WESTAMERICA BANCORPORATION - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - WESTAMERICA BANCORPORATION	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - WESTAMERICA BANCORPORATION	exh_312.htm
EX-31.1 - EXHIBIT 31.1 - WESTAMERICA BANCORPORATION	exh_311.htm
EX-32.1 - EXHIBIT 32.1 - WESTAMERICA BANCORPORATION	exh_321.htm
EX-32.2 - EXHIBIT 32.2 - WESTAMERICA BANCORPORATION	exh_322.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission file number: 001-09383

WESTAMERICA BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

CALIFORNIA	94-2156203
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901

(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code (707) 863-6000

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:

Title of Class	Shares outstanding as of July 23, 2014

Common Stock, No Par Value	26,009,414

TABLE OF CONTENTS

		Page
Forward Looking Statements		3
PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	4
	Notes to Unaudited Consolidated Financial Statements	9
	Financial Summary	29
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4	Controls and Procedures	52
PART II - OTHER INFORMATION
Item 1	Legal Proceedings	52
Item 1A	Risk Factors	53
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3	Defaults upon Senior Securities	53
Item 4	Mine Safety Disclosures	53
Item 5	Other Information	53
Item 6	Exhibits	53
Signatures		54
Exhibit Index		55
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)		56
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)		57
Exhibit 32.1 - Certification of Chief Executive Officer Required by 18 U.S.C. Section 1350		58
Exhibit 32.2 - Certification of Chief Financial Officer Required by 18 U.S.C. Section 1350		59

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FORWARD-LOOKING STATEMENTS

This report on Form 10-Q 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. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or board of directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", "intends", "targeted", "projected", "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

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) the length and severity of difficulties in the global, national and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired businesses; (5) economic uncertainty created by terrorist threats and attacks on the United States, the actions taken in response, and the uncertain effect of these events on the national and regional economies; (6) changes in the interest rate environment; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including a failure or breach in data processing systems or those of third party vendors and other service providers, including as a result of cyber attacks or fraud; (10) volatility of interest rate sensitive loans, deposits and investments; (11) asset/liability management risks and liquidity risks; (12) the effect of natural disasters, including earthquakes, fire, flood, drought, and other disasters, on the uninsured value of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values, and (13) changes in the securities markets. The reader is directed to the Company's annual report on Form 10-K for the year ended December 31, 2013, for further discussion of factors which could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made in this report. The Company undertakes no obligation to update any forward-looking statements in this report.

-3-

PART I - FINANCIAL INFORMATION

Item 1 Financial Statements

WESTAMERICA BANCORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)

	At June 30,			At December 31,
	2014			2013
	(In thousands)
Assets:
Cash and due from banks	$	484,904		$	472,028
Investment securities available for sale		1,278,242			1,079,381
Investment securities held to maturity, with fair values of: $1,073,793 at June 30, 2014 and $1,112,676 at December 31, 2013		1,069,135			1,132,299
Loans		1,784,608			1,827,744
Allowance for loan losses		(32,398	)		(31,693	)
Loans, net of allowance for loan losses		1,752,210			1,796,051
Other real estate owned		8,543			13,320
Premises and equipment, net		37,424			37,314
Identifiable intangibles, net		16,394			18,557
Goodwill		121,673			121,673
Other assets		162,570			176,432
Total Assets	$	4,931,095		$	4,847,055

Liabilities:
Noninterest bearing deposits	$	1,814,023		$	1,740,182
Interest bearing deposits		2,399,366			2,423,599
Total deposits		4,213,389			4,163,781
Short-term borrowed funds		68,962			62,668
Federal Home Loan Bank advances		20,296			20,577
Term repurchase agreement		10,000			10,000
Other liabilities		79,645			47,095
Total Liabilities		4,392,292			4,304,121

Shareholders' Equity:
Common stock (no par value), authorized - 150,000 shares Issued and outstanding: 26,074 at June 30, 2014 and 26,510 at December 31, 2013		382,182			378,946
Deferred compensation		2,711			2,711
Accumulated other comprehensive income		12,554			4,313
Retained earnings		141,356			156,964
Total Shareholders' Equity		538,803			542,934
Total Liabilities and Shareholders' Equity	$	4,931,095		$	4,847,055

See accompanying notes to unaudited consolidated financial statements.

