 2,261 11,904
---------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $51,383 $75,657 $60,020
=============================================================================================
Average shares outstanding 38,588 41,797 43,040
Diluted average shares outstanding 39,194 42,524 43,827
PER SHARE DATA (Note 7)
Basic earnings $1.97 $1.76 $1.12
Diluted earnings 1.94 1.73 1.10
Dividends paid 0.66 0.52 0.36
See accompanying notes to consolidated financial statements.
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=====================================================================================
Accumulated
other
comprehensive Retained
Common Stock income Earnings Total
-------------------------------------------------------------------------------------
(In thousands)
December 31, 1996 $187,210 $6,019 $186,050 $379,279
Net income for the year -- -- 48,116 48,116
Stock issued 16,853 -- -- 16,853
Purchase and retirement of stock (5,546) -- (30,048) (35,594)
Dividends -- -- (13,406) (13,406)
Unrealized gain on securities
available for sale, net -- 11,904 -- 11,904
-------------------------------------------------------------------------------------
December 31, 1997 198,517 17,923 190,712 407,152
Net income for the year -- -- 73,396 73,396
Stock issued 12,475 -- -- 12,475
Purchase and retirement of stock (15,836) -- (88,988) (104,824)
Dividends -- -- (21,864) (21,864)
Unrealized gain on securities
available for sale, net -- 2,261 -- 2,261
-------------------------------------------------------------------------------------
December 31, 1998 195,156 20,184 153,256 368,596
Net income for the year -- -- 76,088 76,088
Stock issued 6,421 -- -- 6,421
Purchase and retirement of stock (15,142) -- (85,085) (100,227)
Dividends -- -- (25,581) (25,581)
Unrealized gain on securities
available for sale, net -- (24,705) -- (24,705)
-------------------------------------------------------------------------------------
December 31, 1999 $186,435 ($4,521) $118,678 $300,592
=====================================================================================
See accompanying notes to consolidated financial statements.
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===============================================================================================================
For the years ended December 31, 1999 1998 1997
---------------------------------------------------------------------------------------------------------------
(In thousands)
OPERATING ACTIVITIES
Net income $76,088 $73,396 $48,116
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,234 8,623 9,828
Loan loss provision 4,780 5,180 7,645
Amortization of deferred net loan fees (cost) 1,299 431 (1,215)
(Increase) decrease in interest income receivable (1,212) 1,533 1,460
Decrease (increase) in other assets 952 (14,361) 940
(Decrease) increase in income taxes payable (747) 1,752 3,135
Increase (decrease) in interest expense payable 626 401 (321)
Increase (decrease) in other liabilities 6,803 (10,683) (5,340)
Gain on sales of branches -- -- (678)
Net loss (gain) on sales/write-down of equipment 10 (309) 7,785
Originations of loans for resale (18,250) (23,578) (12,157)
Net proceeds from sale of loans originated for resale 17,533 21,374 19,301
Net gain on sale of property acquired in satisfaction of debt (322) (1,043) (1,184)
Write-down on property acquired in satisfaction of debt 88 579 1,422
---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 95,882 63,295 78,737
---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net (disbursements) repayments of loans (29,693) (42,429) 9,102
Purchases of investment securities available for sale (387,095) (332,747) (441,926)
Purchases of investment securities held to maturity (32,882) (54,685) (73,115)
Purchases of property, plant and equipment (3,519) (4,195) (5,036)
Proceeds from maturity of securities available for sale 348,986 314,321 327,738
Proceeds from maturity of securities held to maturity 22,722 58,653 57,588
Proceeds from sale of securities available for sale 803 37,898 23,538
Proceeds from sale of property and equipment 46 1,419 4,004
Proceeds from property acquired in satisfaction
of debt 2,932 7,266 6,327
---------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (77,700) (14,499) (91,780)
---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease) increase in deposits (123,661) 110,504 (150,199)
Net increase (decrease) in short-term borrowings 258,674 (61,177) 97,401
Repayments of notes payable and debt financing (6,000) (5,000) (6,365)
Exercise of stock options/issuance of shares 4,617 12,475 16,853
Retirement of common stock including repurchases (100,227) (104,824) (35,594)
Dividends paid (25,581) (21,864) (13,406)
---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,822 (69,886) (91,310)
---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 26,004 (21,090) (104,353)
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 229,734 250,824 355,177
---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $255,738 $229,734 $250,824
===============================================================================================================
SUPPLEMENTAL DISCLOSURES:
Supplemental disclosure of non-cash activities
Loans transferred to other real estate owned $1,652 $3,736 $2,604
Premises transferred to other real estate owned -- -- 1,430
Unrealized (loss) gain on securities available for sale, net (24,704) 2,261 11,904
Supplemental disclosure of cash flow activity
Interest paid for the period 77,831 86,264 88,168
Income tax payments for the period 39,092 30,902 25,297
See accompanying notes to consolidated financial statements.
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WESTAMERICA BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Business and Accounting Policies
Westamerica Bancorporation, a registered bank holding Company (the "Company"), provides a full range of banking services to individual and corporate customers in Northern and Central California through its subsidiary banks, Westamerica Bank and Bank of Lake County (the "Banks"). The Banks are subject to competition from other financial institutions and to the regulations of certain agencies and undergo periodic examinations by those regulatory authorities.
Summary of Significant Accounting Policies
The consolidated financial statements are prepared in conformity with generally accepted accounting principles and general practices within the banking industry. The following is a summary of significant policies used in the preparation of the accompanying financial statements. In preparing the financial statements, Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the disclosure of income and expenses for the periods presented in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
Principles of Consolidation. The consolidated financial statements include the accounts of the Company, and all the Company's subsidiaries which include the Banks, Community Banker Services Corporation and Subsidiary, Westcore and Westamerica Commercial Credit, Inc., a company engaged in financing accounts receivable and inventory lines of credit and term business loans. Significant intercompany transactions have been eliminated in consolidation.
Business Combinations. In a business combination accounted for as a pooling of interests, the assets, liabilities and shareholders' equity of the acquired entity are carried forward at their historical amounts and its results of operations are combined with the Company's results of operations. Additionally, the Company's prior period financial statements are restated to give effect to the merger. In a business combination accounted for as a purchase, the results of operations of the acquired entity are included from the date of acquisition. Assets and liabilities of the entity acquired are recorded at fair value on the date of acquisition. Goodwill and identified intangibles are amortized over their estimated lives.
Cash Equivalents. Cash equivalents include Due From Banks balances and Federal Funds Sold which are both readily convertible to known amounts of cash and are generally 90 days or less from maturity, presenting insignificant risk of changes in value because of interest rate volatility.
Securities. Investment securities consist of securities of the U.S. Treasury, federal agencies, states, counties and municipalities, and mortgage-backed, corporate debt and equity securities. The Company classifies its debt and marketable equity securities in one of three categories: trading, available for sale or held to maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity
securities are those securities which the Company has the ability and intent to hold until maturity. Securities not included in trading or held to maturity are classified as available for sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized gains and losses on trading securities are included in earnings. Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are reported as a separate component of shareholders' equity until realized. The unrealized gains and losses included in the separate component of shareholders' equity for securities transferred from available for sale to held to maturity are maintained and amortized into earnings over the remaining life of the security as an adjustment to yield in a manner consistent with the amortization or accretion of premiums or discounts on the associated security.
A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary, results in a charge to earnings and the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available for sale or held to maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
Loans and Allowance for Loan Losses. The allowance for loan losses is a combination of specific and general reserves available to absorb estimated future losses throughout the loan portfolio and is maintained at a level considered adequate to provide for such losses. Credit reviews of the loan portfolio, designed to identify problem loans and to monitor these estimates, are conducted continually, taking into consideration market conditions, current and anticipated developments applicable to the borrowers and the economy, and the results of recent examinations by regulatory agencies. Management approves the conclusions resulting from credit reviews. Ultimate losses may vary from current estimates. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the reserve based on their judgment of information available to them at the time of their examination.
Loans are stated at the principal amount outstanding, net of unearned discount and deferred fees. Unearned interest on discounted loans is amortized over the life of these loans, using the sum-of-the-months digits formula for which the results are not materially different from those obtained by using the interest method. For all other loans, interest is accrued daily on the outstanding balances. Loans which are more than 90 days delinquent with respect to interest or principal, unless they are well secured and in the process of collection, and other loans on which full recovery of principal or interest is in doubt, are placed on non-accrual status. Non-refundable fees and certain costs associated with originating or acquiring loans are deferred
and amortized as an adjustment to interest income over the estimated respective loan lives. Loans held for sale are identified upon origination and are reported at the lower of cost or market value on an individual loan basis. The Company recognizes a loan as 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. All amounts due according to the contractual terms means that both the contractual interest payments and the contractual principal payments of a loan will be collected as scheduled in the loan agreement.
