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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, 2001
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: (707) 863-8000
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 7, 2002:
$1,323,895,503.32
Number of shares outstanding of each of the registrant's
classes of common stock, as of March 7, 2002
Title of Class
Common Stock, no par value
Shares Outstanding
33,973,352
DOCUMENTS INCORPORATED BY REFERENCE
Document *
Proxy Statement dated March 15, 2002
for Annual Meeting of Shareholders
to be held on April 23, 2002
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
Page
PART I
Item 1 Business 1
Item 2 Description of Properties 9
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a Vote of Security Holders 10
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 10
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations 13
Item 8 Financial Statements and Supplementary Data 33
Item 9 Changes in and Disagreements on Accounting and Financial Disclosure 61
PART III
Item 10 Directors and Executive Officers of the Registrant 61
Item 11 Executive Compensation 62
Item 12 Security Ownership of Certain Beneficial Owners and Management 62
Item 13 Certain Relationships and Related Transactions 62
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 62
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements about
Westamerica Bancorporation for which it claims the protection of the safe harbor
provisions contained in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on Management's current knowledge and
belief and include information concerning the Company's possible or assumed
future financial condition and results of operations. A number of factors, some
of which are beyond the Company's ability to predict or control, could cause
future results to differ materially from those contemplated. These factors
include but are not limited to (1) a continued slowdown in the national and
California economies; (2) increased economic uncertainty created by the recent
terrorist attacks on the United States and the actions taken in response; (3)
the prospect of additional terrorist attacks in the United States and the
uncertain effect of these events on the national and regional economies; (4)
changes in the interest rate environment; (5) changes in the regulatory
environment; (6) significantly increasing competitive pressure in the banking
industry ; (7) operational risks including data processing system failures or
fraud; (8) the effect of acquisitions and integration of acquired businesses;
(9) volatility of rate sensitive deposits; (10) asset/liability matching risks
and liquidity risks; and (11) changes in the securities markets. See also
"Certain Additional Business Risks" in Item 1. and other risk factors discussed
elsewhere in this Report.
PART I
ITEM 1. BUSINESS
WESTAMERICA BANCORPORATION (the "Company") is a bank holding company
registered under the Bank Holding Company Act of 1956 ("BHC"), as
amended. Its legal headquarters are located at 1108 Fifth Avenue, San
Rafael, California 94901. Principal administrative offices are
located at 4550 Mangels Boulevard in Fairfield, California 94585 and
its telephone number is (707) 863-8000. 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" or the "Bank"). The principal communities
served are located in Northern and Central California, from Mendocino,
Lake, Colusa and Nevada Counties in the North to Kern county in the
South. The Company's strategic focus is on the banking needs of small
businesses. 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 incorporated under the laws of the State of California
in 1972 as "Independent Bankshares Corporation" pursuant to a plan of
reorganization among three previously unaffiliated Northern California
banks. The Company operated as a multi-bank holding company until
mid-1983, at which time the then six subsidiary banks were merged into
a single bank named Westamerica Bank and the name of the holding
company was changed to Westamerica Bancorporation.
The Company acquired five additional banks within its immediate market
area during the early to mid 1990's. 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 institutions. The
subsidiary banks acquired were merged with and into WAB. These
business combinations were accounted for as poolings-of-interests.
In April, 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. The
business combination was accounted for as a pooling-of-interests.
ValliWide Bank was merged with and into WAB.
In August, 2000, the Company acquired First Counties Bank. The
acquisition was valued at approximately $19.7 million and was
accounted for using the purchase accounting method. The 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, 2001, the Company had consolidated assets of
approximately $3.9 billion, deposits of approximately $3.2 billion and
shareholders' equity of approximately $314 million. The Company and
its subsidiaries employed 1,066 full-time equivalent staff.
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.
A portion of the loan portfolio of the Company is dependent on real
estate. At December 31, 2001, real estate served as the principal
source of collateral with respect to approximately 56 percent of the
Company's loan portfolio. A worsening of current economic conditions,
increased economic uncertainty created by the most recent terrorist
attacks on the United States and the actions taken in response, 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 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.
The Company is also 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, is not
insured or is in excess of applicable insurance limits, it could have
a significant adverse impact on the Company's business, financial
condition or results of operations.
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 34.2 million were outstanding at December 31, 2001.
Pursuant to its stock option plans, at December 31, 2001, the Company
had exercisable options outstanding of 1.6 million. As of December 31,
2001, 1.4 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.
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 the Bank'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, the Bank, 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.
The Company is a bank holding company within the meaning of Section
3700 of the California Financial Code. As such, the Company and the
Bank 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 the Bank to pay dividends.
Transactions between the Company and the Bank 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 the Bank
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.
On March 11, 2000, the Gramm-Leach-Bliley Act (the GLBA),
or the Financial Services Act of 1999 became effective. The GLBA
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 GLBA to allow new "financial holding
companies" ("FHCs") to offer banking, insurance, securities and other
financial products to consumers. Specifically, the GLBA 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 GLBA, Federal Reserve member 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.
Regulation and Supervision of Banks
The Bank is a California state-chartered bank, is insured by the
Federal Deposit Insurance Corporation (the "FDIC") and is a member
bank of the Federal Reserve System. As such, the Bank is subject to
regulation, supervision and regular examination by the California
Department of Financial Institutions ("DFI") and the FRB. As a member
bank of the Federal Reserve System, the Bank's primary federal
regulator is the FRB. The regulations of these agencies affect most
aspects of the Bank's 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, the Bank is also subject to
applicable provisions of California law. Under California law, the
Bank is subject to various restrictions on, and requirements
regarding, its operations and administration including the maintenance
of branch offices and automated teller machines, capital requirements,
deposits and borrowings, stockholder rights and duties, and investment
and lending activities.
California law permits a state chartered bank to invest in the stock
and securities of other corporations, subject to a state-chartered
bank receiving either general authorization or, depending on the
amount of the proposed investment, specific authorization from the
Commissioner. The 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 the Bank 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,
qualifying noncumulative perpetual 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, hybrid capital instruments and mandatory convertible
debt securities, term subordinated debt and certain other instruments
with some characteristics of equity and limited amounts of unrealized
holding gains on equity securities. 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%.
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, 2001, the Company's and the Bank's respective
ratios exceeded applicable regulatory requirements. See Note 8 to the
consolidated financial statements for capital ratios of the Company
and the Bank, 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 nontraditional 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
The Bank's 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
The Bank 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.
Financial Privacy Legislation
The GLBA, in addition to the previously described changes in permissible
nonbanking activities permitted to banks, BHCs and FHCs, also required
the federal banking agencies, among other federal regulatory agencies, to
adopt regulations governing the privacy of consumer financial
information. The FRB adopted such regulations with an effective date of
November 13, 2000, and a date of full compliance with the regulations of
July 1, 2001. The Bank is subject to the FRBs regulations.
The regulations impose three main requirements established by the GLBA.
First, a banking organization must provide initial notices to customers
about their privacy policies, describing the conditions under which they
may disclose nonpublic personal information to nonaffiliated third
parties and affiliates, such as the Company. Second, banking
organizations must provide annual notices of their privacy policies to
their current customers. Third, banking organizations must provide a
reasonable method for consumers to opt-out of disclosures to
nonaffiliated third parties.
In connection with the regulations governing the privacy of consumer
financial information, the federal banking agencies, including the FRB,
adopted guidelines for safeguarding confidential customer information,
effective on July 1, 2001. The guidelines require banking organizations
to establish an information security program to: (1) identify and assess
the risks that may threaten customer information; (2) develop a written
plan containing policies and procedures to manage and control these
risks; (3) implement and test the plan; and (4) adjust the plan on a
continuing basis to account for changes in technology, the sensitivity of
customer information, and internal or external threats. The guidelines
also outline the responsibilities of directors of banking organizations
in overseeing the protection of customer information.
Recently Enacted Legislation and Regulations
On October 26, 2001, the President signed into law the
Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 or the
USA Patriot Act. Title III of the Act is the International
Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. It
includes numerous provisions for fighting international money laundering
and blocking terrorist access to the U.S. financial system. The goal of
Title III is to prevent the U.S. financial system and the U.S. clearing
mechanisms from being used by parties suspected of terrorism, terrorist
financing and money laundering.
The provisions of Title III of the USA Patriot Act which affect banking
organizations, including the Bank, are generally set forth as amendments
to the Bank Secrecy Act. These provisions relate principally to U.S.
banking organizations relationships with foreign banks and with persons
who are resident outside the United States. The USA Patriot Act does not
immediately impose any new filing or reporting obligations for banking
organizations, but does require certain additional due diligence and
recordkeeping practices. Some requirements take effect without the
issuance of regulations. Other provisions are to be implemented through
regulations that will be promulgated by the U.S. Department of the
Treasury (the Treasury), in consultation with the FRB and other
federal financial institutions regulators.
At this time, numerous provisions of Title III of the USA Patriot Act
require implementing regulations or interpretations from the Treasury.
Consequently, the effect of the USA Patriot Act on the business of the
Company and the Bank cannot be accurately predicted at this time.
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 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.
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 nineteenth largest financial institution in California
in terms of total deposits at December 31, 2000. In the individual
markets in which it has branch offices, WAB was the fourth largest
financial institution, with a market share of approximately 7.90%. 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 22.5 percent of the total deposit market
among federally-insured depository institutions. WAB's share of the other
markets it serves in Marin County was 19.2 percent, ranking it first.
ITEM 2. PROPERTIES
Branch Offices and Facilities
WAB is engaged in the banking business through 90 offices in 23 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, 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 31 branch office locations and one administrative
building and leases 69 facilities. 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 these proceedings is 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 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS 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:
=======================================================
2001: High Low
- -------------------------------------------------------
First quarter $43.00 $33.94
Second quarter $39.25 $35.83
Third quarter $41.40 $33.94
Fourth quarter $40.40 $32.77
2000:
First quarter $27.75 $21.00
Second quarter $30.06 $24.38
Third quarter $33.56 $27.00
Fourth quarter $43.75 $30.69
=======================================================
As of December 31, 2001, there were approximately 8,900 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, 2001, $158.5 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 three 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 and became 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
(In thousands, except per share data)
=======================================================================================================
2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
Year ended December 31
Interest income $257,056 $269,516 $257,656 $266,820 $270,670
Interest expense 68,887 88,614 78,456 86,665 88,054
- -------------------------------------------------------------------------------------------------------
Net interest income 188,169 180,902 179,200 180,155 182,616
Provision for loan losses 3,600 3,675 4,780 5,180 7,645
Noninterest income 42,655 41,130 40,174 37,805 37,013
Noninterest expense 102,651 100,198 100,133 101,408 137,878
- -------------------------------------------------------------------------------------------------------
Income before income taxes 124,573 118,159 114,461 111,372 74,106
Provision for income taxes 40,294 38,380 38,373 37,976 25,990
- -------------------------------------------------------------------------------------------------------
Net income $84,279 $79,779 $76,088 $73,396 $48,116
- -------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $2.39 $2.19 $1.97 $1.76 $1.12
Diluted 2.36 2.16 1.94 1.73 1.10
Per share:
Dividends paid $0.82 $0.74 $0.66 $0.52 $0.36
Book value at December 31 9.19 9.32 8.10 9.25 9.51
Average common shares outstanding 35,213 36,410 38,588 41,797 43,040
Average diluted common shares outstanding 35,748 36,936 39,194 42,524 43,827
Shares outstanding at December 31 34,220 36,251 37,125 39,828 42,799
At December 31
Loans, net $2,432,371 $2,429,880 $2,269,272 $2,246,593 $2,211,307
Total assets 3,927,967 4,031,381 3,893,187 3,844,298 3,848,444
Total deposits 3,234,635 3,236,744 3,065,344 3,189,005 3,078,501
Short-term borrowed funds 311,911 386,942 462,345 203,671 264,848
Debt financing and notes payable 27,821 31,036 41,500 47,500 52,500
Shareholders' equity 314,359 337,747 300,592 368,596 407,152
Financial Ratios:
For the year:
Return on assets 2.18% 2.06% 1.99% 1.94% 1.28%
Return on equity 27.17% 25.78% 23.31% 19.48% 12.71%
Net interest margin * 5.71% 5.48% 5.46% 5.52% 5.63%
Net loan losses to average loans 0.15% 0.17% 0.20% 0.20% 0.35%
Efficiency ratio * 41.67% 42.45% 43.19% 44.25% 60.15%
At December 31:
Equity to assets 8.00% 8.38% 7.72% 9.59% 10.58%
Total capital to risk-adjusted assets 10.63% 11.61% 11.75% 13.79% 14.76%
Loan loss reserve to loans 2.10% 2.11% 2.22% 2.23% 2.24%
* Fully taxable equivalent
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion addresses information pertaining to the financial
condition and results of operations of Westamerica Bancorporation and
Subsidiaries (the "Company") that may not be otherwise apparent from a
review of the consolidated financial statements and related footnotes. It
should be read in conjunction with those statements and notes found on
pages 38 through 70, as well as with the other information presented
throughout the report.
