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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, 2000
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, 2001:
$1,171,885,580.25
Number of shares outstanding of each of the registrant's
classes of common stock, as of March 20, 2001
Title of Class
Common Stock, no par value
Shares Outstanding
35,680,354
DOCUMENTS INCORPORATED BY REFERENCE
Document *
Proxy Statement dated March 21, 2001
for Annual Meeting of Shareholders
to be held on April 26, 2001
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 19
Item 3 Legal Proceedings 19
Item 4 Submission of Matters to a Vote of Security Holders 19
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 20
Item 6 Selected Financial Data 22
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 23
Item 8 Financial Statements and Supplementary Data 50
Item 9 Changes in and Disagreements on Accounting
and Financial Disclosure 87
PART III
Item 10 Directors and Executive Officers of the Registrant 87
Item 11 Executive Compensation 88
Item 12 Security Ownership of Certain Beneficial Owners
and Management 88
Item 13 Certain Relationships and Related Transactions 88
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 89
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 bank, Westamerica Bank ("WAB"). WAB is
subject to competition from other financial institutions
and regulations from certain agencies and undergoes
periodic examinations by those regulatory authorities.
In addition, the Company also owns 100 percent of
the capital stock 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.
The reorganization was consummated on December 31, 1972
and, on January 1, 1973, the Company began operations as
as a bank holding company.
In mid-1983, the Company consolidated its six subsidiary
banks into a single bank named Westamerica Bank ("WAB"),
a national banking association organized and existing
under the laws of the United States. WAB became a
state-chartered bank in June 1993.
On February 28, 1992, the Company acquired John Muir
National Bank for the issuance of the Company's Common
Stock. 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 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, the name
of Napa Valley Bancorp Services Corporation was changed to
Community Banker Services Corporation.
In 1995, the Company acquired PV Financial (parent company
of PV National Bank), Capital Bank Sacramento and North
Bay Bancorp (parent company of Novato National Bank).
Under the terms of the merger agreements, the Company
issued shares of its common stock in exchange for all of
the outstanding shares of the acquired companies. The
subsidiary banks acquired were merged with and into WAB. These
business combinations were accounted for as poolings-of-
interests.
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 was merged with and into WAB.
On January 22, 1998, the Board of Directors of the Company
authorized a three-for-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.
On August 17, 2000 the Company acquired First Counties Bank
under which each outstanding share of First Counties Bank
was exchanged for .8035 shares of the Company's common stock.
The acquisition was valued at approximately $19.7 million.
and accounted for on the purchase accounting method.
The activities and assets and liabilities of First Counties
Bank were fully merged into WAB in September 2000.
First Counties Bank had $91 million in assets and offices
in Lake, Napa, and Colusa counties.
At December 31, 2000, the Company had consolidated assets
of approximately $4.03 billion, deposits of approximately
$3.24 billion and shareholders' equity of approximately
$337.7 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, Colusa 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 36.3 million were outstanding at
December 31, 2000. Pursuant to its stock option plans, at
December 31, 2000, the Company had exercisable options
outstanding of 1.6 million. As of December 31, 2000, 1.0
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 its market price of common stock.
A portion of the loan portfolio of the Company is
dependent on real estate. At December 31, 2000, real
estate served as the principal source of collateral with
respect to approximately 55 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 customer 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.
Employees
At December 31, 2000, the Company and its subsidiaries
employed 1,095 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.
Supervision and Regulation
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 WAB's 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, WAB, 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 (the 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 costs of any examination by the FRB are
payable by the Company.
On March 11, 2000, the Gramm-Leach-Bliley Act, or the
Financial Services Act of 1999 (the "FSA"), became effective.
This Act amended certain portions of the BHCA, subject to
conditions. See "Recently Enacted Legislation" below for more
information.
The Company is a bank holding company within the meaning of
Section 3700 of the California Financial Code. As such, the
Company and WAB 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. However, a bank holding
company, with the approval of the FRB, may engage, or acquire
the voting shares of companies engaged, in activities that the
FRB has determined to be so closely related to banking or
managing or controlling banks as to be a proper incident
thereto. A bank holding company must demonstrate that the
benefits to the public of the proposed activity will outweigh
the possible adverse effects associated with such activity.
A bank holding company may acquire banks in states other than
its home state without regard to the permissibility of such
acquisitions under state law, but subject to any state
requirement that the bank has been organized and operating for
a minimum period of time, not to exceed five years, and the
requirement that the bank holding company, prior to or
following the proposed acquisition, controls no more than 10%
of the total amount of deposits of insured depository
institutions in the United States and no more than 30% of such
deposits in that state (or such lesser or greater amount set
by state law). Banks may also merge across states lines,
thereby creating interstate branches. Furthermore, a bank is
now able to open new branches in a state in which it does not
already have banking operations, if the laws of such state
permit such de novo branching.
Under California law, (a) out-of-state banks that wish to
establish a California branch office to conduct core banking
business must first acquire an existing five year old
California bank or industrial bank by merger or purchase, (b)
California state-chartered banks are empowered to conduct
various authorized branch-like activities on an agency basis
through affiliated and unaffiliated insured depository
institutions in California and other states and (c) the
Commissioner is authorized to approve an interstate
acquisition or merger that would result in a deposit
concentration exceeding 30% if the Commissioner finds that the
transaction is consistent with public convenience and
advantage. However, a state bank chartered in a state other
than California may not enter California by purchasing a
California branch office of a California bank or industrial
bank without purchasing the entire entity or by establishing a
de novo California bank.
The FRB generally prohibits a bank holding company from
declaring or paying a cash dividend that would impose undue
pressure on the capital of subsidiary banks or would be funded
only through borrowing or other arrangements which might
adversely affect a bank holding company's financial position.
Under the FRB policy, 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 WAB
to pay dividends.
Transactions between the Company and WAB 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). Subject to certain limitations,
depository institution subsidiaries of bank holding companies
may extend credit to, invest in the securities of, purchase
assets from, or issue a guarantee, acceptance, or letter of
credit on behalf of, an affiliate, provided that the aggregate
of such transactions with affiliates may not exceed 10% of the
capital stock and surplus of the institution, and the
aggregate of such transactions with all affiliates may not
exceed 20% of the capital stock and surplus of such
institution. The Company may only borrow from WAB 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 regulations 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 prescribed for bank
holding companies and their nonbank subsidiaries. Amended
Regulation Y also provides for a streamlined 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 which it controls must meet the "well-
capitalized" and "well-managed" criteria set forth in
Regulation Y.
To qualify as "well-capitalized," the bank holding company
must, on a consolidated basis: (i) maintain a total risk-based
capital ratio of 10% or greater; (ii) maintain a Tier 1 risk-
based capital ratio of 6% or greater; and (iii) not be subject
to any order by the FRB to meet a specified capital level.
Its lead insured depository institution must be well-
capitalized as that term is defined in the capital adequacy
regulations of the applicable bank regulator, 80% of the total
risk-weighted assets held by its insured depository
institutions must be held by institutions which are well-
capitalized, and none of its insured depository institutions
may be undercapitalized.
To qualify as "well-managed": (i) each of the bank holding
company, its lead depository institution and its depository
institutions holding 80% of the total risk-weighted assets of
all its depository institutions at their most recent
examination or review must have received a composite rating,
rating for management and rating for compliance which were at
least satisfactory; (ii) none of the bank holding company's
depository institutions may have received one of the two
lowest composite ratings; and (iii) neither the bank holding
company nor any of its depository institutions during the
previous 12 months may have been subject to a formal
enforcement order or action.
Bank Regulation and Supervision
WAB is a California chartered bank insured by the Federal
Deposit Insurance Corporation (the "FDIC"), and as such is
subject to regulation, supervision and regular examination by
the California Department of Financial Institutions ("DFI")
and the FDIC. As a member of the Federal Reserve System,
WABs primary federal regulator is the FRB. The regulations
of these agencies affect most aspects of WABs business and
prescribe permissible types of loans and investments, the
amount of required reserves, requirements for branch offices,
the permissible scope of its activities and various other
requirements.
In addition to federal banking law, WAB is also subject to
applicable provisions of California law. Under California
law, WAB 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 investment
and lending activities. Whenever it appears that the
contributed capital of a California bank is impaired, the
Commissioner shall order the bank to correct such impairment.
If a bank is unable to correct the impairment, such bank is
required to levy and collect an assessment upon its common
shares. If such assessment becomes delinquent, such common
shares are to be sold by the bank.
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 Federal
Deposit Insurance Corporation 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 activities which have been
approved by the FRB for bank holding companies because such
activities are so closely related to banking as 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 arrangements, which are recorded as off
balance sheet items. Under these guidelines, nominal dollar
amounts of assets and credit equivalent amounts of off balance
sheet items are multiplied by one of several risk adjustment
percentages, which range from 0% for assets with low credit
risk, such as certain U.S. government securities, to 100% for
assets with relatively higher credit risk, such as certain
loans.
In determining the capital level WAB is required to maintain,
the federal banking agencies do not, in all respects, follow
generally accepted accounting principles ("GAAP") and have
special rules which have the effect of reducing the amount of
capital they will recognize for purposes of determining its
capital adequacy.
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 consists of common stock, retained
earnings, noncumulative perpetual preferred stock, other types
of qualifying preferred stock and minority interests in
certain subsidiaries, less most other intangible assets and
other adjustments. Net unrealized losses on available-for-
sale equity securities with readily determinable fair value
must be deducted in determining Tier 1 capital. For Tier 1
capital purposes, deferred tax assets which can only be
realized if an institution earns sufficient taxable income in
the future are limited to the amount that the institution is
expected to realize within one year, or ten percent of Tier 1
capital, whichever is less. Tier 2 capital may consist of a
limited amount of the allowance for loan and lease losses,
term preferred stock and other types of preferred stock not
qualifying as Tier 1 capital, term subordinated debt and
certain other instruments with some characteristics of equity.
The inclusion of elements of Tier 2 capital are subject to
certain other requirements and limitations of the federal
banking agencies. 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%.
On October 1, 1998, the FDIC adopted two rules governing
minimum capital levels that FDIC-supervised banks must
maintain against the risks to which they are exposed. The
first rule makes risk-based capital standards consistent for
two types of credit enhancements (i.e., recourse arrangements
and direct credit substitutes) and requires different amounts
of capital for different risk positions in asset
securitization transactions. The second rule permits limited
amounts of unrealized gains on debt and equity securities to
be recognized for risk-based capital purposes as of September
1, 1998. The FDIC rules also provide that a qualifying
institution that sells small business loans and leases with
recourse must hold capital only against the amount of recourse
retained. In general, a qualifying institution is one that is
well-capitalized under the FDIC's prompt corrective action
rules. The amount of recourse that can receive the
preferential capital treatment cannot exceed 15% of the
institution's total risk-based capital.
In addition to the risk-based guidelines, the federal banking
agencies 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
to rate banking organizations, the minimum leverage ratio of
Tier 1 capital to total assets must be 3%. It is improbable,
however, that an institution with a 3% leverage ratio would
receive the highest rating since a strong capital position is
a significant part of the regulators' rating. 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. Thus, the effective minimum leverage ratio,
for all practical purposes, must be at least 4% or 5%. In
addition to these uniform risk-based capital guidelines and
leverage ratios which apply across the industry, the
regulators have the discretion to set individual minimum
capital requirements for specific institutions at rates
significantly above the minimum guidelines and ratios.
As of December 31, 2000, the Company's and WABs respective
ratios exceeded applicable regulatory requirements. See
Note 8 to the consolidated financial statements for capital
ratios of the Company and WAB, compared to the standards for
well-capitalized depository institutions and for minimum
capital requirements.
The federal banking agencies take into consideration
concentrations of credit risk and risks from non-traditional
activities, as well as an institution's ability to manage
those risks, when determining the adequacy of an institution's
capital. This evaluation is made as a part of the
institution's regular safety and soundness examination. The
federal banking agencies also consider interest rate risk
(when the interest rate sensitivity of an institution's assets
does not match the sensitivity of its liabilities or its off
balance sheet position) in evaluation of a bank's capital
adequacy.
