-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WO6WCmT99Ue8QobkbVVi0Cs7mF4HXWq6V5bSDO1KxFbDt8jvSveXjVE+dOH73duU MMzplcQeCBPSvNshyGomeg== 0000311094-01-000002.txt : 20010402 0000311094-01-000002.hdr.sgml : 20010402 ACCESSION NUMBER: 0000311094-01-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTAMERICA BANCORPORATION CENTRAL INDEX KEY: 0000311094 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 942156203 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09383 FILM NUMBER: 1586903 BUSINESS ADDRESS: STREET 1: 1108 FIFTH AVE CITY: SAN RAFAEL STATE: CA ZIP: 94901 BUSINESS PHONE: 7078636038 MAIL ADDRESS: STREET 1: 4550 MANGELS BLVD STREET 2: A-2Y CITY: FAIRFIELD STATE: CA ZIP: 94585-1200 FORMER COMPANY: FORMER CONFORMED NAME: INDEPENDENT BANKSHARES CORP DATE OF NAME CHANGE: 19830801 10-K 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark one) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from .....to....... Commission File Number 1-9383 WESTAMERICA BANCORPORATION (Exact name of the registrant as specified in its charter) CALIFORNIA (State of incorporation) 94-2156203 (I.R.S. Employer Identification Number) 1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (415) 257-8000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Title of Class: Common Stock, no par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ x ] NO [ ] Indicate by check mark if disclosure of delinquent files pursuant to item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price of the stock, as of March 20, 2001: $1,171,885,580.25 Number of shares outstanding of each of the registrant's classes of common stock, as of March 20, 2001 Title of Class Common Stock, no par value Shares Outstanding 35,680,354 DOCUMENTS INCORPORATED BY REFERENCE Document * Proxy Statement dated March 21, 2001 for Annual Meeting of Shareholders to be held on April 26, 2001 Incorporated into: Part III * Only selected portions of the documents specified are incorporated by reference into this report, as more particularly described herein. Except to the extent expressly incorporated herein by reference, such documents shall not be deemed to be filed as part of this Annual Report on Form 10-K. TABLE OF CONTENTS PART I Page Item 1 Business 1 Item 2 Description of Properties 19 Item 3 Legal Proceedings 19 Item 4 Submission of Matters to a Vote of Security Holders 19 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 20 Item 6 Selected Financial Data 22 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 8 Financial Statements and Supplementary Data 50 Item 9 Changes in and Disagreements on Accounting and Financial Disclosure 87 PART III Item 10 Directors and Executive Officers of the Registrant 87 Item 11 Executive Compensation 88 Item 12 Security Ownership of Certain Beneficial Owners and Management 88 Item 13 Certain Relationships and Related Transactions 88 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 89 PART I ITEM I. Business Certain statements in this Annual Report on Form 10-K include forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject of the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry significantly increasing; changes in the interest rate environment reducing margins; general economic conditions, either nationally or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan losses; changes in the regulatory environment, changes in business conditions; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching risks and liquidity risks; and changes in the securities markets. See also "Certain Additional Business Risks" herein and other risk factors discussed elsewhere in this Report. WESTAMERICA BANCORPORATION (the "Company") is a bank holding company registered under the Bank Holding Company Act of 1956 ("BHC"), as amended. The Company was incorporated under the laws of the State of California as "Independent Bankshares Corporation" on February 11, 1972. Its principal executive offices are located at 1108 Fifth Avenue, San Rafael, California 94901, and its telephone number is (415) 257-8000. The Company provides a full range of banking services to individual and corporate customers in Northern and Central California through its subsidiary bank, Westamerica Bank ("WAB"). WAB is subject to competition from other financial institutions and regulations from certain agencies and undergoes periodic examinations by those regulatory authorities. In addition, the Company also owns 100 percent of the capital stock of Community Banker Services Corporation, a company engaged in providing the Company and its subsidiaries data processing services and other support functions. The Company was originally formed pursuant to a plan of reorganization among three previously unaffiliated banks. The reorganization was consummated on December 31, 1972 and, on January 1, 1973, the Company began operations as as a bank holding company. In mid-1983, the Company consolidated its six subsidiary banks into a single bank named Westamerica Bank ("WAB"), a national banking association organized and existing under the laws of the United States. WAB became a state-chartered bank in June 1993. On February 28, 1992, the Company acquired John Muir National Bank for the issuance of the Company's Common Stock. The business transaction was accounted for on a pooling-of-interests basis. On April 15, 1993, the Company acquired Napa Valley Bancorp, a bank holding company, whose subsidiaries included Napa Valley Bank and Napa Valley Bancorp Services Corporation, which was established to provide data processing and other services to Napa Valley Bancorp's subsidiaries. This business transaction was accounted for on a pooling-of-interests basis. Shortly after, the name of Napa Valley Bancorp Services Corporation was changed to Community Banker Services Corporation. In 1995, the Company acquired PV Financial (parent company of PV National Bank), Capital Bank Sacramento and North Bay Bancorp (parent company of Novato National Bank). Under the terms of the merger agreements, the Company issued shares of its common stock in exchange for all of the outstanding shares of the acquired companies. The subsidiary banks acquired were merged with and into WAB. These business combinations were accounted for as poolings-of- interests. On April 12, 1997, the Company acquired ValliCorp Holdings, Inc., parent company of ValliWide Bank, the largest independent bank holding company headquartered in Central California. The acquisition became effective through the issuance of shares of the Company's common stock in exchange for all of the outstanding shares of ValliCorp Holdings, Inc. The business combination was accounted for on a pooling-of-interests basis. ValliWide Bank was merged with and into WAB. On January 22, 1998, the Board of Directors of the Company authorized a three-for-one split of the Company's common stock in which each share of the Company's common stock is converted into three shares, with record and effective dates of February 10 and February 25, 1998, respectively. On August 17, 2000 the Company acquired First Counties Bank under which each outstanding share of First Counties Bank was exchanged for .8035 shares of the Company's common stock. The acquisition was valued at approximately $19.7 million. and accounted for on the purchase accounting method. The activities and assets and liabilities of First Counties Bank were fully merged into WAB in September 2000. First Counties Bank had $91 million in assets and offices in Lake, Napa, and Colusa counties. At December 31, 2000, the Company had consolidated assets of approximately $4.03 billion, deposits of approximately $3.24 billion and shareholders' equity of approximately $337.7 million. General Westamerica Bancorporation is a community oriented bank holding company headquartered in San Rafael, California. The principal communities served are located in Northern and Central California, from Mendocino, Lake, Colusa and Nevada Counties in the North, to Kern and San Luis Obispo counties in the South. The Company's strategic focus is on the banking needs of small businesses. The Company chose this particular focus in the late 1980's as it recognized that concentrating on a few niche markets was the key to the Company's profitable survival in the consolidating banking business. Certain Additional Business Risks The Company's business, financial condition and operating results can be impacted by a number of factors including, but not limited to, those set forth below, any one of which could cause the Company's actual results to vary materially from recent results or from the Company's anticipated future results. Shares of Company common stock eligible for future sale could have a dilutive effect on the market for Company common stock and could adversely affect the market price. The Articles of Incorporation of the Company authorize the issuance of 150 million shares of common stock (and two classes of 1 million shares each, denominated "Class B Common Stock" and "Preferred Stock", respectively) of which approximately 36.3 million were outstanding at December 31, 2000. Pursuant to its stock option plans, at December 31, 2000, the Company had exercisable options outstanding of 1.6 million. As of December 31, 2000, 1.0 million shares of Company common stock remained available for grants under the Company's stock option plans (and stock purchase plan). Sales of substantial amounts of Company common stock in the public market could adversely affect its market price of common stock. A portion of the loan portfolio of the Company is dependent on real estate. At December 31, 2000, real estate served as the principal source of collateral with respect to approximately 55 percent of the Company's loan portfolio. A worsening of current economic conditions or rising interest rates could have an adverse effect on the demand for new loans, the ability of borrowers to repay outstanding loans, the value of real estate and other collateral securing loans and the value of the available-for-sale securities portfolio, as well as the Company's financial condition and results of operations in general and the market value of the Company's common stock. Acts of nature, including earthquakes and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact the Company's financial condition. The Company is subject to certain operations risks, including, but not limited to, data processing system failures and errors and customer or employee fraud. The Company maintains a system of internal controls to mitigate against such occurrences and maintains insurance coverage for such risks, but should such an event occur that is not prevented or detected by the Company's internal controls, uninsured or in excess of applicable insurance limits, it could have a significant adverse impact on the Company's business, financial condition or results of operations. Employees At December 31, 2000, the Company and its subsidiaries employed 1,095 full-time equivalent staff. Employee relations are believed to be good. The Effect of Government Policy on Banking The earnings and growth of the Company are affected not only by local market area factors and general economic conditions, but also by government monetary and fiscal policies. Such policies influence the growth of loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact of future changes in such policies on the business and earnings of the Company cannot be predicted. Additionally, state and federal tax policies can impact banking organizations. As a consequence of the extensive regulation of commercial banking activities in the United States, the business of the Company is particularly susceptible to being affected by the enactment of federal and state legislation which may have the effect of increasing or decreasing the cost of doing business, modifying permissible activities or enhancing the competitive position of other financial institutions. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of the Company. Supervision and Regulation Regulation and Supervision of Bank Holding Companies The following is not intended to be an exhaustive description of the statutes and regulations applicable to the Company's or WAB's business. The description of statutory and regulatory provisions is qualified in its entirety by reference to the particular statutory or regulatory provisions. Moreover, major new legislation and other regulatory changes affecting the Company, WAB, banking, and the financial services industry in general have occurred in the last several years and can be expected to occur in the future. The nature, timing and impact of new and amended laws and regulations cannot be accurately predicted. The Company is a bank holding company subject to the Bank Holding Company Act of 1956, as amended (the BHCA). The Company reports to, registers with, and may be examined by, the Board of Governors of the Federal Reserve System (FRB). The FRB also has the authority to examine the Company's subsidiaries. The costs of any examination by the FRB are payable by the Company. On March 11, 2000, the Gramm-Leach-Bliley Act, or the Financial Services Act of 1999 (the "FSA"), became effective. This Act amended certain portions of the BHCA, subject to conditions. See "Recently Enacted Legislation" below for more information. The Company is a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, the Company and WAB are subject to examination by, and may be required to file reports with, the California Commissioner of Financial Institutions (the "Commissioner"). The FRB has significant supervisory and regulatory authority over the Company and its affiliates. The FRB requires the Company to maintain certain levels of capital. See "Capital Standards." The FRB also has the authority to take enforcement action against any bank holding company that commits any unsafe or unsound practice, or violates certain laws, regulations or conditions imposed in writing by the FRB. See "Prompt Corrective Action and Other Enforcement Mechanisms." Under the BHCA, a company generally must obtain the prior approval of the FRB before it exercises a controlling influence over a bank, or acquires directly or indirectly, more than 5% of the voting shares or substantially all of the assets of any bank or bank holding company. Thus, the Company is required to obtain the prior approval of the FRB before it acquires, merges or consolidates with any bank or bank holding company. Any company seeking to acquire, merge or consolidate with the Company also would be required to obtain the prior approval of the FRB. The Company is generally prohibited under the BHCA from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than banking, managing banks, or providing services to affiliates of the holding company. However, a bank holding company, with the approval of the FRB, may engage, or acquire the voting shares of companies engaged, in activities that the FRB has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. A bank holding company must demonstrate that the benefits to the public of the proposed activity will outweigh the possible adverse effects associated with such activity. A bank holding company may acquire banks in states other than its home state without regard to the permissibility of such acquisitions under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, prior to or following the proposed acquisition, controls no more than 10% of the total amount of deposits of insured depository institutions in the United States and no more than 30% of such deposits in that state (or such lesser or greater amount set by state law). Banks may also merge across states lines, thereby creating interstate branches. Furthermore, a bank is now able to open new branches in a state in which it does not already have banking operations, if the laws of such state permit such de novo branching. Under California law, (a) out-of-state banks that wish to establish a California branch office to conduct core banking business must first acquire an existing five year old California bank or industrial bank by merger or purchase, (b) California state-chartered banks are empowered to conduct various authorized branch-like activities on an agency basis through affiliated and unaffiliated insured depository institutions in California and other states and (c) the Commissioner is authorized to approve an interstate acquisition or merger that would result in a deposit concentration exceeding 30% if the Commissioner finds that the transaction is consistent with public convenience and advantage. However, a state bank chartered in a state other than California may not enter California by purchasing a California branch office of a California bank or industrial bank without purchasing the entire entity or by establishing a de novo California bank. The FRB generally prohibits a bank holding company from declaring or paying a cash dividend that would impose undue pressure on the capital of subsidiary banks or would be funded only through borrowing or other arrangements which might adversely affect a bank holding company's financial position. Under the FRB policy, a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. See the section entitled "Restrictions on Dividends and Other Distributions" for additional restrictions on the ability of the Company and WAB to pay dividends. Transactions between the Company and WAB are subject to a number of other restrictions. FRB policies forbid the payment by bank subsidiaries of management fees, which are unreasonable in amount or exceed the fair market value of the services rendered (or, if no market exists, actual costs plus a reasonable profit). Subject to certain limitations, depository institution subsidiaries of bank holding companies may extend credit to, invest in the securities of, purchase assets from, or issue a guarantee, acceptance, or letter of credit on behalf of, an affiliate, provided that the aggregate of such transactions with affiliates may not exceed 10% of the capital stock and surplus of the institution, and the aggregate of such transactions with all affiliates may not exceed 20% of the capital stock and surplus of such institution. The Company may only borrow from WAB if the loan is secured by marketable obligations with a value of a designated amount in excess of the loan. Further, the Company may not sell a low-quality asset to a depository institution subsidiary. Comprehensive amendments to federal regulations governing bank holding companies and change in bank control (Regulation Y) became effective in 1997, and are intended to improve the competitiveness of bank holding companies by, among other things: (i) expanding the list of permissible nonbanking activities in which well-run bank holding companies may engage without prior FRB approval, (ii) streamlining the procedures for well-run bank holding companies to obtain approval to engage in other nonbanking activities and (iii) eliminating most of the anti-tying restrictions prescribed for bank holding companies and their nonbank subsidiaries. Amended Regulation Y also provides for a streamlined and expedited review process for bank acquisition proposals submitted by well-run bank holding companies and eliminates certain duplicative reporting requirements when there has been a further change in bank control or in bank directors or officers after an earlier approved change. These changes to Regulation Y are subject to numerous qualifications, limitations and restrictions. In order for a bank holding company to qualify as "well-run," both it and the insured depository institutions which it controls must meet the "well- capitalized" and "well-managed" criteria set forth in Regulation Y. To qualify as "well-capitalized," the bank holding company must, on a consolidated basis: (i) maintain a total risk-based capital ratio of 10% or greater; (ii) maintain a Tier 1 risk- based capital ratio of 6% or greater; and (iii) not be subject to any order by the FRB to meet a specified capital level. Its lead insured depository institution must be well- capitalized as that term is defined in the capital adequacy regulations of the applicable bank regulator, 80% of the total risk-weighted assets held by its insured depository institutions must be held by institutions which are well- capitalized, and none of its insured depository institutions may be undercapitalized. To qualify as "well-managed": (i) each of the bank holding company, its lead depository institution and its depository institutions holding 80% of the total risk-weighted assets of all its depository institutions at their most recent examination or review must have received a composite rating, rating for management and rating for compliance which were at least satisfactory; (ii) none of the bank holding company's depository institutions may have received one of the two lowest composite ratings; and (iii) neither the bank holding company nor any of its depository institutions during the previous 12 months may have been subject to a formal enforcement order or action. Bank Regulation and Supervision WAB is a California chartered bank insured by the Federal Deposit Insurance Corporation (the "FDIC"), and as such is subject to regulation, supervision and regular examination by the California Department of Financial Institutions ("DFI") and the FDIC. As a member of the Federal Reserve System, WABs primary federal regulator is the FRB. The regulations of these agencies affect most aspects of WABs business and prescribe permissible types of loans and investments, the amount of required reserves, requirements for branch offices, the permissible scope of its activities and various other requirements. In addition to federal banking law, WAB is also subject to applicable provisions of California law. Under California law, WAB is subject to various restrictions on, and requirements regarding, its operations and administration including the maintenance of branch offices and automated teller machines, capital and reserve requirements, deposits and borrowings, stockholder rights and duties, and investment and lending activities. Whenever it appears that the contributed capital of a California bank is impaired, the Commissioner shall order the bank to correct such impairment. If a bank is unable to correct the impairment, such bank is required to levy and collect an assessment upon its common shares. If such assessment becomes delinquent, such common shares are to be sold by the bank. California law permits a state chartered bank to invest in the stock and securities of other corporations, subject to a state-chartered bank receiving either general authorization or, depending on the amount of the proposed investment, specific authorization from the Commissioner. The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), however, imposes limitations on the activities and equity investments of state chartered, federally insured banks. FDICIA also prohibits a state bank from engaging as a principal in any activity that is not permissible for a national bank, unless the bank is adequately capitalized and the FDIC approves the activity after determining that such activity does not pose a significant risk to the deposit insurance fund. The FDIC rules on activities generally permit subsidiaries of banks, without prior specific FDIC authorization, to engage in those activities which have been approved by the FRB for bank holding companies because such activities are so closely related to banking as to be a proper incident thereto. Other activities generally require specific FDIC prior approval, and the FDIC may impose additional restrictions on such activities on a case-by-case basis in approving applications to engage in otherwise impermissible activities. Capital Standards The federal banking agencies have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets, and transactions such as letters of credit and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. government securities, to 100% for assets with relatively higher credit risk, such as certain loans. In determining the capital level WAB is required to maintain, the federal banking agencies do not, in all respects, follow generally accepted accounting principles ("GAAP") and have special rules which have the effect of reducing the amount of capital they will recognize for purposes of determining its capital adequacy. A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk- adjusted assets and off balance sheet items. The regulators measure risk-adjusted assets and off balance sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock, other types of qualifying preferred stock and minority interests in certain subsidiaries, less most other intangible assets and other adjustments. Net unrealized losses on available-for- sale equity securities with readily determinable fair value must be deducted in determining Tier 1 capital. For Tier 1 capital purposes, deferred tax assets which can only be realized if an institution earns sufficient taxable income in the future are limited to the amount that the institution is expected to realize within one year, or ten percent of Tier 1 capital, whichever is less. Tier 2 capital may consist of a limited amount of the allowance for loan and lease losses, term preferred stock and other types of preferred stock not qualifying as Tier 1 capital, term subordinated debt and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital are subject to certain other requirements and limitations of the federal banking agencies. The federal banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets and off balance sheet items of 8%, and a minimum ratio of Tier 1 capital to adjusted average risk-adjusted assets and off balance sheet items of 4%. On October 1, 1998, the FDIC adopted two rules governing minimum capital levels that FDIC-supervised banks must maintain against the risks to which they are exposed. The first rule makes risk-based capital standards consistent for two types of credit enhancements (i.e., recourse arrangements and direct credit substitutes) and requires different amounts of capital for different risk positions in asset securitization transactions. The second rule permits limited amounts of unrealized gains on debt and equity securities to be recognized for risk-based capital purposes as of September 1, 1998. The FDIC rules also provide that a qualifying institution that sells small business loans and leases with recourse must hold capital only against the amount of recourse retained. In general, a qualifying institution is one that is well-capitalized under the FDIC's prompt corrective action rules. The amount of recourse that can receive the preferential capital treatment cannot exceed 15% of the institution's total risk-based capital. In addition to the risk-based guidelines, the federal banking agencies require banking organizations to maintain a minimum amount of Tier 1 capital to adjusted average total assets, referred to as the leverage capital ratio. For a banking organization rated in the highest of the five categories used to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. It is improbable, however, that an institution with a 3% leverage ratio would receive the highest rating since a strong capital position is a significant part of the regulators' rating. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3% minimum. Thus, the effective minimum leverage ratio, for all practical purposes, must be at least 4% or 5%. In addition to these uniform risk-based capital guidelines and leverage ratios which apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. As of December 31, 2000, the Company's and WABs respective ratios exceeded applicable regulatory requirements. See Note 8 to the consolidated financial statements for capital ratios of the Company and WAB, compared to the standards for well-capitalized depository institutions and for minimum capital requirements. The federal banking agencies take into consideration concentrations of credit risk and risks from non-traditional activities, as well as an institution's ability to manage those risks, when determining the adequacy of an institution's capital. This evaluation is made as a part of the institution's regular safety and soundness examination. The federal banking agencies also consider interest rate risk (when the interest rate sensitivity of an institution's assets does not match the sensitivity of its liabilities or its off balance sheet position) in evaluation of a bank's capital adequacy. Prompt Corrective Action and Other Enforcement Mechanisms FDICIA requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. The law required each federal banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under the prompt corrective action provisions of FDICIA, an insured depository institution generally will be classified in the following categories based on the capital measures indicated below: Total Tier 1 Risk-Based Risk-Based Leverage Capital Capital Ratio Well capitalized 10.00% 6.00% 5.00% Adequately capitalized 8.00 4.00 4.00 Undercapitalized (less than) 8.00 4.00 4.00 Significantly undercapitalized (less than) 6.00 3.00 3.00 Critically undercapitalized Tangible equity/ total assets (less than) 2.00
