2013
Annual Report,
Proxy Statement
and Notice of
Annual Meeting
Westamerica 2013
1108 Fifth Avenue
San Rafael, California 94901
March 10, 2014
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 24, 2014, at the Hilton Garden Inn,
2200 Gateway Court, 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 the compensation of our named executive officers; (iii) ratify the selection of
independent auditor; and (iv) conduct other business that may properly come 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.”
We look forward to seeing you at the Annual Meeting on Thursday, April 24, 2014, at the Hilton Garden
Inn in Fairfield, California.
Sincerely,
David L. Payne
Chairman of the Board, President
and Chief Executive Officer
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
WESTAMERICA BANCORPORATION
1108 Fifth Avenue
San Rafael, California 94901
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date and Time
Thursday, April 24, 2014, at 11:00 a.m. Pacific Time
Place
Hilton Garden Inn, 2200 Gateway Court, Fairfield, California.
Items of Business
1. To elect nine Directors to serve until the 2015 Annual Meeting of Shareholders;
2. To approve a non-binding advisory vote on the compensation of our named executive officers;
3. To ratify selection of independent auditor; and
4. To conduct other business that may properly come before the Annual Meeting and any adjournments
postponements.
Who Can Vote?
Shareholders of Record at the close of business on February 24, 2014 are entitled to notice of, and to vote at
the Annual Meeting or any postponement or adjournment thereof.
Admission to the Annual Meeting
No ticket will be necessary for admission to the Annual Meeting. However, to facilitate the admission
process, Shareholders of Record (Holder) planning to attend the Annual 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 holder), you may 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 brokerage statement dated on or after February 24,
2014, evidencing your shareholding on the February 24 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, 2013 is enclosed or is available for viewing as indicated on the
Shareholder Meeting Notice and 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
Dated: March 10, 2014
Kris Irvine
VP/Corporate Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING
BEING HELD ON THURSDAY, APRIL 24, 2014. THE PROXY STATEMENT AND ANNUAL REPORT ON FORM 10-K TO
SHAREHOLDERS ARE AVAILABLE AT: WWW.WESTAMERICA.COM
YOUR VOTE IS IMPORTANT
TELEPHONE OR THE INTERNET USING THE PROCEDURES DESCRIBED IN THE PROXY STATEMENT,
SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES.
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
TABLE OF CONTENTS
General
Voting Information .............................................................................................................................................1
Additional Information.......................................................................................................................................4
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 .....................................................................7
Board of Directors and Committees ..................................................................................................................9
Director Compensation.....................................................................................................................................13
Director Compensation Table for Fiscal Year 2013 .......................................................................................14
Executive Compensation
Compensation Discussion and Analysis..........................................................................................................14
Employee Benefits Compensation Committee Report ...................................................................................24
Compensation Committee Interlocks and Insider Participation .....................................................................25
Summary Compensation ..................................................................................................................................25
Summary Compensation Table for Fiscal Year 2013 ....................................................................................25
Grants of Plan-Based Awards Table for Fiscal Year 2013.............................................................................26
Outstanding Equity Awards Table at Fiscal Year End 2013..........................................................................27
Option Exercises and Stock Vested Table for Fiscal Year 2013....................................................................27
Pension Benefits for Fiscal Year 2013.............................................................................................................28
Nonqualified Deferred Compensation Table for Fiscal Year 2013 ...............................................................28
Potential Payments Upon Termination or Change in Control........................................................................29
Certain Relationships and Related Party Transactions ..................................................................................30
Proposal 2: Approve a Non-Binding Advisory Vote on the Compensation of
Our Named Executive Officers ............................................................................................................ 30
Proposal 3: Ratify Selection of Independent Auditor............................................................................... 31
Audit Committee Report ....................................................................................................................................32
Shareholder Proposal Guidelines ......................................................................................................................33
Shareholder Communication to Board of Directors.......................................................................................34
Other Matters.......................................................................................................................................................34
Exhibit A ............................................................................................................................................................ A-1
Exhibit B..............................................................................................................................................................B-1
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
WESTAMERICA BANCORPORATION
1108 Fifth Avenue
San Rafael, California 94901
___________
PROXY STATEMENT
March 10, 2014
___________
GENERAL
The Westamerica Board of Directors is soliciting proxies to be used at the 2014 Annual Meeting of
Shareholders of Westamerica Bancorporation, which will be held at 11:00 a.m. Pacific Time, Thursday, April
24, 2014, or at any adjournment or postponement of the Annual Meeting. Proxies are solicited to give all
Shareholders of Record (“registered 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 at
the Annual Meeting.
Voting Information
Internet Availability of Proxy Materials. We are providing proxy materials to our shareholders primarily
via the Internet, instead of mailing printed copies of those materials to each shareholder. By doing so, we save
costs and reduce the environmental impact of our Annual Meeting. On or about March 10, 2014, we
mailed a Notice of Internet Availability of Proxy Materials (“Notice”) to certain of our shareholders. The
Notice contains instructions about how to access our proxy materials and vote online or vote by
telephone. If you would like to receive a paper copy of our proxy materials, please follow the instructions
included in the Notice. If you previously chose to receive our proxy materials electronically, you will
continue to receive access to these materials via email unless you elect otherwise.
Proof of Ownership May Be Required for Attending Annual Meeting in Person. You are entitled to
attend the Annual Meeting only if you are a shareholder as of the close of business on February 24, 2014, the
record date, or hold a valid proxy for the meeting. In order to be admitted to the Annual Meeting, the
Corporation reserves the right to request proof of ownership of Westamerica stock on the record date. This can
be:
• A brokerage statement or letter from a bank or broker indicating ownership on February 24, 2014;
• The Notice of Internet Availability of Proxy Materials;
• A printout of proxy distribution email (if you received your materials electronically);
• A Proxy Card;
• A voting instruction form; or
• A legal proxy provided by your broker, bank or nominee.
Any holder of a proxy from a shareholder must present the Proxy Card properly executed, and a copy of the
proof of ownership. The Corporation reserves the right to ask shareholders and proxy holders to present a
form of photo identification such as a driver’s license.
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, and FOR ratifying the selection of independent auditor.
The Proxies will also have discretionary authority to vote in accordance with their judgment on any other
1
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
matter that may properly come before the Annual Meeting that we did not have notice of by January 25,
2014.
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 Annual Meeting. A quorum is calculated based on the number of
shares represented by shareholders attending in person or by proxy. On February 24, 2014, 26,409,146
shares of Westamerica common stock were outstanding. We also count broker non-votes, which we
describe below, as shares present or represented at the Annual Meeting for the purpose of determining
whether a quorum exists.
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 Annual 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 the election of that nominee. If you attend the Annual Meeting and have already voted, you
may vote in person in order to rescind your previous vote.
Vote Required; Effect of Abstentions and Broker Non-Votes. The shares of a shareholder whose ballot
on any or all proposals is marked as “abstain” will be included in the number of shares present at the Annual
Meeting to determine whether a quorum is present. If you are the beneficial holder of shares held by a broker
or other custodian, you may instruct your broker how to vote your shares through the voting instruction form
included with this Proxy Statement. If you wish to vote the shares you own beneficially at the meeting, you
must first request and obtain a legal proxy from your broker or other custodian. If you choose not to provide
instructions or a legal proxy, your shares are referred to as “uninstructed shares.” Whether your broker or
custodian has the discretion to vote these shares on your behalf depends on the ballot item. The following
table summarizes the votes required for passage of each proposal and the effect of abstentions and
uninstructed shares held by brokers.
Brokers and custodians cannot vote uninstructed shares on your behalf in director elections or advisory
votes on executive compensation. For your vote to be counted, you must submit your voting instruction form
to your broker or custodian.
Proposal
Number
Proposals
Votes Required
for Approval
Abstentions
Uninstructed Shares
Management Vote
Recommendation
1
2
3
Election of Directors
Advisory vote on executive
compensation (Say on Pay)
Ratification of independent
auditor
See election of
directors above
Majority of
shares voted
Majority of
shares voted
Not Voted
Not Voted
Not Voted
Not Voted
Not Voted
Broker
Discretionary Vote
For
For
For
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
2
Other Matters. Approval of any other matter considered at the Annual Meeting will require the affirmative
vote of a majority of the shares present or represented by proxy and voting at the Annual Meeting.
How You Can Vote. Your vote is very important and we hope that you will attend the Annual Meeting.
However, whether or not you plan to attend the Annual Meeting, please vote by proxy.
Registered Holders. If your shares are registered directly in your name with the Company’s transfer agent,
Computershare Investor Services, LLC, you are considered a registered holder of those shares. Please vote
by proxy in accordance with the instructions on your Proxy Card, or the instruction you received through electronic
mail.
A registered holder can vote in one of the following four ways:
Via the Internet. Go to the website noted on your Proxy Card in order to vote via the Internet. Internet
voting is available 24 hours a day. We encourage you to vote via the Internet, as it is the most cost-
effective way to vote. When voting via the Internet, you do not need to return your Proxy Card.
By Telephone. Call the toll-free telephone number indicated on your Proxy Card and follow the voice
prompt instructions to vote by telephone. Telephone voting is available 24 hours a day. When voting by
telephone, you do not need to return your Proxy Card.
By Mail. Mark your Proxy Card, sign and date it, and return it in the enclosed postage-paid envelope. If
you elected to electronically access the Proxy Statement and Annual Report, you will not be receiving a
Proxy Card and must vote via the Internet or by telephone.
In person. You may vote your shares at the Annual Meeting if you attend in person, even if you
previously submitted a Proxy Card or voted via Internet or telephone. Whether or not you plan to attend
the Annual Meeting, however, we strongly encourage you to vote your shares by proxy before the
meeting.
Beneficial Shareholders. If your shares are held in a brokerage account in the name of your bank, broker,
or other holder of record (this is called “street name”), you are not a registered holder, but rather are
considered a “beneficial holder” of those shares. Your bank, broker, or other holder of record will send you
instructions on how to vote your shares. If you are a beneficial holder, you must obtain a proxy, executed in
your favor, from the holder of record to be able to vote in person at the Annual Meeting.
We have been advised by counsel that these telephone and internet voting procedures comply with California
law.
Voting Deadlines. If you are a participant in the Westamerica Bancorporation Tax Deferred Savings/Retirement
Plan (ESOP) your vote must be received by 11:59 p.m. Central Time, on April 21, 2014. All other shareholders
voting by telephone or Internet must vote by 1:00 a.m. Central Time, on April 24, 2014 to ensure that their vote
is counted.
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 Annual Meeting. You may do this by: (a) signing another
Proxy Card with a later date and delivering it to us prior to the Annual 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 24, 2014 (prior to 11:59 p.m.
Central Time, on April 21, 2014 for ESOP participants); or (c) attending the Annual Meeting in person and casting
3
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
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 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 2013 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 via 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 Holders. Based on Schedule 13G filings, shareholders
beneficially holding more than 5% of Westamerica common stock outstanding as of December 31, 2013, in
addition to those disclosed in the Security Ownership of Directors and Management below, were:
Name and Address of Beneficial Owner
Title of Class
Number of Shares
Beneficially Owned
Percent of Class
T. Rowe Price Associates, Inc
1100 East Pratt Street, Baltimore, MD 21202-1009
BlackRock, Inc.
40 East 52nd Street, New York, NY 10022
Neuberger Berman, Inc.
605 Third Avenue, New York, NY 10158
State Street Corporation
One Lincoln Street, Boston, MA 02111
The Vanguard Group, Inc.
100 Vanguard Boulevard, Malvern, PA 19355
________________
Common
Common
Common
Common
Common
2,662,028
2,328,399
2,259,427
1,562,549
1,493,600
(1)
(2)
(3)
(4)
(5)
10.00%
8.70%
8.49%
5.90%
5.60%
(1) The Schedule 13G was filed with the SEC on February 10, 2014. These securities are owned by various individual and institutional investors,
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 Associates is deemed to be a beneficial holder of
such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial holder of such securities.
4
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
(2) The Schedule 13G filed with the SEC on January 31, 2014 disclosed that the reporting entity, through its subsidiaries, BlackRock, Inc., held sole
voting power over 2,231,519 shares and sole dispositive power over 2,328,399 shares.
(3) The Schedule 13G filed with the SEC on February 13, 2014 disclosed that the reporting entity, Neuberger Berman, Inc., held shared voting power
over 2,254,227 shares and shared dispositive power over 2,259,427 shares.
(4) The Schedule 13G filed with the SEC on February 5, 2014 disclosed that the reporting entity, through its subsidiaries, State Street Corporation,
held shared voting power over 1,562,549 shares and shared dispositive power over 1,562,549 shares.
(5) The Schedule 13G filed with the SEC on February 2, 2014 disclosed that the reporting entity, The Vanguard Group, Inc., held sole voting power
over 42,636 shares and sole dispositive power over 1,453,264 shares, and shared dispositive power over 40,336 shares.
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 24, 2014. As of February 24, 2014, there were 26,409,146 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
December 31, 2013.
Amount And Nature Of Beneficial Ownership
Sole Voting and
Investment
Power
Shared Voting
and Investment
Power
Right to Acquire
Within 60 days of
December 31, 2013
Total(1)
Percent of
Class(2)
10,830
(3)
1,800
-
3,440
(5)
1,000
8,600
(6)
44,000
-
-
25,887
(4)
-
-
-
-
-
-
-
-
-
-
-
10,830
1,800
25,887
3,440
1,000
8,600
44,000
(7)
462
885,570
(8)
252,500
1,138,532
(9)
73,750
830
122
9,838
30
-
7,471
(10)
1,385
175
25,842
-
94,891
141,490
165,736
156,021
(11)
(11)
(11)
73,750
103,192
142,997
175,749
181,893
*
*
0.1%
*
*
*
0.2%
4.3%
0.3%
0.4%
0.5%
0.7%
0.7%
154,727
946,766
907,041
2,008,534
7.4%
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
John "Robert" A. Thorson
David L. 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 25,887 shares held in trust as to which Mr. Bowler is co-trustee with shared voting and investment power.
5
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
(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 and 400 shares held in trust under the California Uniform Gift to Minors
Act as to which Ms. MacMillan is custodian.
(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 6,937 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 – 14,780 shares; and Robinson – 19,140 shares.
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, 2013, Westamerica’s Directors and Officers complied timely with all filing requirements.
BOARD OF DIRECTORS
Proposal 1 — Election of Directors
Nine Directors have been nominated for election at the Annual 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 Annual 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.
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
6
Name of Nominees, Principal Occupations, and Qualifications
Etta Allen – Director since 1988
Etta Allen (84) 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.
Louis E. Bartolini – Director since 1991
Louis E. Bartolini (81) 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, 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
E. Joseph Bowler (77) 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
Arthur C. Latno (84) 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
7
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
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 D. Lynch (80) 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.
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 Cope MacMillan (66) 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 A. Nelson (71) 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 L. Payne (58) 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.
8
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
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 16. Return on equity is currently near 15%.
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 also manages his family printing, publishing and cable
television business.
Edward B. Sylvester – Director since 1979
Edward Sylvester (77) is a licensed civil engineer and the founder of SCO Planning and Engineering. He
retired from the day-to-day engineering profession in 2007, 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 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, serves as Vice Chairman of the
Nevada County Business Association, and is a member of the Board of Sierra Nevada Memorial Hospital
where he is a member of their Finance Committee and Chairs the Hospital’s Citizen Outreach Committee. 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
Board of Directors and Committees
Director Independence and Leadership Structure
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
9
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
management team has an average tenure of 21 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.
The internal loan review function reports directly to the Board’s Loan and Investment Committee. It reports
ongoing evaluations of loan portfolios and the 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. The Board held a total of ten meetings
during 2013. 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. Each individual who served on the Board of the Corporation on the date of the 2013 annual
Meeting of Shareholders attended the meeting.
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
10
Committees of the Board
Director Name
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 in 2013
Executive
Committee
Audit
Committee
Employee
Benefits and
Compensation
Committee
Loan and
Investment
Committee
Nominating
Committee
X
X
X
Chair
5
X
X
Chair
X
9
X
X
Chair
X
5
X
X
X
Chair
9
Chair
X
X
1
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 between Board Meetings, 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:
• an understanding of generally accepted accounting principles and financial statements;
• the ability to assess the general application of such principles in connection with the accounting for
estimates, accruals and reserves;
• 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;
• an understanding of internal control over financial reporting; and
• an understanding of Audit Committee functions.
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
11
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
retains the independent auditors, and reviews the plan and the results of the auditing engagement. It acts
pursuant to a written charter that was last revised by the Board of Directors in July 2013 and is attached as
Exhibit A to the Proxy Statement for this 2014 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 2012 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 is governed by a written charter as required by NASDAQ rules. The charter
is attached to this proxy statement as Exhibit B. 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 Payroll and Employee Benefits 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.
Functions: The Nominating Committee is governed by a written charter, which was affirmed in
January 2013 and was attached as Exhibit A to the Proxy Statement for the 2013 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 broadly defines
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
12
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
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 with a reasonable amount of time before the Corporation mails its proxy materials for the current
year.
Nominations must include the following information:
• The principal occupation of the nominee;
• The total number of shares of capital stock of the Corporation that the shareholder expects will be voted
for the nominee;
• The name and address of the nominating shareholder; and
• 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:
• Appropriate personal and professional attributes to meet the Corporation’s needs;
• Highest ethical standards and absolute personal integrity;
• Physical and mental ability to contribute effectively as a Director;
• Willingness and ability to participate actively in Board activities and deliberations;
• Ability to approach problems objectively, rationally and realistically;
• Ability to respond well and to function under pressure;
• Willingness to respect the confidences of the Board and the Corporation;
• Willingness to devote the time necessary to function effectively as a Board member;
• Possess independence necessary to make unbiased evaluation of Management performance;
• Be free of any conflict of interest that would violate applicable law or regulation or interfere with ability
to perform duties;
• Broad experience, wisdom, vision and integrity;
• Understanding of the Corporation’s business environment; and
• Significant business experience relevant to the operations of the Corporation.
Loan and Investment Committee
Functions: This Committee reviews major loans and investment policies.
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 2013. Directors who are
employees of the Corporation receive no compensation for their services as Directors.
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
13
Director Compensation Table For Fiscal Year 2013
Fees Earned
Paid in Cash ($)
Change in Pension Value and
Nonqualified Deferred
Compensation Earnings(2)
$34,800
33,000
33,000
44,050
40,250
36,600
37,250
42,450
$62,677
651
0
0
0
0
0
11,422
Total ($)
$97,477
33,651
33,000
44,050
40,250
36,600
37,250
53,872
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
_________________________
(1) Non-employee Directors did not receive options or stock awards. During 2013, non-employee Directors of the Corporation each received an annual
retainer of $18,000. 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 2013 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-two
years. At the 2010, 2011, 2012 and 2013 Annual Meetings of Shareholders, a majority of our
shareholders approved an advisory proposal on the Corporation’s executive compensation.
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:
• 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.
• 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
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.
• 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;
14
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
– 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.
In February 2013, the Board of Directors adopted a clawback policy that requires executive officers to forfeit
previously awarded incentive compensation if the incentives were based on materially inaccurate financial
statements or other performance measures that are later proven to be materially inaccurate or the achievement
of which were due to fraud or other misconduct.
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 that 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, regulations and legislation, 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 the Corporation’s loan and investment portfolios, the results of internal,
regulatory and external audits, service 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 2012 Amended
and Restated Stock Option Plan of 1995 (the “2012 Amended Plan”), which was originally approved by
15
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
shareholders in 1995, and amended with shareholder approval in 2003 and again in 2012, 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 12, 2012, as filed with the SEC on
March 13, 2012, summarizes the 2012 Amended Plan’s changes from the predecessor plan. Such changes
included:
• reducing the issuable 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; and
• establishing a plan expiration date of April 26, 2022 after which shareholder approval is again required
to extend the term or approve a new stock option plan.
The 2012 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.
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
16
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
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 2012 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. As of February 25, 2013, the Corporation had no ISO or SAR awards outstanding.
Determination of Option Exercise Price
The 2012 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. The
2012 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 2012
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:
• NQSO grants 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.
• 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.
17
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
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 28 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.(2) In entering the
Pension Agreement, the Board of Directors considered the following:
• 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.
• 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 was to commence upon Mr. Payne’s attainment of age 55. Mr. Payne was age 42 at the time of entering
the Pension Agreement.
________________
(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.
(2) The value of the surrendered RPS shares 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:
“Target”
Cash
Incentive
X
Composite Corporate
Divisional and Individual
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 2013 performance were as follows:
18
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
“Target”
Cash
Goal Weighting
Incentive
$371,000
82,000
82,000
73,900
82,500
Corporate
80%
55%
55%
55%
50%
Divisional
–
25%
20%
25%
40%
Individual
20%
20%
25%
20%
10%
Mr. Payne
Mr. Thorson
Ms. Finger
Mr. Hansen
Mr. Robinson
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 2013 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 2013, the Compensation Committee expected nominal economic growth with a high level of
uncertainty given the slow recovery from 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 2013 operating environment was generally characterized as
follows:
• The economy grew at a level below economic potential. Employment conditions improved, although
unemployment levels remained above targets established by the Federal Open Market Committee. Inflation
expectations remained relatively low;
• The Federal Reserve’s monetary policies continued to influence interest rates to remain at relatively low
levels, although mortgage interest rates and other intermediate-term and longer-term interest rates gradually
increased during the year;
• Interest rates on loans and investment securities remain relatively low compared to interest rates which
would exist in a healthy and stable economy. Market interest rates remained below the yields on the
Company’s overall loan and investment portfolios throughout 2013. Competitive pricing of loans was
aggressive;
• New regulations on financial institutions continued to pressure compliance costs and operational risks.
The Compensation Committee considered Management’s response to the current operating environment
including:
• Management consistently maintained conservative loan underwriting practices to appropriately manage
the Company’s exposure to credit risk;
• Management maintained loan pricing at levels appropriate for longer-term profitability;
• Management controlled operating costs in a manner to offset the effect of environmental pressures on
revenues;
• Management increased the volume of interest-sensitive investment securities to prepare for rising interest rates on
19
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
a forward basis;
• Management pursued new sources of fee income growth; and
• 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
“Target”
Adjusted Actual
Results
Profitability Goals:
Return on average shareholders’ equity
Return on average assets
Diluted earnings per share
13.2%
1.45%
$2.69
Quality Goals:
Classified originated loans and other real estate owned
Non-performing originated loans and other real estate owned
Net loan losses to average originated loans
Service quality
$63 million
$22.0 million
0.65%
Improving
13.4%
1.45%
$2.65
$60 million
$11.3 million
0.26%
Improving
Control Goals:
Non-interest expense to revenues (efficiency ratio)
Non-interest expenses
Below satisfactory internal audits
47.8%
$113.6 million
none
48.8%
$112.6 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:
• Managing the Company toward satisfactory financial results including revenue stabilization, cost
control, and risk management;
• Expanding existing and pursuing new non-interest income revenue sources for the Company;
• Developing acquisition opportunities;
• Improving credit quality and planning for expiration of FDIC asset indemnification;
• Maintaining quality shareholder relations;
• Maintaining effective relationships with regulators;
• Satisfactory audit and regulatory examination results;
• Effective internal control management; and
• Following effective personnel practices including succession planning.
Based on individual performance against these goals, the Committee exercised its discretion and
assigned Mr. Payne a composite corporate and individual performance level of 68%.
In addition to routine on-going divisional responsibilities, Mr. Thorson managed the Finance Division
toward functional goals, which included:
• Leading administrative processes regarding expiration of FDIC asset indemnification;
20
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
• Management of the regulatory compliance function;
• Personnel management and staff development;
• Assuming management responsibilities for payroll and benefits functions; and
• Management of tax strategies.
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:
• Financial planning and forecasting;
• Evaluating the Company’s tax positions and development of appropriate strategies;
• Divisional personnel succession and development activities;
• Capital planning; and
• Supporting merger and acquisition activities.
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
148%.
In addition to routine on-going divisional responsibilities, Ms. Finger managed the Treasury Division
toward functional goals, which included:
• Asset / liability and interest-rate risk management;
• Implementation of new regulations regarding investment securities;
• Personnel management and succession planning;
• Management of securities portfolio and overall interest-rate risk position; and
• Management of merchant credit card and trust operations including sales activities revenue levels,
expense containment, and audit results.
Based on the Treasury Division’s results, the Committee determined divisional performance to be 126%.
In addition to daily management responsibilities, Ms. Finger’s individual goals included:
• Merger and acquisition analysis and support; and
• Management of any corporate litigation.
Based on individual performance against these goals, the Committee determined Ms. Finger’s individual
performance to be 138%. As a result, Ms. Finger’s composite corporate, divisional and individual
performance level was 120%.
In addition to routine on-going divisional responsibilities, Mr. Hansen managed the Operations and
Systems Division toward functional goals, which included:
• Manage operating costs to budgeted levels;
• Management of significant information technology initiatives;
• Review of technology processes including implementation of evolutionary improvements;
• Implementation and management of new fee-based products; and
• Satisfactory regulatory and internal audit results.
Based on the Operations and Systems Division’s results, the Committee determined divisional
performance to be 114%.
21
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
In addition to daily management responsibilities, Mr. Hansen’s individual goals included:
• Management of personnel and staff development activities; and
• Management of third-party service providers.
Based on individual performance against these goals, the Committee determined Mr. Hansen’s individual
performance to be 124%. As a result, Mr. Hansen’s composite corporate, divisional and individual
performance level was 114%.
In addition to routine on-going divisional responsibilities, Mr. Robinson managed the Banking Division
toward functional goals, which included:
• Manage sales efforts across the entire branch network;
• Improve non-deposit fee-based revenue;
• Implementation of personnel development initiatives;
• Maintain strong internal controls; and
• Satisfactory audit results.
Based on the Banking Division’s results, the Committee determined divisional performance to be 100%.
In addition to daily management responsibilities, Mr. Robinson’s individual goals included:
• Regional sales responsibilities; and
• Development of new compensation initiatives.
Based on individual performance against these goals, the Committee determined Mr. Robinson’s individual
performance to be 138%. As a result, Mr. Robinson’s composite corporate, divisional and individual performance
level was 109%.
Based on the above described performance against objectives, the Committee determined cash incentive awards as
follows:
“Target”
Cash
Incentive
$371,000
82,000
82,000
73,900
82,500
Composite Corporate
X Divisional and Individual
Performance Level
68%
148%
120%
114%
109%
=
Cash
Incentive
Award
$250,000
121,700
98,500
84,000
89,700
Mr. Payne
Mr. Thorson
Ms. Finger
Mr. Hansen
Mr. Robinson
The size of stock grants is determined by corporate performance using stated formulas. The formulas
used to determine “target” NQSO and RPS grant sizes adjust for changes in the underlying value of one
share of Company common stock. For achievement of corporate performance in 2013, the following stock
grants were awarded in January 2014:
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
22
“Target”
Nonqualified
Stock Option
Grant
–
19,800
19,800
17,900
20,100
“Target”
RPS
Grant
–
2,090
2,090
1,890
2,110
Mr. Payne
Mr. Thorson
Ms. Finger
Mr. Hansen
Mr. Robinson
Mr. Payne
Mr. Thorson
Ms. Finger
Mr. Hansen
Mr. Robinson
X
X
Corporate
Performance
Level
110%
110%
110%
110%
110%
Corporate
Performance
Level
110%
110%
110%
110%
110%
=
Nonqualified
Stock
Option
Award
–
21,800
21,800
19,700
22,100
=
RPS
Award
–
2,300
2,300
2,080
2,320
RPS awards vest three years following the grant date, only if certain corporate performance objectives are
achieved over the three-year period. In January 2014, the Compensation Committee evaluated whether the
three year corporate performance objectives were met for RPS awards granted in January 2011. The
performance objectives for the RPS granted in January 2011 included:
• 3 year cumulative diluted earnings per share (EPS);
• 3 year average of annual return on average total assets (ROA);
• 3 year average of annual return on average shareholders’ equity relative to industry average ROE
(ROE differential);
• Ending originated non-performing assets to total originated assets (NPA); and
• Efficiency ratio over three years
The RPS would vest if any one of the following performance results were achieved:
• 4 of 5 objectives reaching “threshold” performance level;
• 3 of 5 objectives reaching “target” performance level; or
• 2 of 5 objectives reaching “outstanding” performance level.
The goals and achieved results were:
Result
Below Threshold
EPS
Below Threshold
ROA
Outstanding
ROE differential
Outstanding
NPA
Efficiency Ratio 47.00% 45.00% 42.00% Threshold
Outstanding
$10.15
2.00%
4.50%
0.55%
Threshold
$9.70
1.80%
3.00%
0.80%
Target
$9.90
1.87%
3.50%
0.70%
With two of the five goals achieved at the “outstanding” performance level, the Compensation Committee
determined the RPS shares awarded in 2011 vested upon achievement of three year goals.