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 required each federal banking agency to promulgate
regulations defining the following five categories in which an
insured depository institution will be placed, based on the
level of its capital ratios: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized
and critically undercapitalized.
Under the prompt corrective action provisions of FDICIA, an
insured depository institution generally will be classified in
the following categories based on the capital measures
indicated below:
Total Tier 1
Risk-Based Risk-Based Leverage
Capital Capital Ratio
Well capitalized 10.00% 6.00% 5.00%
Adequately capitalized 8.00 4.00 4.00
Undercapitalized (less than) 8.00 4.00 4.00
Significantly undercapitalized (less than) 6.00 3.00 3.00
Critically undercapitalized
Tangible equity/ total assets (less than) 2.00
An institution that, based upon its capital levels, is
classified as "well capitalized," "adequately capitalized" or
"undercapitalized" may be treated as though it were in the
next lower capital category if the appropriate federal banking
agency, after notice and opportunity for hearing, determines
that an unsafe or unsound condition or an unsafe or unsound
practice warrants such treatment. At each successive lower
capital category, an insured depository institution is subject
to more restrictions.
In addition to measures taken under the prompt corrective
action provisions, commercial banking organizations may be
subject to potential enforcement actions by the federal
banking agencies for unsafe or unsound practices in conducting
their businesses or for violations of any law, rule,
regulation or any condition imposed in writing by the agency
or any written agreement with the agency. Enforcement actions
may include the imposition of a conservator or receiver, the
issuance of a cease-and-desist order that can be judicially
enforced, the termination of insurance of deposits (in the
case of a depository institution), the imposition of civil
money penalties, the issuance of directives to increase
capital, the issuance of formal and informal agreements, the
issuance of removal and prohibition orders against
institution-affiliated parties and the enforcement of such
actions through injunctions or restraining orders based upon a
judicial determination that the agency would be harmed if such
equitable relief was not granted. 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 on
transactions 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. The federal banking agencies may require an
institution to submit to an acceptable compliance plan as well
as have the flexibility to pursue other more appropriate or
effective courses of action given the specific circumstances
and severity of an institution's noncompliance with one or
more standards.
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 such payments do 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 this 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.
The federal banking agencies also have the 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
WABs deposits are insured by the Bank Insurance Fund (BIF)
administered by the FDIC. FDICIA established several
mechanisms to increase funds to protect deposits insured by
the 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 which 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 insurance premiums will be.
Community Reinvestment Act and Fair Lending Developments
WAB is 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.
Recently Enacted Legislation
On March 11, 2000, the Financial Services Act of 1999 (the
FSA) became effective. The FSA repealed provisions of the
Glass-Steagall Act, which had prohibited commercial banks and
securities firms from affiliating with each other and engaging
in each other's businesses. Thus, many of the barriers
prohibiting affiliations between commercial banks and
securities firms have been eliminated.
The BHCA was also amended by the FSA to allow new "financial
holding companies" ("FHCs") to offer banking, insurance,
securities and other financial products to consumers.
Specifically, the FSA amended section 4 of the BHCA in order
to provide for a framework for the engagement in new financial
activities. A bank holding company ("BHC") may elect to
become a FHC if all its subsidiary depository institutions are
well-capitalized and well-managed. If these requirements are
met, a BHC may file a certification to that effect with the
FRB and declare that it elects to become a FHC. After the
certification and declaration is filed, the FHC may engage
either de novo or though an acquisition in any activity that
has been determined by the FRB to be financial in nature or
incidental to such financial activity. BHCs may engage in
financial activities without prior notice to the FRB if those
activities qualify under the new list of permissible
activities in section 4(k) of the BHCA. However, notice must
be given to the FRB within 30 days after a FHC has commenced
one or more of the financial activities. The Company has not
elected to become a FHC.
Under the FSA, FDIC-insured state banks, subject to various
requirements, as well as national banks, are permitted to
engage through "financial subsidiaries" in certain financial
activities permissible for affiliates of FHCs. However, to be
able to engage in such activities the bank must also be well-
capitalized and well-managed and have received at least a
"satisfactory" rating in its most recent CRA examination.
The Company cannot be certain of the effect of the foregoing
recently enacted legislation on its business, although there
is likely to be consolidation among financial services
institutions and increased competition for the Company.
Pending Legislation and Regulations
Certain pending legislative proposals include bills to permit
banks to pay interest on business checking accounts, to cap
consumer liability for stolen debit cards, to enact privacy
rules designed to regulate the ability of financial
institutions to use or share customer information, to end
certain predatory lending practices, to allow the payment of
interest on reserves that financial institutions must keep
with FRB and to give judges the authority to force high-income
borrowers to repay their debts rather than cancel them through
bankruptcy. A proposal to merge the FDIC's two funds, the BIF
and the Savings Association Insurance Fund, is also being
discussed. The Company also expects that during 2001, the
Financial Accounting Standards Board will issue guidance as to
whether to retain the pooling-of-interests method of
accounting for business combinations and related issues,
including whether to adopt an impairment-only approach to
amortization of goodwill.
While the effect of such proposed legislation on the business
of the Company cannot be accurately predicted at this time, it
seems likely that a significant amount of consolidating in
banking industry will continue.
Competition
In the past, WAB'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
certain retail establishments have offered investment
vehicles which also compete with banks for deposit
business. Federal legislation in recent years has
encouraged competition between different types of
financial institutions and fostered 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.
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.
According to information obtained through an independent market
research firm, WAB was the seventeenth largest financial institution
in California in terms of total deposits at December 31, 1999. In the
individual markets in which it has branch offices, WAB was the fourth
largest financial institution, with a market share of approximately
7.74%. The share of individual markets within the overall market varies,
with the most dominant continuing to be in the San Rafael area of
Marin County, where WAB ranked first with 20.3 percent of the total
deposit market among federally-insured depository institutions. WAB's
share of the other markets it serves in Marin County was 19.1 percent,
ranking it third. According to the same source of information, WAB
ranked second in total deposits market share in the Lake County
service area with 16 percent of the total. WAB ranked fourth in its
Sonoma-Napa counties service area, with approximately a 9.7 percent
share of the market, and fourth in the Solano county service area,
with a market share of approximately 9 percent, and was fifth in the
Fresno service area with approximately 6.9 percent of total deposits.
WAB also ranked fifth in the markets it serves in portions of Kern,
San Luis Obispo, Tulare and Kings counties with approximately 5.5
percent of the market. WAB's market share in the Greater Sacramento
service area was approximately 5 percent, ranking sixth among its
competitors. In the service area encompassing offices throughout
Stanislaus, Sonora, and Merced counties, WAB ranked eighth
among its competitors with 4.3 percent of total deposits. WAB also
ranked eighth with 3.0 percent of the total deposit market in the
areas it serves in Contra Costa county.
ITEM 2. Properties
Branch Offices and Facilities
WAB is engaged in the banking business through 94
offices in 24 counties in Northern and Central California
including eleven offices each in Marin and Fresno
Counties, nine in Sonoma County, seven in Napa County, six
each in Solano, Kern, Stanislaus and Contra Costa
Counties, five in Lake County, four in San Luis Obispo
County, three each in Mendocino and Sacramento Counties,
two each in Nevada, Placer, Tulare and Tuolumne and
Alameda Counties, one each in San Francisco, Kings,
Madera, Merced, Yolo and Colusa Counties.
All offices are constructed and equipped to meet
prescribed security requirements.
The Company owns 38 branch office locations and one
administrative building and leases 77 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 nor any of 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 2000.
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's common stock is traded on the NASDAQ
National Market Exchange ("NASDAQ") under the symbol
"WABC". The following table shows the high and the low
prices for the common stock, for each quarter, as reported
by NASDAQ:
============================================================
2000: High Low
- ------------------------------------------------------------
First quarter $27.75 $21.00
Second quarter $30.06 $24.38
Third quarter $33.56 $27.00
Fourth quarter $43.75 $30.69
1999:
First quarter $37.50 $31.63
Second quarter 37.13 30.00
Third quarter 36.50 28.94
Fourth quarter 35.13 26.63
============================================================
As of December 31, 2000, there were 8,747 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, 2000,
$154.8 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 most recently amended and
restated on October 28, 1999, to become effective
on November 19, 1999. 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 or its shareholders. In addition to extending the
maturity date of the plan to December 31, 2004, the
other material changes included: (1) an increase in the
exercise price to $75.00 per share; (2) a decrease in the
redemption price of each Right to $.001; and (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.
ITEM 6. Selected Financial Data
WESTAMERICA BANCORPORATION
FINANCIAL SUMMARY
=========================================================================================================
2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Year ended December 31
Interest income $269,516 $257,656 $266,820 $270,670 $274,182
Interest expense 88,614 78,456 86,665 88,054 91,700
- ---------------------------------------------------------------------------------------------------------
Net interest income 180,902 179,200 180,155 182,616 182,482
Provision for loan losses 3,675 4,780 5,180 7,645 12,306
Non-interest income 41,130 40,174 37,805 37,013 36,307
Non-interest expense 100,198 100,133 101,408 137,878 136,051
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 118,159 114,461 111,372 74,106 70,432
Provision for income taxes 38,380 38,373 37,976 25,990 23,605
- ---------------------------------------------------------------------------------------------------------
Net income $79,779 $76,088 $73,396 $48,116 $46,827
=========================================================================================================
Earnings per share:
Basic $2.19 $1.97 $1.76 $1.12 $1.10
Diluted 2.16 1.94 1.73 1.10 1.08
Per share:
Dividends paid $0.74 $0.66 $0.52 $0.36 $0.30
Book value at December 31 9.32 8.10 9.25 9.51 8.84
Average common shares outstanding 36,410 38,588 41,797 43,040 42,759
Average diluted common shares outstanding 36,936 39,194 42,524 43,827 43,358
Shares outstanding at December 31 36,251 37,125 39,828 42,799 42,889
At December 31
Loans, net 2,429,880 2,269,272 2,246,593 2,211,307 2,236,319
Total assets 4,031,381 3,893,187 3,844,298 3,848,444 3,866,774
Total deposits 3,236,744 3,065,344 3,189,005 3,078,501 3,228,700
Short-term borrowed funds 386,942 462,345 203,671 264,848 167,447
Debt financing and notes payable 31,036 41,500 47,500 52,500 58,865
Shareholders' equity 337,747 300,592 368,596 407,152 379,279
Financial Ratios:
For the year:
Return on assets 2.06% 1.99% 1.94% 1.28% 1.24%
Return on equity 25.78% 23.31% 19.48% 12.71% 13.22%
Net interest margin * 5.48% 5.46% 5.52% 5.63% 5.54%
Net loan losses to average loans 0.17% 0.20% 0.20% 0.35% 0.51%
Efficiency ratio * 42.45% 43.19% 44.25% 60.15% 60.08%
At December 31:
Equity to assets 8.38% 7.72% 9.59% 10.58% 9.81%
Total capital to risk-adjusted assets 11.61% 11.75% 13.79% 14.76% 14.95%
Loan loss reserve to loans 2.11% 2.22% 2.23% 2.24% 2.23%
* 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 of 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: significantly increased competitive
pressure in the banking industry; changes in the interest rate
environment; less favorable general economic conditions
resulting in a deterioration in credit quality; 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 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 50
through 84, as well as with the other information presented
throughout the report.
NET INCOME
The Company achieved earnings of $79.8 million in 2000,
representing a 4.9 percent increase from the $76.1 million earned in
1999, which was up 3.7 percent over 1998 earnings of $73.4 million.
Components of Net Income
- ---------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------
(In millions)
Net interest income * $194.9 $191.6 $191.4
Provision for loan losses (3.7) (4.8) (5.2)
Noninterest income 41.1 40.2 37.8
Noninterest expense (100.2) (100.1) (101.4)
Taxes * (52.4) (50.8) (49.2)
- ---------------------------------------------------------------------------------
Net income $79.8 $76.1 $73.4
==================================================================================
Net income as a percentage of
average total assets 2.06% 1.99% 1.94%
==================================================================================
Average total assets $3,877.5 $3,828.3 $3,778.5
==================================================================================
* Fully taxable equivalent (FTE)
Diluted earnings per share in 2000 were $2.16, compared to $1.94
and $1.73 in 1999 and 1998, respectively.