An institution that, based upon its capital levels, is classified as "well capitalized," "adequately capitalized" or "undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal banking agencies for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was not granted. Additionally, a holding company's inability to serve as a source of strength to its subsidiary banking organizations could serve as an additional basis for a regulatory action against the holding company. Safety and Soundness Standards FDICIA also implemented certain specific restrictions on transactions and required federal banking regulators to adopt overall safety and soundness standards for depository institutions related to internal control, loan underwriting and documentation and asset growth. Among other things, FDICIA limits the interest rates paid on deposits by undercapitalized institutions, restricts the use of brokered deposits, limits the aggregate extensions of credit by a depository institution to an executive officer, director, principal shareholder or related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized institutions for deposits by certain employee benefits accounts. The federal banking agencies may require an institution to submit to an acceptable compliance plan as well as have the flexibility to pursue other more appropriate or effective courses of action given the specific circumstances and severity of an institution's noncompliance with one or more standards. Restrictions on Dividends and Other Distributions The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions which limit the amount available for such distribution depending upon the earnings, financial condition and cash needs of the institution, as well as general business conditions. FDICIA prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions, including dividends, if, after such transaction, the institution would be undercapitalized. In addition to the restrictions imposed under federal law, banks chartered under California law generally may only pay cash dividends to the extent such payments do not exceed the lesser of retained earnings of the bank or the bank's net income for its last three fiscal years (less any distributions to shareholders during this period). In the event a bank desires to pay cash dividends in excess of such amount, the bank may pay a cash dividend with the prior approval of the Commissioner in an amount not exceeding the greatest of the bank's retained earnings, the bank's net income for its last fiscal year or the bank's net income for its current fiscal year. The federal banking agencies also have the authority to prohibit a depository institution from engaging in business practices which are considered to be unsafe or unsound, possibly including payment of dividends or other payments under certain circumstances even if such payments are not expressly prohibited by statute. Premiums for Deposit Insurance and Assessments for Examinations WABs deposits are insured by the Bank Insurance Fund (BIF) administered by the FDIC. FDICIA established several mechanisms to increase funds to protect deposits insured by the BIF administered by the FDIC. The FDIC is authorized to borrow up to $30 billion from the United States Treasury; up to 90% of the fair market value of assets of institutions acquired by the FDIC as receiver from the Federal Financing Bank; and from depository institutions which are members of the BIF. Any borrowings not repaid by asset sales are to be repaid through insurance premiums assessed to member institutions. Such premiums must be sufficient to repay any borrowed funds within 15 years and provide insurance fund reserves of $1.25 for each $100 of insured deposits. FDICIA also provides authority for special assessments against insured deposits. No assurance can be given at this time as to what the future level of insurance premiums will be. Community Reinvestment Act and Fair Lending Developments WAB is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of their local communities, including low and moderate income neighborhoods. In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities. Recently Enacted Legislation On March 11, 2000, the Financial Services Act of 1999 (the FSA) became effective. The FSA repealed provisions of the Glass-Steagall Act, which had prohibited commercial banks and securities firms from affiliating with each other and engaging in each other's businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been eliminated. The BHCA was also amended by the FSA to allow new "financial holding companies" ("FHCs") to offer banking, insurance, securities and other financial products to consumers. Specifically, the FSA amended section 4 of the BHCA in order to provide for a framework for the engagement in new financial activities. A bank holding company ("BHC") may elect to become a FHC if all its subsidiary depository institutions are well-capitalized and well-managed. If these requirements are met, a BHC may file a certification to that effect with the FRB and declare that it elects to become a FHC. After the certification and declaration is filed, the FHC may engage either de novo or though an acquisition in any activity that has been determined by the FRB to be financial in nature or incidental to such financial activity. BHCs may engage in financial activities without prior notice to the FRB if those activities qualify under the new list of permissible activities in section 4(k) of the BHCA. However, notice must be given to the FRB within 30 days after a FHC has commenced one or more of the financial activities. The Company has not elected to become a FHC. Under the FSA, FDIC-insured state banks, subject to various requirements, as well as national banks, are permitted to engage through "financial subsidiaries" in certain financial activities permissible for affiliates of FHCs. However, to be able to engage in such activities the bank must also be well- capitalized and well-managed and have received at least a "satisfactory" rating in its most recent CRA examination. The Company cannot be certain of the effect of the foregoing recently enacted legislation on its business, although there is likely to be consolidation among financial services institutions and increased competition for the Company. Pending Legislation and Regulations Certain pending legislative proposals include bills to permit banks to pay interest on business checking accounts, to cap consumer liability for stolen debit cards, to enact privacy rules designed to regulate the ability of financial institutions to use or share customer information, to end certain predatory lending practices, to allow the payment of interest on reserves that financial institutions must keep with FRB and to give judges the authority to force high-income borrowers to repay their debts rather than cancel them through bankruptcy. A proposal to merge the FDIC's two funds, the BIF and the Savings Association Insurance Fund, is also being discussed. The Company also expects that during 2001, the Financial Accounting Standards Board will issue guidance as to whether to retain the pooling-of-interests method of accounting for business combinations and related issues, including whether to adopt an impairment-only approach to amortization of goodwill. While the effect of such proposed legislation on the business of the Company cannot be accurately predicted at this time, it seems likely that a significant amount of consolidating in banking industry will continue. Competition In the past, WAB's principal competitors for deposits and loans have been other banks (particularly major banks), savings and loan associations and credit unions. To a lesser extent, competition was also provided by thrift and loans, mortgage brokerage companies and insurance companies. Other institutions, such as brokerage houses, mutual fund companies, credit card companies, and certain retail establishments have offered investment vehicles which also compete with banks for deposit business. Federal legislation in recent years has encouraged competition between different types of financial institutions and fostered new entrants into the financial services market, and it is anticipated that this trend will continue. The enactment of the Interstate Banking and Branching Act in 1994 and the California Interstate Banking and Branching Act of 1995 have increased competition within California. Regulatory reform, as well as other changes in federal and California law will also affect competition. While the impact of these changes, and of other proposed changes, cannot be predicted with certainty, it is clear that the business of banking in California will remain highly competitive. Legislative changes, as well as technological and economic factors, can be expected to have an ongoing impact on competitive conditions within the financial services industry. As an active participant in the financial markets, the Company believes that it continually adapts to these changing competitive conditions. According to information obtained through an independent market research firm, WAB was the seventeenth largest financial institution in California in terms of total deposits at December 31, 1999. In the individual markets in which it has branch offices, WAB was the fourth largest financial institution, with a market share of approximately 7.74%. The share of individual markets within the overall market varies, with the most dominant continuing to be in the San Rafael area of Marin County, where WAB ranked first with 20.3 percent of the total deposit market among federally-insured depository institutions. WAB's share of the other markets it serves in Marin County was 19.1 percent, ranking it third. According to the same source of information, WAB ranked second in total deposits market share in the Lake County service area with 16 percent of the total. WAB ranked fourth in its Sonoma-Napa counties service area, with approximately a 9.7 percent share of the market, and fourth in the Solano county service area, with a market share of approximately 9 percent, and was fifth in the Fresno service area with approximately 6.9 percent of total deposits. WAB also ranked fifth in the markets it serves in portions of Kern, San Luis Obispo, Tulare and Kings counties with approximately 5.5 percent of the market. WAB's market share in the Greater Sacramento service area was approximately 5 percent, ranking sixth among its competitors. In the service area encompassing offices throughout Stanislaus, Sonora, and Merced counties, WAB ranked eighth among its competitors with 4.3 percent of total deposits. WAB also ranked eighth with 3.0 percent of the total deposit market in the areas it serves in Contra Costa county. ITEM 2. Properties Branch Offices and Facilities WAB is engaged in the banking business through 94 offices in 24 counties in Northern and Central California including eleven offices each in Marin and Fresno Counties, nine in Sonoma County, seven in Napa County, six each in Solano, Kern, Stanislaus and Contra Costa Counties, five in Lake County, four in San Luis Obispo County, three each in Mendocino and Sacramento Counties, two each in Nevada, Placer, Tulare and Tuolumne and Alameda Counties, one each in San Francisco, Kings, Madera, Merced, Yolo and Colusa Counties. All offices are constructed and equipped to meet prescribed security requirements. The Company owns 38 branch office locations and one administrative building and leases 77 banking offices. Most of the leases contain multiple renewal options and provisions for rental increases, principally for changes in the cost of living index, property taxes and maintenance. ITEM 3. Legal Proceedings Neither the Company nor any of its subsidiaries is a party to any material pending legal proceeding, nor is their property the subject of any material pending legal proceeding, except ordinary routine legal proceedings arising in the ordinary course of the Company's business, none of which are expected to have a material adverse impact upon the Company's business, financial position or results of operations. ITEM 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of the shareholders during the fourth quarter of 2000. PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's common stock is traded on the NASDAQ National Market Exchange ("NASDAQ") under the symbol "WABC". The following table shows the high and the low prices for the common stock, for each quarter, as reported by NASDAQ: ============================================================ 2000: High Low - ------------------------------------------------------------ First quarter $27.75 $21.00 Second quarter $30.06 $24.38 Third quarter $33.56 $27.00 Fourth quarter $43.75 $30.69 1999: First quarter $37.50 $31.63 Second quarter 37.13 30.00 Third quarter 36.50 28.94 Fourth quarter 35.13 26.63 ============================================================ As of December 31, 2000, there were 8,747 shareholders of record of the Company's common stock. The Company has paid cash dividends on its common stock in every quarter since its formation in 1972, and it is currently the intention of the Board of Directors of the Company to continue payment of cash dividends on a quarterly basis. There is no assurance, however, that any dividends will be paid since they are dependent upon earnings, financial condition and capital requirements of the Company and its subsidiaries. As of December 31, 2000, $154.8 million was available for payment of dividends by the Company to its shareholders, under applicable laws and regulations. See Note 17 to the consolidated financial statements included in this report for additional information regarding the amount of cash dividends declared and paid on common stock for the two most recent fiscal years. As discussed in Note 7 to the consolidated financial statements, in December 1986, the Company declared a dividend distribution of one common share purchase right (the "Right") for each outstanding share of common stock. The terms of the Rights were most recently amended and restated on October 28, 1999, to become effective on November 19, 1999. The new amended plan is very similar in purpose and effect to the plan as it existed prior to this amendment, aimed at helping the Board of Directors to maximize shareholder value in the event of a change of control of the Company and otherwise resist actions that the Board considers likely to injure the Company or its shareholders. In addition to extending the maturity date of the plan to December 31, 2004, the other material changes included: (1) an increase in the exercise price to $75.00 per share; (2) a decrease in the redemption price of each Right to $.001; and (3) a reduction in the amount of securities required to be acquired for a person or entity to become an Acquiring Person, thus triggering the shareholders' rights, from 15 percent to 10 percent. ITEM 6. Selected Financial Data WESTAMERICA BANCORPORATION FINANCIAL SUMMARY ========================================================================================================= 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) Year ended December 31 Interest income $269,516 $257,656 $266,820 $270,670 $274,182 Interest expense 88,614 78,456 86,665 88,054 91,700 - --------------------------------------------------------------------------------------------------------- Net interest income 180,902 179,200 180,155 182,616 182,482 Provision for loan losses 3,675 4,780 5,180 7,645 12,306 Non-interest income 41,130 40,174 37,805 37,013 36,307 Non-interest expense 100,198 100,133 101,408 137,878 136,051 - --------------------------------------------------------------------------------------------------------- Income before income taxes 118,159 114,461 111,372 74,106 70,432 Provision for income taxes 38,380 38,373 37,976 25,990 23,605 - --------------------------------------------------------------------------------------------------------- Net income $79,779 $76,088 $73,396 $48,116 $46,827 ========================================================================================================= Earnings per share: Basic $2.19 $1.97 $1.76 $1.12 $1.10 Diluted 2.16 1.94 1.73 1.10 1.08 Per share: Dividends paid $0.74 $0.66 $0.52 $0.36 $0.30 Book value at December 31 9.32 8.10 9.25 9.51 8.84 Average common shares outstanding 36,410 38,588 41,797 43,040 42,759 Average diluted common shares outstanding 36,936 39,194 42,524 43,827 43,358 Shares outstanding at December 31 36,251 37,125 39,828 42,799 42,889 At December 31 Loans, net 2,429,880 2,269,272 2,246,593 2,211,307 2,236,319 Total assets 4,031,381 3,893,187 3,844,298 3,848,444 3,866,774 Total deposits 3,236,744 3,065,344 3,189,005 3,078,501 3,228,700 Short-term borrowed funds 386,942 462,345 203,671 264,848 167,447 Debt financing and notes payable 31,036 41,500 47,500 52,500 58,865 Shareholders' equity 337,747 300,592 368,596 407,152 379,279 Financial Ratios: For the year: Return on assets 2.06% 1.99% 1.94% 1.28% 1.24% Return on equity 25.78% 23.31% 19.48% 12.71% 13.22% Net interest margin * 5.48% 5.46% 5.52% 5.63% 5.54% Net loan losses to average loans 0.17% 0.20% 0.20% 0.35% 0.51% Efficiency ratio * 42.45% 43.19% 44.25% 60.15% 60.08% At December 31: Equity to assets 8.38% 7.72% 9.59% 10.58% 9.81% Total capital to risk-adjusted assets 11.61% 11.75% 13.79% 14.76% 14.95% Loan loss reserve to loans 2.11% 2.22% 2.23% 2.24% 2.23% * Fully taxable equivalent
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements in this Annual Report on Form 10-K include forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risk and uncertainties include, but are not limited to, the following factors: significantly increased competitive pressure in the banking industry; changes in the interest rate environment; less favorable general economic conditions resulting in a deterioration in credit quality; changes in the regulatory environment; changes in business conditions; volatility of rate-sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching and liquidity risks; and changes in the securities markets. For further information on risks and uncertainties see also "Certain Additional Business Risks" and other risks factors discussed elsewhere in this report. The following discussion addresses information pertaining to the financial condition and results of operations of the Company that may not be otherwise apparent from a review of the consolidated financial statements and related footnotes. It should be read in conjunction with those statements and notes found on pages 50 through 84, as well as with the other information presented throughout the report. NET INCOME The Company achieved earnings of $79.8 million in 2000, representing a 4.9 percent increase from the $76.1 million earned in 1999, which was up 3.7 percent over 1998 earnings of $73.4 million. Components of Net Income - --------------------------------------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------- (In millions) Net interest income * $194.9 $191.6 $191.4 Provision for loan losses (3.7) (4.8) (5.2) Noninterest income 41.1 40.2 37.8 Noninterest expense (100.2) (100.1) (101.4) Taxes * (52.4) (50.8) (49.2) - --------------------------------------------------------------------------------- Net income $79.8 $76.1 $73.4 ================================================================================== Net income as a percentage of average total assets 2.06% 1.99% 1.94% ================================================================================== Average total assets $3,877.5 $3,828.3 $3,778.5 ================================================================================== * Fully taxable equivalent (FTE)
Diluted earnings per share in 2000 were $2.16, compared to $1.94 and $1.73 in 1999 and 1998, respectively. Much of the improvement in current year's earnings is the result of higher net interest income, which grew by $3.3 million or 1.7% compared to 1999. Approximately two-thirds of that increase was due to higher levels of earning assets and the remainder to a a higher net interest margin. In addition the loan loss provision was reduced by $1.1 million, noninterest income grew $900 thousand and noninterest expense grew slightly. On August 17, 2000, the Company completed the acquisition of First Counties Bank, an institution with total assets of $90 million headquartered in Clearlake, California. The acquisition was accounted for as a purchase. Earnings in 1999 increased $2.7 million over 1998, due to increased noninterest income, a reduction in noninterest expense reflective of continued expense controls, a lower loan loss provision and a slight increase in net interest income. The increase in net interest income was due to higher average earning asset balances offset by a lower net interest margin. The Company's return on average total assets was 2.06 percent in 2000, compared to 1.99 percent and 1.94 percent in 1999 and 1998, respectively. Return on average equity in 2000 was 25.79 percent, compared to 23.31 percent and 19.48 percent in the two previous years. NET INTEREST INCOME The Company's primary source of revenue is net interest income, which is the difference between interest income on earning assets and interest expense on interest-bearing liabilities. Net interest income (FTE) in 2000 increased $3.3 million from 1999 to $194.9 million. Comparing 1999 to 1998, net interest income (FTE) increased $200 thousand. Components of Net Interest Income - --------------------------------------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------- (In millions) Interest income $269.5 $257.7 $266.8 Interest expense (88.6) (78.5) (86.7) FTE adjustment 14.0 12.4 11.3 - --------------------------------------------------------------------------------- Net interest income (FTE) $194.9 $191.6 $191.4 ================================================================================= Net interest margin (FTE) 5.48% 5.46% 5.52% =================================================================================
Interest income (FTE) increased $13.4 million from 2000 to 1999, primarily due to higher level of earning assets. Average loans outstanding grew $77 million to $2.37 billion, the results of an $85 million expansion of the commercial real estate loan portfolio plus $75 million in consumer loans, offset by decreases in commercial and residential real estate loans which declined $70 million and $12 million respectively. Partially offsetting the growth in loans, average investments declined $29 million. In addition to the net positive earning asset volume variance, the average rate earned on these assets also increased. Yields on loans grew from 8.28% in 1999 to 8.58% in 2000 while investments yields improved 16 basis points to 6.65%. Overall, the yield on the company's earning assets increased from 7.69% in 1999 to 7.97% in 2000. Interest income (FTE) decreased $8.0 million from 1998 to 1999 primarily due to a 33 basis point decrease in earning asset yields, a combination of a 47 basis point lower yield and a 4 basis point decrease in the investment yield. These changes were reflective of a general decline in market rates, resulting in all categories of loan and investment securities yields being lower than prior year. Partially offsetting these changes, average earning asset balances increased $47 million from 1998, with loan and investment securities average balances increasing $30 million an $18 million, respectively from 1998. Interest expense increased $10.1 million or 12.9% in 2000 due to the higher rates paid on interest-bearing liabilities. In 1999 the average rate paid was 3.00% while in 2000 it increased to 3.42%. The largest individual increase was the rate paid on public time deposits, which grew by 4.67% in 1999 to 6.03% in 2000. Another large contributor to the higher average rate was federal funds purchased, the rate on which increased from 5.09% to 6.18%. Partially offsetting these higher rates, the volume of interest-bearing liabilities decreased during the year by $32 million or 1.2%. The lower interest bearing liabilities were replaced by Noninterest bearing transaction deposits, which grew $96 million. Interest expense decreased by $8.2 million in 1999 compared to 1998. This was the result of a decrease of 36 basis points in rates paid on interest bearing liabilities combined with a $66 million increase in the average balance of interest-free demand deposits, in part offset by a $36 million increase in the interest-bearing liabilities average balances. Summary of Average Balances, Yields/Rates and Interest Differential The following tables present information regarding the consolidated average assets, liabilities and shareholders' equity, the amounts of interest income from average earning assets and the resulting yields, and the amount of interest expense paid on interest-bearing liabilities. Average loan balances include non-performing loans. Interest income includes proceeds from loans on non-accrual status only to the extent cash payments have been received and applied as interest income. Yields on securities and certain loans have been adjusted upward to reflect the effect of income exempt from federal income taxation at the current statutory tax rate. Distribution of assets, liabilities and shareholders' equity Yields/rates and interest margin - --------------------------------------------------------------------------------- Full Year 2000 (dollars in thousands) ----------------------------------- Interest Rates Average income/ earned/ balance expense paid - --------------------------------------------------------------------------------- Assets Money market assets and funds sold $529 $11 2.14 % Trading account securities 0 6 0.00 Investment securities Taxable 827,592 50,333 6.08 Tax-exempt 363,355 28,828 7.93 Loans: Commercial 1,508,732 133,236 8.83 Real estate construction 50,560 6,132 12.13 Real estate residential 341,201 24,091 7.06 Consumer 468,572 40,909 8.73 ---------- --------- Earning assets 3,560,541 283,546 7.96 Other assets 316,920 ----------- Total assets $3,877,461 =========== Liabilities and shareholders' equity Deposits Noninterest bearing demand $953,667 Savings and interest-bearing transaction 1,350,238 22,827 1.69 % Time less than $100,000 391,500 19,761 5.05 Time $100,000 or more 462,506 25,849 5.59 ---------- --------- Total interest-bearing deposits 2,204,244 68,437 3.10 Funds purchased 341,857 17,668 5.17 Debt financing and notes payable 35,159 2,509 7.14 ---------- --------- Total interest-bearing liabilities 2,581,260 88,614 3.42 Other liabilities 33,023 Shareholders' equity 309,511 ----------- Total liabilities and shareholders' equity $3,877,461 =========== Net interest spread (1) 4.54 Net interest income and interest margin (2) $194,932 5.48 ========= ====== (1) Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (2) Net interest margin is computed by dividing net interest income by total average earning assets.