Net Income
The Company achieved earnings of $84.3 million in 2001, representing a 5.6%
increase from the $79.8 million earned in 2000, which was up 4.9% over 1999
earnings of $76.1 million.
Components of Net Income
- --------------------------------------------------------------------------------
Year ended December 31, 2001 2000 1999
(in thousands) ------------------------------------
Net interest income * $203,687 $194,933 $191,644
Provision for loan losses (3,600) (3,675) (4,780)
Noninterest income 42,655 41,130 40,174
Noninterest expense (102,651) (100,198) (100,133)
Taxes * (55,812) (52,411) (50,817)
------------------------------------
Net income $84,279 $79,779 $76,088
================================================================================
Net income per average fully-diluted share $2.36 $2.16 $1.94
Net income as a percentage of
average shareholders' equity 27.17% 25.78% 23.31%
Net income as a percentage of
average total assets 2.18% 2.06% 1.99%
=================================================================================
* Fully taxable equivalent (FTE)
Most of the improvement in 2001 earnings was the result of greater net
interest income, which increased by $8.8 million or 4.5% compared to 2000.
Approximately $6.0 million of that increase was due to a higher level of
average earning assets and the remainder to a stronger margin earned on
those assets. The loan loss provision was reduced slightly and
noninterest income grew $1.5 million or 3.7%. Partially offsetting this
higher revenue, noninterest expense expanded $2.5 million, or 2.4%.
Earnings in 2000 increased $3.7 million or 4.9% over 1999, also primarily
due to higher net interest income, which grew by $3.3 million or 1.7%.
Approximately two-thirds of that increase was due to higher levels of
earning assets and the remainder to 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.
The Company's return on average total assets was 2.18 percent in 2001,
compared to 2.06 percent and 1.99 percent in 2000 and 1999, respectively.
Return on average equity in 2001 was 27.17 percent, compared to 25.78
percent and 23.31 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)
increased $8.8 million or 4.5% from 2000, to $203.7 million in 2001.
Comparing 2000 to 1999, net interest income (FTE) increased $3.3 million or
1.7%.
Components of Net Interest Income
- --------------------------------------------------------------------------------
Year ended December 31, 2001 2000 1999
(in thousands) ------------------------------------
Interest income $257,056 $269,516 $257,656
Interest expense (68,887) (88,614) (78,456)
FTE adjustment 15,518 14,031 12,444
------------------------------------
Net interest income (FTE) $203,687 $194,933 $191,644
================================================================================
Net interest margin (FTE) 5.71% 5.48% 5.46%
================================================================================
Interest income (FTE) decreased $11.0 million or 3.9% from 2000 to 2001,
the net effect of lower earning-asset yields partially offset by a
favorable change in the mix of those assets. The total yield on earning
assets dropped from 7.96% in 2000 to 7.64% in 2001, following the trend in
overall interest markets in which Fed Funds rates were reduced a record
number of times, from a targeted rate of 6.25% on December 31, 2000 to
1.75% twelve months later. The greatest decrease was on commercial loan
yields (down from 9.45% to 8.11%, or 134 basis points), with relatively
stable consumer loan yields declining 51 basis points. The investment
portfolio yield was unchanged. The effect of lower yields was to reduce
interest income by $13.7 million. The total level of earning assets
remained unchanged, but a shift from lower-yielding investment securities
to more profitable loans resulted in a $2.8 million improvement in
interest income.
Interest expense decreased $19.7 million or 22.3% in 2001 compared to 2000,
principally due to lower rates paid. The average rate paid on
interest-bearing liabilities was 2.73% in 2001, 69 basis points or 20%
lower than in 2000. The most pronounced declines included rates paid on
shorter-term liabilities such as fed funds purchased (down from 6.18% to
4.27%) and public time deposits (down from 6.03% to 4.41%). Rates paid on
transaction deposit accounts decreased 29 basis points. This decrease had
the effect of lowering the Company's interest costs by $17.1 million. In
addition, the reduced level and changed composition of interest-bearing
liabilities caused interest expense to decline an additional $2.6 million.
Interest income (FTE) increased $13.4 million or 5.0% from 2000 to 1999,
primarily due to higher level of earning assets. Average loans outstanding
grew $77 million to $2.37 billion, while 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 expense increased $10.2 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. The average rate paid on federal funds purchased
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.
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 nonperforming loans. Interest income includes proceeds
from loans on nonaccrual 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 & Shareholders' Equity and
Yields, Rates & Interest Margin
- --------------------------------------------------------------------------------
Year ended December 31, 2001
(dollars in thousands) ------------------------------------
Interest Rates
Average income/ earned/
balance expense paid
------------------------------------
Assets
Money market assets and funds sold $1,040 $24 2.31%
Trading account securities -- -- --
Investment securities:
Available for sale
Taxable 616,954 37,563 6.09%
Tax-exempt 268,348 20,251 7.55%
Held to maturity
Taxable 74,325 3,796 5.11%
Tax-exempt 145,269 11,592 7.98%
Loans:
Commercial
Taxable 1,370,663 113,433 8.28%
Tax-exempt 189,808 14,784 7.79%
Real estate construction 68,910 6,441 9.35%
Real estate residential 353,438 24,499 6.93%
Consumer 482,797 40,191 8.32%
---------- ---------
Earning assets 3,571,552 272,574 7.63%
Other assets 286,267
-----------
Total assets $3,857,819
===========
Liabilities and shareholders' equity
Deposits
Noninterest bearing demand $992,182 -- --
Savings and interest-bearing
transaction 1,360,978 19,896 1.46%
Time less than $100,000 387,407 16,898 4.36%
Time $100,000 or more 477,035 20,794 4.36%
---------- ---------
Total interest-bearing deposits 2,225,420 57,588 2.59%
Funds purchased 265,474 9,283 3.50%
Debt financing and notes payable 28,089 2,016 7.18%
---------- ---------
Total interest-bearing liabilities 2,518,983 68,887 2.73%
Other liabilities 36,412
Shareholders' equity 310,242
-----------
Total liabilities and shareholders' equity $3,857,819
===========
Net interest spread (1) 4.90%
Net interest income and interest margin (2) $203,687 5.71%
========= ======
(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 & Shareholders' Equity and
Yields, Rates & Interest Margin
- --------------------------------------------------------------------------------
Year ended December 31, 2000
(dollars in thousands) ------------------------------------
Interest Rates
Average income/ earned/
balance expense paid
------------------------------------
Assets
Money market assets and funds sold $529 $17 2.14%
Trading account securities -- -- --
Investment securities:
Available for sale
Taxable 747,942 45,995 6.15%
Tax-exempt 214,527 16,325 7.61%
Held to maturity
Taxable 79,650 4,338 5.45%
Tax-exempt 148,828 12,503 8.40%
Loans:
Commercial
Taxable 1,333,131 119,565 8.97%
Tax-exempt 175,601 13,671 7.79%
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 & Shareholders' Equity and
Yields, Rates & Interest Margin
- --------------------------------------------------------------------------------
Year ended December 31, 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:
Available for sale
Taxable 776,186 47,495 6.12%
Tax-exempt 206,522 15,387 7.45%
Held to maturity
Taxable 86,403 4,656 5.39%
Tax-exempt 150,772 11,607 7.70%
Loans:
Commercial
Taxable 1,341,139 114,658 8.55%
Tax-exempt 151,906 12,281 8.08%
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.
The following table sets forth a summary of the changes in
interest income and interest expense due to 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.
Summary of Changes in Interest Income and Expense
- --------------------------------------------------------------------------------
Years ended December 31, 2001 compared with 2000
(dollars in thousands) ------------------------------------
Volume Rate Total
------------------------------------
Increase (decrease) in interest and fee income:
Money market assets and
funds sold $10 ($3) $7
Trading account securities -- -- --
Investment securities:
Available for sale
Taxable (7,982) (450) (8,432)
Tax-exempt (1) 3,866 60 3,926
Held to maturity
Taxable (281) (261) (542)
Tax-exempt (1) (294) (617) (911)
Loans:
Commercial:
Taxable 3,297 (9,429) (6,132)
Tax-exempt (1) 1,107 6 1,113
Real estate construction 1,879 (1,570) 309
Real estate residential 875 (467) 408
Consumer 890 (1,608) (718)
------------------------------------
Total loans (1) 8,048 (13,068) (5,020)
------------------------------------
Total increase (decrease) in
interest and fee income (1) 3,367 (14,339) (10,972)
------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing 918 (3,849) (2,931)
Time less than $100,000 (313) (2,550) (2,863)
Time $100,000 or more 740 (5,795) (5,055)
------------------------------------
Total interest-bearing 1,345 (12,194) (10,849)
Funds purchased (3,453) (4,932) (8,385)
Notes and mortgages payable (507) 14 (493)
------------------------------------
Total (decrease)
in interest expense (2,615) (17,112) (19,727)
------------------------------------
Increase in
net interest income (1) $5,982 $2,773 $8,755
================================================================================
(1) Amounts calculated on a fully taxable equivalent basis using
the current statutory federal tax rate.
Summary of Changes in Interest Income and Expense
- --------------------------------------------------------------------------------
Year ended December 31, 2000 compared with 1999
(dollars in thousands) ------------------------------------
Volume Rate Total
------------------------------------
Increase (decrease) in interest and fee income:
Money market assets and
funds sold $13 $0 $13
Trading account securities -- -- --
Investment securities:
Available for sale
Taxable (1,736) 236 (1,500)
Tax-exempt (1) 605 333 938
Held to maturity
Taxable (302) (16) (318)
Tax-exempt (1) 45 851 896
Loans:
Commercial:
Taxable (688) 5,595 4,907
Tax-exempt (1) 1,858 (468) 1,390
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 in
interest and fee income (1) 4,290 9,156 13,445
------------------------------------
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
in interest expense 1,213 8,945 10,158
------------------------------------
Increase 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.
Provision For Loan Losses
The provision for loan losses was $3.6 million for 2001, compared to $3.7
million in 2000 and $4.8 million in 1999. The reductions in the provision
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 109 months at December 31, 2001 and, on the same date, those
investments included $185.9 million in fixed-rate and $23.3 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, 2001, the Company held $949.0
million classified as investments available for sale. At December 31, 2001,
an unrealized gain of $11.9 million net of taxes of $9.1 million related to
these securities, was included in shareholders' equity.
The Company had no trading securities at December 31, 2001.