Much of the improvement in current year's earnings is the result
of higher net interest income, which grew by $3.3 million or 1.7%
compared to 1999. Approximately two-thirds of that increase
was due to higher levels of earning assets and the remainder to a
a higher net interest margin. In addition the loan loss provision
was reduced by $1.1 million, noninterest income grew $900 thousand
and noninterest expense grew slightly. On August 17, 2000, the
Company completed the acquisition of First Counties Bank, an
institution with total assets of $90 million headquartered in
Clearlake, California. The acquisition was accounted for as a purchase.
Earnings in 1999 increased $2.7 million over 1998, due to increased
noninterest income, a reduction in noninterest expense reflective
of continued expense controls, a lower loan loss provision and a
slight increase in net interest income. The increase in net
interest income was due to higher average earning asset balances
offset by a lower net interest margin.
The Company's return on average total assets was 2.06 percent in
2000, compared to 1.99 percent and 1.94 percent in 1999 and 1998,
respectively. Return on average equity in 2000 was 25.79 percent,
compared to 23.31 percent and 19.48 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 2000 increased $3.3 million from 1999 to $194.9
million. Comparing 1999 to 1998, net interest income (FTE)
increased $200 thousand.
Components of Net Interest Income
- ---------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------
(In millions)
Interest income $269.5 $257.7 $266.8
Interest expense (88.6) (78.5) (86.7)
FTE adjustment 14.0 12.4 11.3
- ---------------------------------------------------------------------------------
Net interest income (FTE) $194.9 $191.6 $191.4
=================================================================================
Net interest margin (FTE) 5.48% 5.46% 5.52%
=================================================================================
Interest income (FTE) increased $13.4 million from 2000 to 1999,
primarily due to higher level of earning assets. Average loans
outstanding grew $77 million to $2.37 billion, the results of an $85
million expansion of the commercial real estate loan portfolio
plus $75 million in consumer loans, offset by decreases in commercial
and residential real estate loans which declined $70 million and $12
million respectively. Partially offsetting the growth in loans, average
investments declined $29 million. In addition to the net positive
earning asset volume variance, the average rate earned on these assets
also increased. Yields on loans grew from 8.28% in 1999 to 8.58% in
2000 while investments yields improved 16 basis points to 6.65%.
Overall, the yield on the company's earning assets increased from
7.69% in 1999 to 7.97% in 2000.
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 a 47 basis point lower yield and a 4 basis point
decrease in the investment yield. These changes were reflective of a
general decline in market rates, resulting in all categories of loan
and investment securities yields being lower than prior year.
Partially offsetting these changes, average earning asset balances
increased $47 million from 1998, with loan and investment securities
average balances increasing $30 million an $18 million, respectively
from 1998.
Interest expense increased $10.1 million or 12.9% in 2000 due to the
higher rates paid on interest-bearing liabilities. In 1999 the
average rate paid was 3.00% while in 2000 it increased to 3.42%. The
largest individual increase was the rate paid on public time deposits,
which grew by 4.67% in 1999 to 6.03% in 2000. Another large contributor
to the higher average rate was federal funds purchased, the rate on
which increased from 5.09% to 6.18%. Partially offsetting these higher
rates, the volume of interest-bearing liabilities decreased during
the year by $32 million or 1.2%. The lower interest bearing liabilities
were replaced by Noninterest bearing transaction deposits, which
grew $96 million. Interest expense decreased by $8.2 million in 1999
compared to 1998. This was the result of a decrease of 36 basis points
in rates paid on interest bearing liabilities combined with a $66 million
increase in the average balance of interest-free demand deposits, in
part offset by a $36 million increase in the interest-bearing liabilities
average balances.
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present 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 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 2000
(dollars in thousands) -----------------------------------
Interest Rates
Average income/ earned/
balance expense paid
- ---------------------------------------------------------------------------------
Assets
Money market assets and funds sold $529 $11 2.14 %
Trading account securities 0 6 0.00
Investment securities
Taxable 827,592 50,333 6.08
Tax-exempt 363,355 28,828 7.93
Loans:
Commercial 1,508,732 133,236 8.83
Real estate construction 50,560 6,132 12.13
Real estate residential 341,201 24,091 7.06
Consumer 468,572 40,909 8.73
---------- ---------
Earning assets 3,560,541 283,546 7.96
Other assets 316,920
-----------
Total assets $3,877,461
===========
Liabilities and shareholders' equity
Deposits
Noninterest bearing demand $953,667
Savings and interest-bearing
transaction 1,350,238 22,827 1.69 %
Time less than $100,000 391,500 19,761 5.05
Time $100,000 or more 462,506 25,849 5.59
---------- ---------
Total interest-bearing deposits 2,204,244 68,437 3.10
Funds purchased 341,857 17,668 5.17
Debt financing and notes payable 35,159 2,509 7.14
---------- ---------
Total interest-bearing liabilities 2,581,260 88,614 3.42
Other liabilities 33,023
Shareholders' equity 309,511
-----------
Total liabilities and shareholders' equity $3,877,461
===========
Net interest spread (1) 4.54
Net interest income and interest margin (2) $194,932 5.48
========= ======
(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 1999
(dollars in thousands) -----------------------------------
Interest Rates
Average income/ earned/
balance expense paid
- ---------------------------------------------------------------------------------
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
Noninterest 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
(dollars in thousands) -----------------------------------
Interest Rates
Average income/ earned/
balance expense paid
- ---------------------------------------------------------------------------------
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
Noninterest 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 $3,778,452
===========
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.
Rate and volume variances
The following table sets forth a summary of the changes in
interest income and interest expense from changes in average
assets and liability balances (volume) and changes in
average interest rates for the periods indicated. Changes not
solely attributable to volume or rates have been allocated in
proportion to the respective volume and rate components.
- ---------------------------------------------------------------------
For the years ended December 31,
(In thousands)
- ---------------------------------------------------------------------
2000 compared with 1999
- ---------------------------------------------------------------------
Volume Rate Total
- ---------------------------------------------------------------------
Increase (decrease) in interest and fee income:
Money market assets and
funds sold $6 $1 $7
Trading account securities 7 (1) 6
Investment securities (1)
Taxable (2,823) 1,005 (1,818)
Tax-exempt 1,119 715 1,834
Loans:
Commercial (1) 513 5,784 6,297
Real estate construction (257) 567 310
Real estate residential (805) 561 (244)
Consumer 5,557 1,497 7,054
- ---------------------------------------------------------------------
Total loans (1) 5,008 8,409 13,417
- ---------------------------------------------------------------------
Total increase (decrease) in
interest and fee income (1) 3,317 10,129 13,446
- ---------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (321) (210) (531)
Time less than $100,000 (874) 2,529 1,655
Time $100,000 or more 1,973 4,430 6,403
- ---------------------------------------------------------------------
Total interest-bearing 778 6,749 7,527
Funds purchased 915 2,468 3,383
Notes and mortgages payable (481) (271) (752)
- ---------------------------------------------------------------------
Total increase (decrease)
in interest expense 1,213 8,945 10,158
- ---------------------------------------------------------------------
Increase (decrease) in
net interest income (1) $2,104 $1,184 $3,288
=====================================================================
(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,
(In thousands)
- ---------------------------------------------------------------------
1999 compared with 1998
- ---------------------------------------------------------------------
Volume Rate Total
- ---------------------------------------------------------------------
Increase (decrease) in interest and fee income:
Money market 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.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $3.7 million for 2000, compared
to $4.8 million in 1999 and $5.2 million in 1998. The reductions in
the provision in 2000 and 1999 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 114 months at December 31, 2000
and, on the same date, those investments included $203.0 million
in fixed-rate and $25.0 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, 2000, the Company held $921.3 million classified as
investments available for sale. At December 31, 2000, an
unrealized gain of $7.2 million net of taxes of $5.6 million
related to these securities, was held in shareholders' equity.
The Company had no trading securities at December 31, 2000.
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, 2000 1999 1998
- ---------------------------------------------------------------------------------------
(In thousands)
U.S. Treasury $188,513 $183,478 $248,610
U.S. Government agencies and corporations 207,091 195,300 121,304
States and political subdivisions 241,151 234,781 213,315
Asset backed securities 76,678 143,590 165,398
Other 207,842 225,188 239,034
- ---------------------------------------------------------------------------------------
Total $921,275 $982,337 $987,661
=======================================================================================
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, 2000. 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 Mortgage-
Within but within but within After ten backed Other Total
(Dollars in thousands) one year five years ten years years
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury $55,354 $131,635 $-- $-- $-- $-- $186,989
Interest rate 5.61% 5.96% --% --% --% --% 5.86%
U.S. Government agencies
and corporations 3,500 192,521 1,500 90 -- -- 197,611
Interest rate 5.29% 6.09% 6.77% 8.20% -- -- 6.08%
States and political
subdivisions 19,263 9,239 99,320 108,055 -- -- 235,877
Interest rate 6.21% 7.98% 7.83% 7.27% -- -- 7.45%
Asset-backed -- 65,507 11,218 -- 76,725
Interest rate -- 6.12% 7.01% -- -- -- 6.25%
Other securities 63,095 114,971 100 -- -- -- 178,166
Interest rate 6.25% 6.25% 7.94% -- -- -- 6.25%
- -------------------------------------------------------------------------------------------------------------------
Subtotal 141,212 513,873 112,138 108,145 -- -- 875,368
Interest rate 5.97% 6.13% 7.73% 7.27% -- -- 6.45%
Mortgage Backed -- -- -- -- 8,951 -- 8,951
Interest rate -- -- -- -- 7.33% -- 7.33%
Other without set maturities -- -- -- -- -- 23,710 23,710
Interest rate -- -- -- -- -- 9.24% 9.24%
- -------------------------------------------------------------------------------------------------------------------
Total $141,212 $513,873 $112,138 $108,145 $8,951 $23,710 $908,029
Interest rate 5.97% 6.13% 7.73% 7.27% 7.33% 9.24% 6.53%
===================================================================================================================
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, 2000 1999 1998
- ---------------------------------------------------------------------------------
(In thousands)
U.S. Treasury $-- $-- $--
U.S. Government agencies and corporations 64,717 70,418 69,235
States and political subdivisions 151,980 155,813 147,119
Asset backed securities -- -- --
Other 11,338 10,923 10,639
- ---------------------------------------------------------------------------------
Total $228,035 $237,154 $226,993
=================================================================================
Fair value $231,906 $235,147 $233,790
=================================================================================
The following table sets forth the relative maturities and yields
of the Company's held-to-maturity securities at December 31, 2000.