Other Real Estate Owned. Other real estate owned is comprised of property acquired through foreclosure proceedings, acceptances of deeds-in-lieu of foreclosure and some vacated bank properties. Losses recognized at the time of acquiring property in full or partial satisfaction of debt are charged against the allowance for loan losses. Other real estate owned is recorded at the lower of the related loan balance or fair value of the collateral, generally based upon an independent property appraisal, less estimated disposition costs. Subsequently, other real estate owned is valued at the lower of the amount recorded at the date acquired or the then current fair value less estimated disposition costs. Subsequent losses incurred due to the declines in annual independent property appraisals are recognized as non-interest expense. Routine holding costs, such as property taxes, insurance, maintenance and losses from sales and dispositions, are recognized as non-interest expense.
Premises and Equipment. Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed substantially on the straight-line method over the estimated useful life of each type of asset. Estimated useful lives of premises and equipment range from 20 to 50 years and from 3 to 20 years, respectively. Leasehold improvements are amortized over the terms of the lease or their estimated useful life, whichever is shorter. Fully depreciated or amortized assets are removed from the Company's balance sheet.
Intangible assets. Intangible assets (which are included in Other Assets) aggregating $10.2 million and $12.1 million (net of accumulated amortization of $17.1 million and $15.2 million) at December 31, 1999 and 1998, respectively, are comprised of core deposit intangibles and goodwill acquired in business combinations. Core deposit intangibles are amortized over the estimated lives of the existing deposit bases (10 years). Goodwill of $7.8 million in 1999 and $8.7 million in 1998 (net of accumulated amortization of $5.1 million and $4.2 million, respectively) is amortized on a straight-line basis over 15 years. Management periodically reviews the balances to determine if such balances have been impaired.
Impairment of Long-Lived Assets. The Company reviews for impairment of long-lived assets and certain intangibles to be held, whenever events or changes indicate that the carrying amount of an asset may not be recoverable.
Income taxes. The Company and its subsidiaries file consolidated tax returns. For financial reporting purposes, the income tax effects of transactions are recognized in the year in which they
enter into the determination of recorded income, regardless of when they are recognized for income tax purposes. Accordingly, the provisions for income taxes in the consolidated statements of income include charges or credits for deferred income taxes relating to temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Derivative Instruments and Hedging Activities.
In June, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which
amends the disclosure requirements of Statement No. 52, "Foreign
Currency Translations" and of Statement No. 107, "Disclosures about
Fair Value of Financial Instruments." Under the provisions of SFAS
133, the Company is required to recognize all derivatives as either
assets or liabilities in the statement of financial condition and
measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of
the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or
a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an
available-for-sale security or a foreign-currency-denominated
forecasted transaction. The accounting for changes in the fair
value of a derivative (that is, gain and losses) depends on the
intended use of the derivative and the resulting operation. SFAS
No. 133 would have been effective for all fiscal years beginning
after June 15, 1999, except that SFAS No. 137 ("Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS No. 133") delayed the effective date of SFAS
No. 133 for one year. Earlier application is permitted as of the
beginning of quarters beginning after June 30, 1999. Retroactive
application of SFAS No. 133 is not permitted. The Company does not
believe that the adoption of SFAS 133 will have a material impact on
its financial statements.
Other. Securities and other property held by the Banks in a fiduciary or agency capacity are not included in the financial statements since such items are not assets of the Company or its subsidiaries.
Reclassifications. Certain amounts in prior years' presentations have been reclassified to conform with the current presentation. These reclassifications have no effect on previously reported net income.
Note 2: Investment Securities
An analysis of the available-for-sale investment securities portfolio as of December 31, 1999, follows:
-------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------------------------
(In thousands)
<CX>
U.S. Treasury securities $184,939 $ -- ($1,461) $183,478
Securities of U.S. Government
agencies and corporations 200,608 695 (6,003) 195,300
Obligations of States and
political subdivisions 238,650 1,741 (5,611) 234,780
Asset-backed securities 144,292 31 (732) 143,591
Other securities 220,772 8,564 (4,148) 225,188
-------------------------------------------------------------------------------------
Total $989,261 $11,031 ($17,955) $982,337
=====================================================================================
An analysis of the held-to-maturity investment securities portfolio
as of December 31, 1999, follows:
-------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------------------------
(In thousands)
Securities of U.S. Government
agencies and corporations $70,418 $91 ($3,443) $67,066
Obligations of States and
political subdivisions 155,813 2,581 (1,236) 157,158
Other securities 10,923 -- -- 10,923
-------------------------------------------------------------------------------------
Total $237,154 $2,672 ($4,679) $235,147
=====================================================================================
An analysis of the available-for-sale investment securities
portfolio as of December 31, 1998, follows:
-------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------------------------
(In thousands)
U.S. Treasury securities $245,114 $3,496 $ -- $248,610
Securities of U.S. Government
agencies and corporations 120,045 1,554 (295) 121,304
Obligations of States and
political subdivisions 205,248 8,318 (251) 213,315
Asset-backed securities 163,989 1,463 (54) 165,398
Other securities 217,560 21,755 (281) 239,034
-------------------------------------------------------------------------------------
Total $951,956 $36,586 ($881) $987,661
=====================================================================================
|
An analysis of the held-to-maturity investment securities portfolio as of December 31, 1998, follows:
-------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------------------------
(In thousands)
Securities of U.S. Government
agencies and corporations $69,235 $549 ($862) $68,922
Obligations of States and
political subdivisions 147,118 7,195 (85) 154,228
Other securities 10,640 -- -- 10,640
-------------------------------------------------------------------------------------
Total $226,993 $7,744 ($947) $233,790
=====================================================================================
The amortized cost and estimated market value of securities at
December 31, 1999, by contractual maturity, are shown in the
following table:
-------------------------------------------------------------------------------------
Securities Available Securities Held
for Sale to Maturity
-------------------------- -------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
-------------------------------------------------------------------------------------
(In thousands)
Maturity in years:
1 year or less $55,341 $55,152 $3,261 $3,265
1 to 5 years 691,444 679,849 28,119 28,506
5 to 10 years 84,961 85,992 90,044 91,482
Over 10 years 126,705 121,800 34,389 33,905
-------------------------------------------------------------------------------------
Sub-total 958,451 942,793 155,813 157,158
Mortgage-backed 10,741 11,359 70,418 67,066
Other securities 20,069 28,185 10,923 10,923
-------------------------------------------------------------------------------------
Total $989,261 $982,337 $237,154 $235,147
=====================================================================================
|
Expected maturities of mortgage-backed securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-backed securities. At December 31, 1999 and 1998, the Company had no high-risk collateralized mortgage obligations.
As of December 31, 1999, $767.5 million of investment securities were pledged to secure public deposits and short-term funding needs, compared to $607.1 million in 1998.
Note 3: Loans and Allowance for Loan Losses
Loans at December 31 consisted of the following:
-------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------
(In thousands)
Commercial $652,413 $725,677
Real estate-commercial 849,824 751,235
Real estate-construction 50,928 57,998
Real estate-residential 337,002 384,128
-------------------------------------------------------------------------------------
Total real estate loans 1,237,754 1,193,361
Installment and personal 434,803 385,204
Unearned income (4,124) (6,345)
-------------------------------------------------------------------------------------
Gross loans 2,320,846 2,297,897
Allowance for loan losses (51,574) (51,304)
-------------------------------------------------------------------------------------
Net loans $2,269,272 $2,246,593
=====================================================================================
|
Included in real estate-residential at December 31, 1999 and 1998 are loans originated for resale of $12.7 million and $13.3 million, respectively, the cost of which approximates market value.
The following summarizes the allowance for loan losses of the Company for the periods indicated:
-------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------
(In thousands)
Balance at January 1, $51,304 $50,630 $50,921
Provision for loan losses 4,780 5,180 7,645
Loans charged off (7,937) (8,568) (12,484)
Recoveries of loans
previously charged off 3,427 4,062 4,548
-------------------------------------------------------------------------------------
Balance at December 31, $51,574 $51,304 $50,630
=====================================================================================
The following is a summary of interest foregone on non-accrual loans
for the years ended December 31:
-------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------
(In thousands)
Interest income that would have been
recognized had the loans performed
in accordance with their original terms $751 $855 $1,632
Less: Interest income recognized on
non-accrual loans (473) (573) (462)
-------------------------------------------------------------------------------------
Interest foregone on
non-accrual loans $278 $282 $1,170
=====================================================================================
|
There were no commitments to lend additional funds to borrowers whose loans are included above.
At December 31, 1999, the recorded investment in loans for which impairment was recognized totaled $15.1 million compared to $15.0 million at December 31, 1998. The specific reserves at December 31, 1999 and 1998 were $2.1 million and $1.3 million, respectively. The amount of that recorded investment for which there is no related allowance for credit losses was $0. For the year ended December 31, 1999, the average recorded net investment in impaired loans was approximately $15.5 million compared to $15.9 million and $22.0 million, respectively, at December 31, 1998 and 1997. In general, the Company does not recognize any interest income on troubled debt restructurings or on loans that are classified as non-accrual. For other impaired loans, interest income may be recorded as cash is received, provided that the Company's recorded investment in such loans is deemed collectible.