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WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	For the Three Months					For the Six Months
	Ended June 30,
	2014			2013		2014			2013
	(In thousands, except per share data)
Interest and Fee Income:
Loans	$	22,787		$	26,180	$	45,688		$	53,579
Investment securities available for sale		5,875			5,532		11,505			10,868
Investment securities held to maturity		6,741			7,557		13,774			15,287
Total Interest and Fee Income		35,403			39,269		70,967			79,734
Interest Expense:
Deposits		754			847		1,508			1,746
Short-term borrowed funds		21			26		41			37
Term repurchase agreement		24			25		49			49
Federal Home Loan Bank advances		101			120		200			238
Debt financing		-			201		-			401
Total Interest Expense		900			1,219		1,798			2,471
Net Interest Income		34,503			38,050		69,169			77,263
Provision for Loan Losses		1,000			1,800		2,000			4,600
Net Interest Income After Provision For Loan Losses		33,503			36,250		67,169			72,663
Noninterest Income:
Service charges on deposit accounts		6,105			6,452		12,115			12,994
Merchant processing services		1,820			2,413		3,744			4,822
Debit card fees		1,534			1,478		2,939			2,836
Other service fees		688			696		1,349			1,458
ATM processing fees		634			721		1,254			1,426
Trust fees		615			585		1,269			1,153
Financial services commissions		221			284		392			464
Other		1,581			1,655		3,126			3,409
Total Noninterest Income		13,198			14,284		26,188			28,562
Noninterest Expense:
Salaries and related benefits		13,926			14,064		28,052			28,467
Occupancy		3,746			3,638		7,473			7,524
Outsourced data processing services		2,115			2,140		4,220			4,297
Amortization of identifiable intangibles		1,058			1,165		2,163			2,384
Furniture and equipment		1,005			1,021		2,010			1,901
Courier service		665			737		1,275			1,478
Professional fees		577			745		1,007			1,380
Other real estate owned		(270	)		278		(620	)		612
Other		4,135			4,404		8,250			8,826
Total Noninterest Expense		26,957			28,192		53,830			56,869
Income Before Income Taxes		19,744			22,342		39,527			44,356
Provision for income taxes		4,587			5,230		9,063			9,973
Net Income	$	15,157		$	17,112	$	30,464		$	34,383

Average Common Shares Outstanding		26,175			26,890		26,303			27,017
Diluted Average Common Shares Outstanding		26,238			26,898		26,387			27,027
Per Common Share Data:
Basic earnings	$	0.58		$	0.64	$	1.16		$	1.27
Diluted earnings		0.58			0.64		1.15			1.27
Dividends paid		0.38			0.37		0.76			0.74

See accompanying notes to unaudited consolidated financial statements.

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WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	For the Three Months						For the Six Months
	Ended June 30,
	2014			2013			2014			2013
	(In thousands)
Net Income	$	15,157		$	17,112		$	30,464		$	34,383
Other comprehensive income:
Increase (decrease) in net unrealized gains on securities available for sale		6,366			(18,733	)		14,189			(17,461	)
Deferred tax (expense) benefit		(2,677	)		7,876			(5,966	)		7,342
Increase (decrease) in net unrealized gains on securities available for sale, net of tax		3,689			(10,857	)		8,223			(10,119	)
Post-retirement benefit transition obligation amortization		15			15			30			30
Deferred tax expense		(6	)		(6	)		(12	)		(12	)
Post-retirement benefit transition obligation amortization, net of tax		9			9			18			18
Total Other Comprehensive Income (Loss)		3,698			(10,848	)		8,241			(10,101	)
Total Comprehensive Income	$	18,855		$	6,264		$	38,705		$	24,282

See accompanying notes to unaudited consolidated financial statements.