Nonqualified Deferred Compensation Programs
The Corporation maintains nonqualified deferred compensation programs to provide senior and mid-level
executives the ability to defer compensation in excess of the annual limits imposed on the Corporation’s
23
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
“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.
• 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.
• 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.
Employee Benefits 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, 2013.
24
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
Submitted by the Employee Benefits and Compensation Committee
Patrick D. Lynch, Chairman
Etta Allen
Arthur Latno, Jr.
Ronald 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, 2013, 2012, and 2011. These persons are referred to as named executive
officers elsewhere in this Proxy Statement.
Summary Compensation Table For Fiscal Year 2013
Stock
Awards(1)
Option
Awards(2)
Non-Stock
Incentive Plan
Compensation(3)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings(4)
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
Name Position
Year
Salary
David L. Payne
2013
$371,000
Chairman,
President & CEO
John "Robert" A. Thorson
SVP & Chief
Financial Officer
David L. Robinson
SVP/Banking Division
Manager
Jennifer J. Finger
SVP & Treasurer
Dennis R. Hansen
SVP/Operations & Systems
Division Manager
____________________
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
-
-
371,000
371,000
$126,900
-
-
-
149,000
122,825
112,945
149,000
123,092
121,737
149,000
122,839
117,660
150,000
123,699
114,328
150,000
123,552
122,298
150,000
123,854
118,215
129,996
122,825
112,945
129,996
123,092
121,737
129,996
122,839
117,660
130,008
110,586
101,881
130,008
110,691
108,834
130,008
110,656
106,560
$250,000
250,000
250,000
121,700
116,500
116,500
89,700
92,800
84,400
98,500
98,300
97,100
84,000
84,400
84,700
-
-
-
38,953
31,832
20,393
32,100
26,405
16,495
30,877
25,724
16,826
25,226
21,819
14,124
All Other
Compensation(5)
TOTAL
$15,437
$636,437
18,750
639,750
18,779
766,679
17,471
562,894
18,811
560,972
16,844
543,236
18,579
528,406
15,334
530,389
16,927
509,891
17,827
512,970
18,635
517,484
19,321
503,742
35,054
486,755
31,420
487,172
31,864
477,912
(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.
(3) The amounts shown are non-equity incentive compensation only. No interest or other form of earnings was paid on the compensation.
25
(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
Fiscal Year 2013.”
(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 $50,000 of coverage. It also includes the dollar value of the benefit to Mr. Payne for the portion of the premium payable by the Corporation with
respect to a split dollar life insurance policy (projected on an actuarial basis), and a bonus paid to Mr. Payne in the amount of his portion of the split
dollar life insurance premium.
Based on the compensation disclosed in the Summary Compensation Table, approximately 34% of total
compensation comes from base salaries. See Compensation Discussion and Analysis for more details.
Grants of Plan-Based Awards Table For Fiscal Year 2013
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
Target
Threshold
Maximum
All Other Stock
Awards: Number of
Shares of Stock
or Units(1)
All Other Stock
Awards: Number
of Securities
Underlying
Options(2)
Exercise or
Base Price of
Option Awards
($/Share)(2)
Grant Date
Fair Value(3)
$0
$371,000
$556,500
-
-
0
-
-
0
-
-
0
-
-
0
-
-
-
-
-
-
82,000
123,000
-
-
-
-
82,500
123,750
-
-
-
-
82,000
123,000
-
-
-
-
73,900
110,850
-
-
-
-
-
-
-
-
2,810
-
-
2,830
-
-
2,810
-
-
2,530
-
-
-
-
-
-
$0
43.71
-
-
24,500
43.71
-
-
-
-
24,800
43.71
-
-
-
-
24,500
43.71
-
-
-
-
22,100
43.71
$0
-
-
122,825
112,945
-
123,699
114,328
-
122,825
112,945
-
110,586
101,881
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson
Jennifer J. Finger
Dennis R. Hansen
Grant Date
1/24/13
1/24/13
1/24/13
1/24/13
1/24/13
1/24/13
1/24/13
1/24/13
1/24/13
1/24/13
1/24/13
1/24/13
1/24/13
1/24/13
1/24/13
_____________________
(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:
• The performance and vesting period is three years;
• Multiple performance goals are established by the Compensation Committee for each grant;
• The Compensation Committee may revise the goals upon significant events;
• Three-year performance criteria are limited to those provided in the 2012 Amended Plan, as described on page 15;
• 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
• 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:
• Options vest ratably over three years beginning one year from date of grant;
• Options expire 10 years following grant date;
• Exercise price is 100% of fair market value as defined in the 2003 and 2012 Amended Plan;
• Dividends are not paid on unexercised options;
• Vesting ceases upon termination of employment, whatever the reason, except if vesting is accelerated as described below;
• Vested options may be exercised within 90 days of termination of employment and within one year upon death or disability; and
• Accelerated vesting occurs upon a “change in control” as defined in the 2012 Amended Plan as described on page 29 of this Proxy statement.
(3) The amounts shown for NQSOs and RPS awards represent the aggregate grant date fair market value.
26
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
Outstanding Equity Awards Table at Fiscal Year End 2013
Option Awards
Stock Awards
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(1)
222,022
250,000
14,400
18,437
20,800
14,133
7,234
-
9,000
11,449
11,175
23,286
20,900
14,200
7,267
-
17,800
22,600
22,204
11,048
20,800
14,133
7,234
-
9,000
11,449
19,882
20,930
19,600
18,700
12,800
6,467
-
-
-
-
-
-
7,067
14,466
24,500
-
-
-
-
-
7,100
14,533
24,800
-
-
-
-
-
7,067
14,466
24,500
-
-
-
-
-
-
6,400
12,933
22,100
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
12/31/13(2)
2,500
$141,150
Option
Exercise
Price ($)
$49.610
52.539
Option
Expiration
Date
1/22/2014
1/26/2015
52.539
52.560
56.625
50.760
45.930
43.710
52.539
52.560
48.390
47.130
56.625
50.760
45.930
43.710
52.539
52.560
48.390
47.130
56.625
50.760
45.930
43.710
52.539
52.560
48.390
47.130
43.015
56.625
50.760
45.930
43.710
1/26/2015
1/26/2016
1/28/2020
1/27/2021
1/26/2022
1/24/2023
1/26/2015
1/26/2016
1/25/2017
1/24/2018
1/28/2020
1/27/2021
1/26/2022
1/24/2023
1/26/2015
1/26/2016
1/25/2017
1/24/2018
1/28/2020
1/27/2021
1/26/2022
1/24/2023
1/26/2015
1/26/2016
1/25/2017
1/24/2018
1/21/2019
1/28/2020
1/27/2021
1/26/2022
1/24/2023
7,910
446,599
7,960
449,422
7,910
446,599
7,120
401,995
_____________________
(1) Option Awards vest ratably over three years beginning one year from date of grant. Options expiring in 2021 fully vested in January 2014. Options
expiring in 2022 fully vest in January 2015. Options expiring in 2023 fully vest in January 2016.
(2) RPS shares fully vest three years from date of grant if performance goals are met. RPS grants vest as follows: Ms. Finger – 2,420 shares vest in
January 2014, and 2,680 shares vest in January 2015, and 2,810 vests in January 2016; Messrs. Payne – 2,500 shares vest in January 2014; Thorson
– 2,420 vest in January 2014, 2,680 shares vest in January 2015 and 2,810 shares vest in 2016; Robinson – 2,440 shares vest in January 2014, 2,690 shares
vest in January 2015, and 2,830 shares vest in January 2016; and Hansen – 2,180 shares vest in January 2014, 2,410 shares vest in January 2015, and
2,530 shares vest in 2016.
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson
Jennifer J. Finger
Dennis R. Hansen
Option Exercises And Stock Vested Table For Fiscal Year 2013
Option Awards
Stock Awards
Number of Shares
Acquired on Exercise
Value Realized
on Exercise($)
Number of Shares
Acquired on Vesting
Value Realized on
Vesting($)(1)
169,077
77,782
30,590
51,000
8,790
$459,899
367,536
236,952
242,024
25,150
27
0
2,200
2,210
2,200
1,980
-
$99,869
100,323
99,869
89,882
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
(1) Amounts represent value upon vesting of RPS shares. Dividends are paid in cash during deferral period and distributions are paid in stock.
Pension Benefits For Fiscal Year 2013
Name
Plan Name
Present Value of
Accumulated Benefit
Payments during
last Fiscal Year
David L. Payne
Non-Qualified Pension Agreement
$5,705,724
$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 and will be paid to Mr. Payne for 20 years.
The discount rate used to determine the present value is 4.80%, as used by the Corporation in
determining benefit obligations for its post-employment retirement benefits as of December 31, 2013. The
obligation is an unfunded general obligation of the Corporation.
Nonqualified Deferred Compensation Table For Fiscal Year 2013
Executive
Contributions in Last
Fiscal Year(1)
Aggregate
Earnings in Last
Fiscal Year(2)
Aggregate Withdrawals/
Distributions(3)
Aggregate
Balance at Last
Fiscal Year End(2)
$-
82,215
57,675
44,899
$-
79,323
359,359
447,337
-
278,389
$-
-
(28,519)
(37,295)
(22,022)
$-
1,465,201
2,292,492
2,572,871
1,778,768
Name
David L. Payne
John "Robert" A. Thorson
David L. Robinson
Jennifer J. Finger
Dennis R. Hansen
(1) No RPS shares were deferred upon vesting in 2013. Non-equity incentive plan compensation deferred in 2013 was earned in 2012 and disclosed as
compensation in the Summary Compensation Table for 2012 and is therefore excluded from the Summary Compensation Table for Fiscal Year 2013.
In 2013, Mr. Robinson deferred $12,000 of salary earned in 2013 which is included in the Summary Compensation Table for Fiscal Year 2013.
(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 the Summary Compensation Table for Fiscal Year 2013 on page 25 are as follows: Ms. Finger – $30,877; Messrs. Thorson –
$38,953; Robinson – $32,100; and Hansen – $25,226.
(3) Includes dividends paid on deferred RPS shares.
(4) Aggregate balance of deferred compensation reported as compensation prior to 2013 is as follows: Ms. Finger – $ 2,162,829; Messrs. Thorson –
$1,385,878; Hansen – $1,522,401; and Robinson – $1,949,652.
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 2013 was 5.60%. 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
28
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
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.
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 10 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 2012 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: $951,582; Messrs. Payne: $141,150; Thorson: $951,582; Robinson: $959,124; and Hansen:
$856,435. The value is computed by multiplying the difference between the market value on December 31, 2013,
the last three business day of 2013, 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 one year’s base salary (see Summary Compensation Table for Fiscal Year
2013 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. The Severance Payment Plan is subject to Section 409A of the Internal
Revenue Code.
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
29
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 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 2013
was $254,549, $460,666, and $340,787, respectively. The principal amount outstanding at December 31,
2013 was $244,716, $442,152, and $325,741, respectively. The amount of principal paid during 2013 was
$9,832, $18,515, and $15,045, respectively. The amount of interest paid during 2013 was $4,974, $8,479, and
$6,262, respectively. The rate of interest payable on the loan is 1.875%, 1.875%, and 1.875%, respectively.
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”) requires
that shareholders cast a non-binding advisory vote 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 the shareholder 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 98% of the
shares voting on this proposal voted to support our corporation’s executive compensation strategy. The
proposal to determine how often the say on pay proposal should be voted on by shareholders will again be
brought to a shareholder vote in 2017, six years after the first frequency vote.
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:
• Disallowing re-pricing stock options for poor stock performance;
30
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
• Limiting the number of shares that may be awarded; and
• 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.
In 2012, shareholders approved the Corporation’s 2012 Amended and Restated Stock Option Plan of
1995. The 1012 Plan includes the following changes:
• Reduced the number of shares available for future issuance from 4,307,593 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; and
• Extended the term of the 2012 Plan to April 24, 2022 from April 24, 2013.
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 – RATIFY SELECTION OF INDEPENDENT AUDITOR
The Audit Committee has approved the selection of the firm of KPMG LLP to serve as independent auditors
for 2014 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 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. A representative of KPMG LLP is expected to be present at
the Annual Meeting and will have an opportunity to make a statement if they so desire and will be available
to respond to appropriate questions.
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
31
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 2013
and 2012 are as follows:
Audit fees (1)
Audit-related fees
Tax fees
All other fees
__________________
2013
$712,500
–
–
–
________
$712,500
2012
$700,000
–
–
–
________
$700,000
(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.
Preapproval 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 preapprove 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 preapproval 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. This exception also requires that 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 2013, 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 preapprovals of non-audit services and fees. In such event, the decisions of the member or members
of the Committee regarding preapprovals are presented to the full Audit Committee at its next meeting.
The Audit Committee preapproved 100% of all services performed on behalf of the Corporation by
KPMG during fiscal year 2013.
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.
32
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
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 2013 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, 2013, 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, 2013 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 10, 2014. However, if the date of next year’s Annual Meeting is changed by more than 30 days
from the date of this year’s meeting, the notice must be received by the Corporate Secretary a reasonable time
before we begin to produce and distribute our Proxy Statement. All such proposals must meet the
requirements of Rule 14a-8 under the Exchange Act.
33
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
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 24, 2015, for the
2015 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 produce and distribute 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 holders of such stock.
BY ORDER OF THE BOARD OF DIRECTORS
Kris Irvine
VP/Corporate Secretary
Dated: March 10, 2014
34
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
EXHIBIT A
Westamerica Bancorporation
Audit Committee Charter – Revised July, 2013
The Audit Committee is appointed by the Board to assist the Board in monitoring (1) the integrity of
Westamerica Bancorporation’s (“Company”) financial statements, (2) the compliance by the Company with
legal and regulatory requirements, (3) the independence, qualifications and performance of the Company’s
registered public accounting firms (“independent auditor” or “independent auditors”) preparing or issuing an
audit report or performing other audit, review or attest services for the Company and (4) the Company’s
internal audit and control function. The Audit Committee shall prepare the report that the Securities and
Exchange Commission (“SEC”) rules require be included in the Company’s annual proxy statement.
While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of
the Audit Committee to plan or conduct audits, or to determine that the Company’s financial statements are
complete and accurate and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor.
The function of the Audit Committee is oversight. Management is responsible for the preparation and
integrity of the Company’s financial statements. Management is responsible for maintaining appropriate
accounting and financial reporting policies and an appropriate internal control environment. Subject to
appointment, review and oversight by the Audit Committee, the independent auditor is responsible for
planning and conducting a proper audit of the Company’s internal control environment and of its annual
financial statements, reviewing the Company’s quarterly financial statements prior to the filing of each
quarterly report on Form 10-Q, and other procedures.
The members of the Audit Committee shall meet the independence requirements of The Nasdaq Stock
Market (“Nasdaq”) and the rules and regulations of the SEC. No member shall be an affiliated person (as
defined in relevant SEC or Nasdaq rules) of the Company or any of its subsidiaries or have participated at any
time in the preparation of financial statements of the Company or any current subsidiary during the prior
three years, and each member shall be free of any relationship that would interfere with the exercise of his or
her independent judgment in carrying out the responsibilities of a member of the Audit Committee. The
Audit Committee shall include members with banking or related financial management expertise who are
able to read and understand fundamental financial statements, including the Company’s balance sheet,
income statement and cash flow statement, and at least one member must have the additional financial
sophistication as required by and as defined in Nasdaq rules.
The Committee shall be subject to the provisions of the Company’s bylaws relating to committees of the
Board, including those provisions relating to removing committee members and filling vacancies. The
members of the Audit Committee and its Chairman shall be appointed and may be removed by the Board on
its own initiative or at the recommendation of the Nominating Committee. The Audit Committee shall have
no fewer than three members. If not designated by the Board, the Audit Committee may designate a member
as its Chair.
The Audit Committee, in its capacity as a committee of the Board, shall be directly responsible for the
appointment, compensation, retention, termination and oversight of the work of any independent auditors,
and each independent auditor must report directly to the Audit Committee. The Audit Committee, or its
designee, will sign the independent auditor engagement letter. The Audit Committee shall be directly
responsible for the resolution of disagreements between management and the independent auditor regarding
financial reporting.
A-1
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
The Audit Committee shall have the authority to retain independent legal, accounting or other advisors as it
deems necessary to carry out its duties. The Company shall provide for appropriate funding, as determined
by the Audit Committee, for payment of compensation to any independent auditor engaged for the purpose of
preparing or issuing an audit report or performing other audit, review or attest services, compensation to any
advisors employed by the Audit Committee, and ordinary administrative expenses that the Audit Committee
deems to be necessary or appropriate in carrying out its duties.
The Audit Committee may request any officer or employee of the Company or the Company’s outside
counsel or independent auditor to attend a meeting of the Audit Committee.
The Audit Committee shall pre-approve all auditing services and permitted non-audit services and fees to be
paid for such services to be performed for the Company by its independent auditor, subject to the limited de
minimis exceptions for non-audit services described in Section 10A of the Securities Exchange Act of 1934,
provided that compliance with the limitations and procedural requirements of Section 10A is fulfilled. The
Audit Committee may delegate to one or more designated members of the committee the authority to grant
pre-approvals of non-audit services and fees. Any such pre-approval shall be presented to the full Audit
Committee at its next scheduled meeting.
The Audit Committee shall make regular reports to the Board.
The Audit Committee shall have the authority to conduct investigations that are related to its responsibilities
under this Charter or otherwise assigned to it by the Board.
In addition, the Audit Committee, to the extent that it deems necessary or appropriate shall:
Financial Statement and Disclosure Matters
1. Prepare the report required by the rules of the SEC to be included in the Company’s annual proxy
statement.
2. Review the annual audited financial statements with management and the independent auditor,
including disclosures made in “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” and recommend to the Board whether the audited financial statements
should be included in the Company’s Form 10-K.
3. Review with management and the independent auditor any significant financial reporting issues
and judgments made in connection with the preparation of the Company’s financial statements,
including any significant changes in the Company’s selection or application of accounting poli-
cies, practices and estimates, significant unusual transactions, any major issues as to the adequacy
of the Company’s internal controls and any special steps adopted in light of material control defi-
ciencies; and review any reports prepared by or for management or the auditor with respect to
these matters.
4. Review with the independent auditor their views regarding significant accounting or auditing mat-
ters when the independent auditor is aware that management consulted with other accountants
about such matters and the independent auditor has identified a concern regarding these matters.
5. Obtain from the independent auditor information about significant aspects of the annual audit, in-
cluding:
(a) an overview of the overall audit strategy, particularly the timing of the audit, significant risks the
auditor identified and significant changes to the planned audit strategy or identified risk;
(b) information about the nature and extent of specialized skill or knowledge needed in the audit; the
extent of the planned use of internal auditors; company personnel or other third parties; and other
A-2
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
independent public accounting firms or other persons not employed by the auditor who are in-
volved in the audit;
(c) the basis for the auditor’s determination that he or she can serve as principal auditor, if signifi-
cant parts of the audit will be performed by other auditors;
(d) situations in which the auditor identified a concern regarding management’s anticipated applica-
tion of accounting pronouncements that have been issued but are not yet effective and might
have a significant effect on future financial reporting;
(e) difficult or contentious matters for which the auditor consulted outside the engagement team;
(f)
the auditor’s evaluation of going concern;
(g) departure from the auditor’s standard report;
(h) other matters arising from the audit that are significant to the oversight of the Company’s finan-
cial reporting process, including complaints or concerns regarding accounting or auditing matters
that have come to the auditor’s attention during the audit;
(i) any difficulties encountered in the course of the audit work, including any restrictions on the
scope of activities or access to required information;
(j) any significant disagreements with management.
6. Annually review with the independent auditor the quality of the Company’s financial reporting,
internal accounting and financial control, the auditor’s report or opinion thereon and any recom-
mendations the auditor may have for improving or changing the Company’s internal controls, as
well as management’s letter in response thereto and any other matters required to be discussed
under Statement of Auditing Standards Nos. 114 and 115 and PCAOB Auditing Standard No. 16
(as they may be modified or supplemented).
7. Review management’s proposed annual report on internal control over financial reporting which
is required to be included in the Company’s 10-K pursuant to rules of the SEC.
8. Review with management and the independent auditor the Company’s quarterly financial state-
ments prior to the filing of its Form 10-Q, including the results of the independent auditor’s re-
view of the quarterly financial statements.
9. Review and discuss quarterly reports from the independent auditors on:
(a) all critical accounting policies and practices to be used;
(b) all alternative treatments of financial information within generally accepted accounting princi-
ples that have been discussed with management, ramifications of the use of such alternative
treatments, and the treatment preferred by the independent auditor;
(c) the matters required to be discussed by Statement on Auditing Standards No. 114, as it may be
amended or supplemented, relating to the audit of the Company’s periodic reports; and
(d) other material written communications between the independent auditor and management.
10. Meet periodically with management to review the Company’s major financial risk exposures and
the policies and procedures that management utilizes to monitor and control such exposures.
11. Discuss, prior to release by the Company, the earnings press releases (paying particular attention
to any use of “pro forma,” or “adjusted” or other non-GAAP information) as well as financial in-
formation and earnings guidance provided to analysts and rating agencies, if any, as well as any
financial information which the Company proposes to provide to financial analysts and rating
agencies (being mindful of the need to avoid violations of SEC Regulation FD, which prohibits
the selective disclosure of material information).
12. Discuss the quarterly and annual financial statements with the appropriate officers and/or employ-
ees of the Company and with the independent auditor, including the Company’s disclosures under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
13. Review the schedule of unrecorded adjustments to the Company’s financial statements and the
reasons underlying the Company’s assessment of the immateriality of such adjustments.
14. Review prior to publication or filing and approve such other Company financial information, in-
cluding appropriate regulatory filings and releases that include financial information, as the Audit
Committee deems desirable.
15. Review the adequacy of the Company’s system of internal accounting and financial control, in-
cluding its “disclosure controls and procedures” and “internal control over financial reporting,” as
defined in SEC Rules 13a-15(e) and 13a-15(f) under the Securities Exchange Act of 1934, and the
A-3
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
Chief Executive Officer’s (“CEO”) and Chief Financial Officer’s (“CFO”) proposed disclosures
and certifications with respect to these matters which are required to be included in the Com-
pany’s annual and quarterly reports to the SEC on Form 10-K and Form 10-Q.
16. Review disclosures made to the Audit Committee by the Company’s CEO and CFO during their
certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the
design or operation of internal controls or material weaknesses therein and any fraud involving
management or other employees who have a significant role in the Company’s internal controls.
17. Review the effect of regulatory and accounting initiatives on the financial statements of the Com-
pany.
Oversight of the Company’s Relationship with its Independent Auditors
18. Review and evaluate the experience and qualifications of the lead members of each independent
auditor’s team.
19. Evaluate the performance and independence of each independent auditor, including considering
whether the auditor’s quality controls are adequate and the provision of permitted non-audit ser-
vices is compatible with maintaining the auditor’s independence. The opinions of management
and the internal auditor shall be taken into consideration as part of this review.
20. Receive and review a report from each independent auditor at least annually regarding the inde-
pendent auditor’s independence and discuss such reports with the auditor. Ensure that each inde-
pendent auditor submits a formal written statement, as required by PCAOB Rule 3526, as it may
be amended or supplemented, describing all relationships between the independent auditor and
any of its affiliates and the Company that might bear on the independent auditor’s independence.
The independent auditor must also discuss with the Audit Committee the potential effects of any
such relationships on the firm’s independence. Receive and review a formal written statement of
the fees billed by the independent auditor for each of the categories of services requiring separate
disclosure in the annual proxy statement.
21. Obtain and review a report from each independent auditor at least annually regarding the inde-
pendent auditor’s internal quality control procedures. The report should include any material is-
sues raised by the most recent internal quality control review or peer review of the firm, or by any
inquiry or investigation by governmental or professional authorities within the preceding five
years respecting one or more independent audits carried out by the firm, and any steps taken to
deal with any such issues. Obtain auditor and review inspection reports issued by the PCAOB
under Section 104 of the Sarbanes-Oxley Act.
22. Meet with each independent auditor prior to the audit to review the planning and staffing of the
audit.
23. Advise the Board of its determinations regarding the qualification, independence and performance
of each independent auditor.
24. Annually require the independent auditor to confirm in writing its understanding of the fact that it
is ultimately accountable to the Audit Committee.
25. Require the independent auditor to rotate every five years the lead audit partner in charge of the
Company’s audit and the concurring audit partner responsible for reviewing the audit.
26. Periodically consider the advisability of rotating the independent audit firm to be selected as the
Company’s independent auditors. The Audit Committee should present its conclusions to the full
Board.
Oversight of the Company’s Internal Audit Function
27. Review and, at its option, recommend the appointment and replacement of the senior internal au-
diting executive.
28. Review any reports to management prepared by the internal auditing department and manage-
ment’s responses.
A-4
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
29. Review with each independent auditor, management and the senior internal auditing executive the
internal audit department responsibilities, budget, structure and staffing and any recommended
changes in the planned scope of the internal audit at least annually.
Compliance Oversight Responsibilities
30. Obtain reports from management and the Company’s senior internal auditing executive that the
Company’s subsidiary affiliated entities are in conformity with applicable regulatory and legal re-
quirements and the Company’s code of ethics.
31. Advise the Board with respect to the Company’s compliance with the Company’s Code of Ethics
for Chief Executive Officer and Senior Financial Officers.
32. Establish procedures for the receipt, retention and treatment of complaints received by the Com-
pany regarding accounting, internal accounting controls or auditing matters, and the confidential,
anonymous submission by employees of concerns regarding questionable accounting or auditing
matters.
33. Discuss with management and each independent auditor any correspondence with regulators or
governmental agencies and any published reports that raise material issues regarding the Com-
pany’s financial statements or accounting policies.
34. Review with appropriate members of management or appropriate legal counsel the Company’s
compliance policies, legal matters that may have a material impact on the financial statements and
any material reports or inquiries received from regulators or governmental agencies.
35. Review for approval or disapproval all related-party transactions required to be disclosed by Item
404 of Regulation S-K for potential conflicts of interests.
36. In the event the Audit Committee is made aware of any allegation of fraud relating to the Com-
pany and/or any of its officers, directors or employees that the Audit Committee deems could be
material to the Company’s business or operations, the Audit Committee shall (i) convene a meet-
ing of the Audit Committee to review such allegation and (ii) if the Audit Committee deems it
necessary or advisable, it shall engage independent counsel to assist in an investigation, including,
if the Audit Committee and such counsel deem it necessary or advisable, an investigation to de-
termine whether such allegation implicates any violation of Section 10A of the Exchange Act of
1934. If pursuant to such investigation the Audit Committee discovers that a material fraud has
occurred, the Audit Committee shall (i) assess the Company’s internal controls and implement
such remedial measures as it determines necessary or advisable, (ii) cause the Company to take
appropriate action against the perpetrator(s) of such fraud and (iii) cause the Company to make
appropriate disclosures relating to the matter in the Company’s periodic reports filed with the
SEC or otherwise.
37. The Audit Committee shall also be designated as the committee of the Board of Directors that
shall receive, review and take action with respect to any reports by attorneys, pursuant to Section
307 of the Sarbanes-Oxley Act of 2002, of evidence of material violations of securities laws or
breaches of fiduciary duty or similar violations by the Company or one of its agents.
38. Meet at least four times each year. In addition, meet at least four times each year in separate ex-
ecutive sessions with each of the Company’s CEO, senior internal audit executive and the inde-
pendent auditor; and each such person shall have free and direct access to the Audit Committee
and any of its members.
39. Review and approve all related-party transactions (e.g. transactions with any director or executive
officer of the Company or significant shareholder, or their immediate family members or affili-
ates), other than transactions which the Board has delegated to the Company’s Employee Bene-
fits/Compensation Committee or Loan & Investment Committee.
40. Annually review and reassess the adequacy of this Charter and any bylaw of the Company which
relates to the Audit Committee, and recommend any proposed changes to the Board for approval.
The Chair of the Audit Committee shall draft a proposed schedule of the Audit Committee’s ac-
tivities for the coming year and the times at which such activities shall occur, which shall be sub-
mitted to the Audit Committee for its review and approval, with such changes as the Audit Com-
mittee shall determine to be appropriate.
A-5
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
EXHIBIT B
Westamerica Bancorporation
Employee Benefits/Compensation Committee Charter – Adopted April 24, 2013
Purpose
The Employee Benefits Committee (the “Committee”) is appointed by the Board of Directors (the “Board”)
to discharge the Board’s responsibilities relating to compensation of Westamerica Bancorporation (the
“Company”) Chief Executive Officer (the “CEO”) and the Company’s other executive officers, as defined by
Rule 3b-7 of the Securities Exchange Act of 1934 as amended (the “Exchange Act”) (collectively, including
the CEO, the “Executive Officers”). The Committee has overall responsibility for approving and evaluating
all compensation plans, policies and procedures of the Company as they affect the Executive Officers.