Note 4: Concentration of Credit Risk
The Company's business activity is with customers in Northern and Central California. The loan portfolio is well diversified with no industry comprising greater than 10 percent of total loans outstanding as of December 31, 1999 and 1998.
The Company has significant credit arrangements that are secured by real estate collateral. In addition to real estate loans outstanding as disclosed in Note 3, the Company had loan commitments and standby letters of credit related to real estate loans of $69.6 million and $95.3 million at December 31, 1999 and 1998, respectively. The Company requires collateral on all real estate loans and generally attempts to maintain loan-to-value ratios no greater than 75 percent on commercial real estate loans and no greater than 80 percent on residential real estate loans unless covered by mortgage insurance.
Note 5: Premises and Equipment
Premises and equipment as of December 31 consisted of the following:
-------------------------------------------------------------------------------------
Accumulated
Depreciation
and Net Book
Cost Amortization Value
-------------------------------------------------------------------------------------
(In thousands)
1999
Land $10,360 $- $10,360
Buildings and improvements 33,815 (10,479) 23,336
Leasehold improvements 6,256 (3,960) 2,296
Furniture and equipment 15,986 (7,962) 8,024
-------------------------------------------------------------------------------------
Total $66,417 ($22,401) $44,016
=====================================================================================
1998
Land $10,360 $- $10,360
Buildings and improvements 33,731 (9,757) 23,974
Leasehold improvements 6,477 (3,616) 2,861
Furniture and equipment 17,029 (8,253) 8,776
-------------------------------------------------------------------------------------
Total $67,597 ($21,626) $45,971
=====================================================================================
|
Depreciation and amortization included in operating expenses amounted to $5.4 million in 1999, $5.5 million in 1998 and $7.5 million in 1997.
Note 6: Borrowed Funds
Debt financing and notes payable, including the unsecured obligations of the Company, as of December 31, 1999 and 1998, were as follows:
-------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------
(In thousands)
Federal Home Loan Bank notes in increments
of $5.0 million starting in 1994 and each
dated December 1. Interest payable quarterly
at prime minus 2.05% to 2.32%; principal
payable annually in $5.0 million increments
collateralized by $30.0 million of commercial
and mortgage loans. $ -- $5,000
Subordinated note, issued by Westamerica
Bank, originated in December 1993 and
maturing September 30, 2003. Interest of
6.99% per annum is payable semiannually on
March 31 and September 30, with original
principal payment due at maturity. On May 26,
1999, the Company repurchased and retired
$1.0 million. 19,000 20,000
Senior notes, originated in February 1996
and maturing February 1, 2006. Interest of
7.11% per annum is payable semiannually on
February 1 and August 1, with certain required
payments commencing February 1, 2000 and
the remaining principal amount due at maturity. 22,500 22,500
-------------------------------------------------------------------------------------
Total debt financing and notes payable $41,500 $47,500
=====================================================================================
|
At December 31, 1998, the prime rate related to the Federal Home Loan Bank financing arrangements was 7.75%.
The senior notes are subject to financial covenants requiring the Company to maintain, at all times, certain minimum levels of consolidated tangible net worth and maximum levels of capital debt. The Company is currently in compliance with all of the covenants in the senior notes indenture.
At December 31, 1999 and 1998, the Company had unused lines of credit amounting to $2.5 million and $62.5 million, respectively. Compensating balance arrangements are not significant to the operations of the Company. At December 31, 1999 and 1998, the Banks had $431.9 million and $418.2 million, respectively, in time deposit accounts in excess of $100 thousand. Interest on these time deposit accounts in 1999, 1998 and 1997 was $19.4 million, $19.2 million and $17.1 million, respectively.
Funds purchased include federal funds, securities sold with repurchase agreements and business customers' sweep accounts. Federal funds purchased were $254.0 million and $50.0 million, respectively, at December 31, 1999 and 1998. Securities sold with repurchase agreements were $59.5 million at December 31, 1999 and $28.7 million at December 31, 1998. Sweep accounts totaled $148.8 million and $125.0 million at December 31, 1999 and 1998, respectively. Securities under these repurchase agreements are held in the custody of independent securities brokers.
Note 7: Shareholders' Equity
In 1995, the Company adopted the 1995 Stock Option Plan. Stock appreciation rights, restricted performance shares, incentive stock options and non-qualified stock options are available under this plan. Under the terms of this plan, on January 1 of each year beginning in 1995, 2 percent of the Company's issued and outstanding shares of common stock will be reserved for granting. At December 31, 1999, 1998, and 1997, approximately 797 thousand, 856 thousand and 566 thousand shares, respectively, were reserved for issuance. Options are granted at fair market value and are generally exercisable in equal installments over a three-year period with the first installment exercisable one year after the date of the grant. Each incentive stock option has a maximum ten-year term while non-qualified stock options may have a longer term. A Restricted Performance Share ("RPS") grant becomes fully vested after three years of being awarded, provided that the Company has attained its performance goals for such three-year period.
Under the Stock Option Plan adopted by the Company in 1985, 2.3 million shares were reserved for issuance. Stock appreciation rights, incentive stock options and non-qualified stock options are available under this plan. Options are granted at fair market value and are generally exercisable in equal installments over a three-year period with the first installment exercisable one year after the date of the grant. Each incentive stock option has a maximum ten-year term while non-qualified stock options may have a longer term. The 1985 plan was amended in 1990 to provide for RPS grants. An RPS grant becomes fully vested after three years of being awarded, provided that the Company has attained its performance goals for such three-year period.
PV Financial, CapitolBank Sacramento, and North Bay Bancorp had separate stock option plans (the "Option Plans") whereby options were granted to certain officers, directors, and employees. Following the effective dates of the mergers, the Option Plans were terminated. All outstanding options were substituted for the Company's options, adjusted for the exchange ratios as defined in the merger agreements.
ValliCorp Holdings also had separate stock option plans whereby options were granted to certain officers, directors, and employees. Effective April 12, 1997, all ValliCorp Holdings option plans were terminated. All outstanding options were substituted for the Company's stock options, adjusted for the exchange ratio as defined in the merger agreement. At December 31, 1996, 442,490 shares were available for issuance. During 1997 there were no options granted, and during 1996 there were 95,496 options granted.
Stock Options. A summary of the status of the Company's stock options as of December 31, 1999, 1998 and 1997, and changes during the years ended on those dates, follows:
-----------------------------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of shares Price of shares Price
-----------------------------------------------------------------------------------------------------
Outstanding at beginning of year 2,289,694 $18 2,094,387 $12
Granted 662,080 35 604,591 33
Exercised (258,844) 11 (326,450) 10
Forfeited (72,222) 32 (82,834) 15
-----------------------------------------------------------------------------------------------------
Outstanding at end of year 2,620,708 $22 2,289,694 $18
-----------------------------------------------------------------------------------------------------
Options exercisable at end of year 1,479,438 1,251,197
=====================================================================================================
-----------------------------------------------------------------------
1997
-----------------------------------------------------------------------
Weighted
Average
Number Exercise
of shares Price
-----------------------------------------------------------------------
Outstanding at beginning of year 2,703,450 $10
Granted 522,150 19
Exercised (1,056,165) 11
Forfeited (75,048) 16
-----------------------------------------------------------------------
Outstanding at end of year 2,094,387 $12
-----------------------------------------------------------------------
Options exercisable at end of year 1,147,920
=======================================================================
|
The following table summarizes information about options outstanding at December 31, 1999 and 1998:
-------------------------------------------------------------------------------------
1999 Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
at 12/31/99 Life (yrs) Price at 12/31/99 Price
-------------------------------------------------------------------------------------
$3 - 5 65,363 1.5 $4 65,363 $4
5 - 7 73,789 1.8 6 73,789 6
7 - 8 11,748 1.1 8 11,748 8
8 - 9 117,150 3.1 8 117,150 8
9 - 10 219,618 4.1 9 219,618 9
10 - 12 209,400 5.1 10 209,400 10
12 - 14 -- -- -- -- --
14 - 15 5,319 4.7 14 5,319 14
15 - 19 340,955 6.1 15 340,955 15
19 - 20 390,506 7.1 19 247,916 19
20 - 33 1,186,860 8.6 34 188180 33
-------------------------------------------------------------------------------------
$3 - 33 2,620,708 6.7 $22 1,479,438 $15
=====================================================================================
|
-------------------------------------------------------------------------------
1998 Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
at 12/31/98 Life (yrs) Price at 12/31/98 Price
-------------------------------------------------------------------------------------
$3 - 5 89,088 2.5 $4 89,088 $4
5 - 7 131,172 2.5 6 129,245 6
7 - 8 13,944 2.0 8 13,944 8
8 - 9 139,500 4.0 8 139,500 8
9 - 10 242,418 5.0 9 242,418 9
10 - 12 241,874 6.0 10 241,874 10
12 - 14 1,146 7.0 13 1,146 13
14 - 15 11,370 5.5 14 11,370 14
15 - 19 388,577 7.0 15 248,427 15
19 - 20 434,865 8.0 19 134,185 19
- 33 595,740 9.0 33 -- --
-------------------------------------------------------------------------------------
$3 - 33 2,289,694 7.0 $18 1,251,197 $11
=====================================================================================
|
Restricted Performance Shares. A summary of the status of the Company's RPSs as of December 31, 1999, 1998, and 1997, and changes during the years ended on those dates, follows:
-------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------
Outstanding at beginning of year 118,620 150,690 268,050
Granted 28,590 27,780 64,410
Exercised (46,350) (59,850) (99,750)
Forfeited (26,760) -- (82,020)
-------------------------------------------------------------------------------------
Outstanding at end of year 74,100 118,620 150,690
=====================================================================================
|
1999 1998 1997
-----------------------------------------------------------------------
Dividend yield 1.89% 1.64% 1.14%
Expected volatility 37.18 20.00 21.43
Risk-free interest rate 4.57 5.43 6.35
Expected lives 6.0 years 6.0 years 6.0 years
=======================================================================
|
The weighted-average fair values of non-qualified stock options granted during 1999, 1998, and 1997, were $10.68, $8.37, and $4.64, respectively.
