Annual Report,
Proxy Statement
and Notice of
Annual Meeting
1108 Fifth Avenue
San Rafael, California 94901
March 12, 2012
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of Westamerica Bancorporation.
It will be held at 11:00 a.m. Pacific Time on Thursday, April 26, 2012, at the Fairfield Center for
Creative Arts, 1035 West Texas Street, Fairfield, California as stated in the formal notice accompanying
this letter. We hope you will plan to attend.
At the Annual Meeting, the shareholders will be asked to (i) elect nine Directors; (ii) approve a non-binding
advisory vote on compensation of our named executive officers; (iii) approve the 2012 Amended and Restated
Stock Option Plan of 1995; (iv) ratify the selection of independent auditors; and (v) conduct other business
that properly comes before the Annual Meeting.
In order to ensure your shares are voted at the Annual Meeting, you can vote through the internet, by
telephone or by mail. Instructions regarding internet and telephone voting are included on the Proxy Card.
If you elect to vote by mail, please sign, date and return the Proxy Card in the accompanying postage-paid
envelope. The Proxy Statement explains more about voting in the section entitled “Voting Information –
How You Can Vote.” If you attend the Annual Meeting, you may vote in person even though you previously
voted your proxy.
We look forward to seeing you at the Annual Meeting on Thursday, April 26, 2012, at the Fairfield Center
for Creative Arts.
Sincerely,
David L. Payne
Chairman of the Board, President
and Chief Executive Officer
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WESTAMERICA BANCORPORATION
1108 Fifth Avenue
San Rafael, California 94901
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date and Time
Thursday, April 26, 2012, at 11:00 a.m. Pacific Time
Place
Fairfield Center for Creative Arts, 1035 West Texas Street, Fairfield, California
Items of Business
1. To elect nine Directors to serve until the 2013 Annual Meeting of Shareholders;
2. To approve a non-binding advisory vote on the compensation of our named executive officers;
3. To approve the 2012 Amended and Restated Stock Option Plan of 1995,
4. To ratify selection of independent auditors; and
5. To transact such other business as may properly come before the Annual Meeting and any adjournments
or postponements.
Who Can Vote?
Shareholders of Record at the close of business on February 27, 2012 are entitled to notice of, and to vote at the
Annual Meeting or any postponement or adjournment thereof.
Admission to the Meeting
No ticket will be necessary for admission to the Annual Meeting. However, to facilitate the admission process,
Shareholders of Record (registered holder) planning to attend the meeting should check the appropriate box on
the Proxy Card. Your name will be added to a list of attendees. If you hold shares through an intermediary, such
as a bank or broker (beneficial owner), you will need to register at the desk in the lobby. Please bring the following
as evidence of ownership: 1) a Legal Proxy, which you can obtain from your bank or broker or other intermediary,
or your shareholder statement dated on or after February 27, 2012, the Annual Meeting Record Date; and
2) photo identification.
Annual Report
Westamerica Bancorporation’s Annual Report on Form 10-K (“Annual Report”) to shareholders for the fiscal year
ended December 31, 2011 is enclosed and is also available for viewing on the Corporation’s website at
https://www.westamerica.com/ under “Shareholders.” The Annual Report contains financial and other
information about the activities of Westamerica Bancorporation, but does not constitute a part of the proxy
soliciting materials.
BY ORDER OF THE BOARD OF DIRECTORS
Kris Irvine
Dated: March 12, 2012 VP/Corporate Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER
MEETING BEING HELD ON THURSDAY, APRIL 26, 2012. THE PROXY STATEMENT AND ANNUAL
REPORT ON FORM 10-K TO SHAREHOLDERS ARE AVAILABLE AT: WWW.WESTAMERICA.COM
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO COMPLETE, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY, OR VOTE BY
TELEPHONE OR THE INTERNET USING THE PROCEDURES DESCRIBED IN THE PROXY STATEMENT,
SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES.
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TABLE OF CONTENTS
General
Voting Information ..............................................................................................................................................1
Additional Information........................................................................................................................................3
Stock Ownership..................................................................................................................................................4
Section 16(a) Beneficial Ownership Reporting Compliance................................................................................6
Board of Directors
Proposal 1: Election of Directors......................................................................................................................... 6
Nominees ............................................................................................................................................................6
Name of Nominees, Principal Occupations, and Qualifications .........................................................................6
Board of Directors and Committees ....................................................................................................................9
Director Compensation .....................................................................................................................................13
Director Compensation Table at Fiscal Year 2011 .............................................................................................13
Executive Compensation
Compensation Discussion and Analysis.............................................................................................................13
Board Compensation Committee Report..........................................................................................................23
Compensation Committee Interlocks and Insider Participation........................................................................24
Summary Compensation ...................................................................................................................................24
Summary Compensation Table for Fiscal Year 2011 .........................................................................................24
Grants of Plan-Based Awards Table for Fiscal Year 2011....................................................................................25
Outstanding Equity Awards Table at Fiscal Year-End 2011 ...............................................................................26
Option Exercises and Stock Vested Table for Fiscal Year 2011 ...........................................................................27
Pension Benefits for 2011...................................................................................................................................27
Nonqualified Deferred Compensation Table for Fiscal Year 2011 .....................................................................28
Potential Payments Upon Termination or Change in Control...........................................................................28
Certain Relationships and Related Party Transactions ......................................................................................29
Proposal 2: Approve a Non-Binding Advisory Vote on the Compensation of
Our Named Executive Officers ...............................................................................................................30
Proposal 3: Approve the 2012 Amended and Restated Stock Option Plan of 1995 ..................................31
Equity Compensation Plan Information ...........................................................................................................36
Proposal 4: Ratify Selection of Independent Auditor.................................................................................36
Audit Committee Report .....................................................................................................................................38
Shareholder Proposal Guidelines .......................................................................................................................38
Shareholder Communication to Board of Directors.........................................................................................39
Other Matters .......................................................................................................................................................39
Exhibit A...............................................................................................................................................................A-1
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WESTAMERICA BANCORPORATION
1108 Fifth Avenue
San Rafael, California 94901
___________
PROXY STATEMENT
March 12, 2012
___________
GENERAL
The Westamerica Board of Directors is soliciting proxies to be used at the 2012 Annual Meeting of Shareholders
of Westamerica Bancorporation, which will be held at 11:00 a.m. Pacific Time, Thursday, April 26, 2012, or at
any adjournment or postponement of the Annual Meeting. Proxies are solicited to give all Shareholders of Record
(“Record Holder”) an opportunity to vote on matters to be presented at the Annual Meeting. In the following
pages of this Proxy Statement, you will find information on matters to be voted on at the Annual Meeting.
Voting Information
Proxy Statement Availability: This year Westamerica has elected to take advantage of the Securities and
Exchange Commission’s (the “SEC”) rule that allows us to furnish proxy materials to you online. We believe
electronic delivery will expedite shareholders’ receipt of materials, while lowering costs and reducing the
environmental impact of our annual meeting by reducing printing and mailing of full sets of materials. On
March 12, 2012, we mailed to our shareholders a Notice (the “Notice of Internet Availability of Proxy Materials”
or “Notice”) containing instructions on how to access our proxy statement and annual report online. If you
received a Notice by mail, you will not receive a printed copy of the materials, unless you specifically request one.
The Notice contains instructions on how to receive a paper copy of the materials.
Who Can Vote. You are entitled to vote if you were a “Record Holder” of Westamerica common stock as
of the close of business on February 27, 2012. Your shares can be voted at the Meeting only if you are present
or represented by a valid proxy. If your shares of common stock are held by a bank, broker or other nominee in
“street name,” you are a “beneficial owner” and will receive voting instructions from the bank, broker or other
nominee (including instructions, if any, on how to vote). You must follow these instructions in order to have
your shares voted.
Voting in Person at the Meeting. To be able to vote in person at the Annual Meeting, Record Holders must
provide photo identification, while beneficial owners must obtain and bring to the Annual Meeting a legal
proxy from the institution that holds your shares, indicating that you were the beneficial owner of the shares on
February 27, 2012, the Record Date for voting.
Proxy Card. The Board has designated Arthur C. Latno, Jr., Ronald A. Nelson and Edward B. Sylvester to serve
as Proxies for the Annual Meeting. As Proxies, they will vote the shares represented by proxies at the Annual
Meeting. If you sign, date and return your Proxy Card but do not specify how to vote your shares, the Proxies will
vote FOR the election of all of the Director nominees, FOR approval of the advisory vote on the compensation of
our named executive officers, FOR approval of the 2012 Amended and Restated Stock Option Plan of 1995, and
FOR ratifying the selection of independent auditors. The Proxies will also have discretionary authority to vote in
accordance with their judgment on any other matter that may properly come before the Meeting that we did not
have notice of by January 27, 2012.
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Quorum and Shares Outstanding. A quorum, which is a majority of the total shares outstanding as of the
Record Date, must be present to hold the Meeting. A quorum is calculated based on the number of shares
represented by shareholders attending in person or by proxy. On February 27, 2012, 28,093,899 shares of
Westamerica common stock were outstanding. We also count broker non-votes, which we describe below,
as shares present or represented at the Meeting for the purpose of determining whether a quorum exists.
Required Votes for Proposal 1 – Election of Director Nominees. Each share is entitled to one vote, except
in the election of Directors where a shareholder may cumulate votes as to candidates nominated prior to voting,
but only when a shareholder gives notice of intent to cumulate votes prior to the voting at the Meeting. If any
shareholder gives such notice, all shareholders may cumulate their votes for nominees. Under cumulative voting,
each share carries as many votes as the number of Directors to be elected, and the shareholder may cast all of such
votes for a single nominee or distribute them in any manner among as many nominees as desired. This Proxy
Statement solicits the discretionary authority to cumulate votes and allocate them in the Proxy Holders’ discretion
if any shareholder requests cumulative voting. In the election of Directors, the nine nominees receiving the highest
number of votes will be elected. If your proxy is marked “Withhold” with regard to the election of any nominee,
your shares will be counted toward a quorum and for other nominees but they will not be voted for or against the
election of that nominee.
Required Votes for Proposal 2 – Approve a Non-Binding Advisory Vote on the Compensation of Our
Named Executive Officers. The executive compensation of the named executive officers will be approved if the
number of shares voted in favor of the proposal is equal to at least a majority of the shares represented and voting at
the Meeting, in person or by proxy, and also a majority of the required quorum. Because your vote is advisory, it will
not be binding on the Board or the Corporation. However, the Board will review the voting results and take them
into consideration when making future decisions regarding executive compensation. Abstentions and broker non-
votes will have the same effect as an against vote if votes in favor are less than a majority of the required quorum.
Required Votes for Proposal 3 – Approve the 2012 Amended and Restated Stock Option Plan of 1995.
If a quorum exists, Proposal 3 must receive the affirmative vote of a majority of the shares present in person or
represented by proxy at the Annual Meeting and entitled to vote on this proposal. Therefore, abstentions will have
the same effect as voting against the proposal. Broker non-votes will not be counted as eligible to vote on the
proposal and, therefore, will have no effect on the outcome of the voting so long as the quorum was voted on this
proposal to be approved. If you hold your shares in street name and do not provide voting instructions to your
broker, your shares will not be voted on this proposal since your broker does not have discretionary authority to
vote (a “broker non-vote”). Properly completed ballots submitted prior to the Annual Meeting will be voted in the
way you direct. If you do not specify instructions, the shares represented by those properly completed proxies will
be voted to approve the 2012 Amended and Restated Stock Option Plan of 1995.
Required Votes for Proposal 4 – Ratify Selection of Independent Auditor. The selection of the independent
auditor will be ratified if the number of shares voted in favor of the proposal is equal to at least a majority of the shares
represented at the Meeting, in person or by proxy, provided such votes in favor also constitute a majority of the required
quorum. Abstentions are deemed “present” for the purpose of obtaining a quorum, but for purposes of determining
the outcome of the proposal, abstentions will not be treated as affirmative votes. In other words, abstentions will have
the same effect as an against vote if votes in favor are less than a majority of the required quorum.
Other Matters. Approval of any other matter considered at the Meeting will require the affirmative vote of
a majority of the shares present or represented by proxy and voting at the Meeting.
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Broker Non-Votes. Broker non-votes will be included as “present” for the purpose of determining the presence of
a quorum. A broker non-vote occurs under the stock exchange rules when a broker is not permitted to vote on a
matter without instructions from the beneficial owner of the shares and no instruction is given on a timely basis.
Brokers may vote at their discretion on routine matters, such as ratification of selection of independent auditors,
but not on non-routine matters, including election of Directors, compensation of named executive officers, and
approval of the 2012 Amended and Restated Stock Option Plan of 1995. Your vote is IMPORTANT; therefore,
please mark your ballot to ensure that your votes for all proposals are counted.
How You Can Vote. Record Holders may vote by proxy or in person at the Meeting. To vote by proxy, you may
select one of the following options:
Vote by Telephone. You can vote your shares by telephone by calling the toll-free telephone number shown on
your Proxy Card and following the recorded instructions. Telephone voting is available 24 hours a day, seven days
a week. Voice prompts allow you to vote your shares and confirm that your instructions have been properly
recorded. Our telephone voting procedures are designed to authenticate the shareholder by using individual
control numbers, which you will find on your Proxy Card. If you vote by telephone, you should NOT return your
Proxy Card or vote by internet.
Vote by Internet. You can choose to vote on the internet. The website for internet voting is shown on your
Notice of Internet Availability of Proxy Materials or your Proxy Card. Internet voting is available 24 hours a day,
seven days a week. You will be given the opportunity to confirm that your instructions have been properly
recorded. Our internet voting procedures are designed to authenticate the shareholder by using individual control
numbers, which you will find on your Proxy Card. If you vote on the internet, you should NOT return your
Proxy Card or vote by telephone.
If you vote by telephone or internet, your vote must be received by 1:00 a.m. Central Time, on April 26,
2012 to ensure that your vote is counted. For Westamerica Bancorporation Tax Deferred Savings/Retirement
Plan (ESOP) participants, your vote must be received by 12:01 a.m. Central Time, on April 24, 2012.
We have been advised by counsel that these telephone and internet voting procedures comply with California law.
Vote by Mail. If you choose to vote by mail, simply mark your Proxy Card, date and sign it, and return it in the
postage-paid envelope provided. Beneficial owners must follow voting instructions received from your bank,
broker or other nominee in order to have your shares voted.
Revocation of Proxy. Record Holders who vote by proxy, whether by telephone, internet or mail, may revoke
that proxy at any time before it is voted at the Meeting. You may do this by: (a) signing another Proxy Card with a
later date and delivering it to us prior to the Meeting or sending a notice of revocation to the Corporate Secretary
of Westamerica at 1108 Fifth Avenue, San Rafael, CA 94901; (b) voting at a later time by telephone or on the
internet prior to 1:00 a.m. Central Time, on April 26, 2012 (prior to 12:01 a.m. Central Time, on April 24, 2012
for ESOP participants); or (c) attending the Meeting in person and casting a ballot. If you hold shares in street
name, you may change your vote by submitting new voting instructions to your broker or other nominee.
Additional Information
Householding. As permitted by the Securities Exchange Act of 1934 (the “Exchange Act”) only one envelope
containing two or more Notices of Internet Availability of Proxy Materials is being delivered to shareholders
residing at the same address, unless such shareholders have notified their bank, broker, Computershare Investor
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Services, or other holder of record that they wish to receive separate mailings. If you are a Beneficial Holder and
own your shares in street name, contact your broker, bank or other holder of record to discontinue householding
and receive your own separate copy of the Notice in future years. If you are a Registered Holder and own your
shares through Computershare Investor Services, contact Computershare toll-free at 877-588-4258 or in writing
directed to Computershare Investor Services, 250 Royall Street, Mail Stop 1A, Canton, MA 02021 to discontinue
householding and receive multiple Notices in future years. To receive an additional Annual Report or Proxy
Statement this year, contact Shareholder Relations at 707-863-6992 or follow the instructions on the Notice.
Mailing of dividends, dividend reinvestment statements, and special notices will not be affected by your
election to discontinue duplicate mailings of the Notice.
Electronic Access to Proxy Materials and Annual Reports. Whether you received the Notice of Internet
Availability of Proxy Materials or paper copies of proxy materials, this Proxy Statement and the 2011 Annual
Report are available on the Corporation’s internet site at: www.westamerica.com. If you hold your Westamerica
common stock in street name through a broker, a bank or other nominee, you may have the option of securing
your Proxy Statement and Annual Report over the internet. If you vote this year’s proxy electronically, you may
also elect to receive future Proxy Statements, Annual Reports and other materials electronically by following the
instructions given by your bank, broker, or other holder of record when you vote. Our website is available for
information purposes only and should not be relied upon for investment purposes, nor is it incorporated by
reference into this Proxy Statement.
Stock Ownership
Security Ownership of Certain Beneficial Owners. Based on Schedule 13G filings, shareholders beneficially
holding more than 5% of Westamerica common stock outstanding as of December 31, 2011, in addition to those
disclosed in the Security Ownership of Directors and Management below, were:
Number of Shares Percent of
Name and Address of Beneficial Owner Title of Class Beneficially Owned Class
T. Rowe Price Associates, Inc.
1100 East Pratt Street, Baltimore, MD 21202-1009
Common
2,637,668 (1)
Neuberger Berman, Inc.
605 Third Avenue, New York, NY 10158
BlackRock, Inc.
40 East 52nd Street, New York, NY 10022
The Vanguard Group, Inc.
100 Vanguard Boulevard, Malvern, PA 19355
________________
Common
2,526,360 (2)
Common
2,114,806 (3)
Common
1,538,502 (4)
9.20%
8.87%
7.43%
5.40%
(1) The Schedule 13G was filed with the SEC on February 8, 2012. These securities are owned by various individual and institutional investors
[including T. Rowe Price Mid-Cap Value Fund, Inc. (which owns 1,577,207 shares representing 5.5% of the shares outstanding),] which T. Rowe Price
Associates, Inc. (Price Associates) serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the
reporting requirements of the Securities Exchange Act of 1934, Price associate expressly disclaims that it is, in fact, the beneficial owner of such securities.
(2) The Schedule 13G filed with the SEC on February 14, 2012 disclosed that the reporting entity, Neuberger Berman, Inc., held shared voting power over
2,240,608 shares and shared dispositive power over 2,526,360 shares.
(3) The Schedule 13G filed with the SEC on February 10, 2012 disclosed that the reporting entity, through its subsidiaries, BlackRock, Inc., held sole voting
power over 2,114,806 shares and sole dispositive power over 2,114,806 shares.
(4) The Schedule 13G filed with the SEC on February 10, 2012 disclosed that the reporting entity, The Vanguard Group, Inc., held sole voting power over
42,443 shares and sole dispositive power over 1,496,059 shares, and shared dispositive power over 42,443 shares.
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Security Ownership of Directors and Management. The following table shows the number of common shares
and the percentage of the common shares beneficially owned (as defined below) by each of the current Directors,
by the Chief Executive Officer (“CEO”), by the Chief Financial Officer (“CFO”), and by the three other most
highly compensated executive officers, and by all Directors and Officers of the Corporation as a group as of
February 27, 2012. As of February 27, 2012, there were 28,093,899 outstanding shares of Westamerica
Bancorporation’s common stock. For the purpose of the disclosure of ownership of shares by Directors and
Officers below, shares are considered to be “beneficially” owned if a person, directly or indirectly, has or shares the
power to vote or direct the voting of the shares, the power to dispose of or direct the disposition of the shares, or
the right to acquire beneficial ownership of shares within 60 days of February 27, 2012.
Amount and Nature of Beneficial Ownership
Sole Voting and
Investment Power
Shared Voting and
Investment Power
Right to Acquire Within
60 days of Feb. 27, 2012
10,804 (3)
1,800
20
3,379(5)
1,000
8,600(6)
44,000
462(7)
82,950
863(9)
353
6,895
30
–
–
25,867(4)
–
–
–
–
885,569(8)
–
7,621(10)
957
1,437
23,840
–
–
–
–
–
–
–
750,000
–
134,382
125,673(11)
190,477(11)
134,118(11)
Total(1)
10,804
1,800
25,887
3,379
1,000
8,600
44,000
1,636,031
82,950
142,866
126,983
198,809
157,988
Percent of
Class(2)
*
*
0.1%
*
*
*
0.2%
5.7%
0.3%
0.5%
0.4%
0.7%
0.6%
161,166
946,409
1,407,089
2,514,664
8.5%
Name and Address**
Etta Allen
Louis E. Bartolini
E. Joseph Bowler
Arthur C. Latno, Jr.
Patrick D. Lynch
Catherine Cope MacMillan
Ronald A. Nelson
David L. Payne
Edward B. Sylvester
Robert A. Thorson
David Robinson
Jennifer J. Finger
Dennis R. Hansen
All 15 Directors and Executive
Officers as a Group
____________________
* Indicates beneficial ownership of less than one-tenth of one percent (0.1%) of the Corporation’s common shares.
** The address of all persons listed is 1108 Fifth Avenue, San Rafael, CA 94901.
(1) None of the shares held by the Directors and Officers listed above have been pledged.
(2) In calculating the percentage of ownership, all shares which the identified person or persons have the right to acquire by exercise of options are deemed to
be outstanding for the purpose of computing the percentage of the class owned by such person, but are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
(3) Includes 10,350 shares held in a trust as to which Mrs. Allen is trustee.
(4) Includes 25,867 shares held in trust as to which Mr. Bowler is co-trustee with shared voting and investment power.
(5) Includes 1,115 shares owned by Mr. Latno’s wife as to which Mr. Latno disclaims beneficial ownership.
(6) Includes 6,000 shares held in a trust as to which Ms. MacMillan is trustee.
(7) Includes 462 shares held in a trust under the California Uniform Gift to Minors Act as to which Mr. Payne is custodian.
(8) Includes 528,837 shares owned by Gibson Radio and Publishing Company, of which Mr. Payne is President and Chief Executive Officer, as to which Mr.
Payne disclaims beneficial ownership, and 345,808 shares held in a trust as to which Mr. Payne is co-trustee with shared voting and investment power.
(9) Includes 830 shares held in trusts under the California Uniform Gift to Minors Act as to which Mr. Thorson is custodian.
(10) Includes 6,884 shares held in a trust as to which Mr. Thorson is co-trustee with shared voting and investment power.
(11) During 1996, the Corporation adopted the Westamerica Bancorporation Deferral Plan (the “Deferral Plan”) that allows recipients of Restricted Performance
Shares (“RPS”) to defer receipt of vested RPS shares into succeeding years. Amounts shown include RPS shares that have been deferred into the Deferral Plan for
the following accounts in amounts of: Ms. Finger—25,030 shares; Messrs. Hansen—12,230 shares; and Robinson—16,290 shares.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Corporation’s Directors and Executive Officers and persons who
own more than 10% of a registered class of the Corporation’s equity securities to file with the SEC and NASDAQ
initial reports of ownership and reports of changes in ownership of common stock and other equity securities of
the Corporation, and to send a copy to the Corporation.
To the Corporation’s knowledge and based solely on a review of the copies of reports furnished to the
Corporation and written representations that no other reports were required, during the fiscal year ended
December 31, 2011, all Section 16(a) filing requirements were complied with timely by Westamerica’s
Directors and Officers.
BOARD OF DIRECTORS
Proposal 1 — Election of Directors
Nine Directors have been nominated for election at the Meeting to hold office until the next Annual Meeting or
until their successors are elected and qualified. The Proxies will vote for the nine nominees named below unless
you give different voting instructions on your Proxy Card. Each nominee is presently a Director of the
Corporation and has consented to serve a new term. The Board does not anticipate that any of the nominees will
be unavailable to serve as a Director, but if that should occur before the Meeting, the Board reserves the right to
substitute another person as nominee. The Proxies will vote for any substitute nominated by the Board of
Directors. The Proxies may use their discretion to cumulate votes for election of Directors and cast all of such votes
for any one or more of the nominees, to the exclusion of the others, and in such order of preference as they may
determine at their discretion.
Nominees
The nominees for election as Directors are named and certain information with respect to them is given below.
Our nominees are seasoned leaders who bring to the Board an array of financial services, public and private
company, non-profit, and other business experience. As a group they possess experience in leadership; consumer
banking; commercial and small business banking; investment banking, capital markets; financial advisory services;
finance and accounting; risk management and real estate. Many of the Board Members have seen the company
through a variety of economic conditions which was especially beneficial during the current economic
environment. The information below has been furnished to the Corporation by the respective nominees. All of the
nominees have engaged in their indicated principal occupation for more than five years, unless otherwise indicated
and no nominee has served on the Board of Directors of another public company during the past five years.
Name of Nominees, Principal Occupations, and Qualifications
Etta Allen – Director since 1988
Etta Allen (82) is President and CEO of Allen Heating and Sheet Metal and President and CEO of Sunny Slope
Vineyard in Sonoma County, California. She is a member of the Employee Benefits and Compensation
Committee and the Loan and Investment Committee. Mrs. Allen is also a Director of Westamerica Bank.
In 1972, she became the second woman in the state of California to become a licensed contractor in heating,
ventilation, air conditioning and sheet metal, and in 1974 she became President and CEO of Allen Heating
and Sheet Metal. Under her leadership the company became recognized throughout California. She was the
first woman president of Marin Builders Exchange and during her time on the executive committee she also
served as a trustee and later as chairman of their successful insurance trust. She was the first woman contractor
on the Executive Committee of the California Association of Builders Exchanges.
Etta Allen is one of the pioneers for women in non-traditional careers. As an entrepreneur, businesswoman and an
involved community leader, she brings independence, operations management and executive experience to the Board.
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Louis E. Bartolini – Director since 1991
Mr. Bartolini (79) retired from Merrill Lynch, Pierce, Fenner & Smith, Inc. (now Merrill Lynch and Co.) as a
financial consultant. He currently serves on the Audit Committee and is also a Director of Westamerica Bank.
Mr. Bartolini has 33 years of experience in the financial industry serving as a financial consultant and branch manager
for Merrill Lynch and Co. and has been active for over 35 years in the non-profit community in Marin County.
He has served on the boards of many non-profit organizations, including a five-year term as president of the Marin
Symphony, a Board member of the Association of California Symphony Orchestras, and a past District Governor
of Rotary International.
Mr. Bartolini’s continuing interest in the financial industry, and his leadership skills, and financial and
investment expertise are of great value to the Board. His extensive ties to local community and business leaders
through his long-term volunteer involvement provide the Board with a broad prospective and insights into key
segments of our markets and customer base.
E. Joseph Bowler – Director since 2003
Mr. Bowler (75), retired as Senior Vice President and Treasurer of the Corporation in 2002. He currently serves
as a member of the Audit Committee, and is also a Director of Westamerica Bank. Mr. Bowler holds a Masters
of Business Administration from Stanford University.
With many years of direct banking experience, Mr. Bowler brings strong financial and investment expertise
important to the oversight of our financial reporting and interest rate risk management. In addition, Mr. Bowler’s
experience as a director and trustee of various non-profit community and educational organizations brings
strategic planning and corporate governance skills to the Board.
Arthur C. Latno, Jr. – Director since 1985
Mr. Latno (82) retired from Pacific Telesis Group (now Pacific Bell Telephone Company) as an Executive
Vice President. He currently serves on the Corporation’s Executive Committee, the Employee Benefits and
Compensation Committee, and the Loan and Investment Committee and is Chairman of the Nominating
Committee. Mr. Latno is also a Director of Westamerica Bank. His expertise stems from his wide-ranging
responsibilities at Pacific Bell, which included operations, regulatory responsibilities, and public and governmental
relations. His proficiency in strategic planning was recognized by the City of San Francisco when he was selected
to serve on the City’s Port of San Francisco Strategic Planning Advisory Panel. He has also been involved with the
Marin General Hospital Foundation, the Fine Arts Museum of San Francisco and numerous other community
organizations in the locations where the Corporation has a significant presence. Mr. Latno is also a former U.S.
Ambassador and Chairman of the U.S. Delegation Treaty Conference (rank accorded by President Reagan) in
Melbourne, Australia, and a former Chairman of the Board of Trustees and Past President of Board of Regents of
St. Mary’s College in California. He was a recipient of the Anti-Defamation League’s Americanism Award and the
Friends of the Human Rights Commission’s Human Rights Award.
Mr. Latno’s most important contributions to the Board are his executive leadership, strategic planning skills,
and regulatory and public relations experience.
Patrick D. Lynch – Director since 1986
Patrick Lynch (78) retired as Vice President and General Manager of the U.S. Semiconductor Division of
Motorola. He currently serves as Chairman of the Employee Benefits and Compensation Committee and
a member of the Executive Committee and the Nominating Committee. Mr. Lynch is also a Director of
Westamerica Bank and has held executive positions at Nicolet Instrument Corporation and several venture
capital high-tech start-up companies.
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Mr. Lynch brings to the Board, operations, financial and marketing expertise as well as a valued historical
perspective.
Catherine Cope MacMillan – Director since 1985
Catherine MacMillan (64) is a former owner of the Huntington Hotel in San Francisco and La Playa Hotel in
Carmel-by-the-Sea. She is a member of the Loan and Investment Committee and the Audit Committee. She is
also a Director of Westamerica Bank. Ms. MacMillan previously operated a prominent restaurant for nearly 20
years. She is a graduate of the University of California at Davis and Pacific McGeorge School of Law. She has also
served in numerous leadership capacities for community organizations.
Ms. MacMillan’s experience in administration and operational aspects of various businesses and organizations
provides the Board with sound leadership.
Ronald A. Nelson – Director since 1988
Ronald Nelson (69) was Executive Vice President of Charles M. Schulz Creative Associates through 1995. He
serves as the Chairman of the Audit Committee and is a member of the Employee Benefits and Compensation
Committee. He is also a Director of Westamerica Bank. Mr. Nelson has a background as a Certified Public
Accountant and has been designated as the Audit Committee’s “financial expert.” He has been a resident of
Sonoma County since 1970, which is one of the bank’s primary markets and where he has been involved in
business management, investment management, and the development of commercial real estate. He also served as
a board member and chairman of Santa Rosa Memorial Hospital, which is the area’s primary acute care hospital.
Mr. Nelson’s extensive business and financial expertise provides important oversight of our financial reporting
and risk management.
David L. Payne – Director since 1984
David Payne (56) is Chairman, President & CEO of Westamerica Bancorporation. He was appointed Chairman
in 1988 and Chief Executive Officer in 1989 and is Chairman of the Executive Committee. Mr. Payne is also
Chairman, President & CEO of Westamerica Bank. He brings to the Board strong leadership and a vision for the
future. He has a thorough knowledge of the banking industry, manages regulatory and business development
issues, and has extensive financial and accounting expertise. Mr. Payne possesses excellent management, strategic
development and business skills.
Since Mr. Payne’s appointment to the Board, Westamerica’s dividends per share have risen eleven-fold and
capital levels have increased eight-fold. Total assets have quadrupled during his tenure and net income has risen by
a multiple of 12. Return on equity is currently near 16%.
Mr. Payne has successfully negotiated and led the Corporation through many mergers including: John Muir
National Bank, Napa Valley Bancorporation, PV Financial, CapitolBank – Sacramento, North Bay Bancorp,
ValliCorp Holdings, First Counties Bank, Kerman State Bank, Redwood Empire Bancorp, County Bank, and
Sonoma Valley Bank.
Mr. Payne serves on the advisory board for Global Energy Investors. He also manages his family printing,
publishing and cable television business.
Edward B. Sylvester – Director since 1979
Edward Sylvester (75) is a licensed civil engineer and the founder of SCO Planning and Engineering. He retired
from the day to day engineering profession five years ago but continues as a private consultant. Mr. Sylvester is
currently a member of the Executive Committee, the Nominating Committee and is Chairman of the Loan and
Investment Committee, and is a Director of Westamerica Bank. He was a founding Director of Gold Country
Bank headquartered in Grass Valley until the bank merged with Westamerica’s predecessor, Independent
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Bankshares, at which time he was nominated to serve on the corporate Board by his peers. Mr. Sylvester is the
Chairman of the Board of Nevada County Broadcasters and also serves as Vice Chairman of the Nevada County
Business Association. Mr. Sylvester has previously served as a member and Chairman of the California
Transportation Commission that prioritizes state transportation projects and allocates funding. He is a past
President of the Rotary Club of Grass Valley and past Chairman of the Grass Valley Chamber of Commerce. Mr.
Sylvester has run 23 marathons to date and was the 14th person in the world to complete a full marathon on all
seven continents including Antarctica.
The depth of Mr. Sylvester’s experience gives him first hand understanding of all the nuances of development
and development funding, a current knowledge of the retail economy, and a state-wide perspective and experience
in funding allocation. His long tenure on the Board brings a historical and long-term perspective while he remains
current on financial issues with his continuing leadership role in the community and active management positions.
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF ALL NOMINEES.
Director Independence and Leadership Structure
Board of Directors and Committees
The Board of Directors has considered whether any relationships or transactions related to a Director were
inconsistent with a Director’s independence. Based on this review, the Board has determined that E. Allen, L.E.
Bartolini, E.J. Bowler, A.C. Latno, Jr., P.D. Lynch, C.C. MacMillan, R.A. Nelson, and E.B. Sylvester are
“independent” Directors as defined in NASDAQ rules.
Our Board believes that the most effective leadership structure for the Corporation at this time is to combine
the responsibilities of the Chairman and CEO, a structure that has been successful since 1989. The combined
positions avoid a duplication of efforts, enable decisive leadership, ensure a clear accountability for the
performance of the Corporation, a more rapid implementation of decisions, and a consistent vision. Given the size
of our employee base and our level of assets relative to larger, more complex banking structures, our Corporation is
particularly well suited to combine the Chairman and CEO functions. Furthermore, our management team has
an average tenure of 24 years and does not require the substantial oversight needed by a less experienced team,
which has allowed our Chairman and CEO to lead the Corporation through eleven acquisitions since 1992.
To ensure strong Board oversight eight of our nine Directors are, as noted above, independent as defined by
NASDAQ. Only non-management directors sit on Board committees, with the exception of the Executive
Committee, and every non-management director sits on one or more of these Committees. All non-management
directors meet at least four times a year outside the presence of the Chairman and CEO and although a lead
director has not been appointed, pertinent information from these meetings is regularly communicated to the
Chairman and CEO. The Board completes an annual board evaluation that is discussed by the Nominating
Committee and presented to the full Board.
The Board of the Corporation also serves as the Board of Directors of Westamerica Bank, and as such is well
informed of Bank operations through regular reports and discussions on the operations of the Bank. The
Directors’ longevity with the Corporation has exposed them to a wide range of business cycles which plays a
critical role in maintaining the profitability of the Corporation through the current economic environment.
Role of the Board of Directors in Risk Oversight
The Board is also responsible for overseeing all aspects of management of the Corporation, including risk oversight,
which is effected through all Board committees, but primarily through the Board’s Audit Committee. The Internal
Audit Department reports directly to the Board’s Audit Committee. It presents its independently prepared company-
wide annual risk assessment, its evaluation of Management’s prepared risk assessment and its audit plan incorporating
the risk assessment, including the policies and procedures utilized to monitor and control such exposures.
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The internal loan review function reports directly to the Board’s Loan and Investment Committee. It reports
ongoing evaluations of loan portfolios and risk-rating of individual loans using guidelines established by bank
regulatory authorities.
Meetings
The Corporation expects all Board Members to attend all meetings, including the Annual Meeting of
Shareholders, except for reasons of health or special circumstances. Last year all nine Directors attended the
Annual Meeting. The Board held a total of 10 meetings during 2011. Every Director attended at least 75%
of the aggregate of: (i) the Board Meetings held during that period in which they served; and (ii) the total number
of meetings of any Committee of the Board on which the Director served.
Committees of the Board
Executive
Committee
Audit
Committee
Employee
Benefits and
Compensation
Committee
Loan and
Investment
Committee
Nominating
Committee
X
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Chair
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Chair
X
10
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Chair
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5
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Chair
10
Chair
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Director
Etta Allen
Louis E. Bartolini
E. Joseph Bowler
Arthur C. Latno, Jr.
Patrick D. Lynch
Catherine Cope MacMillan
Ronald A. Nelson
David L. Payne
Edward B. Sylvester
Number of Meetings
Executive Committee:
Functions: The Board delegates to the Executive Committee all powers and authority of the Board in the
management of the business affairs of the Corporation, which the Board is allowed to delegate under California law.
Audit Committee:
The Board of Directors has determined that all members are independent, as that term is defined by
applicable rules of NASDAQ for Audit Committee purposes. The Board has also designated Mr. Nelson as the
“Audit Committee financial expert” as defined by the rules of the SEC and has determined that he is
“financially sophisticated” under NASDAQ rules. In concluding that Mr. Nelson is the Audit Committee
financial expert, the Board determined that he has:
(cid:129) an understanding of generally accepted accounting principles and financial statements;
(cid:129) the ability to assess the general application of such principles in connection with the accounting for
estimates, accruals and reserves;
(cid:129) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and
level of complexity of accounting issues that are generally comparable to the breadth and complexity of
issues that can reasonably be expected to be raised by the Corporation’s financial statements, or experience
actively supervising one or more persons engaged in such activities;
(cid:129) an understanding of internal control over financial reporting; and
(cid:129) an understanding of Audit Committee functions.
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Designation of a person as an Audit Committee financial expert does not result in the person being
deemed an expert for any purpose, including under Section 11 of the Securities Act of 1933. The designation
does not impose on the person any duties, obligations or liability greater than those imposed on any other
Audit Committee member or any other Director and does not affect the duties, obligations or liability of any
other member of the Audit Committee or Board of Directors.
Functions: The Audit Committee provides independent, objective oversight of the integrity of the
Corporation’s financial statements, the Corporation’s compliance with legal and regulatory requirements, the
independence and performance of the Corporation’s independent auditor as it performs audit, review or attest
services, and the Corporation’s internal audit and control function. It selects and retains the independent
auditors, reviews the plan and the results of the auditing engagement. It acts pursuant to a written charter that
was last amended by the Board in January 2011 and was attached as an exhibit to the Proxy Statement for the
2011 Annual Meeting of Shareholders. The Audit Committee Report that follows below more fully describes
the responsibilities and the activities of the Audit Committee.
Employee Benefits and Compensation Committee:
The Employee Benefits and Compensation Committee of the Board of Directors (the “Compensation
Committee”) is comprised solely of Directors who are not current or former employees of Westamerica or any
of its affiliates. They are independent as defined by NASDAQ rules.
Functions: The Compensation Committee administers Westamerica Bancorporation’s Amended and Restated
Stock Option Plan of 1995, Tax Deferred Savings and Retirement Plan, Deferred Profit Sharing Plan, Deferred
Compensation Plan, and the Westamerica Bancorporation Deferral Plan. It administers the Corporation’s
compensation programs and reviews and reports to the Board the compensation level for executive officers,
including the CEO, of the Corporation and its subsidiaries and determines that compensation plans are
balanced between financial results without motivation of excessive risk-taking. The Compensation Committee
determines annual corporate performance objectives for equity compensation and cash bonuses and their
related corporate, divisional and individual goals. Based on the CEO’s assessment of the extent to which each
executive officer met those objectives and goals, the Committee determines each executive officer’s annual
equity compensation and cash bonus. The Compensation Committee also establishes the individual goals and
targets for the CEO. All compensation approved by the Compensation Committee is reported to the full
Board of Directors. The role of the Compensation Committee is described in greater detail under the section
entitled “Compensation Discussion and Analysis.”
The Compensation Committee does not have a charter as it is not required by NASDAQ rules. The
Compensation Committee has the authority to seek assistance from officers and employees of the Corporation
as well as external legal, accounting and other advisors. It has not retained outside consultants for compensation
advice, but can request assistance on an as-needed basis. It does not delegate authority to anyone outside of the
Compensation Committee. The Human Resources Department supports the Compensation Committee by
fulfilling certain administrative duties regarding the compensation programs.
Nominating Committee:
The Board of Directors has determined that all members of the Nominating Committee are independent, as
defined in NASDAQ rules.
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Functions: The Nominating Committee is governed by a written charter, which was amended in January 2010
and was attached as an exhibit to the Proxy Statement for the 2010 Annual Meeting of Shareholders. The
Nominating Committee screens and recommends qualified candidates for Board membership. This Committee
recommends a slate of nominees for each Annual Meeting. As part of that process, it evaluates and considers all
candidates submitted by shareholders in accordance with the Corporation’s bylaws, and considers each existing
Board member’s contributions. The Committee applies the same evaluation standards whether the candidate
was recommended by a shareholder or the Board.
While the Board does not have a formal diversity policy, it believes that the Board should broadly define
diversity to encompass a diverse range of skills and expertise sufficient to provide prudent guidance to the
Corporation. In addition to the qualifications and characteristics described below, it considers whether the
potential Director assists in achieving a mix of Board Members that represents a diversity of background,
perspective, and experience. Our Board includes Directors with experience in public corporations and non-profit
organizations, as well as entrepreneurial individuals who have successfully run their own private enterprise.
Our Board also has a broad set of skills necessary for providing oversight to a financial institution, which
includes proven leadership, and expertise in capital management, finance, accounting, regulatory affairs,
and investment management.
Nominating Directors: The Nominating Committee will consider shareholder nominations submitted in
accordance with Section 2.14 of the Bylaws of the Corporation. That section requires, among other things, that
nominations be submitted in writing and must be received by the Corporate Secretary at least 45 days before
the anniversary of the date on which the Corporation first mailed its proxy materials for the prior year’s Annual
Meeting of Shareholders. If the date for the current year’s Annual Meeting changes more than 30 days from the
date on which the prior year’s meeting was held, the Corporation must receive notice a reasonable time before
the Corporation mails its proxy materials for the current year.
Nominations must include the following information:
(cid:129) The principal occupation of the nominee;
(cid:129) The total number of shares of capital stock of the Corporation that the shareholder expects will be voted
for the nominee;
(cid:129) The name and address of the nominating shareholder; and
(cid:129) The number of shares of capital stock of the Corporation owned by the nominating shareholder.
The Committee has specified the following minimum qualifications it believes must be met by a nominee for
a position on the Board:
(cid:129) Appropriate personal and professional attributes to meet the Corporation’s needs;
(cid:129) Highest ethical standards and absolute personal integrity;
(cid:129) Physical and mental ability to contribute effectively as a Director;
(cid:129) Willingness and ability to participate actively in Board activities and deliberations;
(cid:129) Ability to approach problems objectively, rationally and realistically;
(cid:129) Ability to respond well and to function under pressure;
(cid:129) Willingness to respect the confidences of the Board and the Corporation;
(cid:129) Willingness to devote the time necessary to function effectively as a Board member;
(cid:129) Possess independence necessary to make unbiased evaluation of Management performance;
(cid:129) Be free of any conflict of interest that would violate applicable law or regulation or interfere with ability
to perform duties;
(cid:129) Broad experience, wisdom, vision and integrity;
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(cid:129) Understanding of the Corporation’s business environment; and
(cid:129) Significant business experience relevant to the operations of the Corporation.
Loan and Investment Committee:
Functions: This Committee reviews major loans and investment policies and monitors Community
Reinvestment Act compliance.
Director Compensation
The following table and footnotes provide information regarding the compensation paid to the Corporation’s
non-employee members of the Board of Directors in the fiscal year 2011. Directors who are employees of the
Corporation receive no compensation for their services as Directors.
Director Compensation Table at Fiscal Year 2011
Name (1)
Etta Allen
Louis E. Bartolini
E. Joseph Bowler
Arthur C. Latno, Jr.
Patrick D. Lynch
Catherine Cope MacMillan
Ronald A. Nelson
Edward B. Sylvester
_________________________
Fees Earned
Paid in Cash ($) (1)
$34,800
30,000
30,000
41,650
37,250
35,400
34,250
40,650
Change in Pension Value and
Nonqualified Deferred
Compensation Earnings ($) (2)
$54,409
387
0
0
0
0
0
6,803
Total ($)
$89,209
30,387
30,000
41,650
37,250
35,400
34,250
47,453
(1) Non-employee Directors did not receive options or stock awards. During 2011, non-employee Directors of the Corporation each received an annual
retainer of $15,000. Each non-employee Director received $1,200 for each meeting of the Board attended and $600 for each Committee meeting attended.
The Chairman of each Committee received an additional $250 for each Committee meeting attended. All non-employee Directors are reimbursed for
expenses incurred in attending Board and Committee meetings. The Chairman of the Board, David L. Payne, is compensated as an employee and did not
receive any compensation as a Director.
(2) The Deferred Compensation Plan allows non-employee Directors to defer some or all of their Director compensation with interest earnings credited on
deferred compensation accounts. The amount shown is the interest on nonqualified deferred compensation that exceeds 120% of the long- term Applicable
Federal Rate, with compounding, on all cash compensation deferred in 2011 and in previous years.
Westamerica Bancorporation does not have a charitable donations program for Directors nor does it make
donations on behalf of any Director(s). The Corporation may make a nominal donation through its Community
Relations program to non-profit organizations where a Director(s) may have an affiliation.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The executive compensation practices described below have been followed consistently for twenty years. At the
2009 and 2011 Annual Meetings of Shareholders, a majority of our shareholders approved an advisory proposal
on the Corporation’s compensation of executives.
The Compensation Committee governs the executive compensation program that combines three
compensation elements: base salary, annual non-equity cash incentives, and long-term stock grants. Several
compensation philosophies and practices underlie this program:
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(cid:129) Base salaries for participants in this program should be limited to foster an environment where
incentive compensation motivates and rewards corporate, divisional, and individual performance.
(cid:129) Incentive compensation (annual non-equity cash incentives and long-term stock grants) is based on
measurement of performance against pre-established objective measurable goals. Specific criteria for each
objective are established for “threshold,” “target,” and “outstanding” performance. On any one measure,
performance below “threshold” results in no credit for that objective. “Threshold” performance results in a
75% achievement, “target” performance results in 100% achievement, and “outstanding” performance results
in 150% achievement. The performance achievement level determines the size of incentive compensation
awards.
(cid:129) Long-term incentive stock grants will be awarded to senior management if the corporate performance level is
rated “threshold” or better. The purpose of long-term incentive grants is to:
– motivate senior management to focus on long-term performance;
– avoid excessive risk-taking and instill conservative management practices;
– build equity ownership among Westamerica’s senior management;
– link shareholder interests to management incentives; and
– create ownership mentality among senior management.
Establishing Incentive Levels, Determining Objectives and Measuring Performance
In administering the executive compensation program, the Compensation Committee determines “target”
incentives for each position annually. The Compensation Committee exercises discretion in establishing “target”
incentives in an effort to provide competitive pay practices while motivating and rewarding performance that
benefits the Corporation’s long-term financial performance and shareholder interests, and avoiding excessive
risk-taking.
At the beginning of each calendar year, the Compensation Committee establishes annual corporate
performance objectives. In establishing corporate performance objectives, the Compensation Committee takes
into consideration the current operating environment for the commercial banking industry as well as internal
management policies and practices which would, in the Compensation Committee’s opinion, benefit the long-
term interests of the Corporation and its shareholders. Corporate performance measures include risk management
elements considered to be responsive to the impact current operating conditions could have on the long-term
performance of the Company. The Compensation Committee monitors the economy and the banking industry’s
operating environment throughout the ensuing year, and may exercise discretion in adjusting corporate
performance objectives during the year.
The operating environment for the commercial banking industry is impacted by a myriad of factors including,
but not limited to, local, national and global economic conditions, interest rate levels and trends, monetary
policies of the Federal Reserve Board and its counterparts in other countries, fiscal policies of the United States
government and other global political conditions, liquidity in capital markets, the demand for capital by
commercial enterprises and consumers, new financial products, competitive response to changing conditions
within the industry, trade balances, the changing values of real estate, currencies, commodities and other assets,
and other factors.
Management policies and practices the Board considers in establishing corporate performance objectives
include, but are not limited to, management of the Corporation’s balance sheet and product pricing in a manner
which will provide consistent sustainable growth in long-term financial results for shareholders, the type and
variety of financial products offered by the Corporation, adherence to internal controls, management of the credit
risk of Corporation’s loan and investment portfolios, the results of internal, regulatory and external audits, service
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quality delivered to the Corporation’s customers, service quality of “back office” support departments provided to
those offices and departments directly delivering products and services to the Corporation’s customers,
maintenance of operating policies and procedures which remain appropriate for risk management in a dynamic
environment, timely and efficient integration of acquired companies, operational efficiencies, and capital
management practices.
Restricted performance shares (“RPS”) represent awards of Westamerica’s common stock subject to
achievement of performance objectives established by the Compensation Committee. The Amended and Restated
Stock Option Plan of 1995 (“2003 Amended Plan”), which was approved by shareholders in 1995 and amended
with shareholder approval in 2003, defines the performance factors the Board must use in administering RPS grants
as one or more of the following: earnings, diluted earnings per share, revenue and revenue per diluted share, expenses,
share price, return on equity, return on equity relative to the average return on equity for similarly sized institutions,
return on assets, return on assets relative to the average return on assets for similarly sized institutions,
efficiency ratio (operating expenses divided by operating revenues), net loan losses as a percentage of average loans
outstanding, nonperforming assets, and nonperforming assets as a percentage of total assets.
In addition to establishing corporate performance objectives, the Compensation Committee also establishes
individual goals for the CEO. In regard to the other executives named in the accompanying tables, the CEO
recommends divisional and individual performance objectives to the Compensation Committee, which considers,
discusses, adjusts as necessary, and adopts such performance objectives.
Upon the closure of each calendar year, the Compensation Committee reviews corporate, divisional, and
individual performance against the performance objectives for the year just completed. After thorough review and
deliberation, the Compensation Committee determines the recommended amount of individual non-equity cash
incentives and stock-based incentive awards. The Compensation Committee reports such incentives to the Board of
Directors. Meetings of the Compensation Committee and Board of Directors routinely occur in January, immediately
following the closure of the calendar year for which performance is measured for incentive compensation purposes.