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WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited)

	Common Shares Outstanding			Common Stock			Accumulated Deferred Compensation			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	(In thousands)

Balance, December 31, 2012		27,213		$	372,012		$	3,101		$	14,625		$	170,364		$	560,102
Net income for the period														34,383			34,383
Other comprehensive loss											(10,101	)					(10,101	)
Exercise of stock options		157			6,414												6,414
Tax benefit decrease upon exercise of stock options					(201	)											(201	)
Restricted stock activity		15			1,068			(390	)								678
Stock based compensation					730												730
Stock awarded to employees		1			61												61
Purchase and retirement of stock		(617	)		(8,586	)								(18,807	)		(27,393	)
Dividends														(20,051	)		(20,051	)
Balance, June 30, 2013		26,769		$	371,498		$	2,711		$	4,524		$	165,889		$	544,622

Balance, December 31, 2013		26,510		$	378,946		$	2,711		$	4,313		$	156,964		$	542,934
Net income for the period														30,464			30,464
Other comprehensive income											8,241						8,241
Exercise of stock options		252			12,178												12,178
Tax benefit decrease upon exercise of stock options					(396	)											(396	)
Restricted stock activity		19			1,027												1,027
Stock based compensation					700												700
Stock awarded to employees		1			69												69
Purchase and retirement of stock		(708	)		(10,342	)								(26,013	)		(36,355	)
Dividends														(20,059	)		(20,059	)
Balance, June 30, 2014		26,074		$	382,182		$	2,711		$	12,554		$	141,356		$	538,803

See accompanying notes to unaudited consolidated financial statements.

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WESTAMERICA BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the Six Months Ended June 30,
	2014			2013
	(In thousands)
Operating Activities:
Net income	$	30,464		$	34,383
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,210			9,032
Loan loss provision		2,000			4,600
Net amortization of deferred loan fees		(134	)		(202	)
Decrease in interest income receivable		105			88
Increase in net deferred tax asset		(2,624	)		(2,644	)
Decrease in other assets		1,426			8,174
Stock option compensation expense		700			730
Tax benefit decrease upon exercise of stock options		396			201
(Decrease) increase in income taxes payable		(66	)		30
(Decrease) increase in interest expense payable		(1	)		9
Increase (decrease) in other liabilities		7,147			(5,482	)
Gain on sale of other assets		(400	)		(548	)
Net loss on sale of premises and equipment		17			9
Originations of mortgage loans for resale		-			(240	)
Proceeds from sale of mortgage loans originated for resale		-			241
Net gain on sale of foreclosed assets		(810	)		(556	)
Writedown of foreclosed assets		108			1,062
Net Cash Provided by Operating Activities		45,538			48,887

Investing Activities:
Net repayments of loans		42,381			167,500
Proceeds from FDIC1 loss-sharing indemnification		6,703			4,039
Purchases of investment securities available for sale		(382,123	)		(275,460	)
Proceeds from sale/maturity/calls of securities available for sale		225,777			77,558
Purchases of investment securities held to maturity		(18,373	)		(87,643	)
Proceeds from maturity/calls of securities held to maturity		74,179			107,428
Purchases of premises and equipment		(1,696	)		(1,110	)
Net change in FRB2/FHLB3 securities		3,248			1,488
Proceeds from sale of foreclosed assets		6,080			9,401
Net Cash (Used in) Provided by Investing Activities		(43,824	)		3,201

Financing Activities:
Net change in deposits		49,689			(130,915	)
Net change in short-term borrowings and FHLB3 advances		6,105			12,952
Exercise of stock options		12,178			6,414
Tax benefit decrease upon exercise of stock options		(396	)		(201	)
Retirement of common stock including repurchases		(36,355	)		(27,393	)
Common stock dividends paid		(20,059	)		(20,051	)
Net Cash Provided by (Used in) Financing Activities		11,162			(159,194	)
Net Change In Cash and Due from Banks		12,876			(107,106	)
Cash and Due from Banks at Beginning of Period		472,028			491,382
Cash and Due from Banks at End of Period	$	484,904		$	384,276