1999 1998 1997
-----------------------------------------------------------------------
Dividend yield 1.89% 1.64% 1.14%
Expected volatility 37.18 20.00 21.43
Risk-free interest rate 4.57 5.35 6.35
Expected lives 3.0 years 3.0 years 3.0 years
=======================================================================
|
The weighted-average fair values of the RPSs granted during 1999, 1998, and 1997 were $9.10, $5.69, and $3.15 respectively.
Had compensation cost for the company's 1995 and 1985 Stock Option Plans been determined consistent with SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
-------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------
(In thousands, except per share data)
Net income
As reported $76,088 $73,396 $48,116
Pro forma 71,966 70,954 47,298
Weighted average shares (basic) 38,588 41,797 43,040
Weighted average shares (diluted) 39,194 42,524 43,827
Earnings per share
As reported (basic) $1.97 $1.76 $1.12
As reported (diluted) 1.94 1.73 1.10
Pro forma (basic) 1.86 1.70 1.10
Pro forma (diluted) 1.84 1.67 1.08
=====================================================================================
|
A reconciliation of the diluted EPS computation to the amounts used in the basic EPS computation for the years ended December 31, is as follows:
-------------------------------------------------------------------------------------
1999
-------------------------------------------------------------------------------------
Net Number Per Share
Amount of Shares Amount
-------------------------------------------------------------------------------------
(In thousands, except per share data)
Basic EPS:
Income available to
common shareholders $76,088 38,588 $1.97
Effect of dilutive securities:
Stock options outstanding -- 606 --
-------------------------------------------------------------------------------------
Diluted EPS:
Income available to common
shareholders plus assumed
conversions $76,088 39,194 $1.94
=====================================================================================
|
-------------------------------------------------------------------------------------
1998
-------------------------------------------------------------------------------------
(In thousands, except per share data)
Basic EPS:
Income available to
common shareholders $73,396 41,797 $1.76
Effect of dilutive securities:
Stock options outstanding --- 727 ---
-------------------------------------------------------------------------------------
Diluted EPS:
Income available to common
shareholders plus assumed
conversions $73,396 42,524 $1.73
=====================================================================================
-------------------------------------------------------------------------------------
1997
-------------------------------------------------------------------------------------
(In thousands, except per share data)
Basic EPS:
Income available to
common shareholders $48,116 43,040 $1.12
Effect of dilutive securities:
Stock options outstanding --- 787 ---
-------------------------------------------------------------------------------------
Diluted EPS:
Income available to common
shareholders plus assumed
conversions $48,116 43,827 $1.10
=====================================================================================
|
Shareholders have authorized two new classes of one million shares each, to be denominated "Class B Common Stock" and "Preferred Stock," respectively, in addition to the 150 million shares of common stock presently authorized. At December 31, 1999, no shares of Class B Common Stock or Preferred Stock had been issued.
In December 1986, the Company declared a dividend distribution of one common share purchase right (the "Right") for each outstanding share of common stock. The Rights, which have been amended and restated in 1989, 1992, 1995 and 1999, are exercisable only in the event of an acquisition of, or announcement of a tender offer to acquire, 10 percent or more of the Company's stock without the prior consent of the Board of Directors. If the Rights become exercisable, the holder may purchase one share of the Company's common stock for $75.00, subject to adjustment. In the event a person or a group has acquired, or obtained the right to acquire, beneficial ownership of securities having 10 percent or more of the voting power of all outstanding voting power of the Company, proper provision shall be made so that each holder of a right will, for a 60-day period thereafter, have the right to receive upon exercise that number of shares of common stock having a market value of two times the exercise price of the Right, to the extent available, and then a common stock equivalent having a market value of two times the exercise price of the Right. Under certain circumstances, the Rights may be redeemed by the Company at $.001 per Right prior to becoming exercisable and in certain circumstances thereafter. The Rights will expire on the earliest of (I) December 31, 2004, (ii) consummation of a merger transaction meeting certain characteristics or (iii) redemption of the Rights by the Company.
Note 8: Risk-Based Capital
The Company and the Banks are subject to various regulatory
capital adequacy requirements administered by federal and
state agencies. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) required that regulatory
agencies adopt regulations defining five capital tiers for banks:
well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
Failure to meet minimum capital requirements can initiate
discretionary actions by regulators that, if undertaken, could
have a direct, material effect on the Company's financial
statements. Quantitative measures, established by the
regulators to ensure capital adequacy, require that the Company
and the Banks maintain minimum ratios of capital to
risk-weighted assets. There are two categories of capital under
the guidelines: Tier 1 capital includes common shareholders'
equity and qualifying preferred stock less goodwill and other
deductions including the unrealized net gains and losses, after
taxes, of available-for-sale securities. Tier 2 capital includes
preferred stock not qualifying for Tier 1 capital, mandatory
convertible debt, subordinated debt, certain unsecured senior
debt issued by the Company and the allowance for loan losses,
subject to limitations by the guidelines. Under the guidelines,
capital is compared to the relative risk of the balance sheet,
derived from applying one of four risk weights (0%, 20%, 50% and
100%) to the different balance sheet and off-balance sheet assets,
primarily based on the credit risk of the counterparty. The capital
amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weighting and
other factors.
As of December 31, 1999, the Company and the Banks met all capital adequacy requirements to which they are subject.
The most recent notification from the Federal Reserve Board categorized the Company and the Banks as well capitalized under the FDICIA regulatory framework for prompt corrective action. To be well capitalized, the institution must maintain a total risk-based capital ratio as set forth in the following table and not be subject to a capital directive order. Since that notification, there are no conditions or events that Management believes have changed the risk-based capital category of the Company or the Banks.
The following table shows capital ratios for the Company and the Banks as of December 31, 1999 and 1998:
--------------------------------------------------------------------------------------------------------------------------------
To Be Well
Capitalized Under
the FDICIA
For Capital Prompt Corrective
1999 Actual Adequacy Purposes Action Provisions:
--------------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Total Capital (to risk-weighted assets)
Consolidated Company $347,535 11.75% $236,630 8.00% $295,787 10.00%
Westamerica Bank 316,470 11.09% 228,264 8.00% 285,329 10.00%
Bank of Lake County 8,546 13.39% 5,106 8.00% 6,383 10.00%
Tier 1 Capital (to risk-weighted assets)
Consolidated Company 290,381 9.82% 118,315 4.00% 177,472 6.00%
Westamerica Bank 255,630 8.96% 114,132 4.00% 171,198 6.00%
Bank of Lake County 7,737 12.12% 2,553 4.00% 3,830 6.00%
Leverage Ratio *
Consolidated Company 290,381 7.48% 155,309 4.00% 194,136 5.00%
Westamerica Bank 255,630 6.79% 150,624 4.00% 188,281 5.00%
Bank of Lake County 7,737 8.61% 3,594 4.00% 4,492 5.00%
================================================================================================================================
|
--------------------------------------------------------------------------------------------------------------------------------
To Be Well
Capitalized Under
the FDICIA
For Capital Prompt Corrective
1998 Actual Adequacy Purposes Action Provisions:
--------------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Total Capital (to risk-weighted assets)
Consolidated Company $414,141 13.79% $240,238 8.00% $300,297 10.00%
Westamerica Bank 367,878 12.75% 230,737 8.00% 288,421 10.00%
Bank of Lake County 8,599 13.33% 5,162 8.00% 6,452 10.00%
Tier 1 Capital (to risk-weighted assets)
Consolidated Company 356,434 11.87% 120,119 4.00% 180,178 6.00%
Westamerica Bank 305,661 10.60% 115,369 4.00% 173,053 6.00%
Bank of Lake County 7,782 12.06% 2,581 4.00% 3,871 6.00%
Leverage Ratio *
Consolidated Company 356,434 9.39% 151,812 4.00% 189,765 5.00%
Westamerica Bank 305,661 8.32% 146,996 4.00% 183,745 5.00%
Bank of Lake County 7,782 8.59% 3,626 4.00% 4,532 5.00%
================================================================================================================================
|
* The leverage ratio consists of Tier 1 capital divided by quarterly average assets. The minimum leverage ratio guideline is 3 percent for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality, high liquidity, good earnings and, in general, are considered top-rated, strong banking organizations.