Distribution of assets, liabilities and shareholders' equity. Yields/rates and interest margin - --------------------------------------------------------------------------------- Full Year 1999 (dollars in thousands) ----------------------------------- Interest Rates Average income/ earned/ balance expense paid - --------------------------------------------------------------------------------- Assets Money market assets and funds sold $308 $4 1.30 % Trading account securities Investment securities Taxable 862,589 52,151 6.05 Tax-exempt 357,294 26,994 7.56 Loans: Commercial 1,493,045 126,939 8.50 Real estate construction 52,825 5,822 11.02 Real estate residential 352,578 24,335 6.90 Consumer 393,938 33,855 8.59 ---------- --------- Earning assets 3,512,577 270,100 7.69 Other assets 315,673 ----------- Total assets $3,828,250 =========== Liabilities and shareholders' equity Deposits Noninterest bearing demand $857,650 Savings and interest-bearing transaction 1,409,391 23,358 1.66 % Time less than $100,000 410,092 18,106 4.42 Time $100,000 or more 425,949 19,446 4.57 ---------- --------- Total interest-bearing deposits 2,245,432 60,910 2.71 Funds purchased 321,829 14,285 4.44 Debt financing and notes payable 46,482 3,261 7.02 ---------- --------- Total interest-bearing liabilities 2,613,743 78,456 3.00 Other liabilities 30,380 Shareholders' equity 326,477 ----------- Total liabilities and shareholders' equity $3,828,250 =========== Net interest spread (1) 4.69 Net interest income and interest margin (2) $191,644 5.46 ========= ====== (1) Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (2) Net interest margin is computed by dividing net interest income by total average earning assets.
Distribution of assets, liabilities and shareholders' equity. Yields/rates and interest margin - --------------------------------------------------------------------------------- Full Year 1998 (dollars in thousands) ----------------------------------- Interest Rates Average income/ earned/ balance expense paid - --------------------------------------------------------------------------------- Assets Money market assets and funds sold $1,003 $42 4.23 % Trading account securities Investment securities Taxable 854,315 53,699 6.29 Tax-exempt 348,040 24,889 7.15 Loans: Commercial 1,427,788 129,258 9.05 Real estate construction 60,123 7,089 11.79 Real estate residential 386,066 27,729 7.18 Consumer 388,106 35,340 9.11 ---------- --------- Earning assets 3,465,440 278,046 8.02 Other assets 313,012 ----------- Total assets $3,778,452 =========== Liabilities and shareholders' equity Deposits Noninterest bearing demand $791,952 Savings and interest-bearing transaction 1,461,764 30,264 2.07 % Time less than $100,000 438,052 21,840 4.99 Time $100,000 or more 381,754 19,247 5.04 ---------- --------- Total interest-bearing deposits 2,281,570 71,351 3.13 Funds purchased 243,736 11,670 4.79 Debt financing and notes payable 52,083 3,644 7.00 ---------- --------- Total interest-bearing liabilities 2,577,389 86,665 3.36 Other liabilities 32,259 Shareholders' equity 376,852 ----------- Total liabilities and shareholders' equity $3,778,452 =========== Net interest spread (1) 4.66 Net interest income and interest margin (2) $191,381 5.52 ========= ====== (1) Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (2) Net interest margin is computed by dividing net interest income by total average earning assets.
Rate and volume variances The following table sets forth a summary of the changes in interest income and interest expense from changes in average assets and liability balances (volume) and changes in average interest rates for the periods indicated. Changes not solely attributable to volume or rates have been allocated in proportion to the respective volume and rate components. - --------------------------------------------------------------------- For the years ended December 31, (In thousands) - --------------------------------------------------------------------- 2000 compared with 1999 - --------------------------------------------------------------------- Volume Rate Total - --------------------------------------------------------------------- Increase (decrease) in interest and fee income: Money market assets and funds sold $6 $1 $7 Trading account securities 7 (1) 6 Investment securities (1) Taxable (2,823) 1,005 (1,818) Tax-exempt 1,119 715 1,834 Loans: Commercial (1) 513 5,784 6,297 Real estate construction (257) 567 310 Real estate residential (805) 561 (244) Consumer 5,557 1,497 7,054 - --------------------------------------------------------------------- Total loans (1) 5,008 8,409 13,417 - --------------------------------------------------------------------- Total increase (decrease) in interest and fee income (1) 3,317 10,129 13,446 - --------------------------------------------------------------------- Increase (decrease) in interest expense: Deposits: Savings/interest-bearing (321) (210) (531) Time less than $100,000 (874) 2,529 1,655 Time $100,000 or more 1,973 4,430 6,403 - --------------------------------------------------------------------- Total interest-bearing 778 6,749 7,527 Funds purchased 915 2,468 3,383 Notes and mortgages payable (481) (271) (752) - --------------------------------------------------------------------- Total increase (decrease) in interest expense 1,213 8,945 10,158 - --------------------------------------------------------------------- Increase (decrease) in net interest income (1) $2,104 $1,184 $3,288 ===================================================================== (1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate. Rate and volume variances. - --------------------------------------------------------------------- For the years ended December 31, (In thousands) - --------------------------------------------------------------------- 1999 compared with 1998 - --------------------------------------------------------------------- Volume Rate Total - --------------------------------------------------------------------- Increase (decrease) in interest and fee income: Money market assets and funds sold ($19) ($19) ($38) Trading account securities 0 0 0 Investment securities (1) Taxable 527 (2,075) (1,548) Tax-exempt 674 1,431 2,105 Loans: Commercial (1) 6,992 (9,311) (2,319) Real estate construction (824) (443) (1,267) Real estate residential (2,341) (1,053) (3,394) Consumer 542 (2,027) (1,485) - --------------------------------------------------------------------- Total loans (1) 4,369 (12,834) (8,465) - --------------------------------------------------------------------- Total increase (decrease) in interest and fee income (1) 5,551 (13,497) (7,946) - --------------------------------------------------------------------- Increase (decrease) in interest expense: Deposits: Savings/interest-bearing (1,051) (5,855) (6,906) Time less than $100,000 (1,337) (2,397) (3,734) Time $100,000 or more 1,085 (886) 199 - --------------------------------------------------------------------- Total interest-bearing (1,303) (9,138) (10,441) Funds purchased 3,386 (771) 2,615 Notes and mortgages payable (393) 10 (383) - --------------------------------------------------------------------- Total increase (decrease) in interest expense 1,690 (9,899) (8,209) - --------------------------------------------------------------------- Increase (decrease) in net interest income (1) $3,861 ($3,598) $263 ===================================================================== (1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate. PROVISION FOR LOAN LOSSES The provision for loan losses was $3.7 million for 2000, compared to $4.8 million in 1999 and $5.2 million in 1998. The reductions in the provision in 2000 and 1999 reflect the results of the Company's continuing efforts to improve loan quality by enforcing strict underwriting and administration procedures and aggressively pursuing collection efforts. For further information regarding net credit losses and the reserve for loan losses, see the "Asset Quality" section of this report. Investment Portfolio The Company maintains a securities portfolio consisting of U.S. Treasury, U.S. Government agencies and corporations, state and political subdivisions, asset-backed and other securities. Investment securities are held in safekeeping by an independent custodian. The objective of the investment securities held to maturity is to strengthen the portfolio yield, and to provide collateral to pledge for federal, state and local government deposits and other borrowing facilities. The investments held to maturity had an average term to maturity of 114 months at December 31, 2000 and, on the same date, those investments included $203.0 million in fixed-rate and $25.0 million in adjustable-rate securities. Investment securities available for sale are generally used to supplement the Banks' liquidity. Unrealized net gains and losses on these securities are recorded as an adjustment to equity, net of taxes, and are not reflected in the current earnings of the Company. If a security is sold, any gain or loss is recorded as a charge to earnings and the equity adjustment is reversed. At December 31, 2000, the Company held $921.3 million classified as investments available for sale. At December 31, 2000, an unrealized gain of $7.2 million net of taxes of $5.6 million related to these securities, was held in shareholders' equity. The Company had no trading securities at December 31, 2000. For more information on investment securities, see Notes 1 and 2 to the consolidated financial statements. The following table shows the carrying amount (fair value) of the Company's investment securities available for sale as of the dates indicated: - --------------------------------------------------------------------------------------- At December 31, 2000 1999 1998 - --------------------------------------------------------------------------------------- (In thousands) U.S. Treasury $188,513 $183,478 $248,610 U.S. Government agencies and corporations 207,091 195,300 121,304 States and political subdivisions 241,151 234,781 213,315 Asset backed securities 76,678 143,590 165,398 Other 207,842 225,188 239,034 - --------------------------------------------------------------------------------------- Total $921,275 $982,337 $987,661 =======================================================================================
The following table sets forth the relative maturities and yields of the Company's available-for-sale securities (stated at amortized cost) at December 31, 2000. Weighted average yields have been computed by dividing annual interest income, adjusted for amortization of premium and accretion of discount, by the amortized cost value of the related security. Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis using the current statutory rate. Available for sale - ------------------------------------------------------------------------------------------------------------------- After one After five Mortgage- Within but within but within After ten backed Other Total (Dollars in thousands) one year five years ten years years - ------------------------------------------------------------------------------------------------------------------- U.S. Treasury $55,354 $131,635 $-- $-- $-- $-- $186,989 Interest rate 5.61% 5.96% --% --% --% --% 5.86% U.S. Government agencies and corporations 3,500 192,521 1,500 90 -- -- 197,611 Interest rate 5.29% 6.09% 6.77% 8.20% -- -- 6.08% States and political subdivisions 19,263 9,239 99,320 108,055 -- -- 235,877 Interest rate 6.21% 7.98% 7.83% 7.27% -- -- 7.45% Asset-backed -- 65,507 11,218 -- 76,725 Interest rate -- 6.12% 7.01% -- -- -- 6.25% Other securities 63,095 114,971 100 -- -- -- 178,166 Interest rate 6.25% 6.25% 7.94% -- -- -- 6.25% - ------------------------------------------------------------------------------------------------------------------- Subtotal 141,212 513,873 112,138 108,145 -- -- 875,368 Interest rate 5.97% 6.13% 7.73% 7.27% -- -- 6.45% Mortgage Backed -- -- -- -- 8,951 -- 8,951 Interest rate -- -- -- -- 7.33% -- 7.33% Other without set maturities -- -- -- -- -- 23,710 23,710 Interest rate -- -- -- -- -- 9.24% 9.24% - ------------------------------------------------------------------------------------------------------------------- Total $141,212 $513,873 $112,138 $108,145 $8,951 $23,710 $908,029 Interest rate 5.97% 6.13% 7.73% 7.27% 7.33% 9.24% 6.53% ===================================================================================================================
The following table shows the carrying amount (amortized cost) and fair value of the Company's investment securities held to maturity as of the dates indicated: - --------------------------------------------------------------------------------- At December 31, 2000 1999 1998 - --------------------------------------------------------------------------------- (In thousands) U.S. Treasury $-- $-- $-- U.S. Government agencies and corporations 64,717 70,418 69,235 States and political subdivisions 151,980 155,813 147,119 Asset backed securities -- -- -- Other 11,338 10,923 10,639 - --------------------------------------------------------------------------------- Total $228,035 $237,154 $226,993 ================================================================================= Fair value $231,906 $235,147 $233,790 =================================================================================
The following table sets forth the relative maturities and yields of the Company's held-to-maturity securities at December 31, 2000. Weighted average yields have been computed by dividing annual interest income, adjusted for amortization of premium and accretion of discount, by the amortized value of the related security. Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis using the current statutory rate. Held to maturity - ------------------------------------------------------------------------------------------------------------------- After one After five Within but within but within After ten Mortgage- (Dollars in thousands) one year five years ten years years backed Other Total - ------------------------------------------------------------------------------------------------------------------- U.S. Treasury $-- $-- $-- $-- $-- $-- $-- Interest rate --% --% --% --% --% --% --% U.S. Government Agencies and Corporations -- -- -- -- -- -- -- Interest rate -- -- -- -- -- -- -- States and Political Subdivisions 2,693 42,604 80,278 26,405 -- -- 151,980 Interest rate 7.44% 7.59% 7.95% 7.80% -- -- 7.81% Asset Backed -- -- -- -- -- -- -- Interest rate -- -- -- -- -- -- -- Other -- -- -- -- -- 11,338 11,338 Interest rate -- -- -- -- -- 6.50% 6.50% - ------------------------------------------------------------------------------------------------------------------- Subtotal 2,693 42,604 80,278 26,405 -- 11,338 163,318 Interest rate 7.44% 7.59% 7.95% 7.80% --% 6.50% 7.72% Mortgage Backed -- -- -- -- 64,717 -- 64,717 Interest rate -- -- -- -- 6.49% -- 6.49% - ------------------------------------------------------------------------------------------------------------------- Total $2,693 $42,604 $80,278 $26,405 $64,717 $11,338 $228,035 Interest rate 7.44% 7.59% 7.95% 7.80% 6.49% 6.50% 7.37% ===================================================================================================================
Loan portfolio The following table shows the compositions of the loan portfolio of the Company by type of loan and type of borrower, on the dates indicated: At December 31, - ------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- (In thousands) Commercial and commercial real estate 1,562,462 1,502,237 1,476,912 1,437,118 1,455,984 Real estate construction 64,195 50,928 57,998 66,782 101,136 Real estate residential 355,488 337,002 384,128 361,909 276,951 Consumer 502,367 434,803 385,204 404,382 462,734 Unearned income (2,353) (4,124) (6,345) (8,254) (9,565) - ------------------------------------------------------------------------------------------------------------------- Gross loans $2,482,159 $2,320,846 $2,297,897 $2,261,937 $2,287,240 Allowance for loan losses (52,279) (51,574) (51,304) (50,630) (50,921) - ------------------------------------------------------------------------------------------------------------------- Net loans $2,429,880 $2,269,272 $2,246,593 $2,211,307 $2,236,319 ===================================================================================================================
Maturities and sensitivities of selected loans to changes in interest rates The following table shows the maturity distribution and interest rate sensitivity of commercial and real estate construction loans at December 31, 2000. Balances exclude loans to individuals and residential mortgages totaling $855.5 million. These types of loans are typically paid in monthly installments over a number of years. - ------------------------------------------------------------------------------------------------------- Within One to After One Year Five Years Five Years Total - ------------------------------------------------------------------------------------------------------- (In thousands) Commercial and commercial real estate * $663,937 $473,556 $424,969 $1,562,462 Real estate construction 64,195 -- -- 64,195 - ------------------------------------------------------------------------------------------------------- Total $728,132 $473,556 $424,969 $1,626,657 ======================================================================================================= Loans with fixed interest rates $223,059 $473,556 $424,969 $1,121,584 Loans with floating interest rates 505,073 -- -- 505,073 - ------------------------------------------------------------------------------------------------------- Total $728,132 $473,556 $424,969 $1,626,657 ======================================================================================================= * Includes demand loans
COMMITMENTS AND LETTERS OF CREDIT It is not the policy of the Company to issue formal commitments on lines of credit except to a limited number of well-established and financially responsible local commercial enterprises. Such commitments can be either secured or unsecured and are typically in the form of revolving lines of credit for seasonal working capital needs. Occasionally, such commitments are in the form of Letters of Credit to facilitate the customers' particular business transactions. Commitment fees generally are not charged except where Letters of Credit are involved. Commitments and lines of credit typically mature within one year. For further information, see Note 12 to the consolidated financial statements. ASSET QUALITY The Company closely monitors the markets in which it conducts its lending operations and continues its strategy to control exposure to loans with higher credit risk and increase diversification of earning assets. Asset reviews are performed using grading standards and criteria similar to those employed by bank regulatory agencies. Assets receiving lesser grades fall under the "classified assets" category, which includes all non-performing assets and potential problem loans, and receive an elevated level of attention to ensure collection. The following summarizes the Company's classified assets for the periods indicated: - --------------------------------------------------------------------- (In millions) At December 31, 2000 1999 - --------------------------------------------------------------------- Classified loans $31.6 $41.3 Other classified assets 2.1 3.3 - --------------------------------------------------------------------- Total classified assets $33.7 $44.6 ===================================================================== Classified loans at December 31, 2000 decreased $9.7 million or 24 percent to $31.6 million from December 31, 1999, continuing to reflect the effectiveness of the Company's high underwriting standards and active workout policies. Other classified assets decreased $1.2 million from prior year, due to sales and writedowns of properties acquired in satisfaction of debt partially offset by new foreclosures on loans with real estate collateral. Nonperforming Assets Nonperforming assets include nonaccrual loans, loans 90 or more days past due and still accruing and other real estate owned. Loans are placed on nonaccrual status upon reaching 90 days or more delinquent, unless the loan is well secured and in the process of collection. Interest previously accrued on loans placed on nonaccrual status is charged against interest income. In addition, some loans secured by real estate with temporarily impaired values and commercial loans to borrowers experiencing financial difficulties are placed on nonaccrual status even though the borrowers continue to repay the loans as scheduled. Such loans are classified by Management as "performing nonaccrual" and are included in total nonperforming assets. When the ability to fully collect nonaccrual loan principal is in doubt, payments received are applied against the principal balance of the loans until such time as full collection of the remaining recorded balance is expected. Any additional interest payments received after that point are recorded as interest income on a cash basis. Performing nonaccrual loans are reinstated to accrual status when improvements in credit quality eliminate the doubt as to the full collectibility of both interest and principal. The following table summarizes the nonperforming assets of the Company for the periods indicated: - ------------------------------------------------------------------------------------------------------- (In millions) December 31, 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------- Performing nonaccrual loans $3.5 $3.5 $1.8 $1.6 $4.3 Nonperforming nonaccrual loans 4.5 5.5 6.8 16.5 12.5 - ------------------------------------------------------------------------------------------------------- Nonaccrual loans 8.0 9.0 8.6 18.1 16.8 - ------------------------------------------------------------------------------------------------------- Restructured loans -- -- -- -- 0.2 Loans 90 or more days past due and still accruing 0.6 0.5 0.5 1.0 1.8 Other real estate owned 2.1 3.3 4.3 7.4 9.9 - ------------------------------------------------------------------------------------------------------- Total nonperforming assets $10.7 $12.8 $13.4 $26.5 $28.7 ======================================================================================================= Allowance for loan losses as a percentage of nonaccrual loans and loans 90 or more days past due and still accruing 601% 540% 564% 265% 271% Allowance for loan losses as a percentage of total nonperforming assets 487% 402% 383% 191% 177% =======================================================================================================