Stock Grants
Long-term stock grants may only be awarded under shareholder approved stock-based incentive compensation
plans. The Corporation’s Proxy Statement dated March 17, 2003, as filed with the SEC on that date, summarizes
the 2003 Amended Plan’s changes from the predecessor plan. Such changes included:
(cid:129) disallowing re-pricing stock options for poor stock performance;
(cid:129) limiting the number of shares that may be awarded; and
(cid:129) requiring the Compensation Committee to meet the definition of independence to enable any award intended to
qualify as “performance-based compensation” to meet Section 162(m) of the Internal Revenue Code.
The 2003 Amended Plan allows four types of stock-based compensation awards:
Incentive Stock Options (“ISO”) allow the optionee to buy a certain number of shares of Westamerica
common stock at a fixed price, which is established on the date of the option grant. ISOs are intended to meet
the requirements of Section 422 of the Internal Revenue Code which provide advantages if certain conditions
are met. If the optionee holds the acquired stock for the designated holding period, the optionee defers the
timing of recognizing taxable income related to exercising the ISO. If the optionee complies with the ISO
requirements, the Corporation does not receive a corporate tax deduction related to the shares issued.
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Nonqualified Stock Options (“NQSO”) also give the optionee the option to buy a certain number of shares
of Westamerica common stock at a fixed price, which is established on the date of grant. Unlike ISOs, NQSOs
do not allow deferral of taxable income for the optionee. At the time NQSOs are exercised, the optionee incurs
taxable income equal to the spread between the exercise price and the market price of the stock, and the
Corporation receives a corporate tax deduction in the same amount.
Stock Appreciation Rights (“SAR”) provide the holder a cash payment equal to the difference between the
fair market value of the Corporation’s common stock on the date the SAR is surrendered and the fair market
value of the Corporation’s common stock on the date the SAR was granted. The optionee incurs taxable income
at the time the SAR is settled and the Corporation receives a corporate tax deduction in the same amount.
Restricted Performance Share Grants as noted above, are awards of the Corporation’s common stock that
are subject to the achievement of performance objectives. Award recipients receive shares at the end of the
performance measurement period only if performance objectives are achieved. The award recipient incurs taxable
income at the time any RPS vests and the Corporation receives a corporate tax deduction in the same amount.
Determination of Awards to Grant
In determining which type of stock-based compensation awards to grant, the Compensation Committee considers
the attributes of each form of incentive. Examples include the ability to motivate management to make decisions
based on the long-term interests of shareholders, the desire to compensate with shares rather than cash, and the tax
consequences of each type of award. The Compensation Committee retains the latitude to utilize all
forms of incentives provided under the 2003 Amended Plan. In the current and preceding years, the
Compensation Committee has utilized NQSO and RPS based on the motivational aspects of stock price
appreciation, the settlement in shares rather than cash, and the preservation of tax deductions for the
Corporation. At February 27, 2012 the Corporation had no ISO or SAR awards outstanding.
Determination of Option Exercise Price
The 2003 Amended Plan also requires the exercise price of each NQSO or ISO to be no less than
one hundred percent (100%) of the fair market value of the Corporation’s common stock on the date of grant.
As described above, the 2003 Amended Plan does not allow re-pricing stock options for poor stock price
performance.
Stock-based compensation awards are submitted by the Compensation Committee to the full Board of
Directors for review. As described above, these meetings have routinely occurred in January immediately following
the closure of the calendar year for which performance is measured for incentive compensation purposes. The
Compensation Committee meeting has routinely been held during the same week as the related Board of Directors
meeting. These January meetings follow by no more than ten business days the Corporation’s public disclosure of its
financial results for the preceding year. As a result, stock option grants are awarded, and the exercise price of such
grants are determined at a time when the Corporation has broadly disseminated its financial condition and current
operating results to the public. The Corporation’s outstanding stock option grants are dated, and related stock option
exercise prices are determined, on the January date the Compensation Committee meets to approve such grants.(1)
Long-Term Incentive Attributes
The Board of Directors has designated the Compensation Committee as the administrator of the 2003 Amended
Plan. The Compensation Committee reports to the Board the terms and conditions of stock option awards. In
carrying out this responsibility, the Compensation Committee designs such awards as long-term incentives. The
terms and conditions of currently outstanding awards include:
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(cid:129) NQSO vest one-third (1/3) on each anniversary of the grant date. As such, NQSO grants become fully
vested over a three-year period. NQSO grants expire on the tenth anniversary of the grant date. The
Corporation does not pay dividends on shares underlying NQSO grants until the optionee exercises the option
and the shares are outstanding on a dividend record date.
(cid:129) RPS awards vest three years following the grant date, only if corporate performance objectives are achieved
over the three-year period. The Corporation does not pay dividends on RPS shares until vesting occurs and
shares awarded become outstanding on a dividend record date.
Compensation for the Chairman, President & CEO
Mr. Payne performs two functions for the Corporation. These two functions tend to be compensated separately at
similarly sized banking institutions. Mr. Payne serves as Chairman of the Board and Chief Executive Officer with
responsibilities including oversight of the organization and external strategic initiatives. Mr. Payne also serves as
President and Chief Operating Officer with responsibilities including daily management of internal operations.
Mr. Payne’s total compensation reflects these broad responsibilities. Consistent with the overall compensation philosophy
for senior executives, Mr. Payne’s compensation has a greater amount of pay at-risk through incentives than through
base salary. Since Mr. Payne is compensated as an executive, he is not eligible to receive compensation as a Director.
As noted on page 27 of the proxy under the Pension Benefits Table, during 1997 the Corporation entered into
a nonqualified pension agreement (“Pension Agreement”) with Mr. Payne in consideration of Mr. Payne’s
agreement that RPS granted in 1995, 1996 and 1997 would be cancelled. In entering the Pension Agreement, the
Board of Directors considered the following:
(cid:129) Mr. Payne had a significant beneficial interest in Corporation common stock, which was more than adequate
to continue to provide motivation for Mr. Payne to continue managing the Corporation in the best interests of
shareholders.
(cid:129) In 1997, the Corporation had consummated its largest acquisition, with significant total asset growth of
approximately 51 percent. One of the Board’s objectives was to provide a compensation mechanism providing
retention features for Mr. Payne. Retention of Mr. Payne as President and Chief Executive Officer was desired
following the Corporation’s significant growth. The RPS shares surrendered for the Pension Agreement were
scheduled to vest on dates in 1998, 1999 and 2000, while the Pension Agreement was not fully vested until
December 31, 2002. Additionally, the 20-year certain pension provided under the Pension Agreement commences
upon Mr. Payne’s attainment of age 55. Mr. Payne was age 42 at the time of entering the Pension Agreement.
(cid:129) The economic value of the surrendered RPS and the Pension Agreement were considered equivalent based
on actuarial assumptions.
Compensation Awarded to Named Executive Officers
Base salaries for participants in the executive compensation program are generally limited to foster an environment
where incentive compensation motivates and rewards corporate, divisional, and individual performance. As such,
base pay increases are generally infrequent and limited to “control points” assigned to each position. The non-equity
cash incentive formula has the following components:
________________
(1) Due to merger and acquisition activity, the Corporation converts stock option grants outstanding for acquired companies based on the terms and
conditions of related merger agreements. The dating of such converted stock options generally remains as originally dated by the acquired company. As a
result, the Corporation at times has options outstanding related to acquisitions with grant dates different from its routine stock option granting practices.
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“Target” Composite Corporate
Cash X Divisional and Individual
Incentive Performance Level
=
Cash
Incentive
Award
In structuring performance goals for the named executive officers, the Compensation Committee emphasizes
goals, which if achieved, will benefit the overall Corporation. As such, senior management level positions have
high relative weighting on corporate objectives, and divisional leadership positions also have significant weighting
on divisional objectives. The “target” cash incentive and the weighting of goals for the named executive officers for
2011 performance were as follows:
“Target” Goal Weighting
Cash
Incentive Corporate Divisional Individual
Mr. Payne $371,000 80% – 20%
Mr. Thorson 82,000 55% 25% 20%
Ms. Finger 82,000 55% 20% 25%
Mr. Hansen 73,900 55% 35% 10%
Mr. Robinson 75,000 50% 40% 10%
The Compensation Committee establishes corporate goals with the intent to balance current profitability with
long-term stability of the Corporation and its future earnings potential. The 2011 corporate performance goals
related to current year “profitability” included return on equity, return on assets and diluted earnings per share.
The performance goals designed to maintain the long-term stability of the Corporation include “quality” and
“control” components. The “quality” measures include loan portfolio quality measures (originated classified loans
and other real estate owned, originated non-performing loans and originated other real estate owned, and net loan
losses to average originated loans) and service quality measures (external service quality to customers and internal
service quality of support departments and branches). The “control” measures include non-interest expense to
revenues (efficiency ratio), the level of non-interest expenses, and internal audit results. By maintaining both
current year “profitability” goals and longer-term “quality” and “control” goals, Management has a disincentive to
maximize current earnings at the expense of longer-term results.
For 2011, the Compensation Committee expected a highly uncertain operating environment given fragile
economic conditions following the severe recession of 2008 and 2009. As a result, the Committee reserved the
ability to exercise a certain degree of judgment in adjusting target goals based on the resulting operating environment.
The Compensation Committee determined the 2011 operating environment was generally characterized as follows:
(cid:129) The economy grew at a level below economic potential. Inflation was not problematic and employment
remained very weak with relatively high unemployment. Real estate values did not recover from valuation
declines experienced during the recession.
(cid:129) The Federal Reserve continued to provide monetary stimulus through a variety of means including increasing
demand for longer-dated treasury bonds which caused longer-term interest rates to decline.
(cid:129) The FDIC continued to take failed banks into receivership, although the number of banks on the FDIC
“problem list” began to decline. The Federal Deposit Insurance Corporation (“FDIC”) reported in the fourth
quarter 2011 that the Deposit Insurance Fund remained in a deficit position, causing insurance assessments
to remain elevated.
(cid:129) New regulations on financial institutions significantly curtailed long-standing sources of revenue.
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(cid:129) Interest rates on high-quality loans and investment securities remain extremely low, well below the yields on
the Company’s loan and investment portfolios. Competitive pricing of loans was fierce.
The Compensation Committee considered Management’s response to the current operating environment including:
(cid:129) Management consistently maintained conservative loan underwriting practices to appropriately manage the
Company’s exposure to credit risk;
(cid:129) Management maintained loan pricing at levels appropriate for longer-term profitability;
(cid:129) Management pursued fee income growth outside deposit based fees in response to new regulations;
(cid:129) Management controlled operating costs in a manner to offset the effect of environmental pressures on revenues;
(cid:129) Management maintained an “interest rate neutral” position with its assets, liabilities and capital. As such,
future changes in interest rates should not have a significant impact on revenue; and
(cid:129) Adequate capital levels were maintained to accommodate growth opportunities.
The Compensation Committee chose to make adjustments to actual results to take into account the impact of the
operating environment. Adjusted actual results against “target” performance goals were:
Performance Adjusted Actual
“Target” Results
Profitability Goals:
Return on average shareholders’ equity
Return on average assets
Diluted earnings per share
17.5%
1.86%
$3.22
17.6%
1.87%
$3.22
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Quality Goals:
Classified originated loans and other real estate owned
$70 million
Non-performing originated loans and other real estate owned $30 million
0.70%
Net loan losses to average originated loans
Improving
Service quality
Control Goals:
Non-interest expense to revenues (efficiency ratio)
Non-interest expenses
Below satisfactory internal audits
44.6%
$126.4 million
none
$75 million
$32 million
0.73%
Improving
43.7%
$123.4 million
none
In reviewing the operating environment, Management’s response to the operating environment, and adjusted
results compared to “target” performance goals, the Compensation Committee determined corporate performance
to be 110% of target goals.
As described above, divisional and individual goals are used in conjunction with corporate performance goals to
determine cash bonus awards.
In addition to daily management responsibilities, Mr. Payne’s individual goals included:
(cid:129) Managing the Company to satisfactory financial results including revenue stabilization, cost control,
and risk management;
(cid:129) Developing merger and acquisition opportunities;
(cid:129) Improving credit quality;
(cid:129) Maintaining quality shareholder relations with effective communication;
(cid:129) Fostering effective sales and service activities throughout the Company;
(cid:129) Effective internal control management to include regulatory examination and other audit results; and
(cid:129) Following effective personnel practices including succession planning.
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Based on individual performance against these goals, the Committee exercised its discretion and assigned
Mr. Payne a composite corporate and individual performance level of 67%.
In addition to routine on-going divisional responsibilities, Mr. Thorson managed the Finance Division toward
functional goals, which included:
(cid:129) Adoption of new SEC reporting requirements and other enhancements to financial reporting;
(cid:129) Personnel recruiting and development; and
(cid:129) Evaluation of shareholder communications.
Based on the Finance Division’s results, the Committee determined divisional performance to be 119%.
In addition to daily management responsibilities, Mr. Thorson’s individual goals included:
(cid:129) Coordination of regulatory examinations;
(cid:129) Planning and forecasting of financial results;
(cid:129) Evaluation of new regulations; and
(cid:129) Evaluation of regulatory capital.
Based on individual performance against these goals, the Committee determined Mr. Thorson’s individual
performance to be 138%. In considering all elements of performance, the Committee exercised its discretion and
assigned Mr. Thorson a composite corporate, divisional and individual performance level of 142%.
In addition to routine on-going divisional responsibilities, Ms. Finger managed the Treasury Division toward
functional goals, which included:
(cid:129) Asset and liability risk management;
(cid:129) Management of investment portfolio activity;
(cid:129) Management of merchant credit card and trust operations including sales activities revenue levels, and expense
containment; and
(cid:129) Management of balance sheet, interest rate risk position, funding, and liquidity.
Based on the Treasury Division’s results, the Committee determined divisional performance to be 123%.
In addition to daily management responsibilities, Ms. Finger’s individual goals included:
(cid:129) Management of the stock repurchase program;
(cid:129) Merger and acquisition due diligence; and
(cid:129) Management of any corporate litigation.
Based on individual performance against these goals, the Committee determined Ms. Finger’s individual
performance to be 134%. As a result, Ms. Finger’s composite corporate, divisional and individual performance
level was 119%.
In addition to routine on-going divisional responsibilities, Mr. Hansen managed the Operations and Systems
Division toward functional goals, which included:
(cid:129) Achievement of high-quality internal customer service delivery;
(cid:129) Cost control;
(cid:129) Management of significant information systems projects; and
(cid:129) Satisfactory regulatory and internal audit results.
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Based on the Operations and Systems Division’s results, the Committee determined divisional performance to
be 120%.
In addition to daily management responsibilities, Mr. Hansen’s individual goals included:
(cid:129) Transitional management of key departments;
(cid:129) Evaluation of new regulations; and
(cid:129) Management of third-party service providers.
Based on individual performance against these goals, the Committee determined Mr. Hansen’s individual
performance to be 123%. As a result, Mr. Hansen’s composite corporate, divisional and individual performance
level was 115%.
In addition to routine on-going divisional responsibilities, Mr. Robinson managed the Banking Division toward
functional goals which included:
(cid:129) Sales and customer relationship management;
(cid:129) Cost control; and
(cid:129) Personnel development and management.
Based on the Banking Division’s results, the Committee determined divisional performance to be 113%.
In addition to daily management responsibilities, Mr. Robinson’s individual goals included:
(cid:129) Direct management in certain geographic regions; and
(cid:129) Personnel succession planning.
Based on individual performance against these goals, the Committee determined Mr. Robinson’s individual
performance to be 125%. As a result, Mr. Robinson’s composite corporate, divisional and individual performance
level was 113%.
Based on the above described performance against objectives, the Committee determined cash incentive awards
as follows:
“Target” Composite Corporate Cash
Cash X Divisional and Individual = Incentive
Incentive Performance Level Award
Mr. Payne $371,000 67% $250,000
116,500
Mr. Thorson
97,100
Ms. Finger
84,700
Mr. Hansen
84,400
Mr. Robinson
82,000
82,000
73,900
75,000
142%
119%
115%
113%
The size of stock grants is determined by corporate performance using a stated formula. For achievement of
corporate performance in 2011, the following stock grants were awarded in January 2012:
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“Target” Nonqualified
Nonqualified Corporate Stock
Stock Option X Performance = Option
Grant Level Award
Mr. Payne – 110% –
21,700
Mr. Thorson
21,700
Ms. Finger
19,400
Mr. Hansen
21,800
Mr. Robinson
19,700
19,700
17,600
19,800
110%
110%
110%
110%
“Target” Corporate
RPS X Performance = RPS
Grant Level Award
Mr. Payne – 110% –
2,680
Mr. Thorson
2,680
Ms. Finger
2,410
Mr. Hansen
2,690
Mr. Robinson
110%
110%
110%
110%
2,400
2,400
2,200
2,450
RPS awards vest three years following the grant date, only if certain corporate performance objectives are achieved
over the three-year period. In January 2012, the Compensation Committee evaluated whether the three-year
corporate performance objectives were met for RPS awards granted in January 2009. The performance objectives
for the RPS granted in January 2009 included:
(cid:129) 3-year cumulative diluted earnings per share (EPS);
(cid:129) 3-year average of annual return on average total assets (ROA);
(cid:129) 3-year average of annual return on average shareholders’ equity relative to industry average ROE (ROE differential);
(cid:129) Ending non-performing assets to total assets (NPA); and
(cid:129) 3-year average of annual growth in revenues per share (RevPS growth).
The RPS would vest if any one of the following performance results were achieved:
(cid:129) 4 of 5 objectives reaching “threshold” performance level;
(cid:129) 3 of 5 objectives reaching “target” performance level; or
(cid:129) 2 of 5 objectives reaching “outstanding” performance level.
The goals and achieved results were:
Threshold Target Outstanding Result
EPS $9.50 $10.00 $10.30 Threshold
Target
ROA
Outstanding
ROE differential
Threshold
NPA
Below Threshold
RevPS growth
2.20%
4.5%
0.40%
4.0%
2.00%
3.5%
0.55%
2.0%
1.90%
3.0%
0.70%
1.0%
With four of the five goals achieved at “threshold” performance level or better, the Compensation Committee
determined the RPS shares awarded in 2009 vested upon achievement of three-year goals.
Nonqualified Deferred Compensation Programs
The Corporation maintains nonqualified deferred compensation programs to provide senior and mid-level
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executives the ability to defer compensation in excess of the annual limits imposed on the Corporation’s “401(k)”
plan. The Corporation believes these tax deferral programs enhance loyalty and motivate retention of executives.
These programs allow executives to defer cash pay and RPS shares upon vesting. The programs also allow
Directors to defer Director fees.
(cid:129) Cash pay deferred in the program accumulates in accounts in the names of the participating Directors and
executives. The Corporation credits the balance of these accounts with interest using an interest rate that
approximates the crediting rate on corporate-owned life insurance policies, which finance the cash pay deferral
program. Deferrals and interest credits represent general obligations of the Corporation.
(cid:129) The common stock the Corporation issues to executives upon the vesting of RPS grants may be deferred
into the program and deposited into a “Rabbi Trust.” Since these shares are outstanding shares of the
Corporation’s common stock, the Corporation pays dividends on these shares at the same rate paid to all
shareholders. The shares held in the “Rabbi Trust” are subject to claims by the Corporation’s creditors.
Employment Contracts
None of the executives named in the accompanying tables have employment contracts with the Corporation.
Compensation in the Event of a Change in Control
The banking industry has significant merger and acquisition activity. To promote retention of senior executives,
unvested NQSO and RPS grants contain a “change in control” provision, which trigger full vesting upon a change
in control. The Compensation Committee determined these provisions were appropriate in order to retain
executives to continue managing the Corporation after any “change in control” was announced through its
ultimate consummation. Since none of the named executive officers have entered employment contracts with the
Corporation, they serve in an “at-will” capacity and could terminate their employment at any time. The
Compensation Committee felt it would be in the best interests of shareholders to have a retention mechanism in
place to provide continuity of management during a “change in control” process. Further, the Committee expects
the named executive officers would be terminated by an acquiring institution rather than retained in a similar
functional capacity.
The Corporation also maintains a Severance Payment Plan covering all employees to promote employee
retention. The Severance Payment Plan provides salary continuation benefits for employees in the event of a
“change in control.” The amount of salary continuation benefits is based on years of service and corporate title, but
in no event exceed the equivalent of one times annual salary. All named executive officers are eligible for one year’s
salary under the plan.
Other
Internal Revenue Code (“IRC”) Section 162(m) places a limit on the amount of compensation that may be
deducted by the Corporation in any year with respect to certain of the Corporation’s highest-paid executives.
Certain “performance-based compensation” is not counted toward this limit. The Corporation intends generally to
qualify compensation paid to executive officers for deductibility under the IRC, including Section 162(m), but
reserves the right to pay compensation that is not deductible.
Board Compensation Committee Report
We, the Compensation Committee of the Board of Directors of the Corporation, have reviewed and discussed
the Compensation Discussion and Analysis with Management. Based on that review and discussion, we have
recommended to the Board of Directors inclusion of the Compensation Discussion and Analysis in this Proxy
Statement and the Corporation’s Annual Report on Form 10-K for the year ended December, 31, 2011.
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Submitted by the Employee Benefits and Compensation Committee
Patrick D. Lynch, Chairman
Etta Allen
Arthur C. Latno, Jr.
Ronald A. Nelson
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is a current or former officer or employee of the Corporation or any
of its subsidiaries, or entered into (or agreed to enter into) any transaction or series of transactions with the
Corporation or any of its subsidiaries with a value in excess of $120,000. None of the executive officers of the
Corporation has served on the Board of Directors or on the Compensation Committee of any other entity, where
one of that entity’s executive officers served either on the Board of Directors or on the Compensation Committee
of the Corporation.
Summary Compensation
The following table sets forth summary compensation information for the chief executive officer, chief financial
officer and each of the other three most highly compensated executive officers for the fiscal years ending
December 31, 2011, 2010 and 2009. These persons are referred to as named executive officers elsewhere in
this Proxy Statement.
Summary Compensation Table For Fiscal Year 2011
Name Position
Year
Salary
Stock
Awards (1)
David L. Payne
Chairman,
President & CEO
John “Robert” A. Thorson
SVP & Chief
Financial Officer
David L. Robinson
SVP/Banking
Division Manager
Jennifer J. Finger
SVP & Treasurer
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
2010
2009
2011
Dennis R. Hansen
SVP/Operations & Systems 2010
2009
Division Manager
____________________
$371,000
371,000
371,000
$126,900
–
–
149,000
149,000
142,000
150,000
150,000
150,000
129,996
129,996
129,996
130,008
130,008
130,008
122,839
124,577
117,982
123,854
125,143
118,816
122,839
124,577
117,982
110,656
112,118
106,309
Option
Awards (2)
Non-Stock
Incentive Plan
Compensation (3)
Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings (4)
All Other
Compensation (5)
$–
–
–
117,660
140,816
97,416
118,215
141,493
98,318
117,660
140,816
97,416
106,560
126,599
88,396
$250,000
250,000
450,000
116,500
111,500
113,300
84,400
86,300
85,800
97,100
95,400
93,700
84,700
84,700
85,300
$ –
–
–
20,393
11,868
10,171
16,495
9,491
8,229
16,826
10,136
9,254
14,124
8,395
7,529
$18,779
21,104
19,476
16,844
15,798
15,722
16,927
16,926
21,760
19,321
19,025
19,847
31,864
31,711
31,833
TOTAL
$766,679
642,104
840,476
543,236
553,559
496,591
509,891
529,353
482,923
503,742
519,950
468,195
477,912
493,531
449,375
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(1) Stock Awards represent RPS shares as described in the Compensation Discussion & Analysis. The amounts shown represent the aggregate grant date fair
market value.
(2) Option awards represent Nonqualified Stock Options as described in the Compensation Discussion & Analysis. The amounts shown represent the
aggregate grant date fair market value.
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(3) The amounts shown are non-equity incentive compensation only. No interest or other form of earnings was paid on the compensation.
(4) The amounts include interest paid on deferred cash compensation to the extent the interest exceeds 120% of the long-term Applicable Federal Rates with
compounding. The Corporation has no defined benefit pension plan. Mr. Payne has a pension agreement, which is discussed under “Pension Benefits for 2011.”
(5) Each of the above-named executive officers received less than $10,000 of aggregate perquisites and personal benefits, except for Mr. Hansen who received
a car allowance of $12,000. All other compensation includes Corporation contributions to defined contribution plans (401(k) and Profit Sharing), and
amounts added to taxable wages using IRS tables for the cost of providing group term life insurance coverage that is more than the cost of $50,000 of
coverage. It also includes the dollar value of the benefit to Mr. Payne for the portion of the premium payable by the Corporation with respect to a split dollar
life insurance policy (projected on an actuarial basis), and a bonus paid to Mr. Payne in the amount of his portion of the split dollar life insurance premium.
Based on the compensation disclosed in the Summary Compensation Table, approximately 33% of total
compensation comes from base salaries. See Compensation Discussion and Analysis for more details.
Grants Of Plan-Based Awards Table For Fiscal Year 2011
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
Target
Threshold
Maximum
All Other
Stock Awards:
Number of
Shares of Stock
or Units(1)
All Other
Stock Awards:
Number of
Securities
Underlying
Options (2)
Exercise or
Base Price
of Option
Awards
($/Share)
$0
$371,000
$556,500
–
–
0
–
–
0
–
–
0
–
–
0
–
–
–
–
–
–
82,000
123,000
–
–
–
–
75,000
112,500
–
–
–
–
82,000
123,000
–
–
–
–
73,900
110,850
–
–
–
–
Grant Date
Fair Value (3)
–
$126,900
–
–
122,839
–
–
–
–
–
–
$0
–
–
0
21,200
50.76
117,660
–
–
–
0
–
123,854
21,300
50.76
118,215
–
–
–
0
–
122,839
21,200
50.76
117,660
–
–
–
0
–
110,656
–
2,500
–
–
2,420
–
–
2,440
–
–
2,420
–
–
2,180
–
19,200
50.76
106,560
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson
Jennifer J. Finger
Dennis R. Hansen
Grant Date
1/27/11
1/27/11
1/27/11
1/27/11
1/27/11
1/27/11
1/27/11
1/27/11
1/27/11
1/27/11
1/27/11
1/27/11
1/27/11
1/27/11
1/27/11
____________________
(1) Includes RPS grants. There is no dollar amount of consideration paid by any executive officer on the grant or vesting date of an award.
The material terms of the RPS grants are as follows:
(cid:129) The performance and vesting period is three years;
(cid:129) Multiple performance goals are established by the Compensation Committee for each grant;
(cid:129) Compensation Committee may revise the goals upon significant events;
(cid:129) Three-year performance criteria are limited to those provided in the 2003 Amended Plan, as described on page 15;
(cid:129) Accelerated vesting occurs upon dissolution or liquidation of the Corporation or sale of all assets to another entity or a tender offer for 5% or more
of outstanding stock; and
(cid:129) No dividends are paid or accrued prior to settlement or deferral delivery of shares which takes place approximately two months after vesting.
(2) Includes NQSO grants with an exercise price of not less than 100% of fair market value as of the date of grant.
The material terms of the NQSO’s listed in the table are as follows:
(cid:129) Options vest ratably over three years beginning one year from date of grant;
(cid:129) Options expire 10 years following grant date;
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(cid:129) Exercise price is 100% of fair market value as defined in the 2003 Amended Plan;
(cid:129) Dividends are not paid on unexercised options;
(cid:129) Vesting ceases upon termination of employment, whatever the reason, except if vesting is accelerated as described below;
(cid:129) Vested options may be exercised within 90 days of termination of employment and within one year upon death or disability; and
(cid:129) Accelerated vesting occurs upon dissolution or liquidation of the Corporation or sale of all assets to another corporation or a tender offer for 5% or more of
outstanding stock.
(3) The amounts shown for NQSOs and RPS awards represent the aggregate grant date fair market value.
Outstanding Equity Awards Table at Fiscal Year End 2011
__________________Option Awards__________________
_____Stock Awards_____
Equity Incentive
Plan Awards:
Number of Unearned
Shares, Units or
Other Rights That
Have Not Vested(2)
(#)
Equity Incentive
Plan Awards: Market
or Payout Value
of Unearned Shares,
Units or Other
Rights That Have
Not Vested ($)
valued at
12/31/11(2)
2,500
$109,750
7,450
327,055
7,500
329,250
7,450
327,055
6,710
294,569
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Name
David L. Payne
John "Robert"
A. Thorson
David L. Robinson
Jennifer J. Finger
Dennis R. Hansen
Number of
Securities Underlying
Unexercised Options
(#) Exercisable(1)
Number of
Securities Underlying
Unexercised Options
(#) Unexercisable
Option
Exercise Price($)
Option
Expiration Date
250,000
250,000
250,000
10,830
14,400
18,437
22,204
23,148
14,400
6,934
-
8,790
9,000
11,449
11,175
23,286
14,533
6,967
-
21,310
17,300
17,800
22,600
22,204
23,148
14,400
6,934
-
10,820
8,790
9,000
11,449
19,882
20,930
13,067
6,234
-
1/23/13
1/22/14
1/26/15
1/22/14
1/26/15
1/26/16
1/25/17
1/24/18
1/21/19
1/28/20
1/27/21
1/22/14
1/26/15
1/26/16
1/25/17
1/24/18
1/21/19
1/28/20
1/27/21
1/23/13
1/22/14
1/26/15
1/26/16
1/25/17
1/24/18
1/21/19
1/28/20
1/27/21
1/23/13
1/22/14
1/26/15
1/26/16
1/25/17
1/24/18
1/21/19
1/28/20
1/27/21
-
-
-
$40.750
49.610
52.539
-
-
-
-
-
7,200
13,866
21,200
-
-
-
-
-
7,267
13,933
21,300
-
-
-
-
-
-
7,200
13,866
21,200
-
-
-
-
-
-
6,533
12,466
19,200
49.610
52.539
52.560
48.390
47.130
43.015
56.625
50.760
49.610
52.539
52.560
48.390
47.130
43.015
56.625
50.760
40.750
49.610
52.539
52.560
48.390
47.130
43.015
56.625
50.760
40.750
49.610
52.539
52.560
48.390
47.130
43.015
56.625
50.760
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_____________________
(1) Option Awards vest ratably over three years beginning one year from date of grant. Options expiring in 2019 fully vested in January 2012. Options expiring
in 2020 fully vest in January 2013. Options expiring in 2021 fully vest in January 2014.
(2) RPS shares fully vest three years from date of grant if performance goals are met. RPS grants vest as follows: Ms. Finger – 2,830 shares vest in January 2012,
2,200 shares vest in January 2013, and 2,420 shares vest in January 2014; Messrs. Payne – 2,500 shares vest in January 2014; Thorson – 2,830 shares vest in
January 2012, 2,200 shares vest in 2013, and 2,420 vest in January 2014; Hansen – 2,550 shares vest in January 2012, 1,980 shares vest in 2013, and 2,180
shares vest in January 2014; Robinson – 2,850 vest in January 2012, 2,210 shares vest in 2013, and 2,440 shares vest in January 2014.
Option Exercises and Stock Vested Table For Fiscal Year 2011
Option Awards
Stock Awards
Name
Number of Shares
Acquired on Exercise
Value Realized
on Exercise($)
Number of Shares
Acquired on Vesting
Value Realized
on Vesting($)(1)
David L. Payne
250,000
$1,587,960
John "Robert" A. Thorson
David L. Robinson
Jennifer J. Finger
Dennis R. Hansen
________________________
5,770
21,910
16,840
5,090
53,419
185,254
73,476
59,858
9,440
2,850
2,860
2,850
2,560
$481,723
145,436
145,945
145,435
130,636
(1) Amounts represent value upon vesting of RPS shares. Mr. Hansen and Mr. Robinson deferred receipt of RPS shares upon vesting into a Rabbi Trust for either
two years or until termination under the Westamerica Deferral Plan. Dividends are paid in cash during deferral period and distributions are paid in stock.
Pension Benefits for 2011
Name
Plan Name
Present Value of Accumulated Benefit
Payments during last Fiscal Year
David L. Payne
Non-Qualified Pension Agreement
$6,257,539
$511,950
During 1997, the Corporation entered into a nonqualified pension agreement with Mr. Payne in consideration of
Mr. Payne’s agreement that RPS awards granted in 1995, 1996 and 1997 would be cancelled. In January 2000, the
Compensation Committee, based on the Corporation’s achievement of certain performance goals which had first
been established for Mr. Payne’s 1995, 1996 and 1997 RPS awards, determined Mr. Payne’s annual pension would
be $511,950. The pension commenced in 2010 at age 55 and will be paid to Mr. Payne for 20 years.
The discount rate used to determine the present value is 4.60%, as used by the Corporation in determining
benefit obligations for its post-employment retirement benefits as of December 31, 2011. The obligation is an
unfunded general obligation of the Corporation.
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Nonqualified Deferred Compensation Table For Fiscal Year 2011
Executive
Contributions
in Last Fiscal
Year (1)
$ –
86,770
228,720
44,433
179,029
Aggregate
Earnings in Last
Fiscal Year (2)
Aggregate
Withdrawals/
Distributions (3)
$ –
66,499
-101,342
-198,437
-69,009
$ –
–
- 22,591
- 36,294
- 16,812
Aggregate
Balance at
Last Fiscal
Year End (4)
$ –
1,150,712
1,652,178
2,045,915
1,332,760
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson
Jennifer J. Finger
Dennis R. Hansen
____________________
(1) RPS shares deferred upon vesting in 2011 were disclosed as compensation in the Summary Compensation Table in 2008, the year of grant, and are
therefore excluded from the Summary Compensation Table for Fiscal Year 2011. Non-equity incentive plan compensation deferred in 2011 was earned in
2010 and disclosed as compensation in the Summary Compensation Table for 2010 and is therefore excluded from the Summary Compensation Table for
Fiscal Year 2011. In 2011, Mr. Robinson deferred $12,000 of salary earned in 2011 which is included in the Summary Compensation Table for Fiscal Year 2011.
(2) Includes change in value of deferred RPS shares, dividends earned on deferred RPS shares, and interest earned on deferred cash compensation. The
amounts included in Summary Compensation Table for Fiscal Year 2011 on page 24 are as follows: Ms. Finger – $16,826; Messrs. Thorson – $20,393;
Robinson – $16,495; and Hansen – $14,124.
(3) Includes dividends paid on deferred RPS shares.
(4) Aggregate balance of deferred compensation reported as compensation prior to 2011 is as follows: Ms. Finger — $ 2,280,648; Messrs. Thorson –
$1,084,213; Hansen – $1,286,128; and Robinson – $1,616,136.
Under the Westamerica Bancorporation and Subsidiaries Deferred Compensation Plan (the “Deferred
Compensation Plan”), Directors and Officers may defer up to 100% of their Director’s compensation, salary
and/or non-equity incentive compensation (cash bonus) into a non-qualified, unfunded deferred compensation
program. The interest rate paid during 2011 was 6.00%. The interest rate may be changed annually. Interest is
compounded semi-monthly. Participants choose in advance from the following distribution commencement dates:
termination of employment, January 1 following termination of employment, or a specific date at least five years
from date of deferral. Payment is made in a lump sum unless the participant chooses a four-year, five-year,
or ten-year annual installment.
Under the Westamerica Bancorporation Deferral Plan, 100% of vested RPS grants may be deferred. Dividends
paid on such issued and outstanding shares are paid in cash to the deferral participants, and are paid at the same
rate as is paid to all other shareholders. The distribution of deferred RPS shares occurs at least two years after
deferral, one month following termination, or the January 1 immediately following termination as elected by the
participant at the time of deferral. If the participant is one of the named executive officers, benefit distributions
that are made upon termination of employment may not start earlier than six months after the date of termination.
Potential Payments Upon Termination or Change in Control
Payments to be made to the named executive officers in the event of termination of employment or change in
control are described below.
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Termination
Vested NQSOs may be exercised within 90 days of termination and within one year of death or disability. RPS
shares vest if the Compensation Committee determines performance goals are met. Terminated employees will
receive vested RPS shares if the settlement date of the RPS grant occurs within 90 days of termination.
Employees separating from service due to death, disability or retirement are eligible to receive a pro rata portion
of granted RPS shares if the Compensation Committee determines that the performance goals are likely to be met
for the grant period. The pro rata basis is determined by the number of full years of the vesting period completed
before date of death, disability or retirement.
Deferred compensation account balances are distributed on January 1 following termination, or a specific date
at least five years from the date of deferral in the form of annual payments over four years. Payment may also be
made in a lump sum or in annual payments for five or ten years as elected by the participant at the time of
deferral. If the participant is one of the named executive officers, benefit distributions that are made upon
termination of employment may not start earlier than six months after the date of termination.
Change in Control
A change in control is defined under the 2003 Amended Plan as shareholder approval of a dissolution or
liquidation of the Corporation or a sale of substantially all of the Corporation’s assets to another corporation,
or a tender offer for 5% or more of the Corporation’s outstanding common stock or a merger in which the
Corporation’s shareholders before the merger hold less than 50% of the voting power of the surviving corporation
after the merger.
In the event of a change in control, unvested NQSOs and RPS shares immediately vest. The value of in-the-
money options and RPS shares subject to accelerated vesting for each of the named executive officers is as follows:
Ms. Finger: $333,427; Messrs. Payne: $109,750; Thorson: $333,427; Robinson: $335,681; and Hansen: $300,351.
The value is computed by multiplying the difference between the market value on December 30, 2011, the last
business day of 2011, and the exercise price of each option by the number of shares subject to accelerated vesting.
Under the Corporation’s Severance Payment Plan, executive officers receive six weeks pay for every year or
partial year of service up to a maximum of one year’s base salary (see Summary Compensation Table for Fiscal Year
2011 for annual base salary for all named executive officers). All named executive officers have met the service
requirement for one year’s base salary. Severance pay is paid in a lump sum or on a semi-monthly basis at the
discretion of the Corporation, subject to Section 409A of the Internal Revenue Code.
Certain Relationships and Related Party Transactions
In accordance with the Audit Committee Charter, the Audit Committee is responsible for reviewing and
approving or disapproving all related party transactions required to be disclosed by Item 404 of Regulation S-K for
potential conflicts of interest. Additionally, the Corporation’s Code of Conduct and Ethics provides rules that
restrict transactions with affiliated persons.
Certain of the Directors, executive officers and their associates have had banking transactions with subsidiaries
of the Corporation in the ordinary course of business. With the exception of the Corporation’s Employee Loan
Program, all outstanding loans and commitments included in such transactions were made on substantially the
same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with
other persons not related to the Corporation, did not involve more than a normal risk of collectibility, and did not
present other favorable features. As part of the Employee Loan Program, all employees, including executive
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officers, are eligible to receive mortgage loans with interest rates one percent (1%) below Westamerica Bank’s
prevailing interest rate at the time of loan origination. Westamerica Bank makes all loans to executive officers
under the Employee Loan Program in compliance with the applicable restrictions of Section 22(h) of the Federal
Reserve Act. Messrs. Hansen, Payne and Thorson have mortgage loans through this Program. The largest
aggregate amount of principal during 2011 was $273,601, $496,363 and $369,669, respectively. The principal
amount outstanding at December 31, 2011 was $264,291, $478,837 and $353,908, respectively. The amount of
principal paid during 2011 was $9,311, $17,526, and $15,761, respectively. The amount of interest paid during
2011 was $5,759, $9,876 and $7,230, respectively. The rate of interest payable on the loan is 1.875%, 1.875%
and 1.875%, respectively.
Mr. Hansen also has a $99,000 line of credit. The largest amount of principal outstanding during 2011 was
$83,375. The amount of principal paid during 2011 was $140,298 and the principal amount outstanding at
December 31, 2011 was $0.00. The amount of interest paid during 2011 was $1,676. The variable rate of interest
payable on the line of credit is Wall Street Journal Prime minus 0.5%
PROPOSAL 2 – APPROVE A NON-BINDING ADVISORY VOTE
ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
Background
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) required that
shareholders cast a non-binding advisory vote last year on the executive compensation paid to the executive officers
listed in the Summary Compensation Table (a so-called “say-on-pay” vote), as well as an advisory vote with respect
to whether future say-on-pay votes will be held every one, two or three years. The result of last year’s vote on the
proposal to determine the frequency of future say-on-pay proposals was that shareholders should review executive
compensation annually. Therefore, Proposal 2 requests that shareholders again approve the compensation paid
to our named executive officers. Last year 99% of the shares voting on this proposal voted to support our
corporation’s executive compensation strategy.
We believe that our compensation policies and procedures are centered on a pay-for-performance culture and
are strongly aligned with the long-term interests of our shareholders. Our incentive compensation plan provides
for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, and restricted
performance shares. The Summary Compensation Table shows very stable base salaries indicative of our greater
emphasis on performance-based stock and non-stock awards. Our stock and option awards are based on a
minimum achievement of meeting the “threshold” level for each pre-established objective. Both awards have
a three-year vesting period. Our annual incentive plan incorporates at least four financial and/or strategic
performance metrics in order to properly balance risk with the incentives to drive our key annual financial and/or
strategic initiatives; in addition, the annual incentive program incorporates a 150% maximum payout to further
manage risk and the possibility of excessive payments.
In 2003 shareholders approved the Corporation’s 2003 Amended Plan to include the following changes:
(cid:129) Disallowing re-pricing stock options for poor stock performance;
(cid:129) Limiting the number of shares that may be awarded; and
(cid:129) Requiring the Compensation Committee to meet the definition of independence to enable any award
intended to qualify as “performance based compensation” to meet Section 162(m) of the Internal Revenue
Code. In 2009 shareholders re-approved the performance criteria for performance-based awards under the
2003 Amended Plan.
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Vote Required
The “Say on Pay” proposal gives you as a shareholder the opportunity to endorse or not endorse our executive
pay program through the following resolution:
“Resolved, that the shareholders approve, on an advisory basis, the compensation of the named executive
officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission,
which disclosure includes the compensation discussion and analysis, the compensation tables and any related
footnotes and narratives in the Corporation’s proxy statement for the annual meeting of shareholders.”
Because your vote is advisory, it will not be binding on the Board or create or imply any additional fiduciary
duty by the Board. However, the Compensation Committee may take into account the outcome of the vote when
considering future executive compensation arrangements.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL
OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS
PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE
SECURITIES AND EXCHANGE COMMISSION.
PROPOSAL 3 - APPROVE THE 2012 AMENDED AND RESTATED STOCK OPTION PLAN OF 1995
General
The Corporation’s Stock Option Plan of 1995 was adopted by the Board on January 26, 1995 and approved
by shareholders on April 25, 1995. The Amended and Restated Stock Option Plan of 1995 was approved by
shareholders on April 24, 2003 (the “2003 Amended Plan”). The Amended 2003 Plan will expire on April 24,
2013. Shareholders are being asked to further amend the 2003 Amended Plan by approving the 2012 Amended
and Restated Stock Option Plan of 1995 (the “2012 Amended Plan”) that will, among other things, reduce the
number of shares available for future issuance from 4,307,593 to 1,500,000, extend the term of the plan to April
26, 2022, and amend the circumstances which define a “change of control” which results in full vesting of all stock
awards. The 2012 Amended Plan is subject to shareholder approval at the April 26, 2012 Annual Meeting of
Shareholders. A summary of proposed changes is set forth below, followed by a summary description of the entire
2012 Amended Plan. The full text of the 2012 Amended Plan is attached to this proxy statement as Exhibit A.
Approval of the 2012 Amended Plan will allow Westamerica to continue to provide long-term incentives to
employees who are responsible for the success and growth of Westamerica, to further align the interests of
employees with the interests of the shareholders and to assist Westamerica in attracting and retaining employees
of experience and outstanding ability.
Summary of Changes
Available Shares Limited. On January 1 of each plan year, the 2003 Amended Plan reserves shares outstanding
for issuance, in addition to unissued, cancelled, terminated or forfeited shares from previous years of the plan. The
2003 Amended Plan limits annual reserves for options to the least of (i) 2% of shares outstanding on January 1 of
each plan year, (ii) 675,000 shares, or (iii) a lesser amount as the Board may determine. The 2012 Amended Plan
eliminates the annual reservation of shares outstanding for issuance and reduces the current reserve of 4,307,593
shares to 1,500,000 (plus shares that become available if awards under prior plans expire unexercised or are
cancelled, forfeited or terminated before being exercised). Any additional authorization of shares available for
issuance must be approved by shareholders. The average annual grant of shares during 2009, 2010, and 2011
under the current plan has been approximately 291,000.
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Plan Expiration Date. The 2003 Amended Plan expires April 24, 2013. The proposed 2012 Amended Plan
expires on April 26, 2022 after which shareholder approval is again required to extend the term or approve a new
stock option plan.
Full Vesting of Awards Upon a Change in Control. The 2003 Amended Plan states that Options and
Restricted Performance Shares shall immediately become exercisable in full and deemed fully vested, respectively,
in the event that either (a) the shareholders of the Corporation approve a dissolution or liquidation of the
Corporation or a sale of all or substantially all of the Corporation’s assets to another corporation, or (b) a tender
within the meaning of Section 14 of the Exchange Act is made for five percent (5%) or more of the Corporation’s
outstanding Common Stock by any person other than the Corporation or any of its Subsidiaries.
The proposed 2012 Amended Plan states that Options and Restricted Performance Shares shall immediately
become exercisable in full and deemed fully vested, respectively, in the event of a “Change of Control,” defined as:
(i) The acquisition by any individual, entity, or group (other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation or a corporation owned directly or indirectly by the shareholders
of the Corporation in substantially the same proportions as their ownership of Common Stock of the Corporation)
of Beneficial Ownership of twenty-five percent (25%) or more of the combined voting power of the Corporation’s
then outstanding securities with respect to the election of Directors of the Corporation; (ii) The consummation of a
reorganization, merger, or consolidation of the Corporation or sale or other disposition of all or substantially all of the
assets of the Corporation; excluding, however, a corporate transaction pursuant to which all or substantially all of the
individuals or entities who are the Beneficial Owners of the Corporation immediately prior to the corporate
transaction will beneficially own, directly or indirectly, more than fifty percent (50%) of the outstanding shares of
common stock of the resulting entity and of the combined voting power of the outstanding securities entitled to vote
for the election of directors of such entity; or (iii) Individuals who, as of the Effective Date, constitute the Board (the
“Incumbent Board”) cease for any reason to constitute at least a majority of such Board; provided, that any individual
who becomes a Director of the Corporation subsequent to the Effective Date, whose election, or nomination for
election by the Corporation’s shareholders, was approved by the vote of at least a majority of the Directors then
comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that
any individual who was initially elected as a Director of the Corporation as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of
1934, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the
Board shall not be deemed a member of the Incumbent Board.
No Repricing for Poor Stock Performance. The 2012 Amended Plan preserves Article IV paragraph 3 of the
2003 Amended Plan which states that the exercise price of outstanding options may not be decreased and no
option may be cancelled or forfeited and immediately re-granted to affect the same result, and preserves Article XII
of the 2003 Amended Plan which allows the price of options to be adjusted to reflect stock splits and other
corporate actions.
Compensation Committee Composition. The 2012 Amended Plan preserves Article IV paragraph 1 of
the 2003 Amended Plan which states that the composition of the Committee shall meet the definition of
independence to enable any award intended to qualify as “performance based compensation” to meet Section
162(m) of the Internal Revenue Code.
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Summary of the 2012 Amended Plan
Shares Available for Issuance. The proposed 2012 Amended and Restated Stock Option Plan of 1995 provides
for awards in the form of restricted performance shares, stock options, stock appreciation rights (“SARs”), or any
combination thereof. To date, no awards have been made under the 2012 Amended Plan or have been committed.
The shares of common stock available for issuance under the 2003 Amended Plan as of February 27, 2012 are
4,307,593; shareholder approval of the 2012 Amended Plan will reduce the shares of Common Stock available for
issuance to 1,500,000. In addition, awards outstanding under prior plans as of April 26, 2012 (approximately
2,385,284 shares) that expire or are cancelled, forfeited or terminated before being exercised shall become available
for future awards under the 2012 Amended Plan. In If any restricted performance shares, options or SARs granted
under the 2012 Amended Plan are forfeited, or if options or SARs terminate for any other reason prior to exercise,
then the underlying shares of Common Stock shall again become available for awards. If SARs are exercised
for cash, the number of shares underlying such awards shall become available for further awards. Notwithstanding
the foregoing, no more than 500,000 shares of Common Stock shall be available for the grant of incentive stock
options (“ISOs”) over the term of the Plan. The shares available for award hereunder, the grants and the grant
limits may be subject to adjustment for stock splits and certain other events.
Administration and Eligibility. The 2012 Amended Plan is to be administered by a committee of the Board
whose composition will enable the 2012 Amended Plan to qualify (i) under Rule 16b-3 of the Exchange Act with
regard to the grant of awards to persons who are subject to Section 16 of the Exchange Act and (ii) under Section
162(m) of the Internal Revenue Code (Code) with regard to any award intended to qualify as performance based
compensation. The Committee selects the employees of the Corporation or any subsidiary who will receive
awards, determines the size of the award and establishes the vesting or other conditions. All employees of the
Corporation (or any subsidiary of the Corporation) are eligible to participate in the Plan. As of January 1, 2012,
34 employees were qualified by the Compensation Committee to participate in the 2003 Amended Plan. As of
February 27, 2012, the fair market value of a Company common share was $48.03.
Payment. In general, no payment will be required upon receipt of an award.
Restricted Performance Shares. A restricted performance share (“RPS”) is an unfunded bookkeeping entry
representing the equivalent of one share of Common Stock, and it is nontransferable prior to the holder’s death.
A holder of restricted performance shares has no voting rights or other privileges as a shareholder.