Note 9: Income Taxes
1999 1998
-----------------------------------------------------------------------
(In thousands)
Deferred tax asset
Reserve for loan losses $21,066 $20,833
State franchise taxes 4,126 3,665
Securities available for sale 2,760 --
Deferred compensation 2,985 2,719
Real estate owned 711 1,033
Interest on non-accrual loans 101 161
Reserve for long-term lease commitments -- 62
Other reserves 685 722
Other 1,063 1,262
Net operating loss carryforwards 68 326
General tax credit carryforwards 215 215
-----------------------------------------------------------------------
Subtotal deferred tax asset 33,780 30,998
Valuation allowance -- --
-----------------------------------------------------------------------
Total deferred tax asset 33,780 30,998
-----------------------------------------------------------------------
Deferred tax liability
Net deferred loan costs 2,228 2,849
Fixed assets 1,745 1,992
Securities available for sale -- 15,164
Intangible assets 19 363
Leases 1,132 1,061
Other 169 170
-----------------------------------------------------------------------
Total deferred tax liability 5,293 21,599
-----------------------------------------------------------------------
Net deferred tax asset $28,487 $9,399
=======================================================================
|
The Company believes a valuation allowance is not needed to reduce the gross deferred tax asset because it is more likely than not that the gross deferred tax asset will be realized through recoverable taxes or future taxable income.
1999 1998 1997
-----------------------------------------------------------------------
(In thousands)
Current income tax expense:
Federal $27,132 $26,530 $18,164
State 12,406 11,421 8,223
-----------------------------------------------------------------------
Total current 39,538 37,951 26,387
-----------------------------------------------------------------------
Deferred income tax (benefit) expense:
Federal (819) (184) (594)
State (346) 209 197
-----------------------------------------------------------------------
Total deferred (1,165) 25 (397)
-----------------------------------------------------------------------
Provision for income taxes $38,373 $37,976 $25,990
=======================================================================
|
1999 1998 1997
-----------------------------------------------------------------------
(In thousands)
Federal income taxes due at
statutory rate $40,061 $38,980 $25,937
(Reductions) increases in income
taxes resulting from:
Interest on state and municipal
securities not taxable for federal
income tax purposes (8,477) (7,815) (6,872)
Reduction in the valuation
allowance -- -- (486)
State franchise taxes, net of
federal income tax benefit 7,839 7,560 5,473
Costs related to acquisitions -- -- 3,183
Other (1,050) (749) (1,245)
-----------------------------------------------------------------------
Provision for income taxes $38,373 $37,976 $25,990
=======================================================================
|
Net
Operating Loss Tax Credit
Carryforwards Carryforwards
-----------------------------------------------------------------------
Expires December 31, (In thousands)
2003 $-- $215
2007 181 --
2008 14 --
-----------------------------------------------------------------------
Total $195 $215
=======================================================================
|
Note 10: Fair Value of Financial Instruments
The fair value of financial instruments does not represent actual amounts that may be realized upon the sale or liquidation of the related assets or liabilities. In addition, these values do not give effect to discounts to fair value which may occur when financial instruments are sold in larger quantities. The fair values presented represent the Company's best estimate of fair value using the methodologies discussed below. The fair values of financial instruments which have a relatively short period of time between their origination and their expected realization were valued using historical cost. Such financial instruments and their estimated fair values at December 31 were:
-------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------
(In thousands)
Cash and cash equivalents $255,738 $229,734
Money market assets 250 250
Interest and taxes receivable 56,948 54,773
Non-interest bearing and interest-bearing
transaction and savings deposits 2,238,060 2,346,562
Short-term borrowed funds 462,345 203,671
Interest payable 7,596 6,970
=====================================================================================
The fair values at December 31 of the following financial
instruments were estimated using quoted market prices:
-------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------
(In thousands)
Investment securities available for sale $982,337 $987,661
Investment securities held to maturity 235,147 233,790
=====================================================================================
Loans were separated into two groups for valuation. Variable rate
loans, except for those described below which reprice frequently
with changes in market rates, were valued using historical data.
Fixed rate loans and variable rate loans that have reached their
maximum rates were valued by discounting the future cash flows
expected to be received from the loans using current interest rates
charged on loans with similar characteristics. Additionally, the
$51.6 million allowance for loan losses in 1999 and $51.3 million
in 1998 were applied against the estimated fair values to recognize
future defaults of contractual cash flows. The estimated fair
values of loans at December 31 were:
-------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------
(In thousands)
Loans $2,263,599 $2,254,747
=====================================================================================
The fair values of time deposits and notes and mortgages payable
were estimated by discounting future cash flows related to these
financial instruments using current market rates for financial
instruments with similar characteristics. The estimated fair values
at December 31 were:
-------------------------------------------------------------------------------------
1998 1998
-------------------------------------------------------------------------------------
(In thousands)
Time deposits $826,291 $844,080
Debt financing and notes payable 41,500 47,500
=====================================================================================
|
The majority of the Company's commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower.
Note 11: Lease Commitments
(In thousands)
2000 $4,580
2001 3,882
2002 3,049
2003 2,295
2004 1,587
Thereafter 3,490
-----------------------------------------------------------------------
Total minimum lease payments $18,883
=======================================================================
|
Total rentals for premises and equipment, net of sublease income, included in non-interest expense were $5.4 million in 1999, $5.2 million in 1998 and $6.3 million in 1997.
Note 12: Commitments and Contingent Liabilities
Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. Loan commitments are subject to the Company's normal credit policies and collateral requirements. Unfunded loan commitments were $336.7 million and $384.7 million at December 31, 1999 and 1998, respectively. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Standby letters of credit are primarily issued to support customers' short-term financing requirements and must meet the Company's normal credit policies and collateral requirements. Standby letters of credit outstanding totaled $13.8 million and $11.9 million at December 31, 1999 and 1998, respectively.
The Company, because of the nature of its business, is subject to various threatened or filed legal cases. The Company, based on the advice of legal counsel, does not expect such cases will have a material, adverse effect on its financial position or results of operations.
Note 13: Retirement Benefit Plans
The Company sponsors a defined contribution Deferred Profit-Sharing Plan covering substantially all of its salaried employees with one or more years of service. The costs charged to non-interest expense related to benefits provided by the Deferred Profit-Sharing Plan were $1.8 million in 1999. The costs charged to non-interest expense related to benefits provided by the Deferred Profit-Sharing Plan and the Retirement Plan were $1.6 million in 1998 and $1.0 million in 1997.
In addition to the Deferred Profit-Sharing Plan, all salaried employees are eligible to participate in the voluntary Tax Deferred Savings/Retirement Plan (ESOP) upon completion of a 90-day introductory period. The Tax Deferred Savings/Retirement Plan allows employees to defer, on a pretax basis, a portion of their salaries as contributions to this Plan. Participants may invest in 10 funds, including one fund that invests exclusively in Westamerica Bancorporation common stock. The matching contributions charged to compensation expense were $1.7 million in 1999, $1.6 million in 1998 and $1.8 million in 1997.
The Company continues to use an actuarial-based accrual method of accounting for post-retirement benefits. The Company offers a continuation of group insurance coverage to employees electing early retirement, for the period from the date of retirement until age 65. The Company contributes an amount toward early retirees' insurance premiums which is determined at the time of early retirement. The Company reimburses Medicare Part B premiums for all retirees over age 65.
1999 1998
=======================================================================
(In thousands)
Periodic cost:
Service cost $160 $217
Interest cost 152 118
Amortization of unrecognized
transition obligation 61 61
-----------------------------------------------------------------------
Net periodic cost $373 $396
=======================================================================
Change in benefit obligation:
Benefit obligation, beginning of year 2,534 2,355
Service cost 160 217
Interest cost 152 118
Benefits paid (126) (156)
-----------------------------------------------------------------------
Benefit obligation, end of year $2,720 $2,534
=======================================================================
Accumulated post-retirement benefit obligation
attributable to:
Retirees $1,757 $1,574
Fully eligible participants 650 638
Other 313 322
-----------------------------------------------------------------------
Total 2,720 2,534
-----------------------------------------------------------------------
Fair value of plan assets -- --
-----------------------------------------------------------------------
Accumulated post-retirement benefit obligation
in excess of plan assets $2,720 $2,534
=======================================================================
Comprised of:
Unrecognized transition obligation $1,102 $1,163
Recognized post-retirement obligation 1,618 1,371
-----------------------------------------------------------------------
Total $2,720 $2,534
=======================================================================
|
The discount rate used in measuring the accumulated post- retirement benefit obligation was 6.0 percent and 5.0 percent at December 31, 1999 and 1998, respectively. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the plan was 4 percent for 2000 and beyond.