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-
(Dollars in thousands) one year five years ten years years backed Other Total
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury $-- $-- $-- $-- $-- $-- $--
Interest rate --% --% --% --% --% --% --%
U.S. Government Agencies
and Corporations -- -- -- -- -- -- --
Interest rate -- -- -- -- -- -- --
States and Political
Subdivisions 2,693 42,604 80,278 26,405 -- -- 151,980
Interest rate 7.44% 7.59% 7.95% 7.80% -- -- 7.81%
Asset Backed -- -- -- -- -- -- --
Interest rate -- -- -- -- -- -- --
Other -- -- -- -- -- 11,338 11,338
Interest rate -- -- -- -- -- 6.50% 6.50%
- -------------------------------------------------------------------------------------------------------------------
Subtotal 2,693 42,604 80,278 26,405 -- 11,338 163,318
Interest rate 7.44% 7.59% 7.95% 7.80% --% 6.50% 7.72%
Mortgage Backed -- -- -- -- 64,717 -- 64,717
Interest rate -- -- -- -- 6.49% -- 6.49%
- -------------------------------------------------------------------------------------------------------------------
Total $2,693 $42,604 $80,278 $26,405 $64,717 $11,338 $228,035
Interest rate 7.44% 7.59% 7.95% 7.80% 6.49% 6.50% 7.37%
===================================================================================================================
Loan portfolio
The following table shows the compositions of the loan portfolio of the
Company by type of loan and type of borrower, on the dates indicated:
At December 31,
- -------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
Commercial and commercial real estate 1,562,462 1,502,237 1,476,912 1,437,118 1,455,984
Real estate construction 64,195 50,928 57,998 66,782 101,136
Real estate residential 355,488 337,002 384,128 361,909 276,951
Consumer 502,367 434,803 385,204 404,382 462,734
Unearned income (2,353) (4,124) (6,345) (8,254) (9,565)
- -------------------------------------------------------------------------------------------------------------------
Gross loans $2,482,159 $2,320,846 $2,297,897 $2,261,937 $2,287,240
Allowance for loan losses (52,279) (51,574) (51,304) (50,630) (50,921)
- -------------------------------------------------------------------------------------------------------------------
Net loans $2,429,880 $2,269,272 $2,246,593 $2,211,307 $2,236,319
===================================================================================================================
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, 2000. Balances exclude loans to individuals and
residential mortgages totaling $855.5 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 * $663,937 $473,556 $424,969 $1,562,462
Real estate construction 64,195 -- -- 64,195
- -------------------------------------------------------------------------------------------------------
Total $728,132 $473,556 $424,969 $1,626,657
=======================================================================================================
Loans with fixed interest rates $223,059 $473,556 $424,969 $1,121,584
Loans with floating interest rates 505,073 -- -- 505,073
- -------------------------------------------------------------------------------------------------------
Total $728,132 $473,556 $424,969 $1,626,657
=======================================================================================================
* 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.
The following summarizes the Company's classified assets for
the periods indicated:
- ---------------------------------------------------------------------
(In millions)
At December 31, 2000 1999
- ---------------------------------------------------------------------
Classified loans $31.6 $41.3
Other classified assets 2.1 3.3
- ---------------------------------------------------------------------
Total classified assets $33.7 $44.6
=====================================================================
Classified loans at December 31, 2000 decreased $9.7 million or 24
percent to $31.6 million from December 31, 1999, continuing to reflect
the effectiveness of the Company's high underwriting standards and
active workout policies. Other classified assets decreased $1.2 million
from prior year, due to sales and writedowns of properties acquired in
satisfaction of debt partially offset by new foreclosures on loans
with real estate collateral.
Nonperforming Assets
Nonperforming assets include nonaccrual loans, loans 90 or more
days past due and still accruing and other real estate owned. Loans
are placed on nonaccrual 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
nonaccrual 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 nonaccrual status even though the
borrowers continue to repay the loans as scheduled. Such loans are
classified by Management as "performing nonaccrual" and are
included in total nonperforming assets. When the ability to fully
collect nonaccrual 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
nonaccrual 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 nonperforming assets of
the Company for the periods indicated:
- -------------------------------------------------------------------------------------------------------
(In millions)
December 31, 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
Performing nonaccrual loans $3.5 $3.5 $1.8 $1.6 $4.3
Nonperforming nonaccrual loans 4.5 5.5 6.8 16.5 12.5
- -------------------------------------------------------------------------------------------------------
Nonaccrual loans 8.0 9.0 8.6 18.1 16.8
- -------------------------------------------------------------------------------------------------------
Restructured loans -- -- -- -- 0.2
Loans 90 or more days past due
and still accruing 0.6 0.5 0.5 1.0 1.8
Other real estate owned 2.1 3.3 4.3 7.4 9.9
- -------------------------------------------------------------------------------------------------------
Total nonperforming assets $10.7 $12.8 $13.4 $26.5 $28.7
=======================================================================================================
Allowance for loan losses as a
percentage of nonaccrual loans
and loans 90 or more days past
due and still accruing 601% 540% 564% 265% 271%
Allowance for loan losses as a percentage
of total nonperforming assets 487% 402% 383% 191% 177%
=======================================================================================================
Performing nonaccrual loans at December 31, 2000 were unchanged from the
prior year while nonperforming nonaccrual loans decreased $1.0 million
during the same period. Both categories were affected by extensive activity
during the year; most loans that were on nonaccrual status at December 31, 1999;
either were paid off or returned to full accrual status, while others
were added to replace them. The $1.2 million decrease in other real estate
owned balances from December 31, 1999 was due to writedowns and liquidations
net of foreclosures.
The increase in nonaccrual loans from 1998 to 1999 was primarily due to the
addition of one large group of related credits, offset by other reductions.
The decrease in other real estate owned balances at December 31 1999 from
December 31, 1998 was due to writedowns and liquidations net of foreclosures
The amount of gross interest income that would have been recorded
for nonaccrual loans if all such loans had been current in
accordance with their original terms while outstanding during the
period, was $859 thousand in 2000, $751 thousand in 1999 and $855
thousand in 1998. The amount of interest income that was recognized
on nonaccrual loans from cash payments made in 2000, 1999 and 1998
was $653 thousand, $473 thousand and $573 thousand, respectively.
Cash payments received, which were applied against the book balance
of performing and nonperforming nonaccrual loans outstanding at
December 31, 2000, totaled approximately $527 thousand, compared to
$356 thousand and $952 thousand in 1999 and 1998, respectively.
The overall credit quality of the loan portfolio continues to be
strong; however, the total nonperforming 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 nonperforming asset levels; however, no assurance can be
given that additional increases in nonaccrual 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, nonperforming 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 $52.3 million allowance
for loan losses, which constituted 2.11 percent of total loans at
December 31, 2000, 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:
- -------------------------------------------------------------------------------------------------------
(In thousands) 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
Total loans outstanding $2,482,159 $2,320,846 $2,297,897 $2,261,937 $2,287,240
Average loans outstanding during the period $2,369,065 2,292,386 2,262,082 2,248,048 2,249,520
Analysis of the reserve
Beginning balance $51,574 $51,304 $50,630 $50,921 $48,494
Additions to the reserve charged to
operating expense 3,676 4,780 5,180 7,645 12,306
Allowance acquired through merger 1,036 0 0 0 1,665
Credit losses:
Commercial and commercial real estate (4,148) (5,071) (5,113) (6,824) (7,998)
Real estate construction 0 (94) -- (962) (781)
Real estate residential (16) (18) (97) (374) (1,862)
Consumer (3,818) (2,754) (3,358) (4,323) (5,376)
- -------------------------------------------------------------------------------------------------------
Total (7,982) (7,937) (8,568) (12,483) (16,017)
Credit loss recoveries
Commercial and commercial real estate 2,332 2,052 2,305 2,498 2,227
Real estate construction 0 0 10 160 44
Real estate residential 0 0 1 34 72
Consumer 1,643 1,375 1,746 1,855 2,130
- -------------------------------------------------------------------------------------------------------
Total 3,975 3,427 4,062 4,547 4,473
- -------------------------------------------------------------------------------------------------------
Net credit losses (4,007) (4,510) (4,506) (7,936) (11,544)
- -------------------------------------------------------------------------------------------------------
Balance, end of period $52,279 $51,574 $51,304 $50,630 $50,921
=======================================================================================================
Net credit losses to average loans 0.17% 0.20% 0.20% 0.35% 0.51%
Allowance for loan losses as a percentage
of loans outstanding 2.11% 2.22% 2.23% 2.24% 2.23%
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:
- ----------------------------------------------------------------------------------------------------------------------------------
2000 Loans 1999 Loans 1998 Loans 1997 Loans 1996 Loans
Allocation as Allocation as Allocation as Allocation as Allocation as
of the Percent of the Percent of the Percent of the Percent of the Percent
Allowance of Total Allowance of Total Allowance of Total Reserve of Total Reserve of Total
Balance Loans Balance Loans Balance Loans Balance Loans Balance Loans
- ----------------------------------------------------------------------------------------------------------------------------------
( Dollars and thousands)
Commercial $21,632 63% $23,523 65% $22,240 64% $22,649 63% $22,743 64%
Real estate construction 4,344 3 2,042 2 4,055 3 4,374 3 3,471 4
Real estate residential 427 14 877 14 310 17 87 16 2,489 12
Consumer 5,648 20 4,670 19 4,260 16 4,356 18 6,543 20
Unallocated portion of
the reserve * 20,228 "-- 20,462 "-- 20,439 "-- 19,164 "-- 15,675 "--
- ----------------------------------------------------------------------------------------------------------------------------------
Total $52,279 100% $51,574 100% $51,304 100% $50,630 100% $50,921 100%
==================================================================================================================================
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 nonaccrual 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.
The following summarizes the Company's impaired loans for the
periods indicated:
(In thousands)
- ---------------------------------------------------------------------
At December 31, 2000 1999
- ---------------------------------------------------------------------
Nonaccrual loans $8,024 $8,960
Other 3,704 6,146
- ---------------------------------------------------------------------
Total impaired loans $11,728 $15,106
=====================================================================
Specific reserves $1,817 $2,105
=====================================================================
The $3.7 million balance of impaired loans as of December 31, 2000,
other than nonaccrual loans, is due to one commercial real estate
loan having collateral exposure that may preclude ultimate full
repayment. Payment on this credit was current as of December 31,
2000.
The average balance of the Company's impaired loans for the year
ended December 31, 2000 was $12.5 million compared to $15.5 million
in 1999. 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 nonaccrual. 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 subject 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.
The following table summarizes the simulated change in NII, based
on the 12-month period ending December 31, 2001:
- ---------------------------------------------------------
Changes in Estimated Increase
Interest (Decrease) in NII
Rates Estimated -----------------------
(Basis Points) NII Amount Amount Percent
- ---------------------------------------------------------
(Dollars in millions)
+200 $196.6 ($4.8) -2.4%
-- 201.4 -- --
- -200 202.9 1.5 0.7
=========================================================
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, 2000:
===================================================================================================================
Repricing within (days)
- -------------------------------------------------------------------------------------------------------------------
Non-
0-90 91-180 181-365 Over 365 Repricing Total
- -------------------------------------------------------------------------------------------------------------------
Assets
Investment securities $46 $41 $114 $948 $0 $1,149
Loans 695 85 161 1,544 0 2,485
Other assets 0 0 0 0 397 397
- -------------------------------------------------------------------------------------------------------------------
Total assets $741 $126 $275 $2,492 $397 $4,031
===================================================================================================================
Liabilities
Non-interest bearing $-- $-- $-- $-- $1,014 $1,014
Interest-bearing:
Transaction 526 -- -- -- -- 526
Money market savings 167 167 242 -- -- 576
Passbook savings 241 -- -- -- -- 241
Time 468 222 145 45 -- 880
Short-term borrowings 184 36 167 0 -- 387
Debt financing and notes payable 3 -- -- 28 -- 31
Other liabilities -- -- -- -- 38 38
Shareholders' equity -- -- -- -- 338 338
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,589 $425 $554 $73 $1,390 $4,031
===================================================================================================================
Net (liabilities) assets subject
to repricing ($848) ($299) ($279) $2,419 ($993)
- -------------------------------------------------------------------------------------------------------------------
Cumulative net (liabilities) assets
subject to repricing ($848) ($1,147) ($1,426) $993 $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 Company's principal source of liquidity is its operating activities.
The Company's profitability in 2000, 1999, and 1998 generated substantial
cash flows of $93.1 million, $95.9 million and $63.3 million respectively.
The Company's investing activities were also a net source of cash in 2000.
Proceeds from maturing investment securities of $164.4 million were only
partially reinvested, for a net increase in cash of $103.9 million.
Much of this cash was consumed by net disbursements of loans, which
amounted to $97.6 million during this year. Other investing activities
contributed $5.4 million. However, investing activities were net
users of cash in 1999 and 1998. Net disbursement of loans were $29.7
million in 1999 and, in addition, the Company increased its investment
securities, portfolio by $47.5 million primarily in US agencies
and municipal securities, partially offset by decreases in US Treasury
and asset backed securities. Net disbursements of loans were $42.4
million in 1998, which were partially funded by a reduction in investment
securities of $23.4 million.
During 2000 the Company used cash in connection with its financing activities.
Short-term borrowings and notes payable were reduced by $86.3 million, and
$58.4 million was disbursed for the purchase and retirement of capital
stock. A third significant use of cash was the payment of $27.O million
in shareholder dividends. Much of the combined $171.7 million in cash used
in financing activities was replaced by $91.1 million in additional
deposits. Financing activities were a net source of cash in 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 $ 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.