Performing nonaccrual loans at December 31, 2000 were unchanged from the prior year while nonperforming nonaccrual loans decreased $1.0 million during the same period. Both categories were affected by extensive activity during the year; most loans that were on nonaccrual status at December 31, 1999; either were paid off or returned to full accrual status, while others were added to replace them. The $1.2 million decrease in other real estate owned balances from December 31, 1999 was due to writedowns and liquidations net of foreclosures. The increase in nonaccrual loans from 1998 to 1999 was primarily due to the addition of one large group of related credits, offset by other reductions. The decrease in other real estate owned balances at December 31 1999 from December 31, 1998 was due to writedowns and liquidations net of foreclosures The amount of gross interest income that would have been recorded for nonaccrual loans if all such loans had been current in accordance with their original terms while outstanding during the period, was $859 thousand in 2000, $751 thousand in 1999 and $855 thousand in 1998. The amount of interest income that was recognized on nonaccrual loans from cash payments made in 2000, 1999 and 1998 was $653 thousand, $473 thousand and $573 thousand, respectively. Cash payments received, which were applied against the book balance of performing and nonperforming nonaccrual loans outstanding at December 31, 2000, totaled approximately $527 thousand, compared to $356 thousand and $952 thousand in 1999 and 1998, respectively. The overall credit quality of the loan portfolio continues to be strong; however, the total nonperforming assets could fluctuate from year to year. The performance of any individual loan can be impacted by external factors such as the interest rate environment or factors particular to the borrower. The Company expects to maintain nonperforming asset levels; however, no assurance can be given that additional increases in nonaccrual loans will not occur in future periods. Loan loss experience The Company's allowance for loan losses is maintained at a level estimated to be adequate to provide for losses that can be reasonably anticipated based upon specific conditions, credit loss experience, the amount of past due, nonperforming loans and classified loans, recommendations of regulatory authorities, prevailing economic conditions and other factors. The allowance is allocated to segments of the loan portfolio based in part on quantitative analyses of historical credit loss experience, in which criticized and classified loan balances are analyzed using a linear regression model to determine standard allocation percentages. The results of this analysis are applied to current criticized and classified loan balances to allocate the allowance to the respective segments of the loan portfolio. Loans with similar characteristics not usually criticized using regulatory guidelines due to their small balances and numerous accounts are analyzed based on the historical rate of net losses and delinquency trends grouped by the number of days the payments on those loans are delinquent. A portion of the allowance is also allocated to impaired loans. Management considers the $52.3 million allowance for loan losses, which constituted 2.11 percent of total loans at December 31, 2000, to be adequate as a reserve against inherent losses. However, while the Company's policy is to charge off in the current period those loans on which the loss is considered probable, the risk exists of future losses which cannot be precisely quantified or attributed to particular loans or classes of loans. Management continues to evaluate the loan portfolio and assess current economic conditions that will dictate future allowance levels. The following table summarizes the loan loss experience of the Company for the periods indicated: - ------------------------------------------------------------------------------------------------------- (In thousands) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------- Total loans outstanding $2,482,159 $2,320,846 $2,297,897 $2,261,937 $2,287,240 Average loans outstanding during the period $2,369,065 2,292,386 2,262,082 2,248,048 2,249,520 Analysis of the reserve Beginning balance $51,574 $51,304 $50,630 $50,921 $48,494 Additions to the reserve charged to operating expense 3,676 4,780 5,180 7,645 12,306 Allowance acquired through merger 1,036 0 0 0 1,665 Credit losses: Commercial and commercial real estate (4,148) (5,071) (5,113) (6,824) (7,998) Real estate construction 0 (94) -- (962) (781) Real estate residential (16) (18) (97) (374) (1,862) Consumer (3,818) (2,754) (3,358) (4,323) (5,376) - ------------------------------------------------------------------------------------------------------- Total (7,982) (7,937) (8,568) (12,483) (16,017) Credit loss recoveries Commercial and commercial real estate 2,332 2,052 2,305 2,498 2,227 Real estate construction 0 0 10 160 44 Real estate residential 0 0 1 34 72 Consumer 1,643 1,375 1,746 1,855 2,130 - ------------------------------------------------------------------------------------------------------- Total 3,975 3,427 4,062 4,547 4,473 - ------------------------------------------------------------------------------------------------------- Net credit losses (4,007) (4,510) (4,506) (7,936) (11,544) - ------------------------------------------------------------------------------------------------------- Balance, end of period $52,279 $51,574 $51,304 $50,630 $50,921 ======================================================================================================= Net credit losses to average loans 0.17% 0.20% 0.20% 0.35% 0.51% Allowance for loan losses as a percentage of loans outstanding 2.11% 2.22% 2.23% 2.24% 2.23%
Allocation of the Allowance for Loan Losses The following table presents the allocation of the allowance for loan losses as of December 31 for the years indicated: - ---------------------------------------------------------------------------------------------------------------------------------- 2000 Loans 1999 Loans 1998 Loans 1997 Loans 1996 Loans Allocation as Allocation as Allocation as Allocation as Allocation as of the Percent of the Percent of the Percent of the Percent of the Percent Allowance of Total Allowance of Total Allowance of Total Reserve of Total Reserve of Total Balance Loans Balance Loans Balance Loans Balance Loans Balance Loans - ---------------------------------------------------------------------------------------------------------------------------------- ( Dollars and thousands) Commercial $21,632 63% $23,523 65% $22,240 64% $22,649 63% $22,743 64% Real estate construction 4,344 3 2,042 2 4,055 3 4,374 3 3,471 4 Real estate residential 427 14 877 14 310 17 87 16 2,489 12 Consumer 5,648 20 4,670 19 4,260 16 4,356 18 6,543 20 Unallocated portion of the reserve * 20,228 "-- 20,462 "-- 20,439 "-- 19,164 "-- 15,675 "-- - ---------------------------------------------------------------------------------------------------------------------------------- Total $52,279 100% $51,574 100% $51,304 100% $50,630 100% $50,921 100% ==================================================================================================================================
The Company considers a loan to be impaired when, based on current information and events, it is "probable" that it will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. The measurement of impairment may be based on (i) the present value of the expected cash flows of the impaired loan discounted at the loan's original effective interest rate, (ii) the observable market price of the impaired loan or (iii) the fair value of the collateral of a collateral-dependent loan. The Company does not apply this definition to large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment. In measuring impairment, the Company reviews all commercial and construction loans classified "Substandard" and "Doubtful" that meet materiality thresholds of $250 thousand and $100 thousand, respectively. The Company considers classified loans below the established thresholds to represent immaterial loss risk. All loans classified as "Loss" are considered impaired. Commercial and construction loans that are not classified, and large groups of smaller-balance homogeneous loans such as installment, personal revolving credit, residential real estate and student loans, are evaluated collectively for impairment under the Company's standard loan loss reserve methodology. The Company generally identifies loans to be reported as impaired when such loans are in nonaccrual status or are considered troubled debt restructurings due to the granting of a below-market rate of interest or a partial forgiveness of indebtedness on an existing loan. The following summarizes the Company's impaired loans for the periods indicated: (In thousands) - --------------------------------------------------------------------- At December 31, 2000 1999 - --------------------------------------------------------------------- Nonaccrual loans $8,024 $8,960 Other 3,704 6,146 - --------------------------------------------------------------------- Total impaired loans $11,728 $15,106 ===================================================================== Specific reserves $1,817 $2,105 ===================================================================== The $3.7 million balance of impaired loans as of December 31, 2000, other than nonaccrual loans, is due to one commercial real estate loan having collateral exposure that may preclude ultimate full repayment. Payment on this credit was current as of December 31, 2000. The average balance of the Company's impaired loans for the year ended December 31, 2000 was $12.5 million compared to $15.5 million in 1999. The amount of that recorded investment for which there is no related allowance for credit losses was $0. In general, the Company does not recognize any interest income on troubled debt restructurings or loans that are classified as nonaccrual. For other impaired loans, interest income may be recorded as cash is received, provided that the Company's recorded investment in such loans is deemed collectible. ASSET AND LIABILITY MANAGEMENT The fundamental objective of the Company's management of assets and liabilities is to maximize its economic value while maintaining adequate liquidity and a conservative level of interest rate risk. In adjusting the Company's asset/liability position, Management attempts to manage interest rate risk while enhancing net interest margins. At times, depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, Management may increase the Company's interest rate risk position in order to increase its net interest margin. The Company's results of operations and net portfolio values remain subject to increases in interest rates and to fluctuations in the difference between long and short-term interest rates. The primary analytical tool used by the Company to quantify interest rate risk is a simulation model to project changes in net interest income ("NII") that result from forecast changes in interest rates. This analysis calculates the difference between a NII forecast over a 12-month period using a flat interest rate scenario and a NII forecast using a rising (or falling) rate scenario, where the Federal Funds rate, serving as a "driver," is made to rise (or fall) evenly by 200 basis points over the 12-month forecast interval triggering a response in the other rates. Company policy requires that such simulated changes in NII should always be less than 10 percent or steps must be taken to reduce interest rate risk. According to the same policy, if the simulated changes in NII reach 7.5 percent, a closer inspection of the risk will be put in place to determine what steps could be taken to control risk. The following table summarizes the simulated change in NII, based on the 12-month period ending December 31, 2001: - --------------------------------------------------------- Changes in Estimated Increase Interest (Decrease) in NII Rates Estimated ----------------------- (Basis Points) NII Amount Amount Percent - --------------------------------------------------------- (Dollars in millions) +200 $196.6 ($4.8) -2.4% -- 201.4 -- -- - -200 202.9 1.5 0.7 ========================================================= The Company does not currently engage in trading activities or use derivative instruments to control interest rate risk, even though such activities may be permitted with the approval of the Company's Board of Directors. Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange risk, equity price risk and commodity price risk, do not arise in the normal course of the Company's business activities. Interest rate sensitivity analysis The following table summarizes the interest rate sensitivity gaps inherent in the Company's asset and liability portfolios at December 31, 2000: =================================================================================================================== Repricing within (days) - ------------------------------------------------------------------------------------------------------------------- Non- 0-90 91-180 181-365 Over 365 Repricing Total - ------------------------------------------------------------------------------------------------------------------- Assets Investment securities $46 $41 $114 $948 $0 $1,149 Loans 695 85 161 1,544 0 2,485 Other assets 0 0 0 0 397 397 - ------------------------------------------------------------------------------------------------------------------- Total assets $741 $126 $275 $2,492 $397 $4,031 =================================================================================================================== Liabilities Non-interest bearing $-- $-- $-- $-- $1,014 $1,014 Interest-bearing: Transaction 526 -- -- -- -- 526 Money market savings 167 167 242 -- -- 576 Passbook savings 241 -- -- -- -- 241 Time 468 222 145 45 -- 880 Short-term borrowings 184 36 167 0 -- 387 Debt financing and notes payable 3 -- -- 28 -- 31 Other liabilities -- -- -- -- 38 38 Shareholders' equity -- -- -- -- 338 338 - ------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,589 $425 $554 $73 $1,390 $4,031 =================================================================================================================== Net (liabilities) assets subject to repricing ($848) ($299) ($279) $2,419 ($993) - ------------------------------------------------------------------------------------------------------------------- Cumulative net (liabilities) assets subject to repricing ($848) ($1,147) ($1,426) $993 $0 ===================================================================================================================
The repricing terms of the table above do not represent contractual principal maturity, but rather principal cash flows available for repricing. The interest rate sensitivity report shown above categorizes interest-bearing transaction deposits and savings deposits as repricing within 30 days. However, it is the experience of Management that the historical interest rate volatility of these interest-bearing transaction and savings deposits can be similar to liabilities with longer repricing dates, depending on market conditions. Moreover, the degree to which these deposits respond to changes in money market rates usually is less than the response of interest-rate sensitivity loans. These factors cause the cumulative net liability position shown above to indicate a much greater degree of liability sensitivity than Management believes really exists based on the additional analysis previously discussed. Liquidity The Company's principal source of liquidity is its operating activities. The Company's profitability in 2000, 1999, and 1998 generated substantial cash flows of $93.1 million, $95.9 million and $63.3 million respectively. The Company's investing activities were also a net source of cash in 2000. Proceeds from maturing investment securities of $164.4 million were only partially reinvested, for a net increase in cash of $103.9 million. Much of this cash was consumed by net disbursements of loans, which amounted to $97.6 million during this year. Other investing activities contributed $5.4 million. However, investing activities were net users of cash in 1999 and 1998. Net disbursement of loans were $29.7 million in 1999 and, in addition, the Company increased its investment securities, portfolio by $47.5 million primarily in US agencies and municipal securities, partially offset by decreases in US Treasury and asset backed securities. Net disbursements of loans were $42.4 million in 1998, which were partially funded by a reduction in investment securities of $23.4 million. During 2000 the Company used cash in connection with its financing activities. Short-term borrowings and notes payable were reduced by $86.3 million, and $58.4 million was disbursed for the purchase and retirement of capital stock. A third significant use of cash was the payment of $27.O million in shareholder dividends. Much of the combined $171.7 million in cash used in financing activities was replaced by $91.1 million in additional deposits. Financing activities were a net source of cash in 1999. The effect of the Company's stock repurchase program and dividends paid to shareholders of $100.2 million, and $25.6 million, respectively, in addition to $ 123.7 million decrease in customers' deposits and the repayment of $6.0 million in long term debt and debt financing, was offset by an increase of $258.7 million in short term borrowings. The combination of these factors resulted in a total of $7.8 million in net cash provided by financing activities during 1999. Conversely, during 1998, customers' deposits increased $110.5 million and stock issued primarily for stock option exercises totaled $12.5 million, but these cash inflows were offset by cash used by the Company for its share repurchase program and other retirement of stock activities, totaling $ 104.8 million, dividends paid to the Company's shareholders for $21.9 million and reductions in short term borrowings and debt financing in the amounts of $61.2 million and $5.0 million respectively. The Company anticipates increasing its cash levels through the end of 2001 mainly due to increased profitability and retained earnings. It is anticipated that the investment securities portfolio and demand of loans will continue to increase moderately, and that share repurchases continue. The growth of deposit balances is expected to follow the anticipated growth in loan and investment balances through the end of 2001. CAPITAL RESOURCES The current and projected capital position of the Company and the impact of capital plans and long-term strategies is reviewed regularly by Management. The Company's capital position represents the level of capital available to support continued operations and expansion. The Company annually repurchases approximately 1.0 million of its shares of Common Stock in the open market with the intention of lessening the dilutive impact of issuing new shares to meet employee stock awards, option plans, and other ongoing requirements. In addition to these systematic repurchases, other programs have been implemented to optimize the Company's use of equity capital and enhance shareholder value. Pursuant to these programs, the Company repurchased an additional 840 thousand shares in 2000, 1.7 million in 1999 and 2.1 million and 1998. The Company's primary capital resource is shareholders' equity, which increased $37 million or 12.4% percent from the previous year end and decreased $68 million or 18.5% percent from December 31, 1998. The ratio of total risk-based capital to risk-adjusted assets was 11.61 percent at December 31, 2000, compared to 11.75 percent at December 31, 1999. Tier I risk-based capital to risk-adjusted assets was 10.20 percent at December 31, 2000, compared to 9.82 percent at December 31, 1999. Capital to Risk-Adjusted Assets - --------------------------------------------------------------------- Minimum Regulatory Capital At December 31, 2000 1999 Requirements - --------------------------------------------------------------------- Tier I Capital 10.20% 9.82% 4.00% Total Capital 11.61% 11.75% 8.00% Leverage ratio 7.89% 7.48% 4.00% ===================================================================== Capital ratios are reviewed on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet the Company's future needs. All ratios are in excess of the regulatory definition of "well capitalized." Financial Ratios The following table shows key financial ratios for the periods indicated: - ------------------------------------------------------------------------------------------------------- At December 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------- Return on average total assets 2.06% 1.99% 1.94% Return on shareholders' equity 25.78% 23.31% 19.48% Average shareholders' equity as a percentage of: Average total assets 7.98% 8.53% 9.97% Average total loans 13.06% 14.24% 16.66% Average total deposits 9.80% 10.52% 12.26% Dividend payout ratio (diluted EPS) 34.00% 34.00% 30.00%