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:
Available for Sale Portfolio Distribution
- --------------------------------------------------------------------------------
At December 31, 2001 2000 1999
(dollars in thousands) ------------------------------------
U.S. Treasury $135,086 $188,513 $183,478
U.S. Government agencies and corporations 213,454 207,091 195,300
States and political subdivisions 303,048 241,151 234,781
Asset backed securities 33,283 76,678 143,590
Other 264,099 207,842 225,188
------------------------------------
Total $948,970 $921,275 $982,337
================================================================================
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, 2001. 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 Maturity Distribution
- -------------------------------------------------------------------------------------------------------------------
After one After five Mortgage-
Within but within but within After ten backed Other Total
At December 31, 2001 one year five years ten years years
(Dollars in thousands) ----------------------------------------------------------------------------------
U.S. Treasury $121,571 $9,926 $-- $-- $-- $-- $131,497
Interest rate 5.91% 6.20% --% --% --% --% 5.93%
U.S. Government agencies
and corporations 23,208 175,836 -- 66 -- -- 199,110
Interest rate 4.84% 5.64% -- 8.85% -- -- 5.55%
States and political
subdivisions 3,123 14,801 126,104 154,311 -- -- 298,339
Interest rate 7.52% 7.50% 7.70% 7.21% -- -- 7.44%
Asset-backed 301 9,432 23,414 -- 33,147
Interest rate 9.29% 5.73% 2.98% -- -- -- 3.82%
Other securities 88,245 131,537 -- -- -- -- 219,782
Interest rate 4.54% 5.79% -- -- -- -- 5.29%
- -------------------------------------------------------------------------------------------------------------------
Subtotal 236,448 341,532 149,518 154,377 -- -- 881,875
Interest rate 5.32% 5.80% 6.96% 7.21% -- -- 6.09%
Mortgage Backed -- -- -- -- 8,325 -- 8,325
Interest rate -- -- -- -- 5.67% -- 5.67%
Other without set maturities -- -- -- -- -- 37,359 37,359
Interest rate -- -- -- -- -- 9.34% 9.34%
- -------------------------------------------------------------------------------------------------------------------
Total $236,448 $341,532 $149,518 $154,377 $8,325 $37,359 $927,559
Interest rate 5.32% 5.80% 6.96% 7.21% 5.67% 9.34% 6.22%
===================================================================================================================
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:
Held to Maturity Portfolio Distribution
- --------------------------------------------------------------------------------
At December 31, (dollars in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
U.S. Treasury $-- $-- $--
U.S. Government agencies and corporations 55,320 64,717 70,418
States and political subdivisions 141,712 151,980 155,813
Asset backed securities -- -- --
Other 12,137 11,338 10,923
- --------------------------------------------------------------------------------
Total $209,169 $228,035 $237,154
================================================================================
Fair value $214,866 $231,906 $235,147
================================================================================
The following table sets forth the relative maturities and yields of the
Company's held to maturity securities at December 31, 2001. 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 Maturity Distribution
- -------------------------------------------------------------------------------------------------------------------
After one After five
Within but within but within After ten Mortgage-
At December 31, 2001 one year five years ten years years backed Other Total
(Dollars in thousands) ----------------------------------------------------------------------------------
U.S. Treasury $-- $-- $-- $-- $-- $-- $--
Interest rate --% --% --% --% --% --% --%
U.S. Government Agencies
and Corporations -- -- -- -- -- -- --
Interest rate -- -- -- -- -- -- --
States and Political
Subdivisions 5,062 54,277 61,328 21,045 -- -- 141,712
Interest rate 7.77% 7.57% 8.09% 7.99% -- -- 7.86%
Asset Backed -- -- -- -- -- -- --
Interest rate -- -- -- -- -- -- --
Other -- -- -- -- -- 12,137 12,137
Interest rate -- -- -- -- -- 5.38% 5.38%
- -------------------------------------------------------------------------------------------------------------------
Subtotal 5,062 54,277 61,328 21,045 -- 12,137 153,849
Interest rate 7.77% 7.57% 8.09% 7.99% --% 5.38% 7.66%
Mortgage Backed -- -- -- -- 55,320 -- 55,320
Interest rate -- -- -- -- 5.30% -- 5.30%
- -------------------------------------------------------------------------------------------------------------------
Total $5,062 $54,277 $61,328 $21,045 $55,320 $12,137 $209,169
Interest rate 7.77% 7.57% 8.09% 7.99% 5.30% 5.38% 7.02%
===================================================================================================================
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:
Loan Portfolio Distribution
- -------------------------------------------------------------------------------------------------------
At December 31, 2001 2000 1999 1998 1997
(dollars in thousands) -----------------------------------------------------------
(In thousands)
Commercial and commercial real estate $1,576,723 $1,562,462 $1,502,237 $1,476,912 $1,437,118
Real estate construction 69,658 64,195 50,928 57,998 66,782
Real estate residential 347,114 355,488 337,002 384,128 361,909
Consumer 491,793 502,367 434,803 385,204 404,382
Unearned income (831) (2,353) (4,124) (6,345) (8,254)
-----------------------------------------------------------
Gross loans $2,484,457 $2,482,159 $2,320,846 $2,297,897 $2,261,937
Allowance for loan losses (52,086) (52,279) (51,574) (51,304) (50,630)
-----------------------------------------------------------
Net loans $2,432,371 $2,429,880 $2,269,272 $2,246,593 $2,211,307
=======================================================================================================
The following table shows the maturity distribution and interest rate
sensitivity of commercial and real estate construction loans at December
31, 2001. Balances exclude loans to individuals and residential mortgages
totaling $838.1 million. These types of loans are typically paid in monthly
installments over a number of years.
Loan Maturity Distribution
- --------------------------------------------------------------------------------------------
Within One to After
At December 31, 2001 One Year Five Years Five Years Total
(dollars in thousands) ------------------------------------------------
Commercial and commercial real estate * $542,708 $490,773 $543,242 $1,576,723
Real estate construction 69,658 -- -- 69,658
- --------------------------------------------------------------------------------------------
Total $612,366 $490,773 $543,242 $1,646,381
============================================================================================
Loans with fixed interest rates $322,754 $519,732 $549,830 $1,392,316
Loans with floating interest rates $254,065 -- -- 254,065
- --------------------------------------------------------------------------------------------
Total $576,819 $519,732 $549,830 $1,646,381
============================================================================================
* 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 to 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 nonperforming
assets and potential problem loans. These loans receive an elevated level of
attention to ensure collection.
Classified Assets
The following summarizes the Company's classified assets for the periods
indicated:
Classified Assets
- -------------------------------------------------------------------
At December 31, 2001 2000
(dollars in thousands) -----------------------
Classified loans $22,285 $31,634
Other classified assets 523 2,065
-----------------------
Total classified assets $22,808 $33,699
===================================================================
Classified loans at December 31, 2001 decreased $9.3 million or 29% to
$22.3 million from December 31, 2000, reflecting the effectiveness of the
Company's high underwriting standards and active workout policies. Other
classified assets decreased $1.6 million from the 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 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:
Nonperforming Assets
- -------------------------------------------------------------------------------------------------------
At December 31, 2001 2000 1999 1998 1997
(dollars in thousands) -----------------------------------------------------------
Performing nonaccrual loans $3,055 $3,499 $3,460 $1,800 $1,645
Nonperforming nonaccrual loans 5,058 4,525 5,501 6,732 16,500
-----------------------------------------------------------
Nonaccrual loans 8,113 8,024 8,961 8,532 18,145
-----------------------------------------------------------
Loans 90 or more days past due
and still accruing 550 650 584 522 1,010
Other real estate owned 523 2,065 3,269 4,315 7,381
-----------------------------------------------------------
Total Nonperforming Assets $9,186 $10,739 $12,814 $13,369 $26,536
=======================================================================================================
Allowance for loan losses as a
percentage of nonaccrual loans
and loans 90 or more days past
due and still accruing 601% 603% 540% 564% 265%
Allowance for loan losses as a percentage
of total nonperforming assets 567% 487% 402% 383% 191%
=======================================================================================================
Performing nonaccrual loans at December 31, 2001 were $444 thousand below a
year earlier, while nonperforming loans increased $533 thousand. With the
exception of three relationships totaling $2.4 million, all loans on
nonaccrual status in 2000 were either paid off or brought current in 2001,
with the net result of total nonaccrual loans remaining approximately
unchanged. All foreclosed property owned in 2000 was disposed of at a small
gain during 2001; the $523 thousand owned at December 31, 2001 consists of
seven small parcels.
Performing nonaccrual loans at December 31, 2000 increased $39 thousand from the
prior year while nonperforming nonaccrual loans decreased $976 thousand 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
replaced 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 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 $673 thousand in
2001, $859 thousand in 2000 and $751 thousand in 1999. The amount of interest
income that was recognized on nonaccrual loans from cash payments made in
2001, 2000 and 1999 was $632 thousand, $653 thousand, $473 thousand,
respectively. Cash payments received, which were applied against the book
balance of performing and nonperforming nonaccrual loans outstanding at
December 31, 2001, totaled approximately $161 thousand, compared to $527
thousand in 2000 and $356 thousand in 1999.
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 assets at their
current 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 that are 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 $52.1 million allowance for loan losses, which constituted
2.10 percent of total loans at December 31, 2001, 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:
Loan Loss Allowance, Chargeoffs & Recoveries
- -------------------------------------------------------------------------------------------------------
Year ended December 31, 2001 2000 1999 1998 1997
(dollars in thousands) -----------------------------------------------------------
Total loans outstanding $2,484,457 $2,482,159 $2,320,846 $2,297,897 $2,261,937
Average loans outstanding during the period 2,465,616 $2,369,065 2,292,386 2,262,082 2,248,048
Analysis of the Allowance
Balance, beginning of period $52,279 $51,574 $51,304 $50,630 $50,921
Additions to the allowance charged to
operating expense 3,600 3,675 4,780 5,180 7,645
Allowance acquired through merger -- 1,036 -- -- --
Loans charged off:
Commercial and commercial real estate (2,475) (4,148) (5,071) (5,113) (6,824)
Real estate construction (10) -- (94) -- (962)
Real estate residential -- (16) (18) (97) (374)
Consumer (4,968) (3,818) (2,754) (3,358) (4,323)
-----------------------------------------------------------
Total chargeoffs (7,453) (7,982) (7,937) (8,568) (12,483)
-----------------------------------------------------------
Recoveries of loans previously charged off:
Commercial and commercial real estate 1,577 2,333 2,052 2,305 2,498
Real estate construction -- -- -- 10 160
Real estate residential 243 -- -- 1 34
Consumer 1,840 1,643 1,375 1,746 1,855
-----------------------------------------------------------
Total recoveries 3,660 3,976 3,427 4,062 4,547
-----------------------------------------------------------
Net loan losses (3,793) (4,007) (4,510) (4,506) (7,936)
-----------------------------------------------------------
Balance, end of period $52,086 $52,279 $51,574 $51,304 $50,630
=======================================================================================================
Net loan losses to average loans 0.15% 0.17% 0.20% 0.20% 0.35%
Allowance for loan losses as a percentage
of loans outstanding 2.10% 2.11% 2.22% 2.23% 2.24%
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:
Allocation of the Allowance for Loan Losses
- -------------------------------------------------------------------------------------------------------
At December 31, 2001 2000 1999
Allocation Loans as Allocation Loans as Allocation Loans as
of the Percent of the Percent of the Percent
Allowance of Total Allowance of Total Allowance of Total
Balance Loans Balance Loans Balance Loans
(dollars in thousands) ----------------------------------------------------------------------
Commercial $21,206 63% $21,632 63% $23,523 65%
Real estate construction 4,860 3% 4,344 3% 2,042 2%
Real estate residential 417 14% 427 14% 877 14%
Consumer 4,986 20% 5,648 20% 4,670 19%
Unallocated portion 20,617 "-- 20,228 "-- 20,462 "--
----------------------------------------------------------------------
Total $52,086 100% $52,279 100% $51,574 100%
=======================================================================================================
- --------------------------------------------------------------------------------
At December 31, 1998 1997
Allocation Loans as Allocation Loans as
of the Percent of the Percent
Allowance of Total Allowance of Total
Balance Loans Balance Loans
(dollars in thousands) -----------------------------------------------
Commercial $22,240 64% $22,649 63%
Real estate construction 4,055 3% 4,374 3%
Real estate residential 310 17% 87 16%
Consumer 4,260 16% 4,356 18%
Unallocated portion 20,439 "-- 19,164 "--
-----------------------------------------------
Total $51,304 100% $50,630 100%
================================================================================
Impaired Loans
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 smaller-balance 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 like-kind 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:
Impaired Loans
- -------------------------------------------------------------------
Year ended December 31, 2001 2000
(dollars in thousands) -----------------------
Nonaccrual loans $8,113 $8,024
Other 3,755 3,704
-----------------------
Total impaired loans $11,868 $11,728
===================================================================
Specific reserves $992 $1,817
===================================================================
The $3.8 million balance of impaired loans as of December 31, 2001, 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, 2001.