Restricted performance shares, when vested, will be settled by distributing shares of Common Stock. The number
of shares of Common Stock distributed in settlement of restricted performance shares may be smaller than the
number of restricted performance shares granted, depending upon the attainment of performance objectives. These
performance conditions may be established pursuant to Code Section 162(m) and many include one or more of the
following: (i) earnings, (ii) diluted earnings per share, (iii) revenue and revenue per diluted share, (iv) expenses, (v)
share price, (vi) return on equity, (vii) return on equity relative to the average return on equity for similarly sized
institutions, (viii) return on assets, (ix) return on assets relative to the average return on assets for similarly sized
institutions, (x) efficiency ratio (operating expenses divided by operating revenues), (xi) net loan losses as a percentage
of average loans outstanding, (xii) nonperforming assets, and (xiii) nonperforming assets as a percentage of total assets,
and may be calculated in accordance with the formula established for a performance period. A performance period
shall be any period not exceeding 36 months, as determined by the Committee in its sole discretion. No key employee
shall receive a grant for more than 25,000 restricted performance shares with respect to a performance period.
Stock Options. Options may include nonstatutory stock options (NQSOs) as well as ISOs intended to qualify
for special tax treatment. No optionee shall be granted options during any calendar year in excess of 300,000
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shares of Common Stock. The term of an option cannot exceed ten years, and the exercise price of an option must
be equal to or greater than the fair market value of the Common Stock on the date of grant. The exercise price of
an option may be paid in any lawful form permitted by the Committee, including (without limitation) the surrender
of shares of Common Stock already owned by the optionee. The Plan also allows the optionee to pay the exercise
price of an option by giving exercise/sale directions. If exercise/sale directions are given, a number of option shares
sufficient to pay the exercise price and any withholding taxes is issued directly to a securities broker selected by the
Corporation who, in turn, sells these shares in the open market. The broker remits to the Corporation the proceeds
from the sale of these shares, and the optionee receives the remaining option shares or cash.
Stock Appreciation Rights. A SAR permits the participant to elect to receive any appreciation in the value of the
underlying stock from the Corporation in cash. No optionee shall be granted SARs during any calendar year in
excess of 300,000 shares of the Common Stock of the Corporation. The amount payable on exercise of a SAR is
measured by the difference between the market value of the underlying stock at exercise and the exercise price.
Vesting Conditions. As noted above, the Committee determines the number of restricted performance shares,
stock options or SARs to be included in the award as well as the vesting and other conditions. The vesting
conditions may be based on the employee’s service, his or her individual performance, the Corporation’s
performance, or other criteria. Vesting conditions for RPS will be based on the Corporation’s, individual’s or other
performance. It is anticipated that the vesting conditions for NQSOs, ISOs and SARs generally will be based on
the employee’s service after the date of grant. Vesting may be accelerated in the event of the employee’s death,
disability or retirement and will be fully accelerated in the event of a change in control with respect to the
Corporation. For purposes of the 2012 Amended Plan, a change in control includes: (i) the acquisition by any
individual, entity, or group (other than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of Stock of the Company) of Beneficial Ownership of
twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities
with respect to the election of Directors of the Company; (ii) the consummation of a reorganization, merger, or
consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company;
excluding, however, a corporate transaction pursuant to which all or substantially all of the individuals or entities
who are the Beneficial Owners of the Company immediately prior to the corporate transaction will beneficially
own, directly or indirectly, more than fifty percent (50%) of the outstanding shares of common stock of the
resulting entity and of the combined voting power of the outstanding securities entitled to vote for the election of
directors of such entity; or (iii) individuals who, as of the Effective Date, constitute the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority of such Board; provided, that any individual who
becomes a Director of the Company subsequent to the Effective Date, whose election, or nomination for election
by the Company’s shareholders, was approved by the vote of at least a majority of the Directors then comprising
the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any
individual who was initially elected as a Director of the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any
other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board
shall not be deemed a member of the Incumbent Board.
Nontransferability of Awards. Unless the individual award agreement provides otherwise, with respect to
awards other than incentive stock options, awards granted under the Plan may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the applicable laws of descent and distribution.
Modifications. The Committee is authorized, within the provisions of the Plan, to amend the terms of
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outstanding restricted performance shares, to modify or extend outstanding options or SARs, or to exchange
new options for outstanding options; provided, however, the Committee will not reprice options by canceling and
immediately granting options with a lower price.
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of the ISOs and NQSOs under the Plan is intended
to be a summary of applicable federal law. State and local tax consequences may differ. Because the federal income tax
rules governing options and related payments are complex and subject to frequent change, optionees are advised to
consult their tax advisors prior to exercise of options or dispositions of stock acquired pursuant to option exercise.
ISOs and NQSOs are treated differently for federal income tax purposes. ISOs are intended to comply with the
requirements of Section 422 of the Code. NQSOs need not comply with such requirements. An optionee is not
taxed on the grant or exercise of an ISO. The difference between the exercise price and the fair market value
of the shares on the exercise date will, however, be a preference item for purposes of the alternative minimum tax.
If an optionee holds the shares acquired upon exercise of an ISO for at least two years following grant and at least
one year following exercise, the optionee’s gain, if any, upon a subsequent disposition of such shares is long-term
capital gain. The measure of the gain is the difference between the proceeds received on disposition and the optionee’s
basis in the shares (which generally equals the exercise price). If an optionee disposes of stock acquired pursuant to
exercise of an ISO before satisfying the one- and two-year holding periods described above, the optionee will recognize
both ordinary income and capital gain in the year of disposition. The amount of the ordinary income will be the
lesser of (i) the amount realized on disposition less the optionee’s adjusted basis in the stock (usually the exercise price)
or (ii) the difference between the fair market value of the stock on the exercise date and the exercise price. The balance
of the consideration received on such a disposition will be long-term capital gain if the stock had been held for at least
one year following exercise of the ISO. The Corporation is not entitled to an income tax deduction on the grant or
exercise of an ISO or on the optionee’s disposition of the shares after satisfying the holding period requirement
described above. If the holding periods are not satisfied, the Corporation will be entitled to a deduction in the year
the optionee disposes of the shares, in an amount equal to the ordinary income recognized by the optionee.
An optionee is not taxed on the grant of a NQSO. On exercise, however, the optionee recognizes ordinary income
equal to the difference between the exercise price and the fair market value of the shares on the date of exercise. The
Corporation is entitled to an income tax deduction in the year of exercise in the amount recognized by the optionee
as ordinary income. Any gain on subsequent disposition of the shares is long-term capital gain if the shares are held
for at least one year following exercise. The Corporation does not receive a deduction for this gain.
An optionee is not taxed on the grant of RPS. Upon receipt of vested shares, however, the optionee recognizes
ordinary income equal to the fair market value of the shares on the date of distribution. The Corporation is
entitled to an income tax deduction in the year of distribution in the amount recognized by the optionee as
ordinary income. Any gain on subsequent disposition of the shares is long-term capital gain if the shares are held
for at least one year following exercise. The Corporation does not receive a deduction for this gain.
An optionee is not taxed on the grant of SARs. Upon receipt of cash settlement, however, the optionee
recognizes ordinary income equal to cash received. The Corporation is entitled to an income tax deduction in the
year of settlement in the amount recognized by the optionee as ordinary income.
New Plan Benefits
The Committee has full discretion to determine the number and amount of options to be granted to employees
under the Plan, subject to the Plan’s grant limits. Therefore, the benefits and amounts that will be received by the
Chief Executive Officer and the four other most highly compensated executive officers, the executive officers as
a group and all other employees are not determinable. Details on stock options granted during the last three years
to the Chief Executive Officer and the four other most highly compensated executive officers are presented in the
table entitled Summary Compensation Table.
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Equity Compensation Plan Information
The following table summarizes share information about Westamerica’s equity compensation plans, including the
1995 Stock Option Plan, and the 2003 Amended Plan. These plans have been approved by our shareholders.
Number of securities
to be issued upon
exercise of outstanding
options, warrants,
and rights (1)
Weighted-average
exercise price of
outstanding options,
warrants and rights (1)
2,325,951 (3)
–
2,325,951
$49.34
N/A
$49.34
Number of
securities remaining
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a)) (1) (2)
4,060,710
–
4,060,710
Plan Category
Equity compensation plans approved by shareholders
Equity compensation plans not approved by security holders
Total
____________________
(1) The information in the above table is as of the end of the 2011 fiscal year.
(2) Under the current Amended and Restated Stock Plan of 1995 (the “2003 Amended Plan”), the maximum aggregate number of shares for which options
or other rights may be granted in any calendar year will be increased by the least of (i) two percent (2%) of the share of common stock outstanding as of the
last day of the prior fiscal year, (ii) 675,000 shares, subject to adjustment pursuant to Article XII, or (iii) such lesser amount as the Board may determine. Any
shares that have been reserved but not issued under Awards during any calendar year remain available for grant during any subsequent calendar year. Awards
that expire or are cancelled, forfeited or terminated before being exercised again become available for future awards under the plan. If shareholders approve
the proposed 2012 Amended and Restated Stock Option Plan of 1995:
(cid:129) the number of shares remaining available for future issuance under equity compensation plans will be reduced to 1,500,000 (plus additional shares
that become available as described below) as of April 26, 2012, which amount will be increased only by the affirmative vote of shareholders;
(cid:129) unexercised and non-vested awards outstanding under prior plans as of April 26, 2012 (approximately 2,385,284 shares) will remain in force;
and if they expire before being exercised or are cancelled, forfeited, or terminated, those shares will become available (in addition to the base number
of 1,500,000 shares) for future awards under the 2012 Amended Plan;
(cid:129) awards granted after April 26, 2012 under the 2012 Amended Plan that expire or are cancelled, forfeited or terminated before being exercised
shall again become available for future awards under the plan; and
(cid:129) the 2012 Amended and Restated Stock Option Plan of 1995 will remain in effect until April 26, 2022.
(3) Includes 50,220 restricted performance shares (RPS) that were outstanding on December 31, 2011 under Westamerica’s Amended and Restated Stock
Option Plan of 1995. RPS awards currently outstanding vest upon achievement of predetermined performance goals at the end of the third year following
the date of grant. RPS awards do not have an exercise price; their value is dependent upon the achievement of certain performance goals and may be settled
for common stock on a one-for-one or cash basis. Accordingly, the RPS awards have been disregarded for purposes of computing the weighted-average
exercise price.
Required Approval
The affirmative vote of the holders of a majority of the shares of Common Stock present and voting at the Meeting,
but not less than a majority of a quorum, is required to approve the Plan. Properly executed proxies received by the
Corporation which have not indicated any vote on the Plan will be voted FOR approval of the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PLAN.
PROPOSAL 4 – RATIFY SELECTION OF INDEPENDENT AUDITOR
The Audit Committee has approved the selection of the firm of KPMG LLP to serve as independent auditors
for 2012 to examine the consolidated financial statements of the Corporation. Action by the shareholders is not
required by law in the appointment of independent auditors, but their appointment is submitted by the Audit
Committee and the Board of Directors in order to give the shareholders an opportunity to present their views.
If the proposal is approved, the Audit Committee, in its discretion, may direct the appointment of different
independent auditors at any time during the year if it determines that such a change would be in the best interests
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of the Corporation and its shareholders. If the proposal to ratify the selection of KPMG LLP as the Corporation’s
independent auditors is rejected by the shareholders then the Audit Committee will reconsider its choice of
independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF
THE SELECTION OF KPMG AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
Audit Fees
The aggregate fees billed to the Corporation by KPMG with respect to services performed for fiscal 2011 and
2010 are as follows:
2011 2010
Audit fees (1) $710,000 $735,000
Audit related fees – –
Tax fees – –
All other fees – –
________ ________
$710,000 $735,000
__________________
(1) Audit fees consisted of fees billed by KPMG for professional services rendered for the audit of the Corporation’s consolidated financial statements,
reviews of the consolidated financial statements included in the Corporation’s quarterly reports on Form 10-Q, and the audit of the Corporation’s internal
controls over financial reporting. The audit fees also relate to services such as consents and audits of mortgage banking subsidiaries.
Pre-Approval Policies and Procedures
The Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of
any public accounting firm engaged by the Corporation for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Corporation. Any accounting firm appointed by the
Corporation reports directly to the Audit Committee.
The Audit Committee must pre-approve all auditing services and permitted non-audit services by its
independent auditors and the fees to be paid by the Corporation for these services, except for those fees qualifying
for the “de minimis exception” which provides that the pre-approval requirement for certain non-audit services
may be waived if certain expressed standards and requirements are satisfied prior to completion of the audit under
certain conditions. This exception requires that the aggregate amount of all such services provided constitutes no
more than five percent of the total amount of revenue paid to the audit firm by the Corporation during the fiscal
year in which the services are provided. At the time of the engagement, the Corporation did not recognize such
services to be non-audit services, and such services are promptly brought to the attention of the Audit Committee
and approved prior to the completion of the audit by the Audit Committee. During fiscal year 2011, there were
no non-audit services that were provided using this exception.
The Audit Committee may delegate to one or more members of the Audit Committee the authority to grant
pre-approvals of non-audit services and fees. In such event, the decisions of the member or members of the Committee
regarding pre-approvals are presented to the full Audit Committee at its next meeting. The Audit Committee
pre-approved 100% of all services performed on behalf of the Corporation by KPMG during fiscal year 2011.
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AUDIT COMMITTEE REPORT
The material in this report is not soliciting material and is not deemed filed with the SEC. It is not incorporated
by reference in any of the Corporation’s filings under the Securities Act of 1933 or the Exchange Act, whether
made in the past or in the future even if any of those filings contain any general incorporation language.
The Audit Committee is composed of four Directors who are neither officers nor employees of the
Corporation, and who meet the NASDAQ independence requirements for Audit Committee members. The Audit
Committee selects, appoints and retains the Corporation’s independent auditors and is responsible for their
compensation and oversight.
In performing its functions, the Audit Committee acts only in an oversight capacity and necessarily relies on
the work and assurances of the Corporation’s management, which has the primary responsibility for financial
statements and reports, and of the independent auditors. The auditors express an opinion on the conformity of
the Corporation’s annual financial statements to generally accepted accounting principles. In fulfilling its oversight
responsibilities, the Audit Committee reviewed the audited consolidated financial statements for the fiscal year
2011 and discussed them with Management and with KPMG, the Corporation’s independent auditors.
Management represented to the Audit Committee that the Corporation’s consolidated financial statements
were prepared in accordance with generally accepted accounting principles. Management also represented that it
performed an assessment of the effectiveness of internal control over financial reporting as of December 31, 2011,
and that internal control over financial reporting was effective. The Audit Committee discussed with the auditors
matters required to be discussed by Statement on Auditing Standards No. 114 (The Auditor’s Communication
with Those Charged with Governance) as amended, including the auditors’ judgment about the quality as well as
the acceptability of the Corporation’s accounting principles, as applied in its financial reporting.
The auditors also provided to the Audit Committee the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees). The Audit Committee discussed with auditors the firm’s independence.
Based on the Audit Committee’s discussion with Management and the independent auditors, the Audit
Committee’s review of the representations of Management and the report of the independent auditors to the Audit
Committee, the Audit Committee recommended that the Board of Directors include the audited consolidated
financial statements in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011
for filing with the SEC.
Submitted by the Audit Committee
Ronald A. Nelson, Chairman
Louis E. Bartolini
E. Joseph Bowler
Catherine C. MacMillan
SHAREHOLDER PROPOSAL GUIDELINES
To be considered for inclusion in the Corporation’s Proxy Statement and form of proxy for next year’s Annual
Meeting, shareholder proposals must be delivered to the Corporate Secretary of the Corporation, Westamerica
Bancorporation A-2M, P.O. Box 1200, Suisun City, CA 94585, no later than 5:00 p.m. on November 17, 2012.
However, if the date of next year’s Annual Meeting is changed by more than 30 days from the date of this year’s
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Meeting, the notice must be received by the Corporate Secretary a reasonable time before we begin to print and
mail our Proxy Statement. All such proposals must meet the requirements of Rule 14a-8 under the Exchange Act.
In order for business, other than a shareholder proposal submitted for the Corporation’s Proxy Statement, to
be properly brought before next year’s Annual Meeting by a shareholder, the shareholder must give timely written
notice to the Secretary of the Corporation. To be timely, written notice must be received by the Secretary of the
Corporation at least 45 days before the anniversary of the day our Proxy Statement was mailed to shareholders
in connection with the previous year’s Annual Meeting or January 27, 2013, for the 2013 Annual Meeting. If the
date of the Annual Meeting is changed by more than 30 days, the deadline is a reasonable time before we begin
to mail our Proxy Statement. A shareholder’s notice must set forth a brief description of the proposed business,
the name and residence address of the shareholder, the number of shares of the Corporation’s common stock that
the shareholder owns and any material interest the shareholder has in the proposed business.
Westamerica reserves the right to reject, to rule out of order, or to take other appropriate action with respect to
any proposal that does not comply with these and other applicable legal requirements.
SHAREHOLDER COMMUNICATION TO BOARD OF DIRECTORS
Shareholders and other interested parties who wish to communicate with the Board may do so by writing to:
Kris Irvine, VP/Corporate Secretary, Westamerica Bancorporation A-2M, P.O. Box 1200, Suisun City, CA 94585.
The Directors have established procedures for the handling of communications from shareholders and other
interested parties and have directed the Corporate Secretary to act as their agent in processing any communications
received. All communications that relate to matters that are within the responsibility of one of the Board Committees
are to be forwarded to the Chair of the appropriate Committee. Communications that relate to ordinary business
matters that are not within the scope of the Board’s responsibilities, such as customer complaints, are to be sent to
Management. Solicitations, junk mail and obviously frivolous or inappropriate communications are not to be
forwarded, but will be made available to any Director who wishes to review them.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the Annual Meeting other than those
specifically referred to in this Proxy Statement. If any other matters should properly come before the Meeting or
any postponement or adjournment of the meeting, the persons named in the enclosed proxy intend to vote
thereon in accordance with their best business judgment. If a nominee for Director becomes unavailable to
serve as a Director, the Proxies will vote for any substitute nominated by the Board of Directors.
The Corporation will pay the cost of proxy solicitation. The Corporation has retained the services of
Georgeson to assist in the proxy distribution at a cost not to exceed $2,000 plus reasonable out-of-pocket
expenses. The Corporation will reimburse banks, brokers and others holding stock in their names or names of
nominees or otherwise, for reasonable out-of-pocket expenses incurred in sending proxies and proxy materials
to the beneficial owners of such stock.
BY ORDER OF THE BOARD OF DIRECTORS
Kris Irvine
VP/Corporate Secretary
Dated: March 12, 2012
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EXHIBIT A
2012 AMENDED AND RESTATED WESTAMERICA BANCORPORATION
STOCK OPTION PLAN OF 1995
I. Definitions........................................................................................................................................... A-1
1. “Award” ......................................................................................................................................... A-1
2. “Award Agreement”....................................................................................................................... A-1
3. “Beneficial Owner or Beneficial Ownership” ................................................................................ A-1
4. “Board” ......................................................................................................................................... A-1
5. “Change in Control”..................................................................................................................... A-1
6. “Code”........................................................................................................................................... A-1
7. “Committee”................................................................................................................................. A-1
8. “Common Stock”.......................................................................................................................... A-1
9. “Corporation”................................................................................................................................ A-1
10. “Director” ..................................................................................................................................... A-1
11. “Employee” ................................................................................................................................... A-2
12. “Fair Market Value” ...................................................................................................................... A-2
13. “Grant” ......................................................................................................................................... A-2
14. “Grant Agreement” ....................................................................................................................... A-2
15. “Grantee” ...................................................................................................................................... A-2
16. “ISO”............................................................................................................................................ A-2
17. “NQSO”....................................................................................................................................... A-2
18. “Option Agreement”..................................................................................................................... A-2
19. “Option” ....................................................................................................................................... A-2
20. “Optionee”.................................................................................................................................... A-2
21. “Person”......................................................................................................................................... A-2
22. “Plan”............................................................................................................................................ A-2
23. “Pre-Existing Award” .................................................................................................................... A-2
24. “SAR” ........................................................................................................................................... A-2
25. “Subsidiary” .................................................................................................................................. A-2
26. “Westamerica Bancorporation” ................................................................................................... A-2
Purpose ............................................................................................................................................. A-3
Shares Subject to the Plan............................................................................................................... A-3
II.
III.
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IV. Administration of the Plan.............................................................................................................. A-3
1. Committee Procedures.................................................................................................................. A-3
2. Committee Responsibilities........................................................................................................... A-3
3. Modification, Extension and Renewal of Awards.......................................................................... A-4
4. Limitations on SARs and Options. ............................................................................................... A-4
IVA. Stock Appreciation Rights ............................................................................................................... A-4
V.
Eligible Employees ........................................................................................................................... A-4
VI. Option Exercise Price........................................................................................................................ A-5
VII. Payment of Option Exercise Price .................................................................................................. A-5
VIII. Terms and Exercise of Options........................................................................................................ A-5
IX.
Termination of Employment ........................................................................................................... A-5
X.
Non-Transferability .......................................................................................................................... A-5
XI.
Restricted Performance Share Grants............................................................................................ A-6
XII. Adjustments Upon Changes in Stock ............................................................................................ A-6
XIII. Rights as a Grantee, Shareholder, or Employee ........................................................................... A-7
XIV. Other Provisions ............................................................................................................................... A-7
XV. Registration and Resale................................................................................................................... A-7
XVI. Effective Date, Term and Shareholder Approval.......................................................................... A-7
XVII. Amendment of Plan......................................................................................................................... A-7
XVIII. Taxes................................................................................................................................................... A-8
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A-ii
I. DEFINITIONS
As used herein, the following terms have the following meanings:
1.
“Award” means an Option, a SAR or a Grant.
“Award Agreement” means a written award agreement duly executed on behalf of the Corporation,
2.
delivered to a Grantee, and executed by such Grantee in accordance with Article XIII hereof.
“Beneficial Owner or Beneficial Ownership” shall have the meaning ascribed to such term in rule 13d-3
3.
of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended from time to time,
or any successor act thereto.
4.
“Board” means the Board of Directors of the Corporation.
“Change in Control” means: (i) The acquisition by any individual, entity, or group (other than a trustee
5.
or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned
directly or indirectly by the shareholders of the Corporation in substantially the same proportions as their
ownership of Common Stock of the Corporation) of Beneficial Ownership of twenty-five percent (25%) or more
of the combined voting power of the Corporation’s then outstanding securities with respect to the election of
Directors of the Corporation; (ii) The consummation of a reorganization, merger, or consolidation of the
Corporation or sale or other disposition of all or substantially all of the assets of the Corporation; excluding,
however, a corporate transaction pursuant to which all or substantially all of the individuals or entities who are
the Beneficial Owners of the Corporation immediately prior to the corporate transaction will beneficially own,
directly or indirectly, more than fifty percent (50%) of the outstanding shares of common stock of the resulting
entity and of the combined voting power of the outstanding securities entitled to vote for the election of directors
of such entity; or (iii) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”)
cease for any reason to constitute at least a majority of such Board; provided, that any individual who becomes a
Director of the Corporation subsequent to the Effective Date, whose election, or nomination for election by the
Corporation’s shareholders, was approved by the vote of at least a majority of the Directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual
who was initially elected as a Director of the Corporation as a result of an actual or threatened election contest, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, or
any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the
Board shall not be deemed a member of the Incumbent Board.
6.
“Code” means the Internal Revenue Code of 1986, as amended.
7.
“Committee” means the Committee described in Article IV hereof.
8.
“Common Stock” means the Common Stock of the Corporation.
9.
“Corporation” means Westamerica Bancorporation, a California corporation.
10. “Director” means any individual who a member of the Board of the Corporation.
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11. “Employee” means any officer or salaried employee of Westamerica Bancorporation.
12. “Fair Market Value” shall mean (i) the mean of the highest and lowest selling price of a share of Common
Stock on the principal exchange on which the shares are trading, on the first trading day immediately preceding
the date on which the Fair Market Value is determined, or (ii) if the shares are not traded on an exchange but are
quoted on the NASDAQ Stock Market or a successor quotation system, the mean of the highest and lowest selling
price on the first trading day immediately preceding the date on which the Fair Market Value is determined, or
(iii) if the shares are not traded on an exchange or quoted on the NASDAQ Stock Market or a successor quotation
system, the fair market value of a share, as determined by the Committee in good faith, and, in the case of ISOs, in
accordance with Section 422 of the Code. Such determination shall be conclusive and binding on all persons.
13. “Grant” means a restricted performance share grant awarded pursuant to Article XI.
14. “Grant Agreement” means a written grant agreement duly executed on behalf of the Corporation, delivered
to a Grantee, and executed by such Grantee in accordance with Article XI hereof.
15. “Grantee” means an Employee who has been granted an Award.
16. “ISO” means a stock option that is intended to meet the requirements of Section 422 of the Code and is
designated an Incentive Stock Option or ISO by the Committee.
17. “NQSO” means an Option that is not an ISO.
18. “Option Agreement” means a written option agreement duly executed on behalf of the Corporation,
delivered to an Optionee, and executed by such Optionee in accordance with Article XIII hereof.
19. “Option” means either an ISO or an NQSO granted under the Plan and entitling the holder to purchase
share(s) of Common Stock.
20. “Optionee” means an Employee who has been granted an Option.
21. “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Securities Exchange Act
of 1934 and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof.
22. “Plan” means the 2012 Amended and Restated Westamerica Bancorporation Stock Option Plan of 1995,
as set forth herein.
23. “Pre-Existing Award” means any nonqualified stock option or restricted performance share grant awarded
under the Amended and Restated Westamerica Bancorporation Stock Option Plan, as approved by the
Corporation’s shareholders April 24, 2003.
24. “SAR” means a stock appreciation right granted pursuant to Article IVA.
25. “Subsidiary” shall mean any corporation, if the Corporation and/or one or more other Subsidiaries own not
less than 50 percent of the total combined voting power of all classes of outstanding stock of such corporation.
A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered
a Subsidiary commencing as of such date.
26. “Westamerica Bancorporation” means the Corporation or any present or future Subsidiary.
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II. PURPOSE
It is the purpose of this amended and restated Plan to provide a means whereby those Employees who have
responsibilities for the successful administration and management of Westamerica Bancorporation and whose
present and potential contributions to the success of Westamerica Bancorporation are of importance to the
Corporation can acquire a proprietary interest in the Corporation thereby providing an incentive for continuing
beneficial services to the Corporation.
III. SHARES SUBJECT TO THE PLAN
The aggregate number of shares reserved for Awards under the Plan prior to this amendment and restatement equals
4,307,593. Upon the approval by the shareholders of the Corporation of the Plan, the aggregate number of shares
reserved for Awards under the Plan will be 1,500,000 (plus additional shares that become available as described in the
following sentence). If any Pre-Existing Award expires, is cancelled, forfeited or terminates for any reason before being
exercised, then the shares of Common Stock subject to such Award shall become available for future Awards under the
Plan in addition to the base number of 1,500,000 shares. If any Award expires, is cancelled, forfeited or terminates for
any reason before being exercised, then the shares of Common Stock subject to such Award shall again become available
for future Awards under the Plan. In addition, when SARs are surrendered for cash, the shares of Common Stock
subject to such SARs shall be restored to the share pool available for future Awards. Notwithstanding the foregoing,
no more than 500,000 shares of Common Stock shall be available for the grant of ISOs over the term of the Plan.
IV. ADMINISTRATION OF THE PLAN
1. Committee Procedures. The Committee shall be designated by the Board and shall have such membership
composition which enables (1) the Plan to qualify under Rule 16b-3 issued under the Securities Exchange Act
of 1934 (the “Exchange Act”) with regard to the grant of Awards to persons who are subject to Section 16 of the
Exchange Act and (2) any Award intended to qualify as “performance based compensation” within the meaning of
Section 162(m) of the Code and the regulations thereunder, to so qualify. The Committee may hold meetings at such
times and places as it shall determine. The acts of a majority of the Committee members present at meetings at which a
quorum exists, or acts reduced to or approved in writing by all Committee members, shall be valid acts of the Committee.
2. Committee Responsibilities. Subject to the provisions of the Plan, the Committee shall have full authority
and discretion to take the following actions:
(a) To interpret the Plan and to apply its provisions;
(b) To adopt, amend or rescind rules, procedures and forms relating to the Plan;
(c) To authorize any person to execute, on behalf of the Corporation, any instrument required to carry
out the purposes of the Plan;
(d) To determine when Awards are to be granted under the Plan;
(e) To select the recipients of Awards and grant Awards;
(f) To determine the number of shares to be subject to each Award;
(g) To prescribe the terms and conditions of each Award, including (without limitation) the exercise
price, the vesting or duration of the Award (including accelerating the vesting of the Award), to
determine whether an Option is to be classified as an ISO or NQSO, and to specify the provisions
of the Award Agreement relating to such Award;
(h) To amend any outstanding Award Agreement, subject to applicable legal restrictions and to the
consent of the Employee who entered into such agreement;
(i) To prescribe the consideration for the grant of each Award under the Plan and to determine the
sufficiency of such consideration;
(j) To determine the disposition of each Award under the Plan in the event of an Employee’s divorce or
dissolution of marriage;
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(k) To determine whether Options or other Awards under the Plan will be granted in replacement of
other grants under an incentive or other compensation plan of an acquired business;
(l) To correct any defect, supply any omission, or reconcile any inconsistency in the Plan, or any
Option or Award Agreement; and
(m) To take any other actions deemed necessary or advisable for the administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate persons other than members of
the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem
appropriate, except that the Committee may not delegate its authority (1) with regard to the selection for
participation of or the granting of Awards under the Plan to persons subject to Section 16 of the Exchange Act
and (2) to preclude any Award intended to qualify as “performance based compensation” within the meaning of
Section 162(m) of the Code and the regulations thereunder, from so qualifying. All decisions, interpretations and
other actions of the Committee shall be final and binding on all Award recipients, and all persons deriving their
rights from an Award recipient. No member of the Committee shall be liable for any action that he has taken or
has failed to take in good faith with respect to the Plan or any Award.
3. Modification, Extension and Renewal of Awards. Within the limitations of the Plan, the Committee
may modify, extend or renew outstanding Awards. Notwithstanding anything herein to the contrary, the
exercise price of outstanding Options may not be decreased (except pursuant to Article XII) and Options
may not be cancelled or forfeited and immediately re-granted to effect the same result. The foregoing
notwithstanding, no modification of an Award shall, without the consent of the Employee, impair his
rights or increase his obligations under such Award.
4. Limitations on SARs and Options. No Employee shall be granted SARs or Options during any calendar year
in excess of 300,000 shares of Common Stock.
IVA. STOCK APPRECIATION RIGHTS
1. The Committee shall also have the authority to grant SARs on such terms and conditions as it deems appropriate,
consistent with the purposes of the Plan. On surrender of each SAR, the SAR holder shall receive a cash payment
equal to the difference obtained by subtracting (1) the Fair Market Value of one share of Common Stock on the
surrender date from (2) the Fair Market Value of one share of Common Stock on the date the SAR was granted.
2. The Committee shall from time to time determine which Employees shall be granted SARs under the Plan, the
terms thereof, and the number of SARs to be granted.
3. The term of a SAR shall be determined by the Committee but in no event shall the term extend beyond ten
years from the date of the grant. SARs may be exercisable in full or in installments, as the Committee determines
at the date of grant.
4. The provisions of this Plan applicable to Options shall apply to SARs where the context so permits and as
necessary to carry out the purposes of the Plan, as determined by the Committee in its sole discretion.
1. The persons who shall be eligible to receive Awards shall be such Employees as the Committee, in its sole
discretion, shall select from time to time during the duration of the Plan.
V. ELIGIBLE EMPLOYEES
2. A Director of the Corporation or of a Subsidiary shall not be eligible to receive an Award unless such director is
also an Employee.
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VI. OPTION EXERCISE PRICE
The exercise price of each Option granted hereunder shall be determined by the Committee, but in no event shall
be less than one hundred percent (100%) of the Fair Market Value of the Common Stock at the time such Option
is granted, as determined by the Committee. Such exercise price shall be adjusted as provided in Article XII hereof.
VII. PAYMENT OF OPTION EXERCISE PRICE
The exercise price with respect to the Common Stock being purchased by an Optionee upon the exercise of an
Option in whole or in part shall be paid in full to the Corporation either (i) in cash, (ii) by delivery of Common
Stock owned by the Optionee for such duration as may be specified by the Committee and duly endorsed for
transfer to the Corporation, or (iii) a combination of cash and Common Stock. Shares of Common Stock owned
by the Optionee and delivered to the Corporation in payment of all or part of the exercise price of an Option shall
be valued for this purpose at one hundred percent (100%) of the Fair Market Value of such Common Stock on
the day of such exercise, as determined by the Committee. Optionees electing to pay all or part of the exercise
price of an Option by delivery of Common Stock shall not be entitled to receive fractional shares to the extent, if
any, that the Fair Market Value of such Common Stock exceeds such exercise price, but instead shall be entitled to
cash in lieu thereof. To the extent that an Option Agreement so provides, payment may be made all or in part by
delivery (on a form approved by the Committee) of an irrevocable direction to the Optionee’s securities broker to
sell shares of Common Stock and to deliver all or part of the sale proceeds to the Corporation in payment of the
aggregate exercise price and any taxes.
VIII. TERMS AND EXERCISE OF OPTIONS
1. The term of each Option granted hereunder shall be determined by the Committee, but in no event shall
the term of an ISO be greater than ten (10) years from the date of grant or such shorter term as may be fixed
by the Committee.
2. Each Option Agreement shall specify the date when all or any installment of the Option is to become
exercisable. The Option Agreement shall also specify the term of the Option. Subject to the preceding two
sentences, the Committee at its sole discretion shall determine when all or any installment of an Option is to
become exercisable and when an Option is to expire.
3. Notwithstanding the preceding paragraph, all outstanding Options shall immediately become exercisable in full
in the event of a Change in Control.
IX. TERMINATION OF EMPLOYMENT
Each Award Agreement shall set forth the extent to which the Grantee shall have the right to exercise the Award
following termination of employment with Westamerica Bancorporation, and the right to exercise the Award of
any executors or administrators of the Grantee’s estate or any person who has acquired such Award(s) directly from
the Grantee by bequest or inheritance. Such provisions shall be determined in the sole discretion of the
Committee, need not be uniform among all Awards issued pursuant to the Plan, and may reflect distinctions
based on the reasons for termination of employment.
X. NON-TRANSFERABILITY
Unless the Award Agreement provides otherwise with respect to Awards other than ISOs, no Award may be
transferred by a Grantee otherwise than by will or the laws of descent and distribution, and each Award may be
exercised, during the Grantee’s lifetime, only by the Grantee.
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XI. RESTRICTED PERFORMANCE SHARE GRANTS
1. The Committee shall also have the authority to award Restricted Performance Share Grants pursuant to
agreements with such terms and conditions as it deems appropriate, consistent with the purposes of the Plan. In
determining whether or not to award a Grant to a particular individual, the Committee shall consider the performance
of Westamerica Bancorporation during the prior year and such individual’s performance during such year.
2. Such key Employees as shall be selected by the Committee in its sole discretion (hereinafter the “Grant
Participants”) shall be eligible to receive Grants hereunder.
3. The provisions of this Plan applicable to Options shall apply to Grants where the context so permits and as
necessary to carry out the purposes of the Plan, as determined by the Committee in its sole discretion.
4. A Grant shall become vested, in full or in installments, upon satisfaction of the conditions set forth in the
Grant Agreement. The Committee in its sole discretion shall determine when all or any installment of a Grant
is to vest and when a Grant is to expire or be terminated. Grants shall be made in the form of stock units based on
the Fair Market Value of a share of Common Stock, and such Grants shall be settled in the form of cash or shares
of Common Stock or any combination of both, and may be made in a lump sum or installments. The actual
number of Grants eligible for settlement may be larger or smaller than the number included in the Grant
Agreement, based on predetermined performance factors. Such performance factors may be established pursuant
to the requirements of Section 162(m) of the Code and may include one or more of the following: (i) earnings,
(ii) diluted earnings per share, (iii) revenue and revenue per diluted share, (iv) expenses, (v) share price, (vi) return on
equity, (vii) return on equity relative to the average return on equity for similarly sized institutions, (viii) return on
assets, (ix) return on assets relative to the average return on assets for similarly sized institutions, (x) efficiency ratio
(operating expenses divided by operating revenues), (xi) net loan losses as a percentage of average loans outstanding,
(xii) nonperforming assets and (xiii) non performing assets as a percentage of total assets, and may be calculated in
accordance with the formula established for a “performance period.” A performance period shall be any period not
exceeding 36 months, as determined by the Committee in its sole discretion. No key employee shall receive a
Grant for more than 25,000 stock units with respect to a performance period. Before any shares of Common
Stock and/or cash are paid with respect to a performance period that is intended to comply with Section 162(m)
of the Code, the Committee shall certify in writing that the performance factors for such period have been satisfied.
5. All outstanding Grants shall immediately be deemed to be fully vested and the appropriate number of shares
of Common Stock shall be issued to the Grantees in the event of a Change in Control.
XII. ADJUSTMENTS UPON CHANGES IN STOCK
Subject to all of the restrictions, conditions and performance criteria otherwise applicable to an Award, in the
event (a) of an increase or decrease in the number of shares of Common Stock, (b) that shares of Common Stock
shall be changed into or exchanged for a different number or kinds of shares of stock or other securities of the
Corporation or of another corporation, whether through merger, consolidation, reorganization, recapitalization
or otherwise, or (c) a stock dividend is paid to holders of Common Stock or a stock split or reverse stock split is
effected, then the Committee shall conclusively determine the appropriate adjustments, if any, to (i) the number
and type of shares or other securities appropriated for purposes of the Plan pursuant to Article III hereof but not
yet covered by Awards, (ii) the number and type of shares or other securities subject to each Award then
outstanding, (iii) the exercise price of each Award then outstanding, (iv) the maximum number and type of shares
or other securities that may be made subject to ISOs and (v) the maximum number of and type of shares or other
securities with respect to which Awards may be granted during any calendar year under the Plan, in each case, so
that such adjustments do not constitute a modification within the meaning of Section 424 of the Code and only
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to the extent otherwise permitted under Sections 422 and 424 of the Code or, in the case of Awards intended to
qualify as “performance based compensation” within the meaning of Section 162(m) of the Code in such a
manner to not adversely affect such intended treatment.
In the event of a Change in Control, then all outstanding Awards shall become fully vested and
immediately exercisable.
XIII. RIGHTS AS A GRANTEE, SHAREHOLDER, OR EMPLOYEE
Nothing contained in the Plan, in any resolution adopted by the Board, in any approval by the shareholders
of the Corporation or in any action taken by the Committee shall vest in any individual employed by the
Corporation or by any Subsidiary the right to receive any Award under the Plan. No person shall acquire any
rights as contemplated by or pursuant to the Plan unless and until a written Option Agreement, Award Agreement,
or Grant Agreement shall have been duly executed on behalf of the Corporation by such officer and officers
as the Committee shall designate for such purpose, delivered to the Grantee named therein, and executed by him.
No person shall have any rights as a shareholder with respect to any shares covered by an Award until the date of
the issuance of a stock certificate to the Grantee for such shares. Nothing contained in the Plan shall confer, and
each Option Agreement, Award Agreement, or Grant Agreement shall expressly provide that the granting of an
Award does not confer on any Employee any right to or guarantee of continued employment by Westamerica
Bancorporation, or in any way limit the right of Westamerica Bancorporation to terminate the employment of any
Employee at any time and for any reason.
Notwithstanding the express provisions of the Plan, any Award may be granted on such additional or more
restrictive terms as the Committee shall deem advisable consistent with the Plan.
XIV. OTHER PROVISIONS
XV. REGISTRATION AND RESALE
The Plan, the shares of Common Stock subject thereto, and the Awards granted thereunder may, in the discretion
of the Board, be registered under the Securities Act of 1933, as amended, or under the securities laws of any state.
As a condition to the grant of any Award under the Plan or the issuance of shares of Common Stock upon the
exercise thereof, the Committee may require that the Employee agree to comply with such provisions of Federal
and State securities laws as may be applicable to such grant or issuance or the sale of shares acquired thereby and
deliver to the Corporation a written agreement in form and substance satisfactory to the Corporation and its
counsel implementing such agreement.
XVI. EFFECTIVE DATE, TERM AND SHAREHOLDER APPROVAL
The Plan shall become effective upon approval by the shareholders of the Corporation and shall remain in effect
until April 26, 2022, unless it is sooner terminated by the Board. In any event the Plan shall terminate no later
than April 26, 2022, and no Awards may be granted under the Plan thereafter.
XVII. AMENDMENT OF PLAN
The Board may at any time in its discretion terminate, suspend, revise, modify or amend the Plan in any manner
whatsoever. An amendment of the Plan shall be subject to the approval of the shareholders of the Corporation
only to the extent required by applicable laws, regulations or rules.
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XVIII. TAXES
As a condition to the grant, exercise or settlement of an Award, the Employee shall make such arrangements
as the Committee may require for the satisfaction of any federal, state or local tax obligations that may arise in
connection with such grant, exercise or settlement. The Employee shall also make such arrangements as
the Committee may require for the satisfaction of any federal, state or local tax obligations that may arise in
connection with the disposition of shares acquired by exercising an Award. Such arrangements may include,
without limitation, share withholding or the delivery of previously owned shares of Common Stock in accordance
with the Committee’s rules.
This Plan is adopted this 26th day of April, 2012 (the “Effective Date”).
WESTAMERICA BANCORPORATION
By ___________________________________________________
Name
Its____________________________________________________
Title
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K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
or
(cid:1) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ______________ to______________.
Commission File Number: 001-9383
WESTAMERICA BANCORPORATION
(Exact name of the registrant as specified in its charter)
CALIFORNIA
(State or Other Jurisdiction
of Incorporation or Organization)
94-2156203
(I.R.S. Employer
Identification Number)
1108 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA 94901
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: (707) 863-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of class:
Common Stock, no par value
Name of each exchange on which registered:
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES (cid:2) NO (cid:1)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES (cid:1) NO (cid:2)
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 (cid:2) NO (cid:1)
Indicate by check mark if whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files.) YES (cid:2) NO (cid:1)
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K (section 229.405) 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. (cid:1)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer (cid:2)
Accelerated filer (cid:1)
Non-accelerated filer (cid:1)
(Do not check if a smaller reporting company)
Smaller reporting company (cid:1)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES (cid:1) NO (cid:2)
The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2011 as reported on the NASDAQ
Global Select Market, was $1,348,878,201.44. Shares of Common Stock held by each executive officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other purposes.
Number of shares outstanding of each of the registrant’s classes of common stock, as of the close of business on February 16, 2012
28,083,480 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement relating to registrant’s Annual Meeting of Shareholders, to be held on April 26, 2012, are
incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III to the extent described therein.
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TABLE OF CONTENTS
PART I
Item 1 Business................................................................................................................................................................
Item 1A Risk Factors ..........................................................................................................................................................
Item 1B Unresolved Staff Comments.................................................................................................................................
Item 2 Properties ..............................................................................................................................................................
Item 3 Legal Proceedings.................................................................................................................................................
Item 4 Mine Safety Disclosures .......................................................................................................................................
PART II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities ...................................................................................................................
Item 6 Selected Financial Data ........................................................................................................................................
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations ...............................
Item 7A Quantitative and Qualitative Disclosures About Market Risk..............................................................................
Item 8 Financial Statements and Supplementary Data.....................................................................................................
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...............................
Item 9A Controls and Procedures .......................................................................................................................................
Item 9B Other Information .................................................................................................................................................
PART III
Item 10 Directors, Executive Officers and Corporate Governance....................................................................................
Item 11 Executive Compensation ......................................................................................................................................
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .............
Item 13 Certain Relationships, Related Transactions and Director Independence ............................................................
Item 14 Principal Accountant Fees and Services ...............................................................................................................
PART IV
Item 15 Exhibits, Financial Statement Schedules ..............................................................................................................
Signatures .............................................................................................................................................................................
Exhibit Index ........................................................................................................................................................................
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FORWARD-LOOKING STATEMENTS
This report on Form 10-K contains forward-looking statements about Westamerica Bancorporation for which it claims the
protection of the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Examples of forward-
looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share,
the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and
expectations of the Company or its management or board of directors, including those relating to products or services;
(iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as
"believes", "anticipates", "expects", "intends", "targeted", "projected", "continue", "remain", "will", "should", "may" and other
similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such
statements.
These forward-looking statements are based on Management’s current knowledge and belief and include information concerning
the Company’s possible or assumed future financial condition and results of operations. A number of factors, some of which are
beyond the Company’s ability to predict or control, could cause future results to differ materially from those contemplated. These
factors include but are not limited to (1) the length and severity of current and potential future difficulties in the global, national
and California economies and the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets;
(3) fluctuations in asset prices including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of
acquisitions and integration of acquired businesses; (5) economic uncertainty created by terrorist threats and attacks on the United
States, the actions taken in response, and the uncertain effect of these events on the national and regional economies; (6) changes
in the interest rate environment; (7) changes in the regulatory environment; (8) competitive pressure in the banking industry; (9)
operational risks including data processing system failures or fraud; (10) volatility of interest rate sensitive loans, deposits and
investments; (11) asset/liability management risks and liquidity risks; (12) the effect of natural disasters, including earthquakes,
fire, flood, drought, and other disasters, on the uninsured value of loan collateral, the financial condition of debtors and issuers of
investment securities, the economic conditions affecting the Company’s market place, and commodities and asset values, and (13)
changes in the securities markets. The Company undertakes no obligation to update any forward-looking statements in this report.
See also “Risk Factors” in Item 1A and other risk factors discussed elsewhere in this Report.
ITEM 1. BUSINESS
PART I
Westamerica Bancorporation (the “Company”) is a bank holding company registered under the Bank Holding Company Act of
1956, as amended (“BHCA”). Its legal headquarters are located at 1108 Fifth Avenue, San Rafael, California 94901. Principal
administrative offices are located at 4550 Mangels Boulevard, Fairfield, California 94534 and its telephone number is (707) 863-
6000. The Company provides a full range of banking services to individual and corporate customers in Northern and Central
California through its subsidiary bank, Westamerica Bank (“WAB” or the “Bank”). The principal communities served are located
in Northern and Central California, from Mendocino, Lake and Nevada Counties in the north to Kern County in the south. The
Company’s strategic focus is on the banking needs of small businesses. In addition, the Bank owns 100% of the capital stock of
Community Banker Services Corporation (“CBSC”), a company engaged in providing the Company and its subsidiaries with data
processing services and other support functions.
The Company was incorporated under the laws of the State of California in 1972 as “Independent Bankshares Corporation”
pursuant to a plan of reorganization among three previously unaffiliated Northern California banks. The Company operated as a
multi-bank holding company until mid-1983, at which time the then six subsidiary banks were merged into a single bank named
Westamerica Bank and the name of the holding company was changed to Westamerica Bancorporation.
The Company acquired five banks within its immediate market area during the early to mid 1990’s. In April 1997, the Company
acquired ValliCorp Holdings, Inc., parent company of ValliWide Bank, the largest independent bank holding company
headquartered in Central California. Under the terms of all of the merger agreements, the Company issued shares of its common
stock in exchange for all of the outstanding shares of the acquired institutions. The subsidiary banks acquired were merged with
and into WAB. These six aforementioned business combinations were accounted for as poolings-of-interests.
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In August, 2000, the Company acquired First Counties Bank. In June of 2002 the Company acquired Kerman State Bank. On
March 1, 2005, the Company acquired Redwood Empire Bancorp, the parent company of National Bank of the Redwoods (NBR).
These acquisitions were accounted for using the purchase accounting method.
On February 6, 2009, Westamerica Bank acquired the banking operations of County Bank (“County”) from the Federal Deposit
Insurance Corporation (“FDIC”). The Bank and the FDIC entered loss sharing agreements regarding future losses incurred on
acquired loans and foreclosed loan collateral. Under the terms of the loss sharing agreements, the FDIC absorbs 80 percent of
losses and is entitled to 80 percent of loss recoveries on the first $269 million of losses, and absorbs 95 percent of losses and is
entitled to 95 percent of loss recoveries on losses exceeding $269 million. The term for loss sharing on residential real estate loans
is ten years, while the term for loss sharing on non-residential real estate loans is five years in respect to losses and eight years in
respect to loss recoveries. The County acquisition was accounted for under the acquisition method of accounting in accordance
with FASB ASC 805, Business Combinations. On August 20, 2010, Westamerica Bank acquired assets and assumed liabilities of
the former Sonoma Valley Bank (“Sonoma”) from the FDIC. The acquired assets and assumed liabilities were measured at
estimated fair values, as required by FASB ASC 805, Business Combinations.
Management made significant estimates and exercised significant judgment in accounting for these 2009 and 2010 acquisitions.
Management judgmentally measured loan fair values based on loan file reviews (including borrower financial statements and tax
returns), appraised collateral values, expected cash flows, and historical loss factors. Repossessed loan collateral was primarily
valued based upon appraised collateral values. The Bank also recorded identifiable intangible assets representing the value of the
core deposit customer bases based on Management’s evaluation of the cost of such deposits relative to alternative funding
sources. In determining the value of the identifiable intangible assets, Management used significant estimates including average
lives of depository accounts, future interest rate levels, the cost of servicing various depository products, and other significant
estimates. Management used quoted market prices to determine the fair value of investment securities, FHLB advances and other
borrowings which were purchased and assumed. See Note 2 of the Notes to Consolidated Financial Statements for additional
information regarding the Sonoma acquisition.
At December 31, 2011, the Company had consolidated assets of approximately $5.0 billion, deposits of approximately $4.2
billion and shareholders’ equity of approximately $558.6 million. The Company and its subsidiaries employed 961 full-time
equivalent staff as of December 31, 2011.
The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments
to those reports as well as beneficial ownership reports on Forms 3, 4 and 5 are available through the SEC’s website
(http://www.sec.gov). Such documents are also available free of charge from the Company, as well as the Company’s director,
officer and employee Code of Conduct and Ethics, by request to:
Westamerica Bancorporation
Corporate Secretary A-2M
Post Office Box 1200
Suisun City, California 94585-1200
Supervision and Regulation
The following is not intended to be an exhaustive description of the statutes and regulations applicable to the Company’s or the
Bank’s business. The description of statutory and regulatory provisions is qualified in its entirety by reference to the particular
statutory or regulatory provisions. Moreover, major new legislation and other regulatory changes affecting the Company, the
Bank, 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.