Committee Membership
The Committee shall consist of no fewer than three members. The members of the Committee shall meet the
independence requirements of the NASDAQ Stock Market.
At least two members of the Committee also shall qualify as “outside” directors within the meaning of
Internal Revenue Code Section 162(m) and as “non-employee” directors within the meaning of Rule 16b-3
under the Exchange Act.
The members of the Committee shall be appointed by the Board. One member of the Committee shall be
appointed as Committee Chairman by the Board. Committee members may be replaced by the Board.
Meetings
The Committee shall meet as often as necessary to carry out its responsibilities, meeting no less than four
times each year. The Committee Chairman shall preside at each meeting. In the event the Committee
Chairman is not present at a meeting, the Committee Chairman shall designate a member to act as chair of
such meeting.
Committee Responsibilities and Authority
1.
2.
The Committee shall, at least annually, review and approve the annual base salaries and annual
incentive opportunities of the Executive Officers. The CEO shall not be present during any
Committee deliberations or voting with respect to his or her compensation.
The Committee shall, periodically and as and when appropriate, review and approve the follow-
ing as they affect the Executive Officers: (a) all other incentive awards and opportunities, includ-
ing both cash-based and equity-based awards and opportunities; (b) any employment agreements
and severance arrangements; (c) any change-in-control agreements and change-in-control provi-
sions affecting any elements of compensation and benefits; and (d) any special or supplemental
compensation and benefits for the Executive Officers and individuals who formerly served as Ex-
ecutive Officers, including supplemental retirement benefits and the perquisites provided to them
during and after employment.
2
0
1
4
W
E
S
T
A
M
E
R
I
C
A
B
A
N
C
O
R
P
O
R
A
T
I
O
N
P
R
O
X
Y
B-1
3.
4.
5.
6.
7.
8.
9.
10.
11.
The Committee shall review and discuss the Compensation Discussion and Analysis (the
“CD&A”) required to be included in the Company’s proxy statement and annual report on
Form 10-K by the rules and regulations of the Securities and Exchange Commission (the
“SEC”) with management and, based on such review and discussion, determine whether or
not to recommend to the Board that the CD&A be so included.
The Committee shall produce the annual Compensation Committees Report for inclusion in
the Company’s proxy statement in compliance with the rules and regulations promulgated by
the SEC.
The Committee shall monitor the Company’s compliance with the requirements under the
Sarbanes-Oxley Act of 2002 relating to loans to directors and officers, and with all other ap-
plicable laws affecting employee compensation and benefits.
The Committee shall oversee the Company’s compliance with SEC rules and regulations re-
garding shareholder approval of certain executive compensation matters, including advisory
votes on executive compensation and the frequency of such votes, and the requirement under
the NASDAQ rules that, with limited exceptions, shareholders approve equity compensation
plans.
The Committee shall receive periodic reports on the Company’s compensation programs as
they affect all employees.
The Committee shall make regular reports to the Board.
The Committee shall have the authority, in its sole discretion, to retain and terminate (or ob-
tain the advice of) any adviser to assist it in performance of its duties, but only after taking
into consideration factors relevant to the adviser’s independence from management specified
in NASDAQ Listing Rule 5605(d)(3). The Committee shall be directly responsible for the
appointment, compensation and oversight of the work of any adviser retained by the Commit-
tee and shall have sole authority to approve the adviser’s fees and the other terms and condi-
tions of the adviser’s retention. The Company must provide for appropriate funding, as de-
termined by the Committee, for payment of reasonable compensation to any adviser retained
by the Committee.
The Committee may form and delegate authority to subcommittees as it deems appropriate.
The Committee will annually review and reassess this Charter.
Y
X
O
R
P
N
O
I
T
A
R
O
P
R
O
C
N
A
B
A
C
I
R
E
M
A
T
S
E
W
4
1
0
2
B-2
2
0
1
3
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
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
(cid:53) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
or
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ______________ to______________.
Commission File Number: 001-09383
WESTAMERICA BANCORPORATION
(Exact name of 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:53) NO (cid:133)
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:133) NO (cid:53)
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:53) NO (cid:133)
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:53) NO (cid:133)
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:133)
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:53)
Accelerated filer (cid:133)
Non-accelerated filer (cid:133)
(Do not check if a smaller reporting company)
Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES (cid:133) NO (cid:53)
The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2013 as reported on the NASDAQ
Global Select Market, was $1,169,919,408.79. 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 18, 2014
26,409,146 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement relating to registrant’s Annual Meeting of Shareholders, to be held on April 24, 2014, are
incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III to the extent described therein.
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
3
1
0
2
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 ........................................................................................................................................................................
Page
2
9
14
14
14
14
15
19
20
49
49
93
93
93
94
94
95
95
95
95
96
97
1
2
0
1
3
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
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 difficulties in the global, national and California economies and
the effects of government efforts to address those difficulties; (2) liquidity levels in capital markets; (3) fluctuations in asset prices
including, but not limited to stocks, bonds, real estate, and commodities; (4) the effect of acquisitions and integration of acquired
businesses; (5) economic uncertainty created by terrorist threats and attacks on the United States, the actions taken in response,
and the uncertain effect of these events on the national and regional economies; (6) changes in the interest rate environment; (7)
changes in the regulatory environment; (8) competitive pressure in the banking industry; (9) operational risks including a failure
or breach in data processing systems or those of third party vendors and other service providers, including as a result of cyber
attacks or fraud; (10) volatility of interest rate sensitive loans, deposits and investments; (11) asset/liability management risks and
liquidity risks; (12) the effect of natural disasters, including earthquakes, fire, flood, drought, and other disasters, on the uninsured
value of loan collateral, the financial condition of debtors and issuers of investment securities, the economic conditions affecting
the Company’s market place, and commodities and asset values, and (13) changes in the securities markets. The 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.
During the period 2000 through 2005, the Company acquired three additional banks. These acquisitions were accounted for using
the purchase accounting method.
2
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
3
1
0
2
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. On August 20, 2010, Westamerica Bank acquired assets and assumed liabilities of the former
Sonoma Valley Bank (“Sonoma”) from the FDIC. The County and Sonoma 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 deposit 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.
At December 31, 2013, the Company had consolidated assets of approximately $4.8 billion, deposits of approximately $4.2
billion and shareholders’ equity of approximately $543 million. The Company and its subsidiaries employed 914 full-time
equivalent staff as of December 31, 2013.
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
Commissioner of the California Department of Business Oversight (the “Commissioner”).
The FRB has significant supervisory and regulatory authority over the Company and its affiliates. The FRB requires the Company
to maintain certain levels of capital. See “Capital Standards.” The FRB also has the authority to take enforcement action against
any bank holding company that commits any unsafe or unsound practice, or violates certain laws, regulations or conditions
imposed in writing by the FRB. 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.
3
2
0
1
3
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 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.
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 Business Oversight (“DBO”), 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
4
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
3
1
0
2
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:
•
•
Centralized 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.
Restricted the preemption of state law by federal law and disallowed subsidiaries and affiliates of national banks from
availing themselves of such preemption.
• Applied the same leverage and risk-based capital requirements that would apply to insured depository institutions to
•
•
•
•
•
most bank holding companies.
Required 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.
Changed the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets
less tangible capital, eliminated the ceiling on the size of the Deposit Insurance Fund ("DIF") and increased the floor of
the size of the DIF.
Imposed 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.
Required large, publicly traded bank holding companies to create a risk committee responsible for the oversight of
enterprise risk management.
Implemented corporate governance revisions, including with regard to executive compensation and proxy access by
shareholders, that would apply to all public companies, not just financial institutions.
• Made permanent the $250 thousand limit for federal deposit insurance.
•
Repealed the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository
institutions to pay interest on business transaction and other accounts.
• Amended 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 implementation of new regulations 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.
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.
5
2
0
1
3
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 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, 2013, the Company’s and the Bank’s respective ratios exceeded applicable regulatory requirements. See
Note 9 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.
On July 2, 2013, the Federal Reserve Board approved a final rule that implements changes to the regulatory capital framework for
all banking organizations. See the section entitled “Capital to Risk-Adjusted Assets” in Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations for the Company’s interpretation of the final rule in regard to its
capital ratios.
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.
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
6
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
3
1
0
2
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, asset quality and
supervisory rating ("CAMELS rating").
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.
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. 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.
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 terminated 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 including merger applications.
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
7
2
0
1
3
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
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
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 blackout 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.
8
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
3
1
0
2
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.
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
9
2
0
1
3
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
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 significantly reduced home prices and higher levels of foreclosures and
unemployment, 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, increasing margin
requirements, and other liquidity reducing activities and actions. While liquidity 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 weakness 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.
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 26.5 million shares of common stock were outstanding at December 31, 2013. Pursuant to its stock option plans, at
December 31, 2013, the Company had outstanding options for 2.1 million shares of common stock, of which 1.5 million were
currently exercisable. As of December 31, 2013, 1.3 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, 2013, approximately 1.5 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.
10
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
3
1
0
2
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. As described in this report under “Item 7 Management’s Discussion and
Analysis of Financial Condition and Results of Operations, Loan Portfolio Credit Risk,” $251 million of the Company’s
purchased loans as of December 31, 2013 are indemnified by the FDIC; such indemnification expired February 6, 2014 for
approximately 92 percent of the indemnified loans and expires February 6, 2019 for approximately 8 percent of the indemnified
loans. The risk inherent in such loans will increase with the expiration of FDIC indemnification.
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, 2013, real estate served as the principal source of collateral with respect to approximately 58% 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 recovering from a severe recession. Much of the California real estate market
experienced a decline in values of varying degrees. This decline had 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. Generally, the counties surrounding and near San
Francisco Bay have been recovering from the recent recession more soundly than counties in the California “Central Valley,”
from Sacramento in the north to Bakersfield in the south. Approximately 27% of the Company’s loans are to borrowers in the
California “Central Valley.” Economic conditions in California are subject to various uncertainties at this time, including the pace
of recovery in construction and real estate sectors, the effect of drought on the agricultural sector and its infrastructure, and the
California state government’s budgetary difficulties and fiscal condition. 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.
All of the properties of the Company are located in California. Also, most of the real and personal properties which currently
secure a majority of the Company’s loans are located in California. California is prone to earthquakes, brush and forest fires,
flooding, drought and other natural disasters. In addition to possibly sustaining uninsured damage to its own properties, if there is
a major earthquake, flood, drought, 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.
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:
•
•
•
•
•
•
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 in the value of investment securities;
an impairment in the value of life insurance policies owned by the Company;
an impairment in the value of real estate owned by the Company.
•
•
•
The recent financial crisis led to the failure or merger of a number of financial institutions. Financial institution failures can result
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.
11
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, deflation, 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.
Such business 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 loss recognition that could have a material adverse effect on the
Company’s net income and capital levels.
2
0
1
3
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
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. A reduction in subsidiary dividends paid to the Company could limit the capacity of the Company to pay
dividends. 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.
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 that 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. 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. 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. Under long-
12
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
3
1
0
2
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.
Recently, the FRB has been providing vast amounts of liquidity into the banking system due to current economic and capital
market conditions. The FRB has been purchasing large quantities of U.S. government securities, including agency-backed
mortgage securities, increasing the demand for such securities thereby reducing interest rates. The FRB began reducing these
activities in the fourth quarter 2013 which could reduce liquidity in the markets and cause interest rates to rise, thereby increasing
funding costs to the Bank, reducing the availability of funds to the Bank to finance its existing operations, and causing fixed-rate
investment securities and loans to decline in value.
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 or delays 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. 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.
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, including those of third party vendors and other service
providers, to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or
disruptions in the Company’s data processing, accounting, customer relationship management and other systems. Communication
and information systems failures can result from a variety of risks including, but not limited to, events that are wholly or partially
out of the Company’s control, such as telecommunication line integrity, weather, terrorist acts, natural disasters, accidental
disasters, unauthorized breaches of security systems, cyber attacks, and other events. Although the Company devotes significant
resources to maintain and regularly upgrade its systems and processes that are designed to protect the security of the Company’s
computer systems, software, networks and other technology assets and the confidentiality, integrity and availability of
information belonging to the Company and its customers, there is 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 or its vendors. 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.
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
13
2
0
1
3
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
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. At December 31, 2013, $250.7 million in loans and $7.8 million in repossessed loan
collateral remained outstanding. 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. At December 31, 2013, $53.8 million in loans
and $-0- million in repossessed loan collateral remained outstanding. 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
ITEM 2. PROPERTIES
Branch Offices and Facilities
Westamerica Bank is engaged in the banking business through 92 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 banking office locations and one centralized administrative service center facility and leases 67 facilities.
Most of the leases contain 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
14
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
3
1
0
2
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
2013:
First quarter.........................................................................................................
Second quarter ....................................................................................................
Third quarter .......................................................................................................
Fourth quarter .....................................................................................................
$45.80
46.56
50.78
57.59
2012:
First quarter.........................................................................................................
Second quarter ....................................................................................................
Third quarter .......................................................................................................
Fourth quarter .....................................................................................................
$49.53
48.62
49.39
47.72
$42.59
41.76
45.73
48.29
$43.90
43.01
44.08
40.50
As of January 31, 2014, there were approximately 6,500 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. See Item 8, Financial
Statements and Supplementary Data, Note 20 to the Consolidated Financial Statements for recent quarterly dividend information.
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.”
The notes to the consolidated financial statements included in this report contain additional information regarding the Company’s
capital levels, capital structure, 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.
[The remainder of this page intentionally left blank]
15
Stock performance
The following chart compares the cumulative return on the Company’s stock during the ten years ended December 31, 2013 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, 2003 and reinvestment of all dividends.
2
0
1
3
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
Westamerica Bancorporation (WABC) ......................................
S&P 500 (SPX)...........................................................................
NASDAQ Bank Index (CBNK) .................................................
Period ending
2005
2004
2003
2008
$100.00 $119.66 $111.48 $109.15 $98.81 $116.43
89.51
100.00 110.87 116.31 134.66 142.05
79.73
100.00 113.64 111.45 126.83 101.60
2006
2007
Westamerica Bancorporation (WABC) ........................................................
S&P 500 (SPX).............................................................................................
NASDAQ Bank Index (CBNK) ...................................................................
Period ending
2011
2010
2009
2013
$129.73 $133.47 $108.91 $109.16 $149.37
113.20 130.28 133.00 154.26 204.18
80.96 114.72
76.20
68.19
66.74
2012
[The remainder of this page intentionally left blank]
16
The following chart compares the cumulative return on the Company’s stock during the five years ended December 31, 2013 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, 2008 and reinvestment of all dividends.
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
3
1
0
2
Westamerica Bancorporation (WABC) ......................................
S&P 500 (SPX)...........................................................................
NASDAQ Bank Index (CBNK) .................................................
ISSUER PURCHASES OF EQUITY SECURITIES
Period ending
2010
2009
2008
2013
$100.00 $111.42 $114.64 $93.54 $93.76 $128.29
100.00 126.47 145.55 148.59 172.34
228.11
85.53 101.55 143.89
100.00
83.71
95.57
2011
2012
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, 2013 (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
69
121
136
326
(c)
Total Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs*
69
121
136
326
(b)
Average
Price
Paid
per
Share
$52.39
53.33
54.78
53.74
(d)
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
1,725
1,604
1,468
1,468
*
Includes 4 thousand, 10 thousand and 4 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 under stock option plans,
and other ongoing requirements.
Shares were repurchased during the fourth quarter of 2013 pursuant to a program approved by the Board of Directors on July 25,
2013 authorizing the purchase of up to 2 million shares of the Company’s common stock from time to time prior to September 1,
2014.
[The remainder of this page intentionally left blank]
2
0
1
3
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
18
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
3
1
0
2
ITEM 6. SELECTED FINANCIAL DATA
The following financial information for the five years ended December 31, 2013 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 and loan fee 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............................................
Noninterest expense
Settlements ...............................................................
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 loans
Originated loans ....................................................
Purchased covered loans .......................................
Purchased non-covered loans................................
Efficiency ratio **.....................................................
Equity to assets .........................................................
Period End Balances:
2013
$154,396
4,671
149,725
8,000
––
––
57,011
57,011
––
112,614
112,614
86,122
18,945
67,177
––
$67,177
26,826
26,877
26,510
$2.50
2.50
20.48
2012
$183,364
5,744
177,620
11,200
(1,287)
––
58,309
57,022
––
116,885
116,885
106,557
25,430
81,127
––
$81,127
27,654
27,699
27,213
$2.93
2.93
20.58
1.38%
12.48%
4.08%
0.26%
0.62%
0.61%
50.11%
11.20%
1.64%
14.93%
4.79%
0.72%
0.18%
0.11%
46.01%
11.31%
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%
0.68%
0.16%
––
45.77%
11.08%
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%
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%
Assets........................................................................
Originated loans........................................................
Purchased covered loans ...........................................
Purchased non-covered loans....................................
Allowance for loan losses .........................................
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 .................................................
$4,847,055
1,523,284
250,670
53,790
31,693
2,211,680
4,163,781
140,230
62,668
20,577
10,000
––
542,934
$4,952,193
1,664,183
372,283
74,891
30,234
1,981,677
4,232,492
144,934
53,687
25,799
10,000
15,000
560,102
$5,042,161
1,862,607
535,278
125,921
32,597
1,561,556
4,249,921
150,302
115,689
26,023
10,000
15,000
558,641
$4,931,524
2,029,541
692,972
199,571
35,636
1,252,212
4,132,961
156,277
107,385
61,698
––
26,363
545,287
$4,975,501
2,201,088
855,301
––
41,043
1,111,143
4,060,208
157,366
128,134
85,470
99,044
26,497
505,448
Capital Ratios at Period End:
Total risk based capital .............................................
Tangible equity to tangible assets .............................
Dividends Paid Per Common Share ..........................
Common Dividend Payout Ratio ...............................
16.18%
8.56%
$1.49
60%
16.33%
8.64%
$1.48
51%
15.75%
8.35%
$1.45
47%
15.50%
8.15%
$1.44
45%
14.50%
7.22%
$1.41
34%
____________
*
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).
**
19
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 52 through 91,
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 of America 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 accounting 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 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.
2
0
1
3
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
Net Income
During the three years ended December 31, 2013, market interest rates declined to low levels. The Federal Reserve’s Federal
Open Market Committee has maintained highly accommodative monetary policies to influence interest rates to low levels in order
to provide stimulus to the economy following the “financial crisis” recession. In the fourth quarter 2013, the Open Market
Committee began a gradual removal of its accommodative monetary policies. The Company’s principal source of revenue is net
interest and loan fee income, which represents interest earned on loans and investment securities (“earning assets”) reduced by
interest paid on deposits and other borrowings (“interest bearing liabilities”). The change in market interest rates in the three years
ended December 31, 2013 has reduced the spread between interest rates on earning assets and interest bearing liabilities. As a
result, the Company’s net interest income declined. The Company also earns revenue from service charges on deposit accounts,
merchant processing services, debit card fees, and other fees (“noninterest income”). Service charges on deposit accounts are
subject to laws and regulations; recent regulations and customer activity have caused service charges on deposit accounts to
decline in the three years ended December 31, 2013; however, debit card fees and trust fees have increased due to higher
transaction volumes and the Company’s sales efforts. The Company incurs noninterest expenses to deliver products and services
to our customers. Management is focused on controlling noninterest expense levels.
20
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
3
1
0
2
Components of Net Income
Year ended December 31,
(Dollars in thousands except per share amounts)
Net interest and loan fee income * .......................................................................
Provision for loan losses ......................................................................................
Noninterest income ..............................................................................................
Noninterest expense .............................................................................................
Income before income taxes *..............................................................................
Taxes *.................................................................................................................
Net income ......................................................................................................
Net income per average fully-diluted common share ..........................................
Net income as a percentage of average shareholders’ equity...............................
Net income as a percentage of average total assets..............................................
*
Fully taxable equivalent (FTE)
2013
$167,737
(8,000)
57,011
(112,614)
104,134
(36,957)
$67,177
$2.50
12.48%
1.38%
2012
$197,027
(11,200)
57,022
(116,885)
125,964
(44,837)
$81,127
$2.93
14.93%
1.64%
2011
$218,867
(11,200)
60,097
(127,678)
140,086
(52,198)
$87,888
$3.06
16.14%
1.78%
Comparing 2013 to 2012, net income decreased $14.0 million or 17.2%, primarily due to lower net interest and loan fee income
(FTE), partially offset by decreases in loan loss provision, noninterest expense and income tax provision (FTE). The lower net
interest and loan fee income (FTE) was primarily caused by a lower average volume of loans and lower yields on interest-earning
assets, partially offset by higher average balances of investments, lower average balances of interest-bearing liabilities and lower
rates paid on interest-bearing deposits. The provision for loan losses was reduced, reflecting Management's evaluation of losses
inherent in the loan portfolio; net loan losses and nonperforming loan volumes have declined relative to earlier periods.
Noninterest expense decreased $4.3 million primarily due to reduced personnel costs, professional fees, loan administration costs,
expenses related to other real estate owned and intangible asset amortization.
Comparing 2012 to 2011, net income decreased $6.8 million, primarily due to lower net interest income (FTE) and a $1.3 million
loss on sale of securities, partially offset by decreases in noninterest expense and income tax provision (FTE). The lower net
interest income (FTE) was primarily caused by a lower average volume of loans and lower yields on interest earning assets,
partially offset by higher average balances of investments, lower average balances of interest-bearing liabilities and lower rates on
interest-bearing deposits. The provision for loan losses remained the same, reflecting Management's evaluation of losses inherent
in the loan portfolio. Noninterest expense declined primarily due to a $2.1 million settlement accrual in 2011 and reduced costs
related to personnel and nonperforming assets.
Net Interest and Loan Fee Income (FTE)
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. Comparing 2013 to 2012, net
interest and loan fee income (FTE) decreased $29.3 million or 14.9% to $167.7 million. Net interest and loan fee income (FTE) in
2012 decreased $21.8 million or 10.0% from 2011, to $197.0 million.
Components of Net Interest and Loan Fee Income (FTE)
Year ended December 31,
(Dollars in thousands)
Interest and loan fee income............................................................................................
Interest expense...............................................................................................................
FTE adjustment ...............................................................................................................
Net interest and loan fee income (FTE).......................................................................
Net interest margin (FTE) ...............................................................................................
2013
$154,396
(4,671)
18,012
$167,737
2012
$183,364
(5,744)
19,407
$197,027
2011
$207,979
(8,382)
19,270
$218,867
4.08%
4.79%
5.32%
Comparing 2013 with 2012, net interest and loan fee income (FTE) decreased $29.3 million or 14.9%, primarily due to a lower
average volume of loans (down $360 million) and lower yields on interest-earning assets (down 74 basis points), partially offset
by higher average balances of investments (up $355 million), lower average balances of interest-bearing liabilities (down $161
million) and lower rates paid on interest-bearing deposits (down 2 basis points).
Loan volumes have declined due to problem loan workout activities, particularly with purchased loans, and reduced volumes of
loan originations. In Management’s opinion, competitive loan pricing does not currently provide adequate forward earnings
potential. As a result, the Company has not currently taken an aggressive posture relative to loan portfolio growth. Management
has maintained relatively stable interest-earning asset volumes by increasing investment securities as loan volumes have declined.
21
2
0
1
3
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
Yields on interest-earning assets have declined due to relatively low interest rates prevailing in the market. Management’s
response to prevailing economic conditions and competitive loan pricing has been to reduce loan volumes, placing greater
reliance on lower-yielding investment securities. Rates on interest-bearing deposits have declined to offset some of the decline in
asset yields.
In 2013, interest and loan fee income (FTE) was down $30.4 million or 15.0% from 2012. 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.
The total average balances of loans declined due to decreases in the average balances of commercial real estate loans (down $155
million), taxable commercial loans (down $63 million), consumer loans (down $57 million), residential real estate loans (down
$53 million), tax-exempt commercial loans (down $22 million) and construction loans (down $11 million). The average
investment portfolio increased largely due to higher average balances of corporate securities (up $205 million), collateralized
mortgage obligations (up $172 million) and municipal securities (up $47 million), partially offset by decreases in average
balances of mortgage backed securities (down $37 million) and securities of U.S. government sponsored entities (down $30
million).
The average yield on the Company's earning assets decreased from 4.93% in 2012 to 4.19% in 2013. The composite yield on
loans declined 41 basis points to 5.36% mostly due to lower yields on commercial real estate loans (down 45 basis points),
consumer loans (down 62 basis points), residential real estate loans (down 14 basis points), taxable commercial loans (down 8
basis points) and tax-exempt loans (down 20 basis points). Nonperforming loans are included in average loan volumes used to
compute loan yields; fluctuations in nonaccrual loan volumes impact loan yields. The yield on construction loans in 2013 was
elevated due to interest received on nonaccrual loans and discount accretion on purchased loans. The investment yields in general
declined due to market rates. The investment portfolio yield decreased 71 basis points to 3.13% in 2013 primarily due to lower
yields on collateralized mortgage obligations and mortgage backed securities (down 65 basis points), municipal securities (down
55 basis points) and corporate securities (down 46 basis points).
Comparing 2013 with 2012, interest expense declined $1.1 million or 18.7% due to lower average balances of interest-bearing
liabilities and lower rates paid on interest-bearing deposits. Lower-cost checking and savings deposits accounted for 86.3% of
total average deposits in 2013 compared with 82.8% in 2012. Average interest-bearing liabilities fell $161 million in 2013
compared with 2012 primarily due to declines in the average balances of time deposits $100 thousand or more (down $120
million) and time deposits less than $100 thousand (down $36 million), preferred money market accounts (down $23 million) and
customer sweep accounts (down $23 million), partially offset by increases in the average balances of regular savings (up $25
million) and money market savings (up $17 million). Rates paid on interest-bearing deposits averaged 0.14% in 2013 compared
with 0.16% for 2012 as a result of decreases in rates paid on time deposits less than $100 thousand (down 10 basis points).
Comparing 2012 with 2011, net interest and loan fee income (FTE) declined $21.8 million mostly due to a lower average volume
of loans (down $422 million) and lower yields on interest earning assets (down 59 basis points), partially offset by higher average
balances of investments (up $424 million), lower average balances of interest-bearing liabilities (down $103 million) and lower
rates on interest-bearing deposits (down 9 basis points).
Interest and loan fee income (FTE) was down $24.5 million or 10.8% from 2012 to 2011. 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.
Average interest earning assets increased $2 million in 2012 compared with 2011 due to a $424 million increase in average
investments, offset by a $422 million decrease in average loans. The average investment portfolio increased mostly due to higher
average balances of collateralized mortgage obligations and mortgage backed securities (up $271 million), municipal securities
(up $108 million) and corporate securities (up $92 million), partially offset by a $57 million decline in securities issued by U.S.
government sponsored entities. The decrease in the average balance of the loan portfolio was attributable to decreases in average
balances of commercial real estate loans (down $183 million), taxable commercial loans (down $118 million), construction loans
(down $31 million), residential real estate loans (down $48 million), tax-exempt commercial loans (down $19 million) and
consumer loans (down $22 million).
The average yield on earning assets in 2012 was 4.93% compared with 5.52% in 2011. The loan portfolio yield for 2012
compared with 2011 was lower by 22 basis points mostly due to lower yields on consumer loans (down 76 basis points),
residential real estate loans (down 33 basis points) and tax-exempt commercial loans (down 35 basis points) and taxable
commercial loans (down 9 basis points), partially offset by higher yields on commercial real estate loans (up 15 basis points).
Nonperforming loans are included in average loan volumes used to compute loan yields; fluctuations in nonaccrual loan volumes
impact loan yields. The yield on commercial real estate loans in 2012 and 2011 was elevated due to interest received on
nonaccrual loans and discount accretion on purchased loans. The investment portfolio yield decreased 76 basis points to 3.84%
from 2012 to 2011 primarily due to lower yields on collateralized mortgage obligations and mortgage backed securities (down
22
118 basis points), municipal securities (down 55 basis points), and securities of U.S. government sponsored entities (down 26
basis points), partially offset by a 5 basis points increase in yields on corporate securities which contain floating interest rate
structures.
Interest expense was reduced by lowering rates paid on interest-bearing deposits and borrowings and by reducing the volume of
higher-cost funding sources. Lower-cost checking and savings deposits accounted for 82.8% of total average deposits in 2012
compared with 79.6% in 2011. In 2012 interest expense declined $2.6 million or 31.5% from 2011, due to lower average balances
of interest-bearing liabilities and lower rates paid on interest-bearing deposits. In 2012 average interest-bearing deposits fell $62
million compared with 2011 primarily due to declines in the average balances of time deposits $100 thousand or more (down $75
million), time deposits less than $100 thousand (down $49 million), and preferred money market savings (down $38 million),
partially offset by increases in the average balances of money market checking accounts (up $41 million), money market savings
(up $30 million) and regular savings (up $29 million). Average balances of debt financing declined $7 million due to the
redemption of a $10 million subordinated note in August 2011. Increases were partially offset by higher average balances of term
repurchase agreement (up $6 million). Rates paid on interest-bearing deposits averaged 0.16% in 2012 compared with 0.25% in
2011 mainly due to lower rates on money market savings (down 7 basis points), preferred money market savings (down 32 basis
points), regular savings (down 5 basis points), time deposits $100 thousand and more (down 10 basis points) and time deposits
less than $100 thousand (down 10 basis points).