Deposit categories The Company primarily attracts deposits from local businesses and professionals, as well as through retail certificates of deposit, savings and checking accounts. The following table summarizes the Company's average daily amount of deposits and the rates paid for the periods indicated: - ------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- Percentage Percentage Percentage Average of Total Average of Total Average of Total (Dollars in thousands) Balance Deposits Rate * Balance Deposits Rate * Balance Deposits Rate * - -------------------------------------------------------------------------------------------------------------------------------- Non-interest bearing demand $953,667 30.2% --% $857,650 27.6% --% $791,952 25.8% --% Interest bearing: Transaction 508,969 16.1% 0.83% 536,067 17.3% 0.70% 554,834 18.0% 1.14% Savings 841,270 26.6% 2.21% 873,324 28.1% 2.25% 906,930 29.5% 2.64% Time less than $100 thousand 391,500 12.4% 5.05% 410,092 13.2% 4.42% 438,052 14.3% 4.99% Time $100 thousand or more 462,506 14.6% 5.59% 425,949 13.7% 4.57% 381,754 12.4% 5.04% - ------------------------------------------------------------------------------------------------------------------------------- Total $3,157,912 100.00% 3.10% $3,103,082 100.00% 3.13% 3,073,522 100.00% 3.13% =============================================================================================================================== *Rate is computed based on interest-bearing deposits
During 2000, total average deposits increased by $54 million or 2% from 1999 due to an inflow of $96 million of non interest bearing deposits offset by a reduction in interest bearing demand and savings deposits totaling $60 million. In addition public and jumbo CDS went up by $37 million with a corresponding reduction in consumer CDS of $14 million During 1999, total average deposits increased $29.6 million or 1 percent from 1998 primarily due to aggressive policies in place resulting in a combined increase of $46.9 million in demand deposits and interest-bearing transaction accounts. The increase of $65.7 million in non-interest bearing demand deposits was partially offset by $18.8 million decrease in interest bearing transaction accounts. The following sets forth, by time remaining to maturity, the Company's domestic time deposits in amounts of $100 thousand or more: - --------------------------------------------------------------------- At December 31, (In thousands) 2000 - --------------------------------------------------------------------- Three months or less $272,092 Over three through six months 203,226 Over six through twelve months 6,246 Over twelve months 952 - --------------------------------------------------------------------- Total $482,516 ===================================================================== Short-term borrowings The following table sets forth the short-term borrowings of the Company for the periods indicated: (In thousands) - --------------------------------------------------------------------------------- At December 31, 2000 1999 1998 - --------------------------------------------------------------------------------- Federal funds purchased $183,550 $254,000 $50,000 Other borrowed funds: Retail repurchase agreements 35,770 59,552 28,693 Other 167,622 148,793 124,978 - --------------------------------------------------------------------------------- Total other borrowed funds $203,392 $208,345 $153,671 - --------------------------------------------------------------------------------- Total funds purchased $386,942 $462,345 $203,671 =================================================================================
Further detail of the other borrowed funds is as follows: (In thousands) - --------------------------------------------------------------------------------- At December 31, 2000 1999 1998 - --------------------------------------------------------------------------------- Outstanding: Average for the year $210,811 $178,848 $195,415 Maximum during the year 228,499 265,741 247,799 Interest rates: Average for the year 4.40% 3.91% 4.61% Average at period end 4.00% 4.15% 3.49%
NONINTEREST INCOME Components of noninterest income - --------------------------------------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------- (In millions) Service charges on deposit accounts $21.1 $20.3 $20.1 Merchant credit card 4.0 3.6 3.2 Financial services commissions 1.6 2.7 1.7 Debit card fees 1.2 0.4 0.0 Mortgage banking 0.8 0.8 1.4 Trust fees 0.8 0.7 0.6 Other 11.6 11.7 10.8 - --------------------------------------------------------------------------------- Total $41.1 $40.2 $37.8 =================================================================================
Noninterest income increased $900 thousand or 2.4% in 2000, primarily due to higher deposit service charges, specifically those related to customer overdrafts and items returned due to insufficient funds. Those categories benefited from revised service charge calculation methodologies implemented in late 1999 using a process of price escalators determined by volume by customer. Service charges generated from users of the Company's debit card product introduced in 1999, grew from $400 thousand to $1.2 million. Merchant credit card income grew by 11% or $400 thousand due to expanding sales volume. The other category included a $1.5 million litigation settlement in 1999 that did not recur in 2000; the decline was largely offset by increases in gains on sale of foreclosed property, ATM surcharge income and revenue from the sale of official checks. Financial services commissions were high in 1999 due to fees earned upon one-time product conversions. Noninterest income was $40.2 million in 1999, $2.4 million higher than 1998. Financial services commissions were $1.0 million higher than 1998 due to more aggressive marketing efforts resulting in higher sales volume on all products, including annuities, securities and life insurance. Merchant credit card income was $400 thousand higher than 1998, mainly due to fee restructuring and higher sales volume; service charges on deposit accounts were $200 thousand higher than in 1998 as a result of higher fees from overdraft and non-sufficient funds returned items; and trust fees were $100 thousand higher than in 1998. A litigation settlement of $1.5 million accounted for the majority of the increases in other noninterest income category. Partially offsetting these increases from prior year, mortgage banking income was $600 thousand lower than in 1998, due to declining service income, lower gains on sales of loans in the secondary market and lower banking fees due to reduced refinancing volume. NONINTEREST EXPENSE Components of noninterest expense - --------------------------------------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------- (In millions) Salaries $40.3 $40.0 $40.0 Other personnel benefits 11.0 10.7 11.1 Occupancy 11.4 12.2 11.6 Equipment 6.5 6.9 7.4 Data processing 6.0 6.0 5.9 Contact courier 3.5 3.3 3.5 Amortization of intangible assets 2.2 1.9 1.9 Telephone 2.2 2.1 2.3 Postage 2.0 2.3 2.1 Professional fees 1.9 1.7 2.3 Stationery and supplies 1.6 1.6 1.8 Merchant credit card processing 1.6 1.4 1.2 Advertising and public relations 1.3 1.3 1.4 Loan expenses 1.0 1.3 1.5 Operational losses 0.9 1.2 1.0 Other 6.8 6.2 6.4 - --------------------------------------------------------------------------------- Total $100.2 $100.1 $101.4 ================================================================================= Average full-time equivalent staff 1,082 1,098 1,135 Noninterest expense to revenues ("efficiency ratio")(FTE) 42.4% 43.2% 44.2% =================================================================================
Noninterest expense increased by less than $100 thousand in 2000 compared to 1999, resulting in a further improvement in the Company's efficiency ratio to 42.4%. The largest category of increase was personnel-related costs. On a percentage basis the $600 thousand change in personnel-related costs equated to a nominal 1.1%. The growth was the net effect of merit increases to employees and one-time severance costs incurred in connection with the Company's acquisition of First Counties Bank in August 2000, partially reduced by fewer number of employees and lower incentives. The next largest increase was the amortization of intangible assets created in connection with certain acquisitions accounted for as purchases. The $300 thousand increase in amortization resulted from the First Counties Bank acquisition. Contract courier expense grew $200 thousand, as the Company continued its strategy of providing courier services to an increased number of business clients. Professional fees increased $200 thousand primarily in connection with legal costs incurred as a result of the First Counties Bank acquisition. Merchant credit card processing grew $200 thousand or 12%, consistent with the revenue growth discussed above. Offsetting these increases, occupancy costs dropped $800 thousand or 6%. The primary cause of the decrease was the expiration of a long term lease commitment for office space assumed in connection with a 1995 acquisition. Equipment expense, which consists largely of depreciation charges, decreased $400 thousand or 5% as certain technology assets purchased in the mid- 1990's became fully amortized. Postage costs decreased $300 thousand, as the Company took advantage of more efficient methods for distributing customer statements and notices. Loan expenses declined $300 thousand. Operational losses were lower by $300 thousand as 2000 was not affected by any unusually-large individual losses, unlike prior years. Noninterest expense decreased $1.3 million in 1999 compared to 1998. Professional fees were $600 thousand lower than 1998, including lower legal fees, primarily due to reduced problem-credit related expenses, and lower accounting costs primarily due to a reduced number of special projects undertaken in 1999; Equipment expenses were $500 thousand lower than prior year primarily due to lower depreciation costs and lower lease and maintenance expenses resulting from contract renegotiations; and the cost of other personnel benefits was $400 thousand lower than 1998 primarily due to reduced expenses related to some of the Company's compensation plans. Other expense reductions from 1998 include $200 thousand reduction of stationery and supplies costs, $200 thousand lower loan expense primarily due to reduced appraisal fees and costs related to foreclosures on properties acquired in satisfaction of debt ("other real estate owned"); $100 thousand lower advertising and public relations expense, including decreased costs in connection with the publication of shareholders' reports, and $100 thousand lower insurance expenses resulting from more beneficial cost characteristics in connection with newly negotiated policies. Partially offsetting these favorable changes from prior year, occupancy costs were $600 thousand higher than 1998, including increased maintenance, utilities and rental costs; merchant credit card related costs were $200 thousand higher than prior year mainly due to increased processing expenses and increased assessments from credit card servicers; and operational losses were $200 thousand higher than 1998. The ratio of average assets per full-time equivalent staff was $3.53 million in 2000 compared to $3.49 million and $3.33 million in 1999 and 1998, respectively. The reduction of the average number of full-time equivalent staff from 1,135 in 1998 to 1,098 and 1,082 in 1999 and 2000, respectively, is reflective of the Company's continuing strategy to improve efficiency. PROVISION FOR INCOME TAX The provision for income taxes (FTE) increased by $1.6 million or 3.2% in 2000. The increase in the provision is the result of higher pretax income, which increased $5.3 million or 4%. This impact was partially reduced by income tax credits related to the Company's investments in low income housing investments and lending into tax-advantaged areas. These tax credits lowered the effective tax rate to 39.6%. The income tax provision increased by $1.6 million in 1999 mainly as a result of higher pretax income. The 1999 provision of $50.8 million reflects an effective tax rate of 40.0 percent compared to provision of $49.2 million in 1998, representing an effective tax rate of 40.1 percent. CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company is including the following cautionary statement to take advantage of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statement made by, or on behalf of, the Company. The factors identified in this cautionary statement are important factors (but not necessarily included all important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. Where any such forward-looking statement includes a statement of the assumptions of bases underlying such forward-looking statement, the Company cautions that, while it believes such assumptions or bases to be reasonable and makes them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, the Company expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result, or be achieved or accomplished. ITEM 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page Consolidated Balance Sheets as of December 31, 2000 and 1999 50 Consolidated Statements of Income and Comprehensive Income for years ended December 31, 2000, 1999 and 1998 51 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 52 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 53 Notes to Consolidated Financial Statements 54 Independent Auditors' Report 85 Management's Letter of Financial Responsibility 86 CONSOLIDATED BALANCE SHEETS (In thousands) Balances as of December 31, 2000 1999 ASSETS Cash and cash equivalents (Note 15) $286,482 $255,738 Money market assets 250 250 Investment securities available for sale (Note 2) 921,275 982,337 Investment securities held to maturity; market values of $231,906 in 2000 and $235,147 in 1999 (Note 2) 228,035 237,154 Loans, net of an allowance for loan losses of: $52,279 in 2000 and $51,574 in 1999 (Notes 3,4 and 14) 2,429,880 2,269,272 Other real estate owned 2,065 3,269 Premises and equipment, net (Note 5) 42,182 44,016 Interest receivable and other assets (Note 9) 121,212 101,151 Total assets $4,031,381 $3,893,187 LIABILITIES Deposits: Non-interest bearing $1,014,230 $911,556 Interest bearing: Transaction 526,178 485,860 Savings 816,635 840,644 Time (Notes 2 and 6) 879,701 827,284 Total deposits 3,236,744 3,065,344 Short-term borrowed funds (Notes 2 and 6) 386,942 462,345 Liability for interest, taxes and other expenses (Note 9) 38,912 23,406 Debt financing and notes payable (Note 6) 31,036 41,500 Total liabilities 3,693,634 3,592,595 SHAREHOLDERS' EQUITY (Notes 7 and 15) Common Stock (no par value) Authorized - 150,000 shares Issued and outstanding - 36,251 in 2000 and 37,125 in 1999 206,952 186,435 Accumulated other comprehensive income: Unrealized (loss) gain on securities available for sale, net 7,169 (4,521) Retained earnings 123,626 118,678 Total shareholders' equity 337,747 300,592 Total liabilities and shareholders' equity $4,031,381 $3,893,187
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In thousands, except per share data) For the years ended December 31, 2000 1999 1998 INTEREST INCOME Loans $199,866 $186,652 $195,656 Money market assets and funds sold 18 4 42 Investment securities: Available for sale Taxable 44,860 46,838 47,785 Tax-exempt 11,491 10,744 9,713 Held to maturity Taxable 5,063 5,313 5,914 Tax-exempt 8,218 8,105 7,710 Total interest income 269,516 257,656 266,820 INTEREST EXPENSE Transaction deposits 4,203 3,736 6,321 Savings deposits 18,624 19,622 23,943 Time deposits (Note 6) 45,610 37,552 41,087 Short-term borrowed funds (Note 6) 17,668 14,285 11,670 Debt financing and notes payable (Note 6) 2,509 3,261 3,644 Total interest expense 88,614 78,456 86,665 NET INTEREST INCOME 180,902 179,200 180,155 Provision for loan losses (Note 3) 3,675 4,780 5,180 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 177,227 174,420 174,975 NON-INTEREST INCOME Service charges on deposit accounts 21,066 20,316 20,052 Merchant credit card 4,005 3,605 3,229 Financial services commissions 1,634 2,650 1,676 Mortgage banking 807 777 1,437 Trust fees 848 697 626 Other 12,770 12,129 10,785 Total non-interest income 41,130 40,174 37,805 NON-INTEREST EXPENSE Salaries and related benefits (Note 13) 51,266 50,706 51,094 Occupancy (Notes 5 and 11) 11,447 12,153 11,582 Furniture and equipment (Notes 5 and 11) 6,523 6,874 7,372 Data processing 6,025 5,967 5,940 Professional fees 1,864 1,652 2,250 Other real estate owned and property held for sale 467 299 339 Other 22,606 22,482 22,831 Total non-interest expense 100,198 100,133 101,408 INCOME BEFORE INCOME TAXES 118,159 114,461 111,372 Provision for income taxes (Note 9) 38,380 38,373 37,976 NET INCOME $79,779 $76,088 $73,396 Comprehensive income, net: Change in unrealized (loss) gain on securities available for sale, net 11,690 (24,705) 2,261 COMPREHENSIVE INCOME $91,469 $51,383 $75,657 Average shares outstanding 36,410 38,588 41,797 Diluted average shares outstanding 36,936 39,194 42,524 PER SHARE DATA (Note 7) Basic earnings $2.19 $1.97 $1.76 Diluted earnings 2.16 1.94 1.73 Dividends paid 0.74 0.66 0.52
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands) ======================================================================================================== Accumulated other comprehensive Retained Common Stock income Earnings Total - -------------------------------------------------------------------------------------------------------- December 31, 1997 $198,517 $17,923 $190,712 $407,152 Net income for the year -- -- 73,396 73,396 Stock issued 12,475 -- -- 12,475 Purchase and retirement of stock (15,836) -- (88,988) (104,824) Dividends -- -- (21,864) (21,864) Unrealized gain on securities available for sale, net -- 2,261 -- 2,261 - -------------------------------------------------------------------------------------------------------- December 31, 1998 195,156 20,184 153,256 368,596 Net income for the year -- -- 76,088 76,088 Stock issued 6,421 -- -- 6,421 Purchase and retirement of stock (15,142) -- (85,085) (100,227) Dividends -- -- (25,581) (25,581) Unrealized loss on securities available for sale, net -- (24,705) -- (24,705) - -------------------------------------------------------------------------------------------------------- December 31, 1999 186,435 (4,521) 118,678 300,592 Net income for the year -- -- 79,779 79,779 Stock issued 31,119 -- -- 31,119 Purchase and retirement of stock (10,602) -- (47,838) (58,440) Dividends -- -- (26,993) (26,993) Unrealized gain on securities available for sale, net -- 11,690 -- 11,690 December 31, 2000 $206,952 $7,169 $123,626 $337,747 ========================================================================================================
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) - --------------------------------------------------------------------------------------------------------------------- For the years ended December 31, 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $79,779 $76,088 $73,396 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,957 8,234 8,623 Loan loss provision 3,675 4,780 5,180 Amortization of deferred net loan fees 461 1,299 431 (Increase) decrease in interest income receivable (4,930) (1,212) 1,533 (Increase) decrease in other assets (1,358) 952 (14,361) Increase (decrease) in income taxes payable 3,333 (747) 1,752 Increase in interest expense payable 1,847 626 401 Increase (decrease) in other liabilities 2,584 6,803 (10,683) Net loss (gain) on sales/write-down of equipment 35 10 (309) Originations of loans for resale (1,986) (18,250) (23,578) Net proceeds from sale of loans originated for resale 1,986 17,533 21,374 Net gain on sale of property acquired in satisfaction of debt (695) (322) (1,043) Write-downs of other real estate owned 442 88 579 - --------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 93,130 95,882 63,295 - --------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Net cash obtained in mergers and acquisitions 3,034 -- -- Net (disbursements) repayments of loans (97,610) (29,693) (42,429) Purchases of investment securities available for sale (57,329) (387,095) (332,747) Purchases of investment securities held to maturity (3,170) (32,882) (54,685) Purchases of property, plant and equipment (2,570) (3,519) (4,195) Proceeds from maturity of securities available for sale 152,120 348,986 314,321 Proceeds from maturity of securities held to maturity 12,291 22,722 58,653 Proceeds from sale of securities available for sale 1,357 803 37,898 Proceeds from sale of property and equipment 20 46 1,419 Proceeds from sale other real estate owned 3,604 2,932 7,266 - --------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 11,747 (77,700) (14,499) - --------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net increase (decrease) in deposits 91,149 (123,661) 110,504 Net (decrease) increase in short-term borrowings (75,803) 258,674 (61,177) Repayments of notes payable and debt financing (10,464) (6,000) (5,000) Exercise of stock options/issuance of shares 6,418 4,617 12,475 Retirement of common stock including repurchases (58,440) (100,227) (104,824) Dividends paid (26,993) (25,581) (21,864) - --------------------------------------------------------------------------------------------------------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (74,133) 7,822 (69,886) - --------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,744 26,004 (21,090) - --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 255,738 229,734 250,824 - --------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $286,482 $255,738 $229,734 ===================================================================================================================== SUPPLEMENTAL DISCLOSURES: Supplemental disclosure of non-cash activities Loans transferred to other real estate owned $1,996 $1,652 $3,736 Unrealized (loss) gain on securities available for sale, net 11,690 (24,704) 2,261 The acquisition of First Counties Bank involved the following: Common Stock issued 19,723 -- -- Liabilities assumed 82,356 -- -- Fair value of assets acquired, other than cash and cash equivalents (89,468) -- -- Goodwill (9,577) -- -- Net cash and cash equivalents received 3,034 -- -- Supplemental disclosure of cash flow activity Interest paid for the period 86,359 77,831 86,264 Income tax payments for the period 35,603 39,092 30,902 See accompanying notes to consolidated financial statements.