Regulation and Supervision of Bank Holding Companies
The Company is a bank holding company subject to the BHCA. The Company reports to, is registered with, and may be
examined by, the Board of Governors of the Federal Reserve System (“FRB”). The FRB also has the authority to examine the
Company’s subsidiaries. The Company is a bank holding company within the meaning of Section 3700 of the California Financial
Code. As such, the Company and the Bank are subject to examination by, and may be required to file reports with, the California
Commissioner of Financial Institutions (the “Commissioner”).
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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. Under the BHCA, 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 any class of
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 closely related to banking or managing or controlling banks. 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.
The FRB generally prohibits a bank holding company from declaring or paying a cash dividend that would impose undue pressure
on the capital of subsidiary banks or would be funded only through borrowing or other arrangements which might adversely affect
a bank holding company’s financial position. Under the FRB policy, a bank holding company should not continue its existing rate
of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of
earnings retention appears consistent with its capital needs, asset quality and overall financial condition. See the section entitled
“Restrictions on Dividends and Other Distributions” for additional restrictions on the ability of the Company and the Bank to pay
dividends.
Transactions between the Company and the Bank are restricted under Regulation W. The regulation codifies prior interpretations
of the FRB and its staff under Sections 23A and 23B of the Federal Reserve Act. In general, subject to certain specified
exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates: (a) to an
amount equal to 10% of the bank’s capital and surplus, in the case of covered transactions with any one affiliate; and (b) to an
amount equal to 20% of the bank’s capital and surplus, in the case of covered transactions with all affiliates. The Company is
considered to be an affiliate of the Bank. A “covered transaction” includes, among other things, a loan or extension of credit to an
affiliate; a purchase of securities issued by an affiliate; a purchase of assets from an affiliate, with some exceptions; and the
issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.
Federal regulations governing bank holding companies and change in bank control (Regulation Y) provide for a streamlined and
expedited review process for bank acquisition proposals submitted by well-run bank holding companies. These provisions of
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.
The Gramm-Leach-Bliley Act (the “GLBA”), or the Financial Services Act of 1999, repealed provisions of the Glass-Steagall
Act, which had prohibited commercial banks and securities firms from affiliating with each other and engaging in each other’s
businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been
eliminated.
The BHCA was also amended by the GLBA to allow new “financial holding companies” (“FHCs”) to offer banking, insurance,
securities and other financial products to consumers. Specifically, the GLBA amended section 4 of the BHCA in order to provide
for a framework for the engagement in new financial activities. A bank holding company (“BHC”) may elect to become an 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 an FHC. After the certification and declaration is
filed, the FHC may engage either de novo or through 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 list of permissible activities in section 4(k) of the BHCA. However, notice must be given to
the FRB within 30 days after an FHC has commenced one or more of the financial activities. The Company has not elected to
become an FHC.
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Regulation and Supervision of Banks
The Bank is a California state-chartered Federal Reserve member bank and its deposits are insured by the FDIC. The Bank is
subject to regulation, supervision and regular examination by the California Department of Financial Institutions (“DFI”), and the
Federal Reserve. The regulations of these agencies affect most aspects of the Bank’s business and prescribe permissible types of
loans and investments, the amount of required reserves, requirements for branch offices, the permissible scope of its activities and
various other requirements.
In addition to federal banking law, the Bank is also subject to applicable provisions of California law. Under California law, the
Bank is subject to various restrictions on, and requirements regarding, its operations and administration including the maintenance
of branch offices and automated teller machines, capital requirements, deposits and borrowings, shareholder rights and duties, and
investment and lending activities.
California law permits a state-chartered bank to invest in the stock and securities of other corporations, subject to a state-chartered
bank receiving either general authorization or, depending on the amount of the proposed investment, specific authorization from
the Commissioner. In addition, the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) imposes limitations on
the activities and equity investments of state chartered, federally insured banks. FDICIA also prohibits a state bank from making
an investment or engaging in any activity as a principal that is not permissible for a national bank, unless the Bank is adequately
capitalized and the FDIC approves the investment or activity after determining that such investment or activity does not pose a
significant risk to the deposit insurance fund.
On July 21, 2010, financial regulatory reform legislation entitled the "Dodd-Frank Wall Street Reform and Consumer Protection
Act" (the "Dodd-Frank Act") was signed into law. The Dodd-Frank Act implements far-reaching changes across the financial
regulatory landscape, including provisions that, among other things, will:
(cid:1)
(cid:1)
Centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection
Bureau, responsible for implementing, examining and enforcing compliance with federal consumer financial laws.
Restrict the preemption of state law by federal law and disallow subsidiaries and affiliates of national banks from
availing themselves of such preemption.
(cid:1) Apply the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank
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(cid:1)
holding companies.
Require bank regulatory agencies to seek to make their capital requirements for banks countercyclical so that capital
requirements increase in times of economic expansion and decrease in times of economic contraction.
Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less
tangible capital, eliminate the ceiling on the size of the Deposit Insurance Fund ("DIF") and increase the floor of the size
of the DIF.
Impose comprehensive regulation of the over-the-counter derivatives market, which would include certain provisions
that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the
institution itself.
Require large, publicly traded bank holding companies to create a risk committee responsible for the oversight of
enterprise risk management.
Implement corporate governance revisions, including with regard to executive compensation and proxy access by
shareholders, that apply to all public companies, not just financial institutions.
(cid:1) Make permanent the $250 thousand limit for federal deposit insurance and provide unlimited federal deposit insurance
until December 31, 2012 for non-interest bearing demand transaction accounts at all insured depository institutions.
Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions
to pay interest on business transaction and other accounts.
(cid:1)
(cid:1) Amend the Electronic Fund Transfer Act ("EFTA") to, among other things, give the FRB the authority to establish rules
regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10
billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a
transaction to the issuer. While the Company’s assets are currently less than $10 billion, interchange fees charged by
larger institutions may dictate the level of fees smaller institutions will be able to charge to remain competitive.
Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to
anticipate the overall financial impact on the Company, its customers or the financial industry more generally. Provisions in the
legislation that affect the payment of interest on demand deposits and interchange fees may increase the costs associated with
deposits as well as place limitations on certain revenues those deposits may generate.
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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 resulting in assets being
recognized on the balance sheet as assets, and the extension of credit facilities 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. 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 federal banking agencies take into consideration concentrations of credit risk and risks from nontraditional activities, as well
as an institution’s ability to manage those risks, when determining the adequacy of an institution’s capital. This evaluation is
made as a part of the institution’s regular safety and soundness examination. The federal banking agencies also consider interest
rate risk (related to the interest rate sensitivity of an institution’s assets and liabilities, and its off balance sheet financial
instruments) in the evaluation of a bank’s capital adequacy.
As of December 31, 2011, the Company’s and the Bank’s respective ratios exceeded applicable regulatory requirements. See
Note 10 to the consolidated financial statements for capital ratios of the Company and the Bank, compared to the standards for
well capitalized depository institutions and for minimum capital requirements.
The Company anticipates changes to the regulatory capital framework due to the Dodd-Frank Act, which requires bank regulatory
agencies to seek to make their capital requirements for banks countercyclical so that capital requirements increase in times of
economic expansion and decrease in times of economic contraction.
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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.
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.
Safety and Soundness Standards
The Company’s ability to pay dividends to its shareholders is subject to the restrictions set forth in the California General
Corporation Law (“CGCL”). The CGCL provides that a corporation may make a distribution to its shareholders if (i) the
corporation’s retained earnings equal or exceed the amount of the proposed distribution plus unpaid accrued dividends, (if any) on
securities with a dividend preference, or (ii) immediately after the dividend, the corporation’s total assets equal or exceed total
liabilities plus unpaid accrued dividends (if any) on securities with a dividend preference.
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
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.
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Federal banking agencies require banks to maintain adequate valuation allowances for potential credit losses. The Company has
an internal staff that continually reviews loan quality and reports to the Board of Directors. This analysis includes a detailed
review of the classification and categorization of problem loans, assessment of the overall quality and collectability of the loan
portfolio, consideration of loan loss experience, trends in problem loans, concentration of credit risk, and current economic
conditions, particularly in the Bank’s market areas. Based on this analysis, Management, with the review and approval of the
Board, determines the adequate level of allowance required. The allowance is allocated to different segments of the loan portfolio,
but the entire allowance is available for the loan portfolio in its entirety.
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
Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund ("DIF") of the
FDIC and are subject to deposit insurance assessments to maintain the DIF. The FDIC utilizes a risk-based assessment system
that imposes insurance premiums based upon a risk matrix that takes into account a bank's capital level and supervisory rating
("CAMELS rating").
In December 2008, the FDIC issued a final rule that raised the then current assessment rates uniformly by 7 basis points for the
first quarter of 2009 assessment (basis points representing cents per $100 of assessable deposits). In February 2009, the FDIC
issued final rules to amend a restoration plan for the DIF, change the risk-based assessment system and set new assessment rates
beginning in the second quarter of 2009. The initial base assessment rates ranged from 12 to 45 basis points, on an annualized
basis. After the effect of potential base-rate adjustments, total base assessment rates range from 7 to 77.5 basis points.
In May 2009, the FDIC issued a final rule which levied a special assessment applicable to all insured depository institutions
totaling 5 basis points of each institution's total assets less Tier 1 capital as of June 30, 2009, not to exceed 10 basis points of
domestic deposits. The special assessment was part of the FDIC's efforts to rebuild the DIF.
In November 2009, the FDIC issued a rule that required all insured depository institutions, with limited exceptions, to prepay
their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC also
adopted a uniform three-basis point increase in assessment rates effective on January 1, 2011; however, as further discussed
below, the FDIC has elected to forego this increase under a new DIF restoration plan adopted in October 2010.
In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the DIF reserve ratio reaches 1.35% by September
30, 2020, as required by the Dodd-Frank Act. Under the new restoration plan, the FDIC will forego the uniform three-basis point
increase in initial assessment rates scheduled to take place on January 1, 2011 and maintain the current schedule of assessment
rates for all depository institutions. At least semi-annually, the FDIC will update its loss and income projections for the fund and,
if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking if required.
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In November 2010, the FDIC issued a final rule to implement provisions of the Dodd-Frank Act that provide for temporary
unlimited coverage for noninterest-bearing transaction accounts. The separate coverage for non-interest-bearing transaction
accounts became effective on December 31, 2010 and terminates on December 31, 2012.
In February 2011, the FDIC issued a final rule changing the deposit insurance assessment base from total domestic deposits to
average total assets minus average tangible equity, as required by the Dodd-Frank Act, effective April 1, 2011. The FDIC also
issued a final rule revising the deposit insurance assessment system for “large” institutions having more than $10 billion in assets
and another for "highly complex" institutions that have over $50 billion in assets and are fully owned by a parent with over $500
billion in assets. The Bank is neither a “large” nor “highly complex” institution. Under the new assessment rules, the initial base
assessment rates range from 5 to 35 basis points, and after potential adjustments for unsecured debt and brokered deposits,
assessment rates range from 2.5 to 45 basis points.
The Company cannot provide any assurance as to the effect of any future changes in its deposit insurance premium rates.
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations
and Community Reinvestment Act (“CRA”) activities. The CRA generally requires the federal banking agencies to evaluate the
record of financial institutions in meeting the credit needs of their local communities, including low and moderate income
neighborhoods. In addition to substantive penalties and corrective measures that may be required for a violation of certain fair
lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and
supervising other activities.
Financial Privacy Legislation and Customer Information Security
The GLBA, in addition to the previously described changes in permissible nonbanking activities permitted to banks, BHCs and
FHCs, also required the federal banking agencies, among other federal regulatory agencies, to adopt regulations governing the
privacy of consumer financial information. The Bank is subject to the FRB’s regulations in this area. The federal bank regulatory
agencies have established standards for safeguarding nonpublic personal information about customers that implement provisions
of the GLBA (the “Guidelines”). Among other things, the Guidelines require each financial institution, under the supervision and
ongoing oversight of its Board of Directors or an appropriate committee thereof, to develop, implement and maintain a
comprehensive written information security program designed to ensure the security and confidentiality of customer information,
to protect against any anticipated threats or hazards to the security or integrity of such information, and to protect against
unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.
U.S.A. PATRIOT Act
Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Act of 2001 (“USA Patriot Act”) is the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. It
includes numerous provisions for fighting international money laundering and blocking terrorist access to the U.S. financial
system. The goal of Title III is to prevent the U.S. financial system and the U.S. clearing mechanisms from being used by parties
suspected of terrorism, terrorist financing and money laundering. The provisions of Title III of the USA Patriot Act which affect
the Bank are generally set forth as amendments to the Bank Secrecy Act. These provisions relate principally to U.S. banking
organizations’ relationships with foreign banks and with persons who are resident outside the United States. The USA Patriot Act
does not impose any filing or reporting obligations for banking organizations, but does require certain additional due diligence
and recordkeeping practices.
Sarbanes-Oxley Act of 2002
The stated goals of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) are to increase corporate responsibility, to provide for
enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving
the accuracy and reliability of corporate disclosures pursuant to the securities laws. Sarbanes-Oxley generally applies to all
companies, both U.S. and non-U.S., that file or are required to file periodic reports under the Securities Exchange Act of 1934
(the “Exchange Act”).
Sarbanes-Oxley includes very specific additional disclosure requirements and corporate governance rules, required the SEC and
securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further
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studies of certain issues. Sarbanes-Oxley represents significant federal involvement in matters traditionally left to state regulatory
systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board
of directors and management and between a board of directors and its committees and public company shareholders. Sarbanes-
Oxley addresses, among other matters: (i) independent audit committees for reporting companies whose securities are listed on
national exchanges or automated quotation systems (the “Exchanges”) and expanded duties and responsibilities for audit
committees; (ii) certification of financial statements by the chief executive officer and the chief financial officer; (iii) the
forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and
senior officers in the twelve month period following initial publication of any financial statements that later require restatement;
(iv) a prohibition on insider trading during pension plan black out periods; (v) disclosure of off-balance sheet transactions; (vi) a
prohibition on personal loans to directors and officers under most circumstances with exceptions for certain normal course
transactions by regulated financial institutions; (vii) expedited electronic filing requirements related to trading by insiders in an
issuer’s securities on Form 4; (viii) disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code; (ix)
accelerated filing of periodic reports; (x) the formation of the Public Company Accounting Oversight Board (“PCAOB”) to
regulate public accounting firms and the audit of public companies that are subject to the securities laws; (xi) auditor
independence; (xii) internal control evaluation and reporting; and (xiii) various increased criminal penalties for violations of
securities laws.
Programs To Mitigate Identity Theft
In November 2007, federal banking agencies together with the National Credit Union Administration and Federal Trade
Commission adopted regulations under the Fair and Accurate Credit Transactions Act of 2003 to require financial institutions and
other creditors to develop and implement a written identity theft prevention program to detect, prevent and mitigate identity theft
in connection with certain new and existing accounts. Covered accounts generally include consumer accounts and other accounts
that present a reasonably foreseeable risk of identity theft. Each institution’s program must include policies and procedures
designed to: (i) identify indicators, or “red flags,” of possible risk of identity theft; (ii) detect the occurrence of red flags; (iii)
respond appropriately to red flags that are detected; and (iv) ensure that the program is updated periodically as appropriate to
address changing circumstances. The regulations include guidelines that each institution must consider and, to the extent
appropriate, include in its program.
Pending Legislation
Changes to state laws and regulations (including changes in interpretation or enforcement) can affect the operating environment
of BHCs and their subsidiaries in substantial and unpredictable ways. From time to time, various legislative and regulatory
proposals are introduced. These proposals, if codified, may change banking statutes and regulations and the Company’s operating
environment in substantial and unpredictable ways. If codified, these proposals could increase or decrease the cost of doing
business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions
and other financial institutions. The Company cannot accurately predict whether those changes in laws and regulations will occur,
and, if those changes occur, the ultimate effect they would have upon our financial condition or results of operations. It is likely,
however, that the current level of enforcement and compliance-related activities of federal and state authorities will continue and
potentially increase.
Competition
In the past, the Bank’s principal competitors for deposits and loans have been major banks and smaller community 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.
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. While the future impact of regulatory and legislative changes cannot be
predicted with certainty, the business of banking will remain highly competitive.
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ITEM 1A. RISK FACTORS
Readers and prospective investors in the Company’s securities should carefully consider the following risk factors as well as the
other information contained or incorporated by reference in this report.
The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties that
Management is not aware of or focused on or that Management currently deems immaterial may also impair the Company’s
business operations. This report is qualified in its entirety by these risk factors.
If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and
adversely affected. If this were to happen, the value of the company’s securities could decline significantly, and investors could
lose all or part of their investment in the Company’s common stock.
Market and Interest Rate Risk
Changes in interest rates could reduce income and cash flow.
The discussion in this report under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Asset, Liability and Market Risk Management” and “- Liquidity and Funding” and “Item 7A Quantitative and
Qualitative Disclosures About Market Risk” is incorporated by reference in this paragraph. The Company’s income and cash flow
depend to a great extent on the difference between the interest earned on loans and investment securities compared to the interest
paid on deposits and other borrowings, and the Company’s success in competing for loans and deposits. The Company cannot
control or prevent changes in the level of interest rates which fluctuate in response to general economic conditions, the policies of
various governmental and regulatory agencies, in particular, the Federal Open Market Committee of the FRB, and pricing
practices of the Company’s competitors. Changes in monetary policy, including changes in interest rates, will influence the
origination of loans, the purchase of investments, the generation of deposits and other borrowings, and the rates received on loans
and investment securities and paid on deposits and other liabilities.
Changes in capital market conditions could reduce asset valuations.
Capital market conditions, including liquidity, investor confidence, bond issuer credit worthiness perceived counter-party risk, the
supply of and demand for financial instruments, the financial strength of market participants, and other factors, can materially
impact the value of the Company’s assets. An impairment in the value of the Company’s assets could result in asset write-downs,
reducing the Company’s asset values, earnings, and equity.
Current market developments may adversely affect the Company’s industry, business and results of operations.
Declines in the housing market during recent years, with falling home prices and increasing foreclosures and unemployment, have
resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major
commercial and investment banks. These write-downs caused many financial institutions to seek additional capital, to merge with
larger and stronger institutions and, in some cases, to fail. During the recent financial crisis and recession, liquidity within the
financial system was challenged due to institutions evaluating counter-party risk, margin requirements rose, and other liquidity
reducing activities and actions. While liquidity has generally returned to the United States financial system, a recurrence of
economic weakness or asset valuation declines could reduce domestic liquidity levels. Further, global economic and financial
difficulties, including within Europe, could reduce liquidity in the United States. The Company has no direct operating exposure
to European sovereign debt; however, the Company clears daily transactions through large domestic banks which have global
operations and exposure. Any resulting lack of available credit, volatility in the financial markets and reduced business activity
could materially and adversely affect the Company’s business, financial condition and results of operations.
The soundness of other financial institutions could adversely affect the Company.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. The Company
routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial
banks, investment banks, and other institutional clients. Many of these transactions expose the Company to credit risk in the event
of default of the Company’s counterparty or client. In addition, the Company’s credit risk may be increased when the collateral
the Company holds cannot be realized or is liquidated at prices not sufficient to recover the full amount of the secured obligation.
There is no assurance that any such losses would not materially and adversely affect the Company’s results of operations or
earnings.
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Shares of Company common stock eligible for future sale or grant of stock options 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 additional
classes of 1 million shares each, denominated “Class B Common Stock” and “Preferred Stock”, respectively) of which
approximately 28.2 million shares of common stock were outstanding at December 31, 2011. Pursuant to its stock option plans, at
December 31, 2011, the Company had outstanding options for 2.3 million shares of common stock, of which 1.8 million were
currently exercisable. As of December 31, 2011, 4.1 million shares of Company common stock remained available for grants
under the Company’s stock option plans. Sales of substantial amounts of Company common stock in the public market could
adversely affect the market price of its common stock.
The Company’s payment of dividends on common stock could be eliminated or reduced.
Holders of the Company’s common stock are entitled to receive dividends only when, as and if declared by the Company’s Board
of Directors. Although the Company has historically paid cash dividends on the Company’s common stock, the Company is not
required to do so and the Company’s Board of Directors could reduce or eliminate the Company’s common stock dividend in the
future.
The Company could repurchase shares of its common stock at price levels considered excessive.
The Company repurchases and retires its common stock in accordance with Board of Directors-approved share repurchase
programs. At December 31, 2011, approximately 1.4 million shares remained available to repurchase under such plans. The
Company has been active in repurchasing and retiring shares of its common stock when alternative uses of excess capital, such as
acquisitions, have been limited. The Company could repurchase shares of its common stock at price levels considered excessive,
thereby spending more cash on such repurchases as deemed reasonable and effectively retiring fewer shares than would be retired
if repurchases were affected at lower prices.
Risks Related to the Nature and Geographical Location of the Company’s Business
The Company invests in loans that contain inherent credit risks that may cause the Company to incur losses.
The Company can provide no assurance that the credit quality of the loan portfolio will not deteriorate in the future and that such
deterioration will not adversely affect the Company.
The Company’s operations are concentrated geographically in California, and poor economic conditions may cause the
Company to incur losses.
Substantially all of the Company’s business is located in California. A portion of the loan portfolio of the Company is dependent
on real estate. At December 31, 2011, real estate served as the principal source of collateral with respect to approximately 56% of
the Company’s loan portfolio. The Company’s financial condition and operating results will be subject to changes in economic
conditions in California. The California economy is currently weak following a severe recession. Much of the California real
estate market has experienced a decline in values of varying degrees. This decline is having an adverse impact on the business of
some of the Company’s borrowers and on the value of the collateral for many of the Company’s loans. Economic conditions in
California are subject to various uncertainties at this time, including the decline in construction and real estate sectors, the
California state government’s budgetary difficulties and continuing fiscal difficulties. The Company can provide no assurance
that conditions in the California economy will not deteriorate in the future and that such deterioration will not adversely affect the
Company.
The markets in which the Company operates are subject to the risk of earthquakes and other natural disasters.
Most of the properties of the Company are located in California. Also, most of the real and personal properties which currently
secure some of the Company’s loans are located in California. California is a state which is prone to earthquakes, brush fires,
flooding, drought and other natural disasters. In addition to possibly sustaining damage to its own properties, if there is a major
earthquake, flood, fire or other natural disaster, the Company faces the risk that many of its borrowers may experience uninsured
property losses, or sustained job interruption and/or loss which may materially impair their ability to meet the terms of their loan
obligations. A major earthquake, flood, prolonged drought, fire or other natural disaster in California could have a material
adverse effect on the Company’s business, financial condition, results of operations and cash flows.
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Adverse changes in general business or economic conditions could have a material adverse effect on the Company’s
financial condition and results of operations.
A sustained or continuing weakness or weakening in business and economic conditions generally or specifically in the principal
markets in which the Company does business could have one or more of the following adverse impacts on the Company’s
business:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
a decrease in the demand for loans and other products and services offered by the Company;
an increase or decrease in the usage of unfunded credit commitments;
a decrease in the amount of deposits;
a decrease in non-depository funding available to the Company;
an impairment of certain intangible assets, such as goodwill;
an increase in the number of clients and counterparties who become delinquent, file for protection under bankruptcy laws
or default on their loans or other obligations to the Company, which could result in a higher level of nonperforming
assets, net charge-offs, provision for loan losses, and valuation adjustments on assets;
an impairment of investment securities;
an impairment of life insurance policies owned by the Company;
an impairment of real estate owned by the Company.
(cid:1)
(cid:1)
(cid:1)
Current market conditions have also led to the failure or merger of a number of financial institutions. Financial institution failures
or near-failures have resulted in further losses as a consequence of defaults on securities issued by them and defaults under
contracts entered into with such entities as counterparties. Weak economic conditions can significantly weaken the strength and
liquidity of financial institutions.
The Company’s financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal
of outstanding loans and the value of collateral securing those loans, is highly dependent upon on the business environment in the
markets where the Company operates, in the State of California and in the United States as a whole. A favorable business
environment is generally characterized by, among other factors, economic growth, healthy labor markets, efficient capital
markets, low inflation, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic
and market conditions can be caused by: declines in economic growth, high rates of unemployment, declines in business activity
or consumer, investor or business confidence; limitations on the availability of or increases in the cost of credit and capital;
increases in inflation or interest rates; natural disasters; or a combination of these or other factors.
Overall, during 2010 and 2011, the business environment has been adverse for many households, businesses and government
entities in the United States, including California. There can be no assurance that these conditions will improve in the near term.
Such conditions could adversely affect the credit quality of the Company’s loans, the demand for loans, loan volumes and related
revenue, securities valuations, amounts of deposits, availability of funding, results of operations and financial condition.
The value of securities in the Company’s investment securities portfolio may be negatively affected by disruptions in securities
markets
The market for some of the investment securities held in the Company’s portfolio can be extremely volatile. Volatile market
conditions may detrimentally affect the value of these securities, such as through reduced valuations due to the perception of
heightened credit and liquidity risks. There can be no assurance that the declines in market value will not result in other than
temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on the
Company’s net income and capital levels.
Regulatory Risks
Restrictions on dividends and other distributions could limit amounts payable to the Company.
As a holding company, a substantial portion of the Company’s cash flow typically comes from dividends paid by the Bank.
Various statutory provisions restrict the amount of dividends the Company’s subsidiaries can pay to the Company without
regulatory approval. In addition, if any of the Company’s subsidiaries were to liquidate, that subsidiary’s creditors will be entitled
to receive distributions from the assets of that subsidiary to satisfy their claims against it before the Company, as a holder of an
equity interest in the subsidiary, will be entitled to receive any of the assets of the subsidiary.
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Adverse effects of changes in banking or other laws and regulations or governmental fiscal or monetary policies could
adversely affect the Company.
The Company is subject to significant federal and state regulation and supervision, which is primarily for the benefit and
protection of the Company’s customers and not for the benefit of investors. In the past, the Company’s business has been
materially affected by these regulations. As an example, the FRB amended Regulation E, which implements the Electronic Fund
Transfer Act, in a manner which limits the ability of a financial institution to assess an overdraft fee for paying automated teller
machine (ATM) and one-time debit card transactions that overdraw a consumer’s account, unless the consumer affirmatively
consents, or opts in, to the institution’s payment of overdrafts for these transactions. The rule had a mandatory compliance date of
July 1, 2010 for new accounts and August 15, 2010 for existing accounts. Implementation of the new provisions significantly
reduced overdraft fees assessed by the Bank.
Laws, regulations or policies, including accounting standards and interpretations currently affecting the Company and the
Company’s subsidiaries, may change at any time. Regulatory authorities may also change their interpretation of these statutes and
regulations. Therefore, the Company’s business may be adversely affected by any future changes in laws, regulations, policies or
interpretations or regulatory approaches to compliance and enforcement including future acts of terrorism, major U.S. corporate
bankruptcies and reports of accounting irregularities at U.S. public companies.
Additionally, the Company’s business is affected significantly by the fiscal and monetary policies of the federal government and
its agencies. The Company is particularly affected by the policies of the FRB, which regulates the supply of money and credit in
the United States of America. Under long- standing policy of the FRB, a BHC is expected to act as a source of financial strength
for its subsidiary banks. As a result of that policy, the Company may be required to commit financial and other resources to its
subsidiary bank in circumstances where the Company might not otherwise do so. Among the instruments of monetary policy
available to the FRB are (a) conducting open market operations in U.S. government securities, (b) changing the discount rates of
borrowings by depository institutions, (c) changing interest rates paid on balances financial institutions deposit with the FRB, and
(d) imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in
varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates
charged on loans and paid on deposits. The policies of the FRB may have a material effect on the Company’s business, results of
operations and financial condition.
Federal and state governments could pass legislation detrimental to the Company’s performance.
As an example, the Company could experience higher credit losses because of federal or state legislation or regulatory action that
reduces the amount the Bank's borrowers are otherwise contractually required to pay under existing loan contracts. Also, the
Company could experience higher credit losses because of federal or state legislation or regulatory action that limits the Bank's
ability to foreclose on property or other collateral or makes foreclosure less economically feasible.
The FDIC insures deposits at insured financial institutions up to certain limits. The FDIC charges insured financial institutions
premiums to maintain the Deposit Insurance Fund. Recent economic conditions have increased bank failures, in which case the
FDIC takes control of failed banks and ensures payment of deposits up to insured limits using the resources of the Deposit
Insurance Fund. In such case, the FDIC may increase premium assessments to maintain adequate funding of the Deposit
Insurance Fund.
The behavior of depositors in regard to the level of FDIC insurance could cause our existing customers to reduce the amount of
deposits held at the Bank, and could cause new customers to open deposit accounts at the Bank. The level and composition of the
Bank's deposit portfolio directly impacts the Bank's funding cost and net interest margin.
The FRB has been providing vast amounts of liquidity into the banking system due to current economic and capital market
conditions. A reduction in the FRB’s activities or capacity could reduce liquidity in the markets, thereby increasing funding costs
to the Bank or reducing the availability of funds to the Bank to finance its existing operations.
13
Systems, Accounting and Internal Control Risks
The accuracy of the Company’s judgments and estimates about financial and accounting matters will impact operating results
and financial condition.
The discussion under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical
Accounting Policies” in this report and the information referred to in that discussion is incorporated by reference in this
paragraph. The Company makes certain estimates and judgments in preparing its financial statements. The quality and accuracy
of those estimates and judgments will have an impact on the Company’s operating results and financial condition.
The Company’s information systems may experience an interruption or breach in security.
The Company relies heavily on communications and information systems to conduct its business. Any failure, interruption or
breach in security of these systems could result in failures or disruptions in the Company’s accounting, customer relationship
management and other systems. Communication and information systems failures can result from a variety of risks including, but
not limited to, telecommunication line integrity, weather, terrorist acts, natural disasters, accidental disasters, unauthorized
breaches of security systems, and other events. There can be no assurance that any such failures, interruptions or security breaches
will not occur or, if they do occur, that they will be adequately corrected by the Company. The occurrence of any such failures,
interruptions or security breaches could damage the Company’s reputation, result in a loss of customer business, subject the
Company to additional regulatory scrutiny, or expose the Company to litigation and possible financial liability, any of which
could have a material adverse effect on the Company’s financial condition and results of operations.
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The Company’s controls and procedures may fail or be circumvented.
Management regularly reviews and updates the Company’s internal control over financial reporting, disclosure controls and
procedures, and corporate governance policies and procedures. The Company maintains controls and procedures to mitigate
against risks such as processing system failures and errors, and customer or employee fraud, and maintains insurance coverage for
certain of these risks. Any system of controls and procedures, however well designed and operated, is based in part on certain
assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Events could
occur which are not prevented or detected by the Company’s internal controls or are not insured against or are in excess of the
Company’s insurance limits or insurance underwriters’ financial capacity. Any failure or circumvention of the Company’s
controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse
effect on the Company’s business, results of operations and financial condition.
The Company may have underestimated losses on purchased loans.
On February 6, 2009, the Bank acquired approximately $1.2 billion in loans and repossessed loan collateral of the former County
Bank from the FDIC as its receiver. On August 20, 2010, the Bank acquired approximately $217 million in loans and repossessed
loan collateral of the former Sonoma Valley Bank from the FDIC as its receiver. These purchased assets had suffered substantial
deterioration at the respective acquisition dates, and the Company can provide no assurance that they will not continue to
deteriorate now that they are the Bank’s assets. If Management’s estimates of purchased asset fair values as of the acquisition
dates are higher than ultimate cash flows, the recorded carrying amount of the assets may need to be reduced with a
corresponding charge to earnings, net of FDIC loss indemnification on former County Bank assets.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
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ITEM 2. PROPERTIES
Branch Offices and Facilities
Westamerica Bank is engaged in the banking business through 95 branch offices in 21 counties in Northern and Central
California. WAB believes all of its offices are constructed and equipped to meet prescribed security requirements.
The Company owns 33 branch office locations and one administrative facility and leases 74 facilities. Most of the leases contain
multiple renewal options and provisions for rental increases, principally for changes in the cost of living index, and for changes in
other operating costs such as 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, other than ordinary routine legal proceedings arising in the ordinary course of
the Company’s business. None of these proceedings is expected to have a material adverse impact upon the Company’s business,
financial position or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “WABC”. The
following table shows the high and the low sales prices for the common stock, for each quarter, as reported by NASDAQ:
High
Low
2011:
First quarter.........................................................................................................
Second quarter ....................................................................................................
Third quarter .......................................................................................................
Fourth quarter .....................................................................................................
$56.96
52.53
50.52
46.73
2010:
First quarter.........................................................................................................
Second quarter ....................................................................................................
Third quarter .......................................................................................................
Fourth quarter .....................................................................................................
$61.25
60.37
55.99
56.72
$49.25
46.91
36.32
36.34
$50.87
52.17
50.04
48.70
As of January 31, 2012, there were approximately 7,000 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, cash balances, financial condition
and capital requirements of the Company and its subsidiaries as well as policies of the FRB pursuant to the BHCA. See Item 1,
“Business - Supervision and Regulation.” As of December 31, 2011, $166 million was allowable for payment of dividends by the
Company to its shareholders, under applicable laws and regulations.
The notes to the consolidated financial statements included in this report contain additional information regarding the Company’s
capital levels, regulations affecting subsidiary bank dividends paid to the Company, the Company’s earnings, financial condition
and cash flows, and cash dividends declared and paid on common stock.
15
As discussed in Note 9 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 Rights expired on December
31, 2009.
On February 13, 2009, the Company issued a warrant to purchase 246,640 shares of its common stock at an exercise price of
$50.92 per share with an expiration date of February 13, 2019. The warrant remained outstanding as of December 31, 2011.
Stock performance
The following chart compares the cumulative return on the Company’s stock during the ten years ended December 31, 2011 with
the cumulative return on the S&P 500 composite stock index and NASDAQ’S Bank Index. The comparison assumes $100
invested in each on December 31, 2001 and reinvestment of all dividends.
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Westamerica Bancorporation (WABC) ......................................
S&P 500 (SPX) ...........................................................................
NASDAQ Bank Index (CBNK) ..................................................
Period ending
2003
2001
2002
2006
$100.00 $103.78 $131.49 $157.22 $146.38 $143.30
77.90 100.25 111.12 116.59 135.06
100.00
100.00 106.95 142.29 161.68 158.54 180.52
2005
2004
Period ending
2009
2007
2008
2011
$130.78 $153.98 $171.49 $176.43 $143.88
89.88 113.66 130.78 133.55
142.48
97.06
95.01 108.45
144.58 113.51
2010
Westamerica Bancorporation (WABC) ........................................................
S&P 500 (SPX) .............................................................................................
NASDAQ Bank Index (CBNK) ....................................................................
16
The following chart compares the cumulative return on the Company’s stock during the five years ended December 31, 2011 with
the cumulative return on the S&P 500 composite stock index and NASDAQ’S Bank Index. The comparison assumes $100
invested in each on December 31, 2006 and reinvestment of all dividends.
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Westamerica Bancorporation (WABC) ......................................
S&P 500 (SPX)...........................................................................
NASDAQ Bank Index (CBNK) .................................................
ISSUER PURCHASES OF EQUITY SECURITIES
Period ending
2008
2007
2006
2011
$100.00 $91.26 $107.46 $119.67 $123.12 $100.41
98.88
100.00 105.49
53.77
80.09
100.00
66.55
62.88
84.16
52.63
96.84
60.08
2009
2010
The table below sets forth the information with respect to purchases made by or on behalf of Westamerica Bancorporation or any
“affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of common stock during the
quarter ended December 31, 2011 (in thousands, except per share data).
Period
October 1 through October 31 .................................................................
November 1 through November 30..........................................................
December 1 through December 31 ..........................................................
Total.........................................................................................................
(a)
Total
Number of
Shares
Purchased
41
184
136
361
(c)
Total Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs*
41
184
136
361
(b)
Average
Price
Paid
per
Share
$44.48
42.70
42.52
42.83
(d)
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
1,689
1,505
1,369
1,369
*
Includes 8 thousand, 1 thousand and 11 thousand shares purchased in October, November and December, respectively, by
the Company in private transactions with the independent administrator of the Company’s Tax Deferred Savings/Retirement
Plan (ESOP). The Company includes the shares purchased in such transactions within the total number of shares authorized
for purchase pursuant to the currently existing publicly announced program.
17
The Company repurchases shares of its common stock in the open market to optimize the Company’s use of equity capital and
enhance shareholder value and with the intention of lessening the dilutive impact of issuing new shares to meet stock
performance, option plans, and other ongoing requirements.
Shares were repurchased during the fourth quarter of 2011 pursuant to a program approved by the Board of Directors on July 28,
2011 authorizing the purchase of up to 2 million shares of the Company’s common stock from time to time prior to September 1,
2012.
[The remainder of this page intentionally left blank]
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ITEM 6. SELECTED FINANCIAL DATA
The following financial information for the five years ended December 31, 2011 has been derived from the Company’s audited consolidated financial statements.
This information should be read in conjunction with those statements, notes and other information included elsewhere herein.
WESTAMERICA BANCORPORATION
FINANCIAL SUMMARY
(Dollars in thousands, except per share data)
Year ended December 31:
Interest income............................................................
Interest expense...........................................................
Net interest income .....................................................
Provision for loan losses .............................................
Noninterest income:
Net losses from securities.........................................
Gain on acquisition...................................................
Deposit service charges and other ............................
Total noninterest income (loss) ..................................
Noninterest expense
Settlements ...............................................................
Visa litigation ...........................................................
Other noninterest expense ........................................
Total noninterest expense...........................................
Income before income taxes .......................................
Provision for income taxes .........................................
Net income...................................................................
Preferred stock dividends and discount accretion ...
Net income applicable to common equity .................
Average common shares outstanding........................
Average diluted common shares outstanding...........
Shares outstanding at December 31 ..........................
Per common share:
Basic earnings ..........................................................
Diluted earnings .......................................................
Book value at December 31......................................
Financial Ratios:
Return on assets ........................................................
Return on common equity.........................................
Net interest margin *.................................................
Net loan losses to average originated loans...............
Efficiency ratio **.....................................................
Equity to assets .........................................................
Allowance for loan losses to originated loans...........
Period End Balances:
2011
$207,979
8,382
199,597
11,200
––
––
60,097
60,097
2,100
––
125,578
127,678
120,816
32,928
87,888
––
$87,888
28,628
28,742
28,150
$3.07
3.06
19.85
1.78%
16.14%
5.32%
0.73%
45.77%
11.08%
1.75%
2010
$221,155
12,840
208,315
11,200
––
178
61,276
61,454
43
––
127,104
127,147
131,422
36,845
94,577
––
$94,577
29,166
29,471
29,090
$3.24
3.21
18.74
1.95%
18.11%
5.54%
0.79%
44.13%
11.06%
1.76%
2009
$241,949
19,380
222,569
10,500
––
48,844
63,167
112,011
158
––
140,618
140,776
183,304
57,878
125,426
3,963
$121,463
29,105
29,353
29,208
$4.17
4.14
17.31
2.39%
25.84%
5.42%
0.60%
39.74%
10.16%
1.86%
2008
$208,469
33,243
175,226
2,700
2007
$235,872
72,555
163,317
700
(56,955)
––
54,899
(2,056)
––
––
59,278
59,278
134
(2,338)
102,965
100,761
69,709
9,874
59,835
––
$59,835
28,892
29,273
28,880
$2.07
2.04
14.19
1.42%
14.77%
5.13%
0.44%
51.88%
10.16%
1.87%
220
2,338
98,870
101,428
120,467
30,691
89,776
––
$89,776
29,753
30,165
29,018
$3.02
2.98
13.60
1.93%
22.11%
4.40%
0.14%
41.46%
8.66%
2.10%
Assets........................................................................
Originated loans........................................................
Purchased covered loans ...........................................
Purchased non-covered loans....................................
Investment securities.................................................
Deposits ....................................................................
Identifiable intangible assets and goodwill ...............
Short-term borrowed funds .......................................
Federal Home Loan Bank advances..........................
Term repurchase agreement
Debt financing and notes payable .............................
Shareholders’ equity .................................................
$5,042,161
1,862,607
535,278
125,921
1,561,556
4,249,921
150,302
115,689
26,023
10,000
15,000
558,641
Capital Ratios at Period End:
$4,931,524
2,029,541
692,972
199,571
1,252,212
4,132,961
156,277
107,385
61,698
––
26,363
545,287
$4,975,501
2,201,088
855,301
––
1,111,143
4,060,208
157,366
128,134
85,470
99,044
26,497
505,448
$4,032,934
2,382,426
––
––
1,237,779
3,095,054
136,907
457,275
––
––
26,631
409,852
$4,558,959
2,502,976
––
––
1,578,109
3,264,790
140,148
798,599
––
––
36,773
394,603
Total risk based capital .............................................
Tangible equity to tangible assets .............................
Dividends Paid Per Common Share ..........................
15.75%
8.35%
$1.45
15.50%
8.15%
$1.44
14.50%
7.22%
$1.41
11.76%
7.01%
$1.39
10.64%
5.76%
$1.36
____________
*
Yields on securities and certain loans have been adjusted upward to a “fully taxable equivalent” (“FTE”) basis, which is a non-GAAP financial measure, in
order to reflect the effect of income which is exempt from federal income taxation at the current statutory tax rate.
The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income on an FTE basis, which is a non-GAAP financial
measure, and noninterest income).
**
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion addresses information pertaining to the financial condition and results of operations of Westamerica
Bancorporation and subsidiaries (the “Company”) that may not be otherwise apparent from a review of the consolidated financial
statements and related footnotes. It should be read in conjunction with those statements and notes found on pages 47 through 88,
as well as with the other information presented throughout the Report.
Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
United States and follow general practices within the banking industry. Application of these principles requires the Company to
make certain estimates, assumptions, and judgments that affect the amounts reported in the financial statements and
accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the
financial statements; accordingly, as this information changes, the financial statements could reflect different estimates,
assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and
judgments and as such have a greater possibility of producing results that could be materially different than originally reported.
Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a
decline in the value of an asset not carried on the financial statements at fair value warrants an impairment writedown or valuation
reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and
liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record
valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-
party sources, when available. The Company utilizes third-party sources to value its investment securities; securities individually
valued using quoted prices in active markets are classified as Level 1 assets in the fair value hierarchy, and securities valued using
quoted prices in active markets for similar securities (commonly referred to as “matrix” pricing) are classified as Level 2 assets in
the fair value hierarchy. The Company validates the reliability of third-party provided values by comparing individual security
pricing for a sample of securities between more than one third-party source. When third-party information is not available,
valuation adjustments are estimated in good faith by Management.
The most significant accounting policies followed by the Company are presented in Note 1 to the consolidated financial
statements. These policies, along with the disclosures presented in the other financial statement notes and in this discussion,
provide information on how significant assets and liabilities are valued in the financial statements and how those values are
determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods,
assumptions, and estimates underlying those amounts, Management has identified the allowance for loan losses accounting and
purchased loan accounting to be the accounting areas requiring the most subjective or complex judgments, and as such could be
most subject to revision as new information becomes available. A discussion of the factors affecting accounting for the allowance
for loan losses and purchased loans is included in the “Loan Portfolio Credit Risk” discussion below.
Acquisitions
As described in Note 2, Westamerica Bank (“Bank”) acquired assets and assumed liabilities of the former Sonoma Valley Bank
(“Sonoma”) on August 20, 2010 from the Federal Deposit Insurance Corporation (“FDIC”).
On February 6, 2009, the Bank acquired assets and assumed liabilities of the former County Bank (“County”) from the FDIC. The
Bank acquired approximately $1.62 billion assets and assumed approximately $1.58 billion liabilities. The Bank and the FDIC
entered loss sharing agreements regarding future losses incurred on acquired loans and foreclosed loan collateral. Under the terms
of the loss sharing agreements, the FDIC absorbs 80 percent of losses and is entitled to 80 percent of loss recoveries on the first
$269 million of losses, and absorbs 95 percent of losses and is entitled to 95 percent of loss recoveries on losses exceeding $269
million. The loss sharing agreement on residential real estate loans expires February 6, 2019 and the loss-sharing agreement on
non-residential real estate loans expires February 6, 2014 as to losses and February 6, 2017 as to loss recoveries.
In both acquisitions, the acquired assets and assumed liabilities were measured at estimated fair values, as required by FASB ASC
805, Business Combinations. Management made significant estimates and exercised significant judgment in accounting for the
acquisition. Management judgmentally measured loan fair values based on loan file reviews (including borrower financial
statements and tax returns), appraised collateral values, expected cash flows, and historical loss factors. Repossessed loan
collateral was primarily valued based upon appraised collateral values. The Bank also recorded identifiable intangible assets
representing the value of the core deposit customer bases based on an evaluation of the cost of such deposits relative to alternative
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funding sources. In determining the value of the identifiable intangible asset, Management used significant estimates including
average lives of depository accounts, future interest rate levels, the cost of servicing various depository products, future FDIC
insurance assessments, and other significant estimates. Management used quoted market prices to determine the fair value of
investment securities, FHLB advances and other borrowings.
Net Income
For 2011, the Company reported net income applicable to common equity of $87.9 million or $3.06 diluted earnings per common
share (“EPS”), compared with net income applicable to common equity of $94.6 million or $3.21 EPS, for 2010. The 2011 results
included $2.1 million in litigation settlement accruals which decreased net income by $1.2 million and expenses related to the
integration of the former Sonoma Valley Bank (“Sonoma”) of $393 thousand after tax, equivalent to $0.06 diluted earnings per
common share. The 2010 results included a $178 thousand gain on the acquisition of Sonoma Valley Bank.
Components of Net Income
Year ended December 31,
(Dollars in thousands except per share amounts)
Net interest and fee income *...............................................................................
Provision for loan losses ......................................................................................
Noninterest income ..............................................................................................
Noninterest expense .............................................................................................
Income before income taxes *..............................................................................
Taxes *.................................................................................................................
Net income .......................................................................................................
Preferred dividends and discount accretion..........................................................
Net income applicable to common equity ........................................................
Net income applicable to common equity per average fully-diluted common
2011
$218,867
(11,200)
60,097
(127,678)
140,086
(52,198)
87,888
––
$87,888
2010
$226,683
(11,200)
61,454
(127,147)
149,790
(55,213)
94,577
––
$94,577
2009
$242,218
(10,500)
112,011
(140,776)
202,953
(77,527)
125,426
(3,963)
$121,463
share ...................................................................................................................
$3.06
$3.21
$4.14
Net income applicable to common equity as a percentage of average
shareholders’ equity ...........................................................................................
16.14%
18.11%
25.84%
Net income applicable to common equity as a percentage of average total
assets ..................................................................................................................
1.78%
1.95%
2.39%
*
Fully taxable equivalent (FTE)
Comparing 2011 to 2010, net income applicable to common equity decreased $6.7 million or 7.1%, due to lower net interest
income (FTE), lower noninterest income and higher noninterest expense, partially offset by a decrease in the income tax provision
(FTE). The lower net interest income (FTE) was mainly caused by a lower average volume of loans and lower yields on interest
earning assets, partially offset by higher average balances of investments and lower rates paid on interest-bearing liabilities. The
provision for loan losses was unchanged, reflecting Management's evaluation of losses inherent in the loan portfolio not covered
by loss-sharing agreements with the FDIC and purchased loan credit-default discounts. Noninterest income decreased $1.4
million largely due to lower service charges on deposit accounts. Noninterest expense increased $531 thousand mostly due to the
$2.1 million settlement accrual, offset by lower personnel costs and deposit insurance assessments.
Comparing 2010 to 2009, net income applicable to common equity decreased $26.9 million, primarily due to a $48.8 million gain
on acquisition in 2009, lower net interest income (FTE) and higher provision for loan losses, partially offset by decreases in
noninterest expense and income tax provision (FTE) and the elimination of preferred stock dividends and discount accretion. The
lower net interest income (FTE) was primarily caused by a lower volume of average interest earning assets, lower yields on
investments and higher rates paid on borrowings, partially offset by higher yields on loans, lower average balances of interest-
bearing liabilities and lower rates paid on interest-bearing deposits. The provision for loan losses increased $700 thousand,
reflecting Management's assessment of losses inherent in the loan portfolio not covered by loss-sharing agreements with the FDIC
and purchased loan credit-default discounts. Noninterest income decreased $50.6 million largely due to a $48.8 million
acquisition gain in 2009. Noninterest expense declined $13.6 million primarily due to decreases in personnel, occupancy and
equipment expenses reflecting the integration of the acquired County operations and lower FDIC insurance assessments. The
income tax provision (FTE) decreased $22.3 million. Net income applicable to common equity in 2009 reflected $4.0 million in
preferred stock dividends and discount accretion.
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Net Interest and Fee Income
The Company's primary source of revenue is net interest income, or the difference between interest income earned on loans and
investment securities and interest expense paid on interest-bearing deposits and other borrowings. Net interest and fee income
(FTE) in 2011 decreased $7.8 million or 3.4% from 2010, to $218.9 million. Comparing 2010 to 2009, net interest and fee income
(FTE) decreased $15.5 million or 6.4% to $226.7 million.
Components of Net Interest and Fee Income
Year ended December 31,
(Dollars in thousands)
Interest and fee income ...................................................................................................
Interest expense...............................................................................................................
FTE adjustment ...............................................................................................................
Net interest and fee income (FTE) ..............................................................................
Net interest margin (FTE) ...............................................................................................
2011
$207,979
(8,382)
19,270
$218,867
2010
$221,155
(12,840)
18,368
$226,683
2009
$241,949
(19,380)
19,649
$242,218
5.32%
5.54%
5.42%
Comparing 2011 with 2010, net interest and fee income (FTE) decreased $7.8 million or 3.4%, primarily due to a lower average
volume of loans (down $217 million) and lower yields on interest earning assets (down 0.33%), partially offset by higher average
balances of investments ($236 million) and lower rates paid on interest-bearing liabilities (down 0.16%).