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
3
1
0
2
[The remainder of this page intentionally left blank]
23
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present information regarding the consolidated average assets, liabilities and shareholders’ equity, the
amounts of interest income earned from average interest earning assets and the resulting yields, and the amounts of interest
expense incurred on average interest-bearing liabilities and the resulting rates. Average loan balances include nonperforming
loans. Interest income includes reversal of previously accrued interest on loans placed on non-accrual status during the period and
proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income and
accretion of purchased loan discounts. 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
Investment securities:
Available for sale
Year Ended December 31, 2013
Average
Balance
Interest
Income/
Expense
Yields/
Rates
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
$823,228 $14,685
10,435
186,101
1.78%
5.61%
Held to maturity
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
431,246
714,515
7,516
34,961
1.74%
4.89%
Loans:
Commercial
2
0
1
3
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............................................................................................................................
754,191
Total assets..................................................................................................................... $4,863,862
256,638
106,871
862,266
15,514
211,360
501,932
16,042
6,264
53,615
1,182
7,357
20,351
1,954,581 104,811
4,109,671 172,408
6.25%
5.86%
6.22%
7.62%
3.48%
4.05%
5.36%
4.19%
Liabilities and shareholders’ equity
Deposits:
Noninterest bearing demand .............................................................................................. $1,683,447
1,910,131
Savings and interest-bearing transaction............................................................................
228,061
Time less than $100,000 ....................................................................................................
341,184
Time $100,000 or more......................................................................................................
2,479,376
Total interest-bearing deposits .......................................................................................
57,454
Short-term borrowed funds....................................................................................................
25,499
Federal Home Loan Bank advances ......................................................................................
10,000
Term repurchase agreement...................................................................................................
12,452
Debt financing and notes payable ..........................................................................................
2,584,781
Total interest-bearing liabilities .........................................................................................
57,469
Other liabilities ......................................................................................................................
538,165
Shareholders’ equity ..............................................................................................................
Total liabilities and shareholders’ equity ........................................................................... $4,863,862
––
1,182
1,070
1,096
3,348
77
480
98
668
4,671
––
0.06%
0.47%
0.32%
0.14%
0.13%
1.88%
0.98%
5.37%
0.18%
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 incurred on interest-
4.01%
4.08%
$167,737
bearing liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense, divided by the average
balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of
noninterest-bearing demand deposits.
24
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
3
1
0
2
Distribution of Assets, Liabilities & Shareholders’ Equity and Yields, Rates & Interest Margin
(Dollars in thousands)
Assets
Investment securities:
Available for sale
Year Ended December 31, 2012
Average
Balance
Interest
Income/
Expense
Yields/
Rates
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
$491,338 $11,430
12,603
214,268
2.33%
5.88%
Held to maturity
Taxable...........................................................................................................................
Tax-exempt (1)...............................................................................................................
460,381
634,482
9,916
35,277
2.15%
5.56%
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............................................................................................................................
838,963
Total assets..................................................................................................................... $4,954,302
319,235
128,887
1,016,805
26,314
264,497
559,132
20,216
7,815
67,863
1,946
9,583
26,122
2,314,870 133,545
4,115,339 202,771
6.33%
6.06%
6.67%
7.40%
3.62%
4.67%
5.77%
4.93%
Liabilities and shareholders’ equity
Deposits:
Noninterest bearing demand .............................................................................................. $1,603,981
1,887,959
Savings and interest-bearing transaction............................................................................
264,466
Time less than $100,000 ....................................................................................................
460,833
Time $100,000 or more......................................................................................................
2,613,258
Total interest-bearing deposits .......................................................................................
81,323
Short-term borrowed funds....................................................................................................
25,916
Federal Home Loan Bank advances ......................................................................................
10,000
Term repurchase agreement...................................................................................................
15,000
Debt financing and notes payable ..........................................................................................
2,745,497
Total interest-bearing liabilities .........................................................................................
61,515
Other liabilities ......................................................................................................................
543,309
Shareholders’ equity ..............................................................................................................
Total liabilities and shareholders’ equity ........................................................................... $4,954,302
––
1,238
1,515
1,530
4,283
77
483
99
802
5,744
––
0.07%
0.57%
0.33%
0.16%
0.09%
1.86%
0.99%
5.35%
0.21%
Net interest spread (2)............................................................................................................
Net interest income and interest margin (1)(3) ......................................................................
$197,027
4.72%
4.79%
____________
(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 incurred on interest-
bearing liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense, divided by the average
balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of
noninterest-bearing demand deposits.
25
2
0
1
3
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, 2011
Average
Balance
Interest
Income/
Expense
Yields/
Rates
$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
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) ......................................................................
$218,867
5.23%
5.32%
____________
(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 incurred on interest-
bearing liabilities.
(3) Net interest margin is computed by calculating the difference between interest income and expense, divided by the average
balance of interest-earning assets. The net interest margin is greater than the net interest spread due to the benefit of
noninterest-bearing demand deposits.
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
3
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 yields/rates for the periods indicated. Changes not solely
attributable to volume or yields/rates have been allocated in proportion to the respective volume and yield/rate components.
Summary of Changes in Interest Income and Expense
Years Ended December 31,
(In thousands)
Increase (decrease) in interest and loan fee income:
Investment securities:
2013 Compared with 2012
Volume
Yield/Rate
Total
Available for sale Taxable.....................................................................................
Tax- exempt (1).................................................................................................
Held to maturity Taxable ......................................................................................
Tax- exempt (1).................................................................................................
$6,370
(1,607)
(612)
4,127
($3,115)
(561)
(1,788)
(4,443)
Loans:
Commercial:
Taxable..............................................................................................................
Tax- exempt (1).................................................................................................
Commercial real estate ..........................................................................................
Real estate construction.........................................................................................
Real estate residential............................................................................................
Consumer ..............................................................................................................
(3,919)
(1,300)
(9,871)
(821)
(1,865)
(2,548)
Total loans (1) ................................................................................................... (20,324)
Total decrease in interest and loan fee income (1)............................................................ (12,046)
Increase (decrease) in interest expense:
(255)
(251)
(4,377)
57
(361)
(3,223)
(8,410)
(18,317)
Deposits:
Savings/ interest-bearing.......................................................................................
Time less than $100,000 .......................................................................................
Time $100,000 or more ........................................................................................
(68)
(251)
(48)
(367)
27
10
(1)
3
(328)
Decrease in net interest income (1)........................................................................... ($11,301) ($17,989)
Total interest-bearing....................................................................................................
Short-term borrowed funds ...........................................................................................
Federal Home Loan Bank advances..............................................................................
Term repurchase agreement..........................................................................................
Notes and mortgages payable .......................................................................................
Total decrease in interest expense .........................................................................
12
(194)
(386)
(568)
(27)
(13)
––
(137)
(745)
$3,255
(2,168)
(2,400)
(316)
(4,174)
(1,551)
(14,248)
(764)
(2,226)
(5,771)
(28,734)
(30,363)
(56)
(445)
(434)
(935)
––
(3)
(1)
(134)
(1,073)
($29,290)
____________
(1) Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
[The remainder of this page intentionally left blank]
27
2
0
1
3
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 loan fee income:
Investment securities:
2012 Compared with 2011
Volume
Yield/Rate
Total
Available for sale Taxable.....................................................................................
Tax- exempt (1).................................................................................................
Held to maturity Taxable ......................................................................................
Tax- exempt (1).................................................................................................
$1,112
(2,644)
6,464
8,659
($848)
(742)
(2,786)
(3,260)
Loans:
Commercial:
Taxable..............................................................................................................
Tax- exempt (1).................................................................................................
Commercial real estate ..........................................................................................
Real estate construction.........................................................................................
Real estate residential............................................................................................
Consumer ..............................................................................................................
(7,497)
(1,181)
(12,123)
(2,310)
(1,788)
(1,109)
Total loans (1) ................................................................................................... (26,008)
Total decrease in interest and loan fee income (1)............................................................ (12,417)
Increase (decrease) in interest expense:
(374)
(498)
1,807
(75)
(969)
(4,316)
(4,425)
(12,061)
Deposits:
Savings/ interest-bearing.......................................................................................
Time less than $100,000 .......................................................................................
Time $100,000 or more ........................................................................................
(1,263)
(274)
(475)
(2,012)
(98)
––
14
305
(1,791)
Decrease in net interest income (1)........................................................................... ($11,570) ($10,270)
Total interest-bearing....................................................................................................
Short-term borrowed funds ...........................................................................................
Federal Home Loan Bank advances..............................................................................
Term repurchase agreement..........................................................................................
Notes and mortgages payable .......................................................................................
Total decrease in interest expense .........................................................................
82
(301)
(291)
(510)
(41)
(37)
46
(305)
(847)
$264
(3,386)
3,678
5,399
(7,871)
(1,679)
(10,316)
(2,385)
(2,757)
(5,425)
(30,433)
(24,478)
(1,181)
(575)
(766)
(2,522)
(139)
(37)
60
––
(2,638)
($21,840)
____________
(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 provision for loan losses reflects
Management's assessment of credit risk in the loan portfolio during each of the periods presented.
The Company provided $8.0 million, $11.2 million and $11.2 million for loan losses in 2013, 2012 and 2011. The reduced
provision for loan losses for 2013 reflects Management’s current evaluation of credit quality for the loan portfolio. The Company
recorded purchased County Bank and Sonoma Valley Bank loans at estimated fair value upon the acquisition dates, February 6,
2009 and August 20, 2010, respectively. Such estimated 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 dates of
purchase. The purchased County Bank loans are “covered” by loss-sharing agreements the Company entered with the FDIC
which mitigates losses during the term of the agreements. Any deterioration in estimated value related to principal loss subsequent
to the acquisition dates requires additional loss recognition through a provision for loan losses. No assurance can be given future
provisions for loan losses related to purchased loans will not be necessary. For further 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.
28
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
3
1
0
2
Noninterest Income
Components of Noninterest Income
Years Ended December 31,
(In thousands)
2013
Service charges on deposit accounts................................................................................ $25,693
9,031
Merchant processing services..........................................................................................
5,829
Debit card fees.................................................................................................................
2,846
Other service charges ......................................................................................................
2,758
ATM processing fees.......................................................................................................
2,313
Trust fees .........................................................................................................................
831
Financial services commissions.......................................................................................
—
Loss on sale of securities .................................................................................................
7,710
Other................................................................................................................................
Total............................................................................................................................. $57,011
2012
$27,691
9,734
5,173
2,801
3,396
2,078
689
(1,287)
6,747
$57,022
2011
$29,523
9,436
4,956
2,827
3,815
1,887
423
—
7,230
$60,097
In 2013, noninterest income was $57.0 million, unchanged from 2012. In 2012 noninterest income included a $1.3 million loss
realized from the sale of a collateralized mortgage obligation bond whose underlying support tranches began experiencing
escalating losses. Service charges on deposits decreased $2.0 million or 7.2% due to declines in fees charged on overdrawn
accounts and insufficient funds (down $1.1 million) and deficit fees charged on analyzed accounts (down $762 thousand).
Merchant processing services income decreased $703 thousand mainly due to lower transaction volumes. ATM processing fees
decreased $638 thousand primarily because the Bank customers had fewer transactions at non-Westamerica ATMs and other cash
dispensing terminals. Offsetting these decreases were higher debit card fees (up $656 thousand) due to higher transaction
volumes. Additionally, trust fees and financial services commissions increased $235 thousand and $142 thousand, respectively,
from increased sales. Other noninterest income increased $963 thousand primarily due to higher recoveries of charged off
purchased loans and life insurance proceeds.
In 2012, noninterest income decreased $3.1 million compared with 2011. The decline in 2012 noninterest income is partially due
to a $1.3 million loss realized from the sale of a collateralized mortgage obligation bond whose underlying support tranches began
experiencing escalating losses. Service charges on deposits decreased $1.8 million or 6.2% due to declines in fees charged on
overdrawn and insufficient funds accounts (down $2.2 million), partially offset by higher deficit fees charged on analyzed
accounts (up $298 thousand) and higher fees charged on checking accounts (up $134 thousand). ATM processing fees decreased
$419 thousand or 11.0% primarily because the Bank customers had fewer transactions at non-Westamerica ATMs and other cash
dispensing terminals. Merchant processing services income increased $298 thousand or 3.2% mainly due to increased
transactions. Financial services commissions and trust fees increased $266 thousand and $191 thousand, respectively, from
improved sales activities.
[The remainder of this page intentionally left blank]
29
2
0
1
3
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
Noninterest Expense
Components of Noninterest Expense
Years Ended December 31,
(In thousands)
2013
Salaries and related benefits............................................................................................. $56,633
15,137
Occupancy .......................................................................................................................
8,548
Outsourced data processing services................................................................................
4,704
Amortization of intangible assets.....................................................................................
3,869
Furniture and equipment ..................................................................................................
3,057
Professional fees ..............................................................................................................
2,868
Courier service .................................................................................................................
1,035
Other Real Estate Owned.................................................................................................
—
Settlements.......................................................................................................................
16,763
Other ................................................................................................................................
Total ............................................................................................................................. $112,614
2012
$57,388
15,460
8,531
5,368
3,775
3,217
3,117
1,235
—
18,794
$116,885
2011
$58,501
16,209
8,844
5,975
3,837
4,802
3,342
2,458
2,100
21,610
$127,678
Noninterest expense decreased $4.3 million or 3.7% in 2013 compared with 2012. Salaries and related benefits decreased $755
thousand or 1.3% primarily due to employee attrition. Amortization of identifiable intangibles decreased $664 thousand as such
assets are amortized on a declining balance method. Occupancy expense decreased $323 thousand or 2.1% mainly due to lower
lease rates on bank premises and utility costs. Expenses relating to other real estate owned decreased $200 thousand mainly due to
lower writedowns. Professional fees declined $160 thousand or 5.0% due to lower legal fees associated with nonperforming
assets. Other noninterest expense decreased $2.0 million primarily due to lower administration expenses related to nonperforming
loans and decreases in postage, customer check printing expenses and correspondent bank service charges.
In 2012, noninterest expense decreased $10.8 million or 8.5% compared with 2011 partially due to a $2.1 million settlement
accrual in 2011 and lower costs related to personnel and nonperforming assets. Additionally, the first quarter 2011 included $679
thousand in expenses related to pre-integration costs for the acquired Sonoma, primarily outsourced data processing and personnel
costs. Sonoma operations were fully integrated in February 2011. Professional fees declined $1.6 million or 33.0% largely due to
lower legal fees. Other real estate owned expense decreased $1.2 million or 49.8% mainly due to higher gains on sale of
foreclosed assets and lower maintenance costs, partially offset by higher writedowns. Salaries and related benefits decreased $1.1
million or 1.9% primarily due to lower salaries resulting from employee attrition, partially offset by higher employee benefit
costs. Occupancy expense declined $749 thousand or 4.6% mostly due to lower lease rates on bank premises and lower
maintenance expense. Other noninterest expense decreased $2.8 million mostly due to lower operational losses, lower
administration expenses relating to problem loans and decreases in stationery expenses and postage.
Provision for Income Tax
The income tax provision (FTE) was $37.0 million in 2013 compared with $44.8 million in 2012. The 2013 effective tax rate
(FTE) was 35.5% compared to 35.6% in 2012. The effective tax rates without FTE adjustments were 22.0% and 23.9% for 2013
and 2012, respectively. The 2013 tax provision reflected tax-exempt life insurance proceeds and recognized California enterprise
zone hiring credits for filed amended returns (2007-2009). The 2012 tax provision reflected a $968 thousand tax refund from an
amended 2006 federal income tax return; this claim for tax refund was processed by the Internal Revenue Service in conjunction
with the conclusion of an examination of the Company’s 2008 federal income tax return.
In 2012, the Company recorded an income tax provision (FTE) of $44.8 million compared with $52.2 million for 2011. The 2012
provision represents an effective tax rate (FTE) of 35.6%, compared with 37.3% for 2011. The effective tax rates without FTE
adjustments were 23.9% and 27.3% for 2012 and 2011, respectively. The lower tax rate in 2012 was attributable to a $968
thousand tax refund from an amended 2006 federal income tax return. In addition, the decline in the tax rate is attributable to a
higher proportion of pre-tax income represented by tax exempt elements, such as interest earned on municipal obligations and tax
credits from investments in low-income housing.
30
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
3
1
0
2
On July 11, 2013, California’s Governor Jerry Brown signed two bills which end a 30-year-old enterprise zone tax incentive
program and replace it with new incentives. Due to the passage of these bills, many California tax benefits will be phased out by
the end of 2014. The Company has been realizing California tax benefits under the historical enterprise zone tax incentive
program, including:
•
•
Exclusions of net interest income on loans funding economic activity within enterprise zones
Tax credits realized by hiring employees within enterprise zones; however, the economic value of the tax credits is
partially offset by a reduction in deductible compensation expense by the amount of the tax credits.
Effective January 1, 2014, the new law eliminates the net interest deduction for enterprise zone loans and the hiring credits are
significantly altered. The Company is currently evaluating the impact of the new laws on its tax provision, particularly hiring tax
credits provided under the new laws, which replace expiring tax credits. However, the Company does not expect a significant
change in its tax provision due to the new laws; the tax benefits recognized from the current enterprise zone tax incentive program
for the year ended December 31, 2013 were $121 thousand, net of federal income tax consequences.
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.
Management has maintained relatively stable interest-earning asset volumes by increasing investment securities as loan volumes
have declined. The carrying value of the Company’s investment securities portfolio was $2.2 billion as of December 31, 2013, an
increase of $230.0 million or 11.6% compared to December 31, 2012.
Management continually evaluates the Company’s investment securities portfolio in response to established asset/liability
management objectives, changing market conditions that could affect profitability, and the level of interest rate risk to which the
Company is exposed. These evaluations may cause Management to change the level of funds the Company deploys into
investment securities, change the composition of the Company’s investment securities portfolio, and change the proportion of
investments allocated into the available for sale and held to maturity investment categories.
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, due to credit risk, 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, 2013, the Company held $1.1 billion in securities classified as
investments available for sale, of which $366 million were floating rate securities. The duration of the available for sale portfolio
was 2.2 years at December 31, 2013. At December 31, 2013, an unrealized gain, net of taxes, of $4.5 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, 2013,
the held to maturity investment portfolio had a duration of 4.9 years and included $1.1 billion in fixed-rate and $25.0 million in
floating 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, 2013. For more
information on investment securities, see the notes accompanying the consolidated financial statements.
[The remainder of this page intentionally left blank]
31
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
At December 31,
2011
2012
2013
(In thousands)
$3,558
$3,596
U.S. Treasury securities.............................................................
$3,506
49,525 117,472
Securities of U.S. Government sponsored entities .................... 130,492
90,408
56,932
34,176
Residential mortgage backed securities.....................................
Commercial mortgage backed securities...................................
4,530
4,145
3,425
Obligations of states and political subdivisions......................... 191,386 215,247 246,093
51,164
Residential collateralized mortgage obligations........................ 252,896 221,105
7,306
16,005
Asset-backed securities .............................................................
FHLMC and FNMA stock ........................................................
1,847
2,880
Corporate securities................................................................... 432,431 252,838 112,199
4,138
Other securities..........................................................................
Total ...................................................................................... $1,079,381 $825,636 $638,753
14,555
13,372
3,401
3,142
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, 2013. 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.
2
0
1
3
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
Available for Sale Maturity Distribution
Within
At December 31, 2013
(Dollars in thousands)
one year
U.S. Treasury securities ................ $––
After one
but within
five years
$3,506
After five
but within
ten years
$––
Interest rate........................ ––% 0.47%
––%
After ten
years
$––
––%
Mortgage-
backed
$––
Other
$––
Total
$3,506
0.47%
––%
––%
U.S. Government sponsored
entities......................................... 3,760
126,732
Interest rate........................ 0.98%
1.20%
States and political subdivisions ...
Interest rate (FTE) .............
8,640
3.92%
28,572
5.03%
10,079
Asset-backed securities.................. ––
Interest rate........................ ––
63,209
Corporate securities ......................
Interest rate........................
Subtotal .....................................
Interest rate (FTE) .............
369,222
1.65% 1.43%
75,609
538,111
1.88%
1.55%
0.67%
0.44%
––
––
63,690
5.80%
4,476
––
––
68,166
5.45%
––
––
90,484
5.98%
––
––
––
––
90,484
5.98%
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
––
Mortgage backed securities and
residential collateralized
mortgage obligations...................
Interest rate........................
Other without set maturities..........
Interest rate (FTE) .............
––
––
––
––
Total ...................................... $75,609
––
––
––
––
$538,111
––
––
––
––
$68,166
––
––
––
––
$90,484
290,497
1.86%
––
––
$290,497
––
––
16,514
3.40%
$16,514
Interest rate (FTE) .............
1.88%
1.55%
5.45%
5.98%
1.86%
3.40%
32
130,492
1.19%
191,386
5.69%
14,555
0.60%
432,431
1.46%
772,370
2.44%
290,497
1.86%
16,514
3.40%
$1,079,381
2.30%
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
3
1
0
2
The following table shows the amortized cost carrying amount 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)
Securities of U.S. Government sponsored entities................
Residential mortgage backed securities................................
Obligations of states and political subdivisions....................
Residential collateralized mortgage obligations ...................
Total.................................................................................
2012
$3,232
72,807
680,802
399,200
$1,132,299 $1,156,041
Fair value............................................................................. $1,112,676 $1,184,557
2013
$1,601
65,076
756,707
308,915
2011
$––
54,869
625,390
242,544
$922,803
$947,493
The following table sets forth the relative maturities and contractual yields of the Company’s held to maturity securities at
December 31, 2013. 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, 2013
(Dollars in thousands)
Securities of U.S. Government
sponsored entities..........................
Interest rate..........................
States and political subdivisions .....
Interest rate (FTE) ...............
Subtotal .......................................
Interest rate (FTE) ...............
Mortgage backed securities and
Within
One year
After one
but within
five years
After five
but within
ten years
After ten
years
Mortgage-
backed
$––
––%
9,639
5.65%
9,639
5.65%
$––
––%
$1,601
1.50%
$––
––%
187,051
313,029
246,988
4.98%
4.05%
4.61%
187,051
314,630
246,988
4.98%
4.04%
4.61%
$––
––%
––
––
––
––
Total
$1,601
1.50%
756,707
4.47%
758,308
4.47%
residential collateralized
mortgage obligations ....................
Interest rate..........................
––
––
Total ........................................ $9,639
––
––
$187,051
––
––
$314,630
––
––
$246,988
373,991
1.77%
373,991
1.77%
$373,991
$1,132,299
Interest rate (FTE) ...............
5.65%
4.98%
4.04%
4.61%
1.77%
3.58%
In 2013, the Company reduced its positions in mortgage-related securities in an effort to manage extension risk. Extension risk
represents the risk mortgages underlying the securities experience slower principal reductions as rising market interest rate cause
a disincentive for borrowers to reduce principal balances; under such circumstances the Company will hold these securities for a
longer period than anticipated at current yield levels rather than having the opportunity to reinvest cash flows at higher yields. The
Company re-invested these proceeds, in part, into floating rate corporate bonds and federal agency, state and municipal bond
holdings. As of December 31, 2013, substantially all of the Company’s investment securities continue to be investment grade
rated by one or more major rating agencies. In addition to monitoring credit rating agency evaluations, Management performs its
own evaluations regarding the credit worthiness of the issuer or the securitized assets underlying asset-backed securities.
At December 31, 2013, the Company’s investment securities portfolios included securities issued by 808 state and local
government municipalities and agencies located within 47 states with a fair value of $932.6 million. The largest exposure to any
one municipality or agency was $5.3 million (fair value) represented by two revenue bonds.
At December 31, 2012, the Company’s investment securities portfolios included securities issued by 829 state and local
government municipalities and agencies located within 45 states with a fair value of $917.8 million. The largest exposure to any
one municipality or agency was $5.4 million (fair value) represented by two revenue bonds.
The Company’s procedures for evaluating investments in securities issued by states, municipalities and political subdivisions are
in accordance with guidance issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without
Reliance on Nationally Recognized Statistical Rating Agencies” (SR 12-15) and other regulatory guidance. Credit ratings are
considered in our analysis only as a guide to the historical default rate associated with similarly-rated bonds. There have been no
significant differences in our internal analyses compared with the ratings assigned by the third party credit rating agencies.
33
2
0
1
3
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 tables summarize the total general obligation and revenue bonds in the Company’s investment securities portfolios
as of dates indicated identifying the state in which the issuing government municipality or agency operates.
Obligations of states and political subdivisions:
General obligation bonds:
California
Texas
Pennsylvania
Other (37 states)
Total general obligation bonds
Revenue bonds:
California
Pennsylvania
Colorado
Indiana
Other (37 states)
Total revenue bonds
Total obligations of states and political subdivisions
Obligations of states and political subdivisions:
General obligation bonds:
California
Pennsylvania
Washington
Texas
Oregon
Illinois
Other (32 states)
Total general obligation bonds
Revenue bonds:
California
Pennsylvania
Colorado
Washington
Other (37 states)
Total revenue bonds
Total obligations of states and political subdivisions
At December 31, 2013
Fair
Value
Amortized
Cost
(In thousands)
$119,215
57,433
48,722
375,640
$601,010
$63,001
29,537
18,176
17,811
213,254
$341,779
$942,789
$119,360
56,594
47,394
371,215
$594,563
$64,246
28,898
17,563
17,031
210,336
$338,074
$932,637
At December 31, 2012
Fair
Value
Amortized
Cost
(In thousands)
$96,102
49,074
37,457
36,641
31,303
31,468
261,982
$544,027
$73,550
29,538
21,706
19,051
193,699
$337,544
$881,571
$100,507
50,709
39,134
38,334
33,241
32,331
271,910
$566,166
$77,075
30,794
22,439
20,155
201,189
$351,652
$917,818
34
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
3
1
0
2
At December 31, 2013, the revenue bonds in the Company’s investment securities portfolios were issued by state and local
government municipalities and agencies to fund public services such as water utility, sewer utility, recreational and school
facilities, and general public and economic improvements. The revenue bonds were payable from 27 revenue sources. The
revenue sources that represent 5% or more individually of the total revenue bonds are summarized in the following table.
Revenue bonds by revenue source
Water
Sewer
Sales tax
Lease (abatement)
Lease (renewal)
Other
Total revenue bonds by revenue source
At December 31, 2013
Fair
Value
Amortized
Cost
(In thousands)
$70,924
49,625
34,291
21,821
21,353
143,765
$341,779
$70,948
48,911
33,465
22,033
20,742
141,975
$338,074
At December 31, 2012, the revenue bonds in the Company’s investment securities portfolios were issued by state and local
government municipalities and agencies to fund public services such as water utility, sewer utility, recreational and school
facilities, and general public and economic improvements. The revenue bonds were payable from 27 revenue sources. The
revenue sources that represent 5% or more individually of the total revenue bonds are summarized in the following table.
Revenue bonds by revenue source
Water
Sewer
Sales tax
Lease (abatement)
Lease (renewal)
Tax increment/allocation
Other
Total revenue bonds by revenue source
At December 31, 2012
Fair
Value
Amortized
Cost
(In thousands)
$69,216
43,303
31,713
25,324
21,913
18,365
127,710
$337,544
$73,170
45,459
33,441
26,382
22,724
18,974
131,502
$351,652
See Note 2 to the consolidated financial statements for additional information related to the investment securities.
Loan Portfolio
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 (“purchased covered loans”) are segregated as are former Sonoma Valley Bank loans
purchased from the FDIC without loss-sharing agreements (“purchased non-covered loans”). Loan volumes have declined due to
problem loan workout activities, particularly with purchased loans, and reduced volumes of loan originations. In Management’s
opinion, current levels of competitive loan pricing do not provide adequate forward earnings potential. As a result, the Company
has not currently taken an aggressive posture relative to loan portfolio growth.
35
2
0
1
3
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 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
At December 31,
(In thousands)
Commercial ....................................................................
Commercial real estate....................................................
Real estate construction ..................................................
Real estate residential .....................................................
Consumer........................................................................
Total loans ......................................................................
2013
$338,824
596,653
10,723
176,196
400,888
2012
$340,116
632,927
7,984
222,458
460,698
$1,523,284 $1,664,183
2011
$398,446
704,655
14,580
271,111
473,815
2009
$498,594
801,008
32,156
371,197
498,133
$1,862,607 $2,029,541 $2,201,088
2010
$474,183
757,140
26,145
310,196
461,877
Purchased Covered Loan Portfolio
At December 31,
(In thousands)
Commercial ....................................................................