WESTAMERICA BANCORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Business and Accounting Policies Westamerica Bancorporation, a registered bank holding company (the "Company"), provides a full range of banking services to individual and corporate customers in Northern and Central California through its subsidiary bank, Westamerica Bank(the "Bank"). The Bank is subject to competition from other financial institutions and to the regulations of certain agencies and undergoes periodic examinations by those regulatory authorities. Summary of Significant Accounting Policies The consolidated financial statements are prepared in conformity with generally accepted accounting principles and general practices within the banking industry. The following is a summary of significant policies used in the preparation of the accompanying financial statements. In preparing the financial statements, Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the disclosure of income and expenses for the periods presented in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Principles of Consolidation. The consolidated financial statements include the accounts of the Company, and all the Company's subsidiaries which include the Bank and its subsidiary, Community Banker Services Corporation and its subsidiary, and The Money Outlet. Significant intercompany transactions have been eliminated in consolidation. Business Combinations. In a business combination accounted for as a pooling of interests, the assets, liabilities and shareholders' equity of the acquired entity are carried forward at their historical amounts and its results of operations are combined with the Company's results of operations. Additionally, the Company's prior period financial statements are restated to give effect to the merger. In a business combination accounted for as a purchase, the results of operations of the acquired entity are included from the date of acquisition. Assets and liabilities of the entity acquired are recorded at fair value on the date of acquisition. Goodwill and identified intangibles are amortized over their estimated lives. Cash Equivalents. Cash equivalents include Due From Banks balances and Federal Funds Sold which are both readily convertible to known amounts of cash and are generally 90 days or less from maturity, presenting insignificant risk of changes in value because of interest rate volatility. Securities. Investment securities consist of securities of the U.S. Treasury, federal agencies, states, counties and municipalities, and mortgage-backed, corporate debt and equity securities. The Company classifies its debt and marketable equity securities in one of three categories: trading, available for sale or held to maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Securities not included in trading or held to maturity are classified as available for sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized gains and losses on trading securities are included in earnings. Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are reported as a separate component of shareholders' equity until realized. The unrealized gains and losses included in the separate component of shareholders' equity for securities transferred from available for sale to held to maturity are maintained and amortized into earnings over the remaining life of the security as an adjustment to yield in a manner consistent with the amortization or accretion of premiums or discounts on the associated security. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary, results in a charge to earnings and the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available for sale or held to maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Loans and Allowance for Loan Losses. The allowance for loan losses is a combination of specific and general reserves available to absorb estimated future losses throughout the loan portfolio and is maintained at a level considered adequate to provide for such losses. Credit reviews of the loan portfolio, designed to identify problem loans and to monitor these estimates, are conducted continually, taking into consideration market conditions, current and anticipated developments applicable to the borrowers and the economy, and the results of recent examinations by regulatory agencies. Management approves the conclusions resulting from credit reviews. Ultimate losses may vary from current estimates. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the reserve based on their judgment of information available to them at the time of their examination. Loans are stated at the principal amount outstanding, net of unearned discount and deferred fees. Unearned interest on discounted loans is amortized over the life of these loans, using the sum-of-the-months digits formula for which the results are not materially different from those obtained by using the interest method. For all other loans, interest is accrued daily on the outstanding balances. Loans which are more than 90 days delinquent with respect to interest or principal, unless they are well secured and in the process of collection, and other loans on which full recovery of principal or interest is in doubt, are placed on non-accrual status. Non-refundable fees and certain costs associated with originating or acquiring loans are deferred and amortized as an adjustment to interest income over the estimated respective loan lives. Loans held for sale are identified upon origination and are reported at the lower of cost or market value on an individual loan basis. The Company recognizes a loan as impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest payments and the contractual principal payments of a loan will be collected as scheduled in the loan agreement. Other Real Estate Owned. Other real estate owned is comprised of property acquired through foreclosure proceedings, acceptances of deeds-in-lieu of foreclosure and some vacated bank properties. Losses recognized at the time of acquiring property in full or partial satisfaction of debt are charged against the allowance for loan losses. Other real estate owned is recorded at the lower of the related loan balance or fair value of the collateral, generally based upon an independent property appraisal, less estimated disposition costs. Subsequently, other real estate owned is valued at the lower of the amount recorded at the date acquired or the then current fair value less estimated disposition costs. Subsequent losses incurred due to the declines in annual independent property appraisals are recognized as non-interest expense. Routine holding costs, such as property taxes, insurance, maintenance and losses from sales and dispositions, are recognized as non-interest expense. Premises and Equipment. Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed substantially on the straight-line method over the estimated useful life of each type of asset. Estimated useful lives of premises and equipment range from 20 to 50 years and from 3 to 20 years, respectively. Leasehold improvements are amortized over the terms of the lease or their estimated useful life, whichever is shorter. Fully depreciated or amortized assets are removed from the Company's balance sheet. Intangible assets. Intangible assets (which are included in Other Assets) aggregating $20.4 million and $10.2 million (net of accumulated amortization of $19.3 million and $17.1 million) at December 31, 2000 and 1999, respectively, are comprised of core deposit intangibles and goodwill acquired in business combinations. Core deposit intangibles are amortized over the estimated lives of the existing deposit bases. Goodwill of $16.3 million in 2000 and $7.8 million in 1999 (net of accumulated amortization of $6.1 million and $5.1 million, respectively) is amortized on a straight-line basis over an average of 18 years. Management periodically reviews the balances to determine if such balances have been impaired. Impairment of Long-Lived Assets. The Company reviews for impairment of long-lived assets and certain intangibles to be held, whenever events or changes indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair market value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Income taxes. The Company and its subsidiaries file consolidated tax returns. For financial reporting purposes, the income tax effects of transactions are recognized in the year in which they enter into the determination of recorded income, regardless of when they are recognized for income tax purposes. Accordingly, the provisions for income taxes in the consolidated statements of income include charges or credits for deferred income taxes relating to temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Derivative Instruments and Hedging Activities. In June, 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), amended by SFAS 138 "Accounting for Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133." This statement standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. In addition, all hedging relationships must be designated. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The Company adopted SFAS No. 133 on January 1, 2001. The adoption of SFAS No. 133 did not have a significant impact on the Company's financial condition or operating results. Other. Securities and other property held by the Banks in a fiduciary or agency capacity are not included in the financial statements since such items are not assets of the Company or its subsidiaries. Reclassifications. Certain amounts in prior years' presentations have been reclassified to conform with the current presentation. These reclassifications have no effect on previously reported net income. Note 2: Investment Securities An analysis of the available-for-sale investment securities portfolio as of December 31, 2000, follows: - ----------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value - ----------------------------------------------------------------------------------- (In thousands) U.S. Treasury securities $186,989 $1,538 ($15) $188,513 Securities of U.S. Government agencies and corporations 206,561 1,248 (718) 207,091 Obligations of States and political subdivisions 235,877 6,132 (858) 241,151 Asset-backed securities 76,725 58 (104) 76,678 Other securities 201,877 7,174 (1,209) 207,842 - ----------------------------------------------------------------------------------- Total $908,029 $16,150 ($2,904) $921,275 ===================================================================================
An analysis of the held-to-maturity investment securities portfolio as of December 31, 2000, follows: - ----------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value - ----------------------------------------------------------------------------------- (In thousands) Securities of U.S. Government agencies and corporations $64,717 $115 ($1,500) $63,332 Obligations of States and political subdivisions 151,980 5,432 (176) 157,236 Other securities 11,338 -- -- 11,338 - ----------------------------------------------------------------------------------- Total $228,035 $5,547 ($1,676) $231,906 ===================================================================================
An analysis of the available-for-sale investment securities portfolio as of December 31, 1999, follows: - ----------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value - ----------------------------------------------------------------------------------- (In thousands) U.S. Treasury securities $184,939 $ -- ($1,461) $183,478 Securities of U.S. Government agencies and corporations 200,608 695 (6,003) 195,300 Obligations of States and political subdivisions 238,650 1,741 (5,611) 234,780 Asset-backed securities 144,292 31 (732) 143,591 Other securities 220,772 8,564 (4,148) 225,188 - ----------------------------------------------------------------------------------- Total $989,261 $11,031 ($17,955) $982,337 ===================================================================================
An analysis of the held-to-maturity investment securities portfolio as of December 31, 1999, follows: - ----------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value - ----------------------------------------------------------------------------------- (In thousands) Securities of U.S. Government agencies and corporations $70,418 $91 ($3,443) $67,066 Obligations of States and political subdivisions 155,813 2,581 (1,236) 157,158 Other securities 10,923 -- -- 10,923 - ----------------------------------------------------------------------------------- Total $237,154 $2,672 ($4,679) $235,147 ===================================================================================
The amortized cost and estimated market value of securities at December 31, 2000, by contractual maturity, are shown in the following table: - ----------------------------------------------------------------------------------- Securities Available Securities Held for Sale to Maturity -------------------------- ----------------------- Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value - ----------------------------------------------------------------------------------- (In thousands) Maturity in years: 1 year or less $141,212 $141,270 $2,692 $2,707 1 to 5 years 513,873 514,885 42,604 43,559 5 to 10 years 112,138 115,765 80,279 83,476 Over 10 years 108,145 109,586 26,405 27,494 - ----------------------------------------------------------------------------------- Sub-total 875,368 881,506 151,980 157,236 Mortgage-backed 8,951 9,630 64,717 63,332 Other securities 23,710 30,139 11,338 11,338 - ----------------------------------------------------------------------------------- Total $908,029 $921,275 $228,035 $231,906 ===================================================================================
Expected maturities of mortgage-backed securities can differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. In addition, such factors as prepayments and interest rates may affect the yield on the carrying value of mortgage-backed securities. At December 31, 2000 and 1999, the Company had no high-risk collateralized mortgage obligations. As of December 31, 2000, $742.9 million of investment securities were pledged to secure public deposits and short-term funding needs, compared to $767.5 million in 1999. Note 3: Loans and Allowance for Loan Losses Loans at December 31 consisted of the following: - ----------------------------------------------------------------------------------- 2000 1999 - ----------------------------------------------------------------------------------- (In thousands) Commercial $607,158 $652,413 Real estate-commercial 955,304 849,824 Real estate-construction 64,195 50,928 Real estate-residential 355,488 337,002 - ----------------------------------------------------------------------------------- Total real estate loans 1,374,987 1,237,754 Installment and personal 502,367 434,803 Unearned income (2,353) (4,124) - ----------------------------------------------------------------------------------- Gross loans 2,482,159 2,320,846 Allowance for loan losses (52,279) (51,574) - ----------------------------------------------------------------------------------- Net loans $2,429,880 $2,269,272 ===================================================================================
Included in real estate-residential at December 31, 2000 and 1999 are loans originated for resale of $1.4 million and $12.7 million, respectively, the cost of which approximates market value. The following summarizes the allowance for loan losses of the Company for the periods indicated: - ----------------------------------------------------------------------------------- 2000 1999 1998 - ----------------------------------------------------------------------------------- (In thousands) Balance at January 1, $51,574 $51,304 $50,630 Provision for loan losses 3,675 4,780 5,180 Loans charged off (7,982) (7,937) (8,568) Recoveries of loans previously charged off 3,976 3,427 4,062 Acquisition 1,036 -- -- - ----------------------------------------------------------------------------------- Balance at December 31, $52,279 $51,574 $51,304 ===================================================================================
At December 31, 2000, the recorded investment in loans for which impairment was recognized totaled $11.7 million compared to $15.1 million at December 31, 1999. The specific reserves at December 31, 2000 and 1999 were $1.8 million and $2.1 million, respectively. The amount of the recorded investment for which there is no related allowance for credit losses was $0. For the year ended December 31, 2000, the average recorded net investment in impaired loans was approximately $12.5 million compared to $15.5 million and $15.9 million, respectively, for the years ended December 31, 1999 and 1998. In general, the Company does not recognize any interest income on troubled debt restructurings or on loans that are classified as non-accrual. For other impaired loans, interest income may be recorded as cash is received, provided that the Company's recorded investment in such loans is deemed collectible. Non-accrual loans at December 31, 2000 and 1999 were $8.0 million and $9.0 million, respectively. The following is a summary of the effect of non-accrual loans on interest income for the years ended December 31: - ----------------------------------------------------------------------------------- 2000 1999 1998 - ----------------------------------------------------------------------------------- (In thousands) Interest income that would have been recognized had the loans performed in accordance with their original terms $859 $751 $855 Less: Interest income recognized on non-accrual loans (653) (473) (573) - ----------------------------------------------------------------------------------- Total effect on interest income $206 $278 $282 ===================================================================================
There were no commitments to lend additional funds to borrowers whose loans are included above. Note 4: Concentration of Credit Risk The Company's business activity is with customers in Northern and Central California. The loan portfolio is well diversified with no industry comprising greater than 10 percent of total loans outstanding as of December 31, 2000 and 1999. The Company has significant credit arrangements that are secured by real estate collateral. In addition to real estate loans outstanding as disclosed in Note 3, the Company had loan commitments and standby letters of credit related to real estate loans of $66.1 million and $69.6 million at December 31, 2000 and 1999, respectively. The Company requires collateral on all real estate loans and generally attempts to maintain loan-to-value ratios no greater than 75 percent on commercial real estate loans and no greater than 80 percent on residential real estate loans unless covered by mortgage insurance. Note 5: Premises and Equipment Premises and equipment as of December 31 consisted of the following: - ----------------------------------------------------------------------------------- Accumulated Depreciation and Net Book Cost Amortization Value - ----------------------------------------------------------------------------------- (In thousands) 2000 Land $10,360 $- $10,360 Buildings and improvements 33,742 (11,074) 22,668 Leasehold improvements 4,799 (2,673) 2,126 Furniture and equipment 14,820 (7,792) 7,028 - ----------------------------------------------------------------------------------- Total $63,721 ($21,539) $42,182 =================================================================================== 1999 Land $10,360 $- $10,360 Buildings and improvements 33,815 (10,479) 23,336 Leasehold improvements 6,256 (3,960) 2,296 Furniture and equipment 15,986 (7,962) 8,024 - ----------------------------------------------------------------------------------- Total $66,417 ($22,401) $44,016 ===================================================================================
Depreciation and amortization included in operating expenses amounted to $4.8 million in 2000, $5.4 million in 1999 and $5.5 million in 1998. Note 6: Borrowed Funds Debt financing and notes payable, including the unsecured obligations of the Company, as of December 31, 2000 and 1999, were as follows: - ----------------------------------------------------------------------------------- 2000 1999 - ----------------------------------------------------------------------------------- (In thousands) Subordinated note, issued by Westamerica Bank, originated in December 1993 and maturing September 30, 2003. Interest of 6.99% per annum is payable semiannually on March 31 and September 30, with original principal payment due at maturity. The Bank repurchased and retired $1.0 million in 1999 and $7.25 million in 2000. $11,750 $19,000 Senior notes, originated in February 1996 and maturing February 1, 2006. Interest of 7.11% per annum is payable semiannually on February 1 and August 1, with annual principal payments commencing February 1, 2000 and the remaining principal amount due at maturity. 19,286 22,500 - ----------------------------------------------------------------------------------- Total debt financing and notes payable $31,036 $41,500 ===================================================================================
The senior notes are subject to financial covenants requiring the Company to maintain, at all times, certain minimum levels of consolidated tangible net worth and maximum levels of capital debt. The Company is currently in compliance with all of the covenants in the senior notes indenture. At December 31, 2000 and 1999, the Company had unused lines of credit amounting to $2.5 million. Compensating balance arrangements are not significant to the operations of the Company. At December 31, 2000 and 1999, the Bank had $482.6 million and $431.9 million, respectively, in time deposit accounts in excess of $100 thousand. Interest on these time deposit accounts in 2000, 1999 and 1998 was $25.8 million, $19.4 million and $19.2 million, respectively. Funds purchased include federal funds, securities sold with repurchase agreements and business customers' sweep accounts. Federal funds purchased were $183.6 million and $254.0 million, respectively, at December 31, 2000 and 1999. Securities sold with repurchase agreements were $35.8 million at December 31, 2000 and $59.5 million at December 31, 1999. Sweep accounts totaled $167.6 million and $148.8 million at December 31, 2000 and 1999, respectively. Securities under these repurchase agreements are held in the custody of independent securities brokers. Note 7: Shareholders' Equity In 1995, the Company adopted the 1995 Stock Option Plan. Stock appreciation rights, restricted performance shares, incentive stock options and non-qualified stock options are available under this plan. Under the terms of this plan, on January 1 of each year beginning in 1995, 2 percent of the Company's issued and outstanding shares of common stock will be reserved for granting. At December 31, 2000, 1999, and 1998, approximately 742 thousand, 797 thousand and 856 thousand shares, respectively, were reserved for issuance. Options are granted at fair market value and are generally exercisable in equal installments over a three-year period with the first installment exercisable one year after the date of the grant. Each incentive stock option has a maximum ten-year term while non-qualified stock options may have a longer term. A Restricted Performance Share ("RPS") grant becomes fully vested after three years of being awarded, provided that the Company has attained its performance goals for such three-year period. Under the Stock Option Plan adopted by the Company in 1985, 2.3 million shares were reserved for issuance. Stock appreciation rights, incentive stock options and non-qualified stock options are available under this plan. Options are granted at fair market value and are generally exercisable in equal installments over a three-year period with the first installment exercisable one year after the date of the grant. Each incentive stock option has a maximum ten-year term while non-qualified stock options may have a longer term. The 1985 plan was amended in 1990 to provide for RPS grants. An RPS grant becomes fully vested after three years of being awarded, provided that the Company has attained its performance goals for such three-year period. Formerly acquired companies PV Financial, CapitolBank Sacramento, North Bay Bancorp, and ValliCorp Holdings had separate stock option plans (the "Option Plans") whereby options were granted to certain officers, directors, and employees. Following the effective dates of the mergers, the Option Plans were terminated. All outstanding options were substituted for the Company's options, adjusted for the exchange ratios as defined in the merger agreements. First Counties Bank also had a separate stock option plan whereby options were granted to certain officers, directors, and employees. Effective August 17, 2000, the First Counties Bank option plan was terminated. All outstanding options were substituted for the Company's stock options, adjusted for the exchange ratio as defined in the merger agreement. Stock Options. A summary of the status of the Company's stock options as of December 31, 2000, 1999 and 1998, and changes during the years ended on those dates, follows: - ----------------------------------------------------------------------------------------------- 2000 1999 - ----------------------------------------------------------------------------------------------- Weighted Weighted Average Average Number Exercise Number Exercise of shares Price of shares Price - ----------------------------------------------------------------------------------------------- Outstanding at beginning of year 2,620,708 $22 2,289,694 $18 Granted 896,404 24 662,080 35 Acquisitions converted 53,925 12 -- - Exercised (445,926) 12 (258,844) 11 Forfeited (210,980) 29 (72,222) 32 - ----------------------------------------------------------------------------------------------- Outstanding at end of year 2,914,131 $24 2,620,708 $22 - ----------------------------------------------------------------------------------------------- Options exercisable at end of year 1,565,001 $20 1,479,438 $15 ===============================================================================================