Supplemental Cash Flow Disclosures:
Supplemental disclosure of non cash activities:
Loan collateral transferred to other real estate owned	$	968		$	3,932
Securities purchases pending settlement		(25,537	)		-
Supplemental disclosure of cash flow activities:
Interest paid for the period		1,957			2,722
Income tax payments for the period		11,754			12,779

See accompanying notes to unaudited consolidated financial statements.

1 Federal Deposit Insurance Corporation ("FDIC")

2 Federal Reserve Bank ("FRB")

3 Federal Home Loan Bank ("FHLB")

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations reflect interim adjustments, all of which are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The interim results for the three and six months ended June 30, 2014 and 2013 are not necessarily indicative of the results expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as well as other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

The Company has evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, the Company is not aware of any events or transactions that occurred subsequent to the balance sheet date but prior to filing that would require recognition or disclosure in its unaudited consolidated financial statements.

Note 2: Accounting Policies

The Company’s accounting policies are discussed in Note 1 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Certain amounts in prior periods have been reclassified to conform to the current presentation.

Certain accounting policies underlying the preparation of these financial statements require Management to make estimates and judgments. These estimates and judgments may significantly affect reported amounts of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Management exercises judgment to estimate the appropriate level of the allowance for credit losses and to evaluate the extent of other than temporary impairment of investment securities, which are discussed in the Company’s accounting policies.

Recently Adopted Accounting Standards

FASB ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, was issued July 2013 to provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar loss, or a tax credit carryforward exists. The update provides that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward, unless an exception applies. The adoption of the update did not have a material effect on the Company’s financial statements at January 1, 2014, the date adopted.

Recently Issued Accounting Standards

FASB ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, was issued on June 12, 2014. The Update improves the financial reporting of repurchase agreements and other similar transactions through a change in accounting for repurchase-to-maturity transactions and repurchase financings, and the introduction of two new disclosure requirements. New disclosures are required for (1) transfers accounted for as sales in transactions that are economically similar to repurchase agreements, in which the transferor retains substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction and (2) repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings about the nature of collateral pledged and the time to maturity of those transactions.

The Company will be required to adhere to new disclosure requirements when the Update is adopted April 1, 2015 for the interim period ending June 30, 2015.

FASB ASU 2014-01, Investments- Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects, was issued January 2014 to permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method investment or a cost method investment in accordance with GAAP. The policy election must be applied consistently to all qualified affordable housing project investments.

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The update also requires a reporting entity to disclose information regarding its investments in qualified affordable housing projects, and the effect of the measurement of its investments in qualified affordable housing projects and the related tax credits on its financial position and results of operations.

Management is evaluating the impact that the change in accounting policy would have on the Company’s financial statements. Management does not expect the adoption of this update to have a material effect on the financial statements when adopted on January 1, 2015.

Note 3: Investment Securities

An analysis of the amortized cost, unrealized gains and losses accumulated in other comprehensive income, and fair value of investment securities available for sale follows:

	Investment Securities Available for Sale At June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. Treasury securities	$	3,499	$	11	$	-		$	3,510
Securities of U.S. Government sponsored entities		340,440		321		(322	)		340,439
Residential mortgage-backed securities		28,376		2,004		(21	)		30,359
Commercial mortgage-backed securities		3,118		19		(2	)		3,135
Obligations of states and political subdivisions		176,129		9,914		(217	)		185,826
Residential collateralized mortgage obligations		250,549		665		(11,023	)		240,191
Asset-backed securities		8,982		3		(39	)		8,946
FHLMC(1) and FNMA(2) stock		804		16,395		-			17,199
Corporate securities		442,427		4,008		(470	)		445,965
Other securities		2,039		759		(126	)		2,672
Total	$	1,256,363	$	34,099	$	(12,220	)	$	1,278,242