The average balance of the Company's impaired loans for the year ended
December 31, 2001 was $11.8 million compared to $12.5 million in 2000.
Portions of the Company's allowance for credit losses were allocated to
each of these impaired loans. 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 changes 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 100 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 within certain specified ranges or steps must be taken to reduce
interest rate risk.
The following table summarizes the simulated change in NII, based on the
12-month period ending December 31, 2001:
Simulated Changes to Net Interest Income
- -------------------------------------------------------
(dollars in millions)
Changes in Estimated Increase
Interest (Decrease) in NII
Rates Estimated ------------------
(Basis Points) NII Amount Amount Percent
- -------------------------------------------------------
+100 $206.0 ($2.5) (1.2%)
-- 208.5 -- --
- -100 210.6 2.1 1.0%
=======================================================
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.
The following table summarizes the interest rate sensitivity gaps inherent
in the Company's asset and liability portfolios at December 31, 2001:
Interest Rate Sensitivity Analysis
- -------------------------------------------------------------------------------------------------------------------
Repricing within (days)
(dollars in thousands) -----------------------------------------------------------------------
Non-
0-90 91-180 181-365 Over 365 Repricing Total
-----------------------------------------------------------------------
Assets
Investment securities $132,464 $37,794 $75,546 $912,335 -- $1,158,139
Loans 562,113 73,103 148,420 1,700,820 2,484,456
Other assets 285,372 285,372
-----------------------------------------------------------------------
Total assets $694,577 $110,897 $223,966 $2,613,155 $285,372 $3,927,967
=======================================================================
Liabilities
Non-interest bearing $-- $-- $-- $-- $1,048,458 $1,048,458
Interest-bearing:
Transaction 155,797 155,797 207,730 -- -- 519,324
Money market savings 183,350 183,350 244,466 -- -- 611,165
Passbook savings 76,607 76,607 102,143 -- -- 255,358
Time 462,238 87,827 204,930 45,335 -- 800,330
Short-term borrowings 271,911 40,000 -- 311,911
Debt financing and notes payable 3,214 -- -- 24,607 -- 27,821
Other liabilities -- -- -- -- 39,241 39,241
Shareholders' equity -- -- -- -- 314,359 314,359
-----------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,153,117 $503,581 $759,269 $109,942 $1,402,058 $3,927,967
=======================================================================
Net (liabilities) assets
subject to repricing (458,540) (392,685) (535,302) 2,503,213 (1,116,686)
-----------------------------------------------------------
Cumulative net (liabilities)
assets subject to repricing (458,540) (851,225) (1,386,527) 1,116,686 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.
Operating profitability in 2001, 2000, and 1999 generated substantial cash
flows of $98.7 million, $93.1 million and $95.9 million respectively.
The Company's investing activities were a net use of cash in 2001.
Substantial proceeds from maturing investment securities of $449.8 million
were all reinvested, for a net use of cash of $1.3 million. In addition,
net disbursements of loans amounted to $7.2 million. Other investing
activities used $0.6 million. Investing activities were 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 the year. Other investing
activities contributed $5.4 million. As in 2001, investing activities were
a net use in 1999. 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.
Financing activities were a net use of cash in 2001 and 2000, and a modest
net source in 1999. Cash was used in all three periods to repurchase Company
common stock: $101.3 million in 2001, $58.4 million in 2000 and $100.2
million in 1999. Cash was also used in all periods for the payment of
shareholder dividends. The Company also used $75.0 million cash in 2001 to
reduce its short-term borrowings, for a combined financing activity use for
the year of $196.9 million. Cash of $75.8 million was used in 2000 to reduce
short-term-borrowings as well, but the effect was largely offset by a $91.1
million increase in deposits. In sum, financing activities used $74.1 million
in cash in 2000. This contrasts to 1999 when short-term borrowings increased
by $258.7 million and deposits decreased $123.7 million, and financing
activities resulted in a net provision of cash for the year.
The Company anticipates maintaining its cash levels through the end of 2002
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 2002. However,
due to the aftermath of the events of September 11, 2001, there is
considerable uncertainty in the general economic environment which may
impact loan demand.
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 1.7 million shares in 2001, 840 thousand shares in 2000 and 1.7
million in 1999.
The Company's primary capital resource is shareholders' equity, which
decreased $23.4 million or 6.9% from the previous year, the net result of
profits earned during the year, reduced by dividends paid and the effect of
the Company's ongoing share repurchase program.
The ratio of total risk-based capital to risk-adjusted assets was 10.63
percent at December 31, 2001, compared to 11.61 percent at December 31,
2000. Tier I risk-based capital to risk-adjusted assets was 9.29 percent at
December 31, 2001, compared to 10.20 percent at December 31, 2000.
Capital to Risk-Adjusted Assets
- -------------------------------------------------------------------
Minimum
Regulatory
At December 31, 2001 2000 Requirement
----------------------------------
Tier I Capital 9.29% 10.20% 4.00%
Total Capital 10.63% 11.61% 8.00%
Leverage ratio 7.30% 7.89% 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, 2001 2000 1999
-------------------------------------
Return on average total assets 2.18% 2.06% 1.99%
Return on shareholders' equity 27.17% 25.78% 23.31%
Average shareholders' equity as a percentage of:
Average total assets 8.04% 7.98% 8.53%
Average total loans 12.58% 13.06% 14.24%
Average total deposits 9.64% 9.80% 10.52%
Dividend payout ratio (diluted EPS) 34% 34% 34%
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:
Deposit Distribution and Average Rates Paid
- -------------------------------------------------------------------------------------------------------
Year ended December 31, 2001 2000
(Dollars in thousands) ----------------------------------------------------------------------
Percentage Percentage
Average of Total Average of Total
Balance Deposits Rate * Balance Deposits Rate *
----------------------------------------------------------------------
Non-interest bearing demand $992,182 30.8% --% $953,667 30.2% --%
Interest bearing:
Transaction 514,235 16.0% 0.54% 508,969 16.1% 0.83%
Savings 846,743 26.3% 2.02% 841,270 26.6% 2.21%
Time less than $100 thousand 387,407 12.0% 4.36% 391,500 12.4% 5.05%
Time $100 thousand or more 477,035 14.8% 4.36% 462,506 14.6% 5.59%
---------------------- -------------------------
Total $3,217,602 100.0% 2.59% $3,157,912 100.0% 3.10%
=======================================================================================================
- -------------------------------------------------------------------
Year ended December 31, 1999
(Dollars in thousands) ----------------------------------
Percentage
Average of Total
Balance Deposits Rate *
----------------------------------
Non-interest bearing demand $857,650 27.6% --%
Interest bearing:
Transaction 536,067 17.3% 0.70%
Savings 873,324 28.1% 2.25%
Time less than $100 thousand 410,092 13.2% 4.42%
Time $100 thousand or more 425,949 13.7% 4.57%
----------------------
Total $3,103,082 100.0% 3.13%
===================================================================
* Rate is computed based on interest-bearing deposits
During 2001, total average deposits increased by $60 million or 1.9% from
2000 due to an inflow of $39 million of noninterest bearing deposits, plus
smaller increases in interest bearing demand and savings deposits. Also,
time deposits in excess of $100 thousand increased by $15 million with a
corresponding reduction in consumer CDs of $4 million
During 2000, total average deposits increased by $55 million or 1.8% from
1999 due to an inflow of $96 million of noninterest bearing deposits
offset by a reduction in interest bearing demand and savings deposits
totaling $59 million. In addition public and jumbo CDs increased by $37
million with a corresponding reduction in consumer CDs of $14 million.
The following sets forth, by time remaining to maturity, the Company's
domestic time deposits in amounts of $100 thousand or more:
Deposit Over $100,000 Maturity Distribution
- -------------------------------------------------------
December 31,
2001
(In thousands) -----------
Three months or less $273,517
Over three through six months 48,978
Over six through twelve months 114,283
Over twelve months 7,444
-----------
Total $444,222
=======================================================
Short-term Borrowings
The following table sets forth the short-term borrowings of the Company
for the periods indicated:
Short-Term Borrowings Distribution
- --------------------------------------------------------------------------------
At December 31, 2001 2000 1999
(In thousands) ------------------------------------
Federal funds purchased $62,675 $183,550 $254,000
Other borrowed funds:
Retail repurchase agreements 4,213 35,770 59,552
Other 245,023 167,622 148,793
------------------------------------
Total other borrowed funds 249,236 203,392 208,345
------------------------------------
Total short term borrowings $311,911 $386,942 $462,345
================================================================================
Further detail of other borrowed funds is as follows:
Other Borrowed Funds Balances and Rates Paid
- --------------------------------------------------------------------------------
Year ended December 31, 2001 2000 1998
(dollars in thousands) ------------------------------------
Outstanding amount:
Average for the year $187,652 $210,811 $195,415
Maximum during the year 250,927 228,499 247,799
Interest rates:
Average for the year 3.15% 4.40% 4.61%
Average at period end 2.02% 4.00% 3.49%
Noninterest Income
Components of Noninterest Income
- --------------------------------------------------------------------------------
Year ended December 31, 2001 2000 1999
(dollars in thousands) ------------------------------------
Service charges on deposit accounts $23,114 $21,067 $20,316
Merchant credit card fees 3,993 4,005 3,605
ATM fees & interchange 2,282 2,115 1,932
Financial services commissions 1,375 1,634 2,650
Debit card fees 1,515 1,175 447
Mortgage banking income 918 807 777
Official check sales fees 1,102 1,443 1,168
Trust fees 966 848 697
Gains on sale of foreclosed property 156 740 329
Other 7,234 7,296 8,253
------------------------------------
Total $42,655 $41,130 $40,174
================================================================================
Noninterest income increased $1.5 million or 3.7% in 2001, principally due to
higher service charges on deposit accounts, specifically in the area of
deficit fees charged on analyzed accounts, which increased $1.7 million, or
29.6%. Deficit fees are service charges collected from business customers
that typically pay for such services with compensating balances. In the
current period of low interest rates, the earnings value of the balances has
decreased, resulting in more customers being required to pay for services with
explicit fees. Other categories of deposit account fees increased slightly.
Service charges generated from users of the Company's debit card product
introduced in 1999 grew $340 thousand (29%) to $1.5 million, as volume
continues to increase. Trust fees increased $118 thousand (14%) with
intensified marketing emphasis resulting in more trust assets under
management.
Financial services commissions were down $259 thousand (16%) in 2001
because of lower sales of mutual fund products. Gains on sales of
foreclosed property dropped $584 thousand (79%), as 2000 included the sale
of one large property, and official check income was down $341 thousand
(24%) due to lower earnings on outstanding checks.
Noninterest income increased $956 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. Debit card income grew from $447 thousand to $1.2 million.