Commercial real estate....................................................
Real estate construction ..................................................
Real estate residential .....................................................
Consumer........................................................................
Total loans ......................................................................
Purchased Non-covered Loan Portfolio
At December 31,
(In thousands)
Commercial ....................................................................
Commercial real estate....................................................
Real estate construction ..................................................
Real estate residential .....................................................
Consumer........................................................................
Total loans ......................................................................
2013
$18,536
167,440
3,173
8,124
53,397
$250,670
2012
$50,984
239,979
7,007
8,941
65,372
$372,283
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
2013
$6,799
34,926
––
737
11,328
$53,790
2012
$10,231
43,688
1,524
2,636
16,812
$74,891
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
The following table shows the maturity distribution and interest rate sensitivity of commercial, commercial real estate, and
construction loans at December 31, 2013. Balances exclude residential real estate loans and consumer loans totaling $650.7
million. These types of loans are typically paid in monthly installments over a number of years.
Loan Maturity Distribution
At December 31, 2013
After
Five Years
(In thousands)
Commercial and commercial real estate .......................................................... $455,710 $524,157 $183,311
––
Real estate construction....................................................................................
Total ............................................................................................................. $469,606 $524,157 $183,311
Loans with fixed interest rates ......................................................................... $176,428 $179,093 $72,798
Loans with floating or adjustable interest rates................................................ 293,178 345,064 110,513
Total ............................................................................................................. $469,606 $524,157 $183,311
One to
Five Years
Within
One Year
13,896
––
Total
$1,163,178
13,896
$1,177,074
$428,319
748,755
$1,177,074
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.
36
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
3
1
0
2
Loan Portfolio Credit Risk
The risk that loan customers will not repay loans extended by the Bank is a 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.
•
•
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.
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. Uncollected interest
previously accrued on loans placed on nonaccrual status is reversed as a charge against interest income, net of estimated FDIC
reimbursements under loss-sharing agreements. The Company does not accrue interest income on loans following placement on
nonaccrual status. 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 (commonly referred to as
“Other Real Estate Owned”).
Nonperforming Assets
Originated:
Nonperforming nonaccrual loans
Performing nonaccrual loans
Total nonaccrual loans
Accruing loans 90 or more days past due
Total nonperforming loans
Other real estate owned
Total nonperforming assets
Purchased covered:
Nonperforming nonaccrual loans
Performing nonaccrual loans
Total nonaccrual loans
Accruing loans 90 or more days past due
Total nonperforming loans
Other real estate owned
Total nonperforming assets
Purchased non-covered:
Nonperforming nonaccrual loans
Performing nonaccrual loans
Total nonaccrual loans
Accruing loans 90 or more days past due
Total nonperforming loans
Other real estate owned
Total nonperforming assets
2013
2012
At December 31,
2011
(In thousands)
2010
2009
$5,301
75
5,376
410
5,786
5,527
$11,313
$11,672
636
12,308
-
12,308
7,793
$20,101
$2,920
698
3,618
-
3,618
-
$3,618
$10,016
1,759
11,775
455
12,230
9,295
$21,525
$11,698
1,323
13,021
155
13,176
13,691
$26,867
$7,038
461
7,499
4
7,503
3,366
$10,869
$10,291
5,256
15,547
2,047
17,594
14,868
$32,462
$9,388
4,924
14,312
241
14,553
19,135
$33,688
$16,170
7,037
23,207
34
23,241
11,632
$34,873
$20,845
23
20,868
766
21,634
11,424
$33,058
$28,581
18,564
47,145
355
47,500
21,791
$69,291
$29,311
9,852
39,163
1
39,164
2,196
$41,360
$19,837
25
19,862
800
20,662
12,642
$33,304
$66,965
18,183
85,148
210
85,358
23,297
$108,655
$-
-
-
-
-
-
$-
The Bank’s commercial loan customers are primarily small businesses and professionals. As a result, average loan balances are
relatively small, providing risk diversification within the overall loan portfolio. At December 31, 2013, the Bank’s nonaccrual
loans reflected this diversification: nonaccrual originated loans with a carrying value totaling $5 million comprised eleven
37
borrowers, nonaccrual purchased covered loans with a carrying value totaling $12 million comprised 18 borrowers, and
nonaccrual purchased non-covered loans with a carrying value totaling $4 million comprised ten borrowers.
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.
The former County Bank loans and repossessed loan collateral were purchased from the FDIC with indemnifying loss-sharing
agreements. The loss-sharing agreements significantly reduce the credit risk of these purchased assets during the term of the
agreements. 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 expired February 6, 2014 as to losses and expires 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 $1.3 billion acquired loan and repossessed loan collateral portfolio was $161 million representing
estimated losses inherent in the assets at the acquisition date.
2
0
1
3
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
Purchased Covered County Bank Assets
(In thousands)
Non-residential assets
Residential assets
Total indemnified assets
Credit risk discount
Other adjustments
Carrying value of covered assets
Comprised of:
Purchased covered loans
Covered other real estate owned
Carrying value of covered assets
2013
2012
At December 31,
2011
2010
2009
At
February 6,
2009
$247,116
21,278
268,394
(10,933)
1,002
$258,463
$384,285
25,570
409,855
(26,128)
2,247
$385,974
$567,041
31,311
598,352
(46,282)
2,343
$554,413
$736,367
33,285
769,653
(61,784)
6,894
$714,763
$924,755
33,452
958,206
(93,251)
13,643
$878,598
$1,298,526
40,955
1,339,481
(161,203)
5,407
$1,183,685
$250,670
7,793
$258,463
$372,283
13,691
$385,974
$535,278
19,135
$554,413
$692,972
21,791
$714,763
$855,301
23,297
$878,598
$1,174,353
9,332
$1,183,685
Aggregate indemnified losses from February 6, 2009 through December 31, 2013 have been $146 million, which includes
principal losses, loss in value of other real estate owned, loss on sale of other real estate owned, and reimbursement of incurred
collection and asset management expenses such as legal fees, property taxes, appraisals and other customary expenses. Purchased
covered asset principal losses have been primarily offset against the estimated credit risk discount, although some losses
exceeding the purchase date estimated credit risk discount have been provided for and charged-off against the allowance for credit
losses.
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 $67 million and $122
million at December 31, 2013 and December 31, 2012, respectively.
As noted above, FDIC loss indemnification of covered non-residential assets expired February 6, 2014; loss exposure on such
assets after February 6, 2014 will be represented by such assets’ carrying values at such time. Loss exposure for loans is mitigated
by the borrowers’ financial condition and ability to repay their loans, loan collateral values, the amount of credit risk discount
remaining at such time, any existing borrower guarantees which are perfected and have economic value, and the allowance for
credit losses. Loss exposure for other real estate owned is mitigated by the value of the repossessed loan collateral, less
disposition costs.
38
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
3
1
0
2
The Bank recorded former Sonoma Valley Bank loans at estimated fair value on the August 20, 2010 acquisition date. The credit
risk discount ascribed to the $257 million acquired loan portfolio was $43 million representing estimated losses inherent in the
loans at the acquisition date.
Purchased Sonoma Valley Bank Loans
(In thousands)
Total loans
Credit risk discount
Carrying value of loans
Allowance for Credit Losses
At December 31,
2012
2011
2010
At
August 20,
2010
$80,117
(5,226)
$74,891
$136,132
(10,211)
$125,921
$231,953
(32,382)
$199,571
$256,664
(43,000)
$213,664
2013
$57,035
(3,245)
$53,790
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 reductions to the carrying value of loans within the loan portfolio.
[The remainder of this page intentionally left blank]
39
2
0
1
3
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 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 commitments..............
Loans charged off:
Commercial ...................................................
Commercial real estate...................................
Real estate construction .................................
Real estate residential ....................................
Consumer and other installment ....................
Purchased covered loans ................................
Purchased non-covered loans.........................
Total chargeoffs ...............................................
Recoveries of loans previously charged off:
Commercial ...................................................
Commercial real estate...................................
Real estate construction .................................
Consumer and other installment ....................
Purchased covered loans ................................
Total recoveries ...............................................
Net loan losses .................................................
Balance, end of period .....................................
Components:
Allowance for loan losses ..................................
Liability for off-balance sheet credit exposure ..
Allowance for credit losses................................
Net loan losses:
Originated loans...............................................
Purchased covered loans ..................................
Purchased non-covered loans...........................
Net loan losses as a percentage of average loans:
Originated loans...............................................
Purchased covered loans ..................................
Purchased non-covered loans...........................
2013
2012
2011
2010
2009
$32,927
8,000
––
(2,857)
(997)
––
(109)
(4,097)
(2,286)
(385)
(10,731)
1,575
191
––
2,152
272
4,190
(6,541)
$34,386
$31,693
2,693
$34,386
$35,290
11,200
––
(6,851)
(1,202)
(2,217)
(1,156)
(5,685)
(953)
(110)
(18,174)
1,317
203
224
2,723
144
4,611
(13,563)
$32,927
$30,234
2,693
$32,927
$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
($4,142)
(2,014)
(385)
($12,644)
(809)
(110)
($13,252)
(987)
––
($16,607)
––
––
($13,927)
––
––
0.26%
0.62%
0.61%
0.72%
0.18%
0.11%
0.68%
0.16%
––%
0.79%
––%
––%
0.60%
––%
––%
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 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 of principal is uncertain. Such allocations are determined by
Management based on loan-by-loan analyses. The Company evaluates all classified loans and nonaccrual loans with outstanding
principal balances in excess of $500 thousand, and all “troubled debt restructured” loans for impairment. A second allocation is
based in part on quantitative analyses of historical credit loss experience, in which historical originated classified credit balances
are analyzed using a statistical model to determine standard loss rates for originated loans. The results of this analysis are applied
to originated classified loan balances to allocate the allowance to the respective segments of the loan portfolio. In addition,
originated 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. Last, allocations are
made to originated non-classified commercial and commercial real estate loans based on historical loss rates and other statistical
data.
Purchased loans were not underwritten using the Company’s credit policies and practices. Thus, the historical loss rates for
originated loans are not applied to estimate credit losses for purchased loans. Purchased loans were recorded on the date of
purchase at estimated fair value; fair value discounts include a component for estimated credit losses. The Company evaluates all
nonaccrual purchased loans with outstanding principal balances in excess of $500 thousand for impairment; the impaired loan
value is compared to the recorded investment in the loan, which has been reduced by the credit default discount estimated on the
date of purchase. If Management’s impairment analysis determines the impaired loan value is less than the recorded investment in
40
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
3
1
0
2
the purchased loan, an allocation of the allowance for credit losses is established, net of estimated FDIC indemnification. For all
other purchased loans, Management evaluates post-acquisition historical credit losses on purchased loans, credit default discounts
on purchased loans, and other data to evaluate the likelihood of realizing the recorded investment of purchased loans.
Management establishes allocations of the allowance for credit losses for any estimated deficiency.
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. The unallocated allowance
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 and the judgmental amount of unallocated
reserve assigned by Management as of December 31, 2013 are: economic and business conditions $1 million, external
competitive issues $800 thousand, 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 and the judgmental amount of unallocated reserve assigned by Management are: loan review system $800 thousand,
adequacy of lending Management and staff $800 thousand, loan policies and procedures $800 thousand, purchased loans $1
million, concentrations of credit $800 thousand, 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.
The following table presents the allocation of the allowance for credit losses as of December 31 for the years indicated:
At December 31,
2013
2012
2011
2010
2009
Allocation
of the
Allowance
Balance
Loans as
Percent
of Total
Loans
Allocation
of the
Allowance
Balance
Loans as
Percent
of Total
Loans
Allocation
of the
Allowance
Balance
Loans as
Percent
of Total
Loans
Allocation
of the
Allowance
Balance
Loans as
Percent
of Total
Loans
Allocation
of the
Allowance
Balance
Loans as
Percent
of Total
Loans
(Dollars in thousands)
Originated loans:
Commercial ....................
Commercial real
$5,663
18%
$8,179
16%
$7,672
$9,878
16%
$9,190
16%
28%
estate ...........................
12,070
33%
10,072
30%
10,611
9,607
26%
Real estate
construction ................
Real estate residential.....
Consumer installment
639 –%
10%
405
484
380
–%
10%
2,376
781
–%
11%
3,559
617
1%
10%
& other ........................
3,695
22%
3,613
22%
3,270
Purchased covered
loans ...............................
1,561
14%
1,005
18%
Purchased non-covered
loans ...............................
–
3%
–
4%
–
–
19%
21%
5%
6,982
16%
–
–
24%
7%
17%
26%
1%
12%
16%
28%
9,918
2,968
1,529
8,424
–
–
–%
Unallocated portion..........
Total..................................
10,353 –%
$34,386 100%
9,194
–%
$32,927 100%
10,580
$35,290
–%
100%
7,686 –%
100%
$38,329
11,707
$43,736
–%
100%
Commercial
Commercial
Real Estate
Construction
Allowance for Credit Losses
For the Year Ended December 31, 2013
Consumer
Installment
and Other
(In thousands)
Purchased
Non-covered
Loans
Residential
Real Estate
Purchased
Covered
Loans
Unallocated
Total
Allowance for loan losses:
Balance at beginning of period
Additions:
Provision
Deductions:
Chargeoffs
Recoveries
Net loan losses
Balance at end of period
Liability for off-balance sheet credit exposure
Total allowance for credit losses
$6,445
$10,063
(1,158)
2,813
(2,857)
1,575
(1,282)
4,005
1,658
$5,663
(997)
191
(806)
12,070
-
$12,070
$484
118
-
-
-
602
37
$639
$380
134
(109)
-
(109)
405
-
$405
$3,194
1,949
(4,097)
2,152
(1,945)
3,198
497
$3,695
$-
385
(385)
-
(385)
-
-
$-
$1,005
$8,663
$30,234
2,570
1,189
8,000
(2,286)
272
(2,014)
1,561
-
$1,561
-
-
-
9,852
501
$10,353
(10,731)
4,190
(6,541)
31,693
2,693
$34,386
41
2
0
1
3
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
Commercial
Commercial
Real Estate
Allowance for Credit Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2013
Consumer
Installment and
Other
(In thousands)
Residential Real
Estate
Purchased Non-
covered Loans
Purchased
Covered Loans
Construction
Unallocated
Total
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
$100
5,563
-
$5,663
$3,901
334,923
-
$338,824
$1,243
10,827
-
$12,070
$3,357
593,296
-
$596,653
$-
639
-
$639
-
10,723
-
$10,723
$-
405
-
$405
-
176,196
-
$176,196
$-
3,695
-
$3,695
-
400,888
-
$400,888
$-
-
-
$-
$3,785
47,571
2,434
$53,790
$153
1,408
-
$1,561
$9,999
238,169
2,502
$250,670
$-
10,353
-
$10,353
$1,496
32,890
-
$34,386
-
-
-
$-
$21,042
1,801,766
4,936
$1,827,744
Management considers the $34.4 million allowance for credit losses to be adequate as a reserve against credit losses inherent in
the loan portfolio as of December 31, 2013.
See Note 3 to the consolidated financial statements for additional information related to the loan portfolio, loan portfolio credit
risk, and allowance for credit losses.
Asset/Liability and Market Risk Management
Asset/liability management involves the evaluation, monitoring and management of interest rate risk, market risk, liquidity and
funding. The fundamental objective of the Company's management of assets and liabilities is to maximize its economic value
while maintaining adequate liquidity and a conservative level of interest rate risk.
Interest Rate Risk
Interest rate risk is a significant market risk affecting the Company. Many factors affect the Company’s exposure to interest rates,
such as general economic and financial conditions, customer preferences, historical pricing relationships, and re-pricing
characteristics of financial instruments. Assets and liabilities may mature or re-price at different times. Assets and liabilities may
re-price 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, the changing levels of 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.
The Company’s earnings are affected not only by general economic conditions, but also by the monetary and fiscal policies of the
U.S. and its agencies, particularly the Federal Reserve Board (the “FRB”). The monetary policies of the FRB can influence the
overall growth of loans, investment securities, and deposits and the level of interest rates earned on assets and paid for liabilities.
The nature and impact of future changes in monetary policies are generally not predictable.
The Federal Open Market Committee’s January 29, 2014 press release stated “The Committee also reaffirmed its expectation that
the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the
unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half
percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well
anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also
consider other information, including additional measures of labor market conditions, indicators of inflation pressures and
inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of
these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that
the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2
percent longer-run goal. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach
consistent with its longer-run goals of maximum employment and inflation of 2 percent”. In this context, Management’s most
likely earnings forecast for the twelve months ending December 31, 2014 assumes market interest rates remain relatively stable
and yields on newly originated or refinanced loans and on purchased investment securities will reflect current interest rates, which
are lower than yields on the Company’s older dated loans and investment securities.
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
42
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
3
1
0
2
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 slightly to modestly “liability sensitive” at December 31, 2013,
depending on the interest rate assumptions applied to the simulation model employed by Management to measure interest rate
risk. A “liability sensitive” position results in a slightly larger change in interest expense than in interest income resulting from
application of assumed interest rate changes. 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. Management’s interest rate risk management is currently biased
toward stable interest rates in the near-term, and ultimately, rising 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.
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. 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.
Market Risk - Other
Market values of loan collateral can directly impact the level of loan charge-offs and the provision for loan losses. The financial
condition and liquidity of debtors issuing bonds and debtors whose mortgages or other obligations are securitized can directly
impact the credit quality of the Company’s investment portfolio requiring the Company to recognize other than temporary
impairment charges. 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 objective of liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the
Company's operations and meet obligations and other commitments on a timely basis and at a reasonable cost. The Company
achieves this objective through the selection of asset and liability maturity mixes that it believes best meet its needs. The
Company's liquidity position is enhanced by its ability to raise additional funds as needed in the wholesale markets.
In recent years, the Company's deposit base has provided the majority of the Company's funding requirements. This relatively
stable and low-cost source of funds, along with shareholders' equity, provided 97 percent and 96 percent of funding for average
total assets in the years 2013 and 2012, respectively. The stability of the Company’s funding from customer deposits is reliant on
the confidence clients have in the Company. The Company places a very high priority in maintaining this confidence through
conservative credit and capital management practices and by maintaining an appropriate level of liquidity reserves.
Effective December 31, 2010, the Dodd-Frank Act required unlimited FDIC deposit insurance on all non-interest bearing
transaction accounts and mandated participation by all member banks. This requirement and mandate expired on December 31,
2012, at which time unlimited FDIC insurance on non-interest bearing transaction accounts came to an end. Upon expiration, the
standard maximum FDIC insurance coverage returned to $250,000 for non-interest bearing transaction accounts. The change in
deposit insurance has not had a significant impact to the Company's deposit levels.
43
2
0
1
3
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 2012 and 2013, non-deposit funding has been obtained through short-term borrowings, a term repurchase agreement,
Federal Home Loan Bank advances, and long-term debt financing. These non-deposit sources of funds comprise a modest portion
of total funding.
Liquidity is further provided by assets such as balances held at the Federal Reserve Bank, investment securities, and amortizing
loans. The Company's investment securities portfolio provides a substantial secondary liquidity reserve. The Company held $2.2
billion in total investment securities at December 31, 2013. Under certain deposit, borrowing and other arrangements, the
Company must hold and pledge investment securities as collateral. At December 31, 2013, such collateral requirements totaled
approximately $779 million.
Liquidity risk can result from the mismatching of asset and liability cash flows, or from disruptions in the financial markets. 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 Federal Reserve Bank reserve requirements, 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.
Management will monitor the Company’s cash levels throughout 2014. Loan demand from credit-worthy borrowers will be
dictated by economic and competitive conditions. 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 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 possible 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.
Westamerica Bancorporation ("Parent Company") is a separate entity 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 any outstanding debt. The $15 million note issued by the Parent
Company, as described in Note 7 to the consolidated financial statements, matured and was repaid October 31, 2013.
Substantially all of the Parent Company's revenues are obtained from subsidiary dividends and service fees. The Bank’s dividends
paid to the Parent Company and proceeds from the exercise of stock options provided adequate cash flow for the Parent Company
in 2013 and 2012 to pay shareholder dividends of $40 million and $41 million, respectively, and retire common stock in the
amount of $57 million and $51 million, respectively. Payment of dividends to the Parent Company by the Bank is limited under
California and Federal laws. The Company believes these regulatory dividend restrictions will not have an impact on the Parent
Company's ability to meet its ongoing cash obligations.
Contractual Obligations
The following table sets forth the known contractual obligations, except short-term borrowing arrangements and post-retirement
benefit plans, of the Company:
Over One to
At December 31, 2013
(In thousands)
Three Years
Term Repurchase Agreement ............................................................. $10,000 $––
Federal Home Loan Bank advances ................................................... –– 20,577
9,280
Operating Lease Obligations ..............................................................
15,768
Purchase Obligations ..........................................................................
Total................................................................................................ $26,241 $45,625
Within
One Year
8,357
7,884
Over Three to
Five Years
$––
––
3,069
––
$3,069
After
Five Years
$––
––
594
––
$594
Total
$10,000
20,577
21,300
23,652
$ 75,529
44
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
3
1
0
2
Federal Home Loan Bank advances 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 12.5% in 2013, 14.9% in 2012
and 16.1% in 2011. The Company also raises capital as employees exercise stock options. Capital raised through the exercise of
stock options totaled $21.5 million in 2013, $7.6 million in 2012 and $14.4 million in 2011.
The Company paid common dividends totaling $40.1 million in 2013, $41.0 million in 2012 and $41.7 million in 2011, which
represent dividends per common share of $1.49, $1.48 and $1.45, respectively. The Company's earnings have historically
exceeded dividends paid to shareholders. The amount of earnings in excess of dividends provides 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 1.2 million shares valued at $57.3 million in 2013, 1.1 million shares valued at $51.5 million in 2012 and
1.3 million shares valued at $60.5 million in 2011.
The Company's primary capital resource is shareholders' equity, which was $542.9 million at December 31, 2013 compared with
$560.1 million at December 31, 2012. For 2013, the Company earned $67.2 million in net income, raised $21.5 million from the
issuance of stock in connection with exercises of employee stock options, paid $40.1 million in common dividends, and
repurchased $57.3 million in common stock.
The Company's ratio of equity to total assets was 11.20% at December 31, 2013 and 11.31% at December 31, 2012.
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.
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 ........................................................................... 14.71% 15.06%
Total Capital............................................................................ 16.18% 16.33%
Leverage ratio ......................................................................... 8.55% 8.56%
2012
2013
Minimum
Regulatory
Requirement
4.00%
8.00%
4.00%
The following summarizes the ratios of capital to risk-adjusted assets for the Bank on the dates indicated:
At December 31,
Tier I Capital ........................................................................... 13.26% 14.14%
Total Capital............................................................................ 14.93% 15.62%
Leverage ratio ......................................................................... 7.67% 7.99%
2012
2013
Minimum
Regulatory
Requirement
4.00%
8.00%
4.00%
Well
Capitalized
6.00%
10.00%
5.00%
Well
Capitalized
6.00%
10.00%
5.00%
FDIC-covered assets are generally 20% risk-weighted due to the FDIC indemnification, which expires on February 6, 2019 as to
residential real estate covered assets and expired on February 6, 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.
45
On July 2, 2013, the Federal Reserve Board approved a final rule that implements changes to the regulatory capital framework for
all banking organizations. The rule’s provisions which would most affect the regulatory capital requirements of the Company and
the Bank:
•
•
•
•
Introduce a new “Common Equity Tier 1” capital measurement,
Establish higher minimum levels of capital,
Introduce a “capital conservation buffer,” and
Increase the risk-weighting of certain assets, in particular construction loans, loans on nonaccrual status, loans 90 days
or more past due, and deferred tax assets.
Under the final rule, a banking organization that is not subject to the “advanced approaches rule” may make a one-time election
not to include most elements of Accumulated Other Comprehensive Income, including net-of-tax unrealized gains and losses on
available for sale investment securities, in regulatory capital and instead effectively use the existing treatment under the general
risk-based capital rules. Neither the Company nor the Bank are subject to the “advanced approaches rule” and intend to make the
election not to include most elements of Accumulated Other Comprehensive Income in regulatory capital.
Generally, banking organizations that are not subject to the “advanced approaches rule” must begin complying with the final rule
on January 1, 2015; on such date, the Company and the Bank become subject to the revised definitions of regulatory capital, the
new minimum regulatory capital ratios, and various regulatory capital adjustments and deductions according to transition
provisions and timelines. All banking organizations must begin calculating standardized total risk-weighted assets on January 1,
2015. The transition period for the capital conservation buffer for all banking organizations will begin on January 1, 2016 and end
January 1, 2019. Any bank subject to the rule which is unable to maintain its “capital conservation buffer” will be restricted in the
payment of discretionary executive compensation and shareholder distributions, such as dividends and share repurchases.
The final rule does not supersede the Federal Deposit Insurance Corporation Improvement Act (FDICIA) requiring federal
banking agencies to take prompt corrective action (PCA) to resolve problems of insured depository institutions. The final rule
revises the PCA thresholds to incorporate the higher minimum levels of capital, including the newly proposed “common equity
tier 1” ratios.
Management has evaluated the capital structure and assets for the Company and the Bank as of December 31, 2013 assuming (1)
the Federal Reserve’s final rule was currently fully phased-in and (2) the FDIC indemnification of the Bank’s purchased covered
assets had expired, causing an increase in risk-weightings on such assets. Based on this evaluation, the Company and the Bank
currently maintain capital in excess of all the final rule regulatory ratios, as follows:
2
0
1
3
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
Final Rule
Minimum
Capital
Requirement
"Well-capitalized"
Under PCA
Proposal
Final Rule
Minimum
Plus "Capital
Conservation
Buffer"
Proforma Measurements as of
December 31, 2013 Assuming Final
Rule Fully Phased-in and
Covered Asset Indemnification
Expired
Company
Bank
4.00%
4.50%
6.00%
8.00%
5.00%
6.50%
8.00%
10.00%
4.00%
7.00%
8.50%
10.50%
8.16%
12.84%
12.84%
14.19%
7.35%
11.65%
11.65%
12.99%
Capital Measurement:
Leverage
Common Equity Tier 1
Tier I Capital
Total Capital
The Company and the Bank intend to maintain regulatory capital in excess of the highest regulatory standard. 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 highest effective regulatory
standard and pay quarterly dividends to shareholders. No assurance can be given that changes in capital management plans will
not occur.
46
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
3
1
0
2
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
Years Ended December 31,
(Dollars in thousands)
Noninterest bearing
2013
Average
Balance
Percentage
of Total
Deposits
Rate
Average
Balance
2012
Percentage
of Total
Deposits
2011
Average
Balance
Percentage
of Total
Deposits
Rate
Rate
demand........................ $1,683,447
40.4% —% $1,603,981
38.0% —% $1,496,362
35.9% —%
Interest bearing:
Transaction ................
Savings ......................
Time less than $100
thousand...................
758,771
1,151,360
18.2% 0.03%
27.7% 0.08%
754,979
1,132,980
17.9% 0.04%
26.9% 0.08%
713,754
1,112,364
17.1% 0.10%
26.7% 0.15%
228,061
5.5% 0.47%
264,466
6.3% 0.57%
313,548
7.5% 0.67%
Time $100 thousand
or more ....................
12.8% 0.43%
Total* ............................ $4,162,823 100.0% 0.08% $4,217,239 100.0% 0.10% $4,171,894 100.0% 0.16%
10.9% 0.33%
8.2% 0.32%
535,866
341,184
460,833
* The rates for total deposits reflect value of noninterest bearing deposits.
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 2011 to 2013 the deposit composition shifted from higher costing time
deposits to lower costing checking and savings accounts. The Company’s average balances of checking and savings accounts
represented 86% of average balances of total deposits in 2013 compared with 83% in 2012 and 80% in 2011.
Total time deposits were $492.8 million and $642.6 million at December 31, 2013 and 2012, 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.
Time Deposits Maturity Distribution
(In thousands)
2014 ...........................................................................................
2015 ...........................................................................................
2016 ...........................................................................................
2017 ...........................................................................................
2018 ...........................................................................................
Thereafter ..................................................................................
Total...........................................................................................
December 31,
2013
$401,627
39,375
23,092
13,103
13,357
2,213
$492,767
The following sets forth, by time remaining to maturity, the Company’s domestic time deposits in amounts of $100 thousand or
more:
Time 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,
2013
$179,981
31,586
39,841
47,446
$298,854
47
2
0
1
3
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
Short-term Borrowings
The following table sets forth the short-term borrowings of the Company:
Short-Term Borrowings Distribution
(In thousands)
2013
Securities sold under agreements to repurchase the securities.............................. $62,668
Total short term borrowings.................................................................................. $62,668
2012
$53,687
$53,687
2011
$115,689
$115,689
At December 31,
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:
Average balance for the year...............................................................................