Yields on interest-earning assets have declined due to relatively low interest rates prevailing in the market. Economic conditions,
competitive pricing and deleveraging by businesses and individuals have reduced loan volumes, placing greater reliance on lower-
yielding investment securities. Rates on interest-bearing deposits and borrowings have declined to offset some of the decline in
asset yields.
In Management's judgment, economic conditions and competitive pricing create a cautious view toward commercial lending, and
economic pressure on consumers has reduced demand for automobile and other consumer loans. As a result, the Company has not
taken an aggressive posture relative to loan portfolio growth.
At December 31, 2011, purchased FDIC covered loans represented 21 percent of the Company’s loan portfolio. Under the terms
of the FDIC loss-sharing agreements, the FDIC is obligated to reimburse the Bank 80 percent of loan interest income foregone on
covered loans. Such reimbursements are limited to the lesser of 90 days contractual interest or actual unpaid contractual interest at
the time a principal loss is recognized in respect to the underlying loan.
In 2011, interest and fee income (FTE) was down $12.3 million or 5.1% from 2010. The decrease resulted from a lower average
volume of loans and lower yields on interest earning assets, partially offset by higher average balances of investments. A lower
average balance of the loan portfolio was mostly attributable to decreases in average balances of taxable commercial loans (down
$99 million), commercial real estate loans (down $46 million), residential real estate loans (down $45 million), tax-exempt
commercial loans (down $19 million) and construction loans (down $11 million). The average investment portfolio increased
mostly due to higher average balances of municipal securities (up $91 million), U.S. government sponsored entity obligations (up
$80 million), and corporate securities (up $61 million).
The average yield on earning assets for 2011 was 5.52% compared with 5.85% in 2010. The loan portfolio yield for 2011
decreased 0.14% compared with 2010 primarily due to lower yields on consumer loans (down 0.58%), residential real estate loans
(down 0.43%), tax-exempt commercial loans (down 0.15%) and commercial real estate loans (down 0.04%), partially offset by
increases in yields on construction loans (up 2.12%) and taxable commercial loans (up 0.06%). The higher yield on construction
loans in 2011 was attributable to higher interest receipts on construction loans on nonaccrual status. The investment portfolio
yield declined from 5.13% in 2010 to 4.60% in 2011 mainly due to decreases in yields on collateralized mortgage obligations
(down 1.23%), residential mortgage-backed securities (down 0.23%) and municipal securities (down 0.20%), partially offset by a
0.39% increase in yields on corporate securities which contain floating interest rate structures.
Comparing 2011 with 2010, interest expense declined $4.5 million or 34.7%, due to lower rates paid on interest-bearing liabilities
and a shift from higher costing term repurchase agreements, time deposits less than $100 thousand to low-cost checking and
savings accounts. Higher average balances of preferred money market savings (up $48 million), money market savings (up $43
million), money market checking accounts (up $31 million), regular savings (up $27 million) and Federal Home Loan Bank
advances (up $7 million) were partially offset by lower average balances of short-term borrowed funds (down $94 million), time
deposits less than $100 thousand (down $45 million), time deposits $100 thousand or more (down $15 million) and long-term
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debt (down $4 million). Lower average balances of short-term borrowed funds were attributable to repayment of the $100 million
term repurchase agreement in December of 2010. Lower average balances of long-term debt were attributable to the redemption
of a $10 million subordinated note.
Rates paid on interest-bearing liabilities averaged 0.29% in 2011 compared with 0.45% in 2010 mainly due to lower rates on time
deposits over $100 thousand (down 0.19%), money market savings (down 0.15%), preferred money market savings (down
0.27%), short-term borrowed funds (down 0.74%), and debt financing and notes payable (down 2.78%), partially offset by a
0.18% increase in rates on time deposits less than $100 thousand. Rates on short-term borrowed funds decreased as the Company
repaid the $100 million term repurchase agreement in December of 2010. Rates on debt financing payable declined due to
adjustments to the premium amortization on a $10 million subordinated note, which the Company redeemed in August 2011.
In 2010, net interest income (FTE) decreased from 2009 primarily due to a lower volume of average interest earning assets (down
$378 million) and lower yields on investments (down 0.29%), partially offset by higher yields on loans (up 0.12%), lower average
balances of interest-bearing liabilities (down $287 million) and lower rates paid on interest-bearing deposits (down 0.2%).
Comparing 2010 with 2009, interest and fee income (FTE) was down $22.1 million or 8.4%. The decrease resulted from a lower
volume of average interest earning assets and lower yields on investment securities, partially offset by higher yields on loans.
Average interest earning assets decreased $378 million or 8.5% in 2010 compared with 2009 due to a $273 million decrease in
average loans and a $105 million decrease in average investments. The decrease in the average balance of the loan portfolio was
attributable to decreases in average balances of taxable commercial loans (down $92 million), residential real estate loans (down
$75 million), indirect automobile loans (down $50 million), commercial real estate loans (down $38 million), tax-exempt
commercial loans (down $20 million) and construction loans (down $11 million). The average investment portfolio decreased
$105 million largely due to declines in average balances of residential collateralized mortgage obligations (down $87 million),
residential mortgage backed securities (down $41 million) and municipal securities (down $31 million), partially offset by
increases in average balances of $34 million of corporate securities and $20 million of U.S. government sponsored entity
obligations.
The average yield on interest earning assets in 2010 was 5.85%, unchanged from 2009. The loan portfolio yield in 2010 compared
with 2009 period was higher by 0.12%, due to increases in yields on taxable commercial loans (up 0.58%) and construction loans
(up 1.36%), partially offset by a 0.35% decrease in yields on residential real estate loans. The investment portfolio yield decreased
from 5.42% in 2009 to 5.13% in 2010 as maturities and paydowns on higher yielding portfolio securities were replaced with
securities bearing lower yields. Yields on U.S. government sponsored entity obligations decreased 2.7%. Yields on municipal
securities and U.S. Treasuries declined 0.08% and 2.24%, respectively.
Comparing 2010 with 2009, interest expense declined $6.5 million or 33.7%, primarily due to lower average balances of interest-
bearing liabilities and lower rates on interest-bearing deposits. The Company’s average checking and savings deposits represented
77% of total deposits in 2010 compared with 74% in 2009. As a result, the Company’s reliance on higher-costing time deposits
was reduced. Average interest-bearing liabilities in 2010 fell by $287 million from 2009 mainly due to decreases in average
balances of federal funds purchased (down $108 million), FHLB advances (down $45 million), time deposits less than $100
thousand (down $100 million), time deposits $100 thousand or more (down $57 million) and money market checking accounts
(down $14 million), partially offset by increases in the average balance of money market savings (up $24 million) and regular
savings (up $16 million). Rates paid on interest-bearing liabilities averaged 0.45% in 2010 compared with 0.62% in 2009. The
average rate paid on interest-bearing deposits declined 0.2% to 0.34% in 2010 compared with 2009 mainly due to lower rates on
time deposits less than $100 thousand (down 0.49%), time deposits $100 thousand or more (down 0.26%), preferred money
market savings (down 0.16%) and regular savings (down 0.08%).
23
The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the
amounts of interest income earned from average interest earning assets and the resulting yields, and the amount of interest
expense paid on average interest-bearing liabilities and the resulting rates paid. Average loan balances include nonperforming
loans. Interest income includes proceeds from loans on nonaccrual status only to the extent cash payments have been received and
applied as interest income. Yields on tax-exempt securities and loans have been adjusted upward to reflect the effect of income
exempt from federal income taxation at the current statutory tax rate.
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
(Dollars in thousands)
Assets
Money market assets and funds sold .....................................................................................
Investment securities:
Available for sale
Year Ended December 31, 2011
Average
Balance
Interest
Income/
Expense
Rates
Earned/
Paid
$430
$–– ––%
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
445,527
258,867
11,166
15,989
2.51%
6.18%
Held to maturity
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
188,751
483,255
6,238
29,878
3.30%
6.18%
Loans:
Commercial
2
0
1
1
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
O
N
I
F
O
R
M
1
0
-
K
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
Commercial real estate.......................................................................................................
Real estate construction .....................................................................................................
Real estate residential ........................................................................................................
Consumer...........................................................................................................................
Total Loans (1) ......................................................................................................................
Interest earning assets (1) ......................................................................................................
Other assets............................................................................................................................
837,379
Total assets..................................................................................................................... $4,950,754
437,581
148,144
1,199,390
57,529
312,615
581,286
28,087
9,494
78,179
4,331
12,340
31,547
2,736,545 163,978
4,113,375 227,249
6.42%
6.41%
6.52%
7.53%
3.95%
5.43%
5.99%
5.52%
Liabilities and shareholders’ equity
Deposits:
Noninterest bearing demand .............................................................................................. $1,496,362
1,826,118
Savings and interest-bearing transaction............................................................................
313,548
Time less than $100,000 ....................................................................................................
535,866
Time $100,000 or more......................................................................................................
2,675,532
Total interest-bearing deposits .......................................................................................
105,157
Short-term borrowed funds....................................................................................................
41,741
Federal Home Loan Bank advances ......................................................................................
3,945
Term repurchase agreement...................................................................................................
22,066
Debt financing and notes payable ..........................................................................................
2,848,441
Total interest-bearing liabilities .........................................................................................
61,493
Other liabilities ......................................................................................................................
544,458
Shareholders’ equity ..............................................................................................................
Total liabilities and shareholders’ equity ........................................................................... $4,950,754
––
2,419
2,090
2,296
6,805
216
520
39
802
8,382
––
0.13%
0.67%
0.43%
0.25%
0.21%
1.25%
0.98%
3.63%
0.29%
Net interest spread (2)............................................................................................................
Net interest income and interest margin (1)(3) ......................................................................
____________
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on interest earning assets less the average rate paid on interest-bearing
5.23%
5.32%
$218,867
liabilities.
(3) Net interest margin is computed by dividing net interest income by total average interest earning assets.
24
K
-
0
1
M
R
O
F
I
N
O
T
A
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P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
1
1
0
2
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
(Dollars in thousands)
Assets
Money market assets and funds sold .....................................................................................
Investment securities:
Available for sale
Year Ended December 31, 2010
Average
Balance
Interest
Income/
Expense
Rates
Earned/
Paid
$1,820
$2
0.11%
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
299,730
183,484
8,806
11,982
2.94%
6.53%
Held to maturity
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
175,475
479,969
7,641
30,075
4.35%
6.27%
Loans:
Commercial
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
Commercial real estate.......................................................................................................
Real estate construction .....................................................................................................
Real estate residential ........................................................................................................
Consumer...........................................................................................................................
Total Loans (1) ......................................................................................................................
Interest earning assets (1) ......................................................................................................
Other assets............................................................................................................................
758,969
Total assets..................................................................................................................... $4,853,480
536,530
166,702
1,245,369
68,602
357,398
579,432
34,140
10,941
81,755
3,711
15,668
34,802
2,954,033 181,017
4,094,511 239,523
6.36%
6.56%
6.56%
5.41%
4.38%
6.01%
6.13%
5.85%
Liabilities and shareholders’ equity
Deposits:
Noninterest bearing demand .............................................................................................. $1,412,702
1,676,882
Savings and interest-bearing transaction............................................................................
358,096
Time less than $100,000 ....................................................................................................
550,810
Time $100,000 or more......................................................................................................
2,585,788
Total interest-bearing deposits .......................................................................................
107,821
Short-term borrowed funds....................................................................................................
34,378
Federal Home Loan Bank advances ......................................................................................
94,842
Term repurchase agreement...................................................................................................
26,433
Debt financing and notes payable ..........................................................................................
2,849,262
Total interest-bearing liabilities .........................................................................................
69,333
Other liabilities ......................................................................................................................
522,183
Shareholders’ equity ..............................................................................................................
Total liabilities and shareholders’ equity ........................................................................... $4,853,480
––
3,543
1,769
3,406
8,718
463
437
1,528
1,694
12,840
––
0.21%
0.49%
0.62%
0.34%
0.43%
1.25%
1.61%
6.41%
0.45%
Net interest spread (2)............................................................................................................
Net interest income and interest margin (1)(3) ......................................................................
____________
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on interest earning assets less the average rate paid on interest-bearing
5.40%
5.54%
$226,683
liabilities.
(3) Net interest margin is computed by dividing net interest income by total average interest earning assets.
25
2
0
1
1
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
O
N
I
F
O
R
M
1
0
-
K
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
(Dollars in thousands)
Assets
Money market assets and funds sold .....................................................................................
Investment securities:
Available for sale
Year Ended December 31, 2009
Average
Balance
Interest
Income/
Expense
Rates
Earned/
Paid
$841
$3
0.36%
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
240,829
166,669
9,002
11,217
3.74%
6.73%
Held to maturity
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
307,763
529,597
13,971
33,334
4.54%
6.29%
Loans:
Commercial
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
Commercial real estate.......................................................................................................
Real estate construction .....................................................................................................
Real estate residential ........................................................................................................
Consumer...........................................................................................................................
Total Loans (1) ......................................................................................................................
Interest earning assets (1) ......................................................................................................
Other assets............................................................................................................................
613,977
Total assets..................................................................................................................... $5,086,637
629,027
186,295
1,283,114
79,425
431,931
617,169
36,360
12,362
84,473
3,213
20,640
37,023
3,226,961 194,071
4,472,660 261,598
5.78%
6.64%
6.58%
4.05%
4.73%
6.00%
6.01%
5.85%
Liabilities and shareholders’ equity
Deposits:
Noninterest bearing demand .............................................................................................. $1,354,534
1,648,095
Savings and interest-bearing transaction............................................................................
458,117
Time less than $100,000 ....................................................................................................
607,642
Time $100,000 or more......................................................................................................
2,713,854
Total interest-bearing deposits .......................................................................................
225,962
Short-term borrowed funds....................................................................................................
79,417
Federal Home Loan Bank advances ......................................................................................
90,344
Term repurchase agreement...................................................................................................
26,567
Debt financing and notes payable ..........................................................................................
3,136,144
Total interest-bearing liabilities .........................................................................................
71,635
Other liabilities ......................................................................................................................
524,324
Shareholders’ equity ..............................................................................................................
Total liabilities and shareholders’ equity ........................................................................... $5,086,637
––
4,677
4,506
5,366
14,549
751
1,010
1,381
1,689
19,380
––
0.28%
0.98%
0.88%
0.54%
0.33%
1.25%
1.53%
6.36%
0.62%
Net interest spread (2)............................................................................................................
Net interest income and interest margin (1)(3) ......................................................................
____________
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on interest earning assets less the average rate paid on interest-bearing
5.23%
5.42%
$242,218
liabilities.
(3) Net interest margin is computed by dividing net interest income by total average interest earning assets.
26
K
-
0
1
M
R
O
F
I
N
O
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
1
1
0
2
The following tables set forth a summary of the changes in interest income and interest expense due to changes in average assets
and liability balances (volume) and changes in average interest rates for the periods indicated. Changes not solely attributable to
volume or rates have been allocated in proportion to the respective volume and rate components.
Summary of Changes in Interest Income and Expense
Years Ended December 31,
(In thousands)
(Decrease) increase in interest and fee income:
2011 Compared with 2010
Volume
Rate
Total
Money market assets and funds sold.............................................................................
Investment securities:
($1)
($1)
($2)
Available for sale Taxable.....................................................................................
Tax- exempt (1).................................................................................................
Held to maturity Taxable ......................................................................................
Tax- exempt (1).................................................................................................
3,800
4,687
545
205
Loans:
Commercial:
Taxable..............................................................................................................
Tax- exempt (1).................................................................................................
Commercial real estate..........................................................................................
Real estate construction.........................................................................................
Real estate residential............................................................................................
Consumer ..............................................................................................................
(6,349)
(1,194)
(3,000)
(667)
(1,854)
111
Total loans (1) ................................................................................................... (12,953)
(3,717)
Total decrease in interest and fee income (1) ...................................................................
Increase (decrease) in interest expense:
Deposits:
(1,440)
(680)
(1,948)
(402)
296
(253)
(576)
1,287
(1,474)
(3,366)
(4,086)
(8,557)
Savings/ interest-bearing.......................................................................................
Time less than $100,000 .......................................................................................
Time $100,000 or more ........................................................................................
Total interest-bearing....................................................................................................
Short-term borrowed funds ...........................................................................................
Federal Home Loan Bank advances..............................................................................
Term repurchase agreement..........................................................................................
Notes and mortgages payable .......................................................................................
Total decrease in interest expense .........................................................................
Decrease in net interest income (1)...........................................................................
293
(240)
(90)
(37)
(11)
92
(1,061)
(246)
(1,263)
($2,454)
(1,417)
561
(1,020)
(1,876)
(236)
(9)
(428)
(646)
(3,195)
($5,362)
____________
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
2,360
4,007
(1,403)
(197)
(6,053)
(1,447)
(3,576)
620
(3,328)
(3,255)
(17,039)
(12,274)
(1,124)
321
(1,110)
(1,913)
(247)
83
(1,489)
(892)
(4,458)
($7,816)
27
2
0
1
1
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
O
N
I
F
O
R
M
1
0
-
K
Summary of Changes in Interest Income and Expense
Years Ended December 31,
(In thousands)
Increase (decrease) in interest and fee income:
2010 Compared with 2009
Volume
Rate
Total
Money market assets and funds sold.............................................................................
Investment securities:
$2
($3)
($1)
Available for sale Taxable.....................................................................................
Tax- exempt (1).................................................................................................
Held to maturity Taxable ......................................................................................
Tax- exempt (1).................................................................................................
1,950
1,106
(5,782)
(3,110)
Loans:
Commercial:
Taxable..............................................................................................................
Tax- exempt (1).................................................................................................
Commercial real estate..........................................................................................
Real estate construction.........................................................................................
Real estate residential............................................................................................
Consumer ..............................................................................................................
(5,666)
(1,287)
(2,478)
(480)
(3,363)
(2,267)
Total loans (1) ................................................................................................... (15,541)
Total decrease in interest and fee income (1) ................................................................... (21,375)
Increase (decrease) in interest expense:
Deposits:
Savings/ interest-bearing.......................................................................................
Time less than $100,000 .......................................................................................
Time $100,000 or more ........................................................................................
Total interest-bearing....................................................................................................
Short-term borrowed funds ...........................................................................................
Federal Home Loan Bank advances..............................................................................
Term repurchase agreement..........................................................................................
Notes and mortgages payable .......................................................................................
Total decrease in interest expense .........................................................................
(1,220)
(466)
(573)
71
(9)
(2,197)
(Decrease) increase in net interest income (1) .......................................................... ($19,178)
80
(834)
(466)
(2,146)
(341)
(548)
(149)
3,446
(134)
(240)
978
(1,609)
46
2,487
(700)
(1,214)
(1,903)
(1,494)
(4,611)
178
––
76
14
(4,343)
$3,643
(196)
765
(6,330)
(3,259)
(2,220)
(1,421)
(2,718)
498
(4,972)
(2,221)
(13,054)
(22,075)
(1,134)
(2,737)
(1,960)
(5,831)
(288)
(573)
147
5
(6,540)
($15,535)
____________
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
Provision for Loan Losses
The Company manages credit costs by consistently enforcing conservative underwriting and administration procedures and
aggressively pursuing collection efforts with debtors experiencing financial difficulties.
The Company recorded purchased County and Sonoma loans at estimated fair value upon the acquisition dates of February 6,
2009 and August 20, 2010, respectively. Such fair values were recognized for individual loans, although small balance
homogenous loans were pooled for valuation purposes. The valuation discounts recorded for purchased loans included
Management’s assessment of the risk of principal loss under economic and borrower conditions prevailing on the date of
purchase. Any deterioration in such conditions or reassessment by Management could require additional loss recognition through
a provision for loan losses. The purchased County loans are “covered” by loss-sharing agreements the Company entered with the
FDIC which mitigates any additional losses during the term of the agreements.
In Management’s judgment, the overall borrower and economic conditions have been relatively stable for the purchased County
loans. However, a provision for loan losses of $987 thousand, net of FDIC indemnification, was recorded for County loans in
2011. Management believes the overall borrower and economic conditions have been relatively stable for the purchased Sonoma
loans; no provision for loan losses was recorded for Sonoma loans in 2011. Management regularly evaluates the acquisition date
fair value discounts and, in its judgment, believes the fair value discounts remaining at December 31, 2011 represent appropriate
loss estimates inherent in the purchased loans. However, no assurance can be given that future provisions for loan losses related to
purchased loans will not be necessary.
In 2011, the provision for loan losses was $11.2 million, compared to $11.2 million for 2010 and $10.5 million for 2009. The
provision reflects Management's assessment of credit risk in the loan portfolio for each of the periods presented. For further
28
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R
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1
1
0
2
information regarding credit risk, the FDIC loss-sharing agreements, net credit losses and the allowance for loan losses, see the
“Loan Portfolio Credit Risk” and “Allowance for Credit Losses” sections of this report.
Noninterest Income
Components of Noninterest Income
Years Ended December 31,
(In thousands)
2011
Service charges on deposit accounts................................................................................ $29,523
9,436
Merchant processing services..........................................................................................
4,956
Debit card fees.................................................................................................................
3,815
ATM processing fees.......................................................................................................
2,827
Other service charges ......................................................................................................
1,887
Trust fees .........................................................................................................................
844
Check sale income...........................................................................................................
695
Safe deposit rental ...........................................................................................................
423
Financial services commissions.......................................................................................
—
Gain on acquisition..........................................................................................................
5,691
Other noninterest income ................................................................................................
Total............................................................................................................................. $60,097
2010
$33,517
9,057
4,888
3,848
2,768
1,705
893
678
747
178
3,175
$61,454
2009
$36,392
9,068
4,875
3,693
2,200
1,429
887
697
583
48,844
3,343
$ 112,011
In 2011, noninterest income decreased $1.4 million or 2.2% compared with 2010. Service charges on deposits decreased $4.0
million due to declines in fees charged on overdrawn accounts and insufficient funds (down $3.3 million) and deficit fees charged
on analyzed accounts (down $580 thousand). Financial services commissions decreased $324 thousand due to lower sales of
mutual funds and annuities. Merchant processing services income increased $379 thousand mainly due to higher transaction
volumes. Trust fees increased $182 thousand due to increased accounts.
In 2010 noninterest income decreased $50.6 million compared with 2009 primarily due to the $48.8 million gain on acquisition of
County in 2009. Service charges on deposits decreased $2.9 million or 7.9% due to declines in fees charged on overdrawn and
insufficient accounts (down $2.4 million) and deficit fees charged on analyzed accounts (down $839 thousand), partially offset by
service fees charged on checking accounts (up $373 thousand). New regulations over overdraft fees were adopted July 1, 2010
and limited the Bank’s ability to assess overdraft fees. Other categories of fees partially offset the decline in noninterest income.
Other service fees increased $568 thousand or 25.8% mainly due to increases in check cashing fees, internet banking fees and
foreign currency commissions. Trust fees increased $276 thousand or 19.3% mostly due to new trust assets. Financial service
commissions increased $164 thousand or 28.1%. ATM fees and interchange income was higher by $155 thousand or 4.2% due to
increased transaction volumes.
29
2
0
1
1
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
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O
N
I
F
O
R
M
1
0
-
K
Noninterest Expense
Components of Noninterest Expense
Years Ended December 31,
(Dollars in thousands)
2011
Salaries and related benefits............................................................................................. $58,501
16,209
Occupancy .......................................................................................................................
8,844
Outsourced data processing services................................................................................
5,975
Amortization of intangible assets.....................................................................................
4,802
Professional fees ..............................................................................................................
3,837
Equipment........................................................................................................................
3,440
Deposit insurance assessments.........................................................................................
3,342
Courier service .................................................................................................................
2,458
Other Real Estate Owned.................................................................................................
2,104
Loan expenses..................................................................................................................
2,100
Settlements.......................................................................................................................
1,705
Telephone.........................................................................................................................
1,467
Postage .............................................................................................................................
1,259
Stationery and supplies ....................................................................................................
1,051
Operational losses ............................................................................................................
704
Advertising and public relations ......................................................................................
9,880
Other ................................................................................................................................
Total ............................................................................................................................. $127,678
2010
$61,748
15,633
8,957
6,333
3,376
4,325
5,168
3,495
895
1,639
43
1,590
1,540
1,285
828
880
9,412
$127,147
2009
$65,391
18,748
9,000
6,697
3,583
5,859
6,260
3,808
616
2,031
158
1,977
2,110
1,555
953
995
11,035
$140,776
Noninterest expense increased $531 thousand or 0.4% in 2011 compared with 2010. The 2011 results included $2.1 million in
litigation settlement accruals and $679 thousand related to pre-integration costs for the acquired Sonoma, primarily outsourced
data processing and personnel costs. Sonoma operations were fully integrated in February 2011. Expenses related to other real
estate owned were $1.6 million higher in 2011 due to recognition of declines in value and payment of delinquent property taxes
on real estate repossessed during the period. Professional fees increased $1.4 million due to higher legal fees. Occupancy expense
increased $576 thousand primarily due to increased rental of bank premises. Loan expense increased $465 thousand primarily due
to increases in foreclosure expense, appraisal fees and waived fees on foreclosed loans. Operational losses increased $223
thousand due to increased fraudulent deposit account and debit card activity and branch robberies. Salaries and related benefits
decreased $3.2 million primarily due to a reduction in regular salaries, decreases in incentives, bonuses and other benefits,
partially offset by higher group health insurance costs. Deposit insurance assessments declined $1.7 million due to new
assessment rules effective April 1, 2011. Equipment expense declined $488 thousand primarily due to lower depreciation and
repairs and maintenance expenses. Amortization of identifiable intangible assets declined $358 thousand as intangible assets are
amortized on a declining balance method. Advertising and public relations expense decreased $176 thousand.
In 2010 noninterest expense decreased $13.6 million or 9.7% compared with 2009 primarily due to lower personnel, occupancy
and equipment expenses resulting from the systems integrations and branch consolidations following the County acquisition and
lower FDIC insurance assessments. Salaries and related benefits decreased $3.6 million or 5.6% primarily due to a reduction in
salaries, incentives and workers compensation expense, partially offset by higher payroll taxes and group health insurance costs,
annual merit increases and higher stock based compensation. Occupancy and equipment expenses decreased $3.1 million or
16.6% and $1.5 million or 26.2%, respectively, mainly due to branch and administrative office consolidations. FDIC insurance
assessments decreased $1.1 million or 17.4% mostly due to a non-routine assessment charged in 2009. Amortization of
intangibles declined $364 thousand or 5.4% as intangible assets are amortized on a declining balance method. Loan expense
decreased $392 thousand or 19.3% generally because 2009 included servicing fees on factoring receivables acquired from
County; such factoring receivables were fully liquidated in April 2009. Offsetting the decline were higher credit report expenses.
Telephone expense declined $387 thousand or 19.6% mainly due to branch and administrative office consolidations. Professional
fees declined $207 thousand or 5.8% mainly because 2009 included County related accounting and consulting fees. Postage also
decreased $570 thousand or 27.0% primarily because 2009 included County related expense. Other categories which decreased
from 2009 were courier service expense (down $313 thousand or 8.2%), stationery and supplies expense (down $270 thousand or
17.4%), operational losses (down $125 thousand or 13.1%) and advertising/public relations expense (down $115 thousand or
11.6%). Offsetting the decreases in noninterest expense was OREO expense which increased $279 thousand or 45.3% mostly due
to additional writedowns of foreclosed assets and higher levels of expenses due to higher volumes of foreclosed loan collateral.
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Provision for Income Tax
In 2011, the Company recorded income tax provision (FTE) of $52.2 million compared with $55.2 million for 2010. The 2011
provision represents an effective tax rate (FTE) of 37.3%, compared with 36.9% for 2010.
The income tax provision (FTE) was $55.2 million in 2010 compared with $77.5 million in 2009. The 2010 effective tax rate
(FTE) was 36.9% compared to 38.2% in 2009. The lower effective tax rate (FTE) in 2010 is primarily attributable to tax-exempt
interest income representing a higher proportion of pre-tax income and increased limited partnership tax credits.
Investment Portfolio
The Company maintains a securities portfolio consisting of securities issued by U.S. Government sponsored entities, state and
political subdivisions, corporations and asset-backed and other securities. Investment securities are held in safekeeping by an
independent custodian.
Investment securities assigned to the available for sale portfolio are generally used to supplement the Company's liquidity,
provide a prudent yield, and provide collateral for public deposits and other borrowing facilities. Unrealized net gains and losses
on available for sale securities are recorded as an adjustment to equity, net of taxes, but are not reflected in the current earnings of
the Company. If Management determines depreciation in any available for sale security is “other than temporary,” a securities
loss will be recognized as a charge to earnings. If a security is sold, any gain or loss is reflected in current earnings and the equity
adjustment is reversed. At December 31, 2011, the Company held $638.8 million in securities classified as investments available
for sale with a duration of 4.6 years. At December 31, 2011, an unrealized gain, net of taxes, of $11.6 million related to these
securities was included in shareholders' equity.
Securities assigned to the held to maturity portfolio earn a prudent yield, provide liquidity from maturities and paydowns, and
provide collateral to pledge for federal, state and local government deposits and other borrowing facilities. At December 31, 2011,
the held to maturity investment portfolio had a duration of 3.5 years and included $892.5 million in fixed-rate and $30.3 million
in adjustable-rate securities. If Management determines depreciation in any held to maturity security is “other than temporary,” a
securities loss will be recognized as a charge to earnings. The Company had no trading securities at December 31, 2011. For more
information on investment securities, see the notes accompanying the consolidated financial statements.
The following table shows the fair value carrying amount of the Company’s investment securities available for sale as of the dates
indicated:
Available for Sale Portfolio
2011
$3,596
At December 31,
2009
2010
(In thousands)
$2,987
U.S. Treasury securities .............................................................
$3,542
21,041
Securities of U.S. Government sponsored entities ..................... 117,472 172,877
90,408 109,829 146,005
Residential mortgage backed securities .....................................
––
Commercial mortgage backed securities....................................
Obligations of States and political subdivisions......................... 246,093 261,133 158,193
51,164
41,410
Residential collateralized mortgage obligations.........................
8,339
7,306
Asset-backed securities ..............................................................
1,573
FHLMC and FNMA stock .........................................................
1,847
––
Corporate securities.................................................................... 112,199
4,660
4,138
Other securities ..........................................................................
Total ....................................................................................... $638,753 $671,484 $384,208
25,603
8,286
655
79,191
5,303
5,065
4,530
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The following table sets forth the relative maturities and contractual yields of the Company’s available for sale securities (stated
at fair value) at December 31, 2011. Yields on state and political subdivision securities have been calculated on a fully taxable
equivalent basis using the current federal statutory rate. Mortgage-backed securities are shown separately because they are
typically paid in monthly installments over a number of years.
Available for Sale Maturity Distribution
Within
At December 31, 2011
(Dollars in thousands)
one year
U.S. Treasury securities ................ $––
After one
but within
five years
$3,596
After five
but within
ten years
$––
Interest rate........................ ––% 1.03%
––%
After ten
years
$––
––%
Mortgage-
backed
$––
––%
Other
$––
––%
Total
$3,596
1.03%
U.S. Government sponsored
entities.........................................
Interest rate........................
States and political subdivisions ...
Interest rate (FTE) .............
10,292
99,253
0.68%
1.63%
14,160
45,413
7,927
2.13%
52,991
––
––
133,529
Asset-backed securities.................. ––
Interest rate........................ ––
13,516
Corporate securities ......................
Interest rate........................
Subtotal .....................................
Interest rate........................
6.03%
6.18%
––
––
98,683
0.82% 2.27%
37,968
246,945
2.73%
2.71%
5.98%
––
––
––
––
60,918
5.48%
6.10%
7,306
0.65%
––
––
140,835
5.82%
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
Mortgage backed securities and
residential collateralized
mortgage obligations...................
Interest rate........................
Other without set maturities..........
Interest rate........................
––
––
––
––
Total ...................................... $37,968
––
––
––
––
$246,945
––
––
––
––
$60,918
––
––
––
––
$ 140,835
146,102
3.89%
––
––
$146,102
––
––
5,985
4.87%
$5,985
117,472
1.58%
246,093
6.08%
7,306
0.65%
112,199
2.10%
486,666
3.96%
146,102
3.89%
5,985
4.87%
$638,753
Interest rate........................
2.73%
2.71%
5.48%
5.82%
3.89%
4.87%
3.95%
The following table shows the carrying amount (amortized cost) and fair value of the Company’s investment securities held to
maturity as of the dates indicated:
Held to Maturity Portfolio
At December 31,
(In thousands)
Residential mortgage backed securities................................
Obligations of States and political subdivisions ...................
Residential collateralized mortgage obligations ...................
Total..................................................................................
Fair value..............................................................................
2011
$54,869
625,390
242,544
$922,803
$947,493
2010
$40,531
455,372
84,825
$580,728
$594,711
2009
$61,893
516,596
148,446
$726,935
$736,270
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The following table sets forth the relative maturities and contractual yields of the Company’s held to maturity securities at
December 31, 2011. Yields on state and political subdivision securities have been calculated on a fully taxable equivalent basis
using the current federal statutory rate. Mortgage-backed securities are shown separately because they are typically paid in
monthly installments over a number of years.
Held to Maturity Maturity Distribution
At December 31, 2011,
Within
(Dollars in thousands)
One year
States and political subdivisions ..... $12,056
Interest rate (FTE) ...............
5.09%
After one
but within
five years
$158,438
After five
but within
ten years
$307,504
After ten
years
$147,392
5.69%
5.88%
5.30%
Mortgage-
backed
$––
––
Mortgage backed securities and
residential collateralized
mortgage obligations ....................
Interest rate..........................
––
––
Total ........................................ $12,056
––
––
$158,438
––
––
$307,504
––
––
$147,392
297,413
2.84%
$297,413
Interest rate..........................
5.09%
5.69%
5.88%
5.30%
2.84%
Loan Portfolio
Total
$625,390
5.61%
297,413
2.84%
$922,803
4.72%
For management purposes, the Company segregates its loan portfolio into three segments. Loans originated by the Company
following its loan underwriting policies and procedures are separated from purchased loans. Former County Bank loans purchased
from the FDIC with loss-sharing agreements are segregated as are former Sonoma Valley Bank loans purchased from the FDIC.
The following table shows the composition of the loan portfolio of the Company by type of loan and type of borrower, on the
dates indicated:
Originated Loan Portfolio Distribution
At December 31,
(In thousands)
Commercial ....................................................................
Commercial real estate....................................................
Real estate construction ..................................................
Real estate residential .....................................................
Consumer........................................................................
Total loans ......................................................................
Purchased Covered Loan Portfolio Distribution
At December 31,
(In thousands)
Commercial ....................................................................
Commercial real estate....................................................
Real estate construction ..................................................
Real estate residential .....................................................
Consumer........................................................................
Total loans ......................................................................
Purchased Non-covered Loan Portfolio Distribution
2011
$398,446
704,655
14,580
271,111
473,815
2007
$532,650
856,581
97,464
484,549
531,732
$1,862,607 $2,029,541 $2,201,088 $2,382,426 $2,502,976
2008
$524,786
817,423
52,664
458,447
529,106
2009
$498,594
801,008
32,156
371,197
498,133
2010
$474,183
757,140
26,145
310,196
461,877
2011
$99,538
331,807
13,876
12,492
77,565
$535,278
2010
$168,985
390,682
28,380
18,374
86,551
$692,972
2009
$253,349
445,440
40,460
18,521
97,531
$855,301
At December 31,
(In thousands)
Commercial ....................................................................
Commercial real estate....................................................
Real estate construction ..................................................
Real estate residential .....................................................
Consumer........................................................................
Total loans ......................................................................
2011
$15,378
78,034
5,981
3,124
23,404
$125,921
2010
$15,420
122,888
21,620
7,055
32,588
$199,571
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The following table shows the maturity distribution and interest rate sensitivity of commercial, commercial real estate, and
construction loans at December 31, 2011. Balances exclude residential real estate loans and consumer loans totaling $861.5
million. These types of loans are typically paid in monthly installments over a number of years.
Loan Maturity Distribution
After
At December 31, 2011
Five Years
(In thousands)
Commercial and commercial real estate * ....................................................... $619,716 $760,411 $247,731
––
Real estate construction....................................................................................
Total ............................................................................................................. $654,153 $760,411 $247,731
Loans with fixed interest rates ......................................................................... $259,229 $248,706 $104,939
Loans with floating or adjustable interest rates................................................ 394,924 511,705 142,792
Total ............................................................................................................. $654,153 $760,411 $247,731
One to
Five Years
Within
One Year
34,437
––
Total
$1,627,858
34,437
$1,662,295
$612,874
1,049,421
$1,662,295
*
Includes demand loans
Commitments and Letters of Credit
The Company issues formal commitments on lines of credit to well-established and financially responsible 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 are generally charged for commitments and letters of credit. Commitments on
lines of credit and letters of credit typically mature within one year. For further information, see the accompanying notes to the
consolidated financial statements.
Loan Portfolio Credit Risk
The risk that loan customers do not repay loans extended by the Bank is the most significant risk to the Company. The Company
closely monitors the markets in which it conducts its lending operations and follows a strategy to control exposure to loans with
high credit risk. The Bank’s organization structure separates the functions of business development and loan underwriting;
Management believes this segregation of duties avoids inherent conflicts of combining business development and loan approval
functions. In measuring and managing credit risk, the Company adheres to the following practices.
(cid:1)
The Bank maintains a Loan Review Department which reports directly to the Board of Directors. The Loan Review
Department performs independent evaluations of loans and assigns credit risk grades to evaluated loans using grading
standards employed by bank regulatory agencies. Those loans judged to carry higher risk attributes are referred to as
“classified loans.” Classified loans receive elevated management attention to maximize collection.
(cid:1)
The Bank maintains two loan administration offices whose sole responsibility is to manage and collect classified loans.
Classified loans with higher levels of credit risk are further designated as “nonaccrual loans.” Management places classified loans
on nonaccrual status when full collection of contractual interest and principal payments is in doubt. Interest previously accrued on
loans placed on nonaccrual status is charged against interest income, net of estimated FDIC reimbursements under loss-sharing
agreements. The Company does not accrue interest income on nonaccrual loans. Interest payments received on nonaccrual loans
are applied to reduce the carrying amount of the loan unless the carrying amount is well secured by loan collateral or covered by
FDIC loss-sharing agreements. “Nonperforming assets” include nonaccrual loans, loans 90 or more days past due and still
accruing, and repossessed loan collateral.
Management believes the overall credit quality of the loan portfolio is reasonably stable; however, classified and nonperforming
assets could fluctuate from period to period. The performance of any individual loan can be affected by external factors such as
the interest rate environment, economic conditions, and collateral values or factors particular to the borrower. No assurance can
be given that additional increases in nonaccrual and delinquent loans will not occur in the future.
On February 6, 2009, the Bank purchased loans and repossessed loan collateral of the former County Bank from the FDIC. This
purchase transaction included loss-sharing agreements with the FDIC wherein the FDIC and the Bank share losses on the
purchased assets. The loss-sharing agreements significantly reduce the credit risk of these purchased assets. In evaluating credit
risk, Management separates the Bank’s total loan portfolio between those loans qualifying under the FDIC loss-sharing
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agreements (referred to as “purchased covered loans”) and loans not qualifying under the FDIC loss-sharing agreements (referred
to as “purchased non-covered loans” and “originated loans”). At December 31, 2011, purchased covered loans totaled $535
million, or 21 percent of total loans, originated loans totaled $1.9 billion, or 74 percent and purchased non-covered loans totaled
$126 million, or 5 percent of total loans.
Purchased covered loans and repossessed loan collateral qualify under loss-sharing agreements with the FDIC. Under the terms of
the loss-sharing agreements, the FDIC absorbs 80 percent of losses and shares in 80 percent of loss recoveries on the first $269
million in losses on purchased covered assets (“First Tier”), and absorbs 95 percent of losses and shares in 95 percent of loss
recoveries if losses on purchased covered assets exceed $269 million (“Second Tier”). The loss-sharing agreement on covered
residential real estate assets expires February 6, 2019 and the loss-sharing agreement on covered non-residential assets expires
February 6, 2014 as to losses and February 6, 2017 as to loss recoveries.
The purchased covered assets are primarily located in the California Central Valley, including Merced County. This geographic
area currently has some of the weakest economic conditions within California and has experienced significant declines in real
estate values. Management expects higher loss rates on purchased covered assets than on originated assets.
The Bank recorded purchased covered assets at estimated fair value on the February 6, 2009 acquisition date. The credit risk
discount ascribed to the $1.2 billion acquired loan and repossessed loan collateral portfolio was $161 million representing
estimated losses inherent in the assets at the acquisition date. The Bank also recorded a related receivable from the FDIC in the
amount of $129 million representing estimated FDIC reimbursements under the loss-sharing agreements.
The maximum risk to future earnings if First Tier losses exceed Management’s estimated $161 million in recognized losses under
the FDIC loss-sharing agreements is estimated to be $12 million as follows (Dollars in thousands):
First Tier Loss Coverage
Less: Recognized credit risk discount
Exposure to under-estimated risk within First Tier
Bank loss-sharing percentage
First Tier risk to Bank, pre-tax
First Tier risk to Bank, after-tax
$269,000
161,203
107,797
20 percent
$21,559
$12,494
Management has judged the likelihood of experiencing losses of a magnitude to trigger Second Tier FDIC reimbursement as
remote. The Bank’s maximum after-tax exposure to Second Tier losses is $13 million as of December 31, 2011, which would be
realized only if all purchased covered assets at December 31, 2011 generated no future cash flows.
Purchased covered assets have declined since the acquisition date, and losses have been offset against the estimated credit risk
discount. Purchased covered assets totaled $554 million at December 31, 2011, net of a credit risk discount of $46 million,
compared to $715 million at December 31, 2010, net of a credit risk discount of $62 million. Purchased covered assets are
evaluated for risk classification without regard to FDIC indemnification such that Management can identify purchased covered
assets with potential payment problems and devote appropriate credit administration practices to maximize collections. Classified
purchased covered assets without regard to FDIC indemnification totaled $168 million and $195 million at December 31, 2011
and December 31, 2010, respectively. FDIC indemnification limits the Company’s loss exposure to covered classified assets.
Allowance for Credit Losses
The Company’s allowance for credit losses represents Management’s estimate of credit losses inherent in the loan portfolio. In
evaluating credit risk for loans, Management measures loss potential of the carrying value of loans. As described above, payments
received on nonaccrual loans may be applied against the principal balance of the loans until such time as full collection of the
remaining recorded balance is expected. Further, the carrying value of purchased loans includes fair value discounts assigned at
the time of purchase under the provisions of FASB ASC 805, Business Combinations, and FASB ASC 310-30, Loans or Debt
Securities with Deteriorated Credit Quality. The allowance for credit losses represents Management’s estimate of credit losses in
excess of these principal reductions.
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The following table summarizes the allowance for credit losses, chargeoffs and recoveries of the Company for the periods
indicated:
Year ended December 31,
(Dollars in thousands)
Analysis of the Allowance for Credit Losses
Balance, beginning of period .............................
Provision for loan losses ..................................
Provision for unfunded credit commitments....
Loans charged off:
Commercial ...................................................
Commercial real estate...................................
Real estate construction .................................
Real estate residential ....................................
Consumer .......................................................
Purchased covered loans ................................
Total chargeoffs ...............................................
Recoveries of loans previously charged off:
Commercial ...................................................
Commercial real estate...................................
Real estate construction .................................
Real estate residential ....................................
Consumer .......................................................
Total recoveries ...............................................
Net loan losses .................................................
Balance, end of period .....................................
Components:
Allowance for loan losses ..................................
Reserve for unfunded credit commitments ........
Allowance for credit losses................................
2011
2010
2009
2008
2007
$38,329
11,200
––
(8,280)
(1,332)
(2,167)
(739)
(6,754)
(987)
(20,259)
3,129
––
1
––
2,890
6,020
(14,239)
$35,290
$32,597
2,693
$35,290
$43,736
11,200
––
(6,844)
(1,256)
(1,668)
(1,686)
(8,814)
––
(20,268)
948
4
––
––
2,709
3,661
(16,607)
$38,329
$35,636
2,693
$38,329
$47,563
10,500
(400)
(6,066)
––
(1,333)
(506)
(9,362)
––
(17,267)
490
––
664
––
2,186
3,340
(13,927)
$43,736
$41,043
2,693
$43,736
$55,799
2,700
(200)
(1,262)
(34)
(5,348)
(131)
(5,638)
––
(12,413)
331
––
––
––
1,346
1,677
(10,736)
$47,563
$44,470
3,093
$47,563
$59,023
700
(400)
(1,648)
––
––
––
(4,033)
––
(5,681)
1,060
––
––
––
1,097
2,157
(3,524)
$55,799
$52,506
3,293
$55,799
The Company's allowance for credit losses is maintained at a level considered appropriate to provide for losses that can be
estimated based upon specific and general conditions. These include conditions unique to individual borrowers, as well as overall
credit loss experience, the amount of past due, nonperforming loans and classified loans, FDIC loss-sharing indemnification,
recommendations of regulatory authorities, prevailing economic conditions and other factors. A portion of the allowance is
specifically allocated to impaired loans whose full collectability is uncertain. Such allocations are determined by Management
based on loan-by-loan analyses. A second allocation is based in part on quantitative analyses of historical credit loss experience,
in which criticized and classified credit balances identified through an independent internal credit review process are analyzed
using a linear regression model to determine standard loss rates. 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. In addition, loans with similar
characteristics not usually criticized using regulatory guidelines are analyzed based on the historical loss rates and delinquency
trends, grouped by the number of days the payments on these loans are delinquent. Given currently weak economic conditions,
Management is applying further analysis to consumer loans. Current levels of indirect automobile loan losses are compared to
initial allowance allocations and, based on Management judgment, additional allocations are applied, if needed, to estimate losses.
For residential real estate loans, Management is comparing ultimate loss rates on foreclosed residential real estate properties and
applying such loss rates to nonaccrual residential real estate loans. Based on this analysis, Management exercises judgment in
allocating additional allowance if deemed appropriate to estimate losses on residential real estate loans. Last, allocations are made
to non-criticized and non-classified commercial and commercial real estate loans based on historical loss rates and other statistical
data.
The remainder of the allowance is considered to be unallocated. The unallocated allowance is established to provide for probable
losses that have been incurred as of the reporting date but not reflected in the allocated allowance. It addresses additional
qualitative factors consistent with Management's analysis of the level of risks inherent in the loan portfolio, which are related to
the risks of the Company's general lending activity. Included in the unallocated allowance is the risk of losses that are attributable
to national or local economic or industry trends which have occurred but have not yet been recognized in loan chargeoff history
(external factors). The external factors evaluated by the Company include: economic and business conditions, external
competitive issues, and other factors. Also included in the unallocated allowance is the risk of losses attributable to general
attributes of the Company's loan portfolio and credit administration (internal factors). The internal factors evaluated by the
Company include: loan review system, adequacy of lending Management and staff, loan policies and procedures, problem loan
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trends, concentrations of credit, and other factors. By their nature, these risks are not readily allocable to any specific loan
category in a statistically meaningful manner and are difficult to quantify with a specific number. Management assigns a range of
estimated risk to the qualitative risk factors described above based on Management's judgment as to the level of risk, and assigns
a quantitative risk factor from the range of loss estimates to determine the appropriate level of the unallocated portion of the
allowance. Management considers the $35.3 million allowance for credit losses to be adequate as a reserve against credit losses
inherent in the loan portfolio as of December 31, 2011.
See Note 4 to the consolidated financial statements for additional information related to the allowance for credit losses.
Impaired Loans
The Company considers a loan to be impaired when, based on current information and events, it is probable that it will be unable
to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. The measurement of
impairment may be based on (i) the present value of the expected cash flows of the impaired loan discounted at the loan’s original
effective interest rate, (ii) the observable market price of the impaired loan or (iii) the fair value of the collateral of a collateral-
dependent loan. The Company does not apply this definition to smaller-balance loans that are collectively evaluated for credit
risk. In assessing impairment, the Company reviews all nonaccrual commercial and construction loans with outstanding principal
balances in excess of $1 million. Nonaccrual commercial and construction loans with outstanding principal balances less than $1
million, and large groups of smaller-balance homogeneous loans such as installment, personal revolving credit and residential real
estate loans, are evaluated collectively for impairment under the Company’s standard loan loss reserve methodology.
Impaired purchased loans were recorded at estimated fair value on the acquisition date.
The following summarizes the Company’s recorded investment in impaired originated loans for the dates indicated:
At December 31,
(In thousands)
2011
Total impaired loans.................................................................
$4,525
Specific reserves ...................................................................... $2,023
2010
$12,748
$1,365
At December 31, 2011 and 2010, the Company measured impairment using the fair value of loan collateral. The average balance
of the Company’s impaired originated loans for the year ended December 31, 2011 was $4.1 million compared with $2.5 million
in 2010. All impaired loans are on nonaccrual status. See Note 4 to the consolidated financial statements for additional
information related to the impaired loans.
Asset/Liability and Market Risk Management
Interest rate risk is a significant market risk affecting the Company. Interest rate risk results from many factors. Assets and
liabilities may mature or reprice at different times. Assets and liabilities may reprice at the same time but by different amounts.
Short-term and long-term market interest rates may change by different amounts. The timing and amount of cash flows of various
assets or liabilities may shorten or lengthen as interest rates change. In addition, interest rates may have an impact on loan
demand, demand for various deposit products, credit losses, and other elements of earnings such as account analysis fees on
commercial deposit accounts and correspondent bank service charges.
In adjusting the Company's asset/liability position, Management attempts to manage interest rate risk while enhancing the net
interest margin and net interest income. At times, depending on expected increases or decreases in general interest rates, the
relationship between long and short term interest rates, market conditions and competitive factors, Management may adjust the
Company's interest rate risk position in order to manage its net interest margin and net interest income. The Company's results of
operations and net portfolio values remain subject to changes in interest rates and to fluctuations in the difference between long
and short term interest rates.