Merchant credit card income grew by $400 thousand (11%) 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 Expense
Components of Noninterest Expense
- --------------------------------------------------------------------------------
Year ended December 31, 2001 2000 1999
(dollars in thousands) ------------------------------------
Salaries and wages $36,513 $35,174 $34,035
Incentives 5,404 5,126 5,919
Other personnel benefits 10,973 10,966 10,752
Occupancy 11,943 11,447 12,154
Equipment 6,171 6,523 6,874
Data processing 6,034 6,025 5,967
Contract courier 3,650 3,496 3,324
Telephone 1,917 2,202 2,120
Postage 1,711 2,018 2,269
Professional fees 1,626 1,864 1,652
Stationery and supplies 1,479 1,609 1,588
Merchant credit card processing 1,465 1,565 1,446
Advertising and public relations 1,406 1,295 1,276
Loan expense 1,107 1,037 1,257
Amortization of deposit intangibles 1,364 1,193 1,059
Amortization of goodwill 1,176 1,031 890
Other 8,712 7,627 7,551
------------------------------------
Total $102,651 $100,198 $100,133
================================================================================
Noninterest expense to
revenues ("efficiency ratio")(FTE) 41.7% 42.4% 43.2%
Average full-time equivalent staff 1,082 1,082 1,098
Total assets per full-time staff $3,565 $3,584 $3,487
================================================================================
Noninterest expense increased $2.5 million or 2.4% in 2001 compared to 2000,
proportionately less than the corresponding increase in total revenues,
resulting in a further improvement in the Company's efficiency ratio. Much of
the increase was due to higher salary & wage expense, which was up $1.3
million (3.7%). The growth was due to merit increases granted to continuing
staff and higher salary levels required to attract replacement personnel. The
$278 thousand (5.4%) increase in incentive pay was the result of an
increased accrual for incentives to be paid out based on 2001
performance and greater productivity incentives paid to sales staff. Occupancy
expense was up $496 thousand (4.3%) primarily due to higher energy costs.
Intangible asset amortization included a full year of cost associated with
the August, 2000 First Counties Bank acquisition, and contract courier expense
grew $154 thousand (4.4%), as the Company continued its strategy of providing
courier services to an increased number of business clients. Included in the
"Other" category, which was up $1.1 million (14.2%), is a $600 thousand special
provision for nonrecurring operating losses.
Other categories of expense decreased from 2000, partially offsetting the
increases outlined above. Equipment expense was down $352 thousand (5.4%)
due to reduced depreciation costs, as a major loan underwriting computer
system became fully depreciated during the year, and lower computer
maintenance made possible by hardware upgrades. Professional fees also
decreased $238 thousand (12.8%) because 2000 included costs incurred in
connection with the First Counties Bank acquisition and unrelated loan
collection costs. Telephone and postage costs each dropped approximately
$300 thousand, both due to lower activity and, in the case of telephone,
some special credits received during the year.
Noninterest expense increased by less than $65 thousand in 2000 compared to
1999, producing an efficiency ratio of 42.4%. The largest increase was
personnel-related cost. The $560 thousand change in personnel 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 a lower number of employees and lower incentives. Intangible
amortization increased due to the First Counties Bank acquisition. Contract
courier expense grew $172 thousand (5.2%), and professional fees increased
$212 thousand (12.8%) primarily in connection with legal costs incurred as a
result of the First Counties Bank acquisition. Merchant credit card
processing grew $119 thousand (8.2%), consistent with the revenue growth
discussed above.
Offsetting these increases, occupancy costs dropped $707 thousand (5.8%).
The primary cause of the decrease was the expiration of a long term lease
commitment. Equipment expense, which consists largely of depreciation
charges, decreased $351 thousand (5.1%) as certain technology assets
purchased in the mid-1990's became fully amortized. Postage costs decreased
$251 thousand (11.1%), as the Company took advantage of more efficient
methods for distributing customer statements and notices. Loan expenses
declined $220 thousand (17.5%). Included in the "Other" category,
operational losses were lower by $278 thousand (23.4%) as 2000 was not
affected by any unusually-large individual losses.
The ratio of average assets per full-time equivalent staff was $3.57 million
in 2001 compared to $3.58 million and $3.49 million in 2000 and 1999,
respectively.
Provision For Income Tax
The income tax provision (FTE) increased by $3.5 million or 6.7% in 2001
primarily as a result of higher pretax income. The 2001 provision of $55.8
million reflects an effective tax rate of 39.8 percent compared to
provision of $52.3 million in 2000, representing an effective tax rate of
39.6 percent.
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,
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%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets as of December 31, 2001 and 2000 34
Consolidated Statements of Income and Comprehensive Income
for the years ended December 31, 2001, 2000 and 1999 35
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 2001, 2000 and 1999 36
Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999 37
Notes to Consolidated Financial Statements 38
Independent Auditors' Report 59
Management's Letter of Financial Responsibility 60
CONSOLIDATED BALANCE SHEETS
(In thousands)
- --------------------------------------------------------------------------------------------
Balances as of December 31, 2001 2000
- --------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents (Note 15) $179,182 $286,482
Money market assets 534 250
Investment securities available for sale (Note 2) 948,970 921,275
Investment securities held to maturity; market values of
$214,866 in 2001 and $231,906 in 2000 (Note 2) 209,169 228,035
Loans, net of an allowance for loan losses of:
$52,086 in 2001 and in $52,279 in 2000 (Notes 3,4 and 14) 2,432,371 2,429,880
Other real estate owned 523 2,065
Premises and equipment, net (Note 5) 39,821 42,182
Interest receivable and other assets (Note 9) 117,397 121,212
- --------------------------------------------------------------------------------------------
Total Assets $3,927,967 $4,031,381
============================================================================================
Liabilities
Deposits:
Noninterest bearing $1,048,458 $1,014,230
Interest bearing:
Transaction 519,324 526,178
Savings 863,523 816,635
Time (Notes 2 and 6) 803,330 879,701
Total deposits 3,234,635 3,236,744
Short-term borrowed funds (Notes 2 and 6) 311,911 386,942
Liability for interest, taxes and
other expenses (Note 9) 39,241 38,912
Debt financing and notes payable (Note 6) 27,821 31,036
- --------------------------------------------------------------------------------------------
Total Liabilities 3,613,608 3,693,634
- --------------------------------------------------------------------------------------------
Shareholders' Equity (Notes 7, 8 and 15)
Common Stock (no par value)
Authorized - 150,000 shares
Issued and outstanding - 34,220 in 2001 and 36,251 in 2000 209,074 206,952
Accumulated other comprehensive income:
Unrealized gain on securities available for sale, net 11,900 7,169
Retained earnings 93,385 123,626
- --------------------------------------------------------------------------------------------
Total Shareholders' Equity 314,359 337,747
- --------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $3,927,967 $4,031,381
============================================================================================
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, 2001 2000 1999
- --------------------------------------------------------------------------------------------
Interest Income
Loans $194,432 $199,866 $186,652
Money market assets and funds sold 24 18 4
Investment securities:
Available for sale
Taxable 36,813 44,860 46,838
Tax-exempt 13,482 11,491 10,744
Held to maturity
Taxable 4,572 5,063 5,313
Tax-exempt 7,733 8,218 8,105
- --------------------------------------------------------------------------------------------
Total Interest Income 257,056 269,516 257,656
- --------------------------------------------------------------------------------------------
Interest Expense
Transaction deposits 2,769 4,203 3,736
Savings deposits 17,127 18,624 19,622
Time deposits (Note 6) 37,692 45,610 37,552
Short-term borrowed funds (Note 6) 9,283 17,668 14,285
Debt financing and notes payable (Note 6) 2,016 2,509 3,261
- --------------------------------------------------------------------------------------------
Total Interest Expense 68,887 88,614 78,456
- --------------------------------------------------------------------------------------------
Net Interest Income 188,169 180,902 179,200
Provision for loan losses (Note 3) 3,600 3,675 4,780
- --------------------------------------------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 184,569 177,227 174,420
- --------------------------------------------------------------------------------------------
Noninterest Income
Service charges on deposit accounts $23,114 21,066 20,316
Merchant credit card 3,993 4,005 3,605
Financial services commissions 1,375 1,634 2,650
Mortgage banking 918 807 777
Trust fees 966 848 697
Other 12,289 12,770 12,129
- --------------------------------------------------------------------------------------------
Total Noninterest Income 42,655 41,130 40,174
- --------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and related benefits (Note 13) $52,890 51,266 50,706
Occupancy (Notes 5 and 11) 11,943 11,447 12,153
Furniture and equipment (Notes 5 and 11) 6,171 6,523 6,874
Data processing 6,034 6,025 5,967
Professional fees 1,626 1,864 1,652
Other real estate owned 166 467 299
Other 23,821 22,606 22,482
- --------------------------------------------------------------------------------------------
Total Noninterest Expense 102,651 100,198 100,133
- --------------------------------------------------------------------------------------------
Income Before Income Taxes 124,573 118,159 114,461
Provision for income taxes (Note 9) 40,294 38,380 38,373
- --------------------------------------------------------------------------------------------
Net Income $84,279 $79,779 $76,088
============================================================================================
Comprehensive Income, net:
Change in unrealized (loss) gain on securities
- --------------------------------------------------------------------------------------------
Comprehensive Income $84,279 $79,779 $76,088
============================================================================================
Average Shares Outstanding 35,213 36,410 38,588
Diluted Average Shares Outstanding 35,748 36,936 39,194
Per Share Data (Note 7)
Basic earnings $2.39 $2.19 $1.97
Diluted earnings 2.36 2.16 1.94
Dividends paid 0.82 0.74 0.66
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
- --------------------------------------------------------------------------------------------
Accumulated
Other
Common Comprehensiv Retained
Stock Income Earnings Total
- --------------------------------------------------------------------------------------------
December 31, 1998 $195,156 $20,184 $153,256 $368,596
Net income for the year 1999 76,088 76,088
Exercises of stock options, including
tax benefits 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 2000 79,779 79,779
Stock issued in connection with
purchase of First Counties Bank 19,723 19,723
Exercises of stock options, including
tax benefits 11,396 11,396
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
Net income for the year 2001 84,279 84,279
Exercises of stock options, including
tax benefits 17,987 17,987
Purchase and retirement of stock (15,865) (85,448) (101,313)
Dividends (29,072) (29,072)
Unrealized gain on securities
available for sale, net 4,731 4,731
- --------------------------------------------------------------------------------------------
December 31, 2001 $209,074 $11,900 $93,385 $314,359
============================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- -------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $84,279 $79,779 $76,088
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets 4,899 4,832 5,381
Amortization of intangibles and other assets 3,343 3,125 2,853
Loan loss provision 3,600 3,675 4,780
Amortization of deferred net loan fees 1,330 461 1,299
Decrease (increase) in interest income receivable 6,304 (4,930) (1,212)
(Increase) decrease in other assets (5,028) (1,358) 952
Increase (decrease) in income taxes payable 4,210 3,333 (747)
(Decrease) increase in interest expense payable (5,072) 1,847 626
Increase in other liabilities 1,743 2,584 6,803
Net (gain) loss on sales/write-down of fixed assets (330) 35 10
Originations of loans for resale (5,329) (1,986) (18,250)
Net proceeds from sale of loans originated for resale 4,848 1,986 17,533
Net gain on sale of property acquired in satisfaction of debt (156) (695) (322)
Write-downs of other real estate owned 78 442 88
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 98,719 93,130 95,882
- -------------------------------------------------------------------------------------------------------------------
Investing Activities
Net cash obtained in mergers and acquisitions -- 3,034 --
Net disbursements of loans (7,245) (97,610) (29,693)
Purchases of money market assets (284) -- --
Purchases of investment securities available for sale (447,295) (57,329) (387,095)
Purchases of investment securities held to maturity (3,861) (3,170) (32,882)
Purchases of property, plant and equipment (4,060) (2,570) (3,519)
Proceeds from maturity of securities available for sale 427,114 152,120 348,986
Proceeds from maturity of securities held to maturity 22,727 12,291 22,722
Proceeds from sale of securities available for sale 651 1,357 803
Proceeds from sale of property and equipment 1,147 20 46
Proceeds from sale of other real estate owned 1,941 3,604 2,932
- -------------------------------------------------------------------------------------------------------------------
Net Cash (Used In) Provided By Investing Activities (9,165) 11,747 (77,700)
- -------------------------------------------------------------------------------------------------------------------
Financing Activities
Net (decrease) increase in deposits (1,406) 91,149 (123,661)
Net (decrease) increase in short-term borrowings (75,031) (75,803) 258,674
Repayments of notes payable and debt financing (3,215) (10,464) (6,000)
Exercise of stock options/issuance of shares 13,183 6,418 4,617
Retirement of common stock including repurchases (101,313) (58,440) (100,227)
Dividends paid (29,072) (26,993) (25,581)
- -------------------------------------------------------------------------------------------------------------------
Net Cash (Used In) Provided By Financing Activities (196,854) (74,133) 7,822
- -------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase In Cash and Cash Equivalents (107,300) 30,744 26,004
Cash and Cash Equivalents at Beginning of Year 286,482 255,738 229,734
- -------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $179,182 $286,482 $255,738
===================================================================================================================
Supplemental Disclosures:
Supplemental disclosure of noncash activities:
Loans transferred to other real estate owned $321 $1,996 $1,652
Unrealized gain (loss) on securities available for sale, net 4,731 11,690 (24,704)
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 64,475 86,359 77,831
Income tax payments for the period 37,488 35,603 39,092
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. Significant
intercompany transactions have been eliminated in consolidation. The Company
does not maintain or conduct transactions with any unconsolidated special
purpose entities.