One One
Percentage Percentage
Point Point
Increase Decrease
-----------------------------------------------------------------------
(In thousands)
Effect on total of service and
interest cost components $168 ($138)
Effect on post-retirement benefit
obligation 407 (332)
=======================================================================
|
Note 14: Related Party Transactions
Certain directors and executive officers of the Company and/or its subsidiaries were loan customers of the Banks during 1999 and 1998. All such loans were made in the ordinary course of business on normal credit terms, including interest rate and collateral requirements. In the opinion of Management, these credit transactions did not involve, at the time they were contracted, more than the normal risk of collectibility or present other unfavorable features. The table below reflects information concerning loans to certain directors and executive officers and/or family
members during 1999 and 1998:
-----------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------
(In thousands)
Beginning balance $3,268 $2,489
Originations 836 1,350
Payoffs/principal payments (490) (181)
Other changes * (588) (390)
-----------------------------------------------------------------------
At December 31, $3,026 $3,268
=======================================================================
Percent of total loans outstanding 0.13% 0.14%
|
* Other changes in 1999 and 1998 include loans to former directors and executive officers who are no longer related parties.
Note 15: Regulatory Matters
Payment of dividends to the Company by the Banks is limited under regulations for Federal Reserve member banks. The amount that can be paid in any calendar year, without prior approval from regulatory agencies, cannot exceed the net profits (as defined) for that year plus the net profits of the preceding two calendar years less dividends paid. Under this regulation, Westamerica Bank (the largest subsidiary bank) sought and obtained approval to pay to the Company dividends of $56.2 million in excess of net profits. The Company consistently has paid quarterly dividends to its shareholders since its formation in 1972. As of December 31, 1999, $136.7 million was available for payment of dividends by the Company to its shareholders. The Banks are required to maintain reserves with the Federal Reserve Bank equal to a percentage of its reservable deposits. The Banks' daily average on deposit at the Federal Reserve Bank was $30.1 million in 1999 and $25.8 million in 1998.
Note 16: Westamerica Bancorporation (Parent Company Only)
Statements of Income and Comprehensive Income
-----------------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997
-----------------------------------------------------------------------------------------------------
(In thousands)
Dividends from subsidiaries $129,003 $93,606 $41,538
Interest income 1,545 1,731 1,903
Other income 6,849 6,809 5,317
-----------------------------------------------------------------------------------------------------
Total income 137,397 102,146 48,758
-----------------------------------------------------------------------------------------------------
Interest on borrowings 1,613 1,620 1,624
Salaries and benefits 5,714 6,199 6,634
Other expense 2,388 3,056 8,046
-----------------------------------------------------------------------------------------------------
Total expenses 9,715 10,875 16,304
-----------------------------------------------------------------------------------------------------
Income before taxes and equity in
undistributed income of subsidiaries 127,682 91,271 32,454
Income tax benefit 1,346 1,550 2,101
(Return of) equity in undistributed
income of subsidiaries (52,940) (19,425) 13,561
-----------------------------------------------------------------------------------------------------
Net income $76,088 $73,396 $48,116
=====================================================================================================
Comprehensive income, net:
Change in unrealized gains on securities
available for sale, net (5,532) (2,420) 7,619
-----------------------------------------------------------------------------------------------------
Comprehensive income $70,556 $70,976 $55,735
=====================================================================================================
|
Balance Sheets
-------------------------------------------------------------------------------------
December 31, 1999 1998
-------------------------------------------------------------------------------------
(In thousands)
Assets
Cash and cash equivalents $17,529 $5,547
Money market assets and investment
securities available for sale 12,082 22,431
Line of credit from subsidiaries 2,046 2,896
Investment in subsidiaries 274,725 346,839
Premises and equipment, net 15,985 16,592
Accounts receivable from subsidiaries 549 340
Other assets 5,958 6,581
-------------------------------------------------------------------------------------
Total assets $328,874 $401,226
=====================================================================================
Liabilities
Notes payable $22,500 $22,500
Other liabilities 5,782 10,130
-------------------------------------------------------------------------------------
Total liabilities 28,282 32,630
Shareholders' equity 300,592 368,596
-------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $328,874 $401,226
=====================================================================================
|
Statements of Cash Flows
-----------------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997
-----------------------------------------------------------------------------------------------------
(In thousands)
Operating Activities
Net income $76,088 $73,396 $48,116
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 800 813 684
Return of (equity in) undistributed
income from affiliates 52,940 19,425 (13,561)
(Increase) decrease in accounts
receivable from affiliates (209) 913 (906)
Decrease in other assets 67 1,544 405
Increase (decrease) in other liabilities 2,027 40 (885)
Gain on sales of assets (3,203) (3,216) (1,756)
-----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 128,510 92,915 32,097
Investing Activities
Purchases of premises and equipment (193) (262) (1,505)
Net change in loan balances 850 880 (3,776)
Investment in subsidiaries -- (500) --
Purchase of investment securities available for sale -- -- --
Proceeds from sale of other assets 4,006 3,792 2,260
-----------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 4,663 3,910 (3,021)
Financing Activities
Net (reductions) additions in notes payable -- -- (677)
Exercise of stock options/issuance of shares 4,617 5,513 16,853
Retirement of common stock including repurchases (100,227) (104,824) (35,594)
Dividends (25,581) (21,864) (13,406)
-----------------------------------------------------------------------------------------------------
Net cash used in financing activities (121,191) (121,175) (32,824)
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 11,982 (24,350) (3,748)
Cash and cash equivalents at beginning of year 5,547 29,897 33,645
-----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $17,529 $5,547 $29,897
=====================================================================================================
Supplemental disclosure:
Unrealized (loss) gain on securities
available for sale, net ($24,705) $2,261 $11,904
|
Note 17: Quarterly Financial Information (Unaudited)
---------------------------------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data and
price range of common stock)
1999
Interest income $63,634 $64,009 $64,899 $65,114
Net interest income 44,684 44,649 45,103 44,764
Provision for loan losses 1,195 1,195 1,195 1,195
Non-interest income 9,147 9,640 9,941 11,446
Non-interest expense 24,973 24,728 24,758 25,674
Income before taxes 27,663 28,367 29,090 29,341
Net income 18,405 18,869 19,288 19,526
Basic earnings per share 0.47 0.48 0.50 0.52
Diluted earnings per share 0.46 0.47 0.50 0.51
Dividends paid per share 0.16 0.16 0.16 0.18
Price range, common stock 31.63-37.50 30.00-37.13 28.94-36.50 26.63-35.13
---------------------------------------------------------------------------------------------------------------------
1998
Interest income $66,654 $66,994 $67,457 $65,715
Net interest income 44,927 44,644 45,010 45,574
Provision for loan losses 1,395 1,395 1,195 1,195
Non-interest income 8,986 9,584 9,451 9,784
Non-interest expense 25,340 25,359 25,153 25,556
Income before taxes 27,178 27,474 28,113 28,607
Net income 18,096 18,102 18,436 18,762
Basic earnings per share 0.42 0.43 0.44 0.47
Diluted earnings per share 0.41 0.42 0.44 0.46
Dividends paid per share 0.12 0.12 0.14 0.14
Price range, common stock 30.67-35.25 28.50-36.38 23.63-33.63 23.88-37.25
---------------------------------------------------------------------------------------------------------------------
|
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Westamerica Bancorporation:
We have audited the accompanying consolidated balance sheets of Westamerica Bancorporation and subsidiaries (the Company) as of December 31, 1999 and 1998, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Westamerica Bancorporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles.
/s/KPMG LLP ----------- KPMG LLP San Francisco, California January 18, 2000 |
MANAGEMENT'S LETTER OF FINANCIAL RESPONSIBILITY
To Our Shareholders:
The Management of Westamerica Bancorporation is responsible for the preparation, integrity, reliability and consistency of the information contained in this annual report. The consolidated financial statements, which necessarily include amounts based on judgments and estimates, were prepared in conformity with generally accepted accounting principles and prevailing practices in the banking industry. All other financial information appearing throughout this annual report is presented in a manner consistent with the consolidated financial statements.