(1) Federal Home Loan Mortgage Corporation

(2) Federal National Mortgage Association

An analysis of the amortized cost, unrealized gains and losses, and fair value of investment securities held to maturity follows:

	Investment Securities Held to Maturity At June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Securities of U.S. Government sponsored entities	$	1,287	$	-	$	(2	)	$	1,285
Residential mortgage-backed securities		61,430		1,189		(54	)		62,565
Obligations of states and political subdivisions		721,818		10,263		(5,219	)		726,862
Residential collateralized mortgage obligations		284,600		1,990		(3,509	)		283,081
Total	$	1,069,135	$	13,442	$	(8,784	)	$	1,073,793

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An analysis of the amortized cost, unrealized gains and losses accumulated in other comprehensive income, and fair value of investment securities available for sale follows:

	Investment Securities Available for Sale At December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
U.S. Treasury securities	$	3,500	$	9	$	(3	)	$	3,506
Securities of U.S. Government sponsored entities		131,080		75		(663	)		130,492
Residential mortgage-backed securities		32,428		1,763		(15	)		34,176
Commercial mortgage-backed securities		3,411		19		(5	)		3,425
Obligations of states and political subdivisions		186,082		5,627		(323	)		191,386
Residential collateralized mortgage obligations		266,890		730		(14,724	)		252,896
Asset-backed securities		14,653		3		(101	)		14,555
FHLMC and FNMA stock		804		12,568		-			13,372
Corporate securities		430,794		2,901		(1,264	)		432,431
Other securities		2,049		1,251		(158	)		3,142
Total	$	1,071,691	$	24,946	$	(17,256	)	$	1,079,381

An analysis of the amortized cost, unrealized gains and losses, and fair value of investment securities held to maturity follows:

	Investment Securities Held to Maturity
	At December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Securities of U.S. Government sponsored entities	$	1,601	$	-	$	(4	)	$	1,597
Residential mortgage-backed securities		65,076		854		(624	)		65,306
Obligations of states and political subdivisions		756,707		6,211		(21,667	)		741,251
Residential collateralized mortgage obligations		308,915		1,209		(5,602	)		304,522
Total	$	1,132,299	$	8,274	$	(27,897	)	$	1,112,676

The amortized cost and fair value of investment securities by contractual maturity are shown in the following tables at the dates indicated:

	At June 30, 2014
	Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Maturity in years:
1 year or less	$	22,823	$	23,079	$	11,873	$	12,295
Over 1 to 5 years		723,230		727,551		209,887		212,693
Over 5 to 10 years		145,153		148,748		274,837		277,158
Over 10 years		80,271		85,308		226,508		226,001
Subtotal		971,477		984,686		723,105		728,147
Mortgage-backed securities and residential collateralized mortgage obligations		282,043		273,685		346,030		345,646
Other securities		2,843		19,871		-		-
Total	$	1,256,363	$	1,278,242	$	1,069,135	$	1,073,793

-11-

	At December 31, 2013
	Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Maturity in years:
1 year or less	$	75,385	$	75,609	$	9,639	$	9,900
Over 1 to 5 years		536,333		538,111		187,051		189,827
Over 5 to 10 years		66,669		68,166		314,630		310,104
Over 10 years		87,722		90,484		246,988		233,017
Subtotal		766,109		772,370		758,308		742,848
Mortgage-backed securities and residential collateralized mortgage obligations		302,729		290,497		373,991		369,828
Other securities		2,853		16,514		-		-
Total	$	1,071,691	$	1,079,381	$	1,132,299	$	1,112,676

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 June 30, 2014 and December 31, 2013, the Company had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.