Maximum month-end balance during the year....................................................
Average interest rate for the year ........................................................................
Average interest rate at period end......................................................................
Securities sold under agreements to repurchase the securities 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:
2013
2012
2011
$8
$8
—
—
0.60% 0.58% 0.11%
—% —% —%
$96
—
$57,446
66,640
$81,315
116,974
$103,127
115,689
0.07%
0.07%
0.07%
0.07%
0.15%
0.09%
$25,499
25,780
$25,916
26,004
1.88%
1.96%
1.86%
1.88%
$41,741
61,619
1.25%
1.84%
Average balance for the year...............................................................................
Maximum month-end balance during the year....................................................
Average interest rate for the year ........................................................................
Average interest rate at period end......................................................................
$3,945
$10,000
$10,000
10,000
10,000
10,000
0.98% 0.99% 0.98%
0.97% 0.97% 0.97%
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......................................................................
$1,933
$—
$—
—
10,150
—
—% —% 2.95%
—% —% —%
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 ..................................................... 1.38% 1.64% 1.78%
Return on average common shareholders’ equity........................ 12.48% 14.93% 16.14%
Average shareholders’ equity as a percentage of:
2012
2011
2013
Average total assets ................................................................. 11.06% 10.97% 11.00%
Average total loans .................................................................. 27.53% 23.47% 19.90%
Average total deposits.............................................................. 12.93% 12.88% 13.05%
47%
Common dividend payout ratio ...................................................
51%
60%
48
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
3
1
0
2
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.
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, 2013 and 2012...........................................................................
Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011................................
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011......
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2013, 2012
and 2011.................................................................................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011.........................
Notes to the Consolidated Financial Statements......................................................................................................
Report of Independent Registered Public Accounting Firm (on Consolidated Financial Statements) ....................
Page
50
51
52
53
54
55
56
57
92
49
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, 2013. 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, 2013 based upon criteria in Internal Control — Integrated Framework (1992) 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, 2013 based on the criteria in Internal
Control - Integrated Framework (1992) 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.
2
0
1
3
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
Dated: February 27, 2014
50
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
3
1
0
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Westamerica Bancorporation:
We have audited Westamerica Bancorporation and subsidiaries (the Company) internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992) 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, 2013, based on criteria established in Internal Control – Integrated Framework (1992) 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, 2013 and 2012, and the related consolidated statements of
income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period
ended December 31, 2013, and our report dated February 27, 2014 expressed an unqualified opinion on those consolidated
financial statements.
/s/ KPMG LLP
KPMG LLP
San Francisco, California
February 27, 2014
51
2
0
1
3
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
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
At December 31,
2013
2012
(In thousands)
Assets
Cash and due from banks .................................................................................................................
$472,028
Investment securities available for sale............................................................................................. 1,079,381
Investment securities held to maturity, with fair values of
$1,112,676 at December 31, 2013 and $1,184,557 at December 31, 2012 ................................... 1,132,299 1,156,041
250,670
372,283
Purchased covered loans ...................................................................................................................
74,891
Purchased non-covered loans ............................................................................................................
53,790
Originated loans ................................................................................................................................ 1,523,284
1,664,183
(30,234)
Allowance for loan losses .................................................................................................................
2,081,123
12,661
13,691
38,639
23,261
121,673
188,086
$4,952,193
Total loans..................................................................................................................................... 1,796,051
5,527
7,793
37,314
18,557
121,673
176,432
Total Assets .......................................................................................................................... $4,847,055
Non-covered other real estate owned ................................................................................................
Covered other real estate owned .......................................................................................................
Premises and equipment, net.............................................................................................................
Identifiable intangibles, net ...............................................................................................................
Goodwill ...........................................................................................................................................
Other assets .......................................................................................................................................
$491,382
825,636
(31,693)
Liabilities
Deposits:
Noninterest bearing deposits ......................................................................................................... $1,740,182
2,423,599
Interest bearing deposits................................................................................................................
Total deposits ........................................................................................................................ 4,163,781
62,668
20,577
10,000
—
47,095
Total Liabilities.................................................................................................................... 4,304,121
Short-term borrowed funds ...............................................................................................................
Federal Home Loan Bank advances..................................................................................................
Term repurchase agreement ..............................................................................................................
Debt financing...................................................................................................................................
Other liabilities..................................................................................................................................
$1,676,071
2,556,421
4,232,492
53,687
25,799
10,000
15,000
55,113
4,392,091
Shareholders’ Equity
Common Stock (no par value), authorized - 150,000 shares
Issued and outstanding – 26,510 at December 31, 2013 and 27,213 at December 31, 2012 ........
378,946
Deferred compensation .....................................................................................................................
2,711
Accumulated other comprehensive income.......................................................................................
4,313
156,964
Retained earnings ..............................................................................................................................
542,934
Total Shareholders’ Equity ................................................................................................
Total Liabilities and Shareholders’ Equity ...................................................................... $4,847,055
372,012
3,101
14,625
170,364
560,102
$4,952,193
See accompanying notes to the consolidated financial statements.
52
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
3
1
0
2
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Interest and Loan Fee Income
For the Years Ended December 31,
2013
2012
2011
(In thousands, except per share data)
Loans...................................................................................................................................... $102,626 $130,820 $160,673
Investment securities available for sale..................................................................................
21,594
25,712
Investment securities held to maturity...................................................................................
154,396 183,364 207,979
Total Interest and Loan Fee Income .............................................................................
21,822
29,948
19,810
32,734
Interest Expense
Deposits..................................................................................................................................
Short-term borrowed funds ....................................................................................................
Federal Home Loan Bank advances.......................................................................................
Term repurchase agreement...................................................................................................
Debt financing ......................................................................................................................
Total Interest Expense....................................................................................................
6,805
216
520
39
802
8,382
Net Interest Income ................................................................................................................ 149,725 177,620 199,597
11,200
Provision for Loan Losses ......................................................................................................
141,725 166,420 188,397
Net Interest Income After Provision for Loan Losses .........................................................
Noninterest Income
3,348
77
480
98
668
4,671
4,283
77
483
99
802
5,744
11,200
8,000
Service charges on deposit accounts......................................................................................
Merchant processing services ................................................................................................
Debit card fees ......................................................................................................................
Other service fees...................................................................................................................
ATM processing fees .............................................................................................................
Trust fees................................................................................................................................
Financial services commissions.............................................................................................
Loss on sale of securities .......................................................................................................
Other .....................................................................................................................................
Total Noninterest Income ..............................................................................................
25,693
9,031
5,829
2,846
2,758
2,313
831
—
7,710
57,011
27,691
9,734
5,173
2,801
3,396
2,078
689
(1,287)
6,747
57,022
29,523
9,436
4,956
2,827
3,815
1,887
423
—
7,230
60,097
Noninterest Expense
Salaries and related benefits...................................................................................................
Occupancy .............................................................................................................................
Outsourced data processing services......................................................................................
Amortization of identifiable intangibles.................................................................................
Furniture and equipment ........................................................................................................
Professional fees ....................................................................................................................
Courier service.......................................................................................................................
Other real estate owned..........................................................................................................
Settlements ............................................................................................................................
Other .....................................................................................................................................
Total Noninterest Expense .............................................................................................
58,501
16,209
8,844
5,975
3,837
4,802
3,342
2,458
2,100
21,610
112,614 116,885 127,678
86,122 106,557 120,816
32,928
25,430
18,945
Net Income................................................................................................................................ $67,177 $81,127 $87,888
Average Common Shares Outstanding..................................................................................
28,628
Diluted Average Common Shares Outstanding ....................................................................
28,742
Per Common Share Data
Income Before Income Taxes.................................................................................................
Provision for income taxes.....................................................................................................
56,633
15,137
8,548
4,704
3,869
3,057
2,868
1,035
—
16,763
57,388
15,460
8,531
5,368
3,775
3,217
3,117
1,235
—
18,794
26,826
26,877
27,654
27,699
Basic earnings........................................................................................................................
Diluted earnings.....................................................................................................................
Dividends paid .......................................................................................................................
$2.50
2.50
1.49
$2.93
2.93
1.48
$3.07
3.06
1.45
See accompanying notes to the consolidated financial statements.
53
2
0
1
3
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
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
2013
2012
2011
(In thousands)
Net income................................................................................................................................. $67,177 $81,127 $87,888
Other comprehensive (loss) income:
19,282
(Decrease) increase in net unrealized gains on securities available for sale...........................
(8,108)
Deferred tax benefit (expense) ...............................................................................................
11,174
(Decrease) increase in net unrealized gains on securities available for sale, net of tax .....
61
Post-retirement benefit transition obligation amortization.....................................................
(25)
Deferred tax expense .............................................................................................................
36
Post-retirement benefit transition obligation amortization, net of tax................................
Total other comprehensive (loss) income ..................................................................................
11,210
Total comprehensive income ..................................................................................................... $56,865 $84,383 $99,098
(17,855)
7,507
(10,348)
61
(25)
36
(10,312)
5,557
(2,337)
3,220
61
(25)
36
3,256
See accompanying notes to the consolidated financial statements.
54
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
3
1
0
2
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Common
Shares
Outstanding
Common
Stock
Accumulated
Deferred
Compensation
Accumulated
Other
Comprehensive Retained
Income (loss)
Earnings
Total
Balance, December 31, 2010..............................
Net income for the year 2011...........................
Other 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 ........................................................
Balance, December 31, 2011..............................
Net income for the year 2012...........................
Other 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..........................................................
Balance, December 31, 2012..............................
Net income for the year 2013...........................
Other comprehensive loss
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 ........................................................
Balance, December 31, 2013..............................
29,090
$378,885
$2,724 $159
360
14,374
15
2
(1,317)
(248)
455
1,425
89
(17,205)
11,210
336
28,150
377,775
3,060 11,369
185
7,635
11
2
(1,135)
(119)
482
1,450
93
(15,304)
3,256
41
27,213
372,012
3,101 14,625
479
21,499
15
2
(1,199)
(298)
1,068
1,397
107
(16,839)
(10,312)
(390)
26,510
$378,946
$2,711
(40,481)
(40,096)
$4,313 $156,964
$163,519
87,888
$545,287
87,888
11,210
14,374
(43,300)
(41,670)
166,437
81,127
(36,195)
(41,005)
170,364
67,177
(248)
791
1,425
89
(60,505)
(41,670)
558,641
81,127
3,256
7,635
(119)
523
1,450
93
(51,499)
(41,005)
560,102
67,177
(10,312)
21,499
(298)
678
1,397
107
(57,320)
(40,096)
$542,934
See accompanying notes to the consolidated financial statements.
55
2
0
1
3
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
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2013 2012
2011
(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 .............................................................................................
Decrease (increase) in interest income receivable............................................................................
(Increase) decrease in deferred tax asset ..........................................................................................
Decrease in other assets ...................................................................................................................
Stock option compensation expense ................................................................................................
Tax benefit decrease upon exercise of stock options........................................................................
(Decrease) increase in income taxes payable ...................................................................................
Decrease in interest expense payable ...............................................................................................
(Decrease) increase in other liabilities .............................................................................................
Loss on sale of securities available for sale......................................................................................
Gain on sale of real estate and other assets ......................................................................................
Write-down/net loss(gain) on sale/ of premises and equipment .......................................................
Originations of mortgage loans for resale ........................................................................................
Proceeds from sale of mortgage loans originated for resale .............................................................
Net write-down/loss on sale of foreclosed assets .............................................................................
Net Cash Provided By Operating Activities ............................................................................
Investing Activities:
Net repayments of loans...................................................................................................................
Proceeds from FDIC1 loss-sharing agreement..................................................................................
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 FRB2/FHLB3 securities ...............................................................................................
Proceeds from sale of FRB2/FHLB3/FHLMC4 securities.................................................................
Proceeds from sale of foreclosed assets ...........................................................................................
Net Cash Provided By Investing Activities ..............................................................................
Financing Activities:
Net change in deposits .....................................................................................................................
Net change in short-term borrowings and FHLB3 advances ............................................................
Repayments of notes payable...........................................................................................................
Exercise of stock options/issuance of shares....................................................................................
Tax benefit decrease upon exercise of stock options........................................................................
Retirement of common stock including repurchases........................................................................
Common stock dividends paid..........................................................................................................
Net Cash (Used In) Provided By 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:
$67,177
$81,127
$87,888
18,015
8,000
(420)
1,249
(1,618)
5,814
1,397
298
(1,677)
(274)
(12,510)
—
(548)
17
(501)
509
387
85,315
274,774
7,069
(418,745)
144,886
(196,536)
217,652
(1,693)
—
—
3,166
20,349
50,922
(68,357)
3,981
(15,000)
21,499
(298)
(57,320)
(40,096)
(155,591)
(19,354)
491,382
$472,028
14,074
11,200
(506)
2,396
(6,952)
142
1,450
119
(1,439)
(334)
17,147
1,287
(1,056)
117
(675)
707
660
119,464
385,042
28,423
(384,363)
203,036
(484,002)
232,226
(4,834)
—
—
2,088
28,081
5,697
(16,835)
(62,001)
—
7,635
(119)
(51,499)
(41,005)
(163,824)
(38,663)
530,045
$491,382
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
Loans transferred to other real estate owned ...............................................................................
$8,643
$11,619
$39,453
Supplemental disclosure of cash flow activity: ................................................................................
Interest paid for the period...........................................................................................................
Income tax payments for the period ............................................................................................
5,452
22,562
6,814
34,111
11,271
28,826
See accompanying notes to the consolidated financial statements.
1 Federal Deposit Insurance Corporation (“FDIC”)
2 Federal Reserve Bank (“FRB”)
3 Federal Home Loan Bank (“FHLB”)
4 Federal Home Loan Mortgage Corp. (“FHLMC”)
56
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
3
1
0
2
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 2014 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.”
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 which are 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, asset-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. Trading securities are recorded at fair value with unrealized gains and losses included in earnings. Held to maturity
securities are those debt securities which the Company has the ability and intent to hold until maturity. Held to maturity securities
are recorded at cost, adjusted for the amortization of premiums or accretion of discounts. Securities not included in trading or held
to maturity are classified as available for sale. Available for sale securities are recorded at fair value. Unrealized gains and losses,
net of the related tax effect, on available for sale securities are included in other comprehensive income.
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.
A decline in the market value of any available for sale or held to maturity security below amortized 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
57
2
0
1
3
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
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.
The Company follows the guidance issued by the Board of Governors of the Federal Reserve System, “Investing in Securities
without Reliance on Nationally Recognized Statistical Rating Agencies” (SR 12-15) and other regulatory guidance when
performing investment security pre-purchase analysis or evaluating investment securities for impairment. Credit ratings issued by
recognized rating agencies are considered in the Company’s analysis only as a guide to the historical default rate associated with
similarly-rated bonds.
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 as a component of gain or loss on sale 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 to meet regulatory requirements, such as Federal Home Loan Bank and Federal
Reserve Bank stock, which are restricted. These restricted 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 any 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 in noninterest income.
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 on a cost-recovery method 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 off against the allowance for credit losses when they become 120 days past due.
The Company evaluates all classified loans and nonaccrual loans with outstanding principal balances in excess of $500 thousand,
and all “troubled debt restructured” loans for impairment. 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
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
R
E
M
A
T
S
E
W
3
1
0
2
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. For covered purchased loans with an accretable
difference, the corresponding FDIC receivable is amortized over the shorter of the contractual term of the indemnification asset or
the remaining life of the loan. 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 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.
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 loan 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. The Company evaluates all classified loans and nonaccrual loans
with outstanding principal balances in excess of $500 thousand, and all “troubled debt restructured” loans for impairment. 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 statistical 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,
59
2
0
1
3
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
construction and consumer loans. Historical credit loss factors for commercial, construction and consumer 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 fair value of the collateral, generally based upon an independent property appraisal, less estimated disposition
costs. Losses incurred subsequent to acquisition 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, the covered loan collateral is recorded at fair value, generally based upon an independent property appraisal,
less estimated disposition costs with losses charged against acquisition date fair value discounts; the amount of losses exceeding
acquisition date fair value discounts are recognized as noninterest expense inclusive of expected reimbursement cash flows from
the FDIC. Subsequent losses incurred due to any decline in annual independent property appraisal valuations are recognized as
noninterest expense inclusive of expected reimbursement cash flows from the FDIC.
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
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. The
Company has the option to first assess qualitative factors to determine the likelihood of impairment pursuant to FASB ASU 2011-
08, Testing for Goodwill Impairment. Although the Company has the option to first assess qualitative factors when determining if
impairment exists, the Company has opted to perform a quantitative analysis to determine if an impairment exists.
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
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
3
1
0
2
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 2013, the Company adopted the following new accounting guidance:
FASB ASU 2012-06, Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a
Government-Assisted Acquisition of a Financial Institution, was issued October 2012 to provide guidance for consistently
measuring an indemnification asset subsequent to acquisition. Subsequent accounting for changes in the measurement of the
indemnification asset should be on the same basis as a change in the assets subject to indemnification. Any amortization of
changes in value is limited to the shorter of the contractual term of the indemnification agreement or the remaining life of the
indemnified assets. The Company’s historical accounting treatment is consistent with ASU 2012-06, and therefore there was no
effect on the Company’s financial statements at January 1, 2013, when adopted.
FASB ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, was issued February
2013 requiring an entity to provide information about the amounts reclassified out of accumulated other comprehensive income
by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in
the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net
income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same
reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an
entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those
amounts. The adoption of the update did not have a material effect on the Company’s financial statements at January 1, 2013, the
date adopted. The Company’s only item reclassified out of other comprehensive income to net income is the amortization of
unrecognized post retirement benefit transition obligation, which is immaterial for purposes of disclosure.
Recently Issued Accounting Standards
FASB ASU 2014-01, Investments- Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified
Affordable Housing Projects, was issued January 2014 to permit reporting entities to make an accounting policy election to
account for their investments in qualified affordable housing projects using the proportional amortization method if certain
conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in
proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income
statement as a component of income tax expense (benefit). For those investments in qualified affordable housing projects not
accounted for using the proportional amortization method, the investment should be accounted for as an equity method
investment or a cost method investment in accordance with GAAP. The policy election must be applied consistently to all
qualified affordable housing project investments.
The update also requires a reporting entity to disclose information regarding its investments in qualified affordable housing
projects, and the effect of the measurement of its investments in qualified affordable housing projects and the related tax credits
on its financial position and results of operations.
Management is evaluating the impact that the change in accounting policy would have on the Company’s financial statements.
Management does not expect the adoption of this update to have a material effect on the financial statements when adopted on
January 1, 2015.
FASB ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, was issued July 2013 to provide guidance on the
financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar loss, or a tax
61
2
0
1
3
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
credit carryforward exists. The update provides that an unrecognized tax benefit, or a portion of an unrecognized tax benefit,
should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a
similar tax loss or a tax credit carryforward, unless an exception applies. The Company does not expect the adoption of this
update to have a material effect on the financial statements when adopted on January 1, 2014.
Note 2: Investment Securities
The amortized cost, gross unrealized gains and losses, and fair value of the available for sale investment securities portfolio
follow:
Investment Securities Available for Sale
At December 31, 2013
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 .......................................................................................
$3,500
131,080
32,428
3,411
(In thousands)
$9
75
1,763
19
5,627
730
3
804 12,568
2,901
1,251
$1,071,691 $24,946
$3,506
($3)
(663) 130,492
34,176
(15)
3,425
(5)
(323) 191,386
(14,724) 252,896
14,555
13,372
(1,264) 432,431
3,142
($17,256) $1,079,381
186,082
266,890
14,653
(101)
—
430,794
2,049
(158)
The amortized cost, gross unrealized gains and losses, and fair value of the held to maturity investment securities portfolio follow:
Investment Securities Held to Maturity
At December 31, 2013
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair
Value
Securities of U.S. Government sponsored entities ..............
$1,597
Residential mortgage-backed securities ..............................
65,306
Obligations of states and political subdivisions ..................
741,251
304,522
Residential collateralized mortgage obligations..................
Total .................................................................................... $1,132,299 $8,274 ($27,897) $1,112,676
($4)
(624)
(21,667)
(5,602)
(In thousands)
$—
$1,601
854
65,076
6,211
756,707
308,915 1,209
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
3
1
0
2
The amortized cost, gross unrealized gains and losses, and fair value of the available for sale investment securities portfolio
follow:
Investment Securities Available for Sale
At December 31, 2012
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 .......................................................................................
$3,520
49,335
53,078
4,076
(In thousands)
$38
207
3,855
69
200,769 14,730
1,786
219,613
18
16,130
2,061
824
3,009
1,370
$800,091 $ 27,143
$—
(17)
(1)
—
$3,558
49,525
56,932
4,145
(252) 215,247
(294) 221,105
16,005
(143)
2,880
(5)
(826) 252,838
3,401
(60)
($1,598) $825,636
250,655
2,091
The amortized cost, gross unrealized gains and losses, and fair value of the held to maturity investment securities portfolio follow:
Investment Securities Held to Maturity
At December 31, 2012
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair
Value
(In thousands)
Securities of U.S. Government sponsored entities ..............
$43
Residential mortgage-backed securities ..............................
2,090
Obligations of states and political subdivisions ..................
680,802 23,004
399,200 5,185
Residential collateralized mortgage obligations..................
Total .................................................................................... $1,156,041 $30,322
$3,232
72,807
$—
(10)
(1,235)
(561)
$3,275
74,887
702,571
403,824
($1,806) $1,184,557
The amortized cost and fair value of securities by contractual maturity are shown in the following tables at the dates indicated:
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
At December 31, 2013
Securities Available
for Sale
Amortized
Cost
Fair
Value
Securities Held
to Maturity
Amortized
Cost
Fair
Value
(In thousands)
$75,385
536,333
66,669
87,722
766,109
$75,609
538,111
68,166
90,484
772,370
$9,639
187,051
314,630
246,988
758,308
$9,900
189,827
310,104
233,017
742,848
collateralized mortgage obligations.......................
290,497
16,514
Other securities........................................................
Total ........................................................................ $1,071,691 $1,079,381
302,729
2,853
373,991
—
$1,132,299
369,828
—
$1,112,676
63
2
0
1
3
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
At December 31, 2012
Securities Available
for Sale
Amortized
Cost
Fair
Value
Securities Held
to Maturity
Amortized
Cost
Fair
Value
(In thousands)
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 ........................................................................
$40,380
309,293
59,817
110,919
520,409
$40,686
312,480
63,540
120,467
537,173
$10,265
167,162
227,603
279,004
684,034
$10,496
171,769
236,608
286,973
705,846
276,767
2,915
$800,091
282,182
6,281
$825,636
472,007
—
$1,156,041
478,711
—
$1,184,557
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, 2013 and December 31, 2012, the
Company had no high-risk collateralized mortgage obligations as defined by regulatory guidelines.
An analysis of gross unrealized losses of the available for sale investment securities portfolio follows:
Less than 12 months
Investment Securities Available for Sale
At December 31, 2013
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(In thousands)
U.S. Treasury
securities....................
$2,994
($3)
$––
$––
$2,994
($3)
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
91,669
(663)
864
1,072
(15)
(5)
––
––
––
––
––
––
91,669
(663)
864
(15)
1,072
(5)
17,516
(222)
3,214
(101)
20,730
(323)
187,848
(12,326)
40,575
(2,398)
228,423
(14,724)
securities....................
Corporate securities .....
Other securities............
Total ............................
5,002
117,751
—
$424,716
(1)
(1,087)
—
($14,322)
4,475
9,824
1,842
$59,930
(100)
(177)
(158)
($2,934)
9,477
127,575
1,842
$484,646
(101)
(1,264)
(158)
($17,256)
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
3
1
0
2
An analysis of gross unrealized losses of the held to maturity investment securities portfolio follows:
Less than 12 months
Investment Securities Held to Maturity
At December 31, 2013
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(In thousands)
$1,597
($4)
38,396
(616)
$—
392
$—
$1,597
($4)
(8)
38,788
(624)
355,797
(14,893)
64,427
(6,774)
420,224
(21,667)
214,981
$610,771
(5,175)
($20,688)
14,120
$78,939
(427)
($7,209)
229,101
$689,710
(5,602)
($27,897)
Securities of U.S.
Government
sponsored entities ......
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,
particularly risk-free interest rates which rose between December 31, 2012 and December 31, 2013, causing bond prices to
decline. 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. In addition to
monitoring credit rating agency evaluations, Management performs its own evaluations regarding the credit worthiness of the
issuer or the securitized assets underlying asset backed securities.
The Company does not intend to sell any investments and has concluded that it is more likely than not that it will not be required
to sell the investments prior to recovery of the amortized cost basis. Therefore, the Company does not consider these investments
to be other-than-temporarily impaired as of December 31, 2013.
The fair values of the investment securities could decline in the future if the general economy deteriorates, inflation increases,
credit ratings decline, the issuer’s financial condition deteriorates, or the liquidity for securities declines. As a result, other than
temporary impairments may occur in the future.
As of December 31, 2013, $778,588 thousand of investment securities were pledged to secure public deposits, short-term
borrowed funds, and term repurchase agreements, compared to $850,421 thousand at December 31, 2012.
65
2
0
1
3
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
Investment Securities Available for Sale
At December 31, 2012
12 months or longer
Fair Value
Unrealized
Losses
(In thousands)
Total
Fair Value
Unrealized
Losses
$9,983
($17)
103
(1)
$––
11
$––
––
$9,983
($17)
114
(1)
2,080
(23)
8,928
(229)
11,008
(252)
72,803
—
—
53,570
—
$138,539
(294)
—
—
(423)
—
($758)
––
5,828
1
24,597
1,940
$41,305
––
(143)
(5)
(403)
(60)
($840)
72,803
5,828
1
78,167
1,940
$179,844
(294)
(143)
(5)
(826)
(60)
($1,598)
Securities of U.S.
Government
sponsored entities ......
Residential
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 ............................
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, 2012
12 months or longer
Fair Value
Unrealized
Losses
(In thousands)
Total
Fair Value
Unrealized
Losses
$113
$—
$664
($10)
$777
($10)
69,839
(1,205)
4,275
(30)
74,114
(1,235)
26,683
$96,635
(386)
($1,591)
9,353
$14,292
(175)
($215)
36,036
$110,927
(561)
($1,806)
Residential
mortgage-backed
securities....................
Obligations of states
and political
subdivisions ...............
Residential
collateralized
mortgage
obligations .................
Total ............................
During 2012, the Company transferred one residential collateralized mortgage obligation with a carrying value of $9,077
thousand from the held to maturity portfolio to the available for sale portfolio. The residential collateralized mortgage obligation
was subsequently sold due to a decline in the credit worthiness from increased losses on subordinate tranches resulting in
proceeds of $7,790 thousand and a realized loss on sale of $1,287 thousand.