Management has established and maintains a system of internal controls that provides reasonable assurance that the underlying financial records are reliable for preparing the consolidated financial statements, and that assets are safeguarded from unauthorized use or loss. This system includes extensive written policies and operating procedures and a comprehensive internal audit function, and is supported by the careful selection and training of staff, an organizational structure providing for division of responsibility, and a Code of Ethics covering standards of personal and business conduct. Management believes that, as of December 31, 1999, the Corporation's internal control environment is adequate to provide reasonable assurance as to the integrity and reliability of the consolidated financial statements and related financial information contained in the annual report.
The system of internal controls is under the general oversight of the Board of Directors acting through its Audit Committee, which is comprised entirely of outside directors.
The Audit Committee monitors the effectiveness of and compliance with internal controls through a continuous program of internal audit and credit examinations. This is accomplished through periodic meetings with Management, internal auditors, loan quality examiners, regulatory examiners and independent auditors to assure that each is carrying out their responsibilities.
The Corporation's consolidated financial statements have been audited by KPMG LLP, independent certified public accountants elected by the shareholders. All financial records and related data, as well as the minutes of shareholders and directors meetings, have been made available to them. Management believes that all representations made to the independent auditors during their audit were valid and appropriate.
/s/ David L. Payne ------------------ David L. Payne Chairman, President and Chief Executive Officer /s/ Jennifer J. Finger ---------------------- Jennifer J. Finger Senior Vice President and Chief Financial Officer /s/ Dennis R. Hansen -------------------- Dennis R. Hansen Senior Vice President and Controller |
ITEM 9. Changes in and Disagreements on Accounting and Financial Disclosure
Not applicable
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information regarding directors of the registrant required by this Item 10 is incorporated herein by reference from the "Election of Directors" and Section 16(a) "Beneficial Ownership Reporting Compliance" sections on Pages 2,3 and 6 of the Company's Proxy Statement dated March 20, 2000, which has been filed with the Commission pursuant Regulation 14A.
Executive Officers
The executive officers of the Corporation and Westamerica Bank serve at the pleasure of the Board of Directors and are subject to annual appointment by the Board at its first meeting following the Annual Meeting of Shareholders. It is anticipated that each of the executive officers listed below will be reappointed to serve in such capacities at that meeting.
Held
Name of Executive Position Since
----------------- ------------------------------------ ---------
David L. Payne Mr. Payne, born in 1955, is the 1984
Chairman of the Board, President and
Chief Executive Officer of the
Corporation. Mr. Payne is President
and Chief Executive Officer of Gibson
Printing and Publishing Company and
Gibson Radio and Publishing Company
which are newspaper, commercial
printing and real estate investment
companies headquartered in Vallejo,
California.
E. Joseph Bowler Mr. Bowler, born in 1936, is Senior 1980
Vice President and Treasurer for the
Corporation.
Robert W. Entwisle Mr. Entwisle, born in 1947, is Senior 1986
Vice President in charge of the
Banking Division of Westamerica Bank.
Jennifer F. Finger Ms. Finger, born in 1954, is Senior 1997
Vice President and Chief Financial
Officer for the Corporation. From 1993
to 1997, Ms. Finger was Senior Vice
President of Corporate Development
with Star Banc Corporation in
Cincinnati, Ohio.
|
Evan N. Fricker Mr. Fricker, born in 1938, is Vice 1983
President and General Auditor for
the Corporation.
Dennis R. Hansen Mr. Hansen, born in 1950, is Senior 1978
Vice President and Controller for the
Corporation.
Thomas S. Lenz Mr. Lenz, born in 1937, is Senior Vice 1989
President and Chief Credit
Administrator of Westamerica Bank.
Hans T. Y. Tjian Mr. Tjian, born in 1939, is Senior 1989
Vice President and manager of the
Operations and Systems Administration
of Westamerica Bank.
|
ITEM 11. Executive Compensation
The information required by this Item 11 is incorporated herein by reference from the "Executive Compensation" and "Other Arrangements" sections on Pages 7 through 10 of the Company's Proxy Statement dated March 20, 2000, which has been filed with the Commission pursuant to Regulation 14A.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item 12 is incorporated herein by reference from the "Security Ownership of Certain Beneficial Owners and Management" section on Pages 5 and 6 of the Company's Proxy Statement dated March 20, 2000, which has been filed with the Commission pursuant to Regulation 14A.
ITEM 13. Certain Relationships and Related Transactions
The information required by this Item 13 is incorporated herein by reference from the "Certain Information About the Board of Directors and Certain Committees of the Board - Indebtedness of Directors and Management" section on Page 5 of the Company's Proxy Statement dated March 20, 2000, which has been filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. All Financial Statements
See Index to Financial Statements on page
(a) 2. Financial statement schedules required. None. (Information included in Financial Statements)
(a) 3. Exhibits The following documents are included or incorporated by reference in this annual report on Form 10-K:
Exhibit
Number
2(a) Agreement and Plan of Reorganization, between and among
Westamerica Bancorporation, ValliCorp Holdings, Inc.,
and ValliWide Bank, incorporated herein by reference to
Exhibit 2.1 of Registrant's Registration Statement on
Form S-4, Commission File No. 333-17335, filed with the
Securities and Exchange Commission on December 5, 1996.
2(b) Agreement and Plan of Reorganization and Merger, dated
March 14, 2000, by and among Westamerica Bancorporation,
Westamerica Bank and First Counties Bank, incorporated
herein by reference to Exhibit 2 of Registrant's Form 8-K
filed with the Securities and Exchange Commission on
March 17, 2000.
3(a) Restated Articles of Incorporation (composite copy),
incorporated herein by reference to Exhibit 3(a) to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, filed with the
Securities and Exchange Commission on March 30, 1998.
3(b) By-laws, as amended (composite copy).
4(a) Amended and Restated Rights Agreement dated November 19,
1999, incorporated herein by reference to Exhibit 99
to the Registrant's Form 8-A/A, Amendment No. 3,
filed with the Securities and Exchange Commission on
November 19, 1999.
10(a)* 1995 Stock Option Plan, incorporated herein by reference
to Exhibit 10(a) to the Registrant's Registration
Statement on Form S-8, filed with the Securities and
Exchange Commission on June 6, 1995.
10(b)* Employment Agreement with E. Joseph Bowler dated
January 7, 1987, incorporated herein by reference to
Exhibit 10 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998,
filed with the Securities and Exchange Commission
on March 31, 1999.
10(c)* Employment Agreement with Robert W. Entwisle dated
January 7, 1987, incorporated herein by reference to
Exhibit 10 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998,
filed with the Securities and Exchange Commission
on March 31, 1999.
10(d) Senior Note Agreement of Westamerica Bancorporation
dated February 1, 1996, of $22,000,000 at 7.11 percent
incorporated herein by reference to Exhibit 10-j of
Registrant's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1995, filed with the
Securities and Exchange Commission on May 1, 1996.
|
10(e)* Westamerica Bancorporation Chief Executive Officer
Deferred Compensation Agreement by and between
Westamerica Bancorporation and David L. Payne,
dated December 18, 1998.
11 Computation of Earnings Per Share on common and common
equivalent shares and on common shares assuming full
dilution.
21 Subsidiaries of the registrant.
23(a) Consent of KPMG LLP
(27) Financial Data Schedule
|
The Company will furnish to shareholders a copy of any exhibit listed above, but not contained herein, upon written request to the Office of the Corporate Secretary, Westamerica Bancorporation, P.O. Box 567, San Rafael, California 94915, and payment to the Company of $.25 per page.
(b) 1. Report on Form 8-K On November 1, 1999, the Company filed a Report on Form 8-K announcing the Board of Directors' approval of an amendment of and Restatement of the Company's Shareholder Rights Plan, as amended, dated March 23, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WESTAMERICA BANCORPORATION
/s/ Dennis R. Hansen /s/ Jennifer J. Finger -------------------- ---------------------- Dennis R. Hansen Jennifer J. Finger Senior Vice President Senior Vice President and and Controller Chief Financial Officer Principal Accounting Officer Date: March 20, 2000 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date
indicated. Signature Title Date --------- ----- ---- /s/ David L. Payne Chairman of the Board March 23, 2000 |
---------------------------- and Director, President David L. Payne and Chief Executive Officer
/s/ E. Joseph Bowler Senior Vice President March 23, 2000 ---------------------------- and Treasurer E. Joseph Bowler /s/ Etta Allen Director March 23, 2000 ---------------------------- Etta Allen /s/ Louis E. Bartolini Director March 23, 2000 ---------------------------- Louis E. Bartolini /s/ Don Emerson Director March 23, 2000 ---------------------------- Don Emerson /s/ Louis H. Herwaldt Director March 23, 2000 ---------------------------- Louis H. Herwaldt /s/ Arthur C. Latno Director March 23, 2000 ---------------------------- Arthur C. Latno /s/ Patrick D. Lynch Director March 23, 2000 ---------------------------- Patrick D. Lynch /s/ Catherine Cope MacMillan Director March 23, 2000 ---------------------------- Catherine Cope MacMillan /s/ Patrick J. Mon Pere Director March 23, 2000 ---------------------------- Patrick J. Mon Pere /s/ Ronald A. Nelson Director March 23, 2000 ---------------------------- Ronald A. Nelson /s/ Carl Otto Director March 23, 2000 ---------------------------- Carl Otto /s/ Michael J. Ryan, Jr. Director March 23, 2000 ---------------------------- Michael J. Ryan, Jr. /s/ Edward B. Sylvester Director March 23, 2000 ---------------------------- Edward B. Sylvester |
Exhibit 10(e)
WESTAMERICA BANCORPORATION
DEFERRED COMPENSATION AGREEMENT
WITH DAVID L. PAYNE,
CHIEF EXECUTIVE OFFICER
WESTAMERICA BANCORPORATION
CHIEF EXECUTIVE OFFICER
DEFERRED COMPENSATION AGREEMENT
This Agreement made this 18th day of December, 1998 by and between Westamerica Bancorporation (the "Company") and David L. Payne (the "CEO").