The Company’s asset and liability position ranged from “neutral” to slightly “asset sensitive” at December 31, 2011, depending
on the interest rate assumptions applied to the simulation model employed by Management to measure interest rate risk. A
“neutral” position results in similar amounts of change in interest income and interest expense resulting from application of
assumed interest rate changes. An “asset sensitive” position results in a larger change in interest income than in interest expense
resulting from application of assumed interest rate changes. Management’s simulation modeling is currently biased toward rising
37
interest rates. Management continues to monitor the interest rate environment as well as economic conditions and other factors it
deems relevant in managing the Company's exposure to interest rate risk.
Management assesses interest rate risk by comparing the Company's most likely earnings plan with various earnings models using
many interest rate scenarios that differ in the direction of interest rate changes, the degree of change over time, the speed of
change and the projected shape of the yield curve. For example, using the current composition of the Company's balance sheet
and assuming an increase of 100 basis points (“bp”) in the federal funds rate and an increase of 60 bp in the 10 year Constant
Maturity Treasury Bond yield during the same period, earnings are not estimated to change by a meaningful amount compared to
the Company's most likely net income plan for the twelve months ending December 31, 2012. Simulation estimates depend on,
and will change with, the size and mix of the actual and projected balance sheet at the time of each simulation. In the current
operating environment, Management’s objective is to maintain a “neutral” to slightly “asset sensitive” interest rate risk position.
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.
Market Risk - Equity Markets
Equity price risk can affect the Company. As an example, any preferred or common stock holdings, as permitted by banking
regulations, can fluctuate in value. Management regularly assesses the extent and duration of any declines in market value, the
causes of such declines, the likelihood of a recovery in market value, and its intent to hold securities until a recovery in value
occurs. Declines in value of preferred or common stock holdings that are deemed “other than temporary” could result in loss
recognition in the Company's income statement.
Fluctuations in the Company's common stock price can impact the Company's financial results in several ways. First, the
Company has regularly repurchased and retired its common stock; the market price paid to retire the Company's common stock
can affect the level of the Company's shareholders' equity, cash flows and shares outstanding for purposes of computing earnings
per share. Second, the Company's common stock price impacts the number of dilutive equivalent shares used to compute diluted
earnings per share. Third, fluctuations in the Company's common stock price can motivate holders of options to purchase
Company common stock through the exercise of such options thereby increasing the number of shares outstanding. Finally, the
amount of compensation expense associated with share based compensation fluctuates with changes in and the volatility of the
Company's common stock price.
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Market Risk - Other
Market values of loan collateral can directly impact the level of loan chargeoffs and the provision for loan losses. Other types of
market risk, such as foreign currency exchange risk and commodity price risk, are not significant in the normal course of the
Company's business activities.
Liquidity and Funding
The Company's routine sources of liquidity are operating earnings, investment securities, consumer and other loans, deposits, and
other borrowed funds. In 2011, the Company’s operating activities generated $120 million in liquidity providing funds to pay
common shareholders $42 million in dividends, fund $61 million in stock repurchases and redeem $10 million in subordinated
debt. During 2010, the Company’s operating activities generated $115 million in liquidity providing adequate funds to pay
common shareholders $42 million in dividends and fund $29 million in stock repurchases. In 2011, investment securities provided
$430 million in liquidity from sales, paydowns and maturities, and loans provided $342 million in liquidity from scheduled
payments and maturities, net of loan fundings. Additionally, deposit growth increased cash $118 million. In 2011, liquidity
provided funds to purchase securities of $733 million and to reduce short-term borrowings by $17 million and redeem a $10
million subordinated debt. In 2010, loans provided $299 million in liquidity from scheduled payments, paydowns and maturities,
net of loan fundings. The Company purchased $483 million in investment securities using $131 million in cash and $352 million
from paydowns and maturities of investment securities. The Company primarily purchased securities of U.S. Government
sponsored entities, obligations of states and political subdivisions, and corporate securities to offset decreases in residential
mortgage backed securities and residential collateralized mortgage obligations. Other sources of cash from investing activities
include net cash of $58 million from an acquisition, proceeds of $41 million under FDIC loss-sharing agreements and proceeds of
$32 million from sale of foreclosed assets. Cash was applied to reduce short term borrowings by $206 million and to meet a net
reduction in deposits totaling $177 million.
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At December 31, 2011, the Company’s assets included $530 million in cash and amounts due from other banks from daily
transaction settlements. The Bank maintains cash balances for its branches of approximately $50 million to meet the routine needs
of its customers. Further, the Bank must maintain approximately $30 million at the Federal Reserve Bank (FRB) to meet its
reserve requirement; this reserve requirement is reduced by cash held for branches. Excluding cash for branch needs and cash
required at the FRB, cash and amounts due from other banks from daily transaction settlements of approximately $450 million
provided excess liquidity equivalent to eleven percent of total deposits.
The Company projects $209 million in additional liquidity from investment security paydowns and maturities in the twelve
months ending December 31, 2012. At December 31, 2011, indirect automobile loans totaled $412 million, which were
experiencing stable monthly principal payments of approximately $16 million during the last three months of 2011.
The Company held $1.6 billion in total investment securities at December 31, 2011. Under certain deposit, borrowing and other
arrangements, the Company must pledge investment securities as collateral. At December 31, 2011, such collateral requirements
totaled approximately $904 million. At December 31, 2011, $639 million of the Company's investment securities were classified
as "available-for-sale", and as such, could provide additional liquidity if sold, subject to the Company's ability to meet continuing
collateral requirements. In addition, at December 31, 2011, the Company had customary lines for overnight borrowings from
other financial institutions in excess of $700 million, under which $-0- was outstanding. Additionally, the Company has access to
borrowing from the Federal Reserve. The Company's short-term debt rating from Fitch Ratings is F1. The Company's long-term
debt rating from Fitch Ratings is A with a stable outlook. Management expects the Company could access additional long-term
debt financing if desired. In Management's judgment, the Company's liquidity position is strong and asset liquidations or
additional long-term debt are considered unnecessary to meet the ongoing liquidity needs of the Company.
Management will monitor the Company’s cash levels throughout 2012. Loan demand from credit-worthy borrowers will be
dictated by economic and competitive conditions for the remainder of 2012. The Company aggressively solicits non-interest
bearing demand deposits and money market checking deposits, which are the least sensitive to changes in interest rates. The
growth of these deposit balances is subject to heightened competition, the success of the Company's sales efforts, delivery of
superior customer service, new regulations and market conditions. The Company does not aggressively solicit higher-costing time
deposits; as a result, Management anticipates such deposits will gradually decline. Changes in interest rates, most notably rising
interest rates, could impact deposit volumes. Depending on economic conditions, interest rate levels, and a variety of other
conditions, deposit growth may be used to fund loans, reduce borrowings or purchase investment securities. However, due to
concerns such as uncertainty in the general economic environment, competition and political uncertainty, loan demand and levels
of customer deposits are not certain. Shareholder dividends are expected to continue subject to the Board's discretion and
continuing evaluation of capital levels, earnings, asset quality and other factors.
The Company performs liquidity stress tests on a periodic basis to evaluate the sustainability of its liquidity. Under the stress
testing, the Company assumes outflows of funds increase beyond expected levels. Measurement of such heightened outflows
considers the composition of the Company’s deposit base, including any concentration of deposits, non-deposit funding such as
short-term borrowings and Federal Home Loan Bank advances, and unfunded lending commitments. The Company evaluates its
stock of highly liquid assets to meet the assumed higher levels of outflows. Highly liquid assets include cash and amounts due
from other banks from daily transaction settlements, reduced by branch cash needs and FRB reserve requirement, and investment
securities based on regulatory risk-weighting guidelines. Based on the results of the most recent liquidity stress test, Management
is satisfied with the liquidity condition of the Bank and the Company. However, no assurance can be given the Bank or Company
will not experience a period of reduced liquidity.
Westamerica Bancorporation ("Parent Company") is a separate entity and apart from Westamerica Bank (“Bank”) and must
provide for its own liquidity. In addition to its operating expenses, the Parent Company is responsible for the payment of
dividends declared for its shareholders, and interest and principal on outstanding debt. Substantially all of the Parent Company's
revenues are obtained from subsidiary dividends and service fees. Payment of dividends to the Parent Company by the Bank is
limited under California and Federal laws. The Company believes that regulatory dividend restrictions will not have an impact on
the Parent Company's ability to meet its ongoing cash obligations. During 2011, 2010 and 2009, the Bank declared dividends to
the Company of $107 million, $69 million and $93 million, respectively.
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Contractual Obligations
The following table sets forth the known contractual obligations, except short-term borrowing arrangements and post retirement
benefit plans, of the Company at December 31, 2011:
At December 31, 2011
(In thousands)
Long-Term Debt Obligations .............................................................
Term Repurchase Agreement .............................................................
Federal Home Loan Bank advances ...................................................
Operating Lease Obligations ..............................................................
Purchase Obligations ..........................................................................
Over One to
Three Years
$–– $15,000
–– 10,000
–– 5,072
13,775
8,954
16,764
8,382
Total................................................................................................ $17,336 $60,611
Within
One Year
After
Over Three to
Five Years
Five Years
$––
$––
––
––
20,951 ––
892
––
5,382
16,764
$43,097
Total
$15,000
10,000
26,023
29,003
41,910
$892 $ 121,936
Long-term debt obligations and operating lease obligations may be retired prior to the contractual maturity as discussed in the
notes to the consolidated financial statements. The purchase obligation consists of the Company’s minimum liability under a
contract with a third-party automation services provider.
Capital Resources
The Company has historically generated high levels of earnings, which provides a means of raising capital. The Company's net
income as a percentage of average shareholders' equity (“return on equity” or “ROE”) has been 25.8% in 2009, 18.1% in 2010
and 16.1% in 2011. The Company also raises capital as employees exercise stock options, which are awarded as a part of the
Company's executive compensation programs to reinforce shareholders' interests in the Management of the Company. Capital
raised through the exercise of stock options totaled $9.6 million in 2009, $16.7 million in 2010 and $14.4 million in 2011.
The Company paid common dividends totaling $41.1 million in 2009, $42.1 million in 2010 and $41.7 million in 2011, which
represent dividends per common share of $1.41, $1.44 and $1.45, respectively. In 2009, the Company was unable to, without the
consent of the Treasury, to increase the cash dividend on the Company’s common stock above $0.35 per share, while the Treasury
Preferred Stock was outstanding. This restriction was removed upon full redemption of the Treasury Preferred Stock on
November 18, 2009. The Company's earnings have historically exceeded dividends paid to shareholders. The amount of earnings
in excess of dividends gives the Company resources to finance growth and maintain appropriate levels of shareholders' equity. In
the absence of profitable growth opportunities, the Company has repurchased and retired its common stock as another means to
return earnings to shareholders. The Company repurchased and retired 42 thousand shares valued at $2.0 million in 2009, 533
thousand shares valued at $28.7 million in 2010, and 1.3 million shares valued at $60.5 million in 2011. Share repurchases in
most of 2009 were restricted to amounts conducted in coordination with employee benefit programs under the terms of the
February 13, 2009 issuance of Treasury Preferred Stock until complete redemption of the same preferred stock on November 18,
2009.
The Company's primary capital resource is shareholders' equity, which increased $13.4 million or 2.4% in 2011 from the previous
year. For 2011, the Company earned $87.9 million in net income, raised $14.4 million from the issuance of stock in connection
with exercises of employee stock options, paid $41.7 million in common dividends, and repurchased $60.5 million in common
stock.
The Company's ratio of equity to total assets was 11.08% at December 31, 2011 and 11.06% at December 31, 2010.
The Company performs capital stress tests on a periodic basis to evaluate the sustainability of its capital. Under the stress testing,
the Company assumes various scenarios such as deteriorating economic and operating conditions, unanticipated asset
devaluations, and significant operational lapses. The Company measures the impact of these scenarios on its earnings and capital.
Based on the results of the most recent stress tests, Management is satisfied with the capital condition of the Bank and the
Company. However, no assurance can be given the Bank or Company will not experience a period of reduced earnings or a
reduction in capital from unanticipated events and circumstances.
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Capital to Risk-Adjusted Assets
The following summarizes the ratios of regulatory capital to risk-adjusted assets for the Company on the dates indicated:
At December 31,
Tier I Capital ........................................................................... 14.54% 14.21%
Total Capital............................................................................ 15.83% 15.50%
Leverage ratio ......................................................................... 8.38% 8.44%
2011
2010
Minimum
Regulatory
Requirement
4.00%
8.00%
4.00%
Well
Capitalized
6.00%
10.00%
5.00%
The Company's risk-based capital ratios increased at December 31, 2011, compared with December 31, 2010, primarily due to a
decline in risk-weighted assets.
The following summarizes the ratios of capital to risk-adjusted assets for the Bank on the dates indicated:
At December 31,
Tier I Capital ........................................................................... 13.84% 13.87%
Total Capital............................................................................ 15.32% 15.33%
Leverage ratio ......................................................................... 7.93% 8.19%
2011
2010
Minimum
Regulatory
Requirement
4.00%
8.00%
4.00%
Well
Capitalized
6.00%
10.00%
5.00%
FDIC-covered assets are generally included in the 20% risk-weighted category due to loss sharing agreements, which expire on
February 5, 2019 as to the residential real estate covered assets and on February 5, 2014 as to non-residential real estate covered
assets. Subsequent to such dates, previously FDIC-indemnified assets will generally be included in the 100% risk-weight
category.
The Company and the Bank intend to maintain regulatory capital in excess of the highest regulatory standard, referred to as “well
capitalized”. The Company and the Bank routinely project capital levels by analyzing forecasted earnings, credit quality,
securities valuations, shareholder dividends, asset volumes, share repurchase activity, stock option exercise proceeds, and other
factors. Based on current capital projections, the Company and the Bank expect to maintain regulatory capital levels exceeding
the “well capitalized” standard and pay quarterly dividends to shareholders. No assurance can be given that changes in capital
management plans will not occur.
Deposit categories
The Company primarily attracts deposits from local businesses and professionals, as well as through retail savings and checking
accounts, and, to a more limited extent, certificates of deposit.
The following table summarizes the Company’s average daily amount of deposits and the rates paid for the periods indicated:
Deposit Distribution and Average Rates Paid
2011
Years Ended December 31,
(Dollars in thousands)
Noninterest bearing
demand........................ $1,496,362
Interest bearing:
Average
Balance
Percentage
of Total
Deposits
Rate
Average
Balance
2010
Percentage
of Total
Deposits
2009
Average
Balance
Percentage
of Total
Deposits
Rate
Rate
35.9% —% $1,412,702
35.3% —% $1,354,534
33.3% —%
Transaction ................
Savings ......................
Time less than $100
thousand...................
Time $100 thousand
713,754
1,112,364
17.1% 0.10%
26.7% 0.15%
682,278
994,604
17.1% 0.13%
24.9% 0.27%
696,638
951,457
17.1% 0.14%
23.4% 0.39%
313,548
7.5% 0.67%
358,096
8.9% 0.49%
458,117
11.3% 0.98%
or more ....................
14.9% 0.88%
Total .............................. $4,171,894 100.0% 0.25% $3,998,490 100.0% 0.34% $4,068,388 100.0% 0.54%
13.8% 0.62%
12.8% 0.43%
607,642
535,866
550,810
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The Company’s strategy includes building the value of its deposit base by building balances of lower-costing deposits and
avoiding reliance on higher-costing time deposits. From 2010 to 2011 the deposit composition shifted from higher costing time
deposits to lower costing checking and savings accounts. The Company’s average checking and savings accounts represented
80% of total deposits in 2011 compared with 77% in 2010 and 74% in 2009.
Total time deposits were $804.5 million and $895.6 million at December 31, 2011 and 2010, respectively. The following table
sets forth, by time remaining to maturity, the Company’s total domestic time deposits. The Company has no foreign time deposits.
(In thousands)
2012 ...........................................................................................
2013 ...........................................................................................
2014 ...........................................................................................
2015 ...........................................................................................
2016 ...........................................................................................
Thereafter ..................................................................................
Total...........................................................................................
December 31,
2011
$695,064
45,467
26,582
21,065
14,064
2,259
$804,501
The following sets forth, by time remaining to maturity, the Company’s domestic time deposits in amounts of $100 thousand or
more:
Deposits Over $100,000 Maturity Distribution
(In thousands)
Three months or less..................................................................
Over three through six months ..................................................
Over six through twelve months................................................
Over twelve months...................................................................
Total...........................................................................................
December 31,
2011
$314,112
115,010
63,067
44,647
$536,836
Short-term Borrowings
The following table sets forth the short-term borrowings of the Company:
Short-Term Borrowings Distribution
(In thousands)
Federal funds purchased ...........................................................................................
Other borrowed funds:
At December 31,
2011
$—
2010
$—
2009
$—
Customer sweep accounts..................................................................................... 114,777
912
Securities sold under repurchase agreements with customers ..............................
Line of credit.........................................................................................................
—
Total short term borrowings.................................................................................. $115,689
105,237
1,148
1,000
$107,385
109,332
3,102
15,700
$128,134
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Further detail of federal funds purchased and other borrowed funds is as follows:
Years Ended December 31,
(Dollars in thousands)
Federal funds purchased balances and rates paid on outstanding amount:
2011
2010
2009
Average balance for the year...............................................................................
Maximum month-end balance during the year....................................................
Average interest rate for the year ........................................................................
Average interest rate at period end......................................................................
$107,732
$—
$96
—
365,000
—
0.11% —% 0.18%
—% —% —%
Sweep accounts balances and rates paid on outstanding amount:
Average balance for the year...............................................................................
Maximum month-end balance during the year....................................................
Average interest rate for the year ........................................................................
Average interest rate at period end......................................................................
FHLB advances balances and rates paid on outstanding amount:
Average balance for the year ..............................................................................
Maximum month-end balance during the year ...................................................
Average interest rate for the year .......................................................................
Average interest rate at period end .....................................................................
Term repurchase agreement balances and rates paid on outstanding amount:
$102,031
114,777
$101,690
116,179
$113,167
124,557
0.15%
0.09%
0.32%
0.22%
0.41%
0.35%
$41,741
61,619
$34,378
72,016
$79,417
84,044
1.25%
1.84%
1.25%
1.15%
1.25%
1.37%
Average balance for the year...............................................................................
Maximum month-end balance during the year....................................................
Average interest rate for the year ........................................................................
Average interest rate at period end......................................................................
$94,842
$3,945
99,920
10,000
0.98% 1.61% 1.53%
0.97% —% 1.55%
$90,344
99,044
Securities sold under repurchase agreements balances and rates paid on
outstanding amount:
Average balance for the year...............................................................................
Maximum month-end balance during the year....................................................
Average interest rate for the year ........................................................................
Average interest rate at period end......................................................................
Line of credit balances and rates paid on outstanding amount:
Average balance for the year...............................................................................
Maximum month-end balance during the year....................................................
Average interest rate for the year ........................................................................
Average interest rate at period end......................................................................
$1,096
1,194
$2,314
3,380
$2,991
3,567
0.21% 0.42% 0.61%
0.14% 0.35% 0.51%
$1,933
10,150
2.95%
—%
$3,817
9,200
$2,071
17,877
3.42% 3.13%
4.10% 2.99%
The term repurchase agreement balance declined from 2010 to 2011 because the $100 million term repurchase agreement matured
on December 15, 2010.
Financial Ratios
The following table shows key financial ratios for the periods indicated:
At and for the years ended December 31,
Return on average total assets ..................................................... 1.78% 1.95% 2.39%
Return on average common shareholders’ equity........................ 16.14% 18.11% 25.84%
Average shareholders’ equity as a percentage of:
2010
2009
2011
Average total assets ................................................................. 11.00% 10.76% 10.31%
Average total loans .................................................................. 19.90% 17.68% 16.25%
Average total deposits.............................................................. 13.05% 13.06% 12.89%
34%
Common dividend payout ratio ...................................................
47%
45%
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
Credit risk and interest rate risk are the most significant market risks affecting the Company, and equity price risk can also affect
the Company’s financial results. These risks are described in the preceding sections regarding “Loan Portfolio Credit Risk,” and
“Asset/Liability and Market Risk Management.” Other types of market risk, such as foreign currency exchange risk and
commodity price risk, are not significant in the normal course of the Company’s business activities.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Management’s Internal Control Over Financial Reporting......................................................................................
Report of Independent Registered Public Accounting Firm (on Internal Control over Financial Reporting) .........
Consolidated Balance Sheets as of December 31, 2011 and 2010...........................................................................
Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009................................
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income for the years ended
December 31, 2011, 2010 and 2009 ......................................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009.........................
Notes to the Consolidated Financial Statements......................................................................................................
Report of Independent Registered Public Accounting Firm (on Consolidated Financial Statements) ....................
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Westamerica Bancorporation and subsidiaries (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over
financial reporting as of December 31, 2011. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the Company are being made only in accordance with authorizations of Management and
Directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2011 based upon criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on this assessment, Management determined that the Company’s
internal control over financial reporting was effective as of December 31, 2011 based on the criteria in Internal Control -
Integrated Framework issued by COSO.
The Company’s independent registered public accounting firm has issued an attestation report on Management’s assessment of
the Company’s internal control over financial reporting. This report is included below.
Dated February 27, 2012
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Westamerica Bancorporation:
We have audited Westamerica Bancorporation and subsidiaries (the Company) internal control over financial reporting as of
December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of December 31, 2011 and 2010, and the related consolidated statements of
income, changes in shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period
ended December 31, 2011, and our report dated February 27, 2012 expressed an unqualified opinion on those consolidated
financial statements.
/s/ KPMG LLP
KPMG LLP
San Francisco, California
February 27, 2012
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WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
Assets
Cash and due from banks .................................................................................................................
Money market assets .........................................................................................................................
Investment securities available for sale.............................................................................................
Investment securities held to maturity, with fair values of
$530,045
—
638,753
$338,793
392
671,484
At December 31,
2011
2010
(In thousands)
922,803
$947,493 at December 31, 2011 and $594,711 at December 31, 2010.............................................
535,278
Purchased covered loans ...................................................................................................................
Purchased non-covered loans ............................................................................................................
125,921
Originated loans ................................................................................................................................ 1,862,607
Allowance for loan losses .................................................................................................................
(32,597)
Non-covered other real estate owned ................................................................................................
Covered other real estate owned .......................................................................................................
Premises and equipment, net.............................................................................................................
Identifiable intangibles, net ...............................................................................................................
Goodwill ...........................................................................................................................................
Other assets .......................................................................................................................................
Total loans..................................................................................................................................... 2,491,209
26,500
19,135
36,548
28,629
121,673
226,866
Total Assets .......................................................................................................................... $5,042,161
580,728
692,972
199,571
2,029,541
(35,636)
2,886,448
13,620
21,791
36,278
34,604
121,673
225,713
$4,931,524
Liabilities
Deposits:
Noninterest bearing deposits ......................................................................................................... $1,562,254
2,687,667
Interest bearing deposits................................................................................................................
Total deposits ........................................................................................................................ 4,249,921
115,689
26,023
10,000
15,000
66,887
Total Liabilities.................................................................................................................... 4,483,520
Short-term borrowed funds ...............................................................................................................
Federal Home Loan Bank advances..................................................................................................
Term repurchase agreement ..............................................................................................................
Debt financing and notes payable .....................................................................................................
Other liabilities..................................................................................................................................
$1,454,663
2,678,298
4,132,961
107,385
61,698
—
26,363
57,830
4,386,237
Shareholders’ Equity
Common Stock (no par value), authorized - 150,000 shares
Issued and outstanding – 28,150 at December 31, 2011 and 29,090 at December 31, 2010 ........
377,775
Deferred compensation .....................................................................................................................
3,060
Accumulated other comprehensive income.......................................................................................
11,369
166,437
Retained earnings ..............................................................................................................................
558,641
Total Shareholders’ Equity ................................................................................................
Total Liabilities and Shareholders’ Equity ...................................................................... $5,042,161
378,885
2,724
159
163,519
545,287
$4,931,524
See accompanying notes to the consolidated financial statements.
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WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Interest and Fee Income
For the Years Ended December 31,
2011
2010
2009
(In thousands, except per share data)
Loans...................................................................................................................................... $160,673 $177,224 $189,801
Money market assets and funds sold......................................................................................
3
Investment securities available for sale..................................................................................
16,547
35,598
Investment securities held to maturity....................................................................................
207,979 221,155 241,949
Total Interest and Fee Income........................................................................................
—
21,594
25,712
2
16,766
27,163
Interest Expense
Deposits..................................................................................................................................
Short-term borrowed funds ....................................................................................................
Federal Home Loan Bank advances.......................................................................................
Term repurchase agreement...................................................................................................
Debt financing and notes payable ..........................................................................................
Total Interest Expense.....................................................................................................
14,549
751
1,010
1,381
1,689
19,380
Net Interest Income ................................................................................................................. 199,597 208,315 222,569
10,500
Provision for Loan Losses .......................................................................................................
188,397 197,115 212,069
Net Interest Income After Provision for Loan Losses ..........................................................
Noninterest Income
8,718
463
437
1,528
1,694
12,840
6,805
216
520
39
802
8,382
11,200
11,200
Service charges on deposit accounts......................................................................................
Merchant processing services ................................................................................................
Debit card fees ......................................................................................................................
ATM processing fees .............................................................................................................
Trust fees................................................................................................................................
Financial services commissions.............................................................................................
Gain on acquisition ................................................................................................................
Other ......................................................................................................................................
Total Noninterest Income ...............................................................................................
29,523
9,436
4,956
3,815
1,887
423
—
10,057
60,097
33,517
36,392
9,057
9,068
4,888
4,875
3,848
3,693
1,705
1,429
747
583
178
48,844
7,127
7,514
61,454 112,011
Noninterest Expense
Salaries and related benefits...................................................................................................
Occupancy .............................................................................................................................
Outsourced data processing services......................................................................................
Amortization of identifiable intangibles.................................................................................
Professional fees ....................................................................................................................
Furniture and equipment ........................................................................................................
Deposit insurance assessments ..............................................................................................
Courier service.......................................................................................................................
Other Real Estate Owned.......................................................................................................
Settlements ............................................................................................................................
Other ......................................................................................................................................
Total Noninterest Expense ..............................................................................................
65,391
18,748
9,000
6,697
3,583
5,859
6,260
3,808
616
158
20,656
127,678 127,147 140,776
Income Before Income Taxes.................................................................................................. 120,816 131,422 183,304
36,845
57,878
94,577 125,426
3,963
$87,888 $94,577 $121,463
29,105
29,353
Provision for income taxes.....................................................................................................
Net Income ...............................................................................................................................
Preferred stock dividends and discount accretion .................................................................
Net Income Applicable to Common Equity...........................................................................
Average Common Shares Outstanding..................................................................................
Diluted Average Common Shares Outstanding ....................................................................
Per Common Share Data
58,501
16,209
8,844
5,975
4,802
3,837
3,440
3,342
2,458
2,100
18,170
61,748
15,633
8,957
6,333
3,376
4,325
5,168
3,495
895
43
17,174
32,928
87,888
—
28,628
28,742
29,166
29,471
—
Basic earnings........................................................................................................................
Diluted earnings.....................................................................................................................
Dividends paid .......................................................................................................................
$3.07
3.06
1.45
$3.24
3.21
1.44
$4.17
4.14
1.41
See accompanying notes to the consolidated financial statements.
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WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
Shares
Preferred
Stock
Common
Stock
Deferred
Compensation
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Balance, December 31, 2008...............................
28,880
$—
$352,265
(In thousands)
$2,409
$1,040
$54,138
$409,852
125,426
125,426
Comprehensive income
Net income for the year 2009 ......................
Other comprehensive income,
net of tax:
Increase in net unrealized gains on
securities available for sale...................
Post-retirement benefit transition
obligation amortization .........................
Total comprehensive income
Issuance of preferred stock and related
warrants..........................................................
Redemption of preferred stock .........................
Preferred stock dividends and discount
accretion ........................................................
Exercise of stock options..................................
Tax benefit increase upon exercise of stock
options ...........................................................
Restricted stock activity ...................................
Stock based compensation ...............................
Stock awarded to employees ............................
Purchase and retirement of stock......................
Dividends ........................................................
2,638
36
82,519
(83,726)
1,207
1,207
9,610
2,188
251
1,132
102
(508)
361
7
2
(42)
76
Balance, December 31, 2009............................... 29,208
—
366,247
2,485
3,714
Comprehensive income
Net income for the year 2010........................
Other comprehensive income, net of tax:
Decrease in net unrealized gains on
securities available for sale.....................
Post-retirement benefit transition
obligation amortization...........................
406
Total comprehensive income
Exercise of stock options ..................................
Tax benefit increase upon exercise of
stock options...................................................
Restricted stock activity.....................................
Stock based compensation .................................
2
Stock awarded to employees..............................
Purchase and retirement of stock ....................... (533)
Dividends..........................................................
Balance, December 31, 2010............................... 29,090
7
(3,591)
36
16,688
1,004
194
1,380
125
(6,753)
239
—
378,885
2,724
159
Comprehensive income
Net income for the year 2011 ......................
Other comprehensive income, net of tax:
Increase in net unrealized gains on
securities available for sale...................
benefit
Post-retirement
transition
obligation amortization .........................
Total comprehensive income
Exercise of stock options..................................
Tax benefit decrease upon exercise of stock
options ...........................................................
Restricted stock activity ...................................
Stock based compensation ...............................
Stock awarded to employees ............................
Purchase and retirement of stock......................
Dividends ........................................................
360
15
2
(1,317)
14,374
(248)
455
1,425
89
(17,205)
336
11,174
36
Balance, December 31, 2011............................... 28,150
See accompanying notes to the consolidated financial statements.
$—
$377,775
$3,060
$11,369
49
2,638
36
128,100
83,726
(83,726)
(2,756)
9,610
2,188
327
1,132
102
(2,046)
(41,061)
505,448
(3,963)
(1,538)
(41,061)
133,002
94,577
94,577
(3,591)
36
91,022
16,688
1,004
433
1,380
125
(28,719)
(42,094)
545,287
(21,966)
(42,094)
163,519
87,888
87,888
11,174
36
99,098
14,374
(248)
791
1,425
89
(60,505)
(41,670)
$558,641
(43,300)
(41,670)
$166,437
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WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2011 2010
2009
(In thousands)
Operating Activities:
Net income.......................................................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization/accretion..........................................................................................
Loan loss provision ..........................................................................................................................
Net amortization of deferred loan (fees) cost ...................................................................................
(Increase) decrease in interest income receivable ............................................................................
Decrease (increase) in deferred tax asset..........................................................................................
Decrease in other assets ...................................................................................................................
Stock option compensation expense ................................................................................................
Tax benefit decrease (increase) upon exercise of stock options .......................................................
Increase (decrease) in income taxes payable....................................................................................
(Decrease) increase in interest expense payable...............................................................................
Increase (decrease) in other liabilities ..............................................................................................
Gain on acquisition ..........................................................................................................................
Gain on sale of real estate and other assets ......................................................................................
Net (gain) loss on sales/write-down of premises and equipment......................................................
Originations of mortgage loans for resale ........................................................................................
Net proceeds from sale of mortgage loans originated for resale.......................................................
Net write-down/(gain)loss on sale of foreclosed assets....................................................................
Net Cash Provided By Operating Activities ............................................................................
Investing Activities:
Net repayments of loans...................................................................................................................
Proceeds from FDIC* loss-sharing agreement.................................................................................
Net cash acquired from acquisition..................................................................................................
Purchases of investment securities available for sale .......................................................................
Proceeds from sale/maturity/calls of securities available for sale ....................................................
Purchases of investment securities held to maturity.........................................................................
Proceeds from maturity/calls of securities held to maturity .............................................................
Purchases of premises and equipment..............................................................................................
Proceeds from sale of premises and equipment................................................................................
Purchases of FRB/FHLB** securities..............................................................................................
Proceeds from sale of FRB/FHLB/FHLMC** securities.................................................................
Proceeds from sale of foreclosed assets ...........................................................................................
Net Cash Provided By Investing Activities ..............................................................................
Financing Activities:
Net increase (decrease) in deposits ..................................................................................................
Net decrease in short-term borrowings ............................................................................................
Repayments of notes payable...........................................................................................................
Proceeds from issuance of preferred stock and warrants..................................................................
Redemption of preferred stock.........................................................................................................
Preferred stock dividends.................................................................................................................
Exercise of stock options/issuance of shares....................................................................................
Tax benefit (decrease) increase upon exercise of stock options .......................................................
Retirement of common stock including repurchases........................................................................
Common stock dividends paid..........................................................................................................
Net Cash Provided (Used) In Financing Activities..................................................................
Net Change In Cash and Due from Banks........................................................................................
Cash and Due from Banks at Beginning of Year .............................................................................
Cash and Due from Banks at End of Year .......................................................................................
Supplemental Disclosures:
Supplemental disclosure of noncash activities:
$87,888
$94,577
$125,426
14,253
11,200
(434)
(172)
2,094
2,773
1,425
248
2,074
(1,338)
431
—
(1,200)
(398)
(595)
616
1,528
120,393
341,515
7,658
—
(290,610)
331,933
(428,511)
95,898
(3,309)
640
(14,069)
1,829
24,671
67,645
118,131
(16,868)
(10,000)
—
—
—
14,374
(248)
(60,505)
(41,670)
3,214
191,252
338,793
$530,045
15,327
11,200
(100)
1,094
(12,335)
23,404
1,380
(1,004)
(565)
17
(16,767)
(178)
(211)
(434)
(332)
344
(447)
114,970
299,432
41,048
57,895
(482,356)
201,442
—
146,206
(1,448)
603
—
3,948
31,745
298,515
(176,887)
(205,819)
—
—
—
—
16,688
1,004
(28,719)
(42,094)
(435,827)
(22,342)
361,135
$338,793
10,429
10,500
470
(1,900)
17,176
12,704
1,132
(2,188)
2,316
(439)
21,830
(48,844)
—
40
(68)
70
375
149,029
447,277
43,176
44,397
(22,992)
105,097
(522)
225,913
(14,179)
79
—
1,502
11,082
840,830
(261,968)
(471,574)
—
83,726
(83,726)
(2,756)
9,610
2,188
(2,046)
(41,061)
(767,607)
222,252
138,883
$361,135
Loans transferred to other real estate owned ...............................................................................
Supplemental disclosure of cash flow activity: ................................................................................
Interest paid for the period...........................................................................................................
Income tax payments for the period ............................................................................................
Acquisitions:
$—
Assets acquired........................................................................................................................
Liabilities assumed .................................................................................................................. —
Net....................................................................................................................................... $—
11,271
28,826
$39,453
$30,770
$38,185
15,414
50,388
27,558
36,852
$315,083
314,905
$178
$1,624,464
1,575,620
$48,844
See accompanying notes to the consolidated financial statements.
* Federal Deposit Insurance Corporation (“FDIC”)
** Federal Reserve Bank (“FRB”), Federal Home Loan Bank (“FHLB”) and Federal Home Loan Mortgage Corp. (“FHLMC”)
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WESTAMERICA BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Business and Accounting Policies
Westamerica Bancorporation, a registered bank holding company (the “Company”), provides a full range of banking services to
corporate and individual customers in Northern and Central California through its subsidiary bank, Westamerica Bank (the
“Bank”). The Bank is subject to competition from both financial and nonfinancial institutions and to the regulations of certain
agencies and undergoes periodic examinations by those regulatory authorities.
The Company has evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, the Company
is not aware of any events or transactions that occurred subsequent to the balance sheet date but prior to filing that would require
recognition or disclosure in its consolidated financial statements.
Summary of Significant Accounting Policies
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United
States of America. The following is a summary of significant policies used in the preparation of the accompanying financial
statements.
Accounting Estimates. Certain accounting policies underlying the preparation of these financial statements require Management
to make estimates and judgments about future economic and market conditions. These estimates and judgments may affect
reported amounts of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Although the
estimates contemplate current conditions and how Management expects them to change in the future, it is reasonably possible that
in 2012 actual conditions could be worse than anticipated in those estimates, which could materially affect our results of
operations and financial conditions. The most significant of these involve the Allowance for Credit Losses, as discussed below
under “Allowance for Credit Losses,” estimated fair values of purchased loans, as discussed below under “Purchased Loans,” and
the evaluation of other than temporary impairment, as discussed below under “Securities.”
As described in Note 2 below, the Bank acquired assets and assumed liabilities of the former Sonoma Valley Bank (“Sonoma”)
on August 20, 2010. The acquired assets and assumed liabilities were measured at estimated fair values, as required by Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations. Management made
significant estimates and exercised significant judgment in accounting for the acquisition. Management judgmentally measured
loan fair values based on loan file reviews (including borrower financial statements and tax returns), appraised collateral values,
expected cash flows, and historical loss factors. Repossessed loan collateral was primarily valued based upon appraised collateral
values. The Bank also recorded an identifiable intangible asset representing the value of the core deposit customer base of
Sonoma based on Management’s evaluation of the cost of such deposits relative to alternative funding sources. In determining the
value of the identifiable intangible asset, Management used significant estimates including average lives of depository accounts,
future interest rate levels, the cost of servicing various depository products, FDIC assessment rates and other significant estimates.
Management used quoted market prices to determine the fair value of investment securities and FHLB advances.
The Bank acquired assets and assumed liabilities of the former County Bank (“County”) on February 6, 2009 from the Federal
Deposit Insurance Corporation (“FDIC”). The acquired assets and assumed liabilities of County were measured at estimated fair
values, as required by the acquisition method of accounting for business combinations (FASB ASC 805, Business Combinations,
formerly FASB Statement No. 141 (revised 2007)). Management made significant estimates and exercised significant judgment in
accounting for the acquisition of County. Management judgmentally assigned risk ratings to loans. The assigned risk ratings,
appraised collateral values, expected cash flows, current interest rates, and statistically derived loss factors were used to measure
fair values for loans. Repossessed loan collateral was primarily valued based upon appraised collateral values. Due to the loss-
sharing agreements with the FDIC, the Bank recorded a receivable from the FDIC equal to 80 percent of the loss estimates
embedded in the fair values of loans and repossessed loan collateral. The Bank also recorded an identifiable intangible asset
representing the value of the core deposit customer base of County based on an appraisal performed by an independent third
party. In determining the value of the identifiable intangible asset, the third-party appraiser used significant estimates including
average lives of depository accounts, future interest rate levels, the cost of servicing various depository products, and other
significant estimates. Management used quoted market prices to determine the fair value of investment securities, FHLB advances
and other borrowings.
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The acquired assets of Sonoma include loans which are not indemnified by the FDIC. The acquired loans of County are
indemnified under loss-sharing agreements with the FDIC. Pursuant to acquisition accounting, the loans in each business
combination were measured at their estimated fair value at the respective acquisition date. This method of measuring the carrying
value of purchased loans differs from loans originated by the Company, and as such, the Company identifies purchased loans not
indemnified by the FDIC as “Purchased Non-covered Loans” and purchased loans indemnified by the FDIC as “Purchased
Covered Loans.” Loans originated by the Company are measured at the principal amount outstanding, net of unearned discount
and unamortized deferred fees and costs. These loans are identified as “Originated Loans.”
Principles of Consolidation. The consolidated financial statements include the accounts of the Company and all the Company’s
subsidiaries. Significant intercompany transactions have been eliminated in consolidation. The Company does not maintain or
conduct transactions with any unconsolidated special purpose entities.
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 at the time of initiation, presenting insignificant risk of
changes in value due to interest rate changes.
Securities. Investment securities consist of debt securities of the U.S. Treasury, government sponsored entities, states, counties,
municipalities, corporations, mortgage-backed securities, and equity securities. Securities transactions are recorded on a trade date
basis. 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 debt 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 cost, adjusted for the amortization of premiums or accretion of 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.
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. Unrealized investment securities losses
are evaluated at least quarterly to determine whether such declines in value should be considered “other than temporary” and
therefore be subject to immediate loss recognition in income. Although these evaluations involve significant judgment, an
unrealized loss in the fair value of a debt security is generally deemed to be temporary when the fair value of the security is below
the carrying value primarily due to changes in risk-free interest rates, there has not been significant deterioration in the financial
condition of the issuer, and the Company does not intend to sell or be required to sell the securities before recovery of its
amortized cost. An unrealized loss in the value of an equity security is generally considered temporary when the fair value of the
security declined primarily due to current market conditions and not deterioration in the financial condition of the issuer, the
Company expects the fair value of the security to recover in the near term and the Company does not intend to sell or be required
to sell the securities before recovery of its amortized cost. Other factors that may be considered in determining whether a decline
in the value of either a debt or an equity security is “other than temporary” include ratings by recognized rating agencies, actions
of commercial banks or other lenders relative to the continued extension of credit facilities to the issuer of the security, the
financial condition, capital strength and near-term prospects of the issuer, and recommendations of investment advisors or market
analysts.
Purchase premiums are amortized and purchase discounts are accreted over the estimated life of the related investment security as
an adjustment to yield using the effective interest method. Unamortized premiums, unaccreted discounts, and early payment
premiums are recognized in interest income upon disposition of the related security. Interest and dividend income are recognized
when earned. Realized gains and losses from the sale of available for sale securities are included in earnings using the specific
identification method.
Nonmarketable Equity Securities. Nonmarketable equity securities include securities that are not publicly traded, such as Visa
Class B common stock, and securities acquired for various purposes, such as to meet regulatory requirements (for example,
Federal Home Loan Bank and Federal Reserve Bank stock). These securities are accounted for under the cost method and are
included in other assets. The Company reviews those assets accounted for under the cost method at least quarterly for possible
declines in value that are considered “other than temporary”. The Company’s review typically includes an analysis of the facts
and circumstances of each investment, the expectations for the investment’s cash flows and capital needs, the viability of its
business model and exit strategy. The asset value is reduced when a decline in value is considered to be other than temporary. The
Company recognizes the estimated loss as a loss from equity investments in noninterest income.
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Loans. Loans are stated at the principal amount outstanding, net of unearned discount and unamortized deferred fees and costs.
Interest is accrued daily on the outstanding principal balances. Loans which are more than 90 days delinquent with respect to
interest or principal, unless they are well secured and in the process of collection, and other loans on which full recovery of
principal or interest is in doubt, are placed on nonaccrual status. 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 (“performing nonaccrual
loans”) even though the borrowers continue to repay the loans as scheduled. 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 time 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 collectability of both interest and principal. Certain consumer loans or auto receivables are
charged to the allowance for credit losses when they become 120 days past due. The Company recognizes a loan as impaired
when, based on current information and events, it is probable that it will be unable to collect both the contractual interest and
principal payments as scheduled in the loan agreement. Income recognition on impaired loans conforms to that used on
nonaccrual loans. In certain circumstances, the Company might agree to restructured loan terms with borrowers experiencing
financial difficulties; such restructured loans are evaluated under ASC 310-40, “Troubled Debt Restructurings by Creditors.” In
general, a restructuring constitutes a troubled debt restructuring when the Company, for reasons related to a borrower’s financial
difficulties, grants a concession to the borrower it would not otherwise consider. Loans are evaluated on an individual basis. The
Company follows its general nonaccrual policy for troubled debt restructurings. Performing troubled debt restructurings are
reinstated to accrual status when improvements in credit quality eliminate the doubt as to full collectability of both principal and
interest.
Nonrefundable fees and certain costs associated with originating or acquiring loans are deferred and amortized as an adjustment
to interest income over the contractual loan lives. Upon prepayment, unamortized loan fees, net of costs, are immediately
recognized in interest income. Other fees, including those collected upon principal prepayments, are included in interest income
when received. Loans held for sale are identified upon origination and are reported at the lower of cost or market value on an
aggregate loan basis.
Purchased Loans. Purchased loans are recorded at estimated fair value on the date of purchase. Impaired purchased loans are
accounted for under FASB ASC 310-30, Loans and Debt Securities with Deteriorated Credit Quality, when the loans have
evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all
contractually required principal and interest payments. Evidence of credit quality deterioration as of the purchase date may
include attributes such as past due and nonaccural status. Generally, purchased loans that meet the Company’s definition for
nonaccrual status fall within the scope of FASB ASC 310-30. The difference between contractually required payments at
acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. Subsequent
decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result
in a reversal of the provision for loan losses to the extent of prior charges, or a reclassification of the difference from
nonaccretable to accretable with a positive impact on interest income. Any excess of expected cash flows over the estimated fair
value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan when there is
a reasonable expectation about the amount and timing of such cash flows. Further, the Company elected to analogize to ASC 310-
30 and account for all other loans that had a discount due in part to credit not within the scope of ASC 310-30 using the same
methodology.
Covered Loans. Loans covered under loss-sharing or similar credit protection agreements with the FDIC are reported in loans
exclusive of the expected reimbursement cash flows from the FDIC. Covered loans are initially recorded at fair value at the
acquisition date. Subsequent decreases in the amount expected to be collected results in a provision for loan losses and a
corresponding increase in the estimated FDIC reimbursement, with the estimated net loss impacting earnings. Interest is accrued
daily on the outstanding principal balances. Covered 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 covered loans on which full recovery of
principal or interest is in doubt, are placed on nonaccrual status. Interest previously accrued on covered loans placed on
nonaccrual status is charged against interest income, net of estimated FDIC reimbursements of such accrued interest. The FDIC
reimburses the Company up to 80% of 90 days interest on covered loans. In addition, some covered loans secured by real estate
with temporarily impaired values and covered commercial loans to borrowers experiencing financial difficulties are placed on
nonaccrual status even though the borrowers continue to repay the loans as scheduled (“covered performing nonaccrual loans”).
Interest payments received on nonaccrual loans are applied to interest income on a cash basis. Covered performing nonaccrual
loans are reinstated to accrual status when improvements in credit quality eliminate the doubt as to the full collectability of both
interest and principal.
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Allowance for Credit Losses. The allowance for credit losses is established through provisions for credit losses charged to
income. Losses on loans, including impaired loans, are charged to the allowance for credit losses when all or a portion of the
recorded amount of a loan is deemed to be uncollectible. Recoveries of loans previously charged off are credited to the allowance
when realized. The Company’s allowance for credit losses is maintained at a level considered adequate to provide for losses that
can be estimated based upon specific and general conditions. These include conditions unique to individual borrowers, as well as
overall credit loss experience, the amount of past due, nonperforming and classified loans, recommendations of regulatory
authorities, prevailing economic conditions, FDIC loss-sharing or similar credit protection agreements and other factors. A
portion of the allowance is specifically allocated to impaired loans whose full collectability is uncertain. Such allocations are
determined by Management based on loan-by-loan analyses. A second allocation is based in part on quantitative analyses of
historical credit loss experience, in which criticized and classified loan balances identified through an internal loan review process
are analyzed using a linear regression model to determine standard loss rates. The results of this analysis are applied to current
criticized and classified loan balances to allocate the reserve to the respective commercial, commercial real estate, and
construction segments of the loan portfolio. In addition, residential real estate and consumer loans which have similar
characteristics and are not usually criticized using regulatory guidelines are analyzed and reserves established based on the
historical loss rates and delinquency trends, grouped by the number of days the payments on these loans are delinquent. Last,
allocations are made to non-criticized and non-classified commercial, commercial real estate and construction loans based on
historical loss rates. The remainder of the reserve is considered to be unallocated. The unallocated allowance is established to
provide for probable losses that have been incurred as of the reporting date but not reflected in the allocated allowance. It
addresses additional qualitative factors consistent with Management’s analysis of the level of risks inherent in the loan portfolio,
which are related to the risks of the Company’s general lending activity. Included in the unallocated allowance is the risk of losses
that are attributable to national or local economic or industry trends which have occurred but have not yet been recognized in past
loan charge-off history (external factors). The external factors evaluated by the Company include: economic and business
conditions, external competitive issues, and other factors. Also included in the unallocated allowance is the risk of losses that are
attributable to general attributes of the Company’s loan portfolio and credit administration (internal factors). The internal factors
evaluated by the Company include: loan review system, adequacy of lending Management and staff, loan policies and procedures,
problem loan trends, concentrations of credit, and other factors. By their nature, these risks are not readily allocable to any
specific category in a statistically meaningful manner and are difficult to quantify with a specific number.
Liability for Off-Balance Sheet Credit Exposures. A liability for off-balance sheet credit exposures is established through expense
recognition. Off-balance sheet credit exposures relate to letters of credit and unfunded loan commitments for commercial and
construction loans. Historical credit loss factors for commercial and construction loans are applied to the amount of these off-
balance sheet credit exposures to estimate inherent losses.
Other Real Estate Owned. Other real estate owned is comprised of property acquired through foreclosure proceedings,
acceptances of deeds-in-lieu of foreclosure and, if applicable, vacated bank properties. Losses recognized at the time of acquiring
property in full or partial satisfaction of debt are charged against the allowance for credit losses. Other real estate owned is
recorded at the lower of the related loan carrying value or fair value of the collateral, generally based upon an independent
property appraisal, less estimated disposition costs. Subsequently, other real estate owned is valued at the lower of the amount
recorded at the date acquired or the then current fair value less estimated disposition costs. Subsequent losses incurred due to any
decline in annual independent property appraisals are recognized as noninterest expense. Routine holding costs, such as property
taxes, insurance and maintenance, and losses from sales and dispositions, are recognized as noninterest expense.
Covered Other Real Estate Owned. Other real estate owned covered under loss-sharing agreements with the FDIC is reported
exclusive of expected reimbursement cash flows from the FDIC. Upon transferring covered loan collateral to covered other real
estate owned status, acquisition date fair value discounts on the related loans are also transferred to covered other real estate
owned. Fair value adjustments on covered other real estate owned result in a reduction of the covered other real estate carrying
amount and a corresponding increase in the estimated FDIC reimbursement, with the estimated net loss charged against earnings.
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.
Intangible Assets. Intangible assets are comprised of goodwill, core deposit intangibles and other identifiable intangibles acquired
in business combinations. Intangible assets with definite useful lives are amortized on an accelerated basis over their respective
estimated useful lives not exceeding 15 years. If an event occurs that indicates the carrying amount of an intangible asset may not
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be recoverable, Management reviews the asset for impairment. Any goodwill and any intangible asset acquired in a purchase
business combination determined to have an indefinite useful life is not amortized, but is evaluated for impairment annually.