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
3
1
0
2
The following table provides information about the amount of interest income earned on investment securities which is fully
taxable and which is exempt from regular federal income tax:
Taxable:
Mortgage related securities
Other
Total fully taxable
Tax-exempt from regular federal income tax
Total interest income from investment securities
For the Year
Ended December 31,
2012
(In thousands)
2011
2013
$13,291
8,910
22,201
29,569
$51,770
$14,696
6,650
21,346
31,198
$52,544
$11,834
5,570
17,404
29,902
$47,306
Note 3: Loans and Allowance for Credit Losses
A summary of the major categories of loans outstanding is shown in the following tables:
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:
Impaired
Non impaired
Purchase discount
Total
At December 31, 2013
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
(In thousands)
Consumer
Installment
& Other
Total
$338,824
$596,653
$10,723
$176,196
$400,888
$1,523,284
5
20,061
(1,530)
635
6,890
(726)
$364,159
2,835
172,727
(8,122)
2,520
33,192
(786)
$799,019
-
3,223
(50)
-
-
-
$13,896
-
8,558
(434)
-
999
(262)
$185,057
247
53,947
(797)
3,087
258,516
(10,933)
147
12,652
(1,471)
$465,613
3,302
53,733
(3,245)
$1,827,744
At December 31, 2012
Commercial
Commercial
Real Estate
Construction
Residential
Real Estate
Consumer
Installment
& Other
Total
$340,116
$632,927
(In thousands)
$7,984
$222,458
$460,698
$1,664,183
308
59,135
(8,459)
1,261
9,840
(870)
$401,331
7,585
247,534
(15,140)
6,763
38,673
(1,748)
$916,594
1,824
5,462
(279)
-
1,619
(95)
$16,515
-
9,374
(433)
-
3,110
(474)
$234,035
257
66,932
(1,817)
9,974
388,437
(26,128)
297
18,554
(2,039)
$542,882
8,321
71,796
(5,226)
$2,111,357
67
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,
2013
2012
(In thousands)
$7,865
(5,363)
$2,502
$18,591
(10,726)
$7,865
Changes in the carrying amount of impaired purchased non-covered loans were as follows:
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 Years Ended December 31,
2013
2012
(In thousands)
$6,764
(4,330)
$2,434
$15,572
(8,808)
$6,764
Changes in the accretable yield for purchased loans were as follows:
Accretable Yield:
Balance at the beginning of the period
Reclassification from nonaccretable difference
Accretion
Balance at the end of the period
Accretion
Reduction in FDIC indemnification asset
(Increase) in interest income
For the Years Ended December 31,
2013
2012
(In thousands)
$4,948
12,504
(14,947)
$2,505
($14,947)
11,438
($3,509)
$9,990
12,121
(17,163)
$4,948
($17,163)
13,207
($3,956)
The following summarizes activity in the allowance for credit losses:
Commercial
Commercial
Real Estate
Construction
Allowance for Credit Losses
For the Year Ended December 31, 2013
Consumer
Installment
and Other
(In thousands)
Purchased
Non-covered
Loans
Residential
Real Estate
2
0
1
3
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
Purchased
Covered
Loans
Unallocated
Total
Allowance for loan losses:
Balance at beginning of period
Additions:
Provision
Deductions:
Chargeoffs
Recoveries
Net loan losses
Balance at end of period
Liability for off-balance sheet credit exposure
Total allowance for credit losses
$6,445
$10,063
(1,158)
2,813
(2,857)
1,575
(1,282)
4,005
1,658
$5,663
(997)
191
(806)
12,070
-
$12,070
$484
118
-
-
-
602
37
$639
$380
134
(109)
-
(109)
405
-
$405
$3,194
1,949
(4,097)
2,152
(1,945)
3,198
497
$3,695
$-
385
(385)
-
(385)
-
-
$-
$1,005
$8,663
$30,234
2,570
1,189
8,000
(2,286)
272
(2,014)
1,561
-
$1,561
-
-
-
9,852
501
$10,353
(10,731)
4,190
(6,541)
31,693
2,693
$34,386
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
3
1
0
2
Commercial
Commercial
Real Estate
Construction
Allowance for Credit Losses
For the Year Ended December 31, 2012
Consumer
Installment
and Other
(In thousands)
Purchased
Non-covered
Loans
Residential
Real Estate
Purchased
Covered
Loans
Unallocated
Total
Allowance for loan losses:
Balance at beginning of period
Additions:
Provision
Deductions:
Chargeoffs
Recoveries
Net loan losses
Balance at end of period
Liability for off-balance sheet credit exposure
Total allowance for credit losses
$6,012
$10,611
$2,342
5,967
451
135
(6,851)
1,317
(5,534)
6,445
1,734
$8,179
(1,202)
203
(999)
10,063
9
$10,072
(2,217)
224
(1,993)
484
-
$484
$781
755
(1,156)
-
(1,156)
380
-
$380
$3,072
3,084
(5,685)
2,723
(2,962)
3,194
419
$3,613
$-
110
(110)
-
(110)
-
-
$-
$-
$9,779
$32,597
1,814
(1,116)
11,200
(953)
144
(809)
1,005
-
$1,005
-
-
-
8,663
531
$9,194
(18,174)
4,611
(13,563)
30,234
2,693
$32,927
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 losses
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
The allowance for credit losses and recorded investment in loans evaluated for impairment follow:
Commercial
Commercial
Real Estate
Allowance for Credit Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2013
Consumer
Installment and
Other
(In thousands)
Residential Real
Estate
Purchased Non-
covered Loans
Purchased
Covered Loans
Construction
Unallocated
Total
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
$100
5,563
-
$5,663
$3,901
334,923
-
$338,824
$1,243
10,827
-
$12,070
$3,357
593,296
-
$596,653
$-
639
-
$639
-
10,723
-
$10,723
$-
405
-
$405
-
176,196
-
$176,196
$-
3,695
-
$3,695
-
400,888
-
$400,888
$-
-
-
$-
$3,785
47,571
2,434
$53,790
$153
1,408
-
$1,561
$9,999
238,169
2,502
$250,670
$-
10,353
-
$10,353
$1,496
32,890
-
$34,386
-
-
-
$-
$21,042
1,801,766
4,936
$1,827,744
Commercial
Commercial
Real Estate
Allowance for Credit Losses and Recorded Investment in Loans Evaluated for Impairment
At December 31, 2012
Consumer
Installment and
Other
(In thousands)
Residential Real
Estate
Purchased Non-
covered Loans
Purchased
Covered Loans
Construction
Unallocated
Total
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
$1,865
6,314
-
$8,179
$5,153
334,963
-
$340,116
$134
9,938
-
$10,072
$4,161
628,766
-
$632,927
$-
484
-
$484
$-
7,984
-
$7,984
$-
380
-
$380
$-
222,458
-
$222,458
$100
3,513
-
$3,613
$-
460,698
-
$460,698
$-
-
-
$-
$3,029
65,098
6,764
$74,891
$753
252
-
$1,005
$16,680
347,738
7,865
$372,283
$-
9,194
-
$9,194
$2,852
30,075
-
$32,927
$-
-
-
$-
$29,023
2,067,705
14,629
$2,111,357
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
69
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.” Loan Review evaluations occur every calendar quarter. 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, 2013
Commercial
Commercial
Real Estate
Construction
Residential Real
Estate
Consumer
Installment and
Other
Purchased Non-
covered Loans
Purchased
Covered
Loans (1)
Total
Grade:
Pass
Substandard
Doubtful
Loss
Default risk purchase discount
Total
$329,667
8,142
1,015
-
-
$338,824
$554,991
41,662
-
-
-
$596,653
$10,274
449
-
-
-
$10,723
(In thousands)
$174,113
2,083
-
-
-
$176,196
$399,377
1,127
19
365
-
$400,888
$41,490
14,587
958
-
(3,245)
$53,790
$196,882
64,624
97
-
(10,933)
$250,670
$1,706,794
132,674
2,089
365
(14,178)
$1,827,744
(1) Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.
Credit Risk Profile by Internally Assigned Grade
At December 31, 2012
Commercial
Commercial
Real Estate
Construction
Residential Real
Estate
Consumer
Installment and
Other
Purchased Non-
covered Loans
Purchased
Covered
Loans (1)
Total
Grade:
Pass
Substandard
Doubtful
Loss
Default risk purchase discount
Total
$324,452
11,413
4,251
-
-
$340,116
$599,472
33,455
-
-
-
$632,927
$7,518
466
-
-
-
$7,984
(In thousands)
$219,655
2,803
-
-
-
$222,458
$459,076
1,158
46
418
-
$460,698
$51,901
27,066
1,145
5
(5,226)
$74,891
$274,976
122,815
470
150
(26,128)
$372,283
$1,937,050
199,176
5,912
573
(31,354)
$2,111,357
(1) Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.
2
0
1
3
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 tables summarize loans by delinquency and nonaccrual status:
Summary of Loans by Delinquency and Nonaccrual Status
At December 31, 2013
Current and
Accruing
30-59 Days
Past Due and
Accruing
60-89 Days
Past Due and
Accruing
Past Due 90
days or More
and Accruing
Nonaccrual
Total Loans
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment & other
Total originated loans
Purchased non-covered loans
Purchased covered loans
Total
$336,497
586,619
10,275
173,082
396,725
1,503,198
45,755
236,577
$1,785,530
$677
4,012
-
2,789
3,035
10,513
4,237
845
$15,595
(In thousands)
$383
2,473
-
325
606
3,787
180
940
$4,907
$ -
-
-
-
410
410
-
-
$410
$1,267
3,549
448
-
112
5,376
3,618
12,308
$21,302
$338,824
596,653
10,723
176,196
400,888
1,523,284
53,790
250,670
$1,827,744
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
3
1
0
2
Summary of Loans by Delinquency and Nonaccrual Status
At December 31, 2012
Current and
Accruing
30-59 Days
Past Due and
Accruing
60-89 Days
Past Due and
Accruing
Past Due 90
days or More
and Accruing
Nonaccrual
Total Loans
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment & other
Total originated loans
Purchased non-covered loans
Purchased covered loans
Total
$333,474
616,276
7,984
220,032
455,007
1,632,773
65,567
352,619
$2,050,959
$754
7,941
-
1,510
4,021
14,226
1,757
4,811
$20,794
(In thousands)
$278
2,809
-
683
1,184
4,954
64
1,677
$6,695
$ -
-
-
-
455
455
4
155
$614
$5,610
5,901
-
233
31
11,775
7,499
13,021
$32,295
$340,116
632,927
7,984
222,458
460,698
1,664,183
74,891
372,283
$2,111,357
The following is a summary of the effect of nonaccrual loans on interest income:
Interest income that would have been recognized had the loans
For the Years Ended
December 31,
2012
(In thousands)
2011
2013
performed in accordance with their original terms.......................................... $2,816
Less: Interest income recognized on nonaccrual loans ........................................
Total reduction of interest income ....................................................................... $1,464
$7,132
$4,337
(1,352) (2,605) (4,290)
$2,842
$1,732
There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2013
and December 31, 2012.
The following summarizes impaired loans:
Impaired Loans
At December 31, 2013
Unpaid
Principal
Balance
(In thousands)
Recorded
Investment
Related
Allowance
Impaired loans with no related allowance recorded:
Commercial
Commercial real estate
Construction
Consumer installment and other
$3,931
11,002
2,483
2,014
Impaired loans with an allowance recorded:
Commercial
Commercial real estate
Total:
Commercial
Commercial real estate
Construction
Consumer installment and other
1,000
9,773
$4,931
20,775
2,483
2,014
$ -
-
-
-
100
1,396
$100
1,396
-
-
$4,498
13,253
2,947
2,133
2,173
12,482
$6,671
25,735
2,947
2,133
71
Impaired Loans
At December 31, 2012
Unpaid
Principal
Balance
(In thousands)
Related
Allowance
Recorded
Investment
Impaired loans with no related allowance recorded:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
$3,100
24,135
2,363
668
2,328
Impaired loans with an allowance recorded:
Commercial
Commercial real estate
12,129
4,038
Total:
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
$15,229
28,173
2,363
668
2,328
$9,506
27,972
2,992
668
2,616
13,739
4,038
$23,245
32,010
2,992
668
2,616
$ -
-
-
-
-
2,588
164
$2,588
164
-
-
-
2
0
1
3
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
Impaired loans include troubled debt restructured loans. Impaired loans at December 31, 2013, included $5,453 thousand of
restructured loans, including $529 thousand that were on nonaccrual status. Impaired loans at December 31, 2012, included
$6,678 thousand of restructured loans, including $988 thousand that were on nonaccrual status.
Impaired Loans
For the Years Ended
December 31, 2013
December 31, 2012
Average
Recorded
Investment
Recognized
Interest
Income
Average
Recorded
Investment
Recognized
Interest
Income
Commercial
Commercial real estate
Construction
Residential real estate
Consumer installment and other
Total
$10,566
27,186
2,400
362
1,469
$41,983
(In thousands)
$222
763
80
-
38
$1,103
$12,996
28,420
6,651
818
2,611
$51,496
$239
1,225
216
-
43
$1,723
The following tables provide information on troubled debt restructurings:
Troubled Debt Restructurings
At December 31, 2013
Number of
Contracts
Pre-Modification
Carrying Value
Period-End
Carrying Value
4
2
6
(In thousands)
$3,427
2,291
$5,718
$3,164
2,289
$5,453
Period-End
Individual
Impairment
Allowance
$-
-
$-
Commercial
Commercial real estate
Total
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
3
1
0
2
Commercial
Commercial real estate
Total
Commercial
Construction
Total
Troubled Debt Restructurings
At December 31, 2012
Number of
Contracts
Pre-Modification
Carrying Value
Period-End
Carrying Value
3
2
5
(In thousands)
$1,318
5,391
$6,709
$1,196
5,482
$6,678
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
Period-End
Individual
Impairment
Allowance
$797
-
$797
Period-End
Individual
Impairment
Allowance
$-
1,794
$1,794
During the year ended December 31, 2013, the Company modified five loans with a total carrying value of $4,966 thousand that
were considered troubled debt restructurings. The concessions granted in the five restructurings completed in 2013 consisted of
modification of payment terms to lower the interest rate and extend the maturity date to allow for deferred principal repayment.
During the years ended December 31, 2012 and 2011, the Company modified three loans in each period with carrying values
totaling $5,821 thousand and $3,509 thousand, respectively that were considered troubled debt restructurings. The concessions
granted in the restructurings completed in 2012 and 2011 largely consisted of modifications of payment terms extending maturity
dates to allow for deferred principal repayment. During the year ended December 31, 2013 a commercial real estate loan with a
carrying value of $3,954 thousand defaulted within 12 months of the modification date. During the year ended December 31,
2012, troubled debt restructured construction and commercial loans with carrying values totaling $3,068 thousand and $988
thousand, respectively, defaulted. During the year ended December 31, 2011, no troubled debt restructurings defaulted. A
troubled debt restructuring is considered to be in default when payments are ninety days or more past due.
The Company pledges loans to secure borrowings from the Federal Home Loan Bank (FHLB). The carrying value of the FHLB
advances was $20,577 thousand and $25,799 thousand at December 31, 2013 and December 31, 2012, respectively. The loans
restricted due to collateral requirements approximate $24,242 thousand and $32,084 thousand at December 31, 2013 and
December 31, 2012, respectively. The amount of loans pledged exceeds collateral requirements. The FHLB does not have the
right to sell or repledge such loans.
There were no loans held for sale at December 31, 2013 and December 31, 2012.
Note 4: Concentration of Credit Risk
The Company’s business activity is with customers in Northern and Central California. The loan portfolio is well diversified
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 3, the Company had loan commitments and
standby letters of credit related to real estate loans of $61,447 thousand and $69,345 thousand at December 31, 2013 and
December 31, 2012, respectively. The Company requires collateral on all real estate loans with loan-to-value ratios at origination
generally no greater than 75% on commercial real estate loans and no greater than 80% on residential real estate loans.
73
Note 5: Premises, Equipment and Other Assets
Premises and equipment consisted of the following:
At December 31,
Accumulated
Depreciation
and
Amortization
(In thousands)
Cost
Net Book
Value
2013
Land ......................................................................................................
Buildings and improvements ................................................................
Leasehold improvements ......................................................................
Furniture and equipment.......................................................................
Total ..................................................................................................
2012
Land ......................................................................................................
Buildings and improvements ................................................................
Leasehold improvements ......................................................................
Furniture and equipment.......................................................................
Total ..................................................................................................
$11,983
41,092
5,761
18,365
$77,201
$—
(22,321)
(4,453)
(13,113)
($39,887)
$11,983
18,771
1,308
5,252
$37,314
$11,983
44,009
6,175
18,805
$80,972
$—
(24,237)
(4,569)
(13,527)
($42,333)
$11,983
19,772
1,606
5,278
$38,639
Depreciation and amortization of premises and equipment included in noninterest expense amounted to $3,001 thousand in 2013,
$2,626 thousand in 2012 and $2,798 thousand in 2011.
Other assets consisted of the following:
At December 31,
2012
2013
(In thousands)
2
0
1
3
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
Cost method equity investments:
Federal Reserve Bank stock (1) ...............................................................................
Federal Home Loan Bank stock (2).........................................................................
Other investments ..................................................................................................
Total cost method equity investments................................................................
Life insurance cash surrender value...........................................................................
Deferred taxes receivable ...........................................................................................
Limited partnership investments ................................................................................
Interest receivable ......................................................................................................
FDIC indemnification receivable...............................................................................
Prepaid assets .............................................................................................................
Other assets ................................................................................................................
Total other assets ................................................................................................
4,188
376
$14,069 $14,069
7,353
376
18,633 21,798
43,896 45,579
53,281 42,449
18,198 20,631
18,925 20,274
4,032 13,847
5,229 11,679
14,238 11,829
$176,432 $188,086
(1) A bank applying for membership in the Federal Reserve System is required to subscribe to stock in the Federal Reserve Bank
(FRB) in a sum equal to six percent of the paid-up capital stock and surplus. One-half of the amount of the bank's subscription
shall be paid to the FRB and the remaining half will be subject to call when deemed necessary by the Board of Governors of the
Federal Reserve System.
(2) Borrowings from the Federal Home Loan Bank (FHLB) must be supported by capital stock holdings. The minimum activity-
based requirement is 4.7% of the outstanding advances. The requirement may be adjusted from time to time by the FHLB within
limits established in the FHLB's Capital Plan.
Note 6: 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, 2013 and December 31, 2012. 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
74
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
3
1
0
2
adjustments are indicated. During the year ended December 31, 2013 and December 31, 2012, no such adjustments were
recorded.
The carrying values of goodwill were:
At December 31,
2012
2013
(In thousands)
Goodwill............................................... $121,673
$121,673
The gross carrying amount of intangible assets and accumulated amortization was:
At December 31,
2013
2012
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
(In thousands)
Core Deposit Intangibles ................................................... $56,808 ($39,242)
(9,309)
Merchant Draft Processing Intangible ............................... 10,300
Total Intangible Assets................................................... $67,108 ($48,551)
$56,808 ($34,938)
10,300
(8,909)
$67,108 ($43,847)
As of December 31, 2013, the current year and estimated future amortization expense for intangible assets was as follows:
Twelve months ended December 31, 2013 (actual)........................................ $4,304
Estimate for year ended December 31,
Core
Deposit
Intangibles
Merchant
Draft
Processing
Intangible
(In thousands)
$400
Total
$4,704
2014 ................................................................................................
2015 ................................................................................................
2016 ................................................................................................
2017 ................................................................................................
2018 ................................................................................................
3,946
3,594
3,292
2,913
1,892
324
262
212
164
29
4,270
3,856
3,504
3,077
1,921
Note 7: Deposits and Borrowed Funds
The following table provides additional detail regarding deposits.
Noninterest bearing.........................
Interest bearing:
Transaction ...................................
Savings .........................................
Time..............................................
Total deposits..............................
Deposits
At December 31,
2013
2012
(In thousands)
$1,740,182
$1,676,071
763,088
1,167,744
492,767
$4,163,781
748,818
1,165,032
642,571
$4,232,492
Demand deposit overdrafts of $3,002 thousand and $6,307 thousand were included as loan balances at December 31, 2013 and
December 31, 2012, respectively. Interest expense for aggregate time deposits with individual account balances in excess of $100
thousand was $1,096 thousand in 2013, $1,530 thousand in 2012 and $2,296 thousand in 2011.
Short-term borrowed funds of $62,668 thousand and $53,687 thousand at December 31, 2013 and December 31, 2012,
respectively, represent securities sold under agreements to repurchase the securities. As the Company is obligated to repurchase
the securities, the transfer of the securities is accounted for as a secured borrowing rather than a sale. Securities sold under
repurchase agreements are held in the custody of independent securities brokers. The carrying amount of the securities
75
approximates $113,902 thousand and $74,497 thousand at December 31, 2013 and December 31, 2012, respectively. The short-
term borrowed funds mature on an overnight basis.
Federal Home Loan Bank (“FHLB”) advances with carrying value of $20,577 thousand at December 31, 2013 and $25,799
thousand at December 31, 2012 are secured by residential real estate loans, the amount of such loans approximates $24,242
thousand at December 31, 2013 and $32,084 thousand at December 31, 2012. The FHLB advances are due in full at par value
upon their maturity dates: $20,000 thousand mature in January 2015. The FHLB advances may be paid off prior to such maturity
dates subject to prepayment fees.
The $10,000 thousand term repurchase agreement at December 31, 2013 and December 31, 2012 represents securities sold under
an agreement to repurchase the securities. As the Company is obligated to repurchase the securities, the transfer of the securities
is accounted for as a secured borrowing rather than a sale. Securities sold under repurchase agreements are held in the custody of
independent securities brokers. The carrying amount of the related securities is approximately $11,278 thousand at December 31,
2013 and $11,987 thousand at December 31, 2012. The term repurchase agreement matures in full in August 2014.
The Company has a $35,000 thousand unsecured line of credit which had no outstanding balance at December 31, 2013 and
December 31, 2012. The line of credit interest rate is a variable rate of 2.0% per annum, payable monthly on outstanding
advances. Advances may be made up to the unused credit limit under the line of credit through March 19, 2014.
Debt financing of $15,000 thousand is a note issued by Westamerica Bancorporation on October 31, 2003 which matured and was
repaid October 31, 2013.
The following table summarizes deposits and borrowed funds of the Company for the periods indicated:
2
0
1
3
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
Balance
At
December 31,
2013
Average
Balance
Year Ended
December 31,
2013
Weighted
Average
Rate
Balance
At
December 31,
2012
Average
Balance
Year Ended
December 31,
2012
Weighted
Average
Rate
(Dollars in thousands)
Time deposits over $100 thousand ..............
Securities sold under repurchase
agreements.................................................
Federal Home Loan Bank advances ............
Term repurchase agreement.........................
Federal funds purchased ..............................
$298,854
$341,184
0.32%
$419,082
$460,833
0.33%
62,668
20,577
10,000
—
57,446
25,499
10,000
8
0.07
1.88
0.98
0.60
53,687
25,799
10,000
—
81,315
25,916
10,000
8
0.07
1.86
0.99
0.58
For the years ended December 31,
2013
Highest
Balance at
Any Month-end
2012
Highest
Balance at
Any Month-end
(In thousands)
Securities sold under repurchase agreements...........................
Federal Home Loan Bank advances ........................................
Term repurchase agreement.....................................................
$66,640
25,780
10,000
$116,974
26,004
10,000
Note 8: Shareholders’ Equity
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 last amended and restated in 2012. Nonqualified stock option
grants (“NQSO”) are granted with an exercise price equal to the fair market value of the related common stock on the grant date.
NQSO generally become exercisable in equal annual installments over a three-year period with each installment vesting on the
anniversary date of the grant. Each NQSO 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.
76
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
3
1
0
2
The following table summarizes information about stock options granted under the Plan as of December 31, 2013. The intrinsic
value is calculated as the difference between the market value as of December 31, 2013 and the exercise price of the shares. The
market value as of December 31, 2013 was $56.46 as reported by the NASDAQ Global Select Market:
Number
Outstanding
at 12/31/2013
(in
thousands)
Options Outstanding
Aggregate
Intrinsic
Value
(in
thousands)
Weighted
Average
Remaining
Contractual
Life (yrs)
355
616
880
227
2,078
$4,557
5,375
4,232
—
$14,164
8.6
4.0
3.8
6.0
4.9
Range of
Exercise
Price
$40 – 45
45 – 50
50 – 55
55 – 60
$40 – 60
Weighted
Average
Exercise
Price
$44
48
52
57
50
Number
Exercisable
at 12/31/2013
(in
thousands)
Options Exercisable
Aggregate
Intrinsic
Value
(in
thousands)
Weighted
Average
Remaining
Contractual
Life (yrs)
44
443
801
227
1,515
$591
3,564
3,786
—
$7,941
5.1
2.4
3.5
6.0
3.6
Weighted
Average
Exercise
Price
$43
48
52
57
51
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, 2013, 2012 and 2011, the Company granted 322 thousand, 296 thousand and 275 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 .....................................................................................................
2013
17%
4.8
0.74%
3.57%
$4.61
2012
2011
21%
4.8
0.72%
3.20%
$5.61
18%
4.7
1.83%
3.14%
$5.55
*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 at December 31, 2013 is
1,312 thousand.
A summary of option activity during the twelve months ended December 31, 2013 is presented below:
Outstanding at January 1, 2013 ..........................................................
Granted...............................................................................................
Exercised ............................................................................................
Forfeited or expired............................................................................
Outstanding at December 31, 2013 ....................................................
Exercisable at December 31, 2013 .....................................................
Shares
(In
Thousands)
2,328
322
(478)
(94)
2,078
1,515
Weighted
Average
Exercise
Price
$49.53
43.71
44.98
49.80
49.66
51.25
Weighted
Average
Remaining
Contractual
Term (years)
4.9
3.6
A summary of the Company’s nonvested option activity during the twelve months ended December 31, 2013 is presented below:
Nonvested at January 1, 2013 ..............................................................
Granted ................................................................................................
Vested ..................................................................................................
Forfeited...............................................................................................
Nonvested at December 31, 2013 ........................................................
77
Shares
(In
Thousands)
521
322
(254)
(26)
563
Weighted
Average
Grant
Date
Fair Value
$5.05
2
0
1
3
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 weighted average estimated grant date fair value for options granted under the Company’s stock option plan during the
twelve months ended December 31, 2013, 2012 and 2011 was $4.61, $5.61 and $5.55 per share, respectively. The total remaining
unrecognized compensation cost related to nonvested awards as of December 31, 2013 is $1,365 thousand and the weighted
average period over which the cost is expected to be recognized is 1.7 years.
The total intrinsic value of options exercised during the twelve months ended December 31, 2013, 2012 and 2011 was $2,058
thousand, $767 thousand and $2,309 thousand, respectively. The total fair value of RPSs that vested during the twelve months
ended December 31, 2013, 2012 and 2011 was $678 thousand, $734 thousand and $1,197 thousand, respectively. The total fair
value of options vested during the twelve months ended December 31, 2013, 2012 and 2011 was $1,514 thousand, $1,321
thousand and $1,381 thousand, respectively. The decrease in tax benefits recognized for the tax deductions from the exercise of
options totaled $298 thousand, $119 thousand and $248 thousand, respectively, for the twelve months ended December 31, 2013,
2012 and 2011.
A summary of the status of the Company’s restricted performance shares as of December 31, 2013 and 2012 and changes during
the twelve months ended on those dates, follows (in thousands):
2013
Outstanding at January 1, ............................................................................. 54
Granted......................................................................................................... 20
Issued upon vesting ...................................................................................... (15)
Forfeited ....................................................................................................... —
Outstanding at December 31, ....................................................................... 59
2012
50
20
(15)
(1)
54
As of December 31, 2013 and 2012, the restricted performance shares had a weighted-average contractual life of 1.3 years and 1.3
years, respectively. The compensation cost that was charged against income for the Company’s restricted performance shares
granted was $1,338 thousand, $710 thousand and $540 thousand for the twelve months ended December 31, 2013, 2012 and
2011, respectively. There were no stock appreciation rights or incentive stock options granted in the twelve months ended
December 31, 2013 and 2012.
On February 13, 2009, the Company issued a warrant to purchase 246,640 shares of the Company’s common stock at an exercise
price of $50.92 per share. The warrants remain outstanding at December 31, 2013.
The Company repurchases and retires its common stock in accordance with Board of Directors approved share repurchase
programs. At December 31, 2013, approximately 1,468 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, 2013, no shares of Class B Common Stock or Preferred Stock were outstanding.
Note 9: Risk-Based Capital
The Company and the Bank are subject to various regulatory capital adequacy requirements administered by federal and state
agencies. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) required that regulatory agencies
adopt regulations defining five capital tiers for banks: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Failure to meet minimum capital requirements can initiate discretionary actions
by regulators that, if undertaken, could have a direct, material effect on the Company’s financial statements. Quantitative
measures, established by the regulators to ensure capital adequacy, require that the Company and the Bank maintain minimum
ratios of capital to risk-weighted assets. There are two categories of capital under the guidelines. Tier 1 capital includes common
shareholders’ equity and qualifying preferred stock less goodwill, 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
Company’s assets, derived from applying one of four risk weights (0%, 20%, 50% and 100%) to various categories of 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, 2013, the Company and the Bank met all capital adequacy requirements to which they are subject.
78
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
3
1
0
2
The Company and the Bank are 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. The following tables show capital ratios for the Company and the Bank as of December 31, 2013 and
2012:
For Capital
Adequacy Purposes
To Be Well
Capitalized Under
the FDICIA
Prompt Corrective
Action Provisions
At December 31, 2013
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
Total Capital (to risk-weighted assets)
Consolidated Company ............................ $446,331 16.18% $220,745
217,730
Westamerica Bank.................................... 406,418 14.93%
8.00%
8.00%
$275,931
272,162
10.00%
10.00%
Tier 1 Capital (to risk-weighted assets)
Consolidated Company ............................ 405,798 14.71%
Westamerica Bank.................................... 360,809 13.26%
110,372
108,865
Leverage Ratio *
Consolidated Company ............................ 405,798 8.55%
Westamerica Bank.................................... 360,809 7.67%
189,762
188,109
4.00%
4.00%
4.00%
4.00%
165,559
163,297
237,203
235,137
6.00%
6.00%
5.00%
5.00%
For Capital
Adequacy Purposes
To Be Well
Capitalized Under
the FDICIA
Prompt Corrective
Action Provisions
At December 31, 2012
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
Total Capital (to risk-weighted assets)
Consolidated Company ............................ $444,205 16.33% $217,627
214,452
Westamerica Bank.................................... 418,746 15.62%
8.00%
8.00%
$272,033
268,065
10.00%
10.00%
Tier 1 Capital (to risk-weighted assets)
Consolidated Company ............................ 409,763 15.06%
Westamerica Bank.................................... 378,921 14.14%
108,813
107,226
Leverage Ratio *
Consolidated Company ............................ 409,763 8.56%
Westamerica Bank.................................... 378,921 7.99%
191,396
189,788
4.00%
4.00%
4.00%
4.00%
163,220
160,839
239,245
237,236
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 expired (as to losses) February 6,
2014.