- --------------------------------------------------------------------- 1998 - --------------------------------------------------------------------- Weighted Average Number Exercise of shares Price - --------------------------------------------------------------------- Outstanding at beginning of year 2,094,387 $12 Granted 604,591 33 Acquisitions converted -- - Exercised (326,450) 10 Forfeited (82,834) 15 - --------------------------------------------------------------------- Outstanding at end of year 2,289,694 $18 - --------------------------------------------------------------------- Options exercisable at end of year 1,251,197 11 ===================================================================== The following table summarizes information about options outstanding at December 31, 2000 and 1999: - ----------------------------------------------------------------------------------- 2000 Options Outstanding Options Exercisable - ----------------------------------------------------------------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Outstanding Contractual Exercise Exercisable Exercise at 12/31/2000 Life (yrs) Price at 12/31/2000 Price - ----------------------------------------------------------------------------------- $3 - 9 102,175 1.3 $6 102,175 $6 9 - 10 185,868 3.0 9 185,868 9 10 - 15 181,481 4.3 11 181,481 11 15 - 19 278,955 4.9 16 278,955 16 19 - 20 298,255 5.9 19 298,255 19 20 - 24 812,437 9.0 24 0 N/A 32 - 33 509,800 6.9 33 337,720 33 33 - 35 545,160 8.0 35 180,547 35 - ----------------------------------------------------------------------------------- $3 - 33 2,914,131 6.8 $24 1,565,001 $20 ===================================================================================
- ----------------------------------------------------------------------------------- 1999 Options Outstanding Options Exercisable - ----------------------------------------------------------------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Outstanding Contractual Exercise Exercisable Exercise at 12/31/99 Life (yrs) Price at 12/31/99 Price - ----------------------------------------------------------------------------------- $3 - 9 268,050 2.3 $6 268,050 $6 9 - 10 219,618 4.1 9 219,618 9 10 - 15 214,719 5.1 10 214,719 10 15 - 19 340,955 6.1 15 340,955 15 19 - 20 390,506 7.1 19 247,916 19 32 - 33 564,540 8.1 33 188180 33 33 - 35 622,320 9.1 35 0 N/A - ----------------------------------------------------------------------------------- $3 - 33 2,620,708 6.7 $22 1,479,438 $15 ===================================================================================
Restricted Performance Shares. A summary of the status of the Company's RPSs as of December 31, 2000, 1999, and 1998, and changes during the years ended on those dates, follows: - ----------------------------------------------------------------------------------- 2000 1999 1998 - ----------------------------------------------------------------------------------- Outstanding at beginning of year 74,100 118,620 150,690 Granted 37,440 28,590 27,780 Exercised (29,643) (46,350) (59,850) Forfeited (8,137) (26,760) -- - ----------------------------------------------------------------------------------- Outstanding at end of year 73,760 74,100 118,620 ===================================================================================
As of December 31, 2000, 1999, and 1998, the RPSs had a weighted-average contractual life of 1.4, 1.2, and 1.1 years, respectively. The Company expects that substantially all of the RPSs outstanding at December 31, 2000 will eventually vest based on projected performance. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company applies APB Opinion No. 25 and related interpretations in accounting for its plan. Accordingly, no compensation cost has been recognized for its stock options. The compensation cost that has been charged against income for the Company's RPSs granted was $1.8 million, $1.3 million, and $1.9 million for 2000, 1999, and 1998, respectively. There were no stock appreciation rights or incentive stock options granted in 2000, 1999, and 1998. The fair value of each non-qualified stock option grant is estimated on the date of the grant using an option pricing model with the following assumptions used for calculating weighted-average non-qualified stock option grants in 2000, 1999, and 1998: - --------------------------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------- Expected dividend yield 1.41% 1.89% 1.64% Expected volatility 33.20 37.18 20.00 Risk-free interest rate 6.60 4.57 5.43 Expected lives 6.0 years 6.0 years 6.0 years ===================================================================== The weighted-average fair values of non-qualified stock options granted during 2000, 1999, and 1998, were $10.36, $10.68, and $8.37, respectively. Had compensation cost for the company's 1995 and 1985 Stock Option Plans been determined consistent with SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: - ----------------------------------------------------------------------------------- 2000 1999 1998 - ----------------------------------------------------------------------------------- (In thousands, except per share data) Net income As reported $79,789 $76,088 $73,396 Pro forma 75,649 73,274 71,559 Weighted average shares (basic) 36,410 38,588 41,797 Weighted average shares (diluted) 36,936 39,194 42,524 Earnings per share As reported (basic) $2.19 $1.97 $1.76 As reported (diluted) 2.16 1.94 1.73 Pro forma (basic) 2.08 1.90 1.71 Pro forma (diluted) 2.05 1.87 1.68 ===================================================================================
A reconciliation of the diluted EPS computation to the amounts used in the basic EPS computation for the years ended December 31, are as follows: - ----------------------------------------------------------------------------------- 2000 - ----------------------------------------------------------------------------------- Net Number Per Share Income of Shares Amount - ----------------------------------------------------------------------------------- (In thousands, except per share data) Basic EPS: Income available to common shareholders $79,779 36,410 $2.19 Effect of dilutive securities: Stock options outstanding -- 526 -- - ----------------------------------------------------------------------------------- Diluted EPS: Income available to common shareholders plus assumed conversions $79,779 36,936 $2.16 ===================================================================================
- ----------------------------------------------------------------------------------- 1999 - ----------------------------------------------------------------------------------- Net Number Per Share Income of Shares Amount - ----------------------------------------------------------------------------------- (In thousands, except per share data) Basic EPS: Income available to common shareholders $76,088 38,588 $1.97 Effect of dilutive securities: Stock options outstanding -- 606 -- - ----------------------------------------------------------------------------------- Diluted EPS: Income available to common shareholders plus assumed conversions $76,088 39,194 $1.94 ===================================================================================
- ----------------------------------------------------------------------------------- 1998 - ----------------------------------------------------------------------------------- (In thousands, except per share data) Basic EPS: Income available to common shareholders $73,396 41,797 $1.76 Effect of dilutive securities: Stock options outstanding --- 727 --- - ----------------------------------------------------------------------------------- Diluted EPS: Income available to common shareholders plus assumed conversions $73,396 42,524 $1.73 ===================================================================================
Shareholders have authorized two new classes of one million shares each, to be denominated "Class B Common Stock" and "Preferred Stock," respectively, in addition to the 150 million shares of common stock presently authorized. At December 31, 2000, no shares of Class B Common Stock or Preferred Stock had been issued. In December 1986, the Company declared a dividend distribution of one common share purchase right (the "Right") for each outstanding share of common stock. The Rights, which have been amended and restated in 1989, 1992, 1995 and 1999, are exercisable only in the event of an acquisition of, or announcement of a tender offer to acquire, 10 percent or more of the Company's stock without the prior consent of the Board of Directors. If the Rights become exercisable, the holder may purchase one share of the Company's common stock for $75.00, subject to adjustment. In the event a person or a group has acquired, or obtained the right to acquire, beneficial ownership of securities having 10 percent or more of the voting power of all outstanding voting power of the Company, proper provision shall be made so that each holder of a right will, for a 60-day period thereafter, have the right to receive upon exercise that number of shares of common stock having a market value of two times the exercise price of the Right, to the extent available, and then a common stock equivalent having a market value of two times the exercise price of the Right. Under certain circumstances, the Rights may be redeemed by the Company at $.001 per Right prior to becoming exercisable and in certain circumstances thereafter. The Rights will expire on the earliest of (i) December 31, 2004, (ii) consummation of a merger transaction meeting certain characteristics or (iii) redemption of the Rights by the Company. Note 8: Risk-Based Capital The Company and the Banks are subject to various regulatory capital adequacy requirements administered by federal and state agencies. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) required that regulatory agencies adopt regulations defining five capital tiers for banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Failure to meet minimum capital requirements can initiate discretionary actions by regulators that, if undertaken, could have a direct, material effect on the Company's financial statements. Quantitative measures, established by the regulators to ensure capital adequacy, require that the Company and the Banks maintain minimum ratios of capital to risk-weighted assets. There are two categories of capital under the guidelines: Tier 1 capital includes common shareholders' equity and qualifying preferred stock less goodwill and other deductions including the unrealized net gains and losses, after taxes, of available-for-sale securities. Tier 2 capital includes preferred stock not qualifying for Tier 1 capital, mandatory convertible debt, subordinated debt, certain unsecured senior debt issued by the Company and the allowance for loan losses, subject to limitations by the guidelines. Under the guidelines, capital is compared to the relative risk of the balance sheet, derived from applying one of four risk weights (0%, 20%, 50% and 100%) to the different balance sheet and off-balance sheet assets, primarily based on the credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors. As of December 31, 2000, the Company and the Banks met all capital adequacy requirements to which they are subject. The most recent notification from the Federal Reserve Board categorized the Company and the Banks as well capitalized under the FDICIA regulatory framework for prompt corrective action. To be well capitalized, the institution must maintain a total risk-based capital ratio as set forth in the following table and not be subject to a capital directive order. Since that notification, there are no conditions or events that Management believes have changed the risk-based capital category of the Company or the Banks. The following table shows capital ratios for the Company and the Banks as of December 31, 2000 and 1999: - ------------------------------------------------------------------------------------------------------------------------ To Be Well Capitalized Under the FDICIA For Capital Prompt Corrective 2000 Actual Adequacy Purposes Action Provisions: - ------------------------------------------------------------------------------------------------------------------------ Amount Ratio Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) Total Capital (to risk-weighted assets) Consolidated Company $353,079 11.61% $243,274 8.00% $304,092 10.00% Westamerica Bank 317,502 10.58% 240,108 8.00% 300,134 10.00% Tier 1 Capital (to risk-weighted assets) Consolidated Company 310,191 10.20% 121,637 4.00% 182,455 6.00% Westamerica Bank 269,105 8.97% 120,054 4.00% 180,081 6.00% Leverage Ratio * Consolidated Company 310,191 7.89% 157,351 4.00% 196,689 5.00% Westamerica Bank 269,105 6.89% 156,274 4.00% 195,342 5.00% ========================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------ To Be Well Capitalized Under the FDICIA For Capital Prompt Corrective 1999 Actual Adequacy Purposes Action Provisions: - ------------------------------------------------------------------------------------------------------------------------ Amount Ratio Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) Total Capital (to risk-weighted assets) Consolidated Company $347,535 11.75% $236,630 8.00% $295,787 10.00% Westamerica Bank 316,470 11.09% 228,264 8.00% 285,329 10.00% Bank of Lake County 8,546 13.39% 5,106 8.00% 6,383 10.00% Tier 1 Capital (to risk-weighted assets) Consolidated Company 290,381 9.82% 118,315 4.00% 177,472 6.00% Westamerica Bank 255,630 8.96% 114,132 4.00% 171,198 6.00% Bank of Lake County 7,737 12.12% 2,553 4.00% 3,830 6.00% Leverage Ratio * Consolidated Company 290,381 7.48% 155,309 4.00% 194,136 5.00% Westamerica Bank 255,630 6.79% 150,624 4.00% 188,281 5.00% Bank of Lake County 7,737 8.61% 3,594 4.00% 4,492 5.00% ========================================================================================================================
* The leverage ratio consists of Tier 1 capital divided by quarterly average assets. The minimum leverage ratio guideline is 3 percent for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality, high liquidity, good earnings and, in general, are considered top-rated, strong banking organizations. Note 9: Income Taxes Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the amounts reported in the financial statements of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Amounts for the current year are based upon estimates and assumptions as of the date of these financial statements and could vary significantly from amounts shown on the tax returns as filed. The components of the net deferred tax asset as of December 31 are as follows: - --------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------- (In thousands) Deferred tax asset Allowance for loan losses $21,359 $21,412 State franchise taxes 4,264 3,920 Securities available for sale 0 2,760 Deferred compensation 4,029 3,051 Real estate owned 843 711 Interest on non-accrual loans 353 101 Intangible assets 398 30 Other reserves 631 685 Other 1,680 1,000 Net operating loss carryforwards -- 68 General tax credit carryforwards 160 160 - --------------------------------------------------------------------- Subtotal deferred tax asset 33,717 33,898 Valuation allowance -- -- - --------------------------------------------------------------------- Total deferred tax asset 33,717 33,898 - --------------------------------------------------------------------- Deferred tax liability Net deferred loan costs 1,913 2,228 Fixed assets 1,942 2,001 Securities available for sale 5,721 -- Leases 1,299 1,297 Other 245 245 - --------------------------------------------------------------------- Total deferred tax liability 11,120 5,771 - --------------------------------------------------------------------- Net deferred tax asset $22,597 $28,127 ===================================================================== The Company believes a valuation allowance is not needed to reduce the gross deferred tax asset because it is more likely than not that the gross deferred tax asset will be realized through recoverable taxes or future taxable income. The provision for federal and state income taxes consists of amounts currently payable and amounts deferred which, for the years ended December 31, are as follows: - --------------------------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------- (In thousands) Current income tax expense: Federal $28,311 $27,132 $26,530 State 13,022 12,406 11,421 - --------------------------------------------------------------------- Total current 41,333 39,538 37,951 - --------------------------------------------------------------------- Deferred income tax (benefit) expense: Federal (2,164) (819) (184) State (789) (346) 209 - --------------------------------------------------------------------- Total deferred (2,953) (1,165) 25 - --------------------------------------------------------------------- Provision for income taxes $38,380 $38,373 $37,976 ===================================================================== The provision for income taxes differs from the provision computed by applying the statutory federal income tax rate to income before taxes, as follows: - --------------------------------------------------------------------- 2000 1999 1998 - --------------------------------------------------------------------- (In thousands) Federal income taxes due at statutory rate $41,356 $40,061 $38,980 (Reductions) increases in income taxes resulting from: Interest on state and municipal securities not taxable for federal income tax purposes (8,980) (8,477) (7,815) Reduction in the valuation allowance -- -- -- State franchise taxes, net of federal income tax benefit 7,953 7,839 7,560 Costs related to acquisitions 35 -- -- Other (1,984) (1,050) (749) - --------------------------------------------------------------------- Provision for income taxes $38,380 $38,373 $37,976 ===================================================================== At December 31, 2000, the Company had a general tax credit carryforward in the amount of $160,000, which expires December 31, 2003. There were no operating loss carryforwards as of December 31, 2000. Note 10: Fair Value of Financial Instruments The fair value of financial instruments does not represent actual amounts that may be realized upon the sale or liquidation of the related assets or liabilities. In addition, these values do not give effect to discounts to fair value which may occur when financial instruments are sold in larger quantities. The fair values presented represent the Company's best estimate of fair value using the methodologies discussed below. The fair values of financial instruments which have a relatively short period of time between their origination and their expected realization were valued using historical cost. Such financial instruments and their estimated fair values at December 31 were: - ----------------------------------------------------------------------------------- 2000 1999 - ----------------------------------------------------------------------------------- (In thousands) Cash and cash equivalents $286,482 $255,738 Money market assets 250 250 Interest and taxes receivable 63,826 56,948 Non-interest bearing and interest-bearing transaction and savings deposits 2,357,043 2,238,060 Short-term borrowed funds 386,942 462,345 Interest payable 9,850 7,596 ===================================================================================
The fair values at December 31 of the following financial instruments were estimated using quoted market prices: - ----------------------------------------------------------------------------------- 2000 1999 - ----------------------------------------------------------------------------------- (In thousands) Investment securities available for sale $921,275 $982,337 Investment securities held to maturity 231,906 235,147 ===================================================================================
Loans were separated into two groups for valuation. Variable rate loans, except for those described below which reprice frequently with changes in market rates, were valued using historical data. Fixed rate loans and variable rate loans that have reached their maximum rates were valued by discounting the future cash flows expected to be received from the loans using current interest rates charged on loans with similar characteristics. Additionally, the $52.3 million allowance for loan losses in 2000 and $51.6 million in 1999 were applied against the estimated fair values to recognize future defaults of contractual cash flows. The estimated fair values of loans at December 31 were: - ----------------------------------------------------------------------------------- 2000 1999 - ----------------------------------------------------------------------------------- (In thousands) Loans $2,408,158 $2,263,599 ===================================================================================
The fair values of time deposits and notes and mortgages payable were estimated by discounting future cash flows related to these financial instruments using current market rates for financial instruments with similar characteristics. The estimated fair values at December 31 were: - ----------------------------------------------------------------------------------- 2000 1999 - ----------------------------------------------------------------------------------- (In thousands) Time deposits $878,381 $826,291 Debt financing and notes payable 31,036 41,500 ===================================================================================