The Company anticipates increasing its cash levels through the end of
2001 mainly due to increased profitability and retained earnings. It
is anticipated that the investment securities portfolio and demand
of loans will continue to increase moderately, and that share repurchases
continue. The growth of deposit balances is expected to follow the
anticipated growth in loan and investment balances through the end of
2001.
CAPITAL RESOURCES
The current and projected capital position of the Company and the impact of
capital plans and long-term strategies is reviewed regularly by Management.
The Company's capital position represents the level of capital available to
support continued operations and expansion.
The Company annually repurchases approximately 1.0 million of its shares of
Common Stock in the open market with the intention of lessening the dilutive
impact of issuing new shares to meet employee stock awards, option plans, and
other ongoing requirements.
In addition to these systematic repurchases, other programs have been
implemented to optimize the Company's use of equity capital and enhance
shareholder value. Pursuant to these programs, the Company repurchased an
additional 840 thousand shares in 2000, 1.7 million in 1999 and 2.1 million
and 1998.
The Company's primary capital resource is shareholders' equity,
which increased $37 million or 12.4% percent from the previous year
end and decreased $68 million or 18.5% percent from December 31,
1998. The ratio of total risk-based capital to risk-adjusted assets
was 11.61 percent at December 31, 2000, compared to 11.75 percent
at December 31, 1999. Tier I risk-based capital to risk-adjusted
assets was 10.20 percent at December 31, 2000, compared to 9.82
percent at December 31, 1999.
Capital to Risk-Adjusted Assets
- ---------------------------------------------------------------------
Minimum
Regulatory
Capital
At December 31, 2000 1999 Requirements
- ---------------------------------------------------------------------
Tier I Capital 10.20% 9.82% 4.00%
Total Capital 11.61% 11.75% 8.00%
Leverage ratio 7.89% 7.48% 4.00%
=====================================================================
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, 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
Return on average total assets 2.06% 1.99% 1.94%
Return on shareholders' equity 25.78% 23.31% 19.48%
Average shareholders' equity as a percentage of:
Average total assets 7.98% 8.53% 9.97%
Average total loans 13.06% 14.24% 16.66%
Average total deposits 9.80% 10.52% 12.26%
Dividend payout ratio (diluted EPS) 34.00% 34.00% 30.00%
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:
- -------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
Average of Total Average of Total Average of Total
(Dollars in thousands) Balance Deposits Rate * Balance Deposits Rate * Balance Deposits Rate *
- --------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing demand $953,667 30.2% --% $857,650 27.6% --% $791,952 25.8% --%
Interest bearing: Transaction 508,969 16.1% 0.83% 536,067 17.3% 0.70% 554,834 18.0% 1.14%
Savings 841,270 26.6% 2.21% 873,324 28.1% 2.25% 906,930 29.5% 2.64%
Time less than $100 thousand 391,500 12.4% 5.05% 410,092 13.2% 4.42% 438,052 14.3% 4.99%
Time $100 thousand or more 462,506 14.6% 5.59% 425,949 13.7% 4.57% 381,754 12.4% 5.04%
- -------------------------------------------------------------------------------------------------------------------------------
Total $3,157,912 100.00% 3.10% $3,103,082 100.00% 3.13% 3,073,522 100.00% 3.13%
===============================================================================================================================
*Rate is computed based on interest-bearing deposits
During 2000, total average deposits increased by $54 million or 2% from 1999
due to an inflow of $96 million of non interest bearing deposits
offset by a reduction in interest bearing demand and savings deposits
totaling $60 million. In addition public and jumbo CDS went up by $37
million with a corresponding reduction in consumer CDS of $14 million
During 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 $18.8 million decrease in interest bearing
transaction accounts.
The following sets forth, by time remaining to maturity, the Company's
domestic time deposits in amounts of $100 thousand or more:
- ---------------------------------------------------------------------
At December 31,
(In thousands) 2000
- ---------------------------------------------------------------------
Three months or less $272,092
Over three through six months 203,226
Over six through twelve months 6,246
Over twelve months 952
- ---------------------------------------------------------------------
Total $482,516
=====================================================================
Short-term borrowings
The following table sets forth the short-term borrowings of the Company
for the periods indicated:
(In thousands)
- ---------------------------------------------------------------------------------
At December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------
Federal funds purchased $183,550 $254,000 $50,000
Other borrowed funds:
Retail repurchase agreements 35,770 59,552 28,693
Other 167,622 148,793 124,978
- ---------------------------------------------------------------------------------
Total other borrowed funds $203,392 $208,345 $153,671
- ---------------------------------------------------------------------------------
Total funds purchased $386,942 $462,345 $203,671
=================================================================================
Further detail of the other borrowed funds is as follows:
(In thousands)
- ---------------------------------------------------------------------------------
At December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------
Outstanding:
Average for the year $210,811 $178,848 $195,415
Maximum during the year 228,499 265,741 247,799
Interest rates:
Average for the year 4.40% 3.91% 4.61%
Average at period end 4.00% 4.15% 3.49%
NONINTEREST INCOME
Components of noninterest income
- ---------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------
(In millions)
Service charges on deposit accounts $21.1 $20.3 $20.1
Merchant credit card 4.0 3.6 3.2
Financial services commissions 1.6 2.7 1.7
Debit card fees 1.2 0.4 0.0
Mortgage banking 0.8 0.8 1.4
Trust fees 0.8 0.7 0.6
Other 11.6 11.7 10.8
- ---------------------------------------------------------------------------------
Total $41.1 $40.2 $37.8
=================================================================================
Noninterest income increased $900 thousand or 2.4% in 2000, primarily due to
higher deposit service charges, specifically those related to customer
overdrafts and items returned due to insufficient funds. Those categories
benefited from revised service charge calculation methodologies implemented
in late 1999 using a process of price escalators determined by volume by
customer. Service charges generated from users of the Company's debit
card product introduced in 1999, grew from $400 thousand to $1.2 million.
Merchant credit card income grew by 11% or $400 thousand due to expanding
sales volume. The other category included a $1.5 million litigation settlement
in 1999 that did not recur in 2000; the decline was largely offset by
increases in gains on sale of foreclosed property, ATM surcharge income and
revenue from the sale of official checks. Financial services commissions were
high in 1999 due to fees earned upon one-time product conversions.
Noninterest 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 in 1998 as a result of higher fees from overdraft and non-sufficient
funds returned items; and trust fees were $100 thousand higher than in 1998.
A litigation settlement of $1.5 million accounted for the majority of the
increases in other noninterest income category. Partially offsetting these
increases from prior year, mortgage banking income was $600 thousand lower than
in 1998, due to declining service income, lower gains on sales of loans in the
secondary market and lower banking fees due to reduced refinancing volume.
NONINTEREST EXPENSE
Components of noninterest expense
- ---------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------
(In millions)
Salaries $40.3 $40.0 $40.0
Other personnel benefits 11.0 10.7 11.1
Occupancy 11.4 12.2 11.6
Equipment 6.5 6.9 7.4
Data processing 6.0 6.0 5.9
Contact courier 3.5 3.3 3.5
Amortization of intangible assets 2.2 1.9 1.9
Telephone 2.2 2.1 2.3
Postage 2.0 2.3 2.1
Professional fees 1.9 1.7 2.3
Stationery and supplies 1.6 1.6 1.8
Merchant credit card processing 1.6 1.4 1.2
Advertising and public relations 1.3 1.3 1.4
Loan expenses 1.0 1.3 1.5
Operational losses 0.9 1.2 1.0
Other 6.8 6.2 6.4
- ---------------------------------------------------------------------------------
Total $100.2 $100.1 $101.4
=================================================================================
Average full-time equivalent staff 1,082 1,098 1,135
Noninterest expense to
revenues ("efficiency ratio")(FTE) 42.4% 43.2% 44.2%
=================================================================================
Noninterest expense increased by less than $100 thousand in 2000 compared to
1999, resulting in a further improvement in the Company's efficiency ratio to
42.4%. The largest category of increase was personnel-related costs. On a
percentage basis the $600 thousand change in personnel-related costs equated
to a nominal 1.1%. The growth was the net effect of merit increases to
employees and one-time severance costs incurred in connection with the
Company's acquisition of First Counties Bank in August 2000, partially
reduced by fewer number of employees and lower incentives. The next largest
increase was the amortization of intangible assets created in connection with
certain acquisitions accounted for as purchases. The $300 thousand increase
in amortization resulted from the First Counties Bank acquisition. Contract
courier expense grew $200 thousand, as the Company continued its strategy of
providing courier services to an increased number of business clients.
Professional fees increased $200 thousand primarily in connection with legal
costs incurred as a result of the First Counties Bank acquisition. Merchant
credit card processing grew $200 thousand or 12%, consistent with the revenue
growth discussed above.
Offsetting these increases, occupancy costs dropped $800 thousand or 6%.
The primary cause of the decrease was the expiration of a long term lease
commitment for office space assumed in connection with a 1995 acquisition.
Equipment expense, which consists largely of depreciation charges, decreased
$400 thousand or 5% as certain technology assets purchased in the mid- 1990's
became fully amortized. Postage costs decreased $300 thousand, as the
Company took advantage of more efficient methods for distributing customer
statements and notices. Loan expenses declined $300 thousand. Operational
losses were lower by $300 thousand as 2000 was not affected by any
unusually-large individual losses, unlike prior years.
Noninterest expense decreased $1.3 million in 1999 compared to
1998. 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 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 the cost of 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 reduction of stationery and supplies costs,
$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.
The ratio of average assets per full-time equivalent staff was
$3.53 million in 2000 compared to $3.49 million and $3.33 million
in 1999 and 1998, respectively. The reduction of the average number
of full-time equivalent staff from 1,135 in 1998 to 1,098 and 1,082
in 1999 and 2000, respectively, is reflective of the Company's
continuing strategy to improve efficiency.
PROVISION FOR INCOME TAX
The provision for income taxes (FTE) increased by $1.6 million or 3.2% in
2000. The increase in the provision is the result of higher pretax income,
which increased $5.3 million or 4%. This impact was partially reduced by
income tax credits related to the Company's investments in low income
housing investments and lending into tax-advantaged areas. These tax
credits lowered the effective tax rate to 39.6%.
The income tax provision increased by $1.6 million in 1999 mainly as
a result of higher pretax income. The 1999 provision of $50.8 million
reflects an effective tax rate of 40.0 percent compared to provision
of $49.2 million in 1998, representing an effective tax rate of 40.1 percent.
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 included 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.