Impairment of Long-Lived Assets. The Company reviews its long-lived and certain intangible assets for impairment 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
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. The Company accounts for income taxes in
accordance with FASB ASC 740, Income Taxes, resulting in two components of income tax expense: current and deferred.
Current income tax expense approximates taxes to be paid or refunded for the current period. The Company determines deferred
income taxes using the balance sheet method. Under this method, the net deferred tax asset or liability is based on the tax effects
of the differences between the book and tax bases of assets and liabilities, and recognizes enacted changes in tax rates and laws in
the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are recognized subject to Management’s judgment that realization is more likely than not. A tax
position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize.
The tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon
settlement. Interest and penalties are recognized as a component of income tax expense.
Derivative Instruments and Hedging Activities. The Company’s accounting policy for derivative instruments requires the
Company to recognize those items as assets or liabilities in the statement of financial position and measure them at fair value.
Hybrid financial instruments are single financial instruments that contain an embedded derivative. The Company’s accounting
policy is to record certain hybrid financial instruments at fair value without separating the embedded derivative.
Stock Options. The Company applies FASB ASC 718 – Compensation – Stock Compensation, to account for stock based awards
granted to employees using the fair value method. The Company recognizes compensation expense for restricted performance
share grants over the relevant attribution period. Restricted performance share grants have no exercise price, therefore, the
intrinsic value is measured using an estimated per share price at the vesting date for each restricted performance share. The
estimated per share price is adjusted during the attribution period to reflect actual stock price performance. The Company’s
obligation for unvested outstanding restricted performance share grants is classified as a liability until the vesting date due to a
cash settlement feature, at which time the issued shares become classified as shareholders’ equity.
Extinguishment of Debt. Gains and losses, including fees, incurred in connection with the early extinguishment of debt are
charged to current earnings as reductions in noninterest income.
Postretirement Benefits. The Company uses an actuarial-based accrual method of accounting for post-retirement benefits.
Other. Securities and other property held by the Bank in a fiduciary or agency capacity are not included in the financial statements
since such items are not assets of the Company or its subsidiaries.
Recently Adopted Accounting Pronouncements
In 2011, the Company adopted the following new accounting guidance:
FASB Accounting Standards Update (ASU) 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt
Restructuring, was issued April 2011 providing additional guidance for creditors in determining whether a creditor has granted a
concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring
constitutes a troubled debt restructuring. The provisions of this standard are effective for the first interim or annual period
beginning on or after June 15, 2011 with early adoption permissible, and should be applied retrospectively to the beginning of the
annual period of adoption. The Company early adopted the provisions of this standard effective April 1, 2011 with retrospective
application to January 1, 2011. The results of the adoption of this Update are disclosed in Note 4.
FASB ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20
(Topic 310), was issued January 2011 deferring the new disclosure requirements (paragraphs 310-10-50-31 through 50-34 of the
FASB Accounting Standards Codification) about troubled debt restructurings to be concurrent with the effective date of the
guidance for determining what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update,
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Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. As a result of the issuance
of Update 2011-02, the provisions of Update 2011-01 are effective for the first interim or annual period beginning on or after June
15, 2011 or July 1, 2011 for the Company, and should be applied retrospectively to the beginning of the annual period of
adoption. The Company adopted the Update concurrent with ASU 2011-02.
Recently Issued Accounting Standards
FASB ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements, was issued April 2011 addressing the
accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem
financial assets before their maturity. The amendments remove from the assessment of effective control (1) the criterion requiring
the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event
of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The provisions
of this Update are effective for the first interim or annual period beginning on or after December 15, 2011, and should be applied
prospectively to transactions or modifications of existing transactions that occur on or after the effective date. The adoption of the
Update will not have a material effect on the Company’s financial statements at the date of adoption.
FASB ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP
and IFRSs, was issued May 2011 as a result of the FASB and International Accounting Standards Board’s (IASB) goal to develop
common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with
U.S. generally accepted accounting principles and International Financial Reporting Standards. The provisions of this Update are
effective during the interim or annual periods beginning after December 15, 2011, and are to be applied prospectively. The
adoption of the Update will not have a material effect on the Company’s financial statements at the date of adoption.
FASB ASU 2011-05, Presentation of Comprehensive Income, was issued June 2011 requiring that all changes in stockholders’
equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive
statements. This Update also requires that reclassification adjustments for items that are reclassified from other comprehensive
income to net income be presented on the face of the financial statements. The provisions of this Update are effective for fiscal
years, and interim periods within those years, beginning after December 15, 2011, and are to be applied retrospectively. Early
adoption is permitted. The adoption of the Update will not have a material effect on the Company’s financial statements at the
date of adoption.
FASB ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of
Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, was issued December 2011 updating
and superseding certain pending paragraphs relating to the presentation on the face of the financial statements the effects of
reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive
income. This Update is effective concurrent with ASU 2011-05, Presentation of Comprehensive Income, and will not have a
material effect on the Company’s financial statements at the date of adoption.
FASB ASU 2011-08, Testing for Goodwill Impairment, was issued September 2011 giving an entity the option to first assess
qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or
circumstances, an entity determines it is more likely than not that the fair value of a reporting unit is more than its carrying
amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is
required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing
the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then
the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if
any. Under the amendments in this Update, an entity has the option to bypass the qualitative assessment for any reporting unit in
any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume
performing the qualitative assessment in any subsequent period. The provisions of this standard are effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.
The adoption of the Update will not have a material effect on the Company’s financial statements at the date of adoption.
FASB ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, was issued December 2011 to require an entity to
disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect
of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods
beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures
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required by those amendments retrospectively for all comparative periods presented. The Update will not have a material effect
on the Company’s financial statements at the date of adoption.
Note 2: Acquisition
On August 20, 2010, the Bank purchased substantially all the assets and assumed substantially all the liabilities of Sonoma from
the FDIC, as Receiver of Sonoma. Sonoma operated 3 commercial banking branches within Sonoma County, California. The
FDIC took Sonoma under receivership upon Sonoma’s closure by the California Department of Financial Institutions at the close
of business August 20, 2010. Westamerica Bank purchased substantially all of Sonoma’s net assets at a discount of $43,000
thousand and paid a $5,008 thousand deposit premium.
The Sonoma acquisition was accounted for under the purchase method of accounting in accordance with FASB ASC 805,
Business Combinations. The statement of net assets acquired as of August 20, 2010 and the resulting bargain purchase gain are
presented in the following table. The purchased assets and assumed liabilities were recorded at their respective acquisition date
fair values, and identifiable intangible assets were recorded at fair value. A “bargain purchase” gain totaling $178 thousand
resulted from the acquisition and is included as a component of noninterest income on the statement of income. The amount of the
gain is equal to the amount by which the fair value of assets purchased exceeded the fair value of liabilities assumed. Sonoma’s
results of operations prior to the acquisition are not included in Westamerica’s statement of income.
Statement of Net Assets Acquired (at fair value)
Assets
Cash and due from banks
Money market assets
Securities
Loans
Other real estate owned
Core deposit intangible
Other assets
Total Assets
Liabilities
Deposits
Federal Home Loan Bank advances
Liabilities for interest and other expenses
Total Liabilities
Net assets acquired
Statement of Net Assets Acquired (at fair value)
Sonoma Valley Bank tangible shareholder's equity
Adjustments to reflect assets acquired and
liabilities assumed at fair value:
Cash payment from FDIC
Loans and leases, net
Other real estate owned
Other assets
Core deposit intangible
Deposits
Federal Home Loan Bank advances
Other liabilities
Gain on acquisition
At
August 20, 2010
(In thousands)
$57,895
26,050
7,223
213,664
2,916
5,270
2,065
$315,083
252,563
61,872
470
314,905
$178
At
August 20, 2010
(In thousands)
$13,923
21,270
(34,562)
(1,491)
(811)
5,270
(1,233)
(1,872)
(316)
$178
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Note 3: Investment Securities
The amortized cost, unrealized gains and losses, and estimated market value of the available for sale investment securities
portfolio follows:
Investment Securities Available for Sale
At December 31, 2011
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Fair
Value
Amortized
Cost
U.S. Treasury securities .........................................................
Securities of U.S. Government sponsored entities .................
Residential mortgage-backed securities .................................
Commercial mortgage-backed securities ...............................
Obligations of States and political subdivisions.....................
Residential collateralized mortgage obligations ....................
Asset-backed securities ..........................................................
FHLMC and FNMA stock .....................................................
Corporate securities................................................................
Other securities.......................................................................
Total .......................................................................................
$3,537
117,150
84,961
4,506
(In thousands)
$59
375
5,457
27
234,522 11,839
2,053
—
1,027
203
1,884
$618,765 $ 22,924
49,111
7,566
824
114,286
2,302
$—
$3,596
(53) 117,472
90,408
(10)
4,530
(3)
(268) 246,093
51,164
7,306
1,847
(2,290) 112,199
4,138
($2,936) $638,753
—
(260)
(4)
(48)
The amortized cost, unrealized gains and losses, and estimated market value of the held to maturity investment securities portfolio
follows:
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Investment Securities Held to Maturity
At December 31, 2011
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market
Value
Amortized
Cost
Residential mortgage-backed securities ..............................
Obligations of States and political subdivisions..................
Residential collateralized mortgage obligations..................
Total ....................................................................................
$54,869 $1,532
625,390 23,581
242,544 2,781
$922,803 $27,894
($77)
(496)
(2,631)
($3,204)
$56,324
648,475
242,694
$947,493
(In thousands)
The amortized cost, unrealized gains and losses, and estimated market value of the available for sale investment securities
portfolio follows:
Investment Securities Available for Sale
At December 31, 2010
Gross
Gross
Unrealized
Unrealized
Gains
Losses
Fair
Value
Amortized
Cost
($12)
$3,554
(In thousands)
$––
162
4,142
7
2,423
894
—
42
200
2,699
$670,778 $10,569
175,080
105,702
5,081
264,757
24,709
9,060
824
79,356
2,655
$3,542
(2,365) 172,877
(15) 109,829
5,065
(23)
(6,047) 261,133
25,603
8,286
655
79,191
5,303
($9,863) $671,484
—
(774)
(211)
(365)
(51)
U.S. Treasury securities .........................................................
Securities of U.S. Government sponsored entities .................
Residential mortgage-backed securities .................................
Commercial mortgage-backed securities ...............................
Obligations of States and political subdivisions.....................
Residential collateralized mortgage obligations ....................
Asset-backed securities ..........................................................
FHLMC and FNMA stock .....................................................
Corporate securities................................................................
Other securities.......................................................................
Total .......................................................................................
58
K
-
0
1
M
R
O
F
I
N
O
T
A
R
O
P
R
O
C
N
A
B
A
C
I
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E
M
A
T
S
E
W
1
1
0
2
The amortized cost, unrealized gains and losses, and estimated market value of the held to maturity investment securities portfolio
follows:
Investment Securities Held to Maturity
At December 31, 2010
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market
Value
Amortized
Cost
Residential mortgage-backed securities ..............................
Obligations of States and political subdivisions..................
Residential collateralized mortgage obligations..................
Total ....................................................................................
$40,531 $1,797
455,372 13,142
84,825 2,198
$580,728 $17,137
$––
(1,142)
(2,012)
($3,154)
$42,328
467,372
85,011
$594,711
(In thousands)
The amortized cost and estimated market value of securities by contractual maturity are shown in the following table:
Maturity in years:
1 year or less........................................................
Over 1 to 5 years .................................................
Over 5 to 10 years ...............................................
Over 10 years.......................................................
Subtotal ...................................................................
Mortgage-backed securities and residential
collateralized mortgage obligations.......................
Other securities........................................................
Total ........................................................................
At December 31, 2011
Securities Available
for Sale
Securities Held
to Maturity
Amortized
Cost
Estimated
Market
Value
Amortized
Cost
Estimated
Market
Value
(In thousands)
$37,785
242,766
63,442
133,068
477,061
$37,967
241,945
65,919
140,835
486,666
$12,056
158,438
307,504
147,392
625,390
$12,121
162,791
321,922
151,641
648,475
138,578
3,126
$618,765
146,102
5,985
$638,753
297,413
—
$922,803
299,018
—
$947,493
The amortized cost and estimated market value of securities by contractual maturity are shown in the following table:
Maturity in years:
1 year or less........................................................
Over 1 to 5 years .................................................
Over 5 to 10 years ...............................................
Over 10 years.......................................................
Subtotal ...................................................................
Mortgage-backed securities and residential
collateralized mortgage obligations.......................
Other securities........................................................
Total ........................................................................
At December 31, 2010
Securities Available
for Sale
Securities Held
to Maturity
Amortized
Cost
Estimated
Market
Value
Amortized
Cost
Estimated
Market
Value
(In thousands)
$21,362
315,777
64,565
130,103
531,807
$21,460
314,605
64,804
124,160
525,029
$6,057
92,837
351,407
5,071
455,372
$6,103
95,608
360,602
5,059
467,372
135,492
3,479
$670,778
140,497
5,958
$671,484
125,356
—
$580,728
127,339
—
$594,711
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, 2011 and 2010, the Company had no high-
risk collateralized mortgage obligations as defined by regulatory guidelines.
59
2
0
1
1
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
O
N
I
F
O
R
M
1
0
-
K
An analysis of gross unrealized losses of the available for sale investment securities portfolio follows:
Less than 12 months
Fair Value
Unrealized
Losses
$35,051
($53)
3,443
—
5,803
—
(10)
—
(61)
—
Securities of U.S.
Government
sponsored entities ......
Residential
mortgage-backed
securities....................
Commercial
mortgage-backed
securities....................
Obligations of States
and political
subdivisions ...............
Asset-backed
securities....................
FHLMC and FNMA
stock ..........................
Corporate securities .....
Other securities............
Total ............................
Investment Securities Available for Sale
At December 31, 2011
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(In thousands)
$––
––
1,347
15,015
7,306
$––
$35,051
($53)
––
(3)
(207)
(260)
(4)
(774)
(48)
($1,296)
3,443
(10)
1,347
(3)
20,818
7,306
1
56,274
1,953
$126,193
(268)
(260)
(4)
(2,290)
(48)
($2,936)
—
32,048
—
$76,345
—
(1,516)
—
($1,640)
1
24,226
1,953
$49,848
An analysis of gross unrealized losses of the held to maturity investment securities portfolio follows:
Less than 12 months
Fair Value
Unrealized
Losses
Investment Securities Held to Maturity
At December 31, 2011
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(In thousands)
$14,032
($77)
$—
$—
$14,032
($77)
38,026
(334)
6,441
(162)
44,467
(496)
50,355
$102,413
(373)
($784)
15,443
$21,884
(2,258)
($2,420)
65,798
$124,297
(2,631)
($3,204)
Residential
mortgage-backed
securities....................
Obligations of States
and political
subdivisions ...............
Residential
collateralized
mortgage
obligations .................
Total ............................
The unrealized losses on the Company’s investment securities were caused by market conditions for these types of investments.
The Company evaluates securities on a quarterly basis including changes in security ratings issued by ratings agencies, changes in
the financial condition of the issuer, and, for mortgage-related and asset-backed securities, delinquency and loss information with
respect to the underlying collateral, changes in the levels of subordination for the Company’s particular position within the
repayment structure, and remaining credit enhancement as compared to expected credit losses of the security. Substantially all of
these securities continue to be investment grade rated by one or more major rating agencies.
The Company does not intend to sell any investments and has concluded that it is more likely than not that it will not be required
to sell the investments prior to recovery of the amortized cost basis. Therefore, the Company does not consider these investments
to be other-than-temporarily impaired as of December 31, 2011.
60
K
-
0
1
M
R
O
F
I
N
O
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
1
1
0
2
The fair values of the investment securities could decline in the future if the general economy deteriorates, credit ratings decline,
the issuer’s financial condition deteriorates, or the liquidity for securities declines. As a result, other than temporary impairments
may occur in the future.
As of December 31, 2011, $903,807 thousand of investment securities were pledged to secure public deposits and short-term
funding needs, compared to $898,124 thousand at December 31, 2010.
An analysis of gross unrealized losses of the available for sale investment securities portfolio follows:
Less than 12 months
Fair Value
Unrealized
Losses
Investment Securities Available for Sale
December 31, 2010
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(In thousands)
$3,542
($12)
$––
$––
$3,542
($12)
146,083
(2,365)
1,534
3,028
(15)
(23)
––
––
––
––
––
––
146,083
(2,365)
1,534
3,028
(15)
(23)
132,014
(5,505)
—
—
550
44,752
1
$ 331,504
(211)
(365)
—
($8,496)
10,341
8,286
—
—
1,948
$20,575
(542)
(774)
—
—
(51)
($1,367)
142,355
(6,047)
8,286
(774)
550
44,752
1,949
$352,079
(211)
(365)
(51)
($9,863)
U.S. Treasury
securities....................
Securities of U.S.
Government
sponsored entities ......
Residential mortgage
backed securities........
Commercial
mortgage backed
securities....................
Obligations of States
and political
subdivisions ...............
Asset-backed
securities....................
FHLMC and FNMA
stock ..........................
Corporate securities .....
Other securities............
Total ............................
An analysis of gross unrealized losses of the held to maturity investment securities portfolio follows:
Less than 12 months
Fair Value
Unrealized
Losses
Investment Securities Held to Maturity
December 31, 2010
12 months or longer
Fair Value
Unrealized
Losses
(In thousands)
Total
Unrealized
Losses
Fair Value
$22,157
($382)
$18,663
($760)
$40,820
($1,142)
—
$22,157
—
($382)
20,182
$38,845
(2,012)
($2,772)
20,182
$61,002
(2,012)
($3,154)
Obligations of States
and political
subdivisions ...............
Residential
collateralized
mortgage
obligations .................
Total ............................
61
2
0
1
1
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
O
N
I
F
O
R
M
1
0
-
K
The following table provides information about the amount of interest income from taxable and non-taxable investment securities:
For the Year
Ended December 31,
2011
2010
(In thousands)
$17,404
29,902
$47,306
$16,447
27,482
$43,929
Taxable
Tax-exempt
Total interest income from investment securities
Note 4: Loans and Allowance for Credit Losses
A summary of the major categories of loans outstanding is shown in the following table. Re-classification of some purchased non-
covered loans occurred in the year ended December 31, 2011 upon conversion of such loans to the Company’s accounting
systems.
Originated loans
Purchased covered loans:
Impaired
Non impaired
Purchase discount
Purchased non-covered loans:
Impaired
Non impaired
Purchase discount
Total
Originated loans
Purchased covered loans:
Impaired
Non impaired
Purchase discount
Purchased non-covered loans (refined):
Impaired
Non impaired
Purchase discount
Total
At December 31, 2011
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
& Other
Total
$398,446
$704,655
$14,580
$271,111
$473,815
$1,862,607
1,296
117,777
(19,535)
2,262
14,129
(1,013)
$513,362
20,697
333,428
(22,318)
17,090
67,045
(6,101)
$1,114,496
2,977
13,372
(2,473)
-
6,076
(95)
$34,437
-
13,016
(524)
-
3,598
(474)
$286,727
262
78,735
(1,432)
25,232
556,328
(46,282)
638
25,294
(2,528)
$574,784
19,990
116,142
(10,211)
$2,523,806
At December 31, 2010
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
& Other
Total
$474,183
$757,140
$26,145
$310,196
$461,877
$2,029,541
17,922
180,302
(29,239)
474
17,030
(1,684)
$658,988
18,768
395,091
(23,177)
40,402
100,357
(17,071)
$1,271,510
11,386
22,185
(5,191)
8,705
18,708
(7,293)
$74,645
140
18,758
(524)
311
7,211
(467)
$335,625
255
89,949
(3,653)
48,471
706,285
(61,784)
2,793
35,962
(5,867)
$581,316
52,685
179,268
(32,382)
$2,922,084
Changes in the carrying amount of impaired purchased covered loans were as follows:
Impaired purchased covered loans
Carrying amount at the beginning of the period
Reductions during the period
Carrying amount at the end of the period
For the Years Ended December 31,
2011
2010
(In thousands)
$33,556
(14,965)
$18,591
$43,196
(9,640)
$33,556
62
K
-
0
1
M
R
O
F
I
N
O
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
1
1
0
2
Changes in the accretable yield for purchased loans were as follows:
Purchased loans
Balance at the beginning of the period
Reclassification from nonaccretable difference
Accretion
Disposals and other
Balance at the end of the period
Accretion
Reduction in FDIC indemnification asset
Increase in interest income
For the Years Ended December 31,
2011
2010
(In thousands)
$6,089
16,906
(13,005)
-
$9,990
($13,005)
9,315
($3,690)
$-
14,836
(8,747)
-
$6,089
($8,747)
6,816
($1,931)
The following table represents the non impaired purchased non-covered loans receivable at the acquisition date of August 20,
2010. The amounts include principal only and do not reflect accrued interest as of the date of acquisition or beyond:
Non impaired purchased non-covered loans receivable
Gross contractual loan principal payment receivable
Estimate of contractual principal not expected to be collected
Fair value of non impaired purchased loans receivable
At August 20, 2010
(refined)
(In thousands)
$188,206
(14,955)
$176,025
The Company applied the cost recovery method to impaired purchased non-covered loans at the acquisition date of August 20,
2010 due to the uncertainty as to the timing of expected cash flows as reflected in the following table:
Impaired purchased non-covered loans
Contractually required payments receivable (including interest)
Nonaccretable difference
Cash flows expected to be collected
Accretable difference
Fair value of loans acquired
At August 20, 2010
(refined)
(In thousands)
$70,882
(33,243)
37,639
-
$37,639
Changes in the carrying amount of impaired purchased non-covered loans were as follows for the periods indicated below from
August 20, 2010 (acquisition date) through December 31, 2011:
Impaired purchased non-covered loans
Carrying amount at the beginning of the period
Reductions during the period
Carrying amount at the end of the period
For the Year Ended
December 31, 2011
August 20, 2010
through
December 31, 2010
(refined)
(In thousands)
$33,725
(18,153)
$15,572
$37,639
(3,914)
$33,725
No changes in the accretable yield for impaired purchased non-covered loans occurred from the August 20, 2010 purchase date
through December 31, 2011.
63
The following summarizes activity in the allowance for credit losses:
Allowance for Credit Losses
For the Year Ended December 31, 2011
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
Consumer
Installment
and Other
Purchased
Covered
Loans
Unallocated
Total
Allowance for loan losses:
Balance at beginning of period
Additions:
Provision
Deductions:
Chargeoffs
Recoveries
Net loan and lease chargeoffs
Balance at end of period
Liability for off-balance sheet credit exposure
Total allowance for credit losses
$8,094
$9,607
$3,260
3,069
2,336
1,248
(8,280)
3,129
(5,151)
6,012
1,660
$7,672
(1,332)
-
(1,332)
10,611
-
$10,611
(2,167)
1
(2,166)
2,342
34
$2,376
(In thousands)
$617
903
(739)
-
(739)
781
-
$781
$6,372
564
(6,754)
2,890
(3,864)
3,072
198
$3,270
$-
987
(987)
-
(987)
-
-
$-
$7,686
$35,636
2,093
11,200
-
-
-
9,779
801
$10,580
(20,259)
6,020
(14,239)
32,597
2,693
$35,290
Allowance for Credit Losses
For the Year Ended December 31, 2010
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
Consumer
Installment
and Other
Purchased
Covered
Loans
Unallocated
Total
(In thousands)
$7,406
$9,918
$2,669
$1,529
$7,814
6,584
941
2,259
774
4,663
(6,844)
948
(5,896)
8,094
1,784
$9,878
(1,256)
4
(1,252)
9,607
-
$9,607
(1,668)
-
(1,668)
3,260
299
$3,559
(1,686)
-
(1,686)
617
-
$617
(8,814)
2,709
(6,105)
6,372
610
$6,982
$-
-
-
-
-
-
-
$-
$11,707
$41,043
(4,021)
$11,200
-
-
-
7,686
-
$7,686
(20,268)
3,661
(16,607)
35,636
2,693
$38,329
Allowance for loan losses:
Balance at beginning of period
Additions:
Provision
Deductions:
Chargeoffs
Recoveries
Net loan and lease chargeoffs
Balance at end of period
Liability for off-balance sheet credit exposure
Total allowance for credit losses
2
0
1
1
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
O
N
I
F
O
R
M
1
0
-
K
The recorded investment in loans was evaluated for impairment as follows:
Commercial
Commercial
Real Estate
Construction
Purchased
Covered Loans
Unallocated
Total
Recorded Investment in Loans Evaluated for Impairment
At December 31, 2011
Consumer
Installment and
Other
(In thousands)
Residential Real
Estate
Purchased Non-
covered Loans
Allowance for credit losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased loans with evidence of credit deterioration
Total
Carrying value of loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased loans with evidence of credit deterioration
Total
$-
7,672
-
$7,672
$-
$398,446
-
$398,446
$229
10,382
-
$10,611
$1,399
$703,256
-
$704,655
$1,794
582
-
$2,376
$3,126
$11,454
-
$14,580
$-
781
-
$781
$-
271,111
-
$271,111
$-
3,270
-
$3,270
$-
473,815
-
$473,815
$-
-
-
$-
$-
-
-
$-
$-
10,580
-
$10,580
$2,023
33,267
-
$35,290
$5,611
104,738
15,572
$125,921
$5,988
510,699
18,591
$535,278
$-
-
-
$-
$16,124
2,473,519
34,163
$2,523,806
64
K
-
0
1
M
R
O
F
I
N
O
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
1
1
0
2
Commercial
Commercial
Real Estate
Construction
Purchased
Covered Loans
Unallocated
Total
Recorded Investment in Loans Evaluated for Impairment
At December 31, 2010 (refined)
Consumer
Installment and
Other
(In thousands)
Residential Real
Estate
Purchased Non-
covered Loans
Allowance for credit losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased loans with evidence of credit deterioration
Total
Carrying value of loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased loans with evidence of credit deterioration
Total
$-
9,878
-
$9,878
$6,600
467,583
-
$474,183
$-
9,607
-
$9,607
$2,448
754,692
-
$757,140
$1,365
2,194
-
$3,559
$3,700
22,445
-
$26,145
$-
617
-
$617
$-
310,196
-
$310,196
$-
6,982
-
$6,982
$-
461,877
-
$461,877
$-
-
-
$-
$-
-
-
$-
$-
7,686
-
$7,686
$1,365
36,964
-
$38,329
$2,535
163,311
33,725
$199,571
$10,889
648,527
33,556
$692,972
$-
-
-
$-
$26,172
2,828,631
67,281
$2,922,084
The Bank’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit
rating agencies do not evaluate the borrowers’ financial condition. The Bank maintains a Loan Review Department which reports
directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit
risk grades to evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk
attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred
to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,”
“doubtful,” and “loss.” If the Bank becomes aware of deterioration in a borrower’s performance or financial condition between
Loan Review examinations, assigned risk grades will be re-evaluated promptly. Credit risk grades assigned by the Loan Review
Department are subject to review by the Bank’s regulatory authority during regulatory examinations.
The following summarizes the credit risk profile by internally assigned grade:
Credit Risk Profile by Internally Assigned Grade
At December 31, 2011
Commercial
Commercial
Real Estate
Construction
Residential Real
Estate
Consumer
Installment and
Other
Purchased Non-
covered Loans
Purchased
Covered Loans
Total
(In thousands)
$360,279
17,247
20,695
225
-
-
$398,446
$646,078
29,103
29,474
-
-
-
$704,655
$10,413
341
3,826
-
-
-
$14,580
$264,861
1,961
4,289
-
-
-
$271,111
$471,783
600
1,014
66
352
-
$473,815
$63,955
15,701
52,994
3,444
38
(10,211)
$125,921
$372,560
32,365
175,410
1,070
155
(46,282)
$535,278
$2,189,929
97,318
287,702
4,805
545
(56,493)
$2,523,806
Credit Risk Profile by Internally Assigned Grade
At December 31, 2010
Commercial
Commercial
Real Estate
Construction
Residential Real
Estate
Consumer
Installment and
Other
Purchased Non-
covered Loans
Purchased
Covered Loans
Total
(In thousands)
$427,878
17,731
27,801
773
-
-
$474,183
$718,124
19,216
19,800
-
-
-
$757,140
$18,073
-
8,072
-
-
-
$26,145
$305,433
1,749
3,014
-
-
-
$310,196
$458,789
568
1,792
89
639
-
$461,877
$128,323
25,223
61,941
16,465
1
(32,382)
$199,571
$482,473
62,455
206,646
2,747
435
(61,784)
$692,972
$2,539,093
126,942
329,066
20,074
1,075
(94,166)
$2,922,084
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
Default risk purchase discount
Total
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
Default risk purchase discount
Total
65
The following tables summarize loans by delinquency and nonaccrual status:
Summary of Loans by Delinquency and Nonaccrual Status
At December 31, 2011
30-89 Days Past
Due and
Accruing
Past Due 90
days or More
and Accruing
$6,953
16,967
570
5,648
6,324
36,462
1,095
18,902
$56,459
$-
1,626
-
-
421
2,047
34
241
$2,322
Total Past Due
and Accruing
$6,953
18,593
570
5,648
6,745
38,509
1,129
19,143
$58,781
Current and
Accruing
$388,322
679,633
10,664
262,917
467,015
1,808,551
101,585
501,823
$2,411,959
Nonaccrual
Total Loans
$3,171
6,429
3,346
2,546
55
15,547
23,207
14,312
$53,066
$398,446
704,655
14,580
271,111
473,815
1,862,607
125,921
535,278
$2,523,806
Summary of Loans by Delinquency and Nonaccrual Status
At December 31, 2010
30-89 Days Past
Due and
Accruing
Past Due 90
days or More
and Accruing
$7,274
14,037
4,022
2,552
6,870
34,755
8,788
27,848
$71,391
$-
-
-
-
766
766
1
355
$1,122
Total Past Due
and Accruing
$7,274
14,037
4,022
2,552
7,636
35,521
8,789
28,203
$72,513
Current and
Accruing
$458,061
737,167
18,073
305,709
454,142
1,973,152
151,619
617,624
$2,742,395
Nonaccrual
Total Loans
$8,848
5,936
4,050
1,935
99
20,868
39,163
47,145
$107,176
$474,183
757,140
26,145
310,196
461,877
2,029,541
199,571
692,972
$2,922,084
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment & other
Total originated loans
Purchased non-covered loans
Purchased covered loans
Total
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment & other
Total originated loans
Purchased non-covered loans
Purchased covered loans
Total
The following is a summary of the effect of nonaccrual loans on interest income:
2
0
1
1
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
O
N
I
F
O
R
M
1
0
-
K
Interest income that would have been recognized had the loans
For the Years Ended
December 31,
2010
(In thousands)
2009
2011
performed in accordance with their original terms .......................................... $5,267
Less: Interest income recognized on nonaccrual loans ........................................
Total reduction of interest income ....................................................................... $977
$5,195
$6,488
(4,290) (6,101) (2,074)
$3,121
$387
There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2011
and December 31, 2010.
66
K
-
0
1
M
R
O
F
I
N
O
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
1
1
0
2
The following summarizes impaired loans:
Impaired Loans
At December 31, 2011
Unpaid
Principal
Balance
(In thousands)
Related
Allowance
Recorded
Investment
Impaired loans with no related allowance recorded:
Commercial
Commercial real estate
Construction
Consumer installment and other
$5,483
33,095
4,194
2,990
Impaired loans with an allowance recorded:
Commercial real estate
Construction
Total:
Commercial
Commercial real estate
Construction
Consumer installment and other
1,399
3,126
$5,483
34,494
7,320
2,990
$11,727
43,793
7,209
3,658
1,399
3,183
$11,727
45,192
10,392
3,658
$ -
-
-
-
229
1,794
$ -
229
1,794
-
Impaired Loans
At December 31, 2010
Unpaid
Principal
Balance
(refined)
(In thousands)
Recorded
Investment
(refined)
Related
Allowance
Impaired loans with no related allowance recorded:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
$22,392
47,081
17,639
449
2,192
$35,127
69,627
36,244
451
3,077
$ -
-
-
-
-
Impaired loans with an allowance recorded:
Construction
3,700
3,700
1,365
Total:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
$22,392
47,081
21,339
449
2,192
$35,127
69,627
39,944
451
3,077
$ -
-
1,365
-
-
Impaired loans may include troubled debt restructured loans. Impaired loans at December 31, 2011, included $3,126 thousand of
restructured loans, which were on nonaccrual status. At December 31, 2010, the Company did not have any restructured loans
included in impaired loans.
67
Impaired Loans
For the Year Ended
December 31, 2011
Average
Recorded
Investment
Recognized
Interest
Income
(In thousands)
$14,315
37,873
18,436
281
2,578
$73,483
$586
1,740
455
-
43
$2,824
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Total
The following table provides information on troubled debt restructurings:
Troubled Debt Restructurings
At December 31, 2011
Number of
Contracts
Pre-Modification
Carrying Value
Period-End
Carrying Value
2
1
3
(In thousands)
$326
3,183
$3,509
$321
3,126
$3,447
Commercial
Construction
Total
Period-End
Individual
Impairment
Allowance
$-
1,794
$1,794
2
0
1
1
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
O
N
I
F
O
R
M
1
0
-
K
During the year ended December 31, 2011, the Company modified loans totaling $3,509 thousand that were considered troubled
debt restructurings. The concessions granted in the restructurings completed in 2011 largely consisted of modifications of
payment terms extending maturity dates to allow for deferred principal repayment. All loans were performing in accordance with
their restructured terms at December 31, 2011. There were no troubled debt restructurings during the year ended December 31,
2010.
The Company pledges loans to secure borrowings from the Federal Home Loan Bank (FHLB). At December 31, 2011, loans
pledged to secure borrowing totaled $69,145 thousand compared with $137,954 thousand at December 31, 2010. The FHLB does
not have the right to sell or repledge such loans.
There were no loans held for sale at December 31, 2011 and December 31, 2010.
Note 5: Concentration of Credit Risk
The Company’s business activity is with customers in Northern and Central California. The loan portfolio is well diversified
within the Company’s geographic market, although the Company has significant credit arrangements that are secured by real
estate collateral. In addition to real estate loans outstanding as disclosed in Note 4, the Company had loan commitments and
standby letters of credit related to real estate loans of $2,935 thousand and $13,048 thousand at December 31, 2011 and 2010,
respectively. The Company requires collateral on all real estate loans with loan-to-value ratios generally no greater than 75% on
commercial real estate loans and no greater than 80% on residential real estate loans at origination.
68
K
-
0
1
M
R
O
F
I
N
O
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
1
1
0
2
Note 6: Premises and Equipment
Premises and equipment consisted of the following:
At December 31,
Accumulated
Depreciation
and
Amortization
(In thousands)
Cost
Net Book
Value
2011
Land ...................................................................................................... $11,233
Buildings and improvements................................................................. 42,454
5,963
Leasehold improvements ......................................................................
18,292
Furniture and equipment .......................................................................
$77,942
Total ..................................................................................................
2010
Land ...................................................................................................... $11,395
Buildings and improvements................................................................. 42,783
Leasehold improvements ......................................................................
6,225
16,364
Furniture and equipment .......................................................................
Total .................................................................................................. $76,767
$—
(22,987)
(4,977)
(13,430)
($41,394)
$11,233
19,467
986
4,862
$36,548
$—
(22,052)
(5,308)
(13,129)
($40,489)
$11,395
20,731
917
3,235
$36,278
Depreciation of premises and equipment included in noninterest expense amounted to $2,798 thousand in 2011, $3,132 thousand
in 2010 and $3,311 thousand in 2009.
Note 7: Goodwill and Identifiable Intangible Assets
The Company has recorded goodwill and other identifiable intangibles associated with purchase business combinations. Goodwill
is not amortized, but is periodically evaluated for impairment. The Company did not recognize impairment during the years ended
December 31, 2011 and December 31, 2010. Identifiable intangibles are amortized to their estimated residual values over their
expected useful lives. Such lives and residual values are also periodically reassessed to determine if any amortization period
adjustments are indicated. During the year ended December 31, 2011 and December 31, 2010, no such adjustments were
recorded.
The changes in the carrying value of goodwill were (in thousands):
December 31, 2009.......................................................................................................................... $121,699
Recognition of stock option tax benefits for the exercise of
options converted upon merger ............................................................................................... (26)
December 31, 2010 ......................................................................................................................... $121,673
December 31, 2011 ......................................................................................................................... $121,673
The gross carrying amount of intangible assets and accumulated amortization was:
At December 31,
2011
2010
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
(In thousands)
Core Deposit Intangibles.................................................... $56,808 ($30,070)
(8,409)
Merchant Draft Processing Intangible................................ 10,300
Total Intangible Assets ................................................... $67,108 ($38,479)
$56,808 ($24,719)
(7,785)
10,300
$67,108 ($32,504)
69
2
0
1
1
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
O
N
I
F
O
R
M
1
0
-
K
As of December 31, 2011, the current year and estimated future amortization expense for intangible assets was as follows:
At December 31, 2011
Twelve months ended December 31, 2011 (actual)........................................ $5,351
Estimate for year ended December 31,
Core
Deposit
Intangibles
Merchant
Draft
Processing
Intangible
(In thousands)
$624
Total
$5,975
2012 ................................................................................................
2013 ................................................................................................
2014 ................................................................................................
2015 ................................................................................................
2016 ................................................................................................
4,868
4,304
3,946
3,594
3,292
500
400
324
262
212
5,368
4,704
4,270
3,856
3,504
Note 8: Deposits and Borrowed Funds
Deposits totaled $4,249,921 thousand at December 31, 2011, compared with $4,132,961 thousand at December 31, 2010. The
following table provides additional detail regarding deposits.
Deposits
At December 31,
2011
2010
(In thousands)
$1,562,254
$1,454,663
734,988
1,148,178
804,501
$4,249,921
718,885
1,063,837
895,576
$4,132,961
Noninterest bearing
Interest bearing:
Transaction
Savings
Time
Total Deposits
Demand deposit overdrafts of $3,087 thousand and $2,939 thousand were included as loan balances at December 31, 2011 and
2010, respectively.
Unsecured debt financing and notes payable as of December 31 were as follows:
At December 31,
2011
(In thousands)
2010
Senior fixed-rate note(1) ............................................................................................................................ $ 15,000 $ 15,000
11,363
Subordinated fixed-rate note(2) .................................................................................................................
Total debt financing and notes payable — Parent...................................................................................... $ 15,000 $ 26,363
—
(1) Senior note, issued by the Company, originated in October 2003 and maturing October 31, 2013. Interest of 5.31% per annum
is payable semiannually on April 30 and October 31, with original principal payment due at maturity.
(2) Subordinated debt, assumed by the Company March 1, 2005, originated February 22, 2001. Par amount $10,000 thousand,
interest of 10.2% per annum, payable semiannually. Scheduled maturity was February 22, 2031. The Company redeemed in
August, 2011.
The senior note is 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 believes it is in compliance with all of the
covenants in the senior note indenture as of December 31, 2011.
Short-term borrowed funds include federal funds purchased, business customers’ sweep accounts, outstanding amounts under a
$35 million unsecured line of credit, and securities sold under repurchase agreements which are held in the custody of
independent securities brokers. Interest expense for time deposits with balances in excess of $100 thousand was $2,296 thousand
in 2011 and $3,406 thousand in 2010.
70
K
-
0
1
M
R
O
F
I
N
O
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
1
1
0
2
The following table summarizes deposits and borrowed funds of the Company for the periods indicated:
Balance
At
December 31,
2011
Average
Balance
Weighted
Average
Rate
Balance
At
December 31,
2010
Average
Balance
Time deposits over $100 thousand ..............
Sweep accounts ...........................................
Federal Home Loan Bank advances ............
Term repurchase agreement.........................
Securities sold under repurchase
agreements.................................................
Line of credit ...............................................
Federal funds purchased ..............................
Weighted
Average
Rate
0.61%
0.32
1.25
1.61
$536,836
114,777
26,023
10,000
(Dollars in thousands)
$535,866
102,031
41,741
3,945
0.43%
0.15
1.25
0.98
$553,929
105,237
61,698
(Dollars in thousands)
$550,810
101,690
34,378
94,842
—
912
—
—
1,096
1,933
96
0.21
2.95
0.11
1,148
1,000
—
2,314
3,817
—
0.42
3.42
—
For the years ended December 31,
2011
Highest
Balance at
Any Month-end
2010
Highest
Balance at
Any Month-end
(In thousands)
Sweep accounts........................................................................
Federal Home Loan Bank advances ........................................
Line of credit ...........................................................................
Term repurchase agreement.....................................................
Securities sold under repurchase agreements...........................
Federal funds purchased ..........................................................
$114,777
61,619
10,150
10,000
1,194
—
$116,179
72,016
9,200
99,920
3,380
—
Note 9: Shareholders’ Equity
On February 13, 2009, the Company issued to the United States Department of the Treasury (the “Treasury”) 83,726 shares of
Series A Fixed Rate Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”), having a liquidation preference of
$1,000 per share. The structure of the Series A Preferred Stock included cumulative dividends at a rate of 5% per year for the first
five years and thereafter at a rate of 9% per year. On September 2, 2009 and November 18, 2009, the Company redeemed 41,863
shares and 41,863 shares, respectively, of its Series A Preferred Stock at $1,000 per share. Prior to redemption, under the terms of
the Series A Preferred Stock, the Company could not declare or pay any dividends or make any distribution on its common stock,
other than regular quarterly cash dividends not exceeding $0.35 per share or dividends payable only in shares of its common
stock, or repurchase its common stock or other equity or capital securities, other than in connection with benefit plans consistent
with past practice and certain other circumstances specified in the Securities Purchase Agreement with the Treasury. The
Treasury, as part of the preferred stock issuance, received a warrant to purchase 246,640 shares of the Company’s common stock
at an exercise price of $50.92 per share. The proceeds from Treasury were allocated based on the relative fair value of the warrant
as compared with the fair value of the preferred stock. The fair value of the warrant was determined using a valuation model
which incorporates assumptions including the Company’s common stock price, dividend yield, stock price volatility, the risk-free
interest rate, and other assumptions. The Company allocated $1,207 thousand of the proceeds from the Series A Preferred Stock
to the warrant. The discount on the preferred stock was accreted to par value during the term the Series A Preferred Stock was
outstanding, and reported as a reduction to net income applicable to common equity over that period.
The Company grants stock options and restricted performance shares to employees in exchange for employee services, pursuant
to the shareholder-approved 1995 Stock Option Plan, which was amended and restated in 2003. Stock options are granted with an
exercise price equal to the fair market value of the related common stock on the grant date and generally become exercisable in
equal annual installments over a three-year period with each installment vesting on the anniversary date of the grant. Each stock
option has a maximum ten-year term. A restricted performance share grant becomes vested after three years of being awarded,
provided the Company has attained its performance goals for such three-year period.
71
2
0
1
1
W
E
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A
M
E
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I
C
A
B
A
N
C
O
R
P
O
R
A
T
O
N
I
F
O
R
M
1
0
-
K
The following table summarizes information about stock options granted under the Plans as of December 31, 2011. The intrinsic
value is calculated as the difference between the market value as of December 31, 2011 and the exercise price of the shares. The
market value as of December 31, 2011 was $43.90 as reported by the NASDAQ Global Select Market:
Number
Outstanding
at 12/31/2011
(in
thousands)
Options Outstanding
Aggregate
Intrinsic
Value
(in
thousands)
Weighted
Average
Remaining
Contractual
Life (yrs)
476
587
955
258
2,276
$692
—
—
—
$692
3.2
3.7
5.0
8.1
4.6
Range of
Exercise
Price
40 - 45
45 - 50
50 - 55
55 - 60
$40 - 60
Weighted
Average
Exercise
Price
$42
49
52
57
49
Number
Exercisable
at 12/31/2011
(in
thousands)
408
587
682
86
1,763
Options Exercisable
Aggregate
Intrinsic
Value
(in
thousands)
Weighted
Average
Remaining
Contractual
Life (yrs)
$692
2.6
—
3.7
—
3.4
— 8.1
3.5
$692
Weighted
Average
Exercise
Price
$41
49
52
57
49
The Company applies the Roll-Geske option pricing model (Modified Roll) to determine grant date fair value of stock option
grants. This model modifies the Black-Scholes Model to take into account dividends and American options. During the twelve
months ended December 31, 2011, 2010 and 2009, the Company granted 275 thousand, 296 thousand, and 246 thousand stock
options, respectively. The following weighted average assumptions were used in the option pricing to value stock options granted
in the periods indicated:
For the twelve months ended December 31,
Expected volatility*1 ....................................................................................................
Expected life in years*2................................................................................................
Risk-free interest rate*3................................................................................................
Expected dividend yield ...............................................................................................
Fair value per award .....................................................................................................
2011
18%
4.7
1.83%
3.14%
$5.55
2010
17%
4.5
2.15%
2.44%
$6.77
2009
18%
4.0
1.25%
3.41%
$4.51
*1 Measured using daily price changes of Company’s stock over respective expected term of the option and the implied volatility
derived from the market prices of the Company’s stock and traded options.
*2 The number of years that the Company estimates that the options will be outstanding prior to exercise
*3 The risk-free rate over the expected life based on the US Treasury yield curve in effect at the time of the grant
Employee stock option grants are being expensed by the Company over the grants’ three year vesting period. The Company
issues new shares upon the exercise of options. The number of shares authorized to be issued for options is 4,061 thousand.
A summary of option activity during the twelve months ended December 31, 2011 is presented below:
Outstanding at January 1, 2011 ..........................................................
Granted...............................................................................................
Exercised ............................................................................................
Forfeited or expired............................................................................
Outstanding at December 31, 2011 ....................................................
Exercisable at December 31, 2011 .....................................................
Shares
(In
Thousands)
2,417
275
(360)
(56)
2,276
1,763
Weighted
Average
Exercise
Price
$47.85
50.76
39.93
52.33
49.34
48.65
Weighted
Average
Remaining
Contractual
Term (years)
4.6
3.5
72
K
-
0
1
M
R
O
F
I
N
O
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
1
1
0
2
A summary of the Company’s nonvested option activity during the twelve months ended December 31, 2011 is presented below:
Nonvested at January 1, 2011 ..............................................................
Granted ................................................................................................
Vested ..................................................................................................
Forfeited...............................................................................................
Nonvested at December 31, 2011 ........................................................
Shares
(In
Thousands)
484
275
(229)
(17)
513
Weighted
Average
Grant
Date
Fair Value
$5.82
The weighted average estimated grant date fair value for options granted under the Company’s stock option plan during the
twelve months ended December 31, 2011, 2010 and 2009 was $5.55, $6.77 and $4.51 per share, respectively. The total remaining
unrecognized compensation cost related to nonvested awards as of December 31, 2011 is $1,623 thousand and the weighted
average period over which the cost is expected to be recognized is 1.6 years .
The total intrinsic value of options exercised during the twelve months ended December 31, 2011, 2010 and 2009 was $2,309
thousand, $5,652 thousand and $8,873 thousand, respectively. The total fair value of RPSs that vested during the twelve months
ended December 31, 2011, 2010 and 2009 was $1,197 thousand, $594 thousand and $443 thousand, respectively. The total fair
value of options vested during the twelve months ended December 31, 2011, 2010 and 2009 was $1,381 thousand, $1,129
thousand and $1,191 thousand, respectively. The (decrease) or increase in tax benefits recognized for the tax deductions from the
exercise of options totaled $(248) thousand, $1,004 thousand and $2,188 thousand, respectively, for the twelve months ended
December 31, 2011, 2010 and 2009.
A summary of the status of the Company’s restricted performance shares as of December 31, 2011 and 2010 and changes during
the twelve months ended on those dates, follows (in thousands):
2011
Outstanding at January 1, ............................................................................. 55
Granted......................................................................................................... 20
Issued upon vesting ...................................................................................... (24)
Forfeited ....................................................................................................... (1)
Outstanding at December 31, ....................................................................... 50
2010
49
17
(10)
(1)
55
As of December 31, 2011 and 2010, the restricted performance shares had a weighted-average contractual life of 1.1 years and 1.1
years, respectively. The compensation cost that was charged against income for the Company’s restricted performance shares
granted was $540 thousand and $910 thousand for the twelve months ended December 31, 2011 and 2010, respectively. There
were no stock appreciation rights or incentive stock options granted in the twelve months ended December 31, 2011 and 2010.
The Company repurchases and retires its common stock in accordance with Board of Directors approved share repurchase
programs. At December 31, 2011, approximately 1,369 thousand shares remained available to repurchase under such plans.
Shareholders have authorized two additional classes of stock 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, 2011, no shares of Class B Common Stock or Preferred Stock were outstanding.
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 expired on December 31, 2009.
Note 10: Risk-Based Capital
The Company and the Bank are subject to various regulatory capital adequacy requirements administered by federal and state
agencies. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) required that regulatory agencies
adopt regulations defining five capital tiers for banks: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Failure to meet minimum capital requirements can initiate discretionary actions
by regulators that, if undertaken, could have a direct, material effect on the Company’s financial statements. Quantitative
73
measures, established by the regulators to ensure capital adequacy, require that the Company and the Bank maintain minimum
ratios of capital to risk-weighted assets. There are two categories of capital under the guidelines. Tier 1 capital includes common
shareholders’ equity and qualifying preferred stock less goodwill, identifiable intangible assets, and other adjustments including
the unrealized net gains and losses, after taxes, on 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 and the allowance for
loan losses, subject to limitations within 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 various categories of balance sheet
assets and unfunded commitments to extend credit, 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, 2011, the Company and the Bank met all capital adequacy requirements to which they are subject.
The most recent notification from the Federal Reserve Board categorized the Company and the Bank as well capitalized under the
FDICIA regulatory framework for prompt corrective action. To be well capitalized, the institution must maintain a total risk-
based capital ratio as set forth in the following table and not be subject to a capital directive order. Since that notification, there
are no conditions or events that Management believes have changed the risk-based capital category of the Company or the Bank.