An analysis of gross unrealized losses of investment securities available for sale follows:

	Investment Securities Available for Sale At June 30, 2014
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment				Unrealized			Investment				Unrealized			Investment				Unrealized
	Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses
	($ in thousands)
Securities of U.S. Government sponsored entities		7	$	166,393	$	(286	)		1	$	9,964	$	(36	)		8	$	176,357	$	(322	)
Residential mortgage- backed securities		-		-		-			2		836		(21	)		2		836		(21	)
Commercial mortgage- backed securities		-		-		-			1		910		(2	)		1		910		(2	)
Obligations of states and political subdivisions		12		5,188		(75	)		19		5,509		(142	)		31		10,697		(217	)
Residential collateralized mortgage obligations		1		1		-			31		217,989		(11,023	)		32		217,990		(11,023	)
Asset-backed securities		-		-		-			1		3,898		(39	)		1		3,898		(39	)
Corporate securities		15		35,071		(243	)		4		29,350		(227	)		19		64,421		(470	)
Other securities		-		-		-			1		1,874		(126	)		1		1,874		(126	)
Total		35	$	206,653	$	(604	)		60	$	270,330	$	(11,616	)		95	$	476,983	$	(12,220	)

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-12-

An analysis of gross unrealized losses of investment securities held to maturity follows:

	Investment Securities Held to Maturity At June 30, 2014
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment				Unrealized			Investment				Unrealized			Investment				Unrealized
	Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses
	($ in thousands)
Securities of U.S. Government sponsored entities		1	$	1,285	$	(2	)		-	$	-	$	-			1	$	1,285	$	(2	)
Residential mortgage-backed securities		1		2,930		(30	)		2		3,403		(24	)		3		6,333		(54	)
Obligations of states and political subdivisions		67		50,734		(223	)		220		186,639		(4,996	)		287		237,373		(5,219	)
Residential collateralized mortgage obligations		7		47,807		(266	)		24		135,553		(3,243	)		31		183,360		(3,509	)
Total		76	$	102,756	$	(521	)		246	$	325,595	$	(8,263	)		322	$	428,351	$	(8,784	)

The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments, particularly changes in risk-free interest rates. The Company evaluates securities on a quarterly basis including changes in security ratings issued by ratings agencies, changes in the financial condition of the issuer, and, for mortgage-related and asset-backed securities, delinquency and loss information with respect to the underlying collateral, changes in the levels of subordination for the Company’s particular position within the repayment structure and remaining credit enhancement as compared to expected credit losses of the security. Substantially all of these securities continue to be investment grade rated by a major rating agency. In addition to monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset backed securities.

The Company does not intend to sell any investments and has concluded that it is more likely than not that it will not be required to sell the investments prior to recovery of the amortized cost basis. Therefore, the Company does not consider these investments to be other-than-temporarily impaired as of June 30, 2014.

The fair values of the investment securities could decline in the future if the general economy deteriorates, inflation increases, credit ratings decline, the issuer’s financial condition deteriorates, or the liquidity for securities declines. As a result, other than temporary impairments may occur in the future.

As of June 30, 2014, $870,761 thousand of investment securities were pledged to secure public deposits, short-term borrowed funds, and term repurchase agreements, compared to $778,588 thousand at December 31, 2013.

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-13-

An analysis of gross unrealized losses of investment securities available for sale follows:

	Investment Securities Available for Sale At December 31, 2013
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment				Unrealized			Investment				Unrealized			Investment				Unrealized
	Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses
	($ in thousands)
U.S. Treasury securities		1	$	2,994	$	(3	)		-	$	-	$	-			1	$	2,994	$	(3	)
Securities of U.S. Government sponsored entities		15		91,669		(663	)		-		-		-			15		91,669		(663	)
Residential mortgage-backed securities		3		864		(15	)		-		-		-			3		864		(15	)
Commercial mortgage-backed securities		1		1,072		(5	)		-		-		-			1		1,072		(5	)
Obligations of states and political subdivisions		35		17,516		(222	)		11		3,214		(101	)		46		20,730		(323	)
Residential collateralized mortgage obligations		34		187,848		(12,326	)		6		40,575		(2,398	)		40		228,423		(14,724	)
Asset-backed securities		1		5,002		(1	)		1		4,475		(100	)		2		9,477		(101	)
Corporate securities		25		117,751		(1,087	)		2		9,824		(177	)		27		127,575		(1,264	)
Other securities		-		-		-			1		1,842		(158	)		1		1,842		(158	)
Total		115	$	424,716	$	(14,322	)		21	$	59,930	$	(2,934	)		136	$	484,646	$	(17,256	)