Business Combinations. In a business combination 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 and goodwill is recorded as the excess of the purchase price
over the value of the net assets (including identifiable intangibles such as
core deposits) acquired. See "Intangible Assets" below.
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 nonaccrual
status. Uncollected accrued interest is reversed against interest income, and
interest is subsequently recognized only as received until the loan is
returned to accrual status. Interest accruals are resumed when such loans are
brought fully current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully collectible as to
both interest and principal. Nonrefundable 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. Income recognition on impaired loans conforms to that used on
nonaccrual loans.
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 any
decline in annual independent property appraisals are recognized as
noninterest expense. Routine holding costs, such as property taxes,
insurance, maintenance and losses from sales and dispositions, are recognized
as noninterest 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) are
comprised of core deposit intangibles and goodwill acquired in business
combinations. Core deposit intangibles of $2.7 million at December 31, 2001
and $4.0 million at December 31, 2000 are amortized over the estimated lives
of the existing deposit bases. Amortization of core deposit intangibles was
$1.4 million in 2001, $1.2 million in 2000 and $1.1 million in 1999. Goodwill
of $16.3 million in 2001 and $17.7 million in 2000 is amortized on a
straight-line basis over an average of 18 years. Amortization of goodwill was
$1.2 million in 2001, $1.0 million in 2000 and $900 thousand in 1999. Goodwill
is included in Interest Receivable and Other Assets in the Consolidated
Balance Sheets. In July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement No. 141, Business Combinations, and Statement No. 142,
Goodwill and Other Intangible Assets. Statement 141 requires that the purchase
method of accounting be used for all business combinations initiated after
June 30, 2001 and specifies criteria that intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill. Statement 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized after 2001, but
instead be periodically evaluated for impairment. Intangible assets with
definite useful lives are required to be amortized over their respective
estimated useful lives to their estimated residual values, and also reviewed
for impairment. The Company was required to adopt the provisions of Statement
141 immediately and Statement 142 effective January 1, 2002. Accordingly, any
goodwill and any intangible asset determined to have an indefinite useful life
that are acquired in a purchase business combination will not be amortized,
but will continue to be evaluated for impairment in accordance with the
appropriate accounting literature. The Company will also be required to
reassess the useful lives and residual values of all such intangible assets
and make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible asset
is identified as having an indefinite useful life, the Company will be
required to test the intangible asset for impairment within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period. The Company does not expect to have any transitional
impairment losses to be recognized as a cumulative effect of a change in
accounting principle.
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 FASB issued
Statement 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 so 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.
Stock Options. The Company accounts for its stock option plans in accordance
with the provisions of Accounting Principle Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price.
Other. Securities and other property held by the Bank 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, 2001, follows:
- --------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- --------------------------------------------------------------------------------
(In thousands)
U.S. Treasury securities $131,497 $3,589 $0 $135,086
Securities of U.S. Government
agencies and corporations 207,436 6,182 (164) 213,454
Obligations of States and
political subdivisions 298,339 6,335 (1,626) 303,048
Asset-backed securities 33,147 147 (11) 33,283
Other securities 257,140 8,660 (1,701) 264,099
- --------------------------------------------------------------------------------
Total $927,559 $24,913 ($3,502) $948,970
================================================================================
An analysis of the held to maturity investment securities portfolio
as of December 31, 2001, follows:
- --------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- --------------------------------------------------------------------------------
(In thousands)
Securities of U.S. Government
agencies and corporations $55,320 $281 ($203) $55,398
Obligations of States and
political subdivisions 141,712 5,756 (137) 147,331
Other securities 12,137 -- -- 12,137
- --------------------------------------------------------------------------------
Total $209,169 $6,037 ($340) $214,866
================================================================================
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
================================================================================
The amortized cost and estimated market value of securities at
December 31, 2001, 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 $236,448 $240,742 $5,062 $5,134
1 to 5 years 341,532 349,798 54,277 56,328
5 to 10 years 149,518 153,658 61,328 64,209
Over 10 years 154,377 154,301 21,045 21,660
- --------------------------------------------------------------------------------
Subtotal 881,875 898,499 141,712 147,331
Mortgage-backed 8,325 9,178 55,320 55,398
Other securities 37,359 41,293 12,137 12,137
- --------------------------------------------------------------------------------
Total $927,559 $948,970 $209,169 $214,866
================================================================================
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
- --------------------------------------------------------------------------------
Subtotal 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, 2001 and 2000,
the Company had no high-risk collateralized mortgage
obligations.
As of December 31, 2001, $737.1 million of investment securities
were pledged to secure public deposits and short-term funding
needs, compared to $742.9 million in 2000.
Note 3: Loans and Allowance for Loan Losses
Loans at December 31 consisted of the following:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
(In thousands)
Commercial $592,547 $607,158
Real estate-commercial 984,176 955,304
Real estate-construction 69,658 64,195
Real estate-residential 347,114 355,488
- --------------------------------------------------------------------------------
Total real estate loans 1,400,948 1,374,987
Installment and personal 491,793 502,367
Unearned income (831) (2,353)
- --------------------------------------------------------------------------------
Gross loans 2,484,457 2,482,159
Allowance for loan losses (52,086) (52,279)
- --------------------------------------------------------------------------------
Net loans $2,432,371 $2,429,880
================================================================================
Loans originated for resale of $496 thousand and $1.4 million are included in
real estate-residential at December 31, 2001 and 2000, respectively. The cost
of the loans approximates market value.
The following summarizes the allowance for loan losses of the
Company for the periods indicated:
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
(In thousands)
Balance at January 1, $52,279 $51,574 $51,304
Provision for loan losses 3,600 3,675 4,780
Loans charged off (7,453) (7,982) (7,937)
Recoveries of loans
previously charged off 3,660 3,976 3,427
Acquisition -- 1,036 --
- --------------------------------------------------------------------------------
Balance at December 31, $52,086 $52,279 $51,574
================================================================================
At December 31, 2001, the recorded investment in loans for which impairment
was recognized totaled $11.9 million compared to $11.7 million at December 31,
2000. The specific reserves at December 31, 2001 and 2000 were $1.0 million
and $1.8 million, respectively. Portions of the allowance for loan losses were
allocated to each of these loans. For the year ended December 31, 2001, the
average recorded net investment in impaired loans was approximately $11.8
million compared to $12.5 million and $15.5 million, respectively, for the
years ended December 31, 2000 and 1999. In general, the Company does not
recognize any interest income on troubled debt restructurings or on 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.
Nonaccrual loans at December 31, 2001 and 2000 were $8.1 million and $8.0
million, respectively. The following is a summary of the effect of
nonaccrual loans on interest income for the years ended December 31:
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
(In thousands)
Interest income that would have been
recognized had the loans performed
in accordance with their original terms $673 $859 $751
Less: Interest income recognized on
nonaccrual loans (632) (653) (473)
- --------------------------------------------------------------------------------
Total effect on interest income $41 $206 $278
================================================================================
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, 2001 and 2000.
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 $67.1 million and $66.1 million at December
31, 2001 and 2000, 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)
2001
Land $9,750 $ - $9,750
Buildings and improvements 33,596 (11,422) 22,174
Leasehold improvements 5,273 (2,907) 2,366
Furniture and equipment 13,075 (7,544) 5,531
- --------------------------------------------------------------------------------
Total $61,694 ($21,873) $39,821
================================================================================
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
================================================================================
Depreciation and amortization included in operating expenses amounted to
$4.9 million in 2001, $4.8 million in 2000, and $5.4 million in 1999.
Note 6: Borrowed Funds
Debt financing and notes payable, including the unsecured obligations of the
Company, as of December 31, 2001 and 2000, were as follows:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
(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. $11,750 $11,750
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. 16,071 19,286
- --------------------------------------------------------------------------------
Total debt financing and notes payable $27,821 $31,036
================================================================================
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 has either obtained
waivers or is currently in compliance with all of the covenants in the senior
notes indenture.
At December 31, 2001, the Company had a line of credit amounting to $20.0
million, under which outstanding advances at that date totaled $3.65 million.
Average outstanding advances during 2001 were $368 thousand. Unused lines of
credit were at December 31, 2000 were $2.5 million. Compensating balance
arrangements are not significant to the operations of the Company.
At December 31, 2001 and 2000, the Bank had $444.2 million and $482.6
million, respectively, in time deposit accounts in excess of $100 thousand.
Interest on these time deposit accounts in 2001, 2000 and 1999 was $20.8
million, $25.8 million and $19.4 million, respectively.
Funds purchased include federal funds, business customers' sweep accounts,
Federal Home Loan Bank (FHLB) advances, outstanding amounts under lines of
credit, and securities sold with repurchase agreements. Federal funds
purchased were $62.7 million and $183.5 million, respectively, at December 31,
2001 and 2000. Sweep accounts totaled $201.4 million and $167.6 million at
December 31, 2001 and 2000, respectively. FHLB advances were $40.0 million
and outstanding amounts under lines of credit were $3.65 million at December 31,
2001, and both were $0 in 2000. Securities sold with repurchase agreements
were $4.2 million at December 31, 2001 and $35.8 million at December 31, 2000.
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
the 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, 2001, 2000, and 1999, approximately 1.4 million,
1.0 million and 1.1 million shares, respectively, were available 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.
Separate stock option plans maintained by acquired companies were terminated
following the effective dates of the mergers. All outstanding options were
substituted for the Company's options, adjusted for the exchange ratios as
defined in the merger agreements.