ITEM 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets as of December 31, 2000 and 1999 50
Consolidated Statements of Income and Comprehensive Income
for years ended December 31, 2000, 1999 and 1998 51
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 2000, 1999 and 1998 52
Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998 53
Notes to Consolidated Financial Statements 54
Independent Auditors' Report 85
Management's Letter of Financial Responsibility 86
CONSOLIDATED BALANCE SHEETS
(In thousands)
Balances as of December 31, 2000 1999
ASSETS
Cash and cash equivalents (Note 15) $286,482 $255,738
Money market assets 250 250
Investment securities available for sale (Note 2) 921,275 982,337
Investment securities held to maturity; market values of
$231,906 in 2000 and $235,147 in 1999 (Note 2) 228,035 237,154
Loans, net of an allowance for loan losses of:
$52,279 in 2000 and $51,574 in 1999 (Notes 3,4 and 14) 2,429,880 2,269,272
Other real estate owned 2,065 3,269
Premises and equipment, net (Note 5) 42,182 44,016
Interest receivable and other assets (Note 9) 121,212 101,151
Total assets $4,031,381 $3,893,187
LIABILITIES
Deposits:
Non-interest bearing $1,014,230 $911,556
Interest bearing:
Transaction 526,178 485,860
Savings 816,635 840,644
Time (Notes 2 and 6) 879,701 827,284
Total deposits 3,236,744 3,065,344
Short-term borrowed funds (Notes 2 and 6) 386,942 462,345
Liability for interest, taxes and
other expenses (Note 9) 38,912 23,406
Debt financing and notes payable (Note 6) 31,036 41,500
Total liabilities 3,693,634 3,592,595
SHAREHOLDERS' EQUITY (Notes 7 and 15)
Common Stock (no par value)
Authorized - 150,000 shares
Issued and outstanding - 36,251 in 2000 and 37,125 in 1999 206,952 186,435
Accumulated other comprehensive income:
Unrealized (loss) gain on securities available for sale, net 7,169 (4,521)
Retained earnings 123,626 118,678
Total shareholders' equity 337,747 300,592
Total liabilities and shareholders' equity $4,031,381 $3,893,187
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
For the years ended December 31, 2000 1999 1998
INTEREST INCOME
Loans $199,866 $186,652 $195,656
Money market assets and funds sold 18 4 42
Investment securities:
Available for sale
Taxable 44,860 46,838 47,785
Tax-exempt 11,491 10,744 9,713
Held to maturity
Taxable 5,063 5,313 5,914
Tax-exempt 8,218 8,105 7,710
Total interest income 269,516 257,656 266,820
INTEREST EXPENSE
Transaction deposits 4,203 3,736 6,321
Savings deposits 18,624 19,622 23,943
Time deposits (Note 6) 45,610 37,552 41,087
Short-term borrowed funds (Note 6) 17,668 14,285 11,670
Debt financing and notes payable (Note 6) 2,509 3,261 3,644
Total interest expense 88,614 78,456 86,665
NET INTEREST INCOME 180,902 179,200 180,155
Provision for loan losses (Note 3) 3,675 4,780 5,180
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 177,227 174,420 174,975
NON-INTEREST INCOME
Service charges on deposit accounts 21,066 20,316 20,052
Merchant credit card 4,005 3,605 3,229
Financial services commissions 1,634 2,650 1,676
Mortgage banking 807 777 1,437
Trust fees 848 697 626
Other 12,770 12,129 10,785
Total non-interest income 41,130 40,174 37,805
NON-INTEREST EXPENSE
Salaries and related benefits (Note 13) 51,266 50,706 51,094
Occupancy (Notes 5 and 11) 11,447 12,153 11,582
Furniture and equipment (Notes 5 and 11) 6,523 6,874 7,372
Data processing 6,025 5,967 5,940
Professional fees 1,864 1,652 2,250
Other real estate owned and property held for sale 467 299 339
Other 22,606 22,482 22,831
Total non-interest expense 100,198 100,133 101,408
INCOME BEFORE INCOME TAXES 118,159 114,461 111,372
Provision for income taxes (Note 9) 38,380 38,373 37,976
NET INCOME $79,779 $76,088 $73,396
Comprehensive income, net:
Change in unrealized (loss) gain on securities
available for sale, net 11,690 (24,705) 2,261
COMPREHENSIVE INCOME $91,469 $51,383 $75,657
Average shares outstanding 36,410 38,588 41,797
Diluted average shares outstanding 36,936 39,194 42,524
PER SHARE DATA (Note 7)
Basic earnings $2.19 $1.97 $1.76
Diluted earnings 2.16 1.94 1.73
Dividends paid 0.74 0.66 0.52
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
========================================================================================================
Accumulated
other
comprehensive Retained
Common Stock income Earnings Total
- --------------------------------------------------------------------------------------------------------
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 loss on securities available for sale, net -- (24,705) -- (24,705)
- --------------------------------------------------------------------------------------------------------
December 31, 1999 186,435 (4,521) 118,678 300,592
Net income for the year -- -- 79,779 79,779
Stock issued 31,119 -- -- 31,119
Purchase and retirement of stock (10,602) -- (47,838) (58,440)
Dividends -- -- (26,993) (26,993)
Unrealized gain on securities available for sale, net -- 11,690 -- 11,690
December 31, 2000 $206,952 $7,169 $123,626 $337,747
========================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $79,779 $76,088 $73,396
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,957 8,234 8,623
Loan loss provision 3,675 4,780 5,180
Amortization of deferred net loan fees 461 1,299 431
(Increase) decrease in interest income receivable (4,930) (1,212) 1,533
(Increase) decrease in other assets (1,358) 952 (14,361)
Increase (decrease) in income taxes payable 3,333 (747) 1,752
Increase in interest expense payable 1,847 626 401
Increase (decrease) in other liabilities 2,584 6,803 (10,683)
Net loss (gain) on sales/write-down of equipment 35 10 (309)
Originations of loans for resale (1,986) (18,250) (23,578)
Net proceeds from sale of loans originated for resale 1,986 17,533 21,374
Net gain on sale of property acquired in satisfaction of debt (695) (322) (1,043)
Write-downs of other real estate owned 442 88 579
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 93,130 95,882 63,295
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net cash obtained in mergers and acquisitions 3,034 -- --
Net (disbursements) repayments of loans (97,610) (29,693) (42,429)
Purchases of investment securities available for sale (57,329) (387,095) (332,747)
Purchases of investment securities held to maturity (3,170) (32,882) (54,685)
Purchases of property, plant and equipment (2,570) (3,519) (4,195)
Proceeds from maturity of securities available for sale 152,120 348,986 314,321
Proceeds from maturity of securities held to maturity 12,291 22,722 58,653
Proceeds from sale of securities available for sale 1,357 803 37,898
Proceeds from sale of property and equipment 20 46 1,419
Proceeds from sale other real estate owned 3,604 2,932 7,266
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 11,747 (77,700) (14,499)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 91,149 (123,661) 110,504
Net (decrease) increase in short-term borrowings (75,803) 258,674 (61,177)
Repayments of notes payable and debt financing (10,464) (6,000) (5,000)
Exercise of stock options/issuance of shares 6,418 4,617 12,475
Retirement of common stock including repurchases (58,440) (100,227) (104,824)
Dividends paid (26,993) (25,581) (21,864)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (74,133) 7,822 (69,886)
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,744 26,004 (21,090)
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 255,738 229,734 250,824
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $286,482 $255,738 $229,734
=====================================================================================================================
SUPPLEMENTAL DISCLOSURES:
Supplemental disclosure of non-cash activities
Loans transferred to other real estate owned $1,996 $1,652 $3,736
Unrealized (loss) gain on securities available for sale, net 11,690 (24,704) 2,261
The acquisition of First Counties Bank involved the following:
Common Stock issued 19,723 -- --
Liabilities assumed 82,356 -- --
Fair value of assets acquired, other than cash and cash equivalents (89,468) -- --
Goodwill (9,577) -- --
Net cash and cash equivalents received 3,034 -- --
Supplemental disclosure of cash flow activity
Interest paid for the period 86,359 77,831 86,264
Income tax payments for the period 35,603 39,092 30,902
See accompanying notes to consolidated financial statements.
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
bank, Westamerica Bank(the "Bank"). The Bank is subject to competition from
other financial institutions and to the regulations of certain agencies and
undergoes 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 Bank and its subsidiary, Community Banker Services Corporation and its
subsidiary, and The Money Outlet. 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 it 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 $20.4 million and $10.2 million (net of accumulated amortization
of $19.3 million and $17.1 million) at December 31, 2000 and 1999,
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. Goodwill of $16.3 million in
2000 and $7.8 million in 1999 (net of accumulated amortization of $6.1
million and $5.1 million, respectively) is amortized on a straight-line basis
over an average of 18 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.
If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds
the fair market value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
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 (FASB) issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), amended by SFAS 138 "Accounting for Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133."
This statement standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, by
requiring that an entity recognize those items as assets or liabilities in
the statement of financial position and measure them at fair value. In
addition, all hedging relationships must be designated. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. The Company
adopted SFAS No. 133 on January 1, 2001. The adoption of SFAS No. 133 did not
have a significant impact on the Company's financial condition or operating
results.
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, 2000, follows:
- -----------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------
(In thousands)
U.S. Treasury securities $186,989 $1,538 ($15) $188,513
Securities of U.S. Government
agencies and corporations 206,561 1,248 (718) 207,091
Obligations of States and
political subdivisions 235,877 6,132 (858) 241,151
Asset-backed securities 76,725 58 (104) 76,678
Other securities 201,877 7,174 (1,209) 207,842
- -----------------------------------------------------------------------------------
Total $908,029 $16,150 ($2,904) $921,275
===================================================================================
An analysis of the held-to-maturity investment securities portfolio
as of December 31, 2000, follows:
- -----------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------
(In thousands)
Securities of U.S. Government
agencies and corporations $64,717 $115 ($1,500) $63,332
Obligations of States and
political subdivisions 151,980 5,432 (176) 157,236
Other securities 11,338 -- -- 11,338
- -----------------------------------------------------------------------------------
Total $228,035 $5,547 ($1,676) $231,906
===================================================================================
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)
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
===================================================================================
The amortized cost and estimated market value of securities at
December 31, 2000, 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 $141,212 $141,270 $2,692 $2,707
1 to 5 years 513,873 514,885 42,604 43,559
5 to 10 years 112,138 115,765 80,279 83,476
Over 10 years 108,145 109,586 26,405 27,494
- -----------------------------------------------------------------------------------
Sub-total 875,368 881,506 151,980 157,236
Mortgage-backed 8,951 9,630 64,717 63,332
Other securities 23,710 30,139 11,338 11,338
- -----------------------------------------------------------------------------------
Total $908,029 $921,275 $228,035 $231,906
===================================================================================
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, 2000 and 1999,
the Company had no high-risk collateralized mortgage
obligations.
As of December 31, 2000, $742.9 million of investment securities
were pledged to secure public deposits and short-term funding
needs, compared to $767.5 million in 1999.
Note 3: Loans and Allowance for Loan Losses
Loans at December 31 consisted of the following:
- -----------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------
(In thousands)
Commercial $607,158 $652,413
Real estate-commercial 955,304 849,824
Real estate-construction 64,195 50,928
Real estate-residential 355,488 337,002
- -----------------------------------------------------------------------------------
Total real estate loans 1,374,987 1,237,754
Installment and personal 502,367 434,803
Unearned income (2,353) (4,124)
- -----------------------------------------------------------------------------------
Gross loans 2,482,159 2,320,846
Allowance for loan losses (52,279) (51,574)
- -----------------------------------------------------------------------------------
Net loans $2,429,880 $2,269,272
===================================================================================
Included in real estate-residential at December 31, 2000
and 1999 are loans originated for resale of $1.4 million and
$12.7 million, respectively, the cost of which approximates
market value.
The following summarizes the allowance for loan losses of the
Company for the periods indicated:
- -----------------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------
(In thousands)
Balance at January 1, $51,574 $51,304 $50,630
Provision for loan losses 3,675 4,780 5,180
Loans charged off (7,982) (7,937) (8,568)
Recoveries of loans
previously charged off 3,976 3,427 4,062
Acquisition 1,036 -- --
- -----------------------------------------------------------------------------------
Balance at December 31, $52,279 $51,574 $51,304
===================================================================================
At December 31, 2000, the recorded investment in loans for which impairment
was recognized totaled $11.7 million compared to $15.1 million at December
31, 1999. The specific reserves at December 31, 2000 and 1999 were $1.8
million and $2.1 million, respectively. The amount of the recorded investment
for which there is no related allowance for credit losses was $0. For the
year ended December 31, 2000, the average recorded net investment in impaired
loans was approximately $12.5 million compared to $15.5 million and $15.9
million, respectively, for the years ended December 31, 1999 and 1998. 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.
Non-accrual loans at December 31, 2000 and 1999 were $8.0 million and $9.0
million, respectively. The following is a summary of the effect of
non-accrual loans on interest income for the years ended December 31:
- -----------------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------
(In thousands)
Interest income that would have been
recognized had the loans performed
in accordance with their original terms $859 $751 $855
Less: Interest income recognized on
non-accrual loans (653) (473) (573)
- -----------------------------------------------------------------------------------
Total effect on interest income $206 $278 $282
===================================================================================
There were no commitments to lend additional funds to borrowers whose loans
are included above.
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, 2000 and 1999.