The following tables show capital ratios for the Company and the Bank as of December 31, 2011 and 2010:
For Capital
Adequacy Purposes
To Be Well
Capitalized Under
the FDICIA
Prompt Corrective
Action Provisions
At December 31, 2011
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
Total Capital (to risk-weighted assets)
Consolidated Company ............................ $444,659 15.83% $224,664
221,578
Westamerica Bank.................................... 424,446 15.32%
8.00%
8.00%
$280,830
276,973
10.00%
10.00%
Tier 1 Capital (to risk-weighted assets)
Consolidated Company ............................ 408,266 14.54%
Westamerica Bank.................................... 383,375 13.84%
112,332
110,789
Leverage Ratio *
Consolidated Company ............................ 408,266 8.38%
Westamerica Bank.................................... 383,375 7.93%
194,969
193,406
4.00%
4.00%
4.00%
4.00%
168,498
166,184
243,711
241,757
6.00%
6.00%
5.00%
5.00%
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For Capital
Adequacy Purposes
To Be Well
Capitalized Under
the FDICIA
Prompt Corrective
Action Provisions
At December 31, 2010
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
Total Capital (to risk-weighted assets)
Consolidated Company ............................ $449,876 15.50% $232,144
229,032
Westamerica Bank.................................... 438,872 15.33%
8.00%
8.00%
$290,180
286,290
10.00%
10.00%
Tier 1 Capital (to risk-weighted assets)
Consolidated Company ............................ 412,463 14.21%
Westamerica Bank.................................... 397,054 13.87%
116,072
114,516
Leverage Ratio *
Consolidated Company ............................ 412,463 8.44%
Westamerica Bank.................................... 397,054 8.19%
195,580
194,006
4.00%
4.00%
4.00%
4.00%
174,108
171,774
244,475
242,508
6.00%
6.00%
5.00%
5.00%
* The leverage ratio consists of Tier 1 capital divided by average assets, excluding certain intangible assets, during the most
recent calendar quarter. The minimum leverage ratio guideline is 3.00% 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.
FDIC-covered assets are included in the 20% risk-weight category until the loss-sharing agreements terminate; the residential
loss-sharing agreement expires February 6, 2019 and the non-residential loss-sharing agreement expires (as to losses) February 6,
2014.
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Note 11: 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 are as follows:
Deferred tax asset
At December 31,
2010
2011
(In thousands)
4,584
Allowance for credit losses .................................................................................... $14,683 $15,948
4,686
State franchise taxes...............................................................................................
Deferred compensation .......................................................................................... 12,677 13,329
Real estate owned ..................................................................................................
379
Estimated loss on acquired assets .......................................................................... 16,193 21,239
1,354
Post retirement benefits..........................................................................................
1,141
Employee benefit accruals .....................................................................................
VISA Class B shares..............................................................................................
—
Limited partnership investments............................................................................
1,430
Impaired capital assets ........................................................................................... 21,058 21,129
794
Capital loss carryforward.......................................................................................
216
Premises and equipment ........................................................................................
1,566
Other ......................................................................................................................
Subtotal deferred tax asset ................................................................................. 75,985 83,211
—
75,985 83,211
Valuation allowance ..................................................................................................
Total deferred tax asset ..........................................................................................
1,236
1,141
866
993
548
242
587
1,177
—
Deferred tax liability
Net deferred loan fees ............................................................................................
402
Intangible assets..................................................................................................... 11,296 13,611
368
Securities available for sale ...................................................................................
1,024
Leases ....................................................................................................................
Gain on acquired net assets....................................................................................
3,621
FDIC indemnification receivable........................................................................... 14,103 15,729
393
Other ......................................................................................................................
38,370 35,148
Total deferred tax liability .........................................................................................
Net deferred tax asset................................................................................................. $37,615 $48,063
8,404
934
2,734
500
399
Based on Management’s judgment, 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. In making
such determination, Management considered future income from FDIC indemnification payments that will be realized as losses
on acquired assets are realized. Net deferred tax assets are included with interest receivable and other assets in the Consolidated
Balance Sheets.
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The provision for federal and state income taxes consists of amounts currently payable and amounts deferred are as follows:
Current income tax expense:
Federal .................................................................................................................................... $18,393
13,322
State ........................................................................................................................................
31,715
Total current ............................................................................................................................
$34,531
13,075
47,606
$27,595
14,196
41,791
Deferred income tax (benefit) expense:
For the Years Ended December 31,
2010
2009
2011
(In thousands)
Federal ....................................................................................................................................
State ........................................................................................................................................
Total deferred ..........................................................................................................................
1,839
(626)
1,213
Provision for income taxes ......................................................................................................... $32,928
(606)
(10,155) 11,884
4,203
(10,761) 16,087
$57,878
$36,845
The provision for income taxes differs from the provision computed by applying the statutory federal income tax rate to income
before taxes, as follows:
For the Years Ended December 31,
2011
2010
2009
Federal income taxes due at statutory rate ......................................................................... $42,285
Reductions in income taxes resulting from:
Interest on state and municipal securities and loans not taxable for federal income
(In thousands)
$45,998
$64,157
tax purposes .................................................................................................................
State franchise taxes, net of federal income tax benefit .................................................
Limited partnerships ......................................................................................................
Dividend received deduction..........................................................................................
Cash value life insurance ...............................................................................................
Other ..............................................................................................................................
(12,423)
8,252
(3,560)
(25)
(728)
(873)
Provision for income taxes................................................................................................. $32,928
(11,875)
8,104
(3,521)
(21)
(953)
(887)
$36,845
(12,742)
11,959
(3,233)
(32)
(715)
(1,516)
$57,878
At December 31, 2011, the company had no net operating loss and general tax credit carryforwards for tax return purposes.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits follow:
$241
Balance at January 1,.................................................................................................................... $259
86
Additions for tax positions taken in the current period ................................................................ 131
—
—
Reductions for tax positions taken in the current period ..............................................................
43
Additions for tax positions taken in prior years ........................................................................... 232
—
—
Reductions for tax positions taken in prior years .........................................................................
—
—
Decreases related to settlements with taxing authorities ..............................................................
Decreases as a result of a lapse in statute of limitations............................................................... (126) (111)
$259
Balance at December 31,.............................................................................................................. $496
2011
(In thousands)
2010
The Company does not anticipate any significant increase or decrease in unrecognized tax benefits during 2012. Unrecognized tax
benefits at December 31, 2011 and 2010 include accrued interest and penalties of $43 thousand and $26 thousand, respectively. If
recognized, the entire amount of the unrecognized tax benefits would affect the effective tax rate.
The Company classifies interest and penalties as a component of the provision for income taxes. The tax years ended December
31, 2011, 2010, 2009 and 2008 remain subject to examination by the Internal Revenue Service. The tax years ended December
31, 2011, 2010, 2009, 2008 and 2007 remain subject to examination by the California Franchise Tax Board. The deductibility of
these tax positions will be determined through examination by the appropriate tax jurisdictions or the expiration of the tax statute
of limitations.
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Note 12: Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair
value disclosures. Available for sale investment securities are recorded at fair value on a recurring basis. Additionally, from time
to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as certain loans held for
investment and other assets. These nonrecurring fair value adjustments typically involve the lower-of-cost-or-fair value
accounting or impairment or write-down of individual assets.
In accordance with the Fair Value Measurement and Disclosure topic of the Codification, the Company bases its fair values on the
price that would be received to sell an asset or paid to transfer a liability in the principal market or most advantageous market for
an asset or liability in an orderly transaction between market participants on the measurement date. A fair value measurement
reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the
risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of
nonperformance.
The Company groups its assets and liabilities measured at fair value into a three-level hierarchy, based on the markets in which
the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active exchange markets, such as the New
York Stock Exchange. Level 1 includes U.S. Treasury and federal agency securities, which are traded by dealers or brokers in
active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets
or liabilities.
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are
observable in the market. Level 2 includes mortgage-backed securities, municipal bonds and residential collateralized mortgage
obligations as well as other real estate owned and impaired loans collateralized by real property where the fair value is generally
based upon independent market prices or appraised values of the collateral.
Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market.
These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use in pricing the
asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
Level 3 includes those impaired loans collateralized by business assets where the expected cash flow has been used in
determining the fair value.
77
Assets Recorded at Fair Value on a Recurring Basis
The table below presents assets measured at fair value on a recurring basis.
U.S. Treasury securities
Securities of U.S. Government sponsored entities
Municipal bonds:
Federally Tax-exempt - California
Federally Tax-exempt - 27 other states
Taxable - California
Taxable - 1 other state
Residential mortgage-backed securities ("MBS"):
Guaranteed by GNMA
Issued by FNMA and FHLMC
Residential collateralized mortgage obligations:
Issued or guaranteed by FNMA, FHLMC, or GNMA
All other
Commercial mortgage-backed securities
Asset-backed securities - government guaranteed student loans
FHLMC and FNMA stock
Corporate securities
Other securities
Total securities available for sale
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At December 31, 2011
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2 )
(In thousands)
$3,596
117,472
$ -
-
-
-
-
-
-
-
-
-
-
-
1,847
-
2,186
$125,101
80,307
159,031
1,345
5,410
37,112
53,296
46,130
5,034
4,530
7,306
-
112,199
1,952
$513,652
Fair Value
$3,596
117,472
80,307
159,031
1,345
5,410
37,112
53,296
46,130
5,034
4,530
7,306
1,847
112,199
4,138
$638,753
Significant
Unobservable
Inputs
(Level 3 )
$ -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ -
There were no significant transfers in or out of Levels 1 and 2 for the twelve months ended December 31, 2011.
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U.S. Treasury securities
Securities of U.S. Government sponsored entities
Municipal bonds:
Federally Tax-exempt - California
Federally Tax-exempt - 29 other states
Taxable - California
Taxable - 1 other state
Residential mortgage-backed securities ("MBS"):
Guaranteed by GNMA
Issued by FNMA and FHLMC
Residential collateralized mortgage obligations:
Issued or guaranteed by FNMA, FHLMC, or GNMA
All other
Commercial mortgage-backed securities
Asset-backed securities - government guaranteed student loans
FHLMC and FNMA stock
Corporate securities
Other securities
Total securities available for sale
Assets Recorded at Fair Value on a Nonrecurring Basis
At December 31, 2010
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2 )
(In thousands)
$3,542
172,877
$ -
-
-
-
-
-
-
-
-
-
-
-
655
-
3,342
$180,416
83,616
170,741
6,276
500
43,557
66,272
18,010
7,593
5,065
8,286
-
79,191
1,961
$491,068
Fair Value
$3,542
172,877
83,616
170,741
6,276
500
43,557
66,272
18,010
7,593
5,065
8,286
655
79,191
5,303
$671,484
Significant
Unobservable
Inputs
(Level 3 )
$ -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ -
The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance
with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-
downs of individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at
December 31, 2011 and 2010, the following table provides the level of valuation assumptions used to determine each adjustment
and the carrying value of the related assets at period end.
Non-covered other real estate owned (1)
Covered other real estate owned (2)
Originated impaired loans (3)
Total assets measured at fair value on a nonrecurring basis
$6,350
10,695
2,502
$19,547
$ -
-
-
$ -
Fair Value
Level 1
Level 2
(In thousands)
$6,350
10,695
2,502
$19,547
Level 3
Total Losses
$ -
-
-
$ -
($1,000)
(578)
-
($1,578)
At December 31, 2011
Non-covered other real estate owned (1)
Originated impaired loans (3)
Total assets measured at fair value on a nonrecurring basis
$1,863
4,780
$6,643
$ -
-
$ -
Fair Value
Level 1
Level 2
(In thousands)
$1,863
4,780
$6,643
Level 3
Total Losses
$ -
-
$ -
($664)
(829)
($1,493)
At December 31, 2010
(1) Represents the fair value of foreclosed real estate owned that was measured at fair value subsequent to their initial
classification as foreclosed assets.
(2) Represents the fair value of foreclosed real estate owned that is covered by the Indemnification Agreement with the FDIC
where the real estate was written down subsequent to its initial classification as foreclosed assets. Total losses are reduced by the
80% indemnified loss percentage.
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(3) Represents carrying value of loans for which adjustments are predominantly based on the appraised value of the collateral and
loans considered impaired under FASB ASC 310-10-35, Subsequent Measurement of Receivables, where a specific reserve has
been established or a chargeoff has been recorded.
Disclosures about Fair Value of Financial Instruments
The following section describes the valuation methodologies used by the Company for estimating fair value of financial
instruments not recorded at fair value.
Cash and Due from Banks The carrying amount of cash and amounts due from banks approximate fair value due to the
relatively short period of time between their origination and their expected realization.
Money Market Assets The carrying amount of money market assets approximate fair value due to the relatively short period of
time between their origination and their expected realization.
Investment Securities Held to Maturity The fair values of investment securities were estimated using quoted prices as described
above for Level 1 and Level 2 valuation.
Loans 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 cost. Fixed rate loans and variable rate loans that have
reached their minimum contractual interest 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 allowance for loan losses of
$32,597 thousand at December 31, 2011 and $35,636 thousand at December 31, 2010 and the fair value discount due to credit
default risk associated with purchased covered and purchased non-covered loans of $46,282 thousand and $10,211 thousand,
respectively at December 31, 2011 and purchased covered and purchased non-covered loans of $61,784 thousand and $32,382
thousand, respectively at December 31, 2010 were applied against the estimated fair values to recognize estimated future defaults
of contractual cash flows. The Company does not consider these values to be a liquidation price for the loans.
FDIC Receivable The fair value of the FDIC receivable recorded in Other Assets was estimated by discounting estimated future
cash flows using current market rates for financial instruments with similar characteristics.
Deposit Liabilities The carrying amount of checking accounts, savings accounts and money market accounts approximates fair
value due to the relatively short period of time between their origination and their expected realization. The fair values of time
deposits were estimated by discounting estimated future cash flows related to these financial instruments using current market
rates for financial instruments with similar characteristics.
Short-Term Borrowed Funds The carrying amount of securities sold under agreement to repurchase and other short-term
borrowed funds approximate fair value due to the relatively short period of time between their origination and their expected
realization. The fair values of term repurchase agreements were estimated by using interpolated yields for financial instruments
with similar characteristics.
Term Repurchase Agreement The fair value of the term repurchase agreement was estimated by using interpolated yields for
financial instruments with similar characteristics.
Federal Home Loan Bank Advances The fair values of FHLB advances were estimated by using interpolated yields for
financial instruments with similar characteristics.
Debt Financing and Notes Payable The fair values of debt financing and notes payable were estimated by using interpolated
yields for financial instruments with similar characteristics.
Restricted Performance Share Grants The fair value of liabilities for unvested restricted performance share grants recorded in
Other Liabilities were estimated using quoted prices as described above for Level 1 valuation.
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The table below is a summary of fair value estimates for financial instruments, excluding financial instruments recorded at fair
value on a recurring basis. The values assigned do not necessarily represent amounts which ultimately may be realized. 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 carrying amounts in the following table are recorded in the balance sheet under the indicated captions.
The Company has not included assets and liabilities that are not financial instruments, such as goodwill, long-term relationships
with deposit, merchant processing and trust customers, other purchased intangibles, premises and equipment, deferred taxes and
other assets and liabilities. The total estimated fair values do not represent, and should not be construed to represent, the
underlying value of the Company.
Financial Assets
Cash and due from banks
Money market assets
Investment securities held to maturity
Loans
Other assets - FDIC receivable
Financial Liabilities
Deposits
Short-term borrowed funds
Term repurchase agreement
Federal Home Loan Bank advances
Debt financing and notes payable
Other liabilities - restricted performance share grants
At December 31, 2011
At December 31, 2010
Carrying
Amount
Estimated
Fair Value
Carrying Estimated
Amount Fair Value
(In thousands)
$530,045
-
922,803
2,491,209
40,113
$530,045
-
947,493
2,515,095
40,046
$338,793
392
580,728
2,886,448
44,738
$338,793
392
594,711
2,923,612
44,353
4,249,921
115,689
10,000
26,023
15,000
1,626
4,192,633
115,689
10,242
26,532
15,222
1,626
4,132,961
107,385
-
61,698
26,363
2,259
4,135,113
107,385
-
61,833
26,811
2,259
The majority of the Company’s standby letters of credit and other commitments to extend credit carry current market interest rates
if converted to loans. No premium or discount was ascribed to these commitments because virtually all funding would be at
current market rates.
Note 13: Lease Commitments
Thirty-three banking offices and a centralized administrative service center are owned and seventy-four facilities are leased.
Substantially all the leases contain multiple renewal options and provisions for rental increases, principally for cost of living
index. The Company also leases certain pieces of equipment.
Minimum future rental payments under noncancelable operating leases are as follows:
2012 ...................................................................................................................
2013 ...................................................................................................................
2014 ...................................................................................................................
2015 ...................................................................................................................
2016 ...................................................................................................................
Thereafter................................................................................................................
Total minimum lease payments .................................................................................
At December 31,
2011
(In thousands)
$8,954
7,882
5,893
4,191
1,191
892
$29,003
The total minimum lease payments have not been reduced by minimum sublease rentals of $8,554 thousand due in the future
under noncancelable subleases. Total rentals for premises, net of sublease income, included in noninterest expense were $7,759
thousand in 2011, $6,862 thousand in 2010 and $7,196 thousand in 2009. During 2009, the Company was obligated to pay
monthly lease payments on County facilities until vacated.
81
Note 14: 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 $348,621 thousand and $422,677 thousand at December 31, 2011 and 2010, 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 $27,221 thousand and $25,458 thousand at
December 31, 2011 and 2010, respectively. The Company also had commitments for commercial and similar letters of credit of
$454 thousand and $3,351 thousand at December 31, 2011 and 2010, respectively.
During 2007, the Visa Inc. (“Visa”) organization of affiliated entities announced that it completed restructuring transactions in
preparation for an initial public offering planned for early 2008, and, as part of those transactions, the Bank’s membership interest
in Visa U.S.A. was exchanged for an equity interest in Visa Inc., in the form of Class B common stock. In accordance with Visa’s
by-laws, the Bank and other Visa U.S.A. member banks are obligated to share in Visa’s litigation obligations which existed at the
time of the restructuring transactions. A litigation escrow account is maintained by Visa for these obligations. When Visa funds
the litigation escrow account, the Class B common shares become convertible into fewer Class A common shares through a
corresponding adjustment to the conversion rate applicable to the Class B common shares.
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. Legal costs related to covered assets are eighty percent indemnified under loss-sharing agreements with the FDIC if
certain conditions are met.
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Note 15: Retirement Benefit Plans
The Company sponsors a defined contribution Deferred Profit-Sharing Plan covering substantially all of its salaried employees
with one or more years of service. The costs charged to noninterest expense related to benefits provided by the Deferred Profit-
Sharing Plan were $1,200 thousand in 2011, $1,740 thousand in 2010 and $1,176 thousand in 2009.
In addition to the Deferred Profit-Sharing Plan, all salaried employees are eligible to participate in the Tax Deferred
Savings/Retirement Plan (ESOP) upon completion of a 90-day introductory period. The Tax Deferred Savings/ Retirement Plan
(ESOP) 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 stock. The matching
contributions charged to compensation expense were $1,283 thousand in 2011, $1,377 thousand in 2010 and $1,353 thousand in
2009.
The Company offers a continuation of group insurance coverage to eligible employees electing early retirement, for the period
from the date of retirement until age 65. For eligible employees the Company pays a portion of these early retirees’ insurance
premiums which are determined at their date of retirement. The Company reimburses a portion of Medicare Part B premiums for
all qualifying retirees over age 65 and their spouses. Eligibility for post-retirement medical benefits is based on age and years of
service, and restricted to employees hired prior to February 1, 2006. The Company uses an actuarial-based accrual method of
accounting for post-retirement benefits.
The Company used a December 31 measurement date for determining post-retirement medical benefit calculations.
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The following tables set 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:
Net Periodic Benefit Cost
Service cost................................................................................................................................................ ($35)
Interest cost................................................................................................................................................
175
61
Amortization of unrecognized transition obligation ..................................................................................
Net periodic cost (benefit) ......................................................................................................................... 201
2011
At December 31,
2010
(In thousands)
($371)
193
61
(117)
2009
($357)
210
61
(86)
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income
(36)
(36)
Amortization of unrecognized transition obligation, net of tax .................................................................
($122)
Total recognized in net periodic cost (benefit) and accumulated other comprehensive income................ $165
The remaining transition obligation cost for this post-retirement benefit plan that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the next fiscal year is $61 thousand.
(36)
($153)
Obligation and Funded Status
For the years ended December 31,
2009
2011
Change in benefit obligation
Benefit obligation at beginning of year ........................................................................................ $3,178
Service cost...................................................................................................................................
(35)
Interest cost...................................................................................................................................
175
(201)
Benefits paid.................................................................................................................................
$3,117
Benefit obligation at end of year ..................................................................................................
Accumulated post retirement benefit obligation attributable to:
Retirees ..................................................................................................................................... $2,363
Fully eligible participants .........................................................................................................
537
217
Other .........................................................................................................................................
$3,117
Total......................................................................................................................................
$—
Fair value of plan assets................................................................................................................
Accumulated post retirement benefit obligation in excess of plan assets ..................................... $3,117
2010
(In thousands)
$3,519
(371)
193
(163)
$3,178
$3,813
(357)
210
(147)
$3,519
$1,990
951
237
$3,178
$—
$3,178
$2,241
1,044
234
$3,519
$—
$3,519
Additional Information
Assumptions
Weighted-average assumptions used to determine benefit obligations as of December 31
Discount rate ........................................................................................................................................ 4.60%
5.50%
5.50%
Weighted-average assumptions used to determine net periodic benefit cost as of December 31
Discount rate ........................................................................................................................................ 5.50%
5.50%
5.80%
The above discount rate is based on the Corporate AA Moody’s bond rate, the term of which approximates the term of the benefit
obligations. The Company reserves the right to terminate or alter post-employment health benefits, which is considered in
estimating the increase in the cost of providing such benefits. The assumed annual average rate of inflation used to measure the
expected cost of benefits covered by the plan was 4.50% for 2012 and beyond.
At December 31,
2010
2009
2011
83
Assumed benefit inflation rates have a significant effect on the amounts reported for health care plans. A one percentage point
change in the assumed benefit inflation rate would have the following effect on 2011 results:
One Percentage
Point Increase
One Percentage
Point Decrease
(In thousands)
Effect on total service and interest cost components .......................
Effect on post-retirement benefit obligation....................................
$101
397
Estimated future benefit payments
(In thousands)
2012 ..................................................................................................................................
2013 ..................................................................................................................................
2014 ..................................................................................................................................
2015 ..................................................................................................................................
2016 ..................................................................................................................................
Years 2017-2021...............................................................................................................
($86)
(331)
$201
191
181
171
161
653
Note 16: Related Party Transactions
Certain of the Directors, executive officers and their associates have had banking transactions with subsidiaries of the Company in
the ordinary course of business. With the exception of the Company’s Employee Loan Program, all outstanding loans and
commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons, did not involve more than a normal risk of
collectability, and did not present other favorable features. As part of the Employee Loan Program, all employees, including
executive officers, are eligible to receive mortgage loans at one percent below Westamerica Bank’s prevailing interest rate at the
time of loan origination. All loans to executive officers under the Employee Loan Program are made by Westamerica Bank in
compliance with the applicable restrictions of Section 22(h) of the Federal Reserve Act.
The table below reflects information concerning loans to certain directors and executive officers and/or family members during
2011 and 2010:
2011
2010
(In thousands)
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Beginning balance ............................................................................................
Originations ......................................................................................................
Principal reductions ..........................................................................................
At December 31,...............................................................................................
Percent of total loans outstanding.....................................................................
$1,199
85
(185)
$1,099
0.04%
$1,196
129
(126)
$1,199
0.04%
Note 17: Regulatory Matters
Payment of dividends to the Company by the Bank is limited under regulations for state chartered 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 the
preceding three calendar years less dividends paid. Under this regulation, the Bank was not required to obtain approval for
dividends paid to the Company during 2011. The Company consistently has paid quarterly dividends to its shareholders since its
formation in 1972. As of December 31, 2011, $166,437 thousand was available for payment of dividends by the Company to its
shareholders.
The Bank is required to maintain reserves with the Federal Reserve Bank equal to a percentage of its reservable deposits. The
Bank’s daily average on deposit at the Federal Reserve Bank was $314,980 thousand in 2011 and $215,609 thousand in 2010,
which amounts meet or exceed the Bank’s required reserves.
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Note 18: Other Comprehensive Income
The components of other comprehensive income (loss) and other related tax effects were:
Securities available for sale:
Before tax
Net unrealized gains arising during the year.............................................................................
Net unrealized gains arising during the year......................................................................... $19,282
—
Reclassification of gains (losses) included in net income.....................................................
19,282
61
Other comprehensive income ................................................................................................... $19,343
Post-retirement benefit obligation.........................................................................................
Securities available for sale:
Net unrealized losses arising during the year........................................................................ ($6,197)
—
Reclassification of gains (losses) included in net income.....................................................
(6,197)
Net unrealized losses arising during the year............................................................................
61
Other comprehensive loss......................................................................................................... ($6,136)
Post-retirement benefit obligation.........................................................................................
Before tax
Securities available for sale:
Net unrealized gains arising during the year......................................................................... $4,552
—
Reclassification of gains (losses) included in net income.....................................................
4,552
Net unrealized gains arising during the year.............................................................................
61
Post-retirement benefit obligation.........................................................................................
Other comprehensive income ................................................................................................... $4,613
Before tax
Cumulative other comprehensive income (loss) balances were:
2011
Tax effect
(In thousands)
($8,108)
—
(8,108)
(25)
($8,133)
2010
Net of tax
$11,174
—
11,174
36
$11,210
Tax effect
(In thousands)
$2,606
—
2,606
(25)
$2,581
Net of tax
($3,591)
—
(3,591)
36
($3,555)
2009
Tax effect
(In thousands)
($1,914)
—
(1,914)
(25)
($1,939)
Net of tax
$2,638
—
2,638
36
$2,674
Post-
retirement
Benefit
Obligation
Net
Unrealized
gains(losses)
on securities
Cumulative
Other
Comprehensive
Income (Loss)
Balance, December 31, 2008 .............................................................................................
Net change......................................................................................................................
Balance, December 31, 2009 .............................................................................................
Net change......................................................................................................................
Balance, December 31, 2010 .............................................................................................
Net change......................................................................................................................
Balance, December 31, 2011 .............................................................................................
($322)
36
(286)
36
(250)
36
($214)
(In thousands)
$1,362
2,638
4,000
(3,591)
409
11,174
$11,583
$1,040
2,674
3,714
(3,555)
159
11,210
$11,369
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Note 19: Earnings Per Common Share
The table below shows earnings per common share and diluted earnings per common share. Basic earnings per common share are
computed by dividing net income applicable to common equity by the average number of common shares outstanding during the
period. Diluted earnings per common share are computed by dividing net income applicable to common equity by the average
number of common shares outstanding during the period plus the impact of common stock equivalents.
2011
2010
(In thousands, except per share data)
2009
Net income..............................................................................................................................
Less: Preferred stock dividends and discount accretion .........................................................
Net income applicable to common equity (numerator) ..........................................................
Basic earnings per common share
Weighted average number of common shares outstanding — basic (denominator) ..............
Basic earnings per common share...........................................................................................
Diluted earnings per common share
Weighted average number of common shares outstanding — basic ......................................
Add exercise of options reduced by the number of shares that could have been purchased
with the proceeds of such exercise........................................................................................
Weighted average number of common shares outstanding — diluted (denominator) ...........
Diluted earnings per common share........................................................................................
$87,888
—
$87,888
$94,577 $125,426
3,963
$94,577 $121,463
—
28,628
$3.07
29,166
$3.24
29,105
$4.17
28,628
29,166
29,105
114
28,742
$3.06
305
29,471
$3.21
248
29,353
$4.14
For the years ended December 31, 2011, 2010, and 2009, options to purchase 1,553 thousand, 380 thousand and 788 thousand
shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per common
share because the option exercise price exceeded the fair value of the stock such that their inclusion would have had an anti-
dilutive effect.
Note 20: Westamerica Bancorporation (Parent Company Only)
Statements of Income and Comprehensive Income
For the years ended December 31,
For the Years Ended December 31,
2011
2010
(In thousands)
2009
Dividends from subsidiaries .................................................................................................. $106,756 $68,784 $92,785
180
Interest income ......................................................................................................................
6,979
Other income .........................................................................................................................
99,944
Total income......................................................................................................................
1,749
Interest on borrowings...........................................................................................................
7,182
Salaries and benefits..............................................................................................................
2,643
Other expense........................................................................................................................
11,574
Total expenses ...................................................................................................................
88,370
Income before taxes and equity in undistributed income of subsidiaries ..............................
Income tax benefit.................................................................................................................
2,279
34,777
Earnings of subsidiaries (less) greater than subsidiary dividends .........................................
Net income ........................................................................................................................
125,426
2,674
Other comprehensive income (loss), net of tax .....................................................................
$91,022 $128,100
Comprehensive income .....................................................................................................
11
7,780
114,547
859
6,620
2,356
9,835
104,712
699
(17,523)
87,888
11,210
$99,098
11
7,262
76,057
1,824
7,219
1,749
10,792
65,265
1,416
27,896
94,577
(3,555)
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Balance Sheets
At December 31,
2011
2010
Assets
Cash ....................................................................................................................................................................
Money market assets and investment securities available for sale ......................................................................
Investment in subsidiaries ...................................................................................................................................
Premises and equipment, net ...............................................................................................................................
Accounts receivable from subsidiaries ................................................................................................................
Other assets..........................................................................................................................................................
Total assets ......................................................................................................................................................
(In thousands)
$8,363
2,186
539,117
11,365
719
28,485
$1,205
3,342
545,307
11,107
700
28,830
$590,235 $590,491
Liabilities
Debt financing and notes payable........................................................................................................................
Other liabilities ....................................................................................................................................................
Total liabilities.................................................................................................................................................
Shareholders’ equity ............................................................................................................................................
$27,673
17,531
45,204
545,287
Total liabilities and shareholders’ equity......................................................................................................... $590,235 $590,491
$15,000
16,594
31,594
558,641
Statements of Cash Flows
For the years ended December 31,
2011
2010
(In thousands)
2009
$87,888
$94,577
$125,426
Operating Activities
Net income ..........................................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ........................................................................................
(Increase) decrease in accounts receivable from affiliates ..............................................
Increase in other assets....................................................................................................
Stock option compensation expense ...............................................................................
Tax benefit decrease (increase) upon exercise of stock options ......................................
Provision for deferred income tax ...................................................................................
Increase in other liabilities ..............................................................................................
Earnings of subsidiaries less (greater) than subsidiary dividends ...................................
Writedown of property and equipment............................................................................
Net cash provided by operating activities................................................................................
Investing Activities
Investment in subsidiary bank.........................................................................................
Purchases of premises and equipment .............................................................................
Net decrease (increase) in short term investments ..........................................................
Net cash used in investing activities........................................................................................
Financing Activities
126
(18)
(1,951)
1,425
248
963
217
17,523
599
107,020
—
(1,154)
341
(813)
172
(11)
(2,212)
1,380
(1,004)
789
1,833
(27,896)
228
67,856
—
(30)
—
(30)
(1,000)
Net change in short-term debt .........................................................................................
(14,700)
Net reductions in notes payable and long-term borrowings ............................................ (10,000) —
—
Proceeds from issuance of preferred stock and warrants................................................. —
—
—
Redemption of preferred stock ........................................................................................
Preferred stock dividends ................................................................................................ —
—
Exercise of stock options/issuance of shares...................................................................
14,374
Tax benefit (decrease) increase upon exercise of stock options ......................................
Retirement of common stock including repurchases.......................................................
Dividends ........................................................................................................................
Net cash used in financing activities .......................................................................................
Net change in cash...................................................................................................................
Cash at beginning of year........................................................................................................
Cash at end of year ..................................................................................................................
Supplemental Cash Flow Disclosures:
Supplemental disclosure of cash flow activity:
(248)
(60,505)
(41,670)
(99,049)
7,158
1,205
$8,363
16,688
1,004
(28,719)
(42,094)
(67,821)
5
1,200
$1,205
186
1,150
(1,191)
1,132
(2,188)
3,758
1,765
(34,777)
—
95,261
(93,726)
(70)
(1)
(93,797)
15,700
—
83,726
(83,726)
(2,756)
9,610
2,188
(2,046)
(41,061)
(18,365)
(16,901)
18,101
$1,200
Interest paid for the period ..............................................................................................
Income tax payments for the period ................................................................................
$1,794
28,826
$1,824
50,388
$1,749
36,852
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Note 21: Quarterly Financial Information
(Unaudited – see accompanying accountant’s report)
March 31,
For the Three Months Ended
June 30,
September 30,
(In thousands, except per share data and
price range of common stock)
December 31,
$51,976
49,905
2,800
15,205
31,383
30,927
22,432
0.79
0.79
0.36
$53,088
50,935
2,800
15,292
34,309
29,118
21,269
0.74
0.74
0.36
$52,494
50,191
2,800
14,743
31,323
30,811
22,382
0.77
0.77
0.36
$50,421
48,566
2,800
14,857
30,663
29,960
21,805
0.77
0.77
0.37
49.25-56.96 46.91-52.53 36.32-50.52 36.34-46.73
2011
Interest and fee income ................................................................
Net interest income ......................................................................
Provision for credit losses ............................................................
Noninterest income .....................................................................
Noninterest expense .....................................................................
Income before taxes .....................................................................
Net income ...................................................................................
Basic earnings per common share................................................
Diluted earnings per common share.............................................
Dividends paid per common share ...............................................
Price range, common stock ..........................................................
2010
Interest and fee income ................................................................
Net interest income ......................................................................
Provision for credit losses ............................................................
Noninterest income ......................................................................
Noninterest expense .....................................................................
Income before taxes .....................................................................
Net income ...................................................................................
Basic earnings per share...............................................................
Diluted earnings per share............................................................
Dividends paid per share..............................................................
Price range, common stock ..........................................................
2009
$58,496
Interest and fee income ................................................................
54,194
Net interest income ......................................................................
3,300
Provision for credit losses ............................................................
15,696
Noninterest income ......................................................................
32,836
Noninterest expense .....................................................................
33,754
Income before taxes .....................................................................
24,161
Net income ...................................................................................
23,349
Net income applicable to common equity....................................
0.80
Basic earnings per share...............................................................
0.79
Diluted earnings per share............................................................
Dividends paid per share..............................................................
0.35
Price range, common stock .......................................................... 33.08-51.29 44.13-56.79 45.42-54.70 47.08-56.80
$54,871
51,806
2,800
15,143
31,513
32,636
23,731
0.82
0.81
0.36
50.87-61.25 52.17-60.37 50.04-55.99 48.70-56.72
$59,185
54,352
1,800
63,968
34,123
82,397
52,825
52,247
1.81
1.80
0.36
$63,072
57,327
2,600
16,386
38,666
32,447
23,183
22,076
0.76
0.75
0.35
$61,196
56,696
2,800
15,961
35,151
34,706
25,257
23,791
0.81
0.81
0.35
$56,003
52,469
2,800
15,470
32,031
33,108
23,576
0.81
0.80
0.36
$55,078
51,933
2,800
15,770
32,095
32,808
23,561
0.81
0.80
0.36
$55,203
52,107
2,800
15,071
31,508
32,870
23,709
0.81
0.81
0.36
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Westamerica Bancorporation:
We have audited the accompanying consolidated balance sheets of Westamerica Bancorporation and subsidiaries (the Company)
as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in shareholders’ equity and
comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2011. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
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 Westamerica Bancorporation and Subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated February 27, 2012 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
/s/ KPMG LLP
KPMG LLP
San Francisco, California
February 27, 2012
89
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as
amended, as of December 31, 2011.
Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s
disclosure controls and procedures are effective to ensure that material information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported as and when required
and that such information is communicated to the Company’s management, including the principal executive officer and the
principal financial officer, to allow for timely decisions regarding required disclosures. The evaluation did not identify any change
in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2011 that has
materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting and the attestation Report of Independent Registered Public
Accounting Firm are found on pages 45-46, immediately preceding the financial statements.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE
The information regarding Directors of the Registrant and compliance with Section 16(a) of the Securities Exchange Act of 1934
required by this Item 10 of this Annual Report on Form 10-K is incorporated by reference from the information contained under
the captions “Board of Directors and Committees”, “Proposal 1 — Election of Directors” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in the Company’s Proxy Statement for its 2012 Annual Meeting of Shareholders which will
be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.
Executive Officers
The executive officers of the Company 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.
Name of Executive
David L. Payne
Position
Mr. Payne, born in 1955, is the Chairman of the Board, President and Chief Executive
Officer of the Company. 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.
Jennifer J. Finger
Dennis R. Hansen
John “Robert” Thorson Mr. Thorson, born in 1960, is Senior Vice President and Chief Financial Officer for the
Company. Mr. Thorson joined Westamerica Bancorporation in 1989, was Vice
President and Manager of Human Resources from 1995 until 2001 and was Senior Vice
President and Treasurer from 2002 until 2005.
Ms. Finger, born in 1954, is Senior Vice President and Treasurer for the Corporation.
Ms. Finger joined Westamerica Bancorporation in 1997, was Senior Vice President and
Chief Financial Officer until 2005.
Mr. Hansen, born in 1950, is Senior Vice President and Manager of the Operations and
Systems Administration of Community Banker Services Corporation. Mr. Hansen
joined Westamerica Bancorporation in 1978 and was Senior Vice President and
Controller for the Company until 2005.
Mr. Robinson, born in 1959, is Senior Vice President and Banking Division Manager of
Westamerica Bank. Mr. Robinson joined Westamerica Bancorporation in 1993 and has
held several banking positions, most recently, Senior Vice President and Southern
Banking Division Manager until 2007.
Mr. Rizzardi, born in 1955, is Senior Vice President and Chief Credit Administrator of
Westamerica Bank. Mr. Rizzardi joined Westamerica Bank in 2007. He has been in the
banking industry since 1979 and was previously with Wells Fargo Bank and U.S. Bank.
Russell W. Rizzardi
David L. Robinson
Held
Since
1984
2005
2005
2005
2007
2008
The Company has adopted a Code of Ethics (as defined in Item 406 of Regulation S-K of the Securities Act of 1933) that is
applicable to its senior financial officers including its chief executive officer, chief financial officer, and principal accounting
officer. This Code of Ethics has been filed as Exhibit 14 to this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 of this Annual Report on Form 10-K is incorporated by reference from the information
contained under the captions “Executive Compensation” in the Company’s Proxy Statement for its 2012 Annual Meeting of
Shareholders which will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item 12 of this Annual Report on Form 10-K is incorporated by reference from the information
contained under the caption “Stock Ownership” in the Company’s Proxy Statement for its 2012 Annual Meeting of Shareholders
which will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.
Securities Authorized For Issuance Under Equity Compensation Plans
The following table summarizes the status of the Company’s equity compensation plans as of December 31, 2011 (in thousands,
except exercise price):
Plan category
Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
(a)
2,276
—
2,276
(b)
$49
N/A
$49
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(c)
4,061*
—
4,061
Equity compensation plans approved by security holders .............
Equity compensation plans not approved by security holders .......
Total...............................................................................................
*
The Amended and Restated Stock Option Plan, Article III, provides that the number of shares reserved for Awards under the
plan may increase on the first day of each fiscal year by an amount equal to the least of 1) 2% of the shares outstanding as of
the last day of the prior fiscal year, 2) 675,000 shares, or 3) such lesser amount as determined by the Board.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item 13 of this Annual Report on Form 10-K is incorporated by reference from the information
contained under the caption “Certain Relationships and Related Party Transactions” in the Company’s Proxy Statement for its
2012 Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 of this Annual Report on Form 10-K is incorporated by reference from the information
contained under the caption “Proposal 4 – Ratify Selection of Independent Auditor” in the Company’s Proxy Statement for its
2012 Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
1. Financial Statements:
PART IV
See Index to Financial Statements on page 44. The financial statements included in Item 8 are filed as part of this
report.
(a)
2. Financial statement schedules required. No financial statement schedules are filed as part of this report since the
required information is included in the consolidated financial statements, including the notes thereto, or the
circumstances requiring inclusion of such schedules are not present.
(a)
3. Exhibits:
The exhibit list required by this item is incorporated by reference to the Exhibit Index filed with this report.
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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.
SIGNATURES
WESTAMERICA BANCORPORATION
/s/ John “Robert” Thorson
John “Robert” Thorson
Senior Vice President
and Chief Financial Officer
(Chief Financial and Accounting Officer)
Date: February 27, 2012
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
/s/ David L. Payne
David L. Payne
Chairman of the Board and Directors
President and Chief Executive Officer
(Principal Executive Officer)
/s/ John “Robert” Thorson
John “Robert” Thorson
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Etta Allen
Etta Allen
/s/ Louis E. Bartolini
Louis E. Bartolini
/s/ E. Joseph Bowler
E. Joseph Bowler
/s/ Arthur C. Latno, Jr.
Arthur C. Latno, Jr.
/s/ Patrick D. Lynch
Patrick D. Lynch
/s/ Catherine C. MacMillan
Catherine C. MacMillan
/s/ Ronald A. Nelson
Ronald A. Nelson
/s/ Edward B. Sylvester
Edward B. Sylvester
Director
Director
Director
Director
Director
Director
Director
Director
Date
February 27, 2012
February 27, 2012
February 27, 2012
February 27, 2012
February 27, 2012
February 27, 2012
February 27, 2012
February 27, 2012
February 27, 2012
February 27, 2012
93
EXHIBIT INDEX
Exhibit
Number
3(a)
3(b)
3(c)
4(c)
Restated Articles of Incorporation (composite copy), incorporated 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.
By-laws, as amended (composite copy), incorporated by reference to Exhibit 3(b) to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the Securities and Exchange
Commission on February 26, 2010.
Certificate of Determination of Fixed Rate Cumulative Perpetual preferred Stock, Series A of Westamerica
Bancorporation dated February 10, 2009, incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K,
filed with the Securities and Exchange Commission on February 13, 2009.
Warrant to Purchase Common Stock pursuant to the Letter Agreement between the Company and the United States
Department of the Treasury dated February 13, 2009 incorporated by reference to Exhibit 4.2 to the Registrant’s
Form 8-K, filed with the Securities and Exchange Commission on February 19, 2009.
10(c)
10(a)* Amended and Restated Stock Option Plan of 1995, incorporated by reference to Exhibit A to the Registrant’s
definitive Proxy Statement pursuant to Regulation 14(a) filed with the Securities and Exchange Commission on
March 17, 2003.
Note Purchase Agreement by and between Westamerica Bancorporation and The Northwestern Mutual Life
Insurance Company dated as of October 30, 2003, pursuant to which registrant issued its 5.31% Senior Notes due
October 31, 2013 in the principal amount of $15 million and form of 5.31% Senior Note due October 31, 2013
incorporated by reference to Exhibit 4 of Registrant’s Quarterly Report on Form 10-Q for the third quarter ended
September 30, 2003, filed with the Securities and Exchange Commission on November 13, 2003.
10(d)* Westamerica Bancorporation Chief Executive Officer Deferred Compensation Agreement by and between
Westamerica Bancorporation and David L. Payne, dated December 18, 1998 incorporated by reference to Exhibit
10(e) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed with the
Securities and Exchange Commission on March 29, 2000.
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10(e)* Description of Executive Cash Bonus Program incorporated by reference to Exhibit 10(e) to Exhibit 2.1 of
10(f)*
Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 11, 2005.
Non-Qualified Annuity Performance Agreement with David L. Payne dated November 19, 1997 incorporated by
reference to Exhibit 10(f) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31,
2004, filed with the Securities and Exchange Commission on March 15, 2005.
10(g)* Amended and Restated Westamerica Bancorporation Stock Option Plan of 1995 Nonstatutory Stock Option
Agreement Form incorporated by reference to Exhibit 10(g) to the Registrant’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2004, filed with the Securities and Exchange Commission on March 15, 2005.
10(l)
10(j)*
10(i)*
10(k)*
10(h)* Amended and Restated Westamerica Bancorporation Stock Option Plan of 1995 Restricted Performance Share
Grant Agreement Form incorporated by reference to Exhibit 10(h) to the Registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2004, filed with the Securities and Exchange Commission on March 15,
2005.
Amended Westamerica Bancorporation and Subsidiaries Deferred Compensation Plan (As restated effective
January 1, 2005) dated December 31, 2008 incorporated by reference to Exhibit 10(i) to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the Securities and Exchange
Commission on February 27, 2009.
Amended and Restated Westamerica Bancorporation Deferral Plan (Adopted October 26, 1995) dated December
31, 2008 incorporated by reference to Exhibit 10(j) to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2008, filed with the Securities and Exchange Commission on February 27, 2009.
Form of Restricted Performance Share Deferral Election pursuant to the Westamerica Bancorporation Deferral
Plan incorporated by reference to Exhibit 10(i) to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2005, filed with the Securities and Exchange Commission on March 10, 2006.
Purchase and Assumption Agreement by and between Federal Deposit Insurance Corporation and Westamerica
Bank dated February 6, 2009, incorporated by reference to Exhibit 99.2 to the Registrant’s Form 8-K, filed with the
Securities and Exchange Commission on February 11, 2009.
Letter Agreement between the Company and the United States Department of the Treasury dated February 13,
2009 incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, filed with the Securities and
Exchange Commission on February 19, 2009.
Data Processing Agreement by and between Fidelity Information Services and Westamerica Bancorporation
Statement re computation of per share earnings incorporated by reference to Note 19 of the Notes to the
Consolidated Financial Statements of this report.
Code of Ethics incorporated by reference to Exhibit 14 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2003, filed with the Securities and Exchange Commission on March 10, 2004.
Subsidiaries of the registrant.
Consent of KPMG LLP
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
21
23(a)
31.1
31.2
32.1
10(r)
11.1
10(m)
14
94
32.2
101**
the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Annual Report
on Form 10-K for the period ended December 31, 2011, is formatted in XBRL interactive data files: (i)
Consolidated Statement of Income for each of the years in the three-year period ended December 31, 2011;
(ii) Consolidated Balance Sheet at December 31, 2011, and December 31, 2010; (iii) Consolidated Statement of
Changes in Shareholders’ Equity and Comprehensive Income for each of the years in the three-year period ended
December 31, 2011; (iv) Consolidated Statement of Cash Flows for each of the years in the three-year period ended
December 31, 2011 and (v) Notes to Consolidated Financial Statements.
____________
*
** As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12
Indicates management contract or compensatory plan or arrangement.
of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
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 A-2M, Westamerica Bancorporation, P.O. Box 1200, Suisun City, California 94585-1200, and
payment to the Company of $.25 per page.
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Corporate Information
Corporate Profile
Westamerica Bancorporation (Nasdaq:WABC) operates as a
holding company for Westamerica Bank, a community bank with
95 branches and two trust offices serving 21 Northern and Central
California counties.
Westamerica Bancorporation Headquarters
1108 Fifth Avenue, San Rafael, CA 94901
Telephone (415) 257-8000
www.westamerica.com
Subsidiary Bank
Westamerica Bank
1108 Fifth Avenue, San Rafael, CA 94901
Telephone (415) 257-8000
Notice of Annual Meeting
Thursday, April 26, 2012 at 11:00 a.m.
Fairfield Center for Creative Arts
1035 W. Texas Street, Fairfield, CA 94533
Transfer Agent
Computershare Investor Services LLC
Telephone (877) 588-4258 (Toll-free)
www.computershare.com/investor
Stock Listing
The NASDAQ Global Select Market, Symbol: WABC
Dividend Reinvestment and Stock Purchase Plan
Westamerica Bancorporation offers a dividend reinvestment
and stock purchase program whereby registered shareholders
may reinvest their dividends in and/or purchase additional shares
of the Company’s stock. Information concerning this optional
program is available from:
Computershare Investor Services LLC
Telephone (877) 588-4258 (Toll-free)
Annual Report Copies
Westamerica Bancorporation will provide its security holders,
without charge, a copy of its 2011 Annual Report on Form
10-K, including the financial statements and schedules thereto,
as filed with the Securities and Exchange Commission.
Requests for copies of this annual report should be directed to:
Westamerica Bancorporation, Investor Relations, A-2B
Post Office Box 1250, Suisun City, CA 94585-1250
Telephone (707) 863-6992
E-mail: investments@westamerica.com
www.westamerica.com
Westamerica Bancorporation and
Westamerica Bank Board of Directors
David L. Payne, Chairman, President and Chief Executive Officer,
Westamerica Bancorporation; President and General Manager,
Gibson Publications
Etta Allen, President, Allen Heating and Sheet Metal
Louis E. Bartolini, Retired Merrill Lynch Executive
E. Joseph Bowler, Retired Senior Vice President and Treasurer,
Westamerica Bancorporation
Arthur C. Latno, Jr., Retired Executive Vice President, Pacific
Telesis Company
Patrick D. Lynch, Consultant, High Technology Companies
Catherine C. MacMillan, Attorney
Ronald A. Nelson, Investments
Edward B. Sylvester, Consulting Civil Engineer
Westamerica Bancorporation Corporate Officers
David L. Payne, Chairman, President and Chief Executive Officer
Jennifer J. Finger, Senior Vice President and Treasurer
Dennis R. Hansen, Senior Vice President Operations and Systems
Russell Rizzardi, Senior Vice President Credit Administration
David L. Robinson, Senior Vice President Banking Division
James J. Schneck, Vice President and General Auditor
Robert A. Thorson, Senior Vice President and Chief Financial Officer
Westamerica Bank Management Officers
David L. Payne, Chairman, President and Chief Executive Officer
Jennifer J. Finger, Senior Vice President and Treasurer
Dennis R. Hansen, Senior Vice President Operations and Systems
Russell Rizzardi, Senior Vice President Credit Administration
David L. Robinson, Senior Vice President Banking Division
Robert A. Thorson, Senior Vice President and Chief Financial Officer
1108 Fifth Avenue
San Rafael, CA 94901
www.westamerica.com