Note 10: 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 basis 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.
79
2
0
1
3
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 components of the net deferred tax asset are as follows:
Deferred tax asset
At December 31,
2012
2013
(In thousands)
Allowance for credit losses .................................................................................... $14,309 $13,700
4,162
State franchise taxes...............................................................................................
8,278
Deferred compensation ..........................................................................................
2,211
Real estate owned ..................................................................................................
4,732
Purchased assets and assumed liabilities................................................................
1,210
Post-retirement benefits .........................................................................................
5,648
Employee benefit accruals .....................................................................................
1,479
VISA Class B shares..............................................................................................
Limited partnership investments............................................................................
1,037
Impaired capital assets ........................................................................................... 20,793 20,819
47
Capital loss carryforward.......................................................................................
Leases ....................................................................................................................
—
Premises and equipment ........................................................................................
444
64
Other ......................................................................................................................
Subtotal deferred tax asset ................................................................................. 64,431 63,831
—
64,431 63,831
Valuation allowance ..................................................................................................
Total deferred tax asset ......................................................................................
3,249
7,991
2,095
5,294
1,059
5,321
1,554
1,299
123
690
654
—
—
Deferred tax liability
Net deferred loan fees ............................................................................................
429
Intangible assets .....................................................................................................
9,219
7,408
Securities available for sale ...................................................................................
3,233 10,741
752
Leases ....................................................................................................................
241
Other ......................................................................................................................
11,150 21,382
Total deferred tax liability .................................................................................
Net deferred tax asset................................................................................................. $53,281 $42,449
—
126
383
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. Net deferred
tax assets are included with interest receivable and other assets in the Consolidated Balance Sheets.
The provision for federal and state income taxes consists of amounts currently payable and amounts deferred are as follows:
Current income tax expense:
Federal .................................................................................................................................... $13,975
8,597
State ........................................................................................................................................
22,572
Total current ............................................................................................................................
$22,368
11,456
33,824
$18,393
13,322
31,715
For the Years Ended December 31,
2012
2011
2013
(In thousands)
(7,280)
(1,114)
(8,394)
1,839
(626)
1,213
$32,928
Deferred income tax (benefit) expense:
Federal ....................................................................................................................................
State ........................................................................................................................................
Total deferred ..........................................................................................................................
(2,518)
(1,109)
(3,627)
Provision for income taxes ......................................................................................................... $18,945
$25,430
80
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
3
1
0
2
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,
2013
2012
2011
Federal income taxes due at statutory rate ......................................................................... $30,142
Reductions in income taxes resulting from:
Interest on state and municipal securities and loans not taxable for federal income
(In thousands)
$37,295
$42,285
tax purposes .................................................................................................................
State franchise taxes, net of federal income tax benefit .................................................
Tax credits......................................................................................................................
Dividend received deduction..........................................................................................
Cash value life insurance ...............................................................................................
Other ..............................................................................................................................
(11,565)
4,712
(3,190)
(32)
(747)
(375)
Provision for income taxes................................................................................................. $18,945
(12,494)
6,722
(3,684)
(28)
(953)
(1,428)
$25,430
(12,423)
8,252
(3,560)
(25)
(728)
(873)
$32,928
At December 31, 2013, 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:
$496
Balance at January 1,.................................................................................................................... $747
238
Additions for tax positions taken in the current period ................................................................ 483
—
—
Reductions for tax positions taken in the current period ..............................................................
13
Additions for tax positions taken in prior years ........................................................................... 212
—
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...............................................................
Balance at December 31,.............................................................................................................. $1,437 $747
—
—
(5)
2013
(In thousands)
2012
The Company does not anticipate any significant increase or decrease in unrecognized tax benefits during 2014. Unrecognized tax
benefits at December 31, 2013 and 2012 include accrued interest and penalties of $85 thousand and $65 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, 2013, 2012, 2011 and 2010 remain subject to examination by the Internal Revenue Service. The tax years ended December
31, 2013, 2012, 2011, 2010 and 2009 remain subject to examination by the California Franchise Tax Board. Additionally, the
Company has agreed to extend the statute of limitations on its 2008 and 2007 California franchise tax returns in respect of
ongoing examinations 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.
Note 11: 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 other real estate owned,
impaired loans, certain loans held for investment, investment securities held to maturity, and other assets. These nonrecurring fair
value adjustments typically involve the lower-of-cost-or-fair value accounting 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 under current market
conditions. 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. When the valuation
81
assumptions used to measure the fair value of the asset or liability are categorized within different levels of the fair value
hierarchy, the asset or liability is categorized in its entirety within the lowest level of the hierarchy. 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, equity 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, corporate securities, asset-backed securities, municipal
bonds and residential collateralized mortgage obligations.
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.
The Company relies on independent vendor pricing services to measure fair value for investment securities available for sale and
investment securities held to maturity. The Company employs three pricing services. To validate the pricing of these vendors, the
Company routinely randomly selects securities for pricing by two or more of the vendors; significant pricing differences, if any,
are evaluated using all available independent quotes with the lowest quote generally used as the fair value estimate. In addition,
the Company conducts “other than temporary impairment (OTTI)” analysis on a quarterly basis; securities selected for OTTI
analysis include all securities at a market price below 95 percent of par value and with a market to book ratio below 95:100. As
with any valuation technique used to estimate fair value, changes in underlying assumptions used could significantly affect the
results of current and future values. Accordingly, these fair value estimates may not be realized in an actual sale of the securities.
When the Company changes its valuation assumptions for measuring financial assets and financial liabilities at fair value, either
due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in
the hierarchy based on the new assumptions used. The Company recognizes these transfers at the end of the reporting period that
the transfers occur. For the years ended December 31, 2013 and 2012, there were no transfers in or out of levels 1, 2 or 3.
2
0
1
3
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
Assets Recorded at Fair Value on a Recurring Basis
The table below presents assets measured at fair value on a recurring basis.
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2 )
(In thousands)
Significant
Unobservable
Inputs
(Level 3 )
Fair Value
$1,079,381
$825,636
$148,670
$57,424
$930,711
$768,212
$ -
$ -
Investment securities available for sale:
At December 31, 2013
At December 31, 2012
82
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
3
1
0
2
Assets Recorded at Fair Value on a Nonrecurring Basis
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 fair-value accounting of
individual assets. For assets measured at fair value on a nonrecurring basis that were recorded in the balance sheet at December
31, 2013 and December 31, 2012, 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.
Fair Value
Level 1
Non-covered other real estate owned
Covered other real estate owned
Originated impaired loans
Purchased covered impaired loans
Total assets measured at fair value on a nonrecurring basis
$5,527
7,793
2,605
7,067
$22,992
$ -
-
-
-
$ -
Level 2
(In thousands)
$5,527
7,793
900
7,067
$21,287
Level 3
Total Losses
$ -
-
1,705
-
$1,705
($787)
(27)
-
(233)
($1,047)
At December 31, 2013
Fair Value
Level 1
Non-covered other real estate owned
Covered other real estate owned
Originated impaired loans
Purchased covered impaired loans
Total assets measured at fair value on a nonrecurring basis
$6,618
7,929
5,197
6,684
$26,428
$ -
-
-
-
$ -
Level 2
(In thousands)
$6,618
7,929
3,097
2,224
$19,868
Level 3
Total Losses
$ -
-
2,100
4,460
$6,560
($1,360)
(371)
(3,158)
(83)
($4,972)
At December 31, 2012
Level 2 – Valuation is based upon independent market prices or appraised value of the collateral, less 10% for selling costs,
generally. Level 2 includes other real estate owned that has been measured at fair value upon transfer to foreclosed assets and
impaired loans collateralized by real property where a specific reserve has been established or a charge-off has been recorded.
Losses on other real estate owned represent losses recognized in earnings during the period subsequent to its initial classification
as foreclosed assets.
Level 3 – Valuation is based upon estimated liquidation values of loan collateral. The value of level 3 assets can also include a
component of real estate, which is valued as described for level 2 inputs, when collateral for the impaired loan includes both
business assets and real estate. Level 3 includes impaired loans where a specific reserve has been established or a charge-off 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 in the balance sheet.
Cash and Due from Banks Cash and due from banks represent U.S. dollar denominated coin and currency, deposits at the
Federal Reserve Bank and correspondent banks, and amounts being settled with other banks to complete the processing of
customers’ daily transactions. Collectively, the Federal Reserve Bank and financial institutions operate a market in which cash
and due from banks transactions are processed continuously in significant daily volumes honoring the face value of the U.S.
dollar.
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
$31,693 thousand at December 31, 2013 and $30,234 thousand at December 31, 2012 and the fair value discount due to credit
default risk associated with purchased covered and purchased non-covered loans of $10,933 thousand and $3,245 thousand,
respectively at December 31, 2013 and purchased covered and purchased non-covered loans of $26,128 thousand and $5,226
83
2
0
1
3
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
thousand, respectively at December 31, 2012 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 Indemnification Receivable The fair value of the FDIC indemnification 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 Deposits with no stated maturity such as checking accounts, savings accounts and money market accounts
can be readily converted to cash or used to settle transactions at face value through the broad financial system operated by the
Federal Reserve Bank and financial institutions. The fair value of deposits with no stated maturity is equal to the amount payable
on demand. The fair values of time deposits were estimated by discounting estimated future contractual cash flows 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.
Federal Home Loan Bank Advances The fair values of FHLB advances were estimated by using redemption amounts quoted
by the Federal Home Loan Bank of San Francisco.
Term Repurchase Agreement The fair value of the term repurchase agreement was estimated by using interpolated yields for
financial instruments with similar characteristics.
Debt Financing The fair value of debt financing was estimated by using interpolated yields for financial instruments with similar
characteristics.
The table below is a summary of fair value estimates for financial instruments and the level of the fair value hierarchy within
which the fair value measurements are categorized, 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
Investment securities held to maturity
Loans
Other assets - FDIC indemnification receivable
Financial Liabilities:
Deposits
Short-term borrowed funds
Federal Home Loan Bank advances
Term repurchase agreement
At December 31, 2013
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
(In thousands)
$472,028
1,597
-
-
Significant
Other
Observable
Inputs
(Level 2 )
Significant
Unobservable
Inputs
(Level 3 )
$ -
1,111,079
-
-
$ -
-
1,800,625
4,032
Carrying
Amount
$472,028
1,132,299
1,796,051
4,032
Estimated Fair
Value
$472,028
1,112,676
1,800,625
4,032
$4,163,781
62,668
20,577
10,000
$4,162,935
62,668
20,558
10,054
$ -
-
20,558
-
$3,671,014
62,668
-
10,054
$491,921
-
-
-
84
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
3
1
0
2
At December 31, 2012
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
(In thousands)
$491,382
3,275
-
-
Significant
Other
Observable
Inputs
(Level 2 )
Significant
Unobservable
Inputs
(Level 3 )
$ -
1,181,282
-
-
$ -
-
2,090,712
13,834
Carrying
Amount
$491,382
1,156,041
2,081,123
13,847
Estimated Fair
Value
$491,382
1,184,557
2,090,712
13,834
$4,232,492
53,687
25,799
10,000
15,000
$4,232,239
53,687
26,150
10,135
15,645
$ -
-
26,150
-
-
$3,589,921
53,687
-
10,135
15,645
$642,318
-
-
-
-
Financial Assets:
Cash and due from banks
Investment securities held to maturity
Loans
Other assets - FDIC indemnification receivable
Financial Liabilities:
Deposits
Short-term borrowed funds
Federal Home Loan Bank advances
Term repurchase agreement
Debt financing
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 12: Lease Commitments
Thirty-three banking offices and a centralized administrative service center are owned and 67 facilities are leased. Substantially
all the leases contain 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 as of December 31, 2013 are as follows:
2014 ...................................................................................................................
2015 ...................................................................................................................
2016 ...................................................................................................................
2017 ...................................................................................................................
2018 ...................................................................................................................
Thereafter................................................................................................................
Total minimum lease payments .................................................................................
(In thousands)
$8,357
6,301
2,979
1,900
1,169
594
$21,300
The total minimum lease payments have not been reduced by minimum sublease rentals of $5,101 thousand due in the future
under noncancelable subleases. Total rentals for premises were $8,953 thousand in 2013, $9,252 thousand in 2012 and $9,738
thousand in 2011. Total sublease rentals were $1,852 thousand in 2013, $1,883 thousand in 2012 and $1,979 thousand in 2011.
Total rentals for premises, net of sublease income, included in noninterest expense were $7,101 thousand in 2013, $7,369
thousand in 2012 and $7,759 thousand in 2011.
Note 13: 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 $320,934 thousand and $339,651 thousand at December 31, 2013 and December 31, 2012, 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. Financial and performance standby letters of credit outstanding
totaled $31,777 thousand and $32,347 thousand at December 31, 2013 and December 31, 2012, respectively. The Company also
had commitments for commercial and similar letters of credit of $344 thousand and $344 thousand at December 31, 2013 and
December 31, 2012, respectively.
85
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 liabilities are accrued when obligations become probable and the amount is reasonably estimable. Legal costs
related to covered assets are eighty percent indemnified under loss-sharing agreements with the FDIC if certain conditions are
met.
Note 14: Retirement Benefit Plans
The Company sponsors a qualified 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 discretionary Company
contributions to the Deferred Profit-Sharing Plan were $1,200 thousand in 2013, $1,200 thousand in 2012 and $1,200 thousand in
2011.
The Company also sponsors a qualified defined contribution Tax Deferred Savings/Retirement Plan (ESOP) covering salaried
employees who become eligible to participate upon completion of a 90-day introductory period. The Tax Deferred Savings/
Retirement Plan (ESOP) allows employees to defer, on a pretax or after-tax basis, a portion of their salaries as contributions to
this Plan. Participants may invest in several funds, including one fund that invests primarily in Westamerica Bancorporation
common stock. The Company funds contributions to match participating employees’ contributions, subject to certain limits. The
matching contributions charged to compensation expense were $1,214 thousand in 2013, $1,255 thousand in 2012 and $1,283
thousand in 2011.
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’ group
insurance premiums. The Company also reimburses a portion of Medicare Part B premiums for all qualifying retirees over age 65
and, if eligible, 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 who elect early retirement prior to January 1, 2018. 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.
The following tables set forth the net periodic post-retirement benefit cost and the change in the benefit obligation for the years
ended December 31 and the funded status of the post-retirement benefit plan as of December 31:
Net Periodic Benefit Cost
2
0
1
3
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
Service cost................................................................................................................................................ ($153)
Interest cost................................................................................................................................................
110
61
Amortization of unrecognized transition obligation ..................................................................................
18
Net periodic cost (benefit) .........................................................................................................................
2013
2011
At December 31,
2012
(In thousands)
($340)
143
61
(136)
($35)
175
61
201
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income
(36)
Amortization of unrecognized transition obligation, net of tax .................................................................
Total recognized in net periodic (benefit) cost and accumulated other comprehensive income................ ($18)
(36)
($172)
(36)
$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.
86
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
3
1
0
2
Obligation and Funded Status
For the years ended December 31,
2011
2013
Change in benefit obligation
Benefit obligation at beginning of year ........................................................................................ $2,755
(153)
Service cost...................................................................................................................................
Interest cost...................................................................................................................................
110
(168)
Benefits paid................................................................................................................................
$2,544
Benefit obligation at end of year .................................................................................................
Accumulated post-retirement benefit obligation attributable to:
Retirees ..................................................................................................................................... $1,443
Fully eligible participants .........................................................................................................
983
118
Other ........................................................................................................................................
$2,544
Total.....................................................................................................................................
$—
Fair value of plan assets...............................................................................................................
Accumulated post-retirement benefit obligation in excess of plan assets.................................... $2,544
2012
(In thousands)
$3,117
(340)
143
(165)
$2,755
$3,178
(35)
175
(201)
$3,117
$1,654
856
245
$2,755
$—
$2,755
$2,363
537
217
$3,117
$—
$3,117
Additional Information
Assumptions
At December 31,
2012
2011
2013
Weighted-average assumptions used to determine benefit obligations as of December 31
Discount rate ........................................................................................................................................ 4.80%
4.00%
4.60%
Weighted-average assumptions used to determine net periodic benefit cost as of December 31
Discount rate ........................................................................................................................................ 4.00%
4.60%
5.50%
The above discount rate is based on the Corporate Aa 25-year 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. Post-retirement medical
benefits are currently fixed amounts without provision for future increases; as a result, the assumed annual average rate of
inflation used to measure the expected cost of benefits covered by this program is zero percent for 2014 and beyond.
Assumed benefit inflation rates are not applicable for this program.
2014 ..............................................................................................................
2015 ..............................................................................................................
2016 ..............................................................................................................
2017 ..............................................................................................................
2018 ..............................................................................................................
Years 2019-2023...........................................................................................
$170
174
179
186
188
859
Estimated future benefit
payments
(In thousands)
Note 15: 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.
87
The table below reflects information concerning loans to certain directors and executive officers and/or family members during
2013 and 2012:
Beginning balance ............................................................................................
Originations ......................................................................................................
Principal reductions ..........................................................................................
At December 31,...............................................................................................
Percent of total loans outstanding.....................................................................
2013
2012
(In thousands)
$1,056
—
(43)
$1,013
$1,099
—
(43)
$1,056
0.06%
0.05%
Note 16: 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 obtained approval for dividends paid to the
Company during 2013. The Company consistently has paid quarterly dividends to its shareholders since its formation in 1972.
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 $304,834 thousand in 2013 and $345,772 thousand in 2012,
which amounts exceed the Bank’s required reserves.
Note 17: Other Comprehensive Income
The components of other comprehensive (loss) income and other related tax effects were:
2
0
1
3
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
Securities available for sale:
Net unrealized losses arising during the year........................................................................ ($17,855)
—
Reclassification of (losses) gains included in net income.....................................................
(17,855)
Net unrealized gains arising during the year.............................................................................
Post-retirement benefit obligation............................................................................................
61
Other comprehensive loss......................................................................................................... ($17,794)
Before tax
Securities available for sale:
Net unrealized gains arising during the year......................................................................... $5,557
—
Reclassification of gains (losses) included in net income.....................................................
5,557
Net unrealized gains arising during the year.............................................................................
61
Post-retirement benefit obligation............................................................................................
$5,618
Other comprehensive income ...................................................................................................
Before tax
Securities available for sale:
Before tax
Net unrealized gains arising during the year......................................................................... $19,282
—
Reclassification of gains (losses) included in net income.....................................................
19,282
Net unrealized gains arising during the year.............................................................................
61
$19,343
Post-retirement benefit obligation.........................................................................................
Other comprehensive income ...................................................................................................
2013
Tax effect
(In thousands)
$7,507
—
7,507
(25)
$7,482
Net of tax
($10,348)
—
(10,348)
36
($10,312)
2012
Tax effect
(In thousands)
($2,337)
—
(2,337)
(25)
($2,362)
2011
Tax effect
(In thousands)
($8,108)
—
(8,108)
(25)
($8,133)
Net of tax
$3,220
—
3,220
36
$3,256
Net of tax
$11,174
—
11,174
36
$11,210
88
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
3
1
0
2
Cumulative other comprehensive income (loss) balances were:
Post-
retirement
Benefit
Obligation
Net
Unrealized
gains(losses)
on securities
Cumulative
Other
Comprehensive
Income (Loss)
Balance, December 31, 2010 .............................................................................................
Net change......................................................................................................................
Balance, December 31, 2011 .............................................................................................
Net change......................................................................................................................
Balance, December 31, 2012 .............................................................................................
Net change......................................................................................................................
Balance, December 31, 2013 .............................................................................................
($250)
36
(214)
36
(178)
36
($142)
(In thousands)
$409
11,174
11,583
3,220
14,803
(10,348)
$4,455
$159
11,210
11,369
3,256
14,625
(10,312)
$4,313
Note 18: 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 by the average number of common shares outstanding during the period. Diluted earnings per
common share are computed by dividing net income by the average number of common shares outstanding during the period plus
the impact of common stock equivalents.
Net income (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........................................................................................
2013
2012
(In thousands, except per share data)
$81,127
$67,177
2011
$87,888
26,826
$2.50
27,654
$2.93
28,628
$3.07
26,826
27,654
28,628
51
26,877
$2.50
45
27,699
$2.93
114
28,742
$3.06
For the years ended December 31, 2013, 2012, and 2011, options to purchase 1,575 thousand, 2,049 thousand and 1,553 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 19: Westamerica Bancorporation (Parent Company Only)
Statements of Income and Comprehensive Income
For the years ended December 31,
For the Years Ended December 31,
2013
2012
(In thousands)
2011
Dividends from subsidiaries ..................................................................................................
Interest income ......................................................................................................................
Other income .........................................................................................................................
Total income......................................................................................................................
Interest on borrowings...........................................................................................................
Salaries and benefits..............................................................................................................
Other expense........................................................................................................................
Total expenses ...................................................................................................................
Income before taxes and equity in undistributed income of subsidiaries ..............................
Income tax benefit.................................................................................................................
Earnings of subsidiaries less than subsidiary dividends ........................................................
Net income ........................................................................................................................
Other comprehensive (loss) income, net of tax .....................................................................
Comprehensive income .....................................................................................................
$88,754
14
8,684
97,452
707
7,120
2,174
10,001
87,451
732
(21,006)
67,177
(10,312)
$56,865
$88,755 $106,756
11
7,780
114,547
859
6,620
2,356
9,835
104,712
699
(17,523)
87,888
11,210
$99,098
8
7,907
96,670
820
7,090
1,734
9,644
87,026
1,847
(7,746)
81,127
3,256
$84,383
89
2
0
1
3
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
Balance Sheets
At December 31,
2013
2012
Assets
Cash ....................................................................................................................................................................
Money market assets and investment securities available for sale ......................................................................
Investment in Westamerica Bank ........................................................................................................................
Investment in non-bank subsidiaries....................................................................................................................
Premises and equipment, net ...............................................................................................................................
Accounts receivable from Westamerica Bank .....................................................................................................
Other assets.........................................................................................................................................................
Total assets .....................................................................................................................................................
(In thousands)
$12,839
1,300
503,219
457
9,932
303
32,351
$13,219
1,461
534,467
458
9,983
613
30,897
$560,401 $591,098
Liabilities
Debt financing and notes payable........................................................................................................................
Accounts payable to Westamerica Bank..............................................................................................................
Other liabilities ...................................................................................................................................................
$15,000
660
15,336
30,996
560,102
Total liabilities and shareholders’ equity........................................................................................................ $560,401 $591,098
Shareholders’ equity ...........................................................................................................................................
Total liabilities................................................................................................................................................
$—
1,583
15,884
17,467
542,934
Statements of Cash Flows
For the years ended December 31,
2013
2012
(In thousands)
2011
Operating Activities
Net income ..........................................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ........................................................................................
Decrease (increase) in accounts receivable from affiliates..............................................
Increase in other assets....................................................................................................
Stock option compensation expense ...............................................................................
Tax benefit decrease upon exercise of stock options.......................................................
(Benefit) provision for deferred income tax ....................................................................
Increase in other liabilities ..............................................................................................
Earnings of subsidiaries less than subsidiary dividends ..................................................
(Gain on sales) Writedown of property and equipment...................................................
Net cash provided by operating activities................................................................................
Investing Activities
Purchases of premises and equipment .............................................................................
Net decrease in short term investments ...........................................................................
Net cash used in investing activities........................................................................................
Financing Activities
Net change in short-term debt .........................................................................................
Net reductions in notes payable and long-term borrowings ............................................
Exercise of stock options/issuance of shares...................................................................
Tax benefit decrease 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:
$67,177
$81,127
$87,888
312
26
(926)
1,397
298
(769)
2,573
21,006
(259)
90,835
—
—
—
297
105
(1,960)
1,450
119
(1,306)
1,182
7,746
1,504
90,264
(420)
—
(420)
126
(18)
(1,951)
1,425
248
963
217
17,523
599
107,020
(1,154)
341
(813)
—
(15,000)
21,499
(298)
(57,320)
(40,096)
(91,215)
(380)
13,219
$12,839
—
—
7,635
(119)
(51,499)
(41,005)
(84,988)
4,856
8,363
$13,219
(1,000)
(10,000)
14,374
(248)
(60,505)
(41,670)
(99,049)
7,158
1,205
$8,363
Interest paid for the period ..............................................................................................
Income tax payments for the period ................................................................................
$840
22,562
$1,105
34,111
$1,794
28,826
90
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
3
1
0
2
Note 20: Quarterly Financial Information
(Unaudited)
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,
2,800
$40,465
39,213
$36,706
35,682
1,600
14,030
27,987
20,125
16,056
0.60
0.60
0.38
42.59-45.80 41.76-46.56 45.73-50.78 48.29-57.59
$39,269
38,050
1,800
14,284
28,192
22,342
17,112
0.64
0.64
0.37
$37,956
36,780
1,800
14,419
27,758
21,641
16,738
0.63
0.63
0.37
14,278
28,677
22,014
17,271
0.64
0.64
0.37
2,800
$48,298
46,739
$42,893
41,562
2,800
14,194
28,233
24,723
19,136
0.70
0.70
0.37
43.90-49.53 43.01-48.62 44.08-49.39 40.50-47.72
$46,901
45,429
2,800
13,533
29,349
26,813
20,964
0.76
0.75
0.37
$45,272
43,890
2,800
14,626
29,269
26,447
20,022
0.73
0.73
0.37
14,669
30,034
28,574
21,005
0.75
0.75
0.37
2013
Interest and loan 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 ..........................................................
2012
Interest and loan 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 ..........................................................
2011
Interest and loan 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 .......................................................... 49.25-56.96
$52,494
50,191
2,800
14,743
31,323
30,811
22,382
0.77
0.77
0.36
$53,088
50,935
2,800
15,292
34,309
29,118
21,269
0.74
0.74
0.36
$50,421
48,566
2,800
14,857
30,663
29,960
21,805
0.77
0.77
0.37
46.91-52.53 36.32-50.52 36.34-46.73
$51,976
49,905
2,800
15,205
31,383
30,927
22,432
0.79
0.79
0.36
91
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, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in
shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2013. 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 the Company as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2013, 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),
Westamerica Bancorporation’s internal control over financial reporting as of December 31, 2013, based on criteria established in
Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 27, 2014 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
2
0
1
3
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
/s/ KPMG LLP
KPMG LLP
San Francisco, California
February 27, 2014
92
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
3
1
0
2
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, 2013.
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, 2013 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 50- 51, immediately preceding the financial statements.
ITEM 9B. OTHER INFORMATION
None.
93
2
0
1
3
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
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 2014 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.
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 2014 Annual Meeting of
Shareholders which will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.
94
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
3
1
0
2
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 2014 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, 2013 (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
Equity compensation plans approved by security holders .............
Equity compensation plans not approved by security holders .......
Total...............................................................................................
(a)
2,078
—
2,078
(b)
$50
N/A
$50
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(c)
1,312
—
1,312
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
2014 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 3 – Ratify Selection of Independent Auditor” in the Company’s Proxy Statement for its
2014 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 49. 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.
95
2
0
1
3
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
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
(Principal Financial and Accounting Officer)
Date: February 27, 2014
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, 2014
February 27, 2014
February 27, 2014
February 27, 2014
February 27, 2014
February 27, 2014
February 27, 2014
February 27, 2014
February 27, 2014
February 27, 2014
96
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
3
1
0
2
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(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.
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.
10(e)* Description of Executive Cash Bonus Program incorporated by reference to Exhibit 10(e) to Exhibit 2.1 of
Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 11, 2005.
10(f)* 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(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
incorporated by reference to Exhibit 10(r) to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2011, filed with the Securities and Exchange Commission on February 27, 2012.
10(m)
10(r)
10(l)
14
11.1
10(s)* 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 13, 2012.
Statement re computation of per share earnings incorporated by reference to Note 18 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
97
2
0
1
3
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
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, 2013, is formatted in XBRL interactive data files: (i)
Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2013;
(ii) Consolidated Balance Sheets at December 31, 2013, and December 31, 2012; (iii) Consolidated Statements of
Comprehensive Income for each of the years in the three-year period ended December 31, 2013, (iv) Consolidated
Statements of Changes in Shareholders’ Equity for each of the years in the three-year period ended December 31,
2013; (v) Consolidated Statements of Cash Flows for each of the years in the three-year period ended
December 31, 2013 and (vi) 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.
98
This page intentionally left blank.
Corporate Information
Corporate Profile
Westamerica Bancorporation (Nasdaq:WABC) operates as
a holding company for Westamerica Bank, a community bank
with 92 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 24, 2014 at 11:00 a.m. PT
Hilton Garden Inn
2200 Gateway Court, 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 2013 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, Retired 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