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 $66.1 million and $69.6 million at December
31, 2000 and 1999, 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)
2000
Land $10,360 $- $10,360
Buildings and improvements 33,742 (11,074) 22,668
Leasehold improvements 4,799 (2,673) 2,126
Furniture and equipment 14,820 (7,792) 7,028
- -----------------------------------------------------------------------------------
Total $63,721 ($21,539) $42,182
===================================================================================
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
===================================================================================
Depreciation and amortization included in operating expenses amounted to $4.8
million in 2000, $5.4 million in 1999 and $5.5 million in 1998.
Note 6: Borrowed Funds
Debt financing and notes payable, including the unsecured obligations of the
Company, as of December 31, 2000 and 1999, were as follows:
- -----------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------
(In thousands)
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. The Bank
repurchased and retired $1.0 million in 1999
and $7.25 million in 2000. $11,750 $19,000
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 annual principal
payments commencing February 1, 2000 and
the remaining principal amount due at maturity. 19,286 22,500
- -----------------------------------------------------------------------------------
Total debt financing and notes payable $31,036 $41,500
===================================================================================
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, 2000 and 1999, the Company had unused lines of credit
amounting to $2.5 million. Compensating balance arrangements are not
significant to the operations of the Company. At December 31, 2000 and 1999,
the Bank had $482.6 million and $431.9 million, respectively, in time deposit
accounts in excess of $100 thousand. Interest on these time deposit accounts
in 2000, 1999 and 1998 was $25.8 million, $19.4 million and $19.2 million,
respectively.
Funds purchased include federal funds, securities sold with repurchase
agreements and business customers' sweep accounts. Federal funds purchased
were $183.6 million and $254.0 million, respectively, at December 31, 2000
and 1999. Securities sold with repurchase agreements were $35.8 million at
December 31, 2000 and $59.5 million at December 31, 1999. Sweep accounts
totaled $167.6 million and $148.8 million at December 31, 2000 and 1999,
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, 2000, 1999, and 1998, approximately 742 thousand,
797 thousand and 856 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.
Formerly acquired companies PV Financial, CapitolBank Sacramento, North Bay
Bancorp, and ValliCorp Holdings 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.
First Counties Bank also had a separate stock option plan whereby options
were granted to certain officers, directors, and employees. Effective August
17, 2000, the First Counties Bank option plan was terminated. All outstanding
options were substituted for the Company's stock options, adjusted for the
exchange ratio as defined in the merger agreement.
Stock Options. A summary of the status of the Company's stock options as of
December 31, 2000, 1999 and 1998, and changes during the years ended on those
dates, follows:
- -----------------------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of shares Price of shares Price
- -----------------------------------------------------------------------------------------------
Outstanding at beginning of year 2,620,708 $22 2,289,694 $18
Granted 896,404 24 662,080 35
Acquisitions converted 53,925 12 -- -
Exercised (445,926) 12 (258,844) 11
Forfeited (210,980) 29 (72,222) 32
- -----------------------------------------------------------------------------------------------
Outstanding at end of year 2,914,131 $24 2,620,708 $22
- -----------------------------------------------------------------------------------------------
Options exercisable at end of year 1,565,001 $20 1,479,438 $15
===============================================================================================
- ---------------------------------------------------------------------
1998
- ---------------------------------------------------------------------
Weighted
Average
Number Exercise
of shares Price
- ---------------------------------------------------------------------
Outstanding at beginning of year 2,094,387 $12
Granted 604,591 33
Acquisitions converted -- -
Exercised (326,450) 10
Forfeited (82,834) 15
- ---------------------------------------------------------------------
Outstanding at end of year 2,289,694 $18
- ---------------------------------------------------------------------
Options exercisable at end of year 1,251,197 11
=====================================================================
The following table summarizes information about options outstanding at
December 31, 2000 and 1999:
- -----------------------------------------------------------------------------------
2000 Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
at 12/31/2000 Life (yrs) Price at 12/31/2000 Price
- -----------------------------------------------------------------------------------
$3 - 9 102,175 1.3 $6 102,175 $6
9 - 10 185,868 3.0 9 185,868 9
10 - 15 181,481 4.3 11 181,481 11
15 - 19 278,955 4.9 16 278,955 16
19 - 20 298,255 5.9 19 298,255 19
20 - 24 812,437 9.0 24 0 N/A
32 - 33 509,800 6.9 33 337,720 33
33 - 35 545,160 8.0 35 180,547 35
- -----------------------------------------------------------------------------------
$3 - 33 2,914,131 6.8 $24 1,565,001 $20
===================================================================================
- -----------------------------------------------------------------------------------
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 - 9 268,050 2.3 $6 268,050 $6
9 - 10 219,618 4.1 9 219,618 9
10 - 15 214,719 5.1 10 214,719 10
15 - 19 340,955 6.1 15 340,955 15
19 - 20 390,506 7.1 19 247,916 19
32 - 33 564,540 8.1 33 188180 33
33 - 35 622,320 9.1 35 0 N/A
- -----------------------------------------------------------------------------------
$3 - 33 2,620,708 6.7 $22 1,479,438 $15
===================================================================================
Restricted Performance Shares. A summary of the status of the Company's RPSs
as of December 31, 2000, 1999, and 1998, and changes during the years ended
on those dates, follows:
- -----------------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------
Outstanding at beginning of year 74,100 118,620 150,690
Granted 37,440 28,590 27,780
Exercised (29,643) (46,350) (59,850)
Forfeited (8,137) (26,760) --
- -----------------------------------------------------------------------------------
Outstanding at end of year 73,760 74,100 118,620
===================================================================================
As of December 31, 2000, 1999, and 1998, the RPSs had a weighted-average
contractual life of 1.4, 1.2, and 1.1 years, respectively. The Company
expects that substantially all of the RPSs outstanding at December 31, 2000
will eventually vest based on projected performance. On January 1, 1996, the
Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123"). The Company applies
APB Opinion No. 25 and related interpretations in accounting for its plan.
Accordingly, no compensation cost has been recognized for its stock options.
The compensation cost that has been charged against income for the Company's
RPSs granted was $1.8 million, $1.3 million, and $1.9 million for 2000, 1999,
and 1998, respectively. There were no stock appreciation rights or incentive
stock options granted in 2000, 1999, and 1998. The fair value of each
non-qualified stock option grant is estimated on the date of the grant using
an option pricing model with the following assumptions used for calculating
weighted-average non-qualified stock option grants in 2000, 1999, and 1998:
- ---------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------
Expected dividend yield 1.41% 1.89% 1.64%
Expected volatility 33.20 37.18 20.00
Risk-free interest rate 6.60 4.57 5.43
Expected lives 6.0 years 6.0 years 6.0 years
=====================================================================
The weighted-average fair values of non-qualified stock options granted
during 2000, 1999, and 1998, were $10.36, $10.68, and $8.37, 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:
- -----------------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------
(In thousands, except per share data)
Net income
As reported $79,789 $76,088 $73,396
Pro forma 75,649 73,274 71,559
Weighted average shares (basic) 36,410 38,588 41,797
Weighted average shares (diluted) 36,936 39,194 42,524
Earnings per share
As reported (basic) $2.19 $1.97 $1.76
As reported (diluted) 2.16 1.94 1.73
Pro forma (basic) 2.08 1.90 1.71
Pro forma (diluted) 2.05 1.87 1.68
===================================================================================
A reconciliation of the diluted EPS computation to the amounts used in the
basic EPS computation for the years ended December 31, are as follows:
- -----------------------------------------------------------------------------------
2000
- -----------------------------------------------------------------------------------
Net Number Per Share
Income of Shares Amount
- -----------------------------------------------------------------------------------
(In thousands, except per share data)
Basic EPS:
Income available to
common shareholders $79,779 36,410 $2.19
Effect of dilutive securities:
Stock options outstanding -- 526 --
- -----------------------------------------------------------------------------------
Diluted EPS:
Income available to common
shareholders plus assumed
conversions $79,779 36,936 $2.16
===================================================================================
- -----------------------------------------------------------------------------------
1999
- -----------------------------------------------------------------------------------
Net Number Per Share
Income 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
===================================================================================
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, 2000, 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, 2000, 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, 2000 and 1999:
- ------------------------------------------------------------------------------------------------------------------------
To Be Well
Capitalized Under
the FDICIA
For Capital Prompt Corrective
2000 Actual Adequacy Purposes Action Provisions:
- ------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Total Capital (to risk-weighted assets)
Consolidated Company $353,079 11.61% $243,274 8.00% $304,092 10.00%
Westamerica Bank 317,502 10.58% 240,108 8.00% 300,134 10.00%
Tier 1 Capital (to risk-weighted assets)
Consolidated Company 310,191 10.20% 121,637 4.00% 182,455 6.00%
Westamerica Bank 269,105 8.97% 120,054 4.00% 180,081 6.00%
Leverage Ratio *
Consolidated Company 310,191 7.89% 157,351 4.00% 196,689 5.00%
Westamerica Bank 269,105 6.89% 156,274 4.00% 195,342 5.00%
========================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------
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%
========================================================================================================================
* 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
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the amounts reported in the
financial statements of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Amounts for the current year are based
upon estimates and assumptions as of the date of these financial statements
and could vary significantly from amounts shown on the tax returns as filed.
The components of the net deferred tax asset as of December 31 are as follows:
- ---------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------
(In thousands)
Deferred tax asset
Allowance for loan losses $21,359 $21,412
State franchise taxes 4,264 3,920
Securities available for sale 0 2,760
Deferred compensation 4,029 3,051
Real estate owned 843 711
Interest on non-accrual loans 353 101
Intangible assets 398 30
Other reserves 631 685
Other 1,680 1,000
Net operating loss carryforwards -- 68
General tax credit carryforwards 160 160
- ---------------------------------------------------------------------
Subtotal deferred tax asset 33,717 33,898
Valuation allowance -- --
- ---------------------------------------------------------------------
Total deferred tax asset 33,717 33,898
- ---------------------------------------------------------------------
Deferred tax liability
Net deferred loan costs 1,913 2,228
Fixed assets 1,942 2,001
Securities available for sale 5,721 --
Leases 1,299 1,297
Other 245 245
- ---------------------------------------------------------------------
Total deferred tax liability 11,120 5,771
- ---------------------------------------------------------------------
Net deferred tax asset $22,597 $28,127
=====================================================================
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.
The provision for federal and state income taxes consists of amounts
currently payable and amounts deferred which, for the years ended December
31, are as follows:
- ---------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------
(In thousands)
Current income tax expense:
Federal $28,311 $27,132 $26,530
State 13,022 12,406 11,421
- ---------------------------------------------------------------------
Total current 41,333 39,538 37,951
- ---------------------------------------------------------------------
Deferred income tax (benefit) expense:
Federal (2,164) (819) (184)
State (789) (346) 209
- ---------------------------------------------------------------------
Total deferred (2,953) (1,165) 25
- ---------------------------------------------------------------------
Provision for income taxes $38,380 $38,373 $37,976
=====================================================================
The provision for income taxes differs from the provision computed by
applying the statutory federal income tax rate to income before taxes, as
follows:
- ---------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------
(In thousands)
Federal income taxes due at
statutory rate $41,356 $40,061 $38,980
(Reductions) increases in income
taxes resulting from:
Interest on state and municipal
securities not taxable for federal
income tax purposes (8,980) (8,477) (7,815)
Reduction in the valuation
allowance -- -- --
State franchise taxes, net of
federal income tax benefit 7,953 7,839 7,560
Costs related to acquisitions 35 -- --
Other (1,984) (1,050) (749)
- ---------------------------------------------------------------------
Provision for income taxes $38,380 $38,373 $37,976
=====================================================================
At December 31, 2000, the Company had a general tax credit carryforward in
the amount of $160,000, which expires December 31, 2003. There were no
operating loss carryforwards as of December 31, 2000.