Commencing January 1, 1999, and each calendar year thereafter, the Company may provide the CEO with additional discretionary base pay and such additional pay may, in the discretion of the Company, be paid to the CEO on a deferred basis ("Deferred Compensation").
Any Deferred Compensation awarded to CEO by the Company shall not be paid to CEO until the earlier of:
January 1, 2004
Termination of the CEO's employment by the Company without "Cause" as defined below; or
Termination of the CEO for Good Reason following a "Change in Control" of the Company (as that term is defined in the Westamerica Bancorporation Deferral Plan Trust). "Good Reason" shall mean that the CEO, without his consent, suffers a material reduction in his compensation, title, status, or responsibilities.
The Deferred Compensation will be forfeited to the Company if the CEO's employment terminates on account of "Cause" (as defined below) by the Company prior to one of the above dates of payment. Termination shall be for Cause if (I) the CEO is convicted of a felony; (ii) the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, or the Board of Directors of the Federal Deposit Insurance Corporation shall have ordered the CEO removed from office pursuant to authority granted by applicable law; or (iii) the CEO is convicted of violating any employment law.
The Deferred Compensation shall be contributed to and be held pursuant to the terms of the Westamerica Bancorporation Deferral Plan Trust (the "Trust"). The CEO shall be an unsecured creditor with respect to the payment of any Deferred Compensation, which shall be an unfunded bookkeeping obligation of the Company.
During the period of deferral, the Deferred Compensation shall be credited with a rate of earnings determined in accordance with the terms of the Trust. The Deferred Compensation shall be paid to the CEO in a cash lump sum payment.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement shall be construed in accordance with, and governed by, the laws of the State of California applicable to agreements executed and to be performed in California.
This Agreement contains the entire agreement between the parties hereto with respect to the transactions contemplated by this Agreement and supersedes all previous oral and written and all contemporaneous oral negotiations, commitments, writings, and understandings. No amendment, change or modification of this Agreement may be made except in writing signed by both parties.
None of the rights of the CEO to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of the CEO. Any attempted assignment, transfer, conveyance, or other disposition (other than as aforesaid) of any interest in the rights of the CEO to receive any form of compensation to be made by the Company pursuant to this Agreement shall be void.
If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement that can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision in any other jurisdiction or under any other circumstance.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above.
WESTAMERICA BANCORPORATION
By: /s/ Patrick D. Lynch
---------------------
Its: Employee Benefits and
Compensation Committee
Chairman
/s/ David L. Payne
------------------
Its: Chief Executive Officer
|
Exhibit 11
WESTAMERICA BANCORPORATION
Computation of Earnings Per Share on Common and Common Equivalent Shares and on Common Shares
Assuming Full Dilution
===================================================================================
1999 1998 1997
-----------------------------------------------------------------------------------
(In thousands, except per share data)
Weighted average number of common
shares outstanding - basic 38,588 41,797 43,040
Add exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 606 727 787
-----------------------------------------------------------------------------------
Weighted average number of common
shares outstanding - diluted 39,194 42,524 43,827
===================================================================================
Net income $76,088 $73,396 $48,116
Basic earnings per share $1.97 $1.76 $1.12
Diluted earnings per share 1.94 1.73 1.10
===================================================================================
|
Exhibit 21
WESTAMERICA BANCORPORATION
Subsidiaries as of December 31, 1999
State of
Incorporation
-------------
Westamerica Bank California
Bank of Lake County California
Community Banker Services Corporation California
Westcore California
Westamerica Commercial Credit, Inc. California
|
Exhibit 23(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Westamerica Bancorporation:
We consent to incorporation by reference in the Registration Statement (No. 33-60003) on Form S-8 of Westamerica Bancorporation and subsidiaries of our report dated January 18, 2000, relating to the consolidated balance sheets of Westamerica Bancorporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, which report appears in the December 31, 1999 annual report on Form 10-K of Westamerica Bancorporation.
/s/ KPMG LLP ------------ KPMG LLP San Francisco, California March 27, 2000 |
| ARTICLE 9 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR | YEAR | YEAR |
| FISCAL YEAR END | DEC 31 1999 | DEC 31 1998 | DEC 31 1997 |
| PERIOD START | JAN 01 1999 | JAN 01 1998 | JAN 01 1997 |
| PERIOD END | DEC 31 1999 | DEC 31 1998 | DEC 31 1997 |
| CASH | 255,738 | 229,734 | 250,824 |
| INT BEARING DEPOSITS | 0 | 0 | 0 |
| FED FUNDS SOLD | 0 | 0 | 0 |
| TRADING ASSETS | 0 | 0 | 0 |
| INVESTMENTS HELD FOR SALE | 982,337 | 987,661 | 1,003,234 |
| INVESTMENTS CARRYING | 237,154 | 226,993 | 230,960 |
| INVESTMENTS MARKET | 235,147 | 233,790 | 236,896 |
| LOANS | 2,320,846 | 2,297,897 | 2,261,937 |
| ALLOWANCE | 51,574 | 51,304 | 50,630 |
| TOTAL ASSETS | 3,893,187 | 3,844,298 | 3,848,444 |
| DEPOSITS | 3,065,344 | 3,189,005 | 3,078,501 |
| SHORT TERM | 462,345 | 203,671 | 264,848 |
| LIABILITIES OTHER | 23,406 | 35,526 | 45,443 |
| LONG TERM | 41,500 | 47,500 | 52,500 |
| PREFERRED MANDATORY | 0 | 0 | 0 |
| PREFERRED | 0 | 0 | 0 |
| COMMON | 186,435 | 195,156 | 198,517 |
| OTHER SE | 114,157 | 173,440 | 208,635 |
| TOTAL LIABILITIES AND EQUITY | 3,893,187 | 3,844,298 | 3,848,444 |
| INTEREST LOAN | 186,652 | 195,656 | 201,999 |
| INTEREST INVEST | 71,000 | 72,122 | 67,036 |
| INTEREST OTHER | 4 | 42 | 1,635 |
| INTEREST TOTAL | 257,656 | 266,820 | 270,670 |
| INTEREST DEPOSIT | 60,910 | 71,351 | 76,264 |
| INTEREST EXPENSE | 78,456 | 86,665 | 88,054 |
| INTEREST INCOME NET | 179,200 | 180,155 | 182,616 |
| LOAN LOSSES | 4,780 | 5,180 | 7,645 |
| SECURITIES GAINS | 0 | 0 | 0 |
| EXPENSE OTHER | 100,133 | 101,408 | 137,878 |
| INCOME PRETAX | 114,461 | 111,372 | 74,106 |
| INCOME PRE EXTRAORDINARY | 76,088 | 73,396 | 48,116 |
| EXTRAORDINARY | 0 | 0 | 0 |
| CHANGES | 0 | 0 | 0 |
| NET INCOME | 76,088 | 73,396 | 48,116 |
| EPS BASIC | 1.97 | 1.76 | 1.12 |
| EPS DILUTED | 1.94 | 1.73 | 1.10 |
| YIELD ACTUAL | 7.69 | 8.02 | 8.21 |
| LOANS NON | 8,961 | 8,532 | 18,146 |
| LOANS PAST | 584 | 522 | 1,009 |
| LOANS TROUBLED | 0 | 0 | 0 |
| LOANS PROBLEM | 0 | 0 | 0 |
| ALLOWANCE OPEN | 51,304 | 50,630 | 50,921 |
| CHARGE OFFS | 7,937 | 8,568 | 12,484 |
| RECOVERIES | 3,427 | 4,062 | 4,548 |
| ALLOWANCE CLOSE | 51,574 | 51,304 | 50,630 |
| ALLOWANCE DOMESTIC | 31,112 | 30,865 | 31,466 |
| ALLOWANCE FOREIGN | 0 | 0 | 0 |
| ALLOWANCE UNALLOCATED | 20,462 | 20,439 | 19,164 |