The majority of the Company's commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. Note 11: Lease Commitments Thirty-eight banking offices and a centralized administrative service center are owned and seventy-seven banking offices are leased. Substantially all the leases contain multiple renewal options and provisions for rental increases, principally for cost of living index, property taxes and maintenance. The Company also leases certain pieces of equipment. Minimum future rental payments, net of sublease income, at December 31, 2000, are as follows: - --------------------------------------------------------------------- (In thousands) 2001 $5,093 2002 4,131 2003 3,279 2004 2,347 2005 1,138 Thereafter 3,983 - --------------------------------------------------------------------- Total minimum lease payments $19,971 ===================================================================== Total rentals for premises and equipment, net of sublease income, included in non-interest expense were $4.4 million in 2000, $5.4 million in 1999 and $5.2 million in 1998. Note 12: Commitments and Contingent Liabilities Loan commitments are agreements to lend to a customer provided there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. Loan commitments are subject to the Company's normal credit policies and collateral requirements. Unfunded loan commitments were $441.6 million and $336.7 million at December 31, 2000 and 1999, respectively. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Standby letters of credit are primarily issued to support customers' short-term financing requirements and must meet the Company's normal credit policies and collateral requirements. Standby letters of credit outstanding totaled $12.5 million and $13.8 million at December 31, 2000 and 1999, respectively. Due to the nature of its business, the Company is subject to various threatened or filed legal cases. Based on the advice of legal counsel, the Company does not expect such cases will have a material, adverse effect on its financial position or results of operations. Note 13: Retirement Benefit Plans The Company sponsors a defined contribution Deferred Profit-Sharing Plan covering substantially all of its salaried employees with one or more years of service. The costs charged to non-interest expense related to benefits provided by the Deferred Profit-Sharing Plan were $1.5 in 2000 and $1.8 million in 1999. The costs charged to non-interest expense related to benefits provided by the Deferred Profit-Sharing Plan and the Retirement Plan were $1.6 million in 1998. In addition to the Deferred Profit-Sharing Plan, all salaried employees are eligible to participate in the voluntary Tax Deferred Savings/Retirement Plan (ESOP) upon completion of a 90-day introductory period. The Tax Deferred Savings/Retirement Plan allows employees to defer, on a pretax basis, a portion of their salaries as contributions to this Plan. Participants may invest in several funds, including one fund that invests exclusively in Westamerica Bancorporation common stock. The matching contributions charged to compensation expense were $1.3 million in 2000, $1.7 million in 1999 and $1.6 million in 1998. The Company continues to use an actuarial-based accrual method of accounting for post-retirement benefits. The Company offers a continuation of group insurance coverage to employees electing early retirement, for the period from the date of retirement until age 65. The Company contributes an amount toward early retirees' insurance premiums which is determined at the time of early retirement. The Company reimburses Medicare Part B premiums for all retirees over age 65. The following table sets forth the net periodic post-retirement benefit cost for the years ended December 31 and the funded status of the Post-retirement Benefit Plan and the change in the benefit obligation as of December 31: - --------------------------------------------------------------------- 2000 1999 ===================================================================== (In thousands) Periodic cost: Service cost ($95) $160 Interest cost 158 152 Amortization of unrecognized transition obligation 61 61 - --------------------------------------------------------------------- Net periodic cost $124 $373 ===================================================================== Change in benefit obligation: Benefit obligation, beginning of year 2,720 2,534 Service cost (95) 160 Interest cost 158 152 Benefits paid (108) (126) - --------------------------------------------------------------------- Benefit obligation, end of year $2,675 $2,720 ===================================================================== Accumulated post-retirement benefit obligation attributable to: Retirees $1,609 $1,757 Fully eligible participants 768 650 Other 298 313 - --------------------------------------------------------------------- Total 2,675 2,720 - --------------------------------------------------------------------- Fair value of plan assets -- -- - --------------------------------------------------------------------- Accumulated post-retirement benefit obligation in excess of plan assets $2,675 $2,720 ===================================================================== Comprised of: Unrecognized transition obligation $1,040 $1,102 Recognized post-retirement obligation 1,635 1,618 - --------------------------------------------------------------------- Total $2,675 $2,720 ===================================================================== The discount rate used in measuring the accumulated post- retirement benefit obligation was 5.8 percent and 6.0 percent at December 31, 2000 and 1999, respectively. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the plan was 4.0 percent for 2001 and beyond. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage point change on the assumed health care cost trend rates would have the following effect on 2000 results: - --------------------------------------------------------------------- One One Percentage Percentage Point Point Increase Decrease - --------------------------------------------------------------------- (In thousands) Effect on total of service and interest cost components $175 ($145) Effect on post-retirement benefit obligation 392 (321) ===================================================================== Note 14: Related Party Transactions Certain directors and executive officers of the Company and/or its subsidiaries were loan customers of the Banks during 2000 and 1999. All such loans were made in the ordinary course of business on normal credit terms, including interest rate and collateral requirements. In the opinion of Management, these credit transactions did not involve, at the time they were contracted, more than the normal risk of collectibility or present other unfavorable features. The table below reflects information concerning loans to certain directors and executive officers and/or family members during 2000 and 1999: - --------------------------------------------------------------------- 2000 1999 - --------------------------------------------------------------------- (In thousands) Beginning balance $3,026 $3,268 Originations 7 836 Payoffs/principal payments (200) (490) Other changes * 0 (588) - --------------------------------------------------------------------- At December 31, $2,833 $3,026 ===================================================================== Percent of total loans outstanding 0.12% 0.13% * Other changes in 1999 include loans to former directors and executive officers who are no longer related parties. Note 15: Regulatory Matters Payment of dividends to the Company by the Banks is limited under regulations for Federal Reserve member banks. The amount that can be paid in any calendar year, without prior approval from regulatory agencies, cannot exceed the net profits (as defined) for that year plus the net profits of the preceding two calendar years less dividends paid. Under this regulation, Westamerica Bank sought and obtained approval to pay to the Company dividends of $73.8 million in excess of net profits. The Company consistently has paid quarterly dividends to its shareholders since its formation in 1972. As of December 31, 2000, $154.8 million was available for payment of dividends by the Company to its shareholders. The Banks are required to maintain reserves with the Federal Reserve Bank equal to a percentage of its reservable deposits. The Banks' daily average on deposit at the Federal Reserve Bank was $30.5 million in 2000 and $30.1 million in 1999. Note 16: Westamerica Bancorporation (Parent Company Only) Statements of Income and Comprehensive Income - ----------------------------------------------------------------------------------------------- For the years ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------- (In thousands) Dividends from subsidiaries $80,768 $129,003 $93,606 Interest income 1,349 1,545 1,731 Other income 6,203 6,849 6,809 - ----------------------------------------------------------------------------------------------- Total income 88,320 137,397 102,146 - ----------------------------------------------------------------------------------------------- Interest on borrowings 1,397 1,613 1,620 Salaries and benefits 6,508 5,714 6,199 Other expense 2,144 2,388 3,056 - ----------------------------------------------------------------------------------------------- Total expenses 10,049 9,715 10,875 - ----------------------------------------------------------------------------------------------- Income before taxes and equity in undistributed income of subsidiaries 78,271 127,682 91,271 Income tax benefit 1,693 1,346 1,550 Return of undistributed income of subsidiaries (185) (52,940) (19,425) - ----------------------------------------------------------------------------------------------- Net income $79,779 $76,088 $73,396 =============================================================================================== Comprehensive income, net: Change in unrealized gains on securities available for sale, net (869) (5,532) (2,420) - ----------------------------------------------------------------------------------------------- Comprehensive income $78,910 $70,556 $70,976 ===============================================================================================
Balance Sheets - ----------------------------------------------------------------------------------- December 31, 2000 1999 - ----------------------------------------------------------------------------------- (In thousands) Assets Cash and cash equivalents $26,391 $17,529 Money market assets and investment securities available for sale 9,226 12,082 Line of credit from subsidiaries 0 2,046 Investment in subsidiaries 307,072 274,725 Premises and equipment, net 15,229 15,985 Accounts receivable from subsidiaries 374 549 Other assets 7,306 5,958 - ----------------------------------------------------------------------------------- Total assets $365,598 $328,874 =================================================================================== Liabilities Notes payable $19,286 $22,500 Other liabilities 8,565 5,782 - ----------------------------------------------------------------------------------- Total liabilities 27,851 28,282 Shareholders' equity 337,747 300,592 - ----------------------------------------------------------------------------------- Total liabilities and shareholders' equity $365,598 $328,874 ===================================================================================
Statements of Cash Flows - ----------------------------------------------------------------------------------------------- For the years ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------- (In thousands) Operating Activities Net income $79,779 $76,088 $73,396 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 704 800 813 Return of undistributed income from affiliates 185 52,940 19,425 Decrease (increase) in accounts receivable from affiliates 175 (209) 913 (Increase) decrease in other assets (1,266) 67 (2,270) Provision for deferred income tax 5,168 2,071 3,814 Increase (decrease) in other liabilities 3,143 (44) 40 Gain on sales of assets (2,821) (3,203) (3,216) - ----------------------------------------------------------------------------------------------- Net cash provided by operating activities 85,067 128,510 92,915 Investing Activities Purchases of premises and equipment 51 (193) (262) Net change in loan balances 2,046 850 880 Investment in subsidiaries (250) -- (500) Purchase of investment securities available for sale 184 -- -- Proceeds from sale of other assets 3,994 4,006 3,792 - ----------------------------------------------------------------------------------------------- Net cash provided by investing activities 6,025 4,663 3,910 Financing Activities Net reductions in notes payable (3,216) -- -- Exercise of stock options/issuance of shares 6,418 4,617 5,513 Retirement of common stock including repurchases (58,440) (100,227) (104,824) Dividends (26,992) (25,581) (21,864) - ----------------------------------------------------------------------------------------------- Net cash used in financing activities (82,230) (121,191) (121,175) - ----------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 8,862 11,982 (24,350) Cash and cash equivalents at beginning of year 17,529 5,547 29,897 - ----------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $26,391 $17,529 $5,547 =============================================================================================== Supplemental disclosure: Unrealized gain (loss) on securities available for sale, net $11,690 ($24,705) $2,261 Issuance of common stock for First Counties Bank acquisition $19,723
Note 17: Quarterly Financial Information (Unaudited) - ------------------------------------------------------------------------------------------------------------- March 31, June 30, September 30, December 31, - ----------------------------------------------------------------------------------------------- (In thousands, except per share data and price range of common stock) 2000 Interest income $65,046 $66,191 $68,554 $69,725 Net interest income 43,976 44,098 45,636 47,192 Provision for loan losses 945 925 905 900 Non-interest income 9,955 10,467 10,757 9,951 Non-interest expense 24,421 24,669 25,597 25,511 Income before taxes 28,565 28,971 29,891 30,732 Net income 19,226 19,667 20,145 20,740 Basic earnings per share 0.52 0.54 0.55 0.57 Diluted earnings per share 0.52 0.54 0.55 0.56 Dividends paid per share 0.18 0.18 0.18 0.20 Price range, common stock 21.00-27.75 24.38-30.06 27.00-33.56 30.69-43.75 - ----------------------------------------------------------------------------------------------- 1999 Interest income $63,634 $64,009 $64,899 $65,114 Net interest income 44,684 44,649 45,103 44,764 Provision for loan losses 1,195 1,195 1,195 1,195 Non-interest income 9,147 9,640 9,941 11,446 Non-interest expense 24,973 24,728 24,758 25,674 Income before taxes 27,663 28,367 29,090 29,341 Net income 18,405 18,869 19,288 19,526 Basic earnings per share 0.47 0.48 0.50 0.52 Diluted earnings per share 0.46 0.47 0.50 0.51 Dividends paid per share 0.16 0.16 0.16 0.18 31.63-37.50 30.00-37.13 28.94-36.50 26.63-35.13
Independent Auditors' Report The Board of Directors Westamerica Bancorporation: We have audited the accompanying consolidated balance sheets of Westamerica Bancorporation ("the Company") and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income and comprehensive income changes in shareholders' equity, and cash flows for each of the years in the three year period ended December 31, 2000. These consolidated statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Company and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/KMPG LLP - ------------ KPMG LLP January 23, 2001 MANAGEMENT'S LETTER OF FINANCIAL RESPONSIBILITY To Our Shareholders: The Management of Westamerica Bancorporation is the responsible for the preparation, integrity, reliability and consistency of the information contained in this annual report. The consolidated financial statements, which necessarily include amounts based on judgments and estimates, were prepared in conformity with generally accepted accounting principles and prevailing practices in the banking industry. All other financial information appearing throughout this annual report is presented in a manner consistent with the consolidated financial statements. Management has established and maintains a system of internal controls that provides reasonable assurance that the underlying financial records are reliable for preparing the consolidated financial statements, and that assets are safeguarded from unauthorized use or loss. This system includes extensive written policies and operating procedures and a comprehensive internal audit function, and is supported by the careful selection and training of staff, an organizational structure providing for division of responsibility, and a Code of Ethics covering standards of personal and business conduct. Management beleives that, as of December 31, 2000, the Corporation's internal control environment is adequate to provide reasonable assurance as to the integrity and reliability of the consolidated financial statements related financial information contained in the annual report. The system of internal controls is under the general oversight of the Board of Directors acting through its Audit Committee, which is comprised entirely of outside directors. The Audit Committee monitors the effectiveness and compliance with internal controls through a continuous program of internal audit and credit examinations. This is accomplished through periodic meetings with Management, internal auditors, loan quality examiners, regulatory examiners and independent auditors to assure that each is carrying out their responsibilities. The Corporation's consolidated financial statements have been audited by KPMG LLP, independent certified public accountants elected by the shareholders. All financial records and related data, as well as the minutes of shareholders and directors meetings, have been made available to them. Management believes that all representations made to the independent auditors during their audit were valid and appropriate. /s/ David L. Payne - ------------------ David L. Payne Chairman, President and Chief Executive Officer /s/ Jennifer J. Finger - ---------------------- Jennifer J. Finger Senior Vice President and Chief Financial Officer /s/ Dennis R. Hansen - -------------------- Dennis R. Hansen Senior Vice President and Controller ITEM 9. Changes in and Disagreements on Accounting and Financial Disclosure Not applicable PART III ITEM 10. Directors and Executive Officers of the Registrant The information regarding directors of the registrant required by this Item 10 is incorporated herein by reference from the "Election of Directors" and Section 16(a) "Beneficial Ownership Reporting Compliance" sections on Pages 2,3 and 4 of the Company's Proxy Statement dated March 21, 2001, which has been filed with the Commission pursuant Regulation 14A. Executive Officers The executive officers of the Corporation and Westamerica Bank serve at the pleasure of the Board of Directors and are subject to annual appointment by the Board at its first meeting following the Annual Meeting of Shareholders. It is anticipated that each of the executive officers listed below will be reappointed to serve in such capacities at that meeting. Held Name of Executive Position Since - ----------------- ------------------------------------ --------- David L. Payne Mr. Payne, born in 1955, is the 1984 Chairman of the Board, President and Chief Executive Officer of the Corporation. Mr. Payne is President and Chief Executive Officer of Gibson Printing and Publishing Company and Gibson Radio and Publishing Company which are newspaper, commercial printing and real estate investment companies headquartered in Vallejo, California. E. Joseph Bowler Mr. Bowler, born in 1936, is Senior 1980 Vice President and Treasurer for the Corporation. Robert W. Entwisle Mr. Entwisle, born in 1947, is Senior 1986 Vice President in charge of the Banking Division of Westamerica Bank. Jennifer F. Finger Ms. Finger, born in 1954, is Senior 1997 Vice President and Chief Financial Officer for the Corporation. From 1993 to 1997, Ms. Finger was Senior Vice President of Corporate Development with Star Banc Corporation in Cincinnati, Ohio. Evan N. Fricker Mr. Fricker, born in 1938, is Vice 1983 President and General Auditor for the Corporation. Dennis R. Hansen Mr. Hansen, born in 1950, is Senior 1978 Vice President and Controller for the Corporation. Thomas S. Lenz Mr. Lenz, born in 1937, is Senior Vice 1989 President and Chief Credit Administrator of Westamerica Bank. Hans T. Y. Tjian Mr. Tjian, born in 1939, is Senior 1989 Vice President and manager of the Operations and Systems Administration of Westamerica Bank. ITEM 11. Executive Compensation The information required by this Item 11 is incorporated herein by reference from the "Executive Compensation" and "Other Arrangements" sections on Pages 10 through 13 of the Company's Proxy Statement dated March 21, 2001, which has been filed with the Commission pursuant to Regulation 14A. ITEM 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item 12 is incorporated herein by reference from the "Security Ownership of Certain Beneficial Owners and Management" section on Pages 3 and 4 of the Company's Proxy Statement dated March 21, 2001, which has been filed with the Commission pursuant to Regulation 14A. ITEM 13. Certain Relationships and Related Transactions The information required by this Item 13 is incorporated herein by reference from the "Certain Information About the Board of Directors and Certain Committees of the Board - Indebtedness of Directors and Management" section on Page 3 of the Company's Proxy Statement dated March 21, 2001, which has been filed with the Commission pursuant to Regulation 14A. PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. All Financial Statements See Index to Financial Statements on page (a) 2. Financial statement schedules required. None. (Information included in Financial Statements) (a) 3. Exhibits The following documents are included or incorporated by reference in this annual report on Form 10-K: Exhibit Number 2(a) Agreement and Plan of Reorganization, between and among Westamerica Bancorporation, ValliCorp Holdings, Inc., and ValliWide Bank, incorporated herein by reference to Exhibit 2.1 of Registrant's Registration Statement on Form S-4, Commission File No. 333-17335, filed with the Securities and Exchange Commission on December 5, 1996. 2(b) Agreement and Plan of Reorganization and Merger, dated March 14, 2000, by and among Westamerica Bancorporation, Westamerica Bank and First Counties Bank, incorporated herein by reference to Exhibit 2 of Registrant's Form 8-K filed with the Securities and Exchange Commission on March 17, 2000. 3(a) Restated Articles of Incorporation (composite copy), incorporated herein by reference to Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, filed with the Securities and Exchange Commission on March 30, 1998. 3(b) By-laws, as amended (composite copy). 4(a) Amended and Restated Rights Agreement dated November 19, 1999, incorporated herein by reference to Exhibit 99 to the Registrant's Form 8-A/A, Amendment No. 3, filed with the Securities and Exchange Commission on November 19, 1999. 10(a)* 1995 Stock Option Plan, incorporated herein by reference to Exhibit 10(a) to the Registrant's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on June 6, 1995. 10(b)* Employment Agreement with E. Joseph Bowler dated January 7, 1987, incorporated herein by reference to Exhibit 10(c) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed with the Securities and Exchange Commission on March 31, 1999. 10(c)* Employment Agreement with Robert W. Entwisle dated January 7, 1987, incorporated herein by reference to Exhibit 10(c) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed with the Securities and Exchange Commission on March 31, 1999. 10(d) Senior Note Agreement of Westamerica Bancorporation dated February 1, 1996, of $22,000,000 at 7.11 percent incorporated herein by reference to Exhibit 10-j of Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1995, filed with the Securities and Exchange Commission on May 1, 1996. 10(e)* Westamerica Bancorporation Chief Executive Officer Deferred Compensation Agreement by and between Westamerica Bancorporation and David L. Payne, dated December 18, 1998 incorporated herein by reference to Exhibit 10(e) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed with the Securities An Exchange Commission on March 29, 2000. 11 Computation of Earnings Per Share on common and common equivalent shares and on common shares assuming full dilution. 21 Subsidiaries of the registrant. 23(a) Consent of KPMG LLP (27) Financial Data Schedule ---------------------- * Indicates management contract or compensatory plan or arrangement. The Company will furnish to shareholders a copy of any exhibit listed above, but not contained herein, upon written request to the Office of the Corporate Secretary, Westamerica Bancorporation, P.O. Box 567, San Rafael, California 94915, and payment to the Company of $.25 per page. (b) 1. Report on Form 8-K On November 1, 1999, the Company filed a Report on Form 8-K announcing the Board of Directors' approval of an amendment of and Restatement of the Company's Shareholder Rights Plan, as amended, dated March 23, 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WESTAMERICA BANCORPORATION /s/ Dennis R. Hansen /s/ Jennifer J. Finger - -------------------- ---------------------- Dennis R. Hansen Jennifer J. Finger Senior Vice President and Controller Senior Vice President and Principal Accounting Officer Chief Financial Officer Date: March 22, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date - --------- ----- ---- /s/ David L. Payne Chairman of the Board March 22, 2001 - ------------------------------ and Director David L. Payne President and Chief Executive Officer /s/ E. Joseph Bowler Senior Vice President March 22, 2001 - ------------------------------ and Treasurer E. Joseph Bowler /s/ Etta Allen Director March 22, 2001 - ------------------------------ Etta Allen /s/ Louis E. Bartolini Director March 22, 2001 - ------------------------------- Louis E. Bartolini /s/ Don Emerson Director March 22, 2001 - ------------------------------- Don Emerson /s/ Louis H. Herwaldt Director March 22, 2001 - ------------------------------- Louis H. Herwaldt /s/ Arthur C. Latno Director March 22, 2001 - ------------------------------ Arthur C. Latno /s/ Patrick D. Lynch Director March 22, 2001 - ------------------------------ Patrick D. Lynch /s/ Catherine Cope MacMillan Director March 22, 2001 - ------------------------------ Catherine Cope MacMillan /s/ Patrick J. Mon Pere Director March 22, 2001 - ------------------------------ Patrick J. Mon Pere /s/ Ronald A. Nelson Director March 22, 2001 - ------------------------------ Ronald A. Nelson /s/ Carl Otto Director March 22, 2001 - ------------------------------ Carl Otto /s/ Michael J. Ryan, Jr. Director March 22, 2001 - ------------------------------ Michael J. Ryan, Jr. /s/ Edward B. Sylvester Director March 22, 2001 - ------------------------------ Edward B. Sylvester EX-11 2 0002.txt 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) 2000 1999 1998 - ---------------------------------------------------------------------------------------- Weighted average number of common shares outstanding - basic 36,410 38,588 41,797 Add exercise of options reduced by the number of shares that could have been purchased with the proceeds of such exercise 526 606 727 - ---------------------------------------------------------------------------------------- Weighted average number of common shares outstanding - diluted 36,936 39,194 42,524 ======================================================================================== Net income $79,779 $76,088 $73,396 Basic earnings per share $2.19 $1.97 $1.76 Diluted earnings per share 2.16 1.94 1.73 ========================================================================================
EX-21 3 0003.txt Exhibit 21 WESTAMERICA BANCORPORATION Subsidiaries as of December 31, 2000 State of Incorporation ------------- Westamerica Bank California Community Banker Services Corporation California The Money Outlet, Inc. California Westamerica Commercial Credit, Inc. California Weststar Mortgage Corporation California EX-23 4 0004.txt 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 23, 2001, relating to the consolidated balance sheets of Westamerica Bancorporation and subsidiaries as of December 31, 2000, and 1999, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000, which report appears in the December 31, 2000 annual report on Form 10-K of Westamerica Bancorporation. /s/ KPMG LLP - ------------ KPMG LLP San Francisco, California March 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----