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:
- -----------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------
(In thousands)
Cash and cash equivalents $286,482 $255,738
Money market assets 250 250
Interest and taxes receivable 63,826 56,948
Non-interest bearing and interest-bearing
transaction and savings deposits 2,357,043 2,238,060
Short-term borrowed funds 386,942 462,345
Interest payable 9,850 7,596
===================================================================================
The fair values at December 31 of the following financial instruments were
estimated using quoted market prices:
- -----------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------
(In thousands)
Investment securities available for sale $921,275 $982,337
Investment securities held to maturity 231,906 235,147
===================================================================================
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 $52.3 million allowance for loan losses in 2000 and $51.6
million in 1999 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:
- -----------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------
(In thousands)
Loans $2,408,158 $2,263,599
===================================================================================
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:
- -----------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------
(In thousands)
Time deposits $878,381 $826,291
Debt financing and notes payable 31,036 41,500
===================================================================================
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
Thirty-eight banking offices and a centralized administrative service center
are owned and seventy-seven banking offices are leased. Substantially all the
leases contain multiple renewal options and provisions for rental increases,
principally for cost of living index, property taxes and maintenance. The
Company also leases certain pieces of equipment.
Minimum future rental payments, net of sublease income, at December 31, 2000,
are as follows:
- ---------------------------------------------------------------------
(In thousands)
2001 $5,093
2002 4,131
2003 3,279
2004 2,347
2005 1,138
Thereafter 3,983
- ---------------------------------------------------------------------
Total minimum lease payments $19,971
=====================================================================
Total rentals for premises and equipment, net of sublease income, included in
non-interest expense were $4.4 million in 2000, $5.4 million in 1999 and $5.2
million in 1998.
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 $441.6
million and $336.7 million at December 31, 2000 and 1999, 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 $12.5
million and $13.8 million at December 31, 2000 and 1999, respectively.
Due to the nature of its business, the Company is subject to various
threatened or filed legal cases. Based on the advice of legal counsel, the
Company 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 $1.5 in 2000 and $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.
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 several funds, including one fund that invests exclusively in
Westamerica Bancorporation common stock. The matching contributions charged
to compensation expense were $1.3 million in 2000, $1.7 million in 1999 and
$1.6 million in 1998.
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.
The following table sets forth the net periodic post-retirement benefit cost
for the years ended December 31 and the funded status of the Post-retirement
Benefit Plan and the change in the benefit obligation as of December 31:
- ---------------------------------------------------------------------
2000 1999
=====================================================================
(In thousands)
Periodic cost:
Service cost ($95) $160
Interest cost 158 152
Amortization of unrecognized
transition obligation 61 61
- ---------------------------------------------------------------------
Net periodic cost $124 $373
=====================================================================
Change in benefit obligation:
Benefit obligation, beginning of year 2,720 2,534
Service cost (95) 160
Interest cost 158 152
Benefits paid (108) (126)
- ---------------------------------------------------------------------
Benefit obligation, end of year $2,675 $2,720
=====================================================================
Accumulated post-retirement benefit obligation
attributable to:
Retirees $1,609 $1,757
Fully eligible participants 768 650
Other 298 313
- ---------------------------------------------------------------------
Total 2,675 2,720
- ---------------------------------------------------------------------
Fair value of plan assets -- --
- ---------------------------------------------------------------------
Accumulated post-retirement benefit obligation
in excess of plan assets $2,675 $2,720
=====================================================================
Comprised of:
Unrecognized transition obligation $1,040 $1,102
Recognized post-retirement obligation 1,635 1,618
- ---------------------------------------------------------------------
Total $2,675 $2,720
=====================================================================
The discount rate used in measuring the accumulated post- retirement benefit
obligation was 5.8 percent and 6.0 percent at December 31, 2000 and 1999,
respectively. The assumed health care cost trend rate used to measure the
expected cost of benefits covered by the plan was 4.0 percent for 2001 and
beyond.
Assumed health care cost trend rates have a significant effect on the amounts
reported for health care plans. A one percentage point change on the assumed
health care cost trend rates would have the following effect on 2000 results:
- ---------------------------------------------------------------------
One One
Percentage Percentage
Point Point
Increase Decrease
- ---------------------------------------------------------------------
(In thousands)
Effect on total of service and
interest cost components $175 ($145)
Effect on post-retirement benefit
obligation 392 (321)
=====================================================================
Note 14: Related Party Transactions
Certain directors and executive officers of the Company and/or its
subsidiaries were loan customers of the Banks during 2000 and 1999. 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 2000
and 1999:
- ---------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------
(In thousands)
Beginning balance $3,026 $3,268
Originations 7 836
Payoffs/principal payments (200) (490)
Other changes * 0 (588)
- ---------------------------------------------------------------------
At December 31, $2,833 $3,026
=====================================================================
Percent of total loans outstanding 0.12% 0.13%
* Other changes in 1999 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
sought and obtained approval to pay to the Company dividends of $73.8 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,
2000, $154.8 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 $30.5 million
in 2000 and $30.1 million in 1999.
Note 16: Westamerica Bancorporation (Parent Company Only)
Statements of Income and Comprehensive Income
- -----------------------------------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------
(In thousands)
Dividends from subsidiaries $80,768 $129,003 $93,606
Interest income 1,349 1,545 1,731
Other income 6,203 6,849 6,809
- -----------------------------------------------------------------------------------------------
Total income 88,320 137,397 102,146
- -----------------------------------------------------------------------------------------------
Interest on borrowings 1,397 1,613 1,620
Salaries and benefits 6,508 5,714 6,199
Other expense 2,144 2,388 3,056
- -----------------------------------------------------------------------------------------------
Total expenses 10,049 9,715 10,875
- -----------------------------------------------------------------------------------------------
Income before taxes and equity in
undistributed income of subsidiaries 78,271 127,682 91,271
Income tax benefit 1,693 1,346 1,550
Return of undistributed
income of subsidiaries (185) (52,940) (19,425)
- -----------------------------------------------------------------------------------------------
Net income $79,779 $76,088 $73,396
===============================================================================================
Comprehensive income, net:
Change in unrealized gains on securities
available for sale, net (869) (5,532) (2,420)
- -----------------------------------------------------------------------------------------------
Comprehensive income $78,910 $70,556 $70,976
===============================================================================================
Balance Sheets
- -----------------------------------------------------------------------------------
December 31, 2000 1999
- -----------------------------------------------------------------------------------
(In thousands)
Assets
Cash and cash equivalents $26,391 $17,529
Money market assets and investment
securities available for sale 9,226 12,082
Line of credit from subsidiaries 0 2,046
Investment in subsidiaries 307,072 274,725
Premises and equipment, net 15,229 15,985
Accounts receivable from subsidiaries 374 549
Other assets 7,306 5,958
- -----------------------------------------------------------------------------------
Total assets $365,598 $328,874
===================================================================================
Liabilities
Notes payable $19,286 $22,500
Other liabilities 8,565 5,782
- -----------------------------------------------------------------------------------
Total liabilities 27,851 28,282
Shareholders' equity 337,747 300,592
- -----------------------------------------------------------------------------------
Total liabilities and shareholders' equity $365,598 $328,874
===================================================================================
Statements of Cash Flows
- -----------------------------------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------
(In thousands)
Operating Activities
Net income $79,779 $76,088 $73,396
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 704 800 813
Return of undistributed
income from affiliates 185 52,940 19,425
Decrease (increase) in accounts
receivable from affiliates 175 (209) 913
(Increase) decrease in other assets (1,266) 67 (2,270)
Provision for deferred income tax 5,168 2,071 3,814
Increase (decrease) in other liabilities 3,143 (44) 40
Gain on sales of assets (2,821) (3,203) (3,216)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 85,067 128,510 92,915
Investing Activities
Purchases of premises and equipment 51 (193) (262)
Net change in loan balances 2,046 850 880
Investment in subsidiaries (250) -- (500)
Purchase of investment securities available for sale 184 -- --
Proceeds from sale of other assets 3,994 4,006 3,792
- -----------------------------------------------------------------------------------------------
Net cash provided by investing activities 6,025 4,663 3,910
Financing Activities
Net reductions in notes payable (3,216) -- --
Exercise of stock options/issuance of shares 6,418 4,617 5,513
Retirement of common stock including repurchases (58,440) (100,227) (104,824)
Dividends (26,992) (25,581) (21,864)
- -----------------------------------------------------------------------------------------------
Net cash used in financing activities (82,230) (121,191) (121,175)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 8,862 11,982 (24,350)
Cash and cash equivalents at beginning of year 17,529 5,547 29,897
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $26,391 $17,529 $5,547
===============================================================================================
Supplemental disclosure:
Unrealized gain (loss) on securities
available for sale, net $11,690 ($24,705) $2,261
Issuance of common stock for First Counties
Bank acquisition $19,723
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)
2000
Interest income $65,046 $66,191 $68,554 $69,725
Net interest income 43,976 44,098 45,636 47,192
Provision for loan losses 945 925 905 900
Non-interest income 9,955 10,467 10,757 9,951
Non-interest expense 24,421 24,669 25,597 25,511
Income before taxes 28,565 28,971 29,891 30,732
Net income 19,226 19,667 20,145 20,740
Basic earnings per share 0.52 0.54 0.55 0.57
Diluted earnings per share 0.52 0.54 0.55 0.56
Dividends paid per share 0.18 0.18 0.18 0.20
Price range, common stock 21.00-27.75 24.38-30.06 27.00-33.56 30.69-43.75
- -----------------------------------------------------------------------------------------------
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
31.63-37.50 30.00-37.13 28.94-36.50 26.63-35.13
Independent Auditors' Report
The Board of Directors
Westamerica Bancorporation:
We have audited the accompanying consolidated balance sheets of Westamerica
Bancorporation ("the Company") and subsidiaries as of December 31, 2000 and
1999, 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, 2000. These consolidated
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 auditing standards generally accepted
in the United States of America. 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
financial statements. An audit also includes assessing the accounting
principles used and 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 Company and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.
/s/KMPG LLP
- ------------
KPMG LLP
January 23, 2001
MANAGEMENT'S LETTER OF FINANCIAL RESPONSIBILITY
To Our Shareholders:
The Management of Westamerica Bancorporation is the 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 beleives that, as of
December 31, 2000, the Corporation's internal control environment
is adequate to provide reasonable assurance as to the integrity and
reliability of the consolidated financial statements 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 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 4 of the Company's Proxy
Statement dated March 21, 2001, 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 10 through 13 of the Company's
Proxy Statement dated March 21, 2001, 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 3 and 4 of the Company's Proxy
Statement dated March 21, 2001, 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 3 of the Company's
Proxy Statement dated March 21, 2001, 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(c) 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(c) 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 incorporated herein by
reference to Exhibit 10(e) to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, filed with the Securities
An Exchange Commission on March 29, 2000.
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
----------------------
* Indicates management contract or compensatory plan or arrangement.
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 and Controller Senior Vice President and
Principal Accounting Officer Chief Financial Officer
Date: March 22, 2001
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 22, 2001
- ------------------------------ and Director
David L. Payne President and
Chief Executive Officer
/s/ E. Joseph Bowler Senior Vice President March 22, 2001
- ------------------------------ and Treasurer
E. Joseph Bowler
/s/ Etta Allen Director March 22, 2001
- ------------------------------
Etta Allen
/s/ Louis E. Bartolini Director March 22, 2001
- -------------------------------
Louis E. Bartolini
/s/ Don Emerson Director March 22, 2001
- -------------------------------
Don Emerson
/s/ Louis H. Herwaldt Director March 22, 2001
- -------------------------------
Louis H. Herwaldt
/s/ Arthur C. Latno Director March 22, 2001
- ------------------------------
Arthur C. Latno
/s/ Patrick D. Lynch Director March 22, 2001
- ------------------------------
Patrick D. Lynch
/s/ Catherine Cope MacMillan Director March 22, 2001
- ------------------------------
Catherine Cope MacMillan
/s/ Patrick J. Mon Pere Director March 22, 2001
- ------------------------------
Patrick J. Mon Pere
/s/ Ronald A. Nelson Director March 22, 2001
- ------------------------------
Ronald A. Nelson
/s/ Carl Otto Director March 22, 2001
- ------------------------------
Carl Otto
/s/ Michael J. Ryan, Jr. Director March 22, 2001
- ------------------------------
Michael J. Ryan, Jr.
/s/ Edward B. Sylvester Director March 22, 2001
- ------------------------------
Edward B. Sylvester