Stock Options. A summary of the status of the Company's stock options as of
December 31, 2001, 2000 and 1999, and changes during the years ended on those
dates, follows:
- --------------------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of shares Price of shares Price
- --------------------------------------------------------------------------------------------
Outstanding at beginning of year 2,914,131 $24 2,620,708 $22
Granted 562,850 39 896,404 24
Acquisitions converted -- - 53,925 12
Exercised (607,872) 20 (445,926) 12
Forfeited (198,565) 32 (210,980) 29
- --------------------------------------------------------------------------------------------
Outstanding at end of year 2,670,544 $27 2,914,131 $24
- --------------------------------------------------------------------------------------------
Options exercisable at end of year 1,575,612 $24 1,565,001 $20
============================================================================================
- -------------------------------------------------------------------
1999
- -------------------------------------------------------------------
Weighted
Average
Number Exercise
of shares Price
- -------------------------------------------------------------------
Outstanding at beginning of year 2,289,694 $18
Granted 662,080 35
Acquisitions converted -- -
Exercised (258,844) 11
Forfeited (72,222) 32
- -------------------------------------------------------------------
Outstanding at end of year 2,620,708 $22
- -------------------------------------------------------------------
Options exercisable at end of year 1,479,438 $15
===================================================================
The following table summarizes information about options outstanding at
December 31, 2001 and 2000:
- --------------------------------------------------------------------------------
2001 Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
OutstandingContractual Exercise Exercisable Exercise
at 12/31/20Life (yrs) Price at 12/31/200 Price
- --------------------------------------------------------------------------------
$3 - 9 31,452 2.1 $8 31,452 $8
9 - 10 105,845 3.1 9 105,845 9
10 - 15 131,560 4.3 11 131,560 11
15 - 19 189,405 5.1 15 189,405 15
19 - 20 228,960 6.1 19 228,960 19
20 - 24 660,372 9.1 24 189,570 24
32 - 33 401,700 7.1 33 401,700 33
33 - 35 457,840 8.1 35 297,120 35
35 - 40 463,410 10.0 39 0 n/a
- --------------------------------------------------------------------------------
$3 - 40 2,670,544 7.7 $27 1,575,612 $24
================================================================================
- --------------------------------------------------------------------------------
2000 Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
OutstandingContractual Exercise Exercisable Exercise
at 12/31/20Life (yrs) Price at 12/31/200 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 - 35 2,914,131 6.8 $24 1,565,001 $20
================================================================================
Restricted Performance Shares. A summary of the status of the Company's RPSs
as of December 31, 2001, 2000, and 1999, and changes during the years ended
on those dates, follows:
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Outstanding at beginning of year 73,760 74,100 118,620
Granted 24,540 37,440 28,590
Exercised (22,373) (29,643) (46,350)
Forfeited (14,457) (8,137) (26,760)
- --------------------------------------------------------------------------------
Outstanding at end of year 61,470 73,760 74,100
================================================================================
As of December 31, 2001, 2000, and 1999, the RPSs had a weighted-average
contractual life of 1.3, 1.4, and 1.2 years, respectively. The Company expects
that substantially all of the RPSs outstanding at December 31, 2001 will
eventually vest based on projected performance. The compensation cost that has
been charged against income for the Company's RPSs granted was $1.4 million,
$1.8 million, and $1.3 million for 2001, 2000, and 1999, respectively. There
were no stock appreciation rights or incentive stock options granted in 2001,
2000, and 1999.
No compensation cost has been recognized for stock options. However, 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 2001, 2000,
and 1999:
- -------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------
Expected dividend yield 2.58% 1.41% 1.89%
Expected volatility 20% 33% 37%
Risk-free interest rate 5.23% 6.60% 4.57%
Expected lives 7.0 years 6.0 years 6.0 years
===================================================================
The weighted-average fair values of non-qualified stock options granted during
2001, 2000, and 1999, were $8.58, $10.36, and $10.68 per share, respectively.
Had compensation cost for the Company's 1995 Plan 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:
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
(In thousands, except per share data)
Net income
As reported $84,279 $79,779 $76,088
Pro forma 80,183 75,639 73,274
Weighted average shares (basic) 35,213 36,410 38,588
Weighted average shares (diluted) 35,748 36,936 39,194
Earnings per share
As reported (basic) $2.39 $2.19 $1.97
As reported (diluted) 2.36 2.16 1.94
Pro forma (basic) 2.28 2.08 1.90
Pro forma (diluted) 2.24 2.05 1.87
================================================================================
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:
- --------------------------------------------------------------------------------
2001
- --------------------------------------------------------------------------------
Net Number Per Share
Income of Shares Amount
- --------------------------------------------------------------------------------
(In thousands, except per share data)
Basic EPS:
Income available to
common shareholders $84,279 35,213 $2.39
Effect of dilutive securities:
Stock options outstanding -- 535 --
- --------------------------------------------------------------------------------
Diluted EPS:
Income available to common
shareholders plus assumed
conversions $84,279 35,748 $2.36
================================================================================
- --------------------------------------------------------------------------------
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
================================================================================
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, 2001, 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 Bank 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 Bank 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, 2001, the Company and the Bank met all capital adequacy
requirements to which they are subject.
The most recent notification from the Federal Reserve Board categorized the
Company and the Bank 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 Bank.
The following table shows capital ratios for the Company and the Bank as of
December 31, 2001 and 2000:
- -------------------------------------------------------------------------------------------------------------------
To Be Well
Capitalized Under
the FDICIA
For Capital Prompt Corrective
2001 Actual Adequacy Purposes Action Provisions
- -------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Total Capital (to risk-weighted assets)
Consolidated Company $324,230 10.63% $244,063 8.00% $305,079 10.00%
Westamerica Bank 316,897 10.49% 241,566 8.00% 301,958 10.00%
Tier 1 Capital (to risk-weighted assets)
Consolidated Company 283,438 9.29% 122,032 4.00% 183,047 6.00%
Westamerica Bank 270,493 8.96% 120,783 4.00% 181,175 6.00%
Leverage Ratio *
Consolidated Company 283,438 7.30% 155,372 4.00% 194,215 5.00%
Westamerica Bank 270,493 7.02% 154,235 4.00% 192,794 5.00%
===================================================================================================================
- -------------------------------------------------------------------------------------------------------------------
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%
===================================================================================================================
* The leverage ratio consists of Tier 1 capital divided by quarterly average
assets. The minimum leverage ratio guideline is 3.00 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.
Accordingly, variances from amounts previously reported are primarily as a
result of adjustments to conform to tax returns as filed.
The components of the net deferred tax asset as of December 31 are as follows:
- -------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------
(In thousands)
Deferred tax asset
Allowance for loan losses $21,451 $21,369
State franchise taxes 4,217 4,125
Securities available for sale 0 0
Deferred compensation 4,721 3,993
Real estate owned 137 689
Interest on nonaccrual loans 421 353
Other reserves 538 631
Other 2,147 1,958
- -------------------------------------------------------------------
Subtotal deferred tax asset 33,632 33,118
Valuation allowance -- --
- -------------------------------------------------------------------
Total deferred tax asset 33,632 33,118
- -------------------------------------------------------------------
Deferred tax liability
Net deferred loan costs 1,062 1,913
Fixed assets 1,991 1,942
Intangible assets 401 775
Securities available for sale 7,223 5,721
Leases 1,315 1,299
Other 242 245
- -------------------------------------------------------------------
Total deferred tax liability 12,234 11,895
- -------------------------------------------------------------------
Net deferred tax asset $21,398 $21,223
===================================================================
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.
Net deferred tax assets are included with Interest Receivable and Other Assets
in the Consolidated Balance Sheets.
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:
- -------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------
(In thousands)
Current income tax expense:
Federal $28,678 $28,311 $27,132
State 13,293 13,022 12,406
- -------------------------------------------------------------------
Total current 41,971 41,333 39,538
- -------------------------------------------------------------------
Deferred income tax (benefit) expense:
Federal (1,087) (2,164) (819)
State (590) (789) (346)
- -------------------------------------------------------------------
Total deferred (1,677) (2,953) (1,165)
- -------------------------------------------------------------------
Provision for income taxes $40,294 $38,380 $38,373
===================================================================
The provision for income taxes differs from the provision computed by
applying the statutory federal income tax rate to income before taxes, as
follows:
- -------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------
Federal income taxes due at
statutory rate $43,601 $41,356 $40,061
(Reductions) increases in income
taxes resulting from:
Interest on state and municipal
securities not taxable for federal
income tax purposes (9,818) (8,980) (8,477)
State franchise taxes, net of
federal income tax benefit 8,257 7,953 7,839
Costs related to acquisitions -- 35 --
Other (1,746) (1,984) (1,050)
- -------------------------------------------------------------------
Provision for income taxes $40,294 $38,380 $38,373
===================================================================
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:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
(In thousands)
Cash and cash equivalents $179,182 $286,482
Money market assets 534 250
Interest and taxes receivable 58,758 63,826
Noninterest bearing and interest-bearing
transaction and savings deposits 2,431,305 2,357,043
Short-term borrowed funds 311,911 386,942
Interest payable 4,778 9,850
================================================================================
The fair values at December 31 of the following financial instruments were
estimated using quoted market prices:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
(In thousands)
Investment securities available for sale $948,970 $921,275
Investment securities held to maturity 214,866 231,906
================================================================================
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 $52.1 million allowance for loan losses in 2001 and $52.3
million in 2000 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:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
(In thousands)
Loans $2,460,977 $2,408,158
================================================================================
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:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
(In thousands)
Time deposits $805,420 $878,381
Debt financing and notes payable 27,822 31,036
================================================================================
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-one banking offices and a centralized administrative service center
are owned and sixty-nine facilities 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, 2001,
are as follows:
- -------------------------------------------------------------------
(In thousands)
2002 $4,317
2003 3,840
2004 2,838
2005 1,560
2006 1,300
Thereafter 2,721
- -------------------------------------------------------------------
Total minimum lease payments $16,576
===================================================================
Total rentals for premises and equipment, net of sublease income, included in
noninterest expense were $4.4 million in 2001, $4.4 million in 2000 and $5.4
million in 1999.
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 $412.4
million and $441.6 million at December 31, 2001 and 2000, 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 $22.9
million and $12.5 million at December 31, 2001 and 2000, 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 noninterest expense related to benefits
provided by the Deferred Profit-Sharing Plan were $1.5 million in 2001, $1.5
million in 2000 and $1.8 million in 1999.
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 $1.5 million in 2001,$1.3 million in 2000 and
$1.7 million in 1999.
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:
- -------------------------------------------------------------------
2001 2000
===================================================================
(In thousands)
Periodic cost:
Service cost (benefit) $261 ($95)
Interest cost 155 158
Amortization of unrecognized
transition obligation 61 61
- -------------------------------------------------------------------
Net periodic cost $477 $124
===================================================================
Change in benefit obligation:
Benefit obligation, beginning of year 2,675 2,720
Service cost (benefit) 261 (95)
Interest cost 155 158
Benefits paid (124) (108)
- -------------------------------------------------------------------
Benefit obligation, end of year $2,967 $2,675
===================================================================
Accumulated post-retirement benefit obligation
attributable to:
Retirees $2,070 $1,609
Fully eligible participants 700 768
Other 197 298
- -------------------------------------------------------------------
Total 2,967 2,675
- -------------------------------------------------------------------
Fair value of plan assets -- --
- -------------------------------------------------------------------
Accumulated post-retirement benefit obligation
in excess of plan assets $2,967 $2,675
===================================================================
Comprised of:
Unrecognized transition obligation $979 $1,040
Recognized post-retirement obligation 1,988 1,635
- -------------------------------------------------------------------
Total $2,967 $2,675
===================================================================
The discount rate used in measuring the accumulated post-retirement benefit
obligation was 5.8 percent at December 31, 2001 and 2000. The assumed annual
average rate of inflation used to measure the expected cost of benefits
covered by the plan was 4.0 percent for 2002 and beyond.
Assumed benefit inflation rates have a significant effect on the amounts
reported for health care plans. A one percentage point change in the assumed
benefit inflation rate would have the following effect on 2001 results:
- -------------------------------------------------------------------
One One
Percentage Percentage
Point Point
Increase Decrease
- -------------------------------------------------------------------
(In thousands)
Effect on total of service and
interest cost components $137 ($114)
Effect on post-retirement benefit
obligation 424 (348)
===================================================================
Note 14: Related Party Transactions
Certain directors and executive officers of the Company and/or its
subsidiaries were loan customers of the Bank during 2001 and 2000. 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 2001
and 2000:
- -------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------
(In thousands)
Beginning balance $2,833 $3,026
Originations 279 7
Payoffs/principal payments (955) (200)
Other changes * (135) --
- -------------------------------------------------------------------
At December 31, $2,022 $2,833
===================================================================
Percent of total loans outstanding 0.08% 0.11%
* Other changes in 2001 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 Bank 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 $80.8 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,
2001, $158.5 million was available for payment of dividends by the Company to
its shareholders. The Bank is required to maintain reserves with the
Federal Reserve Bank equal to a percentage of its reservable deposits. The
Bank's daily average on deposit at the Federal Reserve Bank was $4.2 million
in 2001 and $30.5 million in 2000.