An analysis of gross unrealized losses of investment securities held to maturity follows:

	Investment Securities Held to Maturity At December 31, 2013
	No. of		Less than 12 months					No. of		12 months or longer					No. of		Total
	Investment				Unrealized			Investment				Unrealized			Investment				Unrealized
	Positions		Fair Value		Losses			Positions		Fair Value		Losses			Positions		Fair Value		Losses
	($ in thousands)
Securities of U.S. Government sponsored entities		1	$	1,597	$	(4	)		-	$	-	$	-			1	$	1,597	$	(4	)
Residential mortgage-backed securities		13		38,396		(616	)		1		392		(8	)		14		38,788		(624	)
Obligations of states and political subdivisions		530		355,797		(14,893	)		64		64,427		(6,774	)		594		420,224		(21,667	)
Residential collateralized mortgage obligations		42		214,981		(5,175	)		5		14,120		(427	)		47		229,101		(5,602	)
Total		586	$	610,771	$	(20,688	)		70	$	78,939	$	(7,209	)		656	$	689,710	$	(27,897	)

The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments, particularly rising risk-free interest rates causing bond prices to decline.

The following table provides information about the amount of interest income earned on investment securities which is fully taxable and which is exempt from regular federal income tax:

	For the Three Months				For the Six Months
	Ended June 30,
	2014		2013		2014		2013
	(In thousands)
Taxable	$	5,876	$	5,591	$	11,559	$	11,125
Tax-exempt		6,740		7,498		13,720		15,030
Total interest income from investment securities	$	12,616	$	13,089	$	25,279	$	26,155

-14-

Note 4: Loans and Allowance for Credit Losses

The FDIC indemnification expired February 6, 2014 for County Bank non-single-family residential collateralized purchased loans; accordingly, such loans have been reclassified from purchased covered loans to purchased non-covered loans.

A summary of the major categories of loans outstanding is shown in the following tables.

	At June 30, 2014
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment & Other			Total
	(In thousands)
Originated loans	$	368,853		$	584,058		$	9,802		$	163,287		$	391,278		$	1,517,278
Purchased covered loans:
Gross purchased covered loans		-			-			-			3,298			15,400			18,698
Credit risk discount		-			-			-			(434	)		(95	)		(529	)
Purchased non-covered loans:
Gross purchased non-covered loans		23,114			185,497			3,147			985			47,611			260,354
Credit risk discount		(1,858	)		(7,544	)		(50	)		(262	)		(1,479	)		(11,193	)
Total	$	390,109		$	762,011		$	12,899		$	166,874		$	452,715		$	1,784,608

	At December 31, 2013
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment & Other			Total
	(In thousands)
Originated loans	$	338,824		$	596,653		$	10,723		$	176,196		$	400,888		$	1,523,284
Purchased covered loans:
Gross purchased covered loans		20,066			175,562			3,223			8,558			54,194			261,603
Credit risk discount		(1,530	)		(8,122	)		(50	)		(434	)		(797	)		(10,933	)
Purchased non-covered loans:
Gross purchased non-covered loans		7,525			35,712			-			999			12,799			57,035
Credit risk discount		(726	)		(786	)		-			(262	)		(1,471	)		(3,245	)
Total	$	364,159		$	799,019		$	13,896		$	185,057		$	465,613		$	1,827,744

Changes in the carrying amount of impaired purchased loans were as follows:

WESTAMERICA BANCORPORATION - FORM 10-Q - August 1, 2014

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