Note 16: Westamerica Bancorporation (Parent Company Only)
Statements of Income and Comprehensive Income
- --------------------------------------------------------------------------------------------
For the years ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------------------
(In thousands)
Dividends from subsidiaries $88,155 $80,768 $129,003
Interest income 611 1,349 1,545
Other income 7,179 6,203 6,849
- --------------------------------------------------------------------------------------------
Total income 95,945 88,320 137,397
- --------------------------------------------------------------------------------------------
Interest on borrowings 1,186 1,397 1,613
Salaries and benefits 6,262 6,508 5,714
Other expense 2,185 2,144 2,388
- --------------------------------------------------------------------------------------------
Total expenses 9,633 10,049 9,715
- --------------------------------------------------------------------------------------------
Income before taxes and equity in
undistributed income of subsidiaries 86,312 78,271 127,682
Income tax benefit 1,656 1,693 1,346
Dividends from subsidiaries in
excess of subsidiary earnings (3,689) (185) (52,940)
- --------------------------------------------------------------------------------------------
Net income $84,279 $79,779 $76,088
============================================================================================
Comprehensive income, net:
Change in unrealized gains on securities
available for sale, net 4,731 11,690 (24,705)
- --------------------------------------------------------------------------------------------
Comprehensive income $89,010 $91,469 $51,383
============================================================================================
Balance Sheets
- --------------------------------------------------------------------------------
December 31, 2001 2000
- --------------------------------------------------------------------------------
(In thousands)
Assets
Cash and cash equivalents $897 $26,391
Money market assets and investment
securities available for sale 7,934 9,226
Line of credit from subsidiaries 0 0
Investment in subsidiaries 309,485 307,072
Premises and equipment, net 14,320 15,229
Accounts receivable from subsidiaries 611 374
Other assets 8,069 7,306
- --------------------------------------------------------------------------------
Total assets $341,316 $365,598
================================================================================
Liabilities
Notes payable $19,706 $19,286
Other liabilities 7,251 8,565
- --------------------------------------------------------------------------------
Total liabilities 26,957 27,851
Shareholders' equity 314,359 337,747
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $341,316 $365,598
================================================================================
Statements of Cash Flows
- --------------------------------------------------------------------------------------------
For the years ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------------------
(In thousands)
Operating Activities
Net income $84,279 $79,779 $76,088
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 671 704 800
(Increase) decrease in accounts
receivable from affiliates (237) 175 (209)
(Increase) decrease in other assets (812) (1,265) 67
Provision for deferred income tax 4,745 5,168 2,071
(Decrease) increase in other liabilities (213) 3,143 (44)
Gain on sales of assets (1,879) (2,821) (3,203)
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 86,554 84,883 75,570
Investing Activities
Purchases of premises and equipment 240 51 (193)
Net decrease in short term investments (763) -- --
Net change in loan balances -- 2,046 850
Investment in subsidiaries -- (250) --
Purchase of investment securities available for sal (963) 184 --
Proceeds from sale of other assets 2,530 3,994 4,006
- --------------------------------------------------------------------------------------------
Net cash provided by investing activities 1,044 6,025 4,663
Financing Activities
Net increases (reductions) in notes payable and
other borrowings 420 (3,216) --
Dividends from subsidiaries in
excess of subsidiary earnings 3,689 185 52,940
Exercise of stock options/issuance of shares 13,183 6,418 4,617
Retirement of common stock including repurchases (101,313) (58,440) (100,227)
Dividends (29,071) (26,993) (25,581)
- --------------------------------------------------------------------------------------------
Net cash used in financing activities (113,092) (82,046) (68,251)
- --------------------------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (25,494) 8,862 11,982
Cash and cash equivalents at beginning of year 26,391 17,529 5,547
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $897 $26,391 $17,529
============================================================================================
Supplemental disclosure:
Unrealized gain (loss) on securities
available for sale, net $4,731 $11,690 ($24,705)
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)
2001
Interest income $70,756 $68,765 $67,643 $65,410
Net interest income 49,259 50,269 51,778 52,381
Provision for loan losses 900 900 900 900
Noninterest income 10,286 10,994 10,590 10,785
Noninterest expense 25,577 25,626 25,763 25,684
Income before taxes 33,068 34,737 35,705 36,582
Net income 20,424 20,758 21,325 21,772
Basic earnings per share 0.57 0.59 0.61 0.63
Diluted earnings per share 0.56 0.58 0.60 0.62
Dividends paid per share 0.19 0.21 0.21 0.21
Price range, common stock 33.94-43.0035.83-39.25 33.94-41.40 32.77-40.40
- --------------------------------------------------------------------------------------------
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
Noninterest income 9,955 10,467 10,757 9,951
Noninterest 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 21.00-27.7524.38-30.06 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
Noninterest income 9,147 9,640 9,941 11,446
Noninterest expense 24,973 24,728 24,758 25,674
Income before taxes 27,663 28,367 29,090 29,341
Net income 18,405 18,869 19,288 19,526
Basic earnings per share 0.47 0.48 0.50 0.52
Diluted earnings per share 0.46 0.47 0.50 0.51
Dividends paid per share 0.16 0.16 0.16 0.18
Price range, common stock 31.63-37.5030.00-37.13 28.94-36.50 26.63-35.13
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Westamerica
Bancorporation:
We have audited the accompanying consolidated balance sheets of
Westamerica Bancorporation and subsidiaries ("the Company") as of
December 31, 2001 and 2000, 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, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with 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 the
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Westamerica Bancorporation and subsidiaries as of December 31, 2001
and 2000, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2001 in
conformity with accounting principles generally accepted in the
United States of America.
/s/KPMG LLP
- -----------
KPMG LLP
San Francisco, California
January 22, 2002
MANAGEMENT'S LETTER OF FINANCIAL RESPONSIBILITY
To Our Shareholders:
The Management of Westamerica Bancorporation is responsible for the
preparation, integrity, reliability and consistency of the information
contained in this annual report. The consolidated financial
statements, which necessarily include amounts based on judgments and
estimates, were prepared in conformity with generally accepted
accounting principles and prevailing practices in the banking
industry. All other financial information appearing throughout this
annual report is presented in a manner consistent with the
consolidated financial statements.
Management has established and maintains a system of internal controls
that provides reasonable assurance that the underlying financial
records are reliable for preparing the consolidated financial
statements, and that assets are safeguarded from unauthorized use or
loss. This system includes extensive written policies and operating
procedures and a comprehensive internal audit function, and is
supported by the careful selection and training of staff, an
organizational structure providing for division of responsibility, and
a Code of Ethics covering standards of personal and business conduct.
Management believes that, as of December 31, 2001, the Corporation's
internal control environment is adequate to provide reasonable
assurance as to the integrity and reliability of the consolidated
financial statements and related financial information contained in
the annual report. However, there are limits inherent in all systems
of internal accounting control and Management recognizes that errors
or irregularities may occur. Based on the recognition that the costs of
such systems should not exceed the benefits to be derived, Management
believes the Company's system provides an appropriate cost/benefit
balance.
The system of internal controls is under the general oversight of the
Board of Directors acting through its Audit Committee, which is
comprised entirely of outside directors. The Audit Committee monitors
the effectiveness of and compliance with internal controls through a
continuous program of internal audit. This is accomplished through
periodic meetings with Management, internal auditors 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.
David L. Payne
Chairman, President and Chief Executive Officer
Jennifer J. Finger
Senior Vice President and Chief Financial Officer
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 15, 2002, 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 J. 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.
Dennis R. Hansen Mr. Hansen, born in 1950, is Senior 1978
Vice President and Controller for the
Corporation.
Frank R. Zbacnik Mr. Zbacnik, born in 1947, is Senior Vice 2001
President and Chief Credit
Administrator of Westamerica Bank.
Mr. Zbacnik joined Westamerica Bank in 1984.
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 15, 2002, 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 15, 2002, 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 15, 2002, 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.
2(c) Agreement and Plan of Reorganization, dated
February 25, 2002, among Westamerica Bancorporation,
Westamerica Bank and Kerman State Bank, incorporated
herein by reference to Exhibit 2 of Registrant's Form 8-K
filed with the Securities and Exchange Commission on
March 8, 2002.
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), incorporated
herein by reference to Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 filed with the
Securities and Exchange Commission on March 30, 2001.
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
and 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 1200,
Suisun City, California 94585, and payment to the
Company of $.25 per page.
(b) 1. Report on Form 8-K
None.
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: February 28, 2002
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 and Director February 28, 2002
- ------------------------------ President and Chief Executive Officer
David L. Payne
/s/ E. Joseph Bowler Senior Vice President and Treasurer February 28, 2002
- ------------------------------
E. Joseph Bowler
/s/ Etta Allen Director February 28, 2002
- ------------------------------
Etta Allen
/s/ Louis E. Bartolini Director February 28, 2002
- ------------------------------
Louis E. Bartolini
/s/ Don Emerson Director February 28, 2002
- ------------------------------
Don Emerson
/s/ Louis H. Herwaldt Director February 28, 2002
- ------------------------------
Louis H. Herwaldt
/s/ Arthur C. Latno Director February 28, 2002
- ------------------------------
Arthur C. Latno
/s/ Patrick D. Lynch Director February 28, 2002
- ------------------------------
Patrick D. Lynch
/s/ Catherine Cope MacMillan Director February 28, 2002
- ------------------------------
Catherine Cope MacMillan
/s/ Patrick J. Mon Pere Director February 28, 2002
- ------------------------------
Patrick J. Mon Pere
/s/ Ronald A. Nelson Director February 28, 2002
- ------------------------------
Ronald A. Nelson
/s/ Carl Otto Director February 28, 2002
- ------------------------------
Carl Otto
/s/ Michael J. Ryan, Jr. Director February 28, 2002
- ------------------------------
Michael J. Ryan, Jr.
/s/ Edward B. Sylvester Director February 28, 2002
- ------------------------------
Edward B. Sylvester
Exhibit 11
WESTAMERICA BANCORPORATION
Computation of Earnings Per Share on Common and
Common Equivalent Shares and on Common Shares
Assuming Full Dilution
- ----------------------------------------------------------------------------------------
(In thousands, except per share data) 2001 2000 1999
- ----------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding - basic 35,213 36,410 38,588
Add exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 535 526 606
- ----------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding - diluted 35,748 36,936 39,194
========================================================================================
Net income $84,279 $79,779 $76,088
Basic earnings per share $2.39 $2.19 $1.97
Diluted earnings per share 2.36 2.16 1.94
========================================================================================
Exhibit 21
WESTAMERICA BANCORPORATION
Subsidiaries as of December 31, 2001
State of
Incorporation
-------------
Westamerica Bank California
Westamerica Mortgage Company - a subsidiary of Westamerica Bank California
Community Banker Services Corporation California
Weststar Mortgage Corporation - a subsidiary of
Community Banker Services Corporation California
The Money Outlet, Inc. California
Westamerica Commercial Credit, Inc. California
Exhibit 23(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Westamerica Bancorporation:
We consent to incorporation by reference in the registration statement (No.
33-60003) on Form S-8 of Westamerica Bancorporation and subsidiaries of our
report dated January 22, 2002, with respect to the consolidated balance sheets
of Westamerica Bancorporation and subsidiaries as of December 31, 2001 and 2000,
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, 2001, which report appears in the
December 31, 2001 annual report on Form 10-K of Westamerica Bancorporation.
/s/ KPMG LLP
- ------------
KPMG LLP
San Francisco, California
March